This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version

 

 

 

 

 

 

 

 

Consolidated financial statements

of the PKO Bank Polski S.A. Group

for the year ended 31 December 2023

 

SELECTED FINANCIAL DATA DERIVED FROM THE CONSOLIDATED FINANCIAL STATEMENTS

SELECTED FINANCIAL DATA	PLN million			EUR million
	2023	2022	Change % (A-B)/B	2023	2022	Change % (D-E)/E
	A	B	C	D	E	F
Net interest income	18,318	11,424	60.3%	4,045	2,437	65.9%
Net fee and commission income	4,626	4,498	2.8%	1,022	959	6.7%
Net expected credit losses and net impairment allowances on non-financial assets	(1,373)	(1,564)	(12.2%)	(303)	(334)	(9.3%)
Administrative expenses	(7,635)	(7,769)	(1.7%)	(1,686)	(1,657)	1.8%
Profit before tax	8,562	4,767	79.6%	1,891	1,017	85.9%
Net profit (including non-controlling shareholders)	5,505	3,312	66.2%	1,216	706	72.2%
Net profit attributable to the parent company	5,502	3,312	66.1%	1,215	706	72.1%
Earnings per share for the period - basic (in PLN/EUR)	4.40	2.65	66.0%	0.97	0.57	70.2%
Earnings per share for the period - diluted (in PLN/EUR)	4.40	2.65	66.0%	0.97	0.57	70.2%
Net comprehensive income	11,120	16	6,940.0%	2,456	3	8,176.0%
Total net cash flows	(667)	11,220	(105.9)%	(147)	2,393	(106.1%)

 

SELECTED FINANCIAL DATA	PLN million			EUR million
	31.12.2023	31.12.2022	Change % (A-B)/B	31.12.2023	31.12.2022	Change % (D-E)/E
	A	B	C	D	E	F
Total assets	501,516	431,447	16.2%	115,344	91,995	25.4%
Total equity	45,227	35,707	26.7%	10,402	7,614	36.6%
Share capital	1,250	1,250	-	287	267	7.5%
Number of shares (in million)	1,250	1,250	-	1,250	1,250	-
Book value per share (in PLN/EUR)	36.18	28.57	26.6%	8.32	6.09	36.6%
Diluted number of shares (in million)	1,250	1,250	-	1,250	1,250	-
Diluted book value per share (in PLN/EUR)	36.18	28.57	26.6%	8.32	6.09	36.6%
Total Capital Ratio (%)	18.65	19.07	(2.2%)	18.65	19.07	(2.2%)
Tier 1	41,727	41,175	1.3%	9,597	8,780	9.3%
Tier 2	2,080	2,584	(19.5%)	478	551	(13.3%)

 

SELECTED FINANCIAL STATEMENT ITEMS HAVE BEEN TRANSLATED INTO EUR AT THE FOLLOWING RATES	2023	2022
arithmetic mean of the NBP exchange rates at the end of a month (income statement, statement of comprehensive income and cash flow statement items)	4.5284	4.6883
	31.12.2023	31.12.2022
NBP mid exchange rates at the date indicated (statement of financial position items)	4.3480	4.6899

 

TABLE OF CONTENTS

CONSOLIDATED INCOME STATEMENT

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

CONSOLIDATED STATEMENT OF CASH FLOWS

General information about the Group

1. Activities of the Group

2. Changes in the Group companies

3. Information on members of the Supervisory Board and Management Board

4. Approval of the consolidated financial statements

5. Representation by the Management Board

6. Statement of compliance

7. Going concern

8. The basis for preparation of the financial statements

SIGNIFICANT ACCOUNTING POLICIES

9. Functional currency, presentation currency and foreign currencies

10. Basis of consolidation

10.1. Subsidiaries

10.2. Consolidation

10.3. acquisition of subsidiaries (business combinations)

10.4. Associates and joint ventures

11. General accounting policies for financial instruments

11.1. Accounting for transactions

11.2. offsetting financial instruments

11.3. Derecognition of financial instruments from the statement of financial position

11.4. The principles for classification of financial instruments

11.5. Financial assets measured at amortized cost

11.6. Financial assets measured at fair value through other comprehensive income

11.7. Financial assets measured at fair value through profit or loss

11.8. Equity instruments

11.9. Reclassification of financial assets

11.10. Modifications – Changes in contractual cash flows

11.11. Measurement of purchased or originated credit-impaired financial assets (POCI)

11.12. Measurement of financial liabilities

12. Environmental issues

13. Changes in accounting policies applicable from 1 January 2023 and explanation of the differences between previously published financial statements and these financial statements

14. IFRS 17 “Insurance contracts”

14.1. Measurement and presentation of insurance products

14.2. Key assumptions

14.3. the model for the measurement and recognition of insurance products, including those linked to loans and advances applied until 31 December 2022

14.4. measurement and recognition of insurance products offered by the Group, including those linked to loans and advances in accordance with IFRS 17

14.5. Impact assessment - classification and measurement

14.6. Impact of IFRS 17 on own funds and capital adequacy measures

15. New standards and interpretations and their amendments

SUPPLEMENTARY NOTES TO THE INCOME STATEMENT

16. Segment reporting

17. Interest income and expense

18. Fee and commission income and expenses

19. Dividend income

20. Gains/(losses) on financial transactions

21. Foreign exchange gains/ (losses)

22. Gains/(losses) on derecognition of financial instruments

23. Other operating income and expenses

24. Net allowances for expected credit losses

25. Impairment of non-financial assets

26. Cost of the legal risk of mortgage loans in convertible currencies

27. Administrative expenses

28. Tax on certain financial institutions

29. Income tax expense

30. Earnings per share

SUPPLEMENTARY NOTES TO THE STATEMENT OF FINANCIAL POSITION – FINANCIAL INSTRUMENTS

31. Cash and balances with Central Bank

32. Amounts due from banks

33. Hedge accounting and other derivative instruments

33.1. Hedge accounting – financial information

33.2. Other derivative instruments – financial information

34. Securities

35. Loans and advances to customers

36. Amounts due to banks

37. Amounts due to customers

38. Financing received

38.1. Loans and advances received

38.2. Liabilities in respect of debt securities in issue

38.3. Subordinated liabilities

OTHER SUPPLEMENTARY NOTES TO THE STATEMENT OF FINANCIAL POSITION AND CONTINGENT LIABILITIES

39. insurance activities

39.1. Transition date

39.2. Main elements of measurement according to IFRS 17

39.2.1. Identification and aggregation of insurance contracts

39.2.2. Contract boundaries

39.2.3. Valuation methods

39.2.4. Best estimate of future cash flows

39.2.5. Discounting

39.2.6. Adjustment for non-financial risk

39.2.7. Contractual service margin (CSM)

39.2.8. Insurance finance income or expenses

39.2.9. Outward reinsurance contracts

39.3. Net income from insurance business and finance income and costs recognised in other comprehensive income

39.4. Change in assets and liabilities in respect of insurance activities broken down by Liabilities for remaining coverage (LRC) and Liabilities for incurred claims (LIC)

39.5. Change in assets and liabilities in respect of insurance activities, with a breakdown of the components: estimates of cash flows, estimates of present value of future cash flows, risk adjustment for non-financial risk and contractual service margin

39.6. other disclosures

40. Intangible assets

41. Property, plant and equipment

42. Investments in associates and joint ventures

42.1. Joint ventures:

42.2. Associates

43. Other assets

44. Other liabilities

45. Provisions

46. Contingent liabilities and off-balance sheet liabilities received and granted

47. Legal claims

48. Equity and shareholding structure of the Bank

FAIR VALUE OF FINANCIAL INSTRUMENTS

49. Fair value hierarchy

50. Financial assets and financial liabilities not presented at fair value in the consolidated statement of financial position

RISK MANAGEMENT WITHIN THE GROUP

51. Risk management within the Group

52. specific activities in the area of risk management undertaken by the Group n 2023

53. Credit risk management

54. Credit risk – financial information

54.1. Financial assets by stage

54.2. Change in the gross carrying amount

54.3. Changes in allowances for expected credit losses

54.4. Other disclosures

55. Offsetting financial assets and financial liabilities

56. Managing credit concentration risk in the Group

57. Collateral

58. Exposure to the counterparty credit risk

59. Forbearance practices

60. Information on securitization of the lease portfolio and package sale of receivables

61. Management of currency risk associated with mortgage loans for individuals

62. Interest rate risk management

63. Currency risk management

63.1. Financial assets and liabilities by currency

64. Liquidity risk management

64.1. Contractual cash flows from the Group’s financial liabilities, including derivative financial instruments

64.2. Assets pledged as collateral for liabilities and transferred financial assets

64.3. Current and non-current assets and liabilities

65. Operational risk management

66. ESG risk management

67. Management of insurance and financial risks in the group's insurance business

67.1. Insurance risk

67.2. Financial risk

67.3. Capital

67.4. Insurance and financial risks in insurance business - financial information

Capital management at the Group

68. Capital adequacy

69. Leverage ratio

70. Dividends and distribution of retained earnings

71. Notes to the consolidated cash flow statement

72. Transactions with the State Treasury and related parties

73. Benefits for the PKO Bank Polski SA key management

74. Leases

74.1. Leases - Lessor

74.2. Leases - lessee

74.3. Lessee

74.4. Lessor – Operating leases

74.5. Lessor – Finance leases

75. Government grants

76. Information on the entity authorized to audit the financial statements

77. Impact of the geopolitical situation in Ukraine on the PKO Bank Polski S.A. Group

78. Interest rate benchmarks reform

79. Events that occurred after the date on which the financial statements are prepared

CONSOLIDATED INCOME STATEMENT

INCOME STATEMENT	Note	2023	2022 (restated)**
Net interest income	17	18,318	11,424
Interest and similar income		31,217	19,751
of which calculated under the effective interest rate method		30,668	19,196
Interest expense		(12,899)	(8,327)
Net fee and commission income	18	4,626	4,498
Fee and commission income		6,301	6,059
Fee and commission expense		(1,675)	(1,561)
Other net income		1,188	1,287
Net income from insurance business, of which:	39	711	779
Insurance revenue (net of reinsurance)		1,242	1,174
Cost of insurance activities (net of reinsurance)		(389)	(324)
Dividend income	19	14	51
Gains/(losses) on financial transactions	20	167	358
Foreign exchange gains/ (losses)	21	99	(73)
Gains/(losses) on derecognition of financial instruments	22	57	(26)
of which measured at amortized cost		24	15
Net other operating income and expense	23	140	198
Result on business activities		24,132	17,209
Net allowances for expected credit losses	24	(1,265)	(1,501)
Net impairment losses on non-financial assets	25	(108)	(63)
Cost of legal risk of mortgage loans in convertible currencies	26	(5,430)	(1,914)
Administrative expenses	27	(7,635)	(7,769)
of which net regulatory charges		(622)	(1,887)
Tax on certain financial institutions	28	(1,231)	(1,266)
Share in profits and losses of associates and joint ventures	42	99	71
Profit before tax		8,562	4,767
Income tax expense	29	(3,057)	(1,455)
Net profit/(loss) (including non-controlling interest)		5,505	3,312
Profit (loss) attributable to non-controlling shareholders		3	-
Net profit attributable to equity holders of the parent company		5,502	3,312
Earnings per share	30
– basic earnings per share for the period (PLN)		4.40	2.65
– diluted earnings per share for the period (PLN)*		4.40	2.65
Weighted average number of ordinary shares during the period (in million)*		1,250	1,250

* In 2023 and 2022, there were no dilutive instruments. Therefore, the amount of diluted earnings per share is the same as the amount of basic earnings per share.

** The Income statement for 2022 was restated due to the implementation of IFRS 17 “Insurance Contracts” (see note “IFRS 17 Insurance Contracts")

 

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

STATEMENT OF COMPREHENSIVE INCOME	Note	2023	2022 (restated)*
Net profit (including non-controlling shareholders)		5,505	3,312
Other comprehensive income		5,615	(3,296)
Items which may be reclassified to profit or loss		5,618	(3,289)
Cash flow hedges (net)	33	3,358	(1,519)
Cash flow hedges (gross)		4,146	(1,901)
Deferred tax	29	(788)	382
Hedges of net investments in foreign operations		-	4
Fair value of financial assets measured at fair value through other comprehensive income (net)	33	2,440	(1,676)
Remeasurement of fair value, gross		3,029	(2,112)
Gains /losses transferred to the profit or loss (on disposal)		(33)	41
Deferred tax	29	(556)	395
Currency translation differences on foreign operations		(124)	(87)
Share in other comprehensive income of associates and joint ventures		(31)	(18)
Finance income and costs from insurance business, net	39	(25)	7
Finance income and costs from insurance business, gross		(31)	9
Deferred tax		6	(2)
Items which cannot be reclassified to profit or loss		(3)	(7)
Actuarial gains and losses (net)		(3)	(7)
Actuarial gains and losses (gross)	45	(4)	(9)
Deferred tax	29	1	2
Total net comprehensive income		11,120	16
Total net comprehensive income, of which attributable to:		11,120	16
equity holders of the parent		11,117	16
non-controlling interest		3	-

* The Statement of comprehensive income for 2022 was restated due to the implementation of IFRS 17 “Insurance Contracts” (see note “IFRS 17 Insurance Contracts")

 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

	Note	31.12.2023	31.12.2022 (restated)*	01.01.2022 (restated)*
ASSETS		501,516	431,447	418,668
Cash and balances with Central Bank	31	17,813	15,917	11,587
Amounts due from banks	32	14,438	16,101	9,010
Hedging derivatives	33	1,174	1,042	933
Other derivative instruments	33	8,406	13,162	10,903
Securities	34	197,484	135,632	135,440
Reverse repo transactions		372	7	0
Loans and advances to customers	35	245,776	232,959	235,695
Assets in respect of insurance activities	39	90	115	128
Property, plant and equipment under operating lease	74	2,117	1,764	1,371
Property, plant and equipment	41	3,203	2,917	3,108
Non-current assets held for sale		19	10	18
Intangible assets	40	3,918	3,512	3,443
Investments in associates and joint ventures	42	284	285	285
Current income tax receivable		6	52	36
Deferred tax assets	29	4,000	5,187	4,116
Other assets	43	2,416	2,785	2,595
LIABILITIES AND EQUITY		501,516	431,447	418,668
Liabilities		456,289	395,740	380,689
Amounts due to Central bank		10	9	8
Amounts due to banks	36	3,423	3,011	3,821
Hedging derivatives	33	2,992	7,469	4,806
Other derivative instruments	33	9,291	12,978	11,008
Amounts due to customers	37	399,193	338,868	321,266
Liabilities in respect of insurance activities	39	2,915	2,878	3,317
Loans and advances received	38	1,489	2,294	2,461
Securities in issue	38	17,201	15,510	23,872
Subordinated liabilities	38	2,774	2,781	2,716
Other liabilities	44	11,007	7,010	5,360
Current income tax liabilities		1,117	765	18
Deferred tax liabilities	29	712	77	379
Provisions	45	4,165	2,090	1,657
EQUITY		45,227	35,707	37,979
Share capital		1,250	1,250	1,250
Reserves and accumulated other comprehensive income		27,676	22,239	25,330
Retained earnings		10,810	8,920	6,539
Net profit or loss for the year		5,502	3,312	4,874
Capital and reserves attributable to equity holders of the parent company		45,238	35,721	37,993
Non-controlling interests		(11)	(14)	(14)

 

* The statement of financial position as at 1 January 2022 and 31 December 2022 was restated due to the implementation of IFRS 17 “Insurance Contracts” (see note “IFRS 17 Insurance Contracts")

 

 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 DECEMBER 2023	Share capital	Reserves and accumulated other comprehensive income						Net profit or loss for the period	Total capital and reserves attributable to equity holders of the parent company	Total non-controlling interests	Total equity
		Reserves			Accumulated other comprehensive income	Reserves and accumulated other comprehensive income	Retained earnings
		Supplementary capital	General banking risk fund	Other reserves
As at the beginning of the period, after changes in accounting policies	1,250	23,085	1,070	7,091	(9,007)	22,239	8,920	3,312	35,721	(14)	35,707
Transfer from retained earnings	-	-	-	-	-	-	3,312	(3,312)	-	-	-
Transfer from retained earnings to equity	-	115	-	1,647	-	1,762	(1,762)	-	-	-	-
Dividend, including interim dividend	-	-	-	(1,600)	-	(1,600)	-	-	(1,600)	-	(1,600)
Comprehensive income	-	-	-	-	5,615	5,615	-	5,502	11,117	3	11,120
Offset of accumulated losses	-	(340)	-	-	-	(340)	340	-	-	-	-
As at the end of the period	1,250	22,860	1,070	7,138	(3,392)	27,676	10,810	5,502	45,238	(11)	45,227

 

FOR THE YEAR ENDED 31 DECEMBER 2023	Accumulated other comprehensive income
	Share in other comprehensive income of associates and joint ventures	Fair value of financial assets measured at fair value through other comprehensive income	Cash flow hedges	Finance income and costs from insurance business	Actuarial gains and losses	Currency translation differences on foreign operations	Total
As at the beginning of the period, after changes in accounting policies	(35)	(3,461)	(5,218)	24	(21)	(296)	(9,007)
Comprehensive income	(31)	2,440	3,358	(25)	(3)	(124)	5,615
As at the end of the period	(66)	(1,021)	(1,860)	(1)	(24)	(420)	(3,392)

 

FOR THE YEAR ENDED 31 DECEMBER 2022	Share capital	Reserves and accumulated other comprehensive income						Net profit or loss for the period	Total capital and reserves attributable to equity holders of the parent company	Total non-controlling interests	Total equity
		Reserves			Accumulated other comprehensive income	Reserves and accumulated other comprehensive income	Retained earnings
		Supplementary capital	General banking risk fund	Other reserves
As at the beginning of the period	1,250	23,003	1,070	6,968	(5,728)	25,313	6,270	4,874	37,707	(14)	37,693
Changes in accounting policies*	-	-	-	-	17	17	269	-	286	-	286
As at the beginning of the period, after policy changes	1,250	23,003	1,070	6,968	(5,711)	25,330	6,539	4,874	37,993	(14)	37,979
Transfer from retained earnings	-	-	-	-	-	-	4,874	(4,874)	-	-	-
Transfer from retained earnings to equity	-	82	-	123	-	205	(205)	-	-	-	-
Dividend	-	-	-	-	-	-	(2,288)	-	(2,288)	-	(2,288)
Comprehensive income	-	-	-	-	(3,296)	(3,296)	-	3,312	16	-	16
As at the end of the period	1,250	23,085	1,070	7,091	(9,007)	22,239	8,920	3,312	35,721	(14)	35,707

*For details on the impact of the implementation of IFRS 17 on the Group's equity, see Note „IFRS 17 Insurance contracts”

 

FOR THE YEAR ENDED 31 DECEMBER 2022		Accumulated other comprehensive income
	Share in other comprehensive income of associates and joint ventures	Fair value of financial assets measured at fair value through other comprehensive income	Cash flow hedges	Hedges of net investments in foreign operations	Finance income and costs from insurance business	Actuarial gains and losses	Currency translation differences on foreign operations	Total
As at the beginning of the period	(17)	(1,785)	(3,699)	(4)	-	(14)	(209)	(5,728)
Changes in accounting policies*	-	-	-		17	-	-	17
As at the beginning of the period, after policy changes	(17)	(1,785)	(3,699)	(4)	17	(14)	(209)	(5,711)
Comprehensive income	(18)	(1,676)	(1,519)	4	7	(7)	(87)	(3,296)
As at the end of the period	(35)	(3,461)	(5,218)	-	24	(21)	(296)	(9,007)

*For details on the impact of the implementation of IFRS 17 on the Group's equity, see Note „IFRS 17 Insurance contracts.”

 

CONSOLIDATED STATEMENT OF CASH FLOWS

	Note	2023	2022 (restated)*
Cash flows from operating activities
Profit before tax		8,562	4,767
Income tax paid		(1,793)	(1,429)
Total adjustments:		40,108	15,205
Depreciation and amortization	27, 18	1,371	1,267
(Gains)/losses on investing activities	71	(87)	(97)
Interest and dividends received	71	(6,549)	(3,758)
Interest paid	71	754	581
Change in:
amounts due from banks	71	(905)	(213)
hedging derivatives		(4,609)	2,554
other derivative instruments		1,069	(289)
securities	71	(6,360)	(4,288)
loans and advances to customers	71	(13,282)	1,686
reverse repo transactions		(365)	(7)
assets in respect of insurance activities		24	13
property, plant and equipment under operating lease		(353)	(640)
non-current assets held for sale	71	(8)	8
other assets	71	360	(216)
accumulated allowances for expected credit losses	71	381	1,191
accumulated allowances on non-financial assets and other  provisions	71	2,222	270
amounts due to the Central Bank		1	1
amounts due to banks		412	(810)
amounts due to customers		60,325	17,602
liabilities in respect of insurance activities		37	(439)
loan and advances received	71	335	(35)
liabilities in respect of debt securities in issue	71	(500)	742
subordinated liabilities	71	(7)	65
other liabilities	71	2,662	1,905
Other adjustments	71	3,180	(1,888)
Net cash from/used in operating activities		46,877	18,543

* The Statement of cash flows for 2022 was restated due to the implementation of IFRS 17 “Insurance Contracts” (see note “IFRS 17 Insurance Contracts")

 

	Note	2023	2022 (restated)*
Cash flows from investing activities
Inflows from investing activities		788,046	102,154
Redemption of securities measured at fair value through other comprehensive income		774,906	89,661
Redemption of securities measured at amortized cost		6,371	7,765
Interest received on securities measured at fair value through other comprehensive income		4,396	1,987
Interest received on securities measured at amortized cost		2,139	1,720
Proceeds from disposal of intangible assets, property, plant and equipment and assets held for sale		142	255
Other inflows from investing activities including dividends	71	92	766
Outflows on investing activities		(835,624)	(97,116)
Increase in equity of joint ventures		-	-
Purchase of securities measured at fair value through other comprehensive income		(810,745)	(92,919)
Purchase of securities measured at amortized cost		(23,111)	(2,452)
Purchase of intangible assets and property, plant and equipment		(1,768)	(1,038)
Other outflows on investing activities	71	-	(707)
Net cash from/used in investing activities		(47,578)	5,038

* The Statement of cash flows for 2022 was restated due to the implementation of IFRS 17 “Insurance Contracts” (see note “IFRS 17 Insurance Contracts")

 

	Note	2023	2022 (restated)*
Cash flows from financing activities
Payment of dividends		-	(2,288)
Proceeds from debt securities in issue	71	13,105	8,421
Redemption of debt securities	71	(10,914)	(17,525)
Taking up loans and advances	71	12	620
Repayment of loans and advances	71	(1,152)	(753)
Payment of lease liabilities	71	(266)	(255)
Repayment of interest on long-term liabilities	71	(751)	(581)
Net cash from financing activities		34	(12,361)
Total net cash flows		(667)	11,220
of which foreign exchange differences on cash and cash equivalents		(872)	100
Cash and cash equivalents at the beginning of the period		31,995	20,775
Cash and cash equivalents at the end of the period	71	31,328	31,995

* The Statement of cash flows for 2022 was restated due to the implementation of IFRS 17 “Insurance Contracts” (see note “IFRS 17 Insurance Contracts")

 

General information about the Group

1.      Activities of the Group

Powszechna Kasa Oszczędności Bank Polski Spółka Akcyjna (PKO Bank Polski S.A. or the Bank) was established by virtue of a decree signed on 7 February 1919 by the Head of State Józef Piłsudski, Prime Minister Ignacy Paderewski and Hubert Linde, post and telegraph minister and simultaneously the first president, as Pocztowa Kasa Oszczędnościowa. In 1950, the Bank began operating as Powszechna Kasa Oszczędności Bank Państwowy (state-owned bank). Pursuant to the Decree of the Council of Ministers dated 18 January 2000, Powszechna Kasa Oszczędności (a state-owned bank) was transformed into a state owned joint-stock company, Powszechna Kasa Oszczędności Bank Polski Spółka Akcyjna.

On 12 April 2000, Powszechna Kasa Oszczędności Bank Polski Spółka Akcyjna was registered and entered into the Commercial Register maintained by the District Court for the City of Warsaw, Commercial Court, 16th Registration Department. At present, the court with jurisdiction over the Bank’s affairs is the District Court in Warsaw, 13th Commercial Division of the National Court Register. The Bank was registered under the number KRS 0000026438 and was assigned the statistical number REGON 016298263.

Country of registration	Poland
Registered office	Warsaw
Address of the registered office of the entity	Puławska street 15, 02-515 Warsaw

 

According to the Bulletin of the Warsaw Stock Exchange (Ceduła Giełdowa), the Bank is classified under the macro-sector ‘‘Finance’’, in the ‘‘Banks’’ sector.

The Powszechna Kasa Oszczędnościowa Bank Polski Spółka Akcyjna Group (“the PKO Bank Polski S.A. Group”, “the Bank’s Group”, “the Group”) conducts its operations within the territory of the Republic of Poland and through subsidiaries in Ukraine, Sweden and Ireland; it also has branches in the Federal Republic of Germany (“the German Branch”), the Czech Republic (“the Czech Branch”) and in the Slovak Republic (“the Slovak Branch”).

PKO Bank Polski S.A., as the parent company, is a universal deposit and credit bank which services both Polish and foreign individuals, legal and other entities. The Bank may hold and trade in cash in foreign currencies, as well as conduct foreign exchange and foreign currency transactions, open and maintain bank accounts in banks abroad, and deposit foreign currency in those accounts.

Through its subsidiaries, the Group offers mortgage loans, provides specialized financial services related to leases, factoring, debt collection, investment funds, pension funds and insurance, as well as provides services related to car fleet management, transfer agent, technological solutions, IT outsourcing and business support, real estate management and also conducts banking operations and provides debt collection and financing services in Ukraine.

In 2023 and 2022, the Bank did not change the name of the reporting unit or other identification data.

 

 

 

 

The PKO Bank Polski S.A. Group consists of the following subsidiaries:

No.	ENTITY NAME	REGISTERED OFFICE	ACTIVITY	OWNERSHIP INTEREST (%)
	DIRECT SUBSIDIARIES			31.12.2023	31.12.2022
1	PKO Bank Hipoteczny S.A.	Warsaw	banking activities	100	100
2	PKO Towarzystwo Funduszy Inwestycyjnych S.A.	Warsaw	investment fund management	100	100
3	PKO Leasing S.A.	Łódź	leases and loans	100	100
4	PKO BP BANKOWY PTE S.A.	Warsaw	pension fund management	100	100
5	PKO BP Finat sp. z o.o.	Warsaw	services, including transfer agent services and outsourcing of IT specialists	100	100
6	PKO Życie Towarzystwo Ubezpieczeń S.A.	Warsaw	life insurance	100	100
7	PKO Towarzystwo Ubezpieczeń S.A.	Warsaw	other personal insurance and property insurance	100	100
8	PKO Finance AB	Sollentuna, Sweden	financial services	100	100
9	KREDOBANK S.A.	Lviv, Ukraine	banking activities	100	100
10	Merkury - fiz an1	Warsaw	investing funds collected from fund participants	100	100
11	NEPTUN - fizan1	Warsaw		100	100
12	PKO VC - fizan1	Warsaw		100	100

1 PKO Bank Polski S.A. holds investment certificates of the Fund; the percentage of the Fund’s investment certificates held is presented in the item “Share in capital”.

 

No.	ENTITY NAME	REGISTERED OFFICE	ACTIVITY	OWNERSHIP INTEREST (%)*
	INDIRECT SUBSIDIARIES			31.12.2023	31.12.2022
	PKO Leasing S.A. GROUP
1	PKO Agencja Ubezpieczeniowa sp. z o.o.	Warsaw	intermediation in concluding insurance agreements	100	100
	1.1 PKO Leasing Finanse sp. z o.o.	Warsaw	sale of post-lease assets	100	100
2	PKO Leasing Sverige AB	Stockholm, Sweden	leasing	100	100
3	Prime Car Management S.A.	Gdańsk	leasing, fleet management	100	100
	3.1 Futura Leasing S.A.	Gdańsk	sale of post-lease assets	100	100
	3.2 Masterlease sp. z o.o.	Gdańsk	leasing	100	100
	3.3 MasterRent24 sp. z o.o.	Gdańsk	short-term lease of cars	100	100
4	PKO Faktoring S.A.	Warsaw	factoring	100	100
5	Polish Lease Prime 1 DAC1	Dublin, Ireland	SPV established for securitization of lease receivables	-	-
	PKO Życie Towarzystwo Ubezpieczeń S.A. GROUP
6	Ubezpieczeniowe Usługi Finansowe sp. z o.o.	Warsaw	services	100	100
	KREDOBANK S.A. GROUP
7	“KREDOLEASING” sp. z o.o.	Lviv, Ukraine	leasing	100	100
	Merkury - fiz an
8	“Zarząd Majątkiem Górczewska” sp. z o.o.	Warsaw	property management	100	100
9	Molina sp. z o.o.	Warsaw	general partner in partnerships limited by shares of a fund	100	100
10	Molina spółka z ograniczoną odpowiedzialnością 1 S.K.A.	Warsaw	buying and selling real estate on own account, real estate management	100	100
11	Molina spółka z ograniczoną odpowiedzialnością 2 S.K.A. w likwidacji (in liquidation)	Warsaw		100	100
12	Molina spółka z ograniczoną odpowiedzialnością 4 S.K.A. w likwidacji (in liquidation)	Warsaw		100	100
13	Molina spółka z ograniczoną odpowiedzialnością 6 S.K.A. w likwidacji (in liquidation)	Warsaw		100	100
	NEPTUN - fizan
14	Qualia sp. z o.o.	Warsaw	after-sale services in respect of developer products	100	100
15	Sarnia Dolina sp. z o.o.	Warsaw	development activities	100	100
16	Bankowe Towarzystwo Kapitałowe S.A.	Warsaw	services	100	100
	16.1 „Inter-Risk Ukraina" spółka z dodatkową odpowiedzialnością2	Kiev, Ukraine	debt collection	99.90	99.90
	16.2 Finansowa Kompania “Prywatne Inwestycje” sp. z o.o.3	Kiev, Ukraine	financial services	95.4676	95.4676
	16.2.1 Finansowa Kompania “Idea Kapitał” sp. z o.o.	Lviv, Ukraine	services	100	100
17	“Sopot Zdrój" sp. z o.o.	Sopot	property management	72.9769	72.9769

* share of direct parent in the entity’s equity

1) In accordance with IFRS 10, PKO Leasing S.A. exercises control over the company, although it does not have a capital share In it.

2) Finansowa Kompania “Prywatne Inwestycje” sp. z o.o. is the second shareholder of the company.

3) “Inter-Risk Ukraina” – a company with additional liability – is the second shareholder of the company.

 

The Group has the following associates and joint ventures:

No	ENTITY NAME	REGISTERED OFFICE	ACTIVITY	OWNERSHIP INTEREST (%)*
				31.12.2023	31.12.2022
	Joint ventures of PKO Bank Polski S.A.
1	Operator Chmury Krajowej sp. z o.o.	Warsaw	cloud computing services	50	50
2	Centrum Elektronicznych Usług Płatniczych eService sp. z o.o.	Warsaw	financial services support activities, including handling transactions concluded using payment instruments	34	34
	1 EVO Payments International s.r.o.	Prague, the Czech Republic	financial services support activities	100	100
	Joint venture NEPTUN - fizan
	2 “Centrum Obsługi Biznesu" sp. z o.o.	Poznań	property management	41.45	41.45
	Joint venture PKO VC - fizan
	3 BSafer sp. z o.o.	Stalowa Wola	managing marketing consents	35.06	35.06
	Associates of PKO Bank Polski S.A.
1	Bank Pocztowy S.A.	Bydgoszcz	banking activities	25.0001	25.0001
2	“Poznański Fundusz Poręczeń Kredytowych” sp. z o.o.	Poznań	guarantees	33.33	33.33
3	System Ochrony Banków Komercyjnych S.A.	Warsaw	manager of the security system referred to in Article 130e of the Banking Law	21.11	21.11

* share in equity of the entity exercising joint control / having a significant impact / the direct parent.

2.      Changes in the Group companies

In 2023, the following events occurred in the structure of the Group.

•        In January 2023, the placing of Molina spółka z ograniczoną odpowiedzialnością 2 S.K.A. w likwidacji (in liquidation) and Molina spółka z ograniczoną odpowiedzialnością 4 S.K.A. w likwidacji (in liquidation) (entities from the Merkury fiz an portfolio) was entered in the National Court Register.

•        In September 2023, the Bank's Management Board approved the merger of the investment funds NEPTUN - fiz an (the acquiring fund) and Merkury - fiz an (the acquired fund) by transferring the assets of the acquired fund to the existing acquiring fund and allocating investment certificates of the acquired fund to a participant of the acquiring fund in exchange for investment certificates of the acquired fund. This merger was effected on 30 January 2024. In the Bank's annual separate financial statements, Mercury - fiz an, in accordance with International Financial Reporting Standard 5, is reported as an asset held for sale and in the Group's annual consolidated financial statements, the fund and its subsidiaries are included in the consolidation.

•        “KREDOLEASING” sp. z o.o., a subsidiary of KREDOBANK S.A., commenced leasing activities. The company launched operations to a limited extent due to the war in Ukraine, where it is based.

3.      Information on members of the Supervisory Board and Management Board

Composition of the Bank's Supervisory Board as at 31 December 2023:

•      Robert Pietryszyn – Chair of the Supervisory Board

•      Wojciech Jasiński – Deputy Chair of the Supervisory Board

•      Dominik Kaczmarski – Secretary of the Supervisory Board

•      Mariusz Andrzejewski – Member of the Supervisory Board

•      Andrzej Kisielewicz – Member of the Supervisory Board

•      Rafał Kos – Member of the Supervisory Board

•      Tomasz Kuczur – Member of the Supervisory Board

•      Maciej Łopiński – Member of the Supervisory Board

•      Bogdan Szafrański – Member of the Supervisory Board

•      Agnieszka Winnik-Kalemba – Member of the Supervisory Board

With effect from 24 March 2023, Mr Maciej Łopiński resigned as Chair of the Bank's Supervisory Board, while remaining a member of the Bank's Supervisory Board. The Minister of State Assets, acting as an Authorised Shareholder within the meaning of § 11(2) of the Bank's Articles of Association, in consideration of § 35(1) of the Bank's Articles of Association, in accordance with § 12(1) of the Bank's Articles of Association, appointed Mr Robert Pietryszyn as Chair of the Bank's Supervisory Board as of 24 March 2023.

On 20 December 2023, Mr Krzysztof Michalski resigned as a member of the Bank's Supervisory Board with immediate effect.

On 2 February 2024, the Extraordinary General Shareholders' Meeting (EGM) of the Bank recalled the following members from the Bank's Supervisory Board: Mr Mariusz Andrzejewski, Mr Wojciech Jasiński, Mr Dominik Kaczmarski, Mr Rafał Kos, Mr Tomasz Kuczur, Mr Maciej Łopiński, Mr Robert Pietryszyn, Mr Bogdan Szafrański. At the same time, the EGM appointed the following persons to the Bank's Supervisory Board:

•      Mr Maciej Cieślukowski,

•      Ms Hanna Kuzińska,

•      Mr Szymon Midera,

•      Mr Andrzej Oślizło,

•      Mr Marek Panfil,

•      Mr Marek Radzikowski,

•      Mr Paweł Waniowski,

•      Ms Katarzyna Zimnicka-Jankowska.

The State Treasury as the Eligible Shareholder, pursuant to the Bank’s Articles of Association, appointed:

•      Ms Katarzyna Zimnicka-Jankowska – for the position of the Chair of the Bank’s Supervisory Board

•      Mr Paweł Waniowski - for the position of the Deputy Chair of the Bank’s Supervisory Board.

Composition of the Bank's Management Board as at 31 December 2023:

•      Dariusz Szwed – President of the Management Board

•      Maciej Brzozowski – Vice-President of the Management Board

•      Marcin Eckert – Vice-President of the Management Board

•      Paweł Gruza – Vice-President of the Management Board

•      Wojciech Iwanicki – Vice-President of the Management Board

•      Andrzej Kopyrski – Vice-President of the Management Board

•      Artur Kurcweil – Vice-President of the Management Board

•      Piotr Mazur – Vice-President of the Management Board

On 6 April 2023, Mr Paweł Gruza resigned, effective at the end of 12 April 2023, from heading the Bank's Management Board and from applying for the position of President of the Bank's Management Board. At the same time, Mr Paweł Gruza did not resign from his membership of the Bank's Management Board or from his position as Vice-President of the Bank's Management Board.

With effect from 13 April 2023, Mr Mieczysław Król resigned as a member of the Bank's Management Board.

The Bank's Supervisory Board dismissed Mr Maks Kraczkowski from the Bank's Management Board with effect from 13 April 2023.

The Bank's Supervisory Board resolved to appoint Mr Dariusz Szwed as Vice-President of the Bank's Management Board, effective 14 April 2023, for the current joint term of office of the Bank's Management Board, which commenced on 3 July 2020, and at the same time appointed Mr Dariusz Szwed as President of the Bank's Management Board, subject to the approval of the Polish Financial Supervision Authority and as of the date of such approval. Until the approval by the Polish Financial Supervision Authority (“PFSA”), the Supervisory Board has entrusted Mr Dariusz Szwed with directing the work of the Management Board.

On 31 August 2023, the PFSA unanimously approved the appointment of Dariusz Szwed as President of the Management Board of PKO Bank Polski.

On 7 February 2024, Mr Dariusz Szwed resigned from the function of the President of the Bank's Management Board as well as from the membership in the Bank's Management Board effective as of 14 February 2024.

On 14 February 2024, the Supervisory Board resolved to recall the following members from the Bank's Management Board:

•        Mr Maciej Brzozowski,

The resolutions on the aforementioned recalls became effective upon adoption.

The Supervisory Board delegated the following members of the Supervisory Board:

4.      Approval of the consolidated financial statements

These consolidated financial statements of the Group (the financial statements), subject to review by the Audit Committee was approved for publication by the Management Board on 5 March 2024 and adopted by the Bank's Supervisory Board on 6 March 2024.

5.      Representation by the Management Board

The Management Board hereby represents that, to its best knowledge, the financial statements of the Group and the comparative data have been prepared in accordance with the applicable accounting policies and give a true, fair and clear view of the Group’s financial position and its results of operations.

6.      Statement of compliance

The financial statements have been prepared in accordance with the International Financial Reporting Standards (IFRS) as endorsed by the European Union (EU) as at 31 December 2023, and in the areas not regulated by these standards, in accordance with the requirements of the Accounting Act of 29 September 1994 and the respective secondary legislation issued on its basis, as well as the requirements relating to issuers of securities registered or applying for registration on the stock exchange official listing market.

7.      Going concern

The financial statements have been prepared on the basis of the assumption that the Bank’s Group will continue as a going concern for a period of at least 12 months from the date of approval for publication by the Management Board, i.e from 5 March 2024. As at the date of signing of these financial statements, the Management Board of the Bank did not identify any facts or circumstances which would indicate any threats to the Group’s ability to continue in operation as a going concern for at least 12 months after the publication as a result of intended or forced discontinuing or significantly curtailing the existing operations of the Bank’s Group.

The Bank's Management Board considered the impact of: current situation in Ukraine, legal risk of mortgage loans in convertible currencies and planned amendments to the Act on crowdfunding for business ventures and assistance to borrowers in respect of the new credit holiday programme and assessed that these factors do not cause significant uncertainty in the Group's ability to continue as a going concern.

The external business conditions covering the macroeconomic environment, the situation on the financial markets, the state of the Polish banking and non-banking sector, the regulatory and legal environment, as well as the factors that will affect future financial results are described in detail in the Management Board Report on the operations of the PKO Bank Polski S.A. Group (note 2 “External business conditions").

Disclosures concerning: the situation in Ukraine are presented in the note “Impact of the geopolitical situation in Ukraine on the PKO Bank Polski S.A. Group”, the legal risk of mortgage loans in convertible currencies in the notes “The costs of legal risk of mortgage loans in convertible currencies” and credit holidays in the note “Loans and advances to customers”.

8.      The basis for preparation of the financial statements

The consolidated financial statements of the PKO Bank Polski S.A. Group cover the year ended 31 December 2023 and include comparative data for the year ended 31 December 2022. The financial data is presented in millions of Polish zlotys (PLN), unless otherwise indicated.

These financial statements have been prepared on a fair value basis in respect of financial assets and liabilities measured at fair value through profit or loss, including derivatives and financial assets measured at fair value through other comprehensive income. The remaining financial assets are recognized by the Group at amortized cost less allowances for expected credit losses. Other financial liabilities are recognized by the Group at amortized cost. Non-current assets are measured at acquisition cost less accumulated depreciation and impairment losses. Fixed assets or groups of assets classified as held for sale are recognized by the Group at the lower of their carrying amount and fair value less costs to sell.

When preparing the financial statements, the Group makes estimates and adopts assumptions which directly affect both the financial statements and the supplementary information included therein. The estimates and assumptions applied by the Capital Group to report the value of assets and liabilities, as well as income and expenses are made using historical data and other factors that are available and considered appropriate in particular circumstances. Assumptions regarding the future and the available data are used for assessing the carrying amounts of assets and liabilities which cannot be clearly determined using other sources. In making estimates, the Group takes into consideration the reasons and sources of the uncertainties that are anticipated at the end of the reporting period. Actual results may differ from estimates.

Estimates and assumptions made by the Group are subject to periodic reviews. Changes in estimates are recognized in the period to which they relate.

SIGNIFICANT ACCOUNTING POLICIES

Significant accounting policies and estimates and judgments applied in the preparation of these financial statements are presented in this Chapter and in individual notes further in the financial statements. In all years presented, these accounting policies are applied consistently, with the exception of issues described in the note “IFRS 17 Insurance contracts”.

As a result of the entry into force on 1 January 2023 of the amendments to IAS 1 "Presentation of Financial Statements" concerning the introduction of disclosure requirements for significant accounting policies, the Group, as a result of its analyses and reviews, has modified the information on accounting policies contained in the financial statements with a view to the relevance of the information for users of the financial statements. The Group was guided by the assumption that information on accounting policies for immaterial transactions should not be disclosed unless the information is material given the nature of the related transactions, other events or conditions, even if the amounts are immaterial.

In addition, the Group has reviewed its accounting policy disclosures taking into account the fact that, in accordance with the interpretation of the amendments to IAS 1, specific information is more useful than disclosures that contain only standard information or duplications or summaries of the requirements of the IFRSs, and information on specific accounting policies is particularly relevant when it relates to an area where the Group exercises its own judgement.

9.      Functional currency, presentation currency and foreign currencies

The functional currency of the parent and other entities included in these financial statements, except for the German Branch, the Czech Branch, the Slovak Branch and entities conducting their activities outside of the Republic of Poland, is the Polish zloty. The functional currency of the entities operating in Ukraine is the Ukrainian hryvnia, the functional currency of the German Branch, the Slovak Branch and the entities operating in Sweden and Ireland is the euro, and the functional currency of the Czech Branch is the Czech koruna.

•      Transactions and balances in foreign currencies

At the end of each reporting period, the Group translates:

•        monetary items in foreign currencies – at the closing exchange rate, i.e. the mid-exchange rate quoted by the National Bank of Poland at the end of the reporting period;

•        non-monetary items carried at historical cost in foreign currencies, such as tangible and financial fixed assets, intangible assets – at the average exchange rate quoted by the National Bank of Poland on the transaction date;

•        non-monetary items measured at fair value in a foreign currency, such as equity instruments classified as financial assets, are translated using the average exchange rates quoted by the National Bank of Poland, effective on the date on which the fair value was determined.

UAH/PLN	2023	2022
Foreign exchange rates as at the end of the period	0.1037	0.1258
Arithmetic mean of exchange rates as at the last day of each month in the period	0.1153	0.1354
The highest exchange rate during the period	0.1258	0.1467
The lowest exchange rate during the period	0.1037	0.1258

 

 

EUR/PLN	2023	2022
Foreign exchange rates as at the end of the period	4.3480	4.6899
Arithmetic mean of exchange rates as at the last day of each month in the period	4.5284	4.6883
The highest exchange rate during the period	4.7170	4.8698
The lowest exchange rate during the period	4.3480	4.5756

 

CZK/PLN	2023	2022
Foreign exchange rates as at the end of the period	0.1759	0.1942
Arithmetic mean of exchange rates as at the last day of each month in the period	0.1889	0.1909
The highest exchange rate during the period	0.1999	0.1980
The lowest exchange rate during the period	0.1759	0.1851

 

10.  Basis of consolidation

10.1.        Subsidiaries

Subsidiaries are entities controlled by the parent company, which means that the parent company has a direct or indirect impact on the financial and operating policy of the given entity in order to gain economic benefits from its operations.

In the case of PKO Leasing S.A. (PKOL, the Company), control of Polish Lease Prime 1 DAC is exercised despite not holding an equity interest. Polish Lease Prime 1 DAC is a special purpose vehicle (SPV) formed to securitise receivables arising from PKOL's leases, which include car, truck, plant and equipment leases.

The SPV meets the definition of a structured entity subject to consolidation (under IFRS 12). PKOL's power is manifested, among other things, in the fact that the Company acts as the Servicer and therefore has influence over the SPV's key activities (providing funds for the SPV's ongoing debt service). The results of the SPV's operations are, in principle, determined by the performance of the portfolio subject to the securitisation transaction, and the maintenance of the portfolio's profitability is determined by PKOL through its debt collection activities (the Company decides on its own on the activities, including the initiation of hard debt collection measures). In addition, the receivables portfolio's loss ratio does not exceed the share of Junior Funding received from PKOL and therefore it is PKOL that is exposed to the credit risk arising from the receivables.

The PKO Bank Polski SA Group does not meet the definition of “an investment entity”.

10.2.        Consolidation

All subsidiaries of the PKO Bank Polski S.A. Group are consolidated using the acquisition method. The following items are eliminated in full: mutual receivables and payables, income and expenses, and mutual cash flows in the statement of cash flows, of consolidated entities, e.g. from mutual financing agreements, cash deposits, IT services, , derivative transactions, fixed asset leases, transfers of loan receivables portfolios and settlements of agency fees from the sale of insurance.

In other comprehensive income, the Group recognises finance income and expenses from insurance business and foreign exchange differences arising from the translation of foreign operations into Polish currency at an exchange rate representing the arithmetic mean of the average exchange rates prevailing on the last day of each month of the financial period as quoted by the National Bank of Poland.

The consolidated statement of cash flows is prepared on the basis of the consolidated statement of financial position, consolidated income statement and additional notes and explanations.

Financial statements of subsidiaries are prepared for the same reporting periods as the financial statements of the parent company. Consolidation adjustments are made in order to eliminate any differences in the accounting policies applied by the Bank and its subsidiaries.

10.3.        acquisition of subsidiaries (business combinations)

The acquisition of subsidiaries by the Group is accounted for under the acquisition method.

In respect of mergers of the Group companies, i.e. the so-called transactions under joint control, the predecessor accounting method is applied, i.e. the acquired subsidiary is recognized at the carrying amount of its assets and liabilities recognized in the Group’s consolidated financial statements in respect of the given subsidiary, including the goodwill arising from the acquisition of that subsidiary.

10.4.        Associates and joint ventures

Investments in associates and joint ventures are accounted in accordance with the equity method and are initially stated at cost. At each balance sheet date, the Group makes an assessment of whether there is any evidence of impairment of investments in associates and joint ventures. If any such evidence exists, the Group estimates the recoverable amount, i.e. the value in use of the investment or the fair value of the investment less costs to sell, whichever of these values is higher.

The value in use of investments is determined based on the present value of the estimated expected future cash flows from the continued use of these assets, using models dedicated to each individual entity. These cash flows are discounted at a discount rate based on the cost of equity estimated on a case-by-case basis for each investment. The current bid price received or the value estimated on the basis of valuation techniques commonly used by market participants (including valuations provided by a specialised third party) is accepted as the fair value of the investment.

If the carrying amount of an asset exceeds its recoverable amount, the Group recognizes an impairment allowance in the income statement.

11.  General accounting policies for financial instruments

11.1.        Accounting for transactions

Financial assets and financial liabilities, including forward transactions and regular-way transactions, which carry an obligation or a right to purchase or sell in the future an agreed number of specified financial instruments at a fixed price, are entered into the books of account under the date of the contract, irrespective of the settlement date provided in the contract.

11.2.        offsetting financial instruments

Financial assets and financial liabilities are offset by the Group and the net amount is reported in the consolidated statement of financial position when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously.

11.3.        Derecognition of financial instruments from the statement of financial position

Financial assets are derecognized from the statement of financial position when contractual rights to the cash flows from the financial asset expire or when the Group does not have justified prospects for recovering the given financial asset in full or in part, or when the financial asset is transferred by the Group to another entity.

The Group excludes financial assets from the statement of financial position when, among other things, they are subject to invalidation by a final court judgement, cancellation by prescription or they are uncollectible. When the said assets are derecognized, they are charged to the respective credit loss allowances or losses in respect of legal risk (in case of invalidation of CHF loans).

In the event that no allowances have been recognised, or if the amount of the allowance is less than the amount of the financial asset, the amount of the credit loss allowance is increased by the difference between the value of the asset and the amount of the allowance that has been recognized to date.

11.4.        The principles for classification of financial instruments

The Group classifies financial assets into the following categories:

•        measured at amortized cost;

•        measured at fair value through other comprehensive income;

•        measured at fair value through profit or loss.

The Group classifies financial liabilities into the following categories:

•        measured at amortized cost;

•        measured at fair value through profit or loss.

Classification of financial assets as at the date of their acquisition or origin depends on the business model adopted by the Group to manage a given group of assets and the characteristics of the contractual cash flows from a single asset or group of assets. The Group identifies the following business models:

•        the “held to collect” cash flows model, in which financial assets originated or acquired are held in order to collect benefits from contractual cash flows – this model is typical for lending activities;

•        the “held to collect and sell” cash flows model, in which financial assets originated or acquired are held to collect benefits from contractual cash flows, but they may also be sold (frequently and in transactions of a high volume) – this model is typical for liquidity management activities;

•        the residual model – other than the “held to collect” or the “held to collect and sell” cash flows model.

•      business model

The business model is determined by the Group upon initial recognition of financial assets. The Group determines the business model at the level of individual groups of assets, in the context of the business area in connection with which the financial assets originated or were acquired, and is based, among other things, on the following factors:

•        the method for assessing and reporting the results of the financial assets portfolio;

•        the method for managing the risk associated with such assets and the principles of remunerating the persons managing such portfolios.

In the “held to collect” business model, the Group sets out the following classification criteria:

•        insignificant sales (less than 5% of the portfolio), even if frequent,

•        infrequent sales (no more than 1 transaction - understood as 1 sale) - occasional sales transactions during the year, even if of significant value,

•        sales close to maturity (a period of no more than 5% of the remaining period to maturity).

In addition, the Group uses the criterion of "incidental sales" in the event of an increase in the level of credit risk, a change in laws or regulations - the sales are made in order to maintain the assumed level of regulatory capital, in accordance with the principles described in the strategy for managing such portfolios.

•      Assessment of contractual cash flow characteristics

The assessment of the contractual cash flow characteristics establishes, based on a test of contractual cash flows, whether contractual cash flows are solely payments of principal and interest on the principal amount outstanding (hereinafter “SPPI”). Interest is defined as consideration for the time value of money, credit risk relating to the principal remaining to be repaid within a specified period and other essential risks and costs associated with granting financing, as well as the profit margin.

Contractual cash flow characteristics do not affect the classification of the financial asset if:

•        their effect on the contractual cash flows from that asset could not be significant (de minimis characteristic); In order to confirm the de minimis characteristic, the Group calculates the percentage change in cash flows for each reporting period separately, as well as cumulatively over the life of the financial instrument. A situation where the percentage change in cash flows does not exceed the materiality threshold of 5% does not constitute a breach of the SPPI test

•        they are not genuine, i.e. they affect the contractual cash flows from the instrument only in the case of occurrence of a very rare, unusual or very unlikely event (non-genuine characteristic).

In order to make such a determination, the potential impact of the contractual cash flow characteristics in each reporting period and throughout the whole life of the financial instrument is considered.

The SPPI test is performed for each financial asset in the “held to collect” or “held to collect and sell” models upon initial recognition (and for substantial modifications after subsequent recognition of a financial asset).

In the case of financial assets having characteristics associated with sustainable development (green loans, where a customer may benefit from a reduced margin upon presentation of an energy efficiency certificate), the cash flow changes are assessed taking into account the possible impact of the characteristic associated with sustainable development in every reporting period and cumulatively throughout the lending period. It is also considered whether the impact of this characteristic on contractual cash flows is associated with credit risk. If the interest is increased or decreased in consequence of an increase or a decrease in credit risk, which indicates a positive correlation between the credit margin and the credit risk level, the SPPI criteria are met.

The Group analyses, among other things, the following features of financial assets which result in the SPPI test being failed:

•        leverage in the design of interest rate, understood as a multiplier higher than 1;

•        a creditor’s right to participate in the profit – contractual cash flows are not only the repayment of principal and interest on the outstanding principal;

•        limitation of the debtor’s liabilities (resulting in a non-recourse asset);

•        early repayment and extension option contingent on a future economic event which does not relate to the agreement, particularly an event not related to a change in the borrower’s credit risk level;

•        covenants providing for an increase or decrease in interest rate in line with an increase or decrease in credit risk, which reflects a negative relation between the loan margin and the level of credit risk;

•        interest rates unilaterally determined by the Group (administered interest rates), if they do not approximate variable market rates.

If the qualitative assessment performed as part of the SPPI test is insufficient to determine whether the contractual cash flows are solely payments of principal and interest, a benchmark test (quantitative assessment) is performed to determine the difference between the (non-discounted) contractual cash flows and the (non-discounted) cash flows that would occur should the time value of money remain unchanged (the reference level of cash flows). The Group performs benchmark tests mainly when there is a mismatch between the frequency of interest rate updates and the interest rate tenor, interest rate updates based on interest rate averaging or interest rate updates based on lagged values (e.g. the value applicable one month before the revaluation date). The materiality criterion for the difference in cash flows between the agreement being tested and the benchmark at a single scenario level was set at 5% for the sum of undiscounted cash flows over the agreement horizon and 5% for the sum of cash flows in the quarterly reporting periods.

11.5.        Financial assets measured at amortized cost

Financial assets (debt financial assets) are measured at amortized cost, provided that both the following conditions are met:

•        a financial asset is “held to collect”;

•        the terms and conditions of an agreement concerning the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal outstanding (the SPPI test is passed).

The Group classifies amounts due from banks, loans and advances to customers and debt securities as financial assets measured at amortised cost.

The carrying amount of this category of assets is determined using the effective interest rate described in the note “Interest income and expenses”, which is used to determine (calculate) the interest income generated by the asset in a given period, adjusting it for expected credit loss allowances.

Assets for which the schedule of future cash flows necessary for calculating the effective interest rate cannot be determined, are not measured at amortized cost. Financial assets recognized in this item are measured at amounts due, including interest on receivables, taking into account allowances for expected credit losses (see note “Net allowances for expected credit losses”). Commissions and fees connected with the arising of or decisive for the financial qualities of such assets should be settled over the period of life of the asset using the straight-line method, and are included in commission income.

11.6.        Financial assets measured at fair value through other comprehensive income

Financial assets (including debt instruments) are measured at fair value through other comprehensive income if both the following conditions are met:

•        the financial asset is held in accordance with the business model aimed at both receiving contractual cash flows and selling the asset; and

•        the terms and conditions of an agreement concerning the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal outstanding (the SPPI test is passed).

The Group classifies debt securities into the category of financial assets measured at fair value through other comprehensive income

For methods of determining fair value, see note “„Fair value hierarchy”.

Financial assets measured at fair value through other comprehensive income are measured at fair value. The effects of changes in the fair value of such financial assets until derecognition or reclassification are recognized in other comprehensive income, except for income of a similar nature to interest income, net allowances for expected credit losses (see note „Net allowances for expected credit losses”) and foreign exchange gains or losses, which are recognized in profit or loss.

The gain or loss recognized in other comprehensive income constitutes the difference between the fair value of a financial asset as at the measurement date and the value of the asset at amortized cost.

If a financial asset has been derecognized, accumulated gains and losses previously reported in other comprehensive income are reclassified from other comprehensive income to financial profit or loss in the form of a reclassification adjustment.

11.7.        Financial assets measured at fair value through profit or loss

If financial assets do not meet the aforementioned qualification criteria to be measured at amortized cost or at fair value through other comprehensive income, the Group classifies them as financial assets measured at fair value through profit or loss.

In the Group’s financial statements, financial assets measured at fair value through profit or loss are presented as follows:

•          held for trading - financial assets which:

•        are acquired or incurred principally for the purpose of selling or repurchasing it in the near term; or

•        on initial recognition are part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of short-term profit-taking; or

•        are a derivative (except for a derivative that is a financial guarantee contract or a designated and effective hedging instrument).

•          financial assets that are not held for trading and must be measured at fair value through profit or loss – financial assets that have not passed the test of contractual cash flow characteristics (irrespective of the business model); or financial assets classified to the residual model;

•          financial assets designated to be measured at fair value through profit or loss at initial recognition (option to measure at fair value through profit or loss).

The Group classifies derivatives, loans and advances to customers that do not meet the criteria of the SPPI test due to the presence of leverage in the interest rate structure, increasing the volatility of contractual cash flows, debt securities and equity securities into the category of financial asset measurement at fair value through profit or loss.

Gains or losses on assets measured at fair value through profit or loss are recognized in profit or loss. Gains or losses on the measurement of the financial asset at fair value comprise the difference between the fair value of the asset and its value at amortized cost determined as at the measurement date.

Income similar to interest income on instruments measured at fair value through profit or loss are recognised in profit or loss under the heading “Interest income and expenses”.

11.8.        Equity instruments

Investments in equity instruments are measured at fair value through profit or loss.

11.9.        Reclassification of financial assets

Financial assets may be reclassified only in the event of a change in the business model relating to an asset or a group of assets resulting from the commencement or discontinuation of a material part of operations. Such changes are very infrequent. Reclassification is presented prospectively, i.e. without changing the effects of fair value measurements, allowances or accrued interest recognised to date.

The Group has not made any changes to the business model for financial assets in 2023.

11.10.    Modifications – Changes in contractual cash flows

Modification – understood as a change in the contractual cash flows in respect of a financial asset based on an annex to the contract, may be substantial or non-substantial. A change in the contractual cash flows resulting from execution of the terms of the contract is not a modification.

When the contractual cash flows of a financial asset are renegotiated or otherwise modified based on an annex to the agreement or by general legislation, and the renegotiation or modification does not result in the derecognition of that financial asset (“Non-substantial modification”), the gross carrying amount of the financial asset is recalculated and gain or loss arising from such modification is recognized in profit or loss (as interest income or expense).

An adjustment of the carrying amount of a financial asset resulting from the modification is recognized in interest income/ expenses over time using the effective interest rate method. The Group accounts for, among other things, the adjustment to the carrying amount due to recognised credit holidays using the effective interest rate method.

In certain circumstances, renegotiation or modification of contractual cash flows associated with a financial asset may lead to derecognition of the financial asset. If an existing financial asset is derecognized due to its modification, and a modified asset is subsequently recognized, the modified asset is treated as a “new” financial asset (“a substantial modification”). The new asset is recognized at the fair value and a new effective interest rate applicable to the new asset is calculated. If the characteristics of a modified new financial asset (after signing an annex) comply with the arm’s length conditions, the carrying amount of that financial asset is equal to its fair value.

The assessment whether a given modification of financial assets is a substantial or a non-substantial modification depends on satisfaction of certain quantitative and qualitative criteria.

The following qualitative criteria have been adopted:

1.       currency conversion;

2.       change of debtor, other than caused by the debtor’s death;

3.       introducing or removing a contractual characteristic that adversely affects the test of cash flow characteristics (SPPI test) or removal of these features;

The occurrence of at least one of these criteria results in a substantial modification.

The quantitative criterion consists of a 10% test analysing the change in the contractual terms of a financial asset resulting in a difference between the amount of future cash flows arising from the changed financial asset discounted using the original effective interest rate and the amount of the future cash flows that would arise from the original financial asset discounted using the same interest rate. The other quantitative criterion is an increase in a debtor’s exposure, which includes an increase in the capital and off-balance sheet liabilities granted of more than 10% in relation to the amount of capital and off-balance sheet liabilities prior to the increase for each individual exposure. The third criterion is the extension of the original term of cash loans, business loans serviced in branch by more than 1 year and by more than double the residual term; cash loans, business loans handled by collection units by more than 1 year; home loans serviced in branch and handled by collection units by more than 4 years.

In the event of the occurrence of a quantitative criterion (a difference) of more than 10%, the modification is considered substantial, whereas a quantitative criterion of 10% or less means that the modification is considered non-substantial.

Derecognition of financial instruments measured at fair value through other comprehensive income or at amortized cost typically relates to a sale or a substantial modification of such assets.

11.11.    Measurement of purchased or originated credit-impaired financial assets (POCI)

Purchased or originated credit-impaired assets (“POCI”) assets comprise debt financial assets measured at amortized cost and measured at fair value through other comprehensive income, i.e. loans and debt securities.

In the Group, POCI assets arise mainly as a result of a restructuring process, i.e. an extension of the agreement term and a significant modification of the agreement terms, resulting in the derecognition of the asset and the re-recognition of the "new" impaired asset.

Such assets are initially recognized at the net carrying amount (net of allowances), which corresponds to their fair value. Interest income on POCI assets is calculated based on the net carrying amount using the effective interest rate adjusted for credit risk recognized over the life of the asset. The credit-adjusted effective interest rate is calculated taking into account future cash flows adjusted for the effect of credit risk recognized over the life of the asset. The change in estimates of future recoveries in further reporting periods is recognized as a gain or loss on expected credit losses.

11.12.    Measurement of financial liabilities

Liabilities in respect of a short position in securities and some of the liabilities in respect of insurance products are measured at fair value through profit or loss.

Other financial liabilities are measured at amortized cost using the effective interest rate method. In the case of financial liabilities for which it is not possible to estimate the schedule of future cash flows and the effective interest rate, they are measured at the amount due.

12. Environmental issues

The nature of the business activities means that the direct impact of the Bank and the Bank’s Group on the natural environment is limited. Indirect environmental impact involves the Bank's provision of financing the Group's product offering.

The Group mitigates its direct impact on the environment and adjusts its lending policies addressed to the various sectors of the economy in order to also motivate its customers to mitigate their environmental impact.

The issues associated with the Group’s environmental impact and its pro-environmental initiatives are described in the Directors’ Report of the PKO Bank Polski S.A. Group for 2023 in the following chapters:

•        13.4 “Non-financial factors in the Bank's strategy”,

•        13.5 “Key non-financial performance indicators”,

•        13.7 “Material topics: management and risks”, including: 13.7.6 “Environment”, 13.7.7 “Climate” and 13.7.8 “Sustainable development”.

From 2021 onwards, ESG risks have been included in the Group's risk management strategy. For issues related to ESG risk management, see note “ESG risk management”.

This note describes the impact of climate-related factors on the specific components of the Group’s financial statement, including in particular the impact of climate risk on the measurement of the expected credit losses and concentration of credit risk.

•     Sources of uncertainty of estimates, significant judgments and the ability to continue as a going concern

The Group is exposed to climate risk, including:

•        physical risk (e.g. risk arising from more frequent/serious weather phenomena); and

•        economic transformation risk (e.g. risk associated with transition to less polluting, low-emission economy, extremization of the seasons).

The climate risk may potentially affect the estimates and assessments applied by the Group (including those used in the calculation of allowances for expected credit losses).

As detailed below, there were no significant climate-related estimates or judgements in the Group that would materially affect the values recognised in these financial statements.

Climate-related issues do not present a threat to the Group’s ability to continue in operation as a going concern in the period of 12 months after the approval of these financial statements by the Management Board for publication.

•      classification and measurement of financial instruments at fair value

The climate risk may affect the expected cash flows from loans granted and, therefore, expose the Group to credit losses. The borrower-specific attributes, physical risk and transition risk may (individually or in combination) affect the expected cash flows, as well as the potential future economic scenarios which are taken into account in the measurement of expected credit losses.

The impact of climate-related risk factors on the expected credit losses will vary depending on the severity and duration of the anticipated climate threats, their direct and indirect impact on the borrower and the lender’s loan portfolio, and the loan portfolio duration.

For the moment, the Group does not isolate specific climate risk scenarios because the impact of climate-related risk factors on the Group's expected loan losses is potentially limited as the Group, given the relatively short-term duration of many of its bank loan portfolios, expects the most significant effects of climate change to appear in the mid- and long-term perspective, thus potentially reducing the current impact on ECL. At the same time, it is important to monitor the rate and scale of such changes and their possible effect on the measurement of the allowances for expected credit losses. The Group is in the process of implementing internal tools and methods to assess the impact of extreme climate events on its corporate and enterprise segment customer portfolios and on its mortgage-backed portfolio. The Group pays particular attention to such elements as greenhouse gas (GHG) emission allowance prices, energy efficiency of buildings, floods and droughts.

In the lending process for corporate Customers and SME Customers evaluated with the use of the rating method, the Group each time assesses the impact of environmental, social and governance factors (ESG factors) on the Customer’s creditworthiness, and identifies credit transactions with an increased financial leverage (levered transactions). The Group also examines the impact of credit transactions on ESG and classifies them to four categories, from transactions with a positive impact on ESG to those with a material negative impact. When assessing the ESG factors, the Group takes into account such factors as the risk of climate change and its impact on the customer’s operations, potential influence of the customer on climate, factors related to human capital or health and safety, and governance factors (including the corporate culture and internal audit).

In the fair value measurement of financial instruments classified to level 3 of fair value the Group does not use unobservable data relating to climate risk:

•        debt securities – generally constitute financing of business entities from industries not exposed to significant climate risk (e.g. insurance companies, developers),

•        granted loans – they generally represent financing for households and their fair value is estimated by applying the discounted cash-flow method using an effective credit spread,

•        not listed shares in other entities – they do not include companies from sectors which are exposed to significant climate risk.

•     Property, plant and equipment, property, plant and equipment leased out under operating lease and intangible assets

Climate-related issues do not affect depreciation and amortization recognized by the Group as at 31 December 2023 and 2022. Moreover, climate-related factors did not cause any indications of impairment of non-financial assets and did not affect their recoverable value as at 31 December 2023 and 2022.

It should be noted, though, that the potential impact of climate change risk, understood as a sudden, rapid transformation of the economy towards lower emissions (a rapid generation change of a significant class of assets in financing) may ultimately be important for the Group’s lease entities.

•      Inventories – Climate-related issues do not affect the carrying amount of the inventories held by the Group as at 31 December 2023 and 2022.

•      Taxes Climate-related issues do not affect deferred income tax assets recognized by the Group as at 31 December 2023 and 2022.

•      provisions and litigation – As at 31 December 2023 and 2022, there were no proceedings involving any climate or environmental issues at the Group. In the years 2023-2022, there were no administrative proceedings relating to violations of environmental regulations or the Group’s impact on climate that would lead to any fines being imposed on the Group.

•     insurance activities

Intensification of extreme weather phenomena, including in particular the risk of flood, is a specific instance of physical risk to insurance activities. The effect of this risk on the financial results and solvency is mitigated mainly by risk selection and a properly structured reinsurance programme. Insurance companies calculate the capital requirement for catastrophic risk and analyse the stress test scenarios for flood risk.

At present, insurance companies do not have environmental taxonomy for investment assets due to the fact that they do not offer new investment products.

In the case of insurance activities (property insurance), climate risk is taken into account in the valuation of liabilities, i.e. it is taken into account in the amount of the premium. In particular, flood risk provisions as at 31 December 2023 were estimated at PLN 5 million (as at 31 December 2022 - PLN 8 million). The decrease in the provision during the year, despite the increase in the residential insurance portfolio, is due to the update of the flood model (risk reduction). The model currently used to determine the risk of flooding takes into account additional variables (e.g. storeys), the absence of which in previous years resulted in an increased valuation of the risk (precautionary approach). In addition, the reduction in valuation is due to the inclusion of lower levels of materialisation in damage for lower flood return periods (more frequent floods, with reduced impact).

Upon the occurrence of an event constituting materialization of climate risk, insurance companies also recognize provisions for losses.

In the case of life insurance activities, the said risk is not sufficiently material to allow quantification of liabilities - they are valued based on an assessment of the cumulative probability of occurrence of insured events.

The ESG measures taken by the Group's insurance companies are described in note “ESG risk management”.

13. Changes in accounting policies applicable from 1 January 2023 and explanation of the differences between previously published financial statements and these financial statements

Following the implementation of IFRS 17 as of 1 January 2023, changes have also been made to the comparative figures for 2022, as detailed in note IFRS 17 “Insurance Contracts”. In 2023 the Group implemented amendments to IAS 12 Income Taxes, whose impact was only of a presentational nature, i.e. the recognition of deferred tax on leasing transactions in, respectively, deferred tax assets and deferred tax liabilities (see note Income taxes).

The Group made no other changes to accounting policies or presentation in 2023.

14. IFRS 17 “Insurance contracts”

International Financial Reporting Standard 17 Insurance Contracts ('IFRS 17') was published by the International Accounting Standards Board in May 2017 and amended by it in June 2020 and in December 2021. IFRS 17 was endorsed for use in European Union countries on 19 November 2021 by Regulation 2021/2036 of the European Union.

The aim of the new standard is to introduce new uniform rules for the measurement of insurance and reinsurance contracts, ensuring greater comparability of reporting between providers of insurance products, and to provide a number of new disclosures for the use of financial statement users.

This standard is mandatorily applicable from 1 January 2023. IFRS 17 replaced IFRS 4 “Insurance Contracts”, which enabled entities to recognize insurance contracts according to the accounting principles based on the national standards.

IFRS 17 changed the recognition, measurement, presentation and disclosure of insurance contracts distributed by Group companies, both as products linked to, among others, mortgage loans, cash loans and leasing products, and as stand-alone products.

The Group has implemented the standard in the retrospective full and modified approach for the part of the portfolio.

The implementation of IFRS 17 as at 1 January 2022 resulted in an increase in the Group’s assets by PLN 582 million, liabilities by PLN 296 million and equity by PLN 286 million.

14.1.        Measurement and presentation of insurance products

The key differences in the measurement and presentation of insurance products that apply to the Group and that came into effect upon implementation of IFRS 17 are presented below.

•           Key assumptions

The standard applies to insurance contracts, reinsurance contracts and investment contracts with direct participation features.

The new standard defines an insurance contract as a contract in which one party accepts a significant insurance risk from the policyholder and undertakes to compensate the insured for an adverse effect arising from, an uncertain future event. This definition is in principle consistent with the definition in IFRS 4

The standard does not apply to, among others, investment contracts, product guarantees issued by the manufacturer, loan guarantees, catastrophe bonds and so-called weather derivatives (contracts that require a payment based on a climatic, geological or other physical variable that is not specific to a party to the contract).

The biggest impact on the occurrence of differences compared to the current IFRS 4 have:

•        the valuation of liabilities and assets under insurance contracts, which:

o        is based on the value of the best estimate of future cash flows;

o        reflects the time value of money;

o        includes the risk adjustment for non-financial risk;

o        includes the expected value of future profits;

•        recognition of expected profits for the group of insurance contracts over time, in proportion to the so-called coverage units, corresponding to the level of service provided by the insurance company in each reporting period;

•        recognition of entire expected loss on insurance contracts at the point at which the entity assesses that the contract is onerous, which may be at the date of initial recognition of that contract or at subsequent measurement;

•        separate (from direct business contracts) measurement of liabilities and assets for outward reinsurance.

•           the model for the measurement and recognition of insurance products, including those linked to loans and advances applied until 31 December 2022

Until the implementation of the new standard, the Group recognised net income on insurance activities under commission income – in the line “offering insurance products” which comprised premium income, costs of insurance activities, claims and change in technical reserves, and the impact of the reinsurer’s share in the aforementioned items.

Due to the fact that the Group offers insurance products along with loans and advances and lease products and it is impossible to purchase from the Group an insurance product that is identical as to the legal form, conditions and economic content without purchasing a loan, an advance or a lease product, the payments received by the Group for the insurance products sold were treated as an integral part of the remuneration for the financial instruments offered. All premium received by the Group split in accordance with Recommendation U on the basis of the relative fair value model into a portion relating to:

•        the insurance product - measured using an actuarial model in accordance with the requirements of IFRS 4 (recognised in commission income, line "offering insurance products")

•        the portion relating to the credit product – settled using the effective interest rate method and recognized in interest income and, in the part corresponding to the performance of the agency service, if the insurer is a Group company, accounted for using the straight line method during the term of the insurance product and is recognized as commission income (line: offering insurance products). 

Costs directly attributable to selling insurance products were accounted for as a component of the amortized cost of a financial instrument or on a one-off basis. The provision for future refunds was allocated to the financial instrument and insurance service in accordance with the relative fair value model.

The Group presented its insurance activities under the following headings in the statement of financial position:

•        Assets from insurance activities – receivables on account of reinsurance and share of reinsurers in technical reserves.

•        Liabilities in respect of insurance activities – technical reserves to cover current and future claims and costs which may arise from the insurance contracts concluded, i.e. unearned premium and unexpired risk reserves, outstanding claims and benefits reserve, reserve for bonuses and discounts for the insured, as well as deferred reinsurance commission and reinsurance related liabilities.

•        Amounts due to customers – “Liabilities in respect of insurance products”: liabilities from unit-linked products, safe capital product, structured products and insurance deposits.

•           measurement and recognition of insurance products offered by the Group, including those linked to loans and advances in accordance with IFRS 17

In accordance with IFRS 17, all insurance products offered by the Group are recognized and measured under this standard as insurance products. At the consolidated Group level, the premium received by the Group is no longer split in accordance with Recommendation U on the basis of the relative fair value model (this model was maintained for the Bank's separate financial statements).

The components of the net insurance income, including the portion that formed part of the Group's interest income, commission income or administrative expenses and related directly to insurance contracts, is measured using an actuarial model and presented in the "Net income from insurance business” and, as appropriate, in the lines "Insurance revenue (net of reinsurance)" and "Cost of insurance activities (net of reinsurance)".  

The implementation of IFRS 17 at the consolidated level also affected the carrying amount of loans and advances to customers. The premium element recognised under the relative fair value model, adjusting the gross carrying amount of loans at the Bank level, at the consolidated level is an element of the assets and liabilities arising from insurance activities, measured in accordance with the principles set out in IFRS 17.

Starting from 1 January 2023, products i.e. liabilities from unit-linked products, “safe capital”, previously recognised under IFRS 9, are measured under IFRS 17 as part of liabilities from insurance activities (previously presented under “Amounts due to customers” – “Liabilities in respect of insurance products”). On the other hand, structured products and insurance deposits, as investment products, continue to be recognised in accordance with IFRS 9 in the line “Amounts due to customers”.

•           Transition date

The Group applied IFRS 17 for the first time in the period beginning 1 January 2023. The Group has implemented IFRS 17 in the retrospective full and modified approach for the part of the portfolio (MRA approach). Due to the need to prepare comparative data, 1 January 2022 is assumed as the date of transition to the new standard.

Detailed accounting policies and financial information for the insurance business are described in note INSURANCE BUSINESS.

14.2.         Impact assessment - classification and measurement

The following tables present the cumulative effect of adjustments resulting from the implementation of IFRS 17 on the Group's assets, liabilities and equity as at 1 January 2022.

DATE OF TRANSITION TO THE NEW STANDARD	31.12.2021 (pursuant to IFRS 4)	Adjustment due to implementation of IFRS 17	01.01.2022 (pursuant to IFRS 17)
TOTAL ASSETS, of which:	418,086	582	418,668
Loans and advances to customers	234,300	1,395	235,695
Assets in respect of insurance activities	911	(783)	128
Intangible assets	3,463	(20)	3,443
Other assets	2,605	(10)	2,595
TOTAL LIABILITIES AND EQUITY	418,086	582	418,668
TOTAL LIABILITIES, of which:	380,393	296	380,689
Amounts due to customers	322,296	(1,030)	321,266
Liabilities in respect of insurance activities	2,008	1,309	3,317
Other liabilities	5,366	(6)	5,360
Deferred tax liabilities	356	23	379
EQUITY, of which:	37,693	286	37,979
Reserves and accumulated other comprehensive income	25,313	17	25,330
Unappropriated profit (taking into account profit or loss for 2021)	11,144	269	11,413
Capital and reserves attributable to equity holders of the parent company	37,707	286	37,993

•        The increase in equity by PLN 286 million, of which PLN 269 million in retained earnings, results from a retrospective change in the recognition of historically collected insurance premiums and a change in the measurement methodology for insurance liabilities. Until the implementation of IFRS 17, the entire premium received by the Group was split in accordance with Recommendation U on the basis of the relative fair value model into an insurance product portion - measured using an actuarial model in accordance with the requirements of IFRS 4 - and a credit product portion - accounted for using the effective interest rate method. With the implementation of IFRS 17, insurance premiums were recognised in full as insurance component measured using the general model (GMM model). As a consequence, the rate of revenue recognition and therefore the historically recognised profit included in retained earnings has changed.

The value of the insurance premium previously recognised as a component of the gross carrying amount of loans and advances to customers and accounted for over the life of the loan product, now representing part of the insurance business measured using the new methodology under IFRS 17 is recognised over the life of the insurance product, which has translated into a positive increase in equity.

•        The increase in other capital by PLN 17 million related to the recognition of part of the finance income and costs from insurance business in other comprehensive income (a new element introduced by IFRS 17). Under IFRS 17, the Group used the option to split the finance income and costs of its insurance business into the portions recognized in profit or loss and other comprehensive income. By using this option, the Group can reduce the volatility of the income statement resulting from fluctuations in the interest rate structure. The change in contractual service margin (CSM) value is calculated using a fixed locked-in discount rate structure corresponding to the structure at the time the cohort was recognised. The difference between the calculation based on locked-in curves and the current curves at the time of calculation is presented in other comprehensive income. This approach also ensures consistent presentation of income statement items resulting from changes in liabilities and segregated assets.

•        Loans and advances to customers increased by PLN 1,395 million, due to the discontinuation of the premium element accounted for using the effective interest rate method and adjusting the gross carrying amount of loans. The value of this premium previously recognised as a component of the gross carrying amount of loans and advances to customers is now part of the insurance business measured using the new methodology under IFRS 17, thereby translating into an increase in the balance of liabilities in respect of insurance activities.

•        In accordance with IFRS 17, the liability from insurance operations as at 1 January 2022 increased by PLN 1,309 million to PLN 3,317 million, of which liability for remaining coverage (LRC) is PLN 3,143 million and liability for incurred claims (LIC) is PLN 174 million.

•        There was also a decrease of PLN 783 million in the line of assets in respect of insurance activities, which is primarily due to the adoption of a different method of determining insurance assets and liabilities with the reinsurer’s share (previously, receivables on account of reinsurance and share of reinsurers in technical reserves were presented under this item). In accordance with IFRS 17, the value of assets in respect of insurance activities as at 1 January 2022 amounts to 128 million and applies to outward reinsurance contracts measured using the GMM model, of which liability for remaining coverage (LRC) amounts to PLN 107 million and liability for incurred claims (LIC) amounts to PLN 21 million.

•        In intangible assets, the Group recognised future gains on insurance contracts (hereinafter Value in force, VIF) resulting from the settlement of the acquisition on 1 April 2014 of "Nordea Polska Towarzystwo Ubezpieczeń na Życie" SA (currently PKO Życie Towarzystwo Ubezpieczeń S.A.). Following the implementation of IFRS 17, VIF amounts to PLN 2 million as at 1 January 2022 (negative adjustment of PLN 20 million). The remeasurement is due to the fact that a significant part of the products for which VIF has been recognised are subject to the requirements of IFRS 17, so that VIF for this part of the portfolio is replaced by the contractual service margin (CSM). The amount of contractual service margin from the acquired portfolio subject to measurement in accordance with IFRS 17 is higher than the value of the recognised VIF, due to the prudential valuation that was applied for liability measurement purposes at the time of the transaction. The new VIF value has been limited to policies subject to measurement in accordance with IFRS 9 and has been calculated in line with the original recognition of the VIF (i.e. measurement of the VIF at the time of the transaction and adoption of an amortisation pattern based on the distribution of projected future profits).

•        A significant part of the products, i.e. the liabilities from the majority of unit-linked products and the "safe capital" product was presented under “Amounts due to customers” – “Liabilities in respect of insurance products”. Following the implementation of IFRS 17, these products are treated as part of liabilities in respect of insurance activities and measured in accordance with the new standard. The value of the adjustment to the item "Amounts due to customers" on this account amounted to a negative PLN 1,030 million. The carrying amount of the liabilities in respect of insurance products presented under "Amounts due to customers" amounts to PLN 175 million after adjustments and relates to structured products and insurance deposits which are treated as investment products measured in accordance with IFRS 9.

The Group analysed the performance guarantees to ensure that they met the definition of an insurance contract under IFRS 17. As this type of contract only involves credit risk related to the non-recovery of funds from customers, but no insurance risk, the Group recognises and measures performance guarantees in accordance with IFRS 9.

The following tables present the cumulative impact of the adjustments due to the implementation of IFRS 17 on the Group's assets, liabilities and equity as at 31 December 2022, the items of comprehensive income including the income statement and the items of the statement of cash flows for the period of 2022.

 

31 December 2022	published	Adjustment due to implementation of IFRS 17	restated
ASSETS, of which:	430,683	764	431,447
Loans and advances to customers	231,721	1,238	232,959
Assets in respect of insurance activities	555	(440)	115
Intangible assets	3,527	(15)	3,512
Other assets	2,804	(19)	2,785
LIABILITIES AND EQUITY	430,683	764	431,447
Liabilities, of which:	395,248	492	395,740
Amounts due to customers	339,582	(714)	338,868
Liabilities in respect of insurance activities	1,732	1,146	2,878
Other liabilities	7,014	(4)	7,010
Deferred tax liabilities	13	64	77
EQUITY, of which:	35,435	272	35,707
Reserves and accumulated other comprehensive income	22,215	24	22,239
Retained earnings	8,651	269	8,920
Net profit or loss for the year	3,333	(21)	3,312
Capital and reserves attributable to equity holders of the parent company	35,449	272	35,721

 

INCOME STATEMENT (selected items) – 2022	published	Adjustment due to implementation of IFRS 17	restated
Net interest income	11,813	(389)	11,424
Interest and similar income	20,140	(389)	19,751
of which calculated under the effective interest rate method	19,580	(384)	19,196
Net fee and commission income	4,951	(453)	4,498
Fee and commission income	6,515	(456)	6,059
Fee and commission expense	(1,564)	3	(1,561)
Other net income	508	779	1,287
Net income from insurance business, of which:	-	779	779
Insurance revenue (net of reinsurance)	-	1,174	1,174
Cost of insurance activities (net of reinsurance)	-	(324)	(324)
Result on business activities	17,272	(63)	17,209
Administrative expenses	(7,850)	81	(7,769)
of which net regulatory charges	(1,889)	2	(1,887)
Profit before tax	4,749	18	4,767
Income tax expense	(1,416)	(39)	(1455)
Net profit (including non-controlling shareholders)	3,333	(21)	3,312
Net profit attributable to equity holders of the parent company	3,333	(21)	3,312

 

 

STATEMENT OF COMPREHENSIVE INCOME (selected items) – 2022	published	Adjustment due to implementation of IFRS 17	restated
Net profit (including non-controlling shareholders)	3,333	(21)	3,312
Other comprehensive income	(3,303)	7	(3,296)
Items which may be reclassified to profit or loss	(3,296)	7	(3,289)
Finance income and costs from insurance business, gross	-	9	9
Deferred tax	-	(2)	(2)
Finance income and costs from insurance business, net	-	7	7
Total net comprehensive income	30	(14)	16
Total net comprehensive income, of which attributable to:	30	(14)	16
equity holders of the parent	30	(14)	16

 

CASH FLOWS – SELECTED CONSOLIDATED DATA – 2022	published	Adjustment due to implementation of IFRS 17	restated
Profit before tax	4,749	18	4,767
Total adjustments	15,223	(18)	15,205
Depreciation and amortization	1,278	(11)	1,267
Change in loans and advances to customers	1,529	157	1,686
Change in asset in respect of insurance activities	356	(343)	13
Change in amounts due to customers	17,286	316	17,602
Change in liabilities in respect of insurance activities	(276)	(163)	(439)
Change in other liabilities	1,903	2	1,905
Other adjustments	(1,912)	24	(1,888)
Net cash from/used in operating activities	18,543	-	18,543

14.3.         Impact of IFRS 17 on own funds and capital adequacy measures

According to CRR Regulation, prudential consolidation is used for capital adequacy purposes, which unlike consolidation in accordance with IFRS, covers only subsidiaries that meet the definition of an institution, financial institution or any ancillary services enterprise. Therefore, the following insurance companies of the Group are excluded from prudential consolidation: PKO Towarzystwo Ubezpieczeń S.A. and PKO Życie Towarzystwo Ubezpieczeń S.A. The insurance companies are measured using the equity method.

Thus, the implementation of IFRS 17 at the date of the opening balance sheet affects the value of equity investments recognised (own funds requirements for credit risk), as well as retained earnings and accumulated other comprehensive income from the remeasurement of insurance companies measured using the equity method.

The total impact of the adjustments on the total capital ratio is +0.01 b.p. as at 31 December 2022.

15. New standards and interpretations and their amendments

•        Standards and interpretations and their amendments effective from 1 January 2023

Standards and interpretations *	Description of changes and impact
IFRS 17 “Insurance contracts” (1.01.2023/ 19.11. 2021) and amendments to IFRS 17 (1.01.2023/ 8.09.2022)	For details, see Note 14 “IFRS 17 Insurance contracts”
Amendments to IAS 1 “Presentation of financial statements” and IAS 8 “Accounting policies, changes in accounting estimates and errors” (1.01.2023/2.03.2022))	Amendments to IAS 1 contain guidelines on the application of the term “material” in disclosures of the accounting policies. Instead of significant accounting policies, the amendments require disclosure of material information about accounting policies, with explanations and examples of how an entity can identify material information about accounting policies. The amendments to IAS 8 introduce a new definition of accounting estimates. Under the new definition, accounting estimates are monetary amounts in the financial statements that are subject to measurement uncertainty. The introduction of the definition of accounting estimates and other amendments to IAS 8 are intended to help entities distinguish between changes in accounting policies and changes in accounting estimates. The amendments to IAS 1 affect the scope of information presented in the Group's annual financial statements for 2023. For details, see “BASIS FOR PREPARATION OF THE FINANCIAL STATEMENTS”.
amendments to IAS 1 - classification of liabilities (1.01.2024/ 19.12.2023)	The changes relate to the classification of liabilities in the statement of financial position as short-term or long-term. They clarify that the classification of liabilities as short-term or long-term should take into account, as at the classification date, the existence of a debt extension, regardless of the entity's intention to use it for a period longer than 12 months, and should take into account the fulfillment of the conditions of such extension as at the date of assessment, if it is conditional.  The Group does not have any agreements containing the aforementioned provisions and therefore the Group is not affected by the amendment.
Amendments to IAS 12 “Income taxes” (1.01.2023/11.08.2022)	Amendments to IAS 12 require that the entities recognise in the financial statements deferred tax assets and liabilities resulting from transactions, other than business combinations, in which equal amounts of deductible and taxable temporary differences arise on initial recognition. The amendment is presentational in nature. For details, see note: “INCOME TAX”.
Amendments to IAS 12 “Income taxes” (1.01.2023/8.11.2023)	The amendments apply to entities for which OECD Pillar 2 tax regulations apply, i.e. the introduction of global minimum taxation for the largest groups earning profits in different tax jurisdictions (“Pillar”). Among other things, the amendments introduce an exception to the requirements of IAS 12, whereby entities do not recognise and disclose deferred tax assets and liabilities related to the Pillar. The application of the exception must be disclosed by entities. In addition, the amendments also introduce, among other things, a requirement for separate disclosure of current tax expense related to the Pillar. The provisions for a global minimum tax have not yet been implemented in Poland. They have also not been implemented in certain jurisdictions where the Group operates (Ukraine, Sweden). From 2024 onwards, they will apply in tax jurisdictions where the Group operates in the form of foreign branches (Germany, Czech Republic, Slovakia, Romania). The Group is currently evaluating the future impact on the consolidated financial statements.
Amendment to IFRS 16 “Leases” (1.01.2024/20.11.2023)	The amendments clarify how a seller-lessee should measure sale and leaseback transactions that meet the requirements of IFRS 15 to recognise an asset as a sale. The amendments concern cases where the instalments payable under a leaseback agreement are variable, i.e. other than based on a rate or index. The amendments require the seller-lessee to measure the lease liability in such a way that the differences between the actual variable amounts paid under the agreement and the amounts included in the initial measurement of the liability are recognised directly through profit or loss. A retrospective approach applies to these amendments. The Group does not currently have sale and leaseback transactions with variable lease instalments other than those based on a rate or index, and therefore the Group is not affected by the amendment.

* The effective date in EU / date of endorsement by EU is provided in parentheses

•        NEW STANDARDS AND INTERPRETATIONS, AND AMENDMENTS THERETO, WHICH HAVE BEEN PUBLISHED BUT HAVE NOT BEEN ENDORSED BY THE EUROPEAN UNION

Standards and interpretations *

Description of changes and impact

Amendments to IAS 7 “Statement of Cash Flows” and amendments to IFRS 7 “Financial Instruments: Disclosures” (1.01.2024/ NO DATA)

The amendments require additional disclosures for reverse factoring agreements. Entities will be required to disclose information in financial statements to enable users of financial statements: •        an assessment of how the aforementioned agreements affect the entity's liabilities and cash flows; and •        understanding the impact of the aforementioned agreements on the entity's exposure to liquidity risk and the impact when the agreements expire. In addition, the amendments complement the current IFRS requirements by adding additional disclosure requirements to IAS 7 on, among other things: •        terms and conditions of reverse factoring agreements; •        disclosures at the beginning and end of the reporting period of the carrying amount of the aforementioned liabilities, the value of liabilities paid, the timing of payments. The IASB has decided that, in most cases, entities can present aggregated information on the above matters. The Group does not currently have any reverse factoring transactions relating to the above amendments and therefore the Group should not be affected by the amendment.

* the expected effective date in EU / date of endorsement by EU is provided in parentheses

SUPPLEMENTARY NOTES TO THE INCOME STATEMENT

16. Segment reporting

ACCOUNTING POLICIES:

The segmentation note was prepared on the basis of the internal reporting system, i.e. information provided to the Management Board of PKO Bank Polski S.A., which is used to assess the achieved results and allocate resources.

The principles of identifying revenues and costs as well as assets and liabilities applied in the segmentation report are consistent with the accounting principles described in these financial statements. The presented assets and liabilities of the segment are operating assets and liabilities used by the segment in its operating activities. The values of assets and liabilities as well as revenues and costs for individual segments are based on internal management information. The segment results, assets and liabilities also include items that can be assigned based on rational assumptions. On this basis, the segments recognize the impact of significant one-off events, such as negative goodwill arising from the acquisition of the company, goodwill impairment losses, impairment losses on associates, and the cost of legal risk of the portfolio of mortgage loans in convertible currencies.

Share of profits and losses of associates and joint ventures, profits and losses of non-controlling shareholders, income tax charge for the presentation of the result and deferred tax assets, current income tax receivables, current income tax liabilities and provisions due to deferred income tax in the presentation of the statement of financial position were recognized at the Group level (unallocated assets and liabilities).

The Group settles transactions between segments as if they were related to unrelated entities, using internal settlement rates based on market rates for a given currency and maturity date, taking into account liquidity margins. Transactions between the segments are carried out on normal commercial terms.

Following the introduction of the disclosures in respect of IFRS 17 as of 1 January 2023, corresponding changes have been made to the comparative figures for 2022 (as detailed in note IFRS 17 “Insurance Contracts”).

The PKO Bank Polski S.A. Group conducts business activities within segments offering specific products and services addressed to specific groups of customers. The manner in which the business segments are divided ensures consistency with the sales management model and offers customers a comprehensive product mix comprising both traditional banking products and more complex investment products, as well as services provided by the Group entities.

The segmentation note presented below is included in the internal reporting system, i.e. information presented to the Management Board of PKO Bank Polski S.A., which is used to assess the achieved results and allocate resources.

The segment report presented below reflects the internal organizational structure of the PKO Bank Polski S.A. Group.

The Group operates in three main segments:

Retail segment	The retail segment offers a full range of services to individuals as part of retail, private and mortgage banking. It also comprises transactions concluded with legal persons, i.e. firms and enterprises. The products and services offered to customers in this segment include, among other things: current accounts, savings accounts, term deposits, private banking services, investment and insurance products, investment funds, credit and debit cards, electronic and mobile banking services. With regard to financing, this segment offers consumer loans, mortgage loans, including those offered by PKO Bank Hipoteczny S.A., as well as Corporate loans for firms and enterprises, developers, cooperatives and property managers, and leases and factoring offered by the PKO Leasing S.A. Group. In addition, the results of the retail segment comprise the results of the following companies: PKO TFI S.A., PKO BP BANKOWY PTE S.A., PKO Życie Towarzystwo Ubezpieczeń S.A., PKO Towarzystwo Ubezpieczeń S.A., PKO BP Finat sp. z o.o.
Corporate and investment segment	The corporate and investment segment comprises transactions concluded with large corporate customers and financial institutions. This segment offers the following products and services: maintaining current accounts and term deposits, cash management and trade finance services, safekeeping of securities, currency products and derivatives, corporate loans, leasing and factoring offered by the PKO Leasing S.A. Group. As part of this segment’s activities, the Group also concludes, on its own or in consortiums with other banks, agreements for financing large projects in the form of loans and issues of non-Treasury securities. The segment also comprises own activities, i.e. investing activities, brokerage activities, interbank transactions, as well as transactions in derivative instruments and debt securities. The results of the corporate and investment segments also comprise the results of the companies operating in Ukraine and companies conducting technological services, real estate development and real estate management activities as well as funds investing money collected from investment fund participants.
Transfer center and other	The transfer & other activities centre comprises the result on internal settlements related to funds transfer pricing, the result on the Group’s investment portfolio of debt securities, the result on long-term sources of financing and the result on positions classified for hedge accounting, as well as the results not allocated to any other segment. Internal funds transfer is based on arm’s length transfer pricing. Long-term external financing includes issuing securities, including mortgage covered bonds, subordinated liabilities and loans received from financial institutions. The results of PKO Finance AB are presented as part of this segment.

 

financial information

The tables below present data on revenues, costs, profits / losses as well as assets and liabilities of the individual reporting segments of the Group for the periods ended 31 December 2023 and 31 December 2022.

Income statement by segment	Continuing operations
	Retail segment	Corporate and investment segment	Transfer center and other	Total operations of the Group
2023
Net interest income	15,143	6,348	(3,173)	18,318
Net fee and commission income	3,555	1,124	(53)	4,626
Other net income	1,011	224	(47)	1,188
Net income from insurance business	696	15	-	711
Dividend income	-	14	-	14
Gains/(losses) on financial transactions	40	98	29	167
Foreign exchange gains/ (losses)	116	4	(21)	99
Gains/(losses) on derecognition of financial instruments	25	19	13	57
Net other operating income and expense	114	94	(68)	140
Income/(expenses) relating to internal customers	20	(20)	-	-
Result on business activities	19,709	7,696	(3,273)	24,132
Net allowances for expected credit losses	(993)	(272)	-	(1,265)
Net impairment losses on non-financial assets	(6)	(53)	(49)	(108)
Cost of legal risk of mortgage loans in convertible currencies	(5,430)	-	-	(5,430)
Administrative expenses, of which:	(6,313)	(1,320)	(2)	(7,635)
depreciation and amortization	(938)	(149)	-	(1,087)
net regulatory charges	(444)	(176)	(2)	(622)
Tax on certain financial institutions	(754)	(439)	(38)	(1,231)
Share in profits and losses of associates and joint ventures	-	-	-	99
Segment profit/(loss)	6,213	5,612	(3,362)	8,562
Income tax expense (tax burden)				(3,057)
Net profit (including non-controlling shareholders)				5,505
Profit (loss) attributable to non-controlling shareholders				3
Net profit attributable to equity holders of the parent company				5,502

 

Income statement by segment	Continuing operations
	Retail segment	Corporate and investment segment	Transfer center and other	Total operations of the Group
2022
Net interest income	7,711	3,892	(179)	11,424
Net fee and commission income	3,408	1,097	(7)	4,498
Other net income	1,185	483	(381)	1,287
Net income from insurance business	772	7	-	779
Dividend income	-	51	-	51
Gains/(losses) on financial transactions	172	200	(14)	358
Foreign exchange gains/ (losses)	87	196	(356)	(73)
Gains/(losses) on derecognition of financial instruments	(1)	(23)	(2)	(26)
Net other operating income and expense	129	78	(9)	198
Income/(expenses) relating to internal customers	26	(26)	-	-
Result on business activities	12,304	5,472	(567)	17,209
Net allowances for expected credit losses	(959)	(542)	-	(1,501)
Net impairment losses on non-financial assets	(41)	(1)	(21)	(63)
Cost of legal risk of mortgage loans in convertible currencies	(1,914)	-	-	(1,914)
Administrative expenses, of which:	(6,404)	(1,333)	(32)	(7,769)
depreciation and amortization	(880)	(139)	-	(1,019)
net regulatory charges	(1,475)	(380)	(32)	(1,887)
Tax on certain financial institutions	(737)	(382)	(147)	(1,266)
Share in profits and losses of associates and joint ventures	-	-	-	71
Segment profit/(loss)	2,249	3,214	(767)	4,767
Income tax expense (tax burden)				(1,455)
Net profit (including non-controlling shareholders)				3,312
Net profit attributable to equity holders of the parent company				3,312

 

INTEREST INCOME BY SEGMENT	2023
	Retail segment	Corporate and investment segment		Transfer center and other		Total
Loans and other amounts due from banks and the Central Bank	13	963	762		1,738
Debt securities	96	4,518	2,298		6,912
Loans and advances to customers (excluding finance lease receivables)	15,897	5,093	-		20,990
Finance lease receivables	1,107	470	-		1,577
Total	17,113	11,044	3,060		31,217

 

INTEREST INCOME BY SEGMENT	2022
	Retail segment	Corporate and investment segment	Transfer center and other	Total
Loans and other amounts due from banks and the Central Bank	11	587	560	1,158
Debt securities	56	2,047	1,734	3,837
Loans and advances to customers (excluding finance lease receivables)	9,937	3,506	-	13,443
Finance lease receivables	978	306	-	1,284
Amounts due to customers (excluding loans and advances received)	-	29	-	29
Total	10,982	6,475	2,294	19,751

 

FEE AND COMMISSION INCOME BY SEGMENT	2023
	Retail segment	Corporate and investment segment	Transfer center and other	Total
Loans, insurance, operating leases and fleet management	768	467	-	1,235
lending	542	379	-	921
offering insurance products	73	19	-	92
operating leases and fleet management	153	69	-	222
Investment funds, pension funds and brokerage activities	675	119	-	794
servicing investment funds and OFE (including management fees)	435	5	-	440
servicing and selling investment and insurance products	4	-	-	4
brokerage activities	236	114	-	350
Cards	2,118	56	-	2,174
Margins on foreign exchange transactions	489	232	-	721
Bank accounts and other	1,012	365	-	1,377
servicing bank accounts	796	178	-	974
cash operations	51	57	-	108
servicing foreign mass transactions	86	50	-	136
customer orders	16	38	-	54
fiduciary services	-	9	-	9
other	63	33	-	96
Total	5,062	1,239	-	6,301

 

FEE AND COMMISSION INCOME BY SEGMENT	2022
	Retail segment	Corporate and investment segment	Transfer center and other	Total
Loans, insurance, operating leases and fleet management	767	386	-	1,153
lending	542	324	-	866
offering insurance products	102	15	-	117
operating leases and fleet management	123	47	-	170
Investment funds, pension funds and brokerage activities	650	122	-	772
servicing investment funds and OFE (including management fees)	381	8	-	389
servicing and selling investment and insurance products	2	-	-	2
brokerage activities	267	114	-	381
Cards	1,906	83	-	1,989
Margins on foreign exchange transactions	521	290	-	811
Bank accounts and other	991	343	-	1,334
servicing bank accounts	801	178	-	979
cash operations	37	52	-	89
servicing foreign mass transactions	69	43	-	112
customer orders	27	36	-	63
fiduciary services	-	9	-	9
other	57	25	-	82
Total	4,835	1,224	-	6,059

 

Assets and liabilities by segment	Retail segment	Corporate and investment segment	Transfer center and other	Total operations of the Group
31.12.2023
Assets	182,510	205,155	109,561	497,226
Investments in associates and joint ventures		-	-	284
Unallocated assets	-	-	-	4,006
Total assets	182,510	205,155	109,561	501,516
Liabilities	338,611	90,016	25,833	454,460
Unallocated liabilities	-	-	-	1,829
Total liabilities	338,611	90,016	25,833	456,289

 

Assets and liabilities by segment	Retail segment	Corporate and investment segment	Transfer center and other	Total operations of the Group
31.12.2022
Assets	176,655	157,849	91,419	425,923
Investments in associates and joint ventures	-	285	-	285
Unallocated assets	-	-	-	5,239
Total assets	176,655	158,134	91,419	431,447
Liabilities	288,718	79,423	26,757	394,898
Unallocated liabilities	-	-	-	842
Total liabilities	288,718	79,423	26,757	395,740

 

Information on geographical areas

The PKO Bank Polski S.A. Group also divides its operations into geographical segments. The PKO Bank Polski S.A. Group conducts its operations in the Republic of Poland, as well as in Ukraine (through the KREDOBANK S.A. Group, “Inter-Risk Ukraina” company with additional liability, Finansowa Kompania “Prywatne Inwestycje" sp. z o.o., KREDOLEASING sp. z o.o. and Finansowa Kompania “Idea Kapitał” sp. z o.o.), in Sweden (through PKO Finance AB and PKO Leasing Sverige AB) and in Ireland (through Polish Lease Prime 1 DAC1). PKO Bank Polski S.A. also has foreign corporate branches in the Federal Republic of Germany, the Czech Republic and the Slovak Republic.

For presentation purposes, the results of the companies operating in Sweden and Ireland and of the Bank’s branches operating in Germany, the Czech Republic and Slovakia were recognized in the geographic area “Poland” due to their impact on the scale of the operations of the PKO Bank Polski S.A. Group.

The results of the companies recognized in the segment “Ukraine” include intercompany transactions with other companies of the PKO Bank Polski S.A. Group operating in Ukraine. Intercompany transactions with other companies of the PKO Bank Polski S.A. Group and consolidation adjustments are presented in the results of the segment “Poland”.

 

2023	Poland	Ukraine	Total
Net interest income	17,945	373	18,318
Net fee and commission income	4,516	110	4,626
Other net income	1,181	7	1,188
Net income from insurance business	711	-	711
Dividend income	14	-	14
Gains/(losses) on financial transactions	167	-	167
Foreign exchange gains/ (losses)	97	2	99
Gains/(losses) on derecognition of financial instruments	55	2	57
Net other operating income and expense	137	3	140
Result on business activities	23,642	490	24,132
Net allowances for expected credit losses	(1,244)	(21)	(1,265)
Net impairment losses on non-financial assets	(108)	-	(108)
Cost of legal risk of mortgage loans in convertible currencies	(5,430)	-	(5,430)
Administrative expenses, of which:	(7,433)	(202)	(7,635)
depreciation and amortization	(1,051)	(36)	(1,087)
net regulatory charges	(607)	(15)	(622)
Tax on certain financial institutions	(1,231)	-	(1,231)
Share in profits and losses of associates and joint ventures	99	-	99
Segment profit/(loss)	8,295	267	8,562
Income tax expense (tax burden)			(3,057)
Net profit (including non-controlling shareholders)			5,505
Profit (loss) attributable to non-controlling shareholders			3
Net profit attributable to equity holders of the parent company			5,502

 

31.12.2023	Poland	Ukraine	Total
Assets, of which:	491,452	5,774	497,226
Loans and advances to customers	244,479	1,297	245,776
Investments in associates and joint ventures	284	-	284
Current income tax receivables and deferred income tax asset	3,970	36	4,006
Total assets	495,706	5,810	501,516
Liabilities, of which:	449,384	5,076	454,460
Amounts due to customers	394,375	4,818	399,193
Current income tax liabilities and deferred income tax liabilities	1,725	104	1,829
Total liabilities	451,109	5,180	456,289

 

2022	Poland	Ukraine	Total
Net interest income	11,149	275	11,424
Net fee and commission income	4,350	148	4,498
Other net income	1,280	7	1,287
Net income from insurance business	779	-	779
Dividend income	51	-	51
Gains/(losses) on financial transactions	358	-	358
Foreign exchange gains/ (losses)	(75)	2	(73)
Gains/(losses) on derecognition of financial instruments	(27)	1	(26)
Net other operating income and expense	194	4	198
Income/(expenses) relating to internal customers	-	-	-
Result on business activities	16,779	430	17,209
Net allowances for expected credit losses	(1,276)	(225)	(1,501)
Net impairment losses on non-financial assets	(63)	-	(63)
Cost of legal risk of mortgage loans in convertible currencies	(1,914)	-	(1,914)
Administrative expenses, of which:	(7,583)	(186)	(7,769)
depreciation and amortization	(978)	(41)	(1,019)
net regulatory charges	(1,874)	(13)	(1,887)
Tax on certain financial institutions	(1,266)	-	(1,266)
Share in profits and losses of associates and joint ventures	71	-	71
Segment profit/(loss)	4,748	19	4,767
Income tax expense (tax burden)			(1,455)
Net profit (including non-controlling shareholders)			3,312
Net profit attributable to equity holders of the parent company			3,312

 

31.12.2022	Poland	Ukraine	Total
Assets, of which:	421,052	4,871	425,923
Loans and advances to customers	231,382	1,577	232,959
Investments in associates and joint ventures	285	-	285
Current income tax receivables and deferred income tax asset	5,231	8	5,239
Total assets	426,568	4,879	431,447
Liabilities, of which:	390,533	4,365	394,898
Amounts due to customers	334,729	4,139	338,868
Current income tax liabilities and deferred income tax liabilities	841	1	842
Total liabilities	391,374	4,366	395,740

 

17. Interest income and expense

Accounting policies

Interest income and expenses comprise interest, including premiums and discounts in respect of financial instruments measured at amortized cost and instruments measured at fair value through other comprehensive income, as well as income similar in nature to interest on instruments measured at fair value through profit or loss, including interest income and expense on derivative hedging instruments. Interest income and expenses also include fees and commissions received and paid, which are deferred using the effective interest rate and which are taken into account in the measurement of the financial instrument, including costs of remuneration of agents and intermediaries for the sale of the financial instrument, costs of employee bonuses to the extent that relate directly to selling credit products.

The Group consistently applies the method of presenting the total net interest income/(expense) on hedging instruments for all hedging strategies in the line “derivative hedging instruments” under “Net interest income” – the positive total amount for a period is presented in “Interest income” and the negative total amount is presented in “Interest expenses”.

Interest income and expense are recognised using the effective interest rate method, except for:

•        POCI financial assets. Interest income on these assets is calculated on the net carrying amount using the effective interest rate, adjusted for the credit risk recognised for the entire life of the asset, with the calculation of interest income being made based on the net carrying amount calculated using the previous month's net-to-gross ratio;

•        non-POCI financial assets that subsequently became POCI assets. Interest income on these assets is calculated on the net carrying amount using the original effective interest rate from the moment of recognizing premises for impairment of the asset, with the calculation of interest income for stage 3 being made based on the net carrying amount calculated using the previous month's net-to-gross ratio;  

Interest income also includes:

•        the effect of the fair value measurement of financial assets acquired as part of business combinations between subsidiaries

•        the impact of the European Union Court of Justice's ruling on consumer rights to reduce the cost of loans repaid before maturity by deducting interest income, as the estimated difference between the outstanding commission at the effective interest rate at the date of the expected early repayment of the loan and the commission that would have been accounted for on a straight-line basis, according to which the Bank reimburses the commission. The estimates are based on historical early repayment periods and their probability;

•        effect of statutory credit holidays, introduced by the Act on crowdfunding for business ventures and assistance to borrowers, recognised in the second half of 2022 in correspondence with the gross carrying amount of mortgage loans granted in PLN (Note „Loans and advances to customers”).

•        the impact of the amendment of the Act of 23 March 2017 on mortgage credit and supervision of mortgage credit intermediaries and agents (Journal of Laws of 2020, items 1027 and 2320 and of 2022, items 872 and 1488), concerning the reimbursement of the additional mortgage cost associated with waiting for the mortgage to be registered in the mortgage register, borne by the customer until the mortgage is registered in the mortgage register by deducting interest income, as the value of the estimated return of the margin for customers calculated until the date of registration of the mortgage in the mortgage register.

financial information:

INTEREST AND SIMILAR INCOME	2023	2022
Loans and other amounts due from banks and the Central Bank1	1,738	1,158
Debt securities2	6,912	3,837
measured at amortized cost	2,239	1,487
measured at fair value through other comprehensive income	4,629	2,315
measured at fair value through profit or loss	44	35
Loans and advances to customers2,3	20,990	13,443
measured at amortized cost	20,485	12,925
measured at fair value through profit or loss	505	518
Finance lease receivables3	1,577	1,284
Amounts due to customers	-	29
Total	31,217	19,751
of which: interest income on impaired financial instruments	601	438
Interest income calculated using the effective interest rate method on financial instruments measured:	30,668	19,196
at amortized cost	26,039	16,881
at fair value through other comprehensive income	4,629	2,315
Income similar to interest income on instruments measured at fair value through profit or loss	549	555
Total	31,217	19,751

1  Under this item, in 2023, the Group recognised interest income on funds in call accounts (central clearing through a clearing broker) of PLN 205 million (PLN 297 million in the corresponding period) and interest income on funds in the current account with the NBP of PLN 762 million (PLN 560 million in the corresponding period).

2  The increase in interest income is mainly due to the higher level of market interest rates, increase in the securities portfolio and a change in the structure of the average volume of the loan portfolio (increase in the share of corporate and consumer loans at the expense of the share of housing loans in foreign currencies and PLN). The interest income from loans and advances to customers in the 12 months ended 31 December 2022 includes the effect of the Act on crowdfunding for business ventures and assistance for borrowers (so-called "credit holidays") in the amount of PLN 3,111 million (note “Loans and advances to customers”).

3 Interest income on loans advanced to customers and finance lease receivables for 2022 has been adjusted by PLN 389 million for the implementation of IFRS 17 "Insurance Contracts" (see note "IFRS 17 Insurance Contracts").

INTEREST EXPENSE	2023	2022
Hedging derivatives1	(3,817)	(3,580)
Amounts due to banks	(87)	(134)
Interbank deposits	-	(6)
Loans and advances received	(93)	(83)
Leases	(35)	(19)
Amounts due to customers2	(7,901)	(3,720)
Issues of securities	(739)	(621)
Subordinated liabilities	(227)	(164)
Total	(12,899)	(8,327)

1 The increase in interest expense related to hedging derivatives of PLN 237 million relates mainly to IRS transactions (payments made at a floating rate exceed those received at a fixed rate).

2  The increase in costs by PLN 4,181 million is mainly related to an increase in average interest rates on deposits associated with increases in PLN interest rates following the MPC's decisions and changes in the term structure involving an increase in the share of term deposits bearing interest at higher rates.