BGK_2023-12-31

Independent Statutory Auditor’s Report on the Audit

of Separate Annual Financial Statements of

Bank Gospodarstwa Krajowego

for the financial year ended

31 December 2023

Mazars Audyt Sp. z o.o.

ul. Piękna 18

00-549 Warsaw

Mazars Audyt Sp. z o.o.

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

NIP: 5260215409, REGON: 011110970

INDEPENDENT STATUTORY AUDITOR’S REPORT ON THE AUDIT

OF SEPARATE ANNUAL FINANCIAL STATEMENTS

Translation of the document originally issued in Polish

To the Supervisory Board of Bank Gospodarstwa Krajowego

Report on the Audit of Separate Annual Financial Statements

Opinion

We have audited the separate annual financial statements of Bank Gospodarstwa Krajowego

(“the Bank”), which comprise the separate statement of financial position as at 31 December

2023, the separate statement of profit or loss, the separate statement of comprehensive

income, the separate statement of changes in equity, the separate statement of cash flows for

the financial year from 1 January 2023 to 31 December 2023 and notes comprising a summary

of significant accounting policies and other explanatory notes (“separate financial

statements”).

In our opinion, the accompanying separate financial statements:

• give a true and fair view of the property and financial position of the Bank as at

31 December 2023, and of its financial result and its cash flow for the financial year

then ended in accordance with the applicable International Financial Reporting

Standards as adopted by the European Union and the adopted accounting principles

(policy);

• comply with the applicable legislation and with the provisions of the Bank’s Articles of

Association as to the form and content;

• have been prepared based on the accounting books kept properly, in accordance with

Chapter 2 of the Accounting Act of 29 September 1994 (the Accounting Act” - Journal

of Laws of 2023, item 120 as amended).

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

issued on 10 April 2024.

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Basis for opinion

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

International Standards on Auditing adopted by resolution of the National Council of Statutory

Auditors No. 3430/52a/2019 of 21 March 2019 regarding national standards on auditing and

other documents, as amended, and resolution of the Council of the Polish Agency for Audit

Oversight No. 38/I/2022 of 15 November 2022 on national standards on quality control and

National Standard on Auditing 220 (Revised) (“NSA”), as well as according to the Act on

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

Auditors” - Journal of Laws of 2023, item 1015 as amended) and Regulation (EU) No 537/2014

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

and repealing Commission Decision 2005/909/EC (“EU Regulation” - Official Journal of the

European Union L 158/77 of 27 May 2014, as amended). Our responsibility under those

standards has been further described in “Statutory Auditor’s Responsibility for the Audit of the

Financial Statements” section of our report.

We are independent of the Bank in accordance with the International Code of Ethics for

Professional Accountants (including International Independence Standards) of the

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

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

on the principles of professional ethics for statutory auditors, as amended, and other ethical

requirements which are applicable to the audit of financial statements in Poland. We have

fulfilled our other ethical responsibilities in accordance with these requirements and the IESBA

Code. During the audit the key statutory auditor and the audit firm remained independent of

the Bank in accordance with the independence requirements specified in the Act on Statutory

Auditors and EU Regulation.

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

provide a basis for our audit opinion.

Key Audit Matters

Key audit matters are those matters that, in the auditor’s professional judgment, were of most

significance in the audit of the separate financial statements for the current reporting period.

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

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

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

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

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

a separate opinion on these matters.

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Key audit matter

How our audit responded to this matter

Loss allowances for expected

credit losses in the portfolio of

loans and advances to customers

In accordance with International

Financial Reporting Standard 9

Financial instruments (“IFRS 9”), the

Bank’s Management Board should

define the value of expected credit

losses that may occur in the period

of 12 months or in the remaining

lifetime of a financial asset

depending on the classification of

particular assets to the risk category

(“phases”), taking into consideration

the impact of future macroeconomic

conditions on the level of expected

credit losses.

We considered this matter as a key

matter due to the fact that defining

the amount and moment of

recognition of the expected credit

losses requires the exercise of

significant judgment and significant

and complex estimates, particularly

with respect to parameters of credit

risk in the expected credit loss

calculation models.

In note 22 Loans and advances to

customers and note 46 Credit risk

management to the separate

financial statements there is detailed

information on the applied methods

and models and the level of loss

allowances for expected credit

losses in the portfolio of loans and

advances to customers.

We performed a critical analysis of the design and

implementation of controls within the process of

credit risk assessment and estimation of expected

credit losses and we verified the effectiveness of

these controls.

We reconciled the base of receivables from loans

and advances granted to customers with the

accounting books of the Bank in order to confirm

the completeness of the recognition of receivables

from loans and advances to customers being the

base for recognizing loss allowances for the

expected credit losses and the value of these

allowances.

We performed analytical procedures for the

coverage of the loan portfolio with expected credit

losses and their changes, as well as the transfer

of exposures between phases.

We performed the assessment of the Bank’s

approach to impairment in terms of compliance

with the requirements of IFRS 9, in particular with

respect to the application of criteria of

identification of a significant increase of credit risk,

definition of failure to perform obligations, adopted

credit risk parameters and consideration of the

impact of future macroeconomic conditions on the

level of expected credit losses.

For the portfolio of loans and advances to

customers assessed using a collective method:

• we performed the analysis of the

methodology used to calculate loss

allowances for expected credit losses with

respect to exposures assessed using a

collective method, in which the adequacy

of risk parameters applied by the Bank,

• we performed a verification consisting of:

independently recreating the recalculation

of the value of expected credit losses,

• we reviewed the changes resulting from

the implementation of Recommendation R

of the Financial Supervision Authority,

• we performed the assessment of the

verification of models based on historical

data (back-testing).

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For the portfolio of loans and advances to

customers assessed using the individualised

method:

• we performed the analysis of the process

and methodology of identification of

impairment and classification of exposures

into phases,

• based on a selected sample of significant

credit exposures we got acquainted with

documents concerning the borrower’s

financial situation and checked the

correctness of its allocation to the

appropriate credit phase,

• on a selected sample of impaired loans

and advances to customers (Phase 3), we

tested the assumptions used in calculating

expected credit losses, in particular the

expected scenarios and the probabilities

assigned to them, as well as the timing

and amounts of expected cash flows,

including cash flows from repayments and

collateral realizations.

We also assessed the quality and we checked the

correctness of disclosures concerning allowances

for expected credit losses in the Bank’s financial

statements.

Responsibilities of the Management Board and Supervisory Board for the

Separate Financial Statements

The Bank's Management Board is responsible for preparing, based on the accounting books

properly kept, the separate financial statements that give a true and fair view of the Bank’s

property and financial position and its financial performance in accordance with International

Financial Reporting Standards as adopted by the European Union and adopted accounting

principles (policy), as well as with the relevant legislation and with the provisions of the Bank’s

Articles of Association. The Bank’s Management Board is also responsible for such internal

control as the Management Board determines is necessary to enable the preparation of

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

error.

In preparing the separate financial statements, the Bank's Management Board is responsible

for assessing the Bank’s ability to continue as a going concern, as well as for disclosing, if

applicable, matters related to going concern and for adopting the going concern assumption

as an accounting basis, unless the Management Board either intends to liquidate the Bank or

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

The Bank's Management Board and members of the Supervisory Board are obliged to ensure

that the separate financial statements meet the requirements set out in the Accounting Act.

Members of the Supervisory Board are responsible for supervising the financial reporting

process of the Bank.

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Statutory Auditor’s Responsibilities for the Audit of the Separate Financial

Statements

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

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

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

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

always detect a material misstatement when it exists. Misstatements can arise from fraud or

error and are considered material if, individually or in the aggregate, they could reasonably be

expected to influence the economic decisions of users taken on the basis of these separate

financial statements.

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

effectiveness or efficiency of running the Bank’s affairs by the Management Board at present

or in the future.

According to principles of the NSA, we exercise professional judgement and maintain

professional skepticism throughout the audit, as well as:

• we identify and assess risks of material misstatement of separate financial statements,

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

those risks and we obtain audit evidence which is sufficient and appropriate to provide

a basis for our audit opinion. The risk of not detecting a material misstatement resulting

from fraud is higher than for one resulting from error, as fraud may involve collusion,

forgery, intentional omissions, misrepresentations, or the override of internal control;

• we obtain an understanding of internal control relevant to the audit in order to design

audit procedures that are appropriate in the circumstances, but not for the purpose of

expressing an opinion on the effectiveness of the internal control in the Bank;

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

reasonableness of the accounting estimates and related disclosures made by the

Management Board of the Bank;

• we conclude on the appropriateness of the Bank’s Management Board’s use of the

going concern basis of accounting and, based on the audit evidence obtained, as to

whether a material uncertainty exists related to events or conditions that may cast

significant doubt on the Bank’s ability to continue as a going concern. If we conclude

that a material uncertainty exists, we are required to draw attention in our auditor’s

report to the related disclosures in the separate financial statements or, if such

disclosures are inadequate, to modify our opinion. Our conclusions are based on the

audit evidence obtained up to the date of our auditor’s report. However, future events

or conditions may cause the Bank to cease to continue as a going concern;

• we evaluate the overall presentation, structure and content of the separate financial

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

represent the underlying transactions and events in a manner that achieves fair

presentation.

We communicate with the Audit Committee regarding, among other matters, the planned

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

deficiencies in internal control that we identify during our audit.

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We also provide the Audit Committee with a statement that we have complied with relevant

ethical requirements regarding independence and that we will communicate all relationships

and other matters that may reasonably be thought to bear on our independence, and, where

applicable, related safeguards.

From the matters communicated to the Audit Committee, we determine those matters that

were of most significance in the audit of the separate financial statements of the current period

and are therefore the key audit matters. We describe these matters in our auditor’s report

unless law or regulation precludes public disclosure or when, in exceptional circumstances,

we determine that a matter should not be communicated in our report because the adverse

consequences of doing so would reasonably be expected to outweigh the public interest

benefits of such communication.

Other Information, including the Management Report

Other Information includes the Management Report for the financial year ended 31 December

2023 (“the Management Report”).

The Management Report of the Group of Bank Gospodarstwa Krajowego in 2023, which

includes the Management Report of Bank Gospodarstwa Krajowego in 2023, were prepared

jointly under Article 55 section 2a of the Accounting Act.

Responsibility of the Management Board and Supervisory Board

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

applicable regulations lies with the Bank’s Management Board.

Moreover, the Bank’s Management Board and members of the Supervisory Board are obliged

to ensure that the Banks’ Management Report meets the requirements set out in the

Accounting Act.

Statutory Auditor’s Responsibility

Our opinion on the audit of the separate financial statements does not cover the Management

Report. In connection with our audit of the separate financial statements, our responsibility is

to read the Management Report and, in doing so, consider whether the Management Report

is materially inconsistent with the financial statements or our knowledge obtained in the audit

or otherwise appears to be materially misstated. If, based on the work we have performed, we

conclude that there is a material misstatement of this Management Report, we are required to

report that fact. In accordance with the Act on Statutory Auditors, our responsibility is also to

give an opinion whether the management report has been prepared in accordance with

applicable regulations and whether it complies with information contained in the financial

statements. In addition, in accordance with requirements of Article 111a (3) of the Act of 29

August 1997 Banking Law (Journal of Laws of 2023, item 2488 as amended) (“Banking Law”),

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

contained in the Management Report.

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Opinion on the Management Report

Based on the work performed during the audit, in our opinion, the Bank’s Management Report:

• has been prepared according to Article 49 of the Accounting Act and Article 111a (2)

of the Banking Law,

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

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

audit, we declare that we have not identified any material misstatement in the Bank’s

Management Report.

Report on Other Legal and Regulatory Requirements

Information on Observing Applicable Prudential Regulations

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

operations with prudential regulations, in which for the correct determination of capital ratios.

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

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

Bank correctly determined the capital ratios presented in note 51 Capital adequacy and

leverage risk.

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

on the Bank’s compliance with applicable prudential regulations and therefore we do not

express such an opinion.

Based on our audit of the separate financial statements we would like to inform you that we

have not identified any breaches of applicable prudential regulations by the Bank in the period

from 1 January 2023 to 31 December 2023, defined by separate provisions, in particular with

respect to the correctness of the determination of capital ratios as at 31 December 2023, which

could have a significant impact on the separate financial statements.

Declaration on Non-audit Services

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

provided to the Bank and its subsidiaries comply with laws and regulations applicable in

Poland and that we have not provided any non-audit services that are prohibited pursuant to

Article 5 (1) of the EU Regulation and Article 136 of the Act on Statutory Auditors. Non-audit

services that we have provided to the Bank and its subsidiaries in the audited period were

mentioned in note 53 to the separate financial statements Information on the entity authorised

to audit the financial statements.

Appointment of an Audit Firm

We were appointed for the first time to conduct the audit of the Bank’s separate financial

statements based on the resolution of the Supervisory Board of 31 July 2020 and again based

on the resolution of 9 December 2022. We have been auditing the Bank’s separate financial

statements continuously, starting from the financial year ended 31 December 2020, i.e. for

4 consecutive years.

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

statutory auditor’s report is Małgorzata Pek.

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

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

audited the financial statements.

Małgorzata Pek

Electronically signed on the Polish original

Key Statutory Auditor

No. 13070

Partner

Warsaw, 10 April 2024