Raport

Independent Statutory Auditor’s Report on the Audit

of Annual Consolidated Financial

Statements of the Group

of Bank Gospodarstwa Krajowego

for the financial year ended

31 December 2020

Mazars Audyt Sp. z o.o.

ul. Piękna 18

00-549 Warsaw

Mazars Audyt Sp. z o.o.

Sąd Rejonowy dla m. st. Warszawy, XII Wydział Gospodarczy KRS nr 0000086577, kapitał zakładowy: 1 268 000,00 PLN,

NIP: 5260215409, REGON: 011110970

INDEPENDENT STATUTORY AUDITOR’S REPORT ON THE AUDIT

OF ANNUAL CONSOLIDATED FINANCIAL STATEMENTS

Translation of the document originally issued in Polish

For the Supervisory Board of Bank Gospodarstwa Krajowego

Report on the audit of annual consolidated financial statements

Opinion

We have audited the annual consolidated financial statements of the group (“the Group”), the

parent undertaking of which is Bank Gospodarstwa Krajowego (“the Parent Undertaking”),

which comprise the consolidated statement of financial position as at 31 December 2020, the

consolidated statement of profit or loss, the consolidated statement of comprehensive income,

the consolidated statement of changes in equity, the consolidated statement of cash flows for

the financial year from 1 January 2020 to 31 December 2020 and notes, comprising a

summary of significant accounting policies and other explanatory notes (“the consolidated

financial statements”).

In our opinion, the accompanying consolidated financial statements:

• give a true and fair view of the Group’s property and financial position as at 31

December 2020, and of its consolidated financial performance and its consolidated

cash flows for the financial year then ended in accordance with the applicable

International Financial Reporting Standards as adopted by the European Union and

the adopted accounting principles (policy);

• comply with the legislation applicable to the Group and with the provisions of the Parent

Undertaking’s Articles of Association as to the form and content;

The present opinion is consistent with the additional report to the Audit Committee that we

issued on 15 April 2021.

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Basis for opinion

We conducted our audit in accordance with National Standards on Auditing as per

International Standards on Auditing adopted by resolution no. 3430/52a/2019 of the National

Council of Statutory Auditors of 21 March 2019 regarding national standards on auditing and

other documents (as amended) (National Standards on Auditing “NSA”), as well as according

to the Act on Statutory Auditors, Audit Firms and Public Supervision of 11 May 2017 (“the Act

on Statutory Auditors” - Journal of Laws of 2020, item 1415) and Regulation (EU) No 537/2014

of 16 April 2014 on specific requirements regarding statutory audit of public-interest entities

(“EU Regulation” - Official Journal of the European Union L 158 of 27 May 2014 p. 77 as

amended). Our responsibility under those standards has been further described in “Statutory

Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements” section of

our report.

We are independent of the Group Companies in accordance with the International Code of

Ethics for Professional Accountants (including International Independence Standards) issued

by the International Ethics Standards Board for Accountants (“the IESBA Code”), adopted by

resolution of the National Council of Statutory Auditors No. 3431/52a/2019 of 25 March 2019

on the principles of professional ethics for statutory auditors and other ethical requirements

which are applicable to the audit of financial statements in Poland. We have fulfilled our other

ethical responsibilities in accordance with these requirements and the IESBA Code. During

the audit the key statutory auditor and the audit firm remained independent of the Group’s

Companies in accordance with the Act on Statutory Auditors and with the EU Regulation.

We believe that the audit evidence that we have obtained is sufficient and appropriate to

provide a basis for our audit opinion.

Key audit matters

Key audit matters are those matters that, in our professional judgment, were of most

significance in the audit of the consolidated financial statements of the current reporting period.

These include the most significant assessed risks of material misstatement, including the

assessed risks of material misstatement due to fraud. These matters were addressed in the

context of our audit of the consolidated financial statements as a whole and in forming our

opinion thereon, and we summarized our responses to these risks, and, where deemed

appropriate, presented the most important observations related to these risks. We do not

provide a separate opinion on these matters.

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Key audit matter

How the matter was addressed in our audit

Loss allowances for expected credit

losses in the portfolio of loans and

advances to customers

In accordance with International Financial

Reporting Standard 9 Financial

instruments (“IFRS 9”), the Parent

Undertaking’s Management Board should

define the value of expected credit losses

that may occur in the period of 12 months

or in the remaining lifetime of a financial

asset depending on the classification of

particular assets into the risk category

(“stages”, “phases”), taking into

consideration the impact of future

macroeconomic conditions on the level of

expected credit losses.

Defining the amount and moment of

recognition of the expected credit losses

requires the exercise of significant

judgment and significant and complex

estimates, particularly with respect to

credit risk parameters in the expected

credit loss calculation models.

The estimate of loss allowances for

expected credit losses takes into account

the impact of the global COVID-19

pandemic.

In note 20 Loans and advances to

customers and in note 44 Credit risk

management to the consolidated financial

statements there is detailed information on

the applied methods and models and the

level of loss allowances for expected credit

losses in the portfolio of loans and

advances to customers.

We performed a critical analysis of the

design and implementation of the process of

credit risk assessment and estimation of

expected credit losses, and we assessed

the control mechanisms in these processes.

We reconciled the base of receivables

resulting from loans and advances granted

to customers with the accounting books of

the Parent Undertaking in order to confirm

the completeness of the recognition of

receivables resulting from loans and

advances to customers being the base for

recognizing loss allowances for expected

credit losses and the value of these

allowances.

We performed the assessment of the Parent

Undertaking’s impairment approach in terms

of compliance with the requirements of IFRS

9, in particular with respect to the application

of criteria of identification of a significant

increase in credit risk, default definition,

adopted credit risk parameters and

consideration of the impact of future

macroeconomic conditions on the level of

expected credit losses.

In case of the portfolio of loans and

advances to customers assessed on a

collective basis:

• we performed the analysis of the applied

methodology of calculation of loss

allowances for expected credit losses

with respect to exposures assessed on

a collective basis, including the

adequacy of risk parameters applied by

the Parent Undertaking,

• we checked the calculation of loss

allowances for expected credit losses

for selected exposures,

• we performed the assessment of the

verification of models based on

historical data (back-tests),

• we performed the analysis of the

correctness of the process of

identification of impairment and

classification into stages.

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In case of the portfolio of loans and

advances to customers assessed on an

individual basis:

• we performed the analysis of the

process and methodology of

identification of impairment and

classification of exposures into

baskets,

• based on a selected sample of

significant credit exposures we got

acquainted with documents

concerning the borrower’s financial

situation and checked the

correctness of its allocation to the

appropriate stages,

• we assessed the correctness of the

estimation of loss allowances for the

selected sample of exposures with

an identified impairment in terms of

correctness of the adopted values of

hedging and assumptions

concerning other cash flows.

Our procedures with respect to the impact

of COVID-19 pandemic on the expected

credit losses of loans and advances granted

to customers covered:

•

including in the selected sample

significant credit exposures of sectors

showing an increased risk due to the

pandemic,

•

analysis of the estimation of the impact

of future macroeconomic factors,

•

analysis of the credit base including

borrowers who used the moratoria.

We assessed the quality, and we checked

the correctness of disclosures concerning

allowances for expected credit losses in the

consolidated financial statements of the

Group.

Valuation of financial instruments

The valuation of financial instruments

requires the exercise of professional

judgment by the Parent Undertaking’s

Management Board and use of impairment

assumptions, estimation of the expected

cash flows and discount rates and reliable

estimation of fair value.

Information on the valuation of financial

instruments was shown in a detailed

We performed a critical analysis of the

design and implementation of the process of

financial instrument valuation in the Group.

We made a critical analysis of the design

and operation of the investment process in

the Parent Undertaking and we reviewed the

Parent Undertaking’s Management Board’s

resolutions and minutes of the Parent

Undertaking’s Financial Committee in order

Mazars Audyt Sp. z o.o. 6

manner in note 17 Derivative Financial

Instruments, in note 18 Securities, and

note 21 Investments in associates to the

consolidated financial statements.

to understand the Parent Undertaking’s

investment activity.

We reconciled the lists of financial

instruments with the Group’s accounting

books.

Our detailed procedures covered in

particular:

• verification of the correctness of the

adopted classification for financial

instruments based on cash flows’

characteristics tests and business

models tests, including the

assessment of the existence of

control in the classification process;

• for quoted financial instruments

measured at fair value through profit

or loss or through other

comprehensive income, independent

valuation of these instruments as at

the balance sheet date;

• for non-quoted financial instruments

measured at fair value through profit

or loss or through other

comprehensive income, review of

the valuation models applied,

including the verification of adopted

parameters and assumptions;

• for financial instruments measured at

amortized cost and at fair value

through other comprehensive

income, verification of the

measurement of these instruments

using the effective interest rate and

the verification of the correctness

and completeness of allowances

recognized for expected credit

losses for these instruments;

We assessed the quality, and we checked

the correctness of disclosures concerning

financial instruments in the Group’s

consolidated financial statements.

Other Matters

The Group’s consolidated financial statements for the year ended 31 December 2019 were

audited by a statutory auditor acting on behalf of another audit firm. This auditor expressed an

unqualified opinion on these financial statements on 18 May 2020.

Mazars Audyt Sp. z o.o. 7

Responsibility of the Management Board and Supervisory Board for

consolidated financial statements

The Parent Undertaking’s Management Board is responsible for preparing the consolidated

financial statements that give a true and fair view of the Group’s property and financial position

and its financial performance in accordance with International Financial Reporting Standards

as adopted by the European Union and adopted accounting principles (policy), as well as with

the relevant legislation and with the provisions of the Parent Undertaking’s Articles of

Association. The Parent Undertaking’s Management Board is also responsible for such

internal control as they determine is necessary to enable the preparation of consolidated

financial statements that are free of material misstatement, whether due to fraud or error.

When preparing the consolidated financial statements, the Parent Undertaking’s Management

Board is responsible for assessing the Group’s ability to continue as a going concern, as well

as for disclosing, if applicable, matters related to going concern and for adopting the going

concern assumption as an accounting basis, unless the Management Board either intends to

liquidate the Group or to cease operations, or has no realistic alternative but to do so.

The Parent Undertaking’s Management Board and members of its Supervisory Board are

obliged to ensure that the consolidated financial statements meet the requirements set out in

the Accounting Act the of 29 September 1994 (“Accounting Act” - Journal of Laws of 2021,

item 217 as amended). Members of the Parent Undertaking’s Supervisory Board are

responsible for supervising the financial reporting process.

Statutory Auditor’s responsibility for audit of the consolidated financial

statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial

statements as a whole are free from material misstatement, whether due to fraud or error, and

to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of

assurance but is not a guarantee that an audit conducted in accordance with the National

Standards on Auditing will always detect a material misstatement when it exists.

Misstatements can arise from fraud or error and are considered material if, individually or in

the aggregate, they could reasonably be expected to influence the economic decisions of

users taken on the basis of these consolidated financial statements.

The scope of audit does not include assurance as to the future profitability of the Group and

effectiveness or efficiency of running the Group’s affairs by the Parent Undertaking’s

Management Board at present or in the future.

According to National Standards on Auditing, we exercise professional judgement and

maintain professional scepticism throughout the audit, as well as:

• we identify and assess the risk of material misstatement of the consolidated financial

statements, whether due to fraud or error, we design and perform audit procedures in

response to this risk and we obtain audit evidence which is sufficient and appropriate

to provide a basis for our audit opinion. The risk of not detecting a material

misstatement resulting from fraud is higher than for one resulting from error, as fraud

may involve collusion, forgery, intentional omissions, misrepresentations, or the

override of internal control;

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• we obtain understanding of internal control applied for the purposes of audit in order

to design audit procedures that are appropriate in the circumstances, but not for the

purpose of expressing an opinion on the effectiveness of the internal control in the

Group;

• we evaluate the appropriateness of the accounting principles (policy) used, the

reasonableness of the accounting estimates and related disclosures, provided by the

Management Board of the Parent Undertaking;

• we conclude on the appropriateness of the Parent Undertaking management’s use of

the going concern principle as a basis of accounting and, based on the audit evidence

obtained, whether a significant uncertainty related to events or conditions exists and if

that may cast significant doubt on the Group’s ability to continue as a going concern.

If we come to the conclusion that a material uncertainty exists, we are required to pay

attention in our auditor’s report on related disclosures in the consolidated financial

statements or, if such disclosures are inadequate, to modify our opinion. Our

conclusions are based on the audit evidence obtained up to the date of the auditor’s

report. However, future events or conditions may cause the Group to cease to continue

as a going concern;

• we evaluate the overall presentation, structure and content of the consolidated

financial statements, including the disclosures, and whether the consolidated financial

statements represent the underlying transactions and events in a manner that

achieves fair presentation.

• we obtain sufficient and appropriate audit evidence related to the financial information

of entities and to the economic activities within the Group, in order to express the

opinion on the consolidated financial statements. We are responsible for directing,

supervising and conducting the Group’s audit and we remain exclusively responsible

for our audit opinion.

We communicate with the Parent Undertaking’s Supervisory Board regarding, among other

matters, the planned scope and timing of the audit and significant audit findings, including any

significant deficiencies in internal control identified by the auditor during the audit.

We make a representation to the Supervisory Board of the Parent Undertaking that we have

complied with relevant ethical requirements pertaining to independence and that we will

communicate all relationships and other matters that could reasonably be considered to pose

a threat to our independence, and, where applicable, the safeguards applied.

From all the matters communicated to the Supervisory Board of the Parent Undertaking, we

have chosen those being of most significance in the audit of the consolidated financial

statements of the current reporting period and therefore we judged them to be the Key Audit

Matters. We describe those matters in our auditor’s report unless law or regulation preclude

their public disclosure or when, in exceptional circumstances, we decide that a given matter

should not be presented in our report as the adverse consequences of such communication

would reasonably be expected to outweigh the public interest benefits of communicating about

the matter.

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Other information, including the Management Report

Other information includes the management report of the Group for the financial year ended

31 December 2020 (“the Management Report”).

Under Article 55 section 2a of the Accounting Act, the Management Report of Bank

Gospodarstwa Krajowego and the one of the Group of Bank Gospodarstwa Krajowego in 2020

were prepared jointly.

Responsibilities of the Management Board and Supervisory Board of the Parent

Undertaking

The responsibility for the preparation of the Management Report in accordance with the

applicable regulations lies with the Parent Undertaking’s Management Board.

Moreover, the Parent Undertaking’s Management Board and members of the Parent

Undertaking’s supervisory board are obliged to ensure that the Group Management Report

meets the requirements set out in the Accounting Act.

Statutory Auditor’s responsibility

Our opinion on the audit of the consolidated financial statements does not cover the

Management Report. Our responsibility regarding the audit of the consolidated financial

statements is to get acquainted with the Management Report and to consider whether it is not

significantly incoherent with the consolidated financial statements or with our knowledge

obtained during the audit or whether it seems to be significantly misstated in other manner. If,

based on work performed, we consider that there are material misstatements in the

Management Report, we are obliged to inform about it in our audit report. In accordance with

the Act on Statutory Auditors, our responsibility is also to give an opinion whether the

Management Report has been prepared in accordance with applicable regulations and

whether it complies with information contained in the consolidated financial statements. In

addition, in accordance with requirements of Article 111a (3) of the Act of 29 August 1997

Banking Law (Journal of Laws of 2020, item 1896 as amended) (“Banking Law”), our

responsibility is to audit information specified in Article 111a (2) of the Banking Law contained

in the Management Report.

Opinion on the Management Report

Based on the work performed during the audit, in our opinion, the Group Management Report:

• has been prepared in accordance with Article 49 of the Accounting Act and Article

111a (1-2) of the Banking Law,

• is in line with information contained in the consolidated financial statements.

Moreover, according to our knowledge of the Group and its environment obtained during the

audit, we declare that we have not identified any material misstatement in the Group

Management Report.

Mazars Audyt Sp. z o.o. 10

Report on Other Legal and Regulatory Requirements

Opinion on the compliance of the consolidated financial statements prepared in

the single electronic reporting format with the requirements of the regulation on

technical standards on the specification of a single electronic reporting format

Subject matter of the engagement

We performed an assurance engagement to obtain reasonable assurance in order to express

an opinion on whether the consolidated financial statements as at 31 December 2020 and for

the year then ended prepared in the single electronic reporting format (“consolidated financial

statements in ESEF format”) were prepared in accordance with the requirements specified in

the Commission Delegated Regulation (EU) 2019/815 of 17 December 2018 supplementing

Directive 2004/109/EC of the European Parliament and of the Council with regard to regulatory

technical standards on the specification of a single electronic reporting format (the “ESEF

Regulation”).

Identification of criteria

The consolidated financial statements in ESEF format were prepared by the Parent

Undertaking’s Management Board in order to fulfil the criteria regarding the labelling and

technical requirements concerning the specification of single electronic reporting format

which are specified in the ESEF Regulation.

The subject matter of our assurance engagement is the compliance of the consolidated

financial statements in ESEF format with the requirements of the ESEF Regulation, and the

requirements specified in these regulations form, in our opinion, adequate criteria to express

our opinion.

Responsibilities of the Management Board and Supervisory Board of the Parent

Undertaking

The Management Board of the Parent Undertaking is responsible for the preparation of the

consolidated financial statements in ESEF format in accordance with the requirements

specified in the ESEF Regulation. Such responsibility includes the selection and application

of appropriate XBRL markups using the taxonomy specified in the ESEF Regulation.

The responsibility also includes the design, implementation and maintenance of such internal

control as determined to be necessary to enable the preparation of the consolidated financial

statements in ESEF format that are free from any material incompliance with the ESEF

Regulation.

Members of the Parent Undertaking’s Supervisory Board are responsible for supervising the

financial reporting process, including also the preparation of the financial statements in

accordance with the ESEF Regulation.

Statutory Auditor’s responsibility

Our objective was to express an opinion, based on the performed assurance engagement

providing reasonable assurance that the consolidated financial statements in ESEF format

were prepared in accordance with the requirements specified in the ESEF Regulation. We

Mazars Audyt Sp. z o.o. 11

have performed our assurance engagement in accordance with the National Standard on

Assurance Engagements Other than Audit and Review 3000 (Revised) in the form of the

International Standard on Assurance Engagements 3000 (revised) – ‘Assurance

Engagements Other than Audits or Reviews of Historical Financial Information (“NSAE 3000

(R)”).

This standard imposes an obligation on the auditor to plan and execute procedures in order

to obtain reasonable assurance that the consolidated financial statements in ESEF format

were prepared, in all material respects, in accordance with specified criteria.

Reasonable assurance is a high level of assurance but is not a guarantee that an engagement

conducted in accordance with the NSAE 3000 (R) will always detect a material misstatement

when it exists.

The procedures selected depend on the auditor’s judgment, including the assessment of the

risk of material misstatements due to fraud or error. When performing risk assessment and

in order to design procedures to be performed the auditor takes into consideration the internal

controls related to the preparation of the consolidated financial statements in ESEF format,

which can provide the auditor with sufficient and appropriate evidence. The assessment of

the internal controls was not performed for the purpose of expressing an opinion on the

effectiveness of the internal control.

Quality control requirements

The audit firm applies National Standard on Quality Control as per International Standard on

Quality Control 1 Quality Control for Firms that Perform Audits and Reviews of Financial

Statements, and Other Assurance and Related Services Engagements as adopted by

resolution of the National Council of Statutory Auditors (“NSQC”).

In accordance with NSQC the audit firm maintains a comprehensive system of quality control

including documented policies and procedures regarding compliance with ethical

requirements, professional standards and applicable legal and regulatory requirements.

Ethical requirements, including independence

While performing the assurance engagement, the statutory auditor and the audit firm

complied with the independence requirements and other ethical requirements as specified by

the IESBA Code. The IESBA Code is based on the fundamental principles related to integrity,

objectivity, professional competence and due care, confidentiality and professional

behaviour. We also complied with other independence and ethical requirements which are

applicable to such assurance engagement in Poland.

Summary of the work performed

Procedures performed by us included in particular:

• obtaining an understanding of the process of preparation of the consolidated financial

statements in ESEF format in compliance with the ESEF Regulation, in which the

understanding of internal controls related to this process;

• assessment of the compliance with the technical standards on the specification of a

single electronic reporting format with the use of specialistic IT tools, including the

verification that the XHTML format was applied properly;

Mazars Audyt Sp. z o.o. 12

• evaluating the appropriateness of the use of XBRL markups from the taxonomy

specified in the ESEF Regulation and the creation of extension markups where no

suitable element in the core taxonomy specified in the ESEF Regulation has been

identified;

• evaluating the completeness of marking up information in the consolidated financial

statements in ESEF format using XBRL markups;

• testing the correctness of the mathematical calculations for particular items marked up

using XBRL markups;

• evaluating the appropriateness of anchoring of the applied taxonomy extensions to the

core taxonomy specified by the ESEF Regulation.

We believe that the evidence we have obtained is sufficient and appropriate to provide a

basis for our opinion.

Opinion

In our opinion, based on the procedures performed, the consolidated financial statements in

ESEF format were prepared in all material respects in accordance with the requirements

specified in the ESEF Regulation.

Information on Observing Applicable Prudential Regulations

The Parent Undertaking’s Management Board is responsible for ensuring the compliance of

the Group’s operations with prudential regulations, in which for the correct determination of

capital ratios.

Our responsibility is to communicate in the auditor’s report whether the Group complies with

applicable prudential regulations, defined in separate provisions, and in particular whether the

Group correctly determined the capital ratios presented in note 49.

The purpose of the audit of the financial statements was not to express an opinion on the

Group’s compliance with applicable prudential regulations and therefore we do not express

such an opinion.

Based on our audit of the financial statements we would like to inform you that we have not

identified any breaches of applicable prudential regulations by the Group in the period from 1

January 2020 to 31 December 2020, defined by separate provisions, in particular with respect

to the correctness of the determination of capital ratios as at 31 December 2020 by the Group,

which could have a significant impact on the consolidated financial statements.

Declaration on non-audit services

According to our best knowledge and belief we declare that non-audit services that we have

provided to the Group comply with laws and regulations applicable in Poland and that we have

not provided any non-audit services that are prohibited pursuant to Article 5 (1) of the EU

Regulation and Article 136 of the Act on Statutory Auditors. Non-audit services that we

Mazars Audyt Sp. z o.o. 13

provided to the Group during the audited period were specified in note 50 of the Group

Management Report.

Appointment of an audit firm

We were appointed to conduct the audit of the consolidated financial statements of the Group

based on the resolution of the Parent Undertaking’s Supervisory Board of 31 July 2020. We

have been auditing the consolidated financial statements of the Group for the first time.

The key statutory auditor responsible for the audit that was the base of this independent

statutory auditor’s report is Małgorzata Pek-Kocik.

Acting on behalf of Mazars Audyt Sp. z o.o. with its registered office in Warsaw, ul. Piękna 18,

entered on the list of audit firms under the no. 186, on behalf of which the key statutory auditor

audited the consolidated financial statements.

Małgorzata Pek-Kocik

Electronically signed on the Polish original

Key Statutory Auditor

No. 13070

Warsaw, 15 April 2021