Shareholders’ equity

Equity constitutes capital and reserves created in accordance with the legal regulations applicable in Poland and the Memorandum of Association. The classification to particular equity components, discussed in Note 2.17 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. In accordance with IAS 1, equity also includes unappropriated profits and accumulated losses, currency translation differences on translating foreign operations, the effective portions of cash flow hedges and net gains or losses on the valuation of financial instruments classified as available-for-sale. Equity components of the subsidiaries, other than share capital, in a proportion equal to the interest in the subsidiary held by the parent company, are added to respective equity components of the parent company. The Group's equity includes only those parts of the equity of the subsidiaries which arose after the acquisition of shares by the parent company.

Share capital

Share capital comprises solely the share capital of the parent company and is stated at nominal value in accordance with Memorandum of Association and entry to the Register of Entrepreneurs.

Reserve capital

Reserve capital is created according to the Memorandum of Association of the Group entities, from the appropriation of net profits and from share premium less issue costs and it is to cover the potential losses of Group entities.

Other comprehensive income

Other comprehensive income comprises the effects of valuation of financial assets available for sale and the amount of the related deferred tax, as well as the effective part of cash flow hedging resulting from hedge accounting and the related deferred tax. Moreover, the item includes the share of the Parent company in the revaluation reserve of associated entities and foreign exchange differences on translation of the net result of the foreign operation as a rate constituting the arithmetical average of foreign exchange rates for the currency as at the day ending each of the months in the financial year published by the National Bank of Poland, and foreign exchange differences arising on the measurement of net assets in the foreign operation.

General banking risk fund

General banking risk fund in PKO Bank Polski SA is created from profit after tax according to ‘The Banking Act’ dated 29 of August 1997 (Journal of Laws 2002, No. 72, item 665 with subsequent amendments) and it is to cover unidentified risks of the Bank.

Other reserves

Other reserves are created from the appropriation of net profits. It is uniquely to cover the potential losses in the statement of financial position.

Shareholders' equity also includes

  1. net result prior to the approval less declared dividends,
  2. dividends declared after the reporting period but not paid.

The net profit or loss for the year is the profit before tax reported in the income statement for the current year, adjusted for the corporate income tax expense and profits (losses) attributable to non-controlling shareholders.

In accordance with the Polish legislation, only the equity of the parent company and the equity of specific subsidiaries, determined on the basis of stand-alone financial statements, are distributable. In the case of joint stock companies - the amount to be distributed between shareholders may not exceed the net profit for the previous year plus retained earnings and amounts reclassified from the supplementary capital and other reserves accumulated from profit appropriation which may be distributed as dividend. The resulting amount must be decreased by the amount of accumulated losses, Treasury shares and amounts which should be transferred from the net profit for the last year to supplementary capital or other reserves based on the law or the Memorandum of Association. In the case of limited liability companies - the amount to be distributed between shareholders may not exceed the net profit for the previous year plus retained earnings and amounts reclassified from the distributable portion of supplementary capital and other reserves accumulated from profit appropriation. The resulting amount must be decreased by the amount of accumulated losses, Treasury shares and amounts which should be transferred from the net profit for the last year to supplementary capital or other reserves based on the law or the Memorandum of Association.

Non-controlling interest

Non-controlling interest represent the part of capital in a subsidiary company, which cannot be directly or indirectly assigned to the parent company.