`
Warsaw, March 2022
This document is a free translation of the Polish original. Terminology current in Anglo-Saxon countries has been used where practicable for the purposes of this translation in order to aid understanding. The binding Polish original should be referred to in matters of interpretation.
C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s o f B a n k P e k a o S . A . G r o u p f o r t h e y e a r e n d e d o n 3 1 D e c e m b e r 2 0 2 1
2
Bank Pekao S.A.
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
I. Consolidated income statement .......................................................................................................................... 4
II. Consolidated statement of comprehensive income ............................................................................................. 5
III. Consolidated statement of financial position ...................................................................................................... 6
IV. Consolidated statement of changes in equity ...................................................................................................... 7
V. Consolidated cash flow statement ...................................................................................................................... 9
VI. Notes to the consolidated financial statements ................................................................................................. 11
1. General information .......................................................................................................................................... 11
2. Group structure ................................................................................................................................................. 11
3. Business combinations ...................................................................................................................................... 12
4. Statement of compliance .................................................................................................................................. 15
5. Significant accounting policies ........................................................................................................................... 18
6. Operating segments .......................................................................................................................................... 30
7. Interest income and expense ............................................................................................................................ 33
8. Fee and commission income and expense ......................................................................................................... 35
9. Dividend income ............................................................................................................................................... 36
10. Result on financial assets and liabilities measured at fair value through profit or loss and foreign exchange result ................................................................................................................................................. 36
11. Result on derecognition of financial assets and liabilities not measured at fair value through profit or loss ............................................................................................................................................................... 37
12. Net allowances for expected credit losses ......................................................................................................... 37
13. Other operating income and expenses .............................................................................................................. 39
14. Administrative expenses ................................................................................................................................... 40
15. Depreciation and amortization .......................................................................................................................... 40
16. Gains (losses) on associates and disposal of subsidiaries ................................................................................... 41
17. Income tax ........................................................................................................................................................ 41
18. Earnings per share ............................................................................................................................................. 45
19. Dividends .......................................................................................................................................................... 45
20. Cash and balances with Central Bank ................................................................................................................ 46
21. Loans and advances to banks ............................................................................................................................ 47
22. Derivative financial instruments (held for trading) ............................................................................................ 48
23. Hedge accounting .............................................................................................................................................. 52
24. Loans and advances to customers ..................................................................................................................... 59
25. Securities .......................................................................................................................................................... 63
26. Assets pledged as security for liabilities ............................................................................................................ 65
27. Assets and liabilities held for sale ...................................................................................................................... 67
28. Investments in associates .................................................................................................................................. 68
29. Intangible assets ............................................................................................................................................... 69
30. Property, plant and equipment ......................................................................................................................... 72
31. Other assets ...................................................................................................................................................... 75
32. Amounts due to other banks ............................................................................................................................. 75
33. Financial liabilities held for trading .................................................................................................................... 76
34. Amounts due to customers ............................................................................................................................... 76
3
Bank Pekao S.A.
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
35. Debt securities issued ....................................................................................................................................... 77
36. Subordinated liabilities ..................................................................................................................................... 77
37. Provisions ......................................................................................................................................................... 79
38. Other liabilities ................................................................................................................................................. 81
39. Defined benefit plans ........................................................................................................................................ 81
40. Share-based payments ...................................................................................................................................... 82
41. Leasing .............................................................................................................................................................. 85
42. Contingent commitments .................................................................................................................................. 88
43. Equity ................................................................................................................................................................91
44. Non - controlling interests ................................................................................................................................. 93
45. Additional information to the consolidated cash flow statement ...................................................................... 94
46. Related party transactions ................................................................................................................................ 96
47. Risk management and fair value ...................................................................................................................... 101
47.1. Organizational structure of risk management ...................................................................................................... 101
47.2. Credit risk .................................................................................................................................................................... 102
47.3. Legal risk regarding foreign currency mortgage loans in CHF ............................................................................ 144
47.4. Market risk .................................................................................................................................................................. 149
47.5. Reform of interest rate indices ................................................................................................................................ 151
47.6. Liquidity risk ................................................................................................................................................................ 153
47.7. Operational risk .......................................................................................................................................................... 156
47.8. Climate risk ................................................................................................................................................................. 156
47.9. Capital management ................................................................................................................................................. 157
47.10. Fair value of financial assets and liabilities ............................................................................................................ 160
48. Subsequent events .......................................................................................................................................... 167
Glossary ....................................................................................................................................................................... I
4
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
Bank Pekao S.A.
I. Consolidated income statement
NOTE
2021
2020 RESTATED
Interest income
7
5 870 356
5 849 359
Interest income calculated using the effective interest method
5 562 252
5 610 855
Financial assets measured at amortised cost
5 109 180
4 983 095
Financial assets measured at fair value through other comprehensive income
453 072
627 760
Other interest income related to financial assets measured at fair value through profit or loss
308 104
238 504
Interest expense
7
(209 595)
(647 347)
Net interest income
5 660 761
5 202 012
Fee and commission income
8
3 229 997
2 905 266
Fee and commission expense
8
(542 482)
(471 616)
Net fee and commission income
2 687 515
2 433 650
Dividend income
9
26 662
26 278
Result on financial assets and liabilities measured at fair value through profit or loss and foreign exchange result
10
129 845
170 539
Result on fair value hedge accounting
25
3 704
(847)
Result on derecognition of financial assets and liabilities not measured at fair value through profit or loss
11
29 863
61 132
Net allowances for expected credit losses
12
(778 198)
(1 578 460)
Operating income
13
121 546
68 180
Operating expenses
13
(137 746)
(165 049)
Administrative expenses
14
(4 099 042)
(3 953 469)
Personnel expenses
(2 156 056)
(2 039 866)
Other administrative expenses
(1 942 986)
(1 913 603)
Depreciation and amortization
15
(648 218)
(538 951)
Gains (losses) on associates and disposal of subsidiaries
16
4 928
-
PROFIT BEFORE INCOME TAX
3 001 620
1 725 015
Income tax expense
17
(825 062)
(622 114)
NET PROFIT
2 176 558
1 102 901
1. Attributable to equity holders of the Bank
2 174 897
1 101 712
2. Attributable to non-controlling interests
1 661
1 189
Earnings per share (in PLN per share)
basic for the period
18
8.29
4.20
diluted for the period
18
8.29
4.20
Notes to the financial statements presented on pages 11 – 167 constitute an integral part of the consolidated financial statements.
5
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
Bank Pekao S.A.
II. Consolidated statement of comprehensive income
NOTE
2021
2020 RESTATED
Net profit
2 176 558
1 102 901
Other comprehensive income
Item that are or may be reclassified subsequently to profit or loss:
Impact of revaluation of debt financial instruments and loan measured at fair value through other comprehensive income (net):
(1 273 417)
555 440
Profit or loss on fair value measurement
(1 245 039)
592 857
Profit or loss reclassification to income statement after derecognition
(28 378)
(37 417)
Impact of revaluation of derivative instruments hedging cash flows (net)
23
(1 736 277)
378 040
Items that will never be reclassified to profit or loss:
Impact of revaluation of investments in equity instruments designated at fair value through other comprehensive income (net)
6 802
71 345
Remeasurements of the defined benefit liabilities (net)
38 710
(8 881)
Other comprehensive income (net of tax)
(2 964 182)
995 944
Total comprehensive income
(787 624)
2 098 845
1. Attributable to equity holders of the Bank
(789 322)
2 097 665
2. Attributable to non-controlling interests
1 698
1 180
Notes to the financial statements presented on pages 11 – 167 constitute an integral part of the consolidated financial statements.
6
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
Bank Pekao S.A.
III. Consolidated statement of financial position
NOTE
31.12.2021
31.12.2020 RESTATED
01.01.2020 RESTATED
ASSETS
Cash and due from Central Bank
20
4 696 620
4 456 279
5 162 682
Loans and advances to banks
21
3 328 087
2 578 339
1 791 436
Derivative financial instruments (held for trading)
22
7 928 539
4 812 231
2 079 529
Hedging instruments
23
78 216
779 063
377 208
Loans and advances to customers (including receivables from finance leases)
24
159 228 756
142 487 797
140 913 352
Securities
25
67 320 567
71 066 008
46 577 239
Assets pledged as security for liabilities
26
846 097
742 928
597 540
Assets held for sale
27
12 744
54 123
17 175
Investments in associates
28
44 035
-
-
Intangible assets
29
2 300 382
2 008 097
1 617 531
Property, plant and equipment
30
1 830 231
1 919 447
1 920 252
Income tax assets
1 865 347
1 253 578
1 095 050
1. Current tax assets
216 539
4 831
420
2. Deferred tax assets
17
1 648 808
1 248 747
1 094 630
Other assets
31
1 086 984
1 059 292
1 173 925
TOTAL ASSETS
250 566 605
233 217 182
203 322 919
EQUITY AND LIABILITIES
Liabilities
Amounts due to Central Bank
-
-
4 550
Amounts due to other banks
32
8 575 469
9 950 663
6 539 539
Financial liabilities held for trading
33
639 733
742 804
184 799
Derivative financial instruments (held for trading)
22
7 969 343
4 617 416
2 034 113
Amounts due to customers
34
195 161 943
178 303 984
157 989 734
Hedging instruments
23
2 221 732
1 072 959
614 765
Debt securities issued
35
5 355 355
6 146 708
6 307 837
Subordinated liabilities
36
2 761 474
2 757 876
2 764 493
Liabilities associated with assets held for sale
27
-
82 643
-
Income tax liabilities
29 871
339 798
216 920
1. Current tax liabilities
4 966
312 006
187 002
2. Deferred tax liabilities
17
24 905
27 792
29 918
Provisions
37
883 108
988 704
752 597
Other liabilities
38
3 105 291
2 718 650
2 515 546
TOTAL LIABILITIES
226 703 319
207 722 205
179 924 893
Equity
Share capital
43
262 470
262 470
262 470
Other capital and reserves
43
19 554 958
22 243 269
20 665 430
Retained earnings and net profit for the period
43
4 034 001
2 977 889
2 458 387
Total equity attributable to equity holders of the Bank
23 851 429
25 483 628
23 386 287
Non-controlling interests
44
11 857
11 349
11 739
TOTAL EQUITY
23 863 286
25 494 977
23 398 026
TOTAL LIABILITIES AND EQUITY
250 566 605
233 217 182
203 322 919
Notes to the financial statements presented on pages 11 – 167 constitute an integral part of the consolidated financial statements.
7
Bank Pekao S.A.
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
IV. Consolidated statement of changes in equity
EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF THE BANK
OTHER CAPITAL AND RESERVES
SHARE CAPITAL
TOTAL OTHER CAPITAL AND RESERVES
SHARE PREMIUM
GENERAL BANKING RISK FUND
OTHER RESERVE CAPITAL
REVALUATION RESERVES
OTHER
RETAINED EARNINGS AND NET PROFIT FOR THE PERIOD
TOTAL EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF THE BANK
NON - CONTROLLING INTERESTS
TOTAL EQUITY
Note
43
43
43
44
Equity as at 1.01.2021
262 470
22 243 269
9 137 221
1 982 459
9 386 555
1 355 621
381 413
2 977 889
25 483 628
11 349
25 494 977
Comprehensive income
-
(2 964 219)
-
-
-
(2 964 219)
-
2 174 897
(789 322)
1 698
(787 624)
Remeasurements of the defined benefit liabilities (net of tax)
-
38 673
-
-
-
38 673
-
38 673
37
38 710
Revaluation of debt securities and loans measured at fair value through other comprehensive income (net of tax)
-
(1 273 417)
-
-
-
(1 273 417)
-
-
(1 273 417)
-
(1 273 417)
Revaluation of investments in equity instruments designated at fair value through other comprehensive income (net of tax)
-
6 802
-
-
-
6 802
-
-
6 802
-
6 802
Revaluation of cash flow hedging financial instruments (net of tax)
-
(1 736 277)
-
-
-
(1 736 277)
-
-
(1 736 277)
-
(1 736 277)
Net profit for the period
-
-
-
-
-
-
-
2 174 897
2 174 897
1 661
2 176 558
Appropriation of retained earnings
-
275 908
-
-
287 783
-
(11 875)
(1 118 437)
(842 529)
(1 088)
(843 617)
Dividend paid
-
-
-
-
-
-
-
(842 529)
(842 529)
(1 088)
(843 617)
Profit appropriation to other reserves
-
275 908
-
-
287 783
-
(11 875)
(275 908)
-
-
-
Other
-
-
-
-
9 882
(9 882)
-
(348)
(348)
(102)
(450)
Result on sales of investments in equity instruments designated at fair value through other comprehensive income(net of tax)
-
-
-
-
9 882
(9 882)
-
-
-
-
-
Other
-
-
-
-
-
-
-
(348)
(348)
(102)
(450)
Equity as at 31.12.2021
262 470
19 554 958
9 137 221
1 982 459
9 684 220
(1 618 480)
369 538
4 034 001
23 851 429
11 857
23 863 286
Notes to the financial statements presented on pages 11 - 167 constitute an integral part of the consolidated financial statements.
8
Bank Pekao S.A.
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF THE BANK
OTHER CAPITAL AND RESERVES
SHARE CAPITAL
TOTAL OTHER CAPITAL AND RESERVES
SHARE PREMIUM
GENERAL BANKING RISK FUND
OTHER RESERVE CAPITAL
REVALUATION RESERVES
OTHER
RETAINED EARNINGS AND NET PROFIT FOR THE PERIOD
TOTAL EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF THE BANK
NON - CONTROLLING INTERESTS
TOTAL EQUITY
Equity as at 1.01.2020
262 470
20 665 430
9 137 221
1 982 459
8 787 844
359 668
398 238
2 458 387
23 386 287
11 739
23 398 026
Comprehensive income
-
995 953
-
-
-
995 953
-
1 101 712
2 097 665
1 180
2 098 845
Remeasurements of the defined benefit liabilities (net of tax)
-
(8 872)
-
-
-
(8 872)
-
-
(8 872)
(9)
(8 881)
Revaluation of debt securities and loans measured at fair value through other comprehensive income (net of tax
-
555 440
-
-
-
555 440
-
-
555 440
-
555 440
Revaluation of investments in equity instruments designated at fair value through other comprehensive income (net of tax)
-
71 345
-
-
-
71 345
-
-
71 345
-
71 345
Revaluation of cash flow hedging financial instruments (net of tax)
-
378 040
-
-
-
378 040
-
-
378 040
-
378 040
Net profit for the period
-
-
-
-
-
-
-
1 101 712
1 101 712
1 189
1 102 901
Appropriation of retained earnings
-
581 861
-
-
598 686
-
(16 825)
(581 861)
-
(1 469)
(1 469)
Dividend paid
-
-
-
-
-
-
-
-
-
(1 469)
(1 469)
Profit appropriation to other reserves
-
581 861
-
-
598 686
-
(16 825)
(581 861)
-
-
-
Other
-
25
-
-
25
-
-
(349)
(324)
(101)
(425)
Other
-
25
-
-
25
-
-
(349)
(324)
(101)
(425)
Equity as at 31.12.2020
262 470
22 243 269
9 137 221
1 982 459
9 386 555
1 355 621
381 413
2 977 889
25 483 628
11 349
25 494 977
Notes to the financial statements presented on pages 11 - 167 constitute an integral part of the consolidated financial statements.
9
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
Bank Pekao S.A.
V. Consolidated cash flow statement
NOTE
2021
2020 RESTATED
Cash flow from operating activities – indirect method
Profit before income tax
3 001 620
1 725 015
Adjustments for:
(2 151 049)
22 965 508
Depreciation and amortization
15
648 218
538 951
Share in gains (losses) from associates
16
(1 840)
-
(Gains) losses on investing activities
(68 959)
(51 145)
Net interest income
7
(5 660 761)
(5 202 012)
Dividend income
9
(26 662)
(26 278)
Interest received
5 698 049
5 755 216
Interest paid
(264 018)
(822 552)
Income tax paid
(793 712)
(768 095)
Change in loans and advances to banks
45
(222 954)
(28 927)
Change in derivative financial instruments (assets)
45
(3 107 264)
(2 732 702)
Change in loans and advances to customers (in this receivables from financial leases)
45
(4 529 622)
(1 647 620)
Change in securities(including assets pledged as security for liabilities)
45
1 634 611
(164 326)
Change in other assets
45
(2 745 430)
589 320
Change in amounts due to banks
45
225 217
2 606 471
Change in financial liabilities held for trading
(103 071)
558 005
Change in derivative financial instruments (liabilities)
45
3 187 751
2 583 303
Change in amounts due to customers
45
3 448 875
20 573 060
Change in debt securities issued
(5 201)
57 414
Change in subordinated liabilities
3 598
-
Payments for short-term leases and leases of low-value assets
(2 410)
(3 838)
Change in provisions
45
(109 485)
236 107
Change in other liabilities
45
644 021
915 156
Net cash flows from operating activities
850 571
24 690 523
Cash flow from investing activities
Investing activity inflows
232 768 229
349 678 196
Subsidy received for taking over the part of the activities of Idea Bank S.A. . including purchased cash
3
1 453 843
-
Sale of subsidiaries
3, 45
18 579
-
Sale of securities measured at amortized cost and at fair value through other comprehensive income
231 141 720
349 633 759
Sale of intangible assets and property, plant and equipment
29, 30
127 425
18 159
Dividend received
9
26 662
26 278
Investing activity outflows
(229 424 306)
(374 809 443)
Acquisition of associates
28
(42 193)
-
Acquisition of securities measured at amortised cost and at fair value through other comprehensive income
(228 636 970)
(373 885 399)
Acquisition of intangible assets and property, plant and equipment
29, 30
(745 143)
(924 044)
Net cash flows from investing activities
3 343 923
(25 131 247)
.
10
Bank Pekao S.A.
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
NOTE
2021
2020 RESTATED
Cash flows from financing activities
Financing activity inflows
3 116 386
11 325 370
Due to loans and advances received from banks
45
62 444
1 660 575
Issue of debt securities
45
3 053 942
9 664 795
Financing activity outflows
45
(6 580 603)
(10 830 270)
Repayment of loans and advances received from banks
(1 787 970)
(844 747)
Redemption of debt securities
45
(3 836 430)
(9 871 878)
Dividends and other payments to shareholders
45
(842 529)
-
Payments for the principal portion of the lease liabilities
(113 674)
(113 645)
Net cash flows from financing activities
(3 464 217)
495 100
Total net cash flows
730 277
54 376
including effect of exchange rate fluctuations on cash and cash equivalents held
20 131
170 817
Net change in cash and cash equivalents
730 277
54 376
Cash and cash equivalents at the beginning of the period
7 005 348
6 950 972
Cash and cash equivalents at the end of the period
45
7 735 625
7 005 348
Notes to the financial statements presented on pages 11 – 167 constitute an integral part of the consolidated financial statements.
11
Bank Pekao S.A.
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
VI. Notes to the consolidated financial statements
1. General information
Bank Polska Kasa Opieki Spółka Akcyjna (hereafter ‘Bank Pekao S.A.’ or ‘the Bank’), with its headquarters in Poland 00-844, Grzybowska Street 53/57 Warsaw, was incorporated on 29 October 1929 in the Commercial Register of the District Court in Warsaw and has been continuously operating since its incorporation.
Bank Pekao S.A. is registered in the National Court Registry – Enterprise Registry of the Warsaw District Court, XII Commercial Division of the National Court Registry in Warsaw under the reference number KRS 0000014843 ( no changes in the name or identification data compared to the previous reporting period).
The Bank’s shares are quoted on the Warsaw Stock Exchange (WSE). The Bank’s securities, traded on regulated markets, are classified in the banking sector.
Bank Pekao S.A. is a universal commercial bank, offering a broad range of banking services on domestic financial markets, provided to retail and corporate clients, in compliance with the scope of services, set forth in the Bank’s Articles of Association.
The Bank runs both PLN and forex operations, and it actively participates in both domestic and foreign financial markets. Moreover, acting through its subsidiaries, the Group provides stockbroking, leasing, factoring operations and offering other financial services.
According to IFRS 10 ‘Consolidated financial statements’, the parent entity of Bank Pekao S.A. is Powszechny Zakład Ubezpieczeń S.A. (hereinafter ‘PZU S.A.’) with its registered office in Warsaw at Al. Jana Pawła II 24.
The Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 contain financial information of the Bank and its subsidiaries (together referred to as the ‘Group’), and the associates accounted for using equity method.
The share ownership structure of the Bank is presented in the Note 6.1 of the Report on the activities of Bank Pekao S.A. Group for the year 2021.
2. Group structure
The Group consists of Bank Pekao S.A. as the parent entity and the following subsidiaries
PERCENTAGE OF THE GROUP’S OWNERSHIP RIGHTS IN SHARE CAPITAL/VOTING
NAME OF ENTITY
LOCATION
CORE ACTIVITY
31.12.2021
31.12.2020
Pekao Bank Hipoteczny S.A.
Warsaw
Banking
100.00
100.00
Pekao Leasing Sp. z o.o.
Warsaw
Leasing services
100.00
100.00
PeUF Sp. z o.o.
Warsaw
Financial support
100.00
-
Pekao Investment Banking S.A.
Warsaw
Brokerage
100.00
100.00
Pekao Faktoring Sp. z o.o.
Lublin
Factoring services
100.00
100.00
Centrum Kart S.A.
Warsaw
Financial support
100.00
100.00
Pekao Financial Services Sp. z o.o.
Warsaw
Transferable agent
66.50
66.50
Pekao Direct Sp. z o.o.
Cracow
Call-center services
100.00
100.00
Pekao Property S.A. (in liquidation )
Warsaw
Real estate development
100.00
100.00
FPB - Media Sp. z o.o. (in bankruptcy)
Warsaw
Real estate development
100.00
100.00
Pekao Fundusz Kapitałowy Sp. z o.o. (in liquidation )
Warsaw
Business consulting
100.00
100.00
Dom Inwestycyjny Xelion Sp. z o.o.
Warsaw
Financial intermediary
-
100.00
Pekao Investment Management S.A.
Warsaw
Holding
100.00
100.00
Pekao TFI S.A.
Warsaw
Asset management
100.00
100.00
As at 31 December 2021 and 31 December 2020 all subsidiaries of the Bank have been consolidated.
As at 31 December 2021 and 31 December 2020 the Group held no shares in entities under joint control.
12
Bank Pekao S.A.
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
Investments in associates
PERCENTAGE OF THE GROUP’S OWNERSHIP RIGHTS IN SHARE CAPITAL/VOTING
NAME OF ENTITY
LOCATION
CORE ACTIVITY
31.12.2021
31.12.2020
Krajowy Integrator Płatności S.A.
Poznań
Monetary brokerage
38.33
-
Acquisition of the shares of Krajowy Integrator Płatności S.A.
On 31 March 2021, the purchase transaction was completed, as a result of which Bank became the owner of 210 641 shares constituting 38.33% of the capital and entitling to 38.33% of votes at the General Meeting of Krajowy Integrator Płatności S.A., the operator of the Tpay.com system. As a result of the transaction, the Bank will offer its business customers a fully comprehensive payment acceptance offer, supplemented with products for the dynamically growing online sales sector.
Sale of 100% of shares in Dom Inwestycyjny Xelion Sp. z o.o.
On 29 October 2021, a promised agreement was signed for the sale of 100% of shares in Dom Inwestycyjny Xelion Sp. z o.o. (‘Xelion’), as a result of which the Bank sold to Quercus TFI S.A. (through the special purpose vehicle Quercus Agent Transferowy Sp.z o.o.) 120 100 shares, constituting 100% of shares in the capital and entitling to 100% votes at the General Meeting of Xelion. The promised Xelion sale agreement was signed after the conditions precedent to the transaction, contained in the preliminary agreement for the sale of shares signed in December 2020, were met, i.e. after obtaining the relevant regulatory approvals, as well as the payment of Xelion funds to the Bank.
Therefore, on 29 October 2021, the ownership of the abovementioned shares was transferred to Quercus Agent Transferowy Sp. z o.o. The sale settlement is presented in Note 27
Acquisition of shares in PeUF Sp. z o.o.
In 2021, Pekao Leasing Sp. z o.o., a subsidiary of the Bank, acquired 100% shares in Metsi Sp. z o.o. After changing the agreement of Metsi Sp. z o.o., it operates under PeUF Sp. z o.o. and deals with the distribution of insurance.
3. Business combinations
Takeover of Idea Bank S.A.
Description of the Transaction
On 30 December 2020, the Bank Guarantee Fund (hereinafter ‘BGF’) decided to apply to Idea Bank S.A. the instrument of resolution due to the fulfillment of the following conditions:
1) the bankruptcy of Idea Bank S.A.,
2) there are no premises indicating that possible supervisory actions or actions of Idea Bank S.A. will allow to remove the risk of bankruptcy in due time,
3) initiation of resolution against Idea Bank S.A. was necessary in the public interest understood as the stability of the financial sector.
The resolution instrument applied by the BGF to Idea Bank S.A. consisted in the takeover by the Bank on 3 January 2021 with the effect specified in Art. 176 sec. 1 of the Act of 10 June 2016 on the Bank Guarantee Fund, the deposit guarantee system and forced restructuring (hereinafter the ‘BGF Act’) of Idea Bank SA, covering all its property rights and liabilities as at the end of the day of initiating the resolution, i.e. on 31 December 2020 (hereinafter referred to as ‘Transaction’), excluding certain property rights and liabilities indicated in the BGF decision in question, including, inter alia:
1) property rights and liabilities related to actual, legal or tort related to:
a) trading in financial instruments and other activities relating to:
• financial instruments issued by GetBack S.A. and related entities of GetBack S.A.,
• investment certificates, in particular investment certificates issued by Lartiq (formerly Trigon) [Profit XXII NS FIZ, Profit XXIII, NS FIZ, Profit XXIV NS FIZ] represented by Lartiq TFI S.A. (formerly Trigon TFI S.A.), Universe NS FIZ, Universe 2 NS FIZ and other investment funds represented by Altus TFI S.A.,
b) providing insurance coverage, performing insurance intermediary activities or distribution of life insurances, if they are related to an insurance capital fund (also life insurance, where the insurance company's performance is determined based on specific indices or other base values),
c) providing services as an agent of an investment firm,
d) the activities of Idea Bank S.A., which are not covered by the Bank's statute,
and claims arising from these rights and liabilities, including those covered by civil and administrative proceedings, regardless of the date when they were raised.
13
Bank Pekao S.A.
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
2) shares in subsidiaries and associates of Idea Bank S.A.,
3) corporate bonds issued by GetBack S.A.,
hereinafter referred to as ‘Acquired Business’.
The takeover of the Acquired Business does not have a significant impact on the financial profile of the Bank, in particular on the capital and liquidity parameters of the Bank and the Group.
Transaction Justification
Idea Bank S.A. was a commercial bank offering banking services provided to individual and institutional clients, such as accepting cash deposits payable on demand or on a specified date and keeping accounts of these deposits, granting loans, granting bank guarantees, issuing securities. Idea Bank S.A. The capital adequacy ratio of Idea Bank S.A. according to the last available financial statements prepared as at 30 September 2020 was at the level of 2.51% (compared to 10.5% required by law) and was significantly below the regulatory requirements.
The initiation of the resolution process made it possible to reduce the effects of the bankruptcy risk of Idea Bank S.A., and the negative consequences for the banking sector related to this eventuality.
Price conditions
The takeover of Idea Bank S.A. was not related to the consideration payment by the Bank. As a result of the transaction, the Bank took over the assets and liabilities of Idea Bank S.A., the total estimated fair value of which was negative.
As indicated in the ‘Description of the Transaction’, the Bank did not acquire all the assets of Idea Bank S.A., in particular, the Bank did not take over shares in subsidiaries and associates.
Considering the above, the Bank received support from the BGF in the form of a subsidy in the amount of PLN 193 million in order to cover the difference between the value of the acquired liabilities and the value of the acquired property rights of Idea Bank S.A. The above funds were received by the Bank on 8 January 2021.
As an inseparable element of the entire Transaction, the Bank also received a guarantee from the BGF to cover losses resulting from the risk related to property rights or the entity's liabilities under the restructuring referred to in Art. 112 sec. 3 point 1 of the BGF Act (‘Loss Coverage Guarantee’), which includes a loss coverage guarantee resulting from credit risk related to loan exposures (‘CRM Guarantee’) and a loss coverage guarantee (other than losses resulting from credit risk) related to the Acquired Business (‘Guarantee for Residual Risks’).
The takeover involves the takeover of the loan exposures included in the Acquired Business and could result in an increase in the risk-weighted exposure amount (it is calculated by multiplying the exposure amounts and the risk weight resulting from the provisions of the Regulation of the European Parliament and of the Council (EU) No.575/ 2013 of 26 June 2013 on prudential requirements for credit institutions and investment firms and amending Regulation (EU) No 648/2012 (‘CRR’)). An increase in such risk weighted exposure amounts could affect the Bank's capital requirements.
Therefore, the CRM Guarantee is used by the Bank as ‘eligible unfunded credit protection' within the meaning of the CRR. This allowed, in terms of credit risk, to assign a risk weight appropriate to the entity providing protection - BGF, qualified as a public sector entity, to the acquired exposures, in accordance with the Polish Financial Supervision Authority opinion referred to in Art. 116 sec. 4 of CRR. As a consequence of obtaining the opinion referred to in Art. 116 sec. 4 of CRR and after the CRM Guarantee fulfills the remaining conditions for ‘eligible unfunded credit protection’, the exposures covered by the Loss Coverage Guarantee agreement are treated as exposures to the central government, resulting in a significant reduction of the capital requirement for credit risk on the part of the Bank.
Settlement of the acquisition of the Acquired Business of Idea Bank S.A.
The Bank made a settlement of the Transaction using the principles of International Financial Reporting Standard 3 ‘Business Combinations’ (hereinafter ‘IFRS 3’) as at the date of taking control (i.e. 3 January 2021) based on the data as at 31 December 2020.
14
Bank Pekao S.A.
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
Recognition and measurement of identifiable assets acquired and liabilities assumed, measured in accordance with IFRS
The recognized fair values of the identifiable assets acquired and liabilities assumed are presented in the table below.
ITEM NAME
BBOOK VAULE (*)
FAIR VAULE
Cash and due from Central Bank
1 099 662
1 085 742
Loans and advances to banks
200 339
210 088
Derivative financial instruments (held for trading)
9 044
9 044
Loans and advances to customers (in this receivables from financial leases)
12 048 461
12 060 942
Securities
717 929
518 340
Assets held for sale
565
519
Intangible assets
143 825
40 435
Property, plant and equipment
36 496
28 969
Other assets
139 221
64 921
TOTAL ASSETS
14 395 542
14 019 000
Amounts due to other banks
125 484
125 488
Derivative financial instruments (held for trading)
164 176
164 176
Amounts due to customers
13 504 707
13 575 553
Provisions
8 389
3 889
Other liabilities
342 485
343 798
TOTAL LIABILITIES
14 145 241
14 212 904
(*) Data according to the statement of turnover and balances that the Bank received from the BFG on 3 January 2021.
As a result of the above, the Bank recognized goodwill in the amount of PLN 904 thousand, calculated as the difference between the net amount of identifiable assets acquired and liabilities assumed (PLN -193 904 thousand) and the amount of subsidies from BGF (PLN 193 000 thousand). Goodwill will not be tax deductible.
Significant assumptions used for the fair value measurement
The determination of the fair value of the acquired assets and liabilities as well as the identification and recognition of intangible assets resulting from the acquisition were performed based on the available information and the best estimates as at the date of the financial statements. The basis for the valuation of individual components to their fair value were the book values as at 31 December 2020 received by the Bank from the BGF on 3 January 2021.
Cash and due from Central Bank and Loans and advances to banks
The balance of these items has been adjusted to reflect all economic events relating to 31 December 2020 which, for operational reasons, were not included in the statement of turnover and balances received by the Bank on 3 January 2021.
In addition, in the area of loans and advances to banks, a loan was measured at fair value (using the fair value methodology similar to that presented in the area of loans and advances to customers).
Loans and advances to customers
Loans and advances to customers were measured at fair value in accordance with the requirements of IFRS 3 and IFRS 13.
In the case of working loans, including purchased receivables, investment loans and operating loans, the fair value measurement was estimated on the basis of the income method, in which future expected capital and interest flows from the portfolio were discounted taking into account prepayments.
Moreover, the Bank decided that the CRM guarantee received from the BGF should be treated as integral with the taken over loan portfolio, which is covered by the guarantee, and therefore the effect of the guarantee was included in the fair value valuation of loans and advances by limiting the expected credit losses.
The future cash flows determined in accordance with the above approach were discounted with the discount rate, which included the following components: the risk-free rate estimated on the basis of IRS contract quotations based on WIBOR 1M, the mark-up on the cost of equity and a component representing the calibration margin.
Due to the recognition of the CRM guarantee in question as recognized unfunded protection (details in the Price conditions section), reduced risk weights for the cost of capital charge were used in the valuation of the loan portfolio.
15
Bank Pekao S.A.
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
Securities
The fair value adjustment of securities results from the revaluation of:
• the value of corporate bonds with the same rules as presented for loans and advances to customers, and
• the value of the shares of the financial entity, the value of which was estimated using the discounted dividend model.
Intangible assets
The adjustment of the fair value of intangible assets results mainly from the adoption of the perspective of an average market participant and taking into account plans for the continuation and further use of individual intangible assets.
As a result of the conducted analyzes, no premises for the recognition of relationships with customers holding savings and settlement accounts (‘CDI’) or relationships on loan products were identified, mainly due to the lack of a significant difference between the average interest rate of the taken over accounts, and at the cost of alternative financing of the Bank and a significant excess liquidity of the banking sector. In the case of loan products, no significant relationships were identified due to the low level of net interest and commission income in relation to the corresponding significant risk costs, as well as administrative costs.
Property, plant and equipment
The adjustment of the fair value of property, plant and equipment results mainly from the perspective of an average market participant adopted for valuation. In terms of lease agreements, the liquidation of the acquired facilities was assumed. The above approach results from the conducted market analysis, the attractiveness of the location of individual outlets and the comparison of the price conditions to currently concluded contracts of a similar size in similar locations.
Other assets
Adjustment of the fair value of other assets results mainly from the revaluation of significant receivables from corporate customers, applying the approach analogous to that applied to the valuation of loan exposures.
Amounts due to customers
In the case of current accounts, it was assumed that due to their nature (e.g. the possibility of withdrawing funds on demand, renewable with the possibility of changing conditions upon renewal, no maturity), the fair value does not differ from the book value.
The adjustment of the fair value of term and structured deposits was estimated by discounting future values of term and structured deposits including repayments of nominal values and interest accrued till to repayment.
Provisions
The adjustment of the fair value of provisions results mainly from the write-off of a provision for restructuring.
Other liabilities
The adjustment of the fair value of other liabilities results from the revaluation of the provision for future liabilities. The value of liabilities was estimated on the basis of the expected future cash outflow and taking into account discount factors resulting from the current market conditions.
4. Statement of compliance
The annual consolidated financial statements (‘financial statements’) of Bank Pekao S.A. Group have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union, and in respect to matters that are not regulated by the above standards, in accordance with the requirements of the Accounting Act dated 29 September 1994 (Official Journal from 2019, item 351 with further amendments) and respective operating regulations, and in accordance with the requirements for issuers of securities admitted or sought to be admitted to trading on an official stock exchange listing market. Details of the Group of accounting policies, including their changes, are presented in Note 5.
These consolidated financial statements were approved for publication by the Bank’s Management Board on 2 March 2022 .
16
Bank Pekao S.A.
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
4.1 New standards, interpretations and amendments to published standards that have been approved and published by the European Union and are effective on or after1 January 2021
STANDARD / INTERPRETATION
DESCRIPTION
IMPACT ASSESSMENT
IFRS 4 (amendment) ‘Insurance contracts’
The main amendments include:
• deferral of the date of initial application of IFRS 17 by two years to annual reporting periods beginning on or after 1 January 2023,
• extension of the temporary exemption from applying IFRS 9 by two years. As a result, the qualifying entities will be required to apply IFRS 9 for annual period beginning on or after 1 January 2023.
The standard’s amendments did not have a material impact on the financial statements in the period of their first application.
IFRS 9 (amendment) ‘Financial instruments’ and IFRS 7 (amendment) ‘Financial instruments: disclosures’ and IFRS 4 (amendment) ‘Insurance contracts’ and IFRS 16 (amendment) ‘Leasing’
The main amendments include:
1) accounting for modifications to financial assets, financial liabilities and lease liabilities required as a direct consequence of the interest rate benchmark reform and performed on an economically equivalent basis, by updating the effective interest rate.
2) hedge accounting is not discontinued solely because of the interest rate benchmark reform. Hedging relationships (and related documentation) must be amended to reflect modifications to the hedged item, hedging instrument and hedged risk. Amended hedging relationships should meet all qualifying criteria to apply hedge accounting, including effectiveness requirements.
3) in order to allow users to understand the nature and extent of risks arising from the interest rate benchmark reform to which the entity is exposed to and how the entity manages those risks as well as the entity’s progress in transitioning from interest rate benchmarks to alternative benchmark rates, and how the entity is managing this transition, the amendments require that an entity discloses information about:
• how the transition from interest rate benchmarks to alternative benchmark rates is managed, the progress made at the reporting date, and the risks arising from the transition,
• quantitative information about non-derivative financial assets, non- derivative financial liabilities and derivatives that continue to reference interest rate benchmarks subject to the reform, disaggregated by significant interest rate benchmark,
• to the extent that the interest rate benchmark reform has resulted in changes to an entity’s risk management strategy, a description of these changes and how is the entity managing those risks.
The impact of the analysis of the standard’s amendments on the financial statements in the period of their first application is described in Note 47.5 and Note 23
MSSF 16 (amendment) ‘Leasing’
The amendments introduce an optional practical expedient that simplifies how a lessee accounts for rent concessions that are a direct consequence of Covid-19. A lessee that applies the practical expedient is not required to assess whether eligible rent concessions are lease modifications, and accounts for them in accordance with other applicable guidance. The resulting accounting will depend on the details of the rent concession. For example, if the concession is in the form of a one-off reduction in rent, it will be accounted for as a variable lease payment and be recognized in profit or loss.
The practical expedient will only apply if:
• the revised consideration is substantially the same or less than the original consideration,
• the reduction in lease payments relates to payments due on or before 30 June 2022, and
• no other substantive changes have been made to the terms of the lease.
The standard’s amendments did not have a material impact on the financial statements in the period of their first application.
17
Bank Pekao S.A.
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
4.2 New standards, interpretations and amendments to published standards that have been issued by the International Accounting Standards Board (IASB) and have been approved by the European Union but are not yet effective
STANDARD / INTERPRETATION
DESCRIPTION
IMPACT ASSESSMENT
IFRS 3 (amendment) ‘Business combinations’
The amendments to IFRS 3 include:
• Update IFRS 3 so that it refers to the 2018 Conceptual Framework instead of the 1989 Framework,
• Add to IFRS 3 a requirement that, for transactions and other events within the scope of IAS 37 or IFRIC 21, an acquirer applies IAS 37 or IFRIC 21 (instead of the Conceptual Framework) to identify the liabilities it has assumed in a business combination, and
• Add to IFRS 3 an explicit statement that an acquirer does not recognize contingent assets acquired in a business combination.
Date of application: annual periods beginning on or after 1 January 2022.
The Group claims that the standard’s amendments will not have a material impact on the financial statements in the period of its first application.
IAS 16 (amendment) ‘Property, plant and equipment’
The amendments to IAS 16 prohibit deducting from the cost of an item of property, plant and equipment any proceeds from selling items produced while bringing that asset to the location and condition necessary for it to be capable of operating in the manner intended by management. Instead, an entity recognises the proceeds from selling such items, and the cost of producing those items, in profit or loss.
Date of application: annual periods beginning on or after 1 January 2022.
The Group claims that the standard’s amendments will not have a material impact on the financial statements in the period of its first application.
IAS 37 (amendment) ‘Provisions, contingent liabilities and contingent assets’
The amendments to IAS 37 specify that the ‘cost of fulfilling’ an onerous contract comprises the ‘costs that relate directly to the contract’. Costs that relate directly to a contract can either be incremental costs of fulfilling that contract or an allocation of other costs that relate directly to fulfilling contracts.
Date of application: annual periods beginning on or after 1 January 2022.
The Group claims that the standard’s amendments will not have a material impact on the financial statements in the period of its first application.
MSSF 17 ‘Insurance contracts’
The new standard requires insurance liabilities to be measured at a current fulfillment value and provides a more uniform measurement and presentation approach for all insurance contracts. These requirements are designed to achieve the goal of a consistent, principle-based accounting for insurance contracts. IFRS 17 supersedes IFRS 4 ‘Insurance Contracts’ and related interpretations while applied.
Date of application: annual periods beginning on or after1 January 2023.
The Group claims that the standard’s amendments will not have a material impact on the financial statements in the period of its first application .
4.3 New standards, interpretations and amendments to published standards that have been published by the International Accounting Standards Board (IASB) and not yet approved by the European Union
STANDARD/ INTERPRETATION
DESCRIPTION
IMPACT ASSESSMENT
IAS 1 (amendment) ‘ Presentation of financial statements’
The amendments affect requirements in IAS 1 for the presentation of liabilities. In particular, these amendments clarify that the classification of liabilities as current or non-current should be based on rights that are in existence at the end of the reporting period.
Date of application: annual periods beginning on or after 1 January 2023.
The Group claims that the standard’s amendments will not have a material impact on the financial statements in the period of its first application.
IAS 1 (amendment) ‘Presentation of financial statement’’
The amendments to IAS 1 include:
• an entity is required to disclose its material accounting policy information instead of its significant accounting policies,
• clarification that accounting policy information may be material because of its nature, even if the related amounts are immaterial,
• clarification that accounting policy information is material if users of an entity’s financial statements would need it to understand other material information in the financial statements, and
• clarification that if an entity discloses immaterial accounting policy information, such information shall not obscure material accounting policy information.
Date of application: annual period beginning on or after 1 January 2023.
The Group claims that the standard’s amendments will not have a material impact on the financial statements in the period of its first application.
IAS 8 (amendment) ‘Accounting policies, changes in accounting estimates and errors’
The amendments to IAS 8 include:
• the definition of a change in accounting estimates is replaced with a definition of accounting estimates. Under the new definition, accounting estimates are “monetary amounts in financial statements that are subject to measurement uncertainty,
• clarification that a change in accounting estimate that results from new information or new developments is not the correction of an error. In addition, the effects of a change in an input or a measurement technique used to develop an accounting estimate are changes in accounting estimates if they do not result from the correction of prior period errors,
• clarification that a change in an accounting estimate may affect only the current period’s profit or loss, or the profit or loss of both the current period and future periods. The effect of the change relating to the current period is recognized as income or expense in the current period. The effect, if any, on future periods is recognized as income or expense in those future periods.
Date of application: annual periods beginning on or after 1 January 2023.
The Group claims that the standard’s amendments will not have a material impact on the financial statements in the period of its first application.
18
Bank Pekao S.A.
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
STANDARD/ INTERPRETATION
DESCRIPTION
IMPACT ASSESSMENT
IAS 12 (amendment) ‘Income taxes’
The amendments introduce the requirement to recognise deferred tax on transactions that, on initial recognition, give rise to equal amounts of taxable and deductible temporary differences. The amendments will mainly apply to transactions such as leases for the lessee and decommissioning obligations. Date of application: annual periods beginning on or after 1 January 2023.
The Group is currently analyzing the impact of the standard’s amendment on the financial statements in the period of its first application.
MSSF 17 (amendment)) ‘Insurance contracts’ and IFRS 9 (amendment) ‘Financial instrument’s’
The main amendment regards entities that first apply IFRS 17 and IFRS 9 at the same time. The amendment regards financial assets for which comparative information is presented on initial application of IFRS 17 and IFRS 9, but where this information has not been restated for IFRS 9. Under the amendment, an entity is permitted to present comparative information about a financial asset as if the classification and measurement requirements of IFRS 9 had been applied to that financial asset before. In applying the classification overlay to a financial asset, an entity is not required to apply the impairment requirements of IFRS 9. There are no changes to the transition requirements in IFRS 9.
Date of application - an annual period beginning on or after 1 January 2023.
The Group claims that the standard’s amendments will not have a material impact on the financial statements in the period of its first application
5. Significant accounting policies
5.1 Basis of preparation of Consolidated Financial Statements
General information
The financial statements have been prepared in Polish zloty, and all data in the financial statements are presented in PLN thousand (PLN ‘000).
The financial statements have been prepared on a going concern basis on the assumption that the Group will continue its business operations substantially unchanged in scope for a period of at least one year from the balance sheet date.
The accounting principles as described below have been consistently applied for all the reporting periods. The principles have been applied consistently by all the Group entities.
The consolidated financial statements have been prepared on the historical cost basis, except for significant items of financial assets and liabilities, for which the measurement method is presented in Note 5.4.
The consolidated financial statements include the requirements of all the International Financial Reporting Standards and International Accounting Standards approved by the European Union and related interpretations. Changes in published standards and interpretations, which became effective on or after 1 January 2021, had no material impact on the Group’s financial statements.
The financial statements does not take into consideration interpretations and amendments to Standards, pending approval by the European Union or approved by the European Union but came into force or shall come into force after the balance sheet date (Note 4.2 and Note 4.3). In the Group’s opinion, amendments to Standards and interpretations will not have a material impact on the consolidated financial statements of the Group.
19
Bank Pekao S.A.
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
Comparability of financial data
In the consolidated financial statements for the year ended on 31 December 2021, the Group changed the presentation of selected items in the statement of the financial position:
1) the securities, previously presented under ‘Financial assets held for trading’ and ‘Investment securities’ have been presented under ‘Securities’,
2) under ‘Assets pledged as security for liabilities’ separate securities that constitute security for liabilities for which the recipient has the right to sell these securities or exchange them for another security,
3) the Group ceased to present securities broken down by valuation methods in the consolidated statement of financial position,
4) the Group ceased to present the item ‘Loans and advances to customers (including receivables from finance leases)’ broken down by valuation methods.
All the above changes in the Group's opinion increase the transparency of the statement of financial position from the point of view of its users.
The above-mentioned changes resulted in restatement of comparable data, but without impact on the balance sheet total level.
The impact of changes on the comparative data of the statement of financial position is presented in the table below .
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
DATAFOR 31.12.2020 BEFORE RESTATEMENT
RESTATEMENT
DATA FOR 31.12.2020 AFTER RESTATEMENT
Financial assets held for trading
1 317 709
(1 317 709)
-
Investments (placement) securities
70 491 227
(70 491 227)
-
Securities
-
71 066 008
71 066 008
Assets pledged as security for liabilities
-
742 928
742 928
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
DATA FOR 31.12.2020 BEFORE RESTATEMENT
RESTATEMENT
DATA FOR 31.12.2020 AFTER RESTATEMENT
Financial assets held for trading
1 281 664
(1 281 664)
-
Investments (placement) securities
45 893 115
(45 893 115)
-
Securities
-
46 577 239
46 577 239
Assets pledged as security for liabilities
-
597 540
597 540
As a result of changes in the presentation of securities in the consolidated statement of financial position, the Group also changed the method of their presentation in the consolidated statement of cash flows. The items ‘Change in financial assets held for trading’ and ‘Change in investment securities’ were presented in the item ‘Change in securities (including Assets pledged as security for liabilities)’. The indicated changes concerned cash flows from operating activities, the total level of which did not change.
The impact of changes on the comparative data of the cash flow statement is presented in the table below.
In addition, in the consolidated financial statements for the year ended December 31, 2021, the Group changed the method of presentation of collection costs in the profit and loss account. These costs are currently presented in the item ‘Other operating expenses’ (before the change they were presented in the item ‘Other administrative expenses’).
Change in the presentation of the above-mentioned costs is intended to better reflect the economic nature of those costs and to ensure greater comparability with other market participants.
The above-mentioned changes made it necessary to transform the comparative data, but they did not impact for t the level of the presented financial result.
CONSOLIDATED CASH FLOW STATEMENT
DATA FOR 31.12.2020 BEFORE RESTATEMENT
RESTATEMENT
DATA FOR 31.12.2020 AFTER RESTATEMENT
Change in financial assets held for trading
(43 174)
43 174
-
Change in investment (placement) securities
(121 152)
121 152
-
Change in securities(including Assets pledged as security for liabilities
-
(164 326)
(164 326)
20
Bank Pekao S.A.
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
The impact of the changes on the comparative data of the consolidated profit and loss account is presented in the table below.
The Group also changed the method of presenting the items in the statement of comprehensive income, adjusting the presentation of individual components of this statement to the components presented in the statement of changes in equity. Currently the items of the statement of comprehensive income are presented in net amounts. Before the change, they were presented as gross amounts with a separate item for income tax. The above mentioned changes made it necessary to convert the comparative data, however, they had no effect on the level of the presented result of comprehensive income.
5.2 Consolidation
Consolidation principles
The consolidated financial statements of Bank Pekao S.A. Group include the financial data of Bank Pekao S.A. and its subsidiaries as at 31 December 2021. The financial statements of the subsidiaries are prepared at the same reporting date as those of the parent entity, using consistent accounting policies within the Group in all important aspects.
All intra-group balances and transactions, including unrealized gains, have been eliminated. Unrealized losses are also eliminated, unless there is an objective evidence of impairment, which should be recognized in the consolidated financial statements.
Investments in subsidiaries
Subsidiaries are all entities over which the Group has control. The Group controls an entity when the Group has power over an entity, is exposed to or has rights to variable returns from its involvement with the entity and has the ability to affect these returns through its power over the entity. The subsidiaries are consolidated from the date of obtaining control by the Group until the date when the control ceases.
The Group applies the acquisition method to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred to the former owners of the acquiree and the equity interests issued by the Group. Identifiable assets acquired and liabilities assumed are measured at their fair values at the acquisition date. The Group measures any non-controlling interests in the acquire at fair value or at the present ownership instruments’ proportionate share in the recognized amounts of the acquire's identifiable net assets.
Acquisition-related costs are expenses as incurred (in the income statement under ‘Administrative expenses’).
CONSOLIDATED INCOME STATEMENT
DATA FOR 31.12.2020 BEFORE RESTATEMENT
RESTATEMENT
DATA FOR 31.12.2020 AFTER RESTATEMENT
General administrative expenses, of which:
(3 970 407)
16 938
(3 953 469)
Other administrative expenses
(1 930 541)
16 938
(1 913 603)
Other operating expenses
(148 111)
(16 938)
(165 049)
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
DATE FOR 31.12.2020 BEFORE RESTATEMENT
RESTATEMENT
DATE FOR 31.12.2020 AFTER RESTATEMENT
Change in fair value of financial assets measured at fair value through other comprehensive income:
685 728
(685 728)
-
Profit or loss on fair value measurement
732 511
(732 511)
-
Profit or loss reclassification to income statement after derecognition
(46 783)
46 783
-
Change in fair value of cash flow hedges
466 716
(466 716)
-
Tax on items that are or may be reclassified subsequently to profit or loss
(218 964)
218 964
-
Effects of the revaluation of investments in equity instruments designated at fair value through other comprehensive
88 080
(88 080)
-
Remeasurements of the defined benefit liabilities
(10 964)
10 964
-
Tax on items that will never be reclassified to profit or loss
(14 652)
14 652
-
Impact of revaluation of debt financial instruments and loan measured at fair value through other comprehensive income (net):
-
555 440
555 440
Profit or loss on fair value measurement
-
592 857
592 857
Profit or loss reclassification to income statement after derecognition
-
(37 417)
(37 417)
Revaluation of derivative instruments hedging cash flows (net)
-
378 040
378 040
Impact of revaluation of investments in equity instruments designated at fair value through other comprehensive income (net)
-
71 345
71 345
Remeasurements of the defined benefit liabilities (net)
-
(8 881)
(8 881)
Other comprehensive income (net of tax)
995 944
-
995 944
21
Bank Pekao S.A.
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
If the business combination is achieved in stages, the acquirer remeasures its previously held equity interests in the acquiree at fair value at the acquisition date (date of obtaining control) and recognizes the resulting gain or loss in the income statement. The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the identifiable net assets acquired is recorded as goodwill. If the total of consideration transferred, non-controlling interest recognized and previously held interest measured is less than the fair value of the net assets of the subsidiary acquired in the case of a bargain purchase, the difference is recognized directly in the income statement.
The above policy does not apply to the business combinations under common control.
The changes in a parent entity's ownership interest in a subsidiary that do not result in the parent entity losing control of the subsidiary are accounted for as equity transactions (i.e. transactions with owners of parent entity). The Group recognizes directly in equity any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received, and attributes it to the owners of the parent entity.
When the Group ceases to have control over the subsidiary, any retained interest in that subsidiary is remeasured to its fair value at the date when control is lost, with the change in carrying amount recognized in the income statement.
Recognition of business combinations under common control at book value
Business combinations under common control are excluded from the scope of IFRS. As a consequence, following the recommendation included in IAS 8 ‘Accounting Policies, Changes in Accounting Estimates and Errors’, in the absence of any specific guidance within IFRS, Bank Pekao S.A. has adopted the accounting policy consistently applied in all business combinations under common and recognizes those transactions using book value.
The acquirer recognizes the assets and liabilities of the acquired entity at their current book value adjusted exclusively for the purpose of aligning the accounting principles. Neither goodwill, nor badwill is recognized.
Any difference between the book value of the net assets acquired and the fair value of the consideration paid is recognized in the Group’s equity. In applying this book value method, the comparative periods are not restated.
If the transaction results in the acquisition of non-controlling interests, the acquisition of any non-controlling interest is accounted for separately.
There is no guidance in IFRS how to determine the percentage of non-controlling interests acquired from the perspective of a subsidiary. Accordingly Bank Pekao S.A. uses the same principles as the ultimate parent for estimating the value of non- controlling interests acquired.
Investments in associates
An associate is an entity over which the Group has significant influence, and that is neither a subsidiary nor a joint venture. The Group usually holds from 20% to 50% of the voting rights in an associate. The equity method is calculated using the financial statements of the associates. The balance sheet dates of the Group and its associates are the same.
On acquisition of the investment, any difference between the cost of the investment and the Group's share in the net fair value of the investee's identifiable assets and liabilities is accounted for as follows:
• goodwill relating to an associate is included in the carrying amount of the investment,
• any excess of the Group's share in the net fair value of the investee's identifiable assets and liabilities over the cost of the investment is included as income in the determination of the Group's share in the associate's profit or loss in the period in which the investment is acquired.
The Group recognizes the investments in associates applying the equity method. The investment in associates is initially recognized at cost and the carrying amount is increased or decreased to recognize the Group’s statement of financial position share in net assets of the associate after the date of acquisition, net of any impairment allowances.
The Group’s share of post-acquisition profit or loss is recognized in the income statement, and its share of post-acquisition movements in other comprehensive income is recognized in other comprehensive income with a corresponding adjustment to the carrying amount of the investment. Distributions received from an associate reduce the carrying amount of the investment.
If the Group’s share in the losses of an associate equals or exceeds the Group’s share in the associate, the Group ceases to recognize further losses, unless it assumed obligations or made a payment on behalf of the associate.
Unrealized profits or losses from transactions between the Group and associates are eliminated pro rata to the Group’s share in the associates.
22
Bank Pekao S.A.
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
5.3 Foreign currencies
• Transactions and balances
Foreign currency transactions are calculated into the functional currency using the spot exchange rate from the date of the transaction. Gains and losses from foreign currency translation differences resulting from settlements of such transactions and from the statement of financial position valuation of monetary assets and liabilities expressed in foreign currencies are recognized in the income statement.
• Foreign currency translation differences arising from non-monetary items, such as equity instruments classified as financial assets measured at fair value through the profit or loss are recognized together with the changes in the fair value of that item in the income statement.
• Foreign currency translation differences arising from non-monetary items such as equity instruments classified as financial assets measured at fair value through other comprehensive income are recognized in the revaluation reserves.
5.4 Valuation of financial assets and liabilities, derivative financial instruments
Financial assets
At the moment of the initial recognition the financial assets are classified into the following categories at the :
• financial assets measured at amortised cost,
• financial assets measured at fair value through other comprehensive income,
• financial assets measured at fair value through profit or loss.
The above mentioned classification is based on the entity’s business model for managing the financial assets and the characteristics regarding the contractual cash flows (i.e. whether the contractual payments are solely payments of principal and interest on the principal amount outstanding ( i.e.‘criterion SPPI’).
The financial assets could be classified depending on the Group’s business model to the following categories:
• a business model whose objective is to hold financial assets in order to collect contractual cash flows,
• a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets,
• other business model than business model whose objective is to hold financial assets in order to collect contractual cash flows and business model whose objective is achieved by both collecting contractual cash flows and selling financial assets.
23
Bank Pekao S.A.
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
Classification, measurement and presentation of financial assets
FINANCIAL ASSETS CLASSIFICATION
SIGNIFICANT ITEMS INCLUDED
PRESENTATION AND MEASUREMENT
Measured at amortised cost
To this category, the Bank classifies financial assets included in the following items of the Statement of financial position:
• ‘Cash and due from Central Bank’,
• ‘Loans and advances to banks’,
• ‘ Loans and advances to customers ’,
• ‘Securities’.
Financial assets are measured at amortized cost if at the same time they meet the following two criteria and were not designated for measurement at fair value through profit or loss:
• the financial asset is held within a business model whose objective is to hold financial assets in order to collect contractual cash flows, and
• the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding (SPPI criteria are met).
Upon initial recognition, these assets are measured at fair value increased by transaction costs that are directly attributable to the acquisition or issue of a financial asset.
After initial recognition, these assets are measured at amortized cost using the effective interest rate.
The calculation of the effective interest rate includes all commissions paid and received by the parties, transaction costs and other bonuses and discounts constituting an intergrated part of the effective interest rate.
Interest accrued using the effective interest rate is recognized in net interest income.
Since the impairment recognition, the interest recognized in the income statement is calculated based on the net carrying amount, whereas the interest recognized in the statement of financial position is accrued on the gross carrying amount.
The impairment allowances are estimated for the part of accrued interest exposure, which the Bank consider as difficult to recover.
Allowances for expected credit losses reduce the gross carrying amount of assets, on the other hand they are recognized in the income statement under ‘Net allowances for expected credit losses’.
Measured at fair value through other comprehensive income
To this category, the Bank classifies financial assets included in the following items of the Statement of financial position:
• Loans and advances to customers ’,
• ‘Securities’,
• Assets pledged as security for liabilities.
Financial assets (excluding equity instruments) are measured at fair value through other comprehensive income when they simultaneously meet the following two conditions and have not been designated for measurement at fair value through profit or loss:
• the financial asset is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets, and
• the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding (SPPI criteria are met).
Interest accrued using the effective interest rate is recognized in net interest income.
The effects of changes in fair value are recognized in other comprehensive income until the asset is excluded from the statement of financial position, when accumulated profit or loss is recognized in the income statement under ‘Result on derecognition of financial assets and liabilities not measured at fair value through profit or loss’.
An allowance for expected credit losses from financial assets that are measured at fair value through other comprehensive income is recognized in other comprehensive income and does not reduce the carrying amount of the financial asset in the statement of financial position. On the other hand, an expected credit risk allowance is recognized in the income statement under ‘Net allowances for expected credit losses’.
Measured at fair value through profit or loss
To this category, the Bank classifies financial assets included in the following items of the Statement of financial position:
• ‘Derivative financial instruments (held for trading)’,
• ‘Loans and advances to customers’ ,
• ‘Hedging instruments’,
• ‘Securities’,
• Assets pledged as security for liabilities.
Loans and advances to customers recognized in a model other than the model held to obtain contractual cash flows and the model held to obtain contractual cash flows and for sale, or those that do not meet the SPPI criterion.
At initial recognition, the Bank may irrevocably designate selected financial assets that meet the amortized cost measurement criteria or at fair value through other comprehensive income for measurement at fair value through profit or loss if it eliminates or significantly reduces the accounting mismatch that would otherwise arise from measuring assets at different methods.
Changes in the fair value of assets, which occur during the period from transaction date to transaction settlement date, shall be recognized similarly as in the case of the asset held.
Derivative instruments are recognized or derecognized on transaction dates.
24
Bank Pekao S.A.
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
Classification, presentation and measurement of financial liabilities
FINANCIAL LIABILITIES CLASSIFICATION
SIGNIFICANT ITEMS INCLUDED
PRESENTATION AND MEASUREMENT
Measured at amortised cost
To this category, the Bank classifies financial assets included in the following items of the Statement of financial position:
• ‘ Amounts due to Central Bank ’,
• ‘ Amounts due to other banks ’,
• ‘ Amounts due to customers ’,
• ‘ Debt securities issued’,
• ‘ Subordinated liabilities’.
The measurement of financial liabilities at amortized cost is performed using the effective interest rate.
When the financial liability at amortised cost is derecognised, the gain or loss is recognised in the profit and loss in the item ‘Profit (loss) on derecognition of financial assets and liabilities not measured at fair value through profit or loss.
Measured at fair value through profit or loss
To this category, the Bank classifies financial assets included in the following items of the Statement of financial position:
• ‘ Financial liabilities held for trading ’,
• ‘Derivative financial instruments (held for trading)’,
• ‘ Hedging instruments’ .
Measurement and presentation of financial liabilities measured at fair value through profit or loss follow the same principles as for financial assets measured at fair value through profit or loss.
The business model assessment
The assessment of the business model is made at the initial recognition of the asset. The business model criteria refers to the way the Group managing financial assets in order to generate cash flows.
The Group evaluates the purpose of the business model, to which the particular financial assets are classified on the level of particular portfolios of the assets – performing the analysis on those portfolio level is a reliable reflection business activities regarding these models and also reflects to information analysis of those activities provided to the Group’s management.
The assessment of the business model is based on the analysis of the following information regarding the portfolio of the financial assets:
• applied policies and business aims for the particular portfolio and its practical implementation. In particular, the management's strategy regarding the acquisition of revenues from contractual interest payments, maintaining a specific interest rate profile of the portfolio, managing the liquidity gap and obtaining cash flows as a result of the sale of financial assets is assessed,
• the manner in which the profitability of the portfolio is assessed and reported to the Bank's Management Board,
• types of risk that affect the profitability and effectiveness of a given business model (and financial assets held under this business model) and the manner of managing the identified types of risk,
• the way in which the managers of business operations are remunerated under a given business model - eg whether the remuneration depends on changes in the fair value of financial assets or the value of contractual cash flows obtained,
• frequency, value and moment of sale of financial assets made in prior reporting periods, the reasons for these sales and expectations regarding future sales activity. However, information on sales activity is analyzed taking into account the overall assessment of the Group's implementation of the adopted method of managing financial assets and generating cash flows.
Before making a decision regarding allocating a portfolio of financial assets to a business model which purpose is to obtain contractual cash flows, the Group reviews and evaluates significant and objective quantitative data influencing the allocation of asset portfolios to the relevant business model, in particular:
• the value of sales of financial assets made within the particular portfolios,
• the frequency of sales of financial assets as part of particular portfolios,
• expectation analysis regarding the value of planned sales of financial assets and their frequency of the particular portfolios, this analysis is carried out on the basis of probable scenarios of the Group's business activities in the future.
25
Bank Pekao S.A.
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
The portfolios of financial assets from which sales are made that do not result from an increase in credit risk meet the assumptions of the business model, which purpose is to obtain contractual cash flows, provided that these sales:
• are at low volume (even with a relatively high frequency of sales) or
• are made rarely - as a result of one-off events, which the probability to occur again in the future, according to the Group’s professional judgment is rare (even with a relatively high volume) or
• they occur close to the maturity date of the financial assets being sold, and the revenue obtained from such sales is similar to those which could be obtained from remaining contractual cash flows as if the financial asset was held in the Group's portfolio to the original maturity date.
The following sales are excluded from the analysis of sales value:
• the sales resulting from an increase in the credit risk of financial assets, regardless of their frequency and volume,
• the sales resulting from one-off events, which the probability to occur again in the future, according to the Group’s professional judgment is rare,
• the sales made close to maturity.
A held to obtain contractual cash flows or sale business model includes a portfolio of financial assets whose purpose is, in particular, managing current liquidity levels, maintaining the assumed profitability profile and/or adjust the duration of the asset and financial liabilities, and a level of sales are higher than for those financial assets classified in a model which purpose is to obtain contractual cash flows.
The business model comprising financial assets held for sale and other includes assets that do not meet the criteria to be classified into the business model, which purpose is to obtain contractual cash flows the business model which purpose is to obtain contractual cash flows or sales and also acquiring cash flows from interest and capital is not the main business target.
Assessment, whether the contractual payments are solely payments of principal and interest on the principal amount outstanding (SPPI criteria)
For the purposes of assessing cash flow characteristics, ‘principal’ is defined as the fair value of a financial asset at the time of initial recognition. ‘Interest’ is defined as the time value of money and the credit risk related to the unpaid part of principal and also other risks and costs associated with a standard loan agreement / a security (e.g. liquidity risk or administrative costs) and margin.
When assessing whether the contractual cash flows constitute solely payments of principal and interest, the Group analyzes contractual cash flows. This analysis includes an assessment whether the contractual terms include any provisions that the contractual payments could be changed or the amount of the contractual payments could be changed in a way that from an economic point of view they will not only represent repayments of principal and interest on the outstanding principal. When making this assessment, the Group takes into account the occurrence of, among others:
• conditional events that may change the amount or timing of the payment,
• financial leverage (for example, interest terms include a multiplier greater than 1),
• terms regarding the extension of the contract or prepayment option,
• terms that the Group’s cash flow claim is limited to a specified assets (eg non-recourse assets),
• terms that modify the time value of money – e.g. mismatch of the frequency of the revaluation of the reference interest rate to its tenor.
The SPPI test is conducted for each financial asset classified into the business model, which purpose is to obtain contractual cash flows or a business model which purpose is to obtain contractual cash flows or sale, as at the initial recognition date or as at the latest significant annex date changing the terms of contractual cash flows.
The Group performs an SPPI test at the level of homogeneous groups of standard products or at the level of a single contract for non-standard products or at the level of ISIN code for debt securities.
In situation when the time value of money is modified for a particular financial asset, the Group is required to make an additional assessment (i.e. Benchmark Test) to determine whether the contractual cash flows are still solely payments of principal and interest on the principal amount outstanding by determining how different the contractual (undiscounted) cash flows could be from the (undiscounted) cash flows that would arise if the time value of money element was not be modified (the benchmark cash flows). Benchmark Testing is not permitted for situation that some terms modify contractual cash flows, such as the built-in leverage element.
Purchased or originated credit-impaired financial assets (POCI)
The Group distinguishes the category of purchased or originated credit-impaired assets. POCI are assets that are credit- impaired on initial recognition. Financial assets that were classified as POCI at initial recognition should be treated as POCI in all subsequent periods until they are derecognition.
POCI assets may arise through:
• by purchasing a contract that meets the definition of POCI (e.g. as a result of a merger with another entity or purchase of a portfolio of assets),
26
Bank Pekao S.A.
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
• by concluding a contract that is POCI at the time of original granting (e.g. granting a loan to a customer in a bad financial condition),
• by modifying the contract (e.g. under restructuring) qualifying this contract to be derecognised, resulting in a recognition of a new contract meeting the definition of POCI. Conditions for qualifying a contract to be derecognised are described below.
At initial recognition, POCI assets are recognized in the balance sheet at their fair value, in particular they do not have recognized impairment allowance.
POCI assets do not constitute a separate accounting category of financial assets. They are classified into accounting categories in accordance with the general principles for classification of financial assets. The categories in which POCI assets may exist are a category of financial assets measured at amortized cost and financial assets measured at fair value through other comprehensive income.
Investments in equity instruments
For investments in equity instruments not held for trading, the Group may irrevocably choose to present changes in their fair value in other comprehensive income. The Group makes a decision in this respect based on an individual analysis of each investment. In sucha a case the amounts presented in other comprehensive income are never subsequently transferred to profit or loss. In case of sale of an equity investment elected to be measured at fair value through other comprehensive income, a result on sale is transferred to the item ‘Other reserve capital’.
Equity investments not designated for measurement at fair value through other comprehensive income at the initial recognition are measured at fair value through profit or loss. Changes in the fair value of such investments, as well as the result on sales, are recognized in the income statement under ‘Result on financial assets and liabilities measured at fair value through profit or loss and foreign exchange result’.
Dividends from equity instruments, both measured at fair value through profit or loss and designated for valuation through other comprehensive income, are recognized in the income statement when the Group's right to receive payment is established.
Reclassification of financial asset
Financial assets are not reclassified in the reporting periods following the initial recognition, except for the reporting period following the change of the business model for managing financial assets by the Group.
The reclassification of financial assets is applied prospectively from the reclassification date - without restatement of previously recognized gains or losses (including impairment gains or losses) or interest.
The following are not changes in business model:
• a change in intention related to particular financial assets (even in circumstances of significant changes in market conditions),
• the temporary disappearance of a particular market for financial assets,
• a transfer of financial assets between parts of the entity with different business models.
Modifications of financial assets
If the terms of the financial asset agreement change, the Group assesses whether the cash flows generated by the modified asset differ significantly from those generated by the asset before modifying the terms of its agreement. If a significant difference is identified, ( defined by the quantitative criteria presented below) , the original financial asset is derecognised, and the modified financial asset is recognized in the books at its fair value. Income or expense arising as at the date of determining the effects of the significant modification is recognized in the profit and loss in the item ‘Profit (loss) on derecognition of financial assets and liabilities not measured at fair value through profit or loss’.
If the cash flows generated by the modified asset measured at amortized cost are not materially different from the original cash flows, the modification does not result in derecognition of the financial asset. In this case, the Group recalculates the gross carrying amount of the financial asset, and the result on the immaterial modification is recognized in interest income. Quantitative information about financial assets that were subject to modification that didn’t result in derecognition was presented in Note 47.2.
The assessment whether a given modification of financial assets is significant or insignificant modification depends on the fulfillment of qualitative and quantitative criteria.
The Group has adopted the following quality criteria to determine significant modifications:
• currency conversion, unless it results from existing contractual provisions or requirements of applicable legal regulations,
• change (replacement) of the debtor, excluding the addition/departure of the joint debtor or taking over the loan in inheritance,
• consolidation of several exposures into one under an annex or settlement/restructuring agreement,
27
Bank Pekao S.A.
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
The occurrence of at least one of these criteria results in a significant modification.
The Group has adopted the following quantitative criteria to determine significant modifications:
• extension of the loan term by at least one year and at least a doubling of the residual maturity to the original maturity (meeting both conditions jointly) for Stage 1 and Stage 2, or
• increasing the current loan amount/limit by at least 10% for Stage 1 and Stage 2 or increasing the current loan amount/limit for a contract in Stage 3.
If the terms of a financial asset agreement are modified, and the modification does not result in derecognition of the asset from the balance sheet, the determination, whether the credit risk of a given asset significantly increases, is made by comparing:
• lifetime PD on the reporting date, based on modified conditions, with
• lifetime PD estimated on the basis of data valid at the date of initial recognition and initial contractual terms.
In the case of modification of financial assets, the Group analyzes whether the modification has improved or restored the Group's ability to collect interest and principal. As part of this process, the Group assesses the borrower's ability to pay in relation to modified terms of agreement.
De-recognition of financial instruments from the statement of financial position
Financial assets are derecognized when the contractual rights to the cash flows from the financial assets expire or when the Group transfers the contractual rights to receive the cash flows in a transaction in which substantially all risk and rewards of ownership of the financial asset are transferred.
The Group derecognizes a credit or a loan receivable, or its part, when it is sold. Additionally, the Group writes-off a receivable against the corresponding impairment provision (completely or partially) when the debt redemption process is completed and when no further cash flows from the given receivable are expected. Such cases are documented in compliance with the current tax regulations.
The value of contractual cash flows required under contracts of financial assets, which were written-off in 2021 and are still subject to enforcement proceedings as at 31 December 2021, is PLN 425 329 thousand (as at 31 December 2020 - PLN 597 760 thousand).
Accumulated profits and losses that have been recognized in other comprehensive income from equity instruments designated to be measured at fair value through other comprehensive income are not recognized in the profit and loss account when these financial instruments are removed from the balance sheet.
The Group derecognizes a financial liability, or its part, when the liability expires. The liability expires when the obligation stated in the agreement is settled, redeemed or the period for its collection expires.
Repo and reverse-repo agreements
Repo and reverse-repo transactions, as well as sell-buy back and buy-sell back transactions are classified as sales or purchase transactions of securities with the obligation of resale and repurchase at an agreed date and price.
Sales transactions of securities with the repurchase obligation granted (repo and sell-buy back) are recognized as at transaction date in amounts due to other banks or amounts due to customers from deposits depending upon the counterparty to the transaction. Securities purchased in reverse-repo and buy-sell back transactions are recognized as loans and receivables from banks or as loans and receivables from customers, depending upon the counterparty to the transaction.
The difference between the sale and repurchase price is recognized as interest income or expense, and amortized over the contractual life of the contract using the effective interest rate method.
28
Bank Pekao S.A.
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
Other significant accounting policies
Other significant accounting policies are presented in the Notes below.
NOTE TITLE
NOTE NUMBER
Interest income and expense
7
Fee and commission income and expense
8
Dividend income
9
Result on financial assets and liabilities measured at fair value through profit or loss and foreign exchange result
10
Result on derecognition of financial assets and liabilities not measured at fair value through profit or loss
11
Net allowances for expected credit losses
12
Other operating income and expenses
13
Administrative expenses
14
Depreciation and amortization
15
Income tax
17
Derivative financial instruments (held for trading)
22
Hedge accounting
23
Assets and liabilities held for sale
27
Investments in associates
28
Intangible assets
29
Property, plant and equipment
30
Other assets
31
Provisions
37
Other liabilities
38
Share-base payment
40
Leasing
41
Contingent commitments
42
Share capital
43
5.5 Significant estimates and assumptions
The preparation of financial statements in accordance with IFRS requires the Management Board of the Bank to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expenses.
Estimates and assumptions are reviewed on an ongoing basis by the Group and rely on historic data and other factors including expectation of the future events which seems justified in given circumstances. In particular, as at 31 December 2021, the Bank included in its estimates the impact of the Covid-19 epidemic on individual items of the Group's assets and liabilities. However, taking into account the significant uncertainty as to the further development of the economic situation, the estimates made may change in the future. The uncertainty of the estimates made by the Group as at 31 December 2021 concerns mainly:
• forecasts regarding macroeconomic assumptions, in particular those relating to key economic indicators (i.e. the level of the expected economic slowdown, GDP, employment, housing prices, possible disruptions in capital markets, etc.),
• possible business disruptions due to decisions made by public institutions, enterprises and consumers to help contain the spread of the virus,
• the effectiveness of the support programs that have been designed to support businesses and consumers.
Significant accounting estimates that are affected by the aforementioned forecasts and the related uncertainties relate primarily to expected credit losses and the determination of the recoverable amount of non-financial assets.
Estimates and underlying assumptions are subject to a regular review. Revisions to accounting estimates are recongised prospectively starting from the period in which the estimates are revised.
Information on the areas of significant estimates in these financial statements is presented below.
29
Bank Pekao S.A.
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
Impairment of financial instruments to customers, expected credit losses
At each balance sheet date the Group assesses whether there is any objective evidence (‘trigger’) that credit exposures are impaired taking into consideration actual definition of Default. The definition of Default consistently considers all financial instruments. For financial instruments that are not impaired, the Group asses if credit risk has increased significantly since initial recognition.
If at balance sheet date credit risk concerning the financial instrument has not increase significantly since initial recognition, the Group assesses impaired allowances for expected credit losses with regard to the financial instrument as an amount equal 12-month expected credit losses. Otherwise, the Group assesses impaired allowances for expected credit losses with regard to the financial instrument as an amount equal expected credit losses over the expected life (lifetime horizon) of that financial instrument (lifetime expected credit losses).
In order to determine the expected credit losses, Bank distinguishes individually significant exposures, in particular: all financial assets towards the borrower for which the Bank's total exposure as at the balance sheet date is at least PLN 4 million or PLN 1 million in the case of customers overdue more than 90 days or in the case of which the condition for restructuring has been met on at least one contract.
For all individually significant financial instruments, which are impaired as at balance sheet date, the Group measures the impairment allowance (impairment credit loss) as part of individual assessment. The individual assessment is carrying out by the Group’s employees and consists of individual verification of the default occurrence and projection of future cash flows from foreclosure, less costs incurred for obtaining and selling the collateral or other repayment resources. The Group compares the estimated future cash flows applied for measurement of individual expected credit losses with the actual cash flows on a regular basis.
For all other financial instruments the Group measures the allowance for expected credit losses according to IFRS 9, taking into account forecasts and expected future economic conditions in the context of credit risk.
More information on the assumptions made and the uncertainty related to the estimates made in terms of expected credit losses, as well as the sensitivity analysis of the loan impairment estimates are presented in Note 47.2.
Impairment of non-current assets (including goodwill)
At each balance sheet date the Group reviews its non-current assets for indications of impairment. The Group performs an impairment test of goodwill on a yearly basis or more often if impairment triggers occur.
Where such indications exist, the Group makes an estimation of the recoverable value of a given assets or – in the case of goodwill - all cash-generating units to which the goodwill relates. If the carrying amount of a given asset is in excess of its recoverable value, impairment is defined and a write-down is recorded to adjust the carrying amount to the level of its recoverable value. The recoverable amount of an asset or a cash-generating unit is the higher of its fair value less costs to sell and its value-in-use.
Estimation of the value-in-use of an assets (or cash generating unit) requires assumptions to be made regarding, among other, future cash flows which the Group may obtain from the given asset (or cash generating unit), any changes in amount or timing of occurrence of these cash flows and other factors such as the lack of liquidity. The adoption of different measurement assumptions may affect the carrying amount of some of the Group’s non-current assets.
As at 31 December 2021, the Bank assessed whether the current market conditions and the existing uncertainty regarding the macroeconomic situation caused by COVID-19 have an impact on the impairment of non-current assets. As a result of this analysis, no need was found to make impairment allowances of non-current assets, including goodwill. The main assumptions used in the goodwill impairment test are presented in Note 29.
Measurement of derivatives, unquoted debt securities measured at fair value through other comprehensive income and loans and advances to customers measured at fair value through other comprehensive income and measured at fair value through profit or loss
The fair value of non-option derivatives, debt securities measured at fair value through other comprehensive income and loans and advances to customers measured at fair value through other comprehensive income and measured at fair value through profit or loss that do not have a quoted market price on an active market is measured using valuation models based on discounted cash flows. Options are valued using option valuation models. Variables used for valuation purposes include, where possible, the data from observable markets. However, the Bank also adopts assumptions concerning counterparty’s credit risks which affect the valuation of instruments. The adoption of other measurement assumptions may affect the valuation of these financial instruments. The assumptions used for fair value measurement are described in detail in Note 47.10.
Provisions for defined benefit plans
The main actuarial assumptions applied to estimatio of provisions for defined benefit plans, such as the discount rate and the salary increase rate, were presented in Note 39.
30
Bank Pekao S.A.
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
Provisions for legal risk regarding foreign currency mortgage loans in CHF
As at 31 December 2021 the Group assessed the probability of the impact of legal risk regarding foreign currency mortgage loans in CHF on future expected cash flows from loan exposures and the probability of cash outflows.
Given the inconsistent judicial decisions regarding foreign currency mortgage loans in CHF and the short period of historical data regarding lawsuits related to the above-mentioned loans, the estimation of the provision required the Group to adopt expert assumptions and is associated with significant uncertainty.
Details on the main assumptions used to estimate the provisions for legal risk regarding foreign currency mortgage loans in CHF are presented in Note 47.3.
Provisions for commission refunds in the event of early repayment of loan
As at 31 December 2021 the Group assessed the legal risk arising from the judgment of the Court of Justice of the European Union (hereinafter the ‘CJEU’) on consumer loans and estimated the possible amount of cash outflow as a refund of commission to the customer in relation to early repayment of consumer loans (for loans prepaid before the judgment of the CJEU, i.e. before 11 September 2019).
In addition, with regard to balance sheet exposures as at 31 December 2021, the Group estimated the possible prepayments of these exposures in the future.
The estimates required the Group to adopt expert assumptions primarily regarding the scale of complaints and amounts reimbursed for prepaid loans before the CJEU judgment, as well as the expected scale of prepayments and future returns for balance sheet exposures, and are associated with significant uncertainty.
Details on the estimated provision for early repayment of consumer loans together with the sensitivity analysis are presented in Note 37
6. Operating segments
Data reported in the section stem from the application of the management model (‘Model’) in which the main criterion for segmentation is the classification of customers based on their profile and service model.
Reporting and monitoring of results, for managerial purposes, include all components of the income statement up to the gross profit level. Therefore, the income from the segment’s activities as well as operating costs related to those activities (including direct and allocated costs in line with the allocation model applied) and other components of income statement are attached to each segment.
The Group settles transactions between segments on an arm’s length basis by applying current market prices. Fund transfers between retail, private, corporate and investment banking segments, and the assets and liabilities management and other area are based on market prices applicable to the funds’ currency and maturity, including liquidity margins.
Operating segments
The operating segments of the Group are as follows:
• Retail banking – all banking activities related to retail customers (excluding private banking customers) and micro companies with annual turnover not exceeding PLN 5 million, as well as results of the subsidiaries, and shares in net profit of associates accounted for using the equity method, that are assigned to the retail banking activity,
• Private banking – all banking activities related to the most affluent individual customers,
• Corporate and Investment banking – all banking activities related to large companies and results of the subsidiaries that are assigned to the Corporate and Investment banking activity,
• Enterprise banking - all banking activities related to the companies with annual turnover from PLN 5 million to PLN 100 million and below 5 million in the case of companies conducting full accounting,
• Assets and Liabilities management and other – supervision and monitoring of fund transfers, interbank market, debt securities and other instruments, other activities centrally managed as well as the results of subsidiaries and share in net profit of associates accounted for using the equity method that are not assigned to other reported segments .
31
Bank Pekao S.A.
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
Operating segments reporting for the period from 1 January to 31 December 2021
RETAIL BANKING
PRIVATE BANKING
CORPORATE AND INVESTMENT BANKING
ENTERPRISE BANKING
ASSETS & LIABILITIES MANAGEMENT AND OTHER
TOTAL
External interest income
2 650 304
4 367
1 268 152
446 158
1 501 375
5 870 356
External interest expenses
(42 093)
(9 632)
(84 401)
(3 665)
(69 804)
(209 595)
Net external interest income
2 608 211
(5 265)
1 183 751
442 493
1 431 571
5 660 761
Internal interest income
527 194
39 715
47 218
33 423
(647 550)
-
Internal interest expenses
(847 988)
(7 504)
(409 556)
(172 884)
1 437 932
-
Net internal interest income
(320 794)
32 211
(362 338)
(139 461)
790 382
-
Total net interest income
2 287 417
26 946
821 413
303 032
2 221 953
5 660 761
Fee and commission income and expense
1 132 582
180 630
688 936
677 076
8 291
2 687 515
Other non-interest income
(21 981)
(1 971)
113 268
43 090
41 468
173 874
Operating income
3 398 018
205 605
1 623 617
1 023 198
2 271 712
8 522 150
Personnel expenses
(871 143)
(80 479)
(222 357)
(194 161)
(787 916)
(2 156 056)
Other administrative expenses
(1 187 935)
(31 988)
(173 417)
(259 146)
717 730
(934 756)
Depreciation and amortisation
(203 326)
(16 939)
(21 232)
(18 247)
(388 474)
(648 218)
Operating costs
(2 262 404)
(129 406)
(417 006)
(471 554)
(458 660)
(3 739 030)
Gross operating profit
1 135 614
76 199
1 206 611
551 644
1 813 052
4 783 120
Net allowances for expected credit losses
(469 335)
3 531
(158 345)
(95 064)
(58 985)
(778 198)
Net operating profit
666 279
79 730
1 048 266
456 580
1 754 067
4 004 922
Guarantee funds charges
(293 574)
(801)
(175 793)
(73 462)
254 323
(289 307)
Tax on certain financial institutions
(718 923)
(718 923)
Gains (losses) on associates
4 928
4 928
Profit before tax
372 705
78 929
872 473
383 118
1 294 395
3 001 620
Income tax expense
(825 062)
Net profit for the period
2 176 558
Attributable to equity holders of the Bank
2 174 897
Attributable to non-controlling interests
1 661
Allocated assets
81 977 783
1 181 934
69 573 607
22 076 233
56 318 496
231 128 053
Unallocated assets
19 438 552
Total Assets
250 566 605
Allocated liabilities
113 039 944
16 009 347
47 619 296
27 576 094
8 167 204
212 411 885
Unallocated liabilities
14 291 434
Total Liabilities
226 703 319
32
Bank Pekao S.A.
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
Operating segments reporting for the period from 1 January to 31 December 2020
RETAIL BANKING
PRIVATE BANKING
CORPORATE AND INVESTMENT BANKING
ENTERPRISE BANKING
ASSETS & LIABILITIES MANAGEMENT AND OTHER
TOTAL
External interest income
3 007 177
5 740
1 437 324
428 925
970 193
5 849 359
External interest expenses
(251 371)
(100 568)
(183 942)
(27 666)
(83 800)
(647 347)
Net external interest income
2 755 806
(94 828)
1 253 382
401 259
886 393
5 202 012
Internal interest income
747 836
129 044
206 046
86 990
(1 169 916)
-
Internal interest expenses
(1 245 252)
(6 078)
(552 336)
(183 317)
1 986 983
-
Net internal interest income
(497 416)
122 966
(346 290)
(96 327)
817 067
-
Total net interest income
2 258 390
28 138
907 092
304 932
1 703 460
5 202 012
Fee and commission income and expense
1 098 612
167 043
518 866
577 505
71 624
2 433 650
Other non-interest income
(13 223)
(1 359)
106 031
40 785
27 837
160 071
Operating income
3 343 779
193 822
1 531 989
923 222
1 802 921
7 795 733
Personnel expenses
(854 365)
(74 339)
(220 550)
(169 006)
(721 606)
(2 039 866)
Other administrative expenses
(1 130 678)
(26 059)
(146 913)
(247 005)
678 663
(871 992)
Depreciation and amortisation
(180 787)
(12 190)
(28 851)
(8 420)
(308 703)
(538 951)
Operating costs
(2 165 830)
(112 588)
(396 314)
(424 431)
(351 646)
(3 450 809)
Gross operating profit
1 177 949
81 234
1 135 675
498 791
1 451 275
4 344 924
Net allowances for expected credit losses
(720 852)
(2 936)
(351 769)
(525 998)
23 095
(1 578 460)
Net operating profit
457 097
78 298
783 906
(27 207)
1 474 370
2 766 464
Guarantee funds charges
(289 519)
(754)
(181 367)
(65 400)
156 181
(380 859)
Tax on certain financial institutions
(660 590)
(660 590)
Profit before tax
167 578
77 544
602 539
(92 607)
969 961
1 725 015
Income tax expense
(622 114)
Net profit for the period
1 102 901
Attributable to equity holders of the Bank
1 101 712
Attributable to non-controlling interests
1 189
Allocated assets
79 409 665
1 059 615
61 044 256
17 614 067
57 451 207
216 578 810
Unallocated assets
16 638 372
Total Assets
233 217 182
Allocated liabilities
102 997 958
17 220 235
44 358 463
28 264 807
5 015 281
197 856 744
Unallocated liabilities
9 865 461
Total Liabilities
207 722 205
Reconciliations of operating income for reportable segments
2021
2020
Net interest income
5 660 761
5 202 012
Net fee and commission income
2 687 515
2 433 650
Dividend income
26 662
26 278
Result on financial assets and liabilities measured at fair value through profit or loss and foreign exchange result
129 845
170 539
Result on fair value hedge accounting
3 704
(847)
Profit (loss) from derecognition of financial assets and financial liabilities not at fair value through profit or loss
29 863
61 132
Operating income
8 538 350
7 892 764
Other operating income
121 546
68 180
Other operating expenses
(137 746)
(165 049)
Total operating income for reportable segments
8 522 150
7 795 895
33
Bank Pekao S.A.
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
7. Interest income and expense
Significant accounting policies
The effective interest rate is the discount rate of estimated future cash inflows and payments made during the expected period until the expiry date of the financial instruments.
Interest income includes interest and commission fees received or due from loans, interbank deposits and securities measured at amortised cost recognized in the calculation of effective interest rate of loans and financial assets measured at fair value through other comprehensive income or through profit or loss and hedging derivatives.
The calculation of the effective interest rate includes all commissions paid and received by parties to the agreement, transaction costs and all other premiums and discounts, comprising an integral part of the effective interest rate.
Gross carrying amount of the financial asset is the basis for interest income calculation except for credit-impaired financial assets (‘in Stage 3’) and purchased or originated credit-impaired financial assets (POCI assets). At the recognition of impairment of financial assets measured at amortized cost or financial assets measured at fair value through other comprehensive income, the interest income is still recognized in profit or loss but is calculated by applying the effective interest rate to the gross carrying amount less the impairment charges.
Interest expense related to liabilities associated with client accounts and debt securities issued are recognized in the profit or loss using the effective interest rate.
Income and expense from bancassurance
The Group splits the remuneration for sale of insurance products linked to loans into separate components, i.e. dividing the remuneration into proportion of fair value of financial instrument and fair value of intermediary service to the sum of those values. The fair values of particular components of the remuneration are determined based on market data to a highest degree.
The particular components of the Group’s remuneration for sale of insurance products linked to loans are recognized in the income statement according to the following principles:
• remuneration from financial instrument – as part of effective interest rate calculation, included in interest income,
• remuneration for intermediary service – upfront at the time when the insurance product in sold, included in fee and commission income.
Additionally the Group estimates the part of the remuneration which will be refunded in the future (eg. due to early termination of insurance contract, early repayment of loan). The estimate of the provision for future refunds is based on the analysis of historical data and expectations in respect to refunds trend in the future.
34
Bank Pekao S.A.
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
Financial data
Interest income
2021
FINANCIAL ASSETS MEASURED AT AMORTISED COST
FINANCIAL ASSETS DESIGNATED AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME
FINANCIAL ASSETS MEASURED AT FAIR VALUE THROUGH PROFIT OR LOSS
TOTAL
Interest income calculated using the effective interest method
5 109 180
453 072
-
5 562 252
Loans and advances (in this receivables from financial leases)
4 568 183
20 076
-
4 588 259
Interbank placements
5 466
-
-
5 466
Reverse repo transactions
9 011
-
-
9 011
Debt securities
526 520
432 996
-
959 516
Other interest income related to financial assets measured at fair value through profit or loss
308 104
308 104
Loans and other receivables from customers
-
-
885
885
Hedging derivatives
-
-
305 632
305 632
Debt securities held for trading
-
-
1 587
1 587
Total
5 109 180
453 072
308 104
5 870 356
2020
FINANCIAL ASSETS MEASURED AT AMORTISED COST
FINANCIAL ASSETS DESIGNATED AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME
FINANCIAL ASSETS MEASURED AT FAIR VALUE THROUGH PROFIT OR LOSS
TOTAL
Interest income calculated using the effective interest method
4 983 095
627 760
-
5 610 855
Loans and advances (in this receivables from financial leases)
4 561 654
33 515
-
4 595 169
Interbank placements
12 702
-
-
12 702
Reverse repo transactions
10 498
-
-
10 498
Debt securities
398 241
594 245
-
992 486
Other interest income related to financial assets measured at fair value through profit or loss
-
-
238 504
238 504
Loans and other receivables from customers
-
-
2 127
2 127
Hedging derivatives
-
-
230 423
230 423
Debt securities held for trading
-
-
5 954
5 954
Total
4 983 095
627 760
238 504
5 849 359
Interest expense
2021
2020
Deposits from customers
(58 793)
(429 000)
Interbank deposits
(9 022)
(8 454)
Repo transactions
(5 269)
(6 994)
Loans and advances received
(22 400)
(35 876)
Leasing
(9 181)
(10 461)
Debt securities
(104 930)
(156 562)
Total
(209 595)
(647 347)
35
Bank Pekao S.A.
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
8. Fee and commission income and expense
Significant accounting policies
Fee and commission income is generated from financial services provided by the Group. Fee and commission income and expense is recognized in the profit or loss using the following methods:
• fees and commissions directly attributable to financial asset or liability origination (both income and expense) are recognized in the income statement using the effective interest rate method and are described above,
• fees and commissions relating to the loans and advances without a defined repayment schedule and without a defined interest rate schedule e.g. overdraft facilities and credit cards are amortized over the life of the product using the straight line method,
• other fees and commissions arising from the Group’s financial services offering (customer account transaction charges, credit card servicing transactions, bonuses from card providers in order to cover the marketing card cost, brokerage activity and canvassing) as well as the trade margins on foreign exchange transactions with the Bank’s clients are recognized in the income statement up-front when the corresponding service is provided.
Financial data
Fee and commission income
2021
2020
Accounts maintenance, payment orders and cash transactions
732 513
605 530
Payment cards
606 546
584 116
Loans and advances
460 120
399 888
Margin on foreign exchange transactions with clients
596 411
527 917
Service and sell investment and insurance products
464 339
471 662
Securities operations
122 076
106 849
Custody activity
70 079
57 318
Guarantees, letters of credit and similar transactions
79 177
65 968
Other
98 736
86 018
Total
3 229 997
2 905 266
Fee and commission expense
2021
2020
Payment cards
(362 859)
(323 852)
Money orders and transfers
(22 377)
(21 580)
Securities and derivatives operations
(50 627)
(45 369)
Acquisition services
(54 543)
(43 240)
Custody activity
(24 740)
(19 970)
Accounts maintenance
(5 013)
(4 643)
Investment funds management
(1 369)
(963)
Other
(20 954)
(11 999)
Total
(542 482)
(471 616)
36
Bank Pekao S.A.
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
9. Dividend income
Significant accounting policies
Dividends from equity instruments, both measured at fair value through profit or loss and designated for valuation through other comprehensive income, are recognized in the income statement when the Bank's right to receive payment is established.
Financial data
Income from dividends
2021
2020
Issuers of securities measured at fair value through profit or loss
1 085
792
Issuers of equity instruments designated at fair value through other comprehensive income
25 577
25 486
Total
26 662
26 278
10. Result on financial assets and liabilities measured at fair value through profit or loss and foreign exchange result
Significant accounting policies
Result on financial assets and liabilities measured at fair value through profit or loss and foreign exchange result
Result on financial assets measured at fair value through profit or loss includes:
• Foreign exchange result
The foreign exchange gains (losses) are calculated taking into account the positive and negative foreign currency translation differences, whether realized or unrealized from the daily valuation of assets and liabilities denominated in foreign currencies. The revaluation is perform using the average exchange announced by the NBP on the balance sheet date.
Moreover, the foreign exchange result includes swap points from derivative transactions, entered into by the Group for the purpose of managing the Group’s liquidity in foreign currencies.
• Result on derivatives, loans and advances to customers and securities measured at fair value through profit or loss.
The income referred to above includes gains and losses realized on a sale or a change in the fair value of financial assets and liabilities measured at fair value through profit or loss.
The accrued interest and unwinding of a discount or a premium on loans and advances to customers and debt securities measured at fair value through profit or loss is presented in the net interest income.
Gains (losses) on financial assets/liabilities designated at fair value through profit or loss
This includes gains and losses arising from changes realized on a sale or a change in the fair value of assets and liabilities, designated at fair value through profit or loss.
The accrued interest and unwinding of a discount or a premium on financial assets/liabilities designated at fair value through profit or loss are recognized in the interest result.
Financial data
Result on financial assets and liabilities measured at fair value through profit or loss and foreign exchange result
2021
2020
Gains (losses) on loans and advances to customers measured mandatorily at fair value through profit or loss
(3 647)
(175)
Gains (losses) on securities measured mandatorily at fair value through profit or loss
(2 324)
36 161
Foreign exchange result
90 790
(24 784)
Gains (losses) on derivatives
20 722
117 574
Gains (losses) on securities held for trading
24 304
41 763
Total
129 845
170 539
37
Bank Pekao S.A.
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
11. Result on derecognition of financial assets and liabilities not measured at fair value through profit or loss
Significant accounting policies
The result on derecognition of financial assets and liabilities not measured at fair value through profit or loss concerns their sale (except for the result on the sale of loans, recognized under ‘Net impairment losses on expected credit losses’) or a material modification.
Financial data
Realized gains
2021
2020
Financial assets measured at amortised cost
12 286
18 703
Financial assets measured at fair value through other comprehensive income
35 395
48 809
Financial liabilities measured at amortized cost
-
1
Total
47 681
67 513
Realized losses
2021
2020
Financial assets measured at amortised cost
(17 309)
(4 196)
Financial assets measured at fair value through other comprehensive income
(361)
(2 027)
Financial liabilities measured at amortized cost
(148)
(158)
Total
(17 818)
(6 381)
Net realized profit
29 863
61 132
12. Net allowances for expected credit losses
Significant accounting policies
A financial asset is credit-impaired when one or more events that have a detrimental impact on the estimated future cash flows of that financial asset have occurred. Evidence that a financial asset is credit-impaired include observable data about the following events:
1) significant financial difficulty of the issuer or the borrower,
2) a breach of contract, such as a default or past due event,
3) the lender(s) of the borrower, for economic or contractual reasons relating to the borrower’s financial difficulty, having granted to the borrower a concession(s) that the lender(s) would not otherwise consider,
4) it is becoming probable that the borrower will enter bankruptcy or other financial reorganization,
5) the disappearance of an active market for that financial asset because of financial difficulties, or
6) the purchase or origination of a financial asset at a deep discount that reflects the incurred credit losses.
38
Bank Pekao S.A.
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
The Group recognises a loss allowance for expected credit losses on a financial asset that is measured at amortised cost or at fair value through other comprehensive income, a financial lease receivable, a contract asset or a loan commitment and a financial guarantee contract.
A loss allowance for financial assets that are measured at fair value through other comprehensive income is recognised in other comprehensive income and is not reducing the carrying amount of the financial asset in the statement of financial position.
If, at the reporting date, the credit risk on a financial instrument has not increased significantly since initial recognition, the Bank measures the loss allowance for that financial instrument at an amount equal to 12-month expected credit losses.
At each reporting date, the Bank measures the loss allowance for a financial instrument at an amount equal to the lifetime expected credit losses if the credit risk on that financial instrument has increased significantly since initial recognition.
For financial instruments in Stage 3, the Group measures the expected credit losses in the amount equal to the expected credit losses over the life of such instruments.
The Group recognises in profit or loss, as an impairment gain or loss, the amount of expected credit losses (or reversal) that is required to adjust the loss allowance at the reporting date to the amount that is required to be recognised in accordance with IFRS9.
For loan commitments and financial guarantee contracts, the date that the Group becomes a party to the irrevocable commitment shall be considered to be the date of initial recognition for the purposes of applying the impairment requirements.
Since initial recognition of POCI assets, the Group recognises the cumulative changes in lifetime expected credit losses as a loss allowance for purchased or originated credit-impaired financial assets. At each reporting date, the Group recognises in profit or loss the amount of the change in lifetime expected credit losses as an impairment gain or loss. An entity shall recognise favourable changes in lifetime expected credit losses as an impairment gain, even if the lifetime expected credit losses are less than the amount of expected credit losses that were included in the estimated cash flows on initial recognition.
The Group measures the loss allowance at an amount equal to lifetime expected credit losses for:
1) trade receivables or contract assets that result from transactions that are within the scope of IFRS 15,
2) receivables that result from transactions that are within the scope of IFRS 16 (other than receivables from finance lease).
Expected credit losses are not recognized for impairment of equity instruments.
The methodology for calculating expected credit losses is described in detail in ‘The description of the model for impairment allowance’ in Note 47.2.
Financial data
2021
2020
Loans and other financial assets measured at amortized co st (*) (**)
(661 345)
(1 148 052)
Debt securities measured at amortized cost
(27 619)
2 442
Loans measured at fair value through other comprehensive income
23 162
(3 876)
Debt securities measured at fair value through other comprehensive income
14 455
(30 472)
Off-balance sheet commitments
25 405
(89 636)
Provision for legal risk regarding foreign currency mortgage loans
(152 256)
(308 866)
Total
(778 198)
(1 578 460)
(*) Item includes impairment losses on loans and advances to banks and receivables from financial leases.
(**) In 2021, the Group sold a portfolio of loan receivables with a total debt of PLN 1 257 millions. The realized gross result on the transaction in the amount of PLN 43.2 millions. Similarly, in 2020, the Group sold a portfolio of credit receivables with a total debt of PLN 229.2 million. The realized gross result on the transaction in the amount of o PLN 23.1 million.
39
Bank Pekao S.A.
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
13. Other operating income and expenses
Significant accounting policies
Other operating income includes mainly revenues from received compensations, revenues from operating leases, recovery of debt collection costs and miscellaneous revenues. Other operating expenses include mainly the costs of provision for legal claims, cost of provisions for current and future legal risk related to foreign currency mortgage loans in CHF, debt collection costs, impairment allowance on fixed assets, client claims, compensation paid and miscellaneous expenses.
Financial data
Other operating income
2021
2020
Gains on disposal of property, plant and equipment
36 678
998
Premises rental income, terminals and IT equipment
20 960
18 740
Operating leasing net income (*)
2 961
(174)
Compensation, recoveries, penalty fees and fines received
17 812
15 780
Miscellaneous income
14 426
13 889
Recovery of debt collection costs
11 967
9 264
Net revenues from sale of products, goods and services
5 211
4 991
Other
11 531
4 692
Total
121 546
68 180
(*) Operating leasing net income
2021
2020
Income from operating leases
10 744
6 798
Costs of depreciation of fixed assets provided under operating leases
(7 783)
(6 972)
Total
2 961
(174)
Other operating expenses
2021
2020
Provision for liabilities disputable and other provisions (*)
(17 612)
(29 515)
Provision for legal risk regarding foreign currency mortgage loans
(39 743)
(68 498)
Credit and factoring debt collection costs
(18 994)
(16 938)
Loss on disposal of property, plant and equipment and intangible assets
(4 384)
(10 275)
Card transactions monitoring costs
(11 787)
(7 971)
Sundry expenses
(5 082)
(5 974)
Costs of litigation and claims
(4 657)
(3 429)
Impairment allowance on fixed assets, litigations and other assets
(18 299)
(5 858)
Compensation, penalty fees and fines
(2 164)
(827)
Other
(15 024)
(15 764)
Total
(137 746)
(165 049)
(*) The item also includes the provision for commission reimbursements in case of previously repaid consumer loans repaid before the CJEU judgment. (Note37).
40
Bank Pekao S.A.
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
14. Administrative expenses
Significant accounting policies
Personnel expenses and other employee benefits mainly include wages and salaries, social insurance and share based payments costs which are described in detail in Note 40.
Other administrative expenses mainly include the tax of certain financial institutions, maintenance costs of Bank’s fixed assets, IT and telecommunications infrastructure also marketing and advertising costs.
This cost category also includes contributions and payments to the Bank Guarantee Fund (quarterly contributions to the banks’ guarantee fund and annual contribution to the banks’ compulsory resolution fund paid once a year) and a mandatory fees to the Polish Financial Supervision Authority (to cover the cost of banking supervision and to cover the costs of supervision over the capital market) which Bank recognizes in the profit or loss at the time of the obligating event.
Financial data
Personnel expenses
2021
2020
Wages and salaries
(1 830 681)
(1 730 703)
Insurance and other charges related to employees
(311 820)
(295 990)
Share-based payments expenses
(13 555)
(13 173)
Total
(2 156 056)
(2 039 866)
Other administrative expenses
2021
2020
General expenses
(868 846)
(815 311)
Tax on certain financial institutions
(718 923)
(660 590)
Contribution and payments to the Bank Guarantee Fund , including:
(289 307)
(380 859)
to the resolution fund
(170 592)
(210 386)
to the banks’ guarantee fund
(118 715)
(170 473)
Fees to cover costs of Supervision over Banks (KNF) /
(26 321)
(20 585)
Other taxes and fees
(39 589)
(36 258)
Total
(1 942 986)
(1 913 603)
Total administrative expenses
(4 099 042)
(3 953 469)
15. Depreciation and amortization
Significant accounting policies
Depreciation expense for property, plant and equipment and investment properties and the amortization expense for intangible assets are calculated using straight line method over the expected useful life of an asset. Depreciated value is defined as the purchase price or cost to develop a given asset, less residual value of the asset. Depreciation rates and residual values of assets, determined for balance-sheet purposes, are subject to regular reviews, with results of such reviews recognized in the same period.
The statement of financial position depreciation and amortization rates applied to property, plant and equipment, investment properties and intangible assets are as follows:
a) depreciation rates applied for non-current assets
Buildings and structures and cooperative ownership rights to residential premises and cooperative ownership rights to commercial premises
1.5% – 10.0%
Technical equipment and machines
4.5% – 30.0%
Vehicles
7% – 25.0%
41
Bank Pekao S.A.
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
b) amortization rates for intangible assets
Buildings and structures and cooperative ownership rights to residential premises and cooperative ownership rights to commercial premises
10.0% – 50.0%
Technical equipment and machines
12.5% – 33.3%
Vehicles
12.5% – 33.3%
Land, non-current assets under construction and intangible assets under development are not subject to depreciation and amortization.
Depreciation are charged to the income statement in the item ‘Depreciation and amortization’, whereas the impairment losses are charged to the income statement in the item ‘Other operating expenses’.
Financial data
2021
2020
Property, plant and equipment
(320 880)
(307 865)
Intangible assets
(327 338)
(231 086)
Total
(648 218)
(538 951)
16. Gains (losses) on associates and disposal of subsidiaries
Significant accounting policies
Principles of classification and measurement are described in the Note 5.2
Financial data
2021
2020
Share in gains (losses) from associates
Krajowy Integrator Płatności S.A. (*)
1 840
-
Gains from disposal of shares in subsidiaries
3 088
-
Total
4 928
-
(*) Group's share in net gains for the period from the date of acquisition of shares.
17. Income tax
Significant accounting policies
Income tax expense comprises current and deferred tax. The income tax expense is recognized in the income statement excluding the situations when it is recognized directly in equity. The current tax is the tax payable of the Bank entities on their taxable income for the period, calculated based on binding tax rates, and any adjustment to tax payable in respect of previous years. The receivables resulting from taxes are disclosed if the Group’s companies has sufficient certainty that they exist and that they will be recovered.
Deferred tax assets and d eferred tax liabilities are calculated, using the balance sheet method, on temporary differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred income tax is determined using tax rates based on legislation enacted or substantively enacted at the balance sheet date and expected to apply when the deferred tax asset or the deferred tax liability is realized.
A deferred tax asset is recognized for negative temporary differences to the extent that it is probable that taxable profit will be available against which the deductible temporary difference can be utilized.
A deferred tax liability is calculated using the balance sheet method based on identification of positive temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for tax purposes.
42
Bank Pekao S.A.
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
Financial data
The below additional information notes present the Group gross profit’s.
Reconciliation between tax calculated by applying the current tax rate to accounting profit and the actual tax charge presented in the separate income statement.
2021
2020
Profit before income tax
3 001 620
1 725 015
Tax charge according to applicable tax rate
570 308
327 753
Permanent differences:
254 754
294 361
Non taxable income
(6 517)
(8 244)
Non tax deductible costs including:
263 852
300 277
Bank Guarantee fund fee
54 968
72 363
banking tax
136 595
125 512
the provision for legal risk regarding foreign currency mortgage loans
37 370
72 584
allowances for expected credit losses
21 529
29 563
other non tax deductible costs
13 390
255
Impact of other tax rates applied in accordance with art.19.1.2 of CIT Act
65
29
Impact of utilized tax losses
-
-
Tax relieves not included in the income statement
83
48
Other
(2 729)
2 251
Effective income tax charge on gross profit
825 062
622 114
The applied tax rate of 19% is the corporate income tax rate binding in Poland.
The basic components of income tax charge presented in the income statement and equity
2021
2020
INCOME STATEMENT
Current tax
(532 121)
(1 011 973)
Current tax charge in the income statement
(528 506)
(1 011 962)
Adjustments related to the current tax from previous years
(2 233)
676
Other taxes (e.g. withholding tax)
(1 382)
(687)
Deferred tax
(292 941)
389 859
Occurrence and reversal of temporary differences
(292 941)
389 859
Tax charge in the separate income statement
(825 062)
(622 114)
EQUITY
Current tax
(304)
Deferred tax
695 606
(233 616)
Income and costs disclosed in other comprehensive income:
revaluation of financial instruments - cash flows hedges
407 275
(88 676)
fair value revaluation through other comprehensive income
298 703
(130 288)
Tax on items that are or may be reclassified subsequently to profit or loss
705 978
(218 964)
Tax charge on items that will never be reclassified to profit or loss
(10 372)
(14 652)
fair value revaluation through other comprehensive income –equity securities
(1 292)
(16 735)
remeasurements the defined benefit liabilities
(9 080)
2 083
Total charge
(129 760)
(855 730)
43
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
Bank Pekao S.A.
CHANGES IN TEMPORARY DIFFERENCES IN 2021
OPENING BALANCE
CHANGES RECOGNIZED IN
CHANGES RESULTING FROM CHANGES IN THE SCOPE OF CONSOLIDATION AND OTHER
OPENING BALANCE
CHANGES RECOGNIZED IN
TOTAL DEFERRED TAX
IN THE INCOME STATEMENT
IN EQUITY
TOTAL DEFERRED TAX
IN THE INCOME STATEMENT
IN EQUITY
TOTAL DEFERRED TAX
IN THE INCOME STATEMENT
IN EQUITY
TOTAL DEFERRED TAX
DEFFERED TAX LIABILITY
Accrued income – securities
165
165
-
35 105
-
-
-
35 270
35 270
-
Accrued income – loans
110 415
110 415
-
4 448
-
-
-
114 863
114 863
-
Positive valuation of financial assets
526 591
188 839
337 752
(188 839)
(337 752)
-
-
-
-
-
Accelerated depreciation
124 137
124 137
-
19 187
-
-
-
143 324
143 324
-
Investment relief
4 094
4 094
-
(421)
-
-
-
3 673
3 673
-
Paid intermediation costs
176 210
176 210
-
21 126
-
-
-
197 336
197 336
-
Other
-
-
-
-
-
-
-
-
-
-
Gross deferred tax liability
941 612
603 860
337 752
(109 394)
(337 752)
-
-
494 466
494 466
-
DEFFERED TAX ASSET
Accrued expenses - securities
267 891
267 891
-
(267 891)
-
-
-
-
-
-
Accrued expenses - deposits and loans
10 219
10 219
-
(8 118)
-
-
-
2 101
2 101
-
Negative valuation of financial assets
336 030
336 030
-
(173 428)
366 933
-
-
529 535
162 602
366 933
Income received to be amortized over time from loans and current accounts
308 873
308 873
-
(9 872)
-
-
-
299 001
299 001
-
Loan provisions charges
799 903
799 903
-
46 007
-
-
-
845 910
845 910
-
Personnel related provisions
127 607
107 992
19 615
194
(9 079)
-
-
118 722
108 186
10 536
Accruals
32 099
32 099
-
5 212
-
-
-
37 311
37 311
-
Previous year losses
7 942
7 942
-
(3 623)
-
-
-
4 319
4 319
-
Difference between accounting and tax value of leased assets and other differences from leasing
230 775
230 775
-
7 817
-
-
-
238 592
238 592
-
Other
41 228
41 228
-
1 367
-
283
-
42 878
42 878
-
Gross deferred tax assets
2 162 567
2 142 952
19 615
(402 335)
357 854
283
-
2 118 369
1 740 900
377 469
Deferred tax charge
X
X
X
(292 941)
695 606
283
-
X
X
X
Net deferred tax assets
1 248 747
1 566 884
(318 137)
X
X
X
X
1 648 808
1 271 339
377 469
Net deferred tax liability
27 792
27 792
-
X
X
X
X
24 905
24 905
-
44
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
Bank Pekao S.A.
CHANGES IN TEMPORARY DIFFERENCES IN 2020
OPENING BALANCE
CHANGES RECOGNIZED IN
CHANGES RESULTING FROM CHANGES IN THE SCOPE OF CONSOLIDATION AND OTHER
OPENING BALANCE
CHANGES RECOGNIZED IN
TOTAL DEFERRED TAX
IN THE INCOME STATEMENT
IN EQUITY
TOTAL DEFERRED TAX
IN THE INCOME STATEMENT
IN EQUITY
TOTAL DEFERRED TAX
IN THE INCOME STATEMENT
IN EQUITY
TOTAL DEFERRED TAX
DEFFERED TAX LIABILITY
Accrued income – securities
275
275
-
(110)
-
-
-
165
165
-
Accrued income – loans
128 636
128 636
-
(18 221)
-
-
-
110 415
110 415
-
Positive valuation of financial assets
350 828
248 775
102 053
(59 936)
235 699
-
-
526 591
188 839
337 752
Accelerated depreciation
106 123
106 123
-
18 014
-
-
-
124 137
124 137
-
Investment relief
4 424
4 424
-
(330)
-
-
-
4 094
4 094
-
Paid intermediation costs
159 685
159 685
-
16 525
-
-
-
176 210
176 210
-
Other
32 330
32 330
-
(32 330)
-
-
-
-
-
-
Gross deferred tax liability
782 301
680 248
102 053
(76 388)
235 699
-
-
941 612
603 860
337 752
DEFFERED TAX ASSET
Accrued expenses - securities
88 665
88 665
-
179 226
-
-
-
267 891
267 891
-
Accrued expenses - deposits and loans
36 568
36 568
-
(26 349)
-
-
-
10 219
10 219
-
Negative valuation of financial assets
312 595
312 595
-
23 435
-
-
-
336 030
336 030
-
Income received to be amortized over time from loans and current accounts
322 505
322 505
-
(13 632)
-
-
-
308 873
308 873
-
Loan provisions charges
637 546
637 546
-
162 357
-
-
-
799 903
799 903
-
Personnel related provisions
125 269
107 737
17 532
255
2 083
-
-
127 607
107 992
19 615
Accruals
29 570
29 570
-
2 529
-
-
-
32 099
32 099
-
Previous year losses
10 739
10 739
-
(2 797)
-
-
-
7 942
7 942
-
Difference between accounting and tax value of leased assets and other differences from leasing
269 618
269 618
-
(38 843)
-
-
-
230 775
230 775
-
Other
13 938
13 938
-
27 290
-
-
-
41 228
41 228
-
Gross deferred tax assets
1 847 013
1 829 481
17 532
313 471
2 083
-
-
2 162 567
2 142 952
19 615
Deferred tax charge
X
X
X
389 859
(233 616)
-
-
X
X
X
Net deferred tax assets
1 094 630
1 179 151
(84 521)
X
X
X
X
1 248 747
1 566 884
(318 137)
Net deferred tax liability
29 918
29 918
-
X
X
X
X
27 792
27 792
-
45
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
Bank Pekao S.A.
In the opinion of the Group the deferred tax asset in the amount of PLN 1 648 808 thousand reported as at 31 December 2021 is sustainable in total amount. The analysis was performed based on the past results of the company and assumed results in the future periods. The analysis assumed the five years’ time horizon.
As at 31 December 2021 and 31 December 2020, there were no temporary differences related to investments in subsidiaries and associates, for which deferred tax liability was not created as a result of meeting the conditions of controlling the terms of temporary differences’ reversing and being probable that these differences will not reversein foreseeable future.
The amount of unrecognized tax losses in relation to which deferred tax asset was not recognized in the statement of financial position as well as the expiration date of the possibility of using an unrecognized tax loss.
EXPIRATION YEAR OF TEMPORARY DIFFERENCES
AMOUNT OF DIFFERENCES AS AT 31.12.2021
AMOUNT OF DIFFERENCES AS AT 31.12.2020
2021
-
94
2022
6 457
12 914
2023
11 462
11 462
2024
28
28
2025
239
239
2026
374
-
No time limits
-
-
Total
18 560
24 737
18. Earnings per share
Basic earnings per share
Basic earnings per share are calculated by dividing the net profit attributable to equity holders of the Bank by the weighted average number of the ordinary shares outstanding during the period.
2021
2020
Net profit
2 174 897
1 101 712
Weighted average number of ordinary shares in the period
262 470 034
262 470 034
Earnings per share (in PLN per share)
8.29
4.20
Diluted earnings per share
Diluted earnings per share are calculated by dividing the net profit attributable to equity holders of the Bank by the weighted average number of the ordinary shares outstanding during the given period adjusted for all potential dilution of ordinary shares.
As at 31 December 2021 and 31 December 2020 here were no diluting instruments in the form of convertible bonds in the Group.
2021
2020
Net profit
2 174 897
1 101 712
Weighted average number of ordinary shares in the period
262 470 034
262 470 034
Weighted average number of ordinary shares for the purpose of calculation of diluted earnings per share
262 470 034
262 470 034
Diluted earnings per share (in PLN per share)
8.29
4.20
19. Dividends
On 11 June 2021, the Bank's Ordinary General Meeting passed a Profit Distribution Resolution. The Profit Distribution Resolution provided that the distribution of the Bank's net profit for 2020 will take place in one of four manners, depending on the fulfilment or non-fulfilment of the Dividend Payment Conditions, making the payment of dividends dependent on Polish Financial Supervision Authority (‘KNF’) Position relating to the dividend policy of commercial banks in the second half of 2021 and KNF Recommendation relating to the Bank's dividend policy in the second half of 2021.
46
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
Bank Pekao S.A.
Profit Distribution Resolution defines three Dividend Payment Conditions:
1. 75% Dividend Payment Condition - the condition will be met when the KNF Position and KNF Recommendation allow to allocate for dividend - from the Bank's net profit for 2020 - at least the amount of PLN 842 528 809.14,
2. 50% Dividend Payment Condition - the condition will be met when the KNF Position and KNF Recommendation allow to allocate for the dividend - from the Bank's net profit for 2020 - at least the amount of PLN 561 685 872.76, but less than the amount of PLN 842 528 809.14,
3. 25% Dividend Payment Condition - the condition will be met when the KNF Position and KNF Recommendation would allow to allocate for the dividend - from the Bank's net profit for 2020 - at least the amount of PLN 280 842 936.38, but less than the amount of PLN 561 685 872.76.
In case:
1. the 75% Dividend Payment Condition is fulfilled - the amount of PLN 842 528 809.14 will be allocated to dividend,
2. if the Dividend Payment Condition of 50% is met - the amount of PLN 561 685 872.76 will be allocated to dividend,
3. if the Dividend Payment Condition of 25% is met - the amount of PLN 280 842 936.38 will be allocated to dividend,
4. if none of the Dividend Payment Conditions (i.e. 75% Dividend Payment Condition, 50% Dividend Payment Condition, 25% Dividend Payment Condition) is met, no dividend will be paid for the year 2020.
Paragraph 5 (1) of the Profit Distribution Resolution requires the Management Board of the Bank will adopt a resolution on the fulfilment or non-fulfilment of the individual Dividend Payment Conditions by 2 September 2021 at the latest, with the proviso that if no KNF Position or KNF Recommendation has been issued by 31 August 2021 (inclusive), none of the Dividend Payment Conditions are met.
The Management Board of the Bank on 16 July 2021, pursuant to § 5 (1) of the Profit Distribution Resolution, in connection with the KNF Position and KNF Recommendation, adopted a resolution on the Dividend Payment Conditions. It stated therein that: the Dividend Payment Condition of 75% set in the Profit Distribution Resolution was fulfilled, therefore the following conditions were not fulfilled: Dividend Payment Condition 50% and Dividend Payment Condition 25%. The above means that: 74.8% of the Bank's net profit for 2020, i.e. the amount of PLN 842 528 809.14 was allocated to dividend. The amount of the dividend per share was PLN 3.21. The dividend day was 10 September 2021 and the dividend payment date was 29 September 2021.
20. Cash and balances with Central Bank
Significant accounting policies
Principles of classification and measurement are described in the Note 5.4.
Financial data
Cash and due from Central Bank
31.12.2021
31.12.2020
Cash
3 699 683
4 306 094
Current account at Central Bank
996 945
150 198
Other
67
-
Gross carrying amount
4 696 695
4 456 292
Impairment allowances
(75)
(13)
Net carrying amount
4 696 620
4 456 279
47
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
Bank Pekao S.A.
Cash and balances with Central Bank by currency
31.12.2021
31.12.2020
PLN
2 956 881
2 079 588
EUR
741 412
1 106 970
USD
497 453
556 922
CHF
177 751
100 412
GBP
170 665
185 317
NOK
45 063
258 502
Other currencies
107 395
168 568
Total
4 696 620
4 456 279
Bank is required to held on current account in the Central Bank the average monthly balance comply with the mandatory reserve declaration.
As at 31 December 2021 the interest rate of funds held on the mandatory reserve account is at 1.75 % (as at 31 December 2020 - 0.1%).
21. Loans and advances to banks
Significant accounting policies
Principles of classification and measurement are described in the Note 5.4.
Financial data
Loans and advances to banks by product type
31.12.2021
31.12.2020
Current accounts
271 163
273 795
Interbank placements
623 227
179 332
Loans and advances
156 073
35 282
Cash collaterals
1 458 469
1 173 087
Reverse repo transactions
583 012
719 015
Cash in transit
237 324
199 051
Total gross amount
3 329 268
2 579 562
Impairment allowances
(1 181)
(1 223)
Total net amount
3 328 087
2 578 339
48
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
Bank Pekao S.A.
Loans and advances to banks by contractual maturity
31.12.2021
31.12.2020
Loans and advances to banks, including:
up to 1 month
2 757 304
2 549 426
between 1 and 3 months
283 543
614
between 3 months and 1 year
171 930
278
between 1 and 5 years
115 916
28 855
over 5 years
478
16
past due
97
373
Total gross amount
3 329 268
2 579 562
Impairment allowances
(1 181)
(1 223)
Total net amount
3 328 087
2 578 339
Loans and advances to banks by currency
31.12.2021
31.12.2020
PLN
1 658 574
938 456
EUR
1 317 583
1 259 737
CNY
135 720
25 253
USD
92 405
257 301
CAD
37 858
4 215
CHF
13 332
2 629
Other currencies
72 615
90 748
Total
3 328 087
2 578 339
22. Derivative financial instruments (held for trading)
Significant accounting policies
The Group acquires the derivative financial instruments: currency transactions (spot, forward, currency swap and currency options, CIRS), exchange rate transactions (FRA, IRS, CAP), derivative transactions based on security prices, indices of stocks and commodities. Derivative financial instruments are initially recorded at fair value as at the transaction date and subsequently re-measured at fair value at each balance sheet date. The fair value is established on the basis of market quotations for an instrument traded in an active market, as well as on the basis of valuation techniques, including models using discounted cash flows and options valuation models, depending on which valuation method is appropriate.
Positive valuation of derivative financial instruments is presented in the statement of financial position in the line ‘Derivative financial instruments (held for trading)’ on an asset side, whereas the negative valuation - ‘Derivative financial instruments (held for trading)’ on a liabilities side.
In case of contracts that are not financial instruments with a component of an instrument meeting the above conditions the built-in derivative instrument is classified in accordance with assets or liabilities of derivatives financial instruments with respect to the income statement in accordance with derivative financial instruments valuation principles.
The changes in fair value of the derivative financial instruments held for trading are recognized in the income statement.
Derivative financial instruments at the Group
In its operations the Group uses different financial derivatives that are offered to the clients and are used for managing risks involved in the Bank’s business. The majority of derivatives at the Group include over-the-counter contracts. Regulated stock exchange contracts (mainly futures) represent a small part of those derivatives.
Derivative foreign exchange transactions include the obligation to buy or sell foreign and domestic currency assets. Forward foreign exchange transactions are based on the foreign exchange rates, specified on the transaction date for a predefined future date. These transactions are valued using the discounted cash flow model. Cash flows are discounted according to zero-coupon yield curves, relevant for a given market.
Foreign exchange swaps are a combination of a swap of specific currencies as at spot date and of reverse a transaction as at forward date with foreign exchange rates specified in advance on transaction date. Transactions of such type are settled by an exchange of assets. These transactions are valued using the discounted cash flow model. Cash flows are discounted according to zero-coupon yield curves relevant for a given market.
49
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
Bank Pekao S.A.
Foreign exchange options with delivery are defined as contracts, where one of the parties, i.e. the option buyer, purchases from the other party, referred to as the option writer, at a so-called premium price the right without the obligation to buy (call option) or to sell (put option), at a specified point of time in the future or during a specified time range a foreign currency amount specified in the contract at the exchange rate set during the conclusion of the option agreement.
In case of options settled in net amounts, upon acquisition of the rights, the buyer receives an amount of money equal to the product of notional and difference between spot ad strike price.
Barrier option with one barrier is a type of option where exercise of the option depends on the underlying crossing or reaching a given barrier level. A barrier may be reached starting from lower (‘UP’) or from higher (‘DOWN’) level of the underlying instrument. ‘IN’ options start their lives worthless and only become active when a predetermined knock-in barrier price is breached. ‘OUT’ options start their lives active and become null and void when a certain knock-out barrier price is breached.
Foreign exchange options are priced using the Garman-Kohlhagen valuation model (and in case of barrier and Asian options using the so-called expanded Garman-Kohlhagen model). Parameters of the model based on market quotations of plain-vanilla at-the-money options and market spreads for out-of-the-money and in-the-money options (volatility smile) for standard maturities.
Derivatives related to interest rates enable the Group and its customers to transfer, modify or limit interest rate risk.
In the case of Interest Rate Swaps (IRS), counterparties exchange between each other the flows of interest payments, accrued on the nominal amount identified in the contract. These transactions are valued using the discounted cash flow model. Floating (implied) cash flows are estimated on base of respective IRS rates. Floating and fixed cash flows are discounted by relevant zero-coupon yield curves.
Forward Rate Agreements (FRA) involve both parties undertaking to pay interest on a predefined nominal amount for a specified period starting in the future and charged according to the interest rate determined on the day of the agreement The parties settle the transaction on value date using the reference rate as a discount rate in the processof discounting the difference between the FRA rate (forward rate as at transaction date) and the reference rate. These transactions are valued using the discounted cash flow model.
Cross currency IRS involves both parties swapping capital and interest flows in different currencies in a specified period. These transactions are valued using the discounted cash flow model. Valuation of Basis Swap transactions (cross currency IRS with floating coupon) takes into account market quotations of basis spread (Basis swap spread).
In the case of forward transactions on securities, counterparties agree to buy or sell specified securities on a forward date for a payment fixed on the date of transaction. Such transactions are measured based upon the valuation of the security (mark-to-market or mark-to-model) and valuation of the related payment (method of discounting cash flows by money market rate).
Interest rate options (cap/floor) are contracts where one of the parties, the option buyer, purchases from the other party, the option writer, at a so-called premium price, the right without the obligation to borrow (cap) or lend (floor) at specified points of time in the future (independently) amounts specified in the contract at the interest rate set during the conclusion of the option. Contracts are net-settled (without fund location) at agreed time. Transactions of this type are valued using the Normal model (Bachelier model). The model is parameterized based upon market quotations of options as at standard quoted maturities.
Interest rate futures transactions refer to standardized forward contracts purchased on the stock market. Futures contracts are measured based upon quotations available directly from stock exchanges.
Commodity swap contracts are obligations to net settlement equivalent to the execution of a commodity buy or sell transaction at the settlement price according to determination rules set at the trade inception. Commodity instruments are valued with the discounted cash flows method, which includes commodity prices term structure.
Asian commodity options are contracts with the right to buy or sell a certain amount of commodity on a expiry date at the specified price, where settlement price is based on an average level established on the basis of a series of commodity price observations in the period preceding the maturity date of the option. Commodity options are valued with the Black- Scholes model that includes moment matching of commodity price distribution for the arithmetic average.
Derivative financial instruments embedded in other instruments
The Group uses derivatives financial instruments embedded in complex financial instruments, i.e. such as including both a derivative and base agreement, which results in part of the cash flows of the combined instrument changing similarly to cash flows of an independent derivative. Derivatives embedded in other instruments cause part or all cash flows resulting from the base agreement to be modified as per a specific interest rate, price of a security, foreign exchange rate, price index or interest rate index.
50
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
Bank Pekao S.A.
The Group has deposits and certificates of deposits on offer which include embedded derivatives. As the nature of such instrument is not strictly associated with the nature of the deposit agreement, the embedded instrument is separated and classified into the portfolio held-for-trading. The valuation of such instrument is recognized in the income statement. Embedded instruments include simple options (plain vanilla) and exotic options for single stocks, commodities, indices and other market indices, including interest rate indices, foreign exchange rates and their related baskets.
All embedded options are immediately closed back-to-back on the interbank market.
Currency options embedded in deposits are valued as other currency options.
Exotic options embedded in deposits as well as their close positions are valued using the Monte-Carlo simulation technique assuming Geometric Brownian Motion model of risk factors. Model parameters are determined first of all on the basis of quoted options and futures contracts and in their absence based on statistical measures of the underlying instrument dynamic.
Risk involved in financial derivatives
Market risk and credit risk are the basic types of risk, associated with derivatives.
At the beginning, financial derivatives usually have a small market value or no market value at all. It is a consequence of the fact that derivatives require no initial net investments, or require a very small net investment compared to other types of contracts, which display a similar reaction to changing market conditions.
Derivatives gain positive or negative value as a result of change in specific interest rates, prices of securities, prices of commodities, currency exchange rates, price index, credit standing or credit index or another market parameter. In case of such changes, the derivatives held become more or less advantageous than instruments with the same residual maturities, available at that moment on the market.
Credit risk related to derivative contracts is a potential cost of concluding a new contract on the original terms and conditions if the other party to the original contract fails to meet its obligations. In order to assess the potential cost of replacement the Group uses the same method as for credit risk assessment. In order to control its credit risk levels the Bank performs assessments of other contract parties using the same methods as for credit decisions.
The following tables present nominal amounts of financial derivatives and fair values of such derivatives. Nominal amounts of certain financial instruments are used for comparison with balance sheet instruments but need not necessarily indicate what the future cash flow amounts will be or what the current fair value of such instruments is and therefore do not reflect the Bank’s credit or price risk level.
Financial data
Fair value of trading derivatives
31.12.2021
ASSETS
LIABILITIES
Interest rate transactions
Interest Rate Swaps (IRS)
6 421 198
6 544 007
Forward Rate Agreements (FRA)
6 344
12 394
Options
22 481
24 224
Other
774
773
Foreign currency and gold transactions
Cross-Currency Interest Rate Swaps (CIRS)
122 657
86 655
Currency Forward Agreements
298 987
393 370
Currency Swaps (FX-Swap)
215 953
114 043
Options for currency and gold
75 774
39 380
Transactions based on equity securities and stock indexes
Options
21 094
21 094
Other
-
-
Transactions based on commodities and precious metals
Options
15 785
15 350
Other
727 492
718 053
Total
7 928 539
7 969 343
51
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
Bank Pekao S.A.
Fair value of trading derivatives
31.12.2020
ASSETS
LIABILITIES
Interest rate transactions
Interest Rate Swaps (IRS)
4 070 059
4 026 201
Forward Rate Agreements (FRA)
605
586
Options
6 580
2 171
Other
831
847
Foreign currency and gold transactions
Cross-Currency Interest Rate Swaps (CIRS)
91 071
61 376
Currency Forward Agreements
257 951
264 613
Currency Swaps (FX-Swap)
193 335
83 919
Options for currency and for gold
60 286
51 295
Transactions based on equity securities and stock indexes
Options
1 712
1 712
Other
-
-
Transactions based on commodities and precious metals
Options
56 268
52 659
Other
73 533
72 037
Total
4 812 231
4 617 416
Derivative financial instruments are measured at fair value through profit or loss.
Nominal value of trading derivatives
CONTRACTUAL MATURITY
31.12.2021
UP TO 1MONTH
BETWEEN 1 AND 3 MONTHS
BETWEEN 3 MONTHS AND 1 YEAR
BETWEEN 1 AND 5 YEARS
OVER 5 YEARS
TOTAL
Interest rate transactions
Interest Rate Swaps (IRS)
6 750 558
8 436 795
30 794 613
159 168 426
49 150 160
254 300 552
Forward Rate Agreements (FRA)
1 850 000
2 185 000
2 035 000
-
-
6 070 000
Options
-
268 415
1 324 620
2 533 610
2 696 932
6 823 577
Other
362 451
-
-
-
-
362 451
Foreign currency transactions
Cross-Currency Interest Rate Swaps (CIRS) - currency bought
-
990 557
1 031 337
4 416 201
223 488
6 661 583
Cross-Currency Interest Rate Swaps (CIRS) - currency sold
-
1 003 622
1 006 218
4 414 601
221 756
6 646 197
Currency Forward Agreements - currency bought
7 202 438
3 775 589
7 169 224
6 382 247
-
24 529 498
Currency Forward Agreements - currency sold
7 217 502
3 794 448
7 242 657
6 442 624
-
24 697 231
Currency Swaps (FX-Swap) – currency bought
12 141 944
5 103 605
3 376 973
773 506
-
21 396 028
Currency Swaps (FX-Swap) – currency sold
12 138 749
5 078 339
3 364 742
737 990
-
21 319 820
Options bought
1 557 867
1 420 462
2 033 666
1 775 357
-
6 787 352
Options sold
1 557 693
1 437 746
2 051 065
1 804 294
-
6 850 798
Transactions based on equity securities and stock indexes
Options
-
85 233
181 583
758 717
-
1 025 533
Other
-
-
-
-
-
-
Transactions based on commodities and precious metals
Options
119 202
90 457
168 409
-
-
378 068
Other
758 821
823 917
2 077 637
871 437
-
4 531 812
Total
51 657 225
34 494 185
63 857 744
190 079 010
52 292 336
392 380 500
52
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
Bank Pekao S.A.
Nominal value of trading derivatives
CONTRACTUAL MATURITY
31.12.2020
UP TO 1MONTH
BETWEEN 1 AND 3 MONTHS
BETWEEN 3 MONTHS AND 1 YEAR
BETWEEN 1 AND 5 YEARS
OVER 5 YEARS
TOTAL
Interest rate transactions
Interest Rate Swaps (IRS)
6 229 830
6 384 061
42 292 408
127 208 433
37 318 781
219 433 513
Forward Rate Agreements (FRA)
1 031 000
1 753 000
1 176 000
-
-
3 960 000
Options
50
-
890 564
2 624 532
411 412
3 926 558
Other
521 532
-
-
-
-
521 532
Foreign currency transactions
Cross-Currency Interest Rate Swaps (CIRS) - currency bought
-
409 501
107 754
4 780 362
126 650
5 424 267
Cross-Currency Interest Rate Swaps (CIRS) - currency sold
-
375 983
100 000
4 824 292
124 435
5 424 710
Currency Forward Agreements - currency bought
20 000 076
4 494 449
7 798 255
3 227 614
26 674
35 547 068
Currency Forward Agreements - currency sold
20 005 839
4 527 409
7 798 762
3 256 150
27 372
35 615 532
Currency Swaps (FX-Swap) – currency bought
12 399 025
2 411 504
2 192 868
352 650
-
17 356 047
Currency Swaps (FX-Swap) – currency sold
12 360 053
2 374 534
2 152 112
352 817
-
17 239 516
Options bought
1 055 018
1 066 559
2 603 360
1 481 808
-
6 206 745
Options sold
1 010 973
1 119 281
2 585 226
1 471 468
-
6 186 948
Transactions based on equity securities and stock indexes
Options
8 458
-
49 972
-
-
58 430
Other
-
-
-
-
-
-
Transactions based on commodities and precious metals
Options
96 027
269 477
1 456 207
183 711
-
2 005 422
Other
267 298
354 872
436 902
168 570
-
1 227 642
Total
74 985 179
25 540 630
71 640 390
149 932 407
38 035 324
360 133 930
23. Hedge accounting
Significant accounting policies
Derivative hedging financial instruments are initially recorded at fair value as at the transaction date and subsequently re- measured at fair value at each balance sheet date. The fair value is established on the basis of market quotations for an instrument traded in an active market, as well as on the basis of valuation techniques, including models using discounted cash flows and options valuation models, depending on which valuation method is appropriate.
Positive valuation of derivative hedging financial instruments is presented in the statement of financial position in the line ‘Hedging instruments’ on an asset side, whereas the negative valuation - ‘Hedging instruments’ on a liabilities side.
The Group designates some of its derivative instruments as hedging items in applying hedge accounting. The Group decided to take advantage of the choice which gives IFRS 9 and continues to apply the hedge accounting requirements of IAS 39. This decision will apply to all hedging relationships, for which the Bank applies and will apply hedge accounting in the future. The Bank implemented fair value hedge accounting as well as cash flow hedge accounting.
Fair value hedge accounting significant accounting principles
Changes in the measurement to fair value of financial instruments indicated as hedged positions are recognized - in the part ensuing from hedged risk - in the income statement. In the remaining part, changes in the carrying amount are recognized in accordance with the principles applicable for the given class of financial instruments.
Changes in the fair market valuation of derivative financial instruments, indicated as hedging positions in fair value hedge accounting, are recognized in the profit or loss in the same caption, in which the gains/losses from change in the value of hedged positions are recognized i.e. in the item ‘Net income from fair value hedge accounting’.
Interest income on derivative instruments hedging interest positions hedged is presented as interest margin.
The Group ceases to apply hedge accounting, when the hedging instrument expires, is sold, dissolved or released (the replacement of one hedging instrument with another or extension of validity of given hedging instrument is not considered an expiration or release, providing such replacement or extension of validity is a part of a documented hedging strategy adopted by given unit), or does not meet the criteria of hedge accounting or the Group ceases the hedging relation.
53
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
Bank Pekao S.A.
An adjustment for the hedged risk on hedged interest position is amortized in the income statement at the point of ceasing to apply hedge accounting.
Cash flow hedge accounting significant accounting principles
Changes in the fair value of the derivative financial instruments indicated as cash flow hedging instruments are recognized:
• directly in the caption ‘Revaluation reserves’ in the part constituting the effective hedge,
• in the income statement in the line ‘Result on financial assets and liabilities held for trading and foreign exchange result’ in the part representing ineffective hedge.
The amounts accumulated in the ‘Revaluation reserves’ are transferred to the income statement in the period, in which the hedge is reflected in the income statement and are presented in the same lines as individual components of the hedged position measurement, i.e. the interest income from hedging derivatives in cash flow hedge accounting is recognized in the interest result, whereas gains/losses from foreign exchange revaluation are presented in the foreign exchange gains (losses).
The Group ceases to apply hedge accounting when the hedging instrument expires or is sold, or if the Group revokes the designation, or when hedge no longer meets the criteria for hedge accounting. In such cases, the accumulated gains or losses related to such hedging item, initially recognized in ‘Revaluation reserves’, if the hedge was effective, are still presented in equity until the planned transaction was closed and recognized in the income statement.
If the planned transaction is no longer probable, the cumulative gains or losses recognized in ‘Revaluation reserves’ are transferred to the income statement for the given period.
As of 31 December 2021 the Group applies fair value hedge accounting and cash flow hedge accounting:
FVH - fair value hedge accounting:
• Interest rate swaps (IRS) designated to hedge debt securities denominated in PLN, EUR and USD (hereafter: FVH IRS bonds ).
CFH - cash flow hedge accounting :
• Interest rate swaps (IRS) designated to hedge floating rate loans and securities denominated in PLN (hereafter: CFH IRS loans ),
• Interest rate swaps (IRS) designated to hedge deposits denominated in PLN and EUR, which economically reflect long-term variable-rate liability (hereafter: CFH IRS deposits ),
• cross-currency interest rate swaps (basis swap) designated to hedge floating rate loans denominated in CHF and liabilities denominated in PLN, which economically reflect long-term variable-rate liability (link extended by the current future cash flows resulting from loans and lease receivables with a variable interest rate in EUR hereafter: CFH CIRS ),
• FX-Swaps designated to hedge floating rate loans denominated in EUR and current and term deposits denominated in USD (two hedging relationships, jointly hereafter: CFH FX-Swap ).
Impact of the IBOR reform on hedge accounting
As part of the established hedging relationships, the Group identifies the following interest rate benchmarks: WIBOR, EURIBOR, LIBOR CHF, LIBOR USD. As of the reporting date, these benchmarks rates are quoted and available each day and resulting cash flows are exchanged with its counterparties as usual.
In the case of WIBOR and EURIBOR the Group assessed that, there is currently no uncertainty about the timing or amounts of cash flows arising from the IBOR reform. Both benchmarks have been adapted to the requirements of European Union Benchmark Regulation (BMR Regulation) and are developed by Administrators with the approval of supervisory authorities. The Bank not anticipate changing the hedged risk to a different benchmarks.
For LIBOR CHF and LIBOR USD, the established hedging relationships extend beyond the anticipated cessation dates for both benchmarks, i.e. 31 December 2021 for CHF LIBOR and 30 June 2023 for USD LIBOR.
From January 1, 2022, under the Commission Implementing Regulation (EU), the LIBOR CHF benchmarks were replaced by the SARON (Swiss Averaged Rate Overnight) and SARON Compound benchmarks administered by the SIX Swiss Exchange, thus uncertainty about the timing and amounts of cash flows for the new benchmarks is finished. The Group plans to continue the existing relationship after switching to SARON benchmarks, using the procedure and in accordance with the principles set out in the amendments to IAS 39 and IFRS 9 concerning the IBOR reform. In the Group's opinion, it is reasonable to expect that the hedge will be highly effective and efficient in all reporting periods for which the hedge has been established.
54
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
Bank Pekao S.A.
The Group expects that LIBOR USD benchmarks will be replaced by the SOFR (Secured Overnight Financing Rate) administered by the Federal Reserve Bank of New York, but there is uncertainty about the timing and amounts of cash flows for the new rates. Such uncertainty may impact the assessment of: the effectiveness of the relationship and the high probability of the hedged item. For the purposes of these assessments, the Group assumes that the hedged interest rates benchmarks on which the cash flows of the hedged item and / or the hedging instrument are based will not be altered as a result of IBOR reform.
Below is the list of hedging relationships and the nominal amounts of hedging instruments designated thereto, which may be affected by the cessation of the LIBOR interest rate benchmarks as at 31 December 2021:
• FVH IRS bonds (USD 133 million transactions based on USD LIBOR, maturing after 30June 2023 ).
Regarding the hedging instruments, the Bank joined ISDA Fallbacks Protocol and actively cooperates with counterparties in order to implement rules of conduct in line with the ISDA methodology.
Characteristics of fair value hedge accounting
The Group applies fair value hedge accounting for fixed coupon debt securities denominated in PLN, EUR and USD, hedged with interest rate swap (IRS) transactions in the same currencies. The Group hedges component of interest rate risk related to the fair value changes of the hedged item resulting exclusively from the volatility of market interest rates (WIBOR, EURIBOR, LIBOR USD). In the past, hedged risk component accounted for a significant portion of changes in fair value of the hedged item.
The approach of the Group to market risk managemant, including interest rate risk, and details regarding exposure of the Group to interest rate risk are disclosed in Note 47.4.
The use of derivative instruments to hedge the exposure to changes in interest rates generates counterparty credit risk of derivative transactions. The Group mitigates this risk by requiring the counterparties to post collateral deposits and by settling derivative transactions through Central Counterparty Clearing Houses (CCPs) whch apply a number of mechanisms allowing systemic reduction of the risk of default on obligations under concluded transactions.
The Group applies fair value hedge accounting to a hedging relationship if it is justified to expect that the hedge will be highly effective in achieving offsetting fair value changes attributable to the hedged risk in the future and if assessment of hedge effectiveness indicates high effectiveness in all financial reporting periods for which the hedge was designated.
According to the approach of the Group, hedge ratio is determined as ratio of fair value of the hedged item to fair value of the hedging instrument. A hedging relationship is considered effective if all of the following criteria are met:
• high effectiveness of the hedge can be expected on the basis of comparison of critical terms of the hedged item and the hedging instrument,
• in each reporting period, hedge ratio is within 80% - 125% range or relation of inefficiency amount to nominal value of the hedged item is less or equal than the threshold specified in documentation of the hedging relationship, where inefficiency amount is calculated as the sum of cumulative fair value changes of the hedged item and the hedging instrument,
• in each reporting period, simulation of hedge ratio in assumed evolution of market rates scenarios is within 80% - 125% range.
As regards fair value hedge relationships, the main sources of ineffectiveness are:
• impact of the counterparty credit risk and own credit risk of the Group on the fair value of the hedging transactions (IRS), which is not reflected in the fair value of the hedged item,
• differences in maturities of the interest rate swaps and debt securities,
• differences in coupon amounts generated by the hedged item and hedging instruments.
Financial data for fair value hedge accounting
The tables below present interest rate swaps which are used by the Group as instruments hedging interest rate risk in fair value hedge accounting as of 31 December 2021 and 31 December 2020.
55
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
Bank Pekao S.A.
Nominal values and interest rates of hedging derivatives - fair value hedge
CONTRACTUAL MATURITY
31.12.2021
Hedging relationship
Currency
UP TO 1 MONTH
BETWEEN 1 AND 3 MONTHS
BETWEEN 3 MONTHS TO 1 YEAR
BETWEEN 1 TO 5 YEARS
OVER 5 YEARS
TOTAL
Nominal value
-
-
-
200 000
-
200 000
PLN
Average fixed interest rate (%)
-
-
-
2.6
-
2.6
Nominal value
-
-
-
699 109
287 463
986 572
EUR
Average fixed interest rate (%)
-
-
-
-0.0
-0.1
-0.0
Nominal value
-
101 500
-
701 405
-
802 905
FVH IRS bonds
USD
Average fixed interest rate (%)
-
3.7
-
1.4
-
1.7
Total nominal value
-
101 500
-
1 600 514
287 463
1 989 477
CONTRACTUAL MATURITY
31.12.2020
Hedging relationship
Currency
UP TO 1 MONTH
BETWEEN 1 AND 3 MONTHS
BETWEEN 3 MONTHS TO 1 YEAR
BETWEEN 1 TO 5 YEARS
OVER 5 YEARS
TOTAL
Nominal value
-
280 000
-
-
200 000
480 000
PLN
Average fixed interest rate (%)
-
0.3
-
-
0.3
0.3
Nominal value
-
-
346 110
309 192
680 683
1 335 985
EUR
Average fixed interest rate (%)
-
-
-0.1
0.8
-0.2
0.1.
Nominal value
-
-
-
630 509
112 752
743 261
FVH IRS bonds
USD
Average fixed interest rate (%)
-
-
-
2.0
0.2
1.8
Total nominal value
-
280 000
346 110
939 701
993 435
2 559 246
Impact of fair value hedge (interest rate risk hedging) on balance sheet and financial result
FVH IRS BONDS – IRS HEDGING DEBT SECURITIES MEASURED AT
31.12.2021
AMORTISED COST
FAIR VALUE THROUGHT OTHER COMPREHENSIVE INCOME
TOTAL
HEDGING INSTRUMENTS
Nominal value
200 000
1 789 477
1 989 477
Carrying amount – assets
6 334
-
6 334
Carrying amount – liabilities
-
91 244
91 244
Balance sheet item in which hedging instrument is reported
Hedging instruments
Hedging instruments
Hedging instruments
Amount of changes in fair value of the hedging instrument in the reporting period used for estimating hedge inefficiency
33 148
68 401
101 549
Amount of hedge ineffectiveness recognized in the income statement ‘Result on fair value hedge accounting’
905
2 799
3 704
HEDGED ITEM
Carrying amount – assets
193 467
1 932 646
2 126 113
Accumulated amount of the adjustment to the fair value of the hedged item included in the carrying amount of the hedged item recognized in the balance sheet - assets
(6 749)
111 377
104 628
Balance sheet item in which hedged item is reported
Hedging instruments
Hedging instruments
Hedging instruments
Change in the value of hedged item used for estimating hedge inefficiency in the reporting period
(32 243)
(65 602)
(97 845)
Accumulated amount of the adjustment to the fair value of the hedged item remaining in the balance sheet for those hedged items for which adjustments of the balance sheet item for adjustment to fair value has been discontinued
-
-
-
56
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
Bank Pekao S.A.
Impact of fair value hedge (interest rate risk hedging) on balance sheet and financial result
FVH IRS BONDS – IRS HEDGING DEBT SECURITIES MEASURED AT
3 1.12.2020
AMORTISED COST
FAIR VALUE THROUGHT OTHER COMPREHENSIVE INCOME
TOTAL
HEDGING INSTRUMENTS
Nominal value
200 000
2 359 246
2 559 246
Carrying amount – assets
-
-
-
Carrying amount – liabilities
26 944
171 136
198 080
Balance sheet item in which hedging instrument is reported
Hedging instruments
Hedging instruments
Hedging instruments
Amount of changes in fair value of the hedging instrument in the reporting period used for estimating hedge inefficiency
(11 384)
(34 162)
(45 546)
Amount of hedge ineffectiveness recognized in the income statement ‘Result on fair value hedge accounting’
(179)
(668)
(847)
HEDGED ITEM
Carrying amount – assets
225 471
2 595 811
2 821 282
Accumulated amount of the adjustment to the fair value of the hedged item included in the carrying amount of the hedged item recognized in the balance sheet – assets
25 494
187 793
213 287
Balance sheet item in which hedged item is reported
Hedging instruments
Hedging instruments
Hedging instruments
Change in the value of hedged item used for estimating hedge inefficiency in the reporting period
11 205
33 496
44 701
Accumulated amount of the adjustment to the fair value of the hedged item remaining in the balance sheet for those hedged items for which adjustments of the balance sheet item for adjustment to fair value has been discontinued
-
-
-
Characteristics of cash flow hedge accounting
• cross-currency interest rate swaps (basis swap) to hedge exposure to interest rate risk related to volatility of market reference rates (WIBOR, EURIBOR, LIBOR CHF – replaced by SARON from 1 January od 2022 ) and exposure to currency risk. Portfolios of variable-rate loans denominated in CHF, variable-rate loans and leasing receivables denominated in EUR and deposits in PLN (which economically constitute a long-term variable-rate liability) are hedged items in this hedging relationship. CIRS transactions are decomposed into the part hedging the portfolio of assets and the part hedging the portfolio of liabilities,
• interest rate swaps (IRS) to hedge the exposure to interest rate risk related to the volatility of market reference rates (WIBOR), generated by portfolios of variable-rate loans denominated in PLN,
• currency swaps (FX-Swap) to hedge the exposure to the currency risk, generated by both, portfolios of loans denominated in EUR and portfolios of current and term deposits denominated in USD,
• interest rate swaps (IRS) to hedge the exposure to interest rate risk related to the volatility of market reference rates (WIBOR, EURIBOR), generated by portfolio of deposits denominated in PLN and EUR, which economically constitute a long-term, variable-rate liability.
In 2021, Group extended the existing relationship (CFH CIRS deposits/loans) with the current and future cash flows resulting from floating interest rate loans and lease receivables in EUR, as well as EUR/PLN basis swap transactions hedging currency and interest rate risk.
Approach of the Group to hedging interest rate risk through cash flow hedge accounting is the same as the approach applied in the fair value hedge accounting as described above, i.e. only the component of interest rate risk related exclusively to volatility of market reference rates (in the case of cash flows hedge: WIBOR, EURIBOR, LIBOR USD, LIBOR CHF) is hedged.
Approach of the Group to market risk management, including interest rate risk and currency risk, and details regarding the Bank’s interest rate risk and currency risk exposure are disclosed in Note 47.4.
As in the case of the fair value hedge, using derivative instruments to hedge the exposure to interest rate risk and currency risk generates counterparty credit risk of the derivative transactions, which is not compensated by the hedged item. The Group manages this risk in a way similar to fair value hedge.
The Group applies cash flow hedge accounting to a hedging relationship if it is justified to expect that the hedge will be highly effective in achieving offsetting cash flow changes attributable to the hedged risk in the future and if assessment of hedge effectiveness indicates high effectiveness in all financial reporting periods for which the hedge was designated. The assessment is conducted using hypothetical derivative method.
57
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
Bank Pekao S.A.
According to the approach of the Group, a hedging relationship is considered effective if all of the following criteria are met:
• correlation coefficient between market reference rate of hedged items and market reference rate of hedging instrument is high,
• forecasted interest flows generated by hedged items are not lower than forecasted interest flows generated by hedging instruments,
• in each reporting period, ratio of the fair value of the hedged item to the fair value of the hedging instrument is within 80% - 125% range or relation of inefficiency amount to nominal value of the hedged item is less or equal to the threshold specified in documentation of the hedging relationship, where inefficiency amount is calculated as the sum of cumulative fair value changes of the hedged item and the hedging instrument,
• in each reporting period, simulation of hedge ratio in assumed evolution of market rates scenarios is within 80% - 125% range.
In the case of hedging interest rate and currency risk of portfolios of loans and deposits, the manner of managing these portfolios was adopted allowing for regular inclusion of new transactions in the hedging relationship and exclusion of transactions from the hedging relationship as a result of repayment or classification to non-performing category. As a result, the exposure of these portfolios to interest rate and currency risk is constantly changing. Because of frequent changes to term structure of the portfolio, the Group dynamically assigns the hedged items and allows for matching of hedging instruments to these changes.
As regards cash flow hedge relationships, the main sources of ineffectiveness are:
• impact of counterparty and the Group’s own credit risk on the fair value of the hedging instruments, i.e. interest rate swap (IRS), cross-currency interest rate swap (basis swap), currency swap (FX swap) which is not reflected in the fair value of the hedged item,
• differences in repricing frequency of the hedging instruments and and hedged loans and deposits.
Financial data for cash flow hedge accounting
Nominal values and interest rates of hedging derivatives – cash flow hedge
CONTRACTUAL MATURITY
31.12.2021
Hedging relationship
Currency
UP TO 1 MONTH
BETWEEN 1 AND 3 MONTHS
BETWEEN 3 MONTHS TO 1 YEAR
BETWEEN 1 TO 5 YEARS
OVER 5 YEARS
TOTAL
Nominal value
-
-
1 000 000
16 703 000
6 120 000
23 823 000
CHF IRS loans
PLN
Average fixed interest rate (%)
-
-
1.7
1.6
2.0
1.7
Nominal value
-
-
90 000
113 000
231 000
434 000
CFH IRS deposits
PLN
Average fixed interest rate (%)
-
-
1.4
1.2
1.4
1.3
CHF/PLN
Nominal value
-
393 795
3 080 058
785 615
4 259 468
CFH CIRS deposits/ loans
EUR/PLN
Nominal value
266 870
285 308
666 465
2 399 282
-
3 617 925
Nominal value
8 464 322
4 725 897
5 432 066
-
-
18 622 285
EUR/PLN
Average fixed interest rate EUR/PLN
4.6
4.7
4.7
-
-
4.7
Nominal value
-
-
194 290
-
-
194 290
USD/PLN
Average fixed interest rate USD/PLN
-
-
3.7
-
-
3.7
Nominal value
422 974
47 813
416 973
-
-
887 760
CFH FX Swap deposits/loans
EUR/USD
Average fixed interest rate EUR/USD
1.1
1.2
1.1
-
-
1.1
Total nominal value
9 154 166
5 059 018
8 193 589
22 295 340
7 136 615
51 838 728
58
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
Bank Pekao S.A.
Nominal values and interest rates of hedging derivatives – cash flow hedge
CONTRACTUAL MATURITY
31.12.2020
Hedging relationship
Currency
UP TO 1 MONTH
BETWEEN 1 AND 3 MONTHS
BETWEEN 3 MONTHS TO 1 YEAR
BETWEEN 1 TO 5 YEARS
OVER 5 YEARS
TOTAL
Nominal value
-
-
-
12 337 000
3 355 000
15 692 000
CHF IRS loans
PLN
Average fixed interest rate (%)
-
-
-
1.9
0.8
1.7
Nominal value
-
-
85 000
168 000
266 000
519 000
PLN
Average fixed interest rate (%)
-
-
0.3
0.3
0.7
0.5
Nominal value
-
-
636 289
-
-
636 289
CFH IRS deposits
EUR
Average fixed interest rate (%)
-
-
-0.5
-
-
-0.5
CFH CIRS deposits/ loans
CHF/PLN
Nominal value
-
-
546 987
2 298 255
1 861 138
4 706 380
Nominal value
7 054 492
5 810 711
6 190 792
920 010
-
19 976 005
EUR/PLN
Average fixed interest rate EUR/PLN
4.5
4.5
4.6
4.6
-
4.5
Nominal value
644 600
-
263 008
-
-
907 608
USD/PLN
Average fixed interest rate USD/PLN
3.7
-
3.8
-
-
3.7
Nominal value
3 126 850
1 418 089
2 718 445
-
-
7 263 384
CFH FX Swap deposits/loans
EUR/USD
Average fixed interest rate EUR/USD
1.2
1.2
1.2
-
-
1.2
Total nominal value
10 825 942
7 228 800
10 440 521
15 723 265
5 482 138
49 700 666
Impact of cash of hedge on balance sheet and financial result
HEDGE IN RELATIONSHIP as at 31.12.2021
INTEREST RATE RISK
INTEREST RATE RISK / CURRENCY RISK
CFH IRS loans
CFH IRS deposits
CFH CIRS deposits/ loans
CFH FX Swap deposits/loans
Hedging instruments
Nominal value
23 823 000
434 000
7 877 393
19 704 335
Carrying amount – assets
-
8 480
-
63 402
Carrying amount – liabilities
1 403 511
5 797
690 409
30 771
Balance sheet item in which hedging instrument is reported
Hedging instruments
Hedging instruments
Hedging instruments
Hedging instruments
Change in the fair value of the hedging instrument used for estimating hedge ineffectiveness
(2 190 677)
42 884
5 302
(12 931)
Gains or losses resulting from hedging, recognized in other comprehensive income
-
-
-
-
Amount of hedge ineffectiveness recognized in the income statement in item ‘Result on financial assets and liabilities measured at fair value through profit or loss’
(13 400)
-
951
(1)
Amount transferred from the revaluation reserves due to cash flow hedge accounting to the income statement as a reclassification adjustment
-
-
-
-
Income statement item in which reclassification adjustment is reported
Result on financial assets and liabilities measured at fair value through profit or loss
Result on financial assets and liabilities measured at fair value through profit or loss
Result on financial assets and liabilities measured at fair value through profit or loss
Result on financial assets and liabilities measured at fair value through profit or loss
Hedged item
Amount of change in the fair value of a hypothetical derivative representing the hedged item used for estimating the hedge ineffectiveness in the reporting period
2 196 415
(42 884)
(11 394)
12 931
Revaluation reserve due to cash flow hedge accounting for relationships for which hedge accounting will be continued after the end of the reporting period
(1 508 454)
6 143
(35 543)
(12 218)
Revaluation reserve due to cash flow hedge accounting for relationships for which hedge accounting is no longer applied
-
-
-
-
59
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
Bank Pekao S.A.
Impact of cash of hedge on balance sheet and financial result
HEDGE IN RELATIONSHIP as at 31.12.2020
INTEREST RATE RISK
INTEREST RATE RISK / CURRENCY RISK
CFH IRS loans
CFH IRS deposits
CFH CIRS deposits/ loans
CFH FX Swap deposits/loans
Hedging instruments
Nominal value
15 692 000
1 155 289
4 706 380
28 146 997
Carrying amount – assets
766 961
6 765
-
5 337
Carrying amount – liabilities
2 085
47 829
561 308
263 657
Balance sheet item in which hedging instrument is reported
Hedging instruments
Hedging instruments
Hedging instruments
Hedging instruments
Change in the fair value of the hedging instrument used for estimating hedge ineffectiveness
475 586
(14 395)
14 303
(1 080)
Gains or losses resulting from hedging, recognized in other comprehensive income
-
-
-
-
Amount of hedge ineffectiveness recognized in the income statement in item ‘Result on financial assets and liabilities measured at fair value through profit or loss’
7 742
-
-
4
Amount transferred from the revaluation reserves due to cash flow hedge accounting to the income statement as a reclassification adjustment
-
-
-
-
Income statement item in which reclassification adjustment is reported
Result on financial assets and liabilities measured at fair value through profit or loss
Result on financial assets and liabilities measured at fair value through profit or loss
Result on financial assets and liabilities measured at fair value through profit or loss
Result on financial assets and liabilities measured at fair value through profit or loss
Hedged item
Amount of change in the fair value of a hypothetical derivative representing the hedged item used for estimating the hedge ineffectiveness in the reporting period
(466 966)
14 395
(16 776)
1 077
Revaluation reserve due to cash flow hedge accounting for relationships for which hedge accounting will be continued after the end of the reporting period
668 822
(36 727)
(39 329)
713
Revaluation reserve due to cash flow hedge accounting for relationships for which hedge accounting is no longer applied
-
-
-
-
Changes in the revaluation reserve from the valuation of hedging derivatives in cash flow hedge accounting
2021
2020
Opening balance
593 479
126 763
INTEREST RATE RISK
Gains or losses resulting from hedging, recognized in other comprehensive income during the reporting period
(2 134 406)
453 480
Part of the loss transferred to the income statement due to the lack of expectation of materialization of the hedged item
-
-
INTEREST RATE RISK/CURRENCY RISK
Gains or losses resulting from hedging, recognized in other comprehensive income during the reporting period
(9 145)
13 236
Part of the loss transferred to the income statement due to the lack of expectation of materialization of the hedged item
-
-
Closing balance
(1 550 072)
593 479
24. Loans and advances to customers
Significant accounting policies
Loans and advances to customers include amounts due from loans and advances granted, finance lease and factoring receivables.
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 5.4.
Accounting policies used for finance lease receivables are described in Note 12 and 41.
60
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
Bank Pekao S.A.
Financial data
Loans and advances to customers by product type
31.12.2021
AMORTISED COST
FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME
FAIR VALUE THROUGH PROFIT OR LOSS
TOTAL
Mortgage loans
79 541 140
130 688
12 035
79 683 863
Current accounts
11 325 952
-
-
11 325 952
Operating loans
12 757 967
-
13 720
12 771 687
Investment loans
24 258 478
115 141
14 979
24 388 598
Cash loans
13 473 595
-
-
13 473 595
Payment cards receivables
1 055 195
-
-
1 055 195
Financial leasing
8 648 948
-
-
8 648 948
Factoring
7 143 838
-
-
7 143 838
Other loans and advances
7 322 258
-
119 645
7 441 903
Reverse repo transactions
969 705
-
-
969 705
Cash in transit
138 524
-
-
138 524
Gross carrying amount
166 635 600
245 829
160 379
167 041 808
Impairment allowances (*) (**)
(7 813 052)
-
-
(7 813 052)
Carrying amount
158 822 548
245 829
160 379
159 228 756
(*) The impairment allowance for loans and advances to customers measured at fair value through other comprehensive income in the amount of PLN 3 877 thousand is included in the ‘Revaluation reserve’ item and does not reduce the carrying amount of the loan.
(**) Including the provision for legal risk regarding foreign currency mortgage loans in the amount of PLN 496 022 thousand.
Loans and advances to customers by product type
31.12.2020
AMORTISED COST
FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME
FAIR VALUE THROUGH PROFIT OR LOSS
TOTAL
Mortgage loans
76 198 229
754 285
15 902
76 968 416
Current accounts
8 829 284
-
-
8 829 284
Operating loans
9 839 559
443 778
19 285
10 302 622
Investment loans
21 801 214
276 992
20 339
22 098 545
Cash loans
13 618 453
-
-
13 618 453
Payment cards receivables
1 013 454
-
-
1 013 454
Financial leasing
7 815 053
-
-
7 815 053
Factoring
6 861 923
-
-
6 861 923
Other loans and advances
1 655 638
-
131 475
1 787 113
Reverse repo transactions
280 620
-
-
280 620
Cash in transit
149 325
-
-
149 325
Gross carrying amount
148 062 752
1 475 055
187 001
149 724 808
Impairment allowances (*) (**)
(7 237 011)
-
-
(7 237 011)
Carrying amount
140 825 741
1 475 055
187 001
142 487 797
(*) The impairment allowance for loans and advances to customers measured at fair value through other comprehensive income in the amount of PLN 26 571 thousand is included in the ‘Revaluation reserve’ item and does not reduce the carrying amount of the loan.
(**) Including the provision for legal risk regarding foreign currency mortgage loans in the amount of PLN 345 131 thousand.
61
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
Bank Pekao S.A.
Loans and advances to customers by customer type
31.12.2021
AMORTISED COST
GROSS CARRYING AMOUNT
IMPAIRMENT ALLOWANCES (**)
CARRYING AMOUNT
FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME (*)
FAIR VALUE THROUGH PROFIT OR LOSS
TOTAL
Corporate
81 388 235
(5 024 390)
76 363 845
245 829
24 169
76 633 843
Individuals
82 979 231
(2 666 726)
80 312 505
-
119 645
80 432 150
Budget entities
2 268 134
(121 936)
2 146 198
-
16 565
2 162 763
Loans and advances to customers
166 635 600
(7 813 052)
158 822 548
245 829
160 379
159 228 756
(*) The impairment allowance for loans and advances to customers measured at fair value through other comprehensive income in the amount of PLN 3 877 thousand is included in the ‘Revaluation reserve’ item and does not reduce the carrying amount of the loan.
(**) Including the provision for legal risk regarding foreign currency mortgage loans in the amount of PLN 496 022 thousand.
31.12.2020
AMORTISED COST
GROSS CARRYING AMOUNT
IMPAIRMENT ALLOWANCES (**)
CARRYING AMOUNT
FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME (*)
FAIR VALUE THROUGH PROFIT OR LOSS
TOTAL
Corporate
65 830 444
(4 414 974)
61 415 470
1 475 055
32 234
62 922 759
Individuals
79 602 379
(2 700 007)
76 902 372
-
131 474
77 033 846
Budget entities
2 629 929
(122 030)
2 507 899
-
23 293
2 531 192
Loans and advances to customers
148 062 752
(7 237 011)
140 825 741
1 475 055
187 001
142 487 797
(*) The impairment allowance for loans and advances to customers measured at fair value through other comprehensive income in the amount of PLN 26 571 thousand is included in the ‘Revaluation reserve’ item and does not reduce the carrying amount of the loan.
(**) Including the provision for legal risk regarding foreign currency mortgage loans in the amount of PLN 345 131 thousand.
Loans and advances to customers by contractual maturity
31.12.2021
AMORTISED COST
FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME
FAIR VALUE THROUGH PROFIT OR LOSS
TOTAL
Loans and advances to customers, including:
up to 1 month
19 072 064
-
2 053
19 074 117
between 1 and 3 months
5 808 056
5 848
5 970
5 819 874
between 3 months and 1 year
18 984 612
146 904
20 128
19 151 644
between 1 and 5 years
54 772 982
93 077
99 275
54 965 334
over 5 years
61 560 492
-
29 706
61 590 198
past due
6 437 394
-
3 247
6 440 641
Gross carrying amount
166 635 600
245 829
160 379
167 041 808
Impairment allowances (*) (**)
(7 813 052)
-
-
(7 813 052)
Carrying amount
158 822 548
245 829
160 379
159 228 756
(*) The impairment allowance for loans and advances to customers measured at fair value through through other comprehensive income in the amount of PLN 3 877 thousand is included in the ‘Revaluation reserve’ item and does not reduce the carrying amount of the loan.
(**) Including the provision for legal risk regarding foreign currency mortgage loans in the amount of PLN 496 022 thousand.
62
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
Bank Pekao S.A.
Loans and advances to customers by contractual maturity
31.12.2020
AMORTISED COST
FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME
FAIR VALUE THROUGH PROFIT OR LOSS
TOTAL
Loans and advances to customers, including:
up to 1 month
15 013 487
-
2 155
15 015 642
between 1 and 3 months
5 385 693
-
6 254
5 391 947
between 3 months and 1 year
15 519 129
51 305
21 812
15 592 246
between 1 and 5 years
50 659 353
238 332
119 240
51 016 925
over 5 years
56 984 423
1 185 418
33 778
58 203 619
past due
4 500 667
-
3 762
4 504 429
Gross carrying amount
148 062 752
1 475 055
187 001
149 724 808
Impairment allowances (*) (**)
(7 237 011)
-
-
(7 237 011)
Carrying amount
140 825 741
1 475 055
187 001
142 487 797
(*) The impairment allowance for loans and advances to customers measured at fair value through through other comprehensive income in the amount of PLN 26 571 thousand is included in the ‘Revaluation reserve’ item and does not reduce the carrying amount of the loan.
(**) Including the provision for legal risk regarding foreign currency mortgage loans in the amount of PLN 345 131 thousand.
Loans and advances to customers by currency
31.12.2021
AMORTISED COST
FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME
FAIR VALUE THROUGH PROFIT OR LOSS
TOTAL
PLN
130 973 679
-
160 379
131 134 058
CHF
2 542 682
-
-
2 542 682
EUR
23 654 916
245 829
-
23 900 745
USD
1 110 942
-
-
1 110 942
Other currencies
540 329
-
-
540 329
Total
158 822 548
245 829
160 379
159 228 756
31.12.2020
AMORTISED COST
FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME
FAIR VALUE THROUGH PROFIT OR LOSS
TOTAL
PLN
114 511 329
150 819
187 001
114 849 149
CHF
2 857 139
-
-
2 857 139
EUR
21 389 027
1 324 236
-
22 713 263
USD
1 532 043
-
-
1 532 043
Other currencies
536 203
-
-
536 203
Total
140 825 741
1 475 055
187 001
142 487 797
Receivables from finance leases
As a lessor, the Group concludes contracts classified as finance leases, the main subject of which are means of transport, machinery and technical equipment. The main lessor in the Group is Pekao Leasing Sp. z o.o.
In 2021, the Group recognized a gain on sale of the right-of-use assets in the amount of PLN 2 071 thousand (in 2020 a gain amounted to PLN 1 251 thousand PLN), presented in ‘Other operating income’.
In 2021, the Group recognized interest income on finance lease receivables in the amount of PLN 239 749 thousand (in 2020 – PLN 208 028 thousand).
63
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
Bank Pekao S.A.
The tables below present the maturity analysis of lease receivables, presenting the undiscounted lease payments to be received after the balance sheet date.
FINANCE LEASES UNDER IFRS 16
31.12.2021
31.12.2020
Up to 1 year
3 052 540
2 810 781
Between 1 and 2 years
2 271 359
1 996 667
Between 2 and 3 years
1 677 441
1 417 395
Between 3 and 4 years
1 022 399
852 457
Between 4 and 5 years
505 941
465 047
Over 5 years
756 650
680 863
Total undiscounted lease payments
9 286 330
8 223 210
Unearned interest income
(637 382)
(408 157)
Net investment in the lease
8 648 948
7 815 053
Impairment allowances
(175 703)
(137 741)
Carrying amount
8 473 245
7 677 312
25. Securities
Significant accounting policies
Securities 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 5.4.
Financial data
31.12.2021
31.12.2020
Debt securities held for trading
499 727
857 305
Debt securities measured at amortised cost
44 276 101
27 261 551
Debt securities measured at fair value through other comprehensive income
21 954 170
42 449 583
Equity instruments held for trading
1 061
5 393
Equity instruments designated for measurement at fair value through other comprehensive income
418 012
331 690
Equity instruments mandatorily measured at fair value through profit or loss
171 496
160 486
Total
67 320 567
71 066 008
Debt securities held for trading
31.12.2021
31.12.2020
Debt securities issued by central governments
212 941
521 014
T - bills
-
100
T- bonds
212 941
520 914
Debt securities issued by banks
94 264
135 299
Debt securities issued by business entities
192 205
200 992
Debt securities issued by local governments
317
-
Total
499 727
857 305
Debt securities measured at amortised cost
31.12.2021
31.12.2020
Debt securities issued by State Treasury
23 834 022
19 759 086
T-bills
-
808 649
T-bonds
23 834 022
18 950 437
Debt securities issued by central banks
20 893
74 678
Debt securities issued by banks
8 337 709
2 229 516
Debt securities issued by business entities
8 793 876
2 037 279
Debt securities issued by local governments
3 289 601
3 160 992
Total
44 276 101
27 261 551
including impairment of assets
(132 754)
(73 566)
64
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
Bank Pekao S.A.
Debt securities measured at fair value through other comprehensive income
31.12.2021
31.12.2020
Debt securities issued by State Treasury
13 126 929
21 090 221
T-bills
-
1 737 500
T-bonds
12 876 749
19 102 741
Other
250 180
249 980
Debt securities issued by central banks
-
1 000 000
Debt securities issued by banks
3 409 191
8 942 332
Debt securities issued by business entities
3 411 382
8 787 943
Debt securities issued by local governments
2 006 668
2 629 087
Total
21 954 170
42 449 583
including impairment of assets (*)
(48 628)
(63 143)
(*) The impairment allowance for debt securities measured at fair value through other comprehensive income is included in the ‘Revaluation reserve’ item and does not reduce the carrying amount.
Equity instruments designated at fair value through other comprehensive income
31.12.2021
31.12.2020
Shares
1 061
5 393
Total
1 061
5 393
Equity instruments designated for measurement at fair value through other comprehensive income
The portfolio of equity instruments designated for measurement at fair value through other comprehensive income includes the following investments.
FAIR VALUE AS AT 31.12.2021
DIVIDENDS RECOGNIZED IN 2021
Entity X from construction sector
42 068
-
Entity Z from construction sector
14 366
-
Entity Q from construction sector
15 309
-
Entity providing credit information
323 277
24 100
Infrastructure entity of Polish banking sector
16 085
1 477
Intermediary in transactions among financial entities
6 907
-
Total
418 012
25 577
FAIR VALUE AS AT 31.12.2020
DIVIDENDS RECOGNIZED IN 2020
Entity X from construction sector
50 701
-
Entity Y from construction sector
2 862
-
Entity Z from construction sector
15 162
-
Entity providing credit information
239 618
24 104
Infrastructure entity of Polish banking sector
18 977
1 382
Intermediary in transactions among financial entities
4 370
-
Total
331 690
25 486
In 2021, as a result of the decisions made, the Group sold the following equity instruments designated for measurement at fair value through other comprehensive income. The result on the sale of these investments was transferred to the item ‘Other reserve capitals’
2021
FAIR VALUE AT THE DERECOGNITON DATE
NET RESULT
FROM SALE
Entity X from construction sector
42 068
1 298
Entity Y from construction sector
-
-
Intermediary in transactions among financial entities
-
-
Total
42 068
1 298
65
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
Bank Pekao S.A.
Equity instruments mandatorily measured at fair value through profit or loss
31.12.2021
31.12.2020
Shares
171 496
160 486
Total
171 496
160 486
Debt securities according to contractual maturity
31.12.2021
31.12.2020
Debt securities, including:
up to 1 month
217 567
2 249 593
between 1 and 3 months
2 888 349
3 632 303
between 3 months and 1 year
9 429 269
9 487 547
between 1 and 5 years
36 645 344
35 101 062
over 5 years
17 549 469
20 097 934
Total
66 729 998
70 568 439
Debt securities by currency
31.12.2021
31.12.2020
PLN
57 388 961
62 170 950
EUR
1 890 924
1 808 645
USD
7 450 113
6 588 844
Total
66 729 998
70 568 439
26. Assets pledged as security for liabilities
Significant accounting policies
In the financial statement, the Group presents separately assets securing liabilities, where the recipient has the right to sell these assets or exchange them for another security
Classification of assets to individual measurement categories is made in accordance with the principles of determining the business model and assessing the characteristics of the contractual cash flows, referred to in the Note 5.4
Financial data
TYPE OF TRANSACTION AS AT 31.12.2021
SECURITY
CARRYING VALUE OF ASSETS PLEDGED AS SECURITY FOR LIABILITIES)
NOMINAL VALUE OF ASSETS PLEDGED AS SECURITY FOR LIABILITIES
VALUE OF LIABILITIES SUBJECT TO SECURITY
Repo transactions
Bonds held for trading (measured at fair value through profit or loss)
48 474
49 104
48 590
Repo transactions
Bonds measured at fair value through other comprehensive income
797 623
800 000
799 631
Total
846 097
849 104
848 221
TYPE OF TRANSACTION AS AT 31.12.2020
SECURITY
CARRYING VALUE OF ASSETS PLEDGED AS SECURITY FOR LIABILITIES
NOMINAL VALUE OF ASSETS PLEDGED AS SECURITY FOR LIABILITIES
VALUE OF LIABILITIES SUBJECT TO SECURITY
Repo transactions
Bonds held for trading (measured at fair value through profit or loss)
455 011
441 155
454 765
Repo transactions
Bonds measured at fair value through other comprehensive income
287 917
258 000
287 726
Total
742 928
699 155
742 491
The collateral is established in line with the applicable money market standards for this type of transaction.
66
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
Bank Pekao S.A.
Apart from assets pledged as security for liabilities presented separately in the financial statement, the Group also identifies liabilities do not meet the criterion of separate presentation in accordance with IFRS 9.
TYPE OF TRANSACTION AS AT 31.12.2021
SECURITY
CARRYING VALUE OF ASSETS PLEDGED AS SECURITY FOR LIABILITIES
NOMINAL VALUE OF ASSETS PLEDGED AS SECURITY FOR LIABILITIES
VALUE OF LIABILITIES SUBJECT TO SECURITY
Coverage of Fund for protection of guaranteed assets to the benefit of the Bank Guarantee Fund
bonds
781 770
740 000
-
Coverage of payment commitments to the guarantee fund for the Bank Guarantee Fund
bonds
185 172
180 000
156 353
Coverage of payment commitments to the resolution fund for the Bank Guarantee Fund
bonds
389 905
373 400
309 539
Lombard and technical loan
bonds
5 480 924
5 800 164
-
Other loans
bonds
300 272
297 700
276 327
Debt securities issued
loans, bonds
1 402 335
1 405 857
1 086 532
Coverage of the Guarantee Fund for the Settlement of Stock Exchange Transactions to Central Securities Depository (KDPW)
bonds, cash deposits
28 013
28 013
-
Derivatives
bonds
187 753
182 509
152 687
Uncommitted Collateralized Intraday Technical Overdraft Facility Agreement
bonds
39 029
32 196
-
TYPE OF TRANSACTION AS AT 31.12.2020
SECURITY
CARRYING VALUE OF ASSETS PLEDGED AS SECURITY FOR LIABILITIES
NOMINAL VALUE OF ASSETS PLEDGED AS SECURITY FOR LIABILITIES
VALUE OF LIABILITIES SUBJECT TO SECURITY
Coverage of Fund for protection of guaranteed assets to the benefit of the Bank Guarantee Fund
bonds
704 821
660 000
-
Coverage of payment commitments to the guarantee fund for the Bank Guarantee Fund
bonds
145 331
140 000
130 265
Coverage of payment commitments to the resolution fund for the Bank Guarantee Fund
bonds
306 999
292 800
267 598
Lombard and technical loan
bonds
5 852 305
5 628 888
-
Other loans
bonds
361 456
349 400
302 880
Debt securities issued
loans, bonds
1 837 586
1 846 458
1 319 273
Coverage of the Guarantee Fund for the Settlement of Stock Exchange Transactions to Central Securities Depository (KDPW)
bonds, cash deposits
43 034
43 034
-
Derivatives
bonds
34 389
33 128
11 252
Uncommitted Collateralized Intraday Technical Overdraft Facility Agreement
bonds
42 345
32 304
-
The establishment of securities is a consequence of:
• in the case of items relating to Bank Guarantee Fund – binding provisions of the Law on Banking Guaranty Fund BFG,
• in the case of item relating to ‘Lombard and technical loan’ – policy and standards, applied by the National Bank of Poland NBP,
• in case of items relating to ‘Other loans’ and ‘Derivatives’ – terms and conditions of the agreement, entered between the Bank and its clients,
• in case of item relating to Central Securities Depository KDPW – with the status of the clearing member for brokerage transactions.
67
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
Bank Pekao S.A.
27. Assets and liabilities held for sale
Significant accounting policies
Non-current assets held for sale and discontinued operations
Non-current assets held for sale include assets, the carrying amount of which is to be recovered by way of resale and not from their continued use. The only assets classified as held for sale are those available for immediate sale in their present condition, and the sale of which is highly probable, i.e. when the decision has been made to sell a given asset, an active program to identify a buyer has been launched and the divestment plan is completed. Moreover, such assets are offered for sale at a price which approximates its present fair value, and it is expected that the sale will be recognized as completed within one year from the date of such asset is reclassified into this category.
Non-current assets held for sale are recognized at the carrying amount or at fair value reduced by the cost of such assets, whichever is lower. Assets classified in this category are not subject to depreciation.
A discontinued operation is a component of the Group’s business which constitutes a separate line of business or a geographical area of operations, which was sold, made available for sale or to be disposed, or is a subsidiary acquired exclusively with a view to re-sale. Classification as a discontinued operation occurs on disposal or when the operation meets the criteria to be classified as held for sale. When an operation is classified as held for sale, the comparative figures in the income statement are represented as if the operation had been discontinued from the beginning of the comparative period.
As at 31 December 2021 non-current assets classified as held for sale are identified non-current assets meeting requirements of IFRS 5 ‘Non-current Assets Held for Sale and Discontinued Operations’:
• real estate,
• other property, plant and equipment,
Financial data
31.12.2021
31.12.2020
ASSETS HELD FOR SALE
Property, plant and equipment
12 744
14 619
Assets of Dom Inwestycyjny Xelion Sp. z o.o.
-
39 504
Total
12 744
54 123
LIABILITITES RELATED TO ASSETS HELD FOR SALE
Liabilities of Dom Inwestycyjny Xelion Sp. z o.o.
-
82 643
Total
-
82 643
68
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
Bank Pekao S.A.
The changes in the balance of assets held for sale
2021
2020
ASSETS HELD FOR SALE
Opening balance
54 123
17 175
Increases including:
552
39 504
transfer from property, plant and equipment
-
-
transfer from investment properties
-
-
increases due to the acquisition of Idea Bank S.A.
519
-
assets of Dom Inwestycyjny Xelion Sp
-
39 504
other
33
-
Decreases including:
(41 931)
(2 556)
transfer to property, plant and equipment
-
-
disposal
(2 353)
-
assets of Dom Inwestycyjny Xelion Sp. z o.o.
(39 504)
-
other
(74)
(2 556)
Closing balance
12 744
54 123
LIABILITITES RELATED TO ASSETS HELD FOR SALE
Opening balance
82 643
-
Increases including:
-
82 643
liabilities of Dom Inwestycyjny Xelion Sp. z o.o.
-
82 643
Decreases including:
(82 643)
-
liabilities of Dom Inwestycyjny Xelion Sp. z o.o.
(82 643)
-
Closing balance
-
82 643
Sales settlement of net assets of Dom Inwestycyjny Xelion Sp. z o.o.
2021
Sales proceeds
18 579
Net carrying amount of disposed assets
(15 491)
Gross result on sales
3 088
Income tax
(2 596)
Net result on sales
492
The effect of disposal of other assets held for sale
2021
2020
Sales revenues
4 460
-
Net carrying amount of disposed assets(net) (including sale costs)
(2 353)
-
Profit/loss on sale before income tax
2 107
-
28. Investments in associates
Significant accounting policies
The accounting policies are described in Note 5.2.
Financial data
The table below contains information about the associate that is significant to the Group
PERCENTAGE OF THE GROUP’S OWNERSHIP RIGHTS IN SHARE CAPITAL/VOTING
NAME OF ENTITY
LOCATION
31.12.2021
METHOD VALUATIONS
TYPE OF ASSOCIATION
Krajowy Integrator Płatności S.A. (*)
Polska
38.33
Equity method
A company providing services as a domestic payment institution, operator of the Tpay.com system
(*)On 31 March, 2021, the Bank acquired 210 641 shares in Krajowy Integrator Płatności S.A. Details of the transaction are described in Note 2.
69
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
Bank Pekao S.A.
Condensed financial information of the associate of Krajowego Integratora Płatności S.A.
31.12.2021
Assets
77 518
Property, plant and equipment
19 020
Total assets
96 538
Short term liabilities
73 395
Long term liabilities
-
Total liabilities
73 395
Net assets
23 143
Condensed financial information of the associate of Krajowy Integrator Płatności S.A.
2021
Income
52 964
Net profit (loss) from continuing operations
7 448
Other comprehensive income
-
Total comprehensive income
7 448
Reconciliation of condensed financial information to the carrying amount of shares in the associate Krajowy Integrator Płatności S.A.
2021
Group's share in net assets at the beginning of the period
-
Initial valuation
42 194
Group's share in the net profit (loss) for the period
1 841
Group's share of other comprehensive income
-
Dividends received from an associate
-
Group's share of net assets at the end of the period
44 035
Shares carrying amount
44 035
29. Intangible assets
Significant accounting policies
Goodwill
Goodwill is defined as a surplus of the purchasing price over the fair value of acquired assets, assumed liabilities and contingent liabilities of the acquired subsidiary, associate or a unit under joint control. Goodwill at initial recognition is carried at purchase price reduced by any accumulated impairment losses. Impairment is determined by estimating the recoverable value of the cash generating unit, to which given goodwill pertains.
If the recoverable value of the cash generating unit is lower than the carrying amount an impairment charge is made. Impairment identified in the course of such tests is not reversed.
Goodwill on acquisition of subsidiaries is presented in intangible assets and goodwill on acquisition of associates is presented under the caption ‘Investments in associates’
Other intangible assets
Intangible assets are assets controlled by the Group which do not have a physical form which are identifiable and represent future economic benefits for the Group directly attributable to such assets.
These assets include:
• computer software licenses,
• copyrights,
• costs of completed development works.
70
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
Bank Pekao S.A.
Intangible assets are initially carried at purchase price. Subsequently intangible assets are stated at cost less accumulated amortization and accumulated impairment losses.
Intangible assets with a definite useful life are amortized over their estimated useful life. Intangible assets with indefinite useful life are not amortized.
All intangible assets are reviewed on a periodical basis to verify if any significant impairment triggers occurred, which would require performing a test for impairment and a potential impairment charge.
As far as intangible assets with indefinite useful life and those still not put into service are concerned, impairment test is performed on a yearly basis and additionally when impairment triggers are identified.
Financial data
31.12.2021
31.12.2020
Intangible assets, including:
1 551 830
1 260 449
research and development expenditures
10 624
10 071
licenses and patents
913 080
760 462
other
130 842
144 155
assets under construction
497 284
345 761
Goodwill (*)
748 552
747 648
Total
2 300 382
2 008 097
The item ‘Goodwill’ contains:
• goodwill recognized upon acquisition of Pekao Investment Management S.A. and indirectly Pekao TFI S.A. by Bank Pekao S.A. It is determined the smallest identifiable cash-generating units (‘CGU’) relating mainly to the Bank’s assets management , to which the goodwill has been allocated in the amount of PLN 692 128 thousand,
• goodwill that was transferred to Bank Pekao S.A. on integration with Bank BPH S.A. It represents the goodwill recognized upon acquisition of Pierwszy Komercyjny Bank S.A. in Lublin (‘PKBL’) by Bank BPH S.A. and relates to those branches of the PKBL which were transferred to Bank Pekao S.A. as a result of integration with Bank BPH S.A. It is determined the smallest identifiable cash-generating units (‘CGU’) relating to the Bank’s retail segment, to which the goodwill has been allocated in the amount of PLN 51 675 thousand,
• gooodwill recognized upon acquisition of Pekao Leasing i Finanse S.A. (formerly BPH Leasing S.A.) by Pekao Leasing Holding S.A. (formerly BPH PBK Leasing S.A.). It is determined the smallest identifiable cash-generating units (‘CGU’) relating to the Bank’s leasing business segment, to which the goodwill has been allocated in the amount of PLN 2 885 thousand,
• goodwill recognized upon acquisition of Spółdzielcza Kasa Oszczędnościowo – Kredytowa im. Mikołaja Kopernika by Bank Pekao S.A. It is determined the smallest identifiable cash-generating units (‘CGU’) relating to the Bank’s retail segment, to which the goodwill has been allocated in the amount of PLN 960 thousand,
• goodwill resulting from the acquisition of Idea Bank S.A. by Bank Pekao S.A. The smallest identifiable cash-generating units relating to the Bank’s retail segment were determined, to which goodwill was assigned in the amount of PLN 904 thousand (details of the purchase settlement are described in Note 3).
In respect to the goodwill, the impairment tests are performed annually, irrespective of whether there is any indication that it may be impaired.
The impairment tests are performed by comparing the carrying amount of the CGU, including the goodwill, with the recoverable amount of the CGU. The recoverable amount is estimated on the basis of value in use of the CGU. The value in use is the present, estimated value of the future cash flows for the period of 5 years, taking into account the residual value of the CGU. The residual value of the CGU is calculated based on an extrapolation of cash flows projections beyond the forecast period using the growth rate presented in the table below. The forecasts of the future cash flows are based on the assumptions included the budget for 2022 and financial plan for 2023-2026. To discount the future cash flows, it is applied the discount rates, which includes the risk-free rate and the risk premium.
The growth rates and discount rates used in the impairment tests for goodwill are as follows.
31.12.2021
31.12.2020
GROWTH RATE
DISCOUNT RATE
GROWTH RATE
DISCOUNT RATE
Pekao Investment Management S.A. (including Pekao TFI S.A.)
2.50%
9.20%
2.50%
7.27%
PKBL
2.50%
9.16%
2.50%
7.96%
The impairment tests performed as at 31 December 2021 and as at 31 December 2020 showed the surplus of the recoverable amount over the carrying amount of the CGU, and therefore no CGU impairments were recognized.
71
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
Bank Pekao S.A.
Sensitivity analysis
Estimating the recoverable amount is a complex process and requires the use of subjective assumptions. Relatively small changes in key assumptions may have a significant effect on the measurement of the recoverable amount.
The table below presents the surplus of recoverable amounts over the carrying amounts under the current assumptions and the maximum discount rates at which the carrying amounts and recoverable amounts of each CGU are equalized.
31.12.2021
31.12.2020
SURPLUS
FINAL VALUE OF DISCOUNT RATE
SURPLUS
FINAL VALUE OF DISCOUNT RATE
Pekao Investment Management S.A. (w tym Pekao TFI S.A.)
650 020
14.67%
925 041
12.76%
PKBL
6 545
9.39%
35 369
8.88%
Changes in ‘Intangibles assets’ in the course of the reporting period
2021
RESEARCH AND DEVELOPMENT COSTS
LICENSES AND PATENTS
OTHER
ASSETS UNDER CONSTRUCTION
GOODWILL
TOTAL
GROSS VALUE
Opening balance
83 825
3 342 381
211 947
345 761
747 648
4 731 562
Increases including:
3 137
468 680
267
566 323
904
1 039 311
acquisitions
-
8 639
-
505 811
-
514 450
transfer from investments outlays
3 137
405 702
184
-
-
409 023
increases due to the acquisition of Idea Bank S.A
-
40 435
-
-
904
41 339
the work carried out on their own
-
-
-
56 262
-
56 262
other
-
13 904
83
4 250
-
18 237
Decreases, including:
(757)
(4 461)
(7)
(414 800)
-
(420 025)
liquidation and sale
-
(354)
(7)
-
-
(361)
transfer to non-current assets held for sale
-
(4 107)
-
(198)
-
(4 305)
transfer from investments outlays
-
-
-
(409 023)
-
(409 023)
other
(757)
-
-
(5 579)
-
(6 336)
Closing balance
86 205
3 806 600
212 207
497 284
748 552
5 350 848
ACCUMULATED AMORTIZATION
Opening balance
73 754
2 581 919
67 792
-
-
2 723 465
Amortization
1 879
311 861
13 598
-
-
327 338
Liquidation and sale
-
(354)
(7)
-
-
(361)
Transfer to non-current assets held for sale
-
(3 020)
-
-
-
(3 020)
Other
(52)
3 114
(18)
-
-
3 044
Closing balance
75 581
2 893 520
81 365
-
-
3 050 466
IMPAIRMENT
Opening balance
-
-
-
-
-
-
Increases
-
-
-
-
-
-
Decreases
-
-
-
-
-
-
Closing balance
-
-
-
-
-
-
NET VALUE
Opening balance
10 071
760 462
144 155
345 761
747 648
2 008 097
Closing balance
10 624
913 080
130 842
497 284
748 552
2 300 382
72
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
Bank Pekao S.A.
Changes in ‘Intangibles assets’ in the course of the reporting period
2020
RESEARCH AND DEVELOPMENT COSTS
LICENSES AND PATENTS
OTHER
ASSETS UNDER CONSTRUCTION
GOODWILL
TOTAL
GROSS VALUE
Opening balance
77 649
2 836 389
211 347
241 058
747 648
4 114 091
Increases including:
6 176
527 850
1 099
571 182
-
1 106 307
acquisitions
-
8 468
-
562 934
-
571 402
transfer from investments outlays
1 647
462 873
1 030
-
-
465 550
the work carried out on their own
2 966
41 282
-
8 248
-
52 496
other
1 563
15 227
69
-
-
16 859
Decreases, including:
-
(21 858)
(499)
(466 479)
-
(488 836)
liquidation and sale
-
(21 858)
(482)
(599)
-
(22 939)
transfer from investments outlays
-
-
-
(465 550)
-
(465 550)
other
-
-
(17)
(330)
-
(347)
Closing balance
83 825
3 342 381
211 947
345 761
747 648
4 731 562
ACCUMULATED AMORTIZATION
Opening balance
72 934
2 369 242
54 384
-
-
2 496 560
Amortization
820
216 396
13 870
-
-
231 086
Liquidation and sale
-
(21 459)
(482)
-
-
(21 941)
Other
-
17 740
20
-
-
17 760
Closing balance
73 754
2 581 919
67 792
-
-
2 723 465
IMPAIRMENT
Opening balance
-
-
-
-
-
-
Increases
-
-
-
-
-
-
Decreases
-
-
-
-
-
-
Closing balance
-
-
-
-
-
-
NET VALUE
Opening balance
4 715
467 147
156 963
241 058
747 648
1 617 531
Closing balance
10 071
760 462
144 155
345 761
747 648
2 008 097
In the period from 1 January to 31 December 2021 the Group acquired intangible assets in the amount of PLN 514 450 thousand (in 2020 – PLN 571 402 thousand).
In the period from 1 January to 31 December 2021 and in 2020 there have been no intangible assets whose title is restricted and pledged as security for liabilities.
Contractual commitments
As at 31 December 2021 the contractual commitments for the acquisition of intangible assets amounted to PLN 229 513 thousand, whereas as at 31 December 2020 - PLN -116 448 thousand.
30. Property, plant and equipment
Significant accounting policies
Property, plant and equipment are defined as controlled non-current assets and assets under construction. Non-current assets include certain tangible assets with an expected useful life longer than one year, which are maintained for the purpose of own use or to be leased to other entities.
Property, plant and equipment are recognized at historical cost less accumulated depreciation and accumulated impairment write downs. Historical cost consists of purchase price or development cost and costs directly related to the purchase of a given asset.
Each component of property, plant and equipment, the purchase price or production cost of which is significant compared to the purchase price or production cost of the entire item is a subject to separate depreciation. The Group separates the initial value of property, plant and equipment into its significant parts.
73
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
Bank Pekao S.A.
Subsequent expenditures relating to property plant and equipment are capitalized only when it is probable that such expenditures will result in future economic benefits to the Group, and the cost of such expenses can be reliably measured.
Service and maintenance costs of property, plant and equipment are expensed in the reporting period in which they have been incurred.
Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset form part of the cost of that asset. Other borrowing costs are recognized as an expense.
Financial data
31.12.20211
31.12.2020
Non-current assets, including:
1 720 780
1 791 346
land and buildings
1 099 493
1 224 142
machinery and equipment
387 813
384 718
transport vehicles
122 782
73 407
other
110 692
109 079
Non-current assets under construction and prepayments
109 451
128 101
Total
1 830 231
1 919 447
Changes in ‘Property, plant and equipment’ in the course of the reporting period
2021
LANDS AND BUILDINGS
MACHINERY AND EQUIPMENT
MEANS OF TRANSPORTATION
OTHER
NON-CURRENT ASSETS UNDER CONSTRUCTION
TOTAL
GROSS VALUE
Opening balance
2 948 720
1 555 430
155 341
490 811
128 101
5 278 403
Increases, including:
107 556
139 732
87 507
24 420
129 167
488 382
acquisitions
12 646
6 083
82 570
235
129 103
230 637
transfer from non-current assets under construction
19 039
100 820
2
20 185
-
140 046
increases due to the acquisition of Idea Bank S.A
-
22 880
2 656
3 369
64
28 969
other
75 871
9 949
2 279
631
-
88 730
Decreases, including:
(215 932)
(164 561)
(64 614)
(48 568)
(147 817)
(641 492)
liquidation and sale
(72 439)
(163 459)
(63 807)
(48 227)
-
(347 932)
transfer to non-current assets held for sale
(7 209)
(1 061)
(210)
(341)
-
(8 821)
transfer from non-current assets under construction
-
-
-
-
(140 046)
(140 046)
other
(136 284)
(41)
(597)
-
(7 771)
(144 693)
Closing balance
2 840 344
1 530 601
178 234
466 663
109 451
5 125 293
ACCUMULATED DEPRECIATION
Opening balance
1 718 162
1 168 980
81 171
381 647
-
3 349 960
Increases, including:
179 021
109 876
22 310
21 044
-
332 251
depreciation
175 433
109 876
14 527
21 044
-
320 880
other
3 588
-
7 783
-
-
11 371
Decreases, including:
(180 221)
(137 405)
(50 525)
(46 747)
-
(414 898)
liquidation and sale
(68 268)
(136 567)
(50 187)
(46 293)
-
(301 315)
transfer to non-current assets held for sale
(5 248)
(838)
(104)
(278)
-
(6 468)
other
(106 705)
-
(234)
(176)
-
(107 115)
Closing balance
1 716 962
1 141 451
52 956
355 944
-
3 267 313
IMPAIRMENT
Opening balance
6 416
1 732
763
85
-
8 996
Increases
18 438
-
1 733
-
-
20 171
Decreases
(965)
(395)
-
(58)
-
(1 418)
Closing balance
23 889
1 337
2 496
27
-
27 749
NET VALUE
Opening balance
1 224 142
384 718
73 407
109 079
128 101
1 919 447
Closing balance
1 099 493
387 813
122 782
110 692
109 451
1 830 231
74
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
Bank Pekao S.A.
Changes in ‘Property, plant and equipment’ in the course of the reporting period
2020
LANDS AND BUILDINGS
MACHINERY AND EQUIPMENT
MEANS OF TRANSPORTATION
OTHER
NON-CURRENT ASSETS UNDER CONSTRUCTION
TOTAL
GROSS VALUE
Opening balance
2 788 773
1 459 397
134 813
465 674
176 952
5 025 609
Increases, including:
176 264
287 113
49 747
39 599
233 319
786 042
acquisitions
18 236
75 959
24 768
359
233 319
352 641
transfer from non-current assets under construction
51 843
190 374
1 629
38 324
-
282 170
other
106 185
20 780
23 350
916
-
151 231
Decreases, including:
(16 317)
(191 080)
(29 219)
(14 462)
(282 170)
(533 248)
liquidation and sale
(13 335)
(110 750)
(6 951)
(10 788)
-
(141 824)
transfer to non-current assets held for sale
-
-
-
-
-
-
transfer from non-current assets under construction
-
-
-
-
(282 170)
(282 170)
other
(2 982)
(80 330)
(22 268)
(3 674)
-
(109 254)
Closing balance
2 948 720
1 555 430
155 341
490 811
128 101
5 278 403
ACCUMULATED DEPRECIATION
Opening balance
1 493 849
1 168 869
61 285
372 663
-
3 096 666
Increases, including:
232 477
130 944
44 144
23 097
-
430 662
depreciation
161 103
114 953
13 813
17 996
-
307 865
other
71 374
15 991
30 331
5 101
-
122 797
Decreases, including:
(8 164)
(130 833)
(24 258)
(14 113)
-
(177 368)
liquidation and sale
(8 023)
(104 441)
(2 354)
(10 493)
-
(125 311)
transfer to non-current assets held for sale
-
-
-
-
-
-
other
(141)
(26 392)
(21 904)
(3 620)
-
(52 057)
Closing balance
1 718 162
1 168 980
81 171
381 647
-
3 349 960
IMPAIRMENT
Opening balance
6 086
2 520
-
85
-
8 691
Increases
2 957
-
763
-
-
3 720
Decreases
(2 627 )
(788)
-
-
-
(3 415)
Closing balance
6 416
1 732
763
85
-
8 996
NET VALUE
Opening balance
1 288 838
288 008
73 528
92 926
176 952
1 920 252
Closing balance
1 224 142
384 718
73 407
109 079
128 101
1 919 447
In the period from 1 January to 31 December 2021 the Group acquired ‘Property, plant and equipment’ amounted PLN 230 637 thousand (in 2020 - PLN 352 641 thousand), while the value of property, plant and equipment sold amounted to PLN 28 317 thousand (in 2020 - PLN 5 254 thousand).
The amount of compensations received from third parties for impairment of loss of property, plant and equipment items recognized in the income statement for 2021 stood at PLN 1 570 thousand (in 2020 - PLN 1 827 thousand).
In the period from 1 January to 31 December 2021 and in 2020 there have been no property, plant and equipment whose title is restricted and pledged as security for liabilities.
Contractual commitments
As at 31 December 2021 the contractual commitments for the acquisition of property, plant and equipment amounted to PLN 8 498 thousand, (as at 31 December 2020 - PLN 45 043 thousand).
75
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
Bank Pekao S.A.
31. Other assets
Significant accounting policies
Financial assets included in item ‘Other assets’ are measured at the amounts due, which also comprises any 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.
Prepaid expenses represent expenditures, which will be amortized against income statement in the forthcoming reporting periods.
Financial data
31.12.2021
31.12.2020
Prepaid expenses
51 826
51 868
Accrued income
177 555
219 977
Interbank and interbranch settlements
16 130
4 002
Other debtors
258 975
262 552
Card settlements
582 498
520 893
Total
1 086 984
1 059 292
32. Amounts due to other banks
Significant accounting policies
Principles of classification and measurement are described in the Note 5.4.
Financial data
Amounts due to other banks by product type
31.12.2021
31.12.2020
Current accounts
844 693
951 990
Interbank deposits and other liabilities
2 275 862
2 070 855
Loans and advances received
4 577 576
6 305 526
Repo transactions
848 221
589 928
Cash in transit
29 031
32 175
Lease liabilities
86
189
Total
8 575 469
9 950 663
Amounts due to other banks by currency
31.12.2021
31.12.2019
PLN
5 169 502
5 810 450
CHF
107 407
153 117
EUR
3 271 246
3 961 307
USD
18 459
18 070
Other currencies
8 855
7 719
Total
8 575 469
9 950 663
76
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
Bank Pekao S.A.
33. Financial liabilities held for trading
Significant accounting policies
Principles of classification and measurement are described in the Note 5.4.
Financial data
31.12.2021
31.12.2020
Debt securities
639 733
742 804
Total
639 733
742 804
Financial liabilities held for trading by issuer and product type
31.12.2021
31.12.2020
Debt securities issued by central governments
639 733
742 804
t- bonds
639 733
742 804
Total
639 733
742 804
Financial liabilities by contractual maturity
31.12.2021
31.12.2020
Debt securities, including:
up to 1 month
-
-
between 1 and 3 months
-
-
between 3 months and 1 year
293 300
14 209
between 1 and 5 years
201 042
279 152
over 5 years
145 391
449 443
Total
639 733
742 804
Financial liabilities by currency
31.12.2021
31.12.2020
PLN
639 733
742 804
Total
639 733
742 804
34. Amounts due to customers
Significant accounting policies
Principles of classification and measurement are described in the Note 5.4.
Financial data
Amounts due to customers by entity and product type
31.12.2021
31.12.2020
Amounts due to corporate, including:
61 716 411
59 387 184
current accounts
59 747 288
56 053 193
term deposits and other liabilities
1 969 123
3 333 991
Amounts due to budget entities, including:
16 420 528
12 281 660
current accounts
16 369 501
12 109 189
term deposits and other liabilities
51 027
172 471
Amounts due to individuals, including:
116 346 734
105 776 513
current accounts
105 422 043
88 796 952
term deposits and other liabilities
10 924 691
16 979 561
Repo transactions
-
152 563
Cash in transit
320 304
299 842
Lease liabilities
357 966
406 222
Total
195 161 943
178 303 984
77
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
Bank Pekao S.A.
Amounts due to customers by currency
31.12.2021
31.12.2020
PLN
163 916 316
149 723 872
CHF
528 892
496 394
EUR
19 797 451
17 337 848
USD
9 352 635
9 314 715
Other currencies
1 566 649
1 431 155
Total
195 161 943
178 303 984
35. Debt securities issued
Significant accounting policies
Principles of classification and measurement are described in the Note 5.4.
Financial data
Debt securities issued by type
31.12.2021
31.12.2020
Liabilities from bonds
4 086 984
4 304 447
Certificates of deposit
178 573
523 305
Mortgage bonds
1 089 798
1 318 956
Total
5 355 355
6 146 708
The Group redeems its own debt securities issued on a timely basis.
Debt securities issued by currency
31.12.2021
31.12.2020
PLN
4 564 367
5 711 638
EUR
790 988
428 361
USD
-
6 709
Total
5 355 355
6 146 708
36. Subordinated liabilities
Significant accounting policies
Principles of classification and measurement are described in the Note 5.4.
Financial data
On 30 October 2017, the Bank issued 10 years subordinated bonds with a total nominal value of PLN 1.25 billion. The funds from the issue were designated – after receiving the approval of the Polish Financial Supervision Authority on 21 December 2017 – to increase the Bank's supplementary capital, pursuant to art. 127 para. 2 point 2 of the Banking Law and art. 63 of Regulation No. 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms . The bonds were introduced to trading on the ASO Catalyst market.
On 15 October 2018, the Bank issued 10 years subordinated bonds with a total nominal value of PLN 0.55 billion. The funds from the issue were designated – after receiving the approval of the Polish Financial Supervision Authority on 16 November 2018 – to increase the Bank's supplementary capital, pursuant to art. 127 para. 2 point 2 of the Banking Law and art. 63 of Regulation No. 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms . The bonds were introduced to trading on the ASO Catalyst market.
On 15 October 2018, the Bank issued 15 years subordinated bonds with a total nominal value of PLN 0.20 billion. The funds from the issue were designated – after receiving the approval of the Polish Financial Supervision Authority on 18 October 2018 – to increase the Bank's supplementary capital, pursuant to art. 127 para. 2 point 2 of the Banking Law and
78
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
Bank Pekao S.A.
art. 63 of Regulation No. 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms . The bonds were introduced to trading on the ASO Catalyst market.
On 4 June 2019, the Bank issued 12 years subordinated bonds with a total nominal value of PLN 0.35 billion. The funds from the issue were designated – after receiving the approval of the Polish Financial Supervision Authority on 8 July 2019 – to increase the Bank's supplementary capital, pursuant to art. 127 para. 2 point 2 of the Banking Law and art. 63 of Regulation No. 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms . The bonds were introduced to trading on the ASO Catalyst market.
On 4 December 2019, the Bank issued 12 years subordinated bonds with a total nominal value of PLN 0.40 billion. The funds from the issue were designated – after receiving the approval of the Polish Financial Supervision Authority on 10 December 2019 – to increase the Bank's supplementary capital, pursuant to art. 127 para. 2 point 2 of the Banking Law and art. 63 of Regulation No. 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms . The bonds were introduced to trading on the ASO Catalyst market.
Subordinated liabilities by type
TYPE OF TRANSACTION
NOMINAL AMOUNT
CURRENCY
INTEREST RATE
ISSUE DATE
MATURITY DATE
SPECIAL TERMS
BALANCE SHEET VALUE AS AT 31.12.2021
Subordinated bonds
1 250 000
PLN
variable, WIBOR 6M + margin
30.10.2017
29.10.2027
Call option giving the Bank the right of early redemption within 5 years from the issue date, subject to the approval of the PFSA
1 255 225
Subordinated bonds
550 000
PLN
variable, WIBOR 6M + margin
15.10.2018
16.10.2028
Call option giving the Bank the right of early redemption within 5 years from the issue date, subject to the approval of the PFSA
552 762
Subordinated bonds
200 000
PLN
variable, WIBOR 6M + margin
15.10.2018
14.10.2033
Call option giving the Bank the right of early redemption within 10 years from the issue date, subject to the approval of the PFSA
201 111
Subordinated bonds
350 000
PLN
variable, WIBOR 6M + margin
04.06.2019
04.06.2031
Call option giving the Bank the right of early redemption within 12 years from the issue date, subject to the approval of the PFSA
351 109
Subordinated bonds
400 000
PLN
variable, WIBOR 6M + margin
04.12.2019
04.06.2031
Call option giving the Bank the right of early redemption within 12 years from the issue date, subject to the approval of the PFSA
401 267
TOTAL
2 750 000
2 761 474
TYPE OF TRANSACTION
NOMINAL AMOUNT
CURRENCY
INTEREST RATE
ISSUE DATE
MATURITY DATE
SPECIAL TERMS
BALANCE SHEET VALUE AS AT 31.12.2020
Subordinated bonds
1 250 000
PLN
variable, WIBOR 6M + margin
30.10.2017
29.10.2027
Call option giving the Bank the right of early redemption within 5 years from the issue date, subject to the approval of the PFSA
1 253 762
Subordinated bonds
550 000
PLN
variable, WIBOR 6M + margin
15.10.2018
16.10.2028
Call option giving the Bank the right of early redemption within 5 years from the issue date, subject to the approval of the PFSA
552 116
Subordinated bonds
200 000
PLN
variable, WIBOR 6M + margin
15.10.2018
14.10.2033
Call option giving the Bank the right of early redemption within 10 years from the issue date, subject to the approval of the PFSA
200 876
Subordinated bonds
350 000
PLN
variable, WIBOR 6M + margin
04.06.2019
04.06.2031
Call option giving the Bank the right of early redemption within 12 years from the issue date, subject to the approval of the PFSA
350 524
Subordinated bonds
400 000
PLN
variable, WIBOR 6M + margin
04.12.2019
04.06.2031
Call option giving the Bank the right of early redemption within 12 years from the issue date, subject to the approval of the PFSA
400 598
TOTAL
2 750 000
2 757 876
79
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
Bank Pekao S.A.
37. Provisions
Significant accounting policies
The provisions are recognized when the Group has a present obligation (legal or constructive) resulting from the past events, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.
If the effect of the time value of money is material, the amount of a provision is established by discounting forecasted future cash flows to the present value, using the discount rate reflecting current market estimates of the time value of money and the possible risk associated with the obligation.
The provisions include provisions for litigation and claims (in this provision for legal risk regarding foreign currency mortgage loans in CHF and provision for early repayments of consumer loans), provisions relating to long-term employee benefits, in this those measured by an actuary and provisions for restructuring costs. The provision for restructuring costs is recognized when the general recognition criteria for provisions and detailed criteria for recognition of provisions for restructuring cost under IAS 37 ‘Provisions, contingent liabilities and contingent assets’ are met. The amount of employment restructuring provision is calculated by the Group on the basis of the best available estimates of direct outlays resulting from restructuring activities, which are not connected with the Group’s current activities.
The provisions are charged to the income statement, except for actuarial gains and losses from the measurement of the defined benefit plans obligations, which are recognized in other comprehensive income.
Financial data
Changes in provisions in the reporting period
2021
PROVISIONS FOR LITIGATION AND CLAIMS (*)
RESTRUCTURING PROVISION
PROVISONS FOR DEFINED BENEFIT PLANS
PROVISIONS FOR UNDRAWN CREDIT FACILITIES AND GUARANTEES ISSUED
OTHER PROVISIONS
TOTAL
Opening balance
178 589
81 077
294 880
383 415
50 743
988 704
Increase due to acquisition of part of Idea Bank S.A. activity
392
-
-
1 608
-
2 000
Provision charges/revaluation
60 774
72 385
18 013
196 880
14 793
362 845
Provision utilization
(24 343)
(136 132)
(24 874)
-
(12 168)
(197 517)
Provision releases
(4 372)
-
-
(222 285)
-
(226 657)
Foreign currency exchange differences
587
-
-
515
-
1 102
Other changes
282
-
(47 651)
-
-
(47 369)
Closing balance
211 909
17 330
240 368
360 133
53 368
883 108
Short term
2 785
17 330
14 456
61 895
848
97 314
Long term
209 124
-
225 912
298 238
52 520
785 794
(*) Including the provision for legal risk regarding foreign currency mortgage loans in CHF in the amount of PLN 130 184 thousand and a provision for early repayments of consumer loans in the amount of PLN 16 107 thousand as at 31 December 2021.
2020
PROVISIONS FOR LITIGATION AND CLAIMS (*)
RESTRUCTURING PROVISION
PROVISONS FOR DEFINED BENEFIT PLANS
PROVISIONS FOR UNDRAWN CREDIT FACILITIES AND GUARANTEES ISSUED
OTHER PROVISIONS
TOTAL
Opening balance
103 933
18 954
290 269
290 902
48 539
752 597
Provision charges/revaluation
107 705
144 430
23 529
240 153
14 005
529 822
Provision utilization
(17 743)
(82 307)
(29 715)
-
(11 714)
(141 479)
Provision releases
(9 744)
-
-
(150 517)
(70)
(160 331)
Foreign currency exchange differences
(164)
-
-
2 877
-
2 713
Other changes
(5 398)
-
10 797
-
(17)
5 382
Closing balance
178 589
81 077
294 880
383 415
50 743
988 704
Short term
32 678
81 077
24 529
52 373
383
191 040
Long term
145 911
-
270 351
331 042
50 360
797 664
(*) Including the provision for legal risk regarding foreign currency mortgage loans in CHF in the amount of PLN 90 939 thousand and a provision for early repayments of consumer loans in the amount of PLN 19 661 thousand as at 31 December 2020.
80
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
Bank Pekao S.A.
Provisions for litigation and claims
Provisions for litigation and claims include court, administrative and other legal proceedings. Provisions for litigation and claims were estimated in the amount of expected outflow of resources embodying economic benefits.
Provisions for litigation and claims also include the part of total provision created for legal risk related to foreign currency mortgage loans in CHF, in part relating to exposures already repaid (fully or partially). Details about the above provisions are presented in Note 47.3.
An issue related to the judgment of the Court of Justice of the European Union regarding consumer credit agreements
On 11 September 2019, the Court of Justice of the European Union (hereinafter the ‘CJEU’) issued a judgment in Case C-383/18 concerning preliminary questions regarding the consumer's right to reduce the total cost of loan in the event of early repayment of consumer loan.
The Group analyzed the legal risk resulting from the above judgment and in accordance with IAS 37 ‘Provisions, contingent liabilities and contingent assets,’ assessed the probability of cash outflow as a refund of commission in connection with early repayment of loans made by borrowers before the abovementioned judgment of the CJEU.
For the purpose of estimating the aforementioned provision, the Group performed an analysis of data on early repayment of loans and complaints. As a result of the above, the Group has determined a matrix of probability of repayment depending on the amount of commission to be repaid and the period when the earlier repayment was made. The assumed level of complaints is 22%.
As at 311 December 2021 the provision regarding early repayment of consumer loans made before the judgment of the CJEU (i.e. before 11 September 2019) amounts to PLN 16.1 million (as at 31 December 2020 - PLN 19.7 million) and includes an increase in the provision in the amount of PLN 13.5 million during the year 2021.
The estimates required the Group to adopt expert assumptions and are associated with uncertainty. The Group monitors the validity of all assumptions adopted in the process of creating the above provision on an ongoing basis.
In connection with the above, the Group performed a sensitivity analysis with regard to the significant parameters of the provision, where a change in the level of these parameters would have the following impact on the amount of the provision:
PARAMETR
SCENARIUSZ
WPŁYW NA POZIOM REZERWY
+10%
1.6
Change in the number of complaints
-10%
(1.6)
+10%
1.6
Change in Average Amount Reimbursed
-10%
(1.6)
In the case of early repayment of loans made by borrowers after the judgment of the CJEU (i.e. after 11 September 2019), the Group automatically reduces the borrower's total cost of loan and returns the funds to the customer.
In addition, with respect to balance sheet exposures as at 31 Decembr 2021, the Group estimated possible future prepayments of these exposures. In accordance with the above, the Group recognized the amount of PLN 13.8 million in ‘Other liabilities’ (as at 31 December 2020 - PLN 10 million).
Restructuring provision
The Management Board of Bank Pekao S.A. informed in the current report No. 8/2021 that on 3 March 2021, in accordance with the Act of 13 March 2003 on special rules of terminating employment contracts for reasons not attributable to the employees, adopted a resolution on the intended collective redundancies and the start of the consultation procedure for collective redundancies.
The Bank estimated all the costs of termination of employment contracts and amendment of terms and conditions of employment the Bank’s employees related to the collective redundancies for the amount of PLN 120 million and the restructuring provision in this amount was created in the Bank's accounting books.
The balance of the restructuring provision as at 31 December 2021 relates to payments made in 2022.
Provisions for defined benefits plans
Provisions for defined benefits plans consist of provisions for retirement benefits and death-in-service benefits. The present value of such obligations is measured by an independent actuary using the projected unit credit method.
Other provisions
Other provisions include in particular provisions for other employee benefits.
81
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
Bank Pekao S.A.
38. Other liabilities
Significant accounting policies
Deferred income and accrued expenses (liabilities)
This caption includes primarily commission income settled using the straight line method and other income charged in advance, that will be recognized in the income statement in the future periods.
Accrued expenses include accrued costs resulting from services provided for the Group by counterparties which will be settled in future periods, accrued payroll and other employee benefits (including annual and Christmas bonuses, other bonuses and awards and accrued holiday pay).
Deferred income and accrued expenses are presented in the statement of financial position under the caption ‘Other liabilities’.
Financial data
31.12.2021
31.12.2020
Deferred income
207 048
207 401
Provisions for holiday leave
77 274
65 867
Provisions for other employee-related liabilities
259 499
198 084
Provisions for administrative costs
158 400
96 230
Other costs to be paid (*)
114 210
75 867
Other creditors
1 075 925
1 032 648
Interbank and interbranch settlements
819 798
708 338
Card settlements
393 137
334 215
Total
3 105 291
2 718 650
(*) In this as at 31 December 2021 PLN 32 055 thousands of provision for future refunds of the part of the remuneration for sale of insurance products linked to loans (PLN 31 978 thousand as at 31 December 2020).
39. Defined benefit plans
Based on internal regulations in respect to remuneration, the employees of the Group or their families are entitled to defined benefits other than remuneration:
a) retirement benefits,
b) death-in-service benefits.
The present value of such obligations is measured by an independent actuary using the projected unit credit method.
The amount of the retirement benefits and death-in-service benefits is dependent on length of service and amount of remuneration. The expected amount of the benefits is discounted actuarially, taking into account the financial discount rate and the probability of an individual get to the retirement age or die while working respectively. The financial discount rate is determined by reference to market yields at the end of reporting period on government bonds. The probability of an individual get to the retirement age or die while working is determined using the multiple decrement model, taking into consideration the following risks: possibility of dismissal from service, risk of total disability to work and risk of death.
These defined benefit plans expose the Group to actuarial risk, such as:
• interest rate risk – the decrease in market yields on government bonds would increase the defined benefit plans obligations,
• remuneration risk – the increase in remuneration of the Group’s employees would increase the defined benefit plans obligations,
• longevity risk – the increase in life expectancy of the Group’s employees would increase the defined benefit plans obligations.
The principal actuarial assumptions as at 31 December 2021 are as follows:
• the discount rate at the level of 3.6% (1.2 % as at 31 December 2020),
• the future salary growth rate at the level of 2.5% (2.5 % as at 31 December 2020),
• the probable number of leaving employees calculated on the basis of historical data concerning personnel rotation in the Group,
82
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
Bank Pekao S.A.
• the mortality adopted in accordance with Life Expectancy Tables for men and women, published the Central Statistical Office, adequately adjusted on the basis of historical data of the Group.
Reconciliation of the present value of defined benefit plans obligations
The following table presents a reconciliation from the opening balances to closing balances for the present value of defined benefit plans obligations.
2021
2020
Opening balance
294 880
290 269
Current service cost
14 490
17 741
Interest expense
3 523
5 788
Remeasurements of the defined benefit obligations:
(47 790)
10 964
actuarial gains and losses arising from changes in demographic assumptions
(7 211)
(2 691)
actuarial gains and losses arising from changes in financial assumptions
(40 507)
7 061
actuarial gains and losses arising from experience adjustments
(72)
6 594
Contributions paid by the employer
(24 873)
(29 715)
Business combination
138
(167)
Closing balance
240 368
294 880
Sensitivity analysis
The following table presents how the impact on the defined benefits obligations would have increased (decreased) as a result of a change in the respective actuarial assumptions by one percent.
DEFINED BENEFIT PLANS OBLIGATIONS
31.12.2021
1 PERCENT INCREASE
1 PERCENT DECREASE
Discount rate
(18 191)
20 763
Future salary growth rate
20 682
(18 456)
DEFINED BENEFIT PLANS OBLIGATIONS
31.12.2020
1 PERCENT INCREASE
1 PERCENT DECREASE
Discount rate
(25 539)
29 601
Future salary growth rate
28 914
(25 487)
Maturity of defined benefit plans obligations
The following table presents the maturity profile of the defined benefit plans obligations
31.12.2021
31.12.2020
The weighted average duration of the defined benefit plans obligations (in years)
8.53
9.57
40. Share-based payments
Significant accounting policies
Bank’s Pekao S.A. phantom shares-settled share-based payment transaction
The cost of transactions settled with employees in phantom shares is measured by reference to the fair value of the liability as of the balance sheet date.
The fair value of the liability is estimated based upon the Bank’s shares price on the (WSE) as of the balance sheet date and expected number of phantom shares to which full rights will be acquired.
The cost of phantom share-based payments is recognized in personnel expenses together with the accompanying increase in the value of liabilities towards employees presented in ‘Provisions’.
The accumulated cost recognized for transactions settled in phantom shares for each balance sheet date until the vesting date reflects the extent of elapse of the vesting period and the number of rights to shares the rights to which – in the opinion of the Bank’s Management Board for that date based on best available estimates of the number of phantom shares – will be eventually vested.
83
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
Bank Pekao S.A.
System of Variable Remuneration for the Management Team
The system of variable remuneration is addressed to Employees defined in the Bank as persons in managerial positions, who have a significant impact on the risk profile of the Bank and who are key employees for the fulfillment of the Bank’s strategy, risk management and long-term increase of the Bank’s income.
The aim of the system is to support the execution of the Bank’s operational strategy, its risk management and to limit conflict of interests.
Under the system the participant who is a member of the Management Board may receive an individual bonus, while a participant who is not a member of the Management Board may receive a bonus based on the bonus pool approach ensuring comprehensive performance measurement at an individual level, organizational unit and results of the entire Bank as well as risk assessment’ verification of the Participant’s compliant behaviour with respect to law provisions and standards adopted by the Bank.
The compensation consists of cash payment and cash-settled share based payment realized in the form of phantom shares as cash equivalent amounting to the value of granted phantom shares.
System of Variable Remuneration for the Management Team of the subsidiaries Pekao
In order to meet the requirements concerning the rules of establishing the policy of variable remuneration components for individuals holding managerial positions (Regulation of the Minister of Development and Finance on the risk management system and internal control system, remuneration policy and a detailed method of estimating internal capital in banks of 6 March 2017 (Official Journal from 2016, item 1988, 1948, 1997 and 2260 and from 2017, item 85), the Bank’s subsidiaries, Pekao Bank Hipoteczny S.A., Pekao Leasing Sp. z o.o., Pekao Investment Banking S.A, , Pekao Faktoring Sp. z o.o,. Pekao Direct Sp. z o.o. and Pekao Towarzystwo Funduszy Inwestycyjnych S.A. use a variable remuneration system for the management.
Within the system participant can receive the bonus depending on the performance and results of work of the participant, of the business unit and the company's results in the area of responsibility of the person, taking into account the results of the whole company, as well as verification of the compliance of Participant’s behaviour with respect to law provisions and standards adopted by the company.
At least 40 % components of variable renumerations is settled and paid in the time-period of 3 to 5 years since the granting date.
The companies measure the future employees benefits at fair value of accepted liabilities, in accordance with IAS 19 ‘Employee benefits’. Results of liabilities meassurement at fair value are presented in income statement as personnel expenses.
84
Bank Pekao S.A.
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
Financial data
During the reporting period ending on 31 December 2021 the Bank had the following share-based payments transactions
SYSTEM 2017 (*)
SYSTEM 2018 (*)
SYSTEM 2019 (*)
SYSTEM 2020 (**)
SYSTEM 2021 (**)
Transaction type
Cash-settled share based payments
Start date of the assessment period
1 January 2017
1 January 2018
1 January 2019
1 January 2020
1 January 2021
Program announcement date
April 2017
April 2018
January 2019
January 2020
January 2021
Program granting date
21 June 2018
25 July 2019
15 July 2020
8 July 2021
Date of the Supervisory Board meeting at which the 2021 assessment will be made and the bonus will be awarded (and in the case of participants who are not members of the Management Board, the date of the Bank's Management Board meeting at which the bonus pool for 2021 will be launched and the 2021 assessment will be presented)
Number of instruments granted (pcs)
43 578
168 242
145 481
135 996
To be determined on the date the program is awarded
Maturity date
31 July 2023
31 July 2024
31 July 2024
31 July 2025
31 July 2026
Vesting date for Management Board Members and Executive Vice President
• 40% in the year of program granting (settlement after 2 years retention period)
• 24% after 2 years from program granting date (settlement after 1 year retention period)
• 12% after 3 years from program granting date (settlement after 1 year retention period)
• 24% after 4 years from program granting date (settlement after 1 year retention period)
• 40% in the year of program granting (settlement after 1 years retention period)
• 12% after 2 years from program granting date (settlement after 1 year retention period)
• 24% after 3 years from program granting date (settlement after 1 year retention period)
• 24% after 4 years from program granting date (settlement after 1 year retention period)
• 60% in the year of program granting (settlement after 1 years retention period)
• 13.3 (3)% after 1 year from program granting date (settlement after 1 year retention period)
• 13.3 (3)% after 2 years from program granting date (settlement after 1 year retention period)
• 13.3 (3)% after 3 years from program granting date (settlement after 1 year retention period)
• 60% in the year of program granting (settlement after 1 years retention period)
• 13.3 (3)% after 1 year from program granting date (settlement after 1 year retention period)
• 13.3 (3)% after 2 years from program granting date (settlement after 1 year retention period)
• 13.3 (3)% after 3 years from program granting date (settlement after 1 year retention period)
• 60% in the year of program granting (settlement after 1 years retention period)
• 13.3 (3)% after 1 year from program granting date (settlement after 1 year retention period)
• 13.3 (3)% after 2 years from program granting date (settlement after 1 year retention period)
• 13.3 (3)% after 3 years from program granting date (settlement after 1 year retention period)
Vesting date for remaining participants
• 60% in the year of program granting (settlement after 2 years retention period)
• 20% after 2 years from program granting date (settlement after 1 year retention period)
• 20% after 3 years from program granting date (settlement after 1 year retention period)
• 60% in the year of program granting (settlement after 2 years retention period)
• 13.34% after 1 years from program granting date (settlement after 1 year retention period)
• 13.34% after 2 years from program granting date (settlement after 1 year retention period)
• 13.32% after 3 years from program granting date (settlement after 1 year retention period)
• 60% in the year of program granting (settlement after 2 years retention period)
• 13.3 (3)% after 1 year from program granting date (settlement after 1 year retention period) 1
• 13.3 (3)% after 2 years from program granting date (settlement after 1 year retention period)
• 13.3 (3)% after 3 years from program granting date (settlement after 1 year retention period)
• 60% in the year of program granting (settlement after 1 years retention period)
• 13.3 (3)% after 1 year from program granting date (settlement after 1 year retention period)
• 13.3 (3)% after 2 years from program granting date (settlement after 1 year retention period)
13.3 (3)% after 3 years from program granting date (settlement after 1 year retention period)
• 60% in the year of program granting (settlement after 1 years retention period)
• 13.3 (3)% after 1 year from program granting date (settlement after 1 year retention period)
• 13.3 (3)% after 2 years from program granting date (settlement after 1 year retention period)
13.3 (3)% after 3 years from program granting date (settlement after 1 year retention period)
Vesting conditions
Risk assessment, Compliance assessment, Continuous employment, Reaching the aim based on financial results of the Bank for a given period
Program settlement
(*)The participant will receive a cash payment amounting to the number the possessed phantom shares times the arithmetic mean of the Bank’s share prices at the Warsaw Stock Exchange:
• in case of the settlement made at the dates of instalment after the mandatory retention period, for a month preceding the day of General Meeting approving the financial statements for a given year,
• in case of settlement made in the voluntary retention period, for 10 working days following the day of release of the financial report in a given quarter, and benefits from acquired phantom shares in the amount equivalent to dividend paid to shareholders in the retention period for shares acquired by the participant.
(**) The participant will receive a cash payment amounting to the number the possessed phantom shares times the average closing price of the Bank’s shares at the Warsaw Stock Exchange for 30 calendar days preceding the day of the Supervisory Board meeting, where it evaluates the Bank's financial statements for a given year and benefits from acquired phantom shares in the amount corresponding to the dividend paid to shareholders during the mandatory retention period for shares acquired by the participant.
85
Bank Pekao S.A.
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
Since January 2019, the System of Variable Remuneration for the Management Team has been in force, reflecting the provisions of the resolution of the General Meeting of the Bank on adjusting the remuneration of members of the management board to the requirements of the Act on the principles of determining the remuneration of persons managing certain companies.
For the System 2017, 2018, 2019, 2020, 2021 the fair value of the program was estimated based upon the Bank’s shares price on the WSE as of the balance sheet date and expected number of phantom shares to which the rights will be acquired.
For the System 2021, as of 31 December 2021 the Bank prepared the program valuation, presuming that the phantom shares were granted on 31 December 2021. This value will be changed at the actual date of granting the program.
The system of variable remuneration realized in the form of phantom shares is a program settled in cash, and therefore its fair value is adjusted on each balance sheet date until the the program settlement, which in case of this program coincides with the vesting date.
The carrying amount of liabilities for cash-settled phantom shares amounted to PLN 48 420 thousand as at 31 December 2021 (as at 31 December 2020 – PLN 46 701 thousand).
The total intrinsic value of liabilities for vested rights to phantom shares amounted to PLN 42 096 thousand as at 31 December 2021 (as at 31 December 2020 – PLN 21 644 thousand).
The remuneration expenses for 2021 relating to the system of variable remuneration in the form of phantom shares amounted to PLN 13 555 thousand (in 2020 - PLN 13 173 thousand).
The table below presents changes in the number of Bank’s phantom shares.
2021
2020
Opening balance
354 232
334 346
Granted during the year
135 996
147 729
Redeemed during the year
-
-
Exercised during the year
(145 177)
(127 843)
Terminated during the year
-
-
Existing at the period-end
345 051
354 232
The table above does not present the number of shares granted in respect of System 2021. This number will be determined in 2022 after evaluationl of the financial statements for 2021 by the Supervisory Board. The hypothetical number of shares determined on the basis of the base value of the granted bonus to each of the program participants and arithmetic mean of the Bank’s share price on the WSE in December 2021 amounts to 176 490.
System of Variable Remuneration for the Management Team of the subsidiaries Pekao
The carrying amount of liabilities for cash-settled phantom shares amounted to PLN 7 404 thousand as at 31 December 2021 (as at 31 December 2020 – PLN 5 216 thousand).
The remuneration expenses for 2021 relating to the system of variable remuneration in the form of phantom shares amounted to PLN 4 498 thousand (in 2020 – PLN 2 757 thousand).
41. Leasing
Significant accounting policies
At inception of a contract, the Group assesses whether the contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.
The Group is a party to lease contracts, based on which the Group accepts the right to use an identified asset for a period of time in exchange for consideration.
The Group is also a party to lease contracts, based on which the Group transfers the right to use of an identified asset for a period of time in exchange for consideration.
86
Bank Pekao S.A.
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
Group as a lessee
The Group, as a lessee, recognizes the lease contract as a component of the right-to-use assets and the corresponding lease liability on the date when the subject of the lease is available for use. Each lease payment is allocated between the liability and accrued interest on the liability. Interest expense is recognized in the income statement over the lease term to obtain a constant periodic interest rate on the remaining balance of the lease liability. The right-of-use asset is depreciated on a straight-line basis over the shorter of two periods: the useful life of the asset or the lease term. The Group recognizes the right-of-use assets in the item of the statement of financial position ‘Property, plant and equipment’ and lease liabilities - in the item of the statement of financial position ‘Amounts due to customers’ or ‘Amounts due to banks’.
The right-of-use assets are measured at cost, comprising:
• 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 lessee, and
• an estimate of costs to be incurred by the lessee in dismantling and removing the underlying asset, restoring the site on which it is located, if the lessee incurs liabilities regarding these costs.
On the date when the lease commences, the Group, as a lessee, measures the lease liability in the present value of lease payments outstanding as at that date. The lease liabilities include the current value of the following lease payments:
• fixed payments less any lease incentives receivable,
• variable lease payments that depend on an index or a rate,
• amounts expected to be payable by the lessee under residual value guarantees,
• the exercise price of a purchase option if the lessee is reasonably certain to exercise that option, and
• payments of penalties for terminating the lease, if the lease term reflects the lessee exercising an option to terminate the lease.
The lease payments are discounted using the interest rate implicit in the lease, if the rate can be readily determined, or the Group’s incremental borrowing rate.
After the lease commencement date, the Group taken into account changes in lease payments (resulting, inter alia, from changes in the index, rate, lease term), by remeasuring the lease liabilities and the right-of-use assets.
The Group does not recognize the right-of-use assets and lease liabilities for short-term lease contracts and lease contracts of low-value assets. Short-term lease payments and payments for leases of low-value assets are recognized as an expense in the income statement on a straight-line basis. Short-term lease contracts are lease contracts that have a lease term of 12 months or less. Low-value assets include mainly lease of space (land) for ATMs.
Group as a lessor
At commencement date of a lease, the Group, as a lessor, classifies each lease contract as an operating lease or a finance lease. The Group classifies a lease as a finance lease whether it transfers substantially all the risks and rewards of ownership of an underlying asset. Conversely, if substantially all the risks and rewards of ownership of the underlying asset are not transferred, the lease is considered to be an operating lease. In the process of determining the classification of a lease contract, the Group takes into account elements such as whether the lease term accounts for the major part of the economic life of the underlying asset.
Finance lease
At the commencement date, the Group, as a lessor, recognizes assets held under a finance lease in its statement of financial position and present them as a receivables from finance lease (presented in item ‘Loans and advances to customers’) at an amount equal to the net investment in the lease, i.e. at present value of lease payments and any unguaranteed residual value assigned to the Group.
At the finance lease commencement date, the lease payments included in the measurement of the net investment in the lease comprise the following payments for the right to use the underlying asset during the lease term that are not received at the commencement date:
• fixed payments, less any lease incentives payable,
• variable lease payments that depend on an index or a rate,
• any residual value guarantees provided to the Group as a lessor,
• the exercise price of a purchase option if the lessee is reasonably certain to exercise that option, and
• payments of penalties for terminating the lease, if the lease term reflects the lessee exercising an option to terminate the lease.
87
Bank Pekao S.A.
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
During the lease term, the Group, as a lessor, recognizes interest income, based on a pattern reflecting a constant periodic rate of return on the Group's net investment in the lease. Lease payments paid over the lease term, reduce both the principal and the accrued interest.
The Group applies the derecognition and impairment requirements in IFRS 9 to the net investment in the lease. The estimated unguaranteed residual values used in computing the gross investment in the lease are regularly reviewed by the Group.
Operating lease
During the lease term, the Group, as a lessor, recognizes lease payments from operating lease as income on a straight- line basis and presents them in the item ‘Other operating income’. The depreciation of leased assets is recognized in accordance with the principles applied by the Group for property, plant and equipment.
Financial data
The Group as a Lessor
As a lessor, the Group appears in contracts for the lease of premises, terminals, IT equipment and car leasing classified as operating leases.
In 2021, the Group recognized revenues from this in the amount of PLN 33 187 thousand (in 2020 - PLN 35 981 thousand).
The table below presents the maturity analysis of lease payments, presenting the undiscounted lease payments to be received after the balance sheet date.
31.12.2021
31.12.2020
Up to 1 year
2 407
3 440
Between 1 and 2 years
403
1 096
Between 2 and 3 years
280
717
Between 3 and 4 years
193
422
Between 4 and 5 years
167
121
Over 5 years
213
85
Total
3 663
5 881
The Group as Lessee
As a lessee, the Group acts in building and IT infrastructure lease contracts.
Information on lease contracts in which the Group acts as a lessee is presented below.
Right-of-use assets included in the item ‘Property, plant and equipment’.
2021
LANDS AND BUILDINGS
MACHINERY AND EQUIPMENT
MEANS OF TRANSPORT
TOTAL
Opening balance
415 091
-
16 359
431 450
Depreciation
(114 951)
-
(10 508)
(125 459)
Additions/Increase to right-of-use assets
27 243
-
67 628
94 871
Lease change
29 637
-
-
29 637
Derecognition of right-of-use assets
(4 512)
-
(234)
(4 746)
Closing balance
352 508
-
73 245
425 753
2020
LANDS AND BUILDINGS
MACHINERY AND EQUIPMENT
MEANS OF TRANSPORT
TOTAL
Opening balance
436 812
-
28 125
464 937
Depreciation
(117 297)
-
(11 472)
(128 769)
Additions/Increase to right-of-use assets
64 419
-
1 694
66 113
Lease change
35 962
-
419
36 381
Derecognition of right-of-use assets
(4 805)
-
(2 407)
(7 212)
Closing balance
415 091
-
16 359
431 450
88
Bank Pekao S.A.
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
Lease liabilities
31.12.2021
31.12.2020
Amounts due to other banks
86
189
Amounts due to customers
357 966
406 222
Total
358 052
406 411
Amounts recognized in income statement
LEASES UNDER IFRS 16
31.12.2021
31.12.2020
Interest expense on lease liabilities
(9 181)
(10 461)
Expenses relating to short-term leases presented in ‘Other administrative expenses’
(1 064)
(2 217)
Expenses relating to leases of low-value assets, excluding short-term leases of low-value assets presented in ‘Other administrative expenses’
(1 346)
(1 621)
Amounts recognized in cash flow statement
In 2021, total cash outflow for leases amounted to PLN – 127 802 thousand (in 2020 - PLN 121 321 thousand).
42. Contingent commitments
Significant accounting policies
Contingent liabilities and commitments
The Group enters into transactions which are not recognized in the statement of financial position as assets or liabilities, but which result in contingent liabilities and commitments. Contingent liabilities are characterized as:
• a potential obligation the existence of which will be confirmed upon occurrence or non-occurrence of uncertain future events that are beyond the control of the Group (e.g. litigations),
• a current obligation which arises as a result of past events but is not recognized in the statement of financial position as it is improbable that it will result in an outflow of benefits to settle the obligation or the amount of the obligation cannot be reliably measured (mainly: unused credit lines and guarantees and letters of credit issued).
Financial guarantees
Financial guarantees are contracts that the Group is required as issuer to make specified payments to reimburse the holder for a loss it to be incurred because a specified debtor fails to make when due under the original or modified terms of a debt instrument.
Financial guarantees are measured at the higher of:
• the amount of the loss allowance or
• the amount initially recognised less the cumulative amount of income recognised in accordance with the principles of IFRS 15.
Financial data
Court cases
As of 31 December 2021 the following court cases for payment are pending with involvement of the Group, that are important in view of the value of the object of litigation:
1) in the group of liabilities (against the Group):
• brought by the receiver for a joint stock company in liquidation bankruptcy – lawsuit for payment of compensation for a damage incurred as a result of the Bank’s demanding immediate payment of the amounts due in virtue of payment of the price from the credit receivables transfer agreement and conducting debt enforcement collection of the portion of the price remaining for payment by a court enforcement officer, value of the object of litigation PLN 57 450 130 litigation initiation date – 30 April 2015, in the present factual and legal circumstances the Bank assesses the funds outflow risk as possible,
• brought by a natural person – lawsuit for payment by the Bank of an amount charged by virtue of settlement of financial future or forward transactions, value of the object of litigation PLN 38 916 555.18, litigation initiation date – 2 October 2016, on 6 May 2019 the Regional Court in Warsaw issued a sentence ordering the Bank to pay the amount of PLN 3 392 349.18 and as to the remainder the Court dismissed the suit, the sentence is not legally valid, the Bank and the plaintiff appealed against the judgment. On the 16 December 2020 the Court of Appeal in Warsaw quashed the sentence of the Regional Court in its entirety and remitted the case to that Court. The Bank maintains it is current assessment of the risk of outflow of found and, in terms of the amount awarded by the Regional Court, the Bank assesses the funds outflow risk as probable and in the remaining scope as possible,
• brought by a beneficiary of warranty – lawsuit for payment of a claim by virtue of the warranty issued by the Bank, value of the object of litigation PLN 32 750 000 litigation initiation date – 14 January 2014, due to the withdrawal of the claim, the Regional Court in Wrocław, by a decision of 26 November 26 2021, discontinued the proceedings, the
89
Bank Pekao S.A.
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
decision is not final; in the present factual and legal circumstances the Bank assesses the funds outflow risk as minor,
• brought by a legal person – lawsuit for payment of compensation for the loss of value of the leased assets; value of the object of litigation PLN 21 001 551, litigation initiation date – 10 March 2011, in the present factual and legal circumstances the Bank assesses the funds outflow risk as minor;
2) in the group of receivables (brought by the Group):
• Bank’s main intervention lawsuit against the parties of the main lawsuit – the object of the intervention is the demand for payment by virtue of the assignment of receivables securing Bank’s liabilities, value of the object of litigation is PLN 321 979 666.87, litigation initiation date – 26 October 2018, as a result of the settlement concluded in 2021 and the withdrawal of the claim by the Bank, the Regional Court in Warsaw, by a decision of 18 January 2022, discontinued the proceedings, the decision is not final;
• Bank’s lawsuit for payment against limited debtor by virtue of mortgage collateralizing repayment of the granted credit, value of the object of litigation PLN 132 877 901, litigation initiation date – 21 January 2016,
• Bank’s main intervention lawsuit against the parties of the main lawsuit – the object of the intervention is the demand for payment by virtue of the assignment of receivables securing Bank’s liabilities, value of the object of litigation PLN 119 020 334, litigation initiation date – 26 October 2018, as a result of the settlement concluded in 2021 and the withdrawal of the claim by the Bank, the Regional Court in Rzeszów, by a decision of 13 January 2022, discontinued the proceedings, the decision is not final;
• Bank’s mutual lawsuit for payment of amounts due by virtue of the transfer of receivables, value of the object of litigation PLN 89 977 886, litigation initiation date – 28 February 2013, as a result of the settlement concluded in 2021 and the withdrawal of the cassation appeal by the Bank, the Supreme Court, by a decision of 25 January 2022, discontinued the cassation proceedings, the decision is not final;
• Bank’s main intervention lawsuit against the parties of the main lawsuit – the object of the intervention is the demand to execute (pay) the liabilities purchased by the Bank from one of the defendants against the other defendant, value of the object of litigation PLN 67 432 617.21 , litigation initiation date – 23 January 2006; as a result of the sale of receivables, the Bank was replaced by the buyer of the receivables pursuant to article 192 point 3 of the Code of Civil Procedure. The case was finally closed in the fourth quarter of 2021.
None of the litigations pending in 2021 before the court, authority competent for arbitrary proceedings or a body of public administration posed a threat for financial liquidity of the Group.
The Group created provisions for litigations against the Group entities which, according to the legal opinion, are connected with a risk of the funds outflow resulting from the fulfillment of the obligation. The value of the provisions as at 31 December 2021 is PLN 211 909 thousand (PLN 178 589 thousand as at 31 December 2020).
In addition, as at 31 December 2021 the Group assessed the legal risk of foreign currency mortgage loans in CHF and created a provision related to this risk. Details are presented in Note 47.3.
Financial commitments granted
Financial commitments granted by entity
31.12.2021
31.12.2020
Financial commitments granted to:
Banks
623 903
551 503
Customers
42 259 888
39 930 464
budget entities
341 534
721 915
Total
43 225 325
41 203 882
90
Bank Pekao S.A.
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
Guarantees issued
Guarantees issued by entity
31.12.2021
31.12.2020
Issued to banks:
1 716 034
1 647 148
guarantees
1 590 262
1 603 269
securities’ underwriting guarantees
-
-
confirmed export letters of credit
125 772
43 879
Issued to customers
11 330 096
10 610 484
guarantees
8 106 033
7 443 561
securities’ underwriting guarantees
2 865 321
3 013 647
sureties
358 742
153 276
Issued to budget entities :
1 401 817
1 360 653
guarantees
26 522
35 551
securities’ underwriting guarantees
1 375 295
1 325 102
Total
14 447 947
13 618 285
Off-balance sheet commitments received
Off-balance sheet commitments received by entity
31.12.2021
31.12.2020
Financial received from:
1 127 531
563 455
banks
927 533
563 455
customers
199 998
-
budget entities
-
-
Guarantees received from:
23 179 416
20 345 840
banks
11 656 688
8 596 465
customers
10 357 310
10 642 784
budget entities
1 165 418
1 106 591
Total
24 306 947
20 909 295
Moreover, the Group has the ability to obtain financing from National Bank of Poland secured securities.
91
Bank Pekao S.A.
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
43. Equity
Significant accounting policies
Equity is comprised of the capital and funds created by the companies of the Group in accordance with the binding legal regulations and the appropriate laws and Articles of Association. Equity also includes retained earnings. Subsidiaries’ equity line items, other that share capital, are added to the relevant equity line items of the parent company, in the proportion of the Group’s interest.
The equity of the Group includes only those parts of the subsidiaries’ equity which were created after the date of purchase of shares or stocks by the parent entity.
The Group equity consists of the following:
a) share capital - applies only to the capital of the Bank as the parent entity and is presented at nominal value specified in the Articles of Association and in the entry in the Enterprises Registry,
b) ‘issue premium’ - surplus generated during share issues over the nominal value of such issues, remaining after the issue costs are covered. Moreover, this item also includes a change in the value of minority shares, ensuing from an increase of the share of the Parent entity in Bank’s share capital,
c) the general banking risk fund is established at Bank Pekao S.A. in keeping with the Banking Act dated 29 August 1997 from profit after tax,
d) other reserve capital utilized for the purposes defined in the Statute is created from appropriations of profits,
e) revaluation reserve includes the impact of revaluation of debt financial instruments measured at fair value through other comprehensive income, revaluation or sale of investments in equity instruments designated at fair value through other comprehensive income, revaluation of derivative instruments hedging cash flows, r emeasurements of the defined benefit liabilities and the value of deferred tax for items classified as temporary differences, recognized as valuation allowance. In the statement of financial position, the valuation allowance is presented as net value,
f) other capital:
• other supplementary capital, established in keeping with provisions under the Articles of Association of companies from profit appropriations,
• bonds convertible to shares - includes the fair value of financial instruments issued as part of transactions settled in equity instruments,
• brokerage activity fund for stock broking operations, carried out by Bank Pekao S.A.,
• retained earnings from prior periods includes undistributed profit and uncovered losses generated/incurred in prior periods by subsidiaries consolidated full method,
• net profit/loss which constitutes profit/loss presented in the income statement for the relevant period. Net profit is after accounting for income tax.
Financial data
Share capital
Shareholding structure
CLASS/ISSUE
TYPE OF SHARES
NUMBER OF SHARES
NOMINAL VALUE OF CLASS/ISSUE
EQUITY COVERAGE
REGISTRATION DATE
DIVIDEND RIGHTS (FROM DATE)
A
Common bearer stock
137 650 000
137 650
fully paid-up
21.12.1997
01.01.1998
B
Common bearer stock
7 690 000
7 690
fully paid-up
06.10.1998
01.01.1998
C
Common bearer stock
10 630 632
10 631
fully paid-up
12.12.2000
01.01.2000
D
Common bearer stock
9 777 571
9 777
fully paid-up
12.12.2000
01.01.2000
E
Common bearer stock
373 644
374
fully paid-up
29.08.2003
01.01.2003
F
Common bearer stock
621 411
621
fully paid-up
29.08.2003
19.05.2006
G
Common bearer stock
603 377
603
fully paid-up
29.08.2003
15.05.2008
H
Common bearer stock
359 840
360
fully paid-up
12.08.2004
01.01.2004
I
Common bearer stock
94 763 559
94 764
fully paid-up
29.11.2007
01.01.2008
Total number of Shares (pcs)
262 470 034
Total share capital in PLN thousand
262 470
Nominal value per share = PLN 1.00
92
Bank Pekao S.A.
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
Change in the number of shares (pcs)
2021
ISSUED AND FULLY PAID-UP SHARES
TOTAL
Opening balance
262 470 034
262 470 034
Closing balance
262 470 034
262 470 034
2020
ISSUED AND FULLY PAID-UP SHARES
TOTAL
Opening balance
262 470 034
262 470 034
Closing balance
262 470 034
262 470 034
Other capital and reserves, retained earnings and profit for the period
The table below presents the structure of the Group’s equity attributable to equity holders of the Bank
31.12.2021
31.12.2020
Share premium
9 137 221
9 137 221
General banking risk fund
1 982 459
1 982 459
Other reserve capital
9 684 220
9 386 555
Revaluation reserves, in this:
(1 618 480)
1 355 621
remeasurements of the defined benefit liabilities (net of tax)
(44 917)
(83 590)
revaluation of debt financial instruments and loans measured at fair value through other comprehensive income (net of tax)
(518 881)
754 536
revaluation or sale of investments in equity instruments designated at fair value through other comprehensive income (net of tax)
200 877
203 957
revaluation of hedging financial instruments (net of tax)
(1 255 559)
480 718
Other supplementary capital, in this:
369 538
381 413
supplementary capital
325 719
337 594
bonds convertible into shares - equity component
28 819
28 819
fund for brokerage activities
15 000
15 000
Other capital and reserves
19 554 958
22 243 269
Retained earnings
1 859 104
1 876 177
Net profit for the period
2 174 897
1 101 712
Retained earnings and net profit for the period
4 034 001
2 977 889
Total
23 588 959
25 221 158
The net profit of the Bank for 2020 in the amount of PLN 1 126 424 thousand was distributed in the following way: PLN 842 529 thousand was allocated to the payment of dividends, and the remaining part of the net profit in the amount of PLN 283 895 thousand was allocated to reserve capital.
93
Bank Pekao S.A.
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
44. Non - controlling interests
Significant accounting policies
Non - controlling interests are defined as the equity in a subsidiary not attributable, directly or indirectly, to the Bank
Financial data
The below table presents the information for each of the subsidiaries that have non-controlling interests that are material to the Group
PERCENTAGE SHARE OF NON-CONTROLLING INTERESTS IN SHARE CAPITAL / VOTING RIGHTS
NET PROFIT FOR THE PERIOD ATTRIBUTABLE TO NON-CONTROLLING INTERESTS
ACCUMULATED NON-CONTROLLING INTERESTS
NAME OF THE SUBSIDIARY
COUNTRY OF INCORPORATION AND PLACE OF BUSINESS
31.12.2021
31.12.2020
2021
2020
31.12.2021
31.12.2020
Pekao Financial Services Sp. z o.o.
Poland
33.50
33.50
1 661
1 189
11 857
11 349
Total
1 661
1 189
11 857
11 349
The summarized financial information of each of the subsidiaries that are material to the Group are presented below
PEKAO FINANCIAL SERVICES SP. Z O.O.
31.12.2021
31.12.2020
Loans and advances to banks
15 314
11 708
Intangible assets
13 341
16 454
Property, plant and equipment
18 786
12 904
Other items of assets
8 180
7 566
TOTAL ASSETS
55 621
48 632
Amounts due to customers
9 055
3 483
Other liabilities
9 967
9 419
Other items of liabilities
1 206
1 854
TOTAL LIABILITIES
20 228
14 756
PEKAO FINANCIAL SERVICES SP. Z O.O.
2021
2020
Revenue
69 458
65 030
Net profit for the period
4 958
3 550
Other comprehensive income
110
(27)
Total comprehensive income
5 068
3 523
Dividends paid to non-controlling interests
1 089
1 469
Cash flows from operating activities
17 056
15 413
Cash flows from investing activities
(6 394)
(7 324)
Cash flows from financing activities
(7 058)
(7 700)
Net change in cash and cash equivalents
3 604
389
Cash and cash equivalents at the beginning of the period
11 711
11 322
Cash and cash equivalents at the end of the period
15 315
11 711
94
Bank Pekao S.A.
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
45. Additional information to the consolidated cash flow statement
Cash and cash equivalents
NOTE
31.12.2021
31.12.2020
Cash and amounts due from Central Bank
20
4 696 620
4 456 279
Loans and receivables from banks with maturity up to 3 months
21
3 039 005
2 549 069
Cash and Cash equivalents presented in the cash flow statement
7 735 625
7 005 348
Restricted availability cash and cash equivalents as at 31 December 2021 amounted to PLN 996 870 thousand (PLN 150 198 thousand as at 31 December 2020).
As at 3 January 2021, the value of acquired cash and cash equivalents related to the acquisition of the part of the activities of Idea Bank S.A. amounted to PLN 1 259 939 thousand.
Changes in liabilities arising from financing activities
NON-CASH CHANGES
BALANCE AS AT 1.01.2021
CHANGES FROM FINANCING CASH FLOWS
THE EFFECT OF CHANGES IN FOREIGN EXCHANGE RATES
OTHER CHANGES
BALANCE AS AT 31.12.2021
Debt securities issued
6 146 708
(782 488)
10 650
(19 515)
5 355 355
Subordinated liabilities
2 757 876
-
-
3 598
2 761 474
Loans and advances received
6 305 526
(1 725 526)
(9 792)
7 368
4 577 576
Lease liabilities
406 411
(113 674)
-
65 315
358 052
Total
15 616 521
(2 621 688)
858
56 766
13 052 457
NON-CASH CHANGES
BALANCE AS AT 1.01.2020
CHANGES FROM FINANCING CASH FLOWS
THE EFFECT OF CHANGES IN FOREIGN EXCHANGE RATES
OTHER CHANGES
BALANCE AS AT 31.12.2019
Debt securities issued
6 307 837
(207 083)
18 767
27 187
6 146 708
Subordinated liabilities
2 764 493
-
-
(6 617)
2 757 876
Loans and advances received
5 194 074
815 828
295 838
(214)
6 305 526
Lease liabilities
407 205
(113 645)
-
112 851
406 411
Total
14 673 609
495 100
314 605
133 207
15 616 521
Explanation of reasons for the differences between changes in the statement of financial position and changes in the status of these items in the operating activities of the cash flow statement
Change in loans and advances to banks
2021
Change in balance sheet
(258 845)
Change in business combination
35 891
Total
(222 954)
Change in derivate financial instruments (assets)
2021
Change in balance sheet
(3 116 308)
Change in business combination
9 044
Total
(3 107 264)
95
Bank Pekao S.A.
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
Change in loans and advances to customers (in this receivables from financial leases)
2021
Change in balance sheet
(16 590 564)
Change in business combination
12 060 942
Total
(4 529 622)
Change in securities including Assets pledged as security for liabilities
2021
Change in balance sheet
1 116 271
Change in business combination
518 340
Total
1 634 611
Change in other assets
2021
Change in balance sheet
(2 880 274)
Change in business combination
134 844
Total
(2 745 430)
Change in amounts due to banks
2021
Change in balance sheet
350 705
Change in business combination
(125 488)
Total
225 217
Change in derivative financial instruments (liabilities)
2021
Change in balance sheet
3 351 927
Change in business combination
(164 176)
Total
3 187 751
Change in amounts due to customers
2021
Change in balance sheet
17 024 428
Change in business combination
(13 575 553)
Total
3 448 875
Change in provisions
2021
Change in balance sheet
(105 596)
Change in business combination
(3 889)
Total
(109 485)
96
Bank Pekao S.A.
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
Change in other liabilities
2021
Change in balance sheet
987 819
Change in business combination
(343 798)
Total
644 021
46. Related party transactions
The transactions between the Bank and related parties are typical transactions arising from current operating activities conducted by the Bank. Such transactions mainly include loans, deposits, foreign currency transactions and guarantees.
The cr e dit granting process applicable to the Bank’s management and entities related to the Bank
According to the Banking Act, credit transactions with Members of the Bank’s Management Board and Supervisory Board, persons holding managerial positions at the Bank, with the entities related financially or organizationally therewith, shall be effected according to Regulation adopted by the Supervisory Board of the Bank.
The Regulation provides detailed decision-making procedures, applicable to transactions with such persons and entities, also defining the decision-making levels authorized to take decisions. In particular, the transactions with the Members of the Bank’s Management Board or Supervisory Board or with an entity related therewith financially or organizationally, are subject to decisions taken by the Bank’s Management Board and Supervisory Board.
Members of the Bank’s Management Board and entities related therewith financially or organizationally may take advantage of credit products offered by the Bank on standard terms and conditions of the Bank. In particular, the Bank may not offer more advantageous credit interest rates to such persons or entities.
Credit risk assessment is performed using the methodology applied by the Bank, tailored to the client’s segment and type of transaction.
In case of entities related to the Bank, the standard credit procedures are applied, with transaction-related decisions taken exclusively at level of the Bank’s Head Office.
97
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
Bank Pekao S.A.
Related party transactions
Related party transactions as at 31 December 2021
NAME OF ENTITY
RECEIVABLES FROM LOANS AND PLACEMENTS
SECURITIES
RECEIVABLES FROM REVALUATION OF DERIVATIVES
OTHER RECEIVABLES
LIABILITIES FROM LOANS AND DEPOSITS
LIABILITIES FROM REVALUATION OF DERIVATIVES
OTHER LIABILITIES
PZU S.A. – the Bank‘s parent entity
11 838
-
4 061
4 770
151 803
-
1 976
Entities of PZU S.A. Group excluding of Bank Pekao S.A. Group entities
618
-
209
9 455
181 649
802
996
Subsidiaries of Bank Pekao S.A Group entities
-
Krajowy Integrator Płatności S.A.
-
-
-
7
50 743
-
-
Key management personnel of the Bank Pekao S.A.
654
-
-
-
2 508
-
-
Total
13 110
-
4 270
14 232
386 703
802
2 972
Related party transactions as at 31 December 2020
NAME OF ENTITY
RECEIVABLES FROM LOANS AND PLACEMENTS
SECURITIES
RECEIVABLES FROM REVALUATION OF DERIVATIVES
OTHER RECEIVABLES
LIABILITIES FROM LOANS AND DEPOSITS
LIABILITIES FROM REVALUATION OF DERIVATIVES
OTHER LIABILITIES
PZU S.A. – the Bank‘s parent entity
1
-
911
3 839
87 519
-
2 238
Entities of PZU S.A. Group excluding of Bank Pekao S.A. Group entities
1
-
9 517
12 498
308 929
322
1 109
Key management personnel of the Bank Pekao S.A.
1 640
-
-
-
2 943
-
-
Total
1 642
-
10 428
16 337
399 391
322
3 347
98
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
Bank Pekao S.A.
Income and expenses from transactions with related parties for the period from 1 January 2021 to 31 December 2021
NAME OF ENTITY
INTEREST INCOME
INTERES EXPENSE
FEE AND COMMISSION INCOME
FEE AND COMMISSION EXPENSE
POSITIVE VALUATION OF DERIVATIVES AND OTHER INCOME
NEGATIVE VALUATION OF DERIVATIVES AND OTHER EXPENSES
PZU S.A. – the Bank ‘s parent entity
(1 796)
(96)
51 258
(668)
2 858
(659)
Entities of PZU S.A. Group excluding of Bank Pekao S.A. Group entities
39
(99)
53 096
(260)
2 455
(23 441)
Subsidiaries of Bank Pekao S.A Group entities
Krajowy Integrator Płatności S.A.
-
-
175
-
-
-
Key management personnel of the Bank Pekao S.A.
39
(1)
-
-
-
-
Total
(1 718)
(196)
104 529
(928)
5 313
(24 100)
Income and expenses from transactions with related parties for the period from 1 January 2020 to 30 December 2020
NAME OF ENTITY
INTEREST INCOME
INTERES EXPENSE
FEE AND COMMISSION INCOME
FEE AND COMMISSION EXPENSE
POSITIVE VALUATION OF DERIVATIVES AND OTHER INCOME
NEGATIVE VALUATION OF DERIVATIVES AND OTHER EXPENSES
PZU S.A. – the Bank ‘s parent entity
(1 644)
(417)
38 777
(533)
321
(3 136)
Entities of PZU S.A. Group excluding of Bank Pekao S.A. Group entities
188
(445)
44 227
(208)
2 657
(15 014)
Key management personnel of the Bank Pekao S.A.
4
(16)
1
-
-
-
Total
(1 452)
(878)
83 005
(741)
2 978
(18 150)
99
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
Bank Pekao S.A.
Off-balance sheet financial liabilities and guarantees as at 30 December 2021
GRANTED
RECEIVED
NAME OF ENTITY
FINANCIAL
GUARANTEES
FINANCIAL
GUARANTEE
PZU S.A. – the Bank‘s parent entity
2 735
107 148
-
528 931
Entities of PZU S.A. Group excluding of Bank Pekao S.A. Group entities
7 056
102 241
-
-
Key management personnel of the Bank Pekao S.A.
156
-
-
-
Total
9 947
209 389
-
528 931
Off-balance sheet financial liabilities and guarantees as at 31 December 2020
GRANTED
RECEIVED
NAME OF ENTITY
FINANCIAL
GUARANTEES
FINANCIAL
GUARANTEE
PZU S.A. – the Bank‘s parent entity
2 710
108 637
-
530 702
Entities of PZU S.A. Group excluding of Bank Pekao S.A. Group entities
1 085
103 730
-
-
Key management personnel of the Bank Pekao S.A.
255
-
-
-
Total
4 050
212 367
-
530 702
100
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
Bank Pekao S.A.
Transactions with the State Treasury
The Bank's transactions with the State Treasury were mostly related to treasury securities and banking services. These transactions are concluded and settled on terms obtainable by customers who are not related parties.
Remuneration expenses of the Bank’s Management Board and Supervisory Board Members
VALUE OF BENEFITS
2021
2020
Management Board of the Bank
Short-term employee benefits (*)
12 430
11 285
Post-employment benefits
645
242
Long-term benefits (**)
980
897
Share-based payments (***)
4 936
2 808
Total
18 991
15 232
Supervisory Board of the Bank
Short-term employee benefits ( *)
1 274
1 131
Total
1 274
1 131
(*) Short-term employee benefits include: base salary, bonuses and other benefits due in next 12 months from the date of the balance sheet.
(**) The item ‘Other long-term benefit’ includes: provisions for deferred bonus payments.
(***) The value of share-based payments is a part of Personnel Expenses, recognized according to IFRS 2 during the reporting period in the income statement, representing the settlement of fair value of shares, including phantom shares, granted to the Members of the Bank’s Management Board.
The Bank’s Management Board and Supervisory Board Members did not receive any remuneration from subsidiaries and associates in 2021 and 2020.
Remuneration expenses of Supervisory Boards and Management Boards of subsidiaries
VALUE OF BENEFITS
2021
2020
Companies’ Management Boards
Short-term employee benefits
12 672
12 509
Post-employment benefits
1 587
1 204
Long-term benefits
660
1 547
Paid termination benefits
241
396
Total
15 160
15 656
Companies’ Supervisory Boards
Short-term employee benefits
813
689
Total
813
689
101
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
Bank Pekao S.A.
47. Risk management and fair value
The risk management policy of the Bank aims at optimizing the structure of the statement of financial position and off- balance sheet items taking into consideration the assumed risks-income relation and overall impact of various risks that the Bank undertakes in conducting its business activities. Risks are monitored and controlled with reference to profitability and capital coverage and are regularly reported in accordance with rules presented below
The further part of the note describes all the significant types of risk involved in the Group's operations.
NOTE TITLE
NOTE NUMBER
Organizational structure of risk management
47.1
Credit risk
47.2
Legal risk related to foreign currency mortgage loans in CHF
47.3
Market risk
47.4
Reform of interest rate indices
47.5
Liquidity risk
47.6
Operational risk
47.7
Capital management
47.8
Climate risk
47.9
Fair value of financial assets and liabilities
47.10
47.1. Organizational structure of risk management
Supervisory Board
The Supervisory Board provides supervision over the risk management system, assessing its adequacy and effectiveness. Moreover, the Supervisory Board supervises the compliance of the Group’s policy with respect to risk taking with the Group’s strategy and financial plan. Carrying out their tasks, the Supervisory Board is assisted by the Risk Committee.
Management Board
The Management Board is responsible for the development, implementation and functioning of risk management processes by, among others, introduction of relevant, internal regulations, taking into consideration the results of internal audit inspections.
The Management Board is responsible for the effectiveness of the risk management system, internal control system, internal capital computation process and the effectiveness of the review of the process of computing and monitoring of internal capital. Moreover, the Management Board introduces the essential adjustments or improvements to those processes and systems whenever necessary. This need may be a consequence of changes to risk levels of the Group’s operations, business environment factors or irregularities in the functioning of processes or systems.
Periodically, the Management Board submits to the Supervisory Board concise information on the types, scale and significance of risks the Group is exposed to, as well as on methods used in the management of such risks.
The Management Board is responsible for assessing, whether activities such as identification, measurement, monitoring, reporting and control or mitigation are carried out appropriately within the scope of the risk management process. Moreover, the Management Board examines whether the management at all levels is effectively managing the risks within the scope of their competence.
Committees
Performing these risk management tasks, the Management Board is supported by the relevant committees:
• Assets, Liabilities and Risk Management Committee - in market risk management, liquidity and capital adequacy,
• Liquidity and Market Risk Committee, acting as support for the Assets, Liabilities and Risk Management Committee – in liquidity and market risk management,
• Operational Risk Committee – in operational risk management,
• Credit Committee – in making credit decisions within the powers, and in the case of issuing recommendations on the largest transactions presented to the Management Board for decision,
• Safety Committee – in the field of security and business continuity management,
• Model Risk Committee – in model risk management,
102
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
Bank Pekao S.A.
• Recovery Plan Committee – for supporting the proces of creating, maintaining and updating the Recovery Plan prepared in accordance with applicable law.
47.2. Credit risk
Credit risk is one of the basic risks associated with activities of the Group. The percentage share of credits and loans in the Group’s statement of financial position makes the maintenance of this risk at safe level essential to the Group’s performance. The process of credit risk management is centralized and managed mainly by Risk Management Division units, situated at the Bank Head Office or in local units.
Risk management process covers all credit functions – credit analysis, making credit decisions, monitoring and loan administration, as well as restructuring and collection.
These functions are conducted in compliance with the Bank’s credit policy, adopted by the Bank’s Management Board and the Bank’s Supervisory Board for a given reporting year. The effectiveness and efficiency of credit functions are achieved using diverse credit methods and methodologies, supported by advanced IT tools, integrated into the Bank’s general IT system. The Bank’s procedures facilitate credit risk mitigation, in particular those related to transaction risk evaluation, to establishing collateral, setting authorization limits for granting loans and limiting of exposure to some areas of business activity in line with current client’s segmentation scheme in the Bank.
Credit granting authorizations, restrictions on crediting the specific business activities as well as internal and external prudential standards include not only credits, loans and guarantees, but also derivatives transactions and debt securities.
The Bank’s lending activity is limited by the restrictions of the external regulation as well as internal prudential standards in order to increase safety. These restrictions refer in particular to credit exposure concentration, credit quality ratios and exposure limits for particular foreign countries, foreign banks and domestic financial institutions.
Dla wzrostu bezpieczeństwa działalność kredytowa limitowana jest w oparciu o ograniczenia wynikające z przepisów zewnętrznych oraz wewnętrzne normy ostrożnościowe. Dotyczą one w szczególności koncentracji zaangażowania kredytowego, wskaźników jakości portfela kredytowego oraz limitów zaangażowania na poszczególne kraje, banki zagraniczne i krajowe instytucje finansowe.
The Bank established the following portfolio limits in the Bank’s credit policy:
• exposure limits for sectors of economy,
• limits on the concentration of the largest exposures to entities / groups of related entities,
• limits for main business lines and currency receivables,
• product limits (mortgage loans to private individuals, exposures to business entities secured by mortgage, inculidng financing commercial real estate).
The internal limits system operating in the Bank also includes a number of detailed limits supporting key limits set out in the credit policy.
Moreover, the Bank limits higher risk credit transactions, marked by excess risk by restricting the decision-making powers in such cases to higher-level decision-making bodies.
The management of the Bank’s credit portfolio quality is further supported by regular reviews and continuous monitoring of timely loan repayments and the financial condition of the borrowers
Rating models utilized in the credit risk management process
For credit risk management purposes, the Group uses the internal rating models depending on the client’s segment and/or exposure type.
The rating process is a significant element of credit risk assessment in relation to clients and transactions, and constitutes a preliminary stage of the credit decision-making process of granting a new credit or changing the terms and conditions of an existing credit and of the credit portfolio quality monitoring process.
In the credit risk measurement the following three parameters are used: PD, LGD and EAD. PD is the probability of a client’s failure to meet its obligations and hence the violation of contract terms and conditions by the borrower within one year horizon, such default may be subject-matter or product-related. LGD indicates the estimated value of the loss to be incurred for any credit transaction from the date of occurrence of such default. EAD reflects the estimated value of credit exposure as at such date.
The risk parameters based on the rating models are designed for calculation of the expected losses resulted from credit risk.
The value of expected loss is one of the significant assessment criteria taken into consideration by the decision-making bodies in the course of the crediting process. In particular, this value is compared to the requested margin level.
103
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
Bank Pekao S.A.
The level of minimum margins for given products or client segments is determined based upon risk analysis, taking into consideration the value of risk parameters assessed.
The client and transaction rating, as well as other credit risk parameters hold a significant role in the Credit Risk Management Information System. For each rating model, the credit risk reports provide information on the comparison between the realized parameters and the theoretical values for each rating class.
Credit risk reports are generated on a monthly basis, with their scope varying depending upon the recipient of the report (the higher the management level, the more aggregated the information presented). Credit risk reports are being used in the credit risk management process.
For internal purposes, within the Group the following rating models are used, developed in accordance with provisions of 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:
1) For the retail clients, the Group uses the following models applicable for:
• small and medium enterprises (SME),
• private individuals, dividing clients into:
o mortgage loans (secured by mortgage)
o consumer loans (consumer),
o renewable limits.
2) For the corporate clients, the Group uses rating models dividing clients into:
• corporate clients (corporations),
• small and medium enterprises (SME),
• local government units.
3) For the corporate clients, Pekao Bank Hipoteczny S.A. uses the SOP rating model (Point Rating System) under the Internal Ratings Based Approach, which involves the use of supervisory classes in the process of assigning risk weights.
4) For specialized lending the Group uses a slotting criteria approach to the Internal Ratings Based Approach, which consists of the use of supervisory classes in the process of assigning risk weights.
In 2021, the Group started the process of adjusting the rating scale for internal rating models in line with the rating scale applicable to external ratings - called Master scale.
The masters scale is presented in the table below:
CLASS
DESCRIPTION
AA
AA-
High quality
A+
A
A-
Strong payment capacity
BBB+
BBB
BBB-
Adequate payment capacity
Investment grade
BB+
BB
BB-
Likely to fulfil obligations outgoing uncertainty
B+
B
B-
High credit risk
CCC
Very high credit risk
CC
C
Near default with possibility of recovery
Speculative grade
104
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
Bank Pekao S.A.
At the end of 2021, the rating models within the corporate client / enterprise segment were mapped to the Masterscale The following exposure types are not covered by internal rating models:
The following exposure types are not covered by internal rating models:
1) retail exposures immaterial in terms of size and perceived risk profile:
• overdrafts,
• exposures related to credit cards,
• exposures related to the Building Society (Kasa Mieszkaniowa) unit,
• other loans.
2) corporate clients:
• exposures to stock exchanges and other financial intermediators,
• exposures to insurance companies,
• project financing,
• purchased receivables,
• exposures to investment funds,
• exposures to leasing companies and financial holding companies,
• other loans immaterial in terms of size and perceived risk profile.
3) exposures to regional governments and local authorities which are not treated as exposures to central governments, for which the number of significant counterparties is limited.
The tables below present the quality of the loan portfolio.
105
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
Bank Pekao S.A.
The distribution of rated portfolio for retail client segment (excluding impaired loans)
31.12.2021
GROSS CARRYING AMOUNT OF ON-BALANCE EXPOSURES
NOMINAL AMOUNT OF OFF-BALANCE EXPOSURES
RATING CLASS
RANGE OF PD
STAGE 1 (12M ECL)
STAGE 2 (LIFETIME ECL - NOT CREDIT- IMPAIRED)
TOTAL
STAGE 1 (12M ECL)
STAGE 2 (LIFETIME ECL - NOT CREDIT- IMPAIRED)
TOTAL
% PORT- FOLIO
SME
1
0% <= PD < 0.06%
18 954
4 200
23 154
9 347
96
9 443
0.6%
2
0.06% <= PD < 0.14%
230 522
22 491
253 013
148 894
14 906
163 800
7.3%
3
0.14% <= PD < 0.35%
555 212
53 551
608 763
239 198
21 643
260 841
15.2%
4
0.35% <= PD < 0.88%
632 853
70 218
703 071
180 052
17 686
197 738
15.7%
5
0.88% <= PD < 2.10%
714 714
94 478
809 192
92 579
8 848
101 427
16.0%
6
2.10% <= PD < 4.00%
560 146
85 208
645 354
81 940
7 329
89 269
12.9%
7
4.00% <= PD < 7.00%
652 792
131 571
784 363
52 047
6 259
58 306
14.8%
8
7.00% <= PD < 12.00%
311 857
91 048
402 905
9 936
3 559
13 495
7.3%
9
12.00% <= PD < 22.00%
135 430
114 130
249 560
4 652
7 841
12 493
4.6%
10
22.00% <= PD < 100%
-
303 305
303 305
-
13 690
13 690
5.6%
Total
3 812 480
970 200
4 782 680
818 645
101 857
920 502
100.0%
CONSUMER LOANS
MORTGAGE LOANS( SECURED MORTGAGE)
1
0% <= PD < 0.06%
8 718 535
1 225 378
9 943 913
195 184
92
195 276
15.3%
2
0.06% <= PD < 0.19%
4 055 789
1 076 737
5 132 526
200 231
190
200 421
8.1%
3
0.19% <= PD < 0.35%
25 646 061
4 400 355
30 046 416
256 751
74 412
331 163
45.9%
4
0.35% <= PD < 0.73%
13 042 449
3 233 004
16 275 453
862 079
60 441
922 520
26.0%
5
0.73% <= PD < 3.50%
445 612
1 181 367
1 626 979
63 354
32 608
95 962
2.6%
6
3.50% <= PD < 14.00%
35 942
611 578
647 520
11 485
53 302
64 787
1.1%
7
14.00% <= PD < 100%
567
682 632
683 199
197
7 812
8 009
1.0%
Total
51 944 955
12 411 051
64 356 006
1 589 281
228 857
1 818 138
100.0%
CASH LOANS (CONSUMER)
1
0% <= PD < 0.09%
907 459
91 223
998 682
-
-
-
9.2%
12
0.09% <= PD < 0.18%
1 642 182
66 305
1 708 487
83
-
83
15.8%
3
0.18% <= PD < 0.39%
2 939 313
75 235
3 014 548
60
-
60
27.8%
4
0.39% <= PD < 0.90%
2 312 392
63 964
2 376 356
69
-
69
21.9%
5
0.90% <= PD < 2.60%
1 293 362
241 854
1 535 216
6
1
7
14.2%
6
2.60% <= PD < 9.00%
249 714
415 285
664 999
3
2
5
6.1%
7
9.00% <= PD < 30.00%
52 733
291 781
344 514
-
51
51
3.2%
8
30.00% <= PD < 100%
-
199 801
199 801
-
6
6
1.8%
Total
9 397 155
1 445 448
10 842 603
221
60
281
100.0%
LIMITS
1
0% <= PD < 0.02%
1 851
7 021
8 872
51 451
368 995
420 446
43.4%
2
0.02% <= PD < 0.11%
13 515
33 292
46 807
41 424
178 139
219 563
27.0%
3
0.11% <= PD < 0.35%
15 156
47 920
63 076
10 505
49 478
59 983
12.5%
4
0.35% <= PD < 0.89%
23 838
30 759
54 597
32 110
17 804
49 914
10.6%
5
0.89% <= PD < 2.00%
1 270
20 566
21 836
400
6 176
6 576
2.9%
6
2.00% <= PD < 4.80%
813
12 750
13 563
250
6 866
7 116
2.1%
7
4.80% <= PD < 100%
104
7 603
7 707
106
6 595
6 701
1.5%
Total
56 547
159 911
216 458
136 246
634 053
770 299
100.0%
Individual client segment - total
65 211 137
14 986 610
80 197 747
2 544 393
964 827
3 509 220
106
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
Bank Pekao S.A.
The distribution of rated portfolio for individual client segment (excluding impaired loans)
31.12.2020
GROSS CARRYING AMOUNT OF ON-BALANCE EXPOSURES
NOMINAL AMOUNT OF OFF-BALANCE EXPOSURES
RATING CLASS
RANGE OF PD
STAGE 1 (12M ECL)
STAGE 2 (LIFETIME ECL - NOT CREDIT- IMPAIRED)
TOTAL
STAGE 1 (12M ECL)
STAGE 2 (LIFETIME ECL - NOT CREDIT- IMPAIRED)
TOTAL
% PORT- FOLIO
MORTGAGE LOANS
1
0% <= PD < 0.06%
9 427 476
1 397 961
10 825 437
270 897
479
271 376
17.5%
2
0.06% <= PD < 0.19%
4 223 460
1 161 191
5 384 651
287 367
537
287 904
9.0%
3
0.19% <= PD < 0.35%
24 407 668
5 112 529
29 520 197
298 535
37 889
336 424
47.2%
4
0.35% <= PD < 0.73%
10 585 602
2 558 630
13 144 232
195 676
38 329
234 005
21.1%
5
0.73% <= PD < 3.50%
543 562
1 313 860
1 857 422
101 870
37 841
139 711
3.2%
6
3.50% <= PD < 14.00%
36 358
600 638
636 996
14 659
60 045
74 704
1.1%
7
14.00% <= PD < 100%
2 594
567 408
570 002
246
11 041
11 287
0.9%
Total
49 226 720
12 712 217
61 938 937
1 169 250
186 161
1 355 411
100.0%
CONSUMER LOANS
1
0% <= PD < 0,09%
820 562
147 240
967 802
1
-
1
8.7%
2
0.09% <= PD < 0.18%
1 623 714
147 160
1 770 874
158
-
158
16.0%
3
0.18% <= PD < 0.39%
2 774 848
155 910
2 930 758
25
-
25
26.4%
4
0.39% <= PD < 0.90%
2 249 802
234 957
2 484 759
91
-
91
22.4%
5
0.90% <= PD < 2.60%
1 105 232
466 568
1 571 800
20
2
22
14.2%
6
2.60% <= PD < 9.00%
317 618
398 689
716 307
2
5
7
6.5%
7
9.00% <= PD < 30.00%
84 197
294 287
378 484
-
8
8
3.4%
8
30.00% <= PD < 100%
18 416
243 084
261 500
-
-
-
2.4%
Total
8 994 389
2 087 895
11 082 284
297
15
312
100.0%
LIMITS
1
0% <= PD < 0.02%
1 525
6 888
8 413
45 511
403 620
449 131
46.6%
2
0.02% <= PD < 0.11%
7 841
31 815
39 656
31 717
190 209
221 926
26.7%
3
0.11% <= PD < 0.35%
8 665
52 654
61 319
7 044
57 153
64 197
12.8%
4
0.35% <= PD < 0.89%
9 548
38 977
48 525
11 126
17 824
28 950
7.9%
5
0.89% <= PD < 2.00%
906
18 497
19 403
296
6 415
6 711
2.7%
6
2.00% <= PD < 4.80%
644
10 461
11 105
158
6 472
6 630
1.8%
7
4.80% <= PD < 100%
108
8 447
8 555
109
6 213
6 322
1.5%
Total
29 237
167 739
196 976
95 961
687 906
783 867
100.0%
Individual client segment - total
58 250 346
14 967 851
73 218 197
1 265 508
874 082
2 139 590
107
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
Bank Pekao S.A.
The distribution of rated portfolio for corporate client segment (excluding impaired loans)
31.12.2021
GROSS CARRYING AMOUNT OF ON-BALANCE EXPOSURES
NOMINAL AMOUNT OF OFF-BALANCE EXPOSURES
RATING CLASS
RANGE OF PD
STAGE 1 (12M ECL)
STAGE 2 (LIFETIME ECL - NOT CREDIT- IMPAIRED)
TOTAL
STAGE 1 (12M ECL)
STAGE 2 (LIFETIME ECL - NOT CREDIT- IMPAIRED)
TOTAL
% PORT- FOLIO
CORPORATES (MASTERSCALE)
AA
0% <= PD <= 0.01000%
59 213
-
59 213
-
-
-
0.1%
AA-
0.01000% < PD <= 0.01700%
-
-
-
-
-
-
0.0%
A+
0.01700% < PD <= 0.02890%
-
-
-
-
-
-
0.0%
A
0.02890% < PD <= 0.04913%
2 817
-
2 817
20
-
20
0.0%
A-
0.04193% < PD <= 0.08352%
5 979
-
5 979
49 769
-
49 769
0.1%
BBB+
0.08352% < PD <= 0.14199%
1 559 323
-
1 559 323
306 790
-
306 790
4.0%
BBB
0.14199% < PD <= 0.24138%
306 760
4 708
311 468
549 992
89
550 081
1.8%
BBB-
0.24138% < PD <= 0.41034%
1 038 179
58 377
1 096 556
1 574 628
756
1 575 384
5.7%
BB+
0.41034% < PD <= 0.69758%
2 597 200
20 999
2 618 199
4 000 438
6
4 000 444
14.0%
BB
0.69758% < PD <= 1.18588%
4 118 318
84 704
4 203 022
4 477 712
447 655
4 925 367
19.5%
BB-
1.18588% < PD <= 2.01599%
3 661 479
103 428
3 764 907
3 635 015
1 371 088
5 006 103
18.7%
B+
2.01599% < PD <= 3.42719%
4 034 313
81 022
4 115 335
3 016 987
40 831
3 057 818
15.2%
B
3.42719% < PD <= 5.82622%
1 645 570
39 680
1 685 250
1 248 775
21 485
1 270 260
6.3%
B-
5.82622% < PD <= 9.90458%
2 397 058
807 431
3 204 489
1 858 950
132 012
1 990 962
11.0%
CCC
9.90458% < PD <= 16.83778%
478 375
497 835
976 210
127 665
564 027
691 692
3.5%
CC
16,83778% < PD <= 28.62423%
37 508
3 370
40 878
17 032
7 436
24 468
0.1%
C
28.62423% < PD <= 100%
8 276
4 136
12 412
3 721
323
4 044
0.0%
Total
21 950 368
1 705 690
23 656 058
20 867 494
2 585 708
23 453 202
100.0%
SME (MASTERSCALE)
AA
0% <= PD <= 0.01000%
-
-
-
-
-
-
0.0%
AA-
0.01000% < PD <= 0.01700%
-
-
-
-
-
-
0.0%
A+
0.01700% < PD <= 0.02890%
-
-
-
5 300
-
5 300
0.0%
A
0.02890% < PD <= 0.04913%
24 661
863
25 524
29 525
647
30 172
0.2%
A-
0.04193% < PD <= 0.08352%
68 922
2 116
71 038
206 803
5 944
212 747
1.0%
BBB+
0.08352% < PD <= 0.14199%
338 732
2 501
341 233
636 929
3 872
640 801
3.4%
BBB
0.14199% < PD <= 0.24138%
1 469 048
4 522
1 473 570
1 097 007
7 620
1 104 627
8.9%
BBB-
0.24138% < PD <= 0.41034%
1 336 528
16 955
1 353 483
1 537 073
30 914
1 567 987
10.0%
BB+
0.41034% < PD <= 0.69758%
2 448 557
78 737
2 527 294
1 521 833
53 994
1 575 827
14.1%
BB
0.69758% < PD <= 1.18588%
2 169 621
90 738
2 260 359
1 230 353
72 268
1 302 621
12.3%
BB-
1.18588% < PD <= 2.01599%
1 864 571
202 825
2 067 396
1 465 152
113 774
1 578 926
12.5%
B+
2.01599% < PD <= 3.42719%
2 148 403
152 440
2 300 843
793 515
56 786
850 301
10.8%
B
3.42719% < PD <= 5.82622%
1 447 464
341 765
1 789 229
846 323
87 431
933 754
9.4%
B-
5.82622% < PD <= 9.90458%
1 776 496
521 535
2 298 031
1 059 878
291 768
1 351 646
12.5%
CCC
9.90458% < PD <= 16.83778%
222 843
652 409
875 252
119 491
209 327
328 818
4.1%
CC
16,83778% < PD <= 28.62423%
52 144
59 328
111 472
4 464
44 359
48 823
0.6%
C
28.62423% < PD <= 100%
-
48 669
48 669
-
8 656
8 656
0.2%
Total
15 367 990
2 175 403
17 543 393
10 553 646
987 360
11 541 006
100.0%
ENTERPRISES COVERED BY THE SOP RATING MODEL (PEKAO BANK HIPOTECZNY S.A.)
SOP1
112 254
5 152
117 406
-
-
-
23.1%
SOP2
200 983
18 057
219 040
-
-
-
43.2%
SOP3
15 780
72 590
88 370
-
-
-
17.4%
SOP4
794
8 436
9 230
-
-
-
1.8%
SOP5
-
47 501
47 501
-
-
-
9.4%
SOP6
-
15 747
15 747
-
-
-
3.1%
SOP7
-
9 973
9 973
-
-
-
2.0%
Total
329 811
177 456
507 267
-
-
-
100.0%
Corporate client segment - total
37 648 169
4 058 549
41 706 718
31 421 140
3 573 068
34 994 208
108
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
Bank Pekao S.A.
The distribution of rated portfolio for corporate client segment (excluding impaired loans)
31.12.2020
GROSS CARRYING AMOUNT OF ON-BALANCE EXPOSURES
NOMINAL AMOUNT OF OFF-BALANCE EXPOSURES
RATING CLASS
RANGE OF PD
STAGE 1 (12M ECL)
STAGE 2 (LIFETIME ECL - NOT CREDIT- IMPAIRED)
TOTAL
STAGE 1 (12M ECL)
STAGE 2 (LIFETIME ECL - NOT CREDIT- IMPAIRED)
TOTAL
% PORT- FOLIO
CORPORATES
1
0% <= PD < 0.14%
122 099
140
122 239
471 598
131
471 729
1.0%
2
.,14% <= PD < 0.25%
1 011 543
3 521
1 015 064
2 139 727
17 586
2 157 313
5.4%
3
0.25% <= PD < 0.42%
2 522 666
5 956
2 528 622
6 194 806
40 235
6 235 041
15.0%
4
0.42% <= PD < 0.77%
5 863 163
85 402
5 948 565
6 452 169
520 941
6 973 110
22.1%
5
0.77% <= PD < 1.42%
5 568 552
731 633
6 300 185
6 592 749
356 656
6 949 405
22.7%
6
1.42% <= PD < 2.85%
2 467 610
579 431
3 047 041
2 579 710
568 572
3 148 282
10.6%
7
2.85% <= PD < 6.00%
3 954 244
828 511
4 782 755
3 316 399
405 511
3 721 910
14.6%
8
6.00% <= PD < 12.00%
1 212 857
1 578 229
2 791 086
1 186 916
618 521
1 805 437
7.9%
9
12.00% <= PD < 100%
15 135
143 710
158 845
36 308
203 597
239 905
0.7%
Total
22 737 869
3 956 533
26 694 402
28 970 382
2 731 750
31 702 132
100.0%
SME
1
0% <= PD < 0.06%
16 014
55
16 069
23 521
100
23 621
1.0%
2
0.06% <= PD < 0.14%
192 212
2 495
194 707
246 236
3 682
249 918
10.7%
3
0.14% <= PD < 0.35%
626 147
36 791
662 938
417 039
19 206
436 245
26.4%
4
0.35% <= PD < 0.88%
644 033
62 747
706 780
327 976
35 695
363 671
25.7%
5
0.88% <= PD < 2.10%
481 445
85 207
566 652
162 376
22 431
184 807
18.0%
6
2.10% <= PD < 4.00%
239 868
57 842
297 710
85 155
9 394
94 549
9.4%
7
4.00% <= PD < 7.00%
92 500
45 809
138 309
37 030
19 426
56 456
4.7%
8
7.00% <= PD < 12.00%
59 119
27 267
86 386
9 175
1 636
10 811
2.3%
9
12.00% <= PD < 22.00%
14 454
16 963
31 417
3 023
747
3 770
0.8%
10
22.00% <= PD < 100%
13 291
24 301
37 592
2 992
1 354
4 346
1.0%
Total
2 379 083
359 477
2 738 560
1 314 523
113 671
1 428 194
100.0%
ENTERPRISES COVERED BY THE SOP RATING MODEL (PEKAO BANK HIPOTECZNY S.A.)
SOP1
4 351
3 684
8 035
-
-
-
1.2%
SOP2
11 645
9 767
21 412
-
-
-
3.3%
SOP3
110 384
21 436
131 820
-
-
-
20.5%
SOP4
282 789
187 809
470 598
-
-
-
73.2%
SOP5
-
11 648
11 648
-
-
-
1.8%
Total
409 169
234 344
643 513
-
-
-
100.0%
Corporate client segment - total
25 526 121
4 550 354
30 076 475
30 284 905
2 845 421
33 130 326
109
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
Bank Pekao S.A.
The distribution of rated portfolio for local government units segment (excluding impaired loans)
31.12.2021
GROSS CARRYING AMOUNT OF ON-BALANCE EXPOSURES
NOMINAL AMOUNT OF OFF-BALANCE EXPOSURES
RATING CLASS
RANGE OF PD
STAGE 1 (12M ECL)
STAGE 2 (LIFETIME ECL - NOT CREDIT- IMPAIRED)
TOTAL
STAGE 1 (12M ECL)
STAGE 2 (LIFETIME ECL - NOT CREDIT- IMPAIRED)
TOTAL
% PORT- FOLIO
LOCAL GOVERNMENT UNITS (MASTERSCALE)
AA
0% <= PD <= 0.01000%
-
-
-
-
-
-
0.0%
AA-
0.01000% < PD <= 0.01700%
-
-
-
-
-
-
0.0%
A+
0.01700% < PD <= 0.02890%
-
-
-
-
-
-
0.0%
A
0.02890% < PD <= 0.04913%
808
-
808
3 004
-
3 004
0.3%
A-
0.04193% < PD <= 0.08352%
137 441
-
137 441
1 013
-
1 013
10.1%
BBB+
0.08352% < PD <= 0.14199%
25 597
-
25 597
19 480
-
19 480
3.3%
BBB
0.14199% < PD <= 0.24138%
220 232
-
220 232
30 030
-
30 030
18.2%
BBB-
0.24138% < PD <= 0.41034%
116 412
-
116 412
37 267
-
37 267
11.2%
BB+
0.41034% < PD <= 0.69758%
530 662
-
530 662
48 616
-
48 616
42.1%
BB
0.69758% < PD <= 1.18588%
25 694
-
25 694
23 010
-
23 010
3.5%
BB-
1.18588% < PD <= 2.01599%
135 468
-
135 468
20 025
-
20 025
11.3%
B+
2.01599% < PD <= 3.42719%
-
-
-
-
-
-
0.0%
B
3.42719% < PD <= 5.82622%
-
-
-
-
-
-
0.0%
B-
5.82622% < PD <= 9.90458%
-
-
-
-
-
-
0.0%
CCC
9.90458% < PD <= 16.83778%
-
-
-
-
-
-
0.0%
CC
16.83778% < PD <= 28.62423%
-
-
-
-
-
-
0.0%
C
28.62423% < PD <= 100%
-
-
-
-
-
-
0.0%
Total
1 192 314
-
1 192 314
182 445
-
182 445
100.0%
31.12.2020
GROSS CARRYING AMOUNT OF ON-BALANCE EXPOSURES
NOMINAL AMOUNT OF OFF-BALANCE EXPOSURES
RATING CLASS
RANGE OF PD
STAGE 1 (12M ECL)
STAGE 2 (LIFETIME ECL - NOT CREDIT- IMPAIRED)
TOTAL
STAGE 1 (12M ECL)
STAGE 2 (LIFETIME ECL - NOT CREDIT- IMPAIRED)
TOTAL
% PORT- FOLIO
LOCAL GOVERNMENT UNITS
1
0% <= PD < 0.04%
5 529
-
5 529
60 890
-
60 890
3.2%
2
0.04% <= PD < 0.06%
223 197
-
223 197
9 959
-
9 959
11.3%
3
0.06% <= PD < 0.13%
84 722
-
84 722
120 552
-
120 552
10.0%
4
0.13% <= PD < 0.27%
381 489
-
381 489
130 319
-
130 319
24.9%
5
0.27% <= PD < 0.50%
310 006
-
310 006
56 900
-
56 900
17.8%
6
0.50% <= PD < 0.80%
459 694
-
459 694
61 000
-
61 000
25.4%
7
0.80% <= PD < 1.60%
129 683
-
129 683
23 275
-
23 275
7.4%
8
1.60% <= PD < 100%
-
-
-
-
-
-
0.0%
Total
1 594 320
-
1 594 320
462 895
-
462 895
100.0%
110
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
Bank Pekao S.A.
The distribution of the portfolio exposure to specialized lending (excluding impaired loans)
31.12.2021
GROSS CARRYING AMOUNT OF ON-BALANCE EXPOSURES
NOMINAL AMOUNT OF OFF-BALANCE EXPOSURES
RATING CLASS
STAGE 1 (12M ECL)
STAGE 2 (LIFETIME ECL - NOT CREDIT- IMPAIRED)
TOTAL
STAGE 1 (12M ECL)
STAGE 2 (LIFETIME ECL - NOT CREDIT- IMPAIRED)
TOTAL
% PORT- FOLIO
EXPOSURE TO SPECIALIZED LENDING
High
497 119
7 554
504 673
44 678
-
44 678
7.4%
Good
3 111 071
2 100 087
5 211 158
947 275
-
947 275
83.5%
Satisfactory
98 501
561 996
660 497
8 990
-
8 990
9.1%
Low
-
2 698
2 698
-
-
-
0.0%
Total
3 706 691
2 672 335
6 379 026
1 000 943
-
1 000 943
100.0%
31.12.2020
GROSS CARRYING AMOUNT OF ON-BALANCE EXPOSURES
NOMINAL AMOUNT OF OFF-BALANCE EXPOSURES
RATING CLASS
STAGE 1 (12M ECL)
STAGE 2 (LIFETIME ECL - NOT CREDIT- IMPAIRED)
TOTAL
STAGE 1 (12M ECL)
STAGE 2 (LIFETIME ECL - NOT CREDIT- IMPAIRED)
TOTAL
% PORT- FOLIO
EXPOSURE TO SPECIALIZED LENDING
High
448 501
-
448 501
22 137
-
22 137
7.2%
Good
2 475 157
1 911 113
4 386 270
686 820
8 882
695 702
78.0%
Satisfactory
104 540
842 280
946 820
17 460
3
17 463
14.8%
Low
-
-
-
-
-
-
0.0%
Total
3 028 198
2 753 393
5 781 591
726 417
8 885
735 302
100.0%
Portfolio of exposures not covered by the rating model (excluding impaired loans), broken down by delays in repayment
31.12.2021
GROSS CARRYING AMOUNT OF ON-BALANCE EXPOSURES
NOMINAL AMOUNT OF OFF-BALANCE EXPOSURES
STAGE 1 (12M ECL)
STAGE 2 (LIFETIME ECL - NOT CREDIT- IMPAIRED)
TOTAL
STAGE 1 (12M ECL)
STAGE 2 (LIFETIME ECL - NOT CREDIT- IMPAIRED)
TOTAL
% PORT- FOLIO
EXPOSURES NOT COVERED BY THE RATING MODEL
Not past due
24 458 763
3 261 682
27 720 445
14 292 116
784 966
15 077 082
98.4%
Past due, of which:
363 119
183 619
546 738
146 535
9 242
155 777
1.6%
up to 1 month
343 385
91 513
434 898
138 945
836
139 781
1.3%
between 1 month and 2 months
17 540
72 617
90 157
3 378
4 290
7 668
0.2%
between 2 and 3 months
2 194
19 489
21 683
4 212
4 116
8 328
0.1%
Total
24 821 882
3 445 301
28 267 183
14 438 651
794 208
15 232 859
100.0%
111
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
Bank Pekao S.A.
Portfolio of exposures not covered by the rating model (excluding impaired loans), broken down by delays in repayment
31.12.2020
GROSS CARRYING AMOUNT OF ON-BALANCE EXPOSURES
NOMINAL AMOUNT OF OFF-BALANCE EXPOSURES
STAGE 1 (12M ECL)
STAGE 2 (LIFETIME ECL - NOT CREDIT- IMPAIRED)
TOTAL
STAGE 1 (12M ECL)
STAGE 2 (LIFETIME ECL - NOT CREDIT- IMPAIRED)
TOTAL
% PORT- FOLIO
EXPOSURES NOT COVERED BY THE RATING MODEL
Not past due
25 136 203
4 294 870
29 431 073
14 837 215
797 768
15 634 983
98.1%
Past due, of which:
701 345
166 741
868 086
22 909
1 414
24 323
1.9%
up to 1 month
685 830
59 123
744 953
22 909
977
23 886
1.6%
between 1 month and 2 months
10 474
79 297
89 771
-
35
35
0.2%
between 2 and 3 months
5 041
28 321
33 362
-
402
402
0.1%
Total
25 837 548
4 461 611
30 299 159
14 860 124
799 182
15 659 306
100.0%
Portfolio of impaired exposures, broken down by delays in repayment
31.12.2021
GROSS CARRYING AMOUNT OF ON-BALANCE EXPOSURES
NOMINAL AMOUNT OF OFF-BALANCE EXPOSURES
STAGE 3 (LIFETIME ECL - CREDIT- IMPAIRED)
STAGE 3 (LIFETIME ECL - CREDIT- IMPAIRED)
INDIVIDUAL ASSESSMENT
GROUP ASSESSMENT
PURCHASED OR ORIGINATED CREDIT- IMPAIRED (POCI)
TOTAL
INDIVIDUAL ASSESSMENT
GROUP ASSESSMENT
TOTAL
% PORT- FOLIO
IMPAIRED EXPOSURES
Not past due
1 452 056
812 087
65 782
2 329 925
307 261
12 324
319 585
27.7%
Past due, of which:
3 209 283
2 847 694
751 539
6 808 516
87 966
6 110
94 076
72.3%
up to 1 month
74 454
264 155
33 133
371 742
14
2 575
2 589
3.9%
between 1 month and 3 months
24 855
272 184
25 148
322 187
493
649
1 142
3.4%
between 3 months and 1 year
362 967
540 108
32 407
935 482
2 986
967
3 953
9.8%
between 1 year and 5 years
604 480
1 048 767
474 499
2 127 746
82 754
1 159
83 913
23.2%
above 5 years
2 142 527
722 480
186 352
3 051 359
1 719
760
2 479
32.0%
Total
4 661 339
3 659 781
817 321
9 138 441
395 227
18 434
413 661
100.0%
31.12.2020
GROSS CARRYING AMOUNT OF ON-BALANCE EXPOSURES
NOMINAL AMOUNT OF OFF-BALANCE EXPOSURES
STAGE 3 (LIFETIME ECL - CREDIT- IMPAIRED)
STAGE 3 (LIFETIME ECL - CREDIT- IMPAIRED)
INDIVIDUAL ASSESSMENT
GROUP ASSESSMENT
PURCHASED OR ORIGINATED CREDIT- IMPAIRED (POCI)
TOTAL
INDIVIDUAL ASSESSMENT
GROUP ASSESSMENT
TOTAL
% PORT- FOLIO
IMPAIRED EXPOSURES
Not past due
1 924 516
610 169
4 947
2 539 632
299 090
14 134
313 224
31.5%
Past due, of which:
3 311 495
2 682 313
34 625
6 028 433
180 147
2 725
182 872
68.5%
up to 1 month
38 232
223 655
9 635
271 522
96
740
836
3.0%
between 1 month and 3 months
74 415
215 886
109
290 410
79
198
277
3.2%
between 3 months and 1 year
178 664
412 604
7 151
598 419
1 142
622
1 764
6.6%
between 1 year and 5 years
516 238
1 039 721
957
1 556 916
177 115
557
177 672
19.1%
above 5 years
2 503 946
790 447
16 773
3 311 166
1 715
608
2 323
36.6%
Total
5 236 011
3 292 482
39 572
8 568 065
479 237
16 859
496 096
100.0%
112
Bank Pekao S.A.
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
Client/transaction rating and credit risk decision-making level
Decision-making level connected with transaction approval is directly dependent upon the client’s rating.
Decision-making entitlement limits are associated with the position held, determined in accordance with the Bank’s organizational structure. The limits are determined taking the following matters into consideration:
• the Bank’s total exposure to a client, including the amount of the requested transaction,
• type of a client,
• commitments of persons and entities associated with the client.
Validation of rating models
The internal validation of models and risk parameter assessments is focused on the quality assessment of risk models and the accuracy and stability of parameter assessments, applied by the Bank. Validation is carried out at the level of each risk model, although the Bank may apply several models for each class of exposures.
Moreover, the internal audit unit is obligated to review the Bank’s rating systems and their functionality at least once a year. In particular, the internal audit unit reviews the scope of operations of credit division and estimations of risk parameters.
Division of loans and advances to customers for covered and not covered by internal rating models
31.12.2021
PORTFOLIO
GROSS CARRYING AMOUNT
IMPAIRMENT ALLOWANCE
NET CARRYING AMOUNT
Exposures with no impairment
157 742 988
(1 687 944)
156 055 044
Rated portfolio for retail client segment
80 197 747
(631 518)
79 566 229
Micro entrepreneurs
4 782 680
(46 119)
4 736 561
Individual client – mortgage loans
64 356 006
(260 257)
64 095 749
Individual client – consumer loans
10 842 603
(319 098)
10 523 505
Individual client – limits
216 458
(6 044)
210 414
Rated portfolio for corporate client segment
41 706 718
(344 433)
41 362 285
Corporates(Masterscale)
23 656 058
(161 340)
23 494 718
SMEs (Masterscale)
17 543 393
(181 233)
17 362 160
Corporate client segment - SOP rating model of Pekao Bank Hipoteczny S.A.
507 267
(1 860)
505 407
Rated portfolio for local government units segment (Masterscale)
1 192 314
(3 496)
1 188 818
Specialized lending exposures
6 379 026
(125 523)
6 253 503
Exposures not covered by the rating model
28 267 183
(582 974)
27 684 209
Impaired exposures
9 138 441
(6 125 108)
3 013 333
Total loans and advances to customers subject to impairment (*)
166 881 429
(7 813 052)
159 068 377
(*) Loans and advances to customers measured at amortised cost and measured at fair value through other comprehensive income.
31.12.2020
PORTFOLIO
GROSS CARRYING AMOUNT
IMPAIRMENT ALLOWANCE
NET CARRYING AMOUNT
Exposures with no impairment
140 969 742
(1 565 778)
139 403 964
Rated portfolio for individual client segment
73 218 197
(709 889)
72 508 308
Mortgage loans
61 938 937
(321 496)
61 617 441
Consumer loans
11 082 284
(382 770)
10 699 514
Limits
196 976
(5 623)
191 353
Rated portfolio for corporate client segment
30 076 475
(275 822)
29 800 653
Corporates
26 694 402
(222 752)
26 471 650
SMEs
2 738 560
(49 204)
2 689 356
Corporate client segment covered by the SOP rating model of Pekao Bank Hipoteczny S.A.
643 513
(3 866)
639 647
Rated portfolio for local government units segment
1 594 320
(1 912)
1 592 408
Specialized lending exposures
5 781 591
(85 668)
5 695 923
Exposures not covered by the rating model
30 299 159
(492 487)
29 806 672
Impaired exposures
8 568 065
(5 671 233)
2 896 832
Total loans and advances to customers subject to impairment (*)
149 537 807
(7 237 011)
142 300 796
(*) Loans and advances to customers measured at amortised cost and measured at fair value through other comprehensive income.
113
Bank Pekao S.A.
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
Division of off-balance sheet exposures to customers (loan commitments and financial guarantee contracts) for covered and not covered by internal rating models
31.12.2021
PORTFOLIO
NOMINAL AMOUNT
IMPAIRMENT ALLOWANCE
Exposures with no impairment
54 919 675
(201 966)
Rated portfolio for retail client segment
3 509 220
(8 017)
Micro entrepreneurs
920 502
(1 600)
Individual client – mortgage loans
1 818 138
(4 190)
Individual client – consumer loans
281
(12)
Individual client – limits
770 299
(2 215)
Rated portfolio for corporate client segment
34 994 208
(111 324)
Corporates (Materscale)
23 453 202
(65 704)
SMEs (Masterscale)
11 541 006
(45 620)
Rated portfolio for local government units segment (Masterscale)
182 445
(1)
Specialized lending exposures
1 000 943
(3 548)
Exposures not covered by the rating model
15 232 859
(79 076)
Impaired exposures
413 661
(153 557)
Total off- balance sheet exposures to customers
55 333 336
(355 523)
31.12.2020
PORTFOLIO
NOMINAL AMOUNT
IMPAIRMENT ALLOWANCE
Exposures with no impairment
52 127 419
(184 917)
Rated portfolio for individual client segment
2 139 590
(5 189)
Mortgage loans
1 355 411
(3 050)
Consumer loans
312
(132)
Limits
783 867
(2 007)
Rated portfolio for corporate client segment
33 130 326
(111 257)
Corporates
31 702 132
(107 711)
SMEs
1 428 194
(3 546)
Rated portfolio for local government units segment
462 895
(23)
Specialized lending exposures
735 302
(582)
Exposures not covered by the rating model
15 659 306
(67 866)
Impaired exposures
496 096
(191 960)
Total off- balance sheet exposures to customers
52 623 515
(376 877)
Classification of loans and advances to banks according to Fitch ratings
CARRYING AMOUNT
STAGE 3 (LIFETIME ECL - CREDIT- IMPAIRED)
31.12.2021
STAGE 1 (12M ECL)
STAGE 2 (LIFETIME ECL - NOT CREDIT- IMPAIRED)
INDIVIDUAL ASSESSMENT
GROUP ASSESSMENT
PURCHASED OR ORIGINATED CREDIT- IMPAIRED (POCI)
TOTAL
%PORTFOLIO
LOANS AND ADVANCES TO BANKS MEASURED AT AMORTISED COST
AA+ to AA-
29 868
-
-
-
-
29 868
09%
A+ to A-
1 987 728
109
-
39
-
1 987 876
59.7%
BBB+ to BBB-
581 645
-
-
-
-
581 645
17.5%
BB+ to BB-
809
-
-
-
-
809
0.0%
B+ to B-
1 086
-
-
-
-
1 086
0.0%
CCC+ to CCC-
559
49 187
-
-
-
49 746
1.5%
No rating
678 237
-
-
1
-
678 238
20.4%
Total gross carrying amount
3 279 932
49 296
-
40
-
3 329 268
100.0%
Impairment allowance
(1 180)
-
-
(1)
-
(1 181)
Total net carrying amount
3 278 752
49 296
-
39
-
3 328 087
114
Bank Pekao S.A.
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
Classification of loans and advances to banks according to Fitch ratings
CARRYING AMOUNT
STAGE 3 (LIFETIME ECL - CREDIT- IMPAIRED)
31.12.2020
STAGE 1 (12M ECL)
STAGE 2 (LIFETIME ECL - NOT CREDIT- IMPAIRED)
INDIVIDUAL ASSESSMENT
GROUP ASSESSMENT
PURCHASED OR ORIGINATED CREDIT- IMPAIRED (POCI)
TOTAL
%PORTFOLIO
LOANS AND ADVANCES TO BANKS MEASURED AT AMORTISED COST
AA+ to AA-
6 304
-
-
-
-
6 304
0.2%
A+ to A-
1 494 902
168
-
82
-
1 495 152
58.0%
BBB+ to BBB-
385 790
-
-
-
-
385 790
15.0%
BB+ to BB-
14 035
-
-
-
-
14 035
0.5%
B+ to B-
150
-
-
-
-
150
0.0%
No rating
678 127
-
-
4
-
678 131
26.3%
Total gross carrying amount
2 579 308
168
-
86
-
2 579 562
100.0%
Impairment allowance
(1 219)
-
-
(4)
-
(1 223)
Total net carrying amount
2 578 089
168
-
82
-
2 578 339
Classification of exposures to debt securities according to Fitch ratings (*)
CARRYING AMOUNT
STAGE 3 (LIFETIME ECL - CREDIT-IMPAIRED)
31.12.20201
STAGE 1 (12M ECL)
STAGE 2 (LIFETIME ECL - NOT CREDIT- IMPAIRED)
INDIVIDUAL ASSESSMENT
GROUP ASSESSMENT
PURCHASED OR ORIGINATED CREDIT- IMPAIRED (POCI)
TOTAL
%PORTFOLIO
DEBT SECURITIES MEASURED AT AMORTISED COST
AAA
1 158 883
-
-
-
-
1 158 883
2.6%
A+ to A-
31 073 235
-
-
-
-
31 073 235
70.0%
BBB+ to BBB-
45 336
-
-
-
-
45 336
0.1%
BB+ to BB-
299 459
-
-
-
-
299 459
0.7%
No rating
11 439 712
318 725
34 554
-
38 951
11 831 942
26.6%
Gross carrying amount
44 016 625
318 725
34 554
-
38 951
44 408 855
100.0%
Impairment allowance
(60 717)
(7 625)
(34 554)
-
(29 858)
(132 754)
Carrying amount
43 955 908
311 100
-
-
9 093
44 276 101
DEBT SECURITIES MEASURED AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME
AAA
2 537 340
-
-
-
-
2 537 340
11.2%
A+ to A-
14 847 597
-
-
-
-
14 847 597
65.2%
BBB+ to BBB-
1 424 234
-
-
-
-
1 424 234
6.3%
BB+ to BB-
65 541
-
-
-
-
65 541
0.3%
No rating
3 788 054
89 027
-
-
-
3 877 081
17.0%
Carrying amount
22 662 766
89 027
-
-
-
22 751 793
100.0%
Impairment allowance (**)
(45 615)
(3 073)
-
-
-
(48 688)
DEBT SECURITIES HELD FOR TRADING
AAA
A+ to A-
398 151
72.6%
BBB+ to BBB-
34 470
6.3%
No rating
115 580
21.1%
Carrying amount
548 201
100.0%
(*) Debt securities presented in the statement of financial position under ‘Securities’ and ‘Assets pledged as security for liabilities’
(**) The impairment allowance for debt securities measured at fair value through other comprehensive income is included in the ‘Revaluation reserve’ item and does not reduce the carrying amount.
115
Bank Pekao S.A.
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
Classification of exposures to debt securities according to Fitch ratings (*)
CARRYING AMOUNT
STAGE 3 (LIFETIME ECL - CREDIT-IMPAIRED)
31.12.2020
STAGE 1 (12M ECL)
STAGE 2 (LIFETIME ECL - NOT CREDIT- IMPAIRED)
INDIVIDUAL ASSESSMENT
GROUP ASSESSMENT
PURCHASED OR ORIGINATED CREDIT- IMPAIRED (POCI)
TOTAL
%PORTFOLIO
DEBT SECURITIES MEASURED AT AMORTISED COST
AAA
1 253 925
-
-
-
-
1 253 925
4.6%
A+ to A-
20 798 125
-
-
-
-
20 798 125
76.0%
BBB+ to BBB-
41 891
-
-
-
-
41 891
0.2%
No rating
5 169 771
38 434
32 971
-
-
5 241 176
19.2%
Gross carrying amount
27 263 712
38 434
32 971
-
-
27 335 117
100.0%
Impairment allowance
(40 018)
(582)
(32 971)
-
5
(73 566)
Carrying amount
27 223 694
37 852
-
-
5
27 261 551
DEBT SECURITIES MEASURED AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME
AAA
4 752 614
-
-
-
-
4 752 614
11.1%
A+ to A-
25 545 632
-
-
-
-
25 545 632
59.8%
BBB+ to BBB-
1 892 344
-
-
-
-
1 892 344
4.4%
BB+ to BB-
36 542
-
-
-
-
36 542
0.1%
No rating
10 365 983
144 385
-
-
-
10 510 368
24.6%
Carrying amount
42 593 115
144 385
-
-
-
42 737 500
100.0%
Impairment allowance (**)
(60 041)
(3 102)
-
-
-
(63 143)
DEBT SECURITIES HELD FOR TRADING
AAA
707
0.1%
A+ to A-
1 113 330
84.8%
BBB+ to BBB-
2 733
0.2%
No rating
195 546
14.9%
Carrying amount
1 312 316
100.0%
(*) Debt securities presented in the statement of financial position under ‘Securities’ and ‘Assets pledged as security for liabilities’.
(**) The impairment allowance for debt securities measured at fair value through other comprehensive income is included in the ‘Revaluation reserve’ item and does not reduce the carrying amount.
Classification of exposures to derivative financial instruments according to Fitch ratings
DERIVATIVES HELD FOR TRANDING
HEDGING DERIVATIVES
31.12.2021
BANKS
OTHER FINANCIAL INSTITUTIONS
NON- FINANCIAL ENTITIES
BANKS
OTHER FINANCIAL INSTITUTIONS
NON- FINANCIAL ENTITIES
TOTAL
%PORTFOLIO
AAA
554 590
5 078 530
-
1
14 814
-
5 647 935
70.6%
AA+ to AA-
113 738
551 703
-
7 219
-
-
672 660
8.4%
A+ to A-
126 322
455
-
35 082
-
-
161 859
2.0%
BBB+ to BBB-
615 476
-
206 283
13 602
-
-
835 361
10.4%
BB+ to BB-
1 039
-
-
-
-
-
1 039
-
B+ to B-
-
-
-
-
-
-
-
-
No rating
154 093
113 573
412 737
7 498
-
-
687 901
8.6%
Total
1 565 258
5 744 261
619 020
63 402
14 814
-
8 006 755
100.0%
116
Bank Pekao S.A.
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
Classification of exposures to derivative financial instruments according to Fitch ratings
DERIVATIVES HELD FOR TRANDING
HEDGING DERIVATIVES
31.12.2020
BANKS
OTHER FINANCIAL INSTITUTIONS
NON- FINANCIAL ENTITIES
BANKS
OTHER FINANCIAL INSTITUTIONS
NON- FINANCIAL ENTITIES
TOTAL
%PORTFOLIO
AAA
769 483
2 541 241
-
20 734
752 993
-
4 084 451
73.0%
AA+ to AA-
46 151
3 041
-
514
-
-
49 706
0.9%
A+ to A-
107 019
-
-
4 348
-
-
111 367
2.0%
BBB+ to BBB-
203 595
-
188 340
474
-
-
392 409
7.0%
BB+ to BB-
4 157
-
-
-
-
-
4 157
0.1%
B+ to B-
-
-
-
-
-
-
-
-
No rating
95 171
190 097
663 936
-
-
-
949 204
17.0%
Total
1 225 576
2 734 379
852 276
26 070
752 993
-
5 591 294
100.0%
The description of the model for impairment allowance
The Group has recognized impairment allowance in accordance with the IRFS 9. IFRS 9 assumes the calculation of impairment losses based on expected credit losses and taking into account forecasts and expected future economic conditions in the context of credit risk exposure assessment.
Expected credit loss model
Expected credit loss model applies to financial assets classified, in accordance with the IFRS 9, as financial assets at amortized cost or at fair value through other comprehensive income, with the exception of equity instruments (except for equity instruments), as well as off-balance sheet commitments.
Expected credit loss model in accordance with IFRS 9 is based on the allocation of exposure to one of the three stages, depending on credit quality changes compared to the initial recognition of assets in the accounting records. How to calculate the impairment loss depends on the stage.
STAGE
CLASSIFICATION CRITERION TO THE STAGE
THE METHOD OF CALCULATING THE IMPAIRMENT ALLOWANCE
Stage 1
Exposures for which no significant increase in credit risk has been identified since the initial recognition until the balance sheet date and no impairment was identified
12-month expected credit losses
Stage 2
Exposures for which a significant increase in credit risk has been identified since the initial recognition until the balance sheet date and no impairment was identified
Stage 3
Exposures for which impairment has been identified
Lifetime expected credit losses
In addition, financial assets that were classified as POCI at the time of initial recognition are treated as POCI (i.e. purchased or originated credit-impaired) in all subsequent periods until they are derecognised. This rule applies even if, in the meantime, the asset has been healed. In other words, assets once recognized as POCI remain in this status regardless of future changes in estimates of their cash flows.
In the case of instruments with the POCI status, life-time expected credit losses are recognized throughout the lifetime of these instruments.
Calculation of expected credit losses
For the purpose of calculating the credit loss in accordance with IFRS 9, the Group compares cash flows that it should receive pursuant to the agreement with the borrower and flows estimated by the Group that it expects to receive. The difference is discounted using the effective interest rate
Expected credit losses are determined in the contractual maturity period with the exception of products meeting the criteria of IFRS 9 para. 5.5.20, for which the Group determines the expected losses in the period in which it is exposed to credit risk (ie in the economic maturity).
117
Bank Pekao S.A.
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
Methodology for calculating group parameters - PD, RR and EAD.
The lifetime ECL calculation requires the use of long-term risk parameters.
Multi-year PD parameters are an assessment of the probability of a default event in the next annual intervals in the lifetime horizon. The long-term PD curve for a given exposure depends on the current value of the 12M PD parameter (and the appropriate rating class) determined based on the internal PD models of the Group. In the estimation, the Group:
• estimates unbiased PD parameters without taking into account additional margins of conservatism (IFRS 9, paragraph 5.5.17 (a)),
• takes into account current and forecasted macroeconomic conditions (IFRS 9, paragraph 5.5.17 (c)).
The calculation of expected recovery rates (RR) is based on the ‘pool’ model, in which, within homogeneous groups, average monthly recoveries are calculated conditionally against the months since default (MSD). Homogeneous groups of accounts were separated on the basis of the following characteristics:
• the type of a borrower,
• product type,
• ranges of the LTV parameter (for mortgages and housing loans) or credit amount (for chosen products).
As part of defined homogeneous groups, average monthly recovery rates are calculated, which consist of repayments and recoveries resulting from both the secured part and the unsecured exposure, weighted by the value of outstanding capital observed at the beginning of a given MSD.
For products for which a repayment schedule is available, the Group sets the exposure value at the moment of default (EAD, Exposure at Default) and principal at the moment of default (PAD, Principal at Default) in the lifetime (ie for future repayments) based on contractual payment schedules and taking into account the following effects:
• the effect of arrears on principal and interest installments related to the expected non-payment of the last installments prior to the occurrence of the default,
• the effect of arrears of payments (principal and interest) on the date of calculation of the provision,
• the effect of settlement of the EIR adjustment over time.
For products for which a repayment schedule is not available, the Group sets the long-term EAD and PAD using the CCF (Credit Conversion Factor) and parameters . CCF parameters vary depending on the portfolio and the time horizon of EAD /
PAD estimation.
For exposures for which it is not possible to determine risk parameters based on internal models, the Group adopts an approach based on using parameters from other portfolios with similar characteristics.
The models and parameters used to calculate impairment allowance are periodically validated.
Sensitivity analysis of ECL in established changes of PD and RR/LGD parameters
The table below presents the results of the ECL sensitivity analysis for the assumed changes in PD and RR/LGD parameters carried out separately for exposures subject to individual and group analysis. For the exposures included in the Bank analysis, the PD and recovery rate (1-RR=LGD) increase and decrease by 1% and 5% scenario were presented compared to the values used to calculate the expected credit loss as of date 31 December.2021. For the exposures analyzed individually, the estimated impact is presented as a reduction of recoveries from collaterals included in the debt collection scenario by 10%.
Changes in impairment allowances level (ECL) in different scenarios of changing the influencing parameters for the calculation of write-offs (in millions of zlotys).
SCENARIO
GROUP ANALYSIS
INDYWIDUAL ANALYSIS
PARAMETER DELTA
PD CHANGE
RECOVER RATE CHANGE (1-LGD)
RECOVER RATE CHANGE
-10.0%
n/d
n/d
42
-5.0%
(94)
276
n/d
-1.0%
(18)
55
n/d
1.0%
18
(55)
n/d
5.0%
92
(275)
n/d
118
Bank Pekao S.A.
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
Exposures with low credit risk
According to par. 5.5.10 IFRS 9 exposures that are considered as low risk credit exposures at the reporting date may remain in Stage 1, regardless of the scale of the relative credit deterioration from the initial recognition. According to par. B.5.5.22 of IFRS 9, the credit risk of a financial instrument is considered low when:
• the financial instrument has a low risk of default,
• the borrower has a strong capacity to meet its contractual cash flow obligations in the near term,
• adverse changes in the economic and business conditions in the long term may, but will not necessarily, reduce the ability of the borrower to fulfil its contractual cash flow obligations.
The Group applies a low credit risk criterion for three portfolios: exposures to banks, exposures to local government units and exposures to the State Treasury and the National Bank of Poland.
Classification criteria to Stage 2
Financial assets for which at the balance sheet date the Group will identify a significant increase in credit risk from the initial recognition are classified in Stage 2. The Group recognizes that for a given asset a significant increase in credit risk has been identified if a quantitative or qualitative criterion is met, in particular if contractual payments are more than 30 days past due, where the occurrence of a given criterion is verified at the exposure level.
Quantitative criteria
Taking into account the requirements of the standard, the Group defined two basic characteristics of the quantitative model:
• the measure on the basis of which risk change assessment is made,
• the materiality threshold of the measure, above which the Bank recognizes that there has been a significant increase in credit risk.
The measure, on the basis of which risk change assessment is made, was set by the Group as the ratio of:
• current credit risk assessment defined as lifetime PD in the horizon from the reporting date to the maturity date determined on the basis of the characteristics effective as at the reporting date,
• the original credit risk assessment defined as lifetime PD in the period from the reporting date to the maturity date determined on the basis of the characteristics applicable as at the date of initial recognition.
The assessment of significance of credit risk deterioration is carried out by comparing the observed measure with the threshold above which the Group considers that a significant deterioration in credit risk occurred.
The allocation threshold is designated as the reporting date at the single exposure level by a statistical model based, among others, on information on the credit risk assessment as of the date of the initial recognition, the time from the date of the initial recognition of the exposure and historical price volatility.
The tables below present the average values of the risk change measure as at 31 December 2021 and 31 December 2020 determined for the most significant portfolios covered by the quantitative model.
AVERAGE MEASURE OF THE INCREASE RISK 31.12.2021
PORTFOLIO
STAGE 1
STAGE 2
Cash loans
0.9
3.4
Mortgages
3.0
8.6
SME Loans
1.2
5.5
Loans to other enterprises
1.5
6.7
AVERAGE MEASURE OF THE INCREASE RISK 31.12.2020
PORTFOLIO
STAGE 1
STAGE 2
Cash loans
1.3
3.4
Mortgages
2.4
8.9
SME Loans
1.7
6.6
Loans to other enterprises
2.0
6.0
119
Bank Pekao S.A.
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
Qualitative criteria
As a result of the monitoring process carried out by the Group, the qualitative criteria for the allocation to Stage 2 are identified, such as:
• a delay in repayment over 30 days (30 DPD),
• occurrence of forbearance status,
• exposure is on the Watchlist.
In addition to the above, for individual monitoring the Group has defined a number of specific quality criteria for various types of portfolios, such as, inter alia, changes in the internal rating, changes in supervisory classes for selected segments (eg specialized financing), warning signals identified in the monitoring system and credit risk management or the results of individual monitoring.
Classification criteria to Stage 3
Financial assets for which at the balance sheet date the Group has identified occurrences of the default event are classified in Stage 3.
The Group recognizes that for a given asset a default was identified if at least one of the following occurred:
• amount of arrears above the set materiality threshold (PLN 100 for retail exposures and PLN 2 000 for non-retail exposures) for over 90 days,
• exposure during the restructuring process,
• other qualitative impairment trigger.
For SME and corporate segments, default is identified at the customer level, whereas for the retail segment at the customer/product group level. The criterion of days and amounts of delays is also defined at the level of identification.
The Group applies a six-month quarantine period effective from the moment all defaults cease to exist.
At the end of 2021, the Group additionally included CHF mortgage loans in Stage 3 with gross carrying amount of PLN 232 950 thousand, for which the Group is in a court dispute with a client. This is due to the significant risk of incurring losses on these disputes.
Sensitivity analysis regarding the forecast of the macroeconomic situation
The Group estimates probability weighted expected credit losses taking into account 3 macro-economic scenarios: baseline (occurring with a probability of 45%), upward (assuming positive change of the quality of the portfolio in the next years compared to the baseline, occurring with a probability of 5%) and downward (assuming worsening of the quality of the portfolio in the next years compared to the baseline that could occur with a probability of 50%).
The changes in expected credit losses presented in the table below for exposures without impairment were designated as the difference between the expected credit losses calculated for a specific macroeconomic scenario and expected credit losses calculated taking into account all scenarios macroeconomic factors weighted with the probability of their realization (in accordance with IFRS 9).
31.12.2021
BASLINE SCENARIO
UPWARD SCENARIO
DOWNWARD SCENARIO
Changes in expected credit losses for exposures without impairment (Stages 1 and 2) assuming 100% implementation of the scenario
(157 948)
(699 765)
212 276
31.12.2020
BASLINE SCENARIO
UPWARD SCENARIO
DOWNWARD SCENARIO
Changes in expected credit losses for exposures without impairment (Stages 1 and 2) assuming 100% implementation of the scenario
(22 497)
16 398
134 046
The rules for taking expected macro-economic situation into account and definition of scenarios
Determining provisions in accordance with IFRS 9 requires forecasting evolution of main credit risk parameters for baseline and alternative macro-economic scenarios.
In comparison with the assumptions taken in 2020, changes have been made in 2021 in order to reflect the current expected economic situation and uncertainty factors regarding the future economic situation.
Forecast of risk parameters
In the past the Group used macro-economic models to forecast risk parameters for risk parameters. These translated macro-economic changes into evolution of default probabilities (PD) for different portfolios.
120
Bank Pekao S.A.
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
During COVID-19 pandemic some unique changes have occurred in the macro-economic situation and the credit quality of the portfolio. On one side unprecedented decline in the economy was observed (e.g. GDP down by around 4% y2y in 2020) but on the other side Group did not observe decline in credit worthiness and the only significant increase was related to the classification of all credit loan holidays as defaults in November 2020. This situation substantially disturbed dependencies maco-economic factors with PD observed in the past and made it impossible to apply current at the time models (these did not show justifiable economic dependencies or did not meet required statistical criteria).
As a result, alternative methods have been used to project PD since the beginning of COVID-19 pandemic. Until mid-2021, expert adjustments were applied in this regard, based on the historically observed loss ratio and a qualitative assessment of the expected economic situation and portfolio quality. In June 2021, the Bank modified this approach. Based on significant inertia of retail portfolios, a short term trend analysis of historical default rates have been applied. For non-retail portfolios projections are based on expert judgment of the economic conditions applied to the long term average through the cycle parameters, The analysis for non-retail portfolios consists of the following steps: an expert evaluation of the forecasted economic conditions based on Group’s projections and studies carried out by the Central Statistical Office in Poland (GUS), translation of this evaluation onto quantitative measure at the scale 0-100% indicating the phase of the economic cycle (e.g. 75% represents situation where in the past 75% of observation situation is better and in 25% is worse), finally getting the corresponding quantile of the historical default rates and use of it as the forecast for first year. For the second year forecast assumes midpoint of the linear convergence to average through the cycle parameters which is assumed to take place in the third year (which mirrors few years long credit cycles).
Table below shows PD forecasts used in the calculation of expected credit losses in baseline scenario. For retail portfolios the parameters are exposure weighted, while for non-retail portfolios observation weighted.
PORTFOLIO
HISTORICAL MEDIAN
BASE PD FORECAST
Cash loans
4.8%
4.8%
Mortgages
0.8%
0.8%
SME Loans
3.5%
4.9%
Loans to other enterprises
1.5%
2.2%
Scenarios definition
The PD parameters presented in the previous section refer to the baseline scenario of portfolio quality development. They reflect the assumption of a moderate economic slowdown amid persistent high inflation and interest rates as well as the ending pandemic (GDP growth by about 4%, average annual inflation of about 5% and WIBOR 3M at the end of the year over 4%). The assumptions for the remaining scenarios and the weights assigned to them are presented below.
In the applied approach the Bank used 3 scenario of evolution of quality of the portfolio: baseline (presented above), upward (assuming positive change in the credit quality of the portfolio in the next years compared to the baseline) and downward (assuming negative change in the credit quality of the portfolio in the next years compared to the baseline). The baseline scenario has the probability of occurrence of 45%, upward of 5% and downward of 50%. High probability of downward scenario reflects Bank’s expert judgment of the possibility of realization of some risks the economy of Poland faces and their significant impact on credit portfolio with regard to:
• further COVID-19 mutations and consequently further waves of the corona pandemic, whose impact could be higher due to reduction of mitigation programs,
• higher than expected increase of interest rates, which may result in a high increase of installments for some group of clients,
• higher than expected slowdown of the economy due to increased cost pressure on businesses
• outbreak of war on a large scale in East of Europe with consequences for businesses situation and consumer sentiments.
Individually the risk of these scenarios is equal or below 50% in the Bank’s view but their number implies high risk of occurrence of one of them.
The diversified nature of the observed threats and the breakdown of the dependencies between the parameters of the quality of the loan portfolio and the macroeconomic variables indicated in the previous section means that it is impossible to formulate scenarios in the form of extreme changes in macroeconomic factors. Therefore, the Bank applied an alternative approach in which the PD change scenarios are determined based on the historical variability of the DR. The downward scenario is assigned values corresponding to the high past observations, and similarly to the upward scenario, the values corresponding to the low past observations are assigned. This translates into the following PD forecasts for 2022.
121
Bank Pekao S.A.
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
PORTFOLIO
UPWARD SCENARIO
DOWNWARD SCENARIO
Cash loans
3.9%
6.0%
Mortgages
0.6%
1.0%
SME Loans
3.0%
5.2%
Loans to other enterprises
0.9%
3.0%
Apart from the listed above rules, for clients from high risk sectors sensitive to COVID-19 and those with identified higher risk, the internal rating was downgraded by maximum of 2 notches (in line with the standard monitoring process), which reflects their higher risk in current economic conditions.
The Group also carried out analysis confirming the lack of dependence of the recovery rates for non-performing exposures (RR parameter) on the economic situation. Therefore, the same recovery rates are assumed in each of the scenarios
The rules applied to subsidiaries
The subsidiaries of the Bank determine expected credit losses according to IFRS 9. Due to their characteristics and portfolios the scenarios used in the calculation of expected credit losses is not fully aligned.
The tables below present the changes in impairment allowances and gross carrying amount of financial assets not measured at fair value through profit or loss by class of financial assets:
LOANS AND ADVANCES TO BANKS AND CENTRAL BANKS MEASURED AT AMORTISED COST (*)
STAGE 3 (LIFETIME ECL - CREDIT-IMPAIRED)
STAGE 1 (12M ECL)
STAGE 2 (LIFETIME ECL - NOT CREDIT- IMPAIRED)
INDIVIDUAL ASSESSMENT
GROUP ASSESSMENT
TOTAL M
GROSS CARRYING AMOUNT
GROSS CARRYING AMOUNT AS AT 1.01.2021
2 729 506
168
-
86
2 729 760
Increases due to the acquisition of part of the activities of Idea Bank S.A.
210 088
-
-
-
210 088
Transfer to Stage 1
-
-
-
-
-
Transfer to Stage 2
(49 187)
49 187
-
-
-
Transfer to Stage 3
-
-
-
-
-
New / purchased / granted financial assets
3 301 324
-
-
-
3 301 324
Financial assets derecognised, other than write-offs (repayments)
(1 890 438)
-
-
(3)
(1 890 441)
Financial assets written off (**)
-
-
-
-
-
Other, in this changes resulting from exchange rates
(24 349)
(59)
-
(43)
(24 451)
GROSS CARRYING AMOUNT AS AT 31.12.2021
4 276 944
49 296
-
40
4 326 280
IMPAIRMENT ALLOWANCE
IMPAIRMENT ALLOWANCE AS AT 1.01.2021
1 232
-
-
4
1 236
Transfer to Stage 1
-
-
-
-
-
Transfer to Stage 2
-
-
-
-
-
Transfer to Stage 3
-
-
-
-
-
New / purchased / granted financial assets
1 274
-
-
-
1 274
Financial assets derecognised, other than write-offs (repayments)
(87)
-
-
-
(87)
Financial assets written off (**)
-
-
-
-
-
Changes in level of credit risk (excluding the transfers between the Stages)
4 594
-
-
(3)
4 591
Other, in this changes resulting from exchange rates
(5 758)
-
-
-
(5 758)
IMPAIRMENT ALLOWANCE AS AT 31.12.2021
1 255
-
-
1
1 256
(*) Receivables from the Central Bank include a current account and deposits.
(**) Including the value of contractual interest subject to partial write-off in the amount of PLN 0 thousand.
122
Bank Pekao S.A.
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
The tables below present the changes in impairment allowances and gross carrying amount of financial assets not measured at fair value through profit or loss by class of financial assets:
LOANS AND ADVANCES TO BANKS AND CENTRAL BANKS MEASURED AT AMORTISED COST (*)
STAGE 3 (LIFETIME ECL - CREDIT-IMPAIRED)
STAGE 1 (12M ECL)
STAGE 2 (LIFETIME ECL - NOT CREDIT- IMPAIRED)
INDIVIDUAL ASSESSMENT
GROUP ASSESSMENT
TOTAL M
GROSS CARRYING AMOUNT
GROSS CARRYING AMOUNT AS AT 1.01.2020
3 918 225
291
-
96
3 918 612
Transfer to Stage 1
23
(21)
-
(2)
-
Transfer to Stage 2
(34)
45
-
(11)
-
Transfer to Stage 3
(6)
(16)
-
22
-
New / purchased / granted financial assets
1 784 218
-
-
-
1 784 218
Financial assets derecognised, other than write-offs (repayments)
(3 033 953)
(96)
-
(27)
(3 034 076)
Financial assets written off (**)
-
-
-
(2)
(2)
Other, in this changes resulting from exchange rates
61 033
(35)
-
10
61 008
GROSS CARRYING AMOUNT AS AT 31.12.2020
2 729 506
168
-
86
2 729 760
IMPAIRMENT ALLOWANCE
IMPAIRMENT ALLOWANCE AS AT 1.01.2020
1 361
-
-
1
1 362
Transfer to Stage 1
-
-
-
-
-
Transfer to Stage 2
-
-
-
-
-
Transfer to Stage 3
(2)
-
-
2
-
New / purchased / granted financial assets
287
-
-
-
287
Financial assets derecognised, other than write-offs (repayments)
(178)
(54)
-
(22)
(254)
Financial assets written off (**)
-
-
-
(2)
(2)
Changes in level of credit risk (excluding the transfers between the Stages)
(144)
-
-
4
(140)
Other, in this changes resulting from exchange rates
(92)
54
-
21
(17)
IMPAIRMENT ALLOWANCE AS AT 31.12.2020
1 232
-
-
4
1 236
(*) Receivables from the Central Bank include a current account and deposits.
(**) Including the value of contractual interest subject to partial write-off in the amount of PLN 2 thousand.
123
Bank Pekao S.A.
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
LOANS AND ADVANCES TO CUSTOMERS MEASURED AT AMORTISED COST
LOANS AND ADVANCES TO CUSTOMERS MEASURED AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME
STAGE 3 (LIFETIME ECL - CREDIT-IMPAIRED))
TOTAL
STAGE 1 (12M ECL)
STAGE 2 (LIFETIME ECL - NOT CREDIT- IMPAIRED)
INDIVIDUAL ASSESSMENT
GROUP ASSESSMENT
PURCHASED OR ORIGINATED CREDIT- IMPAIRED (POCI )
TOTAL
STAGE 1 (12M ECL))
STAGE 2 (LIFETIME ECL - NOT CREDIT- IMPAIRED))
TOTAL
GROSS CARRYING AMOUNT
GROSS CARRYING AMOUNT AS AT 1.01.2021
113 515 763
25 978 924
5 236 011
3 292 482
39 572
148 062 752
720 770
754 285
1 475 055
Increases due to the acquisition of part of the activities of Idea Bank S.A.
11 131 290
-
-
-
1 058 185
12 189 475
-
-
-
Transfer to Stage 1
7 016 857
(6 840 700)
(7 080)
(169 077)
-
-
-
-
-
Transfer to Stage 2
(11 201 335)
11 453 901
(43 973)
(208 593)
-
-
-
-
-
Transfer to Stage 3
(549 762)
(1 091 496)
59 204
1 582 054
-
-
-
-
-
New / purchased / granted financial assets
41 934 360
-
-
-
5 704
41 940 064
-
-
-
Financial assets derecognised, other than write-offs (repayments)
(28 884 540)
(4 516 026)
(624 103)
(694 135)
(277 655)
(34 996 459)
(600 683)
(622 051)
(1 222 734)
Financial assets written off (*)
-
-
(143 005)
(282 258)
(66)
(425 329)
-
-
-
Modifications not resulting in derecognition
(2 150)
(999)
(2)
(214)
-
(3 365)
-
-
-
Other, in this changes resulting from exchange rates
(495 430)
48 502
184 287
139 522
(8 419)
(131 538)
(4 947)
(1 545)
(6 492)
GROSS CARRYING AMOUNT AS AT 31.12.2021
132 465 053
25 032 106
4 661 339
3 659 781
817 321
166 635 600
115 140
130 689
245 829
Including the gross carrying amount as at 31 December 2021
loans and credits from the acquisition of some of the activities of Idea Bank S.A.
5 679 719
751 651
19 285
339 364
757 506
7 547 525
-
-
-
IMPAIRMENT ALLOWANCE
IMPAIRMENT ALLOWANCE AS AT 1.01.2021
390 616
1 175 162
3 568 016
2 087 241
15 976
7 237 011
5 242
21 329
26 571
Transfer to Stage 1
240 293
(187 274)
(1 553)
(51 466)
-
-
-
-
-
Transfer to Stage 2
(31 711)
(70 247)
(8 089)
110 047
-
-
-
-
-
Transfer to Stage 3
(62 455)
(140 571)
(188 770)
391 796
-
-
-
-
-
New / purchased / granted financial assets
210 484
-
-
-
2 573
213 057
-
-
-
Financial assets derecognised, other than write-offs (repayments)
(56 214)
(54 219)
(46 927)
(44 408)
(49 294)
(251 062)
(3 733)
(19 258)
(22 991)
Financial assets written off (*)
-
-
(143 005)
(282 258)
(66)
(425 329)
-
-
-
Changes in level of credit risk (excluding the transfers between the Stages) (***)
(122 535)
278 303
159 173
368 289
162 598
845 828
1 903
(2 074)
(171)
Other, in this changes resulting from exchange rates
18 162
100 150
127 751
(126 690)
74 174
193 547
(1 458)
1 926
468
IMPAIRMENT ALLOWANCE AS AT 31.12.2021
586 640
1 101 304
3 466 596
2 452 551
205 961
7 813 052
1 954
1 923
3 877
(*) Including the value of contractual interest subject to partial write-off in the amount of PLN 209 110 thousand.
(**) The impairment allowance for loans and advances to customers measured at fair value through other comprehensive income is included in the Revaluation reserve’ item and does not reduce the carrying amount of the loan.
(***) Including the provision for legal risk regarding foreign currency mortgage loans in the amount of PLN 496 022 thousand.
124
Bank Pekao S.A.
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
The total value of undiscounted expected credit losses at the time of initial recognition of financial assets purchased or originated credit impaired in the period ended 31 December 2021 amounted to PLN 2 722 thousand.
LOANS AND ADVANCES TO CUSTOMERS MEASURED AT AMORTISED COST
LOANS AND ADVANCES TO CUSTOMERS MEASURED AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME
STAGE 3 (LIFETIME ECL - CREDIT-IMPAIRED))
TOTAL
STAGE 1 (12M ECL)
STAGE 2 (LIFETIME ECL - NOT CREDIT- IMPAIRED)
INDIVIDUAL ASSESSMENT
GROUP ASSESSMENT
PURCHASED OR ORIGINATED CREDIT- IMPAIRED (POCI )
TOTAL
STAGE 1 (12M ECL))
STAGE 2 (LIFETIME ECL - NOT CREDIT- IMPAIRED))
TOTAL
GROSS CARRYING AMOUNT
GROSS CARRYING AMOUNT AS AT 1.01.2020
117 966 139
19 613 896
5 250 851
2 885 848
42 806
145 759 540
771 987
608 620
1 380 607
Transfer to Stage 1
3 791 397
(3 754 500)
(957)
(35 940)
-
-
-
-
-
Transfer to Stage 2
(13 385 880)
13 571 142
(16 750)
(168 512)
-
-
(131 894)
131 894
-
Transfer to Stage 3
(1 235 753)
(657 915)
874 987
1 018 681
-
-
-
-
-
New / purchased / granted financial assets
32 648 254
-
-
-
1 001
32 649 255
100 000
-
100 000
Financial assets derecognised, other than write-offs (repayments)
(27 105 941)
(3 030 513)
(356 344)
(362 176)
(5 550)
(30 860 524)
(75 782)
(51 141)
(126 923)
Financial assets written off (*)
-
-
(654 612)
(219 015)
(867)
(874 494)
-
-
-
Modifications not resulting in derecognition
(6 892)
(1 312)
18
(3 061)
-
(11 247)
-
-
-
Other, in this changes resulting from exchange rates
844 439
238 126
138 818
176 657
2 182
1 400 222
56 459
64 912
121 371
GROSS CARRYING AMOUNT AS AT 31.12.2020
113 515 763
25 978 924
5 236 011
3 292 482
39 572
148 062 752
720 770
754 285
1 475 055
IMPAIRMENT ALLOWANCE
IMPAIRMENT ALLOWANCE AS AT 1.01.2020
304 292
712 318
3 464 586
1 976 911
11 444
6 469 551
3 407
17 401
20 808
Transfer to Stage 1
149 897
(139 026)
(315)
(10 556)
-
-
-
-
-
Transfer to Stage 2
(63 837)
119 957
(3 093)
(53 027)
-
-
(503)
503
-
Transfer to Stage 3
(110 353)
(112 280)
44 239
178 394
-
-
-
-
-
New / purchased / granted financial assets
127 737
-
-
-
793
128 530
330
-
330
Financial assets derecognised, other than write-offs (repayments)
(37 256)
(27 914)
(45 828)
(33 623)
(465)
(145 086)
(655)
-
(655)
Financial assets written off (*)
-
-
(636 885)
(219 015)
(867)
(856 767)
-
-
-
Changes in level of credit risk (excluding the transfers between the Stages)
(5 267)
604 571
606 162
266 802
1 313
1 473 581
2 462
1 739
4 201
Other, in this changes resulting from exchange rates
25 403
17 536
139 150
(18 645)
3 758
167 202
201
1 686
1 887
IMPAIRMENT ALLOWANCE AS AT 31.12.2020
390 616
1 175 162
3 568 016
2 087 241
15 976
7 237 011
5 242
21 329
26 571
(*) Including the value of contractual interest subject to partial write-off in the amount of PLN 255 319 thousand.
(**) The impairment allowance for loans and advances to customers measured at fair value through other comprehensive income is included in the Revaluation reserve’ item and does not reduce the carrying amount of the loan.
(***) Including the provision for legal risk regarding foreign currency mortgage loans in the amount of PLN 345 131 thousand.
125
Bank Pekao S.A.
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
The total value of undiscounted expected credit losses at the time of initial recognition of financial assets purchased or originated credit impaired in the period ended 31 December 2020 amounted to PLN 1 400 thousand.
LOANS AND ADVANCES TO CUSTOMERS MEASURED AT AMORTISED COST
LOANS AND ADVANCES TO CUSTOMERS MEASURED AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME
STAGE 3 (LIFETIME ECL - CREDIT-IMPAIRED))
CORPORATE
STAGE 1 (12M ECL)
STAGE 2 (LIFETIME ECL - NOT CREDIT- IMPAIRED)
INDIVIDUAL ASSESSMENT
GROUP ASSESSMENT
PURCHASED OR ORIGINATED CREDIT- IMPAIRED (POCI )
TOTAL
STAGE 1 (12M ECL))
STAGE 2 (LIFETIME ECL - NOT CREDIT- IMPAIRED))
TOTAL
GROSS CARRYING AMOUNT
GROSS CARRYING AMOUNT AS AT 1.01.2021
49 845 330
10 386 311
4 957 895
609 049
31 859
65 830 444
720 770
754 285
1 475 055
Increases due to the acquisition of part of the activities of Idea Bank S.A.
10 887 840
-
-
-
1 020 541
11 908 381
-
-
-
Transfer to Stage 1
3 532 047
(3 519 786)
(4 901)
(7 360)
-
-
-
-
-
Transfer to Stage 2
(6 474 680)
6 517 656
(31 149)
(11 827)
-
-
-
-
-
Transfer to Stage 3
(261 410)
(439 031)
65 122
635 319
-
-
-
-
-
New / purchased / granted financial assets
26 412 947
-
-
-
2 361
26 415 308
-
-
-
Financial assets derecognised, other than write-offs (repayments)
(19 134 729)
(2 331 040)
(610 827)
(104 677)
(260 179)
(22 441 452)
(600 683)
(622 051)
(1 222 734)
Financial assets written off
-
-
(133 981)
(50 925)
-
(184 906)
-
-
-
Modifications not resulting in derecognition
(154)
189
-
-
-
35
-
-
-
Other, in this changes resulting from exchange rates
(221 474)
(159 910)
162 697
78 131
981
(139 575)
(4 947)
(1 545)
(6 492)
GROSS CARRYING AMOUNT AS AT 31.12.2021
64 585 717
10 454 389
4 404 856
1 147 710
795 563
81 388 235
115 140
130 689
245 829
Including the gross carrying amount as at 31 December 2021
loans and credits from the acquisition of some of the activities of Idea Bank S.A
5 572 909
672 163
19 285
338 739
744 682
7 347 778
-
-
-
IMPAIRMENT ALLOWANCE (*)
IMPAIRMENT ALLOWANCE AS AT 1.01.2021
253 166
256 267
3 360 851
531 917
12 773
4 414 974
5 242
21 329
26 571
Transfer to Stage 1
64 495
(60 948)
(1 052)
(2 495)
-
-
-
-
-
Transfer to Stage 2
(26 133)
33 825
(2 921)
(4 771)
-
-
-
-
-
Transfer to Stage 3
(15 285)
(37 951)
(174 715)
227 951
-
-
-
-
-
New / purchased / granted financial assets
156 346
-
-
-
247
156 593
-
-
-
Financial assets derecognised, other than write-offs (repayments)
(42 745)
(24 969)
(41 694)
(14 507)
(48 943)
(172 858)
(3 733)
(19 258)
(22 991)
Financial assets written off
-
-
(133 981)
(50 925)
-
(184 906)
-
-
-
Changes in level of credit risk (excluding the transfers between the Stages)
48 719
91 114
118 407
67 677
164 085
490 002
1 903
(2 074)
(171)
Other, in this changes resulting from exchange rates
8 990
29 955
108 922
99 151
73 567
320 585
(1 458)
1 926
468
IMPAIRMENT ALLOWANCE AS AT 31.12.2021
447 553
287 293
3 233 817
853 998
201 729
5 024 390
1 954
1 923
3 877
(*) The impairment allowance for loans and advances to customers measured at fair value through other comprehensive income is included in the Revaluation reserve’ item and does not reduce the carrying amount of the loan.
126
Bank Pekao S.A.
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
LOANS AND ADVANCES TO CUSTOMERS MEASURED AT AMORTISED COST
LOANS AND ADVANCES TO CUSTOMERS MEASURED AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME
STAGE 3 (LIFETIME ECL - CREDIT-IMPAIRED))
CORPORATE
STAGE 1 (12M ECL)
STAGE 2 (LIFETIME ECL - NOT CREDIT- IMPAIRED)
INDIVIDUAL ASSESSMENT
GROUP ASSESSMENT
PURCHASED OR ORIGINATED CREDIT- IMPAIRED (POCI )
TOTAL
STAGE 1 (12M ECL))
STAGE 2 (LIFETIME ECL - NOT CREDIT- IMPAIRED))
TOTAL
GROSS CARRYING AMOUNT
GROSS CARRYING AMOUNT AS AT 1.01.2020
55 206 302
4 529 400
4 902 173
628 826
33 916
65 300 617
771 987
608 620
1 380 607
Transfer to Stage 1
1 823 809
(1 817 146)
(941)
(5 722)
-
-
-
-
-
Transfer to Stage 2
(9 012 687)
9 033 051
(15 894)
(4 470)
-
-
(131 894)
131 894
-
Transfer to Stage 3
(738 433)
(187 111)
850 222
75 322
-
-
-
-
-
New / purchased / granted financial assets
20 777 940
-
-
-
20
20 777 960
100 000
-
100 000
Financial assets derecognised, other than write-offs (repayments)
(19 134 534)
(1 188 698)
(354 168)
(52 517)
(4 425)
(20 734 342)
(75 782)
(51 141)
(126 923)
Financial assets written off
-
-
(642 508)
(53 941)
(3)
(696 452)
-
-
-
Modifications not resulting in derecognition
(2 135)
(44)
-
1
-
(2 178)
-
-
-
Other, in this changes resulting from exchange rates
925 068
16 859
219 011
21 550
2 351
1 184 839
56 459
64 912
121 371
GROSS CARRYING AMOUNT AS AT 31.12.2020
49 845 330
10 386 311
4 957 895
609 049
31 859
65 830 444
720 770
754 285
1 475 055
IMPAIRMENT ALLOWANCE (*)
IMPAIRMENT ALLOWANCE AS AT 1.01.2020
191 429
102 522
3 229 499
551 444
7 925
4 082 819
3 407
17 401
20 808
Transfer to Stage 1
41 844
(38 512)
(312)
(3 020)
-
-
-
-
-
Transfer to Stage 2
(55 447)
60 654
(3 055)
(2 152)
-
-
(503)
503
-
Transfer to Stage 3
(28 310)
(10 532)
41 739
(2 897)
-
-
-
-
-
New / purchased / granted financial assets
80 903
-
-
-
200
81 103
330
-
330
Financial assets derecognised, other than write-offs (repayments)
(30 102)
(9 009)
(45 602)
(10 253)
(377)
(95 343)
(655)
-
(655)
Financial assets written off
-
-
(624 781)
(53 941)
(3)
(678 725)
-
-
-
Changes in level of credit risk (excluding the transfers between the Stages)
34 054
147 543
595 597
42 256
1 874
821 324
2 462
1 739
4 201
Other, in this changes resulting from exchange rates
18 795
3 601
167 766
10 480
3 154
203 796
201
1 686
1 887
IMPAIRMENT ALLOWANCE AS AT 31.12.2020
253 166
256 267
3 360 851
531 917
12 773
4 414 974
5 242
21 329
26 571
(*) The impairment allowance for loans and advances to customers measured at fair value through other comprehensive income is included in the Revaluation reserve’ item and does not reduce the carrying amount of the loan.
127
Bank Pekao S.A.
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
LOANS AND ADVANCES TO CUSTOMERS MEASURED AT AMORTISED COST
STAGE 3 (LIFETIME ECL - CREDIT-IMPAIRED))
MORTGAGE LOANS TO INDIVIDUAL CLIENTS
STAGE 1 (12M ECL)
STAGE 2 (LIFETIME ECL - NOT CREDIT-IMPAIRED)
INDIVIDUAL ASSESSMENT
GROUP ASSESSMENT
PURCHASED OR ORIGINATED CREDIT- IMPAIRED (POCI )
TOTAL
GROSS CARRYING AMOUNT
GROSS CARRYING AMOUNT AS AT 1.01.2021
51 376 624
12 877 516
93 775
1 004 285
1 330
65 353 530
Increases due to the acquisition of part of the activities of Idea Bank S.A.
43 943
-
-
-
11 592
55 535
Transfer to Stage 1
2 930 054
(2 824 869)
(2 174)
(103 011)
-
-
Transfer to Stage 2
(4 058 665)
4 207 116
(11 328)
(137 123)
-
-
Transfer to Stage 3
(128 805)
(420 251)
(6 630)
555 686
-
-
New / purchased / granted financial assets
11 021 723
-
-
-
246
11 021 969
Financial assets derecognised, other than write-offs (repayments)
(5 813 051)
(1 381 284)
(12 991)
(94 934)
(2 615)
(7 304 875)
Financial assets written off
-
-
(3 146)
(7 558)
-
(10 704)
Modifications not resulting in derecognition
(818)
(434)
(2)
(39)
-
(1 293)
Other, in this changes resulting from exchange rates
(43 852)
135 683
12 787
14 725
(407)
118 936
GROSS CARRYING AMOUNT AS AT 31.12.2021
55 327 153
12 593 477
70 291
1 232 031
10 146
69 233 098
IMPAIRMENT ALLOWANCE
IMPAIRMENT ALLOWANCE AS AT 1.01.2021
20 648
528 449
55 782
365 269
173
970 321
Transfer to Stage 1
66 831
(48 427)
(439)
(17 965)
-
-
Transfer to Stage 2
(453)
(145 082)
(4 913)
150 448
-
-
Transfer to Stage 3
(5 751)
(24 538)
(10 724)
41 013
-
-
New / purchased / granted financial assets
8 418
-
-
-
41
8 459
Financial assets derecognised, other than write-offs (repayments)
(1 089)
(7 128)
(4 581)
(12 353)
(135)
(25 286)
Financial assets written off
-
-
(3 146)
(7 558)
-
(10 704)
Changes in level of credit risk (excluding the transfers between the Stages)
(54 937)
114 004
9 730
142 940
3 408
215 145
Other, in this changes resulting from exchange rates
(4 168)
59 744
10 022
14 250
(1 488)
78 360
IMPAIRMENT ALLOWANCE AS AT 31.12.2021
29 499
477 022
51 731
676 044
1 999
1 236 295
128
Bank Pekao S.A.
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
LOANS AND ADVANCES TO CUSTOMERS MEASURED AT AMORTISED COST
STAGE 3 (LIFETIME ECL - CREDIT-IMPAIRED))
MORTGAGE LOANS TO INDIVIDUAL CLIENTS
STAGE 1 (12M ECL)
STAGE 2 (LIFETIME ECL - NOT CREDIT-IMPAIRED)
INDIVIDUAL ASSESSMENT
GROUP ASSESSMENT
PURCHASED OR ORIGINATED CREDIT- IMPAIRED (POCI )
TOTAL
GROSS CARRYING AMOUNT
GROSS CARRYING AMOUNT AS AT 1.01.2020
48 106 749
12 715 023
133 400
738 917
1 345
61 695 434
Transfer to Stage 1
1 760 167
(1 742 092)
-
(18 075)
-
-
Transfer to Stage 2
(3 019 550)
3 145 487
(855)
(125 082)
-
-
Transfer to Stage 3
(199 113)
(256 366)
13 868
441 611
-
-
New / purchased / granted financial assets
8 565 756
-
-
-
548
8 566 304
Financial assets derecognised, other than write-offs (repayments)
(3 850 601)
(1 190 321)
(2 361)
(78 931)
(167)
(5 122 381)
Financial assets written off
-
-
(9 713)
(12 726)
-
(22 439)
Modifications not resulting in derecognition
(2 681)
(548)
18
(1 023)
-
(4 234)
Other, in this changes resulting from exchange rates
15 897
206 333
(40 582)
59 594
(396)
240 846
GROSS CARRYING AMOUNT AS AT 31.12.2020
51 376 624
12 877 516
93 775
1 004 285
1 330
65 353 530
IMPAIRMENT ALLOWANCE
IMPAIRMENT ALLOWANCE AS AT 1.01.2020
22 446
278 011
68 340
286 938
127
655 862
Transfer to Stage 1
40 174
(38 573)
-
(1 601)
-
-
Transfer to Stage 2
(1 657)
31 115
(38)
(29 420)
-
-
Transfer to Stage 3
(8 524)
(26 827)
1 479
33 872
-
-
New / purchased / granted financial assets
4 958
-
-
-
280
5 238
Financial assets derecognised, other than write-offs (repayments)
(597)
(5 917)
(226)
(9 094)
(10)
(15 844)
Financial assets written off
-
-
(9 713)
(12 726)
-
(22 439)
Changes in level of credit risk (excluding the transfers between the Stages)
(37 914)
57 502
8 153
75 975
(124)
103 592
Other, in this changes resulting from exchange rates
1 762
6 250
(12 213)
21 325
(100)
17 024
IMPAIRMENT ALLOWANCE AS AT 31.12.2020
20 648
301 561
55 782
365 269
173
743 433
129
Bank Pekao S.A.
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
LOANS AND ADVANCES TO CUSTOMERS MEASURED AT AMORTISED COST
STAGE 3 (LIFETIME ECL - CREDIT-IMPAIRED))
OTHER LOANS AND ADVANCE TO INDIVIDUAL CLIENTS
STAGE 1 (12M ECL)
STAGE 2 (LIFETIME ECL - NOT CREDIT-IMPAIRED)
INDIVIDUAL ASSESSMENT
GROUP ASSESSMENT
PURCHASED OR ORIGINATED CREDIT- IMPAIRED (POCI )
TOTAL
GROSS CARRYING AMOUNT
GROSS CARRYING AMOUNT AS AT 1.01.2021
9 914 404
2 576 845
72 081
1 679 138
6 381
14 248 849
Increases due to the acquisition of part of the activities of Idea Bank S.A.
13 822
-
-
-
6 217
20 039
Transfer to Stage 1
461 306
(402 595)
(5)
(58 706)
-
-
Transfer to Stage 2
(616 738)
677 877
(1 496)
(59 643)
-
-
Transfer to Stage 3
(159 547)
(232 213)
716
391 044
-
-
New / purchased / granted financial assets
4 385 232
-
-
-
3 097
4 388 329
Financial assets derecognised, other than write-offs (repayments)
(3 331 808)
(787 685)
(287)
(494 526)
(3 517)
(4 617 823)
Financial assets written off
-
-
(5 787)
(223 774)
(66)
(229 627)
Modifications not resulting in derecognition
(1 178)
(754)
-
(175)
-
(2 107)
Other, in this changes resulting from exchange rates
(131 292)
14 892
8 715
46 660
(502)
(61 527)
GROSS CARRYING AMOUNT AS AT 31.12.2021
10 534 201
1 846 367
73 937
1 280 018
11 610
13 746 133
IMPAIRMENT ALLOWANCE
IMPAIRMENT ALLOWANCE AS AT 1.01.2021
113 302
383 954
39 344
1 190 054
3 031
1 729 685
Transfer to Stage 1
106 269
(75 264)
-
(31 005)
-
-
Transfer to Stage 2
(4 969)
40 854
(255)
(35 630)
-
-
Transfer to Stage 3
(41 379)
(78 082)
(3 367)
122 828
-
-
New / purchased / granted financial assets
45 719
-
-
-
2 284
48 003
Financial assets derecognised, other than write-offs (repayments)
(12 188)
(22 070)
(651)
(17 545)
(215)
(52 669)
Financial assets written off
-
-
(5 787)
(223 774)
(66)
(229 627)
Changes in level of credit risk (excluding the transfers between the Stages)
(106 293)
73 580
30 352
157 556
575
155 770
Other, in this changes resulting from exchange rates
3 361
9 883
9 378
(239 978)
(3 375)
(220 731)
IMPAIRMENT ALLOWANCE AS AT 31.12.2021
103 822
332 855
69 014
922 506
2 234
1 430 431
130
Bank Pekao S.A.
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
LOANS AND ADVANCES TO CUSTOMERS MEASURED AT AMORTISED COST
STAGE 3 (LIFETIME ECL - CREDIT-IMPAIRED))
OTHER LOANS AND ADVANCE TO INDIVIDUAL CLIENTS
STAGE 1 (12M ECL)
STAGE 2 (LIFETIME ECL - NOT CREDIT-IMPAIRED)
INDIVIDUAL ASSESSMENT
GROUP ASSESSMENT
PURCHASED OR ORIGINATED CREDIT- IMPAIRED (POCI )
TOTAL
GROSS CARRYING AMOUNT
GROSS CARRYING AMOUNT AS AT 1.01.2020
11 561 402
2 273 452
103 236
1 518 099
7 543
15 463 732
Transfer to Stage 1
204 409
(192 249)
(17)
(12 143)
-
-
Transfer to Stage 2
(1 294 973)
1 333 933
-
(38 960)
-
-
Transfer to Stage 3
(298 207)
(214 439)
10 898
501 748
-
-
New / purchased / granted financial assets
3 196 989
-
-
-
434
3 197 423
Financial assets derecognised, other than write-offs (repayments)
(3 394 645)
(638 285)
184
(230 730)
( 958)
(4 264 434)
Financial assets written off
-
-
(2 297)
(152 348)
( 864)
(155 509)
Modifications not resulting in derecognition
(2 076)
(720)
-
(2 039)
-
(4 835)
Other, in this changes resulting from exchange rates
(58 495)
15 153
(39 923)
95 511
226
12 472
GROSS CARRYING AMOUNT AS AT 31.12.2020
9 914 404
2 576 845
72 081
1 679 138
6 381
14 248 849
IMPAIRMENT ALLOWANCE
IMPAIRMENT ALLOWANCE AS AT 1.01.2020
86 649
327 607
54 709
1 138 527
3 393
1 610 885
Transfer to Stage 1
67 812
(61 873)
(4)
(5 935)
-
-
Transfer to Stage 2
(6 034)
27 490
-
(21 456)
-
-
Transfer to Stage 3
(73 518)
(74 921)
1 021
147 418
-
-
New / purchased / granted financial assets
41 555
-
-
-
312
41 867
Financial assets derecognised, other than write-offs (repayments)
(6 407)
(12 987)
-
(14 275)
(78)
(33 747)
Financial assets written off
-
-
(2 297)
(152 348)
(864)
(155 509)
Changes in level of credit risk (excluding the transfers between the Stages)
(2 223)
397 843
2 412
143 699
(436)
541 295
Other, in this changes resulting from exchange rates
5 468
7 684
(16 497)
(45 576)
704
(48 217)
IMPAIRMENT ALLOWANCE AS AT 31.12.2020
113 302
610 843
39 344
1 190 054
3 031
1 956 574
131
Bank Pekao S.A.
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
DEBT SECURITIES MEASURED AT AMORTISED COST (*)
DEBT SECURITIES MEASURED AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME (*)
STAGE 3 (LIFETIME ECL - CREDIT-IMPAIRED)))
STAGE 1 (12M ECL)
STAGE 2 (LIFETIME ECL - NOT CREDIT- IMPAIRED)
INDIVIDUAL ASSESSMENT
PURCHASED OR ORIGINATED CREDIT-IMPAIRED (POCI
TOTAL
STAGE 1 (12M ECL)
STAGE 2 (LIFETIME ECL - NOT CREDIT- IMPAIRED)
TOTAL
GROSS CARRYING AMOUNT
GROSS CARRYING AMOUNT AS AT 1.01.2020
27 263 713
38 433
32 971
-
27 335 117
42 593 115
144 385
42 737 500
Increases due to the acquisition of part of the activities of Idea Bank S.A.
15 080
-
-
40 266
55 346
312 513
-
312 513
Transfer to Stage 1
-
-
-
-
-
-
-
-
Transfer to Stage 2
(288 318)
288 318
-
-
-
(14 500)
14 500
-
Transfer to Stage 3
-
-
-
-
-
-
-
-
New / purchased / granted financial assets
24 751 516
-
-
-
24 751 516
203 923 638
-
203 923 638
Financial assets derecognised, other than write-offs (repayments)
(8 273 584)
(8 108)
-
-
(8 281 692)
(224 163 865)
(70 243)
(224 234 108)
Modifications not resulting in derecognition
-
-
-
-
-
-
-
-
Other, in this changes resulting from exchange rates
548 218
82
1 583
(1 315)
548 568
11 865
385
12 250
GROSS CARRYING AMOUNT AS AT 31.12.2020
44 016 625
318 725
34 554
38 951
44 408 855
22 662 766
89 027
22 751 793
IMPAIRMENT ALLOWANCE (**)
IMPAIRMENT ALLOWANCE AS AT 1.01.2020
40 018
582
32 971
(5)
73 566
60 041
3 102
63 143
Transfer to Stage 1
-
-
-
-
-
-
-
-
Transfer to Stage 2
(7 041)
7 041
-
-
-
-
-
-
Transfer to Stage 3
-
-
-
-
-
-
-
-
New / purchased / granted financial assets
38 183
-
-
-
38 183
16 888
-
16 888
Financial assets derecognised, other than write-offs (repayments)
(3 312)
-
-
-
(3 312)
(18 957)
(98)
(19 055)
Changes in level of credit risk (excluding the transfers between the Stages)
(7 255)
3
-
-
(7 252)
(12 356)
68
(12 288)
Other, in this changes resulting from exchange rates
124
(1)
1 583
29 863
31 569
(1)
1
-
GROSS CARRYING AMOUNT AS AT 31.12.2020
60 717
7 625
34 554
29 858
132 754
45 615
3 073
48 688
(*) Debt securities presented in the statement of financial position under ‘Securities’ and ‘Assets pledged as security for liabilities’.
(**) The impairment allowance for debt securities measured at fair value through other comprehensive income is included in the ‘Revaluation reserve’ item and does not reduce the carrying amount.
132
Bank Pekao S.A.
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
DEBT SECURITIES MEASURED AT AMORTISED COST (*)
DEBT SECURITIES MEASURED AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME (*)
STAGE 3 (LIFETIME ECL - CREDIT-IMPAIRED)))
STAGE 1 (12M ECL)
STAGE 2 (LIFETIME ECL - NOT CREDIT- IMPAIRED)
INDIVIDUAL ASSESSMENT
PURCHASED OR ORIGINATED CREDIT-IMPAIRED (POCI
TOTAL
STAGE 1 (12M ECL)
STAGE 2 (LIFETIME ECL - NOT CREDIT- IMPAIRED)
TOTAL
GROSS CARRYING AMOUNT
GROSS CARRYING AMOUNT AS AT 1.01.2020
14 289 472
331 816
32 370
-
14 653 658
30 930 139
12 860
30 942 999
Transfer to Stage 1
298 600
(298 600)
-
-
-
11 799
(11 799)
-
Transfer to Stage 2
(38 434)
38 434
-
-
-
(144 385)
144 385
-
Transfer to Stage 3
-
-
-
-
-
-
-
-
New / purchased / granted financial assets
20 791 384
-
-
-
20 791 384
353 110 214
-
353 110 214
Financial assets derecognised, other than write-offs (repayments)
(8 365 499)
(33 191)
-
-
(8 398 690)
(342 236 427)
(1 376)
(342 237 803)
Modifications not resulting in derecognition
-
-
-
-
-
-
-
-
Other, in this changes resulting from exchange rates
288 190
(26)
601
-
288 765
921 775
315
922 090
GROSS CARRYING AMOUNT AS AT 31.12.2020
27 263 713
38 433
32 971
-
27 335 117
42 593 115
144 385
42 737 500
IMPAIRMENT ALLOWANCE (**)
IMPAIRMENT ALLOWANCE AS AT 1.01.2020
25 668
16 955
32 370
-
74 993
32 000
671
32 671
Transfer to Stage 1
15 961
(15 961)
-
-
-
671
(671)
-
Transfer to Stage 2
(171)
171
-
-
-
(3 102)
3 102
-
Transfer to Stage 3
-
-
-
-
-
-
-
-
New / purchased / granted financial assets
15 591
-
-
-
15 591
29 843
-
29 843
Financial assets derecognised, other than write-offs (repayments)
(9 682)
(694)
-
-
(10 376)
(4 777)
-
(4 777)
Changes in level of credit risk (excluding the transfers between the Stages)
(7 763)
111
-
(5)
(7 657)
5 406
-
5 406
Other, in this changes resulting from exchange rates
414
-
601
-
1 015
-
-
-
GROSS CARRYING AMOUNT AS AT 31.12.2020
40 018
582
32 971
(5)
73 566
60 041
3 102
63 143
(*) Debt securities presented in the statement of financial position under ‘Securities’ and ‘Assets pledged as security for liabilities’.
(**) The impairment allowance for debt securities measured at fair value through other comprehensive income is included in the ‘Revaluation reserve’ item and does not reduce the carrying amount.
.
133
Bank Pekao S.A.
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
Moratoria and portfolio guarantees implemented due to COVID-19
In 2021, the Group continued to apply the following loan repayment programs, implemented in 2020 due to COVID-19:
1) moratoria developed by the Group in accordance with the EBA Guidelines, i.e .:
On 29 May 2020 the Polish Financial Supervision Authority notified the European Banking Authority of the position of banks developed under the patronage of the Polish Bank Association on the EBA/GL/2020/02 Guidelines on legislative and non-legislative moratoria on loan repayments applied in the light of the COVID-19 crisis, which was introduced by the Group for loan agreements concluded before 13 March 2020 on the following terms:
• for individual clients, micro and small entrepreneurs, the Group introduced the option to defer repayments of principal or principal and interest installments for a period of up to 6 months indicated by the client (regardless of the number of applications submitted by a given client). The condition for using the above-mentioned moratorium is the timely service of the loan by an individual customer and having credit worthiness, taking into account COVID-19 (in the case of entrepreneurs),
• for medium-sized enterprises (with a turnover of up to EUR 50 million), the Group introduced the possibility of deferring the repayments of principal or principal and interest installments, in accordance with the client's request, for the period indicated by the client, amounting to a maximum of 6 months (principal installments) and 3 months (principal and interest installments), provided that the client has credit worthiness at the end of 2019, and for large enterprises (with a turnover of over EUR 50 million), the Group introduced the possibility of deferring the repayment of principal installments in accordance with the client's request, for the period indicated by the client, amounting to a maximum of 6 months, provided the customer has credit worthiness at the end of 2019.
The program was completed on 31 March 2021.
2) suspension of the performance of the contract under the provisions of Act of 2 March 2020 on special solutions related to the prevention, countermeasure and combating of COVID-19, other infectious diseases and emergencies caused by them, (non-statutory moratoria):i.e.:
• are available to customers who, as consumers, lost their job or other main source of income after 13 March 2020,
• during the period of suspension of the performance of the contract (3 months maximum), the customer is not obliged to make payments under the contract, including loan installments, except for insurance fees related to these contracts, and no interest is accrued.
As at 31 December 2021, the program is still active.
All the above-mentioned moratoria were assessed by the Group in terms of meeting the modification criteria as defined in IFRS 9 in accordance with the principles defined in the Group's accounting policies. Given the nature of the above- mentioned moratoria, they were insignificant modifications in line with the policies adopted by the Group. Therefore, in relation to the loans covered by the above-mentioned moratoria, the Group each time determined the result on insignificant modifications.
As at 31 December 2021, the gross carrying amount of the loan portfolio covered by the above-mentioned moratoria (active and expired) amounted to PLN 13 049 million (as at 31 December 2020, PLN 14 606 million), and moratoria covered 67 372 customers (as at 31 December 2020, 69 902 customers). The gross carrying amount of the loan portfolio subject to active moratoria as at 31 December 2021 was PLN 54 million (as at 31 December 2020, PLN 605 million). The negative result on insignificant modifications recognized in 2021 related to these moratoria amounted to PLN -3.2 million (in 2020 - PLN -7.4 million) and was recognized in the net interest income.
In 2021, the Group also continued to use the series of portfolio guarantee agreements with Bank Gospodarstwa Krajowego (BGK), limiting the effects of COVID-19. The most important of them are:
1) De minimis guarantees
The annex to the existing agreement was signed on 19 March 2020 and introduced.
The annex to the existing agreement was signed on 19 March 2020 and introduced.
The guarantees are intended for working capital loans in PLN for the micro, small and medium-sized enterprises sector. The maximum amount of the guarantee is EUR 1.5 million and may cover up to 80% of the principal amount of the loan . The guarantee may be granted for a new loan, renewal or increase in the loan amount.
134
Bank Pekao S.A.
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
2) Agreement under the Liquidity Guarantee Fund (‘LGF’)
The contract was signed on 10 April 2020 and introduce.:
The guarantees are intended for working capital loans for medium and large enterprises. The maximum amount of the guarantee is PLN 250 million and may cover up to 80% of the principal amount of the loan. The guarantee may be granted for new credits and renewals.
The duration of both programs has been extended until 30 June 2022.
In addition, on 14 December 2021, the Group signed a portfolio guarantee agreement with the European Investment Fund (EIF) as part of the Pan-European Guarantee Fund (PFG) aimed at combating the effects of the COVID-19 pandemic, established by 22 Member States of the European Union.
The guarantees are intended for working capital and investment loans for the micro, small and medium-sized enterprises sector. The maximum amount of guarantee is EUR 2.57 million and may cover up to 70% of the principal amount of the loan and interest. The guarantee may be granted for a new loan, renewal or refinancing
Guarantees under the program may be granted until the end of 2022.
As at 31 December 2021, the gross carrying amount of the loan portfolio covered by BGK's portfolio guarantees limiting the effects of Covid-19 was PLN 6 494 million (as at 31 December 2020 PLN 3 417 million) and guarantees covered 9 893 customers (4 560 customers as at 31 December 2020).
Group’s exposure to credit risk
The maximum credit risk exposure
The table below presents the maximum credit risk exposure for statement of financial position and off-balance sheet positions as at the reporting date.
31.12.2021
31.12.2020
Due from Central Bank
996 870
150 185
Loans and advances from banks and from customers ( including financial leasing)
162 556 843
145 066 136
Derivatives financial assets held for trading
7 928 539
4 812 231
Hedging instruments
78 216
779 063
Securities
68 166 664
71 808 936
Other assets (*)
1 035 158
1 007 426
Balance sheet exposure (**)
240 762 290
223 623 977
Obligations to grant loans
42 989 997
41 089 482
Other contingent liabilities
14 435 719
18 203 088
Off-balance sheet exposure
57 425 716
59 292 570
Total
298 188 006
282 916 547
(*) Includes the following items of the statement of financial position part of ‘Other assets’(Accrued income, Interbank and interbranch settlements, Card settlements, Other debtor).
(**) Balance sheet exposure is equal to the carrying amount presented in the statement of financial position.
135
Bank Pekao S.A.
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
Credit risk mitigation methods
Group has established specific policies with regard to collateral accepted to secure loans and guarantees. This policy is reflected under internal rules and regulations, which are based on supervision rules, specified in 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.
The most frequently used types of collateral for credits and loans, accepted in compliance with the relevant policy of Group are as follows
COLLATERAL
COLLATERAL VALUATION PRINCIPLES
MORTGAGES
commercial
residential
Collateral value is defined as the fair market value endorsed by a real estate expert. Other evidenced sources of valuation are acceptable, e.g. binding purchase offer, value dependent on the stage of tendering procedure, etc.
REGISTERED PLEDGE/ ASSIGNMENT:
inventories
The value is defined basing on well evidenced sources e.g. amount derived from pledge agreement, amount disclosed in last financial statements, insurance policy, stock exchange quotations, the value disclosed through foreclosure procedure supported with evidence e.g. prepared by bailiff/receiver.
machines and appliances
The value is defined as expert appraisal or present value determined based on other, sound sources, such as current purchase offer, register of debtor’s non-current assets, value evidenced by bailiff or court receiver, etc.
Vehicles
The value is defined based on available tables (e.g. from insurance companies) proving the car value depending on its producer, age, initial price, or other reliable sources e.g. value stated in the insurance policy.
other
The value is defined upon individually. The valuation should result from reliable sources.
securities and cash
The value is defined upon individually estimated fair market value. Recovery rate shall be assessed prudently reflecting the securities price volatility.
TRANSFER OF RECEIVABLES
from clients with investment rating assigned by independent rating agency or by internal rating system of the Bank
The value is defined upon individually assessed claims’ amount.
from other counterparties
The value is defined upon individually assessed claim’s amount.
GUARANTIES/SURETIES (INCL. RAFTS)/ACCESSION TO DEBT
from banks and the State Treasury
Up to the guaranteed amount.
from other counterparties enjoying good financial standing, particularly when confirmed by investment rating, assigned by an independent rating agency or by the internal rating system of the Bank
The value is defined upon individually assessed claim’s amount.
from other counterparties
Individually assessed fair market value.
The financial effect of pledged collaterals for exposure portfolio with recognized impairment defined individually amounts to PLN 616 901 thousand as at 31 December 2020 (PLN 800 851 thousand as at 31 December 2020). The level of required impairment allowances for the portfolio would increase by this amount, if the discounted cash flows from collateral were not taken into account during estimation.
136
Bank Pekao S.A.
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
The Group analyzes the concentration within LtV levels (the ratio of debt to the value of collateral), which is particularly important in the case of mortgage loans to individual clients. The structure of mortgage loans to individual clients according to the LtV level is presented below:
31.12.2021
STAGE 3 (LIFETIME ECL - CREDIT-IMPAIRED)
LTV LEVEL
STAGE 1 (12M ECL)
STAGE 2 (LIFETIME ECL - NOT CREDIT- IMPAIRED)
INDIVIDUAL ASSESSMENT
GROUP ASSESSMENT
PURCHASED OR ORIGINATED CREDIT- IMPAIRED (POCI)
TOTAL
MORTGAGE LOANS TO INDIVIDUAL CLIENTS – GROSS CARRYING AMOUNT
0% < LtV <= 50%
19 394 389
6 461 397
19 461
635 189
917
26 511 353
50% < LtV <= 70%
15 450 290
2 592 555
26 218
307 212
532
18 376 807
70% < LtV <= 90%
8 609 512
1 607 956
4 982
78 491
-
10 300 941
90% < LtV <= 100%
119 223
19 735
2 918
3 024
81
144 981
100% < LtV
128 145
21 786
9 161
3 600
-
162 692
Total
43 701 559
10 703 429
62 740
1 027 516
1 530
55 496 774
31.12.2020
STAGE 3 (LIFETIME ECL - CREDIT-IMPAIRED)
LTV LEVEL
STAGE 1 (12M ECL)
STAGE 2 (LIFETIME ECL - NOT CREDIT- IMPAIRED)
INDIVIDUAL ASSESSMENT
GROUP ASSESSMENT
PURCHASED OR ORIGINATED CREDIT- IMPAIRED (POCI)
TOTAL
MORTGAGE LOANS TO INDIVIDUAL CLIENTS – GROSS CARRYING AMOUNT
0% < LtV <= 50%
13 877 539
6 246 800
28 083
367 476
269
20 520 167
50% < LtV <= 70%
18 533 951
3 740 890
24 002
369 241
984
22 669 068
70% < LtV <= 90%
7 550 471
1 093 678
10 684
86 908
-
8 741 741
90% < LtV <= 100%
1 828 031
207 727
5 175
23 607
-
2 064 540
100% < LtV
201 927
27 316
15 158
5 563
-
249 964
Total
41 991 919
11 316 411
83 102
852 795
1 253
54 245 480
Credit risk concentration
According to valid regulations the total exposure of the Group to single borrower or a group of borrowers related by capital or management may not exceed 25% of the Group’s Tier I capital. In 2021 the maximum exposure limits set in the valid regulations were not exceeded.
a) Breakdown by individual entities
EXPOSURE TO 10 LARGERST CLIENTS OF THE GROUP AS AT 31 DECEMBER 2021 (*)
% SHARE OF PORTFOLIO
Client 1
1.0%
Client 2
0.9%
Client 3
0.8%
Client 4
0.7%
Client 5
0.6%
Client 6
0.6%
Client 7
0.5%
Client 8
0.4%
Client 9
0.4%
Client 10
0.4%
Total
6.3%
(*) On-balance sheet and off-balance sheet exposures including exclusions that can be used in the large exposure limit specified in Regulation (EU) No 575/2013 of the European Parliament and of the Council.
137
Bank Pekao S.A.
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
EXPOSURE TO 10 LARGERST CLIENTS OF THE GROUP AS AT 31 DECEMBER 2020 (*)
% SHARE OF PORTFOLIO
Client 1
1.0%
Client 2
1.0%
Client 3
0.9%
Client 4
0.7%
Client 5
0.7%
Client 6
0.7%
Client 7
0.6%
Client 8
0.6%
Client 9
0.5%
Client 10
0.4%
Total
7.1%
(*) On-balance sheet and off-balance sheet exposures including exclusions that can be used in the large exposure limit specified in Regulation (EU) No 575/2013 of the European Parliament and of the Council.
b) Concentration by capital groups
EXPOSURE TO 5 LARGEST CAPITAL GROUPS SERVICED BY THE GROUP AS AT 31 DECEMBER 2021 (*)
% SHARE OF PORTFOLIO
Group 1
1.2%
Group 2
1.1%
Group 3
1.0%
Group 4
0.8%
Group 5
0.7%
Total
4.8%
(*) On-balance sheet and off-balance sheet exposures including exclusions that can be used in the large exposure limit specified in Regulation (EU) No 575/2013 of the European Parliament and of the Council.
EXPOSURE TO 5 LARGEST CAPITAL GROUPS SERVICED BY THE GROUP AS AT 31 DECEMBER 2020 (*)
% SHARE OF PORTFOLIO
Group 1
1.4%
Group 2
1.1%
Group 3
1.0%
Group 4
1.0%
Group 5
0.9%
Total
5.4%
(*) On-balance sheet and off-balance sheet exposures including exclusions that can be used in the large exposure limit specified in Regulation (EU) No 575/2013 of the European Parliament and of the Council.
c) Breakdown by industrial sectors.
In order to mitigate credit risk associated with excessive sector concentration the Bank sets up a system for shaping the sectoral structure of credit exposure. Every year within Credit Policy the Bank defines sector limits for particular sectors of economy. These limits are subject to ongoing monitoring. The system applies to credit exposure in particular types of business activity according to the classification based on the Polish Classification of Economic Activities (Polska Klasyfikacja Działalności – PKD).
Concentration limits are set based on the Bank’s current credit exposure and risk assessment of each sector. Periodic monitoring of the Bank’s exposure allows for ongoing identification of the sectors in which the concentration of sector risk may be too excessive. In such cases, an analysis of the economic situation of the sector is performed including both the current and forecast trends and an assessment of quality of the current exposure to that sector. These measures enable the Bank to formulate the activities to reduce sector concentration risk and ongoing adaptation of the Bank’s Credit Policy to a changing environment.
138
Bank Pekao S.A.
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
The table below presents the structure of exposures by sectors
EXPOSURE’S STUCTURE BY SECTORS (*)
31.12.2021
31.12.2020
Agriculture, forestry and fishing
1.2%
0.8%
Mining and quarrying
1.6%
1.7%
Manufacturing
21.9%
22.5%
Electricity, gas, steam and air conditioning supply
6.4%
6.5%
Water supply
2.6%
2.7%
Construction
4.9%
5.4%
Wholesale and retail trade
16.9%
16.2%
Transport and storage
6.6%
6.4%
Accommodation and food service activities
2.4%
3.0%
Information and communication
2.7%
2.4%
Financial and insurance activities
7.4%
4.3%
Real estate activities
10.1%
10.9%
Professional, scientific and technical activities
6.2%
7.9%
Administrative and support service activities
2.0%
1.5%
Public administration and defiance, compulsory social security
4.2%
5.6%
Education
0.2%
0.2%
Human health services and social work activities
0.8%
0.7%
Arts, entertainment and recreation
0.7%
1.0%
Others
1.2%
0.3%
Total
100.0%
100.0%
(*) On-balance sheet and off-balance sheet exposures including exclusions that can be used in the large exposure limit specified in Regulation (EU) No 575/2013 of the European Parliament and of the Council.
Financial assets subject to modification
The table below presents information about financial assets that were subject to a modification that didn’t result in derecognition and for which, prior to modification, an impairment loss on expected credit losses was calculated as a loan loss over the lifetime of the exposure.
2021
2020
FINANCIAL ASSETS WHICH WERE SUBJECT TO MODIFICATION IN THE PERIOD
Carrying amount according to the amortised cost before modification
733 605
3 381 684
Net modification gain or loss
(3 164)
(3 796)
FINANCIAL ASSETS WHICH WERE SUBJECT TO MODIFICATION SINCE INITIAL RECOGNITION
Gross carrying amount of financial assets for which the loss allowance has changed during the reporting period from lifetime expected credit losses to an amount equal to 12-month expected credit losses
1 703 229
457 468
Restructured exposures
The Group considers a restructured exposure the exposure whose repayment terms have been changed during the term of the liability to the debtor who experiences or is likely to experience financial difficulties. The change of contractual conditions includes restructuring measures specified by the Group, in particular:
• the extension of initial maturity (due) date (in case of additional appendix to the contract) or signing a restructuring contract (in case of full past-due debt), in particular as a result of constant reduction of installments amount,
• the modification of the contract’s terms or conditions which results in lower interests and/or principal payments to eliminate the past-due debt,
• the refinancing by the other loan in the Group.
A restructured exposure that has been:
• classified as non-performing due to restructuring measures, or
• classified as non-performing prior to commencement of forbearance measures, or
• transferred from the performing to non-performing exposure class, including as a result of more than 30 days past due for a restructured exposure in a conditional period,
it is classified as a forborne non-performing exposure.
The classification as forborne exposure shall be discontinued when all the following conditions are met:
139
Bank Pekao S.A.
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
• the contract is considered as a performing exposure,
• a minimum 2 year probation period has passed from the date the forborne exposure was considered as performing,
• none of the exposures to the debtor is at least 30 days past-due at the end of the probation period of forborne exposure.
If conditions, referred above, are not fullfiled at the end of the probation period, exposures are classified respectively as performing or non-performing forborne exposures in the probation period untill all these conditions are met. The fullfilment of the conditions is assesed at least on a quarterly basis.
Exposure is classified as restructuring exposure only if the modification of the contractual terms is related to the financial difficulties of the borrower.
The restructuring exposure agreements are monitored for fulfillment of the obligations contained in the agreement.
The decision to apply the restructuring exposure measure is undertaken by the authorized Unit within the credit application process.
The accounting policies in respect to the evaluation and the provisioning of the forborne exposures generally follow the principles in line with the provisions of IFRS 9.
In the case of granting loan holidays or other mitigating measures for the COVID-19 pandemic, the Group applies an approach consistent with regulatory guidelines in this regard. Granting loan holidays or other mitigation measures against the effects of the COVID-19 pandemic does not automatically identify restructuring exposure (forborne exposures).
Share of forborne exposures in the Group’s loan portfolio
31.12.2021
STAGE 3 (LIFETIME ECL - CREDIT-IMPAIRED)
STAGE 1 (12M ECL)
STAGE 2 (LIFETIME ECL - NOT CREDIT- IMPAIRED)
INDIVIDUAL ASSESSMENT
GROUP ASSESSMENT
PURCHASED OR ORIGINATED CREDIT- IMPAIRED (POCI)
TOTAL
Loans and advances measured at amortised cost, including :
131 878 414
23 930 801
1 194 743
1 207 230
611 360
158 822 548
Forborne exposures gross
983 504
477 019
2 696 340
786 119
107 171
5 050 153
Loss allowance
(1 668)
(33 045)
(1 786 179)
(539 072)
(19 428)
(2 379 392)
Forborne exposures net
981 836
443 974
910 161
247 047
87 743
2 670 761
Loans and advances measured at fair value through other comprehensive income, including:
115 140
130 689
-
-
-
245 829
Forborne exposures
-
-
-
-
-
-
Impairment allowance (*)
-
-
-
-
-
-
Loans and advances measured at fair value through profit or loss, including:
160 379
Forborne exposures
501
(*) The impairment allowance for loans and advances to customers measured at fair value through other comprehensive income is included in the Revaluation reserve’ item and does not reduce the carrying amount of the loan.
140
Bank Pekao S.A.
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
Share of forborne exposures in the Group’s loan portfolio
31.12.2020
STAGE 3 (LIFETIME ECL - CREDIT-IMPAIRED)
STAGE 1 (12M ECL)
STAGE 2 (LIFETIME ECL - NOT CREDIT- IMPAIRED)
INDIVIDUAL ASSESSMENT
GROUP ASSESSMENT
PURCHASED OR ORIGINATED CREDIT- IMPAIRED (POCI)
TOTAL
Loans and advances measured at amortised cost, including :
113 125 147
24 803 762
1 667 995
1 205 241
23 596
140 825 741
Forborne exposures gross
1 067 782
412 723
2 429 599
661 951
21 672
4 593 727
Loss allowance
(2 222)
(35 246)
(1 803 056)
(335 092)
(3 055)
(2 178 671)
Forborne exposures net
1 065 560
377 477
626 543
326 859
18 617
2 415 056
Loans and advances measured at fair value through other comprehensive income, including:
720 770
754 285
-
-
-
1 475 055
Forborne exposures
-
-
-
-
-
-
Impairment allowance (*)
-
-
-
-
-
-
Loans and advances measured at fair value through profit or loss, including:
187 001
Forborne exposures
1 068
(*) The impairment allowance for loans and advances to customers measured at fair value through other comprehensive income is included in the ‘Revaluation reserve’ item and does not reduce the carrying amount of the loan.
The quality analysis of forborne exposures broken down by delays in repayment
31.12.2021
STAGE 3 (LIFETIME ECL - CREDIT-IMPAIRED)
STAGE 1 (12M ECL)
STAGE 2 (LIFETIME ECL - NOT CREDIT- IMPAIRED)
INDIVIDUAL ASSESSMENT
GROUP ASSESSMENT
PURCHASED OR ORIGINATED CREDIT- IMPAIRED (POCI)
TOTAL
FORBORNE EXPOSURES MEASURED AT AMORTISED COST
Gross carrying amount, of which:
983 504
477 019
2 696 340
786 119
107 171
5 050 153
not past due
981 647
372 375
1 151 518
245 132
14 110
2 764 782
up to 1 month
1 857
78 862
40 458
98 447
13 016
232 640
between 1 month and 3 months
-
25 782
11 660
69 055
8 878
115 375
between 3 months and 1 year
-
-
186 106
112 627
8 704
307 437
between 1 year and 5 years
-
-
381 948
201 759
60 017
643 724
above 5 years
-
-
924 650
59 099
2 446
986 195
Impairment allowances, of which:
(1 668)
(33 045)
(1 786 179)
(539 072)
(19 428)
(2 379 392)
not past due
(1 617)
(20 013)
(456 467)
(152 209)
11 506
(618 800)
up to 1 month
(51)
(10 209)
(24 402)
(58 281)
(1 190)
(94 133)
between 1 month and 3 months
-
(2 823)
(2 227)
(39 014)
(824)
(44 888)
between 3 months and 1 year
-
-
(177 555)
(71 956)
(2 732)
(252 243)
between 1 year and 5 years
-
-
(306 740)
(160 048)
(24 585)
(491 373)
above 5 years
-
-
(818 788)
(57 564)
(1 603)
(877 955)
FORBORNE EXPOSURES MEASURED AT FAIR VALUE THROUGH PROFIT OR LOSS
Carrying amount, of which:
501
not past due
472
up to 1 month
-
between 1 month and 3 months
-
between 3 months and 1 year
-
between 1 year and 5 years
29
above 5 years
-
141
Bank Pekao S.A.
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
The quality analysis of forborne exposures broken down by delays in repayment
31.12.2020
STAGE 3 (LIFETIME ECL - CREDIT-IMPAIRED)
STAGE 1 (12M ECL)
STAGE 2 (LIFETIME ECL - NOT CREDIT- IMPAIRED)
INDIVIDUAL ASSESSMENT
GROUP ASSESSMENT
PURCHASED OR ORIGINATED CREDIT- IMPAIRED (POCI)
TOTAL
FORBORNE EXPOSURES MEASURED AT AMORTISED COST
Gross carrying amount, of which:
1 067 782
412 723
2 429 599
661 951
21 672
4 593 727
not past due
1 064 677
313 524
883 189
252 533
4 749
2 518 672
up to 1 month
3 105
77 511
19 826
100 135
9 625
210 202
between 1 month and 3 months
-
21 481
19 743
73 714
86
115 024
between 3 months and 1 year
-
207
60 052
89 832
7 086
157 177
between 1 year and 5 years
-
-
288 154
109 395
89
397 638
above 5 years
-
-
1 158 635
36 342
37
1 195 014
Impairment allowances, of which:
(2 222)
(35 246)
(1 803 056)
(335 092)
(3 055)
(2 178 671)
not past due
(2 153)
(19 575)
(499 564)
(85 555)
-
(606 847)
up to 1 month
(69)
(11 152)
(10 576)
(41 127)
(1 338)
(64 262)
between 1 month and 3 months
-
(4 487)
(5 427)
(34 430)
(58)
(44 402)
between 3 months and 1 year
-
(32)
(42 627)
(52 484)
(1 572)
(96 715)
between 1 year and 5 years
-
-
(204 655)
(86 544)
(50)
(291 249)
above 5 years
-
-
(1 040 207)
(34 952)
(37)
(1 075 196)
FORBORNE EXPOSURES MEASURED AT FAIR VALUE THROUGH PROFIT OR LOSS
Carrying amount, of which:
1 068
not past due
142
up to 1 month
-
between 1 month and 3 months
-
between 3 months and 1 year
7
between 1 year and 5 years
919
above 5 years
-
Changes in net carrying amount of forborne exposures
2021
2020
Carrying amount at the beginning
2 416 124
1 633 212
Amount of exposures recognized in the period
787 992
1 627 018
Amount of exposures derecognized in the period
(120 829)
(397 469)
Changes in impairment allowances
38 228
(424 008)
Other changes
(450 253)
(22 629))
Carrying amount at the end
2 671 262
2 416 124
Interest income
140 534
124 299
142
Bank Pekao S.A.
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
Forborne exposures by product type
31.12 .2021
31.12 .2020
Mortgage loans
1 448 790
1 698 676
Current accounts
97 357
46 863
Operating loans
128 181
55 571
Investment loans
500 066
213 822
Cash loans
259 694
350 761
Financial leasing
203 072
31 143
Other loans and advances
34 102
19 288
Carrying amount
2 671 262
2 416 124
Forborne exposures by industrial sectors
31.12 .2021
31.12 .2020
Corporates:
1 161 103
655 649
Real estate activities
160 151
248 050
Manufacturing
91 839
59 445
Wholesale and retail trade
131 443
58 792
Accommodation and food service activities
381 391
85 468
Construction
40 030
76 283
Professional, scientific and technical activities
102 541
64 953
Transportation and storage
150 286
26 661
Agriculture, forestry and fishing
39 794
18 106
Other sectors
63 628
17 891
Individuals
1 510 159
1 760 475
Carrying amount
2 671 262
2 416 124
Forborne exposures by geographical structure
31.12 .2021
31.12 .2020
Poland
2 640 237
2 415 087
United Kingdom
29 924
521
Other countries
1 101
516
Carrying amount
2 671 262
2 416 124
Offsetting financial assets and financial liabilities
The disclosures in the tables below include financial assets and financial liabilities that are subject to an enforceable master netting agreements or similar agreements, irrespective of whether they are offset in the statement of financial position.
The netting agreements concluded by the Group are:
• ISDA agreements and similar master netting agreements on derivatives,
• GMRA agreements on repo and reverse-repo transactions.
The netting agreements do not meet the criteria for offsetting in the statement of financial position. This is because they create for the parties to the agreement a right of set-off of recognized amounts that is enforceable only following an event of default, insolvency or bankruptcy of the one of the counterparty. At the balance, day there were no cases of offsetting financial assets and financial liabilities for these netting agreements.
The Group receives and gives collateral in the form of cash and marketable securities in respect of the derivatives transactions.
Such collateral is subject to standard industry terms. The collateral in the form of cash stems from an ISDA Credit Support Annex (CSA).
143
Bank Pekao S.A.
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
Financial assets and financial liabilities subject to enforceable master netting agreements and similar agreements and which may be potentially offset in the statement of financial position.
AMOUNT OF POTENTIAL OFFSETTING
31.12.2021
CARRYING AMOUNT OF FINANCIAL ASSETS PRESENTED IN THE STATEMENT OF FINANCIAL POSITION
FINANCIAL INSTRUMENTS (INCLUDING RECEIVED COLLATERAL IN THE FORM OF SECURITIES)
CASH COLLATERAL RECEIVED
NET AMOUNT
FINANCIAL ASSETS
Derivatives
7 864 026
(6 657 185)
(733 632)
473 209
Reverse repo transactions
582 993
(582 993)
-
-
TOTAL
8 447 019
(7 240 178)
(733 632)
473 209
AMOUNT OF POTENTIAL OFFSETTING
31.12.2021
CARRYING AMOUNT OF FINANCIAL LIABILITIES PRESENTED IN THE STATEMENT OF FINANCIAL POSITION
FINANCIAL INSTRUMENTS (INCLUDING PLEDGED COLLATERAL IN THE FORM OF SECURITIES)
CASH COLLATERAL PLEDGED
NET AMOUNT
FINANCIAL LIABILITIES
Derivatives
10 150 657
(6 838 879)
(1 951 920)
1 359 858
Repo transactions
848 221
(848 192)
-
29
TOTAL
10 998 878
(7 687 071)
(1 951 920)
1 359 887
AMOUNT OF POTENTIAL OFFSETTING
31.12.2020
CARRYING AMOUNT OF FINANCIAL ASSETS PRESENTED IN THE STATEMENT OF FINANCIAL POSITION
FINANCIAL INSTRUMENTS (INCLUDING RECEIVED COLLATERAL IN THE FORM OF SECURITIES)
CASH COLLATERAL RECEIVED
NET AMOUNT
FINANCIAL ASSETS
Derivatives
5 419 752
(4 409 587)
(326 395)
683 770
TOTAL
5 419 752
(4 409 587)
(326 395)
683 770
AMOUNT OF POTENTIAL OFFSETTING
31.12.2020
CARRYING AMOUNT OF FINANCIAL LIABILITIES PRESENTED IN THE STATEMENT OF FINANCIAL POSITION
FINANCIAL INSTRUMENTS (INCLUDING PLEDGED COLLATERAL IN THE FORM OF SECURITIES)
CASH COLLATERAL PLEDGED
NET AMOUNT
FINANCIAL LIABILITIES
Derivatives
5 623 233
(4 432 197)
(809 209)
381 827
TOTAL
5 623 233
(4 432 197)
(809 209)
381 827
The carrying amount of financial assets and financial liabilities disclosed in this statement of financial position are presented:
• derivatives – on the fair value base,
• repo and reverse repo transactions – on a value at amortized cost base.
144
Bank Pekao S.A.
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
Reconciliation of the carrying amount of financial assets and financial liabilities subject to enforceable master netting agreements and similar agreements to the amounts presented in the statement of financial position.
31.12.2021
NET CARRYING AMOUNT
ITEM IN STATEMENT OF FINANCIAL POSITION
CARRYING AMOUNT IN STATEMENT OF FINANCIAL POSITION
CARRYING AMOUNT OF TRANSACTIONS NOT IN SCOPE OF OFFSETTING DISCLOSURES
NOTE
FINANCIAL ASSETS
7 785 810
Derivative financial instruments
(held for trading)
7 928 539
142 729
22
Derivatives
78 216
Hedging instruments
78 216
-
23
Reverse repo transactions
582 993
Loans and advances to banks
3 328 087
2 745 094
21
FINANCIAL LIABILITIES
7 931 773
Derivative financial instruments
(held for trading)
7 969 343
37 570
22
Derivatives
2 218 884
Hedging instruments
2 221 732
2 848
23
Repo transactions
848 221
Amounts due to other banks
8 575 469
7 727 248
32
31.12.2020
NET CARRYING AMOUNT
ITEM IN STATEMENT OF FINANCIAL POSITION
CARRYING AMOUNT IN STATEMENT OF FINANCIAL POSITION
CARRYING AMOUNT OF TRANSACTIONS NOT IN SCOPE OF OFFSETTING DISCLOSURES
NOTE
FINANCIAL ASSETS
4 640 689
Derivative financial instruments (held for trading)
4 812 231
171 542
22
Derivatives
779 063
Hedging instruments
779 063
-
23
FINANCIAL LIABILITIES
4 550 274
Derivative financial instruments (held for trading)
4 617 416
67 142
22
Derivatives
1 072 959
Hedging instruments
1 072 959
-
23
47.3. Legal risk regarding foreign currency mortgage loans in CHF
1) Adopted accounting principles
The Group recognizes that the legal risk related to the outstanding portfolio of foreign currency mortgage loans in CHF as at 31 December 2021 affects the expected cash flows from this portfolio and the level of expected credit loss within the meaning of IFRS 9 that can be incurred by the Group.
In connection with the above, the credit risk of the portfolio of foreign currency mortgage loans in CHF is assessed by the Group, taking into account the legal risk associated with this portfolio. The Group recognizes that there has been a significant increase in credit risk in relation to the CHF portfolio since the initial recognition date and classifies these loans to Stage 2. Due to unfavorable judgments, resulting in a significant probability of losing the case, in the event that the client files a court claim, the loans covered by such claims, the Bank classifies to Stage 3.
However, with regard to the repaid portfolio of foreign currency mortgage loans in CHF, the Group applies IAS 37 and recognizes provisions allocated to this part of the portfolio under ‘Provisions’ and ‘Other operating expenses’, which were presented in Note 37 and Note 13, respectively.
2) Portfolio characteristics
Bank Pekao S.A. has not granted loans in CHF to the public since 2003. Almost the entire current portfolio of loans in CHF for individuals was taken over by Bank Pekao S.A. in the process of partial division of Bank BPH S.A. (loans granted before August 2006).
As at 31 December 2021, the Group had a portfolio of foreign currency mortgage loans in CHF with a total gross carrying amount of PLN 2 716.5 million (i.e. CHF 610.7 million) compared to PLN 2 899 million (i.e. CHF 679.9 million) as at 31 December 2020.
145
Bank Pekao S.A.
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
The tables below present the structure and quality of the CHF loan portfolio for individuals:
31. 12 2021
STAGE 3 (LIFETIME ECL - CREDIT-IMPAIRED)
STAGE 1 (12M ECL)
STAGE 2 (LIFETIME ECL - NOT CREDIT- IMPAIRED)
INDIVIDUAL ASSESSMENT
GROUP ASSESSMENT
PURCHASED OR ORIGINATED CREDIT-IMPAIRED (POCI)
TOTAL
Gross carrying amount, of which:
2 078
2 211 523
64 638
437 661
623
2 716 523
denominated in CHF
2 078
2 209 618
64 638
437 234
623
2 714 191
indexed to CHF
-
1 905
-
427
-
2 332
Impairment allowances, of which: (*)
(1)
(275 193)
(44 021)
(338 600)
(224)
(658 039)
denominated in CHF
(1)
(275 174)
(44 021)
(338 387)
(224)
(657 807)
indexed to CHF
-
(19)
-
(213)
-
(232)
Carrying amount, of which:
2 077
1 936 330
20 617
99 061
399
2 058 484
denominated in CHF
2 077
1 934 444
20 617
98 847
399
2 056 384
indexed to CHF
-
1 886
-
214
-
2 100
(*) Including the provision for legal risk regarding foreign currency mortgage loans in the amount of PLN 469 022 thousand.
31.12.2020
STAGE 3 (LIFETIME ECL - CREDIT-IMPAIRED)
STAGE 1 (12M ECL)
STAGE 2 (LIFETIME ECL - NOT CREDIT- IMPAIRED)
INDIVIDUAL ASSESSMENT
GROUP ASSESSMENT
PURCHASED OR ORIGINATED CREDIT-IMPAIRED (POCI)
TOTAL
Gross carrying amount, of which:
2 602
2 645 935
52 315
197 467
806
2 899 125
denominated in CHF
2 602
2 640 379
52 315
196 873
806
2 892 975
indexed to CHF
-
5 556
-
594
-
6 150
Impairment allowances, of which: (*)
(1)
(358 050)
(25 436)
(94 040)
(341)
(477 868)
denominated in CHF
(1)
(358 012)
(25 436)
(93 844)
(341)
(477 634)
indexed to CHF
-
(38)
-
(196)
-
(234)
Carrying amount, of which:
2 601
2 287 885
26 879
103 427
465
2 421 257
denominated in CHF
2 601
2 282 367
26 879
103 029
465
2 415 341
indexed to CHF
-
5 518
-
398
-
5 916
(*) Including the provision for legal risk regarding foreign currency mortgage loans in the amount of PLN 345 131 thousand.
As of 31 December 2021 t he average LTV for CHF loans to individuals granted by the Group amounted to 35.5% ( 38.1 % as at 31 December 2020) , with an average LTV for the whole portfolio of mortgage loans of 52.3% ( 55.8% as at 31 December 2019).
3) Court proceedings related to foreign currency mortgage loans in CHF
On 3 October 2019, the Court of Justice of the European Union (hereinafter the ‘CJEU’) issued a ruling on a CHF-indexed loan granted by another bank, in which it interpreted the provisions of Council Directive 93/13 / EEC of 5 April 1993 on unfair terms in consumer loans based on the CHF indexed loan agreement. The CJEU indicated the consequences of recognizing the possible abusiveness of conversion clauses by the domestic court, without examining the possible abusiveness of contractual provisions at all. The CJEU did not prejudge that in the event that a domestic court finds possible abusiveness, the court should automatically declare the entire contract invalid. The assessment in this respect remains to be decided by the national court, but the CJEU has not ruled out the possibility of filling the gap resulting from the abusive nature of conversion clauses by means of domestic regulations.
The ruling of the CJEU constitutes general guidelines for Polish courts. Final decisions made by Polish courts are made on the basis of EU regulations interpreted in accordance with the CJEU judgment, taking into account the provisions of domestic law and the analysis of the individual circumstances of each case. At the same time, it is difficult to talk about a formed line of jurisprudence in cases of mortgage loans in CHF, which is often confirmed by mutually exclusive judgments of common courts, as well as legal inquiries to the CJEU and the Supreme Court to resolve doubts.
In particular, attention should be paid to the application submitted on 29 January 2021 by the First President of the Supreme Court to the full composition of the Civil Chamber of the Supreme Court to resolve legal issues related to foreign currency mortgage loans in CHF, relating in particular to the following aspects:
1) whether the abusive provisions relating to the method of determining the currency rate in an indexed or denominated loan agreement can be replaced by provisions of civil or customary law,
146
Bank Pekao S.A.
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
2) if it is impossible to establish a binding exchange rate for a foreign currency in a denominated loan agreement, the agreement may bind the parties in the remaining scope,
3) if it is impossible to establish a binding exchange rate for a foreign currency in the loan agreement, the agreement may bind the parties in the remaining scope,
4) whether the balance theory or the theory of two conditions will apply in the event of cancellation of the loan agreement,
5) which is the moment to start the limitation period in the event that the bank makes a claim against the borrower for the repayment of the loan,
6) whether it is possible for banks and borrowers to receive remuneration for using the funds.
In the Group's opinion, the ruling of the Supreme Court on the above issues may have a significant impact on the further shaping of the line of judicial decisions in this regard. However, it is not certain whether and when the full Civil Chamber will adopt a resolution on the above-mentioned legal questions.
On 7 May 2021, a resolution was adopted by the Supreme Court composed of seven judges, after the resolution of the legal issue in the case III CZP 6/21 in the Civil Chamber, indicating that:
• a prohibited contractual provision (Art.385 (1) § 1 of the Civil Code) is from the outset, by operation of law, ineffective in favor of the consumer, who may subsequently give informed and free consent to this provision and thus restore its effectiveness retroactively;
• if the loan agreement cannot be binding without an ineffective provision, the consumer and the lender are entitled to separate claims for the reimbursement of cash benefits provided in the performance of the agreement (Art. 410 § 1 in conjunction with Art. 405 of the Civil Code). The lender may request the return of the benefit from the moment the loan agreement becomes permanently ineffective.
The resolution in question was given the force of a legal principle, therefore in the scope of resolved issues, it is binding in other cases examined by common courts as well as by the Supreme Court.
In addition, there is a trend in the market related to the referral by common courts of inquiries regarding various types of doubts arising to the Supreme Court, which may also affect the future directions of judicial decisions.
As at 31 December 2021, 1 596 individual court cases were pending against the Group regarding foreign currency mortgage loans in CHF, which were granted in previous years, with the total value of the claim in the amount of PLN 459.2 million (as at 31 December 2020, the number of cases was 592, and the corresponding value of the dispute is PLN 159,7 million). The main cause of the dispute, as indicated by the plaintiffs, concerns the questioning of the provisions of the loan agreement with regard to the Group's application of conversion rates and results in claims regarding the partial or complete invalidity of the loan agreements. In 2021, the Group received 124 unfavorable court judgments in cases brought by borrowers, including 19 final judgments and 11 favorable court judgments, including 4 final judgments (in 2020: 36 unfavorable court judgments, including 3 final judgments stating the invalidity of the loan agreement and 13 favorable court judgments, including 2 final judgments dismissing the claim for declaring the invalidity of the loan agreement and a claim for payment in connection with the invalidity of the loan agreement).
4) Provision related to foreign currency mortgage loans in CHF - assumptions and calculation methodology
As at 31 December 2021, the level of the provision for the above-mentioned legal risk related to CHF mortgage loan agreements estimated by the Group amounted to PLN 626.2 million and increased by PLN 190.1 million compared to the level of these provisions as at 31 December 2020.
The above amount includes the provision for individual existing court cases to which the Group is a party in the amount of PLN 266.1 million as at 31 December 2021 (PLN 76.1 million as at 31 December 2020) and the portfolio provision for remaining foreign currency mortgage loan agreements in CHF, which are subject to legal risk related to the nature of these agreements, in the amount of PLN 360.1 million as at 31 December 2021 (PLN 360.0 million as at 31 December 2020).
With regard to the portfolio provision, as at 31 December 2021, the Group based its calculations on 3 possible scenarios in order to best account for the various possible solutions which are currently being analyzed in the banking sector, in the estimation.
The calculation of the provision performed by the Group as at 31 December 2021 was based on the following scenarios:
1) the baseline scenario - considered as the most probable, where the Group assumes that approximately 12% of foreign currency borrowers (with both active and repaid loans with an initial capital of CHF 1 651 million) will bring claims against the Group regarding the questioning of the loan agreement and in which the Group estimates the probability of losing court cases, as well as possible financial consequences in the event of losing a court case, accepting as possible settlement:
147
Bank Pekao S.A.
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
• invalidation of the entire agreement for a foreign currency mortgage loan in CHF as a result of recognizing the indexation clause as illegal,
• recognition that the clauses contained in the loan agreement constitute prohibited contractual provisions resulting in the determination of the loan balance in PLN and the interest rate on the loan based on the LIBOR rate, the so-called ‘Defrancation’,
• recognizing the valorization clause as abusive and replacing the Bank's exchange rate table in its content with the average exchange rate of the National Bank of Poland,
• dismissal of the claim.
In the baseline scenario as at 31 December 2021, the Group took into account the current state of the macroeconomic environment, including the currently observed trends in court judgments regarding foreign currency mortgage loans in CHF, as well as its own history of lawsuits and the history of lawsuits observed on the market. Moreover, the Group made estimates in terms of the probability of losing the disputes and the probabilities of possible solutions in the event of a dispute, based on an updated opinion of an external law firm.
An additional element of the estimates in the baseline scenario is the probability distribution of a possible dispute resolution, which is associated with a specific loss level. The Group attributes the largest share in the possible settlement scenarios, amounting to 80% (70% at the end of 2020), to the cancellation of the loan agreement. In this scenario, the Group does not assume any settlements with customers.
2) settlement scenario – as a possible scenario of events in the Group's opinion in the current market conditions, in which the majority of customers (approximately 80% of the portfolio value) will qualify for the option of settlements with the Group based on solutions implemented in the banking sector, as proposed by the Chairman of the Polish Financial Supervision Authority.
In the settlement scenario, the financial effects for the Group are equal to the sum of the differences between the current balance of the foreign currency mortgage loan in CHF and the balance of the hypothetical loan in PLN based on the WIBOR rate increased by the margin of the loan granted at the same time and for the same period as the loan in CHF and repaid by the borrower in accordance with the repayments made on the CHF loan. As a result, with the current market parameters, the Group's costs of concluding settlements would amount to approximately PLN 511 million. For contracts currently in dispute, the Group assesses the possible propensity of customers to withdraw the lawsuit and conclude a settlement, taking into account the ratio of the benefit that can be achieved by the customer from the settlement to the potential benefit from the lawsuit (including the costs of pursuing a lawsuit) and the expected resolution of the dispute.
3) negative scenario - as a possible scenario to occur in a situation of a significant deterioration of the macroeconomic environment, in particular in terms of a significant intensification and deepening of the negative trend regarding unfavorable jurisprudence and common courts of law regarding foreign currency mortgage loans in CHF, the number of possible claims will be twice as high as assumed in the baseline scenario, with a simultaneous greater likelihood with regard to unfavorable court judgments. Moreover, with regard to the probability distribution of possible settlements of disputes in this scenario, the Group also assumed a higher probability of invalidity of the entire agreement of a foreign currency CHF mortgage loan (at the level of 95% of decisions - levels of % unchanged compared to those adopted in 2020). In this scenario, the Group does not assume any settlements with customers.
Although the subject of legal risk related to the CHF loan portfolio is one of the key topics in the sector in recent years, there is still a history of data on the scale of lawsuits (in particular in the field of final judgments), and whether the line of court jurisprudence in this area is not stabilized. All of the above causes that the process of determining the level of the provision requires each time the Group adopts many expert assumptions based on professional judgment.
Subsequent rulings and possible sectoral solutions that will appear on the Polish market with regard to foreign currency mortgage loans in CHF may affect the amount of the provision determined by the Group and cause the necessity to change individual assumptions adopted in the calculations. In connection with the above-mentioned uncertainty, it is possible that the amount of the provision will change in the future.
Following the above principles, as at 31 December 2021, the Group allocated the total amount of the provision in the amount of PLN 626.2 million as follows:
1. PLN 496 million for current and future disputes regarding balance sheet exposures, recognized as an element of impairment losses on credit receivables in correspondence with ‘Net allowances for expected credit losses’ (PLN 345.1 million as at 31 December 2020),
2. PLN 130.2 million for current and future legal disputes regarding repaid exposures, recognized as provisions in correspondence with ‘Other operating expenses’ (PLN 91 million as at 31 December 2020).
148
Bank Pekao S.A.
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
A summary of the recognition of the provision for legal risk related to foreign currency mortgage loans in CHF in the statement of financial position and income statement is presented in the tables below.
STATEMENT OF FINANCIAL POSITION
31.12.2021
31.12.2020
Impairment allowances for loan exposures, in this:
496 022
345 131
Individual provisions
215 421
65 420
Portfolio provisions
280 601
279 711
Provisions for litigation and claims, in this:
130 185
90 939
Individual provisions
50 681
10 668
Portfolio provisions
79 504
80 271
Total
626 207
436 070
INCOME STATEMENT
2021
2020
Net allowances for expected credit losses
(152 256)
(308 866)
Other operating expenses
(39 743)
(68 498)
Total
(191 999)
(377 364)
Sensitive analysis
The Group performed a sensitivity analysis in relation to the significant assumptions of the provision calculation, where a change in the level of individual parameters would have the following impact on the amount of the provision for the legal risk of foreign currency mortgage loans in CHF.
Impact on the provision level in the event of changes to the assumptions (with other elements of the calculation unchanged):
PARAMETR
SCENARIO
IMPACT ON THE PROVISION
LEVEL on 31.12.2021
+20%
96 882
Number of lawsuits
-20%
(72 669)
+10 p.p. (no more than ż 100%)
60 614
Probability of failure
-10 p.p.
(46 926)
+10 p.p. (no more than ż 100%)
52 915
Probability of a contract invalidity scenario
-10 p.p.
(37 412)
PARAMETR
SCENARIO
IMPACT ON THE PROVISION
LEVEL on 31.12.2020
+20%
33 657
Number of lawsuits
-20%
(33 657)
+10 p.p.
26 258
Probability of failure
- 10 p.p.
(26 258)
+10 p.p.
9 505
Probability of a contract invalidity scenario
- 10 p.p.
(9 505)
149
Bank Pekao S.A.
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
47.4. Market risk
The Group is exposed in its operations to market risk and other types of risk caused by changing market risk parameters.
Market risk is the risk of deteriorating financial result or capital of the Group resulting from market changes. The main factors of market risk are as follows:
• interest rates,
• foreign exchange rates,
• stock prices,
• commodity prices.
The Group established a market risk management system, providing structural, organizational and methodological frames for the purpose of shaping the structure of balance and off-balance items to assure the achievement of strategic goals.
The main objective of market risk management is to optimize financial results so as to assure the implementation of financial goals of the Group while keeping the exposure to market risk within the risk appetite defined through risk limits approved by the Management Board and the Supervisory Board.
The organization of the market risk management process is based on a three-tier control system, established in compliance with the best international banking practices and recommendations from banking supervision. The process of market risk management and procedures regulating it have been developed taking into consideration the split into trading and banking books.
Market risk of the trading book
The Group’s management of market risk of the trading book aims at optimizing the financial results and assuring the highest possible quality of customer service in reference to the market accessibility (market making) while staying within the limits of risk approved by the Management Board and the Supervisory Board.
The main tool for market risk of the trading book measurement is Value at Risk model (VaR). This value corresponds to the level of a one-day loss, which will be exceeded with the probability not greater than 1%. VaR value is calculated with historical simulation method based on 2 years of historical observations of market risk factors’ dynamics. The set of factors used when calculating VaR consists of all significant market factors that are taken into account for valuation of financial instruments, excluding specific credit risk of an issuer and counterparty. Estimating the impact of changes in market factors on the present value of a given portfolio is performed under the full revaluation (which is a difference between the value of the portfolio after the adjustments in market parameters’ levels by historically observed changes of the parameters and the present value of the portfolio). For such a set of probable changes in the portfolio value (distribution), VaR is defined to be equal to 1% quantile.
The model is subject to continuous, statistical verification by comparing the VaR values to actual and revaluated performance figures. Results of analyses carried out in 2021 and 2020 confirmed the adequacy of the model applied.
The table below presents the market risk exposure of the trading portfolio of the Group measured by Value at Risk as at 31 December 2021 and as at 31 December 2020.
31.12.2021
MINIMUM VALUE
AVERAGE VALUE
MAXIMUM VALUE
foreign currency exchange risk
409
13
75
433
interest rate risk
2 306
801
2 155
4 072
Trading portfolio
2 331
810
2 190
3 892
31.12.2020
MINIMUM VALUE
AVERAGE VALUE
MAXIMUM VALUE
foreign currency exchange risk
23
6
67
1 153
interest rate risk
2 578
859
2 028
6 419
Trading portfolio
3 020
837
2 132
6 863
Interest rate risk of the banking book
In managing the interest rate risk of the banking book the Group aims at hedging the economic value of capital and achieving the planned interest result within the accepted limits. The financial position of the Group in relation to changing interest rates is monitored through the interest rate gap (repricing gap), duration analysis, sensitivity analysis, stress testing and VaR. The interest rate risk of the banking book measurement is generally carried out on a monthly basis.
In 2021, the Bank's low interest rates and high banking sector liquidity had a significant impact on the level of the Bank's exposure to interest rate risk and the amount of net interest income. The Bank secures the economic value of capital and the income stream by concluding IRS transactions on an appropriate scale and by purchasing fixed-coupon bonds.
150
Bank Pekao S.A.
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
The table below presents the sensitivity levels of the contractual interest income (NII) to the interest rate change by 100 b.p. and of economic value of the Bank’s equity (EVE) to the interest rate change by 200 b.p. (standard regulatory shock excluding the risk profile of own funds) for the end of December 2021 and December 2020.
SENSITIVITY IN %
31.12.2021
31.12.2020
NII
(7.51)
(6.31)
EVE
(6.31)
(7.10)
Currency risk
Currency risk management is performed simultaneously for the trading and the banking book. The objective of currency risk management is to maintain the currency profile of statement of financial position and off-balance items within the internal limits.
The tables below present the Group’s foreign currency risk profile measured by Value at Risk and currency position.
Value at Risk
CURRENCY
31.12.2021
31.12.2020
Total currencies (*)
732
287
(*) VaR presented in the 'Total currencies' item constitutes the Group's total exposure to currency risk. The value of the VaR measure is determined using the same method as for market risk in the trading book, i.e. the historical simulation method based on a 2-year history of observation of the dynamics of market risk factors, with a 99% confidence level, which reflects the level of a one-day loss that may be exceeded with a probability of no more than 1%. By default, the historical simulation method takes into account correlation relationships between currencies.
Currency position
BALANCE SHEET OPERATIONS
OFF-BALANCE SHEET OPERATIONS- DERIVATIVES
31.12.2021
ASSETS
LIABILITIES
LONG POSITION
SHORT POSITION
NET POSITION
EUR
30 600 095
26 904 921
23 686 721
27 365 640
16 255
USD
9 557 499
9 675 647
8 151 754
7 986 501
47 105
CHF
2 790 085
646 075
1 292 040
3 432 811
3 239
GBP
381 213
1 164 222
824 835
39 707
2 119
NOK
309 595
69 547
3 810
243 324
534
SEK
82 692
93 263
21 740
11 066
103
CAD
47 538
73 851
29 296
2 713
270
DKK
44 844
28 647
7 702
24 039
(140)
CZK
40 875
30 127
320 348
327 500
3 596
RON
26 910
16 286
256 645
271 019
(3 750)
CNY
135 717
31 846
617 757
721 252
376
HRK
839
1 703
128 240
127 123
253
HUF
4 965
28 886
352 172
328 232
19
Other currencies
43 837
50 292
87 759
80 089
1 215
Total
44 066 704
38 815 313
35 780 819
40 961 016
71 194
BALANCE SHEET OPERATIONS
OFF-BALANCE SHEET OPERATIONS DERIVETIVES
31.12.2020
ASSETS
LIABILITIES
LONG POSITION
SHORT POSITION
NET POSITION
EUR
27 375 809
22 418 332
26 660 237
31 724 567
(106 853)
USD
9 105 146
9 457 571
11 066 970
10 678 562
35 983
CHF
2 959 415
647 418
1 434 038
3 747 830
(1 795)
GBP
393 981
1 108 154
2 126 362
1 411 961
228
NOK
516 555
66 514
207 543
657 470
114
SEK
140 592
68 148
67 506
139 623
327
DKK
82 206
16 849
57 989
123 156
190
CZK
56 995
17 554
650 361
689 607
195
CAD
17 125
55 492
43 007
4 380
260
CNY
25 253
16 707
356 180
364 812
(86)
Other currencies
44 312
95 914
380 329
327 595
1 132
Total
40 717 389
33 968 653
43 050 522
49 869 563
(70 305)
151
Bank Pekao S.A.
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
47.5. Reform of interest rate indices
Interest rate benchmark reform
A fundamental reform of major interest rate benchmarks is being undertaken globally, replacing some interbank offered rates (IBORs) with alternative nearly risk-free rates (referred to as ‘IBOR reform’).
A fundamental reform of the main interest rate benchmarks (the ‘IBOR reform’) is under way around the world. Regulation (EU) 2016/1011 of the European Parliament and of the Council of 8 June 2016 on indexes used as benchmarks in financial instruments and financial contracts or to measure the performance of investment funds and amending Directives 2008/48 / EC and 2014/17 / EU and Regulation (EU) No 596/2014 (hereinafter the ‘BMR Regulation’) sets out the operating rules and responsibilities of benchmark administrators and of the entities using these benchmarks. The new rules are to make the indicators more credible, transparent and reliable. As a result of the IBOR reform, individual indicators were adjusted to the new rules (eg WIBOR, EURIBOR) or liquidated (eg LIBOR) and replaced with alternative indicators. The greatest impact of the IBOR reform on the Group is observed in the field of financial instruments, in particular loans.
The main risks to which the Group is exposed as a result of the IBOR reform are operational: updating contractual terms, updating systems and reviewing control mechanisms related to the reform and regulatory risk. The impact on financial risk is mainly limited to the interest rate risk.
In 2021, a project was launched to prepare the Group for changes resulting from the reform, including the transition to alternative benchmarks. The key project tasks included: the selection of alternative indicators for liquidated reference indicators, the Group's decisions on the use of new indicators, product inventory in terms of the use of liquidated indicators in the Group's products and processes, preparation of the product change concept, update of ‘fallback’ clauses, the Group's procedures to be followed in the event of the cessation of publication of the benchmark (the so-called ‘contingency plan’) and ordering communication with contractors about the IBOR reform. Key decisions were made by the Assets, Liabilities and Market Risk Committee (ALCO) and the Bank's Management Board. For derivatives, the Bank has joined the ‘ISDA IBOR Fallback Protocol’ to transition to new benchmarks.
The Group has adopted internal regulations requiring all new loans and credits with variable interest to include fallback clauses in the event that the benchmark is discontinued. The clause contains a sequence of actions that the Group will take in the event of liquidation of a given ratio and does not indicate any specific alternative indicators, as in the Group's opinion it is currently not possible and justified.
The Group monitors the progress of the transition to the new benchmarks by reviewing the total volumes of contracts where the current benchmark is subject to IBOR reform and an alternative benchmark has not yet been introduced (hereinafter ‘non-reformed contract’), even if the contract contains a fallback clause. At the same time, the Group continues the process of annexing contracts concluded before the entry into force of the BMR Regulation by introducing fallback clauses.
Following the recommendations of the supervisory authorities, the Group decided not to use the LIBOR ratios in newly granted loans and credits with variable interest rates.
As of 31 December 2021, the IBOR reform for the currencies to which the Group is exposed has largely been completed. The table below shows the IBOR to which the Group has had exposure, the new reference rates to which these exposures have or are transitioning, and the transition status.
In March 2021, the British Financial Conduct Authority (‘Financial Conduct Authority’, hereinafter ‘FCA’), as the supervisor of the authorized administrator of LIBOR indicators, announced that after 31 December 2021 the LIBOR CHF, LIBOR GBP, LIBOR EUR ratios for all tenors and USD LIBOR for 1W and 2M tenors are no longer developed or are no longer representative. USD LIBOR for remaining tenors will cease to be developed or will cease to be representative after 30 June 2023.
In accordance with the Commission Implementing Regulation (EU) 2021/1847 of 14 October 2021 on the designation of the statutory substitute for certain maturities of the LIBOR rate for the Swiss franc (CHF LIBOR), as of 1 January 2022, the reference rates of the SARON Compound family with the relevant the correction will be applied by operation of law in all contracts and financial instruments which, as at the date of the entry into force of the Commission Regulation, did not have adequate fallback clauses and which used the CHF LIBOR ratio so far. The introduction of substitutes by operation of law means in practice that it is not necessary to modify the content of financial contracts.
In accordance with British law, the FCA has been granted the right to amend the methodology for determining GBP LIBOR and to extend its development for a limited period in order to continue existing contracts using benchmarks which, for various reasons, the Group is unable to reform either by directly changing the benchmark or by the introduction and application of a tough legacy contracts (‘TLC’). The Group will apply this modified LIBOR to the existing contracts (TLC) using GBP LIBOR.
CURRENCY
BENCHMARK BEFORE REFORM
BENCHMARK AFTER REFORM
STATUS AS AT 31.12.2021
CHF
LIBOR CHF
SARON, SARON Compound
In progres (see below)
USD
LIBOR USD
SOFR, Term SOFR
In progres (see below)
GBP
LIBOR GBP
SONIA, Term SONIA
In progres (see below)
152
Bank Pekao S.A.
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
The European Commission has published an initiative that will define statutory substitutes for certain LIBOR rates for the British pound. The Group will monitor the progress of work under this initiative, while the Group is considering proposing to customers an annex removing the reference to LIBOR GBP.
In 2021, the Group took steps to amend all contracts based on the LIBOR EUR (a change to the appropriate EURIBOR was proposed). With regard to loan agreements that have not been amended by a relevant annex, the Group introduced new rules on interest rates in loan agreements from 1 January 2022 by applying the recently available value of the LIBOR EUR in 2021 and the margin specified in the loan agreement, while maintaining the existing rules and schedule of interest rate changes.
The Group has in its portfolio loan agreements and derivative transactions based on LIBOR USD with a maturity exceeding June 2023. With regard to loan agreement, the Group is considering proposing to customers an annex removing the reference to LIBOR USD. Some of derivatives transactions are registered with the CCP, while the remaining ones contain effective fallback clauses.
Financial assets other than derivative instruments and off-balance sheet liabilities granted
As at 31 December 2021, the Group prepared for the introduction in January 2022 of a change in the LIBOR CHF and LIBOR EUR ratios.
The tables below show the total amounts (in PLN thousand) of unreformed non-derivative financial assets and off-balance sheet liabilities granted as at 31 December 2021 and 31 December 2020. The amounts of non-derivative financial assets are presented in their gross carrying amounts, and off-balance sheet liabilities granted are presented according to the amount of liabilities.
Financial liabilities other than derivative instruments
The tables below present the total amounts (in PLN thousand) of unreformed non-derivative financial liabilities at the carrying amount as at 31 December 2021 and 31 December 2020.
Derivative financial instruments and hedge accounting
The impact of the IBOR reform on hedge accounting is described in Note 23.
The table below presents the total amount (in PLN thousand) of unreformed derivative financial instruments as at 31 December 2021. The Group expects both legs of the FX swaps to be reformed simultaneously.
31.12.2021
LIBOR CHF
LIBOR USD
LIBOR GBP
LIBOR EUR
Loans and advances to customers (including receivables from financial leases)
2 544 953
894 668
183 853
12 161
Off-balance sheet liabilities granted
66
519 391
2 605
-
31.12.2020
LIBOR CHF
LIBOR USD
LIBOR GBP
LIBOR EUR
Loans and advances to customers (including receivables from financial leases)
2 837 597
560 415
187 110
18 044
Off-balance sheet liabilities granted
383
173 170
4 808
-
31.12.2021
LIBOR CHF
LIBOR USD
LIBOR GBP
Amounts due to banks
107 446
8 164
2 096
31.12.2020
LIBOR CHF
LIBOR USD
LIBOR GBP
Amounts due to banks
153 040
11 019
3 409
ITEM
LIBOR CHF
LIBOR USD
LIBOR GBP
Derivative financial instruments (held for trading, Assets)
1 187
49 419
-
Hedging instruments (Assets)
-
-
-
Derivative financial instruments (held for trading, Liabilities)
38 526
73 169
-
Hedging instruments (Liabilities)
600 575
25 444
-
153
Bank Pekao S.A.
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
47.6. Liquidity risk
The objective of liquidity risk management is to:
• ensure and maintain the Group’s solvency with respect to current and future payables taking into account the cost of acquiring liquidity and return on the Group’s equity,
• prevent the occurrance of crisis situations, and
• provide solutions necessary to survive a crisis situation when such circumstances occur.
The Group has centralized liquidity risk management system covering current liquidity management and first level control performed by the responsible functions, the second level control carried out by a dedicated unit responsible for risk management and independent audit.
Managing the Group's liquidity is carried out in intraday, short-term and long-term horizon. Analysing of intraday liquidity concerns flows realized during the day, through a short-term liquidity analysis is understood liquidity measurement system which refers to the time horizon shorter than one year, long-term analysis covers period above one year. Due to the specific tools and techniques used for liquidity risk management, the Group manages current and medium-term liquidity together with short-term liquidity.
The liquidity control is performing as a continuous process of determining and analysing the levels of various indicators and measures related to intraday, short-term and long-term liquidity. Monitoring frequency is matched to the specific liquidity aspect – e.g. daily for short-term liquidity, monthly for long-term liquidity. Liquidity ratios and measures are subject to a formal limiting process. The limits’ utilisation is regularly monitored and presented to the Management of the Bank and subsidiaries. In case of exceeding, escalation process is running as to inform decision-makers and ultimately to restore the liquidity risk exposures to acceptable levels.
Scenario-based stress analyses, conducted on a monthly basis, constitute an integral part of the Group’s liquidity monitoring process. Within the scope of these analyses the Group’s liquidity is assessed under the conditions of crisis which is caused by financial markets or is caused by internal factors, specific to the Group.
Managing the liquidity, the Group pays special attention to the liquidity in foreign currencies through monitoring, limiting and controlling the liquidity individually for each currency, as well as monitoring demand for the current and future currency liquidity and in case of identification of such need the Group hedges using currency swaps. It is also monitored the potential influence on the liquidity of placing required collateral deposits for derivative transaction.
In order to define the principles of contingency liquidity management, Bank prepared ‘Contingency Liquidity Policy’ approved by the Management Board, which defines the contingency procedures in the event of crisis situations. This policy involves daily monitoring of the system and specific early-warning indicators for the Bank and the Group as well as three levels of liquidity risk states depending on the level of early-warning indicators, the Bank’s, the Group’s and market situation. It also defines the sources for covering the expected outflows from the Group. This document sets the procedures for monitoring the liquidity states, emergency action procedures, task forces dedicated for restoring the Group’s liquidity and the Management's responsibilities for taking necessary decisions to restore the required liquidity level.
Below are presented basic quantitative information concerning the Bank's liquidity at the end of 2021 year in comparison to the end of 2020. They cover the structure of financial liabilities by contractual maturity, supervisory measures of long-term liquidity and Liquidity Coverage Ratio (‘LCR’) adjusted liquidity gap and financial flows from derivative transactions.
154
Bank Pekao S.A.
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
Structure of financial liabilities by contractual maturity
31.12.2021
UP TO 1 MONTH
BETWEEN 1 AND 3 MONTHS
BETWEEN 3 MONTHS AND 1 YEAR
BETWEEN 1 AND 5 YEARS
OVER 5 YEARS
TOTAL
BALANCE SHEET LIABILITIES (*)
Amounts due to banks (**)
3 884 009
37 718
1 372 067
2 253 881
873 321
8 420 996
Amounts due to customers
177 224 283
4 238 194
3 879 273
506 272
8 942 964
194 790 986
Lease liabilities
14 071
15 923
70 529
66 096
383 359
549 978
Debt securities issued
176 031
3 333 021
1 326 496
733 642
324 803
5 893 993
Subordinated liabilities
-
-
44 138
214 649
3 001 796
3 260 583
Financial liabilities held for trading
-
-
293 300
201 042
145 391
639 733
Total
181 298 394
7 624 856
6 985 803
3 975 582
13 671 634
213 556 269
OFF-BALANCE SHEET COMMITMENTS (*)
Off-balance sheet commitments Financial liabilities granted
43 225 325
-
-
-
-
43 225 325
Off-balance sheet commitments Guarantees liabilities granted
14 447 947
-
-
-
-
14 447 947
Total
57 673 272
-
-
-
-
57 673 272
(*) Exposure amounts from balance liabilities, financing-related off-balance sheet commitments granted and guarantee liabilities granted have been allocated to earliest tenors, for which an outflow of assets from the Group is possible based on contracts entered into by the Group. However, outflows expected by the Group are actually significantly lower than those indicated by the specification presented above. The above is a consequence of considerable diversification of amounts due to customers and stages of life of individual contracts. Risk monitoring and management in relation to the outflow of assets are provided by the Group on continuous basis. The Group estimates also more probable flows that are reflected in Tables ‘Adjusted liquidity gap’.
(**) Including Central Bank.
Structure of financial liabilities by contractual maturity
31.12.2020
UP TO 1 MONTH
BETWEEN 1 AND 3 MONTHS
BETWEEN 3 MONTHS AND 1 YEAR
BETWEEN 1 AND 5 YEARS
OVER 5 YEARS
TOTAL
BALANCE SHEET LIABILITIES (*)
Amounts due to banks (**)
3 548 877
464 963
1 281 084
3 640 031
972 009
9 906 964
Amounts due to customers
164 064 365
5 850 085
7 450 384
305 334
163 990
177 834 158
Lease liabilities
15 588
18 442
77 759
154 968
395 794
662 551
Debt securities issued
659 405
3 052 040
1 584 486
880 832
-
6 176 763
Subordinated liabilities
-
-
44 138
214 649
3 001 796
3 260 583
Financial liabilities held for trading
-
-
14 209
279 152
449 443
742 804
Total
168 288 235
9 385 530
10 452 060
5 474 966
4 983 032
198 583 823
OFF-BALANCE SHEET COMMITMENTS (*)
Off-balance sheet commitments Financial liabilities granted
41 203 882
-
-
-
-
41 203 882
Off-balance sheet commitments Guarantees liabilities granted
13 618 285
-
-
-
-
13 618 285
Total
54 822 167
-
-
-
-
54 822 167
(*) Exposure amounts from balance liabilities, financing-related off-balance sheet commitments granted and guarantee liabilities granted have been allocated to earliest tenors, for which an outflow of assets from the Group is possible based on contracts entered into by the Group. However, outflows expected by the Group are actually significantly lower than those indicated by the specification presented above. The above is a consequence of considerable diversification of amounts due to customers and stages of life of individual contracts. Risk monitoring and management in relation to the outflow of assets are provided by the Group on continuous basis. The Group estimates also more probable flows that are reflected in Tables ‘Adjusted liquidity gap’.
(**) Including Central Bank.
Regulatory liquidity ratios LCR and NSFR (*)
SUPERVISORY LIQUIDTY NORMS
LIMIT
31.12.2021
31.12.2020
LCR
Liquidity coverage ratio
100%
190%
251%
NSFR
Net stable funding ratio
100%
141%
141%
(*) The values of regulatory liquidity ratios have been determined in accordance with the principles set out by the Commission Delegated Regulation (EU) 2015/61 of 10 October 2014 to supplement Regulation No. 575/2013 of the European Parliament and the Council with regard to liquidity coverage requirement for credit institutions.
155
Bank Pekao S.A.
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
Adjusted liquidity gap
The adjusted liquidity gaps presented below include, inter alia, the adjustments concerning the stability of core deposits and their maturities, adjustments of flows from granted off-balance sheet commitments arising from financing, guarantees and from assets without contractual repayment schedules. On top of that, included are also the adjusted flows stemming from the security portfolio and flows resulting from earlier repayment of mortgage loans portfolio. These are the main elements differentiating the adjusted gaps from unadjusted ones. Moreover, the gaps are of static nature, i.e. they do not take into consideration the impact of changes of balance sheet and off-balance sheet items volume (i.e. new deposits).
The tables below present adjusted liquidity gap:
31.12.2021
UP TO 1 MONTH
BETWEEN 1 AND 3 MONTHS
BETWEEN 3 MONTHS AND 1 YEAR
BETWEEN 1 AND 5 YEARS
OVER 5 YEARS
TOTAL
Assets
58 533 152
6 812 658
32 746 498
85 758 703
66 715 594
250 566 605
Equity and liabilities
18 992 088
16 235 633
30 475 107
42 857 218
142 006 559
250 566 605
Off-balance sheet assets/liabilities (net)
(9 708 164)
17 907
1 064 407
3 561 182
4 420 559
(644 109)
Periodic gap
29 832 900
(9 405 068)
3 335 798
46 462 667
(70 870 406)
(644 109)
Cumulated gap
20 427 832
23 763 630
70 226 297
(644 109)
31.12.2020
UP TO 1 MONTH
BETWEEN 1 AND 3 MONTHS
BETWEEN 3 MONTHS AND 1 YEAR
BETWEEN 1 AND 5 YEARS
OVER 5 YEARS
TOTAL
Assets
69 513 131
7 196 796
25 085 033
72 392 852
59 029 370
233 217 182
Equity and liabilities
18 307 777
12 023 248
26 212 984
36 038 239
140 634 934
233 217 182
Off-balance sheet assets/liabilities (net)
(9 377 774)
(161 509)
2 726 628
2 231 163
3 874 654
(706 838)
Periodic gap
41 827 580
(4 987 961)
1 598 677
38 585 776
(7 730 910)
(706 838)
Cumulated gap
-
36 839 619
38 438 296
77 024 072
(706 838)
-
Off-balance derivative transactions
The following are the liabilities and financial cash flows associated with off-balance sheet derivative transactions, settled, respectively in net and gross amounts.
Off-balance sheet derivative transactions settled by the Group in net amounts include:
• Interest Rate Swaps (IRS),
• Forward Rate Agreements (FRA),
• Foreign currency options,
• Interest rate options (Cap/Floor),
• Transactions based on equity securities and stock indexes,
• Transactions based on commodities and precious metals.
Off-balance sheet derivative transactions settled by the Group in gross amounts include:
• Cross-Currency Interest Rate Swaps (CIRS),
• Foreign currency forward contracts,
• Foreign currency swaps (FX-Swap),
• Forward contracts based on securities.
Liabilities from off-balance transactions on derivatives recognized in net amounts
UP TO 1 MONTH
BETWEEN 1 AND 3 MONTHS
BETWEEN 3 MONTHS AND 1 YEAR
BETWEEN 1 AND 5 YEARS
OVER 5 YEARS
TOTAL
31.12.2021
154 047
157 584
661 665
5 087 494
2 814 264
8 875 054
31.12.2020
76 233
108 754
361 910
2 660 575
1 247 183
4 454 655
156
Bank Pekao S.A.
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
Flows related to off-balance derivative transactions settled in gross amounts
UP TO 1 MONTH
BETWEEN 1 AND 3 MONTHS
BETWEEN 3 MONTHS AND 1 YEAR
BETWEEN 1 AND 5 YEARS
OVER 5 YEARS
TOTAL
31.12.2021
Inflows
24 028 005
12 412 897
15 114 627
14 079 632
564 263
66 199 424
Outflows
24 189 244
12 392 281
15 180 114
14 566 877
666 596
66 995 112
31.12.2020
Inflows
38 013 777
10 882 754
14 911 803
9 838 180
978 285
74 624 799
Outflows
38 098 689
10 939 427
14 957 181
10 173 970
1 187 983
75 357 250
47.7. Operational risk
Operational risk is defined as the risk of losses resulting from inadequacy or failure of internal processes, people, systems or external events. It includes law risk, whereas strategic risk, business risk and reputation risk are separate risk categories.
Operational risk management is based on internal procedures that are consistent with the law requirements, resolutions, recommendations and guidelines of the supervisor. Operational risk management includes identification, assessment, monitoring, preventing and reporting.
Identification and assessment of operational risk is based on an analysis of internal factors and external factors that may have a significant impact on the achievement of the objectives of the Group. The main tools used in identifying and assessing operational risk are: internal operational events, external operational events, key risk indicators, scenario analysis and self-assessment of operational risk.
Monitoring activities are conducted on three levels of defence: risk management in operational activity of the Bank (all employees), risk management control (Integrated Risk Management Department) and internal audit (Internal Audit Department). Preventing operational risk includes definition of operational risk limits and the obligation to initiate mitigation actions in case they are exceeded, the system of internal control, business continuity plans and insurance coverage.
Operational risk reporting system enables the assessment of the Group's exposure to operational risk and the effective management of this risk, and also plays a fundamental role in the process of informing the Supervisory Board, the Management Board and executives of the Group's exposure to operational risk. It is based in particular on the quarterly reports on operational risk control that include, among others: profile of operational risk, loss limit utilization, analysis of trends in the relevant categories of operational risk, potential losses, information on key indicators of operational risk and operational risk capital requirement.
The Supervisory Board, the Management Board and the Operational Risk Committee are involved in operational risk management. The Integrated Risk Management Department coordinates the process of operational risk management. All employees of the Group and selected specialized units are responsible in their areas for operational risk management, due to diversified character of this risk which requires professional knowledge.
In order to ensure compliance of the operational risk management system with regulatory requirements, at least once a year verification of the operational risk management system is carried out.
47.8. Climate risk
In the area of risk related to the climate and climate policy, the Group, due to the profile of its operations, focuses its activities on two main directions:
1) reducing the negative impact on the climate and the consumption of natural resources in its operating activities,
2) adjusting the product offer addressed to customers, taking into account ecological elements.
Initiatives and actions taken by the Group in relation to the above-mentioned areas, as well as taking into account the climate risk in credit processes are presented in the section ‘Statement on non-financial information’ in the ‘Report on the activities of the Bank Pekao S.A. Group. for 2021 (prepared together with the Report on the operations of Bank Pekao S.A.) ‘.
T he Group is exposed to the risk of climatic changes mainly due to the possible impact of climatic factors on the geographic and economic environment in which the Group operates.
As at 31 December 2021, the climate risk did not have a significant direct impact on individual areas of the estimates made, including the determination of the expected credit loss recognized in these financial statements, or the Group's going concern for the period of 12 months from the date of approval of these financial statements.
157
Bank Pekao S.A.
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
47.9. Capital management
The capital management process applied by the Group has been adopted for the following purposes:
• ensuring the safe and secure functioning by maintaining the balance between the capacity to undertake risk (limited by own funds), and the risk levels generated,
• maintenance of capital for covering risk above the minimum stated levels in order to assure further business operations, taking into consideration the possible, future changes in capital requirements and to safeguard the interests of shareholders,
• maintenance of the optimal capital structure in order to maintain the desired quality of risk coverage capital,
• creation of value to shareholders by the best possible utilization of the Group funds.
The Group has put in place a formalized process of capital management and monitoring, established within the scope of Internal Capital Adequacy Assessment Process - ICAAP process. The Finance Division under the Chief Financial Officer is responsible for functioning of the capital management process in the Bank. The ultimate responsibility for capital management is allocated to the Management Board of the Bank, supported by the Assets, Liabilities and Risk Management Committee, which approves the capital management process. The Supervisory Board supervises the capital management system, in particular approves the capital management strategy. The Capital Management Strategy defines the objectives and general rules of the management and monitoring of the Group’s capital adequacy, such as the guidelines concerning risk coverage sources, preferred structure of capital for risk coverage, long-term capital targets, capital limits system and sources of additional capital under contingency situations.
The Group has also implemented the Capital Contingency Policy which establishes rules and obligations in the event of crisis appearance or further development that would significantly reduce capitalization level of the Bank or Group. The policy defines the principles of supervision including split of responsibilities for the purpose of early and consistent management in case of crisis situation development.
The capital adequacy of the Group is controlled by the Assets, Liabilities and Risk Management Committee and Management Board of Bank. Periodic reports on the scale and direction of changes of the capital ratios together with indication of potential threats are prepared for the Supervisory Board, Management Board and for the Assets, Liabilities and Risk Management Committee. The level of basic types of risks is monitored according to the external limits of the banking supervision and the internal limits of the Group. Analyses and evaluations of directions of business activities development are performed assessing the compliance with capital requirements. Forecasting and monitoring of risk weighted assets, own funds and capital ratios constitute an integral part of the planning and budgeting process, including stress tests.
The Group also has a capital allocation process in place, with an aim of guaranteeing the shareholders a safe and effective return on invested capital. On one hand, the process requires capital allocations to products/clients/business lines, which guarantee profits adequate to the risks taken, while on the other hand taking into consideration the cost of capital associated with the business decisions taken. Risk-related efficiency ratios are used in the analyses of income generated compared against the risk taken as well as for the optimization of capital usage for different types of operations.
Regulatory capital requirements and own funds
Calculations of the regulatory capital requirements were performed based on Regulation of the European Parliament and of the Council (EU) No 575/2013 of June 26, 2013 on prudential requirements for credit institutions and amending Regulation (EU) No 648/2012, together with further amendments, in particular Regulation (EU) 2019/876 of the European Parliament and of the Council of 20 May 2019 amending Regulation (EU) No 575/2013 as regards the leverage ratio, the net stable funding ratio, requirements for own funds and eligible liabilities, counterparty credit risk, market risk, exposures to central counterparties, exposures to collective investment undertakings, large exposures, reporting and disclosure requirements, as well as Commission Implementing Regulations or Delegated Regulations (EU) (CRR Regulation).
The Group defines components of own funds in line with the binding law, particularly with Regulation No 575/2013 and The Banking Act of 29 August 1997 with further amendments.
According to law, Group is required to maintain minimal values of capital ratios resulting from Pillar 1 level (Regulation 575/2013), capital requirement of Pillar 2 resulting from The Banking Act and combined buffer requirement resulting from Act on macro-prudential supervision.
Minimal value of capital ratios on Pillar 1 level are:
• Total capital ratio (TCR) in amount of 8%,
• Tier 1 capital ratio (T1) in amount of 6%,
• Common Equity Tier I capital ratio (CET 1) in amount of 4.5%.
158
Bank Pekao S.A.
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
Capital requirement of Pillar II for Pekao Group, results from KNF recommendation regarding holding by the Group own funds to cover the additional capital requirement to secure the risk resulting from mortgage-secured foreign currency loans and credits to households, amounts to 0.008% for TCR, which should consist of at least 75% of Tier 1 (which corresponds to 0.006 pp) and at least 56% of the Common Equity Tier 1 (which corresponds to 0.004 pp) On 18 February 2022 Bank received the decision of KNF stating that the recommendation to comply with this additional requirement is no longer valid.
Combined buffer requirement as at 31 December 2021 consists of:
• Capital conservation buffer in amount of 2.50%,
• Countercyclical capital buffer in amount of 0.00% (countercyclical capital buffer was calculated as of 31.12.2021 at the level 0.006%),
• Other systemically important institution buffer in amount of 0.75%,
• Systemic risk buffer in amount of 0.00% (according to the Regulation of the Minister of Finance, the systemic risk buffer was abolished on 19 March 2020. The buffer value applicable until that date was 3% of the total risk exposure amount for all exposures located only in the territory of the Republic of Poland).
In total, Group is required to maintain:
• Total capital ratio (TCR) in amount of 11.26%,
• Capital ratio Tier 1 (T1) in amount of 9.26%,
• Common Equity Tier (CET 1) in amount of 7.76%.
As at 31 December 2020 total capital ratio of the Group amounted at 16.9% (as of 31 December 2020 – 19.2%).
31.12.2021
31.12.2020(*)
CAPITAL REQUIREMENTS
Credit risk
10 817 277
10 103 020
Market risk
112 121
99 400
Counterparty risk including CVA
253 317
173 859
Operational risk
848 430
699 703
Total capital requirement
12 031 145
11 075 982
OWN FUNDS
Common Equity Tier 1 capital
22 693 271
23 769 613
Capital Tier 1
2 750 000
2 750 000
Own funds for total capital ratio
25 443 271
26 519 613
OWN FUNDS REQUIREMENTS
Common Equity Tier 1 capital ratio (%)
15.1%
17.2%
Total capital ratio (%)
16.9%
19.2%
(*) Data for 31 December 2020 have been recalculated taking into account the retrospective recognition of part of the profit for 2020 (confirmation of the financial results by the General Shareholders Meeting)), in accordance with the EBA position expressed in Q&A 2018_3822 and Q&A 2018_4085.
Total capital ratio at the end of 2021 compared with the end of 2020 decreased by 2.3 p.p.
Total capital requirement increased by 8.6%, mainly due to higher credit risk capital requirement resulting mainly from increase of loan volumes, operational risk capital requirement resulting mainly from increase of provisions on loans denominated in foreign currencies and increase of capital requirement for counterparty credit risk resulting from implementation of new Standardized Approach. As at 31 December 2021 Common Equity Tier 1 Capital was lower by 4.5% as compared to 31 December 2020 due to decrease of HTC&S portfolio valuation. Own funds for total capital ratio calculation decreased by 4.1% at the end of 2021 compared to the end of 2020.
159
Bank Pekao S.A.
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
Internal capital adequacy assessment
To assess the internal capital adequacy of the Group, the Bank applies methods designed internally.
The Group takes the following risks into consideration:
• credit risk,
• operational risk,
• market risk,
• liquidity risk,
• real estate risk,
• macroeconomic risk,
• business risk (including strategic risk),
• compliance risk,
• reputational risk,
• model risk,
• excessive leverage risk,
• bancassurance risk,
• financial investment risk.
For each risk deemed material, the Group develops and applies adequate risk assessment and measurement methods. The Group applies the following risk assessment methods:
• qualitative assessment – applied in case of risks which are difficult to measure (compliance, reputational and bancassurance risks) with potencial capital coverage in other risks areas,
• assessment by estimation of capital buffer, for risks that are not easily quantifiable however some aggregate assessment of their impact is possible (model risk and macroeconomic risk),
• quantitative assessment – applied for risks which can be measured with the use of economic capital (other risk types apart from liquidity risk and excessive leverage risk) or based on other risk-specific measures (liquidity risk and excessive leverage risk).
Generally, preferred methods of measuring risks and determining the resulting capital requirements are Value at Risk models, based on assumptions derived from the Group’s risk appetite. The models are developed in compliance with the best market practices and regulatory requirements and supplemented with stress tests and/or scenario analyses. In case of risk types for which such methodologies have not been finally developed or implemented, the Group uses regulatory models supplemented with stress tests or simplified measurement methods.
Determination of capital buffer which covers the risk of changes in macroeconomic conditions is made on the basis of an analysis of the impact of the economic slowdown scenario on economic capital over the forecast horizon, with the impact of changes in interest rates on net interest income and changes in the valuation of portfolios classified as measured at fair value through other comprehensive income.
Model risk is estimated using results of model validation and scenario analyses making it possible to evaluate the impact of potential model inconsistencies on its output. Based on the aggregated output, the model risk capital buffer is determined.
The procedure of estimating capital needs starts with the calculation of economic capital, separately for each material quantifiable risk identified by the Group. Next, economic capital figures for individual risks are aggregated. Then, the amount is increased by the capital buffer for model and macroeconomic risks. The sum of economic capital and the capital buffer constitutes the internal capital of the Group.
160
Bank Pekao S.A.
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
47.10. Fair value of financial assets and liabilities
Financial instruments that are measured at fair value in the consolidated statement of financial position of the Group
instrument (mark-to-market).
The measurement of fair value of Over-the-counter (‘OTC’) derivatives and instruments with limited liquidity (i.e. for which no market quotations are available), is made on the basis of other instruments quotations on active markets by replication thereof using a number of valuation techniques, including the estimation of present value of future cash flows (mark-to- model).
As of 31 December 2021 and 31 December 2020, the Group classified the financial assets and liabilities measured at fair value into the following hierarchy of three categories based on the following hierarchy:
• Level 1: mark-to-market, applies to securities quoted on active markets,
• Level 2: mark-to-model valuation with model parameterization, based on quotations from active markets for given type of instrument, applies to illiquid government, municipal, corporate and central bank debt securities, linear and non-linear derivative instruments of interest rate markets (including forward transactions on debt securities), equity, commodity and foreign currency exchange markets, except for those cases that meet the criteria of Level 3,
• Level 3: mark-to-model valuation with partial model parameterization, based on estimated risk factors, applicable to loans and advances, corporate and municipal debt securities and for linear and non-linear derivative instruments of interest rate, equity, commodity and foreign currency exchange markets for which unobservable parameters (e.g. credit risk factors) are recognized as significant.
The measurement at fair value is performed directly by an organizational unit within Risk Management Division, independent of front-office units. The methodology of fair value measurement, including the changes of its parameterization, is subject to approval of Assets and Liabilities Committee (ALCO). The adequacy of measurement methods is subject to on-going analysis and periodical reviews in the framework of model risk management. The same Risk Management Division unit performs the assessment of adequacy and significance of risk factors and assignment of valuation models to appropriate method class, according to established hierarchy of classification.
Assets and liabilities measured at fair value in breakdown by fair value hierarchy levels
31.12.2021
LEVEL 1
LEVEL 2
LEVEL 3
TOTAL
Assets:
8 538 322
17 905 364
5 859 840
32 303 526
Financial assets held for trading
225 288
229 541
94 433
549 262
Derivative financial instruments, including:
-
7 922 679
5 860
7 928 539
Banks
-
1 559 398
5 860
1 565 258
Customers
-
6 363 281
-
6 363 281
Hedging instruments, including:
-
78 216
-
78 216
Banks
-
63 402
-
63 402
Customers
-
14 814
-
14 814
Securities measured at fair value through other comprehensive income
8 313 034
9 674 928
5 181 843
23 169 805
Securities measured at fair value through profit or loss
-
-
171 496
171 496
Loans and advances to customers measured at fair value through other comprehensive income
-
-
245 829
245 829
Loans and advances to customers measured at fair value through profit or loss
-
-
160 379
160 379
Liabilities:
639 733
10 191 075
-
10 830 808
Financial liabilities held for trading
639 733
-
-
639 733
Derivative financial instruments, including:
-
7 969 343
-
7 969 343
Banks
-
1 251 678
-
1 251 678
Customers
-
6 717 665
-
6 717 665
Hedging instruments, including:
-
2 221 732
-
2 221 732
Banks
-
836 833
-
836 833
Customers
-
1 384 899
-
1 384 899
161
Bank Pekao S.A.
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
Assets and liabilities measured at fair value in breakdown by fair value hierarchy levels
31.12.2020
LEVEL 1
LEVEL 2
LEVEL 3
TOTAL
Assets:
14 342 453
25 099 498
12 358 784
51 800 735
Financial assets held for trading
938 452
335 725
43 532
1 317 709
Derivative financial instruments, including:
-
4 810 519
1 712
4 812 231
Banks
-
1 223 864
1 712
1 225 576
Customers
-
3 586 655
-
3 586 655
Hedging instruments, including:
-
779 063
-
779 063
Banks
-
26 070
-
26 070
Customers
-
752 993
-
752 993
Securities measured at fair value through other comprehensive income
13 404 001
19 174 191
10 490 998
43 069 190
Securities measured at fair value through profit or loss
-
-
160 486
160 486
Loans and advances to customers measured at fair value through other comprehensive income
-
-
1 475 055
1 475 055
Loans and advances to customers measured at fair value through profit or loss
-
-
187 001
187 001
Liabilities:
742 804
5 690 375
-
6 433 179
Financial liabilities held for trading
742 804
-
-
742 804
Derivative financial instruments, including:
-
4 617 416
-
4 617 416
Banks
-
1 220 458
-
1 220 458
Customers
-
3 396 958
-
3 396 958
Hedging instruments, including:
-
1 072 959
-
1 072 959
Banks
-
995 230
-
995 230
Customers
-
77 729
-
77 729
162
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
Report of Bank Pekao S.A. Group for the first quarter of 2021
Bank Pekao S.A.
Change in fair value of financial assets measured at fair value according to Level 3 by the Group
2021
FINANCIAL ASSETS HELD FOR TRADING
DERIVATIVE FINANCIAL INSTRUMENTS (ASSETS)
LOANS AND ADVANCES TO CUSTOMERS MEASURED AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME
LOANS AND ADVANCES TO CUSTOMERS MEASURED AT FAIR VALUE
THROUGH PROFIT OR LOSS
SECURITIES MEASURED AT FAIR VALUE THROUGH PROFIT OR LOSS
SECURITIES MEASURED AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME
DERIVATIVE FINANCIAL INSTRUMENTS (LIABILITIES)
Opening balance
43 532
1 712
1 475 055
187 001
160 486
10 490 998
-
Increases, including:
5 940 649
11 973
96 431
764
11 010
4 046 238
4 390
Increase due to acquisition of part of Idea Bank S.A. activity
-
4 453
-
-
-
85 309
4 390
Reclassification from other levels
32 977
-
-
-
-
788 236
-
Transactions made in 2021
-
-
52 830
764
-
-
-
Acquisition/Granting
5 904 973
-
-
-
-
3 050 445
-
Settlement/Redemption
-
-
-
-
-
-
-
Gains on financial instruments
2 699
7 520
43 601
-
11 010
122 248
-
recognized in the income statement
2 649
7 520
43 601
-
11 010
119 579
-
recognized in revaluation reserves
50
-
-
-
-
2 669
-
Decreases, including:
(5 889 748)
(7 825)
(1 325 657)
(27 386)
-
(9 355 393)
4 390
Reclassification to other level
(209)
-
-
-
-
(298 662)
3 696
Settlement/Redemption
(21 729)
(7 825)
(1 099 062)
(23 634)
-
(4 357 890)
694
Sale/Repayment
(5 856 240)
-
(203 000)
-
-
(4 654 666)
-
Losses on financial instruments
(11 570)
-
(23 595)
(3 752)
-
(44 175)
-
recognized in the income statement
-
-
-
(3 752)
-
(125)
-
recognized in revaluation reserves
(11 570)
-
(23 595)
-
-
(44 050)
-
Closing balance
94 433
5 860
245 829
160 379
171 496
5 181 843
-
Unrealized income from financial instruments held in portfolio at the end of the period, recognized in:
(11 304)
2 102
(5 376)
(3 782)
-
(233 588)
-
Income statement:
(11 304)
2 102
4
(3 782)
-
10 990
-
net interest income
486
-
1 494
273
-
14 456
-
net allowances for expected credit losses
-
-
(1 490)
-
-
(3 466)
-
result on financial assets and liabilities held for trading
(11 790)
2 102
-
(4 055)
-
-
-
Other comprehensive income
-
-
(5 380)
-
-
(244 578)
-
163
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
Report of Bank Pekao S.A. Group for the first quarter of 2021
Bank Pekao S.A.
Change in fair value of financial assets measured at fair value according to Level 3 by the Group
2020
FINANCIAL ASSETS HELD FOR TRADING
DERIVATIVE FINANCIAL INSTRUMENTS (ASSETS)
LOANS AND ADVANCES TO CUSTOMERS MEASURED AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME
LOANS AND ADVANCES TO CUSTOMERS MEASURED AT FAIR VALUE
THROUGH PROFIT OR LOSS
SECURITIES MEASURED AT FAIR VALUE THROUGH PROFIT OR LOSS
SECURITIES MEASURED AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME
DERIVATIVE FINANCIAL INSTRUMENTS (LIABILITIES)
Opening balance
8 035
3 042
1 380 607
242 639
125 454
6 941 296
-
Increases, including:
4 081 969
-
144 373
652
36 159
16 168 475
-
Reclassification from other levels
28 947
-
-
-
-
42 937
-
Transactions made in 2020
-
-
-
-
-
-
-
Acquisition/Granting
4 050 886
-
99 437
604
-
15 848 668
-
Settlement/Redemption
-
-
-
-
-
-
-
Gains on financial instruments
2 136
-
44 936
48
36 159
276 870
-
recognized in the income statement
2 136
-
29 641
48
36 159
256 336
-
recognized in revaluation reserves
-
-
15 295
-
-
20 534
-
Decreases, including:
(4 046 472)
(1 330)
(49 925)
(56 290)
(1 127)
(12 618 773)
-
Reclassification to other level
-
-
-
-
-
(58 832)
-
Settlement/Redemption
(1 953 732)
-
-
(56 290)
-
(513 027)
-
Sale/Repayment
(2 092 726)
-
(49 925)
-
-
(12 015 693)
-
Losses on financial instruments
(14)
(1 330)
-
-
(1 127)
(31 221)
-
recognized in the income statement
(14)
(1 330)
-
-
(1 127)
(76)
-
recognized in revaluation reserves
-
-
-
-
-
(31 145)
-
Closing balance
43 532
1 712
1 475 055
187 001
160 486
10 490 998
-
Unrealized income from financial instruments held in portfolio at the end of the period, recognized in:
2 310
(1 330)
11 538
(82)
-
120 087
-
Income statement:
2 310
(1 330)
(3 020)
(82)
-
37 473
-
net interest income
14
-
1 510
557
-
55 386
-
net allowances for expected credit losses
-
-
(4 530)
-
-
(17 913)
-
result on financial assets and liabilities held for trading
2 296
(1 330)
-
(639)
-
-
-
Other comprehensive income
-
-
14 558
-
-
82 614
-
164
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
Bank Pekao S.A.
Transfers of instruments between fair value hierarchy levels are based on changes in availability of active market quotations at the end of the reporting periods.
In the period from 1 January to 31 December 2021 the following transfers of financial instruments between the levels of the fair value hierarchy were made:
• from Level 3 to Level 2: corporate bonds which were valued based on information on the prices of comparable financial instruments, corporate and municipal bonds with immaterial impact of the estimated credit parameters on the valuation and capital market derivative instruments for which impact of the unobservable factor (correlation) on the valuation was immaterial,
• from Level 2 to Level 3: municipal and corporate bonds, for which impact of estimated credit parameters was material, government bonds with material impact of estimated spread to benchmark bond and capital market derivative instruments with material impact of the estimated factor (correlation) on the valuation,
Sensitivity analysis
The impact of estimated parameters on measurement of financial instruments for which the Bank applies fair value valuation according to Level 3 as at 31 December 2021 and as at 31 December 2020 is as follows:
IMPACT ON FAIR VALUE AS AT 31.12.2021
FINANCIAL ASSET/LIABILITY
FAIR VALUE AS AT 31.12.2021
VALUATION TECHNIQUE
UNOBSERVABLE FACTOR
ALTERNATIVE FACTOR RANGE (WEIGHTED AVERAGE )
POSITIVE SCENARIO
NEGATIVE SCENARIO
Corporate and municipal debt securities
4 872 851
Discounted cash flow
Credit spread
0.55%-1.45%
241 334
(258 585)
Government bonds
27 481
Discounted cash flow
Spread to benchmarking bond
0.07%-0.69%
1 467
(1 467)
Derivatives
5 860
Black Scholes Model
Variability
3.2-4.8
1 177
(972)
Loans and advances measured at fair value through profit or loss
160 379
Discounted cash flow
Credit spread
0.73%-1.66%
2 332
(2 279)
Loans and advances measured at fair value through other comprehensive income
245 829
Discounted cash flow
Credit spread
4.15%-5.07%
2 219
(2 188)
IMPACT ON FAIR VALUE AS AT 31.12.2021
FINANCIAL ASSET
FAIR VALUE AS AT 31.12.2021
PARAMETR
SCENARIO
POSITIVE SCENARIO
POSITIVE SCENARIO
Equity instruments mandatorily measured at fair value through profit or loss
171 496
Conversion discount
+10% / -10%
9 504
(19 050)
Equity instrument in entity providing credit information designated for measurement at fair value through other comprehensive income
323 277
Discount rate
+1% / -1%
56 123
(41 436)
165
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
Bank Pekao S.A.
IMPACT ON FAIR VALUE AS AT 31.12.2021
FINANCIAL ASSET/LIABILITY
FAIR VALUE AS AT 31.12.2021
VALUATION TECHNIQUE
UNOBSERVABLE FACTOR
ALTERNATIVE FACTOR RANGE (WEIGHTED AVERAGE)
POSITIVE SCENARIO
POSITIVE SCENARIO
Corporate and municipal debt securities
10 228 287
Discounted cash flow
Credit spread
0.21%-1.03%
130 290
(140 244)
Government bonds
28 116
Discounted cash flow
Spread to benchmarking bond
0.04%-0.71%
1 878
(1 878)
Derivatives
1 712
Black Scholes Model
Correlation
0-1
17
(1 099)
Loans and advances measured at fair value through profit or loss
187 001
Discounted cash flow
Credit spread
0.30%-1.19%
3 735
(3 641)
Loans and advances measured at fair value through other comprehensive income
1 475 055
Discounted cash flow
Credit spread
2.30%-3.20%
18 068
(17 799)
IMPACT ON FAIR VALUE AS AT 31.12.2021
FINANCIAL ASSET
FAIR VALUE AS AT 31.12.2020
PARAMETR
SCENARIO
POSITIVE SCENARIO
POSITIVE SCENARIO
Equity instruments mandatorily measured at fair value through profit or loss
160 486
Conversion discount
+10% / -10%
8 911
(17 831)
Equity instrument in entity providing credit information designated for measurement at fair value through other comprehensive income
239 617
Discount rate
+1% / -1%
47 508
(33 966)
Financial instruments that are not measured at fair value in the consolidated statement of financial position of the Group
The Group also holds financial instruments which are not presented at fair value in the financial statements. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
As of 31 December 2021 and 31 December 2020, the Group classified the financial assets and liabilities not measured at fair value in the consolidated statement of financial position into the following three categories based on the valuation level :
• Level 1: mark-to-market, applies to government securities quoted on the liquid market and cash,
• Level 2: mark-to-model valuation with model parameterization, based on quotations from active markets for given type of instrument, applies to interbank deposits, own issues, illiquid government, municipal, corporate and central bank debt securities,
• Level 3: mark-to-model valuation with partial model parameterization, based on estimated risk factors, is applicable to corporate and municipal debt securities and loans and deposits for which the applied credit risk factor (an unobservable parameter) is recognized significant.
In case of certain groups of financial assets, recognized at the amount to be received with impairment considered, the fair value was assumed to be equal to carrying amount. The above applies in particular to cash and other financial assets and liabilities.
In the case of loans for which no quoted market values are available, the fair values presented are generally estimated using valuation techniques taking into consideration the assumption, that at the moment when the loan is granted its fair value is equal to its carrying amount. Fair value of non-impaired loans is equal to the sum of future expected cash flows, discounted at the balance sheet date, less expected credit loss. The discount rate is defined as the appropriate market risk-free rate plus the liquidity risk margin and current sales margin for the given loan products group. The margin is computed on loans granted broken down by loan product groups and maturity.
166
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
Bank Pekao S.A.
For the purpose of the fair value of foreign currency loans estimation, the margin on PLN loans adjusted by the cross- currency basis swap quotes and FX-Swap is used. The fair value of impaired loans is defined as equal to the sum of expected recoveries, discounted with the use of effective interest rate, since the average expected recovery values take the element of credit risk fully into consideration. In case of loans without repayment schedule (loans in current account, overdrafts and credit cards), the fair value was assumed as equal to the carrying amount.
Since no quoted market prices are available for deposits, their fair values have been generally estimated using valuation techniques with the assumption that the fair value of a deposit at the moment of its receipt is equal to its carrying amount. The fair value of term deposits is equal to the sum of future expected cash flows, discounted at the relevant balance sheet date. The cash flow discount rate is defined as the relevant market risk-free rate, increased by the sales margin. The margin is computed on deposits acquired during last three months broken down by deposit product groups and maturity. In case of short term deposits (current deposits, overnights, saving accounts), the fair value was assumed as equal to the carrying amount.
The fair value of deposits and loans, apart from mortgage loans denominated in PLN and CHF for which prepayment model is used, is calculated based on contractual cash flows.
The mark-to-model valuation of own issue debt instruments is based on the method of discounting the future cash flows. Variable cash flows are estimated based upon rates adopted for specific markets (depending upon issue specifications). Both the fixed and implied cash flows are discounted using interbank money market rates.
Assets and liabilities not measured at fair value in the financial statement in breakdown by fair value hierarchy levels
OF WHICH:
31.12.2021
CARRYING AMOUNT
FAIR VALUE
LEVEL 1
LEVEL 2
LEVEL 3
Assets
Cash and due from Central Bank
4 696 620
4 696 695
3 699 683
997 012
-
Loans and advance to banks
3 328 087
3 334 784
-
1 476 248
1 858 536
Loans and advances to customers measured at amortised cost
158 822 548
157 567 855
-
969 694
156 598 161
Debt securities measured at amortised cost
44 276 101
41 828 431
22 436 197
2 700 086
16 692 148
Other assets
1 086 984
1 086 984
-
-
1 086 984
Total Assets
212 210 340
208 514 749
26 135 880
6 143 040
176 235 829
Liabilities
Amounts due to Central Bank
-
-
-
-
-
Amounts due to other banks
8 575 469
8 591 675
-
3 110 410
5 481 265
Amounts due to customers
195 161 943
194 824 190
-
-
194 824 190
Debt securities issued
5 355 355
5 350 726
-
5 350 726
-
Subordinated liabilities
2 761 474
2 747 964
-
2 747 964
-
Other liabilities
3 105 291
3 105 291
-
-
3 105 291
Total Liabilities
214 959 532
214 619 846
-
11 209 100
203 410 746
OF WHICH:
31.12.2020
CARRYING AMOUNT
FAIR VALUE
LEVEL 1
LEVEL 2
LEVEL 3
Assets
Cash and due from Central Bank
4 456 279
4 456 235
4 306 094
150 141
-
Loans and advance to banks
2 578 339
2 577 485
-
1 170 713
1 406 772
Loans and advances to customers measured at amortised cost
140 825 741
140 012 831
-
280 627
139 732 204
Debt securities measured at amortised cost
27 261 551
28 310 323
19 803 027
4 410 186
4 097 110
Other assets
1 059 292
1 059 292
-
-
1 059 292
Total Assets
176 181 202
176 416 166
24 109 121
6 011 667
146 295 378
Liabilities
Amounts due to Central Bank
-
-
-
-
-
Amounts due to other banks
9 950 663
9 844 466
-
2 475 559
7 368 907
Amounts due to customers
178 303 984
177 489 039
-
-
177 489 039
Debt securities issued
6 146 708
6 130 664
-
6 130 664
-
Subordinated liabilities
2 757 876
2 761 026
-
2 761 026
-
Other liabilities
2 718 650
2 718 650
-
-
2 718 650
Total Liabilities
199 877 881
198 943 845
-
11 367 249
187 576 596
167
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
Bank Pekao S.A.
48. Subsequent events
On 24 February 2022, there was an armed attack by Russia and Belarus on Ukraine. On the day the conflict broke out, the Bank launched increased monitoring of the situation. In particular, the daytime meetings of the Crisis Committee were activated with the participation of Members of the Bank's Management Board, which monitors the impact of the conflict on the Group and takes key decisions. Additionally, where it was justified, appropriate emergency plans were activated and operational bodies managing their implementation were launched.
In terms of potential risks, the Group identifies short-term and medium / long-term threats, i.e. in particular:
1) in the area of short-term threats:
• threats to cash liquidity, i.e. the Bank is observing increased cash withdrawals from branches and ATMs. However, a similar situation was already observed at the beginning of the COVID-19 pandemic. This made it possible to test and optimize the Bank's procedures in this regard. At present, there are no restrictions on the international transportation of cash (unlike during a pandemic). In view of the factors discussed, the Group assumes that disruptions in cash transactions do not pose a significant risk for it and will expire in the time horizon from a few days to several weeks,
• financial market disturbances affecting the value of the portfolio of financial instruments in which the Bank's liquidity surplus is stored. A significant fall in the value of government bonds could reduce their liquidity. However, due to the fact that the Bank currently has a high excess of liquidity and the disturbances in the Treasury bond market are not significant, the Bank assesses the risk in question as insignificant at the moment,
• operational disturbances (continuity of operations of departments, systems, etc.). These risks are constantly monitored and secured by responsible units of the Bank.
2) in the area of medium-term and long-term threats:
• credit loss risk for exposures to entities from Russia (with an off-balance sheet exposure in the amount of PLN 161.5 million as at 31 December 2021), Belarus (with a net carrying amount of PLN 201 million and an off-balance sheet exposure in the amount of PLN 128 million as at 31 December 2021) and Ukraine (with a net carrying amount of PLN 55 million as at 31 December 2021), with the Group's exposure in this regard mostly covered KUKE policies,
• the risk that the conflict will translate into deterioration of the economic and credit conditions for the rest of the portfolio (through the raw material price growth channel, disruption of economic relations, deterioration of consumer sentiment, etc.). This risk is reflected in the allowances for expected credit losses for working loans, the calculation of which takes into account the risk of an armed conflict.
In the Group's opinion, as at the date of approval of these financial statements for publication, the situation does not affect the numerical values presented in these financial statements and does not threaten the assumption that the Group will continue as a going concern for a period not shorter than one year from the balance sheet date.
However, depending on the further development of the situation, it may have a negative impact on the future financial results of the Group. Due to the unprecedented nature of the current situation, it results in the possibility of materialization of other risks in the future, not indicated above, and all assessments and forecasts in this respect are subject to uncertainty and will be monitored and analyzed by the Group.
I
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
Bank Pekao S.A.
02.03.2022
Leszek Skiba
President of the Management Board
The original Polish document is signed with a qualified electronic signature
Date
Name/Surname
Position/Function
Signature
02.03.2022
Jarosław Fuchs
Vice President of the Management Board
The original Polish document is signed with a qualified electronic signature
Date
Name/Surname
Position/Function
Signature
02.03.2022
Marcin Gadomski
Vice President of the Management Board
The original Polish document is signed with a qualified electronic signature
Date
Name/Surname
Position/Function
Signature
02.03.2022
Jerzy Kwieciński
Vice President of the Management Board
The original Polish document is signed with a qualified electronic signature
Date
Name/Surname
Position/Function
Signature
02.03.2022
Paweł Strączyński
Vice President of the Management Board
The original Polish document is signed with a qualified electronic signature
Date
Name/Surname
Position/Function
Signature
02.03.2022
Błażej Szczecki
Vice President of the Management Board
The original Polish document is signed with a qualified electronic signature
Date
Name/Surname
Position/Function
Signature
02.03.2022
Wojciech Werochowski
Vice President of the Management Board
The original Polish document is signed with a qualified electronic signature
Date
Name/Surname
Position/Function
Signature
02.03.2022
Piotr Zborowski
Vice President of the Management Board
The original Polish document is signed with a qualified electronic signature
Date
Name/Surname
Position/Function
Signature
02.03.2022
Magdalena Zmitrowicz
Vice President of the Management Board
The original Polish document is signed with a qualified electronic signature
Date
Name/Surname
Position/Function
Signature
I
Consolidated Financial Statements of Bank Pekao S.A. Group for the year ended on 31 December 2021 (in PLN thousand)
Bank Pekao S.A.
Glossary
IFRS – International Financial Reporting Standards – the standards, interpretations and their structure adopted by the International Accounting Standards Board (IASB).
IAS – International Accounting Standards – previous name of the standards forming part of the current IFRS.
IFRIC – International Financial Reporting Interpretations Committee – the committee operating under the International Accounting Standards Board publishing interpretations of IFRS.
CIRS – Currency Interest Rate Swap – the transaction exchange of principal amounts and interest payments in different currencies between two counterparties.
IRS – Interest Rate Swap – the agreement between two counterparties, under which the counterparties pay each other (at specified intervals during the contract life) interest on contractual principal of the contract, charged at a different interest rate.
FRA – Forward Rate Agreement – the contract under which two counterparties fix the interest rate that will apply in the future for a specified amount expressed in currency of the transaction for a predetermined period.
CAP – the financial agreement, which limits the risk borne by lender on a variable interest rate, exposed to the potential loss as a result of increase in interest rates. Cap option is a series of call options on interest rates, in which the issuer guarantees the buyer the compensation of the additional interest costs, that the buyer must pay if the interest rate on loan increases above the fixed interest rate.
FLOOR –the financial agreement, which limits the risk of incurring losses resulting from decrease in interest rates by the lender providing the loan at a variable interest rate. Floor option is a series of put options on interest rates, in which the issuer guarantees the interest to be paid on the loan if the interest rate on the loan decreases below the fixed interest rate.
PD – Probability Default – the parameter used in Internal Ratings-Based Approach which determines the likelihood that the debtor will be unable to meet its obligation. PD is a financial term describing the likelihood of a default over an one year time horizon.
LGD – Loss Given Default – the percentage of loss over the total exposure when bank’s counterparty goes to default.
EAD – Exposure at Default.
EL – Expected Loss.
Life-time ECL – Lifetime Expected Credit Loss.
CCF – Credit Conversion Factor.
VaR – Value at Risk – the risk measure by which the market value of an asset or portfolio may be reduced for a given assumptions, probability and time horizon.
ICAAP – Internal Capital Adequacy Assessment Process – the process of assessing internal capital adequacy.
FVH – fair value hedge accounting.
CFH – cash flow hedge accounting.