The Group recognises all significant expenses and income in accordance with the following policies: accrual basis, matching principle, policies for recognition and valuation of assets and liabilities, policies for recognition of impairment losses.
Interest income and expense
Interest income and expense comprise interest, including premiums and discounts in respect of financial instruments measured at amortised cost and instruments at fair value, with the exception of derivative financial instruments classified as held for trading.
Interest income and interest expenses are recognised on an accrual basis using the effective interest rate method.
Interest income in case of financial assets or group of similar financial assets for which an impairment loss values are calculated from present values of receivables (that is net of impairment loss) by using current interest rate used for discounting future cash flows for the purposes of estimating losses due to impairment.
Interest income/expense in respect of derivative financial instruments classified as held for trading are recognised in ‘Net income from financial instruments at fair value through profit and loss’ or ‘Net foreign exchange gains’ (applied to CIRS), with the exception of derivative instruments classified as hedging instruments into hedge accounting, have been presented in interest income.
Interest income also includes fee and commission received and paid, which are part of the effective interest rate of the financial instrument.
Fee and commission income and expense
Fee and commission income is generally recognised on an accrual basis at the time when the related service is performed. Fee and commission income includes one-off amounts charged by the Group for services not related directly to the creation of loans, advances and other receivables, as well as amounts charged by the Group for services performed over a period exceeding 3 months, which are recognised on a straight-line basis. Fee and commission income also includes fee and commission recognised on a straight-line basis, received on loans granted with unspecified schedule of cash flows for which cannot determine the effective interest rate.
Dividend income is recognised in the income statement of the Group at the date on which shareholders’ rights to receive the dividend have been established.
Net income from financial instruments designated at fair value
The result on financial instruments at fair value through profit and loss includes gains and losses arising from the disposal of financial instruments classified as financial assets/liabilities at fair value through profit and loss as well as the effect of their fair value measurement.
Gains less losses from investment securities
Gains less losses from investment securities include gains and losses arising from disposal
of financial instruments classified as available for sale and held to maturity.
Foreign exchange gains
Foreign exchange gains comprise foreign exchange gains and losses, both realised and unrealised, resulting from daily revaluation of assets and liabilities denominated in foreign currency using the average NBP exchange rates at the balance date, and from the fair value valuation of outstanding derivatives (FX forward, FX swap, CIRS and currency options).
The Group recognises in net foreign exchange gains both realised and unrealised foreign exchange gains and losses on fair value measurement of unrealised currency options. From an economic point of view, the method of presentation of net gains/losses on currency options applied allows the symmetrical recognition of net gains/losses on currency options and on spot and forward transactions concluded to hedge such options (transactions hedging the currency position generated as a result of changes in the market parameters affecting the currency option position).
The effects of changes in fair value and the result realised on the Gold Index option are also included in the foreign exchange gains due to the fact that the Bank treats gold as one of the currencies, in line with the provisions of the Resolution No. 76/2010 of the Polish Financial Supervision Authority dated 10 March 2010 on the scope and detailed principles for setting capital requirements in relation to the individual risk types (Polish Financial Supervision Authority’s Journal of Laws 2010, No. 2, item 11 with subsequent amendments).
Monetary assets and liabilities presented by the Group in the statement of financial position and
off-balance sheet items denominated in foreign currency are translated into PLN using the average NBP rate prevailing for a given currency as at the balance date. Impairment allowances for loan exposures and other receivables denominated in foreign currencies, which are created in Polish zloty, are updated in line with a change in the valuation of the foreign currency assets for which these impairment allowances are created. Realised and unrealised currency translation differences are recorded in the income statement.
Other operating income and expense
Other operating income and expense includes income and expense not related directly to banking activity. Other operating income mainly includes gains from sale or liquidation of non-current assets and assets possessed in exchange for debts, recovered bad debts, legal damages, fines and penalties, income from lease/rental of properties. Other operating expense mainly includes losses from sale or liquidation of non-current assets, including assets possessed in exchange for debts, costs of debt collection and donations.
Other operating income and expense in relation to the Group’s entities include also income from sale of finished goods, goods for resale and raw materials, and the corresponding costs of their production.
Income from construction services (real estate development activities) is recognised on a completed contract basis, which involves recognition of all construction costs that incurred during the period of construction as work-in-progress. Payments received on account of a purchase of apartments are shown within deferred income.