48. Fair value hierarchy
Annual Report
2019
2019
Accounting policies, and estimates and judgements
W zależności od kategorii klasyfikacji aktywów i zobowiązań finansowych do danego poziomu hierarchii stosuje się różnorodne metody ustalania ich wartości godziwej.
Financial assets and liabilities whose fair value is stated directly at prices quoted (not adjusted) on active markets for identical assets and liabilities. In this category the Group classifies financial instruments for which there is an active market and for which the fair value is determined with reference to the market value, which is a bid price:
- debt securities valued using fixing from Bondspot platform or Bloomberg or Reuters information services,
- debt and equity securities which are traded on a regulated market, including in the portfolio of Biuro Maklerskie PKO BP;
- derivative instruments, which are traded on a regulated market
Financial assets and liabilities whose fair value is determined using valuation models where all significant entry data are observable on the market directly (as prices) or indirectly (based on prices). In this category, the Group classifies financial instruments for which there is no active market:
| FINANCIAL ASSETS AND LIABILITIES MEASURED AT FAIR VALUE | VALUATION METHOD (TECHNIQUE) | OBSERVABLE INPUTS |
|---|---|---|
| DERIVATIVE FINANCIAL INSTRUMENTS – CIRS, IRS,FRA | The discounted future cash flows model based on the yield curves. | Yield curves are built based on market rates, market data of the money market, market transactions of FRA, IRS, basis swap. |
| DERIVATIVE FINANCIAL INSTRUMENTS – CURRENCY OPTIONS, INTEREST RATE OPTIONS, EXOTIC EQUITY OPTIONS, FX FORWARD, FX SWAP TRANSACTIONS |
Valuation models specific for particular types of a currency option.
The model of discounted future cashflows based on yield curves for FX forward and FX swap transactions. The prices of exotic equity options embedded in structured products areobtained from the market (marketprices). |
Discount taking into account the limited liquidity of C-series shares and the terms of converting the C-series shares into ordinary shares. |
| NBP MONEY MARKET BILLS | Yield curve method | Yield curves are built based on money market data and OIS (overnight index swap) transactions market. |
| MUNICIPAL BONDS IN EUR | Accepted valuation model. | Market rates, market data from the money market, IRS transactions market, CDS transactions market, volatility of interest rate options market. |
| MUNICIPAL BONDS IN PLN | Yield curve and risk margin model | Yield curves are built based on market rates, money market data, IRS transactions market. |
| CORPORATE BONDS | Yield curve and risk margin model. | Yield curves are built based on market rates, money market data, IRS transactions market. |
| COMMODITY SWAP TRANSACTIONS | Commodity price yield curve. | Commodity price yield curves are built based on money market data, market rate SWAP points. |
Financial assets and liabilities whose fair value is determined using valuation models for which input data is not based on observable market data (unobservable input data). In this category, the Group classifies financial instruments, which are valued using internal valuation models:
| FINANCIAL ASSETS AND LIABILITIES MEASURED AT FAIR VALUE | VALUATION METHOD (TECHNIQUE) | UNOBSERVABLE INPUT |
|---|---|---|
| FINANCIAL INSTRUMENTS NOT HELD FOR TRADING, MANDATORILY MEASURED AT FAIR VALUE THROUGH PROFIT OR LOSS | ||
| LOANS AND ADVANCES TOCUSTOMERS | Discounted cash flow method | Effective margin on loans |
| C-SERIES PREFERENCE SHARES OF VISA INC. |
Estimation of the fair value based on the current market value of the listed ordinary shares of Visa Inc., including a discount which takes into account the limited liquidity of C-series shares and the terms and conditions of conversion of C-series shares into ordinary shares | Discount taking into account the limited liquidity of C-series shares and the terms of converting the C-series shares into ordinary shares. |
| SHARES IN BIURO INFORMACJI KREDYTOWEJ SA |
Estimation of the fair value based on the present value of the forecast results of the company |
Forecast results of the company Discount rate |
| SHARES IN POLSKI STANDARD PTATNOSCI SP. Z O.O. |
Estimation of the fair value based on the present value of the forecast results of the company |
Forecast results of the company Discount rate |
| SHARES IN SOCIETY FOR WORLDWIDE INTERBANK FINANCIAL TELECOMMUNICATION |
Market value of the shares estimated by the company |
Market value estimated by the company |
| SHARES IN KRAJOWA IZBA ROZLICZENIOWA SA |
Estimation of the fair value based on the present value of the forecast results of the company |
Forecast results of the company Discount rate |
| CORPORATE BONDS | Yield curve and risk margin model. Yield curves are built based on market rates, money market data and IRS transactions market. |
Credit spread (credit margins determined on the basis of initial margins modified by credit indices quotes ascribed to issuers based on their ratings and business sectors) |
| FINANCIAL INSTRUMENTS MEASURED AT FAIR VALUE THROUGH PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME | ||
| CORPORATE BONDS | Yield curve and risk margin model. Yield curves are built based on market rates, money market data and IRS transactions market. |
Credit spread (credit margins determined on the basis of initial margins modified by credit indices quotes ascribed to issuers based on their ratings and business sectors) |
Financial information
| ASSETS MEASURED AT FAIR VALUE 31.12.2019 | Carrying amount | Level 1 | Level 2 | Level 3 |
| Prices quoted on active markets |
Valuation techniques based on observable market data |
Other valuation techniques |
||
| Hedging derivatives | 645 | – | 645 | – |
| Other derivative instruments | 2 795 | 1 | 2 794 | – |
| Securities | 67 118 | 57 089 | 7 206 | 2 823 |
| held for trading | 1 112 | 1 112 | – | – |
| debt securities | 1 095 | 1 095 | – | – |
| shares in other entities – listed | 15 | 15 | – | – |
| Participation units in investment funds, investment certificates, rights to shares, preemptive rights | 2 | 2 | – | – |
| not held for trading, measured at fair value through profit or loss | 2 199 | 1 439 | 144 | 616 |
| debt securities | 493 | 301 | 12 | 180 |
| shares in other entities – listed | 150 | 150 | – | – |
| shares in other entities – not listed | 436 | – | – | 436 |
| Participation units in investment funds, investment certificates, rights to shares, preemptive rights | 1 120 | 988 | 132 | – |
| measured at fair value through OCI | 63 807 | 54 538 | 7 062 | 2 207 |
| debt securities | 63 807 | 54 538 | 7 062 | 2 207 |
| Loans and advances to customers | 8 286 | – | – | 8 286 |
| not held for trading, measured at fair value through profit or loss | 8 286 | – | – | 8 286 |
| housing loans | 15 | – | – | 15 |
| business loans | 148 | – | – | 148 |
| consumer loans | 8 123 | – | – | 8 123 |
| Total financial assets measured at fair value | 78 844 | 57 090 | 10 645 | 11 109 |
| LIABILITIES MEASURED AT FAIR VALUE 31.12.2019 | Carrying amount | Level 1 | Level 2 | Level 3 |
| Prices quoted on active markets |
Valuation techniques based on observable market data |
Other valuation techniques |
||
| Hedging derivatives | 589 | – | 589 | – |
| Other derivative instruments | 2 924 | – | 2 924 | – |
| Liabilities in respect of a short position in securities | 362 | 362 | – | – |
| Total financial liabilities measured at fair value | 3 875 | 362 | 3 513 | – |
| ASSETS MEASURED AT FAIR VALUE 31.12.2018 | Carrying amount | Level 1 | Level 2 | Level 3 |
| Prices quoted on active markets |
Valuation techniques based on observable market data |
Other valuation techniques |
||
| Hedging derivatives | 658 | – | 658 | – |
| Other derivative instruments | 1 907 | 3 | 1 904 | – |
| Securities | 55 641 | 43 436 | 10 286 | 1 919 |
| held for trading | 235 | 235 | – | – |
| debt securities | 217 | 217 | – | – |
| shares in other entities – listed | 13 | 13 | – | – |
| Participation units in investment funds, investment certificates, rights to shares, preemptive rights | 5 | 5 | – | – |
| not held for trading, measured at fair value through profit or loss | 2 848 | 2 278 | 187 | 383 |
| debt securities | 1 201 | 1034 | 52 | 115 |
| shares in other entities – listed | 180 | 180 | – | – |
| shares in other entities – not listed | 269 | – | 1 | 268 |
| Participation units in investment funds, investment certificates, rights to shares, preemptive rights | 1 198 | 1 064 | 134 | – |
| measured at fair value through OCI | 52 558 | 40 923 | 10 099 | 1 536 |
| debt securities | 52 558 | 40 923 | 10 099 | 1 536 |
| Loans and advances to customers | 1 106 | – | – | 1 106 |
| not held for trading, measured at fair value through profit or loss | 1 106 | – | – | 1 106 |
| housing loans | 27 | – | – | 27 |
| business loans | 148 | – | – | 148 |
| consumer loans | 931 | – | – | 931 |
| Total financial assets measured at fair value | 59 312 | 43 439 | 12 848 | 3 025 |
| LIABILITIES MEASURED AT FAIR VALUE 31.12.2018 |
Carrying amount | Level 1 | Level 2 | Level 3 |
| Prices quoted on active markets |
Valuation techniques based on observable market data |
Other valuation techniques |
||
| Hedging derivatives | 471 | – | 471 | – |
| Other derivative instruments | 2 655 | – | 2 655 | – |
| Total financial liabilities measured at fair value | 3 126 | – | 3 126 | – |
In 2019 corporate bonds amounting to PLN 1 469 million were transferred from level 2 to level 3 as a result of a change in the manner of calculating the risk margin. In 2018 there were no transfers between the different levels of fair value hierarchy
| IMPACT OF ESTIMATES ON FAIR VALUE MEASUREMENT OF LEVEL 3 FINANCIAL INSTRUMENTS |
31.12.2019 | 31.12.2018 | ||
| Fair value under | Fair value under | |||
| positive scenario |
negative scenario |
positive scenario |
negative scenario |
|
| Not held for trading, measured at fair value through profit or loss | ||||
| Loans and advances to customers* | 8 526 | 8 054 | 1 138 | 1 075 |
| Shares in Visa Inc** | 225 | 199 | 148 | 124 |
| Corporate bonds*** | 180 | 180 | 115 | 115 |
| Equity investments**** | 226 | 204 | 132 | 119 |
| Measured at fair value through other comprehensive income | ||||
| Corporate bonds*** | 2 212 | 2 202 | 1 539 | 1 533 |
*A scenario assuming a change in the discount rate of +/- 0.5 p.p.
**A scenario assuming a discount rate in respect of the future conditions of converting C-series shares to ordinary shares at a level of 0%/100% respectively
*** Scenariusz zakładający zmianę wartości wyceny o +/-5%
****A scenario assuming a change in the credit spread of +/-10%
The reconciliation of changes to fair value of the financial instruments at Level 3 is presented in the table below.
| RECONCILIATION OF CHANGES DURING THE REPORTING PERIOD TO FAIR VALUE AT LEVEL 3 | 2019 | 2018 |
|---|---|---|
| Opening balance at the beginning of the period | 3 025 | 3 352 |
| Foreign exchange differences | 2 | 18 |
| Increase in exposure to equity instruments | – | 2 |
| Issues and redemptions of corporate bonds | (710) | (129) |
| Transfers from level 2 to level 3 | 1 469 | – |
| Różnice kursowe | 2 | 18 |
| Tytuły uczestnictwa w instytucji wspólnego inwestowania | – | 7 |
| Pozostałe instrumenty kapitałowe | – | 11 |
| Zwiększenie zaangażowania w instrumenty kapitałowe | – | 2 |
| Emisje i wykupy obligacji korporacyjnych | (710) | (129) |
| Przeniesienie z poziomu 2 do poziomu 3 | 1 469 | – |
| Reduction of equity exposure to a collective investment undertaking | – | (47) |
| Sale of participation units in a collective investment undertaking | – | (217) |
| Reclassification of credit exposures from measured at amortized cost to measures at fair value through profit or loss | 8 204 | 205 |
| Loans granted to customers during the reporting period | 779 | 7 |
| Sale / repayment of loans during the reporting period | (1 748) | (167) |
| Net gain/(loss) in financial instruments measured at fair value through profit or loss | 108 | 11 |
| Change in the valuation recognized in OCI | (20) | (10) |
| As at the end of the period | 11 109 | 3 025 |