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

 

 

 

 

 

 

 

 

Consolidated financial statements

of the PKO Bank Polski S.A. Group

for the year ended 31 December 2023

 

SELECTED FINANCIAL DATA DERIVED FROM THE CONSOLIDATED FINANCIAL STATEMENTS

SELECTED FINANCIAL DATA

 

PLN million

 

EUR million

 

2023

2022

Change %

(A-B)/B

2023

2022

Change %

(D-E)/E

A

B

C

D

E

F

Net interest income

18,318

11,424

60.3%

4,045

2,437

65.9%

Net fee and commission income

4,626

4,498

2.8%

1,022

959

6.7%

Net expected credit losses and net impairment allowances on non-financial assets

(1,373)

(1,564)

(12.2%)

(303)

(334)

(9.3%)

Administrative expenses

(7,635)

(7,769)

(1.7%)

(1,686)

(1,657)

1.8%

Profit before tax

8,562

4,767

79.6%

1,891

1,017

85.9%

Net profit (including non-controlling shareholders)

5,505

3,312

66.2%

1,216

706

72.2%

Net profit attributable to the parent company

5,502

3,312

66.1%

1,215

706

72.1%

Earnings per share for the period - basic (in PLN/EUR)

4.40

2.65

66.0%

0.97

0.57

70.2%

Earnings per share for the period - diluted (in PLN/EUR)

4.40

2.65

66.0%

0.97

0.57

70.2%

Net comprehensive income

11,120

16

6,940.0%

2,456

3

8,176.0%

Total net cash flows

(667)

11,220

(105.9)%

(147)

2,393

(106.1%)

 

SELECTED FINANCIAL DATA

 

PLN million

 

EUR million

 

31.12.2023

31.12.2022

Change %

(A-B)/B

31.12.2023

31.12.2022

Change %

(D-E)/E

A

B

C

D

E

F

 

 

 

 

 

 

 

Total assets

501,516

431,447

16.2%

115,344

91,995

25.4%

Total equity

45,227

35,707

26.7%

10,402

7,614

36.6%

Share capital

1,250

1,250

-

287

267

7.5%

Number of shares (in million)

1,250

1,250

-

1,250

1,250

-

Book value per share (in PLN/EUR)

36.18

28.57

26.6%

8.32

6.09

36.6%

Diluted number of shares (in million)

1,250

1,250

-

1,250

1,250

-

Diluted book value per share (in PLN/EUR)

36.18

28.57

26.6%

8.32

6.09

36.6%

Total Capital Ratio (%)

18.65

19.07

(2.2%)

18.65

19.07

(2.2%)

Tier 1

41,727

41,175

1.3%

9,597

8,780

9.3%

Tier 2

2,080

2,584

(19.5%)

478

551

(13.3%)

 

SELECTED FINANCIAL STATEMENT ITEMS HAVE BEEN TRANSLATED INTO EUR AT THE FOLLOWING RATES

2023

2022

arithmetic mean of the NBP exchange rates at the end of a month (income statement, statement of comprehensive income and cash flow statement items)

4.5284

4.6883

 

31.12.2023

31.12.2022

NBP mid exchange rates at the date indicated (statement of financial position items)

4.3480

4.6899

 

TABLE OF CONTENTS

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 in the Group companies

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

4. Approval of the consolidated financial statements

5. Representation by the Management Board

6. Statement of compliance

7. Going concern

8. The basis for preparation of the financial statements

SIGNIFICANT ACCOUNTING POLICIES

9. Functional currency, presentation currency and foreign currencies

10. Basis of consolidation

10.1. Subsidiaries

10.2. Consolidation

10.3. acquisition of subsidiaries (business combinations)

10.4. Associates and joint ventures

11. General accounting policies for financial instruments

11.1. Accounting for transactions

11.2. offsetting financial instruments

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

11.4. The principles for classification of financial instruments

11.5. Financial assets measured at amortized cost

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

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

11.8. Equity instruments

11.9. Reclassification of financial assets

11.10. Modifications – Changes in contractual cash flows

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

11.12. Measurement of financial liabilities

12. Environmental issues

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

14. IFRS 17 “Insurance contracts”

14.1. Measurement and presentation of insurance products

14.2. Key assumptions

14.3. the model for the measurement and recognition of insurance products, including those linked to loans and advances applied until 31 December 2022

14.4. measurement and recognition of insurance products offered by the Group, including those linked to loans and advances in accordance with IFRS 17

14.5. Impact assessment - classification and measurement

14.6. Impact of IFRS 17 on own funds and capital adequacy measures

15. New standards and interpretations and their amendments

SUPPLEMENTARY NOTES TO THE INCOME STATEMENT

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. Impairment 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. Earnings per share

SUPPLEMENTARY NOTES TO THE STATEMENT OF FINANCIAL POSITION – FINANCIAL INSTRUMENTS

31. Cash and balances with Central Bank

32. Amounts due from banks

33. Hedge accounting and other derivative instruments

33.1. Hedge accounting – financial information

33.2. Other derivative instruments – financial information

34. Securities

35. Loans and advances to customers

36. Amounts due to banks

37. Amounts due to customers

38. Financing received

38.1. Loans and advances received

38.2. Liabilities in respect of debt securities in issue

38.3. Subordinated liabilities

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

39. insurance activities

39.1. Transition date

39.2. Main elements of measurement according to IFRS 17

39.2.1. Identification and aggregation of insurance contracts

39.2.2. Contract boundaries

39.2.3. Valuation methods

39.2.4. Best estimate of future cash flows

39.2.5. Discounting

39.2.6. Adjustment for non-financial risk

39.2.7. Contractual service margin (CSM)

39.2.8. Insurance finance income or expenses

39.2.9. Outward reinsurance contracts

39.3. Net income from insurance business and finance income and costs recognised in other comprehensive income

39.4. Change in assets and liabilities in respect of insurance activities broken down by Liabilities for remaining coverage (LRC) and Liabilities for incurred claims (LIC)

39.5. Change in assets and liabilities in respect of insurance activities, with a breakdown of the components: estimates of cash flows, estimates of present value of future cash flows, risk adjustment for non-financial risk and contractual service margin

39.6. other disclosures

40. Intangible assets

41. Property, plant and equipment

42. Investments in associates and joint ventures

42.1. Joint ventures:

42.2. Associates

43. Other assets

44. Other liabilities

45. Provisions

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

47. Legal claims

48. Equity and shareholding structure of the Bank

FAIR VALUE OF FINANCIAL INSTRUMENTS

49. Fair value hierarchy

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

RISK MANAGEMENT WITHIN THE GROUP

51. Risk management within the Group

52. specific activities in the area of risk management undertaken by the Group n 2023

53. Credit risk management

54. Credit risk – financial information

54.1. Financial assets by stage

54.2. Change in the gross carrying amount

54.3. Changes in allowances for expected credit losses

54.4. Other disclosures

55. Offsetting financial assets and financial liabilities

56. Managing credit concentration risk in the Group

57. Collateral

58. Exposure to the counterparty credit risk

59. Forbearance practices

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

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

62. Interest rate risk management

63. Currency risk management

63.1. Financial assets and liabilities by currency

64. Liquidity risk management

64.1. Contractual cash flows from the Group’s financial liabilities, including derivative financial instruments

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

64.3. Current and non-current assets and liabilities

65. Operational risk management

66. ESG risk management

67. Management of insurance and financial risks in the group's insurance business

67.1. Insurance risk

67.2. Financial risk

67.3. Capital

67.4. Insurance and financial risks in insurance business - financial information

Capital management at the Group

68. Capital adequacy

69. Leverage ratio

70. Dividends and distribution of retained earnings

71. Notes to the consolidated cash flow statement

72. Transactions with the State Treasury and related parties

73. Benefits for the PKO Bank Polski SA key management

74. Leases

74.1. Leases - Lessor

74.2. Leases - lessee

74.3. Lessee

74.4. Lessor – Operating leases

74.5. Lessor – Finance leases

75. Government grants

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

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

78. Interest rate benchmarks reform

79. Events that occurred after the date on which the financial statements are prepared

CONSOLIDATED INCOME STATEMENT

INCOME STATEMENT

Note

2023

2022 (restated)**

Net interest income

17

18,318

11,424

 Interest and similar income

 

31,217

19,751

 of which calculated under the effective interest rate method

 

30,668

19,196

 Interest expense

 

(12,899)

(8,327)

Net fee and commission income

 18

4,626

4,498

Fee and commission income

 

6,301

6,059

Fee and commission expense

 

(1,675)

(1,561)

Other net income

 

1,188

1,287

Net income from insurance business, of which:

39

711

779

      Insurance revenue (net of reinsurance)

 

1,242

1,174

      Cost of insurance activities (net of reinsurance)

 

(389)

(324)

Dividend income

 19

14

51

Gains/(losses) on financial transactions

 20

167

358

Foreign exchange gains/ (losses)

 21 

99

(73)

Gains/(losses) on derecognition of financial instruments

 22

57

(26)

 of which measured at amortized cost

 

24

15

Net other operating income and expense

23

140

198

Result on business activities

 

24,132

17,209

Net allowances for expected credit losses

 24

(1,265)

(1,501)

Net impairment losses on non-financial assets

 25

(108)

(63)

Cost of legal risk of mortgage loans in convertible currencies

 26

(5,430)

(1,914)

Administrative expenses

 27

(7,635)

(7,769)

 of which net regulatory charges

 

(622)

(1,887)

Tax on certain financial institutions

 28

(1,231)

(1,266)

Share in profits and losses of associates and joint ventures

 42

99

71

Profit before tax

 

8,562

4,767

Income tax expense

 29

(3,057)

(1,455)

 

 

 

 

Net profit/(loss) (including non-controlling interest)

 

5,505

3,312

Profit (loss) attributable to non-controlling shareholders

 

3

-

Net profit attributable to equity holders of the parent company

 

5,502

3,312

 

 

 

 

Earnings per share

 30

 

 

– basic earnings per share for the period (PLN)

 

4.40

2.65

– diluted earnings per share for the period (PLN)*

 

4.40

2.65

Weighted average number of ordinary shares during the period (in million)*

 

1,250

1,250

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

** The Income statement for 2022 was restated due to the implementation of IFRS 17 “Insurance Contracts” (see note “IFRS 17 Insurance Contracts")

 

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

STATEMENT OF COMPREHENSIVE INCOME

Note

2023

2022 (restated)*

Net profit (including non-controlling shareholders)

 

5,505

3,312

Other comprehensive income

 

5,615

(3,296)

Items which may be reclassified to profit or loss

 

5,618

(3,289)

Cash flow hedges (net)

 33

3,358

(1,519)

        Cash flow hedges (gross)

 

4,146

(1,901)

Deferred tax

 29

(788)

382

Hedges of net investments in foreign operations

 

-

4

Fair value of financial assets measured at fair value through other comprehensive income (net)

 33

2,440

(1,676)

        Remeasurement of fair value, gross

 

3,029

(2,112)

 Gains /losses transferred to the profit or loss (on disposal)

 

(33)

41

Deferred tax

 29

(556)

395

Currency translation differences on foreign operations

 

(124)

(87)

Share in other comprehensive income of associates

and joint ventures

 

(31)

(18)

Finance income and costs from insurance business, net

39

(25)

7

         Finance income and costs from insurance business, gross

 

(31)

9

         Deferred tax

 

6

(2)

Items which cannot be reclassified to profit or loss

 

(3)

(7)

Actuarial gains and losses (net)

 

(3)

(7)

        Actuarial gains and losses (gross)

 45

(4)

(9)

Deferred tax

29 

1

2

Total net comprehensive income

 

11,120

16

Total net comprehensive income, of which attributable to:

 

11,120

16

    equity holders of the parent

 

11,117

16

    non-controlling interest

 

3

-

* The Statement of comprehensive income for 2022 was restated due to the implementation of IFRS 17 “Insurance Contracts” (see note “IFRS 17 Insurance Contracts")

 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

 

Note

31.12.2023

31.12.2022

(restated)*

01.01.2022

(restated)*

ASSETS

 

501,516

431,447

418,668

Cash and balances with Central Bank

31

17,813

15,917

11,587

Amounts due from banks

32

14,438

16,101

9,010

Hedging derivatives

33

1,174

1,042

933

Other derivative instruments

33

8,406

13,162

10,903

Securities

34

197,484

135,632

135,440

Reverse repo transactions

 

372

7

0

Loans and advances to customers

35

245,776

232,959

235,695

Assets in respect of insurance activities

39

90

115

128

Property, plant and equipment under operating lease

74

2,117

1,764

1,371

Property, plant and equipment

41

3,203

2,917

3,108

Non-current assets held for sale

 

19

10

18

Intangible assets

40

3,918

3,512

3,443

Investments in associates and joint ventures

42

284

285

285

Current income tax receivable

 

6

52

36

Deferred tax assets

29

4,000

5,187

4,116

Other assets

43

2,416

2,785

2,595

LIABILITIES AND EQUITY

 

501,516

431,447

418,668

Liabilities

 

456,289

395,740

380,689

Amounts due to Central bank

 

10

9

8

Amounts due to banks

36

3,423

3,011

3,821

Hedging derivatives

33

2,992

7,469

4,806

Other derivative instruments

33

9,291

12,978

11,008

Amounts due to customers

37

399,193

338,868

321,266

Liabilities in respect of insurance activities

39

2,915

2,878

3,317

Loans and advances received

38

1,489

2,294

2,461

Securities in issue

38

17,201

15,510

23,872

Subordinated liabilities

38

2,774

2,781

2,716

Other liabilities

44

11,007

7,010

5,360

Current income tax liabilities

 

1,117

765

18

Deferred tax liabilities

29

712

77

379

Provisions

45

4,165

2,090

1,657

EQUITY

 

45,227

35,707

37,979

Share capital

 

1,250

1,250

1,250

Reserves and accumulated other comprehensive income

 

27,676

22,239

25,330

Retained earnings

 

10,810

8,920

6,539

Net profit or loss for the year

 

5,502

3,312

4,874

Capital and reserves attributable to equity holders of the parent company

 

45,238

35,721

37,993

Non-controlling interests

 

(11)

(14)

(14)

 

* The statement of financial position as at 1 January 2022 and 31 December 2022 was restated due to the implementation of IFRS 17 “Insurance Contracts” (see note “IFRS 17 Insurance Contracts")

 

 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED

31 DECEMBER 2023

Share capital

Reserves and accumulated other comprehensive income

 

Net profit or loss for the period

Total capital and reserves attributable to equity holders of the parent company

Total non-controlling interests

Total equity

Reserves

Accumulated other comprehensive income

Reserves and accumulated other comprehensive income

Retained earnings

Supplementary capital

General banking risk fund

Other reserves

As at the beginning of the period, after changes in accounting policies

1,250

23,085

1,070

7,091

(9,007)

22,239

8,920

3,312

35,721

(14)

35,707

Transfer from retained earnings

-

-

-

-

-

-

3,312

(3,312)

-

-

-

Transfer from retained earnings to equity

-

115

-

1,647

-

1,762

(1,762)

-

-

-

-

Dividend, including interim dividend

-

-

-

(1,600)

-

(1,600)

-

-

(1,600)

-

(1,600)

Comprehensive income

-

-

-

-

5,615

5,615

-

5,502

11,117

3

11,120

Offset of accumulated losses

-

(340)

-

-

-

(340)

340

-

-

-

-

As at the end of the period

1,250

22,860

1,070

7,138

(3,392)

27,676

10,810

5,502

45,238

(11)

45,227

 

FOR THE YEAR ENDED

31 DECEMBER 2023

Accumulated other comprehensive income

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 hedges

 

Finance income and costs from insurance business

Actuarial gains and losses

Currency translation differences on foreign operations

 

Total

As at the beginning of the period, after changes in accounting policies

(35)

(3,461)

(5,218)

24

(21)

(296)

(9,007)

Comprehensive income

(31)

2,440

3,358

(25)

(3)

(124)

5,615

As at the end of the period

(66)

(1,021)

(1,860)

(1)

(24)

(420)

(3,392)

 

FOR THE YEAR ENDED

31 DECEMBER 2022

Share capital

Reserves and accumulated other comprehensive income

 

Net profit or loss for the period

Total capital and reserves attributable to equity holders of the parent company

Total non-controlling interests

Total equity

Reserves

Accumulated other comprehensive income

Reserves and accumulated other comprehensive income

Retained earnings

Supplementary capital

General banking risk fund

Other reserves

As at the beginning of the period

1,250

23,003

1,070

6,968

(5,728)

25,313

6,270

4,874

37,707

(14)

37,693

Changes in accounting policies*

-

-

-

-

17

17

269

-

286

-

286

As at the beginning of the period, after policy changes

1,250

23,003

1,070

6,968

(5,711)

25,330

6,539

4,874

37,993

(14)

37,979

Transfer from retained earnings

-

-

-

-

-

-

4,874

(4,874)

-

-

-

Transfer from retained earnings to equity

-

82

-

123

-

205

(205)

-

-

-

-

Dividend

-

-

-

-

-

-

(2,288)

-

(2,288)

-

(2,288)

Comprehensive income

-

-

-

-

(3,296)

(3,296)

-

3,312

16

-

16

As at the end of the period

1,250

23,085

1,070

7,091

(9,007)

22,239

8,920

3,312

35,721

(14)

35,707

*For details on the impact of the implementation of IFRS 17 on the Group's equity, see Note „IFRS 17 Insurance contracts”

 

FOR THE YEAR ENDED

31 DECEMBER 2022

 

Accumulated other comprehensive income

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 hedges

 

Hedges of net investments in foreign operations

Finance income and costs from insurance business

Actuarial gains and losses

Currency translation differences on foreign operations

 

Total

As at the beginning of the period

(17)

(1,785)

(3,699)

(4)

-

(14)

(209)

(5,728)

Changes in accounting policies*

-

-

-

 

17

-

-

17

As at the beginning of the period, after policy changes

(17)

(1,785)

(3,699)

(4)

17

(14)

(209)

(5,711)

Comprehensive income

(18)

(1,676)

(1,519)

4

7

(7)

(87)

(3,296)

As at the end of the period

(35)

(3,461)

(5,218)

-

24

(21)

(296)

(9,007)

*For details on the impact of the implementation of IFRS 17 on the Group's equity, see Note „IFRS 17 Insurance contracts.”

 

CONSOLIDATED STATEMENT OF CASH FLOWS

 

Note

2023

2022 (restated)*

Cash flows from operating activities

 

 

 

Profit before tax

 

8,562

4,767

Income tax paid

 

(1,793)

(1,429)

Total adjustments:

 

40,108

15,205

Depreciation and amortization

27, 18

1,371

1,267

(Gains)/losses on investing activities

71 

(87)

(97)

Interest and dividends received

71 

(6,549)

(3,758)

Interest paid

71 

754

581

Change in:

 

 

 

amounts due from banks

71 

(905)

(213)

hedging derivatives

 

(4,609)

2,554

other derivative instruments

 

1,069

(289)

securities

71 

(6,360)

(4,288)

loans and advances to customers

71 

(13,282)

1,686

reverse repo transactions

 

(365)

(7)

assets in respect of insurance activities

 

24

13

property, plant and equipment under operating lease

 

(353)

(640)

non-current assets held for sale

71  

(8)

8

other assets

71 

360

(216)

accumulated allowances for expected credit losses

71  

381

1,191

accumulated allowances on non-financial assets and other  provisions

71 

2,222

270

amounts due to the Central Bank

 

1

1

amounts due to banks

 

412

(810)

amounts due to customers

 

60,325

17,602

liabilities in respect of insurance activities

 

37

(439)

loan and advances received

71  

335

(35)

liabilities in respect of debt securities in issue

71 

(500)

742

subordinated liabilities

71  

(7)

65

other liabilities

71  

2,662

1,905

Other adjustments

71 

3,180

(1,888)

Net cash from/used in operating activities

 

46,877

18,543

* The Statement of cash flows for 2022 was restated due to the implementation of IFRS 17 “Insurance Contracts” (see note “IFRS 17 Insurance Contracts")

 

 

Note

2023

2022 (restated)*

Cash flows from investing activities

 

 

 

Inflows from investing activities

 

788,046

102,154

Redemption of securities measured at fair value through other comprehensive income

 

774,906

89,661

Redemption of securities measured at amortized cost

 

6,371

7,765

Interest received on securities measured at fair value through other comprehensive income

 

4,396

1,987

Interest received on securities measured at amortized cost

 

2,139

1,720

Proceeds from disposal of intangible assets, property, plant and equipment and assets held for sale

 

142

255

Other inflows from investing activities including dividends

71 

92

766

Outflows on investing activities

 

(835,624)

(97,116)

Increase in equity of joint ventures

 

-

-

Purchase of securities measured at fair value through other comprehensive income

 

(810,745)

(92,919)

Purchase of securities measured at amortized cost

 

(23,111)

(2,452)

Purchase of intangible assets and property, plant and equipment

 

(1,768)

(1,038)

Other outflows on investing activities

71 

-

(707)

Net cash from/used in investing activities

 

(47,578)

5,038

* The Statement of cash flows for 2022 was restated due to the implementation of IFRS 17 “Insurance Contracts” (see note “IFRS 17 Insurance Contracts")

 

 

Note

2023

2022 (restated)*

Cash flows from financing activities

 

 

 

Payment of dividends

 

-

(2,288)

Proceeds from debt securities in issue

71 

13,105

8,421

Redemption of debt securities

71  

(10,914)

(17,525)

Taking up loans and advances

71  

12

620

Repayment of loans and advances

71  

(1,152)

(753)

Payment of lease liabilities

71  

(266)

(255)

Repayment of interest on long-term liabilities

71  

(751)

(581)

Net cash from financing activities

 

34

(12,361)

Total net cash flows

 

(667)

11,220

of which foreign exchange differences on cash and cash equivalents

 

(872)

100

Cash and cash equivalents at the beginning of the period

 

31,995

20,775

Cash and cash equivalents at the end of the period

71 

31,328

31,995

* The Statement of cash flows for 2022 was restated due to the implementation of IFRS 17 “Insurance Contracts” (see note “IFRS 17 Insurance Contracts")

 

General information about the Group

1.      Activities of 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, post and telegraph minister and simultaneously the first president, as Pocztowa Kasa Oszczędnościowa. In 1950, the Bank began operating as Powszechna Kasa Oszczędności Bank Państwowy (state-owned bank). Pursuant to the Decree of the Council of Ministers dated 18 January 2000, Powszechna Kasa Oszczędności (a state-owned bank) was transformed into a state owned joint-stock company, Powszechna Kasa Oszczędności Bank Polski Spółka Akcyjna.

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

Country of registration

Poland

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 in cash in foreign currencies, as well as conduct foreign exchange and foreign currency transactions, open and maintain bank accounts in banks abroad, and deposit foreign currency in those accounts.

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 2023 and 2022, the Bank did not change the name of the reporting unit or other identification data.

 

 

 

 

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

No.

ENTITY NAME

REGISTERED OFFICE

ACTIVITY

OWNERSHIP INTEREST (%)

DIRECT SUBSIDIARIES

31.12.2023

31.12.2022

1

PKO Bank Hipoteczny S.A.

Warsaw

banking activities

100

100

2

PKO Towarzystwo Funduszy Inwestycyjnych S.A.

Warsaw

investment fund management

100

100

3

PKO Leasing S.A.

Łódź

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

Sollentuna, Sweden

financial services

100

100

9

KREDOBANK S.A.

Lviv, Ukraine

banking activities

100

100

10

Merkury - fiz an1

Warsaw

investing funds collected from fund participants

100

100

11

NEPTUN - fizan1

Warsaw

100

100

12

PKO VC - fizan1

Warsaw

100

100

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

 

No.

ENTITY NAME

REGISTERED OFFICE

ACTIVITY

OWNERSHIP INTEREST (%)*

INDIRECT SUBSIDIARIES

31.12.2023

31.12.2022

 

PKO Leasing S.A. GROUP

 

 

 

 

1

PKO Agencja Ubezpieczeniowa sp. z o.o.

Warsaw

intermediation in concluding insurance agreements

100

100

 

1.1 PKO Leasing Finanse sp. z o.o.

Warsaw

sale of post-lease assets

100

100

2

PKO Leasing Sverige AB

Stockholm, Sweden

leasing

100

100

3

Prime Car Management S.A.

Gdańsk

leasing, fleet management

100

100

 

3.1 Futura Leasing S.A.

Gdańsk

sale of post-lease assets

100

100

 

3.2 Masterlease sp. z o.o.

Gdańsk

leasing

100

100

 

3.3 MasterRent24 sp. z o.o.

Gdańsk

short-term lease of cars

100

100

4

PKO Faktoring S.A.

Warsaw

factoring

100

100

5

Polish Lease Prime 1 DAC1

Dublin, Ireland

SPV established for securitization of lease receivables

 -

 -

 

PKO Życie Towarzystwo Ubezpieczeń S.A. GROUP

 

 

6

Ubezpieczeniowe Usługi Finansowe sp. z o.o.

Warsaw

services

100

100

 

KREDOBANK S.A. GROUP

 

 

 

 

7

“KREDOLEASING” sp. z o.o.

Lviv, Ukraine

leasing

100

100

 

Merkury - fiz an

 

 

 

 

8

“Zarząd Majątkiem Górczewska” sp. z o.o.

Warsaw

property management

100

100

9

Molina sp. z o.o.

Warsaw

general partner in partnerships limited by shares of a fund

100

100

10

Molina spółka z ograniczoną odpowiedzialnością 1 S.K.A.

Warsaw

buying and selling real estate on own account, real estate management

100

100

11

Molina spółka z ograniczoną odpowiedzialnością 2 S.K.A. w likwidacji (in liquidation)

Warsaw

100

100

12

Molina spółka z ograniczoną odpowiedzialnością 4 S.K.A. w likwidacji (in liquidation)

Warsaw

100

100

13

Molina spółka z ograniczoną odpowiedzialnością 6 S.K.A. w likwidacji (in liquidation)

Warsaw

100

100

 

NEPTUN - fizan

 

 

 

 

14

Qualia sp. z o.o.

Warsaw

after-sale services in respect of developer products

100

100

15

Sarnia Dolina sp. z o.o.

Warsaw

development activities

100

100

16

Bankowe Towarzystwo Kapitałowe S.A.

Warsaw

services

100

100

 

16.1 „Inter-Risk Ukraina" spółka z dodatkową odpowiedzialnością2

Kiev, Ukraine

debt collection

99.90

99.90

 

16.2 Finansowa Kompania “Prywatne Inwestycje” sp. z o.o.3

Kiev, Ukraine

financial services

95.4676

95.4676

 

16.2.1 Finansowa Kompania “Idea Kapitał” sp. z o.o.

Lviv, Ukraine

services

100

100

17

“Sopot Zdrój" sp. z o.o.

Sopot

property management

72.9769

72.9769

* share of direct parent in the entity’s equity

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

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

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

 

The Group has the following associates and joint ventures:

No

ENTITY NAME

REGISTERED OFFICE

ACTIVITY

OWNERSHIP INTEREST (%)*

31.12.2023

31.12.2022

 

Joint ventures of PKO Bank Polski S.A.

 

 

1

Operator Chmury Krajowej sp. z o.o.

Warsaw

cloud computing services

50

50

2

Centrum Elektronicznych Usług Płatniczych eService sp. z o.o.

Warsaw

financial services support activities, including handling transactions concluded using payment instruments

34

34

 

1 EVO Payments International s.r.o.

Prague, the Czech Republic

financial services support activities

100

100

 

Joint venture NEPTUN - fizan

 

 

 

 

 

2 “Centrum Obsługi Biznesu" sp. z o.o.

Poznań

property management

41.45

41.45

 

Joint venture PKO VC - fizan

 

 

 

 

 

3 BSafer sp. z o.o.

Stalowa Wola

managing marketing consents

35.06

35.06

 

Associates of PKO Bank Polski S.A.

 

 

1

Bank Pocztowy S.A.

Bydgoszcz

banking activities

25.0001

25.0001

2

“Poznański Fundusz Poręczeń Kredytowych”

sp. z o.o.

Poznań

guarantees

33.33

33.33

3

System Ochrony Banków Komercyjnych S.A.

Warsaw

manager of the security system referred to in Article 130e of the Banking Law

21.11

21.11

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

2.      Changes in the Group companies

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

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

•        In September 2023, the Bank's Management Board approved the merger of the investment funds NEPTUN - fiz an (the acquiring fund) and Merkury - fiz an (the acquired fund) by transferring the assets of the acquired fund to the existing acquiring fund and allocating investment certificates of the acquired fund to a participant of the acquiring fund in exchange for investment certificates of the acquired fund. This merger was effected on 30 January 2024. In the Bank's annual separate financial statements, Mercury - fiz an, in accordance with International Financial Reporting Standard 5, is reported as an asset held for sale and in the Group's annual consolidated financial statements, the fund and its subsidiaries are included in the consolidation.

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

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

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

•      Robert Pietryszyn – Chair of the Supervisory Board

•      Wojciech Jasiński – Deputy Chair of the Supervisory Board

•      Dominik Kaczmarski – Secretary of the Supervisory Board

•      Mariusz Andrzejewski – Member of the Supervisory Board

•      Andrzej Kisielewicz – Member of the Supervisory Board

•      Rafał Kos – Member of the Supervisory Board

•      Tomasz Kuczur – Member of the Supervisory Board

•      Maciej Łopiński – Member of the Supervisory Board

•      Bogdan Szafrański – Member of the Supervisory Board

•      Agnieszka Winnik-Kalemba – Member of the Supervisory Board

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

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

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

•      Mr Maciej Cieślukowski,

•      Ms Hanna Kuzińska,

•      Mr Szymon Midera,

•      Mr Andrzej Oślizło,

•      Mr Marek Panfil,

•      Mr Marek Radzikowski,

•      Mr Paweł Waniowski,

•      Ms Katarzyna Zimnicka-Jankowska.

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

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

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

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

•      Dariusz Szwed – President of the Management Board

•      Maciej Brzozowski – Vice-President of the Management Board

•      Marcin Eckert – Vice-President of the Management Board

•      Paweł Gruza – Vice-President of the Management Board

•      Wojciech Iwanicki – Vice-President of the Management Board

•      Andrzej Kopyrski – Vice-President of the Management Board

•      Artur Kurcweil – Vice-President of the Management Board

•      Piotr Mazur – Vice-President of the Management Board

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

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

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

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

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

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

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

•        Mr Andrzej Kopyrski,

•        Mr Paweł Gruza,

•        Mr Maciej Brzozowski,

•        Mr Marcin Eckert,

•        Mr Wojciech Iwanicki,

•        Mr Artur Kurcweil.

The resolutions on the aforementioned recalls became effective upon adoption.

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

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

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

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

4.      Approval of the consolidated financial statements

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

5.      Representation by the Management Board

The Management Board hereby represents that, to 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.

6.      Statement of compliance

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

7.      Going concern

The financial statements have been prepared on the basis of the assumption that the Bank’s Group will continue as a going concern for a period of at least 12 months from the date of approval for publication by the Management Board, i.e from 5 March 2024. As at the date of signing 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.

The Bank's Management Board considered the impact of: current situation in Ukraine, legal risk of mortgage loans in convertible currencies and planned amendments to the Act on crowdfunding for business ventures and assistance to borrowers in respect of the new credit holiday programme and assessed that these factors do not cause significant uncertainty in the Group's ability to continue as a going concern.

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

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

8.      The basis for preparation of the financial statements

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

These financial statements have been prepared on a fair value basis in respect of financial assets and liabilities measured at fair value through profit or loss, including derivatives and financial assets measured at fair value through other comprehensive income. The remaining financial assets are 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 losses. 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 estimates and adopts assumptions which directly affect both the financial statements and the supplementary information included therein. The estimates and assumptions applied by the Capital Group to report the value of assets and liabilities, as well as income and expenses are made using historical data and other factors that are available and considered appropriate in particular circumstances. Assumptions regarding the future and the available data are used for assessing the carrying amounts of assets and liabilities which cannot be clearly determined using other sources. In making estimates, the 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 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.

SIGNIFICANT ACCOUNTING POLICIES

Significant accounting policies and estimates and judgments applied in the preparation of these financial statements are presented in this Chapter and in individual notes further in the financial statements. In all years presented, these accounting policies are applied consistently, with the exception of issues described in the note “IFRS 17 Insurance contracts”.

As a result of the entry into force on 1 January 2023 of the amendments to IAS 1 "Presentation of Financial Statements" concerning the introduction of disclosure requirements for significant accounting policies, the Group, as a result of its analyses and reviews, has modified the information on accounting policies contained in the financial statements with a view to the relevance of the information for users of the financial statements. The Group was guided by the assumption that information on accounting policies for immaterial transactions should not be disclosed unless the information is material given the nature of the related transactions, other events or conditions, even if the amounts are immaterial.

In addition, the Group has reviewed its accounting policy disclosures taking into account the fact that, in accordance with the interpretation of the amendments to IAS 1, specific information is more useful than disclosures that contain only standard information or duplications or summaries of the requirements of the IFRSs, and information on specific accounting policies is particularly relevant when it relates to an area where the Group exercises its own judgement.

9.      Functional currency, presentation currency and foreign currencies

The 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

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

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

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

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

UAH/PLN

2023

2022

Foreign exchange rates as at the end of the period

0.1037

0.1258

Arithmetic mean of exchange rates as at the last day of each month in the period

0.1153

0.1354

The highest exchange rate during the period

0.1258

0.1467

The lowest exchange rate during the period

0.1037

0.1258

 

 

EUR/PLN

2023

2022

Foreign exchange rates as at the end of the period

4.3480

4.6899

Arithmetic mean of exchange rates as at the last day of each month in the period

4.5284

4.6883

The highest exchange rate during the period

4.7170

4.8698

The lowest exchange rate during the period

4.3480

4.5756

 

CZK/PLN

2023

2022

Foreign exchange rates as at the end of the period

0.1759

0.1942

Arithmetic mean of exchange rates as at the last day of each month in the period

0.1889

0.1909

The highest exchange rate during the period

0.1999

0.1980

The lowest exchange rate during the period

0.1759

0.1851

 

10.  Basis of consolidation

10.1.        Subsidiaries

Subsidiaries are entities controlled by the parent company, which means that the parent company has a direct or indirect impact on the financial and operating policy of the given entity in order to gain economic benefits from its operations.

In the case of PKO Leasing S.A. (PKOL, the Company), control of Polish Lease Prime 1 DAC is exercised despite not holding an equity interest. Polish Lease Prime 1 DAC is a special purpose vehicle (SPV) formed to securitise receivables arising from PKOL's leases, which include car, truck, plant and equipment leases.

The SPV meets the definition of a structured entity subject to consolidation (under IFRS 12). PKOL's power is manifested, among other things, in the fact that the Company acts as the Servicer and therefore has influence over the SPV's key activities (providing funds for the SPV's ongoing debt service). The results of the SPV's operations are, in principle, determined by the performance of the portfolio subject to the securitisation transaction, and the maintenance of the portfolio's profitability is determined by PKOL through its debt collection activities (the Company decides on its own on the activities, including the initiation of hard debt collection measures). In addition, the receivables portfolio's loss ratio does not exceed the share of Junior Funding received from PKOL and therefore it is PKOL that is exposed to the credit risk arising from the receivables.

The PKO Bank Polski SA Group does not meet the definition of “an investment entity”.

10.2.        Consolidation

All subsidiaries of the PKO Bank Polski S.A. Group are consolidated using the acquisition method. The following items are eliminated in full: mutual receivables and payables, income and expenses, and mutual cash flows in the statement of cash flows, of consolidated entities, e.g. from mutual financing agreements, cash deposits, IT services, , derivative transactions, fixed asset leases, transfers of loan receivables portfolios and settlements of agency fees from the sale of insurance.

In other comprehensive income, the Group recognises finance income and expenses from insurance business and foreign exchange differences arising from the translation of foreign operations into Polish currency at an exchange rate representing the arithmetic mean of the average exchange rates prevailing on the last day of each month of the financial period as quoted by the National Bank of Poland.

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.

10.3.        acquisition of subsidiaries (business combinations)

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.

10.4.        Associates and joint ventures

Investments in associates and joint ventures are accounted in accordance with the equity method and are initially stated at cost. 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.

The value in use of investments is determined based on the present value of the estimated expected future cash flows from the continued use of these assets, using models dedicated to each individual entity. These cash flows are discounted at a discount rate based on the cost of equity estimated on a case-by-case basis for each investment. The current bid price received or the value estimated on the basis of valuation techniques commonly used by market participants (including valuations provided by a specialised third party) is accepted as the fair value of the investment.

If the carrying amount of an asset exceeds its recoverable amount, the Group recognizes an impairment allowance in the income statement.

11.  General accounting policies for financial instruments

11.1.        Accounting for transactions

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

11.2.        offsetting financial instruments

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

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

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

11.4.        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 benefits from contractual cash flows – this model is typical for lending activities;

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

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

•      business model

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

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

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

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

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

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

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

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

•      Assessment of contractual cash flow characteristics

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

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

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

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

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

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

In the case of financial assets having characteristics associated with sustainable development (green loans, where a customer may benefit from a reduced margin upon presentation of an energy efficiency certificate), the cash flow changes are assessed taking into account the possible impact of the characteristic associated with sustainable development in every reporting period and cumulatively throughout the 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 liabilities (resulting in a non-recourse asset);

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

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

•        interest rates unilaterally determined by the 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). The Group performs benchmark tests mainly when there is a mismatch between the frequency of interest rate updates and the interest rate tenor, interest rate updates based on interest rate averaging or interest rate updates based on lagged values (e.g. the value applicable one month before the revaluation date). The materiality criterion for the difference in cash flows between the agreement being tested and the benchmark at a single scenario level was set at 5% for the sum of undiscounted cash flows over the agreement horizon and 5% for the sum of cash flows in the quarterly reporting periods.

11.5.        Financial assets measured at amortized cost

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

•        a financial asset is “held to collect”;

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

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

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

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

11.6.        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

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

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

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

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

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

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

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

If financial assets do not meet the aforementioned qualification criteria to be measured at amortized cost or at fair value through other comprehensive income, the Group classifies them as financial assets measured at fair value through profit or loss.

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:

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

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

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

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

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

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

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

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

11.8.        Equity instruments

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

11.9.        Reclassification of financial assets

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

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

11.10.    Modifications – Changes in contractual cash flows

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

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

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

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

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

The following qualitative criteria have been adopted:

1.       currency conversion;

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

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

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

The quantitative criterion consists of a 10% test 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. The third criterion is the extension of the original term of cash loans, business loans serviced in branch by more than 1 year and by more than double the residual term; cash loans, business loans handled by collection units by more than 1 year; home loans serviced in branch and handled by collection units by more than 4 years.

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

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

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

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

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

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

11.12.    Measurement of financial liabilities

Liabilities in respect of a short position in securities 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.

12. Environmental issues

The nature of the business activities means that the direct impact of the Bank and the Bank’s Group on the natural environment is limited. Indirect environmental impact involves the Bank's provision of financing the Group's product offering.

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 2023 in the following chapters:

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

•        13.5 “Key non-financial performance indicators”,

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

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

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

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

The Group is exposed to climate risk, including:

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

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

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

As detailed below, there were no significant climate-related estimates or judgements in the Group that would materially affect the values recognised 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 and measurement of financial instruments at fair value

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.

For the moment, the Group does not isolate specific climate risk scenarios because the impact of climate-related risk factors on the Group's expected loan losses is potentially limited as the Group, given the relatively short-term duration of many of its bank loan portfolios, expects the most significant effects of climate change to appear in the mid- and long-term perspective, thus potentially reducing the current impact on ECL. 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. The Group is in the process of implementing internal tools and methods to assess the impact of extreme climate events on its corporate and enterprise segment customer portfolios and on its mortgage-backed portfolio. The Group pays particular attention to such elements as greenhouse gas (GHG) emission allowance prices, energy efficiency of buildings, floods and droughts.

In the lending process for corporate Customers and SME Customers evaluated with the use of the rating method, the Group each time assesses the impact of environmental, social and governance factors (ESG factors) on the Customer’s creditworthiness, and identifies credit transactions with an increased financial leverage (levered transactions). The 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:

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

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

•        not listed shares in other entities – 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 2023 and 2022. Moreover, climate-related factors did not cause any indications of impairment of non-financial assets and did not affect their recoverable value as at 31 December 2023 and 2022.

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 2023 and 2022.

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

•      provisions and litigation – As at 31 December 2023 and 2022, there were no proceedings involving any climate or environmental issues at the Group. In the years 2023-2022, 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. In particular, flood risk provisions as at 31 December 2023 were estimated at PLN 5 million (as at 31 December 2022 - PLN 8 million). The decrease in the provision during the year, despite the increase in the residential insurance portfolio, is due to the update of the flood model (risk reduction). The model currently used to determine the risk of flooding takes into account additional variables (e.g. storeys), the absence of which in previous years resulted in an increased valuation of the risk (precautionary approach). In addition, the reduction in valuation is due to the inclusion of lower levels of materialisation in damage for lower flood return periods (more frequent floods, with reduced impact).

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.

The ESG measures taken by the Group's insurance companies are described in note “ESG risk management”.

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

Following the implementation of IFRS 17 as of 1 January 2023, changes have also been made to the comparative figures for 2022, as detailed in note IFRS 17 “Insurance Contracts”. In 2023 the Group implemented amendments to IAS 12 Income Taxes, whose impact was only of a presentational nature, i.e. the recognition of deferred tax on leasing transactions in, respectively, deferred tax assets and deferred tax liabilities (see note Income taxes).

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

14. IFRS 17 “Insurance contracts”

International Financial Reporting Standard 17 Insurance Contracts ('IFRS 17') was published by the International Accounting Standards Board in May 2017 and amended by it in June 2020 and in December 2021. IFRS 17 was endorsed for use in European Union countries on 19 November 2021 by Regulation 2021/2036 of the European Union.

The aim of the new standard is to introduce new uniform rules for the measurement of insurance and reinsurance contracts, ensuring greater comparability of reporting between providers of insurance products, and to provide a number of new disclosures for the use of financial statement users.

This standard is mandatorily applicable from 1 January 2023. IFRS 17 replaced IFRS 4 “Insurance Contracts”, which enabled entities to recognize insurance contracts according to the accounting principles based on the national standards.

IFRS 17 changed the recognition, measurement, presentation and disclosure of insurance contracts distributed by Group companies, both as products linked to, among others, mortgage loans, cash loans and leasing products, and as stand-alone products.

The Group has implemented the standard in the retrospective full and modified approach for the part of the portfolio.

The implementation of IFRS 17 as at 1 January 2022 resulted in an increase in the Group’s assets by PLN 582 million, liabilities by PLN 296 million and equity by PLN 286 million.

14.1.        Measurement and presentation of insurance products

The key differences in the measurement and presentation of insurance products that apply to the Group and that came into effect upon implementation of IFRS 17 are presented below.

•           Key assumptions

The standard applies to insurance contracts, reinsurance contracts and investment contracts with direct participation features.

The new standard defines an insurance contract as a contract in which one party accepts a significant insurance risk from the policyholder and undertakes to compensate the insured for an adverse effect arising from, an uncertain future event. This definition is in principle consistent with the definition in IFRS 4

The standard does not apply to, among others, investment contracts, product guarantees issued by the manufacturer, loan guarantees, catastrophe bonds and so-called weather derivatives (contracts that require a payment based on a climatic, geological or other physical variable that is not specific to a party to the contract).

The biggest impact on the occurrence of differences compared to the current IFRS 4 have:

•        the valuation of liabilities and assets under insurance contracts, which:

o        is based on the value of the best estimate of future cash flows;

o        reflects the time value of money;

o        includes the risk adjustment for non-financial risk;

o        includes the expected value of future profits;

•        recognition of expected profits for the group of insurance contracts over time, in proportion to the so-called coverage units, corresponding to the level of service provided by the insurance company in each reporting period;

•        recognition of entire expected loss on insurance contracts at the point at which the entity assesses that the contract is onerous, which may be at the date of initial recognition of that contract or at subsequent measurement;

•        separate (from direct business contracts) measurement of liabilities and assets for outward reinsurance.

•           the model for the measurement and recognition of insurance products, including those linked to loans and advances applied until 31 December 2022

Until the implementation of the new standard, the Group recognised net income on insurance activities under commission income – in the line “offering insurance products” which comprised premium income, costs of insurance activities, claims and change in technical reserves, and the impact of the reinsurer’s share in the aforementioned items.

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 were treated as an integral part of the remuneration for the financial instruments offered. All premium received by the Group split in accordance with Recommendation U on the basis of the relative fair value model into a portion relating to:

•        the insurance product - measured using an actuarial model in accordance with the requirements of IFRS 4 (recognised in commission income, line "offering insurance products")

•        the portion relating to the credit product – 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, accounted for using the straight line method during the term of the insurance product and is recognized as commission income (line: offering insurance products). 

Costs directly attributable to selling insurance products were accounted for as a component of the amortized cost of a financial instrument or on a one-off basis. The provision for future refunds was allocated to the financial instrument and insurance service in accordance with the relative fair value model.

The Group presented its insurance activities under the following headings in the statement of financial position:

•        Assets from insurance activities – receivables on account of reinsurance and share of reinsurers in technical reserves.

•        Liabilities in respect of insurance activities – 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, as well as deferred reinsurance commission and reinsurance related liabilities.

•        Amounts due to customers – “Liabilities in respect of insurance products”: liabilities from unit-linked products, safe capital product, structured products and insurance deposits.

•           measurement and recognition of insurance products offered by the Group, including those linked to loans and advances in accordance with IFRS 17

In accordance with IFRS 17, all insurance products offered by the Group are recognized and measured under this standard as insurance products. At the consolidated Group level, the premium received by the Group is no longer split in accordance with Recommendation U on the basis of the relative fair value model (this model was maintained for the Bank's separate financial statements).

The components of the net insurance income, including the portion that formed part of the Group's interest income, commission income or administrative expenses and related directly to insurance contracts, is measured using an actuarial model and presented in the "Net income from insurance business” and, as appropriate, in the lines "Insurance revenue (net of reinsurance)" and "Cost of insurance activities (net of reinsurance)".  

The implementation of IFRS 17 at the consolidated level also affected the carrying amount of loans and advances to customers. The premium element recognised under the relative fair value model, adjusting the gross carrying amount of loans at the Bank level, at the consolidated level is an element of the assets and liabilities arising from insurance activities, measured in accordance with the principles set out in IFRS 17.

Starting from 1 January 2023, products i.e. liabilities from unit-linked products, “safe capital”, previously recognised under IFRS 9, are measured under IFRS 17 as part of liabilities from insurance activities (previously presented under “Amounts due to customers” – “Liabilities in respect of insurance products”). On the other hand, structured products and insurance deposits, as investment products, continue to be recognised in accordance with IFRS 9 in the line “Amounts due to customers”.

•           Transition date

The Group applied IFRS 17 for the first time in the period beginning 1 January 2023. The Group has implemented IFRS 17 in the retrospective full and modified approach for the part of the portfolio (MRA approach). Due to the need to prepare comparative data, 1 January 2022 is assumed as the date of transition to the new standard.

Detailed accounting policies and financial information for the insurance business are described in note INSURANCE BUSINESS.

14.2.         Impact assessment - classification and measurement

The following tables present the cumulative effect of adjustments resulting from the implementation of IFRS 17 on the Group's assets, liabilities and equity as at 1 January 2022.

 DATE OF TRANSITION TO THE NEW STANDARD

31.12.2021 (pursuant to IFRS 4)

Adjustment due to implementation of IFRS 17

01.01.2022 (pursuant to IFRS 17)

TOTAL ASSETS, of which:

418,086

 582

418,668

Loans and advances to customers

234,300

1,395

235,695

Assets in respect of insurance activities

 911

 (783)

 128

Intangible assets

3,463

 (20)

3,443

Other assets

2,605

 (10)

2,595

TOTAL LIABILITIES AND EQUITY

418,086

 582

418,668

TOTAL LIABILITIES, of which:

380,393

 296

380,689

Amounts due to customers

322,296

(1,030)

321,266

Liabilities in respect of insurance activities

2,008

1,309

3,317

Other liabilities

5,366

 (6)

5,360

Deferred tax liabilities

 356

 23

 379

EQUITY, of which:

37,693

 286

37,979

Reserves and accumulated other comprehensive income

25,313

 17

25,330

Unappropriated profit (taking into account profit or loss for 2021)

11,144

 269

11,413

Capital and reserves attributable to equity holders of the parent company

37,707

 286

37,993

•        The increase in equity by PLN 286 million, of which PLN 269 million in retained earnings, results from a retrospective change in the recognition of historically collected insurance premiums and a change in the measurement methodology for insurance liabilities. Until the implementation of IFRS 17, the entire premium received by the Group was split in accordance with Recommendation U on the basis of the relative fair value model into an insurance product portion - measured using an actuarial model in accordance with the requirements of IFRS 4 - and a credit product portion - accounted for using the effective interest rate method. With the implementation of IFRS 17, insurance premiums were recognised in full as insurance component measured using the general model (GMM model). As a consequence, the rate of revenue recognition and therefore the historically recognised profit included in retained earnings has changed.

The value of the insurance premium previously recognised as a component of the gross carrying amount of loans and advances to customers and accounted for over the life of the loan product, now representing part of the insurance business measured using the new methodology under IFRS 17 is recognised over the life of the insurance product, which has translated into a positive increase in equity.

•        The increase in other capital by PLN 17 million related to the recognition of part of the finance income and costs from insurance business in other comprehensive income (a new element introduced by IFRS 17). Under IFRS 17, the Group used the option to split the finance income and costs of its insurance business into the portions recognized in profit or loss and other comprehensive income. By using this option, the Group can reduce the volatility of the income statement resulting from fluctuations in the interest rate structure. The change in contractual service margin (CSM) value is calculated using a fixed locked-in discount rate structure corresponding to the structure at the time the cohort was recognised. The difference between the calculation based on locked-in curves and the current curves at the time of calculation is presented in other comprehensive income. This approach also ensures consistent presentation of income statement items resulting from changes in liabilities and segregated assets.

•        Loans and advances to customers increased by PLN 1,395 million, due to the discontinuation of the premium element accounted for using the effective interest rate method and adjusting the gross carrying amount of loans. The value of this premium previously recognised as a component of the gross carrying amount of loans and advances to customers is now part of the insurance business measured using the new methodology under IFRS 17, thereby translating into an increase in the balance of liabilities in respect of insurance activities.

•        In accordance with IFRS 17, the liability from insurance operations as at 1 January 2022 increased by PLN 1,309 million to PLN 3,317 million, of which liability for remaining coverage (LRC) is PLN 3,143 million and liability for incurred claims (LIC) is PLN 174 million.

•        There was also a decrease of PLN 783 million in the line of assets in respect of insurance activities, which is primarily due to the adoption of a different method of determining insurance assets and liabilities with the reinsurer’s share (previously, receivables on account of reinsurance and share of reinsurers in technical reserves were presented under this item). In accordance with IFRS 17, the value of assets in respect of insurance activities as at 1 January 2022 amounts to 128 million and applies to outward reinsurance contracts measured using the GMM model, of which liability for remaining coverage (LRC) amounts to PLN 107 million and liability for incurred claims (LIC) amounts to PLN 21 million.

•        In intangible assets, the Group recognised future gains on insurance contracts (hereinafter Value in force, VIF) resulting from the settlement of the acquisition on 1 April 2014 of "Nordea Polska Towarzystwo Ubezpieczeń na Życie" SA (currently PKO Życie Towarzystwo Ubezpieczeń S.A.). Following the implementation of IFRS 17, VIF amounts to PLN 2 million as at 1 January 2022 (negative adjustment of PLN 20 million). The remeasurement is due to the fact that a significant part of the products for which VIF has been recognised are subject to the requirements of IFRS 17, so that VIF for this part of the portfolio is replaced by the contractual service margin (CSM). The amount of contractual service margin from the acquired portfolio subject to measurement in accordance with IFRS 17 is higher than the value of the recognised VIF, due to the prudential valuation that was applied for liability measurement purposes at the time of the transaction. The new VIF value has been limited to policies subject to measurement in accordance with IFRS 9 and has been calculated in line with the original recognition of the VIF (i.e. measurement of the VIF at the time of the transaction and adoption of an amortisation pattern based on the distribution of projected future profits).

•        A significant part of the products, i.e. the liabilities from the majority of unit-linked products and the "safe capital" product was presented under “Amounts due to customers” – “Liabilities in respect of insurance products”. Following the implementation of IFRS 17, these products are treated as part of liabilities in respect of insurance activities and measured in accordance with the new standard. The value of the adjustment to the item "Amounts due to customers" on this account amounted to a negative PLN 1,030 million. The carrying amount of the liabilities in respect of insurance products presented under "Amounts due to customers" amounts to PLN 175 million after adjustments and relates to structured products and insurance deposits which are treated as investment products measured in accordance with IFRS 9.

The Group analysed the performance guarantees to ensure that they met the definition of an insurance contract under IFRS 17. As this type of contract only involves credit risk related to the non-recovery of funds from customers, but no insurance risk, the Group recognises and measures performance guarantees in accordance with IFRS 9.

The following tables present the cumulative impact of the adjustments due to the implementation of IFRS 17 on the Group's assets, liabilities and equity as at 31 December 2022, the items of comprehensive income including the income statement and the items of the statement of cash flows for the period of 2022.

 

 31 December 2022

published

Adjustment due to implementation of IFRS 17

restated

ASSETS, of which:

430,683

764

431,447

Loans and advances to customers

231,721

1,238

232,959

Assets in respect of insurance activities

 555

(440)

115

Intangible assets

3,527

(15)

3,512

Other assets

2,804

(19)

2,785

LIABILITIES AND EQUITY

430,683

 764

431,447

Liabilities, of which:

395,248

 492

395,740

Amounts due to customers

339,582

(714)

338,868

Liabilities in respect of insurance activities

1,732

1,146

2,878

Other liabilities

7,014

(4)

7,010

Deferred tax liabilities

 13

64

77

EQUITY, of which:

35,435

272

35,707

Reserves and accumulated other comprehensive income

22,215

24

22,239

Retained earnings

8,651

269

8,920

Net profit or loss for the year

3,333

(21)

3,312

Capital and reserves attributable to equity holders of the parent company

35,449

272

35,721

 

INCOME STATEMENT (selected items) – 2022

published

Adjustment due to implementation of IFRS 17

restated

Net interest income

11,813

(389)

11,424

Interest and similar income

20,140

(389)

19,751

 of which calculated under the effective interest rate method

19,580

(384)

19,196

Net fee and commission income

4,951

(453)

4,498

Fee and commission income

6,515

(456)

6,059

Fee and commission expense

(1,564)

3

(1,561)

Other net income

508

779

1,287

Net income from insurance business, of which:

-

779

779

Insurance revenue (net of reinsurance)

-

1,174

1,174

Cost of insurance activities (net of reinsurance)

-

(324)

(324)

Result on business activities

17,272

(63)

17,209

Administrative expenses

(7,850)

81

(7,769)

 of which net regulatory charges

(1,889)

2

(1,887)

Profit before tax

4,749

18

4,767

Income tax expense

(1,416)

(39)

(1455)

Net profit (including non-controlling shareholders)

3,333

(21)

3,312

Net profit attributable to equity holders of the parent company

3,333

(21)

3,312

 

 

STATEMENT OF COMPREHENSIVE INCOME (selected items) – 2022

published

Adjustment due to implementation of IFRS 17

restated

Net profit (including non-controlling shareholders)

3,333

(21)

3,312

Other comprehensive income

(3,303)

7

(3,296)

Items which may be reclassified to profit or loss

(3,296)

7

(3,289)

       Finance income and costs from insurance business, gross

-

9

9

       Deferred tax

-

(2)

(2)

Finance income and costs from insurance business, net

-

7

7

Total net comprehensive income

30

(14)

16

Total net comprehensive income, of which attributable to:

30

(14)

16

    equity holders of the parent

30

(14)

16

 

CASH FLOWS – SELECTED CONSOLIDATED DATA – 2022

published

Adjustment due to implementation of IFRS 17

restated

Profit before tax

4,749

18

4,767

Total adjustments

15,223

(18)

15,205

Depreciation and amortization

1,278

(11)

1,267

Change in loans and advances to customers

1,529

157

1,686

Change in asset in respect of insurance activities

356

(343)

13

Change in amounts due to customers

17,286

316

17,602

Change in liabilities in respect of insurance activities

(276)

(163)

(439)

Change in other liabilities

1,903

2

1,905

Other adjustments

(1,912)

24

(1,888)

Net cash from/used in operating activities

18,543

-

18,543

14.3.         Impact of IFRS 17 on own funds and capital adequacy measures

According to CRR Regulation, prudential consolidation is used for capital adequacy purposes, which unlike consolidation in accordance with IFRS, covers only subsidiaries that meet the definition of an institution, financial institution or any ancillary services enterprise. Therefore, the following insurance companies of the Group are excluded from prudential consolidation: PKO Towarzystwo Ubezpieczeń S.A. and PKO Życie Towarzystwo Ubezpieczeń S.A. The insurance companies are measured using the equity method.

Thus, the implementation of IFRS 17 at the date of the opening balance sheet affects the value of equity investments recognised (own funds requirements for credit risk), as well as retained earnings and accumulated other comprehensive income from the remeasurement of insurance companies measured using the equity method.

The total impact of the adjustments on the total capital ratio is +0.01 b.p. as at 31 December 2022.

15. New standards and interpretations and their amendments

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

Standards and interpretations *

Description of changes and impact

IFRS 17 “Insurance contracts” (1.01.2023/ 19.11. 2021) and amendments to IFRS 17

(1.01.2023/ 8.09.2022)

For details, see Note 14 “IFRS 17 Insurance contracts”

Amendments to IAS 1 “Presentation of financial statements” and IAS 8 “Accounting policies, changes in accounting estimates and errors” (1.01.2023/2.03.2022))

Amendments to IAS 1 contain guidelines on the application of the term “material” in disclosures of the accounting policies. Instead of significant accounting policies, the amendments require disclosure of material information about accounting policies, with explanations and examples of how an entity can identify material information about accounting policies.

The amendments to IAS 8 introduce a new definition of accounting estimates. Under the new definition, accounting estimates are monetary amounts in the financial statements that are subject to measurement uncertainty. The introduction of the definition of accounting estimates and other amendments to IAS 8 are intended to help entities distinguish between changes in accounting policies and changes in accounting estimates.

The amendments to IAS 1 affect the scope of information presented in the Group's annual financial statements for 2023.

For details, see “BASIS FOR PREPARATION OF THE FINANCIAL STATEMENTS”.

amendments to IAS 1 - classification of liabilities

(1.01.2024/ 19.12.2023)

The changes relate to the classification of liabilities in the statement of financial position as short-term or long-term. They clarify that the classification of liabilities as short-term or long-term should take into account, as at the classification date, the existence of a debt extension, regardless of the entity's intention to use it for a period longer than 12 months, and should take into account the fulfillment of the conditions of such extension as at the date of assessment, if it is conditional. 

The Group does not have any agreements containing the aforementioned provisions and therefore the Group is not affected by the amendment.

Amendments to IAS 12 “Income taxes” (1.01.2023/11.08.2022)

Amendments to IAS 12 require that the entities recognise in the financial statements deferred tax assets and liabilities resulting from transactions, other than business combinations, in which equal amounts of deductible and taxable temporary differences arise on initial recognition.

The amendment is presentational in nature.

For details, see note: “INCOME TAX”.

Amendments to IAS 12 “Income taxes” (1.01.2023/8.11.2023)

The amendments apply to entities for which OECD Pillar 2 tax regulations apply, i.e. the introduction of global minimum taxation for the largest groups earning profits in different tax jurisdictions (“Pillar”). Among other things, the amendments introduce an exception to the requirements of IAS 12, whereby entities do not recognise and disclose deferred tax assets and liabilities related to the Pillar. The application of the exception must be disclosed by entities. In addition, the amendments also introduce, among other things, a requirement for separate disclosure of current tax expense related to the Pillar.

The provisions for a global minimum tax have not yet been implemented in Poland. They have also not been implemented in certain jurisdictions where the Group operates (Ukraine, Sweden). From 2024 onwards, they will apply in tax jurisdictions where the Group operates in the form of foreign branches (Germany, Czech Republic, Slovakia, Romania).

The Group is currently evaluating the future impact on the consolidated financial statements.

Amendment to IFRS 16 “Leases” (1.01.2024/20.11.2023)

The amendments clarify how a seller-lessee should measure sale and leaseback transactions that meet the requirements of IFRS 15 to recognise an asset as a sale.

The amendments concern cases where the instalments payable under a leaseback agreement are variable, i.e. other than based on a rate or index.

The amendments require the seller-lessee to measure the lease liability in such a way that the differences between the actual variable amounts paid under the agreement and the amounts included in the initial measurement of the liability are recognised directly through profit or loss.

A retrospective approach applies to these amendments.

The Group does not currently have sale and leaseback transactions with variable lease instalments other than those based on a rate or index, and therefore the Group is not affected by the amendment.

* 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 7 “Statement of Cash Flows”

and amendments to IFRS 7 “Financial Instruments: Disclosures”

(1.01.2024/ NO DATA)

 

The amendments require additional disclosures for reverse factoring agreements. Entities will be required to disclose information in financial statements to enable users of financial statements:

•        an assessment of how the aforementioned agreements affect the entity's liabilities and cash flows; and

•        understanding the impact of the aforementioned agreements on the entity's exposure to liquidity risk and the impact when the agreements expire.

In addition, the amendments complement the current IFRS requirements by adding additional disclosure requirements to IAS 7 on, among other things:

•        terms and conditions of reverse factoring agreements;

•        disclosures at the beginning and end of the reporting period of the carrying amount of the aforementioned liabilities, the value of liabilities paid, the timing of payments.

The IASB has decided that, in most cases, entities can present aggregated information on the above matters.

The Group does not currently have any reverse factoring transactions relating to the above amendments and therefore the Group should not be affected by the amendment.

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

SUPPLEMENTARY NOTES TO THE INCOME STATEMENT

16. Segment reporting

ACCOUNTING POLICIES:

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 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.

Following the introduction of the disclosures in respect of IFRS 17 as of 1 January 2023, corresponding changes have been made to the comparative figures for 2022 (as detailed in note IFRS 17 “Insurance Contracts”).

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 segmentation 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 S.A., PKO BP BANKOWY PTE S.A., PKO Życie Towarzystwo Ubezpieczeń S.A., PKO Towarzystwo Ubezpieczeń S.A., 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, the Group 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 center and other

The transfer & other activities centre comprises the result on internal settlements related to funds transfer pricing, the result on the Group’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.

 

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 2023 and 31 December 2022.

Income statement by segment

Continuing operations

Retail segment

Corporate and investment segment

Transfer center and other

Total operations of the Group

2023

Net interest income

15,143

6,348

(3,173)

18,318

Net fee and commission income

3,555

1,124

(53)

4,626

Other net income

1,011

224

(47)

1,188

Net income from insurance business

696

15

-

711

Dividend income

-

14

-

14

Gains/(losses) on financial transactions

40

98

29

167

Foreign exchange gains/ (losses)

116

4

(21)

99

Gains/(losses) on derecognition of financial instruments

25

19

13

57

Net other operating income and expense

114

94

(68)

140

Income/(expenses) relating to internal customers

20

(20)

-

-

Result on business activities

19,709

7,696

(3,273)

24,132

Net allowances for expected credit losses

(993)

(272)

-

(1,265)

Net impairment losses on non-financial assets

(6)

(53)

(49)

(108)

Cost of legal risk of mortgage loans in convertible currencies

(5,430)

-

-

(5,430)

Administrative expenses, of which:

(6,313)

(1,320)

(2)

(7,635)

depreciation and amortization

(938)

(149)

-

(1,087)

    net regulatory charges

(444)

(176)

(2)

(622)

Tax on certain financial institutions

(754)

(439)

(38)

(1,231)

Share in profits and losses of associates and joint ventures

-

-

-

99

Segment profit/(loss)

6,213

5,612

(3,362)

8,562

Income tax expense (tax burden)

 

 

 

(3,057)

Net profit (including non-controlling shareholders)

 

 

 

5,505

Profit (loss) attributable to non-controlling shareholders

 

 

 

3

Net profit attributable to equity holders of the parent company

 

 

 

5,502

 

Income statement by segment

Continuing operations

Retail segment

Corporate and investment segment

Transfer center and other

Total operations of the Group

2022

Net interest income

7,711

3,892

(179)

11,424

Net fee and commission income

3,408

1,097

(7)

4,498

Other net income

1,185

483

(381)

1,287

Net income from insurance business

772

7

-

779

Dividend income

-

51

-

51

Gains/(losses) on financial transactions

172

200

(14)

358

Foreign exchange gains/ (losses)

87

196

(356)

(73)

Gains/(losses) on derecognition of financial instruments

(1)

(23)

(2)

(26)

Net other operating income and expense

129

78

(9)

198

Income/(expenses) relating to internal customers

26

(26)

-

-

Result on business activities

12,304

5,472

(567)

17,209

Net allowances for expected credit losses

(959)

(542)

-

(1,501)

Net impairment losses on non-financial assets

(41)

(1)

(21)

(63)

Cost of legal risk of mortgage loans in convertible currencies

(1,914)

-

-

(1,914)

Administrative expenses, of which:

(6,404)

(1,333)

(32)

(7,769)

depreciation and amortization

(880)

(139)

-

(1,019)

net regulatory charges

(1,475)

(380)

(32)

(1,887)

Tax on certain financial institutions

(737)

(382)

(147)

(1,266)

Share in profits and losses of associates and joint ventures

-

-

-

71

Segment profit/(loss)

2,249

3,214

(767)

4,767

Income tax expense (tax burden)

 

 

 

(1,455)

Net profit (including non-controlling shareholders)

 

 

 

3,312

Net profit attributable to equity holders of the parent company

 

 

 

3,312

 

INTEREST INCOME BY SEGMENT

2023

Retail segment

Corporate and investment segment

Transfer center and other

Total

Loans and other amounts due from banks and the Central Bank

13

963

762

1,738

Debt securities

96

4,518

2,298

6,912

Loans and advances to customers (excluding finance lease receivables)

15,897

5,093

-

20,990

Finance lease receivables

1,107

470

-

1,577

 

 

 

 

 

Total

17,113

11,044

3,060

31,217

 

INTEREST INCOME BY SEGMENT

2022

Retail segment

Corporate and investment segment

Transfer center and other

Total

Loans and other amounts due from banks and the Central Bank

11

587

560

1,158

Debt securities

56

2,047

1,734

3,837

Loans and advances to customers (excluding finance lease receivables)

9,937

3,506

-

13,443

Finance lease receivables

978

306

-

1,284

Amounts due to customers (excluding loans and advances received)

-

29

-

29

 

 

 

 

 

Total

10,982

6,475

2,294

19,751

 

FEE AND COMMISSION INCOME BY SEGMENT

2023

 

 

 

Retail segment

Corporate and investment segment

Transfer center and other

Total

Loans, insurance, operating leases and fleet management

768

467

-

1,235

lending

542

379

-

921

offering insurance products

73

19

-

92

operating leases and fleet management

153

69

-

222

Investment funds, pension funds and brokerage activities

675

119

-

794

servicing investment funds and OFE (including management fees)

435

5

-

440

servicing and selling investment and insurance products

4

-

-

4

brokerage activities

236

114

-

350

Cards

2,118

56

-

2,174

Margins on foreign exchange transactions

489

232

-

721

Bank accounts and other

1,012

365

-

1,377

servicing bank accounts

796

178

-

974

cash operations

51

57

-

108

servicing foreign mass transactions

86

50

-

136

customer orders

16

38

-

54

fiduciary services

-

9

-

9

other

63

33

-

96

 

 

 

 

 

Total

5,062

1,239

-

6,301

 

FEE AND COMMISSION INCOME BY SEGMENT

2022

 

 

 

Retail segment

Corporate and investment segment

Transfer center and other

Total

Loans, insurance, operating leases and fleet management

767

386

-

1,153

lending

542

324

-

866

offering insurance products

102

15

-

117

operating leases and fleet management

123

47

-

170

Investment funds, pension funds and brokerage activities

650

122

-

772

servicing investment funds and OFE (including management fees)

381

8

-

389

servicing and selling investment and insurance products

2

-

-

2

brokerage activities

267

114

-

381

Cards

1,906

83

-

1,989

Margins on foreign exchange transactions

521

290

-

811

Bank accounts and other

991

343

-

1,334

servicing bank accounts

801

178

-

979

cash operations

37

52

-

89

servicing foreign mass transactions

69

43

-

112

customer orders

27

36

-

63

fiduciary services

-

9

-

9

other

57

25

-

82

 

 

 

 

 

Total

4,835

1,224

-

6,059

 

Assets and liabilities by segment

Retail segment

Corporate and investment segment

Transfer center and other

Total operations of the Group

31.12.2023

Assets

182,510

205,155

109,561

497,226

Investments in associates and joint ventures

 

-

-

284

Unallocated assets

-

-

-

4,006

Total assets

182,510

205,155

109,561

501,516

Liabilities

338,611

90,016

25,833

454,460

Unallocated liabilities

-

-

-

1,829

Total liabilities

338,611

90,016

25,833

456,289

 

Assets and liabilities by segment

Retail segment

Corporate and investment segment

Transfer center and other

Total operations of the Group

31.12.2022

Assets

176,655

157,849

91,419

425,923

Investments in associates and joint ventures

-

285

-

285

Unallocated assets

-

-

-

5,239

Total assets

176,655

158,134

91,419

431,447

Liabilities

288,718

79,423

26,757

394,898

Unallocated liabilities

-

-

-

842

Total liabilities

288,718

79,423

26,757

395,740

 

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., KREDOLEASING 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 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 geographic area “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”.

 

2023

Poland

Ukraine

Total

Net interest income

17,945

373

18,318

Net fee and commission income

4,516

110

4,626

Other net income

1,181

7

1,188

Net income from insurance business

711

-

711

Dividend income

14

-

14

Gains/(losses) on financial transactions

167

-

167

Foreign exchange gains/ (losses)

97

2

99

Gains/(losses) on derecognition of financial instruments

55

2

57

Net other operating income and expense

137

3

140

Result on business activities

23,642

490

24,132

Net allowances for expected credit losses

(1,244)

(21)

(1,265)

Net impairment losses on non-financial assets

(108)

-

(108)

Cost of legal risk of mortgage loans in convertible currencies

(5,430)

-

(5,430)

Administrative expenses, of which:

(7,433)

(202)

(7,635)

depreciation and amortization

(1,051)

(36)

(1,087)

net regulatory charges

(607)

(15)

(622)

Tax on certain financial institutions

(1,231)

-

(1,231)

Share in profits and losses of associates and joint ventures

99

-

99

Segment profit/(loss)

8,295

267

8,562

Income tax expense (tax burden)

 

 

(3,057)

Net profit (including non-controlling shareholders)

 

 

5,505

Profit (loss) attributable to non-controlling shareholders

 

 

3

Net profit attributable to equity holders of the parent company

 

 

5,502

 

31.12.2023

Poland

Ukraine

Total

Assets, of which:

491,452

5,774

497,226

    Loans and advances to customers

244,479

1,297

245,776

Investments in associates and joint ventures

284

-

284

Current income tax receivables and deferred income tax asset

3,970

36

4,006

Total assets

495,706

5,810

501,516

Liabilities, of which:

449,384

5,076

454,460

     Amounts due to customers

394,375

4,818

399,193

Current income tax liabilities and deferred income tax liabilities

1,725

104

1,829

Total liabilities

451,109

5,180

456,289

 

2022

Poland

Ukraine

Total

Net interest income

11,149

275

11,424

Net fee and commission income

4,350

148

4,498

Other net income

1,280

7

1,287

Net income from insurance business

779

-

779

Dividend income

51

-

51

Gains/(losses) on financial transactions

358

-

358

Foreign exchange gains/ (losses)

(75)

2

(73)

Gains/(losses) on derecognition of financial instruments

(27)

1

(26)

Net other operating income and expense

194

4

198

Income/(expenses) relating to internal customers

-

-

-

Result on business activities

16,779

430

17,209

Net allowances for expected credit losses

(1,276)

(225)

(1,501)

Net impairment losses on non-financial assets

(63)

-

(63)

Cost of legal risk of mortgage loans in convertible currencies

(1,914)

-

(1,914)

Administrative expenses, of which:

(7,583)

(186)

(7,769)

depreciation and amortization

(978)

(41)

(1,019)

net regulatory charges

(1,874)

(13)

(1,887)

Tax on certain financial institutions

(1,266)

-

(1,266)

Share in profits and losses of associates and joint ventures

71

-

71

Segment profit/(loss)

4,748

19

4,767

Income tax expense (tax burden)

 

 

(1,455)

Net profit (including non-controlling shareholders)

 

 

3,312

Net profit attributable to equity holders of the parent company

 

 

3,312

 

31.12.2022

Poland

Ukraine

Total

Assets, of which:

421,052

4,871

425,923

Loans and advances to customers

231,382

1,577

232,959

Investments in associates and joint ventures

285

-

285

Current income tax receivables and deferred income tax asset

5,231

8

5,239

Total assets

426,568

4,879

431,447

Liabilities, of which:

390,533

4,365

394,898

Amounts due to customers

334,729

4,139

338,868

Current income tax liabilities and deferred income tax liabilities

841

1

842

Total liabilities

391,374

4,366

395,740

 

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

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

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

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

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

Interest income also includes:

•        the effect of the fair value measurement of financial assets acquired as part of business combinations between subsidiaries

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

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

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

financial information:

INTEREST AND SIMILAR INCOME

2023

2022

Loans and other amounts due from banks and the Central Bank1

1,738

1,158

Debt securities2

6,912

3,837

measured at amortized cost

2,239

1,487

measured at fair value through other comprehensive income

4,629

2,315

measured at fair value through profit or loss

44

35

Loans and advances to customers2,3

20,990

13,443

measured at amortized cost

20,485

12,925

measured at fair value through profit or loss

505

518

Finance lease receivables3

1,577

1,284

Amounts due to customers

-

29

Total

31,217

19,751

of which: interest income on impaired financial instruments

601

438

 

 

 

Interest income calculated using the effective interest rate method on financial instruments measured:

30,668

19,196

at amortized cost

26,039

16,881

at fair value through other comprehensive income

4,629

2,315

Income similar to interest income on instruments measured at fair value through profit or loss

549

555

Total

31,217

19,751

1  Under this item, in 2023, the Group recognised interest income on funds in call accounts (central clearing through a clearing broker) of PLN 205 million (PLN 297 million in the corresponding period) and interest income on funds in the current account with the NBP of PLN 762 million (PLN 560 million in the corresponding period).

2  The increase in interest income is mainly due to the higher level of market interest rates, increase in the securities portfolio and a change in the structure of the average volume of the loan portfolio (increase in the share of corporate and consumer loans at the expense of the share of housing loans in foreign currencies and PLN). The interest income from loans and advances to customers in the 12 months ended 31 December 2022 includes the effect of the Act on crowdfunding for business ventures and assistance for borrowers (so-called "credit holidays") in the amount of PLN 3,111 million (note “Loans and advances to customers”).

3 Interest income on loans advanced to customers and finance lease receivables for 2022 has been adjusted by PLN 389 million for the implementation of IFRS 17 "Insurance Contracts" (see note "IFRS 17 Insurance Contracts").

INTEREST EXPENSE

2023

2022

Hedging derivatives1

(3,817)

(3,580)

Amounts due to banks

(87)

(134)

Interbank deposits

-

(6)

Loans and advances received

(93)

(83)

Leases

(35)

(19)

Amounts due to customers2

(7,901)

(3,720)

Issues of securities

(739)

(621)

Subordinated liabilities

(227)

(164)

 

 

 

Total

(12,899)

(8,327)

1 The increase in interest expense related to hedging derivatives of PLN 237 million relates mainly to IRS transactions (payments made at a floating rate exceed those received at a fixed rate).

2  The increase in costs by PLN 4,181 million is mainly related to an increase in average interest rates on deposits associated with increases in PLN interest rates following the MPC's decisions and changes in the term structure involving an increase in the share of term deposits bearing interest at higher rates.

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31.12.2023

31.12.2022

Interest on funds in the mandatory reserve account

5.75%

6.75%

 

 

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

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 following items are also included in commission income:

•      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” – see note “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”. The exchange rate margin in customer transactions is calculated as the difference between the exchange rate at which the foreign exchange transaction was executed (the buy/sell rate from the bank's table of exchange rates, the negotiated rate, the rate from Table C of the National Bank of Poland) and the averaged current day buy and sell rate from the bank's table of exchange rates, with the exception of exchange office transactions and spot foreign exchange transactions, for which the exchange rate margin is calculated as the difference between the rate at which the foreign exchange position is closed and the transaction rate determined upon conclusion of the transaction.

financial information

FEE AND COMMISSION INCOME

2023

2022

Loans, insurance, operating leases and fleet management

1,235

1,153

lending

921

866

offering insurance products1

92

117

operating leases and fleet management

222

170

Investment funds, pension funds and brokerage activities

794

772

servicing investment funds and OFE (including management fees)

440

389

servicing and selling investment and insurance products1

4

2

brokerage activities

350

381

Cards

2,174

1,989

Margins on foreign exchange transactions

721

811

Bank accounts and other

1,377

1,334

servicing bank accounts

974

979

cash operations

108

89

servicing foreign mass transactions

136

112

customer orders

54

63

fiduciary services

9

9

other

96

82

 

 

 

Total, of which:

6,301

6,059

income from financial instruments not measured at fair value through profit or loss

5,808

5,607

1 Fee and commission income from offering insurance products and servicing and selling investment and insurance products for 2022 has been adjusted by PLN 456 million for the implementation of IFRS 17 "Insurance Contracts" (see note "IFRS 17 Insurance Contracts").

Fiduciary activities

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

FEE AND COMMISSION EXPENSE

2023

2022

Loans and insurance

(115)

(97)

commission paid to external entities for product sales

(24)

(20)

cost of construction project supervision and property appraisal

(41)

(28)

fees to Biuro Informacji Kredytowej

(25)

(23)

loan handling

(25)

(26)

Investment funds, pension funds and brokerage activities

(47)

(44)

Cards

(1,296)

(1,257)

Bank accounts and other

(217)

(163)

clearing services

(62)

(56)

commissions for operating services provided by banks

(14)

(16)

sending short text messages (SMS)

(55)

(50)

selling banking products

(1)

(1)

servicing foreign mass transactions

(22)

(22)

other

(63)

(18)

 

 

 

Total

(1,675)

(1,561)

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

 

NET INCOME ON OPERATING LEASES AND FLEET MANAGEMENT

2023

2022

Income on operating leases and fleet management

574

513

Costs of operating leases and fleet management

(68)

(95)

Depreciation of property, plant and equipment under operating leases

(284)

(248)

Net income on operating leases and fleet management

222

170

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.

financial information

DIVIDEND INCOME

2023

2022

from financial assets held for trading

1

1

from financial instruments not held for trading, measured at fair value through profit or loss

13

50

 

 

 

Total

14

51

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).

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

financial information

GAINS/(LOSSES) ON FINANCIAL TRANSACTIONS

2023

2022

Financial instruments held for trading, of which:

114

400

   Derivatives¹

93

400

   Equity instruments

4

(2)

   Debt securities

16

2

   Other

1

-

Financial instruments not held for trading, measured at fair value through profit or loss, of which:

62

(26)

   Equity instruments

99

11

   Debt securities

10

8

   Loans and advances to customers

(47)

(45)

Hedge accounting

(9)

(16)

 

 

 

Total

167

358

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

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). In the case of the hedging strategies in which CIRS contracts are the hedging instrument, this item also includes the ineffective portion of cash flow hedges (for details, please see the note “Hedge accounting and other derivative instruments”). 

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

financial information

 

2023

2022

Foreign exchange gains/ (losses)

99

(73)

An increase in net foreign exchange income results mainly from an improvement in the net income on currency derivatives.

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 (note “Modifications – Changes in contractual cash flows”).

related notes: “Consolidated statement of comprehensive income”,

financial information

GAINS/(LOSSES) ON DERECOGNITION OF FINANCIAL INSTRUMENTS

2023

2022

Measured at fair value through other comprehensive income

33

(41)

Measured at amortized cost

24

15

Total

57

(26)

23. Other operating income and expenses

Accounting policies:

Other operating income comprises income not directly related to banking activities. Other operating income mainly includes gains on 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. In the Group companies, other operating income also include, respectively, revenue from the sale of finished goods, goods for resale and materials. Other operating income also includes reversed provisions for legal claims, excluding legal claims relating to mortgage loans in foreign currencies and income in respect of the valuation and sale of CO2 emission allowances.

Other operating expenses include mainly costs of donations given, ancillary expenses, penalties, damages and fines given, losses on sale/scrapping of property, plant and equipment, intangible assets and assets repossessed for debt. In the Group companies, other operating expenses also include, cost of finished goods, goods for resale and materials. Other operating expenses also include provisions recognized for legal claims, excluding legal claims relating to mortgage loans in foreign currencies, costs of provisions for refunds to customers on early repayment of consumer and mortgage loans before the CJEU ruling (see note “Provisions”) and costs in respect of the valuation and sale of CO2 emission allowances.

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

financial information

OTHER OPERATING INCOME

2023

2022

Net revenues from the sale of products and services

146

118

Gains on sale or scrapping of property, plant and equipment, property, plant and equipment leased out under operating lease, intangible assets and assets held for sale

95

108

Damages, compensation and penalties received

51

47

Ancillary income

6

11

Recovery of receivables expired, forgiven or written off

9

2

Reversal of provision for future payments

5

2

Reversal of provision recognized for legal claims excluding legal claims relating to repaid mortgage loans in convertible currencies

3

7

Income from sale of CO2 emission allowances

17

43

Other

82

90

 

 

 

Total

414

428

1  including, with regard to leasing activities, revenue from early termination of agreements in the amount of PLN 14 million (in 2022 - PLN 15 million), result on settlement of damages and expired operating lease agreements in the amount of PLN 8 million (in 2022 - PLN 8 million). 

 

OTHER OPERATING EXPENSES

2023

2022

Cost of products and services sold

(1)

(1)

Losses on sale or scrapping of property, plant and equipment, property, plant and equipment leased out under operating lease, intangible assets and assets held for sale

(8)

(11)

Damages, compensation and penalties paid

(6)

(1)

Donations made

(29)

(54)

Sundry expenses

(19)

(15)

Recognition of provision for potential refunds of fees and commission to customers

-

(13)

Recognition of provision for future payments

(1)

(2)

Recognition of provision for legal claims excluding legal claims relating to repaid mortgage loans in convertible currencies

(17)

(12)

Costs from sale of CO2 emission allowances

(44)

(25)

Other

(149)

(96)

 

 

 

Total

(274)

(230)

1 including costs of external services incurred in connection with debt collection in the amount of PLN 26 million (in 2022 - PLN 20 million) and litigation costs, including legal representation, reimbursed to borrowers under settlements concerning loans granted in CHF in the amount of PLN 29 million (in 2022 - PLN 0 million), remarketing costs of PLN 24 million (PLN 23 million in 2022).

 

24. Net allowances for expected credit losses

Accounting policies:

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

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

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

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

Estimates and judgments:

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

•        measurement and assessment of credit risk: expected credit losses

With regard to impairment, the 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 liabilities.

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

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

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

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

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

•      Significant increase in credit risk

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

•        Mortgage and other retail exposures

The Group uses a model based on a marginal PD calculation, i.e. the probability of default in a given month, to assess a significant increase in credit risk for mortgage exposures and other retail exposures. This probability depends on the time that has passed from originating the exposure. This enables reflecting the differences in credit quality that are typical of exposures to 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 Group identifies the premise of a significant increase in credit risk for a given exposure by comparing individual PD curves over the exposure horizon as at the date of initial recognition and as at the reporting date. Only the parts of the original and current PD curves which correspond to the period from the reporting date to the date of maturity of the exposure are compared as at each reporting date. The comparison is based on the average probability of default over the life of the loan in the period under review adjusted for current and forecast macroeconomic indicators.

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

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

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

According to data as at the end of 2023, an increase in the PD parameter of at least 2.5 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 significant increase in credit risk.

•        Exposures to institutional customers

In order to assess the significant increase in credit risk for institutional customers the Group applies the model based on the Markov chains. 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 category of risk and portfolio on the date of the initial recognition of the credit exposure, which, if exceeded, is identified as a significant increase in credit risk. This value is set on the basis of the average probability of default for categories of risk worse than that at initial recognition of the exposure, weighted by the probability of transition to those categories of risk in the given time horizon.

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

Risk category

PD range

Minimum range of the risk category deterioration indicating a significant increase in credit risk1

A-B

0.0 – 0.90%

2 categories

C

0.90 – 1.78%

2 categories

D

1.78 – 3.55%

2 categories

E

3.55-7.07%

2 categories

F

7.07-14.07%

1 category

G

14.07-99.99%

not applicable2

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

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

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

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

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

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

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

•        significant increase in the LTV ratio;

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

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

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

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

•      Impaired loans and definition of default

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

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

•        a deterioration in the debtor’s economic and financial position during the 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);

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

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

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

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

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

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

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

The Group 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.

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

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

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

The Group 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 Group adjusts the parameter specifying the level of exposure at the time of default by the future repayments arising from the schedule and potential overpayments and underpayments to specify the value of the asset at the time of default in a given period.

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

•           a baseline scenario with a probability of 75%

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

The scope of the projected indicators includes:

•           GDP growth rate,

•           unemployment rate,

•           WIBOR 3M rate,

•           SARON 3M rate,

•           CHF/PLN exchange rate,

•           property price index

•           NBP reference rate.

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

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

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

The share of the scenarios for the GDP path (GDP growth rate) that falls between the optimistic and the pessimistic scenario is referred to as the probability of the baseline scenario. Such an assumption is used to project GDP growth, using a potential rate of growth of the Polish economy that varies over time, calculated with the use of quarterly data provided by the Central Statistical Office. The values of other macroeconomic variables used in the scenarios (rate of unemployment, property price index) are estimated after the extreme paths of GDP growth are defined.

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

•        the ageing of the Polish population (and the appearance of unsatisfied demand for 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 projections for deposit rates are mainly prepared on the basis of assumptions regarding central bank interest rates.

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

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

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

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

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

The applied approach to the impact of macroeconomic forecasts on risk parameters describes the situation simultaneously in all branches of the economy and may not take into account the problems of individual industries caused by the pandemic, which is why the Group has conducted additional analyses of the loan portfolio, including leasing portfolio. These analyses, carried out by risk experts, mainly included an assessment of the impact of specific macroeconomic conditions not taken into account in the portfolio approach and helped identify clients and industries particularly affected by the current economic situation.

For the loan and advances portfolio, this is particularly the case in the construction, automotive, office and retail rental sectors, organic fertiliser production and energy-intensive industries. Exposures with highest PD values (D rating or worse) belonging to identified industries were marked with the indication of "significant increase in credit risk" and covered by increased write-downs. In 2023, as a result of the above measures, the Group increased the write-downs for expected credit losses by PLN 272 million, which represents approx. 16% of the value of write-downs on the entire portfolio of economic loans classified as Stage 2.

In the case of the portfolio of finance lease receivables, this relates to the following sectors: transport, construction, hotel, finishing, furniture, automotive, paper, agriculture, fertiliser and steel. For these sectors, the Group divided the portfolio into the portfolio of customers with a higher level of risk and the portfolio of standard customers, and for both these groups introduced adjustments to the model PD to increase the coverage of the write-down on this portfolio, with standard clients being lower than for customers with increased risk levels. The most numerous of the identified groups include the transport sector, which accounts for 24% of the healthy portfolio (of which 3% of the healthy portfolio is at a higher risk level), the remaining industries constitute 24% of a healthy portfolio. The introduced changes resulted in an increase in allowances by PLN 9 million for the steel and fertilizer industry in 2023, and by PLN 12 million for the agricultural sector. The industry add-ons applied in 2022 resulted in an increase in valuation allowances by PLN 11 million for the transport industry and PLN 27 million for other industries.

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

scenario as at 31.12.2023

Baseline

optimistic

pessimistic

probability

75%

5%

20%

 

2024

2025

2026

2024

2025

2026

2024

2025

2026

GDP growth y/y

3.9

3.8

3.2

9.4

8.8

4.7

(1.7)

(1.7)

1.3

Unemployment rate

2.7

2.7

2.5

2.4

2.5

2.7

4.3

4.4

3.0

Property price index

107.7

115.4

118.3

115.1

130.7

134.0

100.6

101.6

104.2

WIBOR 3M (%)

5.6

5.0

3.7

6.6

5.7

3.9

4.3

2.5

2.8

CHF/PLN

4.4

4.1

3.9

4.1

3.8

3.6

5.1

4.9

4.5

 

scenario as at 31.12.2022

Baseline

optimistic

pessimistic

probability

75%

5%

20%

 

2023

2024

2025

2023

2024

2025

2023

2024

2025

GDP growth y/y

(0.3)

2.8

2.9

5.2

8.2

6.2

(5.8)

(2.5)

(0.4)

Unemployment rate

3.9

4.7

3.9

2.9

3.4

3.1

4.3

5.3

4.3

Property price index

97.0

96.1

98.2

103.9

110.8

114.9

90.6

83.1

83.6

WIBOR 3M (%)

6.8

5.8

4.6

7.3

6.1

4.7

6.2

4.6

3.8

CHF/PLN

4.6

4.2

4.1

4.4

4.1

4.0

5.1

5.3

4.9

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

 

31.12.2023

31.12.2022

 

optimistic

pessimistic

optimistic

pessimistic

estimated change in the level of allowances for expected credit losses for not impaired exposures due to the materialization of particular macroeconomic scenarios (in PLN million)

(702)

624

(290)

527

 

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

ESTIMATED CHANGE IN EXPECTED CREDIT LOSSES RESULTING FROM MATERIALIZATION OF A SCENARIO OF THE RISK PARAMETERS, THE DETERIORATION OR IMPROVEMENT, OF WHICH:1

+10% scenario

(10%) scenario

+10% scenario

(10%) scenario

 

31.12.2023

31.12.2022

changes in the present value of estimated cash flows for the Bank’s portfolio of individually impaired loans and advances assessed on an individual basis

THE SECURITIES

-

-

(37)

49

Stage 1

-

-

-

12

Stage 3

-

-

(37)

37

LOANS AND ADVANCES TO CUSTOMERS

(71)

107

(92)

138

Stage 3

(71)

107

(92)

138

Changes in the probability of default

THE SECURITIES

9

(9)

9

(9)

Stage 1

8

(8)

8

(8)

Stage 2

1

(1)

1

(1)

LOANS AND ADVANCES TO CUSTOMERS

233

(256)

201

(237)

Stage 1

116

(116)

101

(107)

Stage 2

117

(140)

100

(130)

Changes in recovery rates

THE SECURITIES

(9)

9

(9)

9

Stage 1

(7)

7

(8)

8

Stage 2

(2)

2

(1)

1

LOANS AND ADVANCES TO CUSTOMERS

(570)

571

(545)

546

Stage 1

(168)

168

(163)

163

Stage 2

(215)

215

(215)

216

Stage 3

(187)

188

(167)

167

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

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

financial information

NET ALLOWANCES FOR EXPECTED CREDIT LOSSES

2023

2022

Amounts due from banks

(7)

(2)

Debt securities

(54)

19

    measured at fair value through other comprehensive income

(50)

34

    measured at amortized cost

(4)

(15)

Loans and advances to customers

(1,269)

(1,347)

    measured at amortized cost

(1,269)

(1,347)

      housing loans

(168)

(126)

      business loans

(361)

(391)

      consumer loans

(681)

(684)

      factoring receivables

(3)

(5)

      finance lease receivables

(56)

(141)

Other financial assets

(8)

(14)

Provisions for financial liabilities and guarantees granted

73

(157)

Total

(1,265)

(1,501)

25. Impairment of non-financial assets

Estimates and judgments:

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).

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

Related notes: “Intangible assets”, “Property, plant and equipment”, “Investments in associates and joint ventures”, “Other assets”, “Leases”

financial information

NET IMPAIRMENT OF NON-FINANCIAL ASSETS

2023

2022

Property, plant and equipment1

(41)

(3)

Assets held for sale

(1)

-

Intangible assets2

(1)

(21)

Investments in associates and joint ventures

(11)

-

Other non-financial assets, including inventories3

(54)

(39)

 

 

 

Total

(108)

(63)

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

2 the Group recognised impairment of intangible assets – customer relationships in the amount of PLN 1 million (PLN 21 million in 2022)

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

CHANGE IN ACCUMULATED IMPAIRMENT LOSSES ON NON-FINANCIAL ASSETS

Opening balance

Impairment of non-financial assets

Other

Closing balance

2023

 

 

 

 

Property, plant and equipment under operating lease

(3)

-

-

(3)

Property, plant and equipment

(102)

(41)

8

(135)

Non-current assets held for sale

(1)

(1)

2

-

Intangible assets

(382)

(1)

1

(382)

Investments in associates and joint ventures

(264)

(11)

-

(275)

Other non-financial assets, including inventories

(337)

(54)

33

(358)

Total

(1,089)

(108)

44

(1,153)

 

CHANGE IN ACCUMULATED IMPAIRMENT LOSSES ON NON-FINANCIAL ASSETS

Opening balance

Impairment of non-financial assets

Other

Closing balance

2022

 

 

 

 

Property, plant and equipment under operating lease

(3)

-

(1)

(4)

Property, plant and equipment

(100)

(3)

1

(102)

Non-current assets held for sale

(1)

-

-

(1)

Intangible assets

(396)

(21)

35

(382)

Investments in associates and joint ventures

(264)

-

-

(264)

Other non-financial assets, including inventories

(354)

(39)

56

(337)

 

 

 

 

 

Total

(1,118)

(63)

91

(1,090)

 

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

Accounting policies and estimates and judgments:

In connection with the current legal disputes regarding loans in convertible currencies, the 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. Following the revisions to cash flow estimates, the Group reduces the gross carrying amount of mortgage loans denominated in and indexed to foreign currencies in accordance with the requirements of IFRS 9 Financial Instruments, paragraph B5.4.6, and/or recognises provisions for legal risk in accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets. The cost of legal risk was estimated taking into account a number of assumptions which have a significant effect on the amount of the estimates recognized in the Group’s financial statements.

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

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

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

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

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

The Group also estimates the probabilities of adverse outcomes for the actual and potential claims. 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 and high costs which must be incurred to initiate and conduct legal proceedings.

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

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

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

In the judgment referred to above, the CJEU also indicated that, as regards analogous claims by consumers against banks, the provisions of the Directive do not preclude consumers from bringing such claims against banks, provided that the objectives of Directive 93/13 and the principle of proportionality are respected. In the Group's opinion, on the grounds of national legislation and the principle of proportionality, the customers cannot make additional claims against the Group, primarily because they have not provided the Group with a financial service consisting in the provision of capital. Nor is it reasonable to conclude that the Group has enriched itself at the expense of the customer and the consumer has been impoverished. With the funds obtained, the customer met its housing needs and the Group bore the costs of raising the funds, making them available and servicing the loan over the years. The Group assesses that, at this stage, the likelihood of outcomes that are favourable to consumers, including a claim for additional compensation, generating a material adverse financial impact is difficult to estimate and, in addition, there are uncertainties as to how the level of such compensation to the customer should be calculated. This approach is supported by the fact that there have been no adverse court decisions for the Group relating to this issue.

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

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

In 2023, the Group recognised the cost of legal risk of PLN 5,430 million.

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

ANALYSIS OF THE MODEL'S SENSITIVITY TO CHANGES IN KEY PARAMETERS

Increase/decrease of cost of legal risk of mortgage loans in convertible currencies

 

31.12.2023

31.12.2022

1 p.p. decrease in the likelihood of the Bank winning in court (instead of a 1 p.p. increase in the probability of declaring an agreement invalid)

101

63

1 p.p. decrease in the number of settlements

25

22

1 p.p. increase in the number of lawsuits for the active portfolio (at the cost of inactive customers)

46

64

1 p.p. increase in the lawsuit to settlement conversion ratio

(71)

(26)

1 p.p. increase in the number of lawsuits for the repaid portfolio

34

35

extension of the period for accrual of statutory interest by 90 days

204

-

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

financial information

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

(pcs)

31.12.2023

31.12.2022

Number of mediation applications registered

57,036

37,500

Total number of settlements concluded, including those concluded

36,822

20,396

in mediation proceedings

35,154

19,786

in court proceedings

1,668

610

 

In 2023, the Group continued to encourage customers to join the programme.

IMPACT OF LEGAL RISK OF MORTGAGE LOANS IN CONVERTIBLE CURRENCIES

Gross carrying amount of mortgage loans in convertible currencies net of the cost of legal risk of mortgage loans in convertible currencies

Accumulated cost of legal risk of mortgage loans in convertible currencies

Gross carrying amount of mortgage loans in convertible currencies including the cost of legal risk of mortgage loans in convertible currencies

as at 31.12.2023

 

 

 

Loans and advances to customers/adjustment reducing the carrying amount of loans, of which:

14,945

8,306

6,639

 - related to the portfolio of mortgage loans in CHF

13,096

8,306

4,790

Provisions

 

3,001

 

Total

 

11,307

 

as at 31.12.2022

Loans and advances to customers/adjustment reducing the carrying amount of loans, of which:

19,015

7,378

11,637

- related to the portfolio of mortgage loans in CHF

16,731

7,378

9,353

Provisions

 

851

 

Adjustment to the gross carrying amount of other assets

 

94

 

Total

 

8,323

 

 

Change in the accumulated cost of legal risk of mortgage loans in convertible currencies during the period

2023

2022

Carrying amount at the beginning of the period

(8,323)

(7,023)

revaluation of loss for the period

195

(864)

offset of settlements and judgments for the period against accumulated losses*

2,251

1,478

Increase in adjustment to gross carrying amount of loans and advances to customers and other assets, increase in provisions for legal risk

(5,430)

(1,914)

Carrying amount at the end of the period

(11,307)

(8,323)

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

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

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 the 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 the note “Remuneration of the PKO Bank Polski S.A. key management”).

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

For additional information, see also the note “Provisions”

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

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

Depreciation and amortisation

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

Costs of depreciation of tangible fixed assets under operating leases are recognised in fee and commission income in the line “operating leases and fleet management” as a component of the net income from operating leases and fleet management.

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 by a third party to buy back the asset, or if there is an active market which will continue to exist at the end of the asset’s period of use and it is possible to determine the value of the asset on this market.

Costs relating to the purchase or construction of buildings are allocated to significant parts of the building (components) when such components have different useful lives or when each of the components generates benefits for the 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.

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

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

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

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

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

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

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

Estimates and judgments:

In estimating useful lives of particular types of property, plant and equipment, 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 usage of the asset;

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

•        other factors that may affect the useful economic life of the asset type concerned.

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

Useful lives

Buildings, premises, cooperative rights to premises (including investment real estate)

from 25 to 60 years 

Leasehold improvements (buildings, premises)

from 1 to 11 years (or the lease term, if shorter) 

Machines, technical devices, tools and instruments

from 2 to 15 years 

Computer units

from 2 to 10 years 

Vehicles

from 3 to 5 years  

Intangible assets

Useful lives

Software

from 1 to 24 years

Other intangible assets

from 2 to 20 years 

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

CHANGE IN THE USEFUL LIVES OF DEPRECIATED ASSETS CLASSIFIED AS LAND AND BUILDINGS

31.12.2023

31.12.2022

+10 years scenario

-10 years scenario

+10 years scenario

-10 years scenario

Depreciation costs

(28)

162

(30)

165

Related notes: “Intangible assets”, “Property, plant and equipment”, “Provisions”, “Benefits for the PKO Bank Polski SA key management.”, “Leases”

financial information

ADMINISTRATIVE EXPENSES1

2023

2022

Employee benefits

(4,140)

(3,403)

Overheads, of which:

(1,786)

(1,460)

Rent

(116)

(98)

IT

(455)

(386)

Depreciation and amortization

(1,087)

(1,019)

property, plant and equipment, of which:

(532)

(527)

    right-of-use assets

(244)

(232)

    IT

(125)

(120)

investment properties

-

(1)

intangible assets, of which:

(555)

(492)

IT

(547)

(480)

Costs of regulatory charges

(622)

(1,887)

Total

(7,635)

(7,769)

1 Administrative expenses for 2022 have been adjusted by PLN 81 million for the implementation of IFRS 17 "Insurance Contracts" (see note “IFRS 17 Insurance Contracts")

EMPLOYEE BENEFITS

2023

2022

Wages and salaries, including:1

(3,454)

(2,843)

    costs of contributions to the employee pension plan

(90)

(75)

Social security, of which:1

(570)

(470)

contributions for disability and retirement benefits

(480)

(408)

Other employee benefits

(116)

(90)

 

 

 

Total

(4,140)

(3,403)

1 Employee benefit expense 2022 has been adjusted by PLN 48 million for the implementation of IFRS 17 "Insurance Contracts" (see note "IFRS 17 Insurance Contracts")

NET REGULATORY CHARGES

2023

2022

Contribution and payments to the Bank Guarantee Fund (BFG), of which:

(280)

(409)

to the Resolution Fund

(280)

(291)

to the Bank Guarantee Fund

-

(118)

Fees to the PFSA1

(55)

(49)

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

-

(956)

Borrower Support Fund

-

(313)

Flat rate income tax

-

(5)

Other taxes and fees1

(287)

(155)

 

 

 

Total

(622)

(1,887)

1 Fees to the PFSA for 2022 have been adjusted by PLN 2 million for the implementation of IFRS 17 "Insurance Contracts" (see note "IFRS 17 Insurance Contracts")

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

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

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

•        Fee for the borrower support fund:

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

•        at least one of the borrowers is unemployed;

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

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

From this, the Fund has been injected with additional funds of approximately PLN 1.4 billion until the end of 2022. In 2022, the Group recognised a cost in respect of additional payments to the Borrower Support Fund of 313 million.

28. Tax on certain financial institutions

accounting policies:

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

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

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

financial information

TAX ON CERTAIN FINANCIAL INSTITUTIONS

2023

2022

 

 

 

PKO Bank Polski S.A.

(1,166)

(1,190)

PKO Życie Towarzystwo Ubezpieczeń S.A.

(3)

(3)

PKO Bank Hipoteczny S.A.

(58)

(70)

PKO Towarzystwo Ubezpieczeń S.A.

(4)

(3)

Total

(1,231)

(1,266)

 

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

29. Income tax

accounting policies:

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

•        Current tax

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

The main categories permanently recognised as non-deductible costs include the tax on certain financial institutions, contributions and payments to the BGF and the Borrowers' Support Fund, as well as the State Fund for the Rehabilitation of the Disabled (PFRON). In addition, the Bank does not recognise in the tax account the cost of legal risk of mortgage loans in convertible currencies subject to the inclusion in the discontinuation of the amounts of capital forgiven resulting from the settlements in accordance with the Regulation of the Minister of Finance of 11 March 2022 on suspending the collection of income tax on certain types of income (revenue) related to a mortgage loan granted for residential purposes, as amended by the Regulation of 20 December 2022, which is in force until 31 December 2024 (for details, see table reconciliation of the effective tax rate).

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

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 within the statutory deadlines.

•        Deferred income tax

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

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

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

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

financial information:

•        tax expense

 TAX EXPENSE

2023

2022

Income tax expense recognized in the income statement1

(3,057)

(1,455)

Current income tax expense

(2,572)

(2,052)

Deferred income tax on temporary differences

(485)

597

Income tax expense recognized in other comprehensive income in respect of temporary differences

(1,337)

777

Total

(4,394)

(678)

1  the tax expense recognised in the income statement for 2022 was adjusted by PLN 39 million for the implementation of IFRS 17 "Insurance Contracts" (see note “IFRS 17 Insurance contracts”).

•        reconciliation of the effective tax rate

RECONCILIATION OF THE EFFECTIVE TAX RATE

2023

2022

Profit or loss before tax

8,562

4,767

Tax at the statutory rate in force in Poland (19%)

(1,627)

(906)

Effect of different tax rates of foreign entities

(82)

1

Effect of permanent differences between profit before income tax and taxable income, including:

(1,348)

(549)

    cost of legal risk of mortgage loans in convertible currencies

(993)

(143)

    tax on certain financial institutions

(234)

(240)

    contributions and payments to the Bank Guarantee Fund

(53)

(78)

    Borrower Support Fund

-

(60)

non-deductible impairment losses on investments in subordinates

-

(10)

non-deductible allowances for expected credit losses on credit exposures

(28)

(44)

    dividend income

3

3

interest on foreign exchange gains in Sweden

-

27

reversal of assets from reclassification of temporary differences to permanent differences

(37)

-

    other permanent differences

(6)

(4)

 

 

 

Income tax expense recognized in the income statement

(3,057)

(1,455)

 

 

 

Effective tax rate (%)

35.70

30.52

 

•        net deferred tax assets

DEFERRED TAX LIABILITIES AND ASSETS

2023

31.12.2022

Effect of amendments to IAS 12*

01.01.2023 taking into account amendments to IAS 12

Income statement

Other comprehensive income

31.12.2023

Interest accrued on receivables (loans)

368

-

368

(5)

-

363

Interest on securities

222

-

222

8

-

230

Valuation of securities

-

-

-

12

6

18

Valuation of derivative financial instruments

40

-

40

(5)

(21)

14

Difference between carrying amount and tax base of property, plant and equipment and intangible assets, including leased assets*

223

160

383

44

-

427

Taxable income on the reversal of IBNR allowance, which was previously tax deductible, on implementation of IFRS 9

26

-

26

(13)

-

13

Prepaid costs

29

-

29

(24)

-

5

Other taxable temporary differences

121

-

121

(16)

(6)

99

Deferred tax liabilities, gross

1 029

160

1 189

1

(21)

1 169

 

 

 

 

 

 

 

Interest accrued on liabilities

214

-

214

153

-

367

Valuation of derivative financial instruments

1 389

-

1 389

3

(809)

583

Valuation of securities

872

-

872

(41)

(550)

281

Provision for employee benefits

103

-

103

16

1

120

Allowances for expected credit losses

1 477

-

1 477

95

-

1 572

Fair value measurement of loans

157

-

157

33

-

190

Commissions to be settled in time using the straight-line valuation method and effective interest rate

1 133

-

1 133

(442)

-

691

Other deductible temporary differences

38

-

38

10

-

48

Provision for costs to be incurred

73

-

73

1

-

74

Tax loss brought forward

1

-

1

(1)

-

-

Impact of legal risk of mortgage loans in convertible currencies 

321

-

321

(212)

-

109

Premium on securities

122

-

122

(49)

-

73

Foreign exchange differences

239

160

399

(50)

-

349

Difference between carrying amount and tax base of property, plant and equipment and intangible assets, including leased assets

6 139

160

6 299

(484)

(1 358)

4 458

 

 

 

 

 

 

 

Total effect of temporary differences

5 110

-

5 110

(485)

(1 337)

3 288

Deferred income tax liabilities (presented in the statement of financial position)

49

160

209

524

(21)

712

Deferred tax assets (presented in the statement of financial position)

5 159

160

5 319

39

(1 358)

4 000

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

DEFERRED TAX LIABILITIES AND ASSETS

2022*

01.01.2022

Income statement

Other comprehensive income

31.12.2022

Interest accrued on receivables (loans)

235

133

-

368

Interest on securities

158

64

-

222

Valuation of securities

20

(19)

(1)

-

Valuation of derivative financial instruments

34

23

(17)

40

Difference between carrying amount and tax base of property, plant and equipment and intangible assets, including leased assets

206

17

-

223

Taxable income on the reversal of IBNR allowance, which was previously tax deductible, on implementation of IFRS 9

39

(13)

-

26

Prepaid costs

60

(31)

-

29

Interest on foreign exchange gains in Sweden

288

(288)

-

-

Other taxable temporary differences

49

101

(1)

149

Deferred tax liabilities, gross

1,089

(13)

(19)

1,057

 

 

 

 

 

Interest accrued on liabilities

40

174

-

214

Valuation of derivative financial instruments

952

76

361

1,389

Valuation of securities

459

18

395

872

Provision for employee benefits

102

(1)

2

103

Allowances for expected credit losses

1,341

136

-

1,477

Fair value measurement of loans

146

11

-

157

Commissions to be settled in time using the straight-line valuation method and effective interest rate

877

284

-

1,161

Other deductible temporary differences

36

2

-

38

Provision for costs to be incurred

61

12

-

73

Tax loss brought forward

6

(5)

-

1

Impact of legal risk of mortgage loans in convertible currencies 

342

(21)

-

321

Premium on securities

76

46

-

122

Foreign exchange differences  

-

-

-

-

Difference between carrying amount and tax base of property, plant and equipment and intangible assets, including leased assets

387

(148)

-

239

Deferred tax liabilities, gross

4,825

584

758

6,167

 

 

 

 

 

Total effect of temporary differences

3,736

597

777

5,110

Deferred income tax liabilities (presented in the statement of financial position)

379

(285)

(17)

77

Deferred tax assets (presented in the statement of financial position)

4,115

312

760

5,187

* Comparative figures for 2022 were restated for the implementation of IFRS 17 “Insurance contracts” (see note “IFRS 17 Insurance contracts”).

•        Tax Group

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

 

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

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

•        Tax policy

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

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

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

Corporate income tax

2023

2022

Capital Group

2,572

2,052

Poland

2,426

1,791

Sweden

-

258

Germany

9

-

Czech Republic

6

-

Ukraine

131

3

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.

On 8 December 2023, an increased corporate income tax rate on the bank's total profits was introduced in Ukraine. Instead of the standard corporate tax rate of 18%, banks have been taxed at 50% of the total profit earned in the fiscal year 2023. In subsequent years, a rate of 25% will apply. The corporate income tax expense of Kredobank in Ukraine for 2023 was determined at the new rate of 50% (for details, see table reconciliation of effective tax rate).

On 23 December 2021, PKO Finance AB (hereinafter “Company”) received from the Swedish tax authorities a negative decision concerning the long-standing 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 in additional income tax and interest for the fiscal year 2019. On 13 February 2023, the Company paid the tax for 2022 in the amount of SEK 446,665,741, following the interpretation of the Swedish tax authorities in order to avoid potential penalty interest of 3.75 p.a. Despite having made the payments, the Company disagrees with the verdicts of the Swedish tax office and intends to use the appeal procedure to regain the amounts mentioned above. As potential tax liabilities of PKO Finance AB for 2015-2016 have become time-barred, the Group has decided to reverse the deferred income tax liabilities for 2015-2016 in the amount of PLN 74 million in 2022.

30. Earnings per share

INCOME STATEMENT

2023

2022

Net profit attributable to equity holders of the parent company

5,502

3,312

Weighted average number of ordinary shares during the period (in million)

1,250

1,250

Earnings per share

 

 

– basic earnings per share for the period (PLN)

4.40

2.65

– diluted earnings per share for the period (PLN)

4.40

2.65

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

SUPPLEMENTARY NOTES TO THE STATEMENT OF FINANCIAL POSITION – FINANCIAL INSTRUMENTS

31. Cash and balances with Central Bank

Accounting policies:

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

financial information:

CASH AND BALANCES WITH CENTRAL BANK

31.12.2023

31.12.2022

Current account with the Central Bank

9,679

7,750

Cash

4,382

4,215

Deposits with the Central Bank

3,752

3,951

Other

-

1

Total

17,813

15,917

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

32. Amounts due from banks

Accounting policies:

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

financial information

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

AMOUNTS DUE FROM BANKS

31.12.2023

31.12.2022

Measured at amortized cost

14,447

16,103

    Deposits with banks

11,994

13,374

    Current accounts

1,676

2,215

    Loans and advances granted

776

513

Cash in transit

1

-

Gross carrying amount

14,447

16,103

Allowances for expected credit losses

(9)

(2)

Net carrying amount

14,438

16,101

 

AMOUNTS DUE FROM BANKS BY MATURITY

31.12.2023

31.12.2022

up to 1 month

14,064

15,935

1 to 3 months

276

102

3 months to 1 year

89

56

1 to 5 years

8

8

more than 5 years

1

-

 

 

 

Total

14,438

16,101

33. Hedge accounting and other derivative instruments

Accounting policies:

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

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

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

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 and liabilities of foreign entities are hedged.

Interest rate risk includes in particular:

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

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

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

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

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

•        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.

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

•        Cash flow hedges

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

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

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

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

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

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

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

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

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

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

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

•        Fair value hedges

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

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

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

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

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

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

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

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

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

Estimates and judgments

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

The fair value of derivative instruments accounts for DVA (debit value adjustment), and CVA (credit value adjustment). The process of 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.

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

ESTIMATED CHANGE IN VALUATION OF HEDGING DERIVATIVES OTHER THAN OPTIONS FOLLOWING A PARALLEL SHIFT IN YIELD CURVES:

31.12.2023

31.12.2022

+50bp scenario

scenario

-50bp

+50bp scenario

scenario

-50bp

IRS

(547)

556

(741)

755

CIRS

(12)

12

(5)

5

other instruments

(4)

4

(5)

5

 

 

 

 

 

Total

(563)

572

(751)

765

 

ESTIMATED CHANGE IN VALUATION OF DERIVATIVES OTHER THAN OPTIONS FOLLOWING A PARALLEL SHIFT IN YIELD CURVES:

31.12.2023

31.12.2022

+50bp scenario

scenario

-50bp

+50bp scenario

scenario

-50bp

IRS

(529)

538

(723)

737

CIRS

(18)

18

(33)

33

other instruments

(4)

4

(7)

7

 

 

 

 

 

Total

(551)

560

(763)

777

 

33.1.      Hedge accounting – financial information

types of hedging strategies applied by the Group

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

•        7 strategies for hedging cash flow volatility;

•        5 strategies for hedging fair value volatility.

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

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

No other changes were made to other active hedging strategies in 2023.

In 2022, the Group introduced two new hedging strategies to hedge fair value volatility.

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

Type of hedging strategy

Cash flow hedges (Strategies No: 1, 5,6,7,9,14,15,19)

Risk hedged

foreign exchange risk and interest rate risk

Hedging instrument

float – float CIRSs

fixed – float CIRSs

Hedged item

• the portfolio of floating interest loans in foreign currencies and

• the portfolio of short-term negotiated deposits in PLN, including their future renewals. In designating the hedged item, the Group used the IAS39 AG 99C in the version adopted by the European Union, or

• fixed interest rate financial liability denominated in foreign currency or

• the portfolio of floating interest rate regular savings products in PLN or

• a financial liability in foreign currencies

•  

sources of hedge ineffectiveness

• margin on the hedging instrument

• differences in discount on the hedged item and the hedging instrument

• CVA/DVA adjustment of the hedging instrument

 

The period in which cash flows are expected to occur and affect the financial results:

 

January 2024 – February 2025

Strategy No

Strategy Name

1

Hedges against fluctuations in cash flows on variable interest CHF loans, resulting from interest rate risk and currency risk, and hedging against fluctuations in cash flows on negotiated deposits in PLN, resulting from interest rate risk, using CIRS transactions (inactive)

 

5

Hedges against fluctuations in cash flows on variable interest loans in convertible currencies, resulting from interest rate risk and currency risk, and hedging against fluctuations in cash flows on a fixed-rate financial liability in a convertible currency resulting from foreign currency risk, using CIRS transactions.

 

6

Hedges against fluctuations in cash flows on variable interest loans in convertible currencies other than CHF, resulting from interest rate risk and currency risk, and hedging against fluctuations in cash flows on negotiated deposits in PLN, resulting from interest rate risk, using CIRS transactions (inactive).

 

7

Hedges against fluctuations in cash flows on variable interest loans in convertible currencies, resulting from interest rate risk and currency risk, and hedging against fluctuations in cash flows on regular savings bank products in PLN, resulting from interest rate risk, using CIRS transactions (inactive).

 

9

Hedges against fluctuations in cash flows on variable interest PLN loans, resulting from interest rate risk, and hedging against fluctuations in cash flows on a fixed-rate financial liability in a convertible currency resulting from foreign currency risk, using CIRS or CIRS-EP transactions.

 

14

Hedges against fluctuations in cash flows on variable interest PLN loans, resulting from interest rate risk, and hedging against fluctuations in cash flows on financial liabilities in a convertible currency resulting from foreign currency risk, using two CIRS transactions.

 

15

Hedges against fluctuations in cash flows on variable interest PLN loans, resulting from interest rate risk, and hedging against fluctuations in cash flows on financial liabilities in a convertible currency resulting from foreign currency risk, using two CIRS transactions (inactive)

 

19

Hedges against fluctuations in cash flows on variable interest PLN loans, resulting from interest rate risk, and hedging against fluctuations in cash flows on a fixed-rate financial liability in a convertible currency resulting from foreign currency risk, using CIRS transactions.

 

 

Type of hedging strategy

Cash flow hedges (Strategies No: 2,3,4,16)

Risk hedged

interest rate risk

Hedging instrument

fixed - float IRSs

Hedged item

the portfolio of loans in PLN or foreign currencies indexed to a floating interest rate

sources of hedge ineffectiveness

• change in market parameters between the moment of determining the terms and conditions relating to the hedged item and the moment of concluding the hedge

• differences in discount on the hedged item and the hedging instrument

• CVA/DVA adjustment of the hedging instrument

 

The period in which cash flows are expected to occur and affect the financial results:

January 2024 – June 2032

Strategy No

Strategy Name

2

Hedges against fluctuations in cash flows from variable interest loans in PLN, resulting from interest rate risk, using IRS transactions.

3

Hedges against fluctuations in cash flows from variable interest loans in convertible currencies, resulting from interest rate risk, using IRS transactions.

4

Hedges against fluctuations in cash flows from variable interest loans in convertible currencies, resulting from interest rate risk, using IRS transactions.

16

Hedges against fluctuations in cash flows on deposits in PLN, resulting from interest rate risk, using IRS transactions (inactive).

 

 

Type of hedging strategy

Fair value volatility hedges (strategy No: 8,10,11,12,17,18)

Risk hedged

interest rate risk

Hedging instrument

fixed - float IRSs

Hedged item

interest rate risk component relating to a fixed interest rate loan or security in a foreign currency or in PLN, which corresponds to the market IRS rate

interest rate risk component of a portfolio of financial liabilities replicated by a portfolio of fixed-rate instruments measured at amortised cost, corresponding to the market IRS ate

sources of hedge ineffectiveness

•      change in market parameters between the moment of determining the terms and conditions relating to the hedged item and the moment of concluding the hedge

•      CVA/DVA adjustment of the hedging instrument

•      difference between the present value of the floating leg of IRS and the present value of the nominal value of a security

Strategy No

Strategy Name

8

Hedges against fair value volatility of fixed-interest-rate loans in convertible currencies resulting from interest rate risk, using IRS transactions.

10

Hedges against fair value volatility of fixed-interest-rate security in convertible currencies measured at amortised cost, resulting from interest rate risk, using IRS transactions.

11

Hedges against fair value volatility of fixed-interest-rate security measured at fair value through other comprehensive income in convertible currencies resulting from interest rate risk, using IRS transactions.

12

Hedges against fair value volatility of fixed-interest-rate FVOCI security in PLN resulting from interest rate risk, using IRS transactions.

17

Hedges against fluctuations in the fair value of a portfolio of financial liabilities in PLN measured at amortized cost, resulting from interest rate risk, using IRS transactions

18

Hedges against fluctuations in the fair value of a portfolio of financial liabilities in convertible currencies measured at amortized cost, resulting from interest rate risk, using IRS transactions

 

•        carrying amount of hedging instruments

CARRYING AMOUNT OF HEDGING INSTRUMENTS

31.12.2023

31.12.2022

Assets

Liabilities

Assets

Liabilities

Cash flow hedges

473

2,972

888

7,336

interest rate risk – IRS

147

2,167

31

6,507

IRS PLN (strategy 2.16)

112

2,127

31

6,331

IRS EUR (strategy 3.4)

35

40

-

176

foreign exchange risk and interest rate risk – CIRS

326

805

857

829

CIRS CHF/USD (strategy 5.15)

 

46

-

32

CIRS PLN/EUR (strategy 9)

55

 

181

-

CIRS PLN/CHF (strategy 14.15)

271

 

676

-

CIRS CHF/EUR (strategy 14)

 

552

-

797

CIRS PLN/EUR (strategy 19)

 

207

-

-

Fair value hedges

701

20

154

133

interest rate risk – IRS

701

20

154

133

IRS EUR (strategy 8,10,11,18)

92

19

75

91

IRS USD (strategy 8; 11.18)

4

1

14

-

IRS PLN (strategy 12.17)

605

 

65

42

 

 

 

 

 

Total

1,174

2,992

1,042

7,469

•        Cash flow hedges

CHANGE IN OTHER COMPREHENSIVE INCOME RELATING TO CASH FLOW HEDGES

2023

2022

Accumulated other comprehensive income at the beginning of the period, net

(5,218)

(3,699)

Impact on other comprehensive income during the period, gross

4,146

(1,901)

Gains/losses recognized in other comprehensive income during the period

(425)

(6,525)

Amounts transferred from other comprehensive income to the income statement, of which:

4,571

4,624

- net interest income

3,758

3,588

- net foreign exchange gains/ (losses)

813

1,036

Tax effect

(788)

382

Accumulated other comprehensive income at the end of the period, net

(1,860)

(5,218)

 

INEFFECTIVE PORTION OF CASH FLOW HEDGES

2023

2022

Ineffective portion of cash flow hedges recognized in the income statements, including in:

(2)

(5)

Foreign exchange gains/ (losses)

(1)

(5)

CIRS CHF/USD (strategy 5.15)

2

(2)

CIRS PLN/CHF (strategy 14.15)

(8)

(8)

CIRS CHF/EUR (strategy 14)

5

5

Gains/(losses) on financial transactions

(1)

-

IRS PLN (strategy 2.16)

(1)

-

 

•        Fair value hedges

INTEREST RATE AND FOREIGN EXCHANGE RISK HEDGES

31.12.2023

31.12.2022

Fair value measurement of the hedging derivative instrument

681

20

Interest rate risk hedge – fixed - float IRSs

681

20

Fair value adjustment of the hedged instrument attributable to the hedged risk

(461)

(51)

Interest rate risk hedge, of which:

(461)

(51)

Securities

(21)

(30)

Loans and advances to customers

(2)

(8)

Fair value adjustment recognized in OCI

(26)

(69)

Amounts due to customers

(412)

56

 

FAIR VALUE ADJUSTMENT OF THE HEDGED INSTRUMENT ATTRIBUTABLE TO THE HEDGED RISK BY TYPE OF HEDGING INSTRUMENT

31.12.2023

31.12.2022

IRS EUR (strategy 8,10,11,18)

(41)

25

IRS USD (strategy 8; 11.18)

(4)

(18)

IRS PLN (strategy 12.17)

(416)

(58)

Total

(461)

(51)

 

•        nominal value of hedging instruments by maturity

Strategy No

Hedging derivative

up to 1 month

1 to

3 months

3 months to

1 year

1 to

5 years

More than 5 years

Total

Change in the fair value since designation

Nominal-weighted average fixed interest rate/ Nominal-weighted average margin

 

31.12.2023

 

 

 

 

 

 

 

 

 

Hedge type: Cash flow hedges

 

Hedged risk: interest rate risk 

2.16

PLN fixed - float IRSs

705

4,950

6,796

30,840

177

43,468

(2,060)

2.7097%

3.4

EUR fixed – float IRSs

-

630

130

4,944

222

5,926

(25)

2.0611%

 

Risk hedged: foreign exchange and interest rate risks 

14

Float CHF/float PLN CIRSs

 

 

float CHF

- 

-

2,702

- 

-

2,702

254

0.3596%

float PLN

-

-

2,418

-

-

2,418

0.5292%

5

CIRS fixed USD/float CHF

 

 

fixed USD

153

-

307

-

-

460

(43)

0.4142%

float CHF

164

-

328

-

-

492

-

9

Float PLN/fixed EUR CIRSs

 

 

float PLN

2,101

-

-

-

-

2,101

65

-

fixed EUR

2,170

-

-

-

-

2,170

0.7690%

19

Float PLN/fixed EUR CIRSs

 

 

float PLN

-

-

-

2,595

-

2,595

(226)

-

fixed EUR

 

-

-

2,391

-

2,391

1.8935%

14

CIRS fixed EUR/float CHF

 

 

fixed EUR

-

-

2,174

-

-

2,174

(540)

0.7640%

float CHF

-

-

2,702

-

-

2,702

-

 

Hedge type: Fair value hedges

 

 

 

Hedged risk: interest rate risk 

 

 

12.17

PLN fixed – float IRSs

-

-

-

5,960

2,091

8,051

386

5.9261%

11.18

USD fixed – float IRSs

319

-

-

236

-

555

1

2.6551%

8,10,11,18

EUR fixed – float IRSs

0

152

696

3,404

548

4,800

9

2.2604%

 

 

 

 

Strategy No

Hedging derivative

up to 1 month

1 to

3 months

3 months to

1 year

1 to

5 years

More than 5 years

Total

Change in the fair value since designation

Nominal-weighted average fixed interest rate/ Nominal-weighted average margin

 

31.12.2022

 

 

 

 

 

 

 

 

 

Hedge type: Cash flow hedges

 

Hedged risk: interest rate risk 

2.16

PLN fixed - float IRSs

 -

 1,501

 29,674

 42,269

 1,278

 74,722

(5,928)

2.5090%

3.4

EUR fixed – float IRSs

 -

 -

703

5,206

253

6,162

(65)

1.6952%

 

Risk hedged: foreign exchange and interest rate risks 

14.15

Float CHF/float PLN CIRSs

 

 

float CHF

2,551

 

 

2,751

 

5,302

671

0.3555%

float PLN

2,204

 -

 -

 2,418

 -

 4,622

0.4614%

5.15

CIRS fixed USD/float CHF

 

 

fixed USD

 -

 -

585

511

 

1,096

(21)

0.3871%

float CHF

 -

 -

572

501

 

1,073

-

9

Float PLN/fixed EUR CIRSs

 

 

float PLN

 -

 -

 -

2,101

 -

 2,101

199

-

fixed EUR

 -

 -

 -

2,340

 

2,340

0.7690%

14

CIRS fixed EUR/float CHF

 

 

fixed EUR

2,345

 

 

2,345

 

4,690

(656)

0.6970%

float CHF

2,551

 

 

2,751

 

5,302

-

 

Hedge type: Fair value hedges

 

 

 

Hedged risk: interest rate risk 

 

 

12.17

PLN fixed – float IRSs

 -

 -

 -

 -

 2,841

 2,841

30

6.2990%

11.18

USD fixed – float IRSs

 -

 -

 -

357

 

357

3

1.5128%

8,10,11,18

EUR fixed – float IRSs

 -

 -

469

3,508

591

4,568

(6)

1.5789%

 

 

 

•        financial information on hedged items (in original currencies)

HEDGED ITEM

CARRYING AMOUNT OF THE HEDGED ITEM

ITEM OF THE STATEMENT OF FINANCIAL POSITION

CHANGE IN THE FAIR VALUE OF THE HEDGED ITEM*

STRATEGY NO

31.12.2023

Cash flow hedges

Loans in PLN

43,467

Loans and advances to customers

2,080

 2

Loans in EUR

1,363

Loans and advances to customers

26

 3; 4

Loans in CHF

105

Loans and advances to customers

43

 5

Financial liability in USD

116

Amounts due to customers

Loans in PLN

2,101

Loans and advances to customers

(61)

 9

Financial liability in EUR

499

Securities in issue

Loans in PLN

5,013

Loans and advances to customers

517

 14

Financial liability in EUR

1,050

Securities in issue

Fair value hedges

 Loans in EUR

11

Loans and advances to customers

(1)

 8

 Security in EUR

30

Securities measured at amortized cost

(5)

 10

 Security in EUR

62

Securities measured at fair value through other comprehensive income

(2)

 11

 Security in PLN

- 

Securities measured at fair value through other comprehensive income

(15)

 12

Portfolio of financial liabilities

in PLN

8,051

Amounts due to customers

(403)

 17

Portfolio of financial liabilities

in EUR

1,001

Amounts due to customers

(2)

 18

Portfolio of financial liabilities

in USD

60

Amounts due to customers

(1)

 18

*in a cash flow hedge, the change in fair value of the hedged item reflects the change in value of the hedged item used as the basis for recognising hedge ineffectiveness for the period

 

HEDGED ITEM

CARRYING AMOUNT OF THE HEDGED ITEM

ITEM OF THE STATEMENT OF FINANCIAL POSITION

CHANGE IN THE FAIR VALUE OF THE HEDGED ITEM*

STRATEGY NO

31.12.2022

Cash flow hedges

Loans in CHF

225

Loans and advances to customers

19

5

Financial liability in USD

249

Amounts due to customers

Loans in PLN

74,721

Loans and advances to customers

5,969

2

Loans in EUR

1,314

Loans and advances to customers

64

3; 4

Loans in PLN

2,101

Loans and advances to customers

(195)

9

Financial liability in EUR

499

Securities in issue

Loans in PLN

4,622

Loans and advances to customers

(8)

14

Financial liability in EUR

999

Securities in issue

Fair value hedges

Security in EUR

30

Securities measured at amortized cost

(6)

10

Security in EUR

202

Securities measured at fair value through other comprehensive income

(8)

11

Security in USD

81

Securities measured at fair value through other comprehensive income

(3)

11

Loans in EUR

13

Loans and advances to customers

(1)

8

Security in PLN

-

Securities measured at fair value through other comprehensive income

(21)

12

Portfolio of financial liabilities in PLN

2,841

Amounts due to customers

(38)

17

Portfolio of financial liabilities in EUR

729

Amounts due to customers

20

18

* in a cash flow hedge, the change in fair value of the hedged item reflects the change in value of the hedged item used as the basis for recognising hedge ineffectiveness for the period

33.2. Other derivative instruments – financial information

OTHER DERIVATIVE INSTRUMENTS - BY TYPE

31.12.2023

31.12.2022

Assets

Liabilities

Assets

Liabilities

IRS

4,398

5,153

8,275

8,101

CIRS

46

49

408

350

FX Swap

1,648

1,942

1,245

1,039

Options

952

1,051

842

926

Commodity swap1

167

157

1,380

1,384

FRA

31

30

24

24

Forward

930

695

577

799

Commodity Forward2

234

213

404

355

Other

-

1

7

-

 

 

 

 

 

Total

8,406

9,291

13,162

12,978

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

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

 

 

31.12.2023

31.12.2022

CVA and CDA adjustments

4

146

 

NOMINAL AMOUNTS OF UNDERLYING INSTRUMENTS (BUY AND SELL TOGETHER) other derivative instruments

31.12.2023

up to 1 month

1 to 3 months

3 months to 1 year

1 to 5 years

more than 5 years

Total

IRS

5,294

21,658

86,536

211,422

41,800

366,710

    Purchase

2,647

10,829

43,268

105,711

20,900

183,355

    Sale

2,647

10,829

43,268

105,711

20,900

183,355

CIRS

-

-

-

6,726

2,044

8,770

    Purchase

-

-

-

3,368

1,022

4,390

    Sale

-

-

-

3,358

1,022

4,380

FX Swap

34,259

23,842

26,558

15,460

-

100,119

    Purchase of currencies

17,160

11,834

13,138

7,694

-

49,826

    Sale of currencies

17,099

12,008

13,420

7,766

-

50,293

Options

25,382

18,646

51,054

17,100

1,053

113,235

    Purchase

12,751

9,362

25,591

8,339

525

56,568

    Sale

12,631

9,284

25,463

8,761

528

56,667

FRA

-

-

32,463

10,079

-

42,542

        Purchase

-

-

16,697

5,191

-

21,888

    Sale

-

-

15,766

4,888

-

20,654

Forward

8,527

14,466

19,030

7,238

-

49,261

    Purchase of currencies

4,246

7,368

9,538

3,664

-

24,816

        Sale of currencies

4,281

7,098

9,492

3,574

-

24,445

Other, including commodity swap, commodity forward and futures

980

3,067

3,367

466

-

7,880

       Purchase

494

1,591

1,636

234

-

3,955

    Sale

486

1,476

1,731

232

-

3,925

 

 

 

 

 

 

 

Total

74,442

81,679

219,008

268,491

44,897

688,517

 

NOMINAL AMOUNTS OF UNDERLYING INSTRUMENTS (BUY AND SELL TOGETHER) other derivative instruments

31.12.2022

up to 1 month

1 to 3 months

3 months to 1 year

1 to 5 years

more than 5 years

Total

IRS

6,730

16,972

88,148

236,010

53,496

401,356

Purchase

3,365

8,486

44,074

118,005

26,748

200,678

    Sale

3,365

8,486

44,074

118,005

26,748

200,678

CIRS

14,124

-

2,870

31,020

2,168

50,182

    Purchase

7,025

-

1,435

15,362

1,084

24,906

    Sale

7,099

-

1,435

15,658

1,084

25,276

FX Swap

34,144

32,795

36,739

29,127

-

132,805

    Purchase of currencies

17,045

16,362

18,356

14,769

-

66,532

    Sale of currencies

17,099

16,433

18,383

14,358

-

66,273

Options

21,765

46,129

62,797

29,681

1,787

162,159

    Purchase

10,817

22,857

31,486

14,871

892

80,923

    Sale

10,948

23,272

31,311

14,810

895

81,236

FRA

-

-

38,913

1,910

-

40,823

    Purchase

-

-

20,016

932

-

20,948

    Sale

-

-

18,897

978

-

19,875

Forward

7,492

25,761

30,224

6,519

-

69,996

    Purchase of currencies

3,752

12,891

15,150

3,120

-

34,913

    Sale of currencies

3,740

12,870

15,074

3,399

-

35,083

Other, including commodity swap, commodity forward and futures

1,091

2,171

6,877

251

-

10,390

    Purchase

546

1,108

3,431

126

-

5,211

    Sale

545

1,063

3,446

125

-

5,179

 

 

 

 

 

 

 

Total

85,346

123,828

266,568

334,518

57,451

867,711

 

34. Securities

Accounting policies

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

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

financial information

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

SECURITIES

held for trading

not held for trading, measured at fair value through profit or loss

measured at fair value through other comprehensive income

measured at amortized cost

Total

31.12.2023

 

 

 

 

 

Debt securities

546

592

108,054

87,227

196,419

   NBP money bills

-

-

28,974

-

28,974

   Treasury bonds (in PLN)

472

232

52,545

58,836

112,085

   Treasury bonds (in foreign currencies)

1

295

4,574

1,439

6,309

   corporate bonds (in PLN) secured with the State Treasury guarantees

9

-

10,180

13,619

23,808

   municipal bonds (in PLN)

12

-

5,105

8,658

13,775

   corporate bonds (in PLN)1

52

65

2,609

2,413

5,139

   corporate bonds (in foreign currencies)

-

-

4,067

2,262

6,329

Equity securities

32

1,054

-

-

1,086

   shares in other entities - not listed

-

342

-

-

342

   shares in other entities - listed

30

124

-

-

154

   participation units in investment funds, investment certificates, rights to shares, pre-emptive rights

2

588

-

-

590

 

 

 

 

 

 

Total (excluding adjustment relating to fair value hedge accounting)

578

1,646

108,054

87,227

197,505

Adjustment relating to fair value hedge accounting (note “Hedge accounting and other derivative instruments”)

-

-

-

(21)

(21)

 

 

 

 

 

 

Total

578

1,646

108,054

87,206

197,484

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

SECURITIES

held for trading

not held for trading, measured at fair value through profit or loss

measured at fair value through other comprehensive income

measured at amortized cost

Total

31.12.2022

 

 

 

 

 

Debt securities

164

578

65,211

68,556

134,509

   NBP money bills

-

-

80

-

80

   Treasury bonds (in PLN)

89

191

43,066

45,893

89,239

   Treasury bonds (in foreign currencies)

2

321

4,397

713

5,433

corporate bonds (in PLN) secured with the State Treasury guarantees

3

-

9,373

12,100

21,476

   municipal bonds (in PLN)

14

-

5,054

6,182

11,250

   corporate bonds (in PLN)1

56

66

2,852

1,989

4,963

       corporate bonds (in foreign currencies)

-

-

389

1,679

2,068

Equity securities

29

1,124

-

-

1,153

   shares in other entities - not listed

-

358

-

-

358

   shares in other entities - listed

27

115

-

-

142

   participation units in investment funds, investment certificates, rights to shares, pre-emptive rights

2

651

-

-

653

 

 

 

 

 

 

Total (excluding adjustment relating to fair value hedge accounting)

193

1,702

65,211

68,556

135,662

Adjustment relating to fair value hedge accounting (note “Hedge accounting and other derivative instruments”)

-

-

-

(30)

(30)

 

 

 

 

 

 

Total

193

1,702

65,211

68,526

135,632

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

Treasury bonds (in foreign currencies)

31.12.2023

31.12.2022

- Polish Treasury bonds

1,328

2,209

- Ukrainian Treasury bonds

836

420

- US Treasury bonds

3,633

2,804

- Treasury bonds of the Federal Republic of Germany

218

-

- French Treasury bonds

294

-

 

 

 

Total

6,309

5,433

 

 

31.12.2023

31.12.2022

allowance not reducing the fair value of securities measured at fair value through other comprehensive income

101

62

 

SECURITIES BY MATURITY (excluding adjustments relating to fair value hedge accounting)

held for trading

not held for trading, measured at fair value through profit or loss

measured at fair value through other comprehensive income

measured at amortized cost

Total

31.12.2023

 

 

 

 

 

without a stated maturity – equity securities

31

1,081

-

-

1,112

up to 1 month

61

3

35,184

21

35,269

1 to 3 months

-

-

4,360

475

4,835

3 months to 1 year

249

103

11,060

14,615

26,027

1 to 5 years

191

348

40,794

40,295

81,628

more than 5 years

46

111

16,656

31,821

48,634

 

 

 

 

 

 

Total

578

1,646

108,054

87,227

197,505

 

SECURITIES BY MATURITY (excluding adjustments relating to fair value hedge accounting)

held for trading

not held for trading, measured at fair value through profit or loss

measured at fair value through other comprehensive income

measured at amortized cost

Total

31.12.2022

 

 

 

 

 

without a stated maturity – equity securities

29

1,124

-

-

1,153

up to 1 month

19

46

3,222

1,514

4,801

1 to 3 months

-

-

278

211

489

3 months to 1 year

17

28

3,729

1,275

5,049

1 to 5 years

104

465

37,935

37,705

76,209

more than 5 years

24

39

20,047

27,851

47,961

 

 

 

 

 

 

Total

193

1,702

65,211

68,556

135,662

 

35. Loans and advances to customers

Accounting policies:

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

Loans and advances to customers include:

•        amounts due from loans and advances granted,

•        factoring receivables,

•        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, credit cards and revolving loans, whose contractual formula for interest calculation includes a multiplier.

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

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

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

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

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

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

By the end of December 2023, 298.5 thousand of the Group's customers applied for a suspension of mortgage repayment, representing 54% of the total number of loans and 64% of the gross carrying amount of total loans eligible for credit holidays. The total number of suspensions applied for as at 31 December 2023 was 2,055 thousand, representing 47% of the maximum number of instalments to be suspended for all eligible customers.

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

Based on the outcome of the aforementioned analysis, in 2023 the Group has remeasured the credit holiday loss and reduced, proportionally, the amortisation of this loss to date. The total effect recognised in the Group's accounting books on this account amounted to PLN 105 million (including a reduction in the loss recognised in July 2022 of PLN 130 million and a proportional reduction in amortisation to date of PLN 25 million) - which translated into an increase in net interest income and a decrease in the adjustment of the gross carrying amount of loans. The realised loss on statutory credit holidays, excluding the effect of amortisation, was, in the opinion of the Group, PLN 2,980 million compared to PLN 3,111 million recognised in July 2022.

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

In addition, the Group adjusts the gross carrying amount of residential and consumer loans measured at amortised cost by recognising the impact of potential commission reimbursements to customers for the expected early repayment of active consumer and mortgage loans in the future.

The recognition of finance lease receivables is described in note "Leases" Section “Leases – Lessor”.

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

Estimates and judgments: “Net allowances for expected credit losses”, “Cost of legal risk of mortgage loans in convertible currencies”.

Financial information

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

LOANS AND ADVANCES TO CUSTOMERS

31.12.2023

31.12.2022

real estate

112,514

109,141

consumer

32,263

30,883

business

76,515

71,188

factoring receivables

5,386

3,591

finance lease receivables

19,100

18,164

Loans and advances to customers

(excluding adjustment relating to fair value hedge accounting)

245,778

232,967

Adjustment relating to fair value hedge accounting (note “Hedge accounting and other derivative instruments”)

(2)

(8)

Total

245,776

232,959

 

LOANS AND ADVANCES TO CUSTOMERS

31.12.2023

not held for trading, measured at fair value through profit or loss

measured at amortized cost

Total

retail and private banking

2,790

136,902

139,692

real estate

1

107,332

107,333

consumer

2,789

29,474

32,263

finance lease receivables

-

96

96

companies and enterprises

54

31,434

31,488

real estate

-

5,055

5,055

business

54

13,746

13,800

factoring receivables

-

273

273

finance lease receivables

-

12,360

12,360

corporate

27

74,571

74,598

real estate

-

126

126

business

27

62,688

62,715

factoring receivables

-

5,113

5,113

finance lease receivables

-

6,644

6,644

Loans and advances to customers (excluding adjustment relating to fair value hedge accounting)

2,871

242,907

245,778

Adjustment relating to fair value hedge accounting (note “Hedge accounting and other derivative instruments”)

-

(2)

(2)

Total

2,871

242,905

245,776

 

LOANS AND ADVANCES TO CUSTOMERS

31.12.2022

not held for trading, measured at fair value through profit or loss

measured at amortized cost

Total

retail and private banking

3,505

131,112

134,617

real estate

4

103,637

103,641

consumer

3,501

27,382

30,883

finance lease receivables

-

93

93

companies and enterprises

44

31,316

31,360

real estate

-

5,382

5,382

business

44

13,496

13,540

factoring receivables

-

243

243

    finance lease receivables

-

12,195

12,195

corporate

41

66,949

66,990

real estate

-

118

118

business

41

57,607

57,648

factoring receivables

-

3,348

3,348

finance lease receivables

-

5,876

5,876

Loans and advances to customers (excluding adjustment relating to fair value hedge accounting)

3,590

229,377

232,967

Adjustment relating to fair value hedge accounting (note “Hedge accounting and other derivative instruments”)

-

(8)

(8)

Total

3,590

229,369

232,959

1 Loans and advances to customers as at 31 December 2022 have been adjusted by PLN 1,238 for the implementation of IFRS 17 "Insurance Contracts" (see note "IFRS 17 Insurance Contracts")

 

LOANS AND ADVANCES TO CUSTOMERS BY MATURITY (excluding adjustments relating to fair value hedge accounting)

not held for trading, mandatorily measured at fair value through profit or loss

measured at amortized cost

Total

31.12.2023

 

 

 

up to 1 month

723

11,695

12,418

1 to 3 months

376

11,140

11,516

3 months to 1 year

1,442

38,157

39,599

1 to 5 years

315

78,849

79,164

more than 5 years

15

103,066

103,081

 

 

 

 

Total

2,871

242,907

245,778

 

LOANS AND ADVANCES TO CUSTOMERS BY MATURITY (excluding adjustments relating to fair value hedge accounting)

not held for trading, mandatorily measured at fair value through profit or loss

measured at amortized cost

Total

31.12.2022

 

 

 

up to 1 month

755

12,012

12,767

1 to 3 months

453

9,581

10,034

3 months to 1 year

1,733

34,606

36,339

1 to 5 years

603

75,253

75,856

more than 5 years

46

97,925

97,971

 

 

 

 

Total

3,590

229,377

232,967

36. Amounts due to banks

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

financial information

AMOUNTS DUE TO BANKS

31.12.2023

31.12.2022

Measured at fair value through profit or loss:

25

2

Liabilities in respect of a short position in securities

25

2

Measured at amortized cost

3,398

3,009

Deposits from banks

1,120

1,936

Current accounts

2,240

1,057

Other monetary market deposits

38

16

 

 

 

Total

3,423

3,011

 

AMOUNTS DUE TO BANKS BY MATURITY

31.12.2023

31.12.2022

Measured at fair value through profit or loss:

25

2

up to 1 month

25

2

 

 

 

Measured at amortized cost:

3,398

3,009

up to 1 month

3,392

2,963

1 to 3 months

-

31

3 months to 1 year

6

15

 

 

 

Total

3,423

3,011

 

37. Amounts due to customers

Accounting policies:

Valuation and classification into categories is carried out in accordance with the principles for determining the business model and assessing the characteristics of contractual cash flows referred to in note “General accounting policies for financial instruments”. Detailed policies concerning “Liabilities in respect of insurance products” are described in note “Insurance business” and “IFRS 17 Insurance contracts”.

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

Financial information

AMOUNTS DUE TO CUSTOMERS

Amounts due to households

Amounts due to business entities

Amounts due to state budget entities

Total

31.12.2023

 

 

 

 

Measured at fair value through profit or loss

165

277

-

442

Liabilities in respect of a short position in securities

-

277

-

277

Liabilities in respect of insurance products

165

-

-

165

Measured at amortized cost

306,450

76,372

15,517

398,339

Cash on current accounts and overnight deposits of which

201,238

55,097

14,551

270,886

savings accounts and other interest-bearing assets

49,845

18,765

9,956

78,566

Term deposits

104,689

20,450

927

126,066

Other liabilities

505

825

39

1,369

Liabilities in respect of insurance products

18

-

-

18

Amounts due to customers (excluding adjustment relating to fair value hedge accounting)

306,615

76,649

15,517

398,781

Adjustment relating to fair value hedge accounting (note “Hedge accounting and other derivative instruments”)

412

-

-

412

 

 

 

 

 

Total

307,027

76,649

15,517

399,193

 

AMOUNTS DUE TO CUSTOMERS

Amounts due to households

Amounts due to business entities

Amounts due to state budget entities

Total

31.12.2022

 

 

 

 

Measured at fair value through profit or loss

149

5

-

154

Liabilities in respect of a short position in securities

-

5

-

5

Liabilities in respect of insurance products

149

-

-

149

Measured at amortized cost

262,948

58,634

17,188

338,770

Cash on current accounts and overnight deposits of which

180,298

40,290

16,224

236,812

savings accounts and other interest-bearing assets

41,953

12,933

11,615

66,501

Term deposits

82,127

17,748

913

100,788

Other liabilities

505

596

51

1,152

Liabilities in respect of insurance products1

18

-

-

18

Amounts due to customers (excluding adjustment relating to fair value hedge accounting)

263,097

58,639

17,188

338,924

Adjustment relating to fair value hedge accounting (note “Hedge accounting and other derivative instruments”)

(56)

-

-

(56)

 

 

 

 

 

Total

263,041

58,639

17,188

338,868

1Liabilities in respect of insurance products as at 31 December 2022 have been adjusted by PLN 714 million for the implementation of IFRS 17 "Insurance Contracts" (see note "IFRS 17 Insurance Contracts")

AMOUNTS DUE TO CUSTOMERS BY MATURITY (excluding adjustment relating to fair value hedge accounting)

31.12.2023

31.12.2022

Measured at fair value through profit or loss:

442

154

up to 1 month

277

5

 

 

 

Measured at amortized cost:

398,339

338,770

up to 1 month

308,655

272,203

1 to 3 months

35,935

29,307

3 months to 1 year

39,428

10,392

1 to 5 years

8,600

21,520

more than 5 years

5,721

5,348

 

 

 

Total

398,781

338,924

 

AMOUNTS DUE TO CUSTOMERS BY SEGMENT

31.12.2023

31.12.2022

Amounts due to customers (excluding adjustment relating to fair value hedge accounting)

398,781

338,924

retail and private banking

275,458

234,382

corporate

69,502

55,812

companies and enterprises

53,636

48,562

other liabilities (including liabilities in respect of insurance products)

185

168

Adjustment relating to fair value hedge accounting (note “Hedge accounting and other derivative instruments”)

412

(56)

 

 

 

Total

399,193

338,868

38. Financing received

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

Financial information

FINANCING RECEIVED

31.12.2023

31.12.2022

Loans and advances received from:

1,489

2,294

banks

-

309

international financial organisations

1,478

1,972

other financial institutions

11

13

Liabilities in respect of debt securities in issue:

17,201

15,510

    bonds issued by PKO Bank Polski S.A.

3,421

-

mortgage covered bonds issued by PKO Bank Hipoteczny S.A.

10,418

12,057

 bonds issued by PKO Bank Hipoteczny S.A.

1,755

1,265

bonds issued by the PKO Leasing S.A. Group

1,607

2,188

Subordinated liabilities

2,774

2,781

Total

21,464

20,585

38.1. Loans and advances received

LOANS AND ADVANCES RECEIVED BY MATURITY

31.12.2023

31.12.2022

1 to 3 months

-

11

3 months to 1 year

-

1,107

1 to 5 years

1,489

1,176

Total

1,489

2,294

Loans and advances received from banks

Date of receipt

Notional amount

Currency

Maturity

Carrying amount at 31.12.2023

Carrying amount at 31.12.2022

10.06.2019

150

PLN

15.06.2023

-

150

04.12.2019

 500

 PLN

04.12.2023

-

159

Total

 

 

 

-

309

 

Loans and advances received from International Financial Organizations

Date of receipt of a loan or advance by the Group

Notional amount

Currency

Maturity

Carrying amount at 31.12.2023

Carrying amount at 31.12.2022

25.09.2013

70

 EUR

25.09.2023

-

70

13.04.2018

40

 EUR

31.03.2023

-

11

23.10.2018

646

 PLN

23.10.2023

-

656

28.11.2018

50

EUR

30.11.2023

-

59

10.02.2021

50

 EUR

02.02.2026

219

235

06.12.2021

50

 EUR

27.11.2026

220

235

06.12.2021

50

 EUR

27.11.2026

220

235

08.04.2022

100

EUR

02.04.2027

-

471

08.04.2022

200

EUR

08.12.2028

819

-

Total

 

 

 

1,478

1,972

Loans and advances received from other financial institutions

Date of receipt

Notional amount

Currency

Maturity

Carrying amount at 31.12.2023

Carrying amount at 31.12.2022

25.10.2021

100

 UAH

 24.10.2023

-

13

06.12.2023

100

UAH

05.12.2025

11

-

Total

 

 

 

11

13

38.2. Liabilities in respect of debt securities in issue

LIABILITIES IN RESPECT OF DEBT SECURITIES IN ISSUE BY MATURITY

31.12.2023

31.12.2022

Measured at amortized cost:

 

 

up to 1 month

2,703

2,669

1 to 3 months

1,749

791

3 months to 1 year

4,594

2,851

1 to 5 years

8,155

9,138

more than 5 years

-

61

 

 

 

Total

17,201

15,510

•        Bonds issued by PKO Bank Polski S.A.

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

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

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

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

•        Mortgage-covered bonds issued by PKO Bank Hipoteczny SA

Issue date

Type of interest rate

Interest (index + margin)

Notional amount

Currency

Maturity

Carrying amount at 31.12.2023

Carrying amount at 31.12.2022

02.02.2017

 fixed

0.82

25

EUR

02.02.2024

110

118

30.03.2017

 fixed

0,625

500

EUR

24.01.2023

-

2,359

27.09.2017

 fixed

0.75

500

EUR

27.08.2024

2,179

2,351

27.10.2017

 variable

WIBOR3M +0.60

500

PLN

27.06.2023

-

500

22.03.2018

 fixed

0.75

500

EUR

24.01.2024

2,188

2,360

27.04.2018

 variable

WIBOR3M +0.49

698

PLN

25.04.2024

706

708

27.07.2018

 variable

WIBOR3M +0.62

500

PLN

25.07.2025

506

507

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

233

233

10.06.2019

 variable

WIBOR3M +0.60

245

PLN

30.09.2024

249

244

02.12.2019

 variable

WIBOR3M +0.51

250

PLN

02.12.2024

251

251

04.07.2022

 fixed

2,125

500

EUR

25.06.2025

2,195

2,365

09.02.2023

variable

WIBOR3M +0.85

499

PLN

09.02.2026

503

-

28.06.2023

variable

WIBOR3M +0.78

500

PLN

29.06.2026

500

-

02.11.2023

variable

WIBOR3M +0.78

730

PLN

02.11.2026

757

-

Total

 

 

 

 

 

10,418

12,057

•        Bonds issued by PKO Bank Hipoteczny S.A.

Issue date

Type of interest rate

Interest (index + margin)

Notional amount

Currency

Maturity

Carrying amount at 31.12.2023

Carrying amount at 31.12.2022

24.01.2022

variable

WIBOR3M+0.28

124

PLN

25.07.2023

-

126

24.02.2022

variable

WIBOR3M+0.30

115

PLN

19.05.2023

-

116

03.10.2022

zero-coupon

 

293

PLN

03.04.2023

-

286

02.11.2022

zero-coupon

 

125

PLN

09.05.2023

-

121

02.11.2022

zero-coupon

 

100

PLN

03.04.2023

-

98

16.12.2022

zero-coupon

 

232

PLN

16.03.2023

-

228

16.12.2022

zero-coupon

 

300

PLN

16.06.2023

-

290

11.10.2023

zero-coupon

 

206

PLN

26.02.2024

203

-

16.11.2023

zero-coupon

 

237

PLN

26.02.2024

234

-

18.12.2023

zero-coupon

 

310

PLN

18.03.2024

306

-

11.10.2023

zero-coupon

 

349

PLN

11.04.2024

343

-

16.11.2023

zero-coupon

 

285

PLN

14.05.2024

279

-

18.12.2023

zero-coupon

 

400

PLN

07.06.2024

390

-

Total

 

 

 

 

 

1,755

1,265

•         

•        Bonds issued by the PKO Leasing SA Group

Issue date

Type of interest rate

Interest rate

(index + margin)

Notional amount

Currency

Maturity

Carrying amount at 31.12.2023

Carrying amount at 31.12.2022

26.09.20191

 variable

WIBOR 3M + margin

1,060

PLN

28.12.2029

-

1,067

10.10.2022

 variable

WIBOR 3M + margin

311

PLN

17.01.2023

-

310

24.10.2022

 variable

WIBOR 3M + margin

164

PLN

01.02.2023

-

163

14.11.2022

 variable

WIBOR 3M + margin

182

PLN

10.03.2023

-

179

28.11.2022

 variable

WIBOR 3M + margin

225

PLN

27.03.2023

-

222

05.12.2022

 variable

WIBOR 3M + margin

164

PLN

13.04.2023

-

161

22.12.2022

 variable

WIBOR 3M + margin

88

PLN

24.04.2023

-

86

28.09.2023

 variable

WIBOR 3M + margin

332

PLN

18.01.2024

331

-

18.10.2023

 variable

WIBOR 3M + margin

195

PLN

30.01.2024

194

-

30.10.2023

 variable

WIBOR 3M + margin

417

PLN

16.02.2024

414

-

01.12.2023

 variable

WIBOR 3M + margin

490

PLN

05.03.2024

485

-

11.12.2023

 variable

WIBOR 3M + margin

186

PLN

05.04.2024

183

-

Total

 

 

 

 

 

1,607

2,188

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 were secured with securitized lease receivables (see the Note “Information on securitization of the lease portfolio and portfolio sale of receivables”).

38.3. Subordinated liabilities

Type of liability

Type of interest rate

Notional amount

Currency

Period

Carrying amount

31.12.2023

31.12.2022

Subordinated bonds

6M WIBOR +0.0155

1,700

PLN

28.08.2017 - 28.08.2027

1,748

1,752

Subordinated bonds

6M WIBOR +0.0150

1,000

PLN

05.03.2018 - 06.03.2028

1,026

1,029

Total

 

 

 

 

2,774

2,781

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

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

39. insurance activities

Accounting policies:

39.1.      Transition date

The Group applied IFRS 17 for the first time in the period beginning 1 January 2023. Due to the need to prepare comparative data, 1 January 2022 is assumed as the date of transition to the new standard. The Group has implemented IFRS 17 as of 1 January 2023 using a full retrospective approach and a modified approach for part of its portfolio.

The risk-free interest rate curves published by EIOPA (European Insurance and Occupational Pensions Authority) were used for the measurement at the transition date.

39.2.      Main elements of measurement according to IFRS 17

The most significant elements of the IFRS 17 measurement and the main methodological decisions made by the Group are presented below.

39.2.1.     Identification and aggregation of insurance contracts

In order to identify insurance contracts and inward reinsurance contracts that are within the scope of IFRS 17, the Group verifies whether, under a given contract, the entity accepts a significant insurance risk from the policyholder and undertakes to compensate the policyholder for an adverse effect defined as an uncertain future insurable event.

According to the analysis, all products of an insurance nature offered by the Group's insurance companies have been classified as insurance contracts and thus fall within the scope of IFRS 17. The exception to this is only a small proportion of policies with UFK (unit-linked insurance) contracts, which are classified as investment agreements and measured in accordance with IFRS 9.

The Group analysed the products, i.e. performance guarantees, to identify links with the requirements of IFRS 17. The analysis confirmed that these products do not meet the definition of an insurance contract under IFRS 17, due to the fact that there is no insurance risk in this type of contract, but rather credit risk related to the non-recovery of funds from customers. Accordingly, the Group recognises and measures performance guarantees in accordance with IFRS 9.

In the Group, the division of the portfolio into groups of insurance contracts will be determined taking into account the above dimensions:

•        portfolio dimension - based on the risk characteristics of individual insurance contracts and based on existing insurance portfolio management processes;

•        profitability dimension:

o        for life insurance - at the level of a single contract by measuring the given insurance contract;

o        for non-life insurance - all contracts are treated as profitable, unless there are facts or circumstances that indicate that they are not profitable. Profitability is assessed at the level of the IFRS 17 portfolio, while it is permissible to move the assessment to the level of the quarter or year cohorts;

•        cohort dimension - the Group decided to use quarterly cohorts for both life and non-life insurance and reinsurance. The Group does not expect to apply the exemption from reporting under the requirement for annual cohorts.

The purpose of this aggregation is to ensure that profits are recognized over time in proportion to the insurance services provided, and losses are recognized immediately when the entity assesses that the concluded contract gives rise to a burden. The above aggregation makes it impossible to offset gains and losses between identified groups of insurance contracts, even within a single portfolio. Grouping of insurance contracts occurs upon initial recognition, and the Group will not reassess the groups in subsequent periods unless there is a rationale for discontinuing contract recognition as specified in IFRS 17, such as:

•        when the obligation specified in the insurance contract expires or is discharged or cancelled; or

•        the terms of an insurance contract are modified, for example by agreement between the parties to the contract or by a change in regulation, and the Group derecognises the original contract and recognise the modified contract as a new contract.

39.2.2.     Contract boundaries

For the purpose of measurement of liabilities, the value of financial flows within the contract boundaries is estimated. Contract boundaries cover the period during which the Group is obliged to provide the services covered by the insurance contract. This period may arise from premiums already paid or premiums in respect of which the insured may be liable to pay. Cash flows are treated as flows within the contract boundaries if they result from the insurance cover provided during the above period, even if the physical payment goes beyond the contract boundaries.

The service obligation defining the contract boundaries expires when there is a realistic possibility of a risk reassessment and tariff change. If there is no such practical possibility, the measurement of liabilities includes all future expected premiums.

In the Group the contract boundary approach is largely consistent with the Solvency II measurement approach used to date. The exceptions are contract boundaries applied in unit-linked products, where the guidelines for future cash flows derived from the “KNF Office's Position on the Contract Boundary for the Purpose of Determining Insurance or Reinsurance Liabilities” are used for measurement for the needs of Solvency II. In contrast, for the needs of IFRS 17, in unit-linked products with regular premiums, the future premium is modelled in accordance with the policyholder's liabilities described in the general terms and conditions of insurance and in the policy. 

39.2.3.     Valuation methods

Under IFRS 17, contracts may be measured according to the following methods:

1)      GMM – general measurement model – the basic measurement model, wherein the total value of the insurance liability is calculated as the sum of:

a)      discounted value of the best estimate of future cash flows - expected (probability-weighted) cash flows from premiums, claims, benefits, acquisition expenses and costs;

b)      risk adjustment for non-financial risk, RA – an individual estimate of the financial value of the offset for uncertainty related to the amount and timing of future cash flows, and

c)       contractual service margin, CSM – representing an estimate of future profits recognized during the policy term. The CSM value is sensitive to changes in estimates of cash flows, resulting e.g. from changed non-economic assumptions. CSM cannot be a negative value – any losses on the contracts shall be recognized immediately in the income statement (an exception is made for outward reinsurance contracts, for which the CSM may be negative);

2)      PAA – premium allocation approach

The premium allocation approach (PAA), is a simplified approach where the measurement of liability for remaining coverage (LRC) is analogous to the provision for unearned premiums mechanism in IFRS 4 (without separate presentation of RA and CSM). The PAA method is applied for short-term contracts of up to 1 year and longer, as long as the relevant qualifying criteria for applying the simplification are satisfied, as specified in paragraphs 53 or 69 of IFRS 17. The measurement of liability for incurred claims (LIC) is carried out using the GMM model (without CSM calculations). At the time of implementation of IFRS 17, the PAA method is not used by the Group to measure insurance liabilities/assets;

3)      VFA – variable fee approach

The liability measurement method used for IFRS 17 reporting of insurance contracts with direct profit sharing, where the measurement of liabilities is performed similarly to the GMM approach with the difference that changes in the contract margin component of the CSM in subsequent periods also include the impact of changes in economic factors, not just insurance factors.

Due to the specific nature of the insurance and reinsurance contracts in non-life insurance offered within the Group (insurance of several years), the criteria for applying the simplified valuation method based on premium allocation - PAA - were not met at the date of transition. Accordingly, both life insurance contracts and non-life insurance and reinsurance contracts are measured using the general model - GMM. The exception to this is direct profit-sharing insurance contracts, for which the Group uses the VFA model.

39.2.4.     Best estimate of future cash flows

Cash flows within the boundary of an insurance contract are those that relate directly to the fulfilment of the contract, including cash flows for which the entity has discretion over the amount or timing.

The cash flows within the boundary include:

•        premiums (including premium adjustments and instalment premiums) from a policyholder and any additional cash flows that result from those premiums;

•        payments to (or on behalf of) a policyholder, including claims that have already been reported but have not yet been paid (i.e. reported claims), incurred claims for events that have occurred but for which claims have not been reported and all future claims for which the entity has a substantive obligation;

•        an allocation of insurance acquisition cash flows attributable to the portfolio to which the contract belongs;

•        claim handling costs;

•        costs the entity will incur in providing contractual benefits paid in kind;

•        policy administration and maintenance costs;

•        taxes on transactions.

Separate presentation of outward reinsurance contracts and insurance and reinsurance contracts is required under the new standard.

Within each of these two groups, separate presentation is required for assets and liabilities of portfolios depending on whether the sum of the balance sheet items making up the insurance portfolio measurement is a net asset or liability.

Estimates of future cash flows are updated upon each calculation, taking into account all historical data available at the time of valuation and expert assessments of future cash flows.

The individual assumptions, in particular loss ratios, mortality rates and lapse rates, are determined on the basis of an analysis of historical data, but at the same time taking into account their expected changes in the future, e.g. due to tariff modifications or the current economic situation.

The Group does not currently have insurance products with discretionary profit-sharing.

39.2.5.     Discounting

The Group uses discount rate curves determined under the bottom-up approach (IFRS 17 paragraph B80), which assumes that discount curves are determined based on smooth risk-free rate curves.

Base discount curves are set at risk-free discount rates published by EIOPA (European Insurance and Occupational Pensions Authority). As part of the simplification adopted, no illiquidity premium was applied.

The table below shows the discount curves used to discount cash flows.

Breakdown of yield curves - PLN

 

Current reporting period

Comparable reporting period

1 year

5 years

10 years

15 years

20 years

1 year

5 years

10 years

15 years

20 years

Life – protection insurance

4.95%

4.85%

5.10%

5.11%

4.95%

6.40%

6.74%

6.65%

6.39%

6.01%

Property – protection insurance

4.95%

4.85%

5.10%

5.11%

4.95%

6.40%

6.74%

6.65%

6.39%

6.01%

Other

4.95%

4.85%

5.10%

5.11%

4.95%

6.40%

6.74%

6.65%

6.39%

6.01%

39.2.6.     Adjustment for non-financial risk

The Group includes a risk adjustment for non-financial risks in the measurement of insurance contracts. Due to the different risk characteristics for the portfolio of life and non-life insurance and for the future flows arising from the liabilities of payable claims and those arising from the remaining insurance period, the adjustment for non-financial risk for these liabilities is estimated independently.

For non-life insurance, the adjustment for future coverage is determined using the Value at Risk (VaR) method, using a modified Solvency Capital Requirement (SCR) calculation according to the Solvency II standard formula. Two approaches are used to determine the adjustment for the loss reserve: the VaR method analogous to the approach for future coverage and the bootstrap method (a method of estimating the distribution of estimation errors, by means of a multiple draw with return from a sample).

For life insurance, for liabilities arising from the remaining insurance period, the adjustment is determined using the cost of capital (CoC) method, and for liabilities for payable claims using the bootstrap method.

The risk adjustment for non-financial risks at the entity level is determined as a simple sum of adjustments determined at the level of individual groups of contracts or business lines, and diversification is taken into account when determining the level of materiality at the entity level (bottom-up approach). At the Group level, the adjustment for non-financial risk is determined as a simple sum of adjustments for individual entities, and diversification between entities is not taken into account. 

To determine adjustments for non-financial risks from reinsurance contracts, the Group applies these techniques both gross and net of reinsurance and derives the amount of risk transferred to the reinsurer as the difference between the two results.

Using the confidence level technique, the Group estimates the probability distribution of the expected present value of future cash flows from insurance contracts at each reporting date and calculates the adjustment for non-financial risks as the excess of the value at risk at the 75th percentile (target confidence level) over the expected present value of future cash flows.

Using the cost of capital technique, the Group determines the adjustment for non-financial risks by applying the cost of capital rate to the amount of capital required at each future reporting date and discounting the outcome using risk-free rates.

For the purposes of recognising the change in the risk adjustment for non-financial risks in the income statement, no disaggregation is made into an insurance service component and an insurance finance component, but it is presented in its entirety in the net income from insurance business.

39.2.7.     Contractual service margin (CSM)

The contract margin is part of the liabilities (or assets) under insurance and reinsurance contracts. The contract margin reflects the outstanding profit for a group of insurance contracts and is therefore released as income in the income statement. The amount of margin release in a reporting period is determined as the value of unrecognised expected future profit attributable to the period in accordance with a pattern of so-called coverage units, which determine the volume of insurance service provided in each period.

The pattern of coverage units provided was estimated on the basis of sums insured (life insurance) or premiums earned assuming a pro rata approach (property insurance)

In contrast to the valuation of other components of the liability for remaining coverage, the CSM is determined in a recursive manner, i.e. its value at the end of a given reporting period depends on the value on the opening balance sheet.

The initial value of the contract margin for groups of non-onerous contracts is determined on initial recognition as the value that balances the liability for remaining coverage, i.e. such that the total liability for remaining coverage equals 0 and thus does not generate income or expenses. For onerous contracts, the CSM on initial recognition is equal to zero.

For insurance contracts without direct participation features, the carrying amount of the contractual service margin of a group of contracts at the end of the reporting period equals the carrying amount at the start of the reporting period adjusted for:

•        the effect of any new contracts added to the group;

•        interest accreted on the carrying amount of the contractual service margin during the reporting period, measured at the discount rates at the time of initial recognition;

•        the changes in fulfilment cash flows relating to future service, except to the extent that:

o        such increases in the fulfilment cash flows exceed the carrying amount of the contractual service margin, giving rise to a loss; or

o        such decreases in the fulfilment cash flows are allocated to the loss component of the liability for remaining coverage;

•        the effect of any currency exchange differences arising on the contractual service margin; and

•        the amount recognised as insurance revenue because of the insurance contract services provided in the period, determined by the allocation of the contractual service margin remaining at the end of the reporting period (before any allocation) over the current and remaining coverage period.

Changes in expected future cash flows relating to a past or current service do not modify the CSM, but are recognised immediately in the income statement.

For groups of insurance contracts with direct participation features, the carrying amount of CSM of a group of contracts at the end of the reporting period equals the carrying amount of the CSM at the start of the reporting period adjusted for:

•        the effect of new contracts added to the group;

•        the amount of the entity’s share of the fair value of the underlying instrument;

•        he changes in fulfilment cash flows relating to future service;

•        the effect of any currency exchange differences;

•        the amount of the CSM recognised in the income statement as insurance revenue because of the insurance contract services provided in the period.

39.2.8.     Insurance finance income or expenses

•        OCI option – the Group has exercised the option to disaggregate the finance income and costs of its insurance operations into the portions recognized in profit or loss and other comprehensive income for all IFRS 17 portfolios, except for contract portfolios containing direct profit sharing. The amount recognised in the income statement is determined by a systematic allocation of the expected total insurance finance income or expenses over the duration of the group of contracts. The value of insurance finance income and expenses reported in the income statement is determined on the basis of the discount rates from the time of initial recognition of the respective group of contracts. At the same time, the difference between the total insurance finance income and expenses and the amount reported in the income statement is presented in other comprehensive income.

•        Investment component – The main portfolio with a non-distinguishable investment component is the unit-linked insurance portfolio. The investment components excluded from insurance revenue and insurance service expenses are determined as the hypothetical surrender value (including the value of the life benefit) specified in the terms of the insurance contract.

39.2.9.     Outward reinsurance contracts

The Group values all outward reinsurance contracts using the general GMM model, on a similar basis to the valuation of the insurance portfolio. A key difference in the valuation of reinsurance contracts relative to the valuation of insurance contracts is that a loss component cannot be recognised, while a negative contract margin is allowed.

FINANCIAL INFORMATION

39.3.      Net income from insurance business and finance income and costs recognised in other comprehensive income

NET INCOME FROM INSURANCE BUSINESS AND FINANCE INCOME AND COSTS RECOGNISED IN OTHER COMPREHENSIVE INCOME FROM INSURANCE BUSINESS

2023

2022

Changes in the period recognised in the income statement and in other comprehensive income, of which:

680

788

1. Net income from insurance business (Income statement)

711

779

Insurance revenue (net of reinsurance)1

1,241

1,172

Change in liability for remaining coverage (LRC)

1,210

1,145

The amount of the contractual service margin recognised in profit or loss because of the transfer of insurance contract services in the period (amortisation of contractual margin)

760

786

Change in risk adjustment for non-financial risk

41

44

Anticipated claims and other insurance service costs during the period

421

309

other amounts, for example, experience adjustments for premium receipts other than those that relate to future service

(12)

6

Allocation of the portion of the premiums that relate to the recovery of insurance acquisition cash flows

31

27

Cost of insurance activities (net of reinsurance)2

(389)

(325)

Incurred claims (excluding investment components) and other incurred insurance service expenses

(365)

(283)

Amortisation of insurance acquisition cash flows

(31)

(27)

Changes that relate to future service, i.e. losses on onerous groups of contracts and reversals of such losses

(15)

(24)

Changes that relate to past service, i.e. changes in fulfilment cash flows relating to the liability for incurred claims

22

9

Investment components excluded from insurance revenue and insurance service expenses (net of reinsurance)3

(187)

47

Change in fair value of underlying items for contracts with direct participation features

(93)

88

Interest accrued (discount)

(94)

(41)

Net income from reinsurance business, of which:4

(47)

(29)

Interest accrued

(3)

(3)

Change in fair value of underlying assets for contracts with direct participation features5

93

(86)

2. Finance income and costs from insurance business recognised in other comprehensive income, including from6:

(31)

9

insurance activities (net of reinsurance)

(33)

9

    reinsurance activities

2

-

1 Insurance revenue include only revenue from gross business. The item arises from the decomposition of the premium for individual components of cost and profit into:

a.   amortisation of the contractual service margin,

b.   adjustment for non-financial risk (additional security add-on),

c.    anticipated claims and costs (the portion of the premium that is allocated to the payment of claims and benefits and costs),

d.   acquisition costs (the portion of the premium that is allocated to acquisition costs),

e.    other, e.g. experience-related adjustments (discrepancies between the expected premium and the premium actually earned).

2 Costs from insurance activities only include costs from gross business. The item comprises the following components:

a.   Claims incurred and costs - the value of claims and costs incurred during the period (in the case of claims, claims incurred during the period are reported under this heading, regardless of whether they have been paid or remain in the loss reserve);

b.   Acquisition costs incurred - an item that mirrors the item “Allocation of the portion of the premiums that relate to the recovery of insurance acquisition cash flows”; the impact of acquisition costs on the result is included in the amortisation of the contract service margin;

c.    Changes related to the future service – losses (and their reversal) if a particular group of contracts is onerous, e.g. expected premiums will be lower than expected claims (losses are recognised in the income statement from a one-off basis and gains are deferred through gradual amortisation of the margin);

d.   Changes related to the past service (result on the loss reserve) – the difference between the estimate of the loss reserve for the opening balance and its realisation in the reporting period.

3 This item includes insurance finance income and expenses recognised in the income statement. The item mainly includes two components: changes on the discounting of reserves and, in the case of contracts with direct participation features, the net investment income on the underlying assets.

4 Net income from reinsurance business – reflects the net income from outward reinsurance

5 Change in fair value of underlying assets for contracts with direct participation features – result on units in investment funds and investment certificates (contracts with direct participation features)

6Finance income and expenses recognised in other comprehensive income reflect the impact of changes in interest rates and other financial assumptions

39.4.      Change in assets and liabilities in respect of insurance activities broken down by Liabilities for remaining coverage (LRC) and Liabilities for incurred claims (LIC)

CHANGE IN LIABILITIES IN RESPECT OF INSURANCE ACTIVITIES (NET OF REINSURANCE) DURING THE 12 MONTHS ENDED 31 DECEMBER 2023

Liability for remaining coverage (LRC)

Liabilities for incurred claims (LIC)

Total

excluding the loss component

loss component

Opening balance, net - 1 January 2023

2,690

19

169

2,878

Insurance revenue

(1,241)

-

-

(1,241)

Costs of insurance activities

31

(1)

359

389

incurred claims and other incurred insurance service expenses

-

(16)

381

365

amortisation of insurance acquisition cash flows

31

-

-

31

losses on onerous groups of contracts and reversals of such losses

-

15

-

15

changes in fulfilment cash flows relating to the liability for incurred claims

-

-

(22)

(22)

Investment components excluded from insurance revenue and insurance service expenses

44

1

142

187

Net income from insurance business (Income statement)

(1,166)

-

501

(665)

Insurance finance income or expenses recognised in other comprehensive income (gross)

33

-

-

33

Changes in the period recognised in the income statement and in other comprehensive income

(1,133)

-

501

(632)

premiums received for insurance contracts issued

1,185

-

-

1,185

incurred claims paid and other insurance service expenses paid for insurance contracts issued

-

-

(480)

(480)

insurance acquisition cash flows

(36)

-

-

(36)

Total cash flows

1,149

-

(480)

669

Closing balance, net - 31 December 2023

2,706

19

190

2,915

Property – protection insurance

1,169

-

91

1,260

Life – protection insurance

972

19

44

1,035

Other

565

-

55

620

 

CHANGE IN ASSETS IN RESPECT OF INSURANCE ACTIVITIES (REINSURANCE) DURING THE 12 MONTHS ENDED 31 DECEMBER 2023

Assets on account of reinsurance (for remaining coverage, LRC)

Assets for losses incurred (LIC)

Total

excluding the loss component

loss component

Opening balance, net - 1 January 2023

86

-

29

115

Allocation of reinsurance premiums paid

(102)

-

-

(102)

Amounts recoverable from reinsurers1

-

-

52

52

Investment components excluded from insurance revenue and insurance service expenses

3

-

-

3

Net income from insurance business (Income statement)

(99)

-

52

(47)

Insurance finance income or expenses recognised in other comprehensive income (gross)

2

-

-

2

Changes in the period recognised in the income statement and in other comprehensive income

(97)

-

52

(45)

premiums received for reinsurance contracts held

70

-

-

70

amounts received

-

-

(50)

(50)

Total cash flows

70

-

(50)

20

Closing balance, net - 31 December 2023

59

-

31

90

Property – protection insurance

56

-

27

83

Life – protection insurance

3

-

4

7

1This item includes the recovery of claims incurred and other insurance service costs

CHANGE IN LIABILITIES IN RESPECT OF INSURANCE ACTIVITIES (NET OF REINSURANCE) DURING THE 12 MONTHS ENDED 31 DECEMBER 2022

Liability for remaining coverage (LRC)

Liabilities for incurred claims (LIC)

Total

excluding the loss component

loss component

Opening balance, net - 1 January 2022

3,131

11

175

3,317

Insurance revenue

(1,172)

-

-

(1,172)

Costs of insurance activities

27

9

289

325

incurred claims and other incurred insurance service expenses

-

(15)

298

283

amortisation of insurance acquisition cash flows

27

-

-

27

losses on onerous groups of contracts and reversals of such losses

-

24

-

24

changes in fulfilment cash flows relating to the liability for incurred claims

-

-

(9)

(9)

Investment components excluded from insurance revenue and insurance service expenses

(264)

1

216

(47)

Net income from insurance business (Income statement)

(1,409)

10

505

(894)

Insurance finance income or expenses recognised in other comprehensive income (gross)

(7)

(2)

-

(9)

Changes in the period recognised in the income statement and in other comprehensive income

(1,416)

8

505

(903)

premiums received for insurance contracts issued

1,002

-

-

1,002

incurred claims paid and other insurance service expenses paid for insurance contracts issued

-

-

(511)

(511)

insurance acquisition cash flows

(27)

-

-

(27)

Total cash flows

975

-

(511)

464

Closing balance, net - 31 December 2022

2,690

19

169

2,878

Property – protection insurance

1,243

-

59

1,302

Life – protection insurance

849

19

47

915

Other

598

-

63

661

 

CHANGE IN ASSETS IN RESPECT OF INSURANCE ACTIVITIES (REINSURANCE) DURING THE 12 MONTHS ENDED 31 DECEMBER 2022

Assets on account of reinsurance (for remaining coverage, LRC)

Assets for losses incurred (LIC)

Total

excluding the loss component

loss component

Opening balance, net - 1 January 2022

107

-

21

128

Allocation of reinsurance premiums paid

(84)

-

-

(84)

Amounts recoverable from reinsurers1

-

-

52

52

Investment components excluded from insurance revenue and insurance service expenses

3

-

-

3

Net income from insurance business (Income statement)

(81)

-

52

(29)

Changes in the period recognised in the income statement and in other comprehensive income

(81)

-

52

(29)

premiums received for reinsurance contracts held

61

-

-

61

amounts received

-

-

(44)

(44)

Total cash flows

60

-

(44)

10

Closing balance, net - 31 December 2022

86

-

29

115

Property – protection insurance

83

-

25

108

Life – protection insurance

3

-

4

7

1This item includes the recovery of claims incurred and other insurance service costs

39.5.      Change in assets and liabilities in respect of insurance activities, with a breakdown of the components: estimates of cash flows, estimates of present value of future cash flows, risk adjustment for non-financial risk and contractual service margin

CHANGE IN LIABILITIES IN RESPECT OF INSURANCE ACTIVITIES (NET OF REINSURANCE) DURING THE 12 MONTHS ENDED 31 DECEMBER 2023

Estimates of present value of future cash flows

Non-financial risk adjustment

Contract margin

Total

Opening balance, net - 1 January 2023

1,468

73

1,337

2,878

Changes that relate to current service

64

(36)

(875)

(847)

change in contractual service margin

-

-

(762)

(762)

change in risk adjustment for non-financial risk

-

(42)

-

(42)

experience adjustments1

64

6

(113)

(43)

Changes that relate to future service

(657)

49

625

17

changes in estimates that adjust the contractual service margin

36

(3)

(32)

1

losses on onerous groups of contracts and reversals of such losses

3

-

-

3

the effects of contracts initially recognised in the period

(696)

52

657

13

Changes that relate to past service, i.e. changes in fulfilment cash flows relating to incurred claims

(17)

(5)

-

(22)

Investment components excluded from insurance revenue and insurance service expenses

120

-

67

187

Net income from insurance business (Income statement)

(490)

8

(183)

(665)

Insurance finance income or expenses recognised in other comprehensive income (gross)

33

-

-

33

Changes in the period recognised in the income statement and in other comprehensive income

(457)

8

(183)

(632)

Cash flows

669

-

-

669

Closing balance, net - 31 December 2023

1,680

81

1,154

2,915

1this item reflects the difference between expected and realised premium cash flows for contract cohorts for which the difference is not recognised in the contractual service margin

CHANGE IN ASSETS IN RESPECT OF INSURANCE ACTIVITIES (REINSURANCE) DURING THE 12 MONTHS ENDED 31 DECEMBER 2023

Estimates of present value of future cash flows

Non-financial risk adjustment

Contract margin

Total

Opening balance, net - 1 January 2023

62

10

43

115

Changes that relate to current service

(2)

(3)

(38)

(43)

change in contractual service margin

-

-

(43)

(43)

change in risk adjustment for non-financial risk

-

(6)

-

(6)

experience adjustments1

(2)

3

5

6

Changes that relate to future service

(29)

5

24

-

changes in estimates that adjust the contractual service margin

(10)

-

10

-

the effects of contracts initially recognised in the period

(19)

5

14

-

Changes that relate to past service, i.e. changes in fulfilment cash flows relating to incurred claims

(6)

(1)

-

(7)

Investment components excluded from insurance revenue and insurance service expenses

1

-

2

3

Net income from insurance business (Income statement)

(36)

1

(12)

(47)

Insurance finance income or expenses recognised in other comprehensive income (gross)

2

-

-

2

Changes in the period recognised in the income statement and in other comprehensive income

(34)

1

(12)

(45)

Cash flows

20

-

-

20

Closing balance, net - 31 December 2023

48

11

31

90

1this item reflects the difference between expected and realised premium cash flows for contract cohorts for which the difference is not recognised in the contractual service margin

CHANGE IN LIABILITIES IN RESPECT OF INSURANCE ACTIVITIES (NET OF REINSURANCE) DURING THE 12 MONTHS ENDED 31 DECEMBER 2022

Estimates of present value of future cash flows

Non-financial risk adjustment

Contract margin

Total

Opening balance, net - 1 January 2022

1,806

82

1,429

3,317

Changes that relate to current service

11

(39)

(833)

(861)

change in contractual service margin

-

-

(790)

(790)

change in risk adjustment for non-financial risk

-

(44)

-

(44)

experience adjustments1

11

5

(43)

(27)

Changes that relate to future service

(719)

34

708

23

changes in estimates that adjust the contractual service margin

(74)

(6)

80

-

losses on onerous groups of contracts and reversals of such losses

14

-

-

14

the effects of contracts initially recognised in the period

(659)

40

628

9

Changes that relate to past service, i.e. changes in fulfilment cash flows relating to incurred claims

(5)

(4)

-

(9)

Investment components excluded from insurance revenue and insurance service expenses

(80)

-

33

(47)

Net income from insurance business (Income statement)

(793)

(9)

(92)

(894)

Insurance finance income or expenses recognised in other comprehensive income (gross)

(9)

-

-

(9)

Changes in the period recognised in the income statement and in other comprehensive income

(802)

(9)

(92)

(903)

Cash flows

464

-

-

464

Closing balance, net - 31 December 2022

1,468

73

1,337

2,878

1this item reflects the difference between expected and realised premium cash flows for contract cohorts for which the difference is not recognised in the contractual service margin

 

CHANGE IN ASSETS IN RESPECT OF INSURANCE ACTIVITIES (REINSURANCE) DURING THE 12 MONTHS ENDED 31 DECEMBER 2022

Estimates of present value of future cash flows

Non-financial risk adjustment

Contract margin

Total

Opening balance, net - 1 January 2022

64

14

50

128

Changes that relate to current service

12

(3)

(39)

(30)

change in contractual service margin

-

-

(42)

(42)

change in risk adjustment for non-financial risk

-

(5)

-

(5)

experience adjustments1

12

2

3

17

Changes that relate to future service

(30)

-

30

-

changes in estimates that do not adjust the contractual service margin

(17)

(3)

20

-

the effects of contracts initially recognised in the period

(13)

3

10

-

Changes that relate to past service, i.e. changes in fulfilment cash flows relating to incurred claims

(1)

(1)

-

(2)

Investment components excluded from insurance revenue and insurance service expenses

1

-

2

3

Net income from insurance business (Income statement)

(18)

(4)

(7)

(29)

Changes in the period recognised in the income statement and in other comprehensive income

(18)

(4)

(7)

(29)

Cash flows

16

-

-

16

Closing balance, net - 31 December 2022

62

10

43

115

1this item reflects the difference between expected and realised premium cash flows for contract cohorts for which the difference is not recognised in the contractual service margin

39.6.      other disclosures

CONTRACTUAL SERVICE MARGIN TO BE RECOGNISED IN THE INCOME STATEMENT - 31.12.2023

<1 year

1-2 years

2-3 years

3-4 years

4-5 years

5-10 years

above 10 years

Total

Insurance contracts

 

 

 

 

 

 

 

 

Property – protection insurance

349

202

93

41

14

9

-

708

Life – protection insurance

219

93

51

27

13

12

1

416

Other

5

4

3

3

2

7

6

30

Total

573

299

147

71

29

28

7

1,154

Reinsurance contracts

 

 

 

 

 

 

 

 

Property – protection insurance

15

7

2

1

-

-

-

25

Life – protection insurance

4

-

-

-

-

1

1

6

Total

19

7

2

1

-

1

1

31

 

 

 

 

 

 

 

 

 

CONTRACT MARGIN TO BE RECOGNISED IN THE INCOME STATEMENT - 31.12.2022

<1 year

1-2 years

2-3 years

3-4 years

4-5 years

5-10 years

above 10 years

Total

Insurance contracts

 

 

 

 

 

 

 

 

Property – protection insurance

386

249

148

49

19

19

-

870

Life – protection insurance

194

102

62

36

20

20

2

436

Other

5

4

3

3

2

7

7

31

Total

585

355

213

88

41

46

9

1,337

Reinsurance contracts

 

 

 

 

 

 

 

 

Property – protection insurance

23

11

5

1

-

-

-

40

Life – protection insurance

(1)

(1)

-

1

1

2

1

3

Total

22

10

5

2

1

2

1

43

FINANCIAL INSTRUMENTS RELATING TO CONTRACTS WITH DIRECT PARTICIPATION FEATURES

31.12.2023

31.12.2022

Deposits with financial institutions

23

20

Bonds

179

138

Equity securities

569

630

Total financial instruments - assets

771

788

 

40. Intangible assets

Accounting policies:

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

Goodwill - 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 the cost of purchase or manufacture, less accumulated amortization and impairment losses.

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

The Group classifies the effects of in-house development work that can be used for the Group's operations as intangible assets.

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

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

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

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

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

Related notes:

•        Useful lives – note “Administrative expenses”;

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

 

Financial information

INTANGIBLE ASSETS

Software

Goodwill

Future profit on concluded insurance contracts

Customer relations

Other, including capital expenditure

of which: software

Total

2023

   

  

  

  

  

  

  

Gross carrying amount at the beginning of the period

6,439

1,407

45

94

802

671

8,787

Purchase

55

-

-

-

853

853

908

Transfers from capital expenditure

894

-

-

-

(896)

(897)

(2)

Scrapping and sale

(32)

-

-

-

-

-

(32)

Other

10

-

-

-

44

43

54

Gross carrying amount at the end of the period

7,366

1,407

45

94

803

670

9,715

  

Accumulated amortization as at the beginning of the period

(4,663)

-

(44)

(90)

(96)

-

(4,893)

Amortization charge for the period

(547)

-

(3)

(2)

(3)

-

(555)

Scrapping and sale

30

-

2

-

-

-

32

Other

1

-

-

-

-

-

1

Accumulated amortization as at the end of the period

(5,179)

-

(45)

(92)

(99)

-

(5,415)

    

Impairment losses as at the beginning of the period

(18)

(354)

-

-

(10)

-

(382)

Recognized during the period

(1)

-

-

-

-

-

(1)

Other

1

-

-

-

-

-

1

Impairment losses as at the end of the period

(18)

(354)

-

-

(10)

-

(382)

    

Carrying amount as at the beginning of the period, net

1,758

1,053

1

4

696

671

3,512

Carrying amount as at the end of the period, net

2,169

1,053

-

2

694

670

3,918

 

INTANGIBLE ASSETS

Software

Goodwill

Future profit on concluded insurance contracts

Customer relations

Other, including capital expenditure

of which: software

Total

Gross carrying amount at the beginning of the period

5,908

1,407

44

158

776

642

8,293

Purchase

45

-

-

-

492

492

537

Transfers from capital expenditure

504

-

-

-

(504)

(504)

-

Scrapping and sale

(18)

-

-

(64)

-

-

(82)

Other

-

-

1

-

38

41

39

Gross carrying amount at the end of the period

6,439

1,407

45

94

802

671

8,787

  

Accumulated amortization as at the beginning of the period

(4,203)

-

(42)

(117)

(92)

-

(4,454)

Amortization charge for the period

(479)

-

(2)

(7)

(4)

-

(492)

Scrapping and sale

19

-

-

34

-

-

53

Accumulated amortization as at the end of the period

(4,663)

-

(44)

(90)

(96)

-

(4,893)

    

Impairment losses as at the beginning of the period

(18)

(354)

-

(9)

(15)

(2)

(396)

Recognized during the period

-

-

-

(21)

-

-

(21)

Other

-

-

-

30

5

2

35

Impairment losses as at the end of the period

(18)

(354)

-

-

(10)

-

(382)

    

Carrying amount as at the beginning of the period, net

1,687

1,053

2

32

669

640

3,443

Carrying amount as at the end of the period, net

1,758

1,053

1

4

696

671

3,512

 

The comparative figures for 2022 and the opening balances for 2023 have been similarly adjusted by PLN 15 million and PLN 20 million due to the implementation of IFRS 17 "Insurance Contracts" (see note "IFRS 17 Insurance Contract").

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

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

•      Goodwill

Net goodwill

31.12.2023

31.12.2022

Nordea Bank Polska S.A.

747

747

PKO Życie Towarzystwo Ubezpieczeń S.A.

91

91

Raiffeisen - Leasing Polska SA and its subsidiaries (PKO Leasing SA)

57

57

PKO Towarzystwo Funduszy Inwestycyjnych S.A.

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.

At the time of the acquisition, two cash-generating units ("CGUs") were distinguished to which the goodwill arising from the acquisition of Nordea Bank Polska SA was allocated – retail and corporate CGUs, corresponding to the operating segments.

The Bank recognised an impairment loss on the goodwill attributable to the corporate CGU of PLN 117 million on 30 June 2020.

Goodwill of Nordea Bank Polska S.A. of PLN 747 million belongs to the retail segment.

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

The impairment test of the goodwill arising from the acquisition of Nordea Bank Polska S.A. assigned to the retail CGU carried out as at 31 December 2023 did not indicate any impairment.

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.

No further impairment was identified.

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.

41. Property, plant and equipment

Accounting policies:

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

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

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

Right-of-use assets are presented in the same items in which the underlying assets would be presented, if they were owned by the Group (note “Leases”).

Related notes:

•        Useful lives – note “Administrative expenses”;

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

Financial information

•        Property, plant and equipment

PROPERTY, PLANT AND EQUIPMENT

Land and buildings

Machinery and equipment, including computer hardware

Fixed assets under construction

Other, including vehicles

Total

2023

   

   

   

  

  

Gross carrying amount at the beginning of the period

4,121

1,832

154

903

7,010

Purchase, including modifications

467

26

343

36

872

Transfers from capital expenditure

39

138

(207)

31

1

Scrapping and sale

(80)

(65)

-

(15)

(160)

Other

(61)

(23)

(5)

3

(86)

Gross carrying amount at the end of the period

4,486

1,908

285

958

7,637

Accumulated amortization as at the beginning of the period

(2,056)

(1,398)

-

(537)

(3,991)

Amortization charge for the period 

(318)

(157)

-

(57)

(532)

Scrapping and sale

69

64

-

35

168

Other

34

17

-

5

56

Accumulated amortization as at the end of the period 

(2,271)

(1,474)

-

(554)

(4,299)

Impairment losses as at the beginning of the period

(97)

(1)

(3)

(1)

(102)

Recognized during the period

(38)

(4)

-

-

(42)

Reversed during the period

1

-

-

-

1

Other

7

1

-

-

8

Impairment losses as at the end of the period

(127)

(4)

(3)

(1)

(135)

Carrying amount as at the beginning of the period, net

1,968

433

151

365

2,917

Carrying amount as at the end of the period, net

2,088

430

282

403

3,203

PROPERTY, PLANT AND EQUIPMENT

Land and buildings

Machinery and equipment, including computer hardware

Fixed assets under construction

Other, including vehicles

Total

2022

   

   

   

  

  

Gross carrying amount at the beginning of the period

3,977

1,768

217

909

6,871

Purchase, including modifications

165

37

175

28

405

Transfers from capital expenditure

50

142

(234)

42

-

Scrapping and sale

(46)

(92)

-

(58)

(196)

Other

(25)

(23)

(4)

(18)

(70)

Gross carrying amount at the end of the period

4,121

1,832

154

903

7,010

Accumulated amortization as at the beginning of the period

(1,789)

(1,352)

-

(522)

(3,663)

Amortization charge for the period 

(314)

(153)

-

(60)

(527)

Scrapping and sale

29

91

-

31

151

Other

18

16

-

14

48

Accumulated amortization as at the end of the period 

(2,056)

(1,398)

-

(537)

(3,991)

Impairment losses as at the beginning of the period

(95)

(1)

(4)

-

(100)

Recognized during the period

(3)

-

-

-

(3)

Other

1

-

1

(1)

1

Impairment losses as at the end of the period

(97)

(1)

(3)

(1)

(102)

Carrying amount as at the beginning of the period, net

2,093

415

213

387

3,108

Carrying amount as at the end of the period, net

1,968

433

151

365

2,917

 

Investment properties

31.12.2023

31.12.2022

Gross carrying amount

89

62

Accumulated depreciation

(16)

(23)

Impairment losses

(3)

(3)

 

 

 

Net carrying amount

70

36

42. Investments in associates and joint ventures

42.1. Joint ventures:

Financial information

•      Centrum Elektronicznych Usług Płatniczych eService sp. z o.o.

The Bank holds shares entitling to 34% votes at the General Meeting of Shareholders, and the second is a shareholder of 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.

•      Operator Chmury Krajowej sp. z o.o.

The Bank holds 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;

c)         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.

JOINT VENTURES

31.12.2023

31.12.2022

“Centrum Obsługi Biznesu" sp. z o.o.

-

-

Acquisition price

17

17

Change in net investment

(17)

(17)

Centrum Elektronicznych Usług Płatniczych eService sp. z o.o. Group

280

275

Value of shares as at the date of obtaining joint control

197

197

Change in net investment

139

130

Dividend

(57)

(53)

Operator Chmury Krajowej sp. z o.o.

4

10

Value of shares as at the date of obtaining joint control

61

61

Change in net investment

(57)

(51)

BSafer sp. z o.o. 

-

-

Acquisition price

1

1

Impairment loss

(1)

(1)

Total

284

285

 

CHANGE IN INVESTMENTS IN JOINT VENTURES

2023

2022

Investments in joint ventures as at the beginning of the period

285

285

Share in profits and losses

56

53

Dividend

(57)

(53)

Investments in joint ventures as at the end of the period

284

285

 

Selected information on joint ventures

A summary of the financial data separately for each joint venture of the Group is presented below. The amounts presented are derived from the financial statements of the individual entities prepared in accordance with the IFRSs 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 2022 is derived from audited financial statements.

Centrum Elektronicznych Usług Płatniczych eService sp. z o.o.

31.12.2023

31.12.2022

type of accounting standards – IFRSs

 

 

Current assets

449

384

Non-current assets

164

184

Current liabilities

245

200

Non-current liabilities

23

39

 

01.01-31.12.2023

01.01-31.12.2022

Revenue

643

621

Profit/(loss) for the period

185

182

Other comprehensive income

3

8

Total comprehensive income

188

190

Dividends received from the company

57

53

 

“Centrum Obsługi Biznesu" sp. z o.o.

31.12.2023

31.12.2022

type of accounting standards – PASs

 

 

Current assets

7

4

Non-current assets

72

75

Current liabilities

82

85

Non-current liabilities

1

-

 

01.01-31.12.2023

01.01-31.12.2022

Revenue

8,472

8,537

Profit/(loss) for the period

7,844

8,121

 

Operator Chmury Krajowej sp. z o.o.

31.12.2023

31.12.2022

type of accounting standards – PASs

 

 

Current assets

185

130

Non-current assets

49

59

Current liabilities

62

119

Non-current liabilities

4

33

 

01.01-31.12.2023

01.01-31.12.2022

Revenue

355

212

Profit/(loss) for the period

(13)

(20)

 

 

BSafer sp. z o.o. (in PLN thousand)

31.12.2023

31.12.2022

type of accounting standards – PASs

 

 

Current assets

10

10

Non-current assets

-

15

Current liabilities

160

35

Non-current liabilities

-

111

 

01.01-31.12.2023

01.01-31.12.2022

Revenue

1

-

Profit/(loss) for the period

(30)

(50)

The Group did not recognize any additional impairment losses on goodwill and investments in joint ventures in 2023 and 2022.

42.2. Associates

Financial information

•      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.

•      SYSTEM OCHRONY BANKÓW KOMERCYJNYCH S.A.

PKO Bank Polski S.A. holds shares in the company carrying 21.1% of the votes at the Shareholders' Meeting. The remaining shares are held by: Alior Bank S.A. (8.1% of shares), Bank Polska Kasa Opieki S.A. (14.7% of shares), Bank Millenium S.A. (8.5% of shares), BNP Paribas Bank Polska S.A. (9.4% of shares), ING Bank Śląski S.A. (13.0% of shares), mBank S.A. (12.2% of shares), Santander Bank Polska S.A. (12.9% of shares).

In accordance with the Company's Articles of Association:

a)      key operational and financial decisions must be approved by the General Meeting, including, but not limited to, the following matters: granting of aid, granting of support, admission of a new bank to the protection scheme, making additional contributions to the aid fund, appointment and removal of the President of the Management Board, dissolution of the Company, cancellation of the liability for aid granted or any other act having such effect;

b)      the number of members of the Supervisory Board corresponds to the number of shareholders of the company,

ASSOCIATES

31.12.2023

31.12.2022

Bank Pocztowy S.A.

-

-

    Acquisition price

184

184

    Change in net investment

84

73

    Impairment loss

(268)

(257)

“Poznański Fundusz Poręczeń Kredytowych" sp. z o.o.

-

-

    Acquisition price

2

2

    Change in net investment

5

4

    Impairment loss

(7)

(6)

Total

-

-

 

CHANGE IN INVESTMENTS IN ASSOCIATES

2023

2022

Value of investments in associates at the beginning of the period

-

-

Share in profits and losses

41

19

Net impairment loss

(11)

-

Share in the change in other comprehensive income

(30)

(19)

Value of investments in associates at the end of the period

-

-

The impairment test performed as at 31 December 2023 maintained the carrying amount of Bank Pocztowy as at 31 December 2023 at the previous level, i.e. PLN 0.

As at 31 December 2023, and as at 31 December 2022, the parent entity did not have any share in contingent liabilities of associates acquired together with another investor.

Selected information on associates

A summary of the financial data separately for 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 IFRSs 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 2022 is derived from audited financial statements.

Bank Pocztowy S.A. (figures as published by the company)

31.12.2023

31.12.2022

type of accounting standards – IFRSs

 

 

Total assets

8,472

8,537

Total liabilities

7,844

8,121

 

01.01-31.12.2023

01.01-31.12.2022

Revenue

345

596

Profit/(loss) for the period

106

105

Other comprehensive income

105

(93)

Total comprehensive income

211

12

 

“Poznański Fundusz Poręczeń Kredytowych" sp. z o.o.

31.12.2023

31.12.2022

type of accounting standards – PASs

 

 

Current assets

39

38

Current liabilities

3

4

Non-current liabilities

15

15

 

01.01-31.12.2023

01.01-31.12.2022

Revenue

3

2

Profit/(loss) for the period

-

-

 

System Ochrony Banków Komercyjnych S.A.

31.12.2023

31.12.2022

type of accounting standards – PASs

 

 

Current assets

12

28

Non-current assets

-

343

Current liabilities

11

370

 

01.01-31.12.2023

01.01-31.12.2022

Revenue

1

2

Profit/(loss) for the period

-

-

43. Other assets

Accounting policies:

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

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

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

Inventories are measured at the lower of cost and net realisable value.

financial information

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

OTHER ASSETS

31.12.2023

31.12.2022*

Other financial assets

1,474

1,850

Settlements in respect of card transactions

480

620

Settlement of financial instruments

143

134

Receivables in respect of cash settlements

408

340

Receivables and settlements in respect of trading in securities

28

24

Sale of foreign currencies

30

-

Trade receivables

273

213

Other

112

401

Other non-financial assets

942

935

Inventories

206

287

Assets for sale

183

126

Prepayments and deferred costs

163

131

VAT receivable

33

45

Receivables from the State Budget in respect of flat-rate income tax

-

12

Receivables from settlements with the National Clearing House

-

1

Receivables from customers for whom the agreements have been legally declared invalid in respect of the principal originally disbursed to these customers.

217

186

Other

140

147

 

 

 

Total

2,416

2,785

*The comparative figures for 2022 have been adjusted by PLN 19 million for the implementation of IFRS 17 "Insurance Contracts" (see note “IFRS 17 Insurance Contracts”).

•        Other non-financial assets

OTHER NON-FINANCIAL ASSETS

31.12.2023

31.12.2022

Gross amount

1,300

1,274

Impairment losses

(358)

(337)

Net carrying amount

942

937

 

 

 

Other non-financial assets – CHANGES IN IMPAIRMENT LOSSES

2023

2022

As at the beginning of the period

(337)

(330)

Recognized during the period

(74)

(66)

Derecognition of assets and settlements

53

36

Reversed during the period

20

27

Other

(20)

(4)

As at the end of the period

(358)

(337)

 

•      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 2023 and 31 December 2022, respectively, were designated as held 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.

•        Other non-financial assets – inventories

OTHER ASSETS – INVENTORIES

31.12.2023

31.12.2022

Goods

185

264

Materials

23

22

Inventory write-downs

(2)

1

 

 

 

Total

206

287

 

44. Other liabilities

Accounting policies:

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

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

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

 

Financial information

OTHER LIABILITIES

31.12.2023

31.12.2022*

Other financial liabilities

6,084

4,385

Costs to be paid

812

781

Interbank settlements

1,011

868

Liabilities arising from investing activities and internal operations

395

134

Amounts due to suppliers

231

205

Liabilities and settlements in respect of trading in securities

745

354

Settlement of financial instruments

68

40

liabilities in respect of foreign exchange activities

721

762

Liabilities in respect of payment cards

980

315

Lease liabilities

1,088

896

Other

33

30

Other non-financial liabilities

4,923

2,625

Deferred income

620

560

Dividend payable to shareholders

1,600

-

Liability in respect of tax on certain financial institutions

111

105

Liabilities in respect of a contribution to the Bank Guarantee Fund maintained in the form of payment obligations

847

847

to the Resolution Fund

461

461

to the Bank Guarantee Fund

386

386

Liabilities under the public law

1,057

478

Commitments relating to the reimbursement of principal and interest instalments paid by customers on invalidated mortgage loan agreements in convertible currencies

165

132

Other

523

503

 

 

 

Total

11,007

7,010

*The comparative figures for 2022 have been adjusted by PLN 4 million for the implementation of IFRS 17 "Insurance Contracts" (see note “IFRS 17 Insurance Contracts”).

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

45. Provisions

Accounting policies:

•      Provisions for financial liabilities and guarantees granted

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

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

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

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

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

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

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

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

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

•      provision for pensions and other defined post-employment benefits

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

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

•      provision for accrued holiday entitlements

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

•      other provisions

Other provisions mainly include provisions for potential claims on the sale of receivables, described in detail in the Note “Information on securitization of the lease portfolio and package sale of receivables”.

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

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

Estimates and judgments:

The Group updated its estimates of provisions for pensions and other liabilities in respect of defined post-employment benefit plans as at 31 December 2023 using an external independent actuary’s calculations.

 

COMPONENTS AFFECTING THE PROVISION AMOUNT (%)

31.12.2023

31.12.2022

financial discount rate adopted

5.20

6.80

weighted average ratio of employee mobility

9.33

9.46

average remaining period of service in years

7.45

7.40

10-year average assumed annual increase in the basis calculation of retirement benefits

2.83

3.55

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

ESTIMATED CHANGE IN PROVISION for pensions and other liabilities in respect of defined post-employment benefits

31.12.2023

31.12.2022

+1pp scenario

-1pp scenario

+1pp scenario

-1pp scenario

 

 

 

 

 

Discount rate

(4)

5

(4)

5

Planned increases in base amounts

6

(5)

6

(4)

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

ESTIMATED CHANGE IN PROVISION

Change in the number of claims

Change in the average amount of reimbursement

-10%

10%

-10%

10%

31.12.2023

(1)

1

(1)

1

31.12.2022

(1)

1

(1)

1

Financial information

FOR THE YEAR ENDED

31 DECEMBER 2023

Provisions for financial liabilities and guarantees granted¹

Provisions for legal claims, excluding legal claims relating to repaid mortgage loans in convertible currencies

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

Provisions for refunds of costs to customers on early repayment of consumer and mortgage loans

Provisions for pensions and other defined post-employment benefits

Restructuring

Provision for accrued holiday entitlements

Other provisions, including provisions for employee disputed claims

Total

As at the beginning of the period

833

103

851

18

66

35

119

65

2,090

Increases, including increases of existing provisions

9

17

2,384

-

14

-

36

29

2,489

Utilized amounts

-

(2)

(234)

(9)

(6)

(6)

(13)

(39)

(309)

Unused provisions reversed during the period

(82)

(3)

-

-

(2)

-

(3)

(6)

(96)

Other changes and reclassifications

(9)

(1)

-

1

-

-

(1)

1

(9)

 

 

 

 

 

 

 

 

 

 

As at the end of the period

751

114

3,001

10

72

29

138

50

4,165

Short-term provisions

595

7

-

9

13

29

138

8

799

Long-term provisions

156

107

3,001

1

59

-

-

42

3,366

1 See note “Credit risk – financial information”.

 

FOR THE YEAR ENDED

31 DECEMBER 2022

Provisions for financial liabilities and guarantees granted¹

Provisions for legal claims, excluding legal claims relating to repaid mortgage loans in convertible currencies

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

Provisions for refunds of costs to customers on early repayment of consumer and mortgage loans

Provisions for pensions and other defined post-employment benefits

Restructuring

Provision for accrued holiday entitlements

Other provisions, including provisions for employee disputed claims

Total

As at the beginning of the period

675

106

595

17

57

47

111

49

1,657

Increases, including increases of existing provisions

159

12

383

13

16

-

36

51

670

Utilized amounts

-

(8)

(127)

(12)

(5)

(12)

(15)

(34)

(213)

Unused provisions reversed during the period

(2)

(7)

-

-

(1)

-

(13)

(2)

(25)

Other changes and reclassifications

1

-

-

-

(1)

-

-

1

1

 

 

 

 

 

 

 

 

 

 

As at the end of the period

833

103

851

18

66

35

119

65

2,090

Short-term provisions

688

6

-

17

10

35

119

7

882

Long-term provisions

145

97

851

1

56

-

-

58

1,208

1 See note “Credit risk – financial information”.

Provisions for disability and retirement benefits(actuarial provision)

2023

2022

Liability at the beginning of the period

63

53

Current service cost

2

3

Interest expense

4

2

Actuarial (gains) and losses recognized in other comprehensive income

4

9

Benefits paid

(4)

(4)

Liability at the end of the period (net)

69

63

 

Breakdown of actuarial gains and losses (actuarial provision)

Total amount of provisions

2023

2022

Change in financial assumptions

7

(10)

Change in demographic assumptions

1

-

Other changes

(4)

19

Total actuarial (gains) and losses

4

9

 

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

Accounting policies:

For the principles of recognising provisions for off-balance sheet commitments granted, see the note "Provisions".

Upon initial recognition financial guarantee agreements are stated at fair value. In subsequent periods, as at the balance sheet date, financial guarantees are measured at the higher of:

•        allowances for expected credit losses; or

•        the amount of commission recognized initially, less accumulated amortization in accordance with IFRS 15.

Financial information

•           Securities programmes covered with underwriting agreements (maximum Group’s commitment to take up securities)

As at 31 December 2023 and 31 December 2022, no underwriting agreements have been entered into.

•           Contractual commitments

VALUE OF CONTRACTUAL COMMITMENTS CONCERNING

31.12.2023

31.12.2022

intangible assets

85

81

property, plant and equipment

98

141

Total

183

222

 

•           Financial and guarantee commitments granted

FINANCIAL AND GUARANTEE COMMITMENTS GRANTED 31.12.2023

Total

Provisions per IFRS 9

Net carrying amount

Credit lines and limits

79,038

(641)

78,397

real estate

6,898

(20)

6,878

business

56,333

(498)

55,835

consumer

10,780

(123)

10,657

in respect of factoring

4,289

-

4,289

in respect of finance leases

738

-

738

Other

3,884

-

3,884

Total financial commitments granted, including:

82,922

(641)

82,281

irrevocable commitments granted

29,830

(392)

29,438

POCI

2

-

2

 

 

 

 

Guarantees and sureties granted

 

 

 

guarantees in domestic and foreign trading

10,615

(107)

10,508

to financial entities

2,679

-

2,679

to non-financial entities

7,807

(107)

7,700

to public entities

129

-

129

domestic municipal bonds (state budget entities)

243

-

243

letters of credit

1,277

(3)

1,274

to financial entities

30

-

30

to non-financial entities

1,247

(3)

1,244

payment guarantees to financial entities

101

-

101

Total guarantees and sureties granted, including:

12,236

(110)

12,126

irrevocable commitments granted

5,503

(94)

5,409

performance guarantee

3,592

(57)

3,535

POCI

452

(2)

450

 

 

 

 

Total financial and guarantee commitments granted

95,158

(751)

94,407

 

FINANCIAL AND GUARANTEE COMMITMENTS GRANTED 31.12.2022

Total

Provisions per IFRS 9

Net carrying amount

Credit lines and limits

70,380

(590)

69,790

real estate

3,683

(21)

3,662

business

52,455

(414)

52,041

consumer

10,650

(155)

10,495

in respect of factoring

2,749

-

2,749

in respect of finance leases

843

-

843

Other

2,825

-

2,825

Total financial commitments granted, including:

73,205

(590)

72,615

irrevocable commitments granted

30,579

(301)

30,278

POCI

5

(1)

4

 

 

 

 

Guarantees and sureties granted

 

 

 

guarantees in domestic and foreign trading

10,578

(236)

10,342

to financial entities

2,735

-

2,735

to non-financial entities

7,772

(236)

7,536

to public entities

71

-

71

domestic municipal bonds (state budget entities)

315

-

315

Letters of credit

1,514

(7)

1,507

      to non-financial entities

1,514

(7)

1,507

payment guarantees to financial entities

71

-

71

Total guarantees and sureties granted, including:

12,478

(243)

12,235

irrevocable commitments granted

4,812

(234)

4,578

performance guarantee

3,640

(203)

3,437

POCI

284

(5)

279

 

 

 

 

Total financial and guarantee commitments granted

85,683

(833)

84,850

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

•           nominal value of commitments granted by maturity

COMMITMENTS GRANTED BY MATURITY AS AT 31.12.2023

up to 1 month (inclusive)

1 to 3 months (inclusive)

3 months to 1 year (inclusive)

1 year to 5 years inclusive

more than 5 years

Total

 

 

 

 

 

 

 

commitments granted – financial

17,208

4,606

32,016

17,464

11,628

82,922

commitments granted - guarantees and sureties

930

1,404

3,600

4,495

1,807

12,236

 

 

 

 

 

 

 

Total

18,138

6,010

35,616

21,959

13,435

95,158

 

COMMITMENTS GRANTED BY MATURITY AS AT 31.12.2022

up to 1 month (inclusive)

1 to 3 months (inclusive)

3 months to 1 year (inclusive)

1 year to 5 years inclusive

more than 5 years

Total

 

 

 

 

 

 

 

commitments granted – financial

14,588

5,101

26,792

18,860

7,864

73,205

commitments granted - guarantees and sureties

519

937

4,098

4,632

2,292

12,478

 

 

 

 

 

 

 

Total

15,107

6,038

30,890

23,492

10,156

85,683

 

•           Off-balance sheet liabilities received

OFF-BALANCE SHEET LIABILITIES RECEIVED BY NOMINAL VALUE

31.12.2023

31.12.2022

Financial

132

110

Guarantees

19,361

9,516

 

 

 

Total

19,493

9,626

 

The increase in off-balance sheet guarantee liabilities received is due, among other things, to the guarantee agreement entered into by the Group on 27 February 2023, providing unfunded credit protection in respect of a portfolio of selected corporate credit receivables of the Bank, in accordance with the CRR. The total value of the Bank's debt portfolio covered by this guarantee is over PLN 12,292 million, and the portfolio consists of the bond portfolio of PLN 1,515 million (“Portfolio A”) and the portfolio of other receivables of PLN 10,777 million (“Portfolio B”). The coverage ratio is 100% for Portfolio A and 80% for Portfolio B, therefore the total Guarantee amount is PLN 10,137 million. The maximum time of coverage under the Guarantee is 60 months, however the Group is entitled to terminate the Guarantee prior to the expiry of this period.

47. Legal claims

As at 31 December 2023, the total value of the subject matter of litigation in court proceedings (trials) pending in which the companies belonging to the PKO Bank Polski S.A. Group were defendants amounted to PLN 13,110 million (as at 31 December 2022: PLN 8,254 million), and the total value of the subject matter of litigation in court proceedings (trials) pending in which the companies belonging to the PKO Bank Polski S.A. Group were claimants as at 31 December 2023 was PLN 4,519 million (as at 31 December 2022: PLN 2,808 million).

•        litigation against the Bank relating to mortgage loans in convertible currencies

As at 31 December 2023, 30,498 on court proceedings were pending against the Bank (as at 31 December 2022: 19,522) relating to mortgage loans granted in previous years in foreign currency with a total value in dispute of PLN 11,948 million (as at 31 December 2022: PLN 7,725 million), including one group proceeding with 72 loan agreements. The subject matter of the Bank’s customers’ actions are mainly claims for declaration of invalidity of an agreement or for payment of amounts paid by the customer to the Bank in performance of an invalid agreement. Customers allege abusive provisions and/or that the agreements are contrary to the law. None of the clauses used by the Bank in the agreements was entered in the register of prohibited contractual clauses. The number of lawsuits filed by customers against the Bank is significantly influenced by the intensive advertising campaign of law firms, which encourages borrowers to commission to them – for a fee – conducting cases against banks.

The Group monitors the status of court rulings in cases indexed or denominated in foreign currencies on an ongoing basis with respect to the shaping and possible changes in rulings.

As at 31 December 2023, 2,696 final rulings have been issued by the courts in cases against the Bank (including 2,653 rulings after 3 October 2019). 138 of these rulings (including in 97 rulings issued after 3 October 2019) are favourable for the Bank.

On 29 January 2021, in connection with the discrepancies in the interpretation of legal provisions in the jurisprudence of the Supreme Court and common courts and in order to ensure the uniformity of jurisprudence, the First President of the Supreme Court submitted a request for the full panel of the Civil Chamber of the Supreme Court to resolve the following legal issues concerning the subject of loans denominated and indexed in foreign currencies (legal basis: Article 83 § 1 of the Act of 8 December 2017 on the Supreme Court):

1.         If a provision of an indexed or denominated loan agreement relating to the method of determining the foreign currency exchange rate is found to constitute an illicit contractual provision and is not binding on the consumer – is it then possible to assume that another method of determining the foreign currency exchange rate resulting from law or custom takes its place?

If the above question is answered in the negative:

2.         In the event that it is impossible to establish a foreign currency exchange rate binding on the parties in a loan agreement indexed to such a currency, can the remainder of the agreement still be binding for the parties?

3.         If it is not possible to establish a binding rate for a foreign currency in a loan agreement denominated in a foreign currency, can the remainder of the agreement still be binding for the parties?

Notwithstanding the content of the answers to questions 1 to 3:

4.         In the event of the invalidity or ineffectiveness of a loan agreement, in the performance of which the bank disbursed to the borrower all or part of the amount of the loan and the borrower made repayments of the loan, do separate claims for wrongful performance arise for each of the parties, or does only a single claim arise, equal to the difference in performance, for the party whose total performance was higher?

5.         Where a loan agreement is invalid or ineffective as a result of the unlawful nature of certain of its terms, does the limitation period for the bank’s claim for repayment of the sums paid under the loan begin to run from the time at which those sums were paid?

6.         If, in the case of the invalidity or ineffectiveness of a loan agreement, either party has a claim for repayment of a performance made in performance of that agreement, may that party also claim a fee for the use of its funds by the other party?

A session of the full composition of the Civil Chamber for the examination of the aforementioned application was held on 11 May 2021. Before passing its resolution, the Supreme Court decided to consult five public institutions. Their opinions were prepared and sent to the Supreme Court. On 2 September 2021, the Supreme Court decided to apply to the CJEU for preliminary rulings on questions relating to the judicial system, which do not directly concern the issue of foreign currency loans. In its order of 9 January 2024 in Case C-658/22, the CJEU refused to answer the Supreme Court's questions, finding that the Supreme Court's request for a preliminary ruling was manifestly inadmissible.

In 2021, two resolutions of the Supreme Court and one ruling of the Court of Justice of the European Union were issued, which are significant from the perspective of the claims of Swiss franc borrowers. On 7 May 2021, the Supreme Court, represented by 7 judges of the Civil Chamber, passed the following resolution in case III CZP 6/21:

1)         A prohibited contractual clause (Article 3851 § 1 of the Civil Code) is, from the beginning, by operation of law, ineffective in favour of the consumer, who may however subsequently grant an informed and voluntary consent for such a clause and thus make it effective retrospectively.

2)         If a loan agreement cannot be binding without the ineffective clause, the consumer and the lender are entitled to bring separate claims for repayment of the benefits provided in the performance of the agreement (Article 410 § 1 in conjunction with Article 405 of the Civil Code). The lender may claim repayment of the benefit from the moment the loan agreement became permanently ineffective.

The resolution has the force of a legal rule, which means that an ordinary panel of the Supreme Court may not withdraw from the interpretation presented in an earlier resolution that has the force of a legal rule. If any panel of the Supreme Court intends to withdraw from a legal rule, it must present the legal issue for resolution to the full panel of the Chamber. In its justification for the said resolution, the Supreme Court referred to an earlier opinion (resolution III CZP 11/20 dated 16 February 2021) that the period of limitation of claims resulting from a loan agreement which is invalid due to the elimination of abusive clauses commences after the consumer has expressed informed consent not to be bound by the abusive clauses.

The Supreme Court decided that since a consumer has the right to remedy an abusive contractual clause and express his/her willingness to be bound by it, the lender cannot be certain whether the agreement is effective until the consumer makes such a decision, and the agreement is ineffective (suspended) until such time. The lender’s claims may not arise before such ineffectiveness (suspension) ceases to exist (which generally occurs as a result of the borrower’s statement), and therefore the period of limitation commences at that moment.

Taking into account the content of the Supreme Court’s resolution III CZP 6/21 and the non-uniform decisions of the common courts made against it, the Bank has filed lawsuits against customers whose agreements have been validly annulled, or whose lawsuits calls for payment based on the premise of invalidity derived from abusiveness were served on the Bank before 31 December 2020, for reimbursement of amounts disbursed in connection with the conclusion of an agreement whose validity has been questioned.

In its ruling of 15 June 2023 in Case C-520/21, the CJEU ruled that if a loan agreement containing unfair terms is declared invalid, Directive 93/13: (i) does not preclude a judicial construction of national law whereby a consumer is entitled to claim compensation from a credit institution that goes beyond reimbursement of the monthly instalments and fees paid for performance of that agreement and beyond payment of the statutory interest for late payment from the date of the call for payment, provided that the objectives of Directive 93/13 and the principle of proportionality are complied with, and that (ii) precludes a judicial construction of national law whereby a credit institution is entitled to demand compensation from a consumer that goes beyond the reimbursement of the principal paid for the performance of that agreement and beyond the payment of statutory default interest from the date of the call for payment.

In the Bank's opinion, on the grounds of national legislation and the principle of proportionality, the customers cannot make additional claims against the Bank, primarily because they have not provided the Bank with a financial service consisting in the provision of capital. Nor is it reasonable to conclude that the Bank has enriched itself at the expense of the customer and the consumer has been impoverished. With the funds obtained, the customer met its housing needs and the Bank bore the costs of raising the funds, making them available and servicing the loan over the years. Even if it were to be considered that there were legal grounds for the customers' claims, the customer's claims would not necessarily be upheld and the courts may exercise their jurisdiction to dismiss the action when it constitutes an abuse of rights. At present, there is no case law on such customer claims.

With regard to the banks' ability to pursue claims beyond the reimbursement of the capital paid in nominal terms, the CJEU also expressed its position in two orders issued at the end of 2023 and the beginning of 2024. In an order of 11 December 2023, the CJEU ruled that a banking institution is not entitled to demand from a consumer the reimbursement of amounts other than the capital paid for the performance of that agreement and statutory default interest from the time of the demand for payment. In this ruling, the CJEU, as in judgment C-520/21, did not explicitly rule out adjustment, leaving the possibility for banks to pursue this claim open. However, by another decision, issued in Case C-488/23 of 12 January 2024, the CJEU definitively determined that Banks are not able to claim adjustment from customers if the invalidity of the agreement is a consequence of the removal of abusive clauses from the agreement. The CJEU thus ruled that banks may not demand compensation from consumers consisting of a judicial adjustment of the payment corresponding to that capital, in the event of a substantial change in the purchasing power of the currency concerned after the transfer of that capital to the consumer. In the Bank's view, the CJEU's order goes beyond the framework of Directive 93/13, which does not apply to non-contractual obligations, and is in clear contradiction with the principles of social justice by favouring a specific group of borrowers over the rest of society.

•         LITIGATION AGAINST THE BANK CONCERNING MORTGAGE LOANS BEARING INTEREST AT A FLOATING RATE

As at 31 December 2023, 147 court proceedings were pending against the Group (as at 31 December 2022: 5 lawsuits), in which customers challenge that the mortgage agreement was based on a floating interest rate structure and the rules for setting the WIBOR benchmark rate. The Group disputes the validity of the claims raised in these cases.

•         LITIGATION AGAINST THE BANK CONCERNING THE FREE CREDIT SANCTION

As at 31 December 2023, there were 1,159 court proceedings pending against the Bank relating to the free credit sanction, with a total value in dispute of PLN 20.7 million. These proceedings are initiated by customers or entities that have acquired receivables from them and relate to the provisions of cash loan agreements. The Bank disputes the validity of the claims raised in these cases. The case law to date is largely in favour of the Bank.

•         ACTIVITIES OF THE GROUP UNDERTAKEN IN CONNECTION WITH A PROPOSAL OF THE CHAIR OF THE POLISH FINANCIAL SUPERVISION AUTHORITY AND THE EXPECTED MEETING OF THE SUPREME COURT REGARDING LOANS GRANTED IN FOREIGN CURRENCIES 

In December 2020, the Chair of the Polish Financial Supervision Authority (hereinafter: the PFSA Chair) made a proposal aimed at providing a systemic solution to the problem of housing loans in Swiss francs. In accordance with this solution, the banks would voluntarily offer settlement agreements to their customers. Under such agreements, the customers would repay their loans to the bank as if they had been originally granted in PLN with interest at WIBOR plus a historical margin applied to such loans.

The Group has analysed the benefits and risks associated with the possible approaches to the issue of foreign currency housing loans. In the Group’s opinion, for both the Bank and its customers it is better to reach a compromise and conclude a settlement agreement than engage in long legal disputes whose outcome is uncertain.

On 23 April 2021, the Extraordinary General Shareholders’ Meeting approved the possibility of offering settlement agreements to the customers. Subsequently, by a resolution dated 27 May 2021, the Supervisory Board approved the terms and conditions for offering settlement agreements proposed by the PFSA Chair. The process of amicable resolution of disputes concerning the validity of housing loan agreements was launched on 4 October 2021. The settlements are offered during mediation proceedings conducted by the Mediation Centre of the PFSA Court of Arbitration, during court proceedings and during proceedings initiated by a motion for settlement (see note: Cost of legal risk of mortgage loans in convertible currencies).

•        Proceedings before the President of the Office of Competition and Consumer Protection (UOKiK)

The following proceedings are pending against the Bank, initiated ex officio by the President of the Office of Competition and Consumer:

•        PROCEEDINGS REGARDING MODIFICATION CLAUSES

Proceedings initiated on 12 March 2019 on the acknowledgement that the provisions of the template agreement are inadmissible. The proceedings are related to modification clauses which specify the circumstances in which the Bank is entitled to amend the terms and conditions of the agreement, including the amount of fees and commission. In the opinion of the President of UOKiK the modification clauses applied by the Bank give the Bank unilateral unlimited and arbitrary possibilities of modifying the execution of the agreement. Consequently, the President of UOKiK is of the opinion that the clauses applied by the Bank shape the rights and obligations of the consumers in a way that is contrary to good practice and are a gross violation of their interests, which justifies the conclusion that they are abusive. In a letter of 31 May 2019, the Bank commented on the allegations of the President of UOKiK, indicating that they are unfounded. The Bank pointed out, among other things, that the contested clauses are specific and they precisely define the circumstances entitling the Bank to change the template. By order of 7 June 2022, UOKiK summoned the Bank to provide a range of information regarding the disputed clauses, the Bank's turnover and the revenue generated from changes in fees and commissions based on the disputed clauses. The UOKiK summons was implemented on 11 July and 30 September 2022. By subsequent orders, the President of UOKiK extended the deadline for the completion of the proceedings. The current deadline indicated by the President of UOKiK is 29 March 2024. As at 31 December 2023, the Group had not set up a provision for these proceedings.

•        PROCEEDINGS REGARDING UNAUTHORIZED TRANSACTIONS

Proceedings initiated by decision of the President of UOKiK of 2 February 2024. The proceedings concern an allegation of PKO BP's practices violating the collective interests of consumers consisting of:

      providing consumers - in responses to reports of unauthorised payment transactions - with information that the Bank has established the consumer's responsibility for the transaction reported, based on ascertaining that the authentication process performed was correct and referencing the provisions of the General Terms and Conditions of keeping bank accounts and providing services to individual customers by PKO Bank Polski S.A. regarding gross negligence and intent, without specifying to the consumer the factual basis for gross negligence or intent, and thus the presumption of gross negligence or intent without proving it, which misleads consumers about the entrepreneur's obligations under Article 45(2) of the Act on payment services with respect to the burden of proving gross negligence on the part of the consumer and the further pursuit of claims in this regard, which may constitute an unfair market practice and harm the collective interests of consumers,

      making a refund to a consumer who is a customer of the Bank of the amount of a payment transaction reported by that consumer as unauthorised, pending the Bank's investigation of the complaint, and thereafter, if the Bank finds, during the complaint procedure, that the transaction was authorised by the consumer or that the consumer is liable for an unauthorised payment transaction, withdrawing the conditional return and deducting that amount from the consumer's current account or credit card account, except where there is a simultaneous return of that amount to the consumer under the so-called chargeback mechanism, which may breach Article 46(1) of the Act on payment services and harm the collective interests of consumers.

•        Proceedings initiated by the President of UOKIK on 26 July 2017 concerning using practices which violate the collective interests of consumers have been concluded. The Bank was charged with collecting higher instalments on loans and advances denominated in foreign currencies than those arising from the information on foreign exchange risk presented to the consumers before concluding agreements and transferring potential foreign exchange risk to the consumers. By decision of 27 November 2023, the President of the UOKiK discontinued the proceedingsProceedings initiated by the President of UOKIK on 26 July 2017 concerning using practices which violate the collective interests of consumers have been concluded. The Bank was charged with collecting higher instalments on loans and advances denominated in foreign currencies than those arising from the information on foreign exchange risk presented to the consumers before concluding agreements and transferring potential foreign exchange risk to the consumers. By decision of 27 November 2023, the President of the UOKiK discontinued the proceedings.

•        Proceedings before the court of competition and consumer protection

Two proceedings involving the Bank are pending before the Court of Competition and Consumer Protection:

•        Proceedings on spread clauses

The proceedings were initiated by the Bank’s appeal (submitted on 13 November 2020) against the decision of the President of UOKiK dated 16 October 2020. In the said decision, the President of UOKiK declared the provisions of the template agreement “Annex to the housing loan/mortgage loan agreement” in the section “Appendix to the annex ‘Rules for determining foreign exchange spreads at PKO BP S.A.’” as inadmissible provisions and prohibited their use.

In addition, the President of UOKiK ordered that all consumers being parties to the assessed annexes about the decision to declare them inadmissible and its consequences be informed no later than within nine months from the effective date of the decision and ordered that a declaration be published whose text was indicated in the decision on the Bank’s website not later than 1 month from the effective date of the decision and to keep it there for 4 months. Furthermore, the President of UOKiK imposed a fine on the Bank of PLN 41 million, payable to the Financial Education Fund.

In its appeal against that decision, the Bank requested that the decision be amended by finding that there had been no breach of the ban on the use of prohibited contractual clauses, or by discontinuing the proceedings. It was also requested that the decision be annulled or amended by waiving or substantially reducing the fine. The appeal raised a number of substantive and procedural grounds of appeal. The Bank’s main arguments consist in pointing out that the decision of the President of UOKiK is a manifestation of unlawful and groundless interference with the Bank’s pricing policy, pointing out that there are no substantive grounds for the intervention of the President of UOKiK, i.e. there are no grounds for concluding that the Bank applied prohibited contractual provisions, and pointing out that the penalty imposed on the Bank is abnormally high. In response to the appeal, the President of UOKiK sustained the position expressed in the decision appealed against. In a judgment of 10 October 2023, the Court of Competition and Consumer Protection overturned the decision of the UOKiK in its entirety.

The ruling was appealed by the President of the UOKiK and the public prosecutor. At 31 December 2023, the Bank recognises a provision for these proceedings of PLN 41 million (31 December 2022: PLN 41 million).

•        Proceedings related to restrictive practices on the market of payments with payment cards in Poland

The Bank is a party to proceedings initiated by the President of UOKiK on the basis of a decision dated 23 April 2001 upon the request of the Polish Trade and Distribution Organization – Employers Association (Polska Organizacja Handlu i Dystrybucji – Związek Pracodawców) against operators of the Visa and Europay payment systems and banks issuing Visa and Europay/ Eurocard/ Mastercard banking cards.

The claims under these proceedings relate to the use of practices limiting competition on the market of banking card payments in Poland, consisting of applying pre-agreed “interchange” fees for transactions made using the Visa and Europay/Eurocard/Mastercard cards as well as limiting access to this market for external entities.

On 29 December 2006, the UOKiK recognised practices involving the joint determination of interchange fees as restrictive of competition and ordered them to be abandoned, at the same time imposing, inter alia, a fine of PLN 16.6 million on the Bank. The Bank appealed against the decision of the President of UOKiK to the Court for Competition and Consumer Protection (Sąd Ochrony Konkurencji i Konsumentów - SOKiK). In its ruling dated 21 November 2013, SOKiK reduced the penalty imposed on the Bank to PLN 10.4 million.

The parties to the proceedings appealed against the ruling. The Court of Appeal in Warsaw in its ruling dated 6 October 2015 reinstated the initial amount of the imposed fines set in the decision of the UOKiK, i.e. the fine of PLN 16.6 million (the fine imposed on PKO Bank Polski S.A.) and the fine of PLN 4.8 million (the fine imposed on Nordea Bank Polska S.A., and PKO Bank Polski S.A. is a legal successor of Nordea Bank Polska SA through a merger under Article 492 § 1(1) of the Commercial Companies Code). The Bank paid the fine in October 2015. As a result of a cassation appeal brought by the Bank, the Supreme Court in a ruling dated 25 October 2017 annulled the contested ruling of the Court of Appeal in Warsaw and submitted the case for re-examination. The fine paid by the Bank was reimbursed to the Bank on 21 March 2018. On 23 November 2020, the Court of Appeal in Warsaw issued a ruling in which it revoked the ruling of the District Court in Warsaw dated 21 November 2013 and submitted it for re-examination. The case is currently proceeding at first instance before the Warsaw District Court. At 31 December 2023, the Group recognises a provision for these proceedings of PLN 21 million (31 December 2022: PLN 21 million).

•        proceedings before the Polish Financial Supervision Authority

•      Administrative proceedings initiated ex officio by the Polish Financial Supervision Authority (PFSA) are pending against the Bank. According to the PFSA's letters, irregularities have been identified which indicate that the Bank (as an insurance agent) has breached the legislation on the organisation and supervision of agency activities at the insurance agent's premises, to the extent related to the fulfilment of the obligation of professional development by individuals performing agency activities on behalf of the Bank. In the course of the proceedings, the Bank took steps to rectify the irregularities in the area of supervision of the performance of agency activities by individuals acting on behalf of the Bank, including with regard to compliance with the fulfilment of continuing professional development obligations by such individuals in subsequent years. The proceedings have been extended several times, most recently by an order of 30 November 2023 for an additional period of three months. Formally, the PFSA has not formulated the specific allegations underlying the proceedings. As at 31 December 2023, the Group had not set up a provision for these proceedings.

•      The PFSA is conducting proceedings to impose an administrative penalty on the Bank, which conducts brokerage activities through an organisationally separate unit - the Brokerage Office - in connection with a suspected failure to comply with its obligations in the area of anti-money laundering and terrorist financing (hereinafter: "AML"). The Bank responded to the PFSA's request for written explanations regarding the scale of benefits achieved or losses avoided by the Bank in connection with violations of the AML Act, losses incurred by third parties in connection with violations of the AML Act, possible administrative penalties imposed under the provisions of the AML Act. In addition, the PFSA forwarded to the Bank's attention a letter addressed to the General Inspectorate of Financial Information (GIIF) requesting information on the Bank's violations of the AML Act to date. On 29 December 2023, the PFSA communicated a notice that, due to the need for an in-depth analysis of the evidence collected, the administrative proceedings are scheduled to be completed by 29 February 2024. As at 31 December 2023, the Group had not set up a provision for these proceedings.

•      The PFSA is conducting proceedings to impose a monetary penalty on the Bank pursuant to Article 176i(1)(4) of the Act of 29 July 2005 on trading in financial instruments, in connection with the Bank's suspected breach of the management and control requirements set out in Article 16 of 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 (OJ L 2016 No 171, p. 1 as amended). By letter dated 19 January 2024, the PFSA informed that the administrative proceedings are expected to be completed in March 2024. As at 31 December 2023, the Group had not set up a provision for these proceedings.

•      Administrative proceedings, initiated ex officio by the Polish Financial Supervision Authority are pending against PKO TFI S.A (hereinafter: the Company) in respect of the imposition of an administrative penalty on PKO TFI S.A. under the provisions of the Act on counteracting money laundering and terrorist financing (hereinafter: the "Act"), in connection with the suspected failure to comply with the obligation set out in the Act by: (i) failure to properly apply financial security measures in the form of identification and verification of the customer when establishing economic relations via remote channels; (ii) failure to properly apply financial security measures in the form of identification and verification of the customer at the commencement of economic relations and failure to obtain data on the customer's country of birth; (iii) failure to properly apply financial security measures in the form of identifying the beneficial owner when establishing economic relations; failure to ensure that documents, data or information it holds relating to the business relationship are kept up to date; (iv) failure to apply enhanced financial security measures in cases of higher risk of money laundering or terrorist financing and in cases referred to in Articles 44 and 46 of the Act; (v) failure to introduce all necessary elements in the internal procedure of the obliged institution. By letter dated 20 April 2023, PKO TFI S.A. responded to the request from the PFSA. By notice of 29 December 2023, the PFSA announced that the proceedings had been further extended until 29 February 2024. As at 31 December 2023 the Group recognised a provision for these proceedings in the amount of PLN 2 million.

•        Claims for damages in respect of the interchange fee

The Bank was served eight summons to participate, as an outside intervener on the defendant’s side, in cases relating to the interchange fees. Other banks are defendants in the case and, in some cases, also card organisations. At present, the claims vis-à-vis the sued banks total PLN 898 million and are pursued as damages for differences in interchange fees resulting from applying practices that restrict competition. Since these proceedings are not pending against the Bank, their value was not included in the total value of the cases against the Bank.

If the courts find the claims justified, the defendants may claim recourse in separate court proceedings from other banks, including from PKO Bank Polski S.A. As at 31 December 2023, the Bank joined eight proceedings as an outside intervener. Four of these proceedings resulted in final judgments in favour of the defendants dismissing the plaintiffs' claims. In another proceedings there was a non-final judgment dismissing the plaintiffs' claims. The claims were dismissed as the statute of limitations was upheld.

•        Re-privatization claims relating to properties held by the Group

As at the date of the consolidated financial statements, there are:

•        two proceedings to which the Bank is a party. In one proceeding, the Bank filed a cassation appeal against an unfavourable final judgment dismissing the Bank's claims, which was accepted for consideration. The second proceeding, concerning the annulment of the decision refusing to grant the applicant temporary ownership of the Bank's property, is pending before the Supreme Administrative Court, as the other party has filed a cassation appeal.

•        three proceedings, two of which are suspended, to which the other Bank Group companies are parties. Two proceedings are at the administrative stage, one at the judicial and administrative stage.

The probability of serious claims arising against the Group as a result of the aforesaid proceedings is low.

48. Equity and shareholding structure of the Bank

Accounting policies:

Equity constitutes capital and reserves created in accordance with the legal regulations. The classification to particular components discussed below results from the Polish Commercial Companies Code, the Banking Law and the requirements of IAS 1.

Equity components of the subsidiaries other than share capital, in proportion to the parent’s interest in the subsidiary, are added to respective equity components of the parent. The Group’s equity includes only those parts of the equity of the subsidiaries which arose after the acquisition of shares by the parent. In accordance with the legislation in force in Poland, only the equity of the parent company and the equity of specific subsidiaries, determined on the basis of separate financial statements, are distributable.

Equity components:

•        • Share capital is the capital of the parent, stated at the nominal value in accordance with the Articles of Association and entry in the Register of Businesses.

•        Supplementary capital is created according to the Articles of Association of the Group entities, from annual write-offs from net profit, made until this capital reaches at least one third of the share capital and is intended to cover balance sheet losses that may arise in connection with the Bank’s operations. Supplementary capital may also be used for other purposes, in particular for increasing the share capital.

•        General banking risk fund at PKO Bank Polski S.A. is created from profit after tax in accordance with the Banking Law, and it is to cover unidentified risks of the Bank’s operations.

•        Other reserves are created from the appropriation of net profit. Other reserves are intended to cover any potential balance-sheet losses or for other purposes, in particular for the payment of dividends, interim dividends or the purchase of own shares for cancellation.

•        Non-controlling interests represent the part of capital in a subsidiary, which cannot be directly or indirectly assigned to the parent company.

•        Accumulated other comprehensive income includes the effects of the measurement of financial assets at fair value through other comprehensive income, allowances for expected credit losses on these assets, the effective portion of cash flow hedges and hedges of net investment in foreign operation in hedge accounting, insurance finance income and expenses, as well as actuarial gains and losses. Deferred tax on those items is recognized in other comprehensive income. Moreover, the item includes the share of the parent in the total other comprehensive income of associates and joint ventures and foreign exchange differences on translation to Polish currency of the net result of the foreign operation at an exchange rate constituting the arithmetic mean of the average foreign exchange rates as at the day ending each of the months in the financial year, as published by the National Bank of Poland.

financial information

•        Shareholding structure of the Bank

According to the information available as at 31 December 2023, the Bank’s shareholding structure is as follows:

ENTITY NAME

number of shares

% of votes

Nominal value of 1 share

Ownership interest (%)

As at 31 December 2023

 

 

 

 

State Treasury

367,918,980

29.43%

PLN 1

29.43%

Nationale Nederlanden Otwarty Fundusz Emerytalny1

115,594,152

9.25%

PLN 1

9.25%

Allianz Polska Otwarty Fundusz Emerytalny1

101,787,594

8.14%

PLN 1

8.14%

Other shareholders2

664,699,274

53.18%

PLN 1

53.18%

Total

1,250,000,000

100%

---

100%

As at 31 December 2022

 

 

 

 

State Treasury

367,918,980

29.43%

PLN 1

29.43%

Nationale Nederlanden Otwarty Fundusz Emerytalny1

108,266,112

8.66%

PLN 1

8.66%

Allianz Polska Otwarty Fundusz Emerytalny1

106,567,559

8.53%

PLN 1 

8.53%

Other shareholders2

667,247,349

53.38%

PLN 1 

53.38%

Total

1,250,000,000

100%

---

100%

1 Calculation of shareholdings as at the end of the year published by PTE in bi-annual and annual information about the structure of fund assets and quotation from the WSE Statistic Bulletin.

2  Including Bank Gospodarstwa Krajowego, which as at 31 December 2023 and 31 December 2022 held 24,487,297 shares carrying 1.96% of the votes at the GSM.

All shares of PKO Bank Polski S.A. carry the same rights and obligations. No shares are preference shares, in particular with respect to voting rights (one share carries one vote) or dividend. The Articles of Association of PKO Bank Polski S.A. limit the voting right of shareholders holding more than 10% of the total number of votes at the General Shareholders’ Meeting and prohibit these shareholders from exercising more than 10% of the total number of votes at the General Shareholders’ Meeting. The above restriction does not apply to:

•               those shareholders who on the date of passing the resolution of the General Shareholders’ Meeting introducing the limitation of the voting rights had rights from the shares representing more than 10% of the total number of votes in the Bank (i.e. the State Treasury and BGK);

•               shareholders who have rights from A-series registered shares (the State Treasury);

•               shareholders acting jointly with the shareholders referred to in the second bullet point based on agreements concluded concerning the joint execution of voting rights on shares. Moreover, limitations to the voting rights of the shareholders expire at the moment when the share of the State Treasury in the Bank’s share capital drops below 5%.

In accordance with § 6 (2) of the PKO Bank Polski S.A.’s Articles of Association, the conversion of A-series registered shares into bearer shares and the transfer of these shares requires the approval of the Council of Ministers in the form of a resolution. Conversion into bearer shares or transfer of A-series registered shares, after obtaining the aforementioned approval, results in the expiry of the aforementioned restrictions in respect of shares subject to conversion into bearer shares or transfer, to the extent to which this approval was given.

Pursuant to Art. 13 (1) (26) of the Act dated 16 December 2016 on the rules for managing the State property, the shares of PKO Bank Polski S.A. owned by the State Treasury may not be sold (excluding statutory exceptions).

The Bank’s shares are listed on the Warsaw Stock Exchange.

•        Structure of PKO Bank Polski S.A.’s share capital:

Series

Type of shares

Number of shares

Nominal value of 1 share

Nominal value of the series

A Series

ordinary registered shares

312,500,000

PLN 1

312,500,000

A Series

ordinary bearer shares

197,500,000

PLN 1

197,500,000

B Series

ordinary bearer shares

105,000,000

PLN 1

105,000,000

C Series

ordinary bearer shares

385,000,000

PLN 1

385,000,000

D Series

ordinary bearer shares

250,000,000

PLN 1 

250,000,000

Total

- - -

1,250,000,000

- - -

1,250,000,000

In 2023 and in 2022, there were no changes in the amount of the share capital of PKO Bank Polski S.A. Shares of PKO Bank Polski S.A. issued are not preference shares and are fully paid up.

FAIR VALUE OF FINANCIAL INSTRUMENTS

49. Fair value hierarchy

Accounting policies:

Depending on the classification of financial assets and liabilities to a specific level of the hierarchy, different methods of fair value measurement are used.

•        Level 1: Prices quoted on active markets

Financial assets and liabilities whose fair value is stated directly at prices quoted (not adjusted) on active markets for identical assets and liabilities. In this category, the Group classifies financial and equity instruments for which there is an active market and for which the fair value is determined with reference to the market value, which is a bid price:

•        debt securities valued using fixing from the Bondspot platform or Bloomberg or Reuters information services;

•        debt and equity securities which are traded on regulated markets, including in the Biuro Maklerskie PKO BP portfolio;

•        derivative instruments, which are traded on a regulated market.

•        Level 2: Valuation techniques based on observable market data

Financial assets and liabilities whose fair value is determined using valuation models where all significant entry data are observable on the market directly (as prices) or indirectly (based on prices). In this category, the Group classifies financial instruments for which there is no active market:

FINANCIAL ASSETS AND LIABILITIES MEASURED AT FAIR VALUE

VALUATION METHOD (TECHNIQUE)

OBSERVABLE INPUTS

CIRS, IRS, FRA

Discounted cash flow valuation model

Yield curves built on market data: money market rates, FRA, IRS, OIS, basis swap

 

FX FORWARDS AND FX SWAPS

Discounted cash flow valuation model

Yield curves built on market data: exchange rates, swap points, basis swaps

 

CURRENCY OPTIONS

Valuation models specific for particular type of a currency option.

Yield curves built on market data: exchange rates, swap points, basis swaps; volatility surfaces for relevant currency pairs

 

INTEREST RATE OPTIONS

Valuation model for the respective currency option type

Yield curves built on market data: money market rates, FRA, IRS, OIS, basis swap, caplet/floorlet volatility surfaces for relevant tenors

 

EQUITY OPTIONS

Valuation model for the respective equity option type

Yield curves built on market data: money market rates, FRA, IRS, OIS, basis swap; volatility surfaces determined using a local volatility model based on prices and volatilities of the relevant underlying instruments

 

COMMODITY SWAPS, COMMODITY FORWARDS

Discounted cash flow valuation model

Yield curves built on market data: money market rates, FRA, IRS, OIS, basis swap; forward curves for relevant commodities constructed based on futures prices and forward exchange rates (i.e. determined based on exchange rates, swap points)

 

COMMODITY OPTIONS

Valuation model for the respective commodity option type

Yield curves built on market data: money market rates, IRS; volatility surfaces for relevant commodities

 

EQUITY SWAPS

Discounted cash flow valuation model

Yield curves built on market data: money market rates, FRA, IRS, OIS, basis swap; forward curves for relevant underlying instruments based on futures prices

 

MUNICIPAL BONDS (IN PLN)

CORPORATE BONDS

Yield curve and risk margin model.

Yield curves are built based on market rates, money market data, IRS transactions market.

 

NBP money bills

Yield curve method

Yield curves built on money market and OIS transaction market data.

liabilities in respect of insurance products measured at fair value

The value of the liabilities is equal to the number of units accumulated in the individual insurance capital fund balance on the reporting date multiplied by the fund unit price on the valuation date

Number of fund units, unit price

 

•        Level 3: Other valuation techniques

Financial assets and liabilities whose fair value is determined using valuation models for which input data is not based on observable market data (unobservable input data). In this category, the Group classified financial instruments, which are valued using internal valuation models.

The fair value of equity and debt securities classified as financial assets is determined by the organizational units of the Head Office responsible for them, including the Treasury Products Department and the Brokerage Office. In their internal regulations, these units specify the detailed measurement methods, including determination of the data sources used for measurement purposes and the method of performing the calculation.

The Credit Risk Department develops the assumptions of the fair value model for financial assets arising from loans and advances granted or other financing agreements being the substitute of loans. The Assets and Liabilities Management Committee approves the fair value model for loan exposures.

 

FINANCIAL ASSETS AND LIABILITIES MEASURED AT FAIR VALUE

VALUATION METHOD (TECHNIQUE)

UNOBSERVABLE INPUT

FINANCIAL INSTRUMENTS NOT HELD FOR TRADING, MANDATORILY MEASURED AT FAIR VALUE THROUGH PROFIT OR LOSS

LOANS AND ADVANCES TO CUSTOMERS

Discounted cash flow method.

Effective margin on loans.

C-SERIES PREFERENCE SHARES OF VISA INC.

Estimation of the fair value based on the current market value of the listed ordinary shares of Visa Inc., including a discount which takes into account the limited liquidity of C-series shares and the terms and conditions of conversion of C-series shares into ordinary shares.

 

Discount taking into account the limited liquidity of C-series shares and the terms of converting the C-series shares into ordinary shares.

CORPORATE BONDS

Yield curve and risk margin model. Yield curves are built based on market rates, money market data and IRS transactions market data.

Credit spread (credit margins determined on the basis of initial margins modified by credit indices quotes ascribed to issuers based on their ratings and business sectors).

SHARES IN BIURO INFORMACJI KREDYTOWEJ S.A.

Estimation of the fair value based on the present value of projected results of the company

Projected results of the company. Discount rate.

SHARES IN POLSKI STANDARD PŁATNOŚCI SP. Z O.O.

Estimation of the fair value based on the present value of projected results of the company

Projected results of the company. Discount rate.

SHARES IN SOCIETY FOR WORLDWIDE INTERBANK FINANCIAL TELECOMMUNICATION

Market value of the shares estimated by the company.

Market value estimated by the company.

Discount rate.

SHARES IN KRAJOWA IZBA ROZLICZENIOWA SA

Estimation of the fair value based on the present value of projected results of the company

Projected results of the company. Discount rate.

SHARES IN WAŁBRZYSKA SPECJALNA STREFA EKONOMICZNA

“INVEST-PARK” SP Z O.O.

Fair value determined by an appraiser using the net adjusted assets method.

Value of the company’s net assets.

SHARES IN WIELKOPOLSKIA GILDIA ROLNO OGRODNICZA SA

Fair value determined by an appraiser using the net adjusted assets method.

Value of the company’s net assets.

FINANCIAL INSTRUMENTS MEASURED AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME

CORPORATE BONDS

Yield curve and risk margin model. Yield curves are built based on market rates, money market data and IRS transactions market data.

Credit spread (credit margins determined on the basis of initial margins modified by credit indices quotes ascribed to issuers based on their ratings and business sectors).

 

Financial information

ASSETS MEASURED AT FAIR VALUE 31.12.2023

Carrying amount

Level 1

Level 2

Level 3

Prices quoted on active markets

Valuation techniques based on observable market data

Other valuation techniques

Hedging derivatives

1,174

-

1,174

-

Other derivative instruments

8,406

2

8,404

-

Securities

110,278

99,964

9,652

662

held for trading

578

578

-

-

debt securities

546

546

-

-

shares in other entities - listed

30

30

-

-

participation units in investment funds, investment certificates, rights to shares, pre-emptive rights

2

2

-

-

not held for trading, measured at fair value through profit or loss

1,646

1,132

128

386

debt securities

592

526

20

46

shares in other entities - listed

124

124

-

-

shares in other entities - not listed

342

-

2

340

participation units in investment funds, investment certificates, rights to shares, pre-emptive rights

588

482

106

-

measured at fair value through other comprehensive income

108,054

98,254

9,524

276

   debt securities

108,054

98,254

9,524

276

Loans and advances to customers

2,871

-

-

2,871

not held for trading, measured at fair value through profit or loss

2,871

-

-

2,871

housing loans

1

-

-

1

business loans

81

-

-

81

consumer loans

2,789

-

-

2,789

Total financial assets measured at fair value

122,729

99,966

19,230

3,533

 

LIABILITIES MEASURED AT FAIR VALUE

Carrying amount

Level 1

Level 2

Level 3

31.12.2023

Prices quoted on active markets

Valuation techniques based on observable market data

Other valuation techniques

Hedging derivatives

2,992

-

2,992

-

Other derivative instruments

9,291

-

9,291

-

Liabilities in respect of a short position in securities

302

302

-

-

Liabilities in respect of insurance products

165

-

165

-

Total financial liabilities measured at fair value

12,750

302

12,448

-

 

ASSETS MEASURED AT FAIR VALUE 31.12.2022

Carrying amount

Level 1

Level 2

Level 3

Prices quoted on active markets

Valuation techniques based on observable market data

Other valuation techniques

Hedging derivatives

1,042

-

1,042

-

Other derivative instruments

13,162

1

13,161

-

Securities

67,106

52,864

13,198

1,044

held for trading

193

193

-

-

debt securities

164

164

-

-

shares in other entities - listed

27

27

-

-

participation units in investment funds, investment certificates, rights to shares, pre-emptive rights

2

2

-

-

not held for trading, measured at fair value through profit or loss

1,702

1,180

120

402

debt securities

578

511

22

45

shares in other entities - listed

115

115

-

-

shares in other entities - not listed

358

-

1

357

participation units in investment funds, investment certificates, rights to shares, pre-emptive rights

651

554

97

-

measured at fair value through other comprehensive income

65,211

51,491

13,078

642

  debt securities

65,211

51,491

13,078

642

Loans and advances to customers

3,590

-

-

3,590

not held for trading, measured at fair value through profit or loss

3,590

-

-

3,590

housing loans

4

-

-

4

business loans

85

-

-

85

consumer loans

3,501

-

-

3,501

Total financial assets measured at fair value

84,900

52,865

27,401

4,634

 

LIABILITIES MEASURED AT FAIR VALUE

Carrying amount

Level 1

Level 2

Level 3

31.12.2022

Prices quoted on active markets

Valuation techniques based on observable market data

Other valuation techniques

Hedging derivatives

7,469

-

7,469

-

Other derivative instruments

12,978

-

12,978

-

Liabilities in respect of a short position in securities

7

7

-

-

Liabilities in respect of insurance products

149

-

149

-

Total financial liabilities measured at fair value

20,603

7

20,596

-

 

IMPACT OF ESTIMATES ON FAIR VALUE MEASUREMENT OF LEVEL 3 FINANCIAL INSTRUMENTS

31.12.2023

31.12.2022

Fair value in

Fair value in

positive scenario

negative scenario

positive scenario

negative scenario

Shares in Visa Inc.1

86

77

145

133

Other equity investments2

238

215

189

171

Corporate bonds3

326

325

681

679

Loans and advances to customers4

2,727

3,015

3,770

3,410

1 scenario assuming a discount rate in respect of the future conditions of converting C-series shares to ordinary shares at a level of 0%/100% respectively

2 Scenario assuming a change in the discount rate of +/- 5%

3 scenario assuming a change in the credit spread of +/-10%

4 scenario assuming a change in the company’s value of +/- 0.5p.p.

 

RECONCILIATION OF CHANGES DURING THE REPORTING PERIOD TO FAIR VALUE AT LEVEL 3

2023

2022

Opening balance at the beginning of the period

4,634

5,711

Increase in exposure to equity instruments

62

25

Decrease in exposure to equity instruments

(81)

(3)

Increase in exposure to corporate bonds

-

9

Decrease in exposure to corporate bonds