Consolidated financial statements of the PKO Bank Polski S.A. Group for the year ended 31 December 2021

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

SELECTED FINANCIAL DATA DERIVED FROM THE CONSOLIDATED FINANCIAL STATEMENTS

SELECTED FINANCIAL DATA	PLN million			EUR million
	2021	2020	Change % (A-B)/B	2021	2020	Change % (A-B)/B
	A	B	C	D	E	F
Net interest income/(expense)	9 882	10 346	(4,48)	2 159	2 312	(6,62)
Net fee and commission income	4 431	3 920	13,04	968	876	10,50
Net expected credit losses and Net impairment allowances on non-financial assets	(1 355)	(2 590)	(47,68)	(296)	(579)	(48,88)
Administrative expenses	(6 174)	(5 983)	3,19	(1 349)	(1 337)	0,90
Profit before tax	6 513	(1 696)	484,02	1 423	(379)	475,46
Net profit (including non-controlling shareholders)	4 873	(2 561)	290,28	1 065	(572)	286,19
Net profit attributable to the parent company	4 874	(2 557)	290,61	1 065	(571)	286,51
Earnings per share for the period - basic (in PLN/EUR)	3,90	(2,05)	290,24	0,85	(0,46)	284,78
Earnings per share for the period - diluted (in PLN/EUR)	3,90	(2,05)	290,24	0,85	(0,46)	284,78
Total net comprehensive income	(2 218)	(1 667)	33,05	(485)	(373)	30,03
Total net cash flows	11 074	(8 980)	223,32	2 419	(2 007)	220,53

SELECTED FINANCIAL DATA	PLN million			EUR million
	31.12.2021	31.12.2020	Change % (A-B)/B	31.12.2021	31.12.2020	Change % (D-E)/E
	A	B	C	D	E	F
Total assets	418 086	376 966	10,91	90 900	81 686	11,28
Total equity	37 693	39 911	(5,56)	8 195	8 648	(5,24)
Share capital	1 250	1 250	-	272	271	0,37
Number of shares (in million)	1 250	1 250	-	1 250	1 250	-
Book value per share (in PLN/EUR)	30,15	31,93	(5,57)	6,56	6,92	(5,20)
Diluted number of shares (in million)	1 250	1 250	-	1 250	1 250	-
Diluted book value per share (in PLN/EUR)	30,15	31,93	(5,57)	6,56	6,92	(5,20)
Total capital adequacy ratio	18,23	18,18	0,05	18,23	18,18	0,05
Tier 1	38 524	38 816	(0,75)	8 376	8 411	(0,42)
Tier 2	2 700	2 700	-	587	585	0,34

SELECTED FINANCIAL STATEMENT ITEMS HAVE BEEN TRANSLATED INTO EUR AT THE FOLLOWING RATES	2021	2020
arithmetic mean of NBP exchange rates at the end of a month (income statement, statement of comprehensive income and cash flow statement items)	4,5775	4,4742
	31.12.2021	31.12.2020
NBP mid exchange rates at the date indicated (statement of financial position items)	4,5994	4,6148

SPIS TREŚCI

CONSOLIDATED INCOME STATEMENT

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

CONSOLIDATED STATEMENT OF CASH FLOWS

General information about the Group

1. Activities of the Group

2. Changes to companies comprising the Group

3. Information on members of the Supervisory and Management

4. Approval of the consolidated financial statements

5. Mortgage loans in convertible currencies

6. Statement of compliance

7. Going concern

8. Management Representation

9. Impact of COVID-19 pandemic on the operations of the Group

10. The basis for preparation of the financial statements

11. Environmental issues and their impact on the financial statements

12. Interest rate benchmarks reform

13. New standards and interpretations and their amendments

14. Description of major accounting policies

14.1. Functional currency, presentation currency and foreign currencies

14.2. Basis of consolidation

14.3. Accounting for transactions

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

14.5. The principles for classification of financial instruments

14.6. Category of measurement of financial assets at amortized cost

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

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

14.9. Equity instruments

14.10. Change in the classification of financial assets

14.11. Modifications – Changes in contractual cash flows

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

14.13. Measurement of financial liabilities

15. Changes in the accounting policies applicable from 1 January 2021 and Explanation of the differences between previously published financial statements and these financial statements

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

16. Segment reporting

17. Interest income and expense

18. Fee and commission income and expenses

19. Dividend income

20. Gains/(losses) on financial transactions

21. Foreign exchange gains/ (losses)

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

23. Other operating income and expenses

24. Net allowances for expected credit losses

25. Net impairment allowances of non-financial assets

26. Cost of the legal risk of mortgage loans in convertible currencies

27. Administrative expenses

28. Tax on certain financial institutions

29. Income tax expense

30. Cash and balances with the Central Bank

31. Amounts due from banks

32. Hedge accounting

33. Other derivative instruments

34. Securities

34.1. Securities – classification of financial assets by stage

34.2. Securities - changes in the gross carrying amount during the period

34.3. Securities - changes in allowances for expected credit losses in the period

35. Repo and reverse repo tranactions

36. Loans and advances to customers

36.1. Loans and advances to customers – classification of financial assets by stage

36.2. Loans and advances to customers – changes in the gross carrying amount

36.3. loans and advances to customers – Changes in allowances for expected credit losses

37. Receivables and liabilities related to insurance activities

38. Intangible assets, plant and equipment, and property, plant and equipment leased out under operating lease

38.1. Property, plant and equipment sent in operating leases

38.2. Proprerty, plant and equipment

38.3. Intangible assets

39. Assets held for sale

40. Investments in associates and joint ventures

41. Other assets

42. Amounts due to the banks

43. Amounts due to customers

44. Financing received

44.1. Loans and advances received

44.2. Securities in issue

44.3. Subordinated liabilities

45. Other liabilities

46. Provisions

47. Equity and shareholding structure of the Bank

48. Coverage of loss for 2020, distribution of retained earnings and dividends

49. Leases

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

51. Legal claims

52. Notes to the consolidated cash flow statement

53. Transactions with the State Treasury and related parties

54. Benefits for the PKO Bank Polski S.A. key management

55. Fair value hierarchy

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

57. Offsetting financial assets and financial liabilities

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

59. Financial assets and liabilities by currency

60. Contractual cash flows from the group’s financial liabilities, including derivative financial instruments

61. Current and non-current assets and liabilities

OBJECTIVES AND PRINCIPLES OF RISK MANAGEMENT

62. Risk management within the Group

63. specific activities in the area of risk management undertaken by the group n 2021

64. Credit risk management

65. Credit risk - financial information

66. Managing credit concentration risk in the Group

67. Collateral

68. Forbearance practices

69. Counterparty credit risk exposure

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

71. Interest rate risk management

72. Currency risk management

73. Liquidity risk management

74. Operational risk management

75. ESG risk management

76. Capital adequacy

77. Leverage ration

78. Information on securitization of the lease portfolio and package sale of receivables

OTHER NOTES

79. Fiduciary activities

80. Information on the entity authorized to audit the financial statements

81. Subsequent events

CONSOLIDATED INCOME STATEMENT

INCOME STATEMENT	Note	2021	2020 converted
Net interest income/(expense)	17	9 882	10 346
Interest income		10 568	11 801
calculated under the effective interest rate method		9 785	10 415
Interest expenses		(686)	(1 455)
Net fee and commission income	18	4 431	3 920
Fee and commission income		5 596	4 942
Fee and commission expense		(1 165)	(1 022)
Other net income		777	202
Dividend income	19	12	15
Gains/(losses) on financial transactions	20	64	(102)
Foreign exchange gains/ (losses)	21	436	182
Gains/(losses) on derecognition of financial instruments of which:	22	206	181
measured at amortized cost		5	(22)
Net other operating income and expense	23	59	(74)
Result on business activities		15 090	14 468
Net expected credit losses	24	(1 309)	(2 174)
Net impairment allowances on non-financial assets	25	(46)	(416)
Cost of the legal risk of mortgage loans in convertible currencies	26	-	(6 552)
Administrative expenses of which:	27	(6 174)	(5 983)
net regulatory charges		(645)	(778)
Tax on certain financial institutions	28	(1 079)	(1 055)
Share in profits and losses of associates and joint ventures	40	31	16
Profit before tax		6 513	(1 696)
Income tax expense	29	(1 640)	(865)

Net profit (including non-controlling shareholders)		4 873	(2 561)
Profit (loss) attributable to non-controlling shareholders		(1)	(4)
Net profit attributable to equity holders of the parent company		4 874	(2 557)

Earnings per share
– basic earnings per share for the period (PLN)		3,90	(2,05)
– diluted earnings per share for the period (PLN)		3,90	(2,05)
Weighted average number of ordinary shares during the period (in million)		1 250	1 250

* In the years 2021 and 2020, there were no dilutive instruments. Therefore, the amount of diluted earnings per share is the same as the amount of basic earnings per share.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

STATEMENT OF COMPREHENSIVE INCOME	Note	2021	2020
Net profit / (loss) (including non-controlling shareholders)		4 873	(2 561)
Other comprehensive income		(7 091)	894
Items which may be reclassified to profit or loss		(7 098)	899
Cash flow hedges (net)		(4 054)	123
Cash flow hedges (gross)	32	(5 003)	174
Deferred income tax	29	949	(51)
Hedge of net investment in foreign operation	32	(4)	-
Fair value of financial assets measured at fair value through other comprehensive income (net)		(3 078)	836
Remeasurement of fair value, gross		(3 601)	1 233
Gains /losses transferred to the profit or loss (on disposal)	22	(201)	(203)
Deferred income tax	29	724	(194)
Foreign exchange differences on translation of foreign branches		51	(68)
Share in other comprehensive income of associates and joint ventures		(13)	8
Items which cannot be reclassified to profit or loss		7	(5)
Actuarial gains and losses (net)		7	(5)
Actuarial gains and losses (gross)		9	(6)
Deferred income tax	29	(2)	1
Total net comprehensive income, of which attributable to:		(2 218)	(1 667)
equity holders of the parent		(2 217)	(1 663)
non-controlling interest		(1)	(4)

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

	Note	31.12.2021	31.12.2020
ASSETS		418 086	376 966
Cash and balances with Central Bank	30	11 587	7 474
Amounts due from banks	31	9 010	2 557
Hedging derivatives	32	933	958
Other derivative instruments	33	10 903	5 501
Securities	34	135 440	123 682
Loans and advances to customers	36	234 300	222 603
Liabilities in respect of insurance activities	37	911	798
Property, plant and equipment under operating lease	38.1	1 371	1 168
Property, plant and equipment	38.2	3 108	3 161
Non-current assets held for sale	39	18	126
Intangible assets	38.3	3 463	3 281
Investments in associates and joint ventures	40	285	291
Current income tax receivable		36	19
Deferred income tax assets	29	4 116	2 543
Other assets	41	2 605	2 804

	Note	31.12.2021	31.12.2020
LIABILITIES AND EQUITY		418 086	376 966
LIABILITIES		380 393	337 055
Amounts due to Central Bank		8	-
Amounts due to banks	42	3 821	2 626
Hedging derivatives	32	4 806	378
Other derivative instruments	33	11 008	6 104
Transactions for the purpose of repurchase		-	-
Amounts due to customers	43	322 296	282 356
Liabilities in respect of insurance activities	37	2 008	1 740
Loans and advances received	44.1	2 461	2 267
Debt securities in issue	44.2	23 872	32 098
Subordinated liabilities	44.3	2 716	2 716
Other liabilities	45	5 366	4 703
Current income tax liabilities		18	193
Deferred income tax provision	29	356	372
Provisions	46	1 657	1 502
		'	'
EQUITY	47	37 693	39 911
Share capital		1 250	1 250
Total reserves and other comprehensive income		25 313	35 089
Retained earnings		6 270	6 142
Net profit or loss for the year		4 874	(2 557)
Capital and reserves attributable to equity holders of the parent company		37 707	39 924
Non-controlling interests		(14)	(13)

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE PERIOD ENDED 31 December 2021	Share capital	Total reserves and other comprehensive income					Retained earnings	Net profit or loss for the year	Capital and reserves attributable to equity holders of the parent company	Total non-controlling interests	Total equity
		Reserves			Accumulated other comprehensive income	Total reserves and other comprehensive income
		Supplementary capital	General banking risk fund	Other reserves	Accumulated other comprehensive income	Total reserves and other comprehensive income
As at the beginning of the period	1 250	29 519	1 070	3 137	1 363	35 089	6 142	(2 557)	39 924	(13)	39 911
Transfer from retained earnings	-	-	-	-	-	-	(2 557)	2 557	-	-	-
Comprehensive income	-	-	-	-	(7 091)	(7 091)	-	4 874	(2 217)	(1)	(2 218)
Special fund set up for the purpose of covering individual balance sheet losses (note 5)	-	(6 700)	-	6 700	-	-	-	-	-	-	-
Offset of accumulated losses	-	-	-	(2 944)	-	(2 944)	2 944	-	-	-	-
Other reserves	-	184	-	75	-	259	(259)	-	-	-	-
As at the end of the period	1 250	23 003	1 070	6 968	(5 728)	25 313	6 270	4 874	37 707	(14)	37 693

FOR THE PERIOD ENDED 31 December 2020	Share capital	Total reserves and other comprehensive income					Retained earnings	Net profit or loss for the year	Capital and reserves attributable to equity holders of the parent company	Total non-controlling interests	Total equity
		Reserves			Accumulated other comprehensive income	Total reserves and other comprehensive income
		Supplementary capital	General banking risk fund	Other reserves	Accumulated other comprehensive income	Total reserves and other comprehensive income
As at the beginning of the period	1 250	29 429	1 070	3 237	469	34 205	2 101	4 031	41 587	(9)	41 578
Transfer from retained earnings	-	-	-	-	-	-	4 031	(4 031)	-	-	-
Comprehensive income	-	-	-	-	894	894	-	(2 557)	(1 663)	(4)	(1 667)
Offset of accumulated losses 1	-	-	-	(111)	-	(111)	111	-	-	-	-
Transfer from retained earnings to equity	-	90	-	11	-	101	(101)	-	-	-	-
As at the end of the period	1 250	29 519	1 070	3 137	1 363	35 089	6 142	(2 557)	39 924	(13)	39 911

1 The item includes offset of prior years’ losses of PLN 111 million that arose as a result of the changes in accounting policies resulting from the first-time application of IFRS 16.

FOR THE PERIOD ENDED 31 December 2021	Accumulated other comprehensive income
FOR THE PERIOD ENDED 31 December 2021	Share in other comprehensive income of associates and joint ventures	Fair value of financial assets measured at fair value through other comprehensive income	Cash flow hedge	Hedge of net investment in foreign operation	Actuarial gains and losses	Foreign exchange differences on translation of foreign branches	Total
As at the beginning of the period	(4)	1 293	355	-	(21)	(260)	1 363
Comprehensive income	(13)	(3 078)	(4 054)	(4)	7	51	(7 091)
As at the end of the period	(17)	(1 785)	(3 699)	(4)	(14)	(209)	(5 728)

FOR THE PERIOD ENDED 31 December 2020	Accumulated other comprehensive income
FOR THE PERIOD ENDED 31 December 2020	Share in other comprehensive income of associates and joint ventures	Fair value of financial assets measured at fair value through other comprehensive income	Cash flow hedge	Hedge of net investment in foreign operation	Actuarial gains and losses	Foreign exchange differences on translation of foreign branches	Total
As at the beginning of the period	(12)	457	232	-	(16)	(192)	469
Comprehensive income	8	836	123	-	(5)	(68)	894
As at the end of the period	(4)	1 293	355	-	(21)	(260)	1 363

CONSOLIDATED STATEMENT OF CASH FLOWS

	Note	31.12.2021	31.12.2020
Cash flows from operating activities
Profit / (loss) before tax		6 513	(1 696)
Income tax paid		(1 744)	(1 552)
Total adjustments:		28 442	36 244
Amortization and depreciation, including depreciation of property, plant and equipment under operating leases	18, 27	1 211	1 172
(Gains)/losses on investing activities	52	(67)	(4)
Interest and dividends	52	(1 863)	(1 278)
Change in:
amounts due from banks	52	512	(258)
hedging derivatives		4 453	(524)
other derivative instruments		(499)	474
securities	52	(888)	(1 652)
loans and advances to customers	52	(11 565)	6 018
receivables in respect of repurchase agreements		-	1 081
receivables in respect of insurance activities		(113)	60
non-current assets held for sale	52	110	(116)
other assets	52	137	(236)
accumulated allowances for expected credit losses	52	(36)	2 040
accumulated allowances on non-financial assets and other provisions	52	139	831
amounts due to Central bank		8	-
amounts due to banks		1 195	491
amounts due to customers		39 941	26 186
liabilities in respect of insurance activities		268	(37)
loan and advances received	52	(34)	403
liabilities in respect of debt securities in issue	52	(226)	1 374
subordinated liabilities		-	(14)
other liabilities	52	896	244
Other adjustments	52	(5 137)	(11)
Net cash from/used in operating activities		33 211	32 996

	Note	31.12.2021	31.12.2020
Cash flows from investing activities
Inflows from investing activities		63 534	65 807
Proceeds from sale of and interest on securities measured at fair value through other comprehensive income		59 838	63 742
Proceeds from sale of and interest on securities measured at amortized cost		3 080	1 871
Proceeds from sale of intangible assets, property, plant and equipment and assets held for sale		466	162
Other inflows from investing activities including dividends	52	150	32
Outflows from investing activities		(77 249)	(105 609)
Purchase of shares in subsidiaries, net of cash acquired		(18)	-
Purchase of securities measured at fair value through other comprehensive income		(49 564)	(69 486)
Purchase of securities measured at amortized cost		(25 950)	(34 741)
Acquisition of intangible assets and property, plant and equipment, including under operating leases		(1 717)	(1 382)
Net cash from/used in investing activities		(13 715)	(39 802)

	Note	31.12.2021	31.12.2020
Cash flows from financing activities
Proceeds from debt securities in issue	52	10 403	6 838
Redemption of debt securities	52	(18 403)	(7 262)
Taking up loans and advances	52	1 331	-
Repayment of loans and advances	52	(1 103)	(915)
Payment of lease liabilities	52	(233)	(233)
Repayment of interest on long-term liabilities	52	(417)	(602)
Net cash from financing activities		(8 422)	(2 174)
Total net cash flows		11 074	(8 980)
of which foreign exchange differences on cash and cash equivalents		38	115
Cash equivalents at the beginning of the period		9 701	18 681
Cash equivalents at the end of the period	52	20 775	9 701

General information about the Group

Powszechna Kasa Oszczędności Bank Polski Spółka Akcyjna (“PKO Bank Polski S.A.” or “the Bank”) was established by virtue of a decree signed on 7 February 1919 by the Head of State Józef Piłsudski, Prime Minister Ignacy Paderewski and Hubert Linde, first president of Pocztowa Kasa Oszczędnościowa. In 1950, the Bank began operating as Powszechna Kasa Oszczędności Bank Państwowy (state-owned bank). Pursuant to the Decree of the Council of Ministers dated 18 January 2000, Powszechna Kasa Oszczędności (a state-owned bank) was transformed into a state owned joint-stock company, Powszechna Kasa Oszczędności Bank Polski Spółka Akcyjna.

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

Country of registration	Polska
Registered office	Warsaw
Address of the registered office of the entity	Puławska street 15, 02-515 Warsaw

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

The Powszechna Kasa Oszczędnościowa Bank Polski Spółka Akcyjna Group (“the PKO Bank Polski S.A. Group”, “the Bank’s Group”, “the Group”) conducts its operations within the territory of the Republic of Poland and through subsidiaries in Ukraine, Sweden and Ireland; it also has branches in the Federal Republic of Germany (“the German Branch”), the Czech Republic (“the Czech Branch”) and in the Slovak Republic (“the Slovak Branch”).

PKO Bank Polski S.A., as the parent company, is a universal deposit and credit bank which services both Polish and foreign individuals, legal and other entities. The Bank may hold and trade cash in foreign currencies, as well as conduct foreign exchange and foreign currency transactions, open and maintain bank accounts in banks abroad, and deposit foreign currency in those accounts.

Through its subsidiaries, the Group offers mortgage loans, provides specialized financial services related to leases, factoring, debt collection, investment funds, pension funds and insurance, as well as provides services related to car fleet management, transfer agent, technological solutions, IT outsourcing and business support, real estate management and also conducts banking operations and provides debt collection and financing services in Ukraine.

In 2021, the Bank did not change the name of the reporting entity or other identification data.

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

No.	ENTITY NAME	REGISTERED OFFICE	ACTIVITY	% SHARE IN CAPITAL
No.	DIRECT SUBSIDIARIES	REGISTERED OFFICE	ACTIVITY	31.12.2021	31.12.2020
1	PKO Bank Hipoteczny S.A.	Warsaw	banking activities	100	100
2	PKO Towarzystwo Funduszy Inwestycyjnych SA	Warsaw	investment fund management	100	100
3	PKO Leasing S.A.	Łódź	leases and loans	100	100
4	PKO BP BANKOWY PTE S.A.	Warsaw	pension fund management	100	100
5	PKO BP Finat sp. z o.o.	Warsaw	services, including transfer agent services and outsourcing of IT specialists	100	100
6	PKO Życie Towarzystwo Ubezpieczeń S.A.	Warsaw	life insurance	100	100
7	PKO Towarzystwo Ubezpieczeń S.A.	Warsaw	other personal insurance and property insurance	100	100
8	PKO Finance AB	Stockholm, Sweden	financial services	100	100
9	KREDOBANK S.A.	Lviv, Ukraine	banking activities	100	100
10	Merkury - fiz an1	Warsaw	investing funds collected from fund participants	100	100
11	NEPTUN - fizan1	Warsaw		100	100
12	PKO - fizan1	Warsaw		100	100

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

No.	ENTITY NAME	REGISTERED OFFICE	ACTIVITY	% SHARE IN CAPITAL*
No.	INDIRECT SUBSIDIARIES	REGISTERED OFFICE	ACTIVITY	31.12.2021	31.12.2020
	PKO Leasing S.A. GROUP
1	PKO Agencja Ubezpieczeniowa sp. z o.o.	Warsaw	intermediation in concluding insurance agreements	100	100
1.1	PKO Leasing Finanse sp. z o.o.	Warsaw	sale of post-lease assets	100	100
2	PKO Leasing Sverige AB	Stockholm, Sweden	lease activities	100	100
3	Prime Car Management S.A.	Gdańsk	lease activities and fleet management services	100	100
3.1	Futura Leasing S.A.	Gdańsk	lease activities and sale of post-lease assets	100	100
3.2	Masterlease sp. z o.o.	Gdańsk	lease activities	100	100
3.3	MasterRent24 sp. z o.o.	Gdańsk	short-term car rental	100	100
4	PKO Faktoring S.A.	Warsaw	factoring	100	100
5	ROOF Poland Leasing 2014 DAC1	Dublin, Ireland	SPV established for securitization of lease receivables	-	-
6	Polish Lease Prime 1 DAC1	Dublin, Ireland	SPV established for securitization of lease receivables	-	-
	PKO Życie Towarzystwo Ubezpieczeń S.A. GROUP
7	Ubezpieczeniowe Usługi Finansowe sp. z o.o.	Warsaw	service activities	100	100
	GRUPA KREDOBANK S.A.
8	„KREDOLEASING” sp. z o.o.	Lviv, Ukraine	in organization	100	-
	Merkury - fiz an
9	„Zarząd Majątkiem Górczewska” sp. z o.o.	Warsaw	Real estate management	100	100
10	Molina sp. z o.o.	Warsaw	general partner in partnerships limited by shares of a fund	100	100
11	Molina spółka z ograniczoną odpowiedzialnością 1 S.K.A.	Warsaw	buying and selling real estate on own account, real estate management	100	100
12	Molina spółka z ograniczoną odpowiedzialnością 2 S.K.A.	Warsaw		100	100
13	Molina spółka z ograniczoną odpowiedzialnością 4 S.K.A.	Warsaw		100	100
14	Molina spółka z ograniczoną odpowiedzialnością 5 S.K.A. in liquidation	Warsaw		100	100
15	Molina spółka z ograniczoną odpowiedzialnością 6 S.K.A. in liquidation	Warsaw		100	100
	NEPTUN - FIZ AN
16	Qualia sp. z o.o.	Warsaw	aftersale services in respect of developer products	100	100
17	Sarnia Dolina sp. z o.o.	Warsaw	property development	100	100
18	Bankowe Towarzystwo Kapitałowe S.A.	Warsaw	service activities	100	100
18.1	“Inter-Risk Ukraina" spółka z dodatkową odpowiedzialnością2	Kiev, Ukraine	debt collection	99.90	99.90
18.2	Finansowa Kompania “Prywatne Inwestycje” sp.z o.o.3	Kiev, Ukraine	financial services	95.4676	95.4676
18.2.1	Finansowa Kompania “Idea Kapitał” sp. z o.o.4	Lviv, Ukraine	service activities	100	100
19	“Sopot Zdrój" sp. z o.o.5	Sopot	real estate management	72.9769	72.9766

* share of direct parent in the entity’s equity

1 In accordance with IFRS 10, PKO Leasing S.A. controls the company even though it does not have a capital share in it.

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

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

4 Until 26 July 2021, it was a subsidiary of KREDOBANK S.A. As at 31 December 2020, the share of KREDOBANK S.A. in the share capital of the company was presented in the item “Share in capital”.

5 On 14 January 2021 the reverse merger between “CENTRUM HAFFNERA” Sp. z o.o. – as the acquiree – and its subsidiary “Sopot Zdrój” Sp. z o.o. – as the acquirer – was registered with the National Court Register (KRS) competent for the acquirer. The share of NEPTUN - fizan in the share capital of “CENTRUM HAFFNERA” sp. z o.o was presented in the item “Share in capital” as at 31 December 2020.

The Group has the following associates and joint ventures

No.	ENTITY NAME	REGISTERED OFFICE	ACTIVITY	% SHARE IN CAPITAL*
No.	ENTITY NAME	REGISTERED OFFICE	ACTIVITY	31.12.2021	31.12.2020
	Joint ventures of PKO Bank Polski S.A.
1	Operator Chmury Krajowej sp. z o.o.	Warsaw	cloud computing services	50	50
2	Centrum Elektronicznych Usług Płatniczych eService sp. z o.o.	Warsaw	financial services support activities, including handling transactions concluded using payment instruments	34	34
	1 EVO Payments International s.r.o.	Prague, the Chech Republic	financial services support activities	100	100
	Joint venture NEPTUN - fizan
	2 “Centrum Obsługi Biznesu" sp. z o.o.	Poznań	real estate management	41.45	41.45
	Wspólne przedsięwzięcie PKO VC – fizan
	3 BSafer sp. z o.o.	Stalowa Wola	managing marketing consents	35.06	35.06
	Jednostki stowarzyszone PKO Banku Polskiego S.A.
1	Bank Pocztowy S.A.	Bydgoszcz	banking activities	25.0001	25.0001
2	“Poznański Fundusz Poręczeń Kredytowych" sp. z o.o.	Poznań	guarantees	33.33	33.33

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

2. Changes to companies comprising the Group

The following changes in the Group structure took place in 2021:

• in January 2021 there was a reverse merger of “CENTRUM HAFFNERA” Sp. z o.o. as the acquired company and its subsidiary “Sopot Zdrój” Sp. z o.o. as the acquiring company;

• in March 2021 the liquidation process of ROOF Poland Leasing 2014 DAC was commenced;

• Finansowa Kompania “Prywatne Inwestycje” sp. z o.o. bought from KREDOBANK S.A. shares in the company Finansowa Kompania “Idea Kapitał” sp. z o.o. representing 100% of its share capital and carrying 100% of the votes at its General Shareholders’ Meeting; the above change on July 28, 2021 was registered in the Uniform State Register of Legal Persons, Individuals - Entrepreneurs and Social Organizations of Ukraine;

• On 27 August 2021, a new company, “KREDOLEASING” sp. z o.o., was registered in the Uniform State Register of Legal Persons, Individuals - Entrepreneurs and Social Organizations of Ukraine. The company’s sole shareholder is KREDOBANK S.A. and its share capital amounts to UAH 10 million. The company will provide leasing services; as at 31 December 2021 it was at the organizational stage.

3. Information on members of the Supervisory and Management

As at 31 December 2021, the Bank’s Supervisory Board consisted of:

• Maciej Łopiński - Chair of the Supervisory Board – appointed on 7 June 2021

• Wojciech Jasiński - Deputy Chair of the Supervisory Board

• Dominik Kaczmarski - Secretary of the Supervisory Board – appointed on 7 June 2021

• Mariusz Andrzejewski - Member of the Supervisory Board

• Grzegorz Chłopek - Member of the Supervisory Board

• Andrzej Kisielewicz - Member of the Supervisory Board

• Rafał Kos - Member of the Supervisory Board

• Tomasz Kuczur – Member of the Supervisory Board - appointed on 14 October 2021

• Krzysztof Michalski - Member of the Supervisory Board

• Bogdan Szafrański - Member of the Supervisory Board - appointed on 14 October 2021

• Agnieszka Winnik-Kalemba - Member of the Supervisory Board - appointed on 7 June 2021.

In 2021, there were the following changes in the composition of the Supervisory Board of the Bank:

• Mr Marcin Izdebski resigned on 06 June 2021;

• On 7 June 2021, the Annual General Shareholders’ Meeting of the Bank:

– dismissed Ms Grażyna Ciurzyńska from the position of Supervisory Board member,

– appointed Mr Dominik Kaczmarski, Mr Maciej Łopiński and Ms Agnieszka Winnik–Kalemba to the Supervisory Board;

• Mr Piotr Sadownik resigned on 11 October 2021;

• On 12 October 2021, the Extraordinary General Shareholders’ Meeting of the Bank:

– dismissed Mr Zbigniew Hajłasz from the position of Supervisory Board member,

– appointed Mr Tomasz Kuczur and Mr Bogdan Szafrański to the Supervisory Board.

As at 31 December 2021, the Bank’s Management Board consisted of:

• Iwona Duda - Vice-President of the Management Board managing the work of the Management Board - appointed on 14 October 2021 with effect from 23 October 2021

• Bartosz Drabikowski - Vice-President of the Management Board – appointed on 15 June 2021

• Marcin Eckert – Vice-President of the Management Board – appointed on 7 June 2021

• Wojciech Iwanicki – Vice-President of the Management Board – appointed on 14 October 2021

• Maks Kraczkowski – Vice-President of the Management Board

• Mieczysław Król – Vice-President of the Management Board

• Artur Kurcweil - Vice-President of the Management Board – appointed on 14 September 2021

• Piotr Mazur – Vice-President of the Management Board

On 26 January 2022, the Polish Financial Supervision Authority unanimously approved the appointment of Ms. Iwona Duda as President of the Management Board of PKO Bank Polski.

In 2021 there were the following changes in the composition of the Management Board of the Bank:

• On 11 May 2021, Mr Zbigniew Jagiełło filed his resignation from the position of President of the Management Board and membership in the Management Board with effect as of the closing of the Annual General Shareholders’ Meeting of the Bank, which was convened for 7 June 2021;

• On 8 June 2021, the Bank’s Supervisory Board:

– appointed Mr Jan Emeryk Rościszewski, Vice-President of the Management Board, to the position of President of the Management Board, on the condition of obtaining PFSA approval and as of the date of such approval; it also entrusted to Jan Emeryk Rościszewski the management of the work of the Management Board (until the date of granting the PFSA approval);

– appointed Mr Marcin Eckert to the Management Board;

• On 15 June 2021, the Bank’s Supervisory Board:

– dismissed Mr Rafał Kozłowski from the Management Board;

– appointed Mr Bartosz Drabikowski to the Management Board;

• On 26 July 2021, Mr Adam Marciniak resigned from his function of Vice-President of the Management Board and membership in the Management Board with effect from 13 August 2021;

• On 3 September 2021, the PFSA approved the appointment of Mr Jan Emeryk Rościszewski for the position of President of the Management Board;

• On 14 September 2021, the Bank’s Supervisory Board appointed Mr Artur Kurcweil to the Management Board;

• On 14 October 2021, Mr Jan Emeryk Rościszewski resigned from the position of President of the Management Board and membership in the Management Board with effect from 22 October 2021;

• On 14 October 2021, the Bank’s Supervisory Board:

– dismissed Mr Rafał Antczak and Mr Jakub Papierski from the Management Board;

– appointed Ms. Iwona Duda to the position of Vice-President of the Management Board; at the same time, Iwona Duda was appointed President of the Management Board on the condition of obtaining PFSA approval and as of the date of such approval; it also entrusted to Iwona Duda the management of the work of the Management Board (in the period from 23 October 2021 to the date of granting the PFSA approval);

– appointed Mr Wojciech Iwanicki to the Management Board.

The Bank’s Annual General Shareholders’ Meeting adopted the Policy on evaluation of suitability of candidates for members of the Management and Supervisory Boards of Powszechna Kasa Oszczędności Bank Polski S.A. and confirmed the suitability of the appointed body.

4. Approval of the consolidated financial statements

These financial statements of the Group (the financial statements), subject to review by the Audit Committee and adoption by the Supervisory Board of the Bank on 23 February 2022, were approved for publication by the Management Board on 23 February 2022.

5. Mortgage loans in convertible currencies

On 23 April 2021, the Extraordinary General Shareholders’ Meeting of PKO Bank Polski S.A. made a decision on concluding settlement agreements with consumers who had signed mortgage loans with the Bank, which are indexed to foreign currencies or denominated in foreign currencies (hereinafter: settlements with consumers). In accordance with the aforementioned resolution:

• a special fund of PLN 6 700 million was established for the purpose of covering the balance sheet losses that will arise as a result of recognizing the financial effects of the settlements with consumers;

• the amount of PLN 6 700 million from the Bank’s supplementary capital created from retained earnings available for distribution was transferred to the aforementioned special fund;

• the General Shareholders’ Meeting obliged the Bank’s Management Board to present for approval by the Bank’s Supervisory Board the terms and conditions on which the settlements will be concluded with consumers, including the terms and conditions for forgiving debt;

• the Bank’s Management Board began concluding the settlements with consumers (including those that stipulate debt forgiveness) after the Bank’s Supervisory Board issued a positive opinion on the terms and conditions on which they are to be concluded, including those relating to debt forgiveness (Supervisory Board resolution dated 27 May 2021).

In the period from June 2021 to September 2021, the Bank was working on the details of the solution, which included offering the customers the option to switch to a fixed interest rate. The Bank conducted a pilot programme concerning the settlements, which involved participating in mediation at the Polish Financial Supervision Authority (“PFSA”) court of arbitration and concluding settlements in common courts.

On 4 October 2021, the Bank launched a programme of settlements for Swiss franc borrowers.

The settlement process is conducted remotely (an application is filed in the transactional system, mediations are conducted online) and the borrower appears at the branch only once, to sign the settlement agreement. During the mediation proceedings before the PFSA Court of Arbitration the customer learns all financial parameters of the proposal, including the balance after conversion and the amount of overpayment, if any, to be reimbursed by the Bank. The process is cost-free and customer-friendly. The mediation costs are borne by the Bank.

The Bank offers this solution to retail customers who have (and still repay) housing loans granted in Swiss francs. This form of aid is available to the customers who obtained loans to finance their own housing needs. The mediations are conducted before the PFSA Court of Arbitration. Each application for mediation may only refer to a single loan agreement. Settlement agreements are not offered to the customers whose loans have already been repaid or disbursed in CHF in the total amount, or those who have used the Borrower Support Fund.

A foreign currency loan, after having been converted to PLN, is treated as a loan granted in PLN from the date of its commencement. The other parameters, such as the term of the loan, form of repayment, the fees, commissions and insurance premiums incurred remain unchanged. The amount of the loan after conversion to PLN is calculated using the variable interest rate as at the date of the agreement. The interest rate is the sum of the WIBOR 3M reference rate and the margin. The Bank presents detailed calculations to the customers a few days before the mediation hearing at the Court of Arbitration.

Settlements are also offered as part of court proceedings and proceedings initiated by a motion to set conciliatory hearing.

By the end of 2021, more than 19 000 motions for mediation were registered (by 22nd February 2022 - over 22.7 thousand). In total, 5 887 settlement agreements were concluded as at 31 December 2021, of which 5 754 were concluded during mediation proceedings and 133 were concluded in court (as of 22nd February 2022 – 9 343 settlement agreements concluded of which 9 191 cases where a settlement was signed in mediation proceedings and 152 in court proceedings).

More information on the portfolio of mortgage loans in convertible currencies and settlements with consumers is presented in the following notes: “Cost of the legal risk of mortgage loans in convertible currencies”, “Legal claims” and “Management of currency risk associated with mortgage loans for individuals”, “Currency risk management”..

6. Statement of compliance

These financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) endorsed by the European Union as at 31 December 2021, and to the extent not governed by the said standards, in accordance with the requirements of the Accounting Act of 29 September 1994 and implementing regulations issued on the basis of the said Act, and the requirements applicable to issuers of securities admitted or seeking admission to trading on an official stock exchange market.

7. Going concern

The financial statements have been prepared based on the assumption that the Bank’s Group will continue in operation as a going concern for a period of at least 12 months from the date of approval of the financial statements by the Management Board for publication, i.e. from 23 February 2022. As at the date of signing of these financial statements, the Management Board of the Bank did not identify any facts or circumstances which would indicate any threats to the Group’s ability to continue in operation as a going concern for at least 12 months after the publication as a result of intended or forced discontinuing or significantly curtailing the existing operations of the Bank’s Group.

8. Management Representation

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

9. Impact of COVID-19 pandemic on the operations of the Group

The impact of COVID-19 pandemic, which began in 2020, on the operations of the Group and the banking sector and the measures taken by the Group since the beginning of the pandemic to ensure safety of the Bank’s customers and employees and continuity of business processes are described in detail in the consolidated financial statements of the Group for 2020 and the PKO Bank Polski S.A. Group Directors’ Report for 2020.

• Impact on estimations and assumptions

The Covid-19 pandemic increased the level of uncertainty. Its consequences for the global economy and the measures taken by the governments and regulators affect or may affect the Bank’s financial results and financial position, including e.g. the expected credit losses or recognized goodwill. In 2021, the Group did not identify any new adverse effects of COVID-19 pandemic. All the adverse effects that could be reasonably assessed had been recognized in 2020.

The Group is monitoring the developments on an ongoing basis and takes them into account in its assumptions and estimates.

• Moratoria and public guarantees - loan portfolio modifications and quality

In order to mitigate the economic effects of the COVID-19 spread, the Group implemented a number of measures addressed to retail customers, firms, enterprises, corporate customers and local authority units, which are aimed at mitigating the economic effects of the spread of COVID-19:

• loan moratoria, including those that are consistent with the guidelines of the European Banking Authority;

• granting loans and advances covered by the public guarantee programmes associated with the COVID-19 crisis.

The moratoria offered to the Bank’s Customers and the public guarantee programmes offered in 2020 are described in detail in the Group’s financial statements for 2020 in the note “Specific activities in the area of risk management undertaken by the Group in 2020” and in the Directors’ Report on the operations of the PKO Bank Polski S.A. Group in 2020.

Guarantees received by the Group as part of public guarantee initiatives under an annex to the de minimis portfolio guarantee line agreement of 22 June 2018 (as amended) and the portfolio guarantee line agreement of the Liquidity Guarantee Fund of 10 April 2020 concluded with Bank Gospodarstwa Krajowego meet the definition of financial guarantees and are presented in note “Contingent liabilities and off-balance sheet commitments received and granted”.

The qualitative and quantitative impact of COVID-19 on the loan portfolio quality, including the estimated credit losses, is presented in the in note “Credit risk – financial information”.

• Goodwill and investments in associates and joint ventures – impairment test

Goodwill and investments in associates and joint ventures are subject to impairment tests annually and whenever there are indications of a potential impairment during the year.

The Group did not recognize any additional impairment allowances for goodwill and investments in associates and joint ventures in 2021. The adverse effect of the COVID-19 pandemic on the business environment was taken into account in the impairment tests performed in 2020 in respect of goodwill on the acquisition of Nordea Bank Polska S.A. and in connection with assuming control over PKO Leasing Pro S.A. and the acquisition of shares of Bank Pocztowy S.A. As a result of the tests performed, in 2020 the Group recognized write-downs in this respect under “Net impairment allowances on non-financial assets” (for more details, see the notes: “Net impairment allowances on non-financial assets”, “Intangible assets, property, plant and equipment and property, plant and equipment leased out under operating lease” and Investments in, associates and joint ventures” of these consolidated financial statements).

• Capital adequacy

The impact of COVID-19 on capital adequacy and the activities of the regulatory bodies – Regulation (EU) 2020/873 of the European Parliament and of the Council amending Regulations (EU) No 575/2013 and (EU) 2019/876 as regards certain adjustments in response to the COVID-19 pandemic (CRR Quick Fix) are described in the notes “Capital adequacy” and “Capital adequacy and other information subject to disclosure by the Powszechna Kasa Oszczędności Bank Polski Spółka Akcyjna Group as at 31 December 2021”.

Accounting policies adopted to prepare the consolidated financial statements

10. The basis for preparation of the financial statements

The financial statements cover the year ended 31 December 2021 and contain comparative data for the year ended 31 December 2020. The financial data is presented in millions of Polish zlotys (PLN), unless otherwise indicated.

In the financial statements, the concept of fair value was applied to financial assets and financial liabilities measured at fair value through profit or loss, including derivative instruments and financial assets measured at fair value through other comprehensive income. The remaining financial assets are recognized by the Group at amortized cost less allowances for expected credit losses. Other financial liabilities are recognized by the Group at amortized cost. Non-current assets are measured at acquisition cost less accumulated depreciation and impairment allowances. Fixed assets or groups of assets classified as held for sale are recognized by the Group at the lower of their carrying amount and fair value less costs to sell.

When preparing the financial statements, the Group makes certain estimates and adopts assumptions which directly affect both the financial statements and the supplementary information included therein. The estimates and assumptions that are used by the Group to determine the value of its assets and liabilities, as well as revenues and costs, are based on historical data and other factors which are available and are considered proper under the circumstances. Assumptions regarding the future and the data available are used for estimating the carrying amounts of assets and liabilities which cannot be clearly determined using other sources. In making estimates, the Group takes into consideration the reasons and sources of the uncertainties that are anticipated at the end of the reporting period. Actual results may differ from the estimates.

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

11. Environmental issues and their impact on the financial statements

Due to the nature of its business activities, the Bank’s and the Group’s direct impact on the natural environment is limited to the consumption of natural resources. The Bank’s indirect impact on the environment is related to the financing granted to business entities and public authorities and the Bank’s product offer. The Group mitigates its direct impact on the environment and adjusts its lending policies addressed to the various sectors of the economy in order to also motivate its customers to mitigate their environmental impact.

The issues associated with the Group’s environmental impact and its pro-environmental initiatives are described in the Directors’ Report of the PKO Bank Polski S.A. Group for 2021 in the section “Risk of adverse effect on the environment”.

In response to the growing interest of the investors and other users of the financial statements in climate-related issues and their potential impact on the financial position and results of companies, this note describes the impact of climate-related factors on the specific components of the financial statements of the Group, including in particular the impact of climate risk on the measurement of the expected credit losses and concentration of credit risk.

This disclosure takes into account the IASB guidelines provided in the document entitled “Effects of climate-related matters on financial statements” from November 2020.

The ESG risk was considered in the Group’s risk management strategy in 2021. The ESG risk management issues are described in the note “ESG risk management”.

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

The Group is exposed to climate risk, including:

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

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

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

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

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

• classification, fair value measurement and impairment of financial instruments

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

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

The impact of climate-related risk factors on the Group’s expected credit losses is potentially limited, as the Group expects the most significant effects of climate change to appear in the mid- and long-term perspective. Therefore, their present impact on ECL will be limited in view of the relatively short-term duration of many bank loan portfolios. At the same time, it is important to monitor the rate and scale of such changes and their possible effect on the measurement of the allowances for expected credit losses.

Since 30 June 2021, as part of the lending process for customers from the corporate segment and the segment of firms and enterprises evaluated with the use of the rating method, the Group each time assesses the impact of environmental, social and governance factors (ESG) on the customer’s creditworthiness. The Group also examines the impact of credit transactions on ESG and classifies them to four categories, from transactions with a positive impact on ESG to those with a material negative impact. When assessing the ESG factors, the Group takes into account such factors as the risk of climate change and its impact on the customer’s operations, potential influence of the customer on climate, factors related to human capital or health and safety, and governance factors (including the corporate culture and internal audit).

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

• securities classified to level 3;

• loans granted classified to level 3 - they generally constitute financing for households and their fair value is estimated under the discounted cash flow method using the effective credit margin;

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

• Property, plant and equipment, property, plant and equipment leased out under operating lease and intangible assets

Climate-related issues do not affect depreciation and amortization recognized by the Group as at 31 December 2021 and 2020.

Moreover, climate-related factors did not cause any indications of impairment of non-financial assets and did not affect the recoverable value of the Group’s non-financial assets as at 31 December 2021 and 2020.

It should be noted, though, that the potential impact of climate change risk, understood as a sudden, rapid transformation of the economy towards lower emissions (a rapid generation change of a significant class of assets in financing) may ultimately be important for the Group’s lease entities.

• Inventories

Climate-related issues do not affect the carrying amount of the inventories held by the Group as at 31 December 2021 and 2020.

• Taxation

Climate-related issues do not affect deferred income tax assets recognized by the Group as at 31 December 2021 and 2020.

• Provisions

In the years 2020-2021, there were no administrative proceedings relating to violations of environmental regulations or the Group’s impact on climate that would lead to any fines being imposed on the Group.

• Legal claims

As at 31 December 2021 or 31 December 2020, there were no legal claims concerning any matters relating to climate or environment protection. In the years 2020-2021, there were no administrative proceedings relating to violations of environmental regulations or the Group’s impact on climate that would lead to any fines being imposed on the Group.

• insurance activities

Intensification of extreme weather phenomena, including in particular the risk of flood, is a specific instance of physical risk to insurance activities. The effect of this risk on the financial results and solvency is mitigated mainly by risk selection and a properly structured reinsurance programme. Insurance companies calculate the capital requirement for catastrophic risk and analyse the stress test scenarios for flood risk.

At present, insurance companies do not have environmental taxonomy for investment assets due to the fact that they do not offer new investment products.

In the case of insurance activities (property insurance), climate risk is taken into account in the valuation of liabilities, i.e. it is taken into account in the amount of the premium. Premium reserve is recognized in the amount of premium attributable to future periods. In particular, flood risk provisions as at 31 December 2021 can be estimated at PLN 3 million. Upon the occurrence of an event constituting materialization of climate risk, insurance companies also recognize provisions for losses.

In the case of life insurance activities, the said risk is not sufficiently material to allow quantification of liabilities - they are valued based on an assessment of the cumulative probability of occurrence of insured events.

12. Interest rate benchmarks reform

• Legal environment

Interbank offering rates (IBORs), such as WIBOR, EURIBOR or LIBOR, are commonly used as benchmarks for determining interest rates charged on a wide scope of contracts and financial instruments.

A new standard has been developed in the European Union for designing, providing and applying interest rate benchmarks. The legal basis for the said standard is the Regulation (EU) 2016/1011 of the European Parliament and of the Council of 8 June 2016 on indices used as benchmarks in financial instruments and financial contracts or to measure the performance of investment funds and amending Directives 2008/48/EC and 2014/17/EU and Regulation (EU) No 596/2014 (hereinafter: “BMR”). The BMR:

• sets the rules for development and application of transparent, reliable and fair benchmarks;

• provides extensive controls over the set-up of benchmarks;

• expects the benchmarks to be determined, generally, on the basis of the actual transactions executed on a given market.

In October 2020, ISDA, an international organization setting standards for trading in derivative instruments, published the ISDA Protocol describing the procedure for replacing IBORs used in the current and new derivative transactions with new risk-free benchmarks. The Bank joined the Protocol in November 2020.

On 10 February 2021, the European Union published an amendment to the BMR, granting the European Commission and the Member States competences to designate replacements for benchmarks in cessation, if such cessation could threaten the stability of the EU market or a Member State market. By law, such a replacement will replace all references to a benchmark which ceased to be published in all contracts and financial instruments which do not contain fallback provisions or whose fallback provisions do not address the permanent cessation of a benchmark.

On 5 March 2021, the Financial Conduct Authority (FCA) announced that after 31 December 2021 it will no longer publish selected LIBORs due to the fact that they cannot be adapted to the BMR requirements. For the purposes of their continued use in contracts and financial instruments concluded by the end of 2021, the 1M, 3M and 6M LIBOR USD rates will be published until 30 June 2023, and the 1M, 3M and 6M LIBOR GBP and JPY rates, in a synthetic form, will be published until the end of 2022.

• Adjustment of the individual benchmarks

In the case of EURIBOR, the process of adjustment to the BMR requirements was completed in June 2019 by extending the scope of transactions used to determine the ratio and implementing the waterfall model, which allows designating a transitional benchmark in the event of absence of transactions.

The WIBOR reform and its adjustment to the BMR requirements were completed in 2020 and they involved the same change in the benchmark calculation methodology as in the case of EURIBOR. On 16 December 2020, the PFSA granted GPW Benchmark S.A. permission to perform the function of the administrator of the key benchmarks WIBID and WIBOR.

With respect to the LIBOR benchmarks, the aforementioned FCA decision on cessation of their publication and the simultaneous application of the aforementioned transitional solutions for USD, GBP and JPY to the existing portfolio remains in force. In the case of LIBOR CHF, the European Commission used its powers referred to above and issued the Implementing Regulation of 22 October 2021, designating 1M, 3M, 6M and 12M SARON compound rates, adjusted by a relevant spread, as replacements for the corresponding CHF LIBOR rates. The regulation will be applied as of 1 January 2022.

• Adaptation of the Group and the Bank

Evolution of the legal environment and benchmark market migration in accordance with BMR may affect the Bank’s operations through the agreements signed with the customers and business partners, changes in the valuation of financial instruments and the need to adjust IT processes and systems.

Since the third quarter of 2020, the Bank has conducted an interdisciplinary project aimed at the adaptation of the Bank and the Bank’s Group to the requirements of the BMR, as well as the PFSA interpretations and guidelines, in particular in the area of:

• development of a contingency plan and its implementation in the Bank’s contracts and rules and regulations;

• adjustment of the offer of products and services;

• adjustment of the Bank’s transactional, accounting, analytical, risk and reporting systems;

• adjustment of the use of hedge accounting;

• annexing the contracts and implementing the standards adopted by the markets;

• cooperation with the banking sector aimed at developing a uniform interpretation of the regulations and standards of their implementation.

As a result of the project work, as of 1 January 2022 the Bank and the Bank’s Group will continue servicing the loan portfolios and new loan agreements using WIBOR and EURIBOR without any changes. With respect to the loan agreements using LIBOR which were concluded before 1 January 2022, a replacement designated by the European Commission for CHF and the “bridge” rates available until 30 June 2023 for USD and until 31 December 2022 for GBP will be used. The few agreements which used LIBOR EUR were annexed to EURIBOR. For new variable interest loans granted to corporate customers in foreign currencies, new benchmarks (referred to as risk-free rates) will be used, such as SARON for CHF, SOFR for USD, SONIA for GBP. Depending on the nature of the product, interest will be calculated daily or using compound interest rates - either “in advance” (based on historical rates) or “in arrears” (at the end of an interest period). As far as the financial market transactions are concerned, the Bank (as mentioned above) has joined the ISDA Protocol and will execute and settle transactions in accordance with that standard, i.e. using compound risk-free rates.

The following table presents the Group’s exposure to significant types of interest rates affected by the interest rate benchmark reform, which had not been replaced as at 31 December 2021.

Financial assets	Foreign currencies translated into PLN
31.12.2021	LIBOR CHF	LIBOR USD	Other	Total
Loans and advances to customers (measured at amortized cost)	12 665	530	149	13 344
Total assets	12 665	530	149	13 344

Financial liabilities and off-balance sheet liabilities	Foreign currencies translated into PLN
31.12.2021	LIBOR CHF	LIBOR USD	Other	Total
Amounts due to customers (measured at amortised cost)	1	25	7	33
Provision for financial liabilities and guarantees granted	3	4	-	7
Total liabilities	4	29	7	40
Financial and guarantee liabilities granted	129	3 156	65	3 350

NOMINAL AMOUNT of derivative instruments	Foreign currencies translated into PLN
31.12.2021	LIBOR CHF	LIBOR USD	Other	Total
Hedging derivatives	8 458	833	-	9 291
-Purchase (floating leg)	3 640	833	-	4 473
- Sale (floating leg)	4 818	-	-	4 818
Other derivative instruments	10 562	1 726	-	12 288
-Purchase (floating leg)	5 270	973	-	6 243
- Sale (floating leg)	5 292	753	-	6 045

13. New standards and interpretations and their amendments

Standards and interpretations and their amendments effective from 1 January 2021

Standards and interpretations*

Description of changes and impact

Amendments to IFRS 9, IFRS 7, IAS 39 and IFRS 16, IFRS 4 - IBOR reform - Phase 2 (1.01/15.01.2021) 2020)

Regulations issued under Phase 2 of the IBOR reform relate to the following:

• changes to contractual cash flows – adding to IFRS 9 a practical expedient, which will enable accounting for modifications of contractual cash flows arising from the IBOR reform by updating the effective interest rate of the contract to reflect the transition to an alternative benchmark rate (there will be no obligation to derecognize or adjust carrying amounts of financial instruments); a similar practical expedient was introduced with respect to accounting for lease modifications by lessees under IFRS;

• hedge accounting - there will be no need to discontinue applying hedge accounting solely due to the changes required by the reform, provided that the hedge meets other hedge accounting criteria,

• disclosures - companies will be obliged to disclose information on new risks arising from the reform and on how they manage the transition to alternative benchmark rates.

For details, see the note “Interest rate benchmarks reform”.

amendments to IFRS 4 “Insurance contracts”

(1.01.2021/15.12.2020)

The amendments move the date of termination of the temporary relief from the application of IFRS 9 from 1 January 2021 to 1 January 2023 in order to align it with the effective date of IFRS 17. The amendments provide for optional solutions in order to mitigate the impact of different effective dates of IFRS 9 and IFRS 17.

The changes do not apply to the Capital Group.

* the effective date in EU / date of endorsement by EU is provided in parentheses

NEW STANDARDS AND INTERPRETATIONS AND AMENDMENTS THERETO THAT HAVE BEEN PUBLISHED AND ENDORSED BY THE EUROPEAN UNION, BUT HAVE NOT COME INTO FORCE YET AND ARE NOT APPLIED BY THE BANK

Standards and interpretations*	Description of changes and impact
amendments to IFRS 3 “Business combinations” (1.01.2022/28.06.2021)	Amendments to IFRS 3 have updated references to the Conceptual Framework issued in 2018. The amendments introduce new exemptions from the principles for recognition and measurement under IFRS 3 to ensure that this update will not affect assets and liabilities which do not qualify for recognition on business combination The Group does not expect these amendments to have a material effect on the consolidated financial statements.
Amendments to IAS 16 “Property, plant and equipment” (1.01.2022/28.06.2021)	The amendment specifies that, among other things, proceeds from selling items produced while bringing an asset to the desired location and condition cannot be deducted from the cost associated with that asset. Instead, such proceeds should be recognized in profit or loss together with the costs of producing such items. The Group does not expect these amendments to have a material effect on the consolidated financial statements.
IFRS 17 “Insurance contracts” (1.01.2023/ 19.11.2021) and amendments to IFRS 17 (1.01.2023/ 19.11.2021)	IFRS 17 will replace IFRS 4, which enabled entities to recognize insurance contracts according to the accounting principles based on the national standards, which, as a result, meant applying many different solutions. IFRS 17 introduces the requirement of consistent recognition of all insurance contracts with respect to: the method of measurement of insurance liabilities, recognition of profit or loss over time, recognition of reinsurance, separate presentation of the investment component. The application of the standard should follow the full retrospective approach with certain exemptions. The Group includes two insurance companies, PKO Życie Towarzystwo Ubezpieczeń S.A. and PKO Towarzystwo Ubezpieczeń S.A., which offer insurance products, a significant majority of which will be covered by IFRS 17. Their key products are insurance products linked to the products offered by the Bank (e.g. insurance of mortgage loans, cash loans or credit cards) or by PKO Leasing S.A. (insurance of leased assets, motor insurance), but their offer also includes stand-alone products, which are sold through the Bank and the remote channels. The Group is currently carrying out the project of implementation of the new standard with the support of a Third Party Advisor. The project scope comprises in particular development of a full actuarial calculation methodology consistent with the requirements of IFRS 17, implementation of a dedicated tool for performing actuarial calculations, reorganization and optimization of data collection and reporting processes, as well as modification of accounting policies. As part of the project, adjustments to the opening balance as at 1 January 2022 to achieve compliance with IFRS will be estimated. Due to the differences in the approach to valuation of reserves and profit recognition in relation to the current standard, the implementation of IFRS 17 will affect equity and the expected future profits from the current insurance portfolio. In addition to the quantitative effect on financial results, the new standard will also result in a number of qualitative changes. First of all, the methodology of actuarial calculations will change significantly – IFRS 17 requires recurrent calculation of reserves and, additionally, it introduces a number of components which were not present in the previous standard. Furthermore, IFRS 17 significantly changes the present structure of the financial statements of insurance companies. In particular, it eliminates written premium and earned premium and replaces them with decomposition of premium into expected losses and costs, risk mark-up and expected profit. All these elements present a significant challenge from the technical, reporting and operational perspective (a need to modify processes and systems).
Amendment to IAS 37 “Provisions, contingent liabilities and contingent assets” (1.01.2022/28.06.2021)	The amendments clarify that, when assessing whether or not a contract is onerous, the cost of fulfilling a contract comprises all costs that relate directly to the contract. The Group does not expect these amendments to have a material effect on the financial statements.
annual improvements to IFRS 2018-2020 (1.01.2022/28.06.2021)	• The amendments to IFRS 1 concern a situation when a subsidiary applies IFRS for the first time at a later date than the parent. In such cases the subsidiary may choose to recognize accumulated foreign exchange gains/(losses) on all foreign operations in the amounts presented in the consolidated financial statements of the parent company as at the date of the parent company’s transition to IFRS. • The amendment to IAS 41 aligns fair value measurement requirements set out in IAS 41 with the assumptions of IFRS 13. Not applicable to the Group. • The amendment to IFRS 9 clarifies which fees should be included for the purposes of the ‘10 per cent’ test in the case of derecognition of financial liabilities. • Amendments to illustrative examples in IFRS 16 relating to identification of lease incentives. The Group does not expect these amendments to have a material effect on the consolidated financial statements.

* the effective date in EU / date of endorsement by EU is provided in parentheses

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

Standards and interpretations*	Description of changes and impact
amendments to IAS 1 - classification of liabilities (1.01.2023/ no data)	The changes relate to the classification of liabilities in the statement of financial position as short-term or long-term. They clarify that the classification of liabilities as short-term or long-term should take into account, as at the classification date, the existence of a debt extension, regardless of the entity's intention to use it for a period longer than 12 months, and should take into account the fulfillment of the conditions of such extension as at the date of assessment, if it is conditional. The Group is currently evaluating the impact on the consolidated financial statements.
amendments to IAS 1 and IAS 8 (1.01.2023/ no data)	Amendments to IAS 1 contain guidelines on the application of the concept of materiality to disclosures of the accounting policies. Amendments to IAS 8 explain how companies should distinguish changes in accounting policies from changes in accounting estimates. The Group does not expect these amendments to have a material effect on the consolidated financial statements.
Amendments to IAS 12 (1.01.2023/ no data)	Amendments to IAS 12 specify the principles of recording deferred tax on transactions in which the companies recognize both an asset and a liability, which in turn may result in possible positive and negative temporary differences at the same time. This applies, inter alia, to transactions such as leasing or liquidation liabilities. Entities are required to recognize deferred tax on this type of operation (it is not possible to apply the deferred tax exemption). The Group does not expect these amendments to have a material effect on the consolidated financial statements.

* the effective date in EU / date of endorsement by EU is provided in parentheses

14. Description of major accounting policies

Major accounting policies and estimates and judgments applied in the preparation of these financial statements are presented in this note and in some notes further in the financial statements. In all years presented, these accounting policies are applied consistently, with the exception of issues described in note “Changes in the accounting policies applicable from 1 January 2021 and explanation of the differences between previously published financial statements and these financial statements”.

14.1. Functional currency, presentation currency and foreign currencies

The functional currency of the parent and other entities included in these financial statements, except for the German Branch, the Czech Branch, the Slovak Branch and entities conducting their activities outside of the Republic of Poland, is the Polish zloty. The functional currency of the entities operating in Ukraine is the Ukrainian hryvnia, the functional currency of the German Branch, the Slovak Branch and the entities operating in Sweden and Ireland is the euro, and the functional currency of the Czech Branch is the Czech koruna.

• Transactions and balances in foreign currencies

Transactions expressed in foreign currencies are translated into the functional currency at the exchange rate applicable on the transaction date. At the end of each reporting period, the Group translates:

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

• non-monetary items carried at historical cost in foreign currencies – at the exchange rate as at the date of the transaction;

• non-monetary items carried at fair value in foreign currencies are translated using the exchange rates applicable as at the day at which the fair values were determined.

Foreign exchange gains and losses on settlement of these transactions and the measurement of monetary and non-monetary assets and liabilities expressed in foreign currencies are recognized in the income statement..

UAH/PLN	2021	2020
Foreign exchange rates as at the end of the period	0,1487	0,1326
Arithmetic mean of exchange rates as at the last day of each month in the period	0,1422	0,1439
The highest exchange rate during the period	0,1517	0,1597
The lowest exchange rate during the period	0,1332	0,1311

EUR/PLN	2021	2020
Foreign exchange rates as at the end of the period	4,5994	4,6148
Arithmetic mean of exchange rates as at the last day of each month in the period	4,5775	4,4741
The highest exchange rate during the period	4,6834	4,6188
The lowest exchange rate during the period	4,4805	4,3010

CZK/PLN	2021	2020
Foreign exchange rates as at the end of the period	0,1850	0,1753
Arithmetic mean of exchange rates as at the last day of each month in the period	0,1785	0,1687
The highest exchange rate during the period	0,1850	0,1753
The lowest exchange rate during the period	0,1727	0,1649

14.2. Basis of consolidation

• consolidation

All subsidiaries of the PKO Bank Polski S.A. Group are consolidated using the acquisition method.

The process of consolidation of financial statements of subsidiaries under the acquisition method involves adding up the individual items of the income statements and statements of financial position of the parent company and the subsidiaries in the full amounts, and making appropriate consolidation adjustments and eliminations. The carrying amount of the Bank’s investments in subsidiaries and the equity of these entities at the date of their acquisition are eliminated on consolidation.

The following items are eliminated in full on consolidation:

• intercompany receivables and payables and other settlements between consolidated entities of a similar nature;

• revenues and costs resulting from intercompany transactions between consolidated entities;

• profits or losses resulting from intercompany transactions between consolidated entities contained in the value of the consolidated entities’ assets, except for impairment losses;

• dividends accrued or paid by subsidiaries to the parent company and other consolidated entities;

• inter-company cash flows in the statement of cash flows.

The consolidated statement of cash flows is prepared on the basis of the consolidated statement of financial position, consolidated income statement and additional notes and explanations.

Financial statements of subsidiaries are prepared for the same reporting periods as the financial statements of the parent company. Consolidation adjustments are made in order to eliminate any differences in the accounting policies applied by the Bank and its subsidiaries.

• acquisition of subsidiaries

The acquisition of subsidiaries by the Group is accounted for under the acquisition method.

In respect of mergers of the Group companies, i.e. the so-called transactions under joint control, the predecessor accounting method is applied, i.e. the acquired subsidiary is recognized at the carrying amount of its assets and liabilities recognized in the Group’s consolidated financial statements in respect of the given subsidiary, including the goodwill arising from the acquisition of that subsidiary.

• Associates and joint ventures

The Group’s share in the results of associates and joint ventures from the acquisition date is recorded in the income statement and its share in changes in the balance of other comprehensive income from the acquisition date is recorded in other comprehensive income. The carrying amount of investments is adjusted by the total movements in the individual equity items from the acquisition date. When the Group’s share in the losses of these entities becomes equal or higher than the Group’s interest in such entities, including unsecured receivables (if any), the Group discontinues recognizing further losses, unless it has assumed the obligation or made payments on behalf of the particular entity.

At each balance sheet date, the Group makes an assessment of whether there is any evidence of impairment of investments in associates and joint ventures. If any such evidence exists, the Group estimates the recoverable amount, i.e. the value in use of the investment or the fair value of the investment less costs to sell, whichever of these values is higher. If the carrying amount of an asset exceeds its recoverable amount, the Group recognizes an impairment allowance in the income statement.

14.3. Accounting for transactions

Financial assets and financial liabilities, including forward contracts and standardized transactions, which result in an obligation or a right to buy or sell a fixed quantity of specific financial instruments at a fixed price at a future date, are recognized in the books of account as at the date of the contract, irrespective of the contractual settlement date.

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

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

• transfers contractual rights to cash flows from the financial asset, or

• retains contractual rights to cash flows from the financial asset, but assumes a contractual obligation to transfer these cash flows to a third party.

When transferring a financial asset, the Group makes an assessment of the extent to which it retains the risks and rewards of the ownership of the financial asset.

If substantially all risks and benefits associated with holding a given financial asset are transferred, the financial asset is eliminated from the statement of financial position;

If the Group retains substantially all risks and rewards of ownership of a financial asset, the Group continues to present the financial asset in the statement of financial position;

If the Group neither transfers nor retains substantially all risks and rewards of ownership of a financial asset, the Group determines whether or not it has retained control over the financial asset. If the Group has retained control, it continues to recognize the financial asset in the statement of financial position to the extent of its continuing involvement in the financial asset; if control has not been retained, the financial asset is derecognized from the statement of financial position.

The Group derecognizes a financial liability (or a part thereof) from its statement of financial position when the contractual liability has been settled, cancelled, or has expired.

The Group derecognizes financial assets from its statement of financial position, among other things, when they are forgiven, their limitation period has expired or when they are irrecoverable. When the said assets are derecognized, they are charged to the respective credit loss allowances or losses in respect of legal risk.

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

14.5. The principles for classification of financial instruments

The Group classifies financial assets into the following categories:

• measured at amortized cost;

• measured at fair value through other comprehensive income;

• measured at fair value through profit or loss.

The Group classifies financial liabilities into the following categories:

• measured at amortized cost;

• measured at fair value through profit or loss.

Classification of financial assets as at the date of their acquisition or origin depends on the business model adopted by the Group to manage a given group of assets and the characteristics of the contractual cash flows from a single asset or group of assets. The Group identifies the following business models:

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

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

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

• business model

The business model is determined/selected upon initial recognition of financial assets. It is determined/selected at the level of particular groups of assets, in the context of the area of operations in connection with which the financial assets originated or were acquired, and the selection is based, among other things, on:

• the method for assessing and reporting financial asset portfolio results;

• the method for managing the risk associated with such assets and the policies for remunerating portfolio managers.

In the “held to collect” business model, sale of assets is incidental and may only take place in the event of increased credit risk, changes in laws or regulations – to maintain the assumed regulatory capital level, on the terms and conditions described in the management strategies of such portfolios or on condition that the sale is close to maturity, in the event of a significant risk increase above the level assumed for the given portfolio, material internal restructuring or acquisition of another business, execution of a contingency or recovery plan or other unforeseeable factors which are beyond the Group’s control.

• Assessment of contractual cash flow characteristics

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

The characteristics resulting from contractual cash flows have no impact on the classification of financial assets if:

• they would only have an insignificant impact on the contractual cash flows from the asset (de minimis feature);

• they would impact the contractual cash flows from the instrument only if an extremely rare, atypical and unlikely event occurred (non-genuine feature).

To determine this, the potential impact of characteristics resulting from contractual cash flows in each reporting period and throughout the life cycle of the financial instrument is taken into account.

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

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

The Group analyses, among other things, the following features of financial assets which result in the SPPI test being failed:

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

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

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

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

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

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

If the qualitative assessment performed as part of the SPPI test is insufficient to determine whether the contractual cash flows are solely payments of principal and interest, a benchmark test (quantitative assessment) is performed to determine the difference between the (non-discounted) contractual cash flows and the (non-discounted) cash flows that would occur should the time value of money remain unchanged (the reference level of cash flows).

14.6. Category of measurement of financial assets at amortized cost

A financial asset (this relates to debt financial assets) is measured at amortized cost if the following conditions are jointly met:

• a financial asset is “held to collect”;

• the contractual terms relating to the financial asset cause cash flows to arise in certain periods, which are only the result of repayment of the principal and the interest on the outstanding principal (passed SPPI test).

Upon initial recognition, these assets are measured at fair value. The initial value of an asset measured at amortized cost is adjusted by all commissions and fees which have an impact on its effective return and constitute an integral part of the effective interest rate on the asset (commissions and fees arising as a result of the Group conducting activities which lead to the origin of the asset).

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

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

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

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

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

Financial assets measured at fair value through other comprehensive income are measured at fair value. The effects of changes in the fair value of such financial assets until derecognition or reclassification are recognized in other comprehensive income, with the exception of interest income, net allowances for expected credit losses and foreign exchange gains or losses, which are recognized in profit or loss. The gain or loss recognized in other comprehensive income constitutes the difference between the fair value of a financial asset as at the measurement date and the value of the asset at amortized cost.

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

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

If financial assets do not meet the aforementioned qualification criteria to be measured at amortized cost or at fair value through other comprehensive income, they are classified to financial assets measured at fair value through profit or loss.

In addition, upon initial recognition, a financial asset may be irrevocably designated as measured at fair value through profit or loss (the option of measurement at fair value through profit or loss), provided that this will eliminate or significantly reduce inconsistency in the measurement or recognition which would arise as a result of measuring assets or liabilities, or recognizing the related gains or losses according to different accounting principles (accounting mismatch). This option is available for debt instruments both under the “held to collect” and “held to collect and sell” model.

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

• held for trading – financial assets which:

• have been purchased mainly to sell or redeem in the short term;

• upon initial recognition constitute part of a portfolio of specific financial instruments which are managed jointly and for which there is evidence that they currently generate short-term profits or

• are derivative financial instruments (with the exception of derivatives which are financial guarantee agreements or designated and effective hedges);

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

• financial assets designated for measurement at fair value through profit or loss at initial recognition (the option of measurement at fair value through profit or loss).

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

14.9. Equity instruments

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

The Group chose not to measure investments in equity instruments at fair value through other comprehensive income.

14.10. Change in the classification of financial assets

Financial assets may be reclassified only in the event of a change in the business model relating to an asset or a group of assets resulting from the commencement or discontinuation of a material part of operations. Such changes are incidental. Changes in the classification are recognized prospectively, i.e. without changing the effects of fair value measurement, allowances or accrued interest, which have been recognized to date.

The following are not considered changes in the business model:

• changes in the intentions relating to specific financial assets (even in the event of significant changes in market conditions);

• temporary disappearance of a specific financial assets market;

• transfer of financial assets between areas of operations using different business models.

No financial liabilities are reclassified.

14.11. Modifications – Changes in contractual cash flows

Modification – understood as a change in the contractual cash flows in respect of a financial asset based on an annex to the contract, may be substantial or non-substantial. Changes in contractual flows resulting from meeting the contractual terms and conditions are not considered to be modifications.

If the contractual cash flows associated with a financial asset are renegotiated or otherwise modified based on an annex to the agreement, and such renegotiation or modification does not lead to such a financial asset no longer being recognized (“a non-substantial modification”), the gross carrying amount of the financial asset is recalculated and gain or loss arising from such modification is recognized in the financial result.

Adjustments to the carrying amounts of financial assets due to modifications are accounted for in net interest income/cost using the effective interest rate. The gross carrying amount of a financial asset is calculated as the present value of renegotiated or modified contractual cash flows discounted at the original effective interest rate of the financial asset (or effective interest rate adjusted for credit risk in the event of purchased or originated credit-impaired financial assets) or, if applicable (e.g. for gains or losses on hedging), at the updated effective interest rate. All costs and fees paid adjust the carrying amount of the modified financial asset and are amortized over the period to maturity of the modified financial asset.

In some situations, renegotiation or modification of contractual cash flows relating to a financial asset may lead to derecognition of an existing financial asset. If an existing financial asset is derecognized due to its modification, and a modified asset is subsequently recognized, the modified asset is treated as a “new” financial asset (“a substantial modification”). The new asset is recognized at fair value and a new effective interest rate to be applied to the new asset is calculated. If the characteristics of a modified new financial asset (after the execution of an annex) reflect the arm’s length basis, the carrying amount of the financial asset is equal to its fair value.

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

The following qualitative criteria have been adopted:

• currency conversion;

• change of debtor, except in the case of the debtor’s death;

• introducing a contractual feature to the contract which leads to failing the cash flow characteristics test (SPPI test) or removal of such a feature;

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

• The quantitative criterion consists of a 10% test analysing the change in the contractual terms of a financial asset resulting in a difference between the amount of future cash flows arising from the changed financial asset discounted using the original effective interest rate and the amount of the future cash flows that would arise from the original financial asset discounted using the same interest rate. The other quantitative criterion is an increase in a debtor’s exposure, which includes an increase in the capital and off-balance sheet liabilities granted of more than 10% in relation to the amount of capital and off-balance sheet liabilities prior to the increase for each individual exposure.

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

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

IFRS 9 distinguishes a category of purchased or originated credit-impaired financial assets (POCI).

POCI assets comprise debt financial assets measured at amortized cost and measured at fair value through other comprehensive income, i.e. loans and debt securities.

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

14.13. Measurement of financial liabilities

Liabilities in respect of a short position in securities and some of the liabilities in respect of insurance products are measured at fair value through profit or loss.

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

15. Changes in the accounting policies applicable from 1 January 2021 and Explanation of the differences between previously published financial statements and these financial statements

In order to better reflect its operations, the Group made the following changes:

• reclassification of costs charged to the customer (1)

Up to the second quarter of 2021, the Group presented the costs of debt collection, enforcement and court proceedings and related proceedings in commission expenses or other operating expenses. Recharges of such costs to the Group’s customers were recognized as commission income. From the third quarter of 2021, the Group presents such income and costs in net impairment of non-financial assets.

INCOME STATEMENT – selected items	2020 before restatement	(1)	2020 restated
Net interest income	3 904	16	3 920
Interest income	4 953	(11)	4 942
Interest expenses	(1 049)	27	(1 022)
Other net income	197	5	202
Net other operating income and expenses	(79)	5	(74)
Result on business activities	14 447	21	14 468
Net impairment allowances on non-financial assets	(395)	(21)	(416)
Net profit attributable to equity holders of the parent company	(2 557)	-	(2 557)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

16. Segment reporting

The PKO Bank Polski S.A. Group conducts business activities within segments offering specific products and services addressed to specific groups of customers. The manner in which the business segments are divided ensures consistency with the sales management model and offers customers a comprehensive product mix comprising both traditional banking products and more complex investment products, as well as services provided by the Group entities.

The segment note presented below is included in the internal reporting system, i.e. information presented to the Management Board of PKO Bank Polski S.A., which is used to assess the achieved results and allocate resources.

The segment report presented below reflects the internal organizational structure of the PKO Bank Polski S.A. Group.

The Group operates in three main segments:

Retail segment	The retail segment offers a full range of services to individuals as part of retail, private and mortgage banking. It also comprises transactions concluded with legal persons, i.e. firms and enterprises. The products and services offered to customers in this segment include, among other things: current accounts, savings accounts, term deposits, private banking services, investment and insurance products, investment funds, credit and debit cards, electronic and mobile banking services. With regard to financing, this segment offers consumer loans, mortgage loans, including those offered by PKO Bank Hipoteczny S.A., as well as Corporate loans for firms and enterprises, developers, cooperatives and property managers, and leases and factoring offered by the PKO Leasing S.A. Group. In addition, the results of the retail segment comprise the results of the following companies: PKO TFI SA, PKO BP BANKOWY PTE SA, PKO Życie Towarzystwo Ubezpieczeń SA, PKO Towarzystwo Ubezpieczeń SA, PKO BP Finat sp. z o.o..
Corporate and investment segment	The corporate and investment segment comprises transactions concluded with large corporate customers and financial institutions. This segment offers the following products and services: maintaining current accounts and term deposits, cash management and trade finance services, safekeeping of securities, currency products and derivatives, corporate loans, leasing and factoring offered by the PKO Leasing S.A. Group. As part of this segment’s activities, PKO Bank Polski S.A. also concludes, on its own or in consortiums with other banks, agreements for financing large projects in the form of loans and issues of non-Treasury securities. The segment also comprises own activities, i.e. investing activities, brokerage activities, interbank transactions, as well as transactions in derivative instruments and debt securities. The results of the corporate and investment segments also comprise the results of the companies operating in Ukraine and companies conducting technological services, real estate development and real estate management activities as well as funds investing money collected from investment fund participants.
Transfer and other activities centre	The transfer & other activities centre comprises the result on internal settlements related to funds transfer pricing, the result on the Bank’s investment portfolio of debt securities, the result on long-term sources of financing and the result on positions classified for hedge accounting, as well as the results not allocated to any other segment. Internal funds transfer is based on arm’s length transfer pricing. Long-term external financing includes issuing securities, including mortgage covered bonds, subordinated liabilities and loans received from financial institutions. The results of PKO Finance AB are presented as part of this segment.

Description of the segmentation rules

The segmentation note was prepared on the basis of the internal reporting system, i.e. information provided to the Management Board of PKO Bank Polski S.A., which is used to assess the achieved results and allocate resources.

The principles of identifying revenues and costs as well as assets and liabilities applied in the segmentation report are consistent with the accounting principles described in these financial statements. The presented assets and liabilities of the segment are operating assets and liabilities used by the segment in its operating activities. The values of assets and liabilities as well as revenues and costs for individual segments are based on internal management information. The segment results, assets and liabilities also include items that can be assigned based on rational assumptions. On this basis, the segments recognize the impact of significant one-off events, such as negative goodwill arising from the acquisition of the company, goodwill impairment losses, impairment losses on associates, and the cost of legal risk of the portfolio of mortgage loans in convertible currencies.

Share of profits and losses of associates and joint ventures, profits and losses of non-controlling shareholders, income tax charge for the presentation of the result and deferred tax assets, current income tax receivables, current income tax liabilities and provisions due to deferred income tax in the presentation of the statement of financial position were recognized at the Group level (unallocated assets and liabilities).

The Capital Group settles transactions between segments as if they were related to unrelated entities, using internal settlement rates based on market rates for a given currency and maturity date, taking into account liquidity margins. Transactions between the segments are carried out on normal commercial terms.

Due to the changes in the accounting policies introduced as of 1 January 2021, which are described in detail in note 15, the comparative data for 2020 was changed accordingly with respect to reclassification of the costs charged to the customer from net fee and commission income and other operating expenses to net impairment allowances on non-financial assets.

financial information

The tables below present data on revenues, costs, profits / losses as well as assets and liabilities of the individual reporting segments of the Group for the periods ended 31 December 2021 and 31 December 2020.

Income statement by segments	Continuing operations
Income statement by segments	Retail segment	Corporate and investment segment	Transfer centre and other	Total activity of the Group
2021	Retail segment	Corporate and investment segment	Transfer centre and other	Total activity of the Group
Net interest income	6 994	1 679	1 209	9 882
Net fee and commission income	3 355	1 089	(13)	4 431
Other net income	1	350	426	777
Dividend income	-	12	-	12
Gains/(losses) on financial transactions	(77)	148	(7)	64
Foreign exchange gains/ (losses)	4	110	322	436
Gains/(losses) on derecognition of financial instruments	2	104	100	206
Net other operating income and expense	46	2	11	59
Income/(expenses) relating to internal customers	26	(26)	-	-
Result on business activities	10 350	3 118	1 622	15 090
Net expected credit losses	(994)	(315)	-	(1 309)
Net impairment allowances of non-financial assets	(26)	7	(27)	(46)
Administrative expenses, of which:	(5 095)	(1 050)	(29)	(6 174)
depreciation and amortization	(852)	(146)	-	(998)
net regulatory charges	(491)	(126)	(28)	(645)
Tax on certain financial institutions	(783)	(335)	39	(1 079)
Share in profits and losses of associates and joint ventures	-	-	-	31
Segment profit/(loss)	3 452	1 425	1 605	6 513
Income tax expense (tax burden)				(1 640)
Net profit (loss) (including non-controlling interest)				4 873
Profit (loss) attributable to non-controlling shareholders				(1)
Net profit attributable to equity holders of the parent company				4 874

Assets and liabilities by segments	Retail segment	Corporate and investment segment	Transfer centre and other	Total activity of the Group
31.12.2021	Retail segment	Corporate and investment segment	Transfer centre and other	Total activity of the Group
Assets	186 401	130 908	96 341	413 650
Investments in associates and joint ventures	-	285	-	285
Unallocated assets				4151
Total assets	186 401	131 193	96 341	418 086
Liabilities	267 713	79 132	33 175	380 020
Unallocated liabilities				373
Total liabilities	267 713	79 132	33 175	380 393

Income statement by segments	Continuing operations
Income statement by segments	Retail segment	Corporate and investment segment	Transfer centre and other	Total activity of the Group
2020	Retail segment	Corporate and investment segment	Transfer centre and other	Total activity of the Group
Net interest income	7 798	2 041	507	10 346
Net fee and commission income	3 060	874	(14)	3 920
Other net income	(197)	236	163	202
Dividend income	-	15	-	15
Gains/(losses) on financial transactions	(105)	(1)	4	(102)
Foreign exchange gains/ (losses)	11	109	62	182
Gains/(losses) on derecognition of financial instruments	(7)	105	83	181
Net other operating income and expense	(122)	34	14	(74)
Income/(expenses) relating to internal customers	26	(26)	-	-
Result on business activities	10 661	3 151	656	14 468
Net expected credit losses	(971)	(1 203)	-	(2 174)
Net impairment allowances of non-financial assets	(106)	(238)	(72)	(416)
Cost of the legal risk of mortgage loans in convertible currencies	(6 552)	-	-	(6 552)
Administrative expenses, of which:	(4 893)	(1 053)	(37)	(5 983)
depreciation and amortization	(830)	(149)	-	(979)
net regulatory charges	(567)	(175)	(36)	(778)
Tax on certain financial institutions	(742)	(337)	24	(1 055)
Share in profits and losses of associates and joint ventures	-	-	-	16
Segment profit/(loss)	(2 603)	320	571	(1 696)
Income tax expense (tax burden)				(865)
Net profit (loss) (including non-controlling interest)				(2 561)
Profit (loss) attributable to non-controlling shareholders				(4)
Net profit attributable to equity holders of the parent company				(2 557)

Assets and liabilities by segments	Retail segment	Corporate and investment segment	Transfer centre and other	Total activity of the Group
31.12.2020	Retail segment	Corporate and investment segment	Transfer centre and other	Total activity of the Group
Assets	180 552	118 624	74 937	374 113
Investments in associates and joint ventures	-	291	-	291
Unallocated assets				2 562
Total assets	180 552	118 915	74 937	376 966
Liabilities	245 578	54 982	35 930	336 490
Unallocated liabilities				565
Total liabilities	245 578	54 982	35 930	337 055

Information on geographical areas

The PKO Bank Polski S.A. Group also divides its operations into geographical segments.

The PKO Bank Polski S.A. Group conducts its operations in the Republic of Poland, as well as in Ukraine (through the KREDOBANK S.A. Group, “Inter-Risk Ukraina” company with additional liability, Finansowa Kompania “Prywatne Inwestycje" sp. z o.o. and Finansowa Kompania “Idea Kapitał” sp. z o.o.), in Sweden (through PKO Finance AB and PKO Leasing Sverige AB) and in Ireland (through ROOF Poland Leasing 2014 DAC and Polish Lease Prime 1 DAC1).

PKO Bank Polski S.A. also has foreign corporate branches in the Federal Republic of Germany, the Czech Republic and the Slovak Republic.

For presentation purposes, the results of the companies operating in Sweden and Ireland and of the Bank’s branches operating in Germany, the Czech Republic and Slovakia were recognized in the segment “Poland” due to their impact on the scale of the operations of the PKO Bank Polski S.A. Group.

The results of the companies recognized in the segment “Ukraine” include intercompany transactions with other companies of the PKO Bank Polski S.A. Group operating in Ukraine. Intercompany transactions with other companies of the PKO Bank Polski S.A. Group and consolidation adjustments are presented in the results of the segment “Poland”.

2021	Poland	Ukraine	Total
Net interest income	9 599	283	9 882
Net fee and commission income	4 352	79	4 431
Other net income	753	24	777
Dividend income	12	-	12
Gains/(losses) on financial transactions	64	-	64
Foreign exchange gains/ (losses)	424	12	436
Gains/(losses) on derecognition of financial instruments	202	4	206
Net other operating income and expense	51	8	59
Result on business activities	14 704	386	15 090
Net expected credit losses	(1 278)	(31)	(1 309)
Net impairment allowances of non-financial assets	(46)	-	(46)
Administrative expenses, of which:	(5 956)	(218)	(6 174)
depreciation and amortization	(952)	(46)	(998)
net regulatory charges	(633)	(12)	(645)
Tax on certain financial institutions	(1 079)	-	(1 079)
Share in profits and losses of associates and joint ventures	31	-	31
Profit/(loss) by geographical areas	6 376	137	6 513
Income tax expense (tax burden)			(1 640)
Net profit (loss) (including non-controlling interest)			4 873
Profit (loss) attributable to non-controlling shareholders			(1)
Net profit attributable to equity holders of the parent company			4 874

31.12.2021	Poland	Ukraine	Total
Assets	412 872	4 929	417 801
Investments in associates and joint ventures	285	-	285
Total assets	413 157	4 929	418 086
Liabilities	376 063	4 330	380 393
Total liabilities	376 063	4 330	380 393

2020	Poland	Ukraine	Total
Net interest income	10 089	257	10 346
Net fee and commission income	3 851	69	3 920
Other net income	182	20	202
Dividend income	15	-	15
Gains/(losses) on financial transactions	(102)	-	(102)
Foreign exchange gains/ (losses)	175	7	182
Gains/(losses) on derecognition of financial instruments	179	2	181
Net other operating income and expense	(85)	11	(74)
Result on business activities	14 122	346	14 468
Net expected credit losses	(2 110)	(64)	(2 174)
Net impairment allowances of non-financial assets	(416)	-	(416)
Cost of the legal risk of mortgage loans in convertible currencies	(6 552)	-	(6 552)
Administrative expenses, of which:	(5 781)	(202)	(5 983)
depreciation and amortization	(933)	(46)	(979)
net regulatory charges	(768)	(10)	(778)
Tax on certain financial institutions	(1 055)	-	(1 055)
Share in profits and losses of associates and joint ventures	16	-	16
Profit/(loss) by geographical areas	(1 776)	80	(1 696)
Income tax expense (tax burden)			(865)
Net profit (loss) (including non-controlling interest)			(2 561)
Profit (loss) attributable to non-controlling shareholders			(4)
Net profit attributable to equity holders of the parent company			(2 557)

31.12.2020	Poland	Ukraine	Total
Assets	373 336	3 339	376 675
Investments in associates and joint ventures	291	-	291
Total assets	373 627	3 339	376 966
Liabilities	334 117	2 938	337 055
Total liabilities	334 117	2 938	337 055

17. Interest income and expense

Accounting policies

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

Interest income and expenses are recognized on an accrual basis using the effective interest rate method, which discounts the estimated future cash flows throughout the expected useful life of a financial asset or financial liability to the gross carrying amount of the financial asset or amortized cost of the financial liability, with the exception of:

• purchased or originated credit-impaired financial assets (POCI assets). Interest income on such assets is calculated on the net carrying amount using the effective interest rate adjusted for credit risk recognized over cycle life of the asset;

• financial assets which were not originally POCI assets, but subsequently became credit-impaired financial assets. Interest income on such assets is calculated based on their net carrying amount using the original effective interest rate as at the date of recognition of the impairment indication.

The calculation of the effective interest rate covers all commissions, transaction costs paid and received by the parties to the contract, and all other premiums and discounts constituting an integral part of the effective interest rate.

Interest income also includes the effect of the fair value measurement of financial assets acquired as part of business combinations between subsidiaries and the impact of the European Union Court of Justice’s ruling on consumer rights to reduce the cost of loans repaid before contractual maturity (note “Legal claims”) by reducing interest income, as the estimated difference between the value of the commission deferred using the effective interest rate as at the anticipated date of early repayment of the loan and on a straight-line basis, according to which the Bank is returning commission. The estimates are based on historical early repayment periods and their probability.

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

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

Remuneration received and receivable by the Group for offering insurance products for the products directly associated with the financial instruments is settled using the effective interest rate method and recognized in interest income and, in the part corresponding to the performance of the agency service, if the insurer is a Group company, it is accounted for using the straight line method during the term of the insurance product and is recognized as commission income.

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

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

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

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

The Group makes periodical estimations of the remuneration amount that will be recoverable in the future due to the early termination of the insurance contract based on historical data on premiums collected and refunds made. The provision for future refunds is allocated to the financial instrument and insurance service in accordance with the relative fair value model.

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

financial information

INTEREST INCOME	2021	2020
Loans to and other receivables from banks 1	30	34
Hedging derivatives	384	773
Debt securities	1 842	1 794
measured at amortized cost	884	537
measured at fair value through other comprehensive income	947	1 234
measured at fair value through profit or loss	11	23
Loans and advances to customers (excluding finance lease receivables)	7 647	8 520
measured at amortized cost	7 259	7 930
measured at fair value through profit or loss	388	590
Finance lease receivables	646	660
Amounts due to customers (excluding loans and advances received)	19	20
Total	10 568	11 801
of which: interest income on impaired financial instruments	246	208

Interest income calculated under the effective interest rate method on financial instruments measured at:	9 785	10 415
amortized cost	8 838	9 181
at fair value through other comprehensive income	947	1 234
Income similar to interest income on instruments measured at fair value through profit or loss	783	1 386
Total	10 568	11 801

1 Loans and other amounts due from banks as at 31 December 2021 include interest income on cash on call accounts with a negative interest rate of PLN 10 million (as at 31 December 2020: PLN 3 million) and interest income on cash on the current account with the NBP of PLN 11 million (as at 31 December 2020: PLN 15 million).

In 2021, interest income was reduced by PLN 369 million (PLN 232 million in 2020) due to European Union Court of Justice’s ruling on the consumers’ right to reduce the cost of loans repaid before contractual maturity.

INTEREST INCOME BY SEGMENT	2021
INTEREST INCOME BY SEGMENT	Retail segment	Corporate and investment segment	Transfer centre and other	Total activity of the Group
loans to and other receivables from banks	-	19	11	30
hedging derivatives	-	-	384	384
debt securities	8	509	1 325	1 842
loans and advances to customers (excluding finance lease receivables)	6 316	1 331	-	7 647
finance lease receivables	474	172	-	646
amounts due to customers (excluding loans and advances received)	-	19	-	19

Total	6 798	2 050	1 720	10 568

INTEREST INCOME BY SEGMENT	2020
INTEREST INCOME BY SEGMENT	Retail segment	Corporate and investment segment	Transfer centre and other	Total activity of the Group
loans to and other receivables from banks	-	18	16	34
hedging derivatives	-	-	773	773
debt securities	14	735	1 045	1 794
loans and advances to customers (excluding finance lease receivables)	6 921	1 599	-	8 520
finance lease receivables	489	171	-	660
amounts due to customers (excluding loans and advances received)	-	20	-	20

Total	7 424	2 543	1 834	11 801

INTEREST EXPENSE ON	2021	2020
amounts due to banks	(23)	(15)
interbank deposits	(7)	(9)
loans and advances received	(43)	(31)
leases	(12)	(20)
amounts due to customers	(204)	(865)
debt securities in issue	(349)	(439)
subordinated liabilities	(48)	(76)

Total	(686)	(1 455)

1 As at 31 December 2021, the Group recognized interest expenses on cash on call accounts with a negative interest rate of PLN 11 million in amounts due to banks (as at 31 December 2020: PLN 5 million).

	31.12.2021	31.12.2020
Interest on funds in the obligatory reserve account	1,75%	0,1%

The Group may use during the day the funds on the required reserve accounts for current cash settlements on the basis of an instruction submitted to the National Bank of Poland, however, it must ensure that the average monthly balance on this account is maintained in the appropriate amount as specified in the mandatory reserve declaration.

Average interest rates on loans and advances to customers in the reporting period	12.2021	12.2020
Non-profit enterprises:	3,40%	2,23%
including without overdraft facilities	3,46%	2,34%
including revolving and overdraft	3,29%	1,99%
Household:	4,41%	3,61%
including for housing purposes	3,03%	2,21%
including for consumption purposes	7,60%	6,97%
including for other purposes	4,84%	3,76%
including revolving and overdraft	7,66%	6,09%

Average interest rates on amounts due to customers in the reporting period	12.2021	12.2020
Non-financial institutions:	0,14%	0,00%
of which term deposits:	0,85%	0,38%
of which deposits in the current account and one day deposits:	0,06%	0,00%
Households:	0,04%	0,07%
of which term deposits:	0,20%	0,22%
of which deposits in the current account and one day deposits:	0,01%	0,02%

18. Fee and commission income and expenses

Accounting policies

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

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

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

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

The following items are also included in commission income:

• net income on insurance activities - in the line “offering insurance products” which comprises premium income, costs of insurance activities, claims and change in technical reserves, and the impact of the reinsurer’s share in the aforementioned items;

• net income on operating leases, short-term rental and net income on the provision of fleet management services – in the line “operating leases and fleet management”. Such income comprises mainly fees for using leased assets, income on short-term rentals and net income or expense on fleet management services (including service, tyre replacement, provision of replacement vehicles). Expenses in respect of operating lease and fleet management comprise: mechanical repairs, tyre repairs, cost of fuel and cost of replacement vehicles. Income on operating leases was included together with the cost of depreciation of property, plant and equipment under operating leases;

• foreign exchange margin included in the exchange rates offered to the Bank’s customers when providing foreign currency purchase/sale services is presented in the line “margin on foreign exchange transactions”.

financial information

FEE AND COMMISSION INCOME	2021	2020
Loans, insurance, operating leases and fleet management	1 354	1 226
lending	796	715
offering insurance products	456	411
operating leases and fleet management	102	100
Investment funds, pension funds and brokerage activities	813	720
servicing investment funds and OFE (including management fees)	470	412
servicing and selling investment and insurance products	36	34
brokerage activities	307	274
Cards	1 522	1 325
Margins on foreign exchange transactions	582	476
Bank accounts and other	1 325	1 195
servicing bank accounts	991	900
cash operations	71	71
servicing foreign mass transactions	88	73
customer orders	57	53
fiduciary services	10	6
other	108	92

Total, of which:	5 596	4 942
income from of financial instruments not measured at fair value through profit or loss	4 776	4 203

FEE AND COMMISSION EXPENSE	2021	2020
Loans and insurance	(116)	(109)
commission paid to external entities for product sales	(22)	(33)
cost of construction investment supervision and property valuation	(42)	(36)
fees to Biuro Informacji Kredytowej	(18)	(16)
loan handling	(34)	(24)
Investment funds, pension funds and brokerage activities	(56)	(49)
Cards	(855)	(744)
Bank accounts and other	(138)	(120)
clearing services	(38)	(35)
commissions for operating services provided by banks	(16)	(7)
sending short text messages (SMS)	(54)	(41)
selling banking products	(2)	(7)
servicing foreign mass transactions	(15)	(13)
other	(13)	(17)

Total	(1 165)	(1 022)

NET INCOME ON OPERATING LEASES AND FLEET MANAGEMENT	2021	2020
Income on operating leases and fleet management	393	367
Cost net income on operating leases and fleet management	(78)	(74)
Depreciation of property, plant and equipment under operating leases	(213)	(193)
Net income on operating leases and fleet management	102	100

FEE AND COMMISSION INCOME BY SEGMENT	2021
FEE AND COMMISSION INCOME BY SEGMENT	Retail segment	Corporate and investment segment	Transfer centre and other	Total
Loans, insurance, operating leases and fleet management	1 023	331	-	1 354
lending	498	298	-	796
offering insurance products	444	12	-	456
operating leases and fleet management	81	21	-	102
Investment funds, pension funds and brokerage activities	555	258	-	813
servicing investment funds and OFE (including management fees)	433	37	-	470
servicing and selling investment and insurance products	36	-	-	36
brokerage activities	86	221	-	307
Cards	1 469	53	-	1 522
Margins on foreign exchange transactions	389	193	-	582
Bank accounts and other	975	350	-	1 325
servicing bank accounts	793	198	-	991
cash operations	31	40	-	71
servicing foreign mass transactions	48	40	-	88
customer orders	27	30	-	57
fiduciary services	-	10	-	10
other	76	32	-	108

Total	4 411	1 185	-	5 596

FEE AND COMMISSION INCOME BY SEGMENT	2020
FEE AND COMMISSION INCOME BY SEGMENT	Retail segment	Corporate and investment segment	Transfer centre and other	Total
Loans, insurance, operating leases and fleet management	942	284	-	1 226
lending	467	248	-	715
offering insurance products	396	15	-	411
operating leases and fleet management	79	21	-	100
Investment funds, pension funds and brokerage activities	508	212	-	720
servicing investment funds and OFE (including management fees)	381	31	-	412
servicing and selling investment and insurance products	34	-	-	34
brokerage activities	93	181	-	274
Cards	1 278	47	-	1 325
Margins on foreign exchange transactions	319	157	-	476
Bank accounts and other	943	252	-	1 195
servicing bank accounts	764	136	-	900
cash operations	43	28	-	71
servicing foreign mass transactions	40	33	-	73
customer orders	29	24	-	53
fiduciary services	-	6	-	6
other	67	25	-	92

Total	3 990	952	-	4 942

19. Dividend income

Accounting policies

Dividend income is recognized on the date when the shareholders’ rights to its receipt is determined, if the Group is entitled to dividend, if it is likely that it will obtain economic benefits related to dividend and the amount of the dividend may be reliably determined.

financial information

DIVIDEND INCOME	2021	2020
from financial assets held for trading	1	-
from financial instruments not held for trading, measured at fair value through profit or loss	11	15

Total	12	15

20. Gains/(losses) on financial transactions

Accounting policies

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

financial information

GAINS/(LOSSES) ON FINANCIAL TRANSACTIONS	2021	2020
Financial instruments held for trading, of which:	221	43
Derivative instruments	219	29
Financial instruments not held for trading, measured at fair value through profit or loss, of which:	(126)	(148)
Loans and advances to customers	(111)	(157)
Hedge accounting	(31)	3
Total	64	(102)

21. Foreign exchange gains/ (losses)

Accounting policies

Foreign exchange gains (losses) comprise foreign exchange gains and losses, both realized and unrealized, resulting from valuation of assets and liabilities denominated in foreign currencies and from the fair value measurement of foreign currency derivatives (FX forward, FX swap, CIRS and currency options). The item also includes an ineffective part of cash flow hedges for hedging strategies where CIRS contracts are hedging instruments.

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

	2021	2020
FX result	436	182

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

Accounting policies

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

GAINS/(LOSSES) ON DERECOGNITION OF FINANCIAL INSTRUMENTS	2021	2020
Measured at fair value through other comprehensive income	201	203
Measured at amortized cost	5	(22)

Total	206	181

23. Other operating income and expenses

Accounting policies

Other operating income and expenses include income and expenses not directly associated with banking activities. Other operating income mainly includes gains on the sale of investments in residential real estate, sale/scrapping of property, plant and equipment, intangible assets and assets held for sale, damages, fines and penalties received, and income from lease/rental of properties. Other operating expenses mainly include the costs of creating provisions for refunds to customers on early repayment of consumer and mortgage loans before the ECJ verdict (see the note “Provisions”), losses on sale /scrapping of property, plant and equipment, intangible assets, repossessed assets and donations made.

In the Group companies, other operating income and expenses also include, respectively, revenue from the sale of finished goods, goods for resale and materials, and the cost of their manufacture.

Other operating income and expenses also include provisions recognized and released for legal claims, excluding legal claims relating to mortgage loans in foreign currencies, and income and expenses relating to the measurement and sale of CO2 emission rights.

financial information

OTHER OPERATING INCOME	2021	2020
Net revenues from the sale of products and services	97	85
Gains on sale or scrapping of property, plant and equipment, intangible assets and assets held for sale	101	49
Damages, compensation and penalties received	46	33
Ancillary income	15	11
Recovered debts that are time-barred, remitted, uncollectible	4	4
Release of the provision for unpaid costs	4	4
Release of provision recognized for legal claims excluding legal claims relating to mortgage loans in convertible currencies	3	5
Other1	118	59

Total	388	250

1 As at 31 December 2021, the item “Other” comprised income on the sale of CO2 emission rights of PLN 54 million.

OTHER OPERATING EXPENSE	2021	2020
Costs of products and services sold	(3)	(13)
Losses on sale or scrapping of property, plant and equipment, intangible assets and assets held for sale	(33)	(45)
Damages, compensation and penalties paid	(1)	-
Donations made	(44)	(27)
Sundry expenses	(17)	(15)
Provision recognized for potential refunds of fees and commission to customers	(27)	(106)
Provision for future payments	(3)	(1)
Provision recognized for legal claims excluding legal claims relating to mortgage loans in convertible currencies1	(10)	(59)
Costs by way of funding the subsidiary partially	(5)	-
Other2	(186)	(58)

Total	(329)	(324)

1 In the comparative period of 2020, the Group recognized the cost of PLN 41 million of the penalty imposed by UOKiK due to the Bank using clauses governing the method of determining the foreign currency buy and sell rates in template agreements with customers (further discussed in note “Legal claims”).

2 As at 31 December 2021, the item “Other” comprised the costs of CO2 emission rights sold of PLN 114 million.

24. Net allowances for expected credit losses

Accounting policies

The allowances for expected credit losses are recognized in the financial statements as follows:

• Financial assets measured at amortized cost: the allowance decreases the gross carrying amount of the financial asset; changes in the allowance are recognized in the income statement;

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

• Financial instruments measured at fair value through other comprehensive income: the carrying amount of an asset carried at fair value is not additionally decreased by the amount of the allowances; measurement changes are however each time divided into the impairment component – recognized in the income statement – and the component related to other fair value measurement changes – recognized in other comprehensive income.

• Financial assets measured at fair value through profit and loss: no allowances for expected credit losses are recognized.

Estimates and judgments

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

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

• debt financial instruments comprising credit exposures and securities;

• lease receivables;

• other financial assets;

• off-balance-sheet financial and guarantee exposures.

Expected credit losses are not recognized for equity instruments.

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

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

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

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

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

• Material increase in credit risk

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

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

The result of such comparison, referred to as α statistical value, is applied to a threshold value above which an increase in credit risk is considered material. A threshold value is determined based on historical relations between α statistical value and the occurrence of default. In this process, the probability of the following events is reduced to a minimum:

• classifying an exposure which was not in default in the analysed period to the set of credit exposures with significantly increased credit risk (based on statistics) (type I error);

• not classifying an exposure which was in default in the analysed period to the set of credit exposures with significantly increased credit risk (based on statistics) (type II error).

According to data as at the end of 2021, an increase in the PD parameter of at least 2.6 compared to the value at the time of its recognition in the Group’s accounting records in respect of mortgage exposures and an increase of at least 2.5 in respect of other retail exposures constitutes a premise of a significant deterioration in credit quality.

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

The Group uses a model based on Markov chains to assess material increases in credit risk for institutional customers. Historical data is used to build matrices of probabilities of customers migrating between individual classes of risk that are determined on the basis of the Group’s rating and scoring models. These migrations are determined within homogeneous portfolios, classified using, among other things, customer and customer segment assessment methodologies.

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

In accordance with the data as at the end of 2021 and 2020, the minimum deterioration in the class of risk which constitutes a premise of a material improvement of the credit presented compared to the current class of risk were as follows:

Risk category	PD range	Minimum range of the risk category deterioration indicating a significant increase in credit risk1
A-B	0.0 – 0.90%	3 categories
C	0.90 – 1.78%	3 categories
D	1.78 – 3.55%	2 categories
E	3.55-7.07%	1 category
F	7.07-14.07%	1 category
G	14.07-99.99%	not applicable2

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

2 deterioration in the category of risk is a direct premise of impairment

To identify other indications of a significant credit risk increase, the Bank uses full quantitative and qualitative information available, including information on:

• restructuring actions introducing favourable conditions for debtors in financial hardship (forbearance);

• delays in repayment of a material amount of the principal or interest or fees (understood as an amount in excess of PLN 400 and 1% of the debtor’s total cumulative loan exposure to the Bank and the other entities of the Bank’s Group) exceeding of 30 days;

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

• a significant increase in LTV;

• quarantine of exposures for which the indication of impairment ceased to exist in the last 3 months in Stage 2;

• petitioning for consumer bankruptcy by any of the co-borrowers;

• putting a credit exposure under management by restructuring and debt collection units of the Bank.

• Impaired loans and definition of default

Impairment premises of credit exposures comprise in particular:

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

• conclusion of a restructuring agreement or applying a relief in debt repayment for economic or legal reasons resulting from the customer’s financial distress (until the debt is considered recoverable);

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

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

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

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

In accordance with the Regulation (EU) 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms (“CRR”), the Bank defines a state of default if it assesses that the debtor is unable to repay the loan liability without resorting to exercising the collateral or if the exposure is overdue more than 90 days. The premises of default are identical to the premises for impairment of the exposure.

• Calculation of the expected credit loss

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

• type of credit product;

• currency of the product;

• year of granting;

• assessment of risk of the customer’s default;

• the customer’s business segment;

• method of assessing the customer risk.

The Bank calculates expected credit losses on an individual and on a portfolio basis.

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

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

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

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

The calculation of expected credit losses encompasses estimates of future macroeconomic conditions. In terms of portfolio analysis, the impact of macroeconomic scenarios is taken into account in the amount of the individual risk parameters. The methodology for calculating the risk parameters includes the study of the dependencies of these parameters on the macroeconomic conditions based on historical data. Three macroeconomic scenarios based on the Bank’s own forecasts are used for calculating the expected loss – a baseline forecast with a probability of 75% and two alternative scenarios, with a probability of 20% and 5%, respectively. The scope of the forecast indicators includes the GDP growth index, the rate of unemployment, the WIBOR 3M rate, the LIBOR CHF 3M rate (SARON 3M from 1st January 2022), the CHF/PLN exchange rate, the property price index and the NBP reference rate. The final expected loss is the weighted average probability of scenarios from expected losses corresponding to individual scenarios. The Bank ensures compliance of the macroeconomic scenarios used for the calculation of the risk parameters with macroeconomic scenarios used for the credit risk budgeting processes. The base scenario is based on base macroeconomic forecasts. The forecasts are prepared on the basis of quantitative models and adjusted for one-off events.

The extreme scenarios apply to cases of so-called internal shock, as a result of which the so-called external variables (foreign interest rates) do not change with respect to the baseline scenario. The extreme scenarios are developed on the basis of a statistical and econometric analysis, i.e. they do not reflect the events described, but the forecast path. Two scenarios are identified: an optimistic one and a pessimistic one. The share of the scenarios for the GDP path that falls between the optimistic and the pessimistic scenario is referred to as the probability of the baseline scenario. Such an assumption is used to forecast GDP growth, using a potential rate of growth of the Polish economy that varies over time, calculated with the use of quarterly data provided by the Central Statistical Office. The values of other macroeconomic variables used in the scenarios (rate of unemployment, property price index) are estimated after the extreme paths of GDP growth are defined.

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

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

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

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

The level of the property price index is set on the basis of changes in GDP, taking into account the conditions of supply and demand on the market based on the data and trends presented by the NBP in the publication “Information on housing prices and the situation on the residential and commercial property market in Poland” and the Bank’s own analyses. The forecasts of deposit rates are mainly prepared on the basis of assumptions regarding central bank interest rates. The CHF/PLN exchange rate is a cross rate of the EUR/PLN and EUR/CHF exchange rates. Its forecasts are a combination of the forecasts for these two rates. The EUR/PLN and EUR/CHF forecasts are prepared on the basis of a macroeconomic analysis (current and historical) based on econometric methods, as well as on a technical analysis of the financial markets.

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

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

financial information

ALLOWANCES FOR EXPECTED CREDIT LOSSES	NOTE	2021	2020
Amounts due from banks	31	-	1
Debt securities	34	(63)	(37)
- measured at fair value through OCI		(46)	(17)
- measured at amortized cost		(17)	(20)
Loans and advances to customers	36	(1 202)	(1 780)
- measured at amortized cost		(1 202)	(1 780)
Other financial assets	41	1	-
Provisions for financial liabilities and guarantees granted	46	(45)	(358)

Total		(1 309)	(2 174)

calculation of estimates

The impact of an increase/decrease in estimated cash flows for the Group’s loans and advances portfolio assessed for impairment on the basis of individual analysis of future cash flows arising both from own payments and foreclosure of collaterals, i.e. the exposures for which an individual method is applied and the impact of an increase/decrease in the portfolio parameters for the Group’s loans and advances portfolio assessed on a portfolio basis is presented in the table below:

ESTIMATED CHANGE IN EXPECTED CREDIT LOSSES ON LOANS AND ADVANCES RESULTING FROM MATERIALIZATION OF A SCENARIO OF THE RISK PARAMETERS DETERIORATION OR IMPROVEMENT, OF WHICH:1	31.12.2021		31.12.2020
	scenario +10%	scenario -10%	scenario +10%	scenario -10%
changes in the present value of estimated future cash flows for the Group’s portfolio of individually impaired loans and advances assessed on an individual basis	(154)	199	(198)	260
changes in the probability of default	181	(207)	187	(207)
change in recovery rates	(510)	513	(492)	493

1 in plus – increase in allowances for expected credit losses, in minus – decrease in allowances for expected credit losses

The table below presents the estimated sensitivity of the level of allowances for expected credit losses to macroeconomic conditions, calculated as the change in the level of allowances for expected credit losses in respect of not impaired exposures resulting from materialization of particular macroeconomic scenarios as at 31 December 2021 and 31 December 2020.

	31.12.2021		31.12.2020
	optimistic	pessimistic	optimistic	pessimistic
estimated change in the level of write-offs for expected credit losses for exposures without impairment as a result of individual macroeconomic scenarios (in PLN million)	(317)	233	(619)	488

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

scenario as at 31.12.2021	baseline			optimistic			pessimistic
probability	75%			5%			20%
	2022	2023	2024	2022	2023	2024	2022	2023	2024
Property price index	5,2	3,7	3,0	10,9	6,6	3,0	-0,5	0,9	3,0
CHF/PLN	3,0	2,6	2,5	2,0	1,7	2,5	4,0	3,5	2,5
Property price index	109,4	106,6	102,5	116,3	112,8	102,5	102,4	100,8	102,5
CHF/PLN	4,0	3,9	3,9	3,8	3,7	3,7	4,5	4,3	4,0

scenario as at 31.12.2020	baseline			optimistic			pessimistic
probability	75%			5%			20%
	2021	2022	2023	2021	2022	2023	2021	2022	2023
Property price index	5,4	4,7	3,0	9,9	7,0	3,0	0,8	2,4	3,0
CHF/PLN	5,9	4,5	3,7	5,2	3,4	3,7	8,0	5,6	3,7
Property price index	99,5	102,9	102,5	103,3	103,4	102,5	96,1	99,5	102,5
CHF/PLN	4,1	3,9	3,8	3,8	3,6	3,7	4,4	4,3	4,0

25. Net impairment allowances of non-financial assets

NET IMPAIRMENT OF NON-FINANCIAL ASSETS	NOTE	2021	2020
Property, plant and equipment under operating lease	38.1	(1)	4
Property, plant and equipment	38.2	(1)	(58)
Non-current assets held for sale	39	(2)	(4)
Intangible assets	38.3	(11)	(153)
Investments in associates and joint ventures	40	12	(93)
Other financial assets, including inventories	41	(43)	(112)

Total		(46)	(416)

• intangible assets

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

As at 31 December 2021, the Group performed an impairment test in respect of goodwill on the acquisition of Nordea Bank Polska S.A. assigned to the retail CGU. The test did not identify impairment. (see the note “Intangible assets, property, plant and equipment and property, plant and equipment leased out under operating lease”).

In 2020, as a result of impairment tests performed in respect of goodwill on acquisition of Nordea Bank Polska S.A. and in connection with assuming control over PKO Leasing Pro S.A., the Group recorded allowances in the total amount of PLN 147 million, of which PLN 116 million in respect of corporate CGU and PLN 31 million in respect of PKO Leasing Pro S.A.

• Investments in associates and joint ventures

The impairment test performed as at 31 December 2021 did not identify a need to change the existing impairment allowance and the carrying amount of Bank Pocztowy recognized in the Group’s books as at 31 December 2021 was the same as previously, i.e. PLN 0.00. (see the note “Investments in associates and joint ventures”).

26. Cost of the legal risk of mortgage loans in convertible currencies

	2021	2020
Cost of the legal risk of mortgage loans in convertible currencies	-	(6 552)

IMPACT OF THE LEGAL RISK OF MORTGAGE LOANS IN CONVERTIBLE CURRENCIES	Gross carrying amount of mortgage loans in convertible currencies before recognition of mortgage loans in convertible currencies legal risk cost	Accumulated cost of the legal risk of mortgage loans in convertible currencies	Gross carrying amount of mortgage loans in convertible currencies after recognition of mortgage loans in convertible currencies legal risk cost
As at 31.12.2021
Loans and advances to customers – adjustment reducing the carrying amount of loans	19 528	6 428	13 100
Provisions (nota 46)		595
Total		7 023
As at 31.12.2020
Loans and advances to customers – adjustment reducing the carrying amount of loans	21 983	6 617	15 366
Provisions (nota 46)		426
Total		7 043

As at 31 December 2021, the Group recognized in the financial statements the impact of the legal risk associated with the portfolio of mortgage loans in convertible currencies.

The Group recognizes as the decrease of the gross carrying amount of mortgage loans denominated in and indexed to foreign currencies the effect of legal risk related to potential litigation for the portfolio of mortgage loans in convertible currencies and existing legal claims related to loan exposures recognized as at the balance sheet date in the statement of financial position. If the estimated loss due to legal risk exceeds the gross value of the loan and for settled loans, the Group recognizes provisions for legal risk as a liability of the Bank, in accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets.

The change in the adjustment of the gross carrying amount of mortgage loans reflecting the expected impact of potential settlements and litigation in relation to the situation as at 31 December 2020 was mainly due to the fact that the settlements were offset against accumulated losses.

CHANGE OVER THE PERIOD OF THE CUMULATIVE COST OF LEGAL RISK RELATED TO MORTGAGE LOANS DENOMINATED IN CONVERTIBLE CURRENCIES	2021	2020
Carrying amount at the beginning of the period	7 043	451
Legal risk burden on the result	-	6 552
Revaluation of loss for the period	590	40
Using the loss to settle settlements and judgments for the period	(622)	-
Other changes	12	-
Carrying amount at the end of the period	7 023	7 043

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

Additional information on the portfolio of mortgage loans in convertible currencies is presented by the Bank in the notes “Mortgage loans in convertible currencies”, “Legal claims” and “Management of the risk associated with foreign currency mortgage loans for individuals”.

calculation of estimates

The Group has identified a risk that the cash flows on the portfolio of mortgage loans denominated in and indexed to foreign currencies planned on the basis of schedules may not be fully recoverable and/or a liability resulting in a future outflow of funds may arise. The Group decreases the gross carrying amount of mortgage loans denominated in and indexed to foreign currencies and/or recognizes provisions for legal risk in accordance with the requirements of IFRS 9 Financial instruments and IAS 37 Provisions, Contingent Liabilities and Contingent Assets. The cost of legal risk was estimated taking into account a number of assumptions which have a significant effect on the amount of the estimates recognized in the Group’s financial statements.

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

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

• probability of acceptance of settlement by the customer and the amount of loss resulting from the settlement.

The Group also estimates the probabilities of adverse outcomes for the actual and potential claims. Such probabilities are different for mortgage loans indexed to foreign currencies and denominated in foreign currencies. In the evaluation of such probabilities, the Group uses the support of third party law firms. In the Group’s opinion, the level of estimated costs of legal risk is also affected by such factors as: duration of legal proceedings (also estimated on the basis of relatively short statistics which do not meet the requirements of quantitative methods) and growing costs which must be incurred to initiate and conduct legal proceedings.

The Group also took into account the effect on the probability of settlement of the tax preferences of the customers benefiting from the Regulation of the Minister of Finance of 27 March 2020 on suspending the collection of income tax on certain types of income (revenues) associated with mortgage loans granted for housing purposes, which was in force until the end of 2021. The Ministry of Finance has informed that another Regulation will be issued, extending these solutions for another year and covering also the settlements signed on or after 1 January 2022. Therefore, it is expected that the preferences will apply continuously.

Given the short horizon of the historical data available and a significant uncertainty as to the direction in which the legal solutions will evolve, the adopted methodology of assessing losses in respect of the legal risk will be periodically reviewed in the subsequent reporting periods. Uncertainty of estimates relates both to the number of future lawsuits and the court decisions in this respect, including those concerning the fees due to the Bank for using funds without an agreement (in the event of a verdict declaring a loan agreement invalid), and to the expected number of settlements, which can be affected in particular by changes in the judicial decisions concerning mortgage loans denominated in or indexed to foreign currencies, an increase in base interest rates or a change in the PLN/CHF exchange rate.

The Group has analysed the model’s sensitivity to changes in key parameters:

SENSITIVITY ANALYSIS OF THE MODEL TO CHANGE OF KEY PARAMETERS	Increase in legal risk costs related to mortgage loans in convertible currencies
	31.12.2021	31.12.2020
1 p.p. increase in the number of lawsuits (at the cost of inactive customers)	92	65
1 p.p. decrease in the likelihood of the Bank winning in court (instead of a 1 p.p. increase in the probability of declaring an agreement invalid)	42	14
1 % increase in weighted average loss	35	13
1 p.p. decrease in the number of settlements	37	27
1 p.p. increase in the likelihood of compensation for the principal amount	(12)	nd
1 p.p. increase in the lawsuit to settlement conversion ratio	(11)	nd

In 2021 the Group regularly, on a quarterly basis, monitored the model’s adequacy by comparing the actual key model parameters with the calculated values. In addition, new empirical data (more accurate or resulting from a longer observation) were gradually modifying or replacing previous assumptions. The model was also adjusted to the new processes launched by the Group in the area of mortgage loans denominated in or indexed to foreign currencies granted in the past. The following major changes were introduced to the model:

• updating the probabilities of specific outcomes of legal proceedings - on the basis of the current information received from the Bank’s legal advisors;

• updating the probability of signing a settlement or filing a lawsuit based on empirical data;

• determining the ratio of conversion of lawsuits to settlements over the loan’s lifetime on the basis of empirical data;

• taking into account non-zero probability of a favourable outcome (for the Bank), where the customer is obliged to reimburse the fee for using funds without an agreement - in the event of a verdict declaring a loan agreement invalid;

• updating the classification of exposures to the potential settlements portfolio.

27. Administrative expenses

Accounting policies

Employee benefits	Employee benefits comprise wages and salaries and social insurance (including provisions for retirement and disability benefits, which are discussed in detail in note “Provisions” ), as well as costs of the employee pension scheme constituting a defined contribution scheme and the programme of variable remuneration components for persons occupying managerial positions, a portion of which is recorded as a liability in respect of share-based payments settled in cash, in accordance with IFRS 2 Share-based payments (the programme of variable remuneration components is discussed in detail in note (“Benefits for the PKO Bank Polski S.A. key management”). Moreover, as part of wages and salaries, the Group creates a provision for future liabilities in respect of compensation and severance bonuses paid out to employees with whom the employment relationship is terminated for reasons not related to the employees, and accruals related to costs attributable to the current period, which will be incurred in the next period, including bonuses and holiday pay, taking account of all unused holiday.
Overheads	Overheads include the costs of maintaining fixed assets, IT and telecommunications services costs, costs of administration, promotion and advertising, property protection and training. Lease payments under short-term and low-value leases are recognized in the income statement as an expense on a straight-line basis over the lease term.
contributions and payments to the Bank Guarantee Fund (BGF)	In accordance with IFRIC 21 “Levies”, fees paid to the Bank Guarantee Fund are recognized in profit or loss upon the occurrence of the obligating event. The Group pays contributions to the banks’ guarantee fund (once a quarter) and the bank’s resolution fund (once a year). The contributions to the guarantee fund and the resolution fund are not tax-deductible.
Fees to PFSA	In accordance with IFRIC 21 "Levies", fees paid by the Group to the Polish Financial Supervision Authority are recognized in profit or loss upon the occurrence of the obligating event. Both fees (the payment towards the costs of banking supervision and the payment towards the costs of supervision over the financial market) are paid once a year. The payments to the Polish Financial Supervision Authority are tax-deductible expenses.
Flat rate income tax	The Act of 23 October 2018 on amendments to, among other things, the acts on income taxes, introduced a possibility of an alternative to taxation with WHT, namely a 3% tax on certain interest paid to non-residents. Therefore, on 29 March 2019 the Bank filed a notification on the election of the 3% taxation option with the tax office in respect of: • interest on loans which is paid by the Bank to PKO Finance AB with its registered office in Sweden (pursuant to the Act, the election of the taxation option relates to the years 2014 -2022) and • interest on eurobonds issued by the Bank before 1 January 2019.
Other taxes and fees	Property tax, payments made to the State Fund for Rehabilitation of Disabled Persons, municipal and administrative fees.

financial information

ADMINISTRATIVE EXPENSES	2021	2020

Employee benefits	(3 199)	(2 976)
Overheads, of which:	(1 332)	(1 250)
rent	(97)	(96)
IT	(385)	(349)
Depreciation and amortization	(998)	(979)
property, plant and equipment, of which:	(534)	(541)
right of use assets	(234)	(229)
IT	(102)	(100)
investment estates	(1)	(1)
intangible assets, of which:	(464)	(438)
IT	(440)	(409)
Net regulatory charges	(645)	(778)

Total	(6 174)	(5 983)

EMPLOYEE BENEFITS	2021	2020
Wages and salaries, including:	(2 697)	(2 494)
costs of contributions to the employee pension plan	(71)	(66)
restructuring costs	(19)	(16)
Social insurance, of which:	(431)	(409)
contributions for disability and retirement benefits	(365)	(355)
Other employee benefits	(71)	(73)

Total	(3 199)	(2 976)

NET REGULATORY CHARGES	2021	2020
Contribution and payments to the Bank Guarantee Fund (BGF), including:	(481)	(668)
to the Resolution Fund	(253)	(318)
to the Banks’ Guarantee Fund	(228)	(350)
Fees to PFSA	(48)	(36)
Flat-rate income tax	(7)	(7)
Other taxes and fees	(109)	(67)

Total	(645)	(778)

28. Tax on certain financial institutions

On 1 February 2016, the Act on tax on certain financial institutions of 15 January 2016 entered into force. It applies, among other things, to banks and insurance companies. The tax is charged on the surplus of the Bank’s total assets above PLN 4 billion, based on the trial balance as at the end of each month. The tax base of insurance companies within one Group is determined jointly as the surplus of total assets over PLN 2 billion. Banks are entitled to reduce the tax base by deducting, among other things, own funds and the value of Treasury securities held. Additionally, banks reduce the tax base by the value of assets acquired from the NBP, constituting collateral of a refinancing loan granted by the NBP. Insurance companies are entitled to reduce their tax base by the value of assets accumulated under the contracts for Employee Capital Plans that they service, as referred to in the Act on Employee Capital Plans of 4 October 2018.

The tax rate for all taxpayers is 0.0366% per month, and the tax is paid monthly by the 25th day of the month following the month to which it relates. The tax paid is not deductible for corporate income tax purposes.

TAX ON CERTAIN FINANCIAL INSTITUTIONS	2021	2020

PKO Bank Polski S.A.	(986)	(958)
PKO Życie Towarzystwo Ubezpieczeń S.A.	(5)	(5)
PKO Bank Hipoteczny S.A.	(84)	(89)
PKO Towarzystwo Ubezpieczeń S.A.	(4)	(3)
Total	(1 079)	(1 055)

29. Income tax expense

Accounting policies

Corporate income tax is recognized as current tax and deferred tax. Current income tax expense is recognized in the income statement. Deferred tax is recognized in the income statement or other comprehensive income, depending on the source of the timing differences.

• Current income tax

Current income tax is calculated on the basis of gross accounting profit adjusted by non-taxable income, taxable income that does not constitute accounting income, non-tax deductible expenses and tax-deductible costs which are not accounting costs, in accordance with tax regulations. These items mainly include income and expenses relating to accrued interest receivable and payable, allowances for expected credit losses and provisions for financial liabilities granted.

Group companies are corporate income tax payers. The amount of the companies’ current tax liability is transferred to offices of the tax administration authorities with jurisdiction over their location.

Corporate income tax liabilities of individual Group companies for 2021 will be paid in accordance with the schedules stipulated by the relevant tax regulations.

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

• Deferred income tax

Deferred tax is recognized in the amount of the difference between the tax value of the assets and liabilities and their carrying amounts for the purpose of financial reporting. The Group records deferred tax provisions and assets, which are recognized in the statement of financial position. A change in deferred tax provisions and assets is charged to the profit or loss, with the exception of the effects of revaluation of financial assets measured at fair value through other comprehensive income and the valuation of the hedging instruments recognized in other comprehensive income, where the changes in the balance of the deferred tax provision and asset are recognized in the other comprehensive income. In determining deferred tax, the amounts of the deferred tax provision and assets as at the beginning and end of the reporting period are taken into account.

The carrying amounts of deferred tax assets are verified at each balance sheet date and decreased adequately if it is no longer likely that taxable income sufficient to realize a deferred tax asset in part or in full will be earned.

Deferred income tax assets and provisions are measured using the tax rates, which are expected to apply in the period in which the asset is realized or the provision released, determined on the basis of tax rates (and tax regulations) enacted or substantively enacted as at the end of the reporting period, or the rates which are certain to apply in the future.

For deferred income tax calculation the Group uses the 19% tax rate for entities operating in the territory of Poland, the 18% tax rate for entities operating in Ukraine and the 20.6% tax rate for entities operating in Sweden

The Group offsets the deferred tax asset against the deferred tax provision solely when it has a legally enforceable title to offset the current income tax receivables and liabilities, and if the deferred income tax asset and provision relate to income taxes imposed by the same tax authority on the same taxpayer.

financial information

• income tax expense

	2021	2020
Income tax expense recognized in the income statement	(1 640)	(865)
Current income tax expense	(1 558)	(1 407)
Deferred income tax on temporary differences	(82)	542
Income tax reported in other comprehensive income in respect of temporary differences	1 671	(244)

Total	31	(1 109)

• reconciliation of the effective tax rate

RECONCILIATION OF THE EFFECTIVE TAX RATE	2021	2020
Profit or loss before tax	6 513	(1 696)
Tax calculated using the enacted rate in force in Poland (19%)	(1 237)	322
Effect of different tax rates of foreign entities	1	1
Effect of permanent timing differences, of which:	(407)	(1 193)
non-deductible impairment allowance on investments in subordinated entities	-	(17)
non-deductible allowances for expected credit losses on credit exposures and securities	(45)	(51)
contributions and payments to the Bank Guarantee Fund	(91)	(127)
tax on certain financial institutions	(205)	(200)
impairment allowance in respect of the identified impairment of goodwill of Nordea Bank Polska S.A.	-	(28)
cost of the legal risk of mortgage loans in convertible currencies other	(25)	(769)
interest on foreign exchange gains in Sweden	(9)	-
3% flat-rate income tax on interest for non-residents	(1)	-
dividend income	3	-
other permanent differences	(34)	(1)
Effect of other timing differences, including new technologies tax relief and donations	4	5

Income tax expense recognized in the income statement	(1 640)	(865)

Effective tax rate (%)	25,18	(51,04)

• net deferred tax assets

DEFERRED TAX PROVISION AND ASSET 2021	As at the beginning of the period	INCOME STATEMENT	OTHER COMPREHENSIVE INCOME	As at the end of the period
Interest accrued on receivables (loans)	257	(22)	-	235
Interest on securities	149	10	-	159
Valuation of securities	302	14	(296)	20
Valuation of derivative financial instruments	90	33	(90)	33
Difference between carrying amount and tax value of property, plant and equipment and intangible assets	178	28	-	206
Taxable income on the release of IBNR allowance, previously tax deductible, on implementation of IFRS 9	52	(13)	-	39
Prepayments	103	(44)	-	59
Tax on foreign exchange gains in Sweden	279	9	-	288
Other taxable temporary differences	32	(6)	-	26
Deferred income tax provision, gross	1 442	9	(386)	1 065

Interest accrued on liabilities	45	(5)	-	40
Valuation of derivative financial instruments	6	85	861	952
Valuation of securities	1	32	426	459
Provision for employee benefits	86	18	(2)	102
Allowances for expected credit losses	1 283	58	-	1 341
Fair value measurement of loans	131	15	-	146
Adjustment of straight-line valuation method and effective interest rate	840	(7)	-	833
Other deductible temporary differences	53	27	-	80
Provision for costs to be incurred	54	7	-	61
Tax loss brought forward	5	1	-	6
Foreign exchange differences	40	36	-	76
Difference between carrying amount and tax value of property, plant and equipment and intangible assets, including leased assets	593	(206)	-	387
The impact of legal risk related to mortgage loans in convertible currencies	476	(134)	-	342
Deferred tax asset, gross	3 613	(73)	1 285	4 825

Total effect of temporary differences	2 171	(82)	1 671	3 760
Deferred income tax provision (presented in the statement of financial position)	372	370	(386)	356
Deferred income tax asset (presented in the statement of financial position)	2 543	288	1 285	4 116

The Group took into account the right to recognize deferred income tax assets in connection with the right to apply the tax preference in respect of the settlements covered by the Regulation of the Minister of Finance of 27 March 2020 on suspending the collection of income tax on certain types of income (revenues) associated with mortgage loans granted for housing purposes, which was in force until the end of 2021. The Ministry of Finance has informed that another Regulation will be issued, extending these solutions for another year and covering also the settlements signed on or after 1 January 2022. Therefore, it is expected that the preferences will apply continuously.

DEFERRED TAX PROVISION AND ASSET 2020	As at the beginning of the period	INCOME STATEMENT	OTHER COMPREHENSIVE INCOME	As at the end of the period
Interest accrued on receivables (loans)	220	37	-	257
Capitalized interest on performing housing loans	24	(24)	-	-
Interest on securities	115	34	-	149
Valuation of securities	113	(5)	194	302
Valuation of derivative financial instruments	55	(17)	52	90
Difference between carrying amount and tax value of property, plant and equipment and intangible assets	218	(40)	-	178
Taxable income on the release of IBNR allowance, previously tax deductible, on implementation of IFRS 9	65	(13)	-	52
Prepayments	200	(97)	-	103
Tax on foreign exchange gains in Sweden	274	5	-	279
Other taxable temporary differences	13	19	-	32

Deferred income tax provision, gross	1 297	(101)	246	1 442

Interest accrued on liabilities	86	(41)	-	45
Valuation of derivative financial instruments	9	(4)	1	6
Valuation of securities	1	-	-	1
Provision for employee benefits	86	(1)	1	86
Allowances for expected credit losses	998	285	-	1 283
Fair value measurement of loans	118	13	-	131
Adjustment of straight-line valuation method and effective interest rate	900	(60)	-	840
Other deductible temporary differences	50	3	-	53
Provision for costs to be incurred	39	15	-	54
Tax loss brought forward	14	(9)	-	5
Foreign exchange differences	-	40	-	40
Difference between carrying amount and tax value of property, plant and equipment and intangible assets, including leased assets	869	(276)	-	593
The impact of legal risk related to mortgage loans in convertible currencies	-	476	-	476

Deferred tax asset, gross	3 170	441	2	3 613

Total effect of temporary differences	1 873	542	(244)	2 171
Deferred income tax provision (presented in the statement of financial position)	370	(244)	246	372
Deferred income tax asset (presented in the statement of financial position)	2 243	298	2	2 543

• Tax Group

Based on the contract dated 5 November 2018, PKO Bank Polski S.A. with its two subsidiaries: PKO Bank Hipoteczny S.A. and PKO Leasing S.A., created the Powszechna Kasa Oszczędności Bank Polski Spółka Akcyjna Tax Group (Podatkowa Grupa Kapitałowa Powszechnej Kasy Oszczędności Banku Polskiego Spółki Akcyjnej, “PGK PKO Banku Polskiego S.A.”). The contract was registered by the Head of the Second Mazovian Tax Office in Warsaw.

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

PKO Bank Polski S.A. is the parent of the PKO Bank Polski S.A. Tax Group The PKO Bank Polski S.A. Tax Group was established for three tax years.

By an agreement of 3 November 2021, PKO Bank Polski S.A., PKO Bank Hipoteczny S.A. and PKO Leasing S.A. extended the existence of the PKO Bank Polski S.A. Tax Group for three subsequent tax years (2022 - 2024).

• Tax policy

By resolution of the Management Board no. 392/C/2021 of 5 October 2021, approved by resolution of the Supervisory Board no. 154/2021 of 14 October 2021, the Bank implemented its Tax Strategy. On 17 December 2021, the Strategy was published at: https://www.pkobp.pl/grupa-pko-banku-polskiego/pko-bank-polski/strategia-podatkowa/. In the execution of its statutory obligations resulting from Article 27c of the Corporate Income Tax Act, the Powszechna Kasa Oszczędności Bank Polski Spółka Akcyjna Tax Group prepared in 2021 the Information on the tax strategy implemented in 2020, which is available at: https://www.pkobp.pl/grupa-pko-banku-polskiego/pko-bank-polski/strategia-podatkowa/ and https://www.pkobp.pl/informacja-o-realizowanej-strategii-podatkowej/. On 21 December 2021, the Bank notified the head of the competent tax office of the address of the webpage on which the Information is available.

Corporate income tax paid on the income earned by the PKO Bank Polski S.A. Group in the years 2021 and 2020 by country of operations:

Corporate income tax	2021	2020
The Group	1 558	1 407
Poland	1 526	1 388
Sweden	6	1
Ukraine	26	18

Tax systems of countries in which the Bank and the PKO Bank Polski S.A. Group entities have their registered offices or branches are often subject to amendments to laws, including as a result of operations aimed at tightening the tax system, both at national and international level.

In addition, understanding of some of the regulations of the tax law, due to their ambiguity, may in practice lead to inconsistent individual interpretations of the tax authorities, differing from the interpretation by the taxpayer, and the resulting disputes may only be resolved by the national or European courts. Therefore, interpretations of the tax law by the tax authorities differing from the practices implemented by the Bank or the PKO Bank Polski S.A. Group entities cannot be eliminated and may have a significant unfavourable impact on their operations and financial condition, despite the various actions aimed at mitigating this risk, which are regularly undertaken and allowed by law.

Due to the doubts relating to taxation of foreign exchange differences on loans granted to the Bank and issue commitments in the territory of Sweden, PKO Finance AB, whose reporting currency is the EUR, applied to the Swedish Council for Tax Rulings (Skatterättsnämnden) for an individual ruling. PKO Finance AB lends funds to the Bank obtained from bonds issued and at the same time recognizes receivables from the loans and liabilities relating to the issue.

Changes in foreign exchange rates have a symmetrical impact on the valuation of such receivables and liabilities, because foreign exchange differences on the valuation of loans granted are matched with the opposite foreign exchange differences on the valuation of liabilities in respect of the bonds issued.

According to the ruling obtained on 14 March 2019, a company for which EUR is the reporting currency should tax the EUR/SEK exchange differences on the loans granted as at the maturity date, and at the same time it is not possible to recognize at the maturity date a tax cost related to foreign exchange differences on the Company’s liabilities in respect of the bond issue. If the Council’s ruling is upheld by the Swedish Supreme Administrative Court (Högsta förvaltningsdomstolen), it would mean that a different approach is applied in Sweden to companies reporting in EUR compared with companies reporting in SEK (which can also include foreign exchange differences on liabilities in their tax settlements), and this would increase the economic risk and hamper effective hedging of the currency risk. In the opinion of the Group, such an approach would be contrary to Art. 63 of the Treaty on the Functioning of the European Union (TFEU) related to the need to ensure free flow of capital in the EU or Art. 49 and 54 of TFEU related to the freedom of business activities. On 3 April 2019, the company appealed to the Swedish Supreme Administrative Court against the Council’s ruling and on 1 July submitted extended arguments to dismiss the case. In its opinion of 23 August 2019, the Swedish Tax Office (Skatteverket) took a negative stance on the company’s appeal. The Company sustained its position in the response to the opinion submitted to the Swedish Supreme Administrative Court on 25 September 2019. In addition, on 10 October 2019, the Company submitted complementary documents to its appeal, in which it emphasized, among other things, the importance of the resolution for companies operating in the territory of Sweden and reporting in euro.

On 5 May 2020, the Swedish Supreme Administrative Court dismissed, for formal reasons, an appeal by PKO Finance AB, resulting in the interpretation of 14 March 2019 becoming expired. On 13 May 2020, PKO Finance AB received two decisions of the Swedish tax office which confirmed the correctness of the Company’s tax settlements for 2015 and 2016. In these decisions, PKO Finance AB adopted a symmetrical settlement of foreign exchange differences on loans granted and due, and on liabilities in respect of eurobond issues. The decisions are favourable for the Group, but inconsistent with the line of interpretations previously issued by the tax office.

In connection with the actions taken by the Swedish tax authority in relation to PKO Finance AB and other Swedish issuing companies belonging to other Polish groups, on 16 September 2021 the Company presented its arguments in writing to the Swedish Tax Agency (STA), and repeated those arguments at the meeting with STA on 14 October 2021. On 23 December 2021, PKO Finance AB received from the Swedish tax authorities a negative decision concerning the dispute relating to doubts about taxation in Sweden of foreign exchange gains on loans granted to the Bank and liabilities in respect of the issue. Based on this decision, the company must pay SEK 160 726 808. This amount comprises additional income tax and interest for the tax year 2019. On 21 January 2022, the Swedish tax authorities refused to postpone the deadline for payment of the said amount until a binding court decision is issued.

The company did not have funds for the payment of this tax liability, which was due by 26 January 2022. Pursuant to the guarantee agreement concluded on 15 May 2020 between the Bank and PKO Finance AB, the company asked the Bank to pay SEK 160 726 808 to its current account with the Swedish tax office. Despite having made the payment, the Company disagrees with the verdict of the Swedish tax office and intends to use the appeal procedure to regain the amount mentioned above. The tax consultancy from Sweden was engaged for this purpose.

In accordance with IFRIC 23 “Uncertainty over Income Tax Treatments”, the Group applied judgment as to the uncertain tax treatment of income generated in Sweden in respect of foreign exchange gains on loans granted to the Bank and liabilities relating to the issue. The Group applied the most likely amount to reflect the effect of uncertainty. As at 31 December 2021, the deferred income tax provision amounted to PLN 288 million (as at 31 December 2020 it was PLN 279 million).

30. Cash and balances with the Central Bank

Accounting policies

The item “Cash and balances with the central bank” presents cash recognized at nominal value, and funds in the current account and deposits with the Central Bank measured at amortized cost, and if there is no schedule for future cash flows, at amounts due, including interest on those funds (if any).

financial information

CASH AND BALANCES WITH THE CENTRAL BANK	31.12.2021	31.12.2020
Current account with the Central Bank	8 006	4 068
Cash in hand	3 581	3 406
Total	11 587	7 474

31. Amounts due from banks

Accounting policies

Principles of classification and measurement are described in the note “Description of major accounting policies”. If the timing of future cash flows and, consequently, the effective interest rate, cannot be determined, the receivables are measured at the amount due.

financial information

AMOUNTS DUE FROM BANKS	31.12.2021	31.12.2020
Measured at amortized cost	9 010	2 557
Deposits with banks	7 218	1 311
Current accounts	1 243	887
Loans and advances granted	546	358
Cash in transit	3	1
Gross amount	9 010	2 557
Net amount	9 010	2 557

As at 31 December 2021 and 31 December 2020 all amounts due from banks were classified as Stage 1.

AMOUNTS DUE FROM BANKS -CHANGES IN GROSS CARRYING AMOUNT DURING THE PERIOD	2021	2020
As at the beginning of the period	2 557	4 093
Financial instruments granted or acquired	7 198	3 211
Utilization of limits or disbursement of tranches	45	2
Repayments	(1 235)	(4 911)
Other changes	445	162
As at the end of the period	9 010	2 557

AMOUNTS DUE FROM BANKS - CHANGE IN ALLOWANCES FOR EXPECTED CREDIT LOSSES DURING THE PERIOD	2021	2020
As at the beginning of the period	-	(1)
Increase due to recognition and purchase	-	(1)
Changes in credit risk (net)	-	2
As at the end of the period	-	-

AMOUNTS DUE FROM BANKS BY MATURITY	31.12.2021	31.12.2020
up to 1 month	8 808	2 554
1 to 3 months	191	-
3 months to 1 year	6	1
1 to 5 years	5	2

Total	9 010	2 557

32. Hedge accounting

risk management strategy

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

The interest rate risk covers in particular:

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

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

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

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

The Group’s foreign exchange risk arises as a result of transactions performed under:

• core business activities;

• trading activities;

• contracts concluded by the Group which generate foreign exchange risk.

Foreign exchange risk arising from the Group’s activities is managed, where required, by specialized units as part of their own operations based on the data received on open currency positions.

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

accounting policies

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

• Cash flow hedge

Changes in the fair value of a derivative financial instrument designated as a cash flow hedge are recognized directly in other comprehensive income in respect of the portion constituting the effective part of the hedge. The ineffective portion of a hedge is recognized in the income statement in the item “Gains/ (losses) financial instruments” or “Foreign exchange gains (losses)”.

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

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

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

• hedge of interest in the net assets of a foreign entity

Changes in the fair value of a derivative financial instrument designated for the purposes of hedging interest in the net assets of a foreign entity whose functional currency is a foreign currency are recognized directly in other comprehensive income in respect of the portion constituting the effective part of the hedge. The ineffective portion of the hedge is recognized in the income statement in the item “Foreign exchange gains (losses)”.

Gains and losses associated with the hedging instrument relating to the effective part of the hedge, which were recognized in other comprehensive income, are reclassified to profit or loss as a reclassification adjustment in accordance with paragraphs 48-49 of IAS 21 “The Effects of Changes in Foreign Exchange Rates” upon disposal or partial disposal of the foreign entity.

Hedge effectiveness is verified through the use of prospective and retrospective effectiveness tests.

• Fair value hedge

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

A change in the fair value adjustment to the hedged item is recognized in “Gains/ (losses) financial instruments”.

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

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

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

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

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

types of hedging strategies applied by the Group

As at 31 December 2021 the Group had had active relationships as part of:

• 7 strategies for hedging cash flow volatility;

• 4 strategies for hedging fair value of volatility;

• one strategy for hedging the interest in the net assets of foreign entities.

In 2021, as part of the hedging strategy “Hedges against fluctuations in cash flows from variable interest loans in EUR, resulting from the risk of changes in interest rates, using IRS transactions”, the Group closed hedging relationships:

• due to their failing to pass the prospective test of sufficient nominal amount. The effect of the discontinuation of hedge accounting as part of the said relationship on the profit or loss amounted to PLN 0.4 million;

• due to discontinuation of hedge accounting. The effect of the discontinuation of hedge accounting as part of the said relationship on the profit or loss amounted to PLN 1.2 million.

In 2021, as part of the hedging strategy “Hedges against fluctuations in cash flows from variable interest loans in PLN, resulting from the risk of changes in interest rates, using IRS transactions”, the Group closed one hedging relationship due to discontinuation of hedge accounting. The effect of discontinuation of hedge accounting as part of the said relationship on the profit or loss amounted to PLN 7 million.

In 2021, as part of the hedging strategy “Hedges against fluctuations in the fair value of fixed interest FVOCI in PLN, resulting from the risk of changes in interest rates, using IRS transactions”, the Group closed two hedging relationships due to their failing to pass the prospective effectiveness test. The effect of discontinuation of hedge accounting as part of the said relationships on the profit or loss amounted to PLN 0.7 million.

In 2021, the Group introduced one hedging strategy in respect of interest in the net assets of foreign entities:

• “Hedging of the interest in the net assets of a foreign entity whose functional currency is a foreign currency against foreign currency risk resulting from translation of the entity’s financial results and financial position into PLN in the consolidated financial statements of the PKO Bank Polski S.A. Group using forward or NDF transactions”;

and three cash flow hedging strategies:

• “Hedging against fluctuations in cash flows on variable interest PLN loans of a PKO Bank Polski S.A. company other than PKO Bank Polski S.A., resulting from interest rate risk, and hedging against fluctuations in cash flows on financial liabilities in a convertible currency of a PKO Bank Polski S.A. company other than PKO Bank Polski S.A., resulting from foreign currency risk, using two CIRS transactions concluded by PKO Bank Polski S.A. with a third party”;

• “Hedging against fluctuations in cash flows on variable interest PLN loans, resulting from a risk of changes in interest rates, and hedging against fluctuations in cash flows on financial liabilities in a convertible currency resulting from foreign currency risk, using two CIRS transactions”; and

• “Hedging against fluctuations in cash flows on deposits in PLN, resulting from the risk of changes in interest rates, using IRS transactions”.

No changes were made to other hedging strategies in 2021.

In 2020, the Group introduced two new hedging strategies for fair value hedges and cash flow hedges.

The tables below summarize the types of strategies applied by the Group.

Type of hedging strategy	Cash flow hedges (Strategies no.: 1,2,3,4,5,6,7,9,14,15,16)
Hedged risk	foreign exchange risk and interest rate risk	interest rate risk
Hedging instrument	CIRS float – float transactions CIRS fixed - float transactions	IRS fixed - float transactions
Hedged item	• the portfolio of variable interest loans in foreign currencies and • the portfolio of short-term negotiated deposits in PLN, including their future renewals. In designating the hedged item, the Group used the IAS39 AG 99C in the version adopted by the European Union, or • fixed interest rate financial liability denominated in foreign currency or • the portfolio of floating interest rate regular savings products in PLN, or • financial liabilities in foreign currencies	the portfolio of deposits in PLN or other currencies indexed to a floating interest rate
sources of hedge ineffectiveness	• margin on the hedging instrument • differences in discount on the hedged item and the hedging instrument • CVA/DVA adjustment of the hedging instrument	• change in market parameters between the moment of concluding the hedging transaction and the moment of concluding the hedging relationship • differences in discount on the hedged item and the hedging instrument • CVA/DVA adjustment of the hedging instrument
	The period in which cash flows are expected to occur and affect the financial results: January 2022 - August 2024	The period in which cash flows are expected to occur and affect the financial results: January 2022 - December 2031

Type of hedging strategy	Fair value hedges (strategies no.: 8,10,11,12)
Hedged risk	Interest rate risk
Hedging instrument	IRS fixed - float transactions
Hedged item	a component of the interest rate risk relating to a fixed interest rate loan or security in a foreign currency or in PLN, which corresponds to the market IRS rate
sources of hedge ineffectiveness	• change in market parameters between the moment of determining the terms and conditions relating to the hedged item and the moment of concluding the hedge • CVA/DVA adjustment of the hedging instrument • difference between the present value of the floating leg of IRS and the present value of the nominal value of a security

Type of hedging strategy	Hedge of interest in the net assets of a foreign entity (strategy no.: 13)
Hedged risk	foreign exchange risk
Hedging instrument	Forward or NDF transaction spot price component
Hedged item	an amount of the interest in the net assets of a foreign entity equal to or lower than the total net carrying amount of the foreign entity’s assets recognized in the consolidated financial statements of the PKO Bank Polski S.A. Group
sources of hedge ineffectiveness	none

HEDGED ITEM	CARRYING AMOUNT OF THE HEDGED ITEM	ITEM IN THE STATEMENT OF FINANCIAL POSITION	CHANGE IN THE FAIR VALUE OF THE HEDGED ITEM	STRATEGY NO.
31.12.2021	CARRYING AMOUNT OF THE HEDGED ITEM	ITEM IN THE STATEMENT OF FINANCIAL POSITION	CHANGE IN THE FAIR VALUE OF THE HEDGED ITEM	STRATEGY NO.
Cash flow hedges
Loans in CHF	265	Loans and advances to customers	8	5
Financial liability in USD	293	Amounts due to customers	8	5
Loans in PLN	92 480	Loans and advances to customers	4 454	2
Loans in EUR	663	Loans and advances to customers	(1)	3; 4
Loans in PLN	2 530	Loans and advances to customers	(250)	9
Financial liability in EUR	599	Debt securities in issue	(250)	9
Loans in PLN	4 883	Loans and advances to customers	17	14
Financial liability in EUR	1 053	Debt securities in issue	17	14
Loans in PLN	3 393	Loans and advances to customers	(186)	15
Financial liability in USD	875	Debt securities in issue	(186)	15
Deposits w PLN	200	Amounts due to customers	(1)	16
Fair value hedges
Security in EUR	30	Securities measured at amortized cost	-	10
Security in EUR	202	Securities measured at fair value through other comprehensive income	(1)	11
Security in USD	130	Securities measured at fair value through other comprehensive income	1	11
Loans in EUR	15	Loans and advances to customers	-	8
Loans in USD	75	Loans and advances to customers	-	8
Security in PLN	-	Securities measured at fair value through other comprehensive income	(25)	12
Hedge net assets in a foreign entity
Shares in a foreign entity whose functional currency is a foreign currency (UAH)	544	Net assets of a foreign entity	5	13
Total			4 021

HEDGED ITEM 31.12.2020	CARRYING AMOUNT OF THE HEDGED ITEM	ITEM IN THE STATEMENT OF FINANCIAL POSITION	CHANGE IN THE FAIR VALUE OF THE HEDGED ITEM	STRATEGY NO.
Cash flow hedges
Loans in CHF	525	Loans and advances to customers	280	1
Negotiated deposits in PLN	1 939	Amounts due to customers	280	1
Loans in CHF	400	Loans and advances to customers	(2)	3
Loans in PLN	2 963	Loans and advances to customers	(287)	9
Financial liability in EUR	699	Debt securities in issue	(287)	9
Loans in PLN	66 008	Loans and advances to customers	(399)	2
Loans in EUR	75	Loans and advances to customers	15	6
Negotiated deposits in PLN	328	Amounts due to customers	15	6
Loans in EUR	1 228	Loans and advances to customers	(9)	3; 4
Fair value hedges
Security in EUR	30	Securities measured at amortized cost	1	10
Security in EUR	102	Securities measured at fair value through other comprehensive income	1	11
Security in USD	158	Securities measured at fair value through other comprehensive income	5	11
Loans in EUR	174	Loans and advances to customers	1	8
Security in PLN	535	Securities measured at fair value through other comprehensive income	17	12
Total			(377)

Hedging derivative 31.12.2021		Nominal amount of hedging derivatives	Nominal-weighted average margin / Nominal-weighted average fixed interest rate	Carrying amount (fair value of hedging instruments)		Ineffective portion of cash flow hedges recognized in the income statements / Fair value adjustment to the hedged item	Change in the fair value of hedging instruments since designation	Strategy no.
Hedging derivative 31.12.2021		Nominal amount of hedging derivatives		Assets	Liabilities			Strategy no.
Cash flow hedges
IRS PLN	PLN	92 680	2,2587%	55	4 361	(6)	(4 433)	2; 16
IRS CHF	CHF	-	-	-	-	(1)	-	3
IRS EUR	EUR	663	0,0865%	9	2	-	3	3; 4
CIRS PLN-CHF	float PLN	8 276	0,3093%	588	-	16	541	14; 15
CIRS PLN-CHF	float CHF	1 993	0,2362%	588	-	16	541	14; 15
CIRS CHF/USD	float CHF	1 083	-	-	56	-	(52)	5; 15
CIRS CHF/USD	fixed USD	1 168	1,8581%	-	56	-	(52)	5; 15
CIRS CHF/EUR	float CHF	1 175		-	374	(10)	(322)	14
CIRS CHF/EUR	fixed EUR	1 053	0,6852%	-	374	(10)	(322)	14
CIRS PLN/EUR	float PLN	2 530	0,0000%	271	-	2	255	9
CIRS PLN/EUR	fixed EUR	599	0,6879%	271	-	2	255	9
Fair value hedges
IRS EUR	EUR	247	-0,2178%	7	1	(3)	1	8; 10; 11
IRS USD	USD	205	0,9993%	2	8	3	(1)	8; 11
IRS PLN	PLN	-	-	-	-	(25)	-	12
Hedge net assets in a foreign entity
FWD	PLN	74		1	3	-	(5)	13
FWD	UAH	544		1	3	-	(5)	13
Total				933	4 805	(24)	(4 013)

Hedging derivative 31.12.2020		Nominal amount of hedging derivatives	Nominal-weighted average margin / Nominal-weighted average fixed interest rate	Carrying amount (fair value of hedging instruments)		Ineffective portion of cash flow hedges recognized in the income statements / Fair value adjustment to the hedged item	Change in the fair value of hedging instruments since designation	Strategy no.
Hedging derivative 31.12.2020		Nominal amount of hedging derivatives		Assets	Liabilities			Strategy no.
Cash flow hedges
CIRS CHF/PLN	float CHF	525	-0,0108%	-	293	(1)	(277)	1; 7
CIRS CHF/PLN	float PLN	1 939	0,0000%	-	293	(1)	(277)	1; 7
IRS PLN	fixed –float PLN	66 008	1,7924%	598	8	3	406	2
IRS CHF	fixed –float CHF	400	-0,4425%	6	-	-	1	3
IRS EUR	fixed –float EUR	1 228	-0,1479%	22	6	-	8	3; 4
CIRS EUR/PLN	float EUR	75	0,0000%	-	17	(1)	(14)	6
CIRS EUR/PLN	float PLN	328	-0,0500%	-	17	(1)	(14)	6
CIRS PLN/EUR	float PLN	2 963	0,0000%	332	21	3	290	9
CIRS PLN/EUR	fixed EUR	699	0,6177%	332	21	3	290	9
Fair value hedges
IRS EUR	fixed –float EUR	306	-0,2837%	-	13	13	(8)	8; 10; 11
IRS USD	fixed –float USD	158	-0,3465%	-	2	17	(1)	11
IRS PLN	fixed –float PLN	535	1,3735%	-	20	17	(17)	12
Total				958	380	51	388

financial information

CARRYING AMOUNT OF HEDGING INSTRUMENTS	31.12.2021		31.12.2020
CARRYING AMOUNT OF HEDGING INSTRUMENTS	Assets	Liabilities	Assets	Liabilities
Cash flow hedges	924	4 794	958	324
- interest rate risk - IRS	65	4 363	626	14
- foreign exchange risk and interest rate risk - CIRS	859	431	332	310
Fair value hedges	8	9	-	54
- interest rate risk IRS	8	9	-	54
Hedges of net investments in foreign operations	1	3	-	-
foreign exchange risk – Forward	1	3	-	-

Total	933	4 806	958	378

Cash flow hedges

CHANGE IN OTHER COMPREHENSIVE INCOME RELATING TO CASH FLOW HEDGES AND AN INEFFECTIVE PORTION OF CASH FLOW HEDGES	2021	2020
Accumulated other comprehensive income at the beginning of the period, net	355	232
Impact on other comprehensive income during the period, gross	(5 003)	174
Gains/losses recognized in other comprehensive income during the period	(4 112)	911
Amounts transferred from other comprehensive income to the income statement:	(891)	(737)
- interest income	(399)	(780)
- net foreign exchange gains/(losses)	(492)	43
Tax effect	949	(51)
Accumulated other comprehensive income at the end of the period, net	(3 699)	355

Ineffective portion of cash flow hedges recognized in the income statements, including in:	1	4
Foreign exchange gains/ (losses)	8	1
Gain/(loss) on financial instruments measured at fair value	(7)	3

Fair value hedges and hedges of interest in the net assets of a foreign entity

HEDGE OF INTEREST RATE AND FOREIGN EXCHANGE RISK	31.12.2021	31.12.2020
Fair value measurement of the hedging derivative instrument	(3)	(54)
hedge of interest rate – IRS fixed - float	(1)	(54)
hedge of a foreign entity - forward	(2)	-
Fair value adjustment of the hedged instrument attributable to the hedged risk	(25)	46
Hedge of interest rate, in it:	(25)	46
Securities	(2)	5
Loans and advances to customers	(1)	4
Fair value adjustment of securities recognized in other comprehensive income	(22)	37
Foreign exchange risk hedge - shares in a foreign entity for which the functional currency is a foreign currency	(4)	-

Hedge of interest in the net assets of a foreign entity

CHANGE IN OTHER COMPREHENSIVE INCOME RELATING TO HEDGES OF NET INVESTMENTS IN FOREIGN OPERATIONS AND AN INEFFECTIVE PORTION OF CASH FLOW HEDGES	31.12.2021	31.12.2020
Accumulated other comprehensive income at the beginning of the period, net	-	-
Impact on other comprehensive income during the period, gross	(4)	-
Gains/losses recognized in other comprehensive income during the period	(4)	-
Accumulated other comprehensive income at the end of the period, net	(4)	-

NOMINAL VALUE OF HEDGING INSTRUMENTS BY MATURITY (in original currencies)	up to 1 month	1 to 3 months	3 months to 1 year	1 to 5 years	over 5 years	Total
31.12.2021
Hedge type: Cash flow hedges
Risk hedged: interest rate risk
IRS PLN fixed - float	1 800	1 800	21 078	60 949	7 053	92 680
IRS EUR fixed - float	-	-	569	90	4	663
Risk hedged: foreign exchange and interest rate risks
CIRS float CHF/float PLN
float CHF	-	-	881	1 112	-	1 993
float PLN	-	-	3 654	4 622	-	8 276
CIRS fixed USD/float CHF
fixed USD	-	-	919	249	-	1 168
float CHF	-	-	858	225	-	1 083
CIRS float PLN/fixed EUR
float PLN	-	-	428	2 101	-	2 529
fixed EUR	-	-	99	499	-	598
CIRS fixed EUR/float CHF
fixed EUR	-	-	54	999	-	1 053
float CHF	-	-	63	1 112	-	1 175
Hedge type: Fair value hedges
Risk hedged: interest rate risk
IRS EUR fixed - float	-	-	-	205	-	205
IRS PLN fixed - float	-	-	-	217	30	247
Hedge type: Hedge net assets in a foreign entity
Risk hedged: foreign exchange risk
Forward PLN/UAH – currency purchase	-	27	46	-	-	73
Forward PLN/UAH – currency purchase	-	186	358	-	-	544

NOMINAL VALUE OF HEDGING INSTRUMENTS BY MATURITY (in original currencies)	up to 1 month	1 to 3 months	3 months to 1 year	1 to 5 years	over 5 years	Total
31.12.2020
Hedge type: Cash flow hedges
Risk hedged: interest rate risk
IRS PLN fixed - float	2 150	1 520	12 728	49 315	295	66 008
IRS EUR fixed - float	-	-	500	723	4	1 227
IRS CHF fixed - float	-	-	400	-	-	400
Risk hedged: foreign exchange and interest rate risks
CIRS float CHF/float PLN
float CHF	-	-	500	25	-	525
float PLN	-	-	1 842	97	-	1 939
CIRS float EUR/float PLN
float EUR	-	75	-	-	-	75
float PLN	-	328	-	-	-	328
CIRS float PLN/fixed EUR
float PLN	-	-	434	2 530	-	2 964
fixed EUR	-	-	100	599	-	699
Hedge type: Fair value hedges
Risk hedged: interest rate risk
IRS PLN fixed - float	-	-	-	-	535	535
IRS USD fixed - float	-	-	-	158	-	158
IRS EUR fixed - float	-	-	82	188	36	306

Calculation of estimates

ESTIMATED CHANGE IN VALUATION OF DERIVATIVE HEDGING INSTRUMENTS FOLLOWING A PARALLEL SHIFT IN YIELD CURVES:	31.12.2021		31.12.2020
	scenario +50bp	scenario -50bp	scenario +50bp	scenario -50bp
IRS	(844)	859	(531)	537
CIRS	(20)	20	(119)	121

Total	(864)	879	(650)	658

33. Other derivative instruments

Accounting policies

In its operations, the Group uses derivative financial instruments for risk management purposes related to its operations. The Group most often uses the following derivative instruments: IRS, CIRS, FX Swap, options, commodity swap, FRA, Forward and Futures. Derivative financial instruments are stated at fair value from the transaction date. Every derivative with positive fair value is shown under “Other derivative financial instruments” as an asset, and if the fair value is negative – as a liability.

The Group recognizes changes to the fair value measurement of derivative instruments which are not classified as hedging instruments and the gain/(loss) on the settlement of those instruments in the net gain/(loss) on financial instruments or net foreign exchange gains/(losses), depending on the type of derivative.

Estimates and judgments

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

The fair value of derivatives includes the Group’s own credit risk, DVA (debit value adjustment) as well as counterparty credit risk, CVA (credit value adjustment). The process of calculation of CVA and DVA adjustments includes the selection of a method for determining the spread of the counterparty’s or the Group’s credit risk (e.g. a market price method based on the continuous price quotations of debt instruments issued by the counterparty, a method of spread implied from Credit Default Swap contracts), an estimation of the probability of default by the counterparty or the Group and the recovery rate, as well as the calculation of CVA and DVA adjustments.

financial information

OTHER DERIVATIVE INSTRUMENTS - BY TYPE	31.12.2021		31.12.2020
OTHER DERIVATIVE INSTRUMENTS - BY TYPE	Assets	Liabilities	Assets	Liabilities
IRS	4 640	4 791	3 178	3 405
CIRS	694	602	652	978
FX Swap	586	312	358	314
Options	520	665	260	383
Commodity swap1	2 812	2 807	411	408
FRA	44	44	4	3
Forward	321	497	312	293
Commodity Forward2	1 286	1 276	326	320
Other	-	14	-	-

Total	10 903	11 008	5 501	6 104

1 The item comprises contracts for participation in the gas fuel market valued at PLN 2 574 million (as at 31 December 2020: PLN 341 million) - Assets and PLN 2 574 million (as at 31 December 2020: PLN 340 million) - Liabilities.

2 The item comprises valuation of contracts for CO2 emission rights.

	31.12.2021	31.12.2020
CVA and DVA adjustments	(10)	(16)

NOMINAL AMOUNTS OF UNDERLYING HEDGING INSTRUMENTS (BUY AND SELL TOGETHER) other hedging instruments
31.12.2021	up to 1 month	1 to 3 months	3 months to 1 year	1 to 5 years	over 5 years	Total
IRS	12 202	21 092	75 924	253 584	70 590	433 392
Purchase	6 101	10 546	37 962	126 792	35 295	216 696
Sale	6 101	10 546	37 962	126 792	35 295	216 696
CIRS	-	-	4 723	41 005	7 438	53 166
Purchase	-	-	2 345	20 321	3 718	26 384
Sale	-	-	2 378	20 684	3 720	26 782
FX Swap	35 949	25 886	18 396	24 898	-	105 129
Purchase of currencies	17 988	12 959	9 196	12 477	-	52 620
Sale of currencies	17 961	12 927	9 200	12 421	-	52 509
Options	27 076	27 666	58 663	29 268	1 203	143 876
Purchase	13 518	13 835	29 296	14 616	601	71 866
Sale	13 558	13 831	29 367	14 652	602	72 010
FRA	-	-	13 457	-	-	13 457
Purchase	-	-	6 126	-	-	6 126
Sale	-	-	7 331	-	-	7 331
Forward	12 809	11 284	19 068	20 888	-	64 049
Purchase of currencies	6 401	5 638	9 510	10 398	-	31 947
Sale of currencies	6 408	5 646	9 558	10 490	-	32 102
Other (including on stock exchange indices	2 132	1 321	4 970	1 499	23	9 945
Purchase	1 067	668	2 481	750	9	4 975
Sale	1 065	653	2 489	749	14	4 970
Razem	90 168	87 249	195 201	371 142	79 254	823 014

NOMINAL AMOUNTS OF UNDERLYING HEDGING INSTRUMENTS (BUY AND SELL TOGETHER) other hedging instruments
31.12.2020	up to 1 month	1 to 3 months	3 months to 1 year	1 to 5 years	over 5 years	Total
IRS	13 198	14 716	77 592	232 784	38 398	376 688
Purchase	6 599	7 358	38 796	116 392	19 199	188 344
Sale	6 599	7 358	38 796	116 392	19 199	188 344
CIRS	-	-	13 662	37 161	7 546	58 369
Purchase	-	-	6 831	18 577	3 772	29 180
Sale	-	-	6 831	18 584	3 774	29 189
FX Swap	27 650	12 919	9 428	5 373	-	55 370
Purchase of currencies	13 893	6 457	4 674	2 697	-	27 721
Sale of currencies	13 757	6 462	4 754	2 676	-	27 649
Options	5 154	9 685	25 008	10 345	1	50 193
Purchase	2 589	4 838	12 435	5 170	-	25 032
Sale	2 565	4 847	12 573	5 175	1	25 161
FRA	-	-	17 829	819	-	18 648
Purchase	-	-	8 678	581	-	9 259
Sale	-	-	9 151	238	-	9 389
Forward	6 513	14 387	18 566	7 954	47	47 467
Purchase of currencies	3 271	7 168	9 281	3 985	23	23 728
Sale of currencies	3 242	7 219	9 285	3 969	24	23 739
Other (including on stock exchange indices	701	1 299	3 661	1 133	434	7 228
Purchase	351	650	1 832	567	233	3 633
Sale	350	649	1 829	566	201	3 595
Total	53 216	53 006	165 746	295 569	46 426	613 963

Calculation of estimates

The Group made simulations to assess the potential impact of changes in the yield curves on the transaction value.

ESTIMATED CHANGE IN VALUATION OF OTHER DERIVATIVE INSTRUMENTS FOLLOWING A PARALLEL SHIFT IN YIELD CURVES:	31.12.2021		31.12.2020
	scenario +50bp	scenario -50bp	scenario +50bp	scenario -50bp
IRS	(829)	844	(523)	528
CIRS	(85)	86	(159)	161
other instruments	(13)	13	(4)	4

Total	(927)	943	(686)	693

34. Securities

Accounting policies

Securities are classified and measured in accordance with the principles of selecting the business model and assessing the characteristics of contractual cash flows referred to in the note “Description of major accounting policies”.

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

Financial information

SECURITIES	held for trading	not held for trading, measured at fair value through profit or loss	measured at fair value through other comprehensive income	measured at amortized cost	Total
31.12.2021
Debt securities	216	785	61 863	71 282	134 146
NBP money market bills	-	-	810	-	810
Treasury bonds (in PLN)	69	261	39 613	50 816	90 759
Treasury bonds (in foreign currencies)	2	350	3 169	-	3 521
corporate bonds (in PLN) secured with the State Treasury guarantees	4	-	9 894	12 092	21 990
municipal bonds (in PLN)	16	-	4 135	5 022	9 173
corporate bonds (in PLN)1	125	174	3 810	1 937	6 046
corporate bonds (in foreign currencies)	-	-	432	1 415	1 847
Equity securities	32	1 264	-	-	1 296
shares in other entities – not listed	-	326	-	-	326
shares in other entities – listed	31	144	-	-	175
participation units in investment funds, investment certificates, rights to shares, pre-emptive rights	1	794	-	-	795

Total (excluding adjustment relating to fair value hedge accounting)	248	2 049	61 863	71 282	135 442
Adjustment relating to fair value hedge accounting	-	-	-	(2)	(2)
Total	248	2 049	61 863	71 280	135 440

1 The item includes bonds of international financial organizations of PLN 3 652 million

SECURITIES	held for trading	not held for trading, measured at fair value through profit or loss	measured at fair value through other comprehensive income	measured at amortized cost	Total
31.12.2020
Debt securities	1 151	978	73 511	46 522	122 162
Treasury bonds (in PLN)	684	430	52 930	29 647	83 691
Treasury bonds (in foreign currencies)	4	367	2 872	39	3 282
Treasury bills	349	-	500	-	849
corporate bonds (in PLN) secured with the State Treasury guarantees	3	-	8 702	9 887	18 592
municipal bonds (in PLN)	15	-	4 649	5 060	9 724
corporate bonds (in PLN)1	96	181	3 835	1 518	5 630
corporate bonds (in foreign currencies)	-	-	23	371	394
Equity securities	27	1 488	-	-	1 515
shares in other entities – not listed	-	451	-	-	451
shares in other entities – listed	25	135	-	-	160
participation units in investment funds, investment certificates, rights to shares, pre-emptive rights	2	902	-	-	904

Total (excluding adjustment relating to fair value hedge accounting)	1 178	2 466	73 511	46 522	123 677
Adjustment relating to fair value hedge accounting	-	-	-	5	5

Total	1 178	2 466	73 511	46 527	123 682

1 The item includes bonds of international financial organizations of PLN 2 513 million

The item “Treasury bonds in PLN and in foreign currencies” comprises Polish Treasury bonds. As at 31 December 2021 and 3 December 2020 the item “Treasury bonds in foreign currencies” also includes bonds issued by the State Treasury of Ukraine of PLN 1 162 million and PLN 820 million, respectively.

34.1. Securities – classification of financial assets by stage

SECURITIES (excluding adjustments relating to fair value hedge accounting) 31.12.2021		stage 1		stage 2		stage 3		Total		including POCI
Measured at: fair value through OCI
Gross amount		61 474		44		397		61 915		380
NBP money market bills		810		-		-		810		-
Treasury bonds (in PLN)		39 613		-		-		39 613		-
Treasury bonds (in foreign currencies)		3 169		-		-		3 169		-
corporate bonds (in PLN) secured with the State Treasury guarantees		9 894		-		-		9 894		-
municipal bonds (in PLN)		4 091		44		-		4 135		-
corporate bonds (in PLN)		3 465		-		397		3 862		380
corporate bonds (in foreign currencies)		432		-		-		432		-
Allowances for expected credit losses		-		-		(52)		(52)		(52)
corporate bonds (in PLN)		-		-		(52)		(52)		(52)
Net amount		61 474		44		345		61 863		328
NBP money market bills		810		-		-		810		-
Treasury bonds (in PLN)		39 613		-		-		39 613		-
Treasury bonds (in foreign currencies)		3 169		-		-		3 169		-
corporate bonds (in PLN) secured with the State Treasury guarantees		9 894		-		-		9 894		-
municipal bonds (in PLN)		4 091		44		-		4 135		-
corporate bonds (in PLN)		3 465		-		345		3 810		328
corporate bonds (in foreign currencies)		432		-		-		432		-
Measured at: amortized cost
Gross amount		70 936		402		-		71 338		-
Treasury bonds (in PLN)		50 816		-		-		50 816		-
corporate bonds (in PLN) secured with the State Treasury guarantees		12 097		-		-		12 097		-
municipal bonds (in PLN)		4 982		57		-		5 039		-
corporate bonds (in PLN)		1 750		207		-		1 957		-
corporate bonds (in foreign currencies)		1 291		138		-		1 429		-
Allowances for expected credit losses		(30)		(26)		-		(56)		-
corporate bonds (in PLN) secured with the State Treasury guarantees		(5)		-		-		(5)		-
municipal bonds (in PLN)		(16)		(1)		-		(17)		-
corporate bonds (in PLN)		(3)		(17)		-		(20)		-
corporate bonds (in foreign currencies)		(6)		(8)		-		(14)		-
Net amount		70 906		376		-		71 282		-
Treasury bonds (in PLN)		50 816		-		-		50 816		-
corporate bonds (in PLN) secured with the State Treasury guarantees		12 092		-		-		12 092		-
municipal bonds (in PLN)		4 966		56		-		5 022		-
corporate bonds (in PLN)		1 747		190		-		1 937		-
corporate bonds (in foreign currencies)		1 285		130		-		1 415		-
Total securities
Gross amount		132 410		446		397		133 253		380
Allowances for expected credit losses		(30)		(26)		(52)		(108)		(52)
Net amount		132 380		420		345		133 145		328
SECURITIES (excluding adjustments relating to fair value hedge accounting) 31.12.2020	stage 1		stage 2		stage 3		Total		including POCI

Measured at: fair value through OCI
Gross amount	73 000		68		457		73 525		438
Treasury bonds (in PLN)	52 930		-		-		52 930		-
Treasury bonds (in foreign currencies)	2 872		-		-		2 872		-
Treasury bills	500		-		-		500		-
corporate bonds (in PLN) secured with the State Treasury guarantees	8 702		-		-		8 702		-
municipal bonds (in PLN)	4 582		67		-		4 649		-
corporate bonds (in PLN)	3 391		1		457		3 849		438
corporate bonds (in foreign currencies)	23		-		-		23		-
Allowances for expected credit losses	-		-		(14)		(14)		(14)
corporate bonds (in PLN)	-		-		(14)		(14)		(14)
Net amount	73 000		68		443		73 511		424
Treasury bonds (in PLN)	52 930		-		-		52 930		-
Treasury bonds (in foreign currencies)	2 872		-		-		2 872		-
Treasury bills	500		-		-		500		-
corporate bonds (in PLN) secured with the State Treasury guarantees	8 702		-		-		8 702		-
municipal bonds (in PLN)	4 582		67		-		4 649		-
corporate bonds (in PLN)	3 391		1		443		3 835		424
corporate bonds (in foreign currencies)	23		-		-		23		-
Measured at: amortised cost
Gross amount	46 330		228		-		46 558		-
Treasury bonds (in PLN)	29 647		-		-		29 647		-
Treasury bonds (in foreign currencies)	39		-		-		39		-
corporate bonds (in PLN) secured with the State Treasury guarantees	9 889		-		-		9 889		-
municipal bonds (in PLN)	5 052		24		-		5 076		-
corporate bonds (in PLN)	1 331		204		-		1 535		-
corporate bonds (in foreign currencies)	372		-		-		372		-
Allowances for expected credit losses	(20)		(16)		-		(36)		-
corporate bonds (in PLN) secured with the State Treasury guarantees	(2)		-		-		(2)		-
municipal bonds (in PLN)	(16)		-		-		(16)		-
corporate bonds (in PLN)	(1)		(16)		-		(17)		-
corporate bonds (in foreign currencies)	(1)		-		-		(1)		-
Net amount	46 310		212		-		46 522		-
Treasury bonds (in PLN)	29 647		-		-		29 647		-
Treasury bonds (in foreign currencies)	39		-		-		39		-
corporate bonds (in PLN) secured with the State Treasury guarantees	9 887		-		-		9 887		-
municipal bonds (in PLN)	5 036		24		-		5 060		-
corporate bonds (in PLN)	1 330		188		-		1 518		-
corporate bonds (in foreign currencies)	371		-		-		371		-
Total securities
Gross amount	119 330		296		457		120 083		438
Allowances for expected credit losses	(20)		(16)		(14)		(50)		(14)
Net amount	119 310		280		443		120 033		424

34.2. Securities - changes in the gross carrying amount during the period

SECURITIES – CHANGES IN THE GROSS CARRYING AMOUNT DURING THE PERIOD (excluding adjustments relating to fair value hedge accounting)	stage 1	stage 2	stage 3	Total	including POCI
2021
Measured at: fair value through OCI
Carrying amount as at the beginning of the period, gross	73 000	68	457	73 525	438
Transfer from stage 2 and 3 to stage 1	49	(49)	-	-	-
Transfer from stage 1 and 3 to stage 2	(44)	44	-	-	-
Granting or purchase of financial instruments	49 597	-	-	49 597	-
Utilization of limits or disbursement of tranches	90	1	-	91	-
Repayments	(53 305)	(20)	(60)	(53 385)	(58)
Derecognition, including sale	(5 319)	-	-	(5 319)	-
Other changes *	(2 594)	-	-	(2 594)	-
Carrying amount as at the end of the period, gross	61 474	44	397	61 915	380

* Other changes include the effect of foreign exchange gains/(losses), interest, measurement, discount and premium

SECURITIES – CHANGES IN THE GROSS CARRYING AMOUNT DURING THE PERIOD (excluding adjustments relating to fair value hedge accounting))	stage 1	stage 2	stage 3	Total	including POCI
2021
Measured at: amortized cost
Carrying amount as at the beginning of the period, gross	46 330	228	-	46 558	-
Transfer from stage 2 and 3 to stage 1	25	(25)	-	-	-
Transfer from stage 1 and 3 to stage 2	(216)	216	-	-	-
Granting or purchase of financial instruments	25 838	-	-	25 838	-
Utilization of limits or disbursement of tranches	108	1	-	109	-
Repayments	(2 051)	(23)	-	(2 074)	-
Derecognition, including sale	(41)	-	-	(41)	-
Other changes *	943	5	-	948	-
Carrying amount as at the end of the period, gross	70 936	402	-	71 338	-

* Other changes include the effect of foreign exchange gains/(losses), interest, measurement, discount and premium

SECURITIES – CHANGES IN THE GROSS CARRYING AMOUNT DURING THE PERIOD (excluding adjustments relating to fair value hedge accounting)	stage 1	stage 2	stage 3	Total	including POCI
2020
Measured at: fair value through OCI
Carrying amount as at the beginning of the period, gross	63 290	59	463	63 812	463
Transfer from stage 2 and 3 to stage 1	8	(8)	-	-	-
Transfer from stage 1 and 3 to stage 2	(14)	14	-	-	-
Transfer from stage 1 and 2 to stage 3	(19)	-	19	-	-
Granting or purchase of financial instruments	68 610	4	-	68 614	-
Utilization of limits or disbursement of tranches	953	-	1	954	1
Repayments	(61 602)	(1)	(23)	(61 626)	(23)
Insignificant modifications	2	-	-	2	-
Derecognition, including sale	(2 134)	-	-	(2 134)	-
Write-offs	-	-	(2)	(2)	(2)
Other changes *	3 906	-	(1)	3 905	(1)
Carrying amount as at the end of the period, gross	73 000	68	457	73 525	438

* Other changes include the effect of foreign exchange gains/(losses), interest, measurement, discount and premium

SECURITIES – CHANGES IN THE GROSS CARRYING AMOUNT DURING THE PERIOD (excluding adjustments relating to fair value hedge accounting)	stage 1	stage 2	stage 3	Total	including POCI
2020
Measured at: amortized cost
Carrying amount as at the beginning of the period, gross	13 450	20	4	13 474	-
Transfer from stage 2 and 3 to stage 1	12	(12)	-	-	-
Transfer from stage 1 and 3 to stage 2	(105)	105	-	-	-
Granting or purchase of financial instruments	33 844	-	-	33 844	-
Utilization of limits or disbursement of tranches	130	1	-	131	-
Repayments	(1 859)	(6)	-	(1 865)	-
Derecognition, including sale	(25)	-	-	(25)	-
Write-offs	-	-	(3)	(3)	-
Other changes *	883	120	(1)	1 002	-
Carrying amount as at the end of the period, gross	46 330	228	-	46 558	-

* Other changes include the effect of foreign exchange gains/(losses), interest, measurement, discount and premium

34.3. Securities - changes in allowances for expected credit losses in the period

SECURITIES – CHANGES IN ALLOWANCES FOR EXPECTED CREDIT LOSSES IN THE PERIOD	stage 1	stage 2	stage 3	Total	including POCI
2021
Measured at: fair value through OCI
As at the beginning of the period	-	-	(14)	(14)	(14)
Transfer from stage 1 and 3 to stage 2	1	(1)	-	-	-
Increase due to recognition and purchase	(41)	-	-	(41)	-
Changes in credit risk (net)	21	-	(35)	(14)	(35)
Decrease due to derecognition	9	-	-	9	-
Other adjustments	10	1	(3)	8	(3)
As at the end of the period	-	-	(52)	(52)	(52)

SECURITIES – CHANGES IN ALLOWANCES FOR EXPECTED CREDIT LOSSES IN THE PERIOD	stage 1	stage 2	stage 3	Total	including POCI
2021
Measured at: amortized cost
As at the beginning of the period	(20)	(16)	-	(36)	-
Transfer from stage 1 and 3 to stage 2	10	(10)	-	-	-
Increase due to recognition and purchase	(13)	-	-	(13)	-
Changes in credit risk (net)	4	(9)	-	(5)	-
Other adjustments	(11)	9	-	(2)	-
As at the end of the period	(30)	(26)	-	(56)	-

SECURITIES – CHANGES IN ALLOWANCES FOR EXPECTED CREDIT LOSSES IN THE PERIOD	stage 1	stage 2	stage 3	Total	including POCI
2020
Measured at: fair value through OCI
As at the beginning of the period	-	-	(5)	(5)	(5)
Increase due to recognition and purchase	(19)	-	-	(19)	-
Changes in credit risk (net)	8	-	(8)	-	(8)
Decrease due to derecognition	2	-	-	2	-
Write-offs	-	-	2	2	2
Other adjustments	9	-	(3)	6	(3)
As at the end of the period	-	-	(14)	(14)	(14)

SECURITIES – CHANGES IN ALLOWANCES FOR EXPECTED CREDIT LOSSES IN THE PERIOD	stage 1	stage 2	stage 3	Total	including POCI
2020
Measured at: amortized cost
As at the beginning of the period	(16)	-	(4)	(20)	-
Transfer from stage 1 and 3 to stage 2	4	(4)	-	-	-
Increase due to recognition and purchase	(6)	-	-	(6)	-
Changes in credit risk (net)	1	(16)	-	(15)	-
Write-offs	-	-	3	3	-
Other adjustments	(3)	4	1	2	-
As at the end of the period	(20)	(16)	-	(36)	-

• other information

	31.12.2021	31.12.2020
allowance not reducing fair value of securities measured at fair value through other comprehensive income	39	30

SECURITIES BY MATURITY (excluding adjustments relating to fair value hedge accounting)	held for trading	not held for trading, measured at fair value through profit or loss	measured at fair value through OCI	measured at amortized cost	Total
31.12.2021
without a set date – equity securities	32	1 264	-	-	1 296
up to 1 month	8	2	954	-	964
1 to 3 months	3	-	371	18	392
3 months to 1 year	70	60	1 587	5 019	6 736
1 to 5 years	92	541	35 656	38 185	74 474
over 5 years	43	182	23 295	28 060	51 580

Total	248	2 049	61 863	71 282	135 442

SECURITIES BY MATURITY (excluding adjustments relating to fair value hedge accounting)	held for trading	not held for trading, measured at fair value through profit or loss	measured at fair value through OCI	measured at amortized cost	Total
31.12.2020
without a set date – equity securities	27	1 488	-	-	1 515
up to 1 month	1	2	214	6	223
1 to 3 months	351	-	569	51	971
3 months to 1 year	543	46	9 561	854	11 004
1 to 5 years	180	701	43 642	33 572	78 095
over 5 years	76	229	19 525	12 039	31 869

Total	1 178	2 466	73 511	46 522	123 677

35. Repo and reverse repo tranactions

Accounting policies

Reverse repo transactions are measured at amortized cost. The difference between the purchase and repurchase (sale) price constitutes interest income and is settled over the period of the agreement using the effective interest rate.

Repo transactions are transactions of sale of securities with a granted promise of repurchase within a defined contractual term and at a specified price. The securities that are a component of repo transactions are not eliminated from the statement of financial position and are measured in accordance with the principles specified for each category of securities. The difference between the sale price and the repurchase price is recognised as interest expense and it is settled over the term of the contract using the effective interest rate.

36. Loans and advances to customers

Accounting policies

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

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

Finance lease agreements are recognised as receivables in the amount equal to the current contractual value of the lease payments plus the potential not guaranteed residual value attributed to the lessor, determined as at the date of inception of the lease. Lease payments on finance leases are divided between interest income and a reduction in the balance of receivables in a manner enabling achieving a fixed interest rate on the remaining receivables.

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

Additionally, the Group recognizes the impact of:

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

• potential reimbursements of costs to customers in connection with expected early repayment of active consumer and mortgage loans

when adjusting the gross carrying amount of housing and consumer loans measured at amortized cost.

financial information

LOANS AND ADVANCES TO CUSTOMERS 31.12.2021	not held for trading, measured at fair value through profit or loss	measured at fair value through other comprehensive income	measured at amortized cost	Total
retail and private banking	4 462	2	139 716	144 180
housing	4	-	113 532	113 536
consumer	4 458	2	26 077	30 537
finance lease receivables	-	-	107	107
SME	43	-	31 443	31 486
housing	-	-	5 532	5 532
corporate	43	-	13 579	13 622
factoring receivables	-	-	150	150
finance lease receivables	-	-	12 182	12 182
corporate	54	-	58 581	58 635
housing	-	-	75	75
corporate	54	-	50 471	50 525
factoring receivables	-	-	2 773	2 773
finance lease receivables	-	-	5 262	5 262
Loans and advances to customers (excluding adjustments relating to fair value hedge)	4 559	2	229 740	234 301
Adjustment relating to fair value hedge	-	-	(1)	(1)
Total	4 559	2	229 739	234 300

LOANS AND ADVANCES TO CUSTOMERS 31.12.2020	not held for trading, measured at fair value through profit or loss	measured at fair value through other comprehensive income	measured at amortized cost	Total
retail and private banking	5 895	-	133 391	139 286
housing	7	-	110 352	110 359
consumer	5 888	-	22 932	28 820
finance lease receivables	-	-	107	107
SME	46	-	29 883	29 929
housing	-	-	5 674	5 674
corporate	46	-	12 478	12 524
factoring receivables	-	-	144	144
finance lease receivables	-	-	11 587	11 587
corporate	68	-	53 316	53 384
housing	-	-	292	292
corporate	68	-	46 483	46 551
factoring receivables	-	-	1 484	1 484
finance lease receivables	-	-	5 057	5 057
Loans and advances to customers (excluding adjustments relating to fair value hedge)	6 009	-	216 590	222 599
Adjustment relating to fair value hedge	-	-	4	4
Total	6 009	-	216 594	222 603

36.1. Loans and advances to customers – classification of financial assets by stage

LOANS AND ADVANCES TO CUSTOMERS (excluding adjustments relating to fair value hedge accounting) 2021	Stage 1	Stage 2	Stage 3	Total	including POCI
Measured at: fair value through OCI
Gross amount	-	-	3	3	3
consumer loans	-	-	3	3	3
Allowances for expected credit losses	-	-	(1)	(1)	(1)
consumer loans	-	-	(1)	(1)	(1)
Net amount	-	-	2	2	2
consumer loans	-	-	2	2	2
Measured at: amortized cost
Gross amount	192 555	36 543	9 329	238 427	235
housing loans	104 386	14 830	2 005	121 221	81
corporate loans	49 182	14 471	4 537	68 190	50
consumer loans	23 064	3 152	1 643	27 859	47
factoring receivables	2 900	18	28	2 946	-
finance lease receivables	13 023	4 072	1 116	18 211	57
Allowances for expected credit losses	(708)	(2 263)	(5 716)	(8 687)	(6)
housing loans	(68)	(671)	(1 343)	(2 082)	(19)
corporate loans	(337)	(933)	(2 870)	(4 140)	(14)
consumer loans	(233)	(525)	(1 024)	(1 782)	28
factoring receivables	(5)	-	(18)	(23)	-
finance lease receivables	(65)	(134)	(461)	(660)	(1)
Net amount	191 847	34 280	3 613	229 740	229
housing loans	104 318	14 159	662	119 139	62
corporate loans	48 845	13 538	1 667	64 050	36
consumer loans	22 831	2 627	619	26 077	75
factoring receivables	2 895	18	10	2 923	-
finance lease receivables	12 958	3 938	655	17 551	56
Loans and advances to customers, total
Gross amount	192 555	36 543	9 332	238 430	238
Allowances for expected credit losses	(708)	(2 263)	(5 717)	(8 688)	(7)
Net amount	191 847	34 280	3 615	229 742	231

LOANS AND ADVANCES TO CUSTOMERS (excluding adjustments relating to fair value hedge accounting) 2020	Stage 1	Stage 2	Stage 3	Total	including POCI
Measured at: amortized cost
Gross amount	182 300	33 249	9 865	225 414	270
housing loans	102 746	13 702	1 953	118 401	85
corporate loans	44 346	13 689	5 450	63 485	57
consumer loans	20 240	2 855	1 447	24 542	53
factoring receivables	1 532	94	23	1 649	-
finance lease receivables	13 436	2 909	992	17 337	75
Allowances for expected credit losses	(602)	(2 061)	(6 161)	(8 824)	(39)
housing loans	(58)	(621)	(1 404)	(2 083)	(27)
corporate loans	(289)	(931)	(3 304)	(4 524)	(6)
consumer loans	(209)	(426)	(975)	(1 610)	(4)
factoring receivables	(2)	-	(19)	(21)	-
finance lease receivables	(44)	(83)	(459)	(586)	(2)
Net amount	181 698	31 188	3 704	216 590	231
housing loans	102 688	13 081	549	116 318	58
corporate loans	44 057	12 758	2 146	58 961	51
consumer loans	20 031	2 429	472	22 932	49
factoring receivables	1 530	94	4	1 628	-
finance lease receivables	13 392	2 826	533	16 751	73
Loans and advances to customers, total
Gross amount	182 300	33 249	9 865	225 414	270
Allowances for expected credit losses	(602)	(2 061)	(6 161)	(8 824)	(39)
Net amount	181 698	31 188	3 704	216 590	231

36.2. Loans and advances to customers – changes in the gross carrying amount

LOANS AND ADVANCES TO CUSTOMERS – CHANGES IN THE GROSS CARRYING AMOUNT DURING THE PERIOD	Stage 1	Stage 2	Stage 3	Total	including POCI
2021
Measured at: amortized cost
housing loans
Carrying amount as at the beginning of the period, gross	102 746	13 702	1 953	118 401	85
Transfer from stage 2 and 3 to stage 1	3 055	(3 048)	(7)	-	-
Transfer from stage 1 and 3 to stage 2	(5 632)	5 704	(72)	-	-
Transfer from stage 1 and 2 to stage 3	(89)	(413)	502	-	-
Granting or purchase of financial instruments	2 712	295	21	3 028	17
Utilization of limits or disbursement of tranches	14 261	383	118	14 762	5
Repayments	(12 256)	(1 199)	(240)	(13 695)	(11)
Insignificant modifications	74	4	-	78	-
Derecognition, including sale	(1 057)	(183)	(24)	(1 264)	(19)
Write-offs	-	-	(267)	(267)	(7)
Other changes*	572	(415)	21	178	11
Carrying amount as at the end of the period, gross	104 386	14 830	2 005	121 221	81

* Other changes include the effect of foreign exchange gains/(losses), interest, measurement.

LOANS AND ADVANCES TO CUSTOMERS – CHANGES IN THE GROSS CARRYING AMOUNT DURING THE PERIOD	Stage 1	Stage 2	Stage 3	Total	including POCI
2021
Measured at: amortized cost
Business loans
Carrying amount as at the beginning of the period, gross	44 346	13 689	5 450	63 485	57
Transfer from stage 2 and 3 to stage 1	1 302	(1 292)	(10)	-	-
Transfer from stage 1 and 3 to stage 2	(3 035)	3 122	(87)	-	-
Transfer from stage 1 and 2 to stage 3	(155)	(494)	649	-	-
Granting or purchase of financial instruments	12 200	2 086	181	14 467	25
Utilization of limits or disbursement of tranches	14 001	2 038	146	16 185	13
Repayments	(22 390)	(1 605)	(732)	(24 727)	(41)
Insignificant modifications	(152)	(50)	(25)	(227)	(1)
Derecognition, including sale	(481)	(14)	(150)	(645)	(137)
Write-offs	-	-	(918)	(918)	-
Other changes*	3 546	(3 009)	33	570	134
Carrying amount as at the end of the period, gross	49 182	14 471	4 537	68 190	50

* Other changes include the effect of foreign exchange gains/(losses), interest, measurement.

LOANS AND ADVANCES TO CUSTOMERS – CHANGES IN THE GROSS CARRYING AMOUNT DURING THE PERIOD	Stage 1	Stage 2	Stage 3	Total	including POCI
2021
Measured at: amortized cost
Consumer loans
Carrying amount as at the beginning of the period, gross	20 240	2 855	1 447	24 542	53
Transfer from stage 2 and 3 to stage 1	524	(505)	(19)	-	-
Transfer from stage 1 and 3 to stage 2	(1 309)	1 353	(44)	-	-
Transfer from stage 1 and 2 to stage 3	(313)	(405)	718	-	-
Granting or purchase of financial instruments	10 896	382	91	11 369	12
Utilization of limits or disbursement of tranches	1 458	182	123	1 763	5
Repayments	(8 780)	(456)	(205)	(9 441)	(14)
Insignificant modifications	(5)	(3)	(4)	(12)	-
Derecognition, including sale	(123)	(12)	(50)	(185)	(46)
Write-offs	-	-	(504)	(504)	(10)
Change in the business model	(3)	(11)	(24)	(38)	-
Other changes*	479	(228)	114	365	47
Carrying amount as at the end of the period, gross	23 064	3 152	1 643	27 859	47

* Other changes include the effect of foreign exchange gains/(losses), interest, measurement.

LOANS AND ADVANCES TO CUSTOMERS – CHANGES IN THE GROSS CARRYING AMOUNT DURING THE PERIOD	Stage 1	Stage 2	Stage 3	Total	including POCI
2021
Measured at: amortized cost
Finance lease receivables
Carrying amount as at the beginning of the period, gross	13 436	2 909	992	17 337	75
Transfer from stage 2 and 3 to stage 1	437	(424)	(13)	-	-
Transfer from stage 1 and 3 to stage 2	(2 382)	2 449	(67)	-	-
Transfer from stage 1 and 2 to stage 3	(221)	(455)	676	-	-
Granting or purchase of financial instruments	6 100	1 225	77	7 402	-
Utilization of limits or disbursement of tranches	83	1	38	122	5
Repayments	(4 238)	(918)	(313)	(5 469)	(24)
Insignificant modifications	(112)	(657)	(192)	(961)	-
Derecognition, including sale	(105)	(58)	(7)	(170)	-
Write-offs	-	-	(76)	(76)	-
Other changes*	25	-	1	26	1
Carrying amount as at the end of the period, gross	13 023	4 072	1 116	18 211	57

*Other changes include the effect of foreign exchange gains/(losses), interest, measurement.

LOANS AND ADVANCES TO CUSTOMERS – CHANGES IN THE GROSS CARRYING AMOUNT DURING THE PERIOD	Stage 1	Stage 2	Stage 3	Total	including POCI
2021
Measured at: amortized cost
Factoring receivables
Carrying amount as at the beginning of the period, gross	1 532	94	23	1 649	-
Transfer from stage 2 and 3 to stage 1	209	(208)	(1)	-	-
Transfer from stage 1 and 3 to stage 2	(23)	23	-	-	-
Transfer from stage 1 and 2 to stage 3	(4)	(3)	7	-	-
Granting or purchase of financial instruments	918	-	-	918	-
Utilization of limits or disbursement of tranches	331	112	-	443	-
Repayments	(63)	-	(1)	(64)	-
Carrying amount as at the end of the period, gross	2 900	18	28	2 946	-

LOANS AND ADVANCES TO CUSTOMERS – CHANGES IN THE GROSS CARRYING AMOUNT DURING THE PERIOD	Stage 1	Stage 2	Stage 3	Total	including POCI
2020
Measured at: amortized cost
Housing loans
Carrying amount as at the beginning of the period, gross	112 498	5 806	2 110	120 414	92
Transfer from stage 2 and 3 to stage 1	1 896	(1 893)	(3)	-	-
Transfer from stage 1 and 3 to stage 2	(11 358)	11 490	(132)	-	-
Transfer from stage 1 and 2 to stage 3	(83)	(198)	281	-	-
Granting or purchase of financial instruments	2 366	83	39	2 488	4
Utilization of limits or disbursement of tranches	9 584	128	65	9 777	1
Repayments	(11 613)	(619)	(126)	(12 358)	(12)
Insignificant modifications	77	(1)	(2)	74	-
Derecognition, including sale	(402)	(27)	(7)	(436)	(7)
Write-offs	-	-	(32)	(32)	-
Other changes*	(219)	(1 067)	(240)	(1 526)	7
Carrying amount as at the end of the period, gross	102 746	13 702	1 953	118 401	85

* Other changes include the effect of foreign exchange gains/(losses), interest, measurement.

LOANS AND ADVANCES TO CUSTOMERS – CHANGES IN THE GROSS CARRYING AMOUNT DURING THE PERIOD	Stage 1	Stage 2	Stage 3	Total	including POCI
2020
Measured at: amortized cost
Business loans
Carrying amount as at the beginning of the period, gross	57 503	4 837	5 506	67 846	166
Transfer from stage 2 and 3 to stage 1	554	(532)	(22)	-	-
Transfer from stage 1 and 3 to stage 2	(6 337)	6 623	(286)	-	-
Transfer from stage 1 and 2 to stage 3	(379)	564	(185)	-	-
Granting or purchase of financial instruments	9 934	1 974	370	12 278	18
Utilization of limits or disbursement of tranches	9 838	1 115	201	11 154	27
Repayments	(25 919)	(1 521)	(708)	(28 148)	(157)
Insignificant modifications	52	(31)	(16)	5	-
Derecognition, including sale	(359)	(84)	(39)	(482)	(29)
Write-offs	-	-	(213)	(213)	2
Change in the business model	-	(1)	(6)	(7)	-
Other changes*	(541)	745	848	1 052	30
Carrying amount as at the end of the period, gross	44 346	13 689	5 450	63 485	57

* Other changes include the effect of foreign exchange gains/(losses), interest, measurement.

LOANS AND ADVANCES TO CUSTOMERS – CHANGES IN THE GROSS CARRYING AMOUNT DURING THE PERIOD	Stage 1	Stage 2	Stage 3	Total	including POCI
2020
Measured at: amortized cost
Consumer loans
Carrying amount as at the beginning of the period, gross	19 801	1 722	1 236	22 759	48
Transfer from stage 2 and 3 to stage 1	507	(495)	(12)	-	-
Transfer from stage 1 and 3 to stage 2	(1 794)	1 830	(36)	-	-
Transfer from stage 1 and 2 to stage 3	(361)	(227)	588	-	-
Granting or purchase of financial instruments	8 193	321	77	8 591	16
Utilization of limits or disbursement of tranches	983	138	99	1 220	3
Repayments	(7 418)	(286)	(125)	(7 829)	(15)
Insignificant modifications	(9)	(5)	(2)	(16)	-
Derecognition, including sale	(118)	(5)	(48)	(171)	(39)
Write-offs	-	-	(288)	(288)	(21)
Change in the business model	(6)	(6)	(54)	(66)	-
Other changes*	462	(132)	12	342	61
Carrying amount as at the end of the period, gross	20 240	2 855	1 447	24 542	53

* Other changes include the effect of foreign exchange gains/(losses), interest, measurement.

LOANS AND ADVANCES TO CUSTOMERS – CHANGES IN THE GROSS CARRYING AMOUNT DURING THE PERIOD	Stage 1	Stage 2	Stage 3	Total	including POCI
2020
Measured at: amortized cost
Finance lease receivables
Carrying amount as at the beginning of the period, gross	13 589	2 377	822	16 788	80
Transfer from stage 2 and 3 to stage 1	24	(23)	(1)	-	-
Transfer from stage 1 and 3 to stage 2	(187)	191	(4)	-	-
Transfer from stage 1 and 2 to stage 3	(12)	(9)	21	-	-
Granting or purchase of financial instruments	5 438	371	56	5 865	4
Utilization of limits or disbursement of tranches	54	-	-	54	-
Repayments	(2 951)	(343)	(131)	(3 425)	(9)
Derecognition, including sale	(1 039)	(244)	(87)	(1 370)	-
Write-offs	-	(1)	(37)	(38)	-
Other changes*	(1 480)	590	353	(537)	-
Carrying amount as at the end of the period, gross	13 436	2 909	992	17 337	75

* Other changes include the effect of foreign exchange gains/(losses), interest, measurement.

LOANS AND ADVANCES TO CUSTOMERS – CHANGES IN THE GROSS CARRYING AMOUNT DURING THE PERIOD	Stage 1	Stage 2	Stage 3	Total	including POCI
2020
Measured at: amortized cost
Factoring receivables
Carrying amount as at the beginning of the period, gross	1 198	81	51	1 330	-
Transfer from stage 2 and 3 to stage 1	17	(15)	(2)	-	-
Transfer from stage 1 and 3 to stage 2	(6)	9	(3)	-	-
Transfer from stage 1 and 2 to stage 3	7	-	(7)	-	-
Granting or purchase of financial instruments	974	60	4	1 038	-
Utilization of limits or disbursement of tranches	(173)	18	(4)	(159)	-
Repayments	(483)	(60)	(16)	(559)	-
Other changes*	(2)	1	-	(1)	-
Carrying amount as at the end of the period, gross	1 532	94	23	1 649	-

* Other changes include the effect of foreign exchange gains/(losses), interest, measurement.

36.3. loans and advances to customers – Changes in allowances for expected credit losses

LOANS AND ADVANCES TO CUSTOMERS – CHANGES IN ALLOWANCES FOR EXPECTED CREDIT LOSSES DURING THE PERIOD	Stage 1	Stage 2	Stage 3	Total	including POCI
2021
Measured at: amortized cost
Housing loans
As at the beginning of the period	(58)	(621)	(1 404)	(2 083)	(27)
Transfer from stage 2 and 3 to stage 1	(4)	4	-	-	-
Transfer from stage 1 and 3 to stage 2	163	(176)	13	-	-
Transfer from stage 1 and 2 to stage 3	26	164	(190)	-	-
Increase due to recognition and purchase	(7)	(6)	(9)	(22)	(1)
Changes in credit risk (net)	(120)	(52)	13	(159)	3
Decrease due to derecognition	2	8	12	22	1
Changes due to modification without derecognition (net)	(3)	(3)	-	(6)	-
Write-offs	-	-	267	267	7
Other adjustments*	(67)	11	(45)	(101)	(2)
As at the end of the period	(68)	(671)	(1 343)	(2 082)	(19)

* Other changes include the effect of foreign exchange gains/(losses), interest.

LOANS AND ADVANCES TO CUSTOMERS – CHANGES IN ALLOWANCES FOR EXPECTED CREDIT LOSSES DURING THE PERIOD	Stage 1	Stage 2	Stage 3	Total	including POCI
2021
Measured at: amortized cost
Business loans
As at the beginning of the period	(289)	(931)	(3 304)	(4 524)	(6)
Transfer from stage 2 and 3 to stage 1	(14)	13	1	-	-
Transfer from stage 1 and 3 to stage 2	203	(208)	5	-	-
Transfer from stage 1 and 2 to stage 3	47	126	(173)	-	-
Increase due to recognition and purchase	(159)	(51)	(143)	(353)	(9)
Changes in credit risk (net)	(43)	110	(257)	(190)	(8)
Decrease due to derecognition	6	6	117	129	2
Changes due to modification without derecognition (net)	(5)	8	8	11	-
Changing the method of performing estimates (net effect)	-	1	(2)	(1)	-
Write-offs	-	-	918	918	-
Other adjustments*	(83)	(7)	(40)	(130)	7
As at the end of the period	(337)	(933)	(2 870)	(4 140)	(14)

* Other changes include the effect of foreign exchange gains/(losses), interest.

LOANS AND ADVANCES TO CUSTOMERS – CHANGES IN ALLOWANCES FOR EXPECTED CREDIT LOSSES DURING THE PERIOD	Stage 1	Stage 2	Stage 3	Total	including POCI
2021
Measured at: amortized cost
Consumer loans
As at the beginning of the period	(209)	(426)	(975)	(1 610)	(4)
Transfer from stage 2 and 3 to stage 1	(9)	9	-	-	-
Transfer from stage 1 and 3 to stage 2	229	(238)	9	-	-
Transfer from stage 1 and 2 to stage 3	162	227	(389)	-	-
Increase due to recognition and purchase	(102)	(14)	(40)	(156)	(1)
Changes in credit risk (net)	(287)	(114)	27	(374)	24
Decrease due to derecognition	5	7	22	34	-
Changes due to modification without derecognition (net)	(9)	(4)	(6)	(19)	-
Changing the method of performing estimates (net effect)	2	12	5	19	-
Write-offs	-	-	504	504	10
Other adjustments*	(15)	16	(181)	(180)	(1)
As at the end of the period	(233)	(525)	(1 024)	(1 782)	28

* Other changes include the effect of foreign exchange gains/(losses), interest.

LOANS AND ADVANCES TO CUSTOMERS – CHANGES IN ALLOWANCES FOR EXPECTED CREDIT LOSSES DURING THE PERIOD	Stage 1	Stage 2	Stage 3	Total	including POCI
2021
Measured at: amortized cost
Finance lease receivables
As at the beginning of the period	(44)	(83)	(459)	(586)	(2)
Transfer from stage 2 and 3 to stage 1	(9)	7	2	-	-
Transfer from stage 1 and 3 to stage 2	9	(23)	14	-	-
Transfer from stage 1 and 2 to stage 3	1	31	(32)	-	-
Increase due to recognition and purchase	(41)	(56)	(81)	(178)	-
Changes in credit risk (net)	10	(32)	(73)	(95)	-
Decrease due to derecognition	10	21	105	136	1
Changes due to modification without derecognition (net)	-	1	-	1	-
Write-offs	-	-	76	76	-
Other adjustments*	(1)	-	(13)	(14)	-
As at the end of the period	(65)	(134)	(461)	(660)	(1)

* Other changes include the effect of foreign exchange gains/(losses), interest.

LOANS AND ADVANCES TO CUSTOMERS – CHANGES IN ALLOWANCES FOR EXPECTED CREDIT LOSSES DURING THE PERIOD	Stage 1	Stage 2	Stage 3	Total	including POCI
2021
Measured at: amortized cost
Factoring receivables
As at the beginning of the period	(2)	-	(19)	(21)	-
Transfer from stage 1 and 2 to stage 3	(1)	-	1	-	-
Increase due to recognition and purchase	(1)	-	-	(1)	-
Other adjustments*	(1)	-	-	(1)	-
As at the end of the period	(5)	-	(18)	(23)	-

* Other changes include the effect of foreign exchange gains/(losses), interest.

LOANS AND ADVANCES TO CUSTOMERS – CHANGES IN ALLOWANCES FOR EXPECTED CREDIT LOSSES DURING THE PERIOD	Stage 1	Stage 2	Stage 3	Total	including POCI
2020
Measured at: amortized cost
housing loans
As at the beginning of the period	(55)	(527)	(1 384)	(1 966)	(32)
Transfer from stage 2 and 3 to stage 1	(5)	5	-	-	-
Transfer from stage 1 and 3 to stage 2	323	(347)	24	-	-
Transfer from stage 1 and 2 to stage 3	27	86	(113)	-	-
Increase due to recognition and purchase	(8)	(1)	-	(9)	-
Changes in credit risk (net)	(267)	92	209	34	5
Decrease due to derecognition	3	3	11	17	-
Changes due to modification without derecognition (net)	(18)	(11)	(2)	(31)	-
Write-offs	-	-	32	32	-
Other adjustments*	(58)	79	(181)	(160)	-
As at the end of the period	(58)	(621)	(1 404)	(2 083)	(27)

* Other changes include the effect of foreign exchange gains/(losses), interest.

LOANS AND ADVANCES TO CUSTOMERS – CHANGES IN ALLOWANCES FOR EXPECTED CREDIT LOSSES DURING THE PERIOD	Stage 1	Stage 2	Stage 3	Total	including POCI
2020
Measured at: amortized cost
Business loans
As at the beginning of the period	(363)	(314)	(2 875)	(3 552)	2
Transfer from stage 2 and 3 to stage 1	(10)	10	-	-	-
Transfer from stage 1 and 3 to stage 2	397	(418)	21	-	-
Transfer from stage 1 and 2 to stage 3	119	126	(245)	-	-
Increase due to recognition and purchase	(80)	(39)	(87)	(206)	-
Changes in credit risk (net)	(308)	(289)	(187)	(784)	3
Decrease due to derecognition	5	5	20	30	1
Changes due to modification without derecognition (net)	(16)	(9)	(25)	(50)	-
Changing the method of performing estimates (net effect)	(1)	1	(1)	(1)	-
Write-offs	-	-	213	213	(2)
Other adjustments*	(32)	(4)	(138)	(174)	(10)
As at the end of the period	(289)	(931)	(3 304)	(4 524)	(6)

* Other changes include the effect of foreign exchange gains/(losses), interest, measurement.

LOANS AND ADVANCES TO CUSTOMERS – CHANGES IN ALLOWANCES FOR EXPECTED CREDIT LOSSES DURING THE PERIOD	Stage 1	Stage 2	Stage 3	Total	including POCI
2020
Measured at: amortized cost
Consumer loans
As at the beginning of the period	(164)	(231)	(825)	(1 220)	(34)
Transfer from stage 2 and 3 to stage 1	(8)	8	-	-	-
Transfer from stage 1 and 3 to stage 2	253	(259)	6	-	-
Transfer from stage 1 and 2 to stage 3	181	153	(334)	-	-
Increase due to recognition and purchase	(71)	(8)	(26)	(105)	(1)
Changes in credit risk (net)	(380)	(106)	(68)	(554)	2
Decrease due to derecognition	7	6	17	30	-
Changes due to modification without derecognition (net)	-	2	(5)	(3)	-
Changing the method of performing estimates (net effect)	-	-	(1)	(1)	1
Write-offs	-	-	288	288	21
Other adjustments*	(27)	9	(27)	(45)	7
As at the end of the period	(209)	(426)	(975)	(1 610)	(4)

* Other changes include the effect of foreign exchange gains/(losses), interest, measurement.

LOANS AND ADVANCES TO CUSTOMERS – CHANGES IN ALLOWANCES FOR EXPECTED CREDIT LOSSES DURING THE PERIOD	Stage 1	Stage 2	Stage 3	Total	including POCI
2020
Measured at: amortized cost
Finance lease receivables
As at the beginning of the period	(35)	(70)	(359)	(464)	(2)
Transfer from stage 1 and 2 to stage 3	-	1	(1)	-	-
Increase due to recognition and purchase	(27)	(25)	(75)	(127)	-
Changes in credit risk (net)	6	(9)	(102)	(105)	-
Decrease due to derecognition	13	20	52	85	-
Write-offs	-	1	37	38	-
Other adjustments*	(1)	(1)	(11)	(13)	-
As at the end of the period	(44)	(83)	(459)	(586)	(2)

* Other changes include the effect of foreign exchange gains/(losses), interest, measurement.

LOANS AND ADVANCES TO CUSTOMERS – CHANGES IN ALLOWANCES FOR EXPECTED CREDIT LOSSES DURING THE PERIOD	Stage 1	Stage 2	Stage 3	Total	including POCI
2020
Measured at: amortized cost
Factoring receivables
As at the beginning of the period	(1)	-	(17)	(18)	-
Transfer from stage 2 and 3 to stage 1	(2)	-	2	-	-
Transfer from stage 1 and 2 to stage 3	4	-	(4)	-	-
Increase due to recognition and purchase	(1)	-	(1)	(2)	-
Changes in credit risk (net)	(2)	-	-	(2)	-
Decrease due to derecognition	1	-	2	3	-
Other adjustments*	(1)	-	(1)	(2)	-
As at the end of the period	(2)	-	(19)	(21)	-

* Other changes include the effect of foreign exchange gains/(losses), interest, measurement.

• other information

LOANS AND ADVANCES TO CUSTOMERS BY MATURITY (excluding adjustments relating to fair value hedge accounting)	not held for trading, measured at fair value through profit or loss	measured at fair value through other comprehensive income	measured at amortized cost	Total
31.12.2021
up to 1 month	794	-	11 363	12 157
1 to 3 months	554	-	10 533	11 087
3 months to 1 year	2 110	-	31 172	33 282
from 1 to 5 years	1 058	-	77 551	78 609
over 5 years	43	2	99 121	99 166

Total	4 559	2	229 740	234 301

LOANS AND ADVANCES TO CUSTOMERS BY MATURITY (excluding adjustments relating to fair value hedge accounting)	not held for trading, measured at fair value through profit or loss	measured at amortized cost	Total
31.12.2020
up to 1 month	1 032	9 076		10 108
1 to 3 months	675	8 355		9 030
3 months to 1 year	2 572	28 883		31 455
from 1 to 5 years	1 624	75 695		77 319
over 5 years	106	94 581		94 687

Total	6 009	216 590		222 599

37. Receivables and liabilities related to insurance activities

Accounting policies

Receivables from insurance activities are receivables on account of reinsurance and share of reinsurers in technical reserves.

Reinsurance receivables include receivables from reinsurers and reinsurance brokers resulting from concluded outward reinsurance contracts. Reinsurance receivables are measured at the amounts due less impairment allowances.

The reinsurer’s share in the technical provisions is determined on the basis of the gross provisions and the conditions specified in the reinsurance contracts. Therefore, as in the case of technical provisions, the majority of the reinsurer’s share in the provisions is determined on the basis of individual methods. In the case of the reinsurer’s share appointed at the level of aggregated data, the granularity of calculations is applied, which enables proper consideration of the parameters of the reinsurance contract, e.g. defining the reinsurance contract at the level of the claim year or policy year. The reinsurer’s share in the technical provisions is determined adequately and carefully.

Liabilities in respect of insurance activities comprise technical reserves to cover current and future claims and costs which may arise from the insurance contracts concluded, i.e. unearned premium and unexpired risk reserves, outstanding claims and benefits reserve, reserve for bonuses and discounts for the insured, life insurance reserve, and other, as well as deferred reinsurance commission and reinsurance related liabilities.

Technical provisions are created to cover current and future claims and costs that may result from concluded insurance contracts. Provisions include both events that have occurred in the past but have not yet been settled, as well as events that will occur in the future. In most cases, provisions are created on an individual basis at the level of individual policies or claims, with the exception of, inter alia, IBNR reserve, which is determined at the level of homogeneous risk groups. All provisions are calculated using classical actuarial methods. The provisions take into account not only the expected claims and benefits payments and costs, but also any other cash flows resulting from concluded insurance contracts, e.g. bonuses and rebates. Provisions are created adequately and prudently in such a way as to include a certain risk margin.

Reinsurance commissions in the part falling for future reporting periods are settled in time according to the rules governing the creation of the provision for premiums with the reinsurer’s share.

Reinsurance liabilities include current liabilities towards reinsurers resulting from settlements made on the basis of outward reinsurance contracts. Reinsurance liabilities are recognized at their nominal value and measured at the amount required as at the balance sheet date.

financial information

Receivables in respect of insurance activities	31.12.2021	31.12.2020
Reinsurers’ share in technical reserves	865	752
Receivables in respect of reinsurance	46	46
Total	911	798

As at 31 December 2021 and 31 December 2020 all receivables in respect of insurance activities were classified as Stage 1.

RECEIVABLES IN RESPECT OF INSURANCE ACTIVITIES – CHANGES IN THE GROSS CARRYING AMOUNT DURING THE PERIOD	2021	2020
Carrying amount as at the beginning of the period, gross	798	858
Granting or purchase of financial instruments	113	-
Repayments	-	(60)
Carrying amount as at the end of the period, gross	911	798

LIABILITIES IN RESPECT OF INSURANCE ACTIVITIES	31.12.2021	31.12.2020
Technical reserves	1 233	1 051
Deferred reinsurance commission	725	641
Liabilities in respect of reinsurance	50	48
Total	2 008	1 740

38. Intangible assets, plant and equipment, and property, plant and equipment leased out under operating lease

Accounting policies

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

Goodwill - Goodwill arising on acquisition of subsidiaries is recognized under “Intangible assets” and goodwill arising on acquisition of associates and joint ventures is recognized under “Investments in associates and joint ventures”. The test for goodwill impairment is carried out at least at the end of each year.

Customer relations and value in force - As a result of a settlement of the transaction, two components of intangible assets that are recognized separately from goodwill, i.e. customer relations and value in force, representing the present value of future profits from concluded insurance contracts, were identified. These components of intangible assets are amortized by declining balance method based on the rate of economic benefits consumption arising from their use.

Other intangible assets - Other intangible assets acquired by the Group are recognized at acquisition cost or production cost, less accumulated amortization and impairment allowances.

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

Property, plant and equipment - are measured at the cost of purchase or manufacture, less accumulated depreciation and impairment allowances.

Investment properties - are measured according to the accounting policies applied to property, plant and equipment.

Capital expenditure - The carrying amount of property, plant and equipment items is increased by additional capital expenditure incurred during their use, provided that it satisfies the criteria for classification as fixed assets.

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

• Amortization and depreciation

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

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

• the lease period ends, or

• the asset is designated for scrapping, or

• the asset is sold, or

• the asset is found to be missing, or

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

Depreciation and amortization is charged using the straight-line method, consisting in a systematic, even distribution of the initial value of a fixed asset, the right to use and an intangible asset over the specified depreciation/amortization period, regardless of any possible periods of the assets not being used.

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

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

• Impairment allowances on non-financial non-current assets and right-of-use assets

Impairment allowances in respect of cash generating units first and foremost reduce the goodwill attributable to those cash generating units (groups of units), and then they reduce proportionally the carrying amounts of other assets in the unit (group of units).

An impairment allowance in respect of goodwill cannot be reversed. In the case of other assets, an impairment allowance may be reversed if the estimations used to determine the recoverable amount have changed. An impairment allowance may be reversed only to the extent that the carrying amount of an asset does not exceed the carrying amount – less depreciation/amortization – which would be determined had the impairment allowance not been recorded.

If there are indications of impairment of common assets, i.e. assets which do not generate cash flows independently from other assets or groups of assets, and the recoverable amount of a single asset included in common assets cannot be determined, the Group determines the recoverable amount at the level of the cash-generating unit to which the asset belongs.

Estimates and judgments

• Useful lives of property, plant and equipment, including assets leased out under operating lease, intangible assets and investment properties

In estimating useful lives of particular types of property, plant and equipment, including assets leased out under operating lease, intangible assets and investment properties, the following factors are considered:

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

• technical or market obsolescence;

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

• expected use of the asset;

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

• other circumstances affecting the useful life of such assets.

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

Depreciation /amortization periods applied by the PKO Bank Polski S.A. Group:

Fixed assets	Use periods
Buildings, premises, cooperative rights to premises (including investment real estate)	from 25 to 60 years
Improvements in foreign fixed assets (buildings, premises)	from 1 to 11 years (or the lease term, if shorter)
Machines, technical devices, tools and instruments	from 2 to 15 years
Computer teams	from 2 to 10 years
Means of transport	from 3 to 5 years
Intangible assets	Use periods
Software	from 1 to 20 years
Other intangible assets	from 2 to 20 years

• Impairment allowances

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

Indications of impairment of non-current assets include:

1) a decrease in the market value of an asset identified during the period of verification, which is significantly higher than impairment caused by the passage of time and ordinary use;

2) the occurrence of adverse changes (which has already occurred or will occur during the period) caused by technological, market, economic or legal factors in the Bank’s environment or on the markets to which the asset is addressed;

3) an increase in market interest rates (which has occurred or will occur in the period), which is likely to affect a discount rate used to calculate the value in use of a given asset and reduce its recoverable value significantly;

4) evidence of obsolescence of a given asset for the purposes of the operations conducted or its physical defect;

5) the occurrence of significant adverse changes (or likelihood of their occurrence in the near future) in the scope or manner of use of a given asset, such as e.g. plans to discontinue or restructure the operations in which the asset is used, plans for its early scrapping, a change in the estimated useful life of the asset from indefinite to definite;

6) evidence that the economic performance of a given asset is or will be in the future worse than expected;

7) the occurrence of adverse climate change which will contribute to a change in the expectations as to the further use of a given asset;

8) other indications of possible impairment.

If any such evidence exists and annually in the case of intangible assets which are not amortized and goodwill, the Group estimates the recoverable amount being the higher of the fair value less costs to sell or the value in use of a non-current asset (or a cash-generating unit); if the carrying amount of an asset exceeds its recoverable amount, the Group recognises an impairment loss in the income statement. The estimation for the aforementioned values requires making assumptions, among other things about future expected cash flows that the Group may receive from the continued use or disposal of the non-current asset (or a cash-generating unit). Adopting different assumptions concerning the valuation of future cash flows could affect the carrying amount of certain non-current assets.

financial information

38.1. Property, plant and equipment sent in operating leases

PROPERTY, PLANT AND EQUIPMENT SENT IN OPERATING LEASES	Land and buildings	Machinery and equipment, including IT equipment	Other, including means of transport	Total
2021
Gross carrying amount at the beginning of the period	13	2	1 545	1 560
Acquisition	-	-	687	687
Liquidation and sale	-	(1)	(490)	(491)
Other	-	-	40	40
Gross carrying amount at the end of the period	13	1	1 782	1 796

Accumulated depreciation at the beginning of the period	(2)	(1)	(388)	(391)
Period amortization	-	-	(212)	(212)
Liquidation and sale	-	-	190	190
Other	-	-	(9)	(9)
Accumulated depreciation at the end of the period	(2)	(1)	(419)	(422)

Write-downs at the beginning of the period	(1)	-	-	(1)
Establishment in the period	(1)	-	-	(1)
Other	-	-	(1)	(1)
Write-downs at the end of the period	(2)	-	(1)	(3)

Net carrying amount at the beginning of the period	10	1	1 157	1 168
Net carrying amount at the end of the period	9	-	1 362	1 371

PROPERTY, PLANT AND EQUIPMENT SENT IN OPERATING LEASES	Land and buildings	Machinery and equipment, including IT equipment	Other, including means of transport	Total
2020
Gross carrying amount at the beginning of the period	19	8	1 652	1 679
Acquisition	-	-	462	462
Liquidation and sale	-	(7)	(577)	(584)
Other	(6)	1	8	3
Gross carrying amount at the end of the period	13	2	1 545	1 560

Accumulated depreciation at the beginning of the period	(2)	(6)	(364)	(372)
Period amortization	-	-	(192)	(192)
Liquidation and sale	-	6	169	175
Other	-	(1)	(1)	(2)
Accumulated depreciation at the end of the period	(2)	(1)	(388)	(391)

Write-downs at the beginning of the period	(2)	-	(5)	(7)
Establishment in the period	(1)	-	-	(1)
Solutions in the period	-	-	5	5
Other	2	-	-	2
Write-downs at the end of the period	(1)	-	-	(1)

Net carrying amount at the beginning of the period	15	2	1 283	1 300
Net carrying amount at the end of the period	10	1	1 157	1 168

38.2. Proprerty, plant and equipment

PROPERTY, PLANT AND EQUIPMENT	Land and buildings	Machinery and equipment, including IT equipment	Assets under construction	Other, including vehicles	Total	of which of right-of-use assets
2021
Carrying amount as at the beginning of the period, gross	3 807	1 715	289	834	6 645	1 460
Purchase	106	12	207	91	416	108
Transfers from capital expenditure	89	153	(275)	33	-	-
Scrapping and sale	(82)	(124)	(1)	(52)	(259)	(25)
Other	57	12	(3)	3	69	9
Carrying amount as at the end of the period, gross	3 977	1 768	217	909	6 871	1 552

Accumulated depreciation as at the beginning of the period	(1 553)	(1 332)	-	(498)	(3 383)	(431)
Depreciation charge for the period	(329)	(138)	-	(67)	(534)	(234)
Scrapping and sale	70	123	-	43	236	18
Other	23	(5)	-	-	18	1
Accumulated depreciation as at the end of the period	(1 789)	(1 352)	-	(522)	(3 663)	(646)

Impairment allowances as at the beginning of the period	(97)	(1)	(3)	-	(101)	(5)
Establishment the period	(1)	-	-	-	(1)	-
Other	3	-	(1)	-	2	-
Impairment allowances as at the end of the period	(95)	(1)	(4)	-	(100)	(5)

Carrying amount as at the beginning of the period, net	2 157	382	286	336	3 161	1 024
Carrying amount as at the end of the period, net	2 093	415	213	387	3 108	901

PROPERTY, PLANT AND EQUIPMENT	Land and buildings	Machinery and equipment, including IT equipment	Assets under construction		Other, including vehicles		Total	of which of right-of-use assets
2020
Carrying amount as at the beginning of the period, gross	3 561	1 657	221	803		6 242		1 094
Purchase	377	21	281	79		758		373
Transfers from capital expenditure	60	118	(208)	31		1		-
Scrapping and sale	(51)	(59)	-	(48)		(158)		(10)
Other	(140)	(22)	(5)	(31)		(198)		3
Carrying amount as at the end of the period, gross	3 807	1 715	289	834		6 645		1 460

Accumulated depreciation as at the beginning of the period	(1 300)	(1 259)	(1)	(488)		(3 048)		(208)
Depreciation charge for the period	(336)	(140)	-	(65)		(541)		(229)
Scrapping and sale	46	58	-	47		151		6
Other	37	9	1	8		55		-
Accumulated depreciation as at the end of the period	(1 553)	(1 332)	-	(498)		(3 383)		(431)

Impairment allowances as at the beginning of the period	(46)	(1)	(4)	(1)		(52)		(1)
Establishment the period	(62)	(1)	-	-		(63)		(4)
Reversed during the period	5	-	-	-		5		-
Other	6	1	1	1		9		-
Impairment allowances as at the end of the period	(97)	(1)	(3)	-		(101)		(5)

Carrying amount as at the beginning of the period, net	2 215	397	216	314		3 142		885
Carrying amount as at the end of the period, net	2 157	382	286	336		3 161		1 024

PROPERTY, PLANT AND EQUIPMENT related to right of use	Land and buildings	Other, including vehicles	Total
2021
Carrying amount as at the beginning of the period, gross	1 434	26	1 460
Purchase	106	2	108
Scrapping and sale	(25)	-	(25)
Other	9	-	9
Carrying amount as at the end of the period, gross	1 524	28	1 552

Accumulated depreciation as at the beginning of the period	(431)	-	(431)
Depreciation charge for the period	(232)	(2)	(234)
Scrapping and sale	19	(1)	18
Other	2	(1)	1
Accumulated depreciation as at the end of the period	(642)	(4)	(646)

Impairment allowances as at the beginning of the period	(5)	-	(5)
Impairment allowances as at the end of the period	(5)	-	(5)

Carrying amount as at the beginning of the period, net	998	26	1 024
Carrying amount as at the end of the period, net	877	24	901

PROPERTY, PLANT AND EQUIPMENT related to right of use	Land and buildings	Machinery and equipment, including IT equipment	Other, including vehicles	Total
2020
Carrying amount as at the beginning of the period, gross	1 067	1	26	1 094
Purchase	372	-	-	372
Scrapping and sale	(10)	(1)	-	(11)
Other	5	-	-	5
Carrying amount as at the end of the period, gross	1 434	-	26	1 460

Accumulated depreciation as at the beginning of the period	(207)	-	-	(207)
Depreciation charge for the period	(229)	-	-	(229)
Scrapping and sale	6	-	-	6
Other	(1)	-	-	(1)
Accumulated depreciation as at the end of the period	(431)	-	-	(431)

Impairment allowances as at the beginning of the period	(1)	-	-	(1)
Establishment the period	(4)	-	-	(4)
Impairment allowances as at the end of the period	(5)		-	(5)

Carrying amount as at the beginning of the period, net	859	1	26	886
Carrying amount as at the end of the period, net	998	-	26	1 024

38.3. Intangible assets

INTANGIBLE ASSETS	Software	Goodwill	Future profit on concluded insurance contracts	Customer relationships		Other, including capital expenditure	of which: software		Total
2021
Carrying amount as at the beginning of the period, gross	6 137	1 437	141	158	569		433	8 442
Purchase	44	-	-	-	551		550	595
Transfers from capital expenditure	387	-	-	-	(386)		(15)	1
Scrapping and sale	(682)	-	-	-	(2)		-	(684)
Other	22	(30)	(1)	-	44		(326)	35
Carrying amount as at the end of the period, gross	5 908	1 407	140	158	776		642	8 389

Accumulated amortization as at the beginning of the period	(4 440)	-	(110)	(105)	(91)		-	(4 746)
Amortization charge for the period	(440)	-	(8)	(12)	(4)		-	(464)
Scrapping and sale	681	-	-	-	2		-	683
Other	(4)	-	-	-	1		-	(3)
Accumulated amortization as at the end of the period	(4 203)	-	(118)	(117)	(92)		-	(4 530)

Impairment allowances as at the beginning of the period	(18)	(384)	-	-	(13)		-	(415)
Establishment the period	-	-	-	(9)	(2)		(2)	(11)
Other	-	30	-	-	-		-	30
Impairment allowances as at the end of the period	(18)	(354)	-	(9)		(15)	(2)		(396)

Carrying amount as at the beginning of the period, net	1 679	1 053	31	53		465	433		3 281
Carrying amount as at the end of the period, net	1 687	1 053	22	32		669	640		3 463

INTANGIBLE ASSETS	Software	Goodwill	Future profit on concluded insurance contracts	Customer relationships	Other, including capital expenditure	of which: software	Total
2020
Carrying amount as at the beginning of the period, gross	5 552	1 438	141	157	479	346	7 767
Purchase	44	-	-	-	580	580	624
Transfers from capital expenditure	537	-	-	-	(537)	(537)	-
Other	4	(1)	-	1	47	44	51
Carrying amount as at the end of the period, gross	6 137	1 437	141	158	569	433	8 442

Accumulated amortization as at the beginning of the period	(4 039)	-	(100)	(91)	(85)	-	(4 315)
Amortization charge for the period	(409)	-	(10)	(13)	(6)	-	(438)
Other	8	-	-	(1)	-	-	7
Accumulated amortization as at the end of the period	(4 440)	-	(110)	(105)	(91)	-	(4 746)

Impairment allowances as at the beginning of the period	(19)	(238)	-	-	(17)	(10)	(274)
Establishment the period	-	(147)	-	-	(6)	-	(153)
Other	1	1	-	-	10	10	12
Impairment allowances as at the end of the period	(18)	(384)	-	-	(13)	-	(415)

Carrying amount as at the beginning of the period, net	1 494	1 200	41	66	377	336	3 178
Carrying amount as at the end of the period, net	1 679	1 053	31	53	465	433	3 281

From the Bank’s perspective, expenditure incurred on the Integrated Information System (IIS) is a significant item of intangible assets. The total capital expenditure incurred on the IIS in the years 2005-2021 was PLN 1 462 million.

The net carrying amount of the Integrated Information System (IIS) as at 31 December 2021 was PLN 629 million (PLN 616 million as at 31 December 2020). The expected useful life of the system is 24 years. As at 31 December 2021, its remaining useful life is 9 years.

• Goodwill

Net goodwill	31.12.2021	31.12.2020
Nordea Bank Polska SA	747	747
PKO Życie Towarzystwo Ubezpieczeń SA	91	91
Raiffeisen - Leasing Polska SA i jej spółki zależne (PKO Leasing SA)	57	57
PKO Towarzystwo Funduszy Inwestycyjnych SA	150	150
Assets taken over from CFP sp. z o.o.	8	8
Total	1 053	1 053

Goodwill	Impairment test – method
Nordea Bank Polska S.A.	The impairment test is conducted by comparing the carrying amounts of cash generating units (‘CGUs’) with their recoverable amount. Two CGUs were identified to which goodwill on acquisition of Nordea Bank Polska S.A. was allocated – the retail and corporate CGU, which correspond to operating segments. The residual value of a CGU has been calculated by extrapolating the cash flow projections beyond the period of the forecast using the growth rate adopted at a level of 3.6%. Cash flow projections used in the impairment test cover a period of 10 years and are based on the assumptions included in the financial plans of the Bank for 2022, taking into account the effect of COVID-19 and the interests rate reductions on the current and anticipated macroeconomic situation. A discount rate of 10.65%, taking into account the risk-free rate and risk premium, was used for the discounting of the future cash flows. Goodwill of Nordea Bank Polska S.A. of PLN 747 million belongs to the retail segment. As at 31 December 2021, the Group performed an impairment test in respect of goodwill on the acquisition of Nordea Bank Polska S.A. assigned to the retail CGU. The test did not identify impairment. As at 31 December 2020, the test identified a surplus of the recoverable value over the carrying amount of the retail CGU. The sensitivity analysis from the discount rate point of view shows that this surplus would decrease to zero if it increased to 10.11%. On 30 June 2020, as a result of the impairment test performed in respect on goodwill on acquisition of Nordea Bank Polska S.A., the Group recognized an allowance of PLN 117 million in respect of the corporate CGU. The reasons for recognizing the allowance were the outbreak of the COVID-19 pandemic and its implications (an increase in the cost of credit risk and expected economic slowdown), as well as the interest rate decreases accompanied by a high level of regulatory charges (tax on certain financial institutions and the cost of payments to the BGF), which significantly reduced the expected profitability of banking operations.
PKO Towarzystwo Funduszy Inwestycyjnych S.A.	The impairment test was carried out on the basis of the three-year financial forecast prepared by the Company based on the discounted dividend method, taking into account the residual value. No impairment of goodwill was identified.
PKO Życie Towarzystwo Ubezpieczeń S.A.	The impairment test carried out was developed on the basis of the present value of expected future cash flows for the Bank, taking into account the residual value. Future cash flows were estimated on the basis prepared by the Company’s 10 year financial forecast. No impairment of goodwill was identified.
PKO Leasing Pro S.A.	The goodwill arising on the acquisition of the Company was allocated to the whole of PKO Leasing S.A. as the immediate parent company, which acquired the assets of PKO Leasing Pro S.A. in the merger. The impairment test was prepared on the basis of the present value of the expected future cash flows generated by the Company, estimated on the basis of the financial forecast prepared by the Company for five years with the simultaneous fading out of activities thereafter. The valuation model took into account the effect of NBP interest rate decreases introduced by the Monetary Policy Council (MPC) (140 bp in total) and the effect of the pandemic on the financial projections, including in particular the expected increase in the cost of credit risk. The recoverable amount of the cash-generating unit to which this goodwill was related, i.e. customers from the acquired company PKO Leasing Pro S.A., was estimated lower than the carrying amount. As a result of the test performed in June 2020, the Group recorded an allowance in the amount of PLN 31 million.
Raiffeisen - Leasing Polska S.A. and its subsidiaries (PKO Leasing S.A.)	The goodwill that arose on the acquisition of these companies was allocated to the portion of the assets of the PKO Leasing S.A. Group that was separately recorded in the accounts as assets of the Raiffeisen-Leasing Polska S.A. Group that was acquired. The impairment test was carried out on the basis of the five-year financial forecast prepared by the Company based on the discounted dividend method, taking into account the residual value. No impairment of goodwill was identified.

In the impairment tests described above, a discount rate of 7.555% (except for Nordea Bank Polska S.A.) was used to discount future cash flows, taking into account the risk-free rate equal to the yield of 10-year treasury bonds as at the date of valuation and a premium for market risk and risk ratio determined for projects of PKO Bank Polski S.A.

The valuation methods and forecast periods were adapted to the specific features of activities related to the assets or companies being valued.

calculation of estimates

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

CHANGE IN THE USEFUL LIVES OF ASSETS SUBJECT TO DEPRECIATION AND CLASSIFIED AS LAND AND BUILDINGS	31.12.2021		31.12.2020
	scenario +10 years	scenario -10 years	scenario +10 years	scenario -10 years
Depreciation costs	(29)	178	(33)	206

39. Assets held for sale

Accounting policies

Only assets available for immediate sale in the current condition are classified as assets held for sale, provided that their sale is highly probable, i.e. the entity has decided to sell the asset and started to actively seek a buyer to complete the sale process. In addition, such assets are offered for sale at a price which is reasonable in view of their current fair value and it is expected that the sale will be completed within one year from the date of classification of the asset into this category.

These assets are recognized at the lower of their carrying amount and fair value less costs to sell. Impairment allowances on non-current assets held for sale are recognized in the income statement for the period in which the allowances were made. Assets classified to this category are not depreciated.

When the respective classification criteria to this category are no longer met, the Group reclassifies the asset from non-current assets held for sale to another category of assets (as appropriate). Assets withdrawn from assets held for sale are measured at the lower of: 1) the carrying amount from before the moment of their classification to non-current assets held for sale, less amortization/depreciation that would have been recorded had the asset (or disposal group) not been classified as held for sale, 2) the recoverable amount as at the date of making the decision not to sell.

NON-CURRENT ASSETS HELD FOR SALE	31.12.2021	31.12.2020
Land and buildings	19	128
Other	-	1
Total, gross	19	129
Impairment allowances	(1)	(3)

Total	18	126

Non-current assets held for sale – CHANGES IN ALLOWANCES	31.12.2021	31.12.2020
As at the beginning of the period	(3)	(1)
Recognized during the period	(2)	(4)
Other	4	2
As at the end of the period	(1)	(3)

40. Investments in associates and joint ventures

The Bank has the shares carrying 34% votes at the General Shareholders’ Meeting. The other shareholder is EVO International Payments Acquisition GmbH in Germany.

According to the agreement signed by the partners, regulating the principles of cooperation, decisions regarding the significant activities of the company require consent of both shareholders.

Both Shareholders have the right to appoint their representatives in the Supervisory Board: in the case of the Supervisory Board consisting of 5 members, PKO Bank Polski S.A. has the right to appoint 2 members (in the case of 7 members, PKO appoints 3 members). The Bank has two representatives on the Supervisory Board consisting of 7 people and indicates the independent member. Decisions reserved to the competence of the Supervisory Board regarding significant activities require the consent of at least one representative of PKO Bank Polski S.A. and one representative of the other shareholder.

• Bank Pocztowy S.A.

PKO Bank Polski S.A. is a significant investor – it holds 25% plus 10 votes at the Company’s shareholders’ meeting. Poczta Polska S.A. is the other shareholder. Through its representatives on the Supervisory Board and the Company’s Shareholders’ Meeting, the Bank participates in the policymaking process, including decisions on dividends and other ways of profit distribution.

• “Poznański Fundusz Poręczeń Kredytowych” sp. z o.o.

PKO Bank Polski S.A. holds 33.33% votes at the Company’s Shareholders’ Meeting. The Bank has two representatives on the Company’s Supervisory Board which consists of 4 people. Other shareholders have one representative each on the Supervisory Board. Through its representatives on the Supervisory Board and the Company’s Shareholders’ Meeting, the Bank participates in the policymaking process, including decisions on dividends and other ways of profit distribution.

• Operator Chmury Krajowej sp. z o.o.

The Bank has shares in the Company which carry 50% of votes at the Shareholders’ Meeting, with Polski Fundusz Rozwoju S.A. being the other shareholder.

In accordance with the Company’s Articles of Association:

a) each of the shareholders is personally entitled to appoint and dismiss members of the Management Board and the Supervisory Board, with the Bank and PFR having the right to appoint an equal number of members of each of the said bodies;

b) additionally, the Bank has the exclusive right to appoint the President of the Management Board and PFR has the exclusive right to appoint the Chair of the Supervisory Board;

all key decisions relating to the Company’s operations must be taken by a unanimous resolution of the Supervisory Board or by a unanimous resolution of the Shareholders’ Meeting.

• BSafer sp. z o.o.

PKO VC - fizan (a subsidiary of PKO Bank Polski S.A.) holds the company’s shares carrying 35.06% of votes at the Shareholders’ Meeting, and the other majority shareholder of the company is Michał Pilch 59.740%.

Pursuant to the Articles of Association, decisions regarding the significant activities of the Company (i.e. activities that have a significant impact on the amount of returns generated by the Company, where returns are understood as e.g. dividends, increasing or decreasing the share capital of the Company, passing or returning additional payments, the value of the Company’s shares in the balance sheet of the shareholder) were reserved to the competence of the General Shareholders’ Meeting and require the consent of both shareholders.

financial information

ASSOCIATES	31.12.2021	31.12.2020
Bank Pocztowy S.A.	-	-
Acquisition price	184	184
Change in the share of net assets	73	85
Impairment allowances	(257)	(269)
„Poznański Fundusz Poręczeń Kredytowych” sp. z o.o.	-	-
Acquisition price	2	2
Change in the share of net assets	4	4
Impairment allowances	(6)	(6)
Total	-	-

JOINT VENTURES		31.12.2021	31.12.2020
„Centrum Obsługi Biznesu” sp. z o.o.		-	-
Acquisition price		17	17
Change in the share of net assets		(17)	(17)
Grupa Centrum Elektronicznych Usług Płatniczych eService sp. z o.o.		265	271
Value of shares as at the date of obtaining joint control		197	197
Change in the share of net assets		121	91
Dividend		(53)	(17)
Operator Chmury Krajowej sp. z o.o.		20	20
Value of shares as at the date of obtaining joint control		43	43
Increase of the purchase price		18	-
Change in the share of net assets		(41)	(23)
BSafer sp. z o.o.		-	-
Acquisition price		1	1
Impairment allowances		(1)	(1)
Total		285	291
CHANGE IN INVESTMENTS IN ASSOCIATES	2021			2020
Investments in associates as at the beginning of the period	-		88
Share in profits/ (losses)	2		-
Net impairment allowance	12		(95)
Share in the change in other equity components	(14)		7
Investments in associates as at the end of the period	-		-

CHANGE IN INVESTMENTS IN JOINT VENTURES	2021	2020
Investments in joint ventures as at the beginning of the period	291	289
Increasing commitment	18	1
Share in profits/ (losses)	29	16
Net impairment allowance	-	2
Dividend	(53)	(17)
Investments in joint ventures as at the end of the period	285	291

IMPAIRMENT ALLOWANCES – RECONCILIATION OF MOVEMENTS	2021	2020
As at the beginning of the period	275	182
Recognized during the period	-	95
Reversed during the period	(12)	(2)
As at the end of the period	263	275

Net formation – impact on the profit and loss account	12	(93)

The Group did not recognize any additional impairment allowances for goodwill and investments in subsidiaries, associates and joint ventures in 2021.

The impairment test performed as at 31 December 2021 maintained the carrying amount of Bank Pocztowy as at 31 December 2021 at the previous level, i.e. PLN 0.

As at 31 December 2021, and as at 31 December 2020, the parent entity did not have any share in contingent liabilities of associates acquired together with another investor.

Selected information on associates and joint ventures

A summary of the financial data separately for each joint venture and each associate of the Group was presented below. The amounts presented are derived from the financial statements of the individual entities prepared in accordance with the IFRS or the Polish Accounting Standards (PAS). In the case of companies which have subsidiaries, the presented data is derived from the consolidated financial statements of these companies. The data for 2020 is derived from audited financial statements.

Centrum Elektronicznych Usług Płatniczych eService sp. z o.o. (in accordance with IFRS)	31.12.2021	31.12.2020
Current assets	336	339
Non-current assets	169	189
Current liabilities	177	174
Long-term liabilities	29	35
	01.01-31.12.2021	01.01-31.12.2020
Revenue	541	530
Profit/(loss) for the period	137	104
Other comprehensive income	6	4
Total comprehensive income	142	108
Dividend received from an entity classified as a joint venture	54	17
„Centrum Obsługi Biznesu” sp. z o.o. (in accordance with PAS)	31.12.2021	31.12.2020
Current assets	6	6
Non-current assets	74	75
Current liabilities	87	29
Long-term liabilities	-	54
	01.01-31.12.2021	01.01-31.12.2020
Revenue	12	9
Profit/(loss) for the period	(4)	(10)

Bank Pocztowy S.A. (in accordance with IFRS, data as published by the company)	31.12.2021	31.12.2020
Total assets	9 232	9 170
Total liabilities	8 647	8 537
	01.01-31.12.2021	01.01-31.12.2020
Revenue	148	395
Profit/(loss) for the period	6	(9)
Other comprehensive income	(54)	29
Total comprehensive income	(49)	20

„Poznański Fundusz Poręczeń Kredytowych" sp. z o.o. (in accordance with PAS)	31.12.2021	31.12.2020
Current assets	37	34
Current liabilities	3	5
Long-term liabilities	15	11
	01.01-31.12.2021	01.01-31.12.2020
Revenue	2	2
Profit/(loss) for the period	-	-

Operator Chmury Krajowej sp. z o.o. (in accordance with PAS)	31.12.2021	31.12.2020
Current assets	120	84
Non-current assets	56	55
Current liabilities	102	65
Long-term liabilities	17	17
	01.01-31.12.2020	01.01-31.12.2020
Revenue	132	51
Profit/(loss) for the period	(4)	(50)

BSafer sp. z o.o. (in PLN thousand)	31.12.2021	31.12.2020
Current assets	345	345
Non-current assets	74	74
Current liabilities	40	40
Long-term liabilities	387	387
	01.01-31.12.2021	01.01-31.12.2020
Revenue	440	440
Profit/(loss) for the period	(467)	(467)

41. Other assets

Accounting policies

Financial assets recognized in this item are stated at amounts due, comprising also potential interest on such assets, taking into consideration provisions for expected credit losses. Non-financial assets are measured in accordance with the valuation principles applicable to specific categories of assets recognized in this item.

Financial information

OTHER ASSETS	31.12.2021	31.12.2020
Other financial assets	1 895	1 937
Settlements in respect of card transactions	1 252	1 222
Settlement of financial instruments	109	164
Receivables in respect of cash settlements	233	159
Receivables and settlements in respect of trading in securities	14	9
Sale of foreign currencies	4	7
Trade receivables	215	210
Other	68	166
Other non-financial assets	710	867
Inventories	191	130
Assets for sale	89	141
Prepayments and deferred costs	99	131
VAT receivable	195	358
Other	136	107

Total	2 605	2 804

OTHER FINANCIAL ASSETS	Faza 1	Faza 3	Razem
31.12.2021
Gross amount	1 895	136	2 031
Allowances for expected credit losses	-	(136)	(136)
Net amount	1 895	-	1 895

OTHER FINANCIAL ASSETS	Faza 1	Faza 3	Razem
31.12.2020
Gross amount	1 937	138	2 075
Allowances for expected credit losses	-	(138)	(138)
Net amount	1 937	-	1 937

OTHER FINANCIAL ASSETS – CHANGES IN THE GROSS CARRYING AMOUNT DURING THE PERIOD	Stage 1	Stage 3	Total
2021
Carrying amount as at the beginning of the period, gross	1 937	138	2 075
Transfer from stage 1 and 2 to stage 3	(1)	1	-
Granting or purchase of financial instruments	1 731	-	1 731
Utilization of limits or disbursement of tranches	11	-	11
Repayments	(1 772)	(3)	(1 775)
Derecognition, including sale	(9)	-	(9)
Other changes	(2)	-	(2)
Carrying amount as at the end of the period, gross	1 895	136	2 031

OTHER FINANCIAL ASSETS – CHANGES IN THE GROSS CARRYING AMOUNT DURING THE PERIOD	Stage 1	Stage 3	Total
2020
Carrying amount as at the beginning of the period, gross	1 766	84	1 850
Granting or purchase of financial instruments	1 821	2	1 823
Repayments	(1 648)	(2)	(1 650)
Other changes	(2)	54	52
Carrying amount as at the end of the period, gross	1 937	138	2 075

OTHER FINANCIAL ASSETS – CHANGES IN ALLOWANCES FOR EXPECTED CREDIT LOSSES IN THE PERIOD	Stage 3	Total
2021
As at the beginning of the period	(138)	(138)
Changes in credit risk (net)	(2)	(2)
Decrease due to derecognition	4	4
As at the end of the period	(136)	(136)

OTHER FINANCIAL ASSETS – CHANGES IN ALLOWANCES FOR EXPECTED CREDIT LOSSES IN THE PERIOD	Stage 3	Total
2020
As at the beginning of the period	(84)	(84)
Other adjustments	(54)	(54)
As at the end of the period	(138)	(138)

OTHER ASSETS – INVENTORIES	31.12.2021	31.12.2020
Finished goods	185	121
Materials	16	19
Impairment allowances on inventories	(10)	(10)

Total	191	130

OTHER NON-FINANCIAL ASSETS	31.12.2021	31.12.2020

Gross amount	1 040	1 135
Allowances	(330)	(268)
Net amount	710	867

Other non-financial assets – CHANGES IN ALLOWANCES	2021	2020
As at the beginning of the period	(268)	(189)
Establishment the period	(84)	(114)
Derecognition of assets and settlements	30	11
Reversed during the period	41	2
Foreign exchange differences on translation of foreign branches	-	1
Other	(49)	21
As at the end of the period	(330)	(268)

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

Foreclosed collaterals as a result of restructuring or debt collection activities are either designated for sale or used by the Group for internal purposes. Details of the foreclosed assets are analysed in order to determine whether they can be used by the Group for internal purposes. All of the assets foreclosed as a result of restructuring and debt collection activities in the years ended 31 December 2021 and 31 December 2020, respectively, were designated for sale. Activities undertaken by the Group are aimed at selling assets as soon as possible. The primary procedure for the sale of assets is an open tender. In justified cases, the sale follows a different procedure depending on the specifics of the sold property.

42. Amounts due to the banks

Accounting policies

The principles of classification and measurement are discussed in the Note “Description of major accounting policies.”.

financial information

AMOUNTS DUE TO BANKS	31.12.2021	31.12.2020
Measured at amortized cost	3 821	2 626
Bank deposits	2 814	1 383
Current accounts	995	1 178
Other monetary market deposits	12	65

Total	3 821	2 626

AMOUNTS DUE TO BANKS BY MATURITY	31.12.2021	31.12.2020
Measured at amortized cost:	3 821	2 626
up to 1 month	3 761	2 626
up to 1 month	20	-
1 to 3 months	40	-

Total	3 821	2 626

43. Amounts due to customers

Accounting policies

The principles of classification and measurement are discussed in the Note “Description of major accounting policies.”.

Liabilities from insurance products include liabilities from unit-linked products, safe capital product, structured products and insurance deposits. Technical reserves for life insurance where the investment risk is borne by the insurer are presented as liabilities in respect of insurance products measured at fair value. The measurement of these provisions is based on the value of the corresponding assets measured at fair value.

Provisions measure at amortized cost include other provisions in respect of investment products which are mainly calculated using actuarial methods (provisions for life insurance, provisions for claims, etc.).

financial information

AMOUNTS DUE TO CUSTOMERS	Amounts due to households	Amounts due to corporate entities	Amounts due to public entities	Total
31.12.2021
Measured at fair value through profit or loss	1 067	-	-	1 067
Liabilities in respect of insurance products	1 067	-	-	1 067
Measured at amortized cost	244 545	56 854	19 830	321 229
Measured at amortized cost	204 465	45 991	19 731	270 187
Cash on current accounts and overnight deposits of which:	57 213	16 585	13 301	87 099
-savings accounts and other interest-bearing assets	39 201	10 125	76	49 402
Term deposits	735	738	23	1 496
Other liabilities	144	-	-	144

Razem	245 612	56 854	19 830	322 296

AMOUNTS DUE TO CUSTOMERS	Amounts due to households		Amounts due to corporate entities		Amounts due to public entities		Total
31.12.2020
Measured at fair value through profit or loss	1 216	-		-		1 216
Liabilities in respect of insurance products	1 216	-		-		1 216
Measured at amortized cost	223 691	43 705		13 744		281 140
Cash on current accounts and overnight deposits of which:	174 525	42 224		13 706		230 455
-savings accounts and other interest-bearing assets	53 631	16 059		7 322		77 012
Term deposits	48 354	798		18		49 170
Other liabilities	494	683		20		1 197
Liabilities in respect of insurance products	318	-		-		318

Total	224 907	43 705		13 744		282 356

AMOUNTS DUE TO CUSTOMERS BY MATURITY	31.12.2021	31.12.2020
Measured at fair value through profit or loss:	1 067	1 216
1 to 5 years	2	2
over 5 years	1 065	1 214

Measured at amortized cost:	321 229	281 140
up to 1 month	285 686	240 938
1 to 3 months	12 658	11 146
3 months to 1 year	11 444	17 941
from 1 to 5 years	5 932	3 420
over 5 years	5 509	7 695

Total	322 296	282 356

AMOUNTS DUE TO CUSTOMERS BY SEGMENT	31.12.2021	31.12.2020
retail and private banking	215 028	197 003
corporate	58 389	41 095
SME	47 657	42 712
other liabilities (including liabilities in respect of insurance products)	1 222	1 546

Total	322 296	282 356

44. Financing received

Accounting policies

The principles of classification and measurement are discussed in the Note “Description of major accounting policies.”

financial information

FINANCING RECEIVED	31.12.2021	31.12.2020
Loans and advances received from:	2 461	2 267
banks	740	875
international financial institutions	1 706	1 379
other financial institutions	15	13
Debt securities in issue:	23 872	32 098
mortgage covered bonds issued by PKO Bank Hipoteczny S.A.	13 143	17 201
bonds issued by PKO Bank Hipoteczny S.A.	3 474	4 036
bonds issued by PKO Bank Polski S.A.	-	4 020
bonds issued by PKO Finance AB	3 541	3 294
bonds issued by the PKO Leasing S.A. Group	3 642	3 496
bonds issued by KREDOBANK S.A.	72	51
Subordinated liabilities	2 716	2 716

Total	29 049	37 081

44.1. Loans and advances received

LOANS AND ADVANCES RECEIVED BY MATURITY	31.12.2021	31.12.2020
up to 1 month	48	116
1 to 3 months	40	98
3 months to 1 year	212	438
1 to 5 years	2 161	1 615

Total	2 461	2 267

Loans and advances received from banks

Date of receipt	Nominal amount	Currency	Maturity	Carrying amount at 31.12.2021	Carrying amount at 31.12.2020

10.06.2019	150	PLN	13.06.2021	-	150
04.12.2019	500	PLN	04.12.2023	281	406
08.05.2020	600	UAH	25.04.2025	89	80
12.06.2020	50	UAH	06.06.2025	-	7
11.09.2020	450	UAH	05.09.2025	67	60
09.10.2020	600	UAH	03.10.2025	89	79
11.12.2020	600	UAH	05.12.2025	89	79
31.12.20201	14	PLN	31.12.2020	-	14
13.08.2021	750	UAH	09.08.2024	112	-
31.12.2021	13	PLN	31.12.2021	13	-

Razem				740	875

1current loan from the National Bank of Poland – overdraft on the NOSTRO account

Loans and advances received from International Financial Organizations

Date of receipt of a loan or advance by the Group	Nominal value	Currency	Maturity	Carrying amount at 31.12.2021	Carrying amount at 31.12.2020

25.09.2013	75	EUR	25.09.2023	138	208
11.06.2015	132	PLN	31.07.2021	-	20
11.06.2015	10	EUR	31.03.2021	-	2
11.06.2015	20	EUR	30.04.2021	-	9
25.09.2015	25	EUR	30.09.2021	-	22
18.03.2016	66	EUR	15.03.2021	-	43
28.10.2016	20	EUR	31.12.2021	-	19
28.10.2016	40	EUR	13.01.2022	4	23
28.09.2017	50	EUR	30.11.2022	57	115
28.11.2018	50	EUR	30.11.2022	115	173
13.04.2018	40	EUR	31.01.2022	54	98
23.10.2018	646	PLN	23.10.2023	648	647
10.02.2021	50	EUR	02.02.2026	230	-
06.12.2021	50	EUR	27.11.2026	230	-
06.12.2021	50	EUR	27.11.2026	230	-

Total				1 706	1 379

Loans and advances received from other financial institutions

Received date	Nominal value	Currency	Maturity	Carrying amount at 31.12.2021	Carrying amount at 31.12.2020

10.10.2019	100	UAH	08.10.2021	-	13
25.10.2021	100	UAH	24.10.2023	15	-

44.2. Securities in issue

LIABILITIES IN RESPECT OF DEBT SECURITIES IN ISSUE – REPAYMENT	31.12.2021	31.12.2020
Measured at amortized cost:
up to 1 month	1 067	819
1 to 3 months	1 820	1 917
3 months to 1 year	9 978	10 431
from 1 to 5 years	10 946	18 870
over 5 years	61	61

Total	23 872	32 098

Bonds issued by PKO Bank Polski S.A.

Issue date	Type of interest rate		Interest rate		Nominal amount	Currency	Maturity		Carrying amount at 31.12.2021	Carrying amount at 31.12.2020

25.07.2017	fixed	0,75		500		EUR		25.07.2021	-	2 314
02.11.2017	fixed	0,30		400		CHF		02.11.2021	-	1 706

Total									-	4 020

Bonds issued by PKO Bank Hipoteczny S.A.

Issue date		Type of interest rate	Interest (index + margin)	Nominal value	Currency	Maturity	Carrying amount at 31.12.2021	Carrying amount at 31.12.2020

11.07.2019	variable		WIBOR3M +0,60	43	PLN	12.07.2021	-	43
28.08.2019	variable		WIBOR3M +0,60	43	PLN	30.08.2021	-	43
17.10.2019	variable		WIBOR3M +0,60	40	PLN	18.10.2021	-	40
18.12.2019	variable		WIBOR3M +0,60	28	PLN	20.12.2021	-	28
05.02.2020	zero-coupon		-	25	PLN	03.02.2021	-	24
24.02.2020	variable		-	350	PLN	24.02.2021	-	350
23.07.2020	zero-coupon		-	820	PLN	20.01.2021	-	819
24.08.2020	zero-coupon		-	555	PLN	08.03.2021	-	554
11.09.2020	zero-coupon		-	350	PLN	29.03.2021	-	350
08.10.2020	zero-coupon		-	330	PLN	22.06.2021	-	329
28.10.2020	zero-coupon		-	296	PLN	20.04.2021	-	296
27.11.2020	fixed		0,6	50	PLN	02.06.2021	-	50
07.12.2020	zero-coupon		-	887	PLN	21.05.2021	-	886
17.12.2020	variable		WIBOR3M +0,28	224	PLN	17.03.2022	224	224
03.02.2021	variable		WIBOR3M +0,25	83	PLN	09.05.2022	83	-
29.03.2021	variable		WIBOR3M +0,35	95	PLN	03.10.2022	95	-
21.05.2021	zero-coupon			364	PLN	24.01.2022	364	-
22.06.2021	zero-coupon			384	PLN	24.01.2022	384	-
26.07.2021	zero-coupon			300	PLN	24.02.2022	300	-
26.07.2021	variable		WIBOR3M +0,33	418	PLN	23.11.2022	418	-
06.09.2021	zero-coupon			489	PLN	04.04.2022	488	-
18.10.2021	zero-coupon			311	PLN	23.05.2022	309	-
18.10.2021	zero-coupon			381	PLN	22.04.2022	380	-
29.11.2021	zero-coupon			280	PLN	17.03.2022	279	-
29.11.2021	variable		WIBOR3M +0,20	150	PLN	23.05.2022	150	-

Total							3 474	4 036

Bonds issued by PKO Finance AB

In 2020, the Group carried out a transaction of partial early redemption, from third parties, of bonds issued by PKO Finance AB (with a maturity date of 26 September 2022) for the amount of USD 195 million. The redeemed bonds are owned by PKO Bank Polski S.A. but the Group reserves the right to resell or cancel them in the future. The bonds are still traded on the regulated market of the Luxembourg stock exchange. The nominal value of the outstanding part of the issue as at 31 December 2021 was USD 805 million.

Issue date	Type of interest rate	Interest rate	Nominal amount	Currency	Maturity	Carrying amount at 31.12.2021	Carrying amount at 31.12.2020

25.07.2012	fixed	4,00	50	EUR	25.07.2022	234	234
26.09.2012	fixed	4,63	805	USD	26.09.2022	3 307	3 060

Total						3 541	3 294

Bonds issued by the PKO Leasing SA Group

Issue date	Type of interest rate	Interest (index + margin)	Nominal value	Currency	Maturity	Carrying amount at 31.12.2021	Carrying amount at 31.12.2020

26.09.20191	variable	WIBOR 3M + marża	2 135	PLN	28.12.2029	2 139	2 475
28.08.2020	variable	WIBOR 6M + marża	324	PLN	26.02.2021	-	323
02.12.2020	variable	WIBOR 6M + marża	395	PLN	01.06.2021	-	394
23.12.2020	variable	WIBOR 6M + marża	305	PLN	23.03.2021	-	304
06.08.2021	variable	WIBOR 3M + marża	193	PLN	07.02.2022	193	-
10.09.2021	variable	WIBOR 6M + marża	303	PLN	28.01.2022	303	-
08.10.2021	variable	WIBOR 3M + marża	278	PLN	25.03.2022	277	-
15.11.2021	variable	WIBOR 3M + marża	326	PLN	07.03.2022	326	-
02.12.2021	variable	WIBOR 3M + marża	140	PLN	12.04.2022	139	-
17.12.2021	variable	WIBOR 6M + marża	267	PLN	29.04.2022	265	-

Total						3 642	3 496

1 The bonds issued as part of securitization of lease receivables taken up by the PKO Leasing SA Group as part of the acquisition of Raiffeisen Leasing Polska S.A. and issued as part of securitization of lease receivables conducted in September 2019. Bonds are secured with securitized lease receivables (see the Note “Information on securitization of the lease portfolio and portfolio sale of receivables”).

Bonds issued by KREDOBANK SA

Issue date	Type of interest rate	Interest (index + margin)	Nominal value	Currency	Maturity	Carrying amount at 31.12.2021	Carrying amount at 31.12.2020

01.12.2017	variable	UIRD1 6M + 0,75	233	UAH	26.11.2022	35	18
13.07.2018	variable	UIRD1 6M + 0,75	250	UAH	28.12.2022	37	33

Total						72	51

1 Ukrainian Index of Retail Deposit Rates

Mortgage-covered bonds issued by PKO Bank Hipoteczny SA

Issue date	Type of interest rate	Interest (index + margin)	Nominal value	Currency	Maturity	Carrying amount at 31.12.2021	Carrying amount at 31.12.2020

27.04.2016	variable	WIBOR3M +0,65	500	PLN	28.04.2021	-	501
17.06.2016	variable	WIBOR3M +0,59	500	PLN	18.06.2021	-	500
24.10.2016	fixed	0,125	500	EUR	24.06.2022	2 300	2 306
02.02.2017	fixed	0,82	25	EUR	02.02.2024	116	116
30.03.2017	fixed	0,625	500	EUR	24.01.2023	2 312	2 319
28.04.2017	variable	WIBOR3M +0,69	500	PLN	18.05.2022	501	500
22.06.2017	fixed	2,69	265	PLN	10.09.2021	-	267
27.09.2017	fixed	0,75	500	EUR	27.08.2024	2 303	2 309
27.10.2017	variable	WIBOR3M +0,60	500	PLN	27.06.2023	500	500
02.11.2017	fixed	0,47	54	EUR	03.11.2022	249	249
22.03.2018	fixed	0,75	500	EUR	24.01.2024	2 314	2320
27.04.2018	variable	WIBOR3M +0,49	698	PLN	25.04.2024	701	698
18.05.2018	variable	WIBOR3M +0,32	100	PLN	29.04.2022	98	100
27.07.2018	variable	WIBOR3M +0,62	500	PLN	25.07.2025	501	500
24.08.2018	fixed	3,4875	60	PLN	24.08.2028	61	61
26.10.2018	variable	WIBOR3M +0,66	230	PLN	28.04.2025	231	230
28.01.2019	fixed	0,25	500	EUR	23.11.2021	-	2 306
01.03.2019	fixed	0,25	100	EUR	23.11.2021	-	461
08.03.2019	fixed	0,125	100	EUR	24.06.2022	460	461
10.06.2019	variable	WIBOR3M +0,60	245	PLN	30.09.2024	246	247
02.12.2019	variable	WIBOR3M +0,51	250	PLN	02.12.2024	250	250

Razem