Financial statements of PKO Bank Polski S.A. for the year ended 31 December 2020

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

SELECTED FINANCIAL DATA DERIVED FROM THE FINANCIAL STATEMENTS

SELECTED FINANCIAL DATA

PLN million

 

EUR million

 

2020

2019

2020

2019

Net interest income/(expense)

9 184

9 290

2 053

2 157

Net fee and commission income

3 101

2 828

693

574

Profit/(loss) before tax

(2 266)

5 118

(506)

1 190

Net profit/(loss)

(2 944)

3 835

(658)

891

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

(2,36)

3,07

(0,53)

0,71

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

(2,36)

3,07

(0,53)

0,71

Total net comprehensive income

(1 835)

3 826

(410)

889

Total net cash flows

(8 867)

(12 031)

(1 982)

(2 797)

 

 

 

 

 

SELECTED FINANCIAL DATA

PLN million

 

EUR million

 

31.12.2020

31.12.2019

31.12.2020

31.12.2019

Total assets

345 027

316 978

74 765

74 434

Total equity

38 577

40 412

8 359

9 490

Share capital

1 250

1 250

271

294

Number of shares (in million)

1 250

1 250

1 250

1 250

Book value per share (in PLN/EUR)

30,86

32,33

6,69

7,59

Diluted number of shares (in million)

1 250

1 250

1 250

1 250

Diluted book value per share (in PLN/EUR)

30,86

32,33

6,69

7,59

Total capital adequacy ratio

19,78%

22,21%

19,78%

22,21%

Tier 1

37 564

38 606

8 140

9 066

Tier 2

2 700

2 700

585

634

 

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

from 01.01.2020

to 31.12.2020

from 01.01.2019

to 31.12.2019

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

4,4742

4,3018

 

31.12.2020

31.12.2019

NBP mid exchange rates at the date indicated

(statement of financial position items)

4,6148

4,2585

 

TABLE OF CONTENTS

INCOME STATEMENT

STATEMENT OF COMPREHENSIVE INCOME

STATEMENT OF FINANCIAL POSITION

CASH FLOW STATEMENT

General information about the bank

1. business activities of the bank

2. Changes to companies comprising the Group

3. Information on members of the Supervisory and Management Boards

4. Approval of the financial statements

5. Impact of the COVID-19 pandemic on the Bank’s operations

Accounting policies adopted to prepare the financial statements

6. Basis of preparation of the financial statements

7. Statement of compliance

8. Going concern

9. Management Representation

10. New standards and interpretations and their amendments

11. Description of significant accounting policies

11.1. currency, presentation currency and foreign currencies

11.2. Accounting for transactions

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. Changes in the accounting policies applicable from 1 January 2020 and Explanation of the differences between previously published financial statements and these financial statements

NOTES TO THE FINANCIAL STATEMENTS

13. Interest income and expense

14. Fee and commission income and expenses

15. Dividend income

16. Gains/(losses) on financial transactions

17. foreign exchange gains/(losses)

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

19. Other operating income and expenses

20. Net expected credit losses

21. net Impairment of non-financial assets

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

23. Administrative expenses

24. Tax on certain financial institutions

25. Income tax expense

26. Cash and balances with the Central Bank

27. Amounts due from banks

28. Hedge accounting

30. Securities

30.1. securities financial assets by stage

30.2. securities -  Changes in the gross carrying amount during the period

30.3. securities - Changes in allowances for expected credit losses in the period

31. Repo and reverse repo transactions

32. Loans and advances to customers

32.1          Loans and advances to customers - financial assets by stage

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

32.3         Changes in allowances for expected credit losses in the period

33. Intangible assets, property, plant and equipment

33.1. property, plant and equipment

33.2. intangible assets

34. Assets held for sale

35. Investments in subsidiaries, associates and joint ventures

36. other assets

37. Amounts due to the Central Bank and banks

38. Amounts due to customers

39. Financing received

39.1 Loans and advances received

39.2 debt securities in issue

39.3 subordinated liabilities

40. Other liabilities

41. Provisions

42. Equity and shareholding structure of the Bank

43. Dividend and profit appropriation

44. Leases

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

46. legal claims

47. Notes to the cash flow statement

48. Transactions with the State Treasury and related parties

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

50. Fair value hierarchy

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

52. Offsetting financial assets and financial liabilities

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

54. Financial assets and liabilities by currency

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

56. Current and non-current assets and liabilities

OBJECTIVES AND PRINCIPLES OF RISK MANAGEMENT

57. Risk management in the Bank

58. Specific risk management measures undertaken by the Bank in 2020

59. Credit risk management

60. Credit risk – financial information

61. Managing credit concentration risk in the Bank

62. Collateral

63. Forbearance practices

64. Exposure to the counterparty credit risk

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

66. Interest rate risk management

67. Currency risk management

68. Liquidity risk management

69. Capital adequacy

70. Leverage ratio

71. Information on package sale of receivables

OTHER NOTES

72. Fiduciary activities

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

74. Subsequent events

INCOME STATEMENT

RACHUNEK ZYSKÓW I STRAT

Note

2020

2019

converted

Net interest income/(expense)

13

9 184

9 290

 Interest income

 

10 332

11 235

 of which calculated under the effective interest rate method

 

8 934

9 713

 Interest expenses

 

(1 148)

(1 945)

Net fee and commission income

14 

3 101

2 828

Fee and commission income

 

4 099

3 900

Fee and commission expense

 

(998)

(1 072)

Other net income

 

433

668

Dividend income

15

332

561

Gains/(losses) on financial transactions

16

(106)

186

 of which due to impact of macroeconomic variables on the loan portfolio

 

(48)

-

Foreign exchange gains/ (losses)

17

133

106

Gains/(losses) on derecognition of financial instruments

18

162

143

 of which measured at amortized cost

 

(24)

(12)

Net other operating income and expense

 19

(88)

(328)

Result on business activities

 

12 718

12 786

Net expected credit losses

20

(1 939)

(1 009)

 of which due to impact of macroeconomic variables on the loan portfolio

 

(1 076)

-

Impairment of non-financial assets

21

(356)

(40)

Cost of the legal risk of mortgage loans in convertible currencies

22

(6 552)

(451)

Administrative expenses

23

(5 180)

(5 237)

 of which net regulatory charges

 

(730)

(492)

Tax on certain financial institutions

24

(957)

(931)

Profit/(loss) before tax

 

(2 266)

5 118

Income tax expense

25

(678)

(1 283)

Net profit/(loss)

 

(2 944)

3 835

 

 

 

 

Earnings per share

 

 

 

– basic earnings per share for the period (PLN)

 

(2,36)

3,07

– diluted earnings per share for the period (PLN)

 

(2,36)

3,07

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

 

1 250

1 250

*In 2020 and in 2019 there were no instruments diluting earnings per share. Therefore, the value of diluted aernings  per share corresponds with the value of basic earnings per share fot the periods.

 

STATEMENT OF COMPREHENSIVE INCOME

STATEMENT OF COMPREHENSIVE INCOME

Note

2020

2019

Net profit/(loss)

 

(2 944)

3 835

 Other comprehensive income

 

1 109

(9)

 Items which may be reclassified to profit or loss

 

1 114

(4)

    Cash flow hedges (net)

 

224

113

    Cash flow hedges (gross)

28

276

139

    Deferred income tax

25,28

(52)

(26)

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

 

890

(117)

Remeasurement of financial assets measured at fair value through other comprehensive income (gross)

 

1 283

12

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

 

(186)

(155)

   Deferred income tax

25

(207)

26

Items which cannot be reclassified to profit or loss

 

(5)

(5)

     Actuarial gains and losses (net)

 

(5)

(5)

    Actuarial gains and losses (gross)

 

(6)

(7)

    Deferred income tax

25

1

2

 

 

 

 

Total net comprehensive income

 

(1 835)

3 826

 

 

STATEMENT OF FINANCIAL POSITION

 

Note

31.12.2020

31.12.2019

restated

01.01.2019

restated*

ASSETS

 

345 027

316 978

301 187

Cash and balances with Central Bank

26

7 397

14 602

22 862

Amounts due from banks

27

5 304

7 953

11 213

Hedging derivatives

28

618

594

592

Other derivative instruments

29

5 416

2 798

1 909

Securities

30

119 973

76 422

60 439

Reverse repo transactions

31

-

1 081

51

Loans and advances to customers

32

193 063

200 867

191 524

Property, plant and equipment

33.1

2 737

2 738

2 860

Non-current assets held for sale

34

124

9

8

Intangible assets

33.2

2 737

2 606

2 595

Investments in subsidiaries

35

3 612

3 650

3 304

Investments in associates and joint ventures

35

257

344

284

Deferred income tax assets

25

1 806

1 290

1 232

Other assets

36

1 983

2 024

2 314

 

 

 

 

31.12.2020

31.12.2019

restated

01.01.2019

restated *

LIABILITIES AND EQUITY

 

345 027

316 978

301 187

Liabilities

 

306 450

276 566

262 938

Amounts due to the Central Bank

37

-

-

7

Amounts due to banks

37

2 583

1 976

1 591

Hedging derivatives

28

543

668

560

Other derivative instruments

29

6 632

2 927

2 657

Repo transactions

31

47

46

45

Amounts due to customers

38

278 894

252 943

236 329

Loans and advances received

39

4 906

5 026

8 839

Debt securities in issue

39

4 020

4 769

5 367

Subordinated liabilities

39

2 716

2 730

2 731

Other liabilities

40

4 464

4 517

3 989

Current income tax liabilities

 

178

311

297

- of the Bank

 

166

282

297

- of the subsidiaries belonging to the Tax Group

 

12

29

-

Provisions

41

1 467

653

526

 

 

   '

   '

 

EQUITY

 

38 577

40 412

38 249

Share capital

 

1 250

1 250

1 250

Other capital

 

34 771

33 771

34 310

Retained earnings

 

5 500

1 556

(646)

Net profit or loss for the year

 

(2 944)

3 835

3 335

* taking into account the implementation of IFRS 16

 

 

 

STATEMENT OF CHANGES IN EQUITY

FOR THE PERIOD ENDED 31 December 2020

Share capital

Other capital

Retained earnings

Net profit or loss for the year

Total equity

Reserves

 Accumulated other comprehensive income

Total other capital and reserves

Supplementary capital

General banking risk fund

Other reserves

As at the beginning of the period

1 250

29 168

1 070

3 099

434

33 771

1 556

3 835

40 412

Transfer from retained earnings

-

-

-

-

-

-

3 835

(3 835)

-

Dividend

-

-

-

-

-

-

-

-

-

Comprehensive income

-

-

-

-

1 109

1 109

-

(2 944)

(1 835)

Covering of prior year loss1

-

-

-

(111)

-

(111)

111

-

-

Transfer from retained earnings to other reserves

-

-

-

2

-

2

(2)

-

-

As at the end of the period

1 250

29 168

1 070

2 990

1 543

34 771

5 500

(2 944)

38 577

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

 

 

FOR THE PERIOD ENDED 31 December 2019

Share capital

Other capital

Retained earnings

Net profit or loss for the year

Total equity

Reserves

Accumulated other comprehensive income

Total other capital and reserves

Supplementary capital

General banking risk fund

Other reserves

As at the beginning of the period

1 250

29 168

1 070

3 629

443

34 310

(535)

3 335

38 360

Changes in the accounting policies

-

-

-

-

-

-

(111)

-

(111)

As at the beginning of the period, after policy changes

1 250

29 168

1 070

3 629

443

34 310

(646)

3 335

38 249

Transfer from retained earnings

-

-

-

-

-

-

3 335

(3 335)

-

Dividend

-

-

-

-

-

-

(1 663)

-

(1 663)

Comprehensive income

-

-

-

-

(9)

(9)

 

3 835

3 826

Covering of prior year loss1

-

-

-

(535)

-

(535)

535

-

-

Transfer from retained earnings to other reserve

-

-

-

5

-

5

(5)

-

-

As at the end of the period

1 250

29 168

1 070

3 099

434

33 771

1 556

3 835

40 412

1 The item includes i.a. an offset of prior years’ losses of PLN 535 million that arose as a result of the changes in accounting policies resulting from the first-time application of IFRS 9.

 

FOR THE YEAR ENDED 31 December 2020

Accumulated other comprehensive income

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

Cash flow hedges

Actuarial gains and losses

Total

As at the beginning of the period

354

95

(15)

434

Total comprehensive income

890

224

(5)

1 109

As at the end of the period

1 244

319

(20)

1 543

 

FOR THE YEAR ENDED 31 December 2019

Accumulated other comprehensive income

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

Cash flow hedges

Actuarial gains and losses

Total

As at the beginning of the period

471

(18)

(10)

443

Total comprehensive income

(117)

113

(5)

(9)

As at the end of the period

354

95

(15)

434

 

CASH FLOW STATEMENT

 

Note

2020

2019

converted

Cash flows from operating activities

 

 

 

Profit/(loss) before tax

 

(2 266)

5 118

Income tax paid

 

(1 567)

(1 354)

Total adjustments:

 

34 354

2 455

Depreciation and amortization

 23

853

820

(Gains)/losses on investing activities

 47

(15)

(14)

Interest and dividends

 47

(1 792)

(1 537)

Change in:

 

 

 

amounts due from banks

 47

968

(513)

hedging derivatives

 

(149)

106

other derivative instruments

 

1 087

(619)

securities

 47

(2 364)

(2 191)

loans and advances to customers

 47

6 469

(8 273)

receivables in respect of repurchase agreements

 47

1 081

(1 030)

non-current assets held for sale

 47

(117)

(2)

other assets

 

(50)

189

accumulated allowances for expected credit losses

 47

1 798

(1 041)

accumulated allowances on non-financial assets and other provisions

 47

755

98

amounts due to banks

 47

607

378

amounts due to customers

 47

25 951

16 614

repo transactions

 

1

1

loan and advances received

 47

11

(50)

liabilities in respect of debt securities in issue

 47

380

21

subordinated liabilities

 47

(14)

(1)

other liabilities

 47

163

729

Other adjustments

 47

298

124

Net cash from/used in operating activities

 

32 088

7 573

 

 

Note

2020

2019

converted

Cash flows from investing activities

 

 

 

Inflows from investing activities

 

63 964

216 142

Proceeds from sale of and interest on securities measured at fair value through other comprehensive income

 

61 734

207 620

Proceeds from sale of and interest on securities measured at amortized cost

 

1 865

7 936

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

 

54

61

Other inflows from investing activities (dividends)

47 

311

525

Outflows from investing activities

 

(103 116)

(229 112)

Increase in equity of an associate

 

(5)

(306)

Purchase of securities measured at fair value through other comprehensive income

 

(67 169)

(215 678)

Purchase of securities measured at amortized cost

 

(34 741)

(12 378)

Purchase of intangible assets and property, plant and equipment

 

(1 201)

(750)

Net cash from/used in investing activities

 

(39 152)

(12 970)

 

 

Nota

2020

2019

dane przekształcone

Przepływy środków pieniężnych z działalności finansowej

 

 

 

Proceeds from debt securities in issue

 

-

596

Redemption of debt securities

 47

(1 129)

(1 215)

Repayment of loans and advances

47

(131)

(3 763)

Dividend paid to shareholders

 

-

(1 663)

Payment of lease liabilities

 47

(216)

(202)

Repayment of interest on long-term liabilities

 47

(327)

(387)

Net cash from financing activities

 

(1 803)

(6 634)

Total net cash flows

 

(8 867)

(12 031)

of which foreign exchange differences on cash and cash equivalents

 

134

(8)

Cash equivalents at the beginning of the period

 

17 993

30 024

Cash equivalents at the end of the period

 

9 126

17 993

 

General information about the bank

1.   business activities of the bank

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

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

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

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

As at 31 December 2020, organizational entities comprising the Bank, through which the Bank conducts its operations, include: the Bank’s head office in Warsaw, Biuro Maklerskie PKO Banku Polskiego S.A. (the Brokerage House), 12 specialist organizational entities, 11 regional retail branches, 7 regional corporate branches, 33 corporate centres and 1 062 branches. The Bank also conducts operating activities in the form of a branch in the Federal Republic of Germany (the German Branch), the Czech Republic (the Czech Branch) and Slovakia (the Slovak Branch).

PKO Bank Polski S.A. is the parent entity of the PKO Bank Polski S.A. Group and a significant investor for associates and joint ventures of the Bank. Accordingly, PKO Bank Polski S.A. prepares consolidated financial statements of the Group, which include the financial data of these entities.

 

 

 

   

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

 

No.

ENTITY NAME

REGISTERED OFFICE

ACTIVITY

% SHARE IN CAPITAL

 

DIRECT SUBSIDIARIES

31.12.2020

31.12.2019

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 IT specialist outsourcing

100

100

6

PKO Życie Towarzystwo Ubezpieczeń S.A.

Warsaw

life insurance

100

100

7

PKO Towarzystwo Ubezpieczeń S.A.

Warsaw

other personal insurance and property insurance

100

100

8

PKO Finance AB

Stockholm, Sweden

financial services

100

100

9

KREDOBANK S.A.

Lviv, Ukraine

banking activities

100

100

10

Merkury - fiz an1

Warsaw

investing funds collected from fund participants

100

100

11

NEPTUN - fizan1

Warsaw

100

100

12

PKO VC - fizan1

Warsaw

100

100

 

ZenCard sp. z o.o.2

Warsaw

IT services and products to support trade and services

-

100

 

1) PKO Bank Polski S.A. has investment certificates of the Fund; the share in the Fund’s investment certificates of the Fund is presented in the item “Share in equity”.

2) On 31 July 2020 ZenCard sp. z o.o., as the target company, was combined with and PKO Finat sp. z o.o. as the acquiring company.

 

 

No.

ENTITY NAME

REGISTERED OFFICE

ACTIVITY

% SHARE IN CAPITAL*

 

INDIRECT SUBSIDIARIES

31.12.2020

31.12.2019

 

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

leasing and sales 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

actoring

100

100

5

ROOF Poland Leasing 2014 DAC1

Dublin, Ireland

SPV established for securitization of lease receivables

-

-

6

Polish Lease Prime 1 DAC1

Dublin, Ireland

-

-

 

PKO Leasing Nieruchomości sp. z o.o.2

Warsaw

leasing

-

100

 

PKO Życie Towarzystwo Ubezpieczeń S.A. GROUP

 

 

 

 

7

Ubezpieczeniowe Usługi Finansowe sp. z o.o.

Warsaw

services

100

100

 

KREDOBANK S.A. GROUP

 

 

 

 

8

Finansowa Kompania „Idea Kapitał” sp. z o.o.

Lviv, Ukraine

services

100

100

 

Merkury - fiz an

 

 

 

 

9

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

Warsaw

property management

100

100

10

Molina sp. z o.o.

Warsaw

general partner in partnerships limited by shares of a fund

100

100

11

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

Warsaw

buying and selling real estate on own account, property management

100

100

12

Molina spółka z ograniczoną odpowiedzialnością 2 S.K.A.

Warsaw

100

100

13

Molina spółka z ograniczoną odpowiedzialnością 4 S.K.A.

Warsaw

100

100

14

Molina spółka z ograniczoną odpowiedzialnością 5 S.K.A. w likwidacji3

Warszawa

100

100

15

Molina spółka z ograniczoną odpowiedzialnością 6 S.K.A. w likwidacji3

Warszawa

100

100

 

Molina spółka z ograniczoną odpowiedzialnością 3 S.K.A. w likwidacji4

Warszawa

-

100

 

NEPTUN - fizan

 

 

 

 

16

Qualia sp. z o.o.

Warszawa

sale services in respect of developer products

100

100

17

Sarnia Dolina sp. z o.o.

Warszawa

development activities

100

100

18

Bankowe Towarzystwo Kapitałowe S.A.

Warszawa

services

100

100

 

18.1 „Inter-Risk Ukraina" spółka z dodatkową odpowiedzialnością5

Kijów, Ukraina

debt collection

99,90

99,90

 

18.2 Finansowa Kompania „Prywatne Inwestycje” sp. z o.o.6

Kijów, Ukraina

financial services

95,4676

95,4676

19

„CENTRUM HAFFNERA" sp. z o.o.

Sopot

subsidiary management

72,9766

72,9766

 

19.1 „Sopot Zdrój" sp. z o.o.

Sopot

property management

100

100

 

*            share in equity of the direct parent   

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)  On 28 February 2020, PKO Leasing Nieruchomości sp. z o.o., as the acquire, was combined with and PKO Leasing S.A. as the acquirer.

3)  On 1 September 2020, the company was put into liquidation.

4)  On 18 June 2020, the company’s liquidation was completed, the company was deleted from the National Court Register.

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

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

 

 

The Bank holds the following associates and joint ventures:

No.

ENTITY NAME

REGISTERED OFFICE

ACTIVITY

% SHARE IN CAPITAL*

 

31.12.2020

31.12.2019

 

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.1

Stalowa Wola

managing marketing consents

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

 

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

1)  A joint venture of PKO VC - fizan since 18 March 2020

 

2.   Changes to companies comprising the Group 

In 2020, there were no significant changes in the structure of the Group.

There were business combinations of PKO Leasing Nieruchomości sp. z o.o. (as the acquiree) with PKO Leasing S.A. (as the acquirer) and ZenCard sp. z o.o. (as the acquiree) z PKO BP Finat sp. z o.o. (as the acquirer).

The liquidation of Molina spółka z ograniczoną odpowiedzialnością 3 S.K.A. was completed and companies Molina spółka z ograniczoną odpowiedzialnością 5 S.K.A. and Molina spółka z ograniczoną odpowiedzialnością 6 S.K.A. were put into liquidation.

At the beginning of 2020, due to the closure of securitization of PKO Leasing S.A.’s lease receivables conducted in cooperation with a special purpose vehicle (SPV) ROOF Poland Leasing 2014 DAC, operating activities relating to the liquidation of the SPV were commenced by  PKO Leasing S.A.

Work was conducted on a reverse acquisition of “CENTRUM HAFFNERA” sp. z o.o. as the acquiree and its subsidiary “Sopot Zdrój” sp. z o.o. as the acquirer. The reverse acquisition occurred on 14 January 2021 with the change being entered in the National Court Register with jurisdiction over the acquirer. After the combination, NEPTUN - fizan holds 62 944 shares in “Sopot Zdrój” sp. z o.o., with a total nominal value of PLN 31 472 thousand, representing 72.98% of the company’s share capital and giving rights to 72.98% of votes at the Shareholders’ Meeting.

3.   Information on members of the Supervisory and Management Boards

As at 31 December 2020, the Bank’s Supervisory Board consisted of:

        Zbigniew Hajłasz - Chair of the Supervisory Board

        Marcin Izdebski – Vice-Chair of the Supervisory Board

        Grażyna Ciurzyńska - Deputy Chair of the Supervisory Board

        Mariusz Andrzejewski - Member of the Supervisory Board

        Grzegorz Chłopek - Member of the Supervisory Board

        Wojciech Jasiński - Member of the Supervisory Board

        Andrzej Kisielewicz - Member of the Supervisory Board

        Rafał Kos - Member of the Supervisory Board

        Krzysztof Michalski - Member of the Supervisory Board

        Piotr Sadownik - Member of the Supervisory Board

As at 31 December 2020, the Bank’s Management Board consisted of:

        Zbigniew Jagiełło - President of the Management Board

        Rafał Antczak – Vice-President of the Management Board

        Rafał Kozłowski – Vice-President of the Management Board

        Maks Kraczkowski – Vice-President of the Management Board

        Mieczysław Król – Vice-President of the Management Board

        Adam Marciniak – Vice-President of the Management Board

        Piotr Mazur – Vice-President of the Management Board

        Jakub Papierski – Vice-President of the Management Board

        Jan Emeryk Rościszewski – Vice-President of the Management Board.

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

4.   Approval of the financial statements

These financial statements of the Bank (the financial statements), subject to review by the Audit Committee and adoption by the Supervisory Board of the Bank on 28 April 2021, were approved for publication by the Management Board on 28 April 2021.

5.   Impact of the COVID-19 pandemic on the Bank’s operations

The impact of the COVID-19 pandemic on the operations of the Bank and the banking sector and measures adopted by the Bank to ensure the safety of its Customers and employees and business process continuity are described in detail in the PKO Bank Polski S.A. Group Directors’ Report for 2020.

The impact of the COVID-19 pandemic on the Bank’s financial position and measures adopted for the benefit of the Bank’s customers are described below and in selected notes to the financial statements.

        Impact on estimates and assumptions

The COVID-19 pandemic increased the level of uncertainty. Its consequences for the global economy and measures adopted by governments and regulators affect and may affect the Bank’s financial results and position, including, among others, on the expected credit losses or goodwill recognized. All adverse effects which could have been reasonably estimated have been recognized in 2020. The Bank is monitoring the development on an ongoing basis and takes them into account in the current period.

        Moratoria and public guarantees – modifications and the quality of the loan portfolio

In order to mitigate the economic effects of the spread of the COVID-19 pandemic, the Bank introduced a number of corrective measures for retail customers, companies, enterprises, corporate customers and local authority units aimed at mitigating the economic effects of the spread of COVID-19:

        credit moratoria, including those  in accordance with the European Banking Authority guidelines;

        granting loans and advances covered by public guarantee initiatives in the context of crisis associated with COVID-19.

 

A detailed description of the moratoria offered to the Bank’s Customers and the public guarantee initiatives is included in the Note “Specific risk management measures adopted by the Bank in 2020”, and in the “PKO Bank Polski S.A. Group Directors’ Report for 2020”.

 

Offering borrowers, at their request, the possibility of suspending or postponing the repayment of loan instalments for a maximum of 6 months is the common element of all these measures. Given the fact that these relief measures contributed to the modification of contractual cash flows from contracts with customers, the Bank performed an assessment of individual contracts from the perspective of compliance with quantitative and qualitative criteria in order to determine whether a modification was significant (derecognition) or insignificant. The assessment was conducted in accordance with a policy described in the Note “Description of significant accounting policies”, “Modifications – Changes in contractual cash flows”. The analysis showed that none of the criteria of a significant modification were met. Changes in contractual cash flows as a result of the relief measures offered were insignificant modifications whose impact was recognized by the Bank as a decrease in interest income.

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

 

The qualitative and quantitative impact of COVID-19 on the quality of the loan portfolio, including the estimated credit losses, is presented in the Note “Credit risk – financial information”. The impact of COVID-19 on the deterioration of the portfolio of loans measured at fair value through profit or loss was recognized in “Net income from financial instruments designated at fair value through profit or loss”, and on the portfolio of loans measured at amortized cost and at fair value through OCI – in “Allowances for expected credit losses”. 

 

 

        Goodwill and investment in subsidiaries, associates and joint ventures – impairment test

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

Given the fact that the COVID-19 pandemic has an adverse effect on the economic environment, the Bank conducted an impairment test of goodwill on Nordea Bank Polska S.A. The results of the impairment test are described in detail in the Note “Intangible assets and property, plant and equipment”.

The COVID-19 pandemic affected also the results of an impairment test of shares in Bank Pocztowy (for further information, see the  note “Investments in subsidiaries, associates and joint ventures”.

        Capital adequacy

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

 

Accounting policies adopted to prepare the financial statements

6.   Basis of preparation of the financial statements

The financial statements cover the year ended 31 December 2020 and include comparative data for the year ended 31 December 2019 and additionally the statement of financial position as at 1 January 2019. The financial data is presented in Polish zloty (PLN) in millions, 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 disclosed in amortized cost less allowances for expected credit losses. However the remaining financial liabilities are disclosed at amortized cost. Non-current assets are measured at acquisition cost less accumulated depreciation and impairment charges. Non-current assets (or groups of such assets) classified as held for sale are measured at the lower of their carrying amount and fair value less costs to sell.

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

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

 

7.   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 2020, 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 an official stock market.

 

 

 

8.   Going concern

The financial statements have been prepared on the basis of the assumption that the Bank will continue as a going concern for a period of at least 12 months from the publication date, i.e. from 29 April 2021. As at the date of signing these financial statements, the Bank’s Management Board is not aware of any facts or circumstances that would indicate a threat to the Bank’s ability to continue in operation as a going concern for 12 months following the publication date as a result of any intended or compulsory discontinuation or significant limitation of the Bank’s existing operations.

9.   Management Representation

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

10.            New standards and interpretations and their amendments

           Standards and interpretations and their amendments effective from 2020

Standards and interpretations*

Description of changes and impact

Amendments to References to the Conceptual Framework in IFRS

(1.01.2020/29.11.2019)

The purpose of the amendments is to replace references to the previous conceptual framework in a number of standards and interpretations with references to the amended Conceptual Framework.

Implementation of the Conceptual Framework had no effect on the financial statements

Amendments to IAS 1 and IAS 8: Definition of the term ‘material’ (1.01.2020/29.11.2019)

The amendments standardize and clarify the definition of ‘material’ and contain guidelines to increase the consistency of application of this concept in the IFRS.

The Bank makes assessments of the materiality of disclosures in accordance with the requirements of IAS 1 on an ongoing basis, and based on these assessments, makes appropriate changes in the presentation of data in the financial statements.

Amendments to IFRS 9, IAS 39 and IFRS 7 – IBOR reform (1.01.2020/ 15.01.2020)

The amendments introduce certain temporary, narrow departures from the requirements of prospective verification of the effectiveness of hedging relations set out in IAS 39 and IFRS 9. The amendments allow prospective testing of hedging relationships without taking into account the effects of the future implementation of the IBOR reform.

The Bank took amendments into account in the prospective testing of hedging relationships.

As part of the established hedging relationships, the Bank identifies the following interest rate reference ratios: WIBOR, EURIBOR, LIBOR CHF, LIBOR USD. As at the reporting date, these benchmarks are quoted daily and are available for use and the resulting cash flows are normally exchanged with counterparties.

In the case of WIBOR and EURIBOR, the Bank does not currently identify uncertainty regarding the timing or amounts of cash flows resulting from the IBOR reform. For LIBOR CHF and LIBOR USD, the established hedging relationships exceed the announced discontinuation dates for both ratios, i.e. December 31, 2021 for CHF LIBOR and June 20, 2023 for USD LIBOR. The bank expects that these ratios will be replaced by new benchmarks: CHF LIBOR by SARON and USD LIBOR by SOFR.

List of hedging relationships and the nominal amounts of their designated hedging instruments that may be affected by the IBOR reform:

        Cash flow hedging:

IRS CHF (CHF 400 million based on LIBOR CHF) - Hedging the volatility of cash flows of loans in convertible currencies other than EUR with variable interest, resulting from the risk of changes in interest rates, using IRS transactions;

CIRS CHF/PLN (CHF 525 million based on CHF LIBOR) - Hedging volatility of cash flows of floating-rate loans in CHF, resulting from the risk of changes in interest rates and currency risk, and hedging of volatility of cash flows of term deposits negotiated in PLN / bank products for regular savings in PLN resulting from the risk of changes in interest rates, using CIRS transactions;

          Fair value hedge:

IRS USD (USD 158 million based on USD LIBOR) - Hedge of fair value volatility of a fixed-rate convertible currency, measured at fair value through other comprehensive income, resulting from the risk of changes in interest rates, using IRS transactions.

Amendments to IFRS 3 Business combinations

(1.01.2020/

21.04.2020)

The amendments narrow down and clarify the definition of a venture. They also allow for a simplified assessment of whether a set of assets and activities is a group of assets and not a venture. A prospective approach will apply to these amendments.

The Bank will apply these amendments, if relevant,

Amendment to IFRS 16 “Leases” (1.06.2020/9.10.2020)

The amendments allow lessees not to account for rent concessions as lease modifications if they are a direct consequence of COVID-19 and meet certain conditions.

The Bank does not expect these amendments to have a material effect.

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

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

Standards and interpretations *

Description of changes and impact

Amendments to IFRS 9, IFRS 7, IAS 39 and IFRS 16, IFRS 4  – IBOR reform – Phase 2 (1.01.2021/ 14.01.2021)

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

      changes to contractual cash flows – adding to IFRS 9 a practical expedient which will enable accounting for modifications of contractual cash flows arising from the IBOR reform by updating the effective interest rate of the contract to reflect the transition to an alternative benchmark rate (there will be no obligation to derecognize or adjust carrying amounts of financial instruments); practical expedient was introduced for lessee accounting applying IFRS 16;

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

      disclosures - companies will be obliged to disclose information on new risks arising from the reform and on it management of the transition to alternative benchmark rates.

The Bank is in the process of assessing the impact of these amendments on the financial statements.

amendments to IFRS 4 “Insurance Contracts”

(1.01.2021/16.12.2020)

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

The changes do not apply to the Bank.

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

           new standards and interpretations, as well as their amendments, which were published and have not yet been endorsed by the European Union

Standards and interpretations *

Description of changes and impact

IFRS 17 “Insurance Contracts” ((1.01.2023/no data)  

and amendments to IFRS 17 (1.01.2023/no data)

IFRS 17 will replace IFRS 4 “Insurance Contracts” which enabled entities to recognize insurance contracts according to the accounting principles in force in the national standards, which, as a result, meant applying many different solutions. IFRS 17 introduces the requirements to recognize all insurance agreements in a consistent manner, including, among others, with regard to the measurement of insurance liabilities, recognition of the profit or loss over time, accounting for reinsurance, separation of an investment component. The application of the standard should follow the full retrospective approach with certain departures.

No impact on the Bank’s financial statement.

amendment to IAS 1 – classification of liabilities (1.01.2023/1Q2021)

The amendments relate to the presentation of liabilities in the statement of financial position. In particular, the amendment clarifies that classification of liabilities as current or non-current should be based on the contractual arrangements in place at the reporting date. A prospective approach will apply to these amendments.

The Bank does not expect these amendments to have a material effect.

Annual Improvements to IFRS 2018-2020 (1.01.2022/no data)

      The amendment to IFRS 1 relates to situations when a subsidiary adopts IFRS for the first time at a later date than its parent; in such a case, the subsidiary may decide to measure cumulative translation differences for all foreign operations using the amounts reported by its parent in its consolidated financial statements, based on the parent’s date of transition to IFRS.

      The amendment to IAS 41 aligns fair value measurement requirements set out in IAS 41 with the assumptions of IFRS 13.

Not applicable to the Bank

      The amendment clarifies which fees should be included for purposes of the ‘10 per cent’ test in the case of derecognition of financial liabilities.

      Amendments to illustrative examples in IFRS 16 relating to identification of lease incentives.

The Bank does not expect these amendments to have a material effect.

Amendment to MSSF 3 “Business combinations” (1.01.2022/no data)

Amendments to IFRS 3 have updated references to the Conceptual Framework issued in 2018. In order to ensure that this will not impact assets and liabilities which qualify for the recognition on a business combination, the amendment introduces new exceptions from the recognition and measurement principles of IFRS 3.

The Bank does not expect these amendments to have a material effect.

Amendment to IAS 16 “Property, plant and equipment” (1.01.2022/no data)

The amendment specifies that, among other things, proceeds from selling items produced while bringing an asset into the location and condition necessary for it to be capable of operating in the intended manner cannot be deducted from  the cost associated with that asset. Instead, such proceeds should be recognized as cost of producing those items, in profit or loss.

The Bank does not expect these amendments to have a material effect.

Amendment to IAS 37 “Provisions, contingent liabilities and contingent assets” (1.01.2022/no data)

The amendment clarifies that, when assessing whether or not a contract is onerous, the cost of fulfilling a contract comprises all costs that relate directly to the contract.

The Bank does not expect these amendments to have a material effect.

Amendment to IAS 1 and IAS 8 (1.01.2023/no data)

Amendments to IAS 1 contain guidelines on the application of the term “material” in disclosures of the accounting policies.

Amendments to IAS 8 explain how companies should distinguish changes in accounting policies from changes in accounting estimates.

The Bank does not expect these amendments to have a material effect.

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

11.            Description of significant accounting policies  

Major accounting policies and estimates and judgments applied in the preparation of these financial statements are presented below and in this note and in individual notes further in the financial statements. In all the years presented, these accounting policies were applied consistently, with the exception of issues described in the Note “Changes in the accounting policies applicable from 1 January 2020 and an explanation of the differences between previously published financial statements and these financial statements”.

 

11.1.                   currency, presentation currency and foreign currencies

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

      Transactions and balances in foreign currencies

Transactions denominated in foreign currency are translated into the functional currency using exchange rate prevailing at the dates of the transactions. At each balance sheet date, items are translated by the Bank using the following principles:

        cash items denominated in foreign currency are translated using a closing rate i.e. the average rate announced by the National Bank of Poland prevailing as at the end of the reporting period,

        non-cash items measured at historical cost expressed in a foreign currency are translated using the exchange rate as at the date of the transaction,

        non-cash items measured at fair value in a foreign currency are translated using the exchange rates prevailing as at the date of determination of the fair value.

Foreign exchange gains and losses arising from the settlement of such transactions and from the valuation of monetary and non-monetary assets and liabilities expressed in foreign currencies are recognized in the income statement.

11.2.                   Accounting for transactions

Financial assets and financial liabilities, including forward transactions and standardized 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 conclusion of the contract, irrespective of the settlement date provided in the contract.

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 Bank does not have justified prospects for recovering the given financial asset in full or in part, or when the financial asset is transferred by the Bank to another entity. The financial asset is transferred when the Bank:

        transfers the contractual rights to collect cash flows from that financial asset to another entity, or

        retains the contractual rights to receive cash flows from the financial asset, but assumes a contractual obligation to pay cash flows to one or more recipients.

Upon the transfer of a financial asset, the Bank evaluates the extent to which it retains the risks and benefits associated with holding that financial asset.

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

If the Bank retains substantially all risks and benefits associated with holding a given financial asset, the financial asset continues to be recognized in the statement of financial position.

If substantially all risks and benefits associated with holding a given financial asset are neither transferred nor retained, the Bank determines whether it has maintained control over that financial asset. If the Bank has retained control, it continues to recognize the financial asset in the statement of financial position to the extent of its continuing involvement in the financial asset; if control has not been retained, then the financial asset is derecognized from the statement of financial position.

The Bank derecognizes a financial liability (or a part of a financial liability) from its statement of financial position when the obligation specified in the contract has been met or cancelled, or has expired.

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

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

11.4.                   The principles for classification of financial instruments

The Bank classifies financial assets into the following categories:

        measured at amortized cost;

        measured at fair value through other comprehensive income (FVOCI);

        measured at fair value through profit or loss (FVP&L).

The Bank classifies financial liabilities into the following categories:

        measured at amortized cost;

        measured at fair value through profit or loss (FVP&L).

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

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

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

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

      business model

The business model is determined/selected upon initial recognition of financial assets. The determination/selection is performed 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 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 “hold to collect” business model, assets are sold occasionally, in the event of an increase in credit risk or a change in the laws or regulations. The purpose of selling the assets is to maintain the assumed level of regulatory capital. Assets are sold in accordance with the principles described in the portfolio management strategy or close to maturity, in the event of a decrease in the credit rating below the level assumed for a given portfolio, significant internal restructuring or acquisition of another business, the performance of a contingency or recovery plan or another unforeseeable factor independent of the Bank.

      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 (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);

        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 “hold to collect” or “hold to collect and sell” models upon initial recognition (and for modifications which are significant after subsequent recognition of a financial asset).

 

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

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

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

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

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

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

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

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

 

 

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:

        the financial asset is held in accordance with the “hold to collect” business model;

        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).

Upon initial recognition, these assets are measured at fair value. The initial value of an asset measured at amortized cost is adjusted by all commissions and fees which affect its effective return and constitute an integral element of the effective interest rate of this asset (commissions and fees arising in connection with activities performed by the Bank, and leading to the arising of the assets).

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. Such assets are measured at amounts due which also include interest on receivables, taking into consideration 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:

        financial assets are held in the business model whose purpose is to collect contractual cash flows and to sell financial assets; 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).

Financial assets measured at fair value through other comprehensive income are measured at fair value. The effects of adjustments to the fair value of those financial assets until their derecognition or reclassification are recognized in other comprehensive income, with the exception of interest income, gains or losses in respect of impairment allowances for expected credit losses and foreign exchange gains or losses recognized in the income statement. 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 is no longer recognized, the accumulated profit or loss, which was previously recognized in other comprehensive income, is reclassified from other comprehensive income to financial profit or loss in the form of a reclassification adjustment.

 

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

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

Additionally, on initial recognition, a financial asset may be irrevocably classified as measured at fair value through profit or loss (option to measure at fair value through profit or loss) if this eliminates or significantly reduces inconsistency of measurement or recognition which would arise as a result of measuring assets or liabilities, or recognizing the related gains or losses according to different accounting principles (accounting mismatch). This option is available for debt instruments both under the “hold to collect”, and “hold to collect and sell” models.

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

          held for trading - financial assets which:

        have been purchased mainly to sell or redeem in the foreseeable future; or

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

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

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

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

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

11.8.                   Equity instruments  

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

In the case of investments in equity instruments, the Bank did not use the option of measurement at fair value through other comprehensive income.

 

 

11.9.                   Reclassification of financial assets

Financial assets are reclassified only in the event of a change in the business model relating to the asset or a group of assets resulting from the commencement or discontinuation of a significant part of the entity’s operations. Such changes are very infrequent. Reclassification is presented prospectively, i.e. without changing the effects of fair value measurement in earlier periods write-downs or accrued interest that have been recognized to date.

The following are not treated as changes in the business model:

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

        temporary discontinuation of a specific market for financial assets;

        a transfer of financial assets between business areas that apply different business models.

No financial liabilities are reclassified.

 

 

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 significant or insignificant. A change in the contractual cash flows resulting from execution of the terms of the contract is not a modification.

 

If the contractual cash flows associated with a financial asset are renegotiated or otherwise modified based on an annex to the agreement, and such renegotiation or modification does not lead to such a financial asset no longer being recognized (“an insignificant modification”), the gross carrying amount of the financial asset is recalculated and gain or loss arising from such modification is recognized in the financial result. 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 carrying amount of a financial asset is calculated as the present value of renegotiated or modified contractual cash flows, discounted using the original effective interest rate on the financial asset (or, in the case of credit-impaired financial assets purchased or issued, the effective interest rate adjusted for credit risk) or, if applicable (e.g. with respect to gain or loss on a hedged item resulting from hedging), the updated effective interest rate. Any costs or fees incurred adjust the carrying amount of the modified financial asset and are amortized over the remaining part of the life of the modified financial asset.

 

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 significant 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 significant or an insignificant modification depends on the satisfaction of certain quantitative and qualitative criteria.

The following qualitative criteria have been adopted:

        Currency translation;

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

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

The occurrence of at least one of these criteria results in a significant 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 second quantitative criterion consists of an increased exposure to the debtor, which includes the amount of principal increase and an increase in off-balance sheet liabilities granted which exceed 10% of the equity and off-balance sheet liabilities from before the increase for each individual exposure.

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

 

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

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

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

Such assets are initially recognized at the net carrying amount (net of write-downs), 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 for the whole life of the asset. The interest rate adjusted for credit risk is calculated taking into account future cash flows adjusted for the effect of credit risk recognized over the whole life of the asset. The change in estimates of future recoveries in further reporting periods is recognized as a gain or loss on expected credit losses.

 

11.12.              Measurement of financial liabilities

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

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

 

 

 

12.            Changes in the accounting policies applicable from 1 January 2020 and Explanation of the differences between previously published financial statements and these financial statements

In order to better reflect its operations, the Bank made the following changes in its accounting policies:

      Reclassification of a premium on debt securities (1)

The Bank decided to present costs relating to premium on debt securities under “Interest income” – “debt securities”. Previously, the premium was presented under “Interest expense” – “debt securities”.

      reclassification of fees collected from customers compensating for negative interest rates of financial liabilities (2)

Starting from the financial statements for 2020, the Group presents fees collected from the Bank’s customers to compensate negative interest rates on the Bank’s financial liabilities (customer current accounts) in interest income. Previously, such fees were presented in commission income and interest expense.

      Reclassification of transactional margin (3)

The Bank decided to reclassify the foreign exchange margin included in exchange rates offered to the Bank’s customers when providing foreign currency purchase/sale services, formerly presented in “Net foreign exchange gains / (losses)”, to “Fee and commission income”. The Bank believes that the nature of the foreign exchange margin is similar to other fees and commission collected by the Bank for the services provided.

      Presentation of income and costs relating to foreign currency contracts (4)

The Bank decided to reclassify foreign exchange differences on income and costs accrued on financial assets (e.g. loans, securities, other receivables) and financial liabilities in foreign currencies from “Interest income” to “Net foreign exchange gains / (losses)”. According to the former approach, such income and costs were recognized in the profit or loss in their contractual currencies, and translated to the base currency during the process of annual closure, or at the time interest was accrued or paid by the customers, using the average exchange rate determined by the National Bank of Poland. At the same time, this meant that during a reporting year, such costs and income were accounted for together with foreign exchange differences. At present, such income and costs are recognized in the profit or loss at the average exchange rates determined by the NBP as at the date of their recognition, allowing for foreign exchange differences on individual cost items to be accounted for separately.

      Reclassification of allowances for card complaints (5)

The line “Settlements in respect of card transactions – receivables in respect of card complaints” (under “Other assets”) had previously been included in full in other financial assets. Within of this line, the Bank decided to disclose separately amounts due in respect of card-related complaints which, according to the Bank, should be classified as other non-financial assets. The decision affected the presentation of allowances for card complaints which were previously presented in “Allowances for expected credit losses”, and due to the Bank’s decision, now are presented in “Impairment of non-financial assets”.

 

      Inclusion of net regulatory charges in administrative expenses (6)

In order to make the presentation of administrative expenses more consistent with the market practice, the Bank combined the line “Administrative expenses” with “Net regulatory charges”. 

 

      „Reverse repo transactions” and “Repo transactions” (1)

INCOME STATEMENT– positions subject to reclassification and changes

01.01-31.12.2019 before restatement

(1)

(2)

(3)

(4)

(5)

(6)

01.01-31.12.2019  restated

Net interest income/(expense)

9 279

 

12

-

(1)

-

-

9 290

Interest income

11 360

(136)

12

-

(1)

-

-

11 235

Interest expenses

(2 081)

136

-

-

-

-

-

(1 945)

Net fee and commission income

2 470

-

(12)

370

-

-

-

2 828

Fee and commission income

3 542

-

(12)

370

-

-

-

3 900

Other net income

1 037

-

-

(370)

1

-

-

668

Foreign exchange gains/ (losses)

475

-

-

(370)

1

-

-

106

Net expected credit losses

(1 008)

-

-

-

-

(1)

-

(1 009)

Impairment of non-financial assets

(41)

-

-

-

-

1

-

(40)

Overheads

(4 745)

-

-

-

-

-

(492)

(5 237)

Net regulatory charges

(492)

-

-

-

-

-

492

                       -  

Net profit/(loss)

3 835

-

-

-

-

-

-

3 835

The Bank presents as a separate line “Reverse repo and repo transactions” which formerly were presented depending on whether transactions involved interbank market customers or other customers in, respectively: “Amounts due from banks”, “Loans and advances to customers”, Amounts due to banks”, “Amounts due to customers”. As at 31 December 2019, the Bank did not recognize any repo transactions.

 

      “Reclassification of potential refunds of costs to customers on expected early repayment of open consumer and mortgage loans” (2)

The Bank presents as a separate line “Reverse repo and repo transactions” which formerly were presented depending on whether transactions involved interbank market customers or other customers in, respectively: “Amounts due from banks”, “Loans and advances to customers”, Amounts due to banks”, “Amounts due to customers”. As at 31 December 2019, the Bank did not recognize any repo transactions.

 

      “Loans and advances received” (3)

Until 2019 (inclusive), loans and advances received by the Bank were presented in “Amounts due to banks” and “Amounts due to customers”. In order to make their presentation consistent with the presentation of interest on loans and advances received and in connection with the fact that the said loans and advances are included in financing activities in the statement of cash flows, the Bank decided to create a separate item in liabilities.

      Reclassification of holiday pay provisions from other liabilities to provisions (4)

The Bank reclassified holiday pay provisions from “Other liabilities” to “Provisions”, because the Bank believes that they are of a similar character to other provisions and are also based on estimations like other employee provisions presented in provisions, i.e. pension provisions and other liabilities due to defined post-employment benefits.

 

 

ASSETS – positions subject to reclassification and changes

31.12.2019 before restatement

(1)

(2)

31.12.2019 restated

Receivables in respect of repurchase agreements

-  

1 081

-  

1 081

Loans and advances to customers

202 095

(1 081)

(147)

200 867

 

 

 

 

 

TOTAL ASSETS

317 125

-  

(147)

316 978

 

ASSETS – positions subject to reclassification and changes

31.12.2018*

Implementation of  MSSF 16

(1)

01.01.2019

restated

Repurchase transactions

-  

-  

51

51

Loans and advances to customers

191 575

-  

(51)

191 524

Property, plant and equipment

2 082

778

-  

2 860

Other assets

2 318

(4)

-  

2 314

 

 

 

 

-  

TOTAL ASSETS

300 413

774

-  

301 187 

*disclosed as comparative data in the financial statements of the Bank for the year 2019

LIABILITIES - positions subject to reclassification and changes

31.12.2019 before restatement

(1)

(2)

(3)

(4)

31.12.2019 restated

 

 

 

 

 

 

 

Amounts due to customers

258 015

(46)

-  

(5 026)

- 

252 943

Repurchase transactions

-  

46

-  

-  

- 

46

Loans and advances received

-  

-  

-  

5 026

- 

5 026

Other liabilities

4 744

-  

(147)

-  

(80)

4 517

Provisions

573

-  

-  

-  

80

653

 

 

 

 

 

 

 

TOTAL LIABILITIES

276 713

-  

(147)

-  

- 

276 566

 

LIABILITIES - positions subject to reclassification and changes

31.12.2018*

Implementation of MSSF 16

(1)

(3)

(4)

01.01.2019 restated

 

 

 

 

 

 

 

Amounts due to customers

245 213

 

45)

(8 839)

 

236 329

Repurchase transactions

-  

 

45

-  

 

45

Loans and advances received

-  

 

-  

8 839

 

8 839

Other liabilities

3 189

885

 

-  

(85)

3 989

Provisions

441

 

-  

-  

85

526

 

 

 

 

 

 

 

TOTAL LIABILITIES

262 053

885

-  

-  

 

262 938

*disclosed as comparative data in the financial statements of the Bank for the year 2019

CASH FLOW STATEMENT - positions subject to reclassification and changes

01.01-31.12.2019

before restatement

(1)

(2)

(3)

(4)

(5)

01.01-31.12.2019 restated

Change in:

 

 

 

 

 

 

 

loans and advances to customers

(9 450)

1 030

147

-  

- 

- 

(8 273)

receivables in respect of repurchase agreements

-  

(1 030)

- 

-  

- 

- 

(1 030)

accumulated allowances for expected credit losses

(1 042)

- 

 -

-

- 

1

(1 041)

accumulated allowances on non-financial assets and other provisions

103

- 

- 

- 

(4)

(1)

98

amounts due to    customers

16 565

(1)

- 

50

- 

- 

16 614

loan and advances received

-  

-  

- 

(50)

- 

- 

(50)

repo transactions

-  

1

- 

- 

- 

 -

1

other liabilities

872

 -

(147)

 -

4

- 

729

 

 

 

 

 

 

 

 

TOTAL

7 048

-  

-  

-  

-  

-  

7 048

 

 

NOTES TO THE FINANCIAL STATEMENTS

13.            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. Interest income includes interest income on hedging derivatives. Interest income and expenses also include fees and commissions received and paid, which are deferred using the effective interest rate and which are taken into account in the measurement of the financial instrument, including the costs of employee bonuses to the extent that relate directly to selling credit products.

Interest income and expense is recognized on an accruals basis using the effective interest rate which discounts the estimated future cash flows throughout the life of the financial asset or financial liability to the carrying amount in respect of assets and to amortized cost in respect of financial liabilities, with the following exception:

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

        financial assets which were not POCI assets, impaired due to credit risk, which then became credit impaired financial assets. Interest income on POCI 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.  

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

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

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

Due to the fact that the Bank offers insurance products along with loans and advances and there is no possibility of purchasing an insurance product that is identical with regard to the legal form, conditions and economic content from the Bank without purchasing a loan or an advance, the payments received by the Bank for the insurance products sold are treated as an integral part of the remuneration for the financial instruments offered.

Remuneration received and receivable by the Bank for offering insurance products for the products directly associated with the financial instruments is recognized using the effective interest rate method and recognized in interest income. Remuneration is recognized in commission income upon sale or renewal of an insurance product only in the part relating to the intermediation service provided.

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

Remuneration is divided into the commission portion and the interest portion based on the proportion of the fair value of the financial instrument and the fair value of the intermediation service to the sum of these two values.

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

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

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

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

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

 

 

 

 

 

 

Financial information

INTEREST INCOME ON:

2020

2019

loans to and other receivables from banks

91

132

cash pooling

6

43

hedging derivatives

788

536

debt securities

1 772

1 520

    measured at amortized cost

582

296

    measured at fair value through other comprehensive income

1 170

1 187

    measured at fair value through profit or loss

20

37

loans and advances to customers

7 655

8 992

    measured at amortized cost

6 672

7 756

    measured at fair value through other comprehensive income

393

287

    measured at fair value through profit or loss

590

949

amounts due to customers

20

12

Total

10 332

11 235

of which: interest income on impaired financial instruments

177

239

 

 

 

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

8 934

9 713

    amortized cost

7 371

8 239

    fair value through other comprehensive income (FVOCI

1 563

1 474

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

1 398

1 522

Total

10 332

11 235

 

 

INTEREST INCOME BY SEGMENT

2020

Retail segment

Corporate and investment segment

Transfer centre and other

Total

loans to and other receivables from banks

-

76

15

91

cash pooling

-

6

-

6

hedging derivatives

-

-

788

788

debt securities

-

741

1 031

1 772

loans and advances to customers

6 173

1 482

-

7 655

amounts due to customers

-

20

-

20

 

 

 

 

 

Total

6 173

2 325

1 834

10 332

 

INTEREST INCOME BY SEGMENT

2019

Retail segment

Corporate and investment segment

Transfer centre and other

Total

loans to and other receivables from banks

-

93

39

132

cash pooling

-

43

-

43

hedging derivatives

-

-

536

536

debt securities

-

1 058

462

1 520

loans and advances to customers

7 134

1 858

-

8 992

amounts due to customers

-

12

-

12

 

 

 

 

 

Total

7 134

3 064

1 037

11 235

 

INTEREST EXPENSE ON

2020

2019

amounts due to banks

(14)

(12)

interbank deposits

(9)

(15)

loans and advances received

(202)

(211)

leases

(15)

(20)

amounts due to customers

(804)

(1 556)

debt securities in issue

(28)

(41)

subordinated liabilities

(76)

(90)

 

 

 

Total

(1 148)

(1 945)

 

 

31.12.2020

31.12.2019

Interest on cash on required reserve account

0,1%

0,5%

 

Average interest on loans and advances to customers during the reporting priod

31.12.2020

31.12.2019

Non-financial enterprises:

2,23%

3,48%

excluding current deposits

2,34%

3,65%

including renewable and current deposits

1,99%

3,19%

Households, including:

3,61%

5,45%

housing

2,21%

3,74%

consumer

6,97%

9,40%

other

3,76%

5,30%

renewable and current deposits

6,09%

7,84%

 

AVERAGE INTEREST ON DEPOSITS FROM CUSTOMERS IN THE REPORTING PERIOD

31.12.2020

31.12.2019

Non-financial enterprises, including:

0,00%

0,87%

fixed-term deposits

0,38%

1,10%

current deposits and O/N deposits

0,00%

0,84%

Households, including:

0,07%

0,53%

fixed-term deposits

0,22%

0,95%

current deposits and O/N deposits

0,02%

0,29%

 

14.            Fee and commission income and expenses

Accounting policies

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

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

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

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

Financial information

FEE AND COMMISSION INCOME

2020

2019

Loans, insurance, operating leases and fleet management

869

895

lending

682

699

offering insurance products

187

196

Investment funds, pension funds and brokerage activities

326

216

servicing investment funds and OFE (including management fees)

37

46

servicing and selling investment and insurance products

10

12

brokerage activities

279

158

Cards

1 299

1 313

Margins on foreign exchange transactions

476

370

Bank accounts and other

1 129

1 106

servicing bank accounts

870

808

cash operations

61

64

servicing foreign mass transactions

73

99

customer orders

53

48

fiduciary services

6

6

other

66

81

 

 

 

Total, of which:

4 099

3 900

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

3 964

3 843

 

FEE AND COMMISSION EXPENSE

2020

2019

Loans and insurance

(129)

(185)

 commission paid to external entities for product sales

(34)

(68)

 cost of construction investment supervision and property valuation

(34)

(46)

 fees to Biuro Informacji Kredytowej 

(15)

(18)

 loan handling

(46)

(53)

Investment funds, pension funds and brokerage activities

(27)

(18)

Cards

(728)

(757)

Bank accounts and other

(114)

(112)

clearing services

(33)

(29)

commissions for operating services provided by banks

(9)

(10)

sending short text messages (SMS)

(41)

(33)

selling banking products

(7)

(11)

servicing foreign mass transactions

(13)

(10)

other

(11)

(19)

 

 

 

Total

(998)

(1 072)

 

FEE AND COMMISSION INCOME BY SEGMENT

2020

 

 

 

Retail segment

Corporate and investment segment

Transfer centre and other

Total

Loans, insurance, operating leases and fleet management

644

225

-

869

lending

457

225

-

682

offering insurance products

187

-

-

187

Investment funds, pension funds and brokerage activities

134

192

-

326

servicing investment funds and OFE (including management fees)

29

8

-

37

servicing and selling investment and insurance products

10

-

-

10

brokerage activities

95

184

-

279

Cards

1 278

21

-

1 299

Margins on foreign exchange transactions

319

157

-

476

Bank accounts and other

932

197

-

1 129

servicing bank accounts

765

105

-

870

cash operations

43

18

-

61

servicing foreign mass transactions

40

33

-

73

customer orders

29

24

-

53

fiduciary services

-

6

-

6

other

55

11

-

66

 

 

 

 

 

Total

3 307

792

-

4 099

 

FEE AND COMMISSION INCOME BY SEGMENT

2019

 

 

 

Retail segment

Corporate and investment segment

Transfer centre and other

Total

Loans, insurance, operating leases and fleet management

669

226

-

895

lending

473

226

-

699

offering insurance products

196

-

-

196

Investment funds, pension funds and brokerage activities

99

117

-

216

servicing investment funds and OFE (including management fees)

39

7

-

46

servicing and selling investment and insurance products

12

-

-

12

brokerage activities

48

110

-

158

Cards

1 286

27

-

1 313

Margins on foreign exchange transactions

212

158

-

370

Bank accounts and other

944

162

-

1 106

servicing bank accounts

743

65

-

808

cash operations

46

18

-

64

servicing foreign mass transactions

64

35

-

99

customer orders

27

21

-

48

fiduciary services

-

6

-

6

other

64

17

-

81

 

 

 

 

 

Total

3 210

690

-

3 900

 

 

15.            Dividend income

Accounting policies

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

Financial information

DIVIDEND INCOME

2020

2019

from subsidiaries

300

511

from associates and joint ventures

17

36

from financial assets held for trading

-

1

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

15

13

 

 

 

Total

332

561

16.            Gains/(losses) on financial transactions  

Accounting policies  

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

Financial information

GAINS/(LOSSES) ON FINANCIAL TRANSACTIONS

2020

2019

Financial instruments held for trading, of which:

60

96

Derivatives

47

99

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

(168)

87

Loans and advances to customers

(157)

(58)

Hedge accounting

2

3

Total

(106)

186

including the macroeconomic impact on the loan portfolio

(48)

 

 

 

17.            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 valuation 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.  

Impairment charges for 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.

 

2020

2019

Foreign exchange gains/(losses)

133

106

 

 

18.            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 significant modification of such assets (see the Note “Modifications – Changes in contractual cash flows”).

GAINS/(LOSSES) ON DERECOGNITION OF FINANCIAL INSTRUMENTS

2020

2019

Measured at fair value through OCI

186

155

Measured at amortized cost

(24)

(12)

 

 

 

Total

162

143

 

19.            Other operating income and expenses

Accounting policies

Other operating income and expenses comprise income and costs not directly related to banking activities. Other operating income mainly includes gains on the sale/scrapping of property, plant and equipment, intangible assets and assets for sale, irrecoverable receivables collected, legal damages, fines and penalties received, and income from lease/rental of properties. Other operating expenses mainly include provisions for refunds to customers on early repayment of consumer and mortgage loans and mortgage loans before the ECJ’s judgment (note “Provisions”), losses on sale /scrapping of property, plant and equipment, intangible assets and assets for sale, and donations made.

Other operating income and expenses also include provisions recognized and released for legal claims, excluding legal claims relating to mortgage loans in foreign currencies and other provisions. 

 

Financial information

OTHER OPERATING INCOME

2020

2019

Gains on sale or scrapping of property, plant and equipment, intangible assets and assets held for sale

17

17

Damages, compensation and penalties received

-

2

Ancillary income

30

26

Recovery of receivables expired, forgiven or written off

2

4

Release of provision for potential return of fees and commission to customers

-

58

Provision for future payments

-

1

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

5

6

Other

84

47

 

 

 

Total

138

161

 

OTHER OPERATING EXPENSE

2020

2019

Losses on sale or scrapping of property, plant and equipment, intangible assets and assets held for sale

(2)

(3)

Donations made

(20)

(23)

Sundry expenses

(15)

(14)

Provision recognized for potential refunds of fees and commission to customers

(106)

(127)

Provision for future payments

(1)

(1)

Provision recognized for legal claims excluding legal claims relating to mortgage loans in convertible currencies

(55)

(6)

Cost of providing additional financing to a subsidiary

-

(274)

Other

(27)

(41)

 

 

 

Total

(226)

(489)

 

Under “Provision recognized for legal claims excluding legal claims relating to mortgage loans in convertible currencies”, the Bank recognized the cost of PLN 41 million of the penalty imposed on the Bank by UOKiK for the Bank using clauses governing the method of determining the foreign currency buy and sell rates in template agreements with customers (further discussed in the Note “Legal claims”.

 

20.            Net 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; changes in the allowances amount are recognized in the income statement;

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

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

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

Estimates and judgments

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

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

        debt financial instruments comprising credit exposures and securities;

        other financial assets;

        off-balance sheet financial and guarantee liabilities.

Expected credit losses are not recognized for equity instruments.

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

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

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

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

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

      Material increase in credit risk

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

The Bank uses a model based on a marginal PD calculation, i.e. the probability of default in a given month, to assess a material increase in credit risk for mortgage exposures and other retail exposures. This probability depends on the time that has passed from originating the exposure. This enables reflecting the differences in credit quality that are typical of exposures to individuals over the lifetime of the exposure. The marginal PD curves were determined on the basis of historic data at the level of homogeneous portfolios, which are separated according to the type of product, the year of their origination, the loan currency and the credit quality at the time of origination. The marginal PD is attributed to individual exposures by scaling the curve at the level of the portfolio to the individual assessment of the exposure / Customer using application models (using data from loan applications) and behavioural models. The Bank identifies the premise of a material 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 material. The threshold value is determined on the basis of the historical relationship between the values of the α statistics and the default arising. In this process the following probabilities are minimized:

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

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

According to data that is applicable at the end of 2020, an increase in the PD parameter of at least 2.6 compared to the value at the time of its recognition in the Bank’s accounts 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 (unchanged compared to end of 2019).

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

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

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

In accordance with the data as at the end of 2020 and 2019, the minimum deterioration in the class of risk which constitutes a premise of a material improvement of the credit presented compared to the current class of risk were as follows:

Risk category

PD range

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

A-B

0,0 – 0,90%

3 categories

C

0,90 – 1,78%

3 categories

D

1,78 – 3,55%

2 categories

E

3,55-7,07%

1 category

F

7,07-14,07%

1 category

G

14,07-99,99%

not applicable2

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

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

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

        restructuring measures introducing forbearance for a debtor in financial difficulties;

        extending the period for the repayment of a significant amount of principal or interest by more than 30 days;

        identified early warning signals as part of the monitoring process, suggesting a material increase in credit risk;

        a significant increase in the LTV ratio;

        an analyst’s assessment according to an individual approach;

        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;

        transferring the credit exposure to be managed by the Bank’s restructuring and debt collection units.

      Impaired loans and definition of default

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

        extending the period for the repayment of a significant amount of principal or interest by more than 90 days;

        a deterioration in the debtor’s economic and financial position during the lending period, expressed by the classification into a rating class or class of risk 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 to the list of premises of impairment.

In accordance with the Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms (“CRR”), the Bank defines a state of default if it assesses that the debtor is unable to repay the loan liability without resorting to exercising the collateral or if the exposure is overdue more than 90 days. The premises of default are identical to the premises for impairment of the exposure.

 

      Calculation of the expected credit loss

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

        type of credit product;

        currency of the product;

        year of granting;

        assessment of risk of the customer’s default;

        the customer’s business segment;

        method of assessing the customer risk.

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

The calculation of expected credit losses encompasses estimates of future macroeconomic conditions. In terms of portfolio analysis, the impact of macroeconomic scenarios is taken into account in the amount of the individual risk parameters. The methodology for calculating the risk parameters includes the study of the dependencies of these parameters on the macroeconomic conditions based on historical data. Three macroeconomic scenarios based on the Bank’s own forecasts are used for calculating the expected loss – a baseline forecast with a probability of 80% and two alternative scenarios, each with a probability of 10%. The scope of the forecast indicators includes the GDP growth index, the rate of unemployment, the WIBOR 3M rate, the LIBOR CHF 3M rate, the CHF/PLN exchange rate, the property price index and the NBP reference rate. The final expected loss is the weighted average probability of scenarios from expected losses corresponding to individual scenarios. The Bank ensures the 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 forecasts. The forecasts 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 forecast path. Two scenarios are identified, optimistic and pessimistic. The share of the scenarios for the GDP path that falls between the optimistic and the pessimistic scenario is referred to as the probability of the baseline scenario. Such an assumption is used to forecast GDP growth, using a potential rate of growth of the Polish economy that varies over time, calculated with the use of quarterly data provided by the Central Statistical Office. The values of other macroeconomic variables used in the scenarios (rate of unemployment, property price index) are estimated after the extreme paths of GDP growth are defined.

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

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

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

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

 

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

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

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

 

 

 

 

Financial information

ALLOWANCES FOR EXPECTED CREDIT LOSSES

 

Note

2020

2019

Amounts due from banks

27

(3)

-

Debt securities

30

(32)

(7)

- measured at fair value through other comprehensive income

 

(10)

(11)

- measured at amortized cost

 

(22)

4

Loans and advances to customers

32

(1 550)

(962)

- measured at fair value through other comprehensive income

 

(25)

(12)

- measured at amortized cost

 

(1 525)

(950)

Other financial assets

36

-

1

Provisions for financial liabilities and guarantees granted

41

(354)

(41)

 

 

 

 

Total

 

(1 939)

(1 009)

 including the macroeconomic impact on the loan portfolio

 

(1 076)

-

 

CALCULATION OF ESTIMATES

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

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

31.12.2020

31.12.2019

+10% scenario

-10% scenario

+10% scenario

-10% scenario

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

(198)

260

(235)

308

changes in the probability of default

181

(201)

153

(161)

change in recovery rates

(476)

478

(415)

416

1in plus – increase in allowances, in minus – decrease in allowances

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 related to not-impaired exposures resulting from realisation of particular macroeconomic scenarios as at December 31, 2020 and December 31, 2019. Before the start of the COVID-19 pandemic, the Bank applied a model assuming that the dependence of the allowance level changes on the interest rate changes was the strongest statistically – thus the 2019 optimistic scenario had a negative impact on the allowance level.

 

 

31.12.2020

31.12.2019

 

optimistic

pessimistic

optimistic

pessimistic

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

 (619)

488

 69

(89)

 

 

The tables below present forecasts of the key macroeconomic parameters adopted as at 31 December 2020 and 31 December 20219, together with their assumed realization probabilities.

scenario as at 31.12.2020

baseline

optimistic

pessimistic

probability

75%

5%

20%

 

average for 4Q2020-3Q2022

average for 4Q2020-3Q2022

average for 4Q2020-3Q2022

GDP growth y/y

1,9

5,7

(1,9)

Unemployment rate

5,2

4,5

6,5

WIBOR 3M

0,4

2,1

(0,2)

Property price index

100,6

102,9

97,3

CHF/PLN

4

3,8

4,4

 

scenario as at 31.12.2019

baseline

optimistic

pessimistic

probability

80%

10%

10%

 

average for 4Q2019-3Q2021

average for 4Q2019-3Q2021

average for 4Q2019-3Q2021

GDP growth y/y

3,9

5,7

2,1

Unemployment rate

3,3

2,5

4,5

WIBOR 3M

1,7

2,7

0,9

Property price index

112,1

120,7

91,5

CHF/PLN

4,0

3,7

4,2

 

21.            net Impairment of non-financial assets

 

NET IMPAIRMENT OF NON-FINANCIAL ASSETS

 

NOTE

2020

2019

Property, plant and equipment

33.1

(58)

(14)

Non-current assets held for sale

34

(4)

(1)

Intangible assets

33.2

(116)

2

Investments in subsidiaries

35

(42)

-

Investments in associates and joint ventures

35

(88)

-

Other financial assets

36

(48)

(27)

 

 

 

 

Total

 

(356)

(40)

 

 

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

 

2020

2019

Cost of the legal risk of mortgage loans in convertible currencies

(6 552)

(451)

- potential future settlements and court disputes

(6 139)

(310)

- proceedings in progress

(413)

(141)

 

IMPACT OF THE LEGAL RISK OF MORTGAGE LOANS IN CONVERTIBLE CURRENCIES

Gross carrying amount of mortgage loans in convertible currencies before recognition of mortgage loans in convertible currencies legal risk cost

Mortgage loans in convertible currencies legal risk cost

Gross carrying amount of mortgage loans in convertible currencies after recognition of mortgage loans in convertible currencies legal risk cost

31 DECEMBER 2020

Loans and advances to customers – adjustment reducing the carrying amount of loans due to:

21 983

6 617

15 366

- potential future settlements and court disputes

21 203

6 122

15 081

- proceedings in progress

780

495

285

Provisions

 

426

 

- potential future settlements and court disputes

 

351

 

- proceedings in progress

 

75

 

TOTAL

21 983

7 043

15 366

 

 

IMPACT OF THE LEGAL RISK OF MORTGAGE LOANS IN CONVERTIBLE CURRENCIES

Gross carrying amount of mortgage loans in convertible currencies before recognition of mortgage loans in convertible currencies legal risk cost

Mortgage loans in convertible currencies legal risk cost

Gross carrying amount of mortgage loans in convertible currencies after recognition of mortgage loans in convertible currencies legal risk cost

31 DECEMBER 2019

Loans and advances to customers – adjustment reducing the carrying amount of loans due to:

21 832

422

21 410

- potential future court disputes

21 595

281

21 314

- proceedings in progress

237

141

96

Provisions

 

29

 

- potential future court disputes

 

29

 

- proceedings in progress

 

0

 

TOTAL

21 832

451

21 410

 

As at 31 December 2020, the Bank recognized in the financial statements the impact of the legal risk associated with the portfolio of mortgage loans in convertible currencies granted to households.

With regard to the disputes existing as at 31 December 2020, the Bank reduced gross carrying amount of mortgage loans by PLN  495 milion (PLN 141 million as at 31 December 2019). For active agreements, the Bank,  reflecting the changed, estimated contractual cash flows, adjusted the gross carrying amount of mortgage loans in accordance with IFRS 9 by the expected impact of potential settlements and disputes, reducing their value by PLN 6 122 million (PLN 281 million as at 31 December 2019).

With regard to credit contracts creating the Bank’s liability resulting in future cash outflow, the Bank set up a provision for potential settlements and disputes in the amount of PLN 351 million (PLN 29 million as at 31 December 2019) and for pending proceedings in the amount of PLN 75 million.

Additional information on the mortgage loans in convertible currencies portfolio has been presented by the Bank in the notes „Legal claims” and „Management of currency risk associated with mortgage loans for individuals”.

 

calculation of estimates

The Bank identified a risk that the planned cash flows resulting from mortgage loans denominated and indexed in foreign currency might not be fully repaid and/or there may arise a liability resulting in future cash outflow. The Bank reduces the gross carrying amount of mortgage loans denominated and indexed in foreign currency and/or recognizes a provision for legal risk in accordance with IFRS 9 Financial instruments and IAS 37 Provisions, Contingent Liabilities and Contingent Assets. The cost of legal risk was estimated taking into account numerous assumptions which have a material impact on the estimates disclosed in the Bank’s financial statements.

The legal risk cost of mortgage loans granted in convertible currencies has been estimated using a statistical method taking into account the impact of Clients’ characteristics, as a sum of products of:

        probabilities of occurence of a certain outcomes of court disputes and loss amount for various scenarios of dispute outcomes, taking into account the current and expected numer of court cases in the time horizon when the Bank is exposed to such a risk, and

        probability of the Client acceptance of settlements and the loss amount resulting from the settlements.

The Bank also estimates the probability of negative outcomes in respect of declared and potential claims. The probabilities differ for denominated and indexed  foreign currency mortgage loans, respectively. In assessing these probabilities, the Bank is supported by external law firms.  In the Bank’s opinion the level of the estimated costs of legal risk is also influenced by such factors as: the duration of court proceedings (also estimated on the basis of relatively short statistics that do not meet the conditions for applying quantitative methods) and the costs necessary to start litigation and litigation suport costs.

The Bank carried out an analysis of the model's sensitivity to changes in key parameters:

SENSITIVITY ANALYSIS OF THE MODEL TO CHANGE OF KEY PARAMETERS

Increase in legal risk costs related to mortgage loans in convertible currencies

1 p.p increase in the numer of lawsuits

65

1 p.p.  decrease the likelihood of the Bank winning in court

14

1 % increase weighted average loss

13

1 p.p. decrease the numer of settlements

27

 

 

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

Overheads

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

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

contributions and payments to the BGF

According to IFRIC 21 “Levies”- fees paid by the Bank to the Bank Guarantee Fund are recognized in profit or loss upon the occurrence of the obligating event.

The Bank makes contributions to the banks’ guarantee fund (quarterly) and the banks’ compulsory resolution (annually). Contributions to the guarantee fund and the mandatory restructuring fund are not tax-deductible.

Fees to PFSA

In accordance with IFRIC 21 “Levies”, fees paid 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, 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 (the election of the taxation, compliant with the act, relates to the years 2014- 2022) and

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

Other taxes and fees

Property tax, payments made to the State Fund for Rehabilitation of Disabled Persons, municipal and administration fees.

 

Financial information

ADMINISTRATIVE EXPENSES

2020

2019

 

 

 

Employee benefits

(2 526)

(2 788)

Overheads, of which:

(1 071)

(1 137)

rent

(81)

(80)

IT

(295)

(273)

Depreciation and amortization

(853)

(820)

property, plant and equipment, of which:

(470)

(464)

 right-of-use assets

(210)

(195)

IT

(82)

(106)

intangible assets, of which:

(383)

(356)

IT

(376)

(348)

Net regulatory charges

(730)

(492)

 

 

 

Total

(5 180)

(5 237)

 

EMPLOYEE BENEFITS

2020

2019

Wages and salaries, including:

(2 113)

(2 329)

    costs of contributions to the employee pension plan

(60)

(61)

restructuring costs

(16)

(32)

Social insurance, of which:

(352)

(380)

contributions for disability and retirement benefits

(305)

(320)

Other employee benefits

(61)

(79)

 

 

 

Total

(2 526)

(2 788)

 

NET REGULATORY CHARGES

2020

2019

Contribution and payments to the Bank Guarantee Fund (BGF), including:

(646)

(487)

to the Resolution Fund

(296)

(326)

to the Banks’ Guarantee Fund

(350)

(161)

Fees to PFSA

(29)

(37)

Flat-rate income tax, of which:

(7)

81

withheld tax (20%)

-

138

flat-rate income tax (3%)

(7)

(57)

Other taxes and fees

(48)

(49)

 

 

 

Total

(730)

(492)

 

Due to the fact that the Bank collected 20% withholding tax on interest paid to PKO Finance AB for 2017–2018, on 12 February 2019, it filed a request to determine overpayment of tax together with corrected tax returns. The request was accepted without issuing a decision on this matter. The Bank was informed by the Tax Office that its application had been approved and requested for the instruction on the overpayment settlement approach.

The correction of the 20% withholding tax by PLN 138 million in plus and recognizing the 3% tax on interest assessed for 2014-2018 (PLN 50 million) are one-off events. The 3% tax option in respect of tax interest on loans paid to PKO Finance AB results from Article 21 of the Act of 23 October 2018 on amendments to the Act on personal income tax, the Act on corporate income tax, the Act on tax code and other acts (Journal of Laws of 2018, item 2193 with further amendments). The Bank paid the tax in the mandatory statutory period, i.e. to 31 July 2019.

24.            Tax on certain financial institutions

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 an entity’s total assets above PLN 4 billion; in the case of banks, the assessment is based on the trial balance as at the end of each month. Banks are entitled to reduce the tax base by deducting such items as e.g. own funds or the value of Treasury securities. 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. The tax rate for all taxpayers is 0.0366% per month, and the tax is paid monthly by the 25th of the month following the month to which it relates. The tax paid is not tax-deductible for corporate income tax purposes.

TAX ON CERTAIN FINANCIAL INSTITUTIONS

2020

2019

Total

(957)

(931)

 

 

25.            Income tax expense

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 income tax

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

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

        Deferred income tax

Deferred tax is recognized in the amount of the difference between the tax value of the assets and liabilities and their carrying amounts for the purpose of financial reporting. The Bank records deferred tax provisions and assets, which are recognized in the statement of financial position. Changes in the balance of deferred tax provisions and assets are recognized in mandatory charges to profit, with the exception of the effects of the measurement of financial assets measured at fair value through other comprehensive income, hedging instruments which are recognized in other comprehensive income, where changes in the balance of deferred tax provisions and assets are recognized in other comprehensive income. In determining deferred income tax, the deferred tax assets and provisions as at the beginning and as at the end of the reporting period are taken into account.

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

Deferred tax assets and provisions are valued using the tax rates which are expected to be in force in the period in which the asset will crystallize or the provision will be utilized, based on the tax rates (and tax regulations) binding as at the balance sheet date or tax rates and tax regulations that as at the balance sheet date are believed to be binding in the future.

Deferred tax assets are offset by the Bank against deferred tax provisions only when it has an enforceable legal title to offset current income tax receivables against current income tax liabilities and deferred income tax is related to the same taxpayer and the same tax authority.

 

Financial information

        income tax expense

 

2020

2019

Income tax expense recognized in the income statement

(678)

(1 283)

Current income tax expense

(1 452)

(1 339)

Deferred income tax on temporary differences

774

56

Income tax reported in other comprehensive income in respect of temporary differences

(258)

2

 

 

 

Total

(936)

(1 281)

 

        reconciliation of the effective tax rate

RECONCILIATION OF THE EFFECTIVE TAX RATE

2020

2019

Profit or loss before tax

(2 266)

5 118

Tax calculated using the enacted rate in force in Poland (19%)

431

(972)

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

(1 115)

(316)

non-deductible impairment allowance on investments in subordinated entities

(24)

-

non-deductible allowances for expected credit losses on credit exposures and securities

(47)

(31)

contributions and payments to the Bank Guarantee Fund

(123)

(92)

tax on certain financial institutions

(182)

(177)

impairment allowance in respect of the identified impairment of goodwill of Nordea Bank Polska S.A.

(22)

-

cost of the legal risk of mortgage loans in convertible currencies other

(769)

(85)

interest on foreign exchange gains in Sweden

4

(52)

Dividend income

63

106

3% flat-rate income tax on interest for non-residents

-

(11)

other permanent differences

(15)

26

Effect of other timing differences, including new technologies tax relief and donations

6

5

 

 

 

Income tax expense recognized in the income statement

(678)

(1 283)

 

 

 

Effective tax rate (in %)

(29,92)%

25,07%

 

 

        Deferred tax assets, net

DEFERRED TAX PROVISION AND ASSET

        2020

As at the beginning of the period

INCOME STATEMENT

OTHER COMPREHENSIVE INCOME

As at the end of the period

Interest accrued on receivables (loans)

208

35

-

243

Capitalized interest on performing housing loans

24

(24)

-

-

Interest on securities

114

34

-

148

Valuation of securities

106

(12)

192

286

Valuation of derivative financial instruments

12

(18)

52

46

Difference between carrying amount and tax value of property, plant and equipment and intangible assets

197

(32)

-

165

Taxable income on the release of IBNR allowance, previously tax deductible, on implementation of IFRS 9

65

(13)

-

52

 

 

 

 

 

Deferred income tax provision, gross

726

(30)

244

940

 

 

 

 

 

Interest accrued on liabilities

74

(39)

-

35

Valuation of securities

-

40

-

40

Provision for employee benefits

76

(1)

1

76

Allowances for expected credit losses

902

264

-

1 166

Fair value measurement of loans

138

13

(15)

136

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

760

(11)

-

749

Impact of legal risk of mortgage loans in convertible currencies

-

476

 

476

Other deductible temporary differences

32

5

-

37

Provision for costs to be incurred

34

(3)

-

31

 

 

 

 

 

Deferred tax asset, gross

2 016

744

(14)

2 746

 

 

 

 

 

Total effect of temporary differences

1 290

774

(258)

1 806

Deferred income tax asset

(presented in the statement of financial position)

1 290

774

(258)

1 806

 

 

 

 

DEFERRED TAX PROVISION AND ASSET

 

2019

As at the beginning of the period

INCOME STATEMENT

OTHER COMPREHENSIVE INCOME

As at the end of the period

Interest accrued on receivables (loans)

236

(28)

-

208

Capitalized interest on performing housing loans

39

(15)

-

24

Interest on securities

79

35

-

114

Valuation of securities

99

13

(6)

106

Valuation of derivative financial instruments

-

(10)

22

12

Difference between carrying amount and tax value of property, plant and equipment and intangible assets

288

(91)

-

197

Taxable income on the release of IBNR allowance, previously tax deductible, on implementation of IFRS 9

78

(13)

-

65

 

 

 

 

 

Deferred income tax provision, gross

819

(109)

16

726

 

 

 

 

 

Interest accrued on liabilities

87

(13)

-

74

Valuation of derivative financial instruments

135

(131)

(4)

-

Provision for employee benefits

77

(3)

2

76

Allowances for expected credit losses

1 019

(117)

-

902

Fair value measurement of loans

17

101

20

138

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

683

77

-

760

Other deductible temporary differences

4

28

-

32

Provision for costs to be incurred

29

5

-

34

 

 

 

 

 

Deferred tax asset, gross

2 051

(53)

18

2 016

 

 

 

 

 

Total effect of temporary differences

1 232

56

2

1 290

Deferred income tax asset

(presented in the statement of financial position)

1 232

56

2

1 290

 

        Tax Group

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

A tax group is an institution of the tax law stipulated in the provisions of the Corporate Income Tax Act. Its creation means that the income of the Tax Group companies will be consolidated for corporate income tax purposes and that solutions will be available facilitating the application of other, in particular operational, 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. The first tax year began on 1 January 2019.

        Tax policy

The Management Board declares that, in the area of taxation, it acts in a responsible manner, understood as fulfilling its social responsibility for the timely payment of taxes at amounts commensurate with the scope and effects of the activities conducted. When fulfilling its tax obligations, the Bank takes into account the current provisions of the national tax law, the European standards and international agreements (the Bank complies with the tax laws in all countries where it conducts its business activities).

The tax law is applied taking into account interpretations of the tax offices and guidelines of the tax authorities. In order to responsibly fulfil its tax obligations, the Bank has a number of internal procedures in place, and dedicated organizational units (including the Tax Department) responsible for meeting tax obligations.

The Tax Department operates within the Finance and Accounting Area, and its main purposes (in accordance with the Bank’s internal regulations) are to ensure that the Bank’s tax obligations as a taxpayer are fulfilled in a timely and fair manner and to ensure the balanced tax position of the Bank and its Group. In accordance with Article 22a(6)(4)(b) of the Polish Banking Law, within the Management Board, oversight over the Finance and Accounting Area was assigned to the Vice-President of the Management Board, Rafał Kozłowski in the Banks Organizational By-laws. In accordance with the Bank’s Articles of Association, Members of the Management Board exercise oversight of the operating areas assigned to them and decide on affairs falling within the scope of ordinary management of the operating areas that are supervised by them. Moreover, the Bank has a management system which comprises a set of principles and mechanisms related to the decision-making processes taking place in the Bank, as well as to an assessment of the activities conducted by the Bank.  As part of this management system, there is a risk management system, in particular, functioning within the Bank. The Management Board of the Bank designs, implements and ensures the functioning of the management system. The operating principles of the management system, including the risk management system and internal controls system, are set out in the Bank’s internal regulations.

The Management Board declares that the Bank’s approach to taxes is transparent. The Bank maintains continuous relations with the national tax authorities based on transparency and mutual trust, within the framework of the applicable tax law. Any contacts with the Tax authorities are undertaken by the Bank in a professional, courteous and timely manner. Irrespective of the above, the Bank makes every effort to regularly present clear and transparent (public and internal) communication on its approach to specific aspects of tax settlements, within the deadlines and the scope required by the commonly applicable law.

In connection with the business activities conducted and in accordance with the applicable provisions of the tax law, the Management Board declares that the Bank is obliged to pay not only corporate income tax, but other taxes as well, such as, among others, the tax on goods and services (VAT), real estate tax, tax on certain financial institutions. As a taxpayer, the Bank is also collecting and remitting personal income tax on amounts paid to employees, customers and suppliers. With regard to income received by foreign customers and suppliers, the Bank is collecting and remitting withholding tax to national tax authorities.

The Management Board declares that the Bank is consistently avoiding any activities which would require using aggressive tax planning structures or avoiding taxes (including the use of tax havens) and is avoiding any solutions which are clearly in contravention with the legislator’s intentions or the spirit of the law (the principle of tax honesty).

The undertakings listed above also apply to tax settlements made in each country in which the Bank conducts its business activities.

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

 

Corporate income tax 2020

PKO Bank Polski S.A

1 452

 - Poland

1 452

 

 

26.            Cash and balances with the Central Bank

Accounting policies

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

Financial information

CASH AND BALANCES WITH THE CENTRAL BANK

31.12.2020

31.12.2019

Current account with the Central Bank

4 068

10 777

Cash in hand

3 329

3 825

Total

7 397

14 602

 

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

27.            Amounts due from banks

Accounting policies

Principles of classification and measurement are described in the Note “Description of significant accounting policies”. In the case of receivables for which no future cash flow schedule can be determined, and therefore the effective interest rate cannot be determined, the receivable is measured at the amount due.

Financial information

AMOUNTS DUE FROM BANKS

31.12.2020

31.12.2019

Measured at amortized cost

5 311

7 957

Deposits with banks

1 287

2 907

Current accounts

414

472

Loans and advances granted

3 421

2 299

Amount due from PKO Bank Hipoteczny S.A. in respect of the sale of mortgage-secured     housing loans by the Bank

189

2 279

Gross amount

5 311

7 957

Allowances for expected credit losses

(7)

(4)

Net amount

5 304

7 953

As at 31 December 2020 and 31 December 2019, all amounts due from banks were classified as Stage 1.

AMOUNTS DUE FROM BANKS

CHANGES IN GROSS CARRYING AMOUNT DURING THE PERIOD

2020

2019

Measured: at amortized cost

 

 

As at the beginning of the period

7 957

11 217

Financial instruments granted or acquired

3 245

2 112

Utilization of limits or disbursement of tranches

2 606

798

Repayments

(8 564)

(6 167)

   Other changes

67

(3)

As at the end of the period

5 311

7 957

 

AMOUNTS DUE FROM BANKS - CHANGE IN ALLOWANCES FOR EXPECTED CREDIT LOSSES DURING THE PERIOD

2020

2019

Measured: at amortized cost

 

 

As at the beginning of the period

(4)

(4)

Increase due to recognition and purchase

(1)

-

Changes in credit risk (net)

(2)

-

As at the end of the period

(7)

(4)

 

AMOUNTS DUE FROM BANKS BY MATURITY

31.12.2020

31.12.2019

up to 1 month

1 897

3 339

1 to 3 months

-

77

3 months to 1 year

1

2 019

1 to 5 years

3 406

2 518

 

 

 

Total

5 304

7 953

 

 

28.            Hedge accounting

risk management strategy

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

The interest rate risk covers in particular:

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

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

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

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

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

        core business activities;

        trading activities;

        contracts concluded which generate foreign exchange risk.

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

accounting policies

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

        Cash flow hedges

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

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

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.

        Fair value hedges

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

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

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

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

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

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

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

types of hedging strategies applied by the Group

As at 31 December 2020, the Bank had had active relationships as part of:

        5 strategies for hedging cash flow volatility

        4 strategies for hedging fair value volatility.

In 2020 the Bank introduces new hedging strategies:

        “Hedging fair value volatility of fixed-interest-rate securities in PLN, measured at fair value through other comprehensive income, resulting from the interest rate risk, using IRS transactions”;

        “Hedging cash flow volatility of floating interest rate convertible currency loans arising from interest rate and foreign exchange risk, as well as hedging cash flow volatility of financial liabilities in convertible currencies arising from foreign exchange risk, using CIRS transactions.”

In 2020, the Bank closed two relationships under the hedging strategy “Hedging cash flow volatility of floating interest rate convertible currency loans arising from interest rate and foreign exchange risk, as well as hedging cash flow volatility of fixed interest financial liabilities in convertible currencies arising from foreign exchange risk, using CIRS transactions”, due to having no such hedged items. The total effect of discontinuing to apply hedge accounting as part of these relationships on other comprehensive income amounted to PLN 33 million, and net interest income increased by the same amount.

In 2020, the Bank closed, as a result of invalidation, a relationship under the hedging strategy “Hedging the fluctuations in the fair value of fixed-interest-rate securities in PLN, measured at fair value through other comprehensive income, resulting from the interest rate risk, using IRS transactions”; the effect of discontinuation of hedge accounting as part of the said relationship on the profit or loss amounted to PLN (-7.7) million.

In 2020, the Bank closed, as a result of failing to pass the prospective test of sufficient nominal amount, a relationship under the hedging strategy “Hedging cash flow volatility of floating interest loans in EUR, resulting from the risk of fluctuations in interest rates, using IRS transactions” The effect of the discontinuation of hedge accounting as part of the said relationship on the profit or loss amounted to PLN 0.6 million.

In 2020, the Bank terminated, as a result of the derecognition of the hedged item, the hedging relationships under the hedging strategies:

        Hedging the volatility of cash flows of floating-rate CHF loans, resulting from the risk of changes in interest rates and currency risk, and hedging of the volatility of cash flows of deposits negotiated in PLN, resulting from the risk of changes in interest rates, using CIRS transactions;

        Hedging the volatility of cash flows of loans in convertible currencies with a variable interest rate, resulting from the risk of changes in interest rates and currency risk, and hedging the volatility of cash flows of a financial liability in a convertible currency with a fixed interest rate, resulting from currency risk, using CIRS transactions;

        Hedging the volatility of cash flows of loans in convertible currencies with a variable interest rate, resulting from the risk of changes in interest rates and currency risk, and hedging the volatility of cash flows of negotiated deposits in PLN, resulting from the risk of changes in interest rates, using two transactions: CIRS and CIRS-EP;

        Hedging the volatility of cash flows of loans in convertible currencies with a variable interest rate, resulting from the risk of changes in interest rates and currency risk, and hedging the volatility of cash flows of bank products of regular savings in PLN, resulting from the risk of changes in interest rates, using two transactions: CIRS and CIRS- EP;

        Hedging the volatility of cash flows of loans in convertible currencies with a variable interest rate, resulting from the risk of changes in interest rates and currency risk, and hedging the volatility of cash flows of financial liabilities in a convertible currency, resulting from the currency risk, with the use of CIRS transactions.

The total impact of the discontinuation of hedge accounting under the above-mentioned the relationship to other comprehensive income amounted to minus PLN 117.5 million with a simultaneous increase in the net interest income and foreign exchange gains/ (losses) by this amount.

No changes were made to other hedging strategies in 2020.

In 2019, the Bank introduced two new hedging strategies for fair value hedges.

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

 

Type of hedging strategy

Cash flow volatility hedges (strategy no.: 1,2,3,4,5,6,7,8,9,14)

Hedged risk

foreign exchange risk and interest rate risk

interest rate risk

Hedging instrument

transactions CIRS float – float

transactions CIRS fixed – float

IRS fixed – float transactions

Hedged item

        the portfolio of floating interest loans in foreign currencies and

        the portfolio of current negotiated term deposits, including their future renewals. In designating the hedged item, the Bank used the IAS39 WS 99C in the version adopted by the European Union, or

        fixed interest rate financial liability denominated in foreign currency or

        the portfolio of floating interest rate regular savings products in PLN or financial liabilities in foreign currencies

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

Sources of hedge ineffectiveness

        margin on the hedging instrument

        differences in discount on the hedged item and the hedging instrument

        CVA/DVA adjustment of the hedging instrument

        change in market parameters between the moment of 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 2021 – October 2026

The period in which cash flows are expected to occur and affect the financial results: January 2021 – August 2030

 

Type of hedging strategy

Fair value volatility hedges (strategy no.: 10,11,12,13)

Hedged risk

interest rate risk

Hedging instrument

IRS fixed – float transactions

Hedged item

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

Sources of hedge ineffectiveness

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

      CVA/DVA adjustment of the hedging instrument

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

 

 

 

HEDGED ITEM 31.12.2020

CARRYING AMOUNT OF THE HEDGED ITEM

ITEM IN THE STATEMENT OF FINANCIAL POSITION

CHANGE IN THE FAIR VALUE OF THE HEDGED ITEM

STRATEGY NO.

Cash flow hedges

 

 

 

Loans in CHF

525

Loans and advances to customers

280

 1; 7

Negotiated deposits in PLN

1 939

Amounts due to customers

Loans in CHF

400

Loans and advances to customers

(2)

3

Loans in  PLN

66 304

Loans and advances to customers

 (387)

2

Loans in EUR

599

Loans and advances to customers

 139

 5; 6

Negotiated deposits in PLN

2 591

Amounts due to customers

Loans in EUR

704

Loans and advances to customers

 (1)

3

Fair value hedges

Security in EUR

30

Securities measured at amortized cost

 1

 11

  Security in EUR

102

Securities measured at fair value through other comprehensive income

1

 12

 Security in USD

158

Securities measured at fair value through other comprehensive income

5

 12

 Loans in  EUR

174

Loans and advances to customers

1

 10

  Security in PLN

535

Securities measured at fair value through other comprehensive income

17

 13

Total

 

 

54

 

 

 

 

HEDGED ITEM 31.12.2019

CARRYING AMOUNT OF THE HEDGED ITEM

ITEM IN THE STATEMENT OF FINANCIAL POSITION

CHANGE IN THE FAIR VALUE OF THE HEDGED ITEM

STRATEGY NO.

Cash flow hedges

 

 

Loans in CHF

1 560

Loans and advances to customers

348

1; 7

Negotiated deposits in PLN

5 784

Amounts due to customers

Loans in CHF

1 643

Loans and advances to customers

(97)

4

Financial liability in USD

875

Debt securities in issue

Financial liability in EUR

748

Debt securities in issue

Loans in CHF

1 431

Loans and advances to customers

220

8; 9

Regular savings products in PLN

5 378

Amounts due to customers

Loans in CHF

400

Loans and advances to customers

(2)

3

Loans in PLN

40 681

Loans and advances to customers

(51)

2

Loans in EUR

624

Loans and advances to customers

(43)

5; 6

Negatioted deposits in PLN

2 700

Amounts due to customers

Kredyty w EUR

700

Loans and advances to customers

-  

3

Fair value hedges

 

 

 Security in EUR

30

Securities measured at amortized cost

-  

11

 Security in EUR

44

Securities measured at fair value through other comprehensive income

-  

12

 Security in USD

134

Securities measured at fair value through other comprehensive income

(1)

12

Loans in EUR

183

Loans and advances to customers

1

10

Total

 

 

375

 

 

 

Hedging derivative 2020-12-31

Nominal amount of hedging derivatives

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

Carrying amount (fair value of hedging instruments)

Ineffective portion of cash flow hedges recognized in the income statements / Fair value adjustment to the hedged item

Change in the fair value of hedging instruments since designation

Strategy no.

Assets

Liabilities

Cash flow hedges

CIRS CHF/PLN

float CHF

525

-0,0507%

-

293

(1)

(278)

1

float PLN

1 939

0,0000%

IRS PLN

fixed PLN

66 304

0,8196%

590

8

2

398

 2

IRS CHF

fixed CHF

400

-0,4425%

6

-

-

1

 3

IRS EUR

fixed EUR

1 228

-0,1479%

22

6

(1)

18

 3; 6

CIRS CHF/EUR

float CHF

-

 

-

-

6

-  

 4; 7; 9; 14

fixed EUR

-

 

CIRS EUR/PLN

float EUR

75

0,0000%

-

17

(1)

(14)

5

float PLN

328

-0,0500%

CIRS-EP EUR/PLN

fixed EUR

524

0,5719%

-

164

(14)

(140)

6

float PLN

2 263

0,0000%

Fair value hedges

IRS EUR

float EUR

306

-0,2837%

-

13

13

(3)

10; 11; 12

IRS USD

float USD

158

1,3735%

-  

20

17

(5)

12

IRS PLN

float PLN

535

1,2437%

-  

21

17

(17)

13

Total

 

 

 

618

542

38

(40)

 

 

 

 

Hedging derivative



31.12.2019

Nominal amount of hedging derivatives

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

Carrying amount (fair value of hedging instruments)

Ineffective portion of cash flow hedges recognized in the income statements / Fair value adjustment to the hedged item

Change in the fair value of hedging instruments since designation

Strategy no.

Assets

Liabilities

Cash flow hedges

CIRS CHF/PLN

float CHF

1 250

0,0109%

14

378

1

(379)

1; 8

float PLN

4 525

0,0000%

IRS PLN

PLN

40 681

1,7652%

229

8

2

56

2

IRS CHF

CHF

400

-0,4425%

8

-  

- 

2

3

IRS EUR

EUR

1 224

-0,1699%

15

2

1

12

3; 6

CIRS CHF/USD

float CHF

818

0,0000%

190

-  

(2)

124

 4

fixed USD

875

2,4315%

CIRS CHF/EUR

float CHF

2 566

0,0000%

86

187

1

(123)

4; 7; 9

fixed EUR

2 301

0,0119%

CIRS EUR/PLN

float EUR

100

0,0000%

11

-  

-  

11

5

float PLN

437

-0,0277%

CIRS-EP EUR/PLN

fixed EUR

2 077

0,1443%

37

86

3

(54)

6; 7; 9

float PLN

8 900

0,0000%

Fair value hedges

IRS EUR

EUR

257

-0,1874%

1

6

(4)

(1)

10; 11; 12

IRS USD

USD

134

1,5702%

3

1

2

1

12

Total

 

 

 

594

668

4

(351)

 

 

Financial information

CARRYING AMOUNT OF HEDGING INSTRUMENTS

31.12.2020

31.12.2019

Assets

Liabilities

Assets

Liabilities

Cash flow hedges

618

489

590

661

- interest rate risk IRS

618

14

252

10

- foreign exchange risk and interest rate risk - CIRS

-

475

338

651

Fair value hedges

-

54

4

7

- interest rate risk IRS

-

54

4

7

 

 

 

 

 

Total

618

543

594

668

 

Cash flow hedges

CHANGE IN OTHER COMPREHENSIVE INCOME RELATING TO CASH FLOW HEDGES AND AN INEFFECTIVE PORTION OF CASH FLOW HEDGES

2020

2019

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

95

(18)

Impact on other comprehensive income during the period, gross

276

139

Gains/losses recognized in other comprehensive income during the period

253

395

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

23

(256)

- interest income

(797)

(536)

- net foreign exchange gains/(losses)

820

280

Tax effect

(52)

(26)

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

319

95

 

 

 

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

(10)

6

Foreign exchange gains/ (losses)

(11)

3

Gain/(loss) on financial instruments

1

3

 

Fair value hedges

HEDGES OF INTEREST RATE RISK

31.12.2020

31.12.2019

Fair value measurement of the hedging derivative instrument - IRS

(54)

(3)

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

46

2

Securities

5

1

Loans and advances to customers

4

4

FVOCI securities - fair value adjustment recognized in OCI

37

(3)

 

NOMINAL VALUE OF HEDGING INSTRUMENTS BY MATURITY (in original currencies)

up to 1 month

1 to 3 months

3 months to 1 year

1 to 5 years

over 5 years

Total

31.12.2020

 

 

 

 

 

 

Hedge type: Cash flow hedges

Risk hedged: interest rate risk

IRS PLN fixed - float

2 150

1 520

12 464

49 427

744

66 305

IRS EUR  fixed - float

-

-

500

724

4

1 228

IRS CHF  fixed - float

-

-

400

-

-

400

Risk hedged: foreign exchange and interest rate risks

CIRS float CHF/float PLN

float CHF

-

-

500

25

-

525

float PLN

-

-

1 843

97

-

1 940

CIRS float EUR/float PLN

float EUR

-

75

-

-

-

75

float PLN

-

328

-

-

-

328

CIRS float PLN/fixed EUR

float PLN

-

-

-

2 263

-

2 263

fixed EUR

-

-

-

524

-

524

Hedge type: Fair value hedges

Risk hedged: interest rate risk

IRS USD fixed - float

-

-

-

158

-

158

IRS EUR fixed - float

-

-

82

188

36

306

IRS PLN fixed - float

 

 

 

 

535

535

 

NOMINAL VALUE OF HEDGING INSTRUMENTS BY MATURITY (in original currencies)

up to 1 month

1 to 3 months

3 months to 1 year

1 to 5 years

over 5 years

Total

31.12.2019

 

 

 

 

 

 

Hedge type: Cash flow hedges

Risk hedged: interest rate risk

IRS PLN fixed - float

500

4 700

25 492

9 922

67

40 681

IRS EUR  fixed - float

-

-

700

524

-

1 224

IRS CHF  fixed - float

-

-

-

400

-

400

Zabezpieczane ryzyko: ryzyka walutowego i ryzyka stopy procentowej 

CIRS float CHF/float PLN

float CHF

-

50

425

750

25

1 250

float PLN

-

169

1 456

2 812

88

4 525

CIRS fixed USD/float CHF

fixed USD

-

-

-

875

-

875

float CHF

-

-

-

817

-

817

CIRS float EUR/float PLN

float EUR

25

-

-

75

-

100

float PLN

108

-

-

329

-

437

CIRS float PLN/fixed EUR

float PLN

-

-

-

8 900

-

8 900

fixed EUR

-

-

-

2 077

-

2 077

CIRS fixed EUR/float CHF 

fixed EUR

-

-

-

2 301

-

2 301

float CHF

-

-

-

2 567

-

2 567

Hedge type: Fair value hedges

Risk hedged: interest rate risk

IRS USD fixed - float

-

-

-

134

-

134

IRS EUR fixed - float

-

-

-

209

48

257

 

Calculation of estimates

ESTIMATED CHANGE IN VALUATION OF DERIVATIVE HEDGING INSTRUMENTS FOLLOWING A PARALLEL SHIFT IN YIELD CURVES:

31.12.2020

31.12.2019

scenario +50bp

scenario -50bp

scenario +50bp

scenario -50bp

IRS

(537)

543

(192)

194

CIRS

(29)

29

(39)

40

 

 

 

 

 

Total

(566)

572

(231)

234

 

 

29.            Other derivative instruments

Accounting policies

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

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

Estimates and judgments

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

Financial information

OTHER DERIVATIVE INSTRUMENTS - BY TYPE

31.12.2020

31.12.2019

Assets

Liabilities

Assets

Liabilities

IRS

3 192

3 405

1 525

1 624

CIRS

535

1 505

151

148

FX Swap

377

315

217

186

Options

260

383

312

336

Commodity swap

411

409

287

283

FRA

2

2

1

1

Forward

313

293

305

348

Futures

-

-

-

1

Commodity Forward

326

320

-

-

 

 

 

 

 

Total

5 416

6 632

2 798

2 927

 

 

31.12.2020

31.12.2019

CVA and CDA adjustments

(15)

(9)

 

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

31.12.2020

up to 1 month

1 to 3 months

3 months to 1 year

1 to 5 years

over 5 years

Total

IRS

13 198

14 716

77 620

233 752

39 712

378 998

Purchase

6 599

7 358

38 810

116 876

19 856

189 499

Sale

6 599

7 358

38 810

116 876

19 856

189 499

CIRS

-

-

17 936

48 460

7 564

73 960

Purchase

-

-

8 799

23 825

3 772

36 396

Sale

-

-

9 137

24 635

3 792

37 564

FX Swap

28 763

12 923

9 428

5 373

-

56 487

Purchase of currencies

14 458

6 459

4 674

2 697

-

28 288

Sale of currencies

14 305

6 464

4 754

2 676

-

28 199

Options

5 154

9 685

25 008

10 345

1

50 193

Purchase

2 589

4 838

12 435

5 170

-

25 032

Sale

2 565

4 847

12 573

5 175

1

25 161

FRA

-

-

17 832

834

-

18 666

Purchase

-

-

8 680

584

-

9 264

Sale

-

-

9 152

250

-

9 402

Forward

6 513

14 387

18 565

7 955

47

47 467

Purchase of currencies

3 271

7 168

9 281

3 985

23

23 728

Sale of currencies

3 242

7 219

9 284

3 970

24

23 739

 

Other, including Commodity swap and Futures (including stock exchange indices)

 

701

1 299

3 661

1 133

434

7 228

Purchase

351

650

1 832

567

233

3 633

Sale

350

649

1 829

566

201

3 595

 

 

 

 

 

 

 

Total

54 329

53 010

170 050

307 852

47 758

632 999

 

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

31.12.2019

up to 1 month

1 to 3 months

3 months to 1 year

1 to 5 years

over 5 years

Total

IRS

7 204

40 152

187 600

207 090

39 576

481 622

Purchase

3 602

20 076

93 800

103 545

19 788

240 811

Sale

3 602

20 076

93 800

103 545

19 788

240 811

CIRS

1 386

447

4 248

64 627

7 554

78 262

Purchase

694

210

2 019

32 207

3 772

38 902

Sale

692

237

2 229

32 420

3 782

39 360

FX Swap

21 409

8 336

13 663

5 211

-

48 619

Purchase of currencies

10 700

4 161

6 846

2 639

-

24 346

Sale of currencies

10 709

4 175

6 817

2 572

-

24 273

Options

6 263

12 743

37 545

11 845

1

68 397

Purchase

3 108

6 432

18 576

5 849

-

33 965

Sale

3 155

6 311

18 969

5 996

1

34 432

FRA

-

-

22 211

1 000

-

23 211

Purchase

-

-

12 397

500

-

12 897

Sale

-

-

9 814

500

-

10 314

Forward

7 601

13 160

24 653

12 650

-

58 064

Purchase of currencies

3 795

6 588

12 319

6 309

-

29 011

Sale of currencies

3 806

6 572

12 334

6 341

-

29 053

Other, including Commodity swap and Futures (including stock exchange indices)

 

824

1 348

1 924

614

-

4 710

Purchase

518

683

962

307

-

2 470

Sale

306

665

962

307

-

2 240

 

 

 

 

 

 

 

Total

44 687

76 186

291 844

303 037

47 131

762 885

 

Calculation of estimates

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

ESTIMATED CHANGE IN VALUATION OF OTHER DERIVATIVE INSTRUMENTS FOLLOWING A PARALLEL SHIFT IN YIELD CURVES:

31.12.2020

31.12.2019

scenario +50bp

scenario -50bp

scenario +50bp

scenario

-50bp

IRS

(530)

536

(184)

185

CIRS

(29)

29

(40)

40

other instruments

(4)

4

(2)

2

 

 

 

 

 

Total

(563)

569

(226)

227

 

30.            Securities

Accounting policies

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

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

Financial information

SECURITIES

held for trading

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

measured at fair value through OCI

measured at amortized cost

Total

31.12.2020

 

 

 

 

 

Debt securities

1 171

647

70 446

47 217

119 481

NBP money market bills

-

-

-

-

-

Treasury bonds (in PLN)

685

119

50 654

29 617

81 075

Treasury bonds (in foreign currencies)

4

367

2 090

-

2 461

Treasury bills

349

-

500

-

849

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

-

-

8 704

9 887

18 591

municipal bonds (in PLN)

15

-

4 640

5 060

9 715

municipal bonds (in foreign currencies)

-

-

-

-

-

corporate bonds (in PLN)

110

161

3 835

1 517

5 623

corporate bonds (in foreign currencies)

-

-

23

1 136

1 159

covered bonds

8

-

-

-

8

other debt securities

-

-

-

-

-

Equity securities

27

460

-

-

487

shares in other entities – not listed

-

443

-

-

443

shares in other entities – listed

25

17

-

-

42

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

2

-

-

-

2

 

 

 

 

 

 

Total (excluding adjustment relating to fair value hedge accounting)

1 198

1 107

70 446

47 217

119 968

Adjustment relating to fair value hedge accounting

-

-

-

5

5

 

 

 

 

 

 

Total

1 198

1 107

70 446

47 222

119 973

 

 

SECURITIES

held for trading

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

measured at fair value through OCI

measured at amortized cost

Total

31.12.2019

 

 

 

 

 

Debt securities

1 158

298

61 130

13 361

75 947

  NBP money market bills

-

-

1 000

-

1 000

    Treasury bonds (in PLN)

982

118

49 299

7 373

57 772

    Treasury bonds (in foreign currencies)

2

-

2 085

-

2 087

    municipal bonds (in PLN)

15

-

5 232

4 563

9 810

    municipal bonds (in foreign currencies)

-

-

-

-

-

    corporate bonds (in PLN)

111

180

3 514

1 083

4 888

        corporate bonds (in foreign currencies)

1

-

-

342

343

    covered bonds

47

-

-

-

47

Equity securities

17

457

-

-

474

    shares in other entities – not listed

-

433

-

-

433

    shares in other entities – listed

15

24

-

-

39

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

2

-

-

-

2

 

 

 

 

 

 

Total (excluding adjustment relating to fair value hedge accounting)

1 175

755

61 130

13 361

76 421

Adjustment relating to fair value hedge accounting

-

-

-

1

1

 

 

 

 

 

 

Total

1 175

755

61 130

13 362

76      22

 

The item “T-bonds in PLN and in foreign currencies” comprises Polish T-bonds.

30.1. securities financial assets by stage

SECURITIES (excluding adjustments relating to fair value hedge accounting)

31.12.2020

Stage 1

Stage 2

Stage 3

Total

including POCI

Measured at: fair value through OCI

Gross amount

69 935

68

457

70 460

438

Treasury bonds (in PLN)

50 654

-

-

50 654

-

Treasury bonds (in foreign currencies)

2 090

-

-

2 090

-

Treasury bills

500

-

-

500

-

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

8 704

-

-

8 704

-

municipal bonds (in PLN)

4 573

67

-

4 640

-

corporate bonds (in PLN)

3 391

1

457

3 849

438

corporate bonds (in foreign currencies)

23

-

-

23

-

Allowances for expected credit losses

-

-

(14)

(14)

(14)

corporate bonds (in PLN)

-

-

(14)

(14)

(14)

Net amount

69 935

68

443

70 446

424

Treasury bonds (in PLN)

50 654

-

-

50 654

-

Treasury bonds (in foreign currencies)

2 090

-

-

2 090

-

Treasury bills

500

-

-

500

-

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

8 704

-

-

8 704

-

municipal bonds (in PLN)

4 573

67

-

4 640

-

corporate bonds (in PLN)

3 391

1

443

3 835

424

corporate bonds (in foreign currencies)

23

-

-

23

-

Measured at: amortized cost

Gross amount

47 026

228

-

47 254

-

Treasury bonds (in PLN)

29 617

-

-

29 617

-

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

9 889

-

-

9 889

-

municipal bonds (in PLN)

5 052

24

-

5 076

-

corporate bonds (in PLN)

1 330

204

-

1 534

-

corporate bonds (in foreign currencies)

1 138

-

-

1 138

-

Allowances for expected credit losses

(21)

(16)

-

(37)

-

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

(2)

-

-

(2)

-

municipal bonds (in PLN)

(16)

-

-

(16)

-

corporate bonds (in PLN)

(1)

(16)

-

(17)

-

corporate bonds (in foreign currencies)

(2)

-

-

(2)

-

Net amount

47 005

212

-

47 217

-

Treasury bonds (in PLN)

29 617

-

-

29 617

-

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

9 887

-

-

9 887

-

municipal bonds (in PLN)

5 036

24

-

5 060

-

corporate bonds (in PLN)

1 329

188

-

1 517

-

corporate bonds (in foreign currencies)

1 136

-

-

1 136

-

Total securities

 

 

 

 

 

Gross amount

116 961

296

457

117 714

438

Allowances for expected credit losses

(21)

(16)

(14)

(51)

(14)

Net amount

116 940

280

443

117 663

424

 

SECURITIES (excluding adjustments relating to fair value hedge accounting)

31.12.2019

Stage 1

Stage 2

Stage 3

Total

including POCI

Measured at: fair value through OCI

Gross amount

60 613

59

463

61 135

463

NBP money market bills

1 000

-

-

1 000

-

Treasury bonds (in PLN)

49 299

-

-

49 299

-

Treasury bonds (in foreign currencies)

2 085

-

-

2 085

-

municipal bonds (in PLN)

5 173

59

-

5 232

-

corporate bonds (in PLN)

3 056

-

463

3 519

463

Allowances for expected credit losses

-

-

(5)

(5)

(5)

corporate bonds (in PLN)

-

-

(5)

(5)

(5)

Net amount

60 613

59

458

61 130

458

NBP money market bills

1 000

-

-

1 000

-

Treasury bonds (in PLN)

49 299

-

-

49 299

-

Treasury bonds (in foreign currencies)

2 085

-

-

2 085

-

municipal bonds (in PLN)

5 173

59

-

5 232

-

corporate bonds (in PLN)

3 056

-

458

3 514

458

Measured at: amortized cost

 

 

 

 

Gross amount

13 356

20

-

13 376

-

Treasury bonds (in PLN)

7 373

-

-

7 373

-

municipal bonds (in PLN)

4 554

20

-

4 574

-

corporate bonds (in PLN)

1 087

-

-

1 087

-

corporate bonds (in foreign currencies)

342

-

-

342

-

Allowances for expected credit losses

(15)

-

-

(15)

-

municipal bonds (in PLN)

(11)

-

-

(11)

-

corporate bonds (in PLN)

(4)

-

-

(4)

-

Net amount

13 341

20

-

13 361

-

Treasury bonds (in PLN)

7 373

-

-

7 373

-

municipal bonds (in PLN)

4 543

20

-

4 563

-

corporate bonds (in PLN)

1 083

-

-

1 083

-

corporate bonds (in foreign currencies)

342

-

-

342

-

Total securities

 

 

 

 

 

Gross amount

73 969

79

463

74 511

463

Allowances for expected credit losses

(15)

-

(5)

(20)

(5)

Net amount

73 954

79

458

74 491

458

 

30.2. securities -  Changes in the gross carrying amount during the period

SECURITIES – CHANGES IN THE GROSS CARRYING AMOUNT DURING THE PERIOD (excluding adjustments relating to fair value hedge accounting)

Stage 1

Stage 2

Stage 3

Total

including POCI

2020

 

 

 

 

 

Measured at: fair value through OCI

Carrying amount as at the beginning of the period, gross

60 613

59

463

61 135

463

Transfer from stage 2 and 3 to stage 1

8

(8)

-

-

-

Transfer from stage 1 and 3 to stage 2

(14)

14

-

-

-

Transfer from stage 1 and 2 to stage 3

(19)

-

19

-

-

Granting or purchase of financial instruments

66 211

4

-

66 215

-

Utilization of limit or payment of tranches

953

-

1

954

1

Repayments

(61 710)

(1)

(23)

(61 734)

(23)

Immaterial modifications

2

-

-

2

-

Derecognition, including sale

(11)

-

-

(11)

-

Write-offs

-

-

(2)

(2)

(2)

Other changes

3 902

-

(1)

3 901

(1)

Carrying amount as at the end of the period, gross

69 935

68

457

70 460

438

 

 

 

SECURITIES – CHANGES IN THE GROSS CARRYING AMOUNT DURING THE PERIOD (excluding adjustments relating to fair value hedge accounting)

Stage 1

Stage 2

Stage 3

Total

including POCI

2020

 

 

 

 

 

Measured at: amortized cost

Carrying amount as at the beginning of the period, gross

13 356

20

-

13 376

-

Transfer from stage 2 and 3 to stage 1

12

(12)

-

-

-

Transfer from stage 1 and 3 to stage 2

(105)

105

-

-

-

Granting or purchase of financial instruments

34 610

-

-

34 610

-

Utilization of limit or payment of tranches

130

1

-

131

-

Repayments

(1 859)

(6)

-

(1 865)

-

Other changes

882

120

-

1 002

-

Carrying amount as at the end of the period, gross

47 026

228

-

47 254

-

 

SECURITIES – CHANGES IN THE GROSS CARRYING AMOUNT DURING THE PERIOD (excluding adjustments relating to fair value hedge accounting)

Stage 1

Stage 2

Stage 3

Total

including POCI

2019

 

 

 

 

 

Measured at: fair value through OCI

Carrying amount as at the beginning of the period, gross

49 713

388

471

50 572

471

Transfer from stage 2 and 3 to stage 1

295

(295)

-

-

-

Transfer from stage 1 and 3 to stage 2

(10)

10

-

-

-

Transfer from stage 1 and 2 to stage 3

-

(26)

26

-

26

Granting or purchase of financial instruments

215 341

22

-

215 363

-

Utilization of limit or payment of tranches

315

-

-

315

-

Repayments

(207 587)

(22)

(11)

(207 620)

(11)

Derecognition, including sale

(196)

(17)

-

(213)

-

Write-offs

-

-

3

3

3

Other changes

2 742

(1)

(26)

2 715

(26)

Carrying amount as at the end of the period, gross

60 613

59

463

61 135

463

 

SECURITIES – CHANGES IN THE GROSS CARRYING AMOUNT DURING THE PERIOD (excluding adjustments relating to fair value hedge accounting)

Stage 1

Stage 2

Stage 3

Total

including POCI

2019

 

 

 

 

 

Measured at: amortized cost

Carrying amount as at the beginning of the period, gross

8 276

59

-

8 335

-

Transfer from stage 2 and 3 to stage 1

48

(48)

-

-

-

Transfer from stage 1 and 3 to stage 2

(18)

18

-

-

-

Granting or purchase of financial instruments

12 345

8

-

12 353

-

Utilization of limit or payment of tranches

25

-

-

25

-

Repayments

(7 928)

(8)

-

(7 936)

-

Immaterial modifications

1

-

-

1

-

Derecognition of financial instruments, including sale

(116)

(8)

-

(124)

-

Other changes

723

(1)

-

722

-

Carrying amount as at the end of the period, gross

13 356

20

-

13 376

-

 

30.3. securities - Changes in allowances for expected credit losses in the period

SECURITIES – CHANGES IN ALLOWANCES FOR EXPECTED CREDIT LOSSES IN THE PERIOD

Stage 1

Stage 2

Stage 3

Total

including POCI

2020

 

 

 

 

 

Measured at: fair value through OCI

As at the beginning of the period

-

-

(5)

(5)

(5)

Increase due to recognition and purchase

(5)

-

-

(5)

-

Changes in credit risk (net)

3

-

(8)

(5)

(8)

Write-offs

-

-

2

2

2

Other adjustments

2

-

(3)

(1)

(3)

As at the end of the period

-

-

(14)

(14)

(14)

 

SECURITIES – CHANGES IN ALLOWANCES FOR EXPECTED CREDIT LOSSES IN THE PERIOD

Stage 1

Stage 2

Stage 3

Total

including POCI

2020

 

 

 

 

 

Measured at: amortized cost

As at the beginning of the period

(15)

-

-

(15)

-

Transfer from stage 1 and 3 to stage 2

4

(4)

-

-

-

Increase due to recognition and purchase

(6)

-

-

(6)

-

Changes in credit risk (net)

(1)

(15)

-

(16)

-

Other adjustments

(3)

3

-

-

-

As at the end of the period

(21)

(16)

-

(37)

-

 

SECURITIES – CHANGES IN ALLOWANCES FOR EXPECTED CREDIT LOSSES IN THE PERIOD

Stage 1

Stage 2

Stage 3

Total

including POCI

2019

 

 

 

 

 

Measured at: fair value through OCI

As at the beginning of the period

-

-

(10)

(10)

(10)

Changes in credit risk (net)

(2)

(15)

6

(11)

6

Write-offs

-

-

(3)

(3)

(3)

Other adjustments

2

15

2

19

2

As at the end of the period

-

-

(5)

(5)

(5)

 

SECURITIES – CHANGES IN ALLOWANCES FOR EXPECTED CREDIT LOSSES IN THE PERIOD

Stage 1

Stage 2

Stage 3

Total

including POCI

2019

 

 

 

 

 

Measured at: amortized cost

As at the beginning of the period

(12)

(8)

-

(20)

-

Transfer from stage 2 and 3 to stage 1

(8)

8

-

-

-

Increase due to recognition and purchase

(3)

-

-

(3)

-

Changes in credit risk (net)

7

-

-

7

-

Other adjustments

1

-

-

1

-

As at the end of the period

(15)

-

-

(15)

-

 

        Other information

 

31.12.2020

31.12.2019

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

19

16

 

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

held for trading

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

measured at fair value through OCI

measured at amortized cost

Total

31.12.2020

 

 

 

 

 

without a set date – equity securities

27

461

-

-

488

up to 1 month

1

2

4

7

14

from 1 to 3 months

351

-

503

12

866

from 3 months to 1 year

556

14

9 156

854

10 580

from 1 to 5 years

187

423

41 984

34 309

76 903

over 5 years

76

207

18 799

12 035

31 117

 

 

 

 

 

 

Total

1 198

1 107

70 446

47 217

119 968

 

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

held for trading

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

measured at fair value through OCI

measured at amortized cost

Total

31.12.2019

 

 

 

 

 

without a set date – equity securities

17

457

-

-

474

up to 1 month

114

-

1 002

-

1 116

from 1 to 3 months

3

-

45

9

57

3 months to 1 year

344

-

2 082

379

2 805

from 1 to 5 years

197

117

43 107

8 631

52 052

over 5 years

500

181

14 894

4 342

19 917

 

 

 

 

 

 

Total

1 175

755

61 130

13 361

76 421

 

 

 

31.            Repo and reverse repo transactions

Accounting policies  

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

Reverse repo transactions are security sale transactions with a granted promise of repurchase with a defined contractual term and specified price. The securities that are a component of the reverse repo transactions are not eliminated from the statement of financial position and are measured in accordance with the principles specified for each category of securities. The difference between the sales price and the repurchase price is the interest expense and is deferred over the term of the contract using the effective interest rate.

Financial information

Reverse repo transactions

31.12.2020

31.12.2019

Gross amount

-

1 081

Allowance for expected credit losses

-

-

Net amount

-

1 081

 

As at 31 December 2020 and 31 December 2019, all reverse repo transactions were in Stage 1.

 

CHANGES IN THE GROSS CARRYING AMOUNT DURING THE PERIOD

2020

2019

Reverse repo transactions

 

 

Carrying amount as at the beginning of the period, gross

1 081

51

Granting or purchase of financial instruments

-

1 085

Repayments

(1 081)

(51)

Other changes

-

(4)

Carrying amount as at the end of the period, gross

-

1 081

 

 

 

32.            Loans and advances to customers

Accounting policies

Loans and advances to customers include amounts due from loans and advances granted.

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

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

Additionally, the Bank recognizes the  of:

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

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

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

 

FINANCIAL INFORMATION

LOANS AND ADVANCES TO CUSTOMERS

31.12.2020

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

measured at fair value through OCI

measured at amortized cost

Total

retail and private banking

5 895

14 054

93 748

113 697

real estate

7

14 054

71 363

85 424

consumer

5 888

-

22 385

28 273

SME

46

-

16 835

16 881

real estate

-

-

5 673

5 673

corporate

46

-

11 162

11 208

corporate

68

-

62 413

62 481

real estate

-

-

292

292

corporate

68

-

62 121

62 189

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

6 009

14 054

172 996

193 059

Adjustment relating to fair value hedge accounting

4

-

-

4

Total

6 013

14 054

172 996

193 063

 

LOANS AND ADVANCES TO CUSTOMERS

31.12.2019

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

measured at fair value through OCI

measured at amortized cost

Total

retail and private banking

8 138

9 623

97 765

115 526

real estate

15

9 623

76 890

86 528

consumer

8 123

-

20 875

28 998

SME

54

-

17 791

17 845

real estate

-

-

5 768

5 768

corporate

54

-

12 023

12 077

corporate

94

-

67 398

67 492

real estate

-

-

283

283

corporate

94

-

67 115

67 209

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

8 286

9 623

182 954

200 863

Adjustment relating to fair value hedge accounting

4

-

-

4

Total

8 290

9 623

182 954

200 867

 

32.1 Loans and advances to customers - financial assets by stage

 

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

31.12.2020

Stage 1

Stage 2

Stage 3

Total

including POCI

Measured at: fair value through OCI

Gross amount

13 181

863

10

14 054

-

housing loans

13 181

863

10

14 054

-

Allowances for expected credit losses

-

-

-

-

-

housing loans

-

-

-

-

-

Net amount

13 181

863

10

14 054

-

housing loans

13 181

863

10

14 054

-

Measured at: amortized cost

 

 

Gross amount

145 125

27 062

8 684

180 871

185

housing loans

66 428

10 951

1 882

79 261

81

corporate loans

58 985

13 271

5 423

77 679

51

consumer loans

19 712

2 840

1 379

23 931

53

Allowances for expected credit losses

(537)

(1 863)

(5 475)

(7 875)

(34)

housing loans

(42)

(522)

(1 369)

(1 933)

(26)

corporate loans

(297)

(920)

(3 179)

(4 396)

(4)

consumer loans

(198)

(421)

(927)

(1 546)

(4)

Net amount

144 588

25 199

3 209

172 996

151

housing loans

66 386

10 429

513

77 328

55

corporate loans

58 688

12 351

2 244

73 283

47

consumer loans

19 514

2 419

452

22 385

49

Loans and advances to customers, total

 

 

Gross amount

158 306

27 925

8 694

194 925

185

Allowances for expected credit losses

(537)

(1 863)

(5 475)

(7 875)

(34)

Net amount

157 769

26 062

3 219

187 050

151

 

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

31.12.2019

Stage 1

Stage 2

Stage 3

Total

including POCI

Measured at: fair value through OCI

Gross amount

9 438

177

8

9 623

-

housing loans

9 438

177

8

9 623

-

Allowances for expected credit losses

-

-

-

-

-

Net amount

9 438

177

8

9 623

-

housing loans

9 438

177

8

9 623

-

Measured at: amortized cost

 

 

 

Gross amount

169 305

11 409

8 683

189 397

288

housing loans

77 480

5 281

2 052

84 813

89

corporate loans

72 691

4 415

5 442

82 548

157

consumer loans

19 134

1 713

1 189

22 036

42

Allowances for expected credit losses

(557)

(1 011)

(4 875)

(6 443)

(55)

housing loans

(41)

(479)

(1 352)

(1 872)

(32)

corporate loans

(369)

(306)

(2 735)

(3 410)

3

consumer loans

(147)

(226)

(788)

(1 161)

(26)

Net amount

168 748

10 398

3 808

182 954

233

housing loans

77 439

4 802

700

82 941

57

corporate loans

72 322

4 109

2 707

79 138

160

consumer loans

18 987

1 487

401

20 875

16

Loans and advances to customers, total

 

 

Gross amount

178 743

11 586

8 691

199 020

288

Allowances for expected credit losses

(557)

(1 011)

(4 875)

(6 443)

(55)

Net amount

178 186

10 575

3 816

192 577

233

 

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

LOANS AND ADVANCES TO CUSTOMERS – CHANGES IN THE GROSS CARRYING AMOUNT DURING THE PERIOD

Stage 1

Stage 2

Stage 3

Total

including POCI

2020

 

 

 

 

 

Measured at: fair value through OCI

Housing loans 

Carrying amount as at the beginning of the period, gross

9 438

177

8

9 623

-

Transfer from stage 2 and 3 to stage 1

69

(69)

-

-

-

Transfer from stage 1 and 3 to stage 2

(713)

714

(1)

-

-

Transfer from stage 1 and 2 to stage 3

(4)

(3)

7

-

-

Granting or purchase of financial instruments

356

12

-

368

-

Utilization of limit or payment of tranches

3 426

76

-

3 502

-

Repayments

(1 028)

(15)

(1)

(1 044)

-

Immaterial modifications

39

4

-

43

-

Derecognition, including sale

(71)

(6)

-

(77)

-

Other changes

1 669

(27)

(3)

1 639

-

Carrying amount as at the end of the period, gross

13 181

863

10

14 054

-

 

LOANS AND ADVANCES TO CUSTOMERS – CHANGES IN THE GROSS CARRYING AMOUNT DURING THE PERIOD

Stage 1

Stage 2

Stage 3

Total

including POCI

2020

 

 

 

 

 

Measured at: amortized cost 

Housing loans  

Carrying amount as at the beginning of the period, gross

77 480

5 281

2 052

84 813

91

Transfer from stage 2 and 3 to stage 1

979

(977)

(2)

-

-

Transfer from stage 1 and 3 to stage 2

(8 220)

8 344

(124)

-

-

Transfer from stage 1 and 2 to stage 3

(71)

(179)

250

-

-

Granting or purchase of financial instruments

751

68

35

854

-

Utilization of limit or payment of tranches

5 777

48

65

5 890

1

Repayments

(8 261)

(562)

(120)

(8 943)

(12)

Immaterial modifications

40

(5)

(2)

33

-

Derecognition, including sale

(235)

(18)

(7)

(260)

(7)

Write-offs

(11)

1

(18)

(28)

-

Change in the business model

(6)

(6)

(54)

(66)

-

Other changes1

(1 795)

(1 044)

(193)

(3 032)

8

Carrying amount as at the end of the period, gross

66 428

10 951

1 882

79 261

81

1 Including changes in the gross carrying amount disclosed in the Note „Cost of the legal risk of mortgage loans in convertible currencies”.

 

LOANS AND ADVANCES TO CUSTOMERS – CHANGES IN THE GROSS CARRYING AMOUNT DURING THE PERIOD

Stage 1

Stage 2

Stage 3

Total

including POCI

2020

 

 

 

 

 

Measured at: amortized cost

 Business loans

Carrying amount as at the beginning of the period, gross

72 691

4 415

5 442

82 548

157

Transfer from stage 2 and 3 to stage 1

553

(531)

(22)

-

-

Transfer from stage 1 and 3 to stage 2

(6 333)

6 619

(286)

-

-

Transfer from stage 1 and 2 to stage 3

(369)

565

(196)

-

-

Granting or purchase of financial instruments

9 115

1 876

354

11 345

18

Utilization of limit or payment of tranches

8 782

1 109

201

10 092

27

Repayments

(25 176)

(1 435)

(685)

(27 296)

(153)

Immaterial modifications

50

(31)

(16)

3

-

Derecognition, including sale

(124)

(22)

(29)

(175)

(29)

Write-offs

(139)

2

(64)

(201)

2

Change in the business model

-

(1)

(6)

(7)

-

Other changes

(65)

705

730

1 370

29

Carrying amount as at the end of the period, gross

58 985

13 271

5 423

77 679

51

 

LOANS AND ADVANCES TO CUSTOMERS – CHANGES IN THE GROSS CARRYING AMOUNT DURING THE PERIOD

Stage 1

Stage 2

Stage 3

Total

including POCI

2020

 

 

 

 

 

Measured at: amortized cost

Consumer loans

Carrying amount as at the beginning of the period, gross

19 135

1 713

1 189

22 037

40

Transfer from stage 2 and 3 to stage 1

507

(495)

(12)

-

-

Transfer from stage 1 and 3 to stage 2

(1 779)

1 815

(36)

-

-

Transfer from stage 1 and 2 to stage 3

(317)

(222)

539

-

-

Granting or purchase of financial instruments

7 845

321

77

8 243

16

Utilization of limit or payment of tranches

787

138

98

1 023

3

Repayments

(6 900)

(282)

(101)

(7 283)

(5)

Immaterial modifications

(9)

(5)

(2)

(16)

-

Derecognition, including sale

(6)

(2)

(47)

(55)

(39)

Write-offs

(204)

-

(62)

(266)

(7)

Change in the business model

(6)

(6)

(54)

(66)

-

Other changes

659

(135)

(210)

314

45

Carrying amount as at the end of the period, gross

19 712

2 840

1 379

23 931

53

 

LOANS AND ADVANCES TO CUSTOMERS – CHANGES IN THE GROSS CARRYING AMOUNT DURING THE PERIOD

Stage 1

Stage 2

Stage 3

Total

including POCI

2019

 

 

 

 

 

Measured at: fair value through OCI 

Housing loans

Carrying amount as at the beginning of the period, gross

8 330

163

3

8 496

-

Transfer from stage 2 and 3 to stage 1

66

(66)

-

-

-

Transfer from stage 1 and 3 to stage 2

(106)

106

-

-

-

Transfer from stage 1 and 2 to stage 3

(2)

(6)

8

-

-

Granting or purchase of financial instruments

2 990

1

-

2 991

-

Utilization of limit or payment of tranches

2 425

6

-

2 431

-

Repayments

(3 161)

(28)

-

(3 189)

-

Immaterial modifications

15

-

-

15

-

Derecognition, including sale

(2 745)

(1)

-

(2 746)

-

Other changes

1 626

2

(3)

1 625

-

Carrying amount as at the end of the period, gross

9 438

177

8

9 623

-

 

LOANS AND ADVANCES TO CUSTOMERS – CHANGES IN THE GROSS CARRYING AMOUNT DURING THE PERIOD

Stage 1

Stage 2

Stage 3

Total

including POCI

2019

 

 

 

 

 

Measured at: amortized cost

Housing loans  

Carrying amount as at the beginning of the period, gross

77 459

5 529

2 223

85 211

103

Transfer from stage 2 and 3 to stage 1

1 676

(1 669)

(7)

-

-

Transfer from stage 1 and 3 to stage 2

(1 950)

2 044

(94)

-

-

Transfer from stage 1 and 2 to stage 3

(83)

(234)

317

-

3

Granting or purchase of financial instruments

720

20

3

743

-

Utilization of limit or payment of tranches

7 015

200

113

7 328

2

Repayments

(7 544)

(641)

(205)

(8 390)

(8)

Immaterial modifications

63

(1)

(3)

59

-

Derecognition, including sale

(210)

(17)

(121)

(348)

(9)

Write-offs

-

(12)

(189)

(201)

-

Other changes

334

62

15

411

-

Carrying amount as at the end of the period, gross

77 480

5 281

2 052

84 813

91

 

LOANS AND ADVANCES TO CUSTOMERS – CHANGES IN THE GROSS CARRYING AMOUNT DURING THE PERIOD

Stage 1

Stage 2

Stage 3

Total

including POCI

2019

 

 

 

 

 

Measured at: amortized cost

Business loans

Carrying amount as at the beginning of the period, gross

65 666

5 166

6 567

77 399

412

Transfer from stage 2 and 3 to stage 1

968

(954)

(14)

-

-

Transfer from stage 1 and 3 to stage 2

(1 490)

1 597

(107)

-

-

Transfer from stage 1 and 2 to stage 3

(256)

(302)

558

-

-

Granting or purchase of financial instruments

11 532

239

481

12 252

148

Utilization of limit or payment of tranches

13 386

440

292

14 118

-

Repayments

(16 966)

(1 757)

(1 228)

(19 951)

(399)

Immaterial modifications

10

2

(2)

10

1

Derecognition, including sale

(135)

(9)

(401)

(545)

(5)

Write-offs

-

(7)

(700)

(707)

-

Other changes

(24)

-

(4)

(28)

-

Carrying amount as at the end of the period, gross

72 691

4 415

5 442

82 548

157

 

LOANS AND ADVANCES TO CUSTOMERS – CHANGES IN THE GROSS CARRYING AMOUNT DURING THE PERIOD

Stage 1

Stage 2

Stage 3

Total

including POCI

2019

 

 

 

 

 

Measured at: amortized cost

Consumer loans 

Carrying amount as at the beginning of the period, gross

23 236

1 781

1 805

26 822

51

Transfer from stage 2 and 3 to stage 1

233

(225)

(8)

-

-

Transfer from stage 1 and 3 to stage 2

(877)

901

(24)

-

-

Transfer from stage 1 and 2 to stage 3

(268)

(167)

435

-

-

Granting or purchase of financial instruments

11 446

456

102

12 004

3

Utilization of limit or payment of tranches

1 551

95

113

1 759

3

Repayments

(8 884)

(382)

(167)

(9 433)

(7)

Immaterial modifications

(6)

(2)

(7)

(15)

-

Derecognition, including sale

(47)

(65)

(122)

(234)

(10)

Write-offs

-

(10)

(369)

(379)

-

Change in the business model

(7 296)

(835)

(822)

(8 953)

-

Other changes

46

166

253

465

-

Carrying amount as at the end of the period, gross

19 134

1 713

1 189

22 036

40

 

32.3 Changes in allowances for expected credit losses in the period

LOANS AND ADVANCES TO CUSTOMERS – CHANGES IN ALLOWANCES FOR EXPECTED CREDIT LOSSES DURING THE PERIOD

Stage 1

Stage 2

Stage 3

Total

including POCI

2020

Measured at: fair value through OCI

Housing loans

 

 

 

 

 

As at the beginning of the period

-

-

-

-

-

Transfer from stage 1 and 3 to stage 2

26

(26)

-

-

-

Transfer from stage 1 and 2 to stage 3

1

1

(2)

-

-

Changes in credit risk (net)

6

(26)

(2)

(22)

-

Changes due to modification without derecognition (net)

-

(2)

(1)

(3)

-

Other adjustments

(33)

53

5

25

-

As at the end of the period

-

-

-

-

-

 

LOANS AND ADVANCES TO CUSTOMERS – CHANGES IN ALLOWANCES FOR EXPECTED CREDIT LOSSES DURING THE PERIOD

Stage 1

 

Stage 2

Stage 3

Total

including POCI

2020

Measured at: amortized cost

 

Housing loans

 

 

 

 

 

As at the beginning of the period

(41)

(479)

(1 352)

(1 872)

(32)

Transfer from stage 2 and 3 to stage 1

(2)

2

-

-

-

Transfer from stage 1 and 3 to stage 2

217

(240)

23

-

-

Transfer from stage 1 and 2 to stage 3

25

78

(103)

-

-

Increase due to recognition and purchase

(1)

-

-

(1)

-

Changes in credit risk (net)

133

(85)

46

94

8

Decrease due to derecognition

5

-

5

10

5

Changes due to modification without derecognition (net)

-

(12)

(14)

(26)

-

Write-offs

-

(1)

29

28

-

Other adjustments

(378)

215

(3)

(166)

(7)

As at the end of the period

(42)

(522)

(1 369)

(1 933)

(26)

 

LOANS AND ADVANCES TO CUSTOMERS – CHANGES IN ALLOWANCES FOR EXPECTED CREDIT LOSSES DURING THE PERIOD

Stage 1

Stage 2

Stage 3

Total

including POCI

2020

Measured at: amortized cost

Business loans

 

 

 

 

 

As at the beginning of the period

(369)

(306)

(2 735)

(3 410)

3

Transfer from stage 2 and 3 to stage 1

(10)

10

-

-

-

Transfer from stage 1 and 3 to stage 2

397

(418)

21

-

-

Transfer from stage 1 and 2 to stage 3

119

125

(244)

-

-

Increase due to recognition and purchase

(85)

(34)

(70)

(189)

-

Changes in credit risk (net)

253

(534)

(483)

(764)

6

Decrease due to derecognition

3

1

6

10

6

Changes due to modification without derecognition (net)

(4)

(9)

(37)

(50)

-

Changing the method of performing estimates (net effect)

(1)

-

(1)

(2)

-

Write-offs

-

(2)

203

201

(2)

Other adjustments

(600)

247

161

(192)

(17)

As at the end of the period

(297)

(920)

(3 179)

(4 396)

(4)

 

LOANS AND ADVANCES TO CUSTOMERS – CHANGES IN ALLOWANCES FOR EXPECTED CREDIT LOSSES DURING THE PERIOD

Stage 1

Stage 2

Stage 3

Total

including POCI

2020

Measured at: amortized cost

Consumer loans

 

 

 

 

 

As at the beginning of the period

(148)

(226)

(788)

(1 162)

(26)

Transfer from stage 2 and 3 to stage 1

(7)

7

-

-

-

Transfer from stage 1 and 3 to stage 2

250

(256)

6

-

-

Transfer from stage 1 and 2 to stage 3

181

132

(313)

-

-

Increase due to recognition and purchase

(59)

(7)

(31)

(97)

(8)

Changes in credit risk (net)

56

(276)

(298)

(518)

12

Decrease due to derecognition

1

-

20

21

19

Changes due to modification without derecognition (net)

1

(7)

(6)

(12)

-

Changing the method of performing estimates (net effect)

3

-

(4)

(1)

2

Write-offs

-

-

266

266

7

Other adjustments

(476)

212

221

(43)

(10)

As at the end of the period

(198)

(421)

(927)

(1 546)

(4)

 

LOANS AND ADVANCES TO CUSTOMERS – CHANGES IN ALLOWANCES FOR EXPECTED CREDIT LOSSES DURING THE PERIOD

Stage 1

Stage 2

Stage 3

Total

including POCI

2019

Measured at: fair value through OCI

Housing loans

 

 

 

 

 

As at the beginning of the period

 

 

 

 

 

Changes of credit risk (net)

12

-

-

12

-

As at the end of the period

(12)

-

-

(12)

-

 

LOANS AND ADVANCES TO CUSTOMERS – CHANGES IN ALLOWANCES FOR EXPECTED CREDIT LOSSES DURING THE PERIOD

Stage 1

Stage 2

Stage 3

Total

including POCI

2019

Measured at: amortized cost

housing loans

 

 

 

 

 

As at the beginning of the period

(42)

(502)

(1 396)

(1 940)

(41)

Transfer from stage 2 and 3 to stage 1

(3)

3

-

-

-

Transfer from stage 1 and 3 to stage 2

161

(169)

8

-

-

Transfer from stage 1 and 2 to stage 3

33

87

(120)

-

-

Increase due to recognition and purchase

(1)

-

(1)

(2)

-

Changes in credit risk (net)

(137)

98

(39)

(78)

15

Decrease due to derecognition

2

-

-

2

-

Changes due to modification without derecognition (net)

-

(1)

-

(1)

-

Write-offs

-

12

189

201

(2)

Other adjustments

(54)

(7)

7

(54)

(4)

As at the end of the period

(41)

(479)

(1 352)

(1 872)

(32)

 

LOANS AND ADVANCES TO CUSTOMERS – CHANGES IN ALLOWANCES FOR EXPECTED CREDIT LOSSES DURING THE PERIOD

Stage 1

Stage 2

Stage 3

Total

including POCI

2019

Measured at: amortized cost

Business loans

 

 

 

 

 

As at the beginning of the period

(332)

(314)

(3 251)

(3 897)

(55)

Transfer from stage 2 and 3 to stage 1

(12)

12

-

-

-

Transfer from stage 1 and 3 to stage 2

101

(106)

5

-

-

Transfer from stage 1 and 2 to stage 3

72

62

(134)

-

-

Increase due to recognition and purchase

(104)

(11)

(64)

(179)

-

Changes in credit risk (net)

(62)

57

(154)

(159)

59

Decrease due to derecognition

19

-

10

29

5

Changes due to modification without derecognition (net)

(3)

(4)

(16)

(23)

(1)

Write-offs

-

7

700

707

-

Other adjustments

(48)

(9)

169

112

(5)

As at the end of the period

(369)

(306)

(2 735)

(3 410)

3

 

LOANS AND ADVANCES TO CUSTOMERS – CHANGES IN ALLOWANCES FOR EXPECTED CREDIT LOSSES DURING THE PERIOD

Stage 1

Stage 2

Stage 3

Total

including POCI

2019

Measured at: amortized cost

Consumer loans

 

 

 

 

 

As at the beginning of the period

(147)

(308)

(1 219)

(1 674)

(28)

Transfer from stage 2 and 3 to stage 1

(2)

2

-

-

-

Transfer from stage 1 and 3 to stage 2

109

(112)

3

-

-

Transfer from stage 1 and 2 to stage 3

154

91

(245)

-

-

Increase due to recognition and purchase

(55)

(6)

(29)

(90)

-

Changes in credit risk (net)

(224)

(65)

(196)

(485)

24

Decrease due to derecognition

1

23

6

30

-

Changes due to modification without derecognition (net)

-

(1)

5

4

-

Changing the method of performing estimates (net effect)

2

(1)

1

2

-

Write-offs

-

10

369

379

-

Change in the business model

45

106

599

750

-

Other adjustments

(30)

35

(82)

(77)

(22)

As at the end of the period

(147)

(226)

(788)

(1 161)

(26)

 

 

        pozostałe informacje

 

31.12.2020

31.12.2019

write-off not lowering the fair value of loans and advances to customers measured at fair value through other comprehensive income

54

29

 

LOANS AND ADVANCES TO CUSTOMERS BY MATURITY

(excluding adjustments relating to fair value hedge accounting)

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

measured at fair value through OCI

measured at amortized cost

Total

31.12.2020

 

 

 

 

up to 1 month

1 032

69

8 154

9 255

from 1 to 3 months

674

80

6 728

7 482

from 3 months to 1 year

2 572

379

22 493

25 444

from 1 to 5 years

1 624

2 224

72 140

75 988

over 5 years

107

11 302

63 481

74 890

 

 

 

 

 

Total

6 009

14 054

172 996

193 059

 

LOANS AND ADVANCES TO CUSTOMERS BY MATURITY

(excluding adjustments relating to fair value hedge accounting)

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

measured at fair value through OCI

measured at amortized cost

Total

31.12.2019

 

 

 

 

up to 1 month

1 954

26

7 419

9 399

from 1 to 3 months

678

47

5 490

6 215

from 3 months to 1 year

2 829

227

25 969

29 025

from 1 to 5 years

2 467

1 402

69 961

73 830

over 5 years

358

7 921

74 115

82 394

 

 

 

 

 

Total

8 286

9 623

182 954

200 863

 

        Reclassification of loans from measured at amortized cost to measured at fair value through profit or loss

In the third quarter of 2019, the Bank reclassified a part of the portfolio of consumer loans with the net carrying amount of PLN 8 204 million from measured at amortized cost to measured at fair value through profit or loss. Reclassification related to the following products: cash loans, credit cards and revolving loans, which contained a multiple in the interest rate formula in the contractual provisions. The  of the reclassification on the net result as at the reclassification date was nil.

Reclassification was justified by the fact that these contracts did not meet the IFRS 9 classification criteria for categories other than measured at fair value through profit or loss as the contracts for these products provided for a multiple in the interest rate formula.

 

33.  Intangible assets, property, plant and equipment

 

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 allowances.

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

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

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

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

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

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

Capital expenditure – The carrying amount of property, plant and equipment items is increased by additional capital expenditure incurred during their use.

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

      Odpisy amortyzacyjne

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

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

        the lease period ends; or

        the asset is designated for scrapping; or

        the asset is sold; or

        the asset is found to be missing; or

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

Depreciation write-offs are made using the straight-line method, consisting in the systematic, even distribution of the initial value of the fixed asset, the right to use and the intangible asset over the specified depreciation period, regardless of the possibility of periods of their unused.

For non-financial non-current assets it is assumed that the residual value is nil, unless there is a third party obligation 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 when it is possible to determine the value of the asset on this market.

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

 

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

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

An impairment allowance in respect of goodwill cannot be reversed. The impairment allowance may be reversed if there was a change in the estimates used to determine the recoverable amount. An impairment allowance may be reversed only to the level at which the carrying amount of an asset does not exceed the carrying amount – less depreciation/amortization – which would be determined had the impairment allowance not been recorded.

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

 

Estimates and judgments

        Useful lives of property, plant and equipment, intangible assets and investment properties

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

        expected physical wear and tear, estimated based on the average useful lives recorded to date, reflecting the normal physical wear and tear rate, intensity of use, etc.,

        technical or market obsolescence;

        legal and other limitations on the use of the asset;

        expected use of the asset;

        other factors affecting useful lives of such assets.

When the useful life of a given asset results from the 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 adopted depreciation/amortization method and useful lives are reviewed at least on an annual basis.

Depreciation /amortization periods applied by the Bank:

Fixed assets

Use periods

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

from 25 to 60 years

Improvements in foreign fixed assets (buildings, premises)

from 1 to 11 years

(or the lease term, if shorter) 

Machines, technical devices, tools and  instruments

from 2 to 15 years 

Computer sets

from 2 to 10 years

Means of transport

from 3 to 5 years

Intangible assets

Use periods

Software

from 1 to 20 years

Other intangible assets

from 2 to 20 years 

 

 

      Odpisy z tytułu utraty wartości

At each balance sheet date, the Bank makes an assessment of whether there is objective evidence of impairment of any non-financial non-current assets, right-of-use assets (or cash-generating units). If any such evidence is identified, and annually in the case of intangible assets which are not amortized and goodwill, the Bank estimates the recoverable amount being the higher of the fair value less costs to sell or the value in use of a non-current asset (or a cash-generating unit), and if the carrying amount of an asset exceeds its recoverable amount, the Bank recognizes an impairment allowance in the income statement. The estimation for the above-mentioned values requires making assumptions, among other things, about future expected cash flows that the Bank may receive from the continued use or disposal of the non-current asset (or a cash-generating unit). The adoption of different assumptions with reference to the valuation of future cash flows could affect the carrying amount of certain non-current assets.

 

33.1.                 property, plant and equipment

PROPERTY, PLANT AND EQUIPMENT

Land and buildings

Machinery and equipment, including IT equipment

Assets under construction

Other, including vehicles

Total

of which of right-of-use assets

2020

 

 

 

 

 

 

 Carrying amount as at the beginning of the period, gross

3 275

1 458

221

634

5 588

1 008

 Purchase

358

1

280

5

644

363

 Transfers from capital expenditure

58

117

(206)

31

-

-

 Liquidation and sale

(42)

(49)

-

(30)

(121)

(1)

 Other

(151)

(1)

(3)

(4)

(159)

-

 Carrying amount as at the end of the period, gross

3 498

1 526

292

636

5 952

1 370

    

 

 

 

 

 

 

 Accumulated depreciation as at the beginning of the period

(1 240)

(1 145)

-

(423)

(2 808)

(195)

 Depreciation  for the period 

(298)

(119)

-

(53)

(470)

(210)

 Liquidation and sale

39

49

-

30

118

-

 Other

37

(1)

-

2

38

-

 Accumulated depreciation as at the end of the period 

(1 462)

(1 216)

-

(444)

(3 122)

(405)

    

 

 

 

 

 

 

 Impairment allowances as at the beginning of the period

(41)

-

-

(1)

(42)

(1)

 Recognized during the period

(62)

(1)

-

-

(63)

(4)

 Reversed during the period

5

-

-

-

5

-

 Other

6

-

-

1

7

-

 Impairment allowances as at the end of the period

(92)

(1)

-

-

(93)

(5)

     

 

 

 

 

 

 

 Carrying amount as at the beginning of the period, net

1 994

313

221

210

2 738

812

 Carrying amount as at the end of the period, net

1 944

309

292

192

2 737

960

 

PROPERTY, PLANT AND EQUIPMENT

Land and buildings

Machinery and equipment, including IT equipment

Assets under construction

Other, including vehicles

Total

of which of right-of-use assets

2019

   

   

   

  

  

  

 Carrying amount as at the beginning of the period, gross

3 196

1 480

166

614

5 456

889

 Purchase

108

-

269

19

396

127

 Transfers from capital expenditure

57

116

(211)

38

-

-

 Liquidation and sale

(54)

(139)

-

(30)

(223)

(8)

 Other

(32)

1

(3)

(7)

(41)

-

 Carrying amount as at the end of the period, gross

3 275

1 458

221

634

5 588

1 008

    

 

 

 

 

 

 

 Accumulated depreciation as at the beginning of the period

(1 022)

(1 135)

-

(405)

(2 562)

-

 Depreciation for the period 

(266)

(149)

-

(49)

(464)

(195)

 Liquidation and sale

34

138

-

29

201

-

 Other

14

1

-

2

17

-

 Accumulated depreciation as at the end of the period 

(1 240)

(1 145)

-

(423)

(2 808)

(195)

    

 

 

 

 

 

 

 Impairment allowances as at the beginning of the period

(32)

-

-

(2)

(34)

-

 Recognized during the period

(14)

-

-

-

(14)

(1)

 Other

5

-

-

1

6

-

 Impairment allowances as at the end of the period

(41)

-

-

(1)

(42)

(1)

     

 

 

 

 

 

 

 Carrying amount as at the beginning of the period, net

2 142

345

166

207

2 860

889

 Carrying amount as at the end of the period, net

1 994

313

221

210

2 738

812

 

PROPERTY, PLANT AND EQUIPMENT related to right-of-use

PROPERTY, PLANT AND EQUIPMENT related to right-of-use

Land and buildings

Other, including vehicles

Total

31.12.2020

   

  

  

 Carrying amount as at the beginning of the period, gross

970

38

1 008

 Purchase

357

6

363

Liquidation and sale

(1)

 -  

(1)

 Carrying amount as at the end of the period, gross

1 326

44

1 370

    

 

 

 

 Accumulated depreciation as at the beginning of the period

(185)

(10)

(195)

 Depreciation charge for the period 

(198)

(12)

(210)

 Accumulated depreciation as at the end of the period 

(383)

(22)

(405)

    

 

 

 

 Impairment allowances as at the beginning of the period

(1)

 -  

(1)

 Recognized during the period

(4)

 -  

(4)

 Impairment allowances as at the end of the period

(5)

 -  

(5)

     

 

 

 

 Carrying amount as at the beginning of the period, net

784

28

812

 Carrying amount as at the end of the period, net

938

22

960

 

PROPERTY, PLANT AND EQUIPMENT related to  right-of-use

Land and buildings

Other, including vehicles

Total

31.12.2019

   

  

  

 Carrying amount as at the beginning of the period, gross

870

19

889

 Purchase

108

19

127

Liquidation and sale

(8)

-

(8)

 Carrying amount as at the end of the period, gross

970

38

1 008

    

 

 

 

 Accumulated depreciation as at the beginning of the period

 -  

- 

-  

 Depreciation charge for the period 

(185)

(10)

(195)

 Accumulated depreciation as at the end of the period 

(185)

(10)

(195)

    

 

 

 

 Impairment allowances as at the beginning of the period

 -  

 -  

-  

 Recognized during the period

(1)

 -  

(1)

 Impairment allowances as at the end of the period

(1)

 -  

(1)

     

 

 

 

 Carrying amount as at the beginning of the period, net

870

19

889

 Carrying amount as at the end of the period, net

784

28

812

 

33.2.                 intangible assets

INTANGIBLE ASSETS

Software

Goodwill

Future profit on concluded insurance contracts

Customer relationships

Other, including capital expenditure

of which: software

Total

31.12.2020

   

  

  

  

  

  

  

 Carrying amount as at the beginning of the period, gross

5 366

871

-

86

384

330

6 707

Purchase

-

-

-

-

557

557

557

Transfers from capital expenditure

525

-

-

-

(525)

(525)

-

Other

16

-

-

-

47

44

63

 Carrying amount as at the end of the period, gross

5 907

871

-

86

463

406

7 327

Accumulated amortization as at the beginning of the period

(3 955)

-

-

(74)

(49)

-

(4 078)

Amortization charge for the period

(376)

-

-

(4)

(3)

-

(383)

Other

2

-

-

-

-

-

2

 Accumulated amortization as at the end of the period

(4 329)

-

-

(78)

(52)

-

(4 459)

    

 

 

 

 

 

 

 

 Impairment allowances as at the beginning of the period

(15)

-

-

-

(8)

(8)

(23)

Recognized during the period

-

(116)

-

-

-

-

(116)

Other

-

-

-

-

8

8

8

Impairment allowances as at the end of the period

(15)

(116)

-

-

-

-

(131)

Carrying amount as at the beginning of the period, net

1 396

871

-

12

327

322

2 606

Carrying amount as at the end of the period, net

1 563

755

-

8

411

406

2 737

 

INTANGIBLE ASSETS

Software

Goodwill

Future profit on concluded insurance contracts

Customer relationships

Other, including

capital expenditure

of which: software

Total

31.12.2019

   

  

  

  

  

  

  

Carrying amount as at the beginning of the period, gross

5 055

871

-

86

330

276

6 342

Purchase

-

-

-

-

354

354

354

Liquidation and sale

296

-

-

-

(296)

(296)

-

Other

15

-

-

-

(4)

(4)

11

Carrying amount as at the end of the period, gross

5 366

871

-

86

384

330

6 707

 Accumulated amortization as at the beginning of the period

(3 607)

-

-

(69)

(46)

-

(3 722)

Amortization charge for the period

(348)

-

-

(5)

(3)

-

(356)

 Accumulated amortization as at the end of the period

(3 955)

-

-

(74)

(49)

-

(4 078)

    

 

 

 

 

 

 

 

 Impairment allowances as at the beginning of the period

(15)

-

-

-

(10)

(10)

(25)

Reversed during the period

-

-

-

-

2

2

2

 Impairment allowances as at the end of the period

(15)

-

-

-

(8)

(8)

(23)

    

 

 

 

 

 

 

 

 Carrying amount as at the beginning of the period, net

1 433

871

-

17

274

266

2 595

 Carrying amount as at the end of the period, net

1 396

871

-

12

327

322

2 606

 

With regard to the Bank, a significant item of intangible assets relates to expenditures on the Integrated Information System (IIS). The total capital expenditure incurred for the IIS system in the years 2004–2020 amounted to PLN 1 525 million.

The net carrying amount of the Integrated Information System (IIS) amounted to PLN 616 million as at 31 December 2020 (PLN 590 million as at 31 December 2019). The expected useful life of the IIS system is 24 years. As at 31 December 2020, the remaining useful life is 10 years.

      Goodwill

Net goodwill

31.12.2020

31.12.2019

Nordea Bank Polska S.A.

747

863

Assets taken over from CFP sp. z o.o.

8

8

 

Goodwill

Impairment test – method

Nordea Bank Polska S.A.

The impairment test is conducted by comparing the carrying amounts of Cash Generating Units (‘CGUs’) with their recoverable amount. Two CGUs were identified to which goodwill on acquisition of Nordea Bank Polska S.A. was allocated – the retail and corporate CGU. The residual value of a CGU has been calculated by extrapolating the cash flow projections beyond the period of the forecast, using the growth rate adopted at a level of 2.7%. Cash flow projections were based on the assumptions included in the financial plans of the Bank for 2020, taking into account the  of COVID-19 and the reductions of interests rates on the current and anticipated macroeconomic situation. A discount rate of 8.13%, taking into account the risk-free rate and risk premium was used for the discounting of the future cash flows.

As a result of the test, the Bank recorded an allowance for the corporate CGU in the amount of PLN 117 million. Goodwill of Nordea Bank Polska S.A. of PLN 747 million relates to the retail segment.

The main factors influencing the allowance were the outbreak of the COVID-19 pandemic and its effects (increased cost of credit risk and expected lower economic activity) and interest rate reductions combined with a high level of regulatory burdens (tax on certain financial institutions and cost of fees to the BGF), which resulted in a significant reduction in the expected profitability of the banking business.

 

Calculation of estimates

The  of change in the useful lives of assets being subject to depreciation and classified as land and buildings is presented in the table below:

CHANGE IN THE USEFUL LIVES OF ASSETS SUBJECT TO DEPRECIATION AND CLASSIFIED AS LAND AND BUILDINGS

31.12.2020

31.12.2019

scenario +10 years

scenario -10 years

scenario

+10 years

scenario

-10 years

Depreciation costs

(30)

203

(36)

245

 

 

34.            Assets held for sale  

ACCOUNTING POLICIES

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

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

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

 

NON-CURRENT ASSETS HELD FOR SALE

31.12.2020

31.12.2019

Land and buildings

126

10

Other

1

-

Total, gross

127

10

Impairment allowances

(3)

(1)

 

 

 

Total

124

9

 

Non-current assets held for sale – CHANGES IN ALLOWANCES

31.12.2020

31.12.2019

As at the beginning of the period

(1)

-

Recognized during the period

(4)

(1)

Other

2

-

As at the end of the period

(3)

(1)

 

35.            Investments in subsidiaries, associates and joint ventures  

ACCOUNTING POLICIES

Investments in subsidiaries, associates and joint ventures are measured at cost less impairment allowances. In the case of the sale of investments in subsidiaries, which results in a loss of control, the Bank measures the remaining investment to fair value and accepts this value as a new cost for the purpose of subsequent measurement. The excess of the fair value of the investment over the carrying amount is recognized by the Bank in other operating income.

At each balance sheet date, the Bank makes an assessment of whether there is any objective evidence of impairment of investments in subsidiaries, associates and joint ventures. If any such evidence exists, the Bank estimates the value in use of the investment or the fair value of the investment less costs to sell, depending on which of these values is higher, and in the event that the carrying amount of an asset exceeds its value in use, the Bank recognizes an impairment loss in the income statement. The above estimation of the value in use requires making assumptions, among other things about future cash flows that the Bank may receive from dividends or the cash inflows from a potential disposal of the investment, less costs to sell.

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

The Bank has the 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 partners.

Both Shareholders have the right to appoint their representatives in the Supervisory Board: in the case of the Supervisory Board of 5 members, PKO Bank Polski SA has the right to appoint 2 members (in the case of 7 members of PKO - 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 SA and one representative of the other shareholder.

 

      Bank Pocztowy SA

PKO Bank Polski SA is a significant investor – it holds 25% plus 10 votes at the Company’s shareholders’ meeting. Poczta Polska SA 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 SA 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 1 representative each on the Supervisory Board. Through its representatives on the Supervisory Board and the Company’s Shareholders’ Meeting, the Bank participates in the policymaking process, including decisions on dividends and other ways of profit distribution.

 

      Operator Chmury Krajowej sp. z o.o.

The Bank has shares in the Company which carry 34% of votes at the Shareholders’ Meeting, with Polski Fundusz Rozwoju SA being the other shareholder.

In accordance with the Company’s Articles of Association:

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

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

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

      BSAFER SP. Z O.O.

PKO VC - fizan (a subsidiary of PKO Bank Polski SA) holds the company's shares entitling to 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 Meeting of Shareholders and require the consent of both shareholders.

 

 

FINANCIAL INFORMATION

31.12.2020

Gross amount

Impairment

Net amount

SUBSIDIARIES

 

 

 

PKO Bank Hipoteczny SA

1 650

-

1 650

KREDOBANK SA

1 072

(793)

279

PKO Leasing SA

496

-

496

PKO Życie Towarzystwo Ubezpieczeń SA

241

-

241

PKO Towarzystwo Funduszy Inwestycyjnych SA

225

-

225

PKO VC – fizan

200

-

200

PKO BP BANKOWY PTE SA

151

(37)

114

NEPTUN – fizan

132

-

132

Merkury - fiz an

120

-

120

PKO Towarzystwo Ubezpieczeń SA

110

-

110

PKO Finance AB

24

-

24

PKO BP Finat sp. z o.o.

21

-

21

JOINT VENTURES

 

 

 

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

197

-

197

Operator Chmury Krajowej sp. z o.o.

60

-

60

ASSOCIATES

 

 

 

Bank Pocztowy SA

184

(184)

-

„Poznański Fundusz Poręczeń Kredytowych" sp. z o.o.

2

(2)

-

Total

4 885

(1 016)

3 869

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

31.12.2019

Gross amount

Impairment

Net amount

SUBSIDIARIES

 

 

 

PKO Bank Hipoteczny SA

1 650

-

1 650

KREDOBANK SA

1 072

(793)

279

PKO Leasing SA

496

-

496

PKO Życie Towarzystwo Ubezpieczeń SA

241

-

241

PKO Towarzystwo Funduszy Inwestycyjnych SA

225

-

225

PKO VC - fizan

200

-

200

PKO BP BANKOWY PTE SA

151

-

151

NEPTUN - fizan

132

-

132

Merkury - fiz an

120

-

120

PKO Towarzystwo Ubezpieczeń SA

110

-

110

PKO Finance AB

24

-

24

PKO BP Finat sp. z o.o.

21

-

21

Zencard sp. z o.o.

24

(23)

1

JOINT VENTURES

 

 

 

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

197

-

197

Operator Chmury Krajowej sp. z o.o.

60

-

60

ASSOCIATES

 

 

 

Bank Pocztowy SA

184

(97)

87

„Poznański Fundusz Poręczeń Kredytowych" sp. z o.o.

2

(2)

-

Total

4 909

(915)

3 994

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

 

IMPAIRMENT ALLOWANCES – RECONCILIATION OF MOVEMENTS

2020

2019

As at the beginning of the period

915

915

Recognized during the period

124

-

Reversed during the period

(23)

-

As at the end of the period

1 016

915

 

The Bank tested the shares held in Bank Pocztowy S.A. for impairment. The valuation was performed using the discounted dividend method. The valuation model took account of the reduction in NBP interest rates introduced by the Monetary Policy Council in March and April of this year (by a total of 100 bp) and the of the COVID-19 pandemic on financial projections, especially including the expected increase in the cost of credit risk.

Bank Pocztowy S.A. operates on the basis of the agency model in cooperation with the Polish Post (Poczta Polska, its majority shareholder) and on the basis of its own network in the retail and corporate segment. The agency model with the Polish Post is permanently profitable, whereas the own network of Bank Pocztowy S.A. is not profitable. The NBP interest rate decreases and the increase in the cost of risk due to COVID-19 will make it even less profitable.

Despite the profitable agency model with the Polish Post, the result of the impairment test of the Bank Pocztowy S.A. shares held by the Bank resulted in the recognition of a further provision for the Bank’s capital exposure in Bank Pocztowy S.A. in the amount of PLN 87 million.

The Bank carried out an impairment test for the shares in PKO BP Bankowy S.A. as a result of which a write-off of PLN 37 million.

 

Selected information on associates and joint ventures

A summary of the financial data separately for each joint venture and each associate of the Bank (directly and indirectly through the subsidiary) is presented below. The amounts presented are derived from the financial statements of the individual entities prepared in accordance with IFRS or the Polish Accounting Standards (PAS). In the case of companies which have subsidiaries, the presented data is derived from the consolidated financial statements of these companies. The data for 2019 is derived from audited financial statements.

Centrum Elektronicznych Usług Płatniczych eService sp. z o.o. (in accordance with IFRS)

31.12.2020

31.12.2019

Current assets

 339

296

Non-current assets

 189

197

Current liabilities

 174

208

Long-term liabilities

 35

22

 

01.01-31.12.2020

01.01-31.12.2019

Revenue

 530

553

Profit/(loss) for the period

 104

 107

Other comprehensive income

 4

 2

Total comprehensive income

 108

 109

Dividend received from an entity classified as a joint venture

 17

36

 

Bank Pocztowy SA (in accordance with IFRS, data as published by the company)

31.12.2020

31.12.2019

Total assets

 9 170

8 008

Total liabilities

 8 537

7 395

 

01.01-31.12.2020

01.01-31.12.2019

Revenue

355

432

Profit/(loss) for the period

(9)

 19

Other comprehensive income

29

(7)

Total comprehensive income

20

 12

 

„Poznański Fundusz Poręczeń Kredytowych" sp. z o.o. (in accordance with PAS)

31.12.2020

31.12.2019

Current assets

 34

 31

Non-current assets

-

-

Current liabilities

 5

 4

Long-term liabilities

 11

 8

 

01.01-31.12.2020

01.01-31.12.2019

Revenue

 2

 2

Profit/(loss) for the period

-

-

 

Operator Chmury Krajowej sp. z o.o. (in accordance with PAS)

31.12.2020

31.12.2019

Current assets

 63

92

Non-current assets

 65

32

Current liabilities

 54

16

Long-term liabilities

 17

10

 

01.01-31.12.2020

01.01-31.12.2019

Revenue

 50

11

Profit/(loss) for the period

(39)

 (24)

 

36.            other assets

ACCOUNTING POLICIES

Financial assets recognized in this item are stated at amounts due, comprising also potential interest on such assets, taking into consideration provisions for expected credit losses. Non-financial assets are measured in accordance with the valuation principles applicable to specific categories of assets recognized in this item.

FINANCIAL INFORMATION

OTHER ASSETS

31.12.2020

31.12.2019

Other financial assets

1 772

1 691

Settlements in respect of card transactions

1 221

1 300

Settlement of financial instruments

155

73

Receivables in respect of cash settlements

159

193

Receivables and settlements in respect of trading in securities

9

3

Dividends receivable and contributions to subsidiaries

21

36

Sale of foreign currencies

8

-

Trade receivables

84

78

Other

115

8

Other non-financial assets

211

333

    Inventories

17

14

Receivables from subsidiaries belonging to the Tax Group

12

29

Assets for sale

28

40

Prepayments and deferred costs

71

59

Receivables from the State Budget in respect of lump-sum income tax

-

115

Other

83

76

 

 

 

Total

1 983

2 024

 

OTHER FINANCIAL ASSETS

Stage 1

Stage 3

Total

31.12.2020

 

 

 

Gross amount

1 772

136

1 908

Allowances for expected credit losses

-

(136)

(136)

Net amount

1 772

-

1 772

 

OTHER FINANCIAL ASSETS

Stage 1

Stage 3

Total

31.12.2019

 

 

 

Gross amount

1 691

82

1 773

Allowances for expected credit losses

-

(82)

(82)

Net amount

1 691

-

1 691

 

OTHER FINANCIAL ASSETS – CHANGES IN THE GROSS CARRYING AMOUNT DURING THE PERIOD

Stage 1

Stage 3

Total

31.12.2020

 

 

 

Carrying amount as at the beginning of the period, gross

1 691

82

1 773

Granting or purchase of financial instruments

1 772

2

1 774

Repayments

(1 691)

(2)

(1 693)

Other changes

-

54

54

Carrying amount as at the end of the period, gross

1 772

136

1 908

 

OTHER FINANCIAL ASSETS – CHANGES IN THE GROSS CARRYING AMOUNT DURING THE PERIOD

Stage 1

Stage 3

Total

31.12.2019

 

 

 

Carrying amount as at the beginning of the period, gross

2 149

86

2 235

Granting or purchase of financial instruments

1 691

-

1 691

Repayments

(2 149)

-

(2 149)

Derecognition, including sale

-

(5)

(5)

Write-offs

-

(3)

(3)

Other changes

-

4

4

Carrying amount as at the end of the period, gross

1 691

82

1 773

 

OTHER FINANCIAL ASSETS – CHANGES IN ALLOWANCES FOR EXPECTED CREDIT LOSSES IN THE PERIOD

Stage 1

Stage 3

Total

31.12.2020

 

 

 

As at the beginning of the period

-

(82)

(82)

Other adjustments

-

(54)

(54)

As at the end of the period

-

(136)

(136)

 

OTHER FINANCIAL ASSETS – CHANGES IN ALLOWANCES FOR EXPECTED CREDIT LOSSES IN THE PERIOD

Stage 1

Stage 3

Total

31.12.2019

 

 

 

As at the beginning of the period

-

(86)

(86)

Increase due to recognition and purchase

-

1

1

Write-offs

-

3

3

As at the end of the period

-

(82)

(82)

 

Other non-financial assets – CHANGES IN ALLOWANCES

2020

2019

As at the beginning of the period

(127)

(122)

Recognized during the period

(48)

(27)

Derecognition of assets and settlements

11

22

As at the end of the period

(164)

(127)

      Management of foreclosed collateral– item “assets for sale”

Foreclosed collaterals as a result of restructuring or debt collection activities are either designated for sale or used by the Bank for internal purposes. Details of the foreclosed assets are analysed in order to determine whether they can be used by the Bank for internal purposes. All of the assets foreclosed as a result of the restructuring and debt collection activities in the years ended 31 December 2020 and 31 December 2019, respectively, were designated for sale. Activities undertaken by the Bank are aimed at selling assets as soon as possible. The primary procedure for the sale of assets is an open tender. In justified cases, the sale follows a different procedure depending on the specifics of the sold property.

37.            Amounts due to the Central Bank and banks

ACCOUNTING POLICIES

The principles of classification and measurement are discussed in the Note “Major accounting policies”.

FINANCIAL INFORMATION

As at 31 December 2020 and 31 December 2019 there were no amounts due to the Central Bank from the Bank.

AMOUNTS DUE TO BANKS

31.12.2020

31.12.2019

Measured at fair value through profit or loss:

-

317

Liabilities in respect of short position in securities

-

317

Measured at amortized cost

2 583

1 659

Bank deposits

1 384

786

Current accounts

1 134

756

Other monetary market deposits

65

117

 

 

 

Total

2 583

1 976

 

AMOUNTS DUE TO BANKS BY MATURITY

31.12.2020

31.12.2019

Measured at fair value through profit or loss:

-

317

up to 1 month

-

317

 

 

 

Measured at amortized cost:

2 583

1 659

up to 1 month

2 582

1 649

from 1 to 3 months

-

10

from 3 months to 1 year

1

-

 

 

 

Total

2 583

1 976

 

38.            Amounts due to customers

ACCOUNTING POLICIES

The principles of classification and measurement are discussed in Note “Major accounting policies”.

FINANCIAL INFORMATION

AMOUNTS DUE TO CUSTOMERS

Amounts due to households

Amounts due to corporate entities

Amounts due to public entities

Total

31.12.2020

 

 

 

 

Measured at amortized cost

221 988

43 162

13 744

278 894

Cash on current accounts and overnight deposits of which

173 732

41 850

13 706

229 288

savings accounts and other interest-bearing assets

53 569

15 935

7 322

76 826

Term deposits

47 780

629

18

48 427

Other liabilities

476

683

20

1 179

 

 

 

 

 

Total

221 988

43 162

13 744

278 894

 

AMOUNTS DUE TO CUSTOMERS

Amounts due to households

Amounts due to corporate entities

Amounts due to public entities

Total

31.12.2019

 

 

 

 

Measured at fair value through profit or loss

-

45

-

45

Liabilities in respect of short position in securities

-

45

-

45

Measured at amortized cost

192 391

49 153

11 354

252 898

Cash on current accounts and overnight deposits of which

127 159

39 835

10 997

177 991

savings accounts and other interest-bearing assets

45 134

16 799

-

61 933

Term deposits

64 855

8 486

331

73 672

Other liabilities

377

832

26

1 235

 

 

 

 

 

Total

192 391

49 198

11 354

252 943

 

AMOUNTS DUE TO CUSTOMERS BY MATURITY

31.12.2020

31.12.2019

Measured at fair value through profit or loss:

-

45

up to 1 month

-

45

 

 

 

Measured at amortized cost:

278 894

252 898

up to 1 month

239 471

196 140

from 1 to 3 months

10 913

16 494

from 3 months to 1 year

17 587

28 424

from 1 to 5 years

3 254

4 222

over 5 years

7 669

7 618

Total

278 894

252 943

 

AMOUNTS DUE TO CUSTOMERS BY SEGMENT

31.12.2020

31.12.2019

retail and private banking

195 985

173 003

corporate

41 171

50 282

SME

41 738

29 658

 

 

 

Total

278 894

252 943

 

39.            Financing received

FINANCING RECEIVED

31.12.2020

31.12.2019

Loans and advances received from:

4 906

5 026

banks

14

-

international financial institutions

855

969

    other financial institutions

4 037

4 057

Liabilities in respect of securities in issue, bonds issued by PKO Bank Polski S.A.

4 020

4 769

Subordinated liabilities

2 716

2 730

 

 

 

Total

11 642

12 525

 

39.1            Loans and advances received

Loans and advances received from banks

Date of receiving a loan *

Nominal

amount

Currency

Maturity

Carrying amount at 31.12.2020

Carrying amount at 31.12.2019

 

 

 

 

 

 

31.12.2020

14

PLN

31.12.2020

14

-

 

 

 

 

 

 

Total

 

 

 

14

-

*current loan from the National Bank of Poland – overdraft on the NOSTRO account

Loans and advances received from International Financial Organizations

Date of receiving a loan or advance

Nominal

amount

Currency

Maturity

Carrying amount at 31.12.2020

Carrying amount at 31.12.2019

 

 

 

 

 

 

23.12.2010

75

EUR

23.12.2020

-

64

25.09.2013

75

EUR

25.09.2023

208

256

23.10.2018

646

PLN

23.10.2023

647

649

 

 

 

 

 

 

Total

 

 

 

855

969

 

Loans and advances received from other financial institutions

Date of receiving a loan or advance

Nominal

amount

Currency

Maturity

Carrying amount at 31.12.2020

Carrying amount at 31.12.2019

 

 

 

 

 

 

25.07.2012

50

EUR

25.07.2022

    234

        215

26.09.2012

1000

USD

26.09.2022

    3 803

3 842

 

 

 

 

 

 

Razem

 

 

 

     4 037

    4 057

 

39.2            debt securities in issue

Bonds issued by PKO Bank Polski S.A.

Issue date

Type of interest rate

Interest rate

Nominal

amount

Currency

Maturity

Carrying amount at 31.12.2020

Carrying amount at 31.12.2019

 

 

 

 

 

 

 

 

25.07.2017

fixed

0,75

500

EUR

25.07.2021

2 314

3 200

02.11.2017

 fixed

0,30

400

CHF

02.11.2021

1 706

1 569

 

 

 

 

 

 

 

 

Total

 

 

 

 

 

4 020

4 769

 

In 2020, the Bank made an early partial redemption of the issued bonds (maturity on July 25, 2021) for the amount of EUR 250 million. The outstanding nominal value of this issue as at December 31, 2020 is EUR 500 million.

 

39.3            subordinated liabilities

Type of liability

Nominal value

Interest rate

Currency

Period

Carrying amount

31.12.2020

31.12.2019

Subordinated bonds

3,34

1 700

PLN

28.08.2017 - 28.08.2027

1 710

1 719

Subordinated bonds

3,29

1 000

PLN

05.03.2018 - 06.03.2028

1 006

1 011

 

 

 

 

 

 

 

TOTAL

 

 

 

 

2 716

2 730

 

The subordinated bonds were designated for increasing the Bank’s supplementary funds (Tier 2) upon the approval of the Polish Financial Supervision Authority.

 

40.            Other liabilities

ACCOUNTING POLICIES

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. 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

31.12.2020

31.12.2019

Other financial liabilities

2 983

3 167

Costs to be paid

387

403

Interbank settlements

272

461

Liabilities arising from investing activities and internal operations

379

251

Amounts due to suppliers

49

114

Liabilities and settlements in respect of trading in securities

246

567

Settlement of financial instruments

38

22

liabilities in respect of foreign exchange activities

245

201

Costs of financial support to a subsidiary

284

274

Liabilities in respect of payment cards

30

20

Lease liabilities

1 023

819

Other

30

35

Other non-financial liabilities

1 481

1 350

Deferred income

622

627

Liability in respect of tax on certain financial institutions

79

78

Liabilities in respect of a contribution to the Bank Guarantee Fund maintained in the form of payment obligations

576

386

to the Resolution Fund

294

209

to the Banks’ Guarantee Fund

282

177

Liabilities under the public law

66

141

Other

138

118

 

 

 

Total

4 464

4 517

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).

As at 31 December 2020 and as at 31 December 2019, the Bank did not have any liabilities in respect of which it did not meet its contractual obligations.

41.            Provisions

accounting policies and estimates and judgments

      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 Bank (litigation pending has been discussed in detail in the Note “Legal claims”). 

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

      provisions for pensions and other defined post-employment benefits

The provision for retirement and disability benefits resulting from the Labour Code is created 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 created on the basis of a list of persons with all the 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.

      provisions for holiday pay

The provisions for holiday pay is established 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.

      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 allowances for 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 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 the reimbursement of costs to customers on the early repayment of consumer loans

The amount of the provision for the reimbursement of costs to customers on the early repayment of consumer loans is affected by the percentage of prepaid consumer loans, the expected amount of consumer claims referring to the reimbursement of loan costs prepaid before the balance sheet data and the average amount of the refund. 

      other provisions

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

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

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

 

FINANCIAL INFORMATION

FOR THE YEAR ENDED 31.12.2020

Provisions for financial liabilities and guarantees granted

Provisions for legal claims, excluding legal claims relating to repaid mortgage loans in convertible currencies

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

Provisions for reimbursement of costs to customers on early repayment of consumer and mortgage loans

Provisions for pensions and other defined post-employment benefits

Restructuring

Provisions for holiday pay

Other provisions, including provisions for employee disputed claims

Total

As at the beginning of the period

268

50

29

104

55

41

80

26

653

Increases, including increases of existing provisions

354

55

398

106

13

16

15

117

1 074

Utilized amounts

-

(4)

-

(187)

(1)

(5)

-

(4)

(201)

Unused provisions reversed during the period

-

(5)

-

-

(7)

(13)

(18)

-

(43)

Other changes and reclassifications

4

-

(1)

-

1

(1)

-

(19)

(16)

 

 

 

 

 

 

 

 

 

 

As at the end of the period

626

96

426

23

61

38

77

120

1 467

Short-term provisions

535

-

-

23

7

38

77

-

680

Long-term provisions

91

96

426

-

54

-

-

120

787

 

 

ZA ROK ZAKOŃCZONY

31.12.2019

Provisions for financial liabilities and guarantees granted

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

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

Provisions for reimbursement of costs to customers on early repayment of consumer and mortgage loans

Provisions for pensions and other defined post-employment benefits

Restructuring

Provision for holiday pay

Other provisions, including provisions for employee disputed claims

Total

As at the beginning of the period

227

51

-

-

48

24

85

91

526

Increases, including increases of existing provisions

287

6

29

127

4

33

13

-

499

Utilized amounts

-

(1)

-

(23)

(1)

(15)

-

(4)

(44)

Unused provisions reversed during the period

(246)

(6)

-

-

(2)

(1)

(18)

(61)

(334)

Other changes and reclassifications

-

-

-

-

6

-

-

-

6

 

 

 

 

 

 

 

 

 

 

As at the end of the period

268

50

29

104

55

41

80

26

653

Short-term provisions

225

-

-

104

7

41

80

4

461

Long-term provisions

43

50

29

-

48

-

-

22

192

Calculation of estimates

The Bank updated its estimates of provisions for pensions and other liabilities in respect of defined post-employment benefit plans as at 31 December 2020 using an external independent actuary’s calculations. The provisions calculated are equal to discounted future payments, taking into account staff turnover.

COMPONENTS AFFECTING THE PROVISION AMOUNT:

31.12.2020

31.12.2019

financial discount rate adopted

1,20%

2,00%

weighted average ratio of employee mobility

9,19%

9,36%

average remaining period of service in years

7,68

7,80

10-year average assumed annual increase in the basis calculation of retirement benefits

2,53%

2,26%

 

The  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 post-employment benefit plans as at 31 December 2020 and as at 31 December 2019 is presented in the tables below: 

ESTIMATED CHANGE IN PROVISION for pensions and other liabilities in respect of defined post-employment benefits

31.12.2020

31.12.2019

scenario +1pp

scenario -1pp

scenario +1pp

scenario -1pp

 

 

 

 

 

Discount rate

(5)

6

(4)

5

Planned increases in base amounts

6

(5)

6

(4)

 

The Bank performed a sensitivity analysis of the provision for reimbursement for customers on early repayments of consumer and mortgage loans before the balance sheet date as at 31 December 2020 and 31 December 2019 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%

31.12.2020

 

 

 

 

Provision for reimbursement of costs to customers on early repayment of consumer and mortgage loans

(2)

2

(2)

2

 

ESTIMATED CHANGE IN PROVISION

Change in the number of claims

Change in the average amount of reimbursement

-10%

10%

-10%

10%

31.12.2019

 

 

 

 

Provision for reimbursement of costs to customers on early repayment of consumer and mortgage loans

(10)

10

(10)

10

 

42.            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 1.7, IAS 1.78.e, IAS 1.54.q–r and IAS 1.79.b.

Equity components:

        Share capital is stated at nominal value in accordance with the Articles of Association and entry in the Register of Entrepreneurs.

        Supplementary capital is created according to the Articles of Association of the Bank, from the appropriation of profits and from share premium less issue costs and it is to cover the potential losses which might result from the Bank’s activities.

        Supplementary capital is created in accordance with the statutes 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.

        The general banking risk fund 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 only meant to cover any potential balance-sheet losses.

        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 in hedge accounting, as well as actuarial gains and losses. Deferred tax on those items is recognized in other comprehensive income.

FINANCIAL INFORMATION

Shareholding structure of the Bank

According to the information available as at 31 December 2020 the Bank’s shareholding structure is as follows:

NAZWA PODMIOTU

number of shares

% of shares

Nominal value

of 1 share

Interest in the share capital (%)

As at 31 December 2020

 

 

 

 

State Treasury

367 918 980

29,43

1 zł

29,43

Nationale Nederlanden Open Pension Fund

107 198 023

8,58

1 zł

8,58

Aviva Open Pension Fund

93 610 319

7,49

1 zł

7,49

Other shareholders

681 272 678

54,50

1 zł

54,50

Total

1 250 000 000

100,00

---

100,00

As at 31 December 2019

 

 

 

 

State Treasury

367 918 980

29,43

1 zł

29,43

Nationale Nederlanden Open Pension Fund

94 500 000

7,56

1 zł

7,56

Aviva Open Pension Fund

88 010 319

7,04

1 zł

7,04

Other shareholders2

699 570 701

55,97

1 zł

55,97

Total

1 250 000 000

100,00

---

100,00

 

1 Calculation of shareholdings as at the end of the year published by PTE in annual information about the structure of fund assets and quotation from the securities exchange official list (Ceduła Giełdowa).

2 Including Bank Gospodarstwa Krajowego which, as at 31.12.2020, held 24 487 297 shares, constituting a 1.96% share of the votes at the General Shareholders’ Meeting.

All the shares of PKO Bank Polski S.A. carry the same rights and obligations. No shares are preferred shares (one share entitles to one vote), in particular with regard to voting rights or dividend. The Articles of Association of PKO Bank Polski S.A. restrict the voting rights of shareholders holding more than 10% of the total number of votes at the General Shareholders’ Meeting and forbid those shareholders to execute 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 at the Bank (i.e. the State Treasury and BGK),

               shareholders who have the rights from A-series registered shares (the State Treasury), and

               shareholders acting jointly with the shareholders referred to in point (2) based on an agreement concerning the joint execution of voting rights from shares. Moreover, the restriction on the voting rights shall expire 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 getting the above-mentioned approval, results in the expiry of the above-mentioned 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

Series A

ordinary registered shares

312 500 000

1 zł

312 500 000

Series A

ordinary bearer shares

197 500 000

1 zł

197 500 000

Series B

ordinary bearer shares

105 000 000

1 zł

105 000 000

Series C

ordinary bearer shares

385 000 000

1 zł

385 000 000

Series D

ordinary bearer shares

250 000 000

1 zł 

250 000 000

Total

- - -

1 250 000 000

- - -

1         250 000 000

 

In 2020 and in 2019, 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.

43.            Dividend and profit appropriation

On 26 August 2020, the Annual General Meeting of the Bank passed a resolution to retain the entire net profit earned by the Bank in previous years:

        with regard to the profit for 2019 – to allocate to the reserve capital the amount of PLN 2 155 113 and to leave as undistributed the amount of PLN 3 832 348 976,

        leaving still undistributed profit from previous years in the amount of PLN 1 667 651 024..

The resolution was in line with the recommendation of the Polish Financial Supervision Authority submitted to the Bank on 26 March 2020.

On 16 December 2020, the Polish Financial Supervision Authority (KNF) adopted a stance on the banks’ dividend policy in 2021, which resulted in:

        significant uncertainty as to the further development of events related to the COVID-19 pandemic,

        the temporary nature of solutions used by banks to improve the capital situation during the pandemic,

        continuing cautious supervisory positions in the European Union with regard to dividend restrictions and other forms of reducing capital resources,

        revision of the guidelines of the European Banking Authority, extending the moratoria,

The Polish Financial Supervision Authority considered it necessary to suspend the payment of dividends by commercial banks in the first half of 2021 and not to take other actions, in particular those outside the scope of current business and operating activities, which could result in a reduction of the capital base without prior consultation with the supervisory authority. This applies to possible dividend payments from retained earnings and the buyout of treasury shares.

The Commission expects that the possible implementation of such operations will always be preceded by a prior consultation with the supervisory authority and subject to their positive outcome.

The position of the Polish Financial Supervision Authority on the dividend policy of commercial banks in the second half of 2021 will be presented separately after analyzing the financial situation of the banking sector in the first half of the year.

On January 14, 2021, he received an individual recommendation of the Polish Financial Supervision Authority, in which the Polish Financial Supervision Authority recommended the Bank:

        suspension of dividend payments in the first half of 2021 (including retained earnings from previous years),

        failure to undertake in the first half of 2021, without prior consultation with the supervisory authority, other activities outside the scope of current business and operating activities that may result in a reduction in the capital base, including buyouts of treasury shares.

The Management Board of the Bank and the Supervisory Board of the Bank adopted resolutions that, within the limits of their competences, they will supervise the implementation of the above recommendation of the PFSA.

Pursuant to Art. 395.2.2 of the Commercial Companies Code, the decision on the distribution of profit remains within the competence of the Bank's Ordinary General Meeting.

44.            Leases

ACCOUNTING POLICIES

Lease agreements or agreements containing a lease according to the Bank’s classification include agreements under which the Bank:

        obtains the right of use of the identified asset and the supplier’s ability to substitute an alternative asset is not significant; and

        has the right to obtain substantially all economic benefits from the right of use throughout the period of use; and

        has the right to direct the use of the identified asset over the period of use, when:

        the Bank has the right to direct how and for what purpose the asset is used throughout the period of use; or

        the relevant decisions about how and for what purpose the asset is used are predetermined.

The Bank applies exceptions and does not recognize right-of-use assets and liabilities with respect to:

        short-term leases, which include agreements without an option to buy an asset, concluded for a period not exceeding 12 months from the commencement of the agreement, in particular agreements concluded for an indefinite period with a short (up to 12 months) notice period, without significant penalties, which include in particular leasehold improvements incurred and relocation costs;

        low-value leases (an asset’s value is lower than PLN 20 000, determined based on the value of a new asset, regardless of the age of the leased asset), excluding agreements for rental of space.

The Bank initially measures lease liabilities at the present value of the lease payments outstanding as at that date.

The amount of the lease liability is affected by:

        fixed payments less any lease incentives payable;

        variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date;

        any residual guarantees expected from the lessee;

        the exercise price of a purchase option if the probability that the Bank would exercise that option is higher than 50%;

        payments of penalties for terminating the lease, if the lease agreement contains an option for the Bank to terminate the lease as a lessee.

The Bank does not classify variable fees that depend on external factors as lease payments.

After initial recognition the Bank’s lease liabilities are measured at amortized cost.

The Bank records the revaluation of lease liabilities as an adjustment to the right-of-use asset. If as a result of remeasurement the carrying amount of the right-of-use asset is reduced to zero and the lease liability is further reduced, the Bank recognizes the remaining amount of the remeasurement as a profit or loss.

The Bank initially measures the right-of-use assets at cost, which comprises:

        the amount of the initial measurement of the lease liability;

        any lease payments made at or before the commencement date, less any lease incentives received;

        any initial direct costs incurred by the Bank.

The Bank subsequently measures the right-of-use asset at cost less accumulated depreciation (depreciation calculated under the straight-line method) and accumulated impairment losses, and adjusted for any remeasurement of the lease liability.

To discount future lease payments, the Bank applies discount rates that:

        are calculated based on yield curves reflecting the cost of financing in a given currency;

        cover the tenor of the longest lease contract subject to measurement and reflecting – for a given currency – a fixed market interest rate and the Bank’s cost of financing (the tenors of the lease agreements are within the range of from 1 to 99 years);

        have been read from the curve for maturity corresponding to one-half of the maturity of the lease agreement.

The Bank performs quarterly updates of the incremental borrowing rate for lease agreements.

The Bank applies the same discount rates for the portfolio of car leases and property leases, including rights to perpetual usufruct of land, taking into account the  of the lease security on the discount rate applied.

The Bank recognizes the lease payments relating to short-term or low-value leases as cost using the straight-line method, over the term of the lease. The differences between the amounts paid and those arising from the straight- line recognition of the costs are recorded as prepayments or accruals.

FINANCIAL INFORMATION:

LESSEE – LEASE AMOUNTS RECOGNIZED IN THE INCOME STATEMENT

2020

2019

Costs related to short-term lease contracts

(5)

(10)

Costs related to lease contracts for low-value assets (other than short-term), non-deductible VAT expenses and service charges

(77)

(70)

 

 

 

Total

(82)

(80)

 

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

ACCOUNTING POLICIES

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 Bank’s commitment to take up securities)

As at 31 December 2020 no agreements covered with underwriting have been concluded.

Issuer of underwritten securities

As at 31.12.2019

Type of underwritten securities

Maximum commitment to take up securities

Contract

expiry

date

Company C

Corporate bonds

36

31.12.2022

Total

---

36

---

 

All contracts relate to the Agreement for Organization, Conducting and Servicing of the Bond Issue Programme. All securities of the Bank under the underwriting programme have an unlimited transferability, are not listed on the stock exchange and are not traded on a regulated OTC market.

           Contractual commitments

VALUE OF CONTRACTUAL COMMITMENTS CONCERNING:

31.12.2020

31.12.2019

intangible assets

24

24

property, plant and equipment

15

24

Total

39

48

           Financial and guarantee commitments granted

FINANCIAL AND GUARANTEE COMMITMENTS GRANTED 31.12.2020

STAGE 1

STAGE 2

STAGE 3

Total

Provisions per IFRS 9

Net amount

Nominal value

Provision

Nominal value

Provision

Nominal value

Provision

Credit lines and limits

58 227

(79)

6 590

(228)

118

(30)

64 935

(337)

64 598

real estate

4 166

(9)

147

(5)

3

(2)

4 316

(16)

4 300

corporate

45 287

(56)

5 029

(186)

105

(25)

50 421

(267)

50 154

consumer

8 774

(14)

1 414

(37)

10

(3)

10 198

(54)

10 144

Other

3 002

(29)

-

-

-

-

3 002

(29)

2 973

Total financial commitments granted, including:

61 229

(108)

6 590

(228)

118

(30)

67 937

(366)

67 571

irrevocable commitments granted

30 121

(46)

2 883

(94)

42

(10)

33 046

(150)

32 896

POCI

-

-

-

-

20

-

20

-

20

 

 

 

 

 

 

 

 

 

 

guarantees in domestic and foreign trading

8 592

(4)

1 635

(88)

336

(162)

10 563

(254)

10 309

    to financial entities

3 297

-

-

-

-

-

3 297

-

3 297

    to non-financial entities

5 247

(4)

1 635

(88)

336

(162)

7 218

(254)

6 964

    to public entities

48

-

-

-

-

-

48

-

48

domestic corporate bonds

2 000

-

-

-

-

-

2 000

-

2 000

    to financial entities

2 000

-

-

-

-

-

2 000

-

2 000

domestic municipal bonds (state budget entities)

166

-

-

-

-

-

166

-

166

letters of credit

1 427

(1)

77

(4)

13

(1)

1 517

(6)

1 511

    to financial entities

201

-

-

-

-

-

201

-

201

    to non-financial entities

1 226

(1)

77

(4)

13

(1)

1 316

(6)

1 310

payment guarantees to financial entities

83

-

-

-

-

-

83

-

83

Total guarantees and pledges granted, including:

12 268

(5)

1 712

(92)

349

(163)

14 329

(260)

14 069

irrevocable commitments granted

8 668

(4)

1 635

(88)

336

(162)

10 639

(254)

10 385

performance guarantee

1 681

(1)

998

(54)

182

(135)

2 861

(190)

2 671

POCI

-

-

-

-

1

-

1

-

1

 

 

 

 

 

 

 

 

 

 

Total financial and guarantee commitments granted

73 497

(113)

8 302

(320)

467

(193)

82 266

(626)

81 640

 

 

 

FINANCIAL AND GUARANTEE COMMITMENTS GRANTED 31.12.2019

STAGE 1

STAGE 2

STAGE 3

Total

Provisions per IFRS 9

Net amount

Nominal value

Provision

Nominal value

Provision

Nominal value

Provision

Credit lines and limits

50 781

(89)

2 811

(77)

183

(28)

53 775

(194)

53 581

real estate

4 762

(16)

308

(12)

7

(2)

5 077

(30)

5 047

corporate

37 677

(60)

1 155

(35)

168

(23)

39 000

(118)

38 882

consumer

8 342

(13)

1 348

(30)

8

(3)

9 698

(46)

9 652

Other

4 005

(13)

3

-

-

-

4 008

(13)

3 995

Total financial commitments granted, including:

54 786

(102)

2 814

(77)

183

(28)

57 783

(207)

57 576

irrevocable commitments granted

25 722

(29)

1 974

(47)

98

(11)

27 794

(87)

27 707

POCI

-

-

-

-

67

-

67

-

67

 

 

 

 

 

 

 

 

 

 

guarantees in domestic and foreign trading

12 047

(6)

501

(11)

291

(40)

12 839

(57)

12 782

    to financial entities

3 337

-

-

-

-

-

3 337

-

3 337

    to non-financial entities

8 551

(6)

501

(11)

291

(40)

9 343

(57)

9 286

    to public entities

159

-

-

-

-

-

159

-

159

domestic corporate bonds

2 036

(1)

-

-

-

-

2 036

(1)

2 035

    to financial entities

2 000

(1)

-

-

-

-

2 000

(1)

1 999

    to non-financial entities

36

-

-

-

-

-

36

-

36

domestic municipal bonds (state budget entities)

101

-

-

-

-

-

101

-

101

letters of credit

1 188

(1)

-

-

13

(2)

1 201

(3)

1 198

    to non-financial entities

1 188

(1)

-

-

13

(2)

1 201

(3)

1 198

payment guarantees to financial entities

125

-

-

-

-

-

125

-

125

Total guarantees and pledges granted, including:

15 497

(8)

501

(11)

304

(42)

16 302

(61)

16 241

irrevocable commitments granted

12 149

(6)

501

(11)

291

(40)

12 941

(57)

12 884

performance guarantee

2 021

(1)

390

(1)

149

(12)

2 560

(14)

2 546

POCI

-

-

-

-

-

-

-

-

-

 

 

 

 

 

 

 

 

 

 

Total financial and guarantee commitments granted

70 283

(110)

3 315

(88)

487

(70)

74 085

(268)

73 817

 

           nominal value of commitments granted by maturity

COMMITMENTS GRANTED BY MATURITY AS AT

31.12.2020

up to 1 month (inclusive)

from 1 to 3 months (inclusive)

from 3 months to 1 year (inclusive)

from 1 to 5 years (inclusive)

over 5 years

Total

 

Financial commitments granted

10 669

5 835

17 622

25 437

8 374

67 937

Guarantees and pledges granted

496

1 128

4 121

5 632

2 952

14 329

 

 

 

 

 

 

 

Total

11 165

6 963

21 743

31 069

11 326

82 266

 

COMMITMENTS GRANTED BY MATURITY AS AT

31.12.2019

up to 1 month (inclusive)

from 1 to 3 months (inclusive)

from 3 months to 1 year (inclusive)

from 1 to 5 years (inclusive)

over 5 years

Total

 

Financial commitments granted

13 944

5 844

15 141

14 121

8 733

57 783

Guarantees and pledges granted

159

1 651

5 161

7 133

2 198

16 302

 

 

 

 

 

 

 

Total

14 103

7 495

20 302

21 254

10 931

74 085

 

           Off-balance sheet liabilities received  

OFF-BALANCE SHEET LIABILITIES RECEIVED BY NOMINAL VALUE

31.12.2020

31.12.2019

Financial

147

119

Guarantees

4 025

2 350

 

 

 

Total

4 172

2 469

           Right to sell or pledge collateral established for the Bank

As at 31 December 2020, and as at 31 December 2019 there were no collaterals established for the benefit of the Bank, which the Bank was entitled to sell or pledge, if all obligations of the collateral holder were performed.

46.            legal claims

As at 31 December 2020, the total value of the subject matter of litigation in court proceedings (trials) pending in which the Bank is a defendant amounted to PLN 2 028 million (as at 31 December 2019: PLN 1 194 million), and the total value of the subject matter of litigation in court proceedings (trials) pending in which the Bank is the claimant as at 31 December 2020 was PLN 2 230 million (as at 31 December 2019: PLN 2 527 million).

 

        litigation against the Bank relating to mortgage loans in convertible currencies  

As at 31 December 2020, 5 372 legal proceedings were pending against the Bank (as at 31 December 2019: 1 645) relating to mortgage loans granted in previous years in foreign currency with a total value in dispute of PLN 1 404 million (as at 31 December 2019: PLN 392 million), including one group proceeding with 72 loan agreements. The Bank’s customers’ claims concerned mainly demands to determine the invalidity of all or part of the agreements or to receive reimbursement of allegedly undue benefits in connection with the abusive nature of the foreign currency clauses. None of the clauses used by the Bank in the agreements was entered in the register of prohibited contractual provisions. 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 – the conducting of cases against banks.

On 3 October 2019, the Court of Justice of the European Union (hereinafter: CJEU) issued a ruling in case C 260/18 initiated by preliminary questions formulated by the Circuit Court in Warsaw. The Bank was not a party to the proceedings before the CJEU.

The Bank 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 2020, 75 final rulings have been issued by the courts in cases against the Bank (including 33 rulings after 3 October 2019). 48 of these rulings (including in 10 rulings issued after 3 October 2019) are favourable for the Bank. The Bank files cassation complaints to the Supreme Court against final rulings unfavourable to 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 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.       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?

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 the performance of that agreement, can 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 above-mentioned the application was scheduled for 25 March 2021. Currently, the scheduled date of the meeting is 11 May 2021.

On 29 April 2021, a ruling by the CJEU (C-19/20) on 5 questions referred for a preliminary ruling by the District Court in Gdańsk is scheduled. The judgment of the CJEU may be of significant importance for all disputes regarding loans indexed or denominated to CHF, because the questions of the District Court concern, inter alia, the nature of the judgment declaring the invalidity of the contract and the related issue of limitation and the scope of informing the consumer by the court about claims due to banks in the event of invalidity. , including a claim for a return of capital and a claim for payment of remuneration for the use of capital.

The directions of the Supreme Court's ruling may affect the revision of the assumptions adopted for the model of calculating the legal risk costs of the portfolio of mortgage loans granted in a foreign currency, and thus the level of the estimated impact of this risk. Due to the inability to predict the shape of the resolution of individual issues by the Supreme Court, in the opinion of the Management Board, at the time of preparing these financial statements, it is not possible to reliably estimate the value of the impact of the Supreme Court's position on the level of legal risk costs of the portfolio of mortgage loans denominated and indexed in foreign currencies as at 31 December 2020.

The Bank has identified a risk that the planned cash flows from the portfolio of foreign currency denominated and indexed mortgage loans may not be fully recoverable and / or that a liability will arise resulting in a future cash outflow. The Bank reduces the gross carrying amount of mortgage loans denominated and indexed in foreign currencies and / or creates provisions for legal risk in accordance with the requirements of IFRS 9 Financial Instruments and IAS 37 Provisions, Contingent Liabilities and Contingent Assets. The cost of legal risk was estimated taking into account a number of assumptions that materially affect the amount disclosed in the Bank's financial statements (for details, see the note "Cost of legal risk of mortgage loans in convertible currencies").

 

        ACTIONS OF THE BANK TAKEN IN CONNECTION WITH THE PROPOSAL OF THE CHAIRMAN OF THE FINANCIAL SUPERVISION AUTHORITY AND THE EXPECTED MEETING OF THE SUPREME COURT RELATED TO LOANS GRANTED IN CONVERTIBLE CURRENCIES 

In December 2020, the Chairman of the Polish Financial Supervision Authority (hereinafter "the Chairman of the Polish Financial Supervision Authority") presented a proposal aimed at a systemic solution to the problem of housing loans in Swiss francs. This solution assumes that banks will voluntarily offer their clients the option of concluding settlements under which the clients would settle accounts with the bank as if their loans were from the beginning PLN loans bearing interest at the WIBOR reference rate increased by the margin used historically for such loans.

On 9 February 2021, the National Bank of Poland issued a communiqué on the possible involvement in the operation of currency conversion of housing foreign currency loans. The Management Board of the National Bank of Poland welcomes the initiatives of banks aimed at limiting the legal risk of foreign currency housing loans through agreements with borrowers. In this context, the NBP Management Board is considering a possible involvement in the process of converting foreign currency housing loans into PLN, on the terms and at market rates.

The Bank analyzed the benefits and risks related to possible options for proceeding with FX housing loans. In the opinion of the Capital Group, reaching a compromise and reaching a settlement is both more beneficial for its clients than engaging in long-term court proceedings with uncertain resolution.

The Group conducted a survey among its clients which showed that about 70 percent. of them are interested in concluding a settlement with the Bank. Currently, the Group is conducting a pilot of settlements, under which it participates in mediation at the arbitration court at the PFSA and concludes settlements before common courts.

On 23 April 2021, the Extraordinary General Meeting of Shareholders accepted the possibility of offering settlements to Customers. Therefore, estimating the costs of legal risk of mortgage loans denominated in foreign currencies, the Bank recognized the impact of forecasted settlements.

 

        Court proceedings against the Bank concerning reimbursement of the commission in the event of early repayment of loans

As at 31 December 2020, 203 court proceedings were pending against the Bank with a total disputed amount of PLN 907 thousand, concerning the reimbursement of the commission in the event of early repayment of all or part of a loan liability by the customer (as at 31 December 2019: 102 court proceedings with a total litigation value of PLN 640 thousand).

The provision for such proceedings as at 31 December 2020 amounted to PLN 694 thousand (PLN 355 thousand as at 31 December 2019). 

On 11 September 2019, the Court of Justice of the European Union (“CJEU”) issued its ruling in Case C-383/18 initiated by a request for a preliminary ruling from the District Court for Lublin-East in Lublin with its seat in Świdnik. The Bank was not a party to the proceedings before the CJEU. A detailed description of an impact, that this ruling may exert on the Bank, has been presented in the consolidated financial statements of the Group for the year 2019.

The Bank has made an estimate of possible early repayments that may occur in the future and relate to the consumer and mortgage loan portfolio, recognizing their impact as a reduction in the gross carrying amount of consumer and housing loans of PLN 147 million as at 31 December 2020. Moreover, the Bank estimated the likely costs of satisfying customer complaints relating to reimbursement of commission in connection with early repayments in the past. They were recognized in the balance of provisions as at 31 December 2020 in the amount of PLN 23 million and as at 31 December 2019 in the amount of PLN 104 million (Note “Provisions”).

 

        Proceedings before the President of the Office of Competition and Consumer Protection (UOKiK)

Three proceedings have been brought before the President of UOKiK ex officio and are currently in progress:

        Proceedings initiated ex officio on 28 June 2017 on the acknowledgement that the provisions of the template agreement are inadmissible. The violation alleged against the Bank relates to using contractual provisions concerning the method of determining the rates of foreign currency purchase and sale in the template agreements for mortgage loans revalued/indexed/denominated to foreign currencies and annexes thereto, which, in the opinion of the President of UOKiK, may be considered prohibited under Article 385 § 1 of the Civil Code. In the decision of 16 October 2020, 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 be informed about the decision to declare them inadmissible and about the consequences resulting therefrom, not later than within 3 months from the date on which the decision became legally binding and ordered that a declaration be submitted, with the contents as indicated in the decision, not later than 1 month from the date the decision became legally binding, which is to be kept on the website for 4 months. Furthermore, the President of UOKiK imposed on the Bank a fine of PLN 41 million, payable to the Financial Education Fund. On 13 November 2020, the Bank filed an appeal against the UOKiK decision with the Court of Competition and Consumer Protection. As at 31 December 2020, the Bank recorded a provision against this litigation of PLN 41 million.

        Proceedings initiated on 26 July 2017 ex officio concerning using practices which violate the collective interests of customers. The violation with which the Bank has been charged consists of collecting higher instalments on loans and advances denominated in foreign currencies to customers than those following from the advice about interest rate risk provided to customers before they had concluded the contracts, and transferring possible currency risk to the customers. The Bank presented its position on the claims in its letter dated 23 September 2017. In a letter dated 14 March 2019, the UOKiK President asked the Bank 16 detailed questions in order to establish the circumstances that are necessary to resolve the case. The Bank gave the answers in a letter dated 10 May 2019. As at 31 December 2020, the President of UOKiK did not take any further steps in this matter. As at 31 December 2020, the Bank did not set up a provision for the proceedings.

        Proceedings initiated ex officio 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 to modify the performance 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 in gross violation of their interests, which justifies the conclusion that they are abusive. In its letter of 31 May 2019, the Bank presented its position on the charges made by the President of UOKiK. In a letter dated 30 December 2020 the President of UOKiK extended the term of concluding the proceedings until 31 March 2021. As at 31 December 2020, the Bank had not set up a provision for these proceedings.

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 the Office of Competition and Consumer Protection (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, UOKiK decided that the practices, consisting of joint determination of the “interchange” fee, did limit market competition and ordered that any such practices should be discontinued, and imposed a fine on, among others, the Bank, in the amount of PLN 16.6 million. 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). By the ruling dated 21 November 2013, SOKiK reduced the fine 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.. PKO Bank Polski S.A. is a legal successor of Nordea Bank Polska S.A. through a merger in accordance with Article 492 § 1(1) of the Commercial Companies Code). The fine was paid by the Bank in October 2015. As a result of the cassation complaint made by the Bank, in its ruling dated 25 October 2017, the Supreme Court revoked the appealed 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. As at 31 December 2020 the Bank recorded a provision for this litigation of PLN 21 million.

        interchange Claims for damages in respect of the interchange fee

The Bank was served six summons to participate, as an outside intervener on the defendant’s side in cases relating to the interchange fees. Other banks are respondents on the defendant’s side. The claims vis-à-vis the sued banks amount to a total of PLN 783 million and are pursued as damages for differences in interchange fees resulting from applying practices that limit 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, among others, from PKO Bank Polski S.A.. As at 31 December 2020, the Bank entered five proceedings as an outside intervener.

        Re-privatization claims relating to properties used by the Bank

As at the date of the consolidated financial statements, there are:

        three proceedings involving reprivatization claims. One of the proceedings has been suspended. In the second proceeding, which ended with a final court ruling favourable to the Bank, the opposing party lodged a cassation complaint, and the Supreme Court accepted it for consideration. In the third proceeding the subject matter of which is to confirm the invalidity of the decision refusing to grant temporary ownership of the Bank’s property to the applicant, a cassation complaint has been lodged with the Voivodeship Administrative Court against the final decision discontinuing the proceedings as groundless. The claim was rejected by the Voivodeship Administrative Court but the opponent appealed against this decision.

The Management Board of PKO Bank Polski S.A. believes that the probability of serious claims against the Bank as a result of the aforesaid proceedings is low.

47.            Notes to the cash flow statement

           Cash and cash equivalents

Cash and cash equivalents consist of cash in hand, cash on nostro accounts in the National Bank of Poland, as well as current amounts due from banks, as well as other cash equivalents with maturities of up to 3 months from the date of acquisition.

CASH AND CASH EQUIVALENTS

2020

2019

 

 

Cash, current account with the Central Bank

7 397

14 602

Current amounts due from banks

1 700

3 379

Restricted cash and cash equivalents of which

29

12

- loans and advances to customers

29

12

 

 

 

Total

9 126

17 993

 

           Restricted cash and cash equivalents

Cash of PLN 29 million (as at 31 December 2019: PLN 12 million) pledged as collateral for securities’ transactions conducted by Biuro Maklerskie PKO BP are deposited in the National Depository for Securities (KDPW_CCP), as part of the Guarantee Fund for the Settlement of Stock Exchange Transactions. Each direct participant who holds the status of settlement-making participant is obliged to make payments to the settlement fund which guarantees proper settlement of the stock exchange transactions covered by that fund. The amount of the payments depends on the value of transactions made by each participant and is updated by KDPW_CCP on a daily basis.

           Cash flows from interest and dividends, both received and paid

INTEREST INCOME ON:

2020

2019

loans to and other receivables from banks

138

183

hedging derivatives

670

418

debt securities

1 839

1 450

loans and advances to customers

6 616

7 941

 

 

 

Total

9 263

9 992

The above amounts of interest received do not include the amounts of commission recognized using the effective interest rate as interest income.

 

INTEREST EXPENSES – PAID:

2020

2019

amounts due to banks

(18)

(31)

amounts due to customers

(930)

(1 603)

loans and advances received

(209)

(257)

leases

(15)

(20)

debt securities

(38)

(91)

securities in issue

(29)

(40)

subordinated liabilities

(90)

(90)

 

 

 

Total

(1 329)

(2 132)

 

DIVIDEND INCOME RECEIVED

2020

2019

from subsidiaries, associates and joint ventures

295

511

from financial assets held for trading

-

1

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

15

13

 

 

 

Total

310

525

 

           Cash flows from operating activities – other adjustments

OTHER ADJUSTMENTS

2020

2019

Cash flow hedges

276

113

Actuarial gains and losses

(6)

(5)

Remeasurement of shares in subordinated entities and other changes

29

-

Scrapping of property, plant and equipment and intangible assets

19

18

Other

(20)

(2)

 

 

 

Total

298

124

 

           Explanation of differences between the statement of financial position and changes in these items presented under operating activities in the cash flow statement

(GAINS)/LOSSES ON INVESTING ACTIVITIES

2020

2019

Gains on sale and scrapping of property, plant and equipment, intangible assets and assets held for sale

(17)

(17)

Losses on sale and scrapping of property, plant and equipment, intangible assets and assets held for sale

2

3

 

 

 

Total

(15)

(14)

 

INTEREST AND DIVIDENDS

2020

2019

Shown in investing activities

(2 120)

(1 924)

dividends received from subordinated entities

(295)

(511)

dividends received from securities held for trading

-

(1)

dividends received from securities not held for trading, measured at fair value through profit or loss

(15)

(13)

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

(1 331)

(1 150)

interest received on securities measured at amortized cost

(479)

(249)

Shown in financing activities:

328

387

interest paid on debt securities in issue

29

40

interest paid on subordinated liabilities

90

90

interest paid on loans and advances received

209

257

 

 

 

Total

(1 792)

(1 537)

 

CHANGES IN AMOUNTS DUE FROM BANKS

2020

2019

Change in the balance sheet

2 649

3 260

Changes in allowances for expected credit losses

(3)

-

Exclusion of the change in cash and cash equivalents

(1 678)

(3 773)

 

 

 

Total

968

(513)

 

CHANGE IN SECURITIES

2020

2019

Change in the balance sheet

(43 551)

(15 983)

Changes in allowances for expected credit losses

(31)

10

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

1 097

(117)

Recognition of acquisition / disposal of securities measured at fair value through other comprehensive income in investing activities

6 766

9 208

Recognition of acquisition / disposal of securities measured at amortized cost in investing activities

33 355

4 691

Total

(2 364)

(2 191)

 

CHANGE IN LOANS AND ADVANCES TO CUSTOMERS

2020

2019

Change in the balance sheet

7 804

(9 343)

Changes in allowances for expected credit losses

(1 352)

1 068

Exclusion of the change in cash and cash equivalents

17

2

 

 

 

Total

6 469

(8 273)

 

CHANGE IN NON-CURRENT ASSETS HELD FOR SALE

2020

2019

Change in the balance sheet

(115)

(1)

Changes in allowances on non-current assets held for sale

(2)

(1)

 

 

 

Total

(117)

(2)

 

ZMIANA STANU INNYCH AKTYWÓW

2020

2019

Change in the balance sheet

41

294

Changes due to implementation of IFRS 16

-

(4)

Changes in allowances for other assets

(91)

(1)

Other

-

(100)

 

 

 

Total

(50)

189

 

CHANGE IN AMOUNTS DUE TO BANKS AND THE CENTRAL BANK

2020

2019

Change in the balance sheet

607

378

 

 

 

Total

607

378

 

CHANGE IN AMOUNTS DUE TO CUSTOMERS

31.12.2020

31.12.2019

Change in the balance sheet

25 951

16 614

 

 

 

Total

25 951

16 614

 

CHANGE IN LIABILITIES IN RESPECT OF LOANS AND ADVANCES RECEIVED

2020

2019

Change in the balance sheet

(120)

(3 813)

Recognition of drawing/repayment of long-term loans and advances under financing activities, including interest

131

3 763

 

 

 

Total

11

(50)

 

CHANGE IN LIABILITIES IN RESPECT OF DEBT SECURITIES IN ISSUE

2020

2019

Change in the balance sheet

(749)

(598)

Recognition of drawing/repayment of liabilities in respect of debt securities in issue under financing activities

1 129

619

 

 

 

Total

380

21

 

CHANGE IN SUBORDINATED LIABILITIES

2020

2019

Change in the balance sheet

(14)

(1)

 

 

 

Total

(14)

(1)

 

CHANGE IN ACCUMULATED ALLOWANCES FOR EXPECTED CREDIT LOSSES AND IMPAIRMENT ALLOWANCES ON NON-FINANCIAL AND OTHER ASSETS

2020

2019

Change in accumulated allowances and provisions for expected credit losses

1 798

(1 041)

for amounts due from banks

3

-

for loans and advances to customers

1 352

(1 068)

for securities

31

(10)

for other financial assets

54

(4)

provisions for financial liabilities and guarantees granted

358

41

Change in accumulated impairment allowances on non-financial assets and other provisions

755

98

for non-current assets held for sale

2

1

for property, plant and equipment

51

7

for intangible assets

108

(2)

for investments in subordinated entities

101

-

for other non-financial assets

37

5

other provisions

456

87

 

 

 

Total

2 553

(943)

 

CHANGE IN OTHER LIABILITIES

2020

2019

Change in the balance sheet

(53)

1 412

Changes due to implementation of IFRS 16

-

(885)

 

 

 

Recognition of lease payments in financing activities

216

202

 

 

 

Total

163

729

           Reconciliation of items presented in the statement of financial position with financing activities in the cash flow statement

2020 

As at the beginning of the period

Recognized in financing activities in the cash flow statement

Recognized in operating activities in the cash flow statement

As at the end of the period

Repaid

 

Loans and advances received

5 026

(131)

11

4 906

Liabilities in respect of debt securities in issue

4 769

(1 129)

380

4 020

Subordinated liabilities – subordinated bonds

2 730

-

(14)

2 716

Payment of lease liabilities

819

(216)

420

1 023

 

x

 

x

x

Total

13 344

(1 476)x

797

12 665

 

 

2019 

As at the beginning of the period

Recognized in financing activities in the cash flow statement

Recognized in operating activities in the cash flow statement

As at the end of the period

Incurred

Repaid

 

 

Loans and advances received

8 839

-

(3 763)

(50)

5 026

Liabilities in respect of debt securities in issue

5 367

596

(1 215)

21

4 769

Subordinated liabilities – subordinated bonds

2 731

-

-

(1)

2 730

Payment of lease liabilities

-

-

(202)

1 021

819

 

x

x

x

x

x

Total

16 937

596

(5 180)

991

13 344

 

48.            Transactions with the State Treasury and related parties

        Transactions with the State Treasury

The State Treasury holds a 29.43% interest in the Bank’s share capital.

Pursuant to the Act of 30 November 1995 on the state support in repayment of certain housing loans, reimbursement of guarantee bonuses paid, and amendments to certain Acts, PKO Bank Polski S.A. receives payments from the State budget as repurchase of interest receivable on housing loans.

TRANSACTIONS WITH THE STATE TREASURY

2020

2019

Income recognized on an accruals basis

78

93

Income recognized on a cash basis

64

75

Income from temporary redemption by the State Treasury of interest on housing loans in the ‘old’ portfolio

14

18

 

As of 1 January 2018 based on the provisions of the Act of 30 November 1995 on state support in the repayment of certain housing loans, granting guarantee bonuses and reimbursement of guarantee bonuses paid, the borrowers acquired the right to be forgiven the remaining debt by the State Treasury, which will result in the gradual (until 2026) full settlement of the housing loan indebtedness from the so-called “old” portfolio. The Bank conducts settlements in respect of repurchase of interest on housing loans by the State Budget and on this account the Bank received commission in 2020 and 2019 amounting to under PLN 1 million.

As of 1 January 1996, the Bank became the general distributor of value marks. The Bank receives commissions in this respect from the State Treasury – in 2020 and in 2019, the Bank received commission on this account of under PLN 1 million.

Biuro Maklerskie PKO BP plays the role of an agent for the issue of retail Treasury bonds under the agreement signed with the Ministry of Finance on 11 February 2003. Under this agreement, Biuro Maklerskie PKO BP receives a fee for providing the services of an agent for the issue of bonds – in 2020 in the amount of PLN 128 million, and in 2019 in the amount of PLN 83 million.

        Significant transactions with the State Treasury’s related entities

The Bank’s exposure and the value of the Bank’s liabilities to 10 entities related to the State Treasury with the highest total exposure are presented below.

SIGNIFICANT TRANSACTIONS WITH THE STATE TREASURY’S RELATED ENTITIES

BALANCE SHEET EXPOSURE, INCLUDING EXPOSURE IN LOANS AND DEBT INSTRUMENTS

OFF-BALANCE SHEET EXPOSURE

LIABILITIES IN RESPECT OF DEPOSITS

31.12.2020

31.12.2019

31.12.2020

31.12.2019

31.12.2020

31.12.2019

counterparty 1

-

-

-

2 453

793

-

counterparty 2

16 845

3 443

30

350

737

61

counterparty 3

465

240

2 036

3 520

98

3 686

counterparty 4

1 617

614

714

2 291

48

175

counterparty 5

623

599

1 693

1 683

63

350

counterparty 6

129

2 021

2 046

667

41

122

counterparty 7

999

467

1 156

1 080

11

50

counterparty 8

644

485

950

2 132

46

231

counterparty 9

46

1 726

1 191

1 193

114

94

counterparty 10

313

167

706

802

-

6

 

 

2020

2019

Interest and commission  income

206

200

Interest and commission expense

(16)

(29)

 

As at 31 December 2020 and as at 31 December 2019, respectively, no allowances for expected credit losses were recognized for the above-mentioned receivables using the individualized method.

In the opinion of the Bank, all transactions with entities related to the State Treasury are concluded on an arm’s-length basis.

        Related-party transactions – capital links

Transactions between the Bank as the parent and its subsidiaries, associates and joint ventures are presented in the table below. All transactions presented below were arm’s length transactions. Repayment terms are within a range of from one month to seventeen years.

31.12.2020 Company name

Receivables

of which loans

Liabilities

Off-balance sheet liabilities granted

KREDOBANK S.A. and its subsidiary

11

-

19

296

Merkury – fiz an and its subsidiaries

-

-

25

-

NEPTUN – fizan and its subsidiaries

156

156

34

-

PKO Bank Hipoteczny SA

3 439

3 215

1 155

7 078

PKO BP BANKOWY PTE SA

-

-

13

-

PKO BP Finat sp. z o.o.

-

-

9

10

PKO Finance AB

742

-

4 343

-

PKO Leasing S.A. and its subsidiaries

16 753

16 753

16

5 708

PKO Towarzystwo Funduszy Inwestycyjnych S.A.

21

-

164

-

PKO Towarzystwo Ubezpieczeń S.A.

-

-

14

-

PKO Życie Towarzystwo Ubezpieczeń S.A. and its subsidiary

-

-

494

-

Total

21 122

20 124

6 286

13 092

For the period ended 31.12.2020

Company name

Total income

of which interest

and commission

income

Total expenses

of which interest

and commission

expense

KREDOBANK S.A. and its subsidiary

1

1

-

-

NEPTUN – fizan and its subsidiaries

2

2

-

-

PKO Bank Hipoteczny SA

234

207

5

4

PKO BP BANKOWY PTE SA

9

1

-

-

PKO BP Finat sp. z o.o.

45

-

6

-

PKO Finance AB

24

24

192

192

PKO Leasing S.A. and its subsidiaries

236

233

-

-

PKO Towarzystwo Funduszy Inwestycyjnych S.A.

236

6

1

1

PKO Towarzystwo Ubezpieczeń S.A.

55

54

-

-

PKO Życie Towarzystwo Ubezpieczeń S.A. and its subsidiary

36

36

10

10

Total

878

564

214

207

 

31.12.2019 Company name

Receivables

of which loans

Liabilities

Off-balance sheet liabilities granted

KREDOBANK S.A. and its subsidiary

82

-

16

115

Merkury – fiz an and its subsidiaries

-

-

36

-

NEPTUN – fizan and its subsidiaries

148

148

62

-

PKO Bank Hipoteczny SA

4 681

2 282

174

4 231

PKO BP BANKOWY PTE SA

-

-

21

-

PKO BP Finat sp. z o.o.

-

-

38

13

PKO Finance AB

-

-

4 331

-

PKO Leasing S.A. and its subsidiaries

17 172

17 172

9

5 541

PKO Towarzystwo Funduszy Inwestycyjnych S.A.

38

-

245

-

PKO Towarzystwo Ubezpieczeń S.A.

-

-

45

-

PKO Życie Towarzystwo Ubezpieczeń S.A. and its subsidiary

-

-

501

-

ZenCard sp. z o.o.

4

4

1

-

Total

22 125

19 606

5 479

9 900

for the period ended 31.12.2019

Company name

Total income

of which interest

and commission

expense

Total expenses

of which interest

and commission

expense

KREDOBANK S.A. and its subsidiary

2

2

-

-

NEPTUN – fizan and its subsidiaries

2

2

-

-

PKO Bank Hipoteczny SA

383

364

2

2

PKO BP BANKOWY PTE SA

14

1

-

-

PKO BP Finat sp. z o.o.

39

-

6

1

PKO Finance AB

-

-

192

192

PKO Leasing S.A. and its subsidiaries

530

369

1

1

PKO Towarzystwo Funduszy Inwestycyjnych SA

253

9

3

3

PKO Towarzystwo Ubezpieczeń SA

73

73

-

-

PKO Życie Towarzystwo Ubezpieczeń S.A. and its subsidiary

70

46

11

11

Operator Chmury Krajowej sp. z o.o.

1

1

 

 

Total

1 367

867

215

210

 

31.12.2020 Company name

Receivables

of which loans

Liabilities

Off-balance sheet liabilities granted

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

54

6

168

54

„Centrum Obsługi Biznesu" sp. z o.o.

17

17

4

-

Bank Pocztowy SA

-

-

-

1

„Poznański Fundusz Poręczeń Kredytowych" sp. z o.o.

-

-

22

-

Operator Chmury Krajowej sp. z o.o.

-

-

18

767

Total

71

23

212

822

For the period ended 31.12.2020

Company name

Total income

of which interest

and commission

income

Total expenses

of which interest

and commission

expense

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

543

517

92

91

Total

543

517

92

91

 

31.12.2019 Company name

Receivables

of which loans

Liabilities

Off-balance sheet liabilities granted

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

80

26

43

32

„Centrum Obsługi Biznesu" sp. z o.o.

19

19

6

-

Bank Pocztowy SA

-

-

-

1

„Poznański Fundusz Poręczeń Kredytowych" sp. z o.o.

-

-

1

-

Operator Chmury Krajowej sp. z o.o.

-

-

59

769

Total

99

45

109

802

For the period ended 31.12.2019 Company name

Total income

of which interest

and commission

income

Total expenses

of which interest

and commission

expense

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

508

468

125

125

„Centrum Obsługi Biznesu" sp. z o.o.

1

1

-

-

Operator Chmury Krajowej sp. z o.o.

-

-

9

-

Total

509

469

134

125

 

        Related-party transactions – personal links

As at 31 December 2020, seven entities were related to the Bank through the key management personnel of PKO Bank Polski S.A. or close family members of the key management personnel. As at 31 December 2019, it was six entities. In 2020 and in 2019, no transactions were conducted between the Bank and those entities.

 

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

ACCOUNTING POLICIES

Short-term employee benefits include, apart from the base salary, also the part of the variable remuneration component paid in cash which is not deferred.

The deferred part of the variable remuneration component paid in cash was recognized as other long-term benefits.

Non-deferred and deferred remuneration components granted in the form of financial instruments i.e. phantom shares (for which conversion into cash is carried out after an additional period of retention) are recognized as share-based payments settled in cash in accordance with the principles described below.

        Variable remuneration components of key management personnel in the Bank

Variable remuneration components are granted in the form of: non-deferred remuneration (in the first year after the calendar year constituting an appraisal period), and deferred remuneration (for the next three years after the first year of the appraisal period), whereas both the non-deferred and deferred remuneration is awarded in equal parts in cash and in the form of financial instruments, i.e. phantom shares (for which conversion into cash is carried out after an additional period of retention).

The component of remuneration in the form of the financial instrument is converted into phantom shares after granting a particular component – taking into consideration the median of the daily average prices of the Bank’s shares (Volume Weighted Average Price) on the Warsaw Stock Exchange, published in the Thomson Reuters or Bloomberg information systems – from the fourth quarter of the appraisal period. Next, after a period of retention and deferral period, the shares are converted into cash – taking into consideration the median of the daily average prices of the Bank’s shares (Volume Weighted Average Price) on the Warsaw Stock Exchange from the third quarter of the calendar year preceding the payment (the Management Board) and the third quarter of the calendar year in which the payment is made (other persons in management positions), published in the Thomson Reuters or Bloomberg information systems.

The deferred remuneration may be reduced in the event of deterioration in the financial performance of the Bank, a loss incurred by the Bank or deterioration of other variables related to the performance in the period of appraisal of key management personnel and results of the organizational units/cells supervised or managed by these people, which were revealed after the appraisal period.

FINANCIAL INFORMATION

COST OF REMUNERATION OF THE BANK’S MANAGEMENT AND SUPERVISORY BOARDS

(in PLN thousand)

2020

2019 1

Management Board of the Bank

 

 

Short-term employee benefits

9 162

9 547

Long-term employee benefits

1 484

1 134

Share-based payments settled in cash

3 711

2 835

Benefits to the Bank’s Management Board members who ceased to perform their functions in previous years

-  

172

Total

14 357

13 688

 

 

 

Supervisory Board of the Bank

 

 

Short-term employee benefits

1 388

1 340

Total

1 388

1 340

1 The data for the comparable period takes into account a shift in the proportion between variable remuneration in cash and in financial instruments towards increasing the financial instruments portion, and a shift in the proportion of deferred and non-deferred variable remuneration towards increasing the deferred variable remuneration portion.

 

LOANS AND ADVANCES GRANTED BY THE BANK TO THE MANAGEMENT AND SUPERVISORY BOARDS (in PLN thousand)

31.12.2020

31.12.2019

 

 

 

Supervisory Board of the Bank

902

376

Management Board of the Bank

769

1 340

Total

1 671

1 716

 

The interest rates and repayment terms do not differ from the arm’s-length conditions and repayment terms for similar banking products.

The Bank provides the key management personnel, members of the Supervisory Board and their families with standard financial services which comprise, among other things, operating bank accounts, accepting deposits, granting loans and providing other financial services. All these transactions are concluded on an arm’s-length basis.

        Variable remuneration components

PROVISION FOR VARIABLE REMUNERATION COMPONENTS

31.12.2020

31.12.2019

(for 2015-2020)

(for 2014-2019)

Management Board (including members who ceased to perform their functions)

18

18

Other Risk Takers (persons holding managerial positions other than members of the Bank’s Management Board)

63

39

Total provision

81

57

Remuneration paid during the year

2020

2019

(for 2015-2020)

(for 2014-2019)

 - granted in cash

13

15

Management Board (including members who ceased to perform their functions)

3

6

Other Risk Takers (persons holding managerial positions other than members of the Bank’s Management Board)

10

9

 - granted in the form of financial instruments

4

14

Management Board (including members who ceased to perform their functions)

4

4

Other Risk Takers (persons holding managerial positions other than members of the Bank’s Management Board)

-

10

Total remuneration paid

17

29

 

50.            Fair value hierarchy

ACCOUNTING POLICIES and estimates and judgments

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 Bank 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 is observable on the market directly (as prices) or indirectly (based on prices). In this category, the Bank classifies financial instruments for which there is no active market:

Financial assets and liabilities measured at fair value

Valuation method (technique)

Observable inputs

Derivative financial instruments - CIRS, IRS, FRA

The discounted future cash flows model based on the yield curves.

Yield curves are built based on market rates, market data of the money market, market transactions of FRA, IRS, basis swap.

Derivative financial instruments – currency option, interest rate options, equity exotic options, fx forward, fx swap transactions

Valuation models specific for particular types of currency options.

The model of discounted future cash flows based on yield curves for FX forward and FX swap transactions.

The prices of exotic equity options embedded in structured products are obtained from the market (market prices).

Yield curves built based on money market rates, market rate of swap points, volatility levels for specific currency pairs, NBP fixing exchange rates.

For the valuation of exotic equity options embedded in structured products, market prices of these options are obtained.

NBP money market bills

Yield curve method

Yield curves are built based on money market data and OIS (overnight index swap) transactions market.

Municipal bonds in EUR

Accepted valuation model.

Market rates, market data from the money market, IRS transactions market, CDS transactions market, volatility of interest rate options market.

Municipal bonds in PLN

Yield curve and risk margin model.

Yield curves are built based on market rates, money market data, IRS transactions market.

Corporate bonds

Yield curve and risk margin model.

Yield curves are built based on market rates, money market data, IRS transactions market.

Commodity swap transactions

Commodity price curve model.

Commodity price and yield curves are built based on money market rates, market rates of SWAP points.

        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 Bank classified financial instruments, which are measured 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 House. In their internal regulations, these units specify the detailed measurement methods, including determining 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 the forecast results of the company

Forecast 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 the forecast results of the company.

Forecast 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 S.A.

Estimation of the fair value based on the present value of the forecast results of the company.

 

Forecast 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 Wielkopolska Gildia Rolno-Ogrodnicza S.A.

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

31.12.2020

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

618

-

618

-

Other derivative instruments

5 416

-

5 416

-

Securities

72 751

64 285

7 147

1 319

held for trading

1 198

844

354

-

debt securities

1 171

817

354

-

shares in other entities - listed

25

25

-

-

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

1 107

506

1

600

debt securities

647

489

-

158

shares in other entities - listed

17

17

-

-

shares in other entities - not listed

443

-

1

442

measured at fair value through other comprehensive income

70 446

62 935

6 792

719

Loans and advances to customers

20 063

-

-

20 063

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

6 009

-

-

6 009

housing loans

7

-

-

7

corporate loans

114

-

-

114

consumer loans

5 888

-

-

5 888

measured at fair value through OCI

14 054

-

-

14 054

housing loans

14 054

-

-

14 054

Total financial assets measured at fair value

98 848

64 285

13 181

21 382

 

LIABILITIES MEASURED AT FAIR VALUE

Carrying amount

Level 1

Level 2

Level 3

31.12.2020

Prices quoted on active markets

Valuation techniques based on observable market data

Other valuation techniques

 

 

 

 

 

Hedging derivatives

543

-

543

-

Other derivative instruments

6 632

-

6 632

-

Total financial liabilities measured at fair value

7 175

-

7 175

-

 

ASSETS MEASURED AT FAIR VALUE

31.12.2019

Carrying amount

Level 1

Level 2

Level 3

Prices quoted on active markets

Valuation techniques based on observable market data

Other valuation techniques