Annual Report
2019

Accounting policies, estimates and judgements

Provisions for legal claims, excluding legal claims relating to mortgage loans in convertible currencies

The provisions legal claims include disputes with business partners, customers and external institutions (e.g. UOKiK), and are created based on an evaluation of the probability of a court case being lost by the Group (litigation pending has been discussed in the detail in note “Legal claims”).

Provisions for legal claims are created in the amount of the expected outflow of economic benefits.

Provision for pensions and other liabilities from defined-benefit post-employment plans

The provision for retirement and disability benefits resulting from the Labour Code is created individually for each employee on the basis of an actuarial valuation. The provision for employee benefits is determined on the basis of the Group’s internal regulations.

Provisions for employee benefits are measured using actuarial techniques and assumptions. The calculation of the provision includes all retirement and pension benefits expected to be paid in the future. The provision was created on the basis of a list of persons with all necessary employee information, in particular the length of their service, age and gender. The provisions calculated are equal to discounted future payments, taking into account staff turnover.

Provision for loan liabilities and guarantees granted

The provision for financial liabilities and guarantees is established at the amount of the expected credit losses (for details please see the note “Financial assets by stage of impairment and allowances for expected credit losses “).

In the portfolio analysis, when determining provisions, portfolio parameters estimated using statistical methods are used, based on historical observations of the exposure with the same characteristics, the parameters which define a marginal probability of evidence of impairment, the average utilization of an off-balance sheet liability and the level of anticipated loss in the event of impairment in subsequent months in the period from the reporting date to the horizon of the calculation of the anticipated loss.

With regard to exposures which are material on an individual basis, and are subject to assessment, the provision is determined on a case by case basis – as the difference between the expected amount of the balance sheet exposure which will arise as a result of an off-balance sheet liability at the date of overdue amounts arising treated as evidence of impairment, and the present value of the expected future cash flows obtained from the exposure.

Provision for potential legal claims against the bank relating to mortgage loans in convertible currencies

The provision is described in note “Risk management of foreign currency risk associated with mortgage loans for households”

Provision for refunds of costs to customers on early repayment of consumer loans

The amount of the provision for refunds of costs to customers on early repayment of consumer loans is affected by the percentage of prepaid consumer loans, expected amount of consumer claims referring to refunds of loan costs prepaid before the balance sheet data and the average amount of the refund.

Other provisions

Other provisions mainly include provisions for potential claims on the sale of receivables, described in detail in note “Information on securitization of the lease portfolio and portfolio sale of receivables”.

Provisions for future payments are measured at reliably estimated, justified amounts necessary to meet the present obligation as at the end of the reporting period. All provisions are recognized in the profit and loss account, excluding actuarial gain and losses recognized in other comprehensive income.

If the effect of the time value of money is material, the amount of the provision is determined by discounting the estimated future cash flows to their present value, using the discount rate before tax which reflects the current market assessments of the time value of money and the potential risk related to a given obligation.

Financial information

Provisions 2019 2018
Provision for off-balance sheet liabilities and guarantees granted 269 227
Other provisions 313 219
Total 582 446

FOR THE YEAR ENDED
31 DECEMBER 2019
Provisions for legal
claims exluding legal
claims relating to
mortgage loans in
convertible
currencies
Provision for
pensions and other
liabilities from
defined-benefit postemployment plans
Restructuring Provision for refunds
of costs to
customers on early
repayment of
consumer loans and
mortgage loans
Provision for
potential legal
claims against the
Bank relating to
mortgage loans in
convertible
currencies
Provision for offbalance sheet
liabilities and
guarantees granted
Other provisions,
including provisions
for employee
disputed claims
Total
As at 1 January 2019, including: 54 50 24 227 91 446
Short-term provisions 3 8 24 177 66 278
Long-term provisions 51 42 50 25 168
Taking up control over subsidiaries 2 2
Loss of control over subsidiaries
Increase, of which increases of existing provisions 8 4 33 127 29 289 4 494
Utilized (3) (1) (15) (23) (4) (46)
Released during the period (7) (2) (1) (247) (63) (320)
Other changes and reclassifications 6 6
As at 31 December 2019, of which: 52 57 41 104 29 269 30 582
Short-term provisions 2 7 41 104 226 6 386
Long-term provisions 50 50 29 43 24 196

As at 31 December 2019, the column “Provisions for potential legal claims against the Bank relating to mortgage loans in convertible currencies” contains the provision for potential legal claims against the Bank relating to mortgage loans in convertible currencies of PLN 29 million (for details, see note “Risk management of foreign currency risk associated with mortgage loans for households”). The column “Provision for refunds of costs to customers on early repayment of consumer loans” contains a provision recognized for the refund of costs to customers on early repayment of consumer and mortgage loans of PLN 104 million.

FOR THE YEAR ENDED
31 DECEMBER 2018
Provisions for legal
claims exluding legal
claims relating to
mortgage loans in
convertible
currencies
Provision for
pensions and other
liabilities from
defined-benefit postemployment plans
Restructuring Provision for refunds
of costs to
customers on early
repayment of
consumer loans and
mortgage loans
Provision for
potential legal
claims against the
Bank relating to
mortgage loans in
convertible
currencies
Provision for offbalance sheet
liabilities and
guarantees granted
Other provisions,
including provisions
for employee
disputed claims
Total
As at 31 December 2017, of which 21 46 86 62 215
Short-term provisions 21 7 61 62 151
Long-term provisions 39 25 64
Changes due to reclassification 15 21 (36)
Short-term provisions 15 21 (36)
Changes due to IFRS 9 implementation, of which 71 71
Short-term provisions 47 47
Long-term provisions 24 24
As at 1 January 2018 (restated), of which: 21 61 21 157 26 286
Short-term provisions 22 21 108 26 177
Long-term provisions 21 39 49 109
Increase, of which increases of existing provisions 43 4 45 232 93 417
Utilized (6) (3) (23) (32)
Released during the period (4) (13) (19) (162) (28) (226)
Other changes and reclassifications 1 1
As at 31 December 2018, of which: 54 50 24 227 91 446
Short-term provisions 3 8 24 177 66 278
Long-term provisions 51 42 50 25 168

A provision of PLN 62 million (which was released in 2019 – for details please see the note “Legal claims”) was recognized for potential returns of commissions and fees to customers as well as costs of meeting obligations resulting from the provision of free of charge services to customers in the item “Other provisions, including provisions for employee disputes” specified in the line “Increases, including increases in existing provisions”.

Calculation of estimates

The Group updated its estimates of provisions for pensions and other liabilities from defined benefit post-employment plans as at 31 December 2019 using an external independent actuary’s calculations. The calculated provisions are equal to the discounted payments that will be made in the future, taking into account the employment turnover.

FACTORS CONTRIBUTING TO THE PROVISION AMOUNT 2019 2 018
adopted discount rate 2.00% 3.00%
weighted average labour mobility ratio 9.36% 8.48%
average remaining employment period in years 7.80 7.89
10-year average assumed annual increase in the basis for calculation
of retirement and disability benefits
2.26% 2.30%

The impact of the increase/decrease in the financial discount rate and of the planned increases of 1 p.p. in the provision base on the decrease/increase in the value of the provision for retirement and other defined benefit postemployment plans as at 31 December 2019 and as at 31 December 2018 is presented in the tables below:

ESTIMATED CHANGE IN PROVISIONS
31.12.2019
Discount rate Planned increases
in base amounts
scenario +1pp scenario -1pp scenario +1pp scenario -1pp
Provision for pensions and other liabilities from defined-benefit post-employment plans (4) 5 6 (4)

ESTIMATED CHANGE IN PROVISIONS
31.12.2018
Discount rate Planned increases
in base amounts
scenario +1pp scenario -1pp scenario +1pp scenario -1pp
Provision for pensions and other liabilities from defined-benefit post-employment plans (3) 5 4 (3)

The Group performed sensitivity analysis for estimated provision for reimbursement for clients on early repayments of consumer and mortgage loans before 31 December 2019 due to changes in the number of claims and average value of refund.

ESTIMATED CHANGE IN PROVISIONS Change in the amount of consumer
claims
Change in the average amount of the
refund
-10% 10% -10% 10%
Provision for refunds of costs to customers on early repayment of consumer and mortgage loans (10) 10 (10) 10

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