Bank Handlowy w Warszawie S.A. Annual Report 2023
TRANSLATION
Annual Financial Statements of Bank Handlowy w Warszawie S.A. for the financial year ended 31 December 2023
2
PLN’000
EUR’000**
SELECTED FINANCIAL DATA
2023
2022
2023
2022
Interest and similar income
4,399,600
3,331,273
971,557
710,550
Fee and commission income
668,575
662,481
147,640
141,305
Profit before tax
2,858,626
2,016,795
631,266
430,176
Net profit
2,255,190
1,569,310
498,010
334,729
Total comprehensive income
2,944,353
1,315,099
650,197
280,507
Increase/decrease of net cash
570,538
(5,895,548)
125,991
(1,257,502)
Total assets
73,483,969
69,892,966
16,900,637
14,902,869
Amounts due to banks
3,375,687
4,794,671
776,377
1,022,340
Amounts due to customers
55,162,586
50,667,780
12,686,887
10,803,595
Shareholders’ equity
9,668,020
7,899,604
2,223,556
1,684,386
Share capital
522,638
522,638
120,202
111,439
Number of shares (in pcs)
130,659,600
130,659,600
130,659,600
130,659,600
Book value per share (PLN/EUR)
73.99
60.46
17.02
12.89
Capital adequacy ratio (in %)*
23.2
18.6
23.2
18.6
Earnings per share (PLN/EUR)
23.20
12.01
3.81
2.56
Diluted net earnings per share (PLN/EUR)
17.26
12.01
4.53
2.56
Declared or paid dividends per share (PLN/EUR)**
9.00
5.47
1.92
1.17
* Additional information on TCR calculation in the supplementary note no. 3 in the section “Capital Adequacy” and “Information on capital adequacy of Bank Handlowy w Warszawie S.A. as at 31 December 2023” subject to publication on the Bank’s website
and it’s subject to assessment of compliance of disclosures with the requirements for disclosure of information by institutions.
**The Ordinary General Meeting of Shareholders of the Bank Handlowy w Warszawie S.A. adopted a resolution on distribution of the net profit for 2022
. Additional information concerning dividend payout was presented in note 34.
***The following foreign exchange rates were applied to convert PLN into EUR: for the statement of financial position - NBP mid exchange rate as at 31 December 2023 - PLN 4,3480 (as at 31 December 2022: PLN 4,6899); for the income statement, statement of comprehensive income and cash flow statement - the arithmetic mean of NBP end-of-month exchange rates in 2023 – PLN 4,5284 in 2022: PLN 4,6883).
TRANSLATION
Annual Financial Statements of Bank Handlowy w Warszawie S.A. for the financial year ended 31 December 2023
3
The Annual Financial Statements of Bank Handlowy w Warszawie S.A. for the Financial Year Ended 31 December 2023
TRANSLATION
Annual Financial Statements of Bank Handlowy w Warszawie S.A. for the financial year ended 31 December 2023
4
CONTENTS
Income statement
Statement of comprehensive income
Statement of financial position
Statement of changes in equity
Cash flow statement
Additional information including the description of adopted accounting principles and other explanatory information
1. General information about the Bank
2. Significant accounting policies
3. Risk management
4. Segment reporting
5. Net interest income
6. Net fee and commission income
7. Dividend income
8. Net income on trading financial instruments and revaluation
9. Net gain/(loss) on hedge accounting
10. Net other operating income and expense
11. General administrative expenses
12. Depreciation expense
13. Provisions for expected credit losses on financial assets and provisions for contingent liabilities
14. Income tax expense
15. Earnings per share
16. Changes in other comprehensive income
17. Cash and cash equivalents
18. Amounts due from banks
19. Financial assets and liabilities held-for-trading
20. Debt investment financial assets measured at fair value through other comprehensive income
21. Shares in subsidiaries and Equity and other instruments at fair value through the income statement
22. Amounts due from customers
23. Tangible fixed assets
24. Intangible assets
25. Impairment test for goodwill
26. Deferred income tax asset
27. Other assets
28. Non-current assets held-for-sale
29. Amounts due to banks
TRANSLATION
Annual Financial Statements of Bank Handlowy w Warszawie S.A. for the financial year ended 31 December 2023
5
30. Amounts due to customers
31. Provisions
32. Other liabilities
33. Financial assets and liabilities by contractual maturity
34. Capital and reserves
35. Repurchase and reverse repurchase agreements
36. Offsetting of financial assets and financial liabilities
37. Hedge accounting
38. Fair value information
39. Derecognition of financial assets
40. Contingent liabilities and litigation proceedings
41. Assets pledged as collateral
42. Custodian activities
43. Leases
44. Transactions with the key management personnel
45. Related parties
46. Employee benefits
47. WIRON Reform
48. The impact of the war in Ukraine
49. Subsequent events
TRANSLATION
Annual Financial Statements of Bank Handlowy w Warszawie S.A. for the financial year ended 31 December 2023
6
Income statement
For the period
2023
2022
PLN’000
Note
Interest income
5
4,297,083
3,186,032
Similar income
5
102,517
145,241
Interest expense and similar charges
5
(1,128,392)
(594,551)
Net interest income
5
3,271,208
2,736,722
Fee and commission income
6
668,575
662,481
Fee and commission expense
6
(106,801)
(100,185)
Net fee and commission income
6
561,774
562,296
Dividend income
7
15,026
36,974
Net income on trading financial instruments and revaluation
8
796,460
643,798
Net gain/(loss) on debt investment financial assets measured at fair value through other comprehensive income
39
(147,758)
(323,054)
Net gain/(loss) on equity and other instruments measured at fair value through income statement
35,351
10,929
Net gain/(loss) on hedge accounting
9
(10,067)
(1,814)
Other operating income
10
26,076
24,367
Other operating expenses
10
(43,242)
(39,676)
Net other operating income
10
(17,166)
(15,309)
General administrative expenses
11
(1,326,659)
(1,215,931)
Depreciation expense
12
(111,035)
(102,557)
Profit/(loss) on sale of other assets
(123)
2,772
Provisions for expected credit losses on financial assets and provisions for contingent liabilities
13
(18,130)
(105,007)
Tax on some financial institutions
(190,255)
(213,024)
Profit before tax
2,858,626
2,016,795
Income tax expense
14
(603,436)
(447,485)
Net profit
2,255,190
1,569,310
Weighted average number of ordinary shares (in pcs)
15
130,659,600
130,659,600
Net earnings per share (PLN)
15
17.26
12.01
Diluted net earnings per share (PLN)
15
17.26
12.01
Explanatory notes on following pages are an integral part of the annual financial statements.
TRANSLATION
Annual Financial Statements of Bank Handlowy w Warszawie S.A. for the financial year ended 31 December 2023
7
Statement of comprehensive income
For the period
2023
2022
PLN’000
Note
Net profit
2,255,190
1,569,310
Other comprehensive income, that is or might be subsequently reclassified to income statement:
701,934
(261,510)
Remeasurement of financial assets measured at fair value through other comprehensive income (net)
16
582,250
(523,184)
(Profit) or loss reclassification to income statement after derecognition of financial assets measured at fair value through other comprehensive income (net)
16
119,684
261,674
Other comprehensive income, that cannot be subsequently reclassified to income statement
(12,771)
7,299
Net actuarial profits/(losses) on defined benefit program valuation
16
(12,771)
7,299
Other comprehensive income net of tax
689,163
(254,211)
Total comprehensive income for the period
2,944,353
1,315,099
Explanatory notes on following pages are an integral part of the annual financial statements.
TRANSLATION
Annual Financial Statements of Bank Handlowy w Warszawie S.A. for the financial year ended 31 December 2023
8
Statement of financial position
As at
31.12.2023
31.12.2022
01.01.2022
PLN’000
Note
- restated
- restated
ASSETS
Cash and cash equivalents
17
1,083,473
595,969
671,189
Amounts due from banks
18
15,529,803
1,043,968
968,748
Financial assets held-for-trading
19
4,880,332
7,029,163
7,029,163
Assets pledged as collateral
41
-
60,988
60,988
Hedging derivatives
6,731
623
623
Debt financial assets measured at fair value through other
comprehensive income, including:
20
29,560,292
37,180,808
37,180,808
Assets pledged as collateral
41
697,771
697,698
697,698
Shares in subsidiaries
21
91,639
91,775
91,775
Equity and other instruments at fair value through the income statement
21
141,495
106,144
106,144
Amounts due from customers
22
20,054,454
21,620,507
21,620,507
Tangible fixed assets
23
508,403
455,418
455,418
Intangible assets
24
1,285,314
1,263,863
1,263,863
Deferred income tax asset
26
115,401
287,368
287,368
Other assets
27
217,366
217,360
217,360
Non-current assets held-for-sale
28
9,266
-
-
Total assets
73,483,969
69,892,966
69,892,966
LIABILITIES
Amounts due to banks
29
3,375,687
4,794,671
4,794,671
Financial liabilities held-for-trading
19
3,522,203
4,896,099
4,896,099
Hedging derivatives
92,869
6,917
6,917
Amounts due to customers
30
55,162,586
50,667,780
50,667,780
Provisions
31
111,011
111,885
111,885
Current income tax liabilities
457,871
245,173
245,173
Other liabilities
32
1,093,722
1,270,837
1,270,837
Total liabilities
63,815,949
61,993,362
61,993,362
EQUITY
Share capital
34
522,638
522,638
522,638
Supplementary capital
34
2,944,585
2,944,585
2,944,585
Revaluation reserve
34
128,406
(573,528)
(573,528)
Other reserves
34
3,191,946
2,811,344
2,811,344
Retained earnings
2,880,445
2,194,565
2,194,565
Total equity
9,668,020
7,899,604
7,899,604
Total liabilities and equity
73,483,969
69,892,966
69,892,966
Explanatory notes on following pages are an integral part of the annual financial statements.
TRANSLATION
Annual Financial Statements of Bank Handlowy w Warszawie S.A. for the financial year ended 31 December 2023
9
Statement of changes in equity
PLN’000
Share capital
Supplementary
capital
Revaluation reserve
Other reserves
Retained earnings
Total
equity
Restated balance as at 1 January 2023
522,638
2,944,585
(573,528)
2,811,344
2,194,565
7,899,604
Total comprehensive income, including:
-
-
701,934
(12,771)
2,255,190
2,944,353
Net profit
-
-
-
-
2,255,190
2,255,190
Other comprehensive income
-
-
701,934
(12,771)
-
689,163
net valuation of financial assets measured at fair value through other comprehensive income
-
-
701,934
-
-
701,934
net actuarial profits/(losses) on defined benefit program valuation
-
-
-
(12,771)
-
(12,771)
Dividends paid
-
-
-
-
(1,175,937)
(1,175,937)
Transfer to capital
-
-
-
393,373
(393,373)
-
As at 31 December 2023
522,638
2,944,585
128,406
3,191,946
2,880,445
9,668,020
PLN’000
Share capital
Supplementary
capital
Revaluation reserve
Other reserves
Retained earnings
Total
equity
Balance as at 1 January 2022
522,638
2,944,585
(312,018)
2,802,781
1,358,054
7,316,040
Total comprehensive income, including:
-
-
(261,510)
7,299
1,569,310
1,315,099
Net profit
-
-
-
-
1,569,310
1,569,310
Other comprehensive income
-
(261,510)
7,299
-
(254,211)
net valuation of financial assets measured at fair value through other comprehensive income
-
-
(261,510)
-
-
(261,510)
net actuarial profits/(losses) on defined benefit program valuation
-
-
-
7,299
-
7,299
Dividends paid
-
-
-
-
(714,708)
(714,708)
Effect of intragroup transformations
-
-
-
-
(16,827)
(16,827)
Transfer to capital
-
-
-
1,264
(1,264)
-
As at 31 December 2022
522,638
2,944,585
(573,528)
2,811,344
2,194,565
7,899,604
Explanatory notes on following pages are an integral part of the annual financial statements.
TRANSLATION
Annual Financial Statements of Bank Handlowy w Warszawie S.A. for the financial year ended 31 December 2023
10
Cash flow statement
or the period
2023
2022
PLN’000
Note
A. Operating activities
I. Net profit
2,255,190
1,569,310
II. Adjustments:
(3,108,749)
(9,086,951)
Current and deferred income tax recognized in income statement
14
603,436
447,485
Depreciation expense
12
111,035
102,557
Net result for expected credit losses on receivables
13
27,502
94,128
Net provisions (recoveries), including provisions for contingent liabilities
9,075
28,783
Net interest income
5
(3,271,208)
(2,736,722)
Dividend income
7
(15,026)
(36,974)
Profit/loss on sale of fixed assets
123
(2,772)
Net unrealized exchange differences
(534,225)
19,718
Equity and other investment measured at fair value though the income statement
(35,351)
(10,929)
Other adjustments
35,859
12,345
Change in amounts due from banks
18
(14,344,246)
(25,680)
Change in amounts due from customers
22
1,531,878
(450,134)
Change in debt securities measured at fair value through other comprehensive income
20
9,082,491
(16,769,855)
Change in financial assets held-for-trading
19
2,127,253
2,868,953
Change in assets due to hedging derivatives
37
(6,108)
118,667
Change in other assets
27
10,042
(12,305)
Change in assets held-for-sale
(9,266)
-
Change in amounts due to banks
29
(1,395,011)
1,384,798
Change in amounts due to customers
30
4,459,632
7,109,945
Change in liabilities held-for-trading
19
(1,373,896)
(1,690,833)
Change in amounts due to hedging derivatives
37
85,952
6,917
Change in other liabilities
32
(208,690)
454,957
Interest received
3,772,559
3,070,391
Interest paid
(1,117,196)
(505,628)
Income tax paid
(380,426)
(107,778)
III. Net cash flows from operating activities
1,421,378
(5,060,656)
B. Investing activities
Inflows
15,560
55,282
Disposal of tangible fixed assets
23
528
6,821
Disposal of capital shares
21
-
2,058
Disposal of fixed assets held-for-sale
-
9,783
Dividends received
15,020
36,620
Other inflows from investing activities
12
-
Outflows
(209,575)
(145,177)
Purchase of tangible fixed assets
23
(121,129)
(59,840)
Purchase of intangible assets
24
(88,446)
(85,090)
Purchase of capital shares
-
(247)
Net cash flows from investing activities
(194,015)
(89,895)
C. Financing activities
Inflows
-
-
Outflows
(1,187,801)
(726,286)
Dividends paid
(1,175,937)
(714,708)
Outflows from lease payments
(11,864)
(11,578)
Net cash flows from financing activities
(1,187,801)
(726,286)
D. Exchange rates differences resulting from cash and cash equivalent calculation
530,976
(18,711)
E. Net increase/(decrease) in cash and cash equivalent
(208,690)
454,957
F. Cash and cash equivalent at the beginning of reporting period
3,772,559
3,070,391
G. Cash and cash equivalent at the end of reporting period
(1,117,196)
(505,628)
Explanatory notes on following pages are an integral part of the annual financial statements.
TRANSLATION
Annual Financial Statements of Bank Handlowy w Warszawie S.A. for the financial year ended 31 December 2023
11
Additional information including the description of adopted accounting principles and other explanatory information
1. General information about the Bank
Bank Handlowy w Warszawie S.A. (“Bank”) has its registered office in Poland at ul. Senatorska 16, 00-923 Warszawa. The Bank was founded on the basis of the Deed of foundation of 13 April 1870 and is registered in the Register of Entrepreneurs in the National Court Register kept by the District Court for the Capital City of Warsaw, XII Commercial Department in Warsaw, under KRS number 0000001538. The Bank operates as a joint stock company. The name of entity did not change during the reporting period.
The Bank was given REGON statistical number: 000013037 and tax identification number NIP: 526-030-02-91.
The Bank was set up for an unspecified period of time.
The share capital of the Bank equals PLN 522,638,400 and is divided into 130,659,600 common bearer shares with a nominal value of PLN 4.00 per share. The shares are quoted on the Warsaw Stock Exchange.
The Bank is a member of Citigroup Inc. As at 31 December 2023 the Bank’s parent company is Citibank Europe PLC with headquarters in Ireland.
Until 15 November 2023, the Bank’s parent company was Citibank Overseas Investment Corporation with headquarters in New Castle, USA.
On 15 November 2023 a change was made in the shareholding structure of the Bank as a result of the transfer by Citibank Overseas Investment Corporation of 97,994,700 shares of the Bank, representing 75% of the share capital of the Bank and 75% of the total number of votes at the general meeting of shareholders of the Bank, to Citibank Europe PLC. Within Citi group of companies, the company being the majority shareholder of the Bank changed from Citibank Overseas Investment Corporation with registered office in the USA to Citibank Europe PLC with registered office in Ireland in order to fulfil the statutory obligation under which domestic banks belonging to a group from a third country, i.e. from outside the European Union and in the case of the Bank - the United States, an EU intermediate parent undertaking.
The transaction results from the obligations arising from Directive (EU) 2019/878 of the European Parliament and of the Council of 20 May 2019 amending Directive 2013/36/EU as regards exempted entities, financial holding companies, mixed financial holding companies, remuneration, supervisory measures and powers and capital conservation measures and the Act of 29 August 1997 Banking Law.
The Bank operates on the basis of applicable regulations and its Articles of Association.
The Bank is a universal commercial bank that offers a wide range of banking services for individuals and corporate clients on domestic and foreign markets.
2. Significant accounting policies
Declaration of conformity
The annual unconsolidated financial statements of the Bank have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as adopted by the European Union (“IFRS EU”) and in respect to matters that are not regulated by the above standards, in accordance with the requirements of the Accounting Act dated 29 September 1994 (Official Journal from 2021, item 217 and later changes) respective operating regulations and regulations relating to issuers of securities admitted or sought to be admitted to trading on the official stock exchange quotation market.
The financial statements of the Bank were prepared on the assumption that the Bank will continue as a going concern for at least 12 months from balance sheet day. As at the date of signing these financial statements, the Management Board of the Bank does not state any facts or circumstances that would indicate a threat to the Bank's ability to continue as a going concern for at least 12 months from the balance sheet date as a result of an intentional or forced discontinuance or material limitation of the Bank's existing business.
The annual standalone financial statements of the Bank have been approved by the Management Board of the Bank for publication on 19 March 2024. The financial statements will be finally approved by the General Shareholders’ Meeting of the Bank.
The annual consolidated financial statements were approved by the Management Board of the Bank for publication on 19 March 2024. The financial statements will be finally approved by the General Shareholders’ Meeting of the Bank.
Basis of preparation
These annual financial statements of the Bank have been prepared as at 31 December 2023 and the comparable financial data are presented as at 31 December 2022.
The financial statements are presented in PLN (presentation currency), rounded to the nearest thousand.
The financial statements have been prepared on the fair-value-basis for financial assets and financial liabilities measured
TRANSLATION
Annual Financial Statements of Bank Handlowy w Warszawie S.A. for the financial year ended 31 December 2023
12
at fair value through profit and loss including derivatives and capital investments (minority shareholdings) and financial assets measured at fair value through other comprehensive income. Other financial assets are presented at cost decreased by depreciation/ amortization and expected credit losses. Other financial liabilities are presented at amortized cost.
The preparation of annual financial statement of the Bank in accordance with IFRS requires management to estimate and make assumptions that affect the amounts presented in financial statements. The most important accounting policies, estimations and assessments applied in the preparation of this annual financial statement, were applied by the Bank in all the presented years on a continuous basis.
Estimates and associated assumptions are made on the basis of available historical data and many other factors that have been recognized as material in the presented period. These factors form the basis to make estimates of the balance-sheet value of assets and liabilities whose value cannot be estimated on the basis of other sources. Actual results could differ from those estimates.
Estimates and associated assumptions are reviewed on an ongoing basis. Revisions to the accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods.
Significant estimates applied in the year ended 31 December 2023 related to:
• Provisions for expected credit losses for financial assets (note 3);
• Fair value of derivatives (note 19);
• Goodwill testing (note 25);
• Reserves (including provisions for disputes note 40);
• Employee benefits (note 47).
Significant accounting policies applied to prepare the financial statements are presented either in the notes to the financial statements or below:
Income statement
No of note with accounting policy description
Net interest income
5
Net fee and commission income
6
Dividend income
7
Net income on trading financial instruments and revaluation
2.1
Net gain/(loss) on debt investment financial assets measured at fair value through other comprehensive income
2.1
Net gain/(loss) on equity and other instruments measured at fair value through income statement
2.1
Net gain/(loss) on hedge accounting
37
Provisions for expected credit losses on financial assets and provisions for off–balance sheet commitments
3
Statement of financial position
No of note with accounting policy description
Amounts due from banks
2.1
Financial assets held-for-trading
2.1
Debt financial assets measured at fair value through other comprehensive income
2.1
Shares in subsidiaries
20
Equity and other instruments at fair value through the income statement
2.1
Amounts due from customers
2.1
Tangible fixed assets
23
Intangible assets
24
Deferred income tax asset
26
Non-current assets held-for-sale
28
Amounts due to banks
2.1
Financial liabilities held-for-trading
2.1
Hedging derivatives
37
Amounts due to customers
2.1
Provisions
31
Other liabilities
32
Standards and interpretations approved but not obligatory as at 31 December 2023
Standards and interpretations approved but not obligatory as at 31 December 2023 that may have an impact on financial statements of the Bank
• IAS 1 “Presentation of financial statements” amendment – in the area of classification of liabilities as current or non-current, clarifying criteria for classification a liability as long-term, and non-current liabilities with covenants,
TRANSLATION
Annual Financial Statements of Bank Handlowy w Warszawie S.A. for the financial year ended 31 December 2023
13
clarifying that only covenants with which an entity must comply on or before the reporting date will affect a liability’s classification as current or non-current, applicable from 1 January 2024;
• IFRS 16 “Leases” amendment concerning lease liabilities in the case of sale and leaseback, issued on 22 September 2022, applicable from 1 January 2024;
The above-mentioned changes will not impact the financial statement significantly.
Other standard amendments awaiting endorsement by the European Union
• IAS 21 “Effecfts of changes in foreign exchange rates” concerning net investments in unit operating in a foreign country, issued August 15, 2023, applicable from January 1, 2024;
• IAS 7 “Statement of cash flows” and IFRS 7 “Financial instruments: disclosures” related to the disclosure of information on supplier financing arrangements, issued on May 25, 2023, applicable from January 1, 2024;
The above-mentioned changes will not impact the financial statement significantly.
Standards applicable from 1 January 2023
• Amendment to IAS 1 “Presentation of Financial Statements” and IFRS Practice Statement 2 “Making Materiality Judgements” with regard to the disclosure of accounting policies. According to new requirements, an entity discloses its material accounting policies, instead of previous requirement to disclose significant accounting policies, issued on 12 February 2021;
• Amendment to IAS 8 “Accounting policies, changes in accounting estimates and errors” introducing the definition of accounting estimates including changes in accounting estimates, instead of the previous definition of changes in accounting estimates, issued on 12 February 2021;
• IFRS 17 “Insurance” replacing IFRS 4 „Insurance contracts” and introducing comprehensive regulations for accounting of insurance contracts, in particular the measurement of relevant liabilities, issued on 25 June 2020;
• Amendments to IFRS 17 “Insurance contracts” - initial application of IFRS 17 and IFRS 9 - comparative information on enabling simplification for entities implementing IFRS 9 and IFRS 17 (arising from the difficult clarification of the requirements to present comparative information from both standard together) in comparative disclosures by recognizing that IFRS 9 was applied to financial assets, issued on 9 December 2021;
• Amendment to IAS 12 “Income taxes” narrowing the scope of deferred tax initial recognition exemption so that it does not apply to transactions in which both deductible and taxable temporary differences arise in equal amounts, issued on 7 May 2021;
• IAS 12 “Income taxes” introducing international tax reform – model principles of Pillar II, defining the scope and key mechanisms of the system of global minimum tax rules of the second pillar, which includes the principle of income inclusion and the principle of payments below taxation collectively referred to as the "GloBE principles", issued on December 20, 2021;
The above-mentioned changes do not impact the financial statement significantly.
Comparative data
In the consolidated financial statements of the Bank Handlowy w Warszawie S.A for the year ended on 31 December 2023, the Bank made the change in the method of presenting cash in the consolidated statement of financial position.
Loans and advances to banks held to satisfy short-term commitments, previously presented under the item ‘Loans and advances to banks’, are now presented under the item ‘Cash and cash equivalents’ (previously named ‘Cash and balances with the Central Bank’).
Those changes result from adapting the presentation to the position of the IFRS Interpretation Committee and the requirements of IAS 7 "Statement of Cash Flows". The above-mentioned changes in accounting principles made it necessary to restate the comparative data, but they did not affect the total assets.
The impact of changes on the comparative data of the consolidated statement of financial positions is presented in the tables below:
Consolidated statement of financial position
Data for 31.12.2022 before restatement
Restatement
Data for 31.12.2022 after restatement
Środki pieniężne i ekwiwalenty środków pieniężnych (poprzednia nazwa pozycji „Kasa, należności od Banku Centralnego”)
595,969
75,220
671,189
Należności od banków
1,043,968
(75,220)
968,748
Consolidated statement of financial position
Data for 01.01.2022 before restatement
Restatement
Data for 01.01.2022 after restatement
Cash and cash equivalents’ (previously named ‘Cash and balances with the Central Bank’).
6,526,743
40,091
6,566,834
Amounts due from banks
967,663
(40,091)
927,572
TRANSLATION
Annual Financial Statements of Bank Handlowy w Warszawie S.A. for the financial year ended 31 December 2023
14
The impact of changes on the comparative data of the consolidated cash flow statement is presented in the table below:
Consolidated cash flow statement
Data for 31.12.2022 before restatement
Restatement
Data for 31.12.2022 after restatement
II. Adjustments:
(9,099,169)
12,219
(9,086,950)
Change in amounts due from banks
(37,898)
12,219
(25,679)
III. Net cash flows from operating activities
(5,072,874)
12,219
(5,060,655)
E. Net increase/(decrease) in cash and cash equivalent
(5,907,766)
12,219
(5,895,547)
F. Cash and cash equivalent at the beginning of reporting period
6,566,543
340
6,566,883
G. Cash and cash equivalent at the end of reporting period
658,777
12,559
671,336
Comparative data in subsequent disclosures were adequately restated.
Foreign currency
The values reported in annual standalone financial statement are presented in PLN, which is functional currency and the currency of presentation of the Bank.
The statement of financial position and contingent liabilities received and granted items denominated in foreign currencies are converted to PLN equivalents using the average exchange rate of the currency determined by the Governor of the National Bank of Poland (“NBP”) prevailing at the date of preparation of the statement of financial position.
Foreign currency transactions are converted at initial recognition to the functional currency (PLN) using the exchange rates prevailing at the date of transactions.
Foreign exchange profits and losses resulting from revaluation of the statement of financial position items denominated in foreign currencies and settlement of transactions in foreign currencies are included in net profit on foreign exchange, within the trade financial instruments and revaluation income.
The exchange rates of the major currencies applied in the preparation of these financial statements are:
PLN
31 December 2023
31 December 2022
1
USD
3.9350
4.4018
1
CHF
4.6828
4.7679
1
EUR
4.3480
4.6899
2.1 Financial assets and liabilities – classification and measurement
Classification
The Bank classifies financial instruments to the following categories:
• financial assets measured at fair value through profit and loss,
• financial assets measured at amortized cost,
• financial assets measured at fair value through other comprehensive income,
• financial liabilities measured at fair value through profit and loss,
• financial liabilities measured at amortized cost.
Bank classifies financial assets to specific categories on initial recognition considering 2 criteria:
1) business model assessment for management of assets, which determines, whether cash flows will result from collecting contractual cash flows, selling financial assets or both
2) features of contractual cash flows for an asset, which is estimated by using SPPI test (solely payment of principal and interest), under which it is determined if contractual cash flows are solely payments of principal and interest on the principal amount. The test is passed if above-mentioned cash flows are consideration for the time value of money, credit risk, other basic lending risks (for example liquidity risk), costs (for example administration) associated with holding the financial asset for a particular period of time and profit margin.
Business model assessment
In order to classify a financial asset the Bank assesses its business models and takes into account the specificity of entire portfolio the asset belongs to. The considered information include:
• the purpose of a given business model and generating assets
TRANSLATION
Annual Financial Statements of Bank Handlowy w Warszawie S.A. for the financial year ended 31 December 2023
15
• how the performance of the portfolio is evaluated and reported to the management
• the risks of a portfolio and how they are managed
• the frequency, volume and types of sales.
Receivables from customers are managed to receive the contractual amounts and sales generally relate to impaired assets.
In case of treasury functions in relation to financial instruments there are two models:
• the model which objective is to achieved by both collecting contractual cash-flows and selling financial assets as the sale may be realized in accordance with current business needs and the instrument may also be held until maturity;
• held for trading.
Financial assets measured at fair value through profit and loss (Financial assets held for trading and Equity and other instruments at fair value through the income statement)
The category comprises:
1) financial assets, that were classified neither as measured at amortized cost nor as measured at fair value through other comprehensive income
2) financial assets classified at initial recognition as measured at fair value through profit or loss if doing so eliminates or significantly reduces a measurement or recognition inconsistency (sometimes referred to as an ‘accounting mismatch’) that would otherwise arise from measuring assets or liabilities or recognizing the gains and losses on them on different bases
3) minority shareholdings
A set are included in this category especially if they are held for trading (held for trading model) that is: they were purchased with the primary objective of selling or repurchasing to generate short-term profits, they are a part of a portfolio of identified financial instruments that are managed together and for which there is evidence of generating short-term profits, they are derivatives.
Minority shareholdings are presented in the consolidated financial statement as “Equity and other investments at fair value through the income statement”.
Financial assets measured at amortized cost (Amounts due from banks and due from clients)
A financial asset is measured at amortized cost if both conditions are met:
a) the financial asset is held within a business model whose objective is to hold financial assets in order to collect contractual cash flows
b) the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
This category comprises, in the first instance, amounts due in respect of loans, , guarantee funds and security deposits, purchased receivables and debt securities that are not quoted on the active market and interbank deposits and also reverse repo transactions.
. Purchased or originated credit impaired assets (POCI)
Purchased or originated credit impaired assets on initial recognition may be identified when Bank had originated or purchased exposures already impaired at the moment of initial recognition or Bank has modified (significant modification) an impaired exposure and derecognition criterion has been met. POCI assets are recognized at fair value at initial recognition and subsequently at amortized cost using effective interest rate adjusted by expected credit losses. Expected credit losses are considered and recognized in the relation to lifetime of those instruments.
Financial assets measured at fair value through other comprehensive income (Debt financial assets measured at fair value through other comprehensive income)
A financial asset is measured at fair value through other comprehensive income if both conditions are met:
a) the financial asset is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets and
b) the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
Bank classifies in this category selected debt instruments.
In the statement of cash flows, adjustment for change in debt securities measured at fair value through other comprehensive income are recognized in cash flows from operating activities.
Financial liabilities measured at fair value through profit and loss (Financial liabilities held for trading)
The category comprises derivative liabilities which are not hedging instruments and it comprises short sale liabilities.
Financial liabilities measured at amortized cost (Amounts due to banks and due to clients)
TRANSLATION
Annual Financial Statements of Bank Handlowy w Warszawie S.A. for the financial year ended 31 December 2023
16
Customers’ deposits are primarily classified in this category and commercial commitments and also liabilities from repo transactions, measured at amortized cost.
Recognition, derecognition and insignificant modifications
Transactions of purchase or sale of financial assets at fair value through profit or loss and financial assets at fair value through other comprehensive income are recognized in the Bank’s statement of financial position and derecognized at transaction settlement date, i.e., the date on which the Bank will receive or transfer the ownership right to assets. The rights and liabilities from a concluded transaction are measured at fair value from the transaction conclusion day to the transaction settlement day.
Loans and receivables are recognized at the time of disbursement of funds for the borrower.
Financial assets are derecognized when the rights to receive cash flows from the assets have expired or have been transferred and the Bank has transferred substantially all risks and rewards of ownership.
Financial liabilities are derecognized when and only when they are extinguished, i.e., the obligation described in the agreement had been discharged, cancelled or expired.
The Bank applies the following criteria, which result in assets derecognition from the balance sheet and obligation to recognize them according to the classification rules:
• introduction to the loan agreement resulting in failure to pass the cash flow characteristics,
• a change of the debtor,
• currency conversion,
• change of legal form/type of financial instrument,
• granting additional loan amount of at least 10% of the outstanding loan principal,
• extension of the schedule loan by min. 1 year, and a mortgage min. 4 years,
• renewal/extension of a non-schedule loan by min. 1 year preceded by a credit decision.
At the moment of derecognition, the undepreciated part of the commission is recognized in total in interest income. The newly charged commission is settled in time using the effective interest rate method.
If there is a change in cash flows of financial assets , that does not result in the financial asset being derecognized from the balance sheet and containing the repayment schedule measured at amortized cost that results from annex to the contract, the Bank recalculates gross balance sheet value of financial asset and recognizes modification profit or loss in profit and loss. The gross balance sheet value of that financial asset is calculated as present value of renegotiated or modified contract cash flows, discounted at original effective interest rate of financial assets (or credit risk adjusted effective interest rate for credit risk- for originated or purchased financial assets credit-impaired at initial recognition). All origination costs and fees in connection with the modification adjust the balance sheet value of modified asset and are amortized until the maturity date of modified financial asset.
Derivative financial instruments value from the trade date and are derecognized from the balance on the settlement date.
Valuation
When financial assets or financial liabilities are recognized initially, they are measured at fair value plus, in the case of assets and liabilities not measured at fair value through profit or loss, significant transactional costs that are directly attributable to the acquisition or issue of the financial assets or financial liabilities.
After initial recognition, the Bank measures financial assets:
• at fair value without deducting transactional costs which it may incur in connection with the sale or disposal of assets. This measurement relates to financial assets held for trading, debt financial assets measured at fair value through other comprehensive income and equity and other instruments at fair value through income statement),
• at amortized cost using effective interest method – for amounts due from banks and from clients. Amounts measured at amortized cost include provisions for expected credit losses.
Financial liabilities:
• financial liabilities held for trading are measured at fair value through the income statement,
• amounts due to banks and due to clients after initial recognition are measured at amortized cost using the effective interest rate method.
Profits or losses resulting from the change of fair value of financial assets or financial liabilities, which are not the part of the hedging relationship, are recognized in the following way:
• in the case of financial assets or financial liabilities measured at fair value through profit or loss, they are shown in income statement;
• profits or losses resulting from measurement of financial assets classified as measured at fair value through other comprehensive income are recognized in other comprehensive income. Impairment of financial assets measured at fair value through other comprehensive income , interest income and exchange rate differences on monetary assets and liabilities are recognized in the income statement. When financial assets are excluded from the statement of financial position, accumulated profits or losses which were previously included in equity are recognized through profit or loss.
TRANSLATION
Annual Financial Statements of Bank Handlowy w Warszawie S.A. for the financial year ended 31 December 2023
17
The fair value of derivatives is established based on quotations in active markets, prices of transactions recently closed, and measurement techniques, including discounted cash flows models and option measurement models, depending on which method is appropriate for a given case. The derivatives that were not designated as hedging instruments according to hedge accounting principles are classified as trading assets or liabilities measured at fair value through profit or loss.
Embedded derivatives in host contracts that are liabilities are separated from the host and accounted for as derivatives, if their characteristics and risks are not closely related to the characteristics and risks of the host, and if the hybrid contract is not measured at fair value through profit or loss.
Impairment of financial assets
For financial assets measured at amortized cost and contingent liabilities , the Bank makes impairments for expected credit losses, according to the developed internal rules and methodologies for theirs calculation. They are aggregated for each of the three stages:
• Stage 1: Credit exposures that have not had a significant increase in credit risk since initial recognition
• Stage 2: Credit exposures that have experienced a significant increase in credit risk since initial recognition
• Stage 3: Credit exposures with credit loss that has already been suffered on the assets
On the balance sheet date, the Bank assesses if there is objective evidence of impairment of one financial asset or a group of financial assets. A financial asset or a group of financial assets were impaired only when there is an objective evidence of impairment resulting from one or more events taking place after the initial recognition of an asset (the loss event) and the loss event (or events) influences the future expected cash flows resulting from a financial asset or a group of financial assets which may be reliably estimated. Objective evidence of impairment of a financial asset or a group of assets includes information obtained by the Bank concerning events, which are provided in the later part of the note 3 “Risk management”.
The classification of exposures to Stage 1 and 2 depends on the occurrence of a significant increase in credit risk since the moment of initial recognition. Assignment of the exposure to the Stage takes place, depending on the approach to management over the client (individual vs. Bank approach), taking into account the wide range of information obtained as part of standard risk management processes (including the Early Warning process) regarding both current and future events, including macroeconomic factors and the number of days past due.
The methodology and assumptions used to determine the impairment level of loans are regularly reviewed and updated, as required. Further, data are back-tested (based on historical data) to compare the actual amounts with estimated credit impairment, what may have an influence on the methodology applied by the Bank.
The impairment provisions for expected credit losses are calculated using statistical parameters for the groups of assets combined in portfolios having similar credit risk characteristics.
In order to calculate the expected credit losses for assets measured at fair value through other comprehensive income, the Bank uses internal methodology to define default probability (PD parameter), loss value at default (LGD parameter) and exposure value at the time of default (EAD parameter).
In the case of institutional exposures with the value of expected credit losses provisions, where debt collection activities were carried out for at least 3 years, we did not receive a full repayment of debt and there are no justified prospects for recovering all or part of the contractual cash flows associated with financial asset. The Bank, based on the decision, writes off the exposure against impairment allowances. Such exposures are recognized in off-balance sheet records, including the corresponding expected credit loss provision. If a written-down amount is subsequently recovered, the amount of income is presented in “Provision for expected credit losses on financial assets and provisions for off–balance sheet commitments”.
If the loans meet one of the following conditions:
- The bank does not expect future cash flows from these loans and, based on tax regulations, the conditions necessary to include a receivable written off as uncollectible as tax deductible costs have been met or
- which have been unconditionally written off under an agreement with the client or
- the receivable has expired
based on the decision, the Bank:
a) writes off the loan receivables from balance sheet records or
b) when institutional exposure has already been written off and recognized in off-balance sheet records, it is removed from off-balance sheet records.
If the present value of the estimated cash flows increases after an event occurring after impairment was identified, the write-off that was previously made will be reversed as appropriate through profit or loss.
Impairment allowances for amounts due from banks and customers, allowances for impairment of securities and other assets adjust the value of particular asset categories. Provisions for contingent liabilities are shown in the liabilities section “Provisions”.
For financial assets measured at fair value through other comprehensive income, the increase or decrease in expected credit losses is recognized in the profit and loss account under the item ‘Provision for expected credit losses on financial assets and provisions for off–balance sheet commitments’.
TRANSLATION
Annual Financial Statements of Bank Handlowy w Warszawie S.A. for the financial year ended 31 December 2023
18
On a commitment basis, the Bank classifies assets measured at amortized cost into the portfolio of assets that are individually significant and the portfolio of assets that are not individually significant (portfolio basis).
The level of impairment provisions for receivables that are deemed as individually significant and for which evidence of impairment was detected is calculated as the difference between the carrying value of an asset and the present value of the future cash flows from expected repayments by the borrower, from cash settlement of collateral or the sale of receivables. The future cash flows are discounted to the present value with the effective interest rate for a given instrument.
The level of impairment allowances for receivables that are deemed as individually not significant, for which evidence of impairment was detected, is calculated on the basis of a portfolio assessment which is based on the history of losses incurred on assets with similar risk characteristics.
Forborne exposures are exposures for which concessions were granted due to economic or legal reasons (for financial conditions), resulting from financial difficulties of the obligor that the lender would not otherwise extend. Financial hardship refers to borrowers who are experiencing or are likely to experience problems meeting their financial obligations. The process of assigning "forborne" status for exposures is closely related to the credit risk management process, including including the impairment recognition process for exposures. In terms of institutional clients the Group extended recognition of “forborne" status for exposures without impairment. Therefore for institutional clients, similarly to retail exposures, the "forborne" status may refer to both the exposures: from the impaired portfolio as well as from the portfolio without any impairment. As "forborne" without impairment are recognized by the Group exposures, where restructuring activities were applied, but change of financing conditions has not implied any deterioration of future payment streams In case the Bank grants a concession to the debtor, if it does not change significantly the terms and expected cash flows of the financial asset, the expected cash flows from the financial asset subject to the concession are included in the measurement of the asset using the prior effective interest rate for the instrument.
If the concession granted significantly changes the important terms or expected cash flows, the financial asset is derecognized and the new one is recognized at fair value on the day of the initial recognition.
In the case of receivables resulting from activities other than the core business, the Bank has adopted the approach based on creating write-offs for expected credit losses in the full amount once a certain threshold of overdue payments is exceeded.
2.2 Accounting estimates and judgments
Determination of the carrying values of selected assets and liabilities as well as revenue and expense requires estimating the effect of uncertain future events on these items at the balance sheet date. The estimates and assumptions are subject to continuous evaluation and are based on historical experience and other factors, including expectations of future events which seem justified in a given situation. The most crucial estimates applied in the preparation of the financial statements are presented below.
Fair value of derivatives
The fair value of financial instruments not quoted on active markets is determined using valuation techniques. If valuation techniques are used to determine the fair values, these methods are periodically assessed and verified. All the models are tested and approved before application. As far as possible, only observable data are used in the models, although in some areas, the entity’s management must use estimates. Changes in the assumptions relating to the estimated factors may affect the fair value of financial instruments disclosed.
The Bank applies the following methods of measurement of particular types of derivative instruments:
• FX forwards – discounted cash flows model;
• options – option market-based valuation model;
• interest rate transactions – discounted cash flows model;
• futures – current quotations.
The Bank uses a Credit Default Swap quotation for valuation of counterparty credit risk.
The Bank differentiates the valuation of counterparty risk due to the availability of quotations of credit derivatives (CDS):
• Counterparty Credit Risk of companies for which there is an active CDS market: It is considered that the CDS quotes reflect the market value of the credit risk;
• Counterparty Credit Risk of companies for which there is no active CDS market: On the basis of credit rating (external or internal, when an external rating is not available) and industry, the CDS index (for a given industry) is assigned to the company. It is considered that the industry index CDS quotes reflect the market value of the credit risk.
In the case of valuation of own credit counterparty risk (DVA), the Bank is using a method defined for clients for which there is no active CDS market.
Main factors determining the change of counterparty credit risk estimations are: (i) change of fair value of derivative instruments correlated with a change of, inter alia, fx rates and interests rates, (ii) change of CDS quotes (iii) changes of credit risk ratings.
Provisions for expected credit losses
TRANSLATION
Annual Financial Statements of Bank Handlowy w Warszawie S.A. for the financial year ended 31 December 2023
19
The methodology of estimating provisions for expected credit losses has been described in section Impairment of financial assets.
Impairment of goodwill
The Bank carries out obligatory annual impairment tests of goodwill in accordance with the model based on guidance from IAS 36. The basis of valuation of the recoverable amount of cash-generating units, to which the goodwill is assigned, is their value in use which is estimated by the Bank’s management based on the financial plan reflecting the adopted assumptions on the future economic conditions and the expected Bank’s performance, the discount rate used in cash flow forecasts and the growth rate used to extrapolate cash flow forecasts beyond the period covered by the financial plan.
Employee benefits
Provisions for future payments in respect of employee benefits such as retirement and pension allowances are subject to periodic actuarial estimation by an independent actuary. The amount of provisions corresponds with the currents value of future long-term liabilities of the Bank to its employees according to employment and salaries on reporting day and is based on a number of assumptions in the field of staff statistics. Provisions are calculated on the basis of a number of assumptions on financial discount and probability of the given person reaching the retirement age as the Bank’s employee, including staff turnover, risk of death and risk of total work incapacity.
Reserves
The methodology recognition of provisions has been described in note 31 and note 40.
3. Risk management
RISK MANAGEMENT ORGANIZATION STRUCTURE AND PROCESS
The Bank performs analysis, assessment, approval and management of all kinds of risks associated with its business, arising from the applied business strategy. The risk management process is performed by all units and at all levels of the organization and covers among others: credit risk (including counterparty credit risk, residual risk limited by accepted collateral, and concentration risk), liquidity risk, market risk, and operational risk.
The foundation of the Bank’s risk strategy is balanced risk taking while maintaining the rules of shared responsibility. The concept of risk management, taking into account the shared responsibility, is organized at three independent levels (“three lines of defense”):
• Level 1 i.e.: organizational units responsible for business activities resulting in risk taking and for risk management in the Bank’s operational activity as well as risk identification and reporting to the units of second line of defense,
• Level 2 i.e.: risk management in organizational units, independently from the risk management by the first line, and compliance – organizational units or employees responsible for establishing standards for the risk management including risk identification, measurement or assessment, mitigation, control, monitoring and reporting and for overseeing the control mechanisms applied by other organizational units to mitigate the risk – organizational units in Risk Management Sector, Compliance Division, Financial Management Sector, Legal Division; Human Resources Division; Supervision and Internal Control Unit in Brokerage Department of Bank Handlowy,
• Level 3 i.e.: Internal Audit unit which ensures an independent assessment of risk management processes and internal control system.
In the risk management area, the Supervisory Board of Bank resolves upon:
• approving a strategy of the Bank’s activity and the Principles of prudent and stable risk management, including operational risk strategy,
• approving a general level of the Bank’s risk appetite (“Risk appetite”) included in the Policy specifying the Risk Appetite for the Capital Group of Bank Handlowy w Warszawie S.A.,
• approving the fundamental organizational structure of the Bank, determined by the Bank’s Management Board and adjusted to the size and the profile of incurred risks.
In addition, the Supervisory Board supervises the compliance of the Bank's policy related to risk-taking with the Bank’s strategy and financial plan and performs the duties resulted from mentioned above strategies, regulations or other documents approved by the Supervisory Board.
The Management Board of the Bank, by way of a resolution, approves:
• the organizational structure of the Bank, with defined roles and responsibilities adequate for the size and risk profile, ensuring that the functions of risk measurement, monitoring and control are independent from risk taking activities,
• the Bank’s Risk’s Profile by determining significant types of risk, at the same time providing implementation of processes to manage them and/or allocation of interior equity,
• Bank’s strategy, the Principles of prudent and stable risk management constituting the risk management strategy, including operational risk strategy,
TRANSLATION
Annual Financial Statements of Bank Handlowy w Warszawie S.A. for the financial year ended 31 December 2023
20
• the acceptable risk level (“Risk appetite”), included in the Policy specifying the Risk Appetite for the Capital Group of Bank Handlowy w Warszawie S.A.
The Principles of prudent and stable risk management together with Risk appetite constitute risk strategy, including the operational risk strategy.
The Management Board of the Bank nominates an independent Member of the Management Board responsible for Risk Management Sector (Chief Risk Officer) reporting directly to the President of the Management Board and responsible for the management and control of credit risk, market risk, and operational risk, including:
• introducing a risk management system in the Bank as well as risk identification, measurement, control and reporting methods,
• developing the risk management policy and developing risk assessment and control systems,
• making credit decisions in compliance with the principles resulting from the credit procedures as well as documents determining the Bank’s credit policy,
• ensuring the proper safety level of the credit portfolio,
• managing the problem loans portfolio (including collections and debt restructurings).
Additionally CRO is responsible for:
• definition, implementation and update regulations, strategy and procedure in term of risk management, internal control and valuation of internal capital;
• review of valuation process and maintaining of internal capital and regulation of remuneration components.
Processes of managing of credit, market, operational risks are implemented in Bank based upon written policies and principles of identification, valuation, monitoring and risk control. They are accepted by the Management Board, authorized persons in line with the principles for issuing internal regulations or appropriately nominated Committees.
There following committees have been established within the risk management framework::
• Assets and Liabilities Management Committee (ALCO),
• Risk and Capital Management Committee (RCMC), overseeing Model Commission, Consumer Bank (GCB) Risk Commission and Sustainable Development Products (“ESG”) Commission,
• New Products Committee,
• Business Risk and Control Committee (BRCC)
Member of the Management Board responsible for Risk Management Sector presents the organizational structure of the Risk Management Sector to the Management Board of the Bank, taking into account the specificity of credit, market, liquidity and operational risk management in the respective customer segments. For this purpose, organizational units have been set up within the Risk Management Sector that are responsible for:
• managing credit risk of corporate clients i.e. of the Corporate Bank and the Commercial Bank,
• managing credit risk of the Consumer Bank
• managing impaired receivables,
• managing market risk, including interest rate risk in banking book,
• managing liquidity risk,
• managing operational risk,
• managing the equity process and model risk,
• model validation,
• supporting risk management in the above areas including in control functions,
• the process of comprehensive and continuous assessment of credit risk (Fundamental Credit Risk Assessment).
The management of Risk Management Sector and of Business units are responsible for developing and implementing risk management policies and practices in their respective business units, overseeing risks in the business units, and responding to the needs and issues of the business units.
Risk management in the Bank is supported by a range of IT systems in the following areas:
• obligor and exposure credit risk assessment,
• credit, market and operational risk measurement, reporting and monitoring,
• valuation, monitoring and reporting of collateral,
• calculation and reporting of expected credit losses.
Significant Risks
The Bank manages all significant risks arising from the implementation of its business strategy. In the process of significant risks identification in 2023, the Management Board considered the following type of risk as significant:
• Credit Risk,
• Credit Counterparty Risk,
• Market Risk in trading book,
• Interest rate risk in banking book,
• Liquidity risk,
• Operational risk,
TRANSLATION
Annual Financial Statements of Bank Handlowy w Warszawie S.A. for the financial year ended 31 December 2023
21
• Compliance risk,
• Technology, Cyber, Information Security and CoB Risk,
• Outsourcing risk/ supplier management
• Fraud Risk,
• Geopolitical Risk.
The Bank monitors all the above types of risk. Due to portfolio characteristics in this chapter are presented principles related to management of credit risk (including counterparty risk and concentration), operational risk, liquidity risk, market risk in the trading book and interest rate risk in banking book.
Credit risk, including also counterparty credit risk, results from credit exposure or other exposure related to concluding and clearing below listed transactions, and is defined as the potential for financial loss resulting from the failure of a borrower or counterparty to honor its financial or contractual obligations.
Credit risk arises in many of the Bank’s business activities, hereinafter “products,” including:
• Loans and advances,
• Guarantees and letters of credit;,
• FX and derivatives transactions,
• Securities transactions,
• Financing and handling settlements, including trade (domestic and foreign),
• Transactions in which the Bank acts as an intermediary on behalf of its clients or other third parties.
The principles described in the “Credit Risk” section of this document covers different types of exposure, as defined in relevant Credit Policies of the Bank.
Additionally, within the risk management system, the Bank applies credit risk mitigation rules (incl. accepting collateral) thus mitigating the inherent residual risk and manages concentration risk , taking into account material concentration risk factors.
Liquidity risk is the risk that the Bank may be unable to meet a financial commitment to a customer, creditor, or investor when due. Liquidity risk is measured in accordance with the applicable law, in particular with the Banking Act, under standards set by the regulator (regulatory liquidity measures) and with internal measures which support liquidity risk management.
Market risk is the risk to profits due to changes in interest rates, foreign exchange rates, commodity prices, and their volatilities. Market risk arises in non-trading portfolios, as well as in trading portfolios. Market risk is measured in accordance with established standards to ensure consistency across businesses and the ability to aggregate risk.
Operational Risk is defined as the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. This definition of operational risk includes legal risk - which is the risk of loss (including litigation costs, settlements and penalties) resulting from instable legal environment as well as wrongly defined contractual obligations in any aspect of the bank’s business - but excludes strategic and reputation risks. Bank also recognises the impact of Operational Risk on the reputation risk associated with Bank’s business activities.
CREDIT RISK
The main objective in the field of credit risk management is to support the long-term plan for the stable development of the credit portfolio while maintaining its proper quality. Credit risk management is executed based on the policies and procedures that consistently and clearly define and communicate standards for risk identification, measurement, acceptance, control, monitoring and reporting. In the current reporting period, the Bank continued activities related to credit risk management in perspective of the external environment situation development including, in particular, the impact of war between Russia and Ukraine, conflict in Palestine, high inflation and economic slowdown. In the reporting period the Bank did not observe significant impact of the above factors on the credit portfolio quality neither of Corporate Banking nor Retail Banking. In case of lending, the Bank is not active in Ukraine, Israel, Russia or Belarus, and the Bank's credit exposure to companies significantly involved in these countries is marginal.
In 2023, the cost of risk decreased in the Corporate Baking segment due to the good quality of the portfolio. In Consumer Banking cost of risk remained at a level similar to the previous year due to portfolio quality stabilization. The quality of loan portfolios remained relatively good despite the war in Ukraine, the Middle East conflict and high inflation affecting many industries.
Due to continuing economic uncertainty and historically observed loss ratios, despite the good quality of the portfolio, the impact on expected credit losses may not be fully reflected in the results of impairment models. Therefore, as at December 31, 2022, the Bank maintains additional provisions for expected credit losses for this purpose. These provisions concern both the receivables from Institutional and Consumer Banking customers.
Principles of the Credit Risk Management Policy
The Risk Management unit is responsible for establishing the principles of the Credit Policy for the Corporate Bank, the Credit Policy for the Commercial Bank and credit policies for the Consumer Bank as well as for approving other policies,
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Annual Financial Statements of Bank Handlowy w Warszawie S.A. for the financial year ended 31 December 2023
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programs and procedures, monitoring credit risk management performance, providing ongoing assessment of the credit risk of the portfolio and approving individually significant credit risk limits.
The rules for approving risk are matched with the strategy of the Bank, generally accepted risk level, credit portfolio performance and internal control results.
For corporate and commercial clients as well as investment banking activities across the organization, the credit process is based on a range of fundamental policies, including:
• joint business and independent risk management responsibility for the quality of the credit portfolio and process as well as for credit loss,
• adherence to portfolio guidelines to ensure diversification and maintain risk/capital alignment,
• credit authorities system assuming that credit authority can be given to authorized, trained and experienced staff based upon their professional experience and tested qualifications concerning the risk assessment and making credit decisions,
• a minimum of two authorized credit approvers with delegated credit authority required for all significant exposures,
• dependence of approval level from the risk taken – exposures with a higher risk (including size and risk assessment) require approval at a higher decision-making level,
• diverse risk rating standards, adequate to every obligor and exposure, including remedial actions,
• risk rating of every obligor and exposure in a consistent rating process using risk rating models and scorecards (scoring),
• periodic monitoring of customers’ business results and identification of negative changes in their standing which require immediate reclassification of exposure or remedial actions,
• collateral selection, valuation, establishing legal basis and monitoring,
• exceptions to Credit Policies are approved at higher levels within the organization to ensure control over risk policy implementation by higher level managers in accordance with internal Bank’s normative acts and generally applicable laws and regulations issued by the appropriate regulators.
In the Consumer Bank (GCB), the Management Board of the Bank has approved credit policy as well as detailed principles of its deployment for each credit product offered.
Credit risk in this area is managed by means of:
• detailed credit policies which define the credit scoring rules,
• a system for allocation of credit authority and independent supervision of the quality of credit analyst performance,
• a system of monitoring the quality of IT tools supporting credit scoring,
• a system of risk measurement and control for credit portfolios including: a detailed management information system covering the quality of the credit portfolio and debt collection, identification of impaired exposures, monitoring of delinquencies, monitoring of benchmarks, etc., internal limits of credit portfolio parameters approved by the Management Board,
• debt collection policy rules as well as a fraud prevention policy,
• credit portfolio quality reports to the GCB Risk Commission, the Risk and Capital Management Committee and the Supervisory Board’s Risk and Capital Committee,
• stress testing rules,
• monitoring of the performance of scoring models and measurement and identification of impaired exposures,
• checking the behavior of Bank customers in the Credit Information Bureau (BIK),
• collateral valuation policy for mortgage-secured credits offered by GCB.
Each portfolio is subjected to stress testing at least on an annual basis.
Credit risk assessment and rating
The Bank maintains consistent risk ratings methodology across the corporate and commercial credit portfolio, which facilitates comparison of credit exposure across all lines of business, geographic regions and products.
Obligor Risk Rating and Obligor Limit Rating are elements of the assessment of credit risk associated with granted products. Obligor Risk Ratings reflect an estimated probability of default for an obligor within 1 year and are derived primarily through the use of statistical models, external rating agencies, or scoring models.
Obligor Limit Rating (OLR) as a measure of medium to long-term risk of the obligor is subject to assessment in terms of qualitative factors including: cyclicality, of sector, management quality, client’s business strategy, influence of vulnerability to regulatory environment on client, transparency and quality of control processes.
Facility Risk Ratings are assigned using the obligor risk rating and facility-level characteristics such as collateral, thus decreasing the potential loss on a facility in case of default. As a result, Facility Risk Rating reflects a potential expected loss given-default.
Credit Risk is measured at a number of levels, including:
• Aa a limit level, which may include one or more contracts, disposals or transactions,
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Annual Financial Statements of Bank Handlowy w Warszawie S.A. for the financial year ended 31 December 2023
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• at an obligor level, if there are multiple facilities approved for an obligor where the risk associated with an obligor default can be assessed jointly,
• at a group level, considering the group structure of connected clients,
• at a portfolio level where Portfolio Risk Rating is calculated as the average rating of individual facility exposure ratings weighted with the size of exposure.
For ICG and CCB customers’ credit exposures, the Bank uses scoring models of the various level of complexity i.e. depending on the size of customer’s portfolio and customer’s industry.
For retail credit exposures, the Bank uses scoring models developed on the basis of the history of behavior of the Bank’s customers. Such models analyze the behavior of customers in the Credit Information Bureau, own data as well as customer demographics. The quality of performance of scoring models is reviewed on an ongoing basis and monitored annually. As a result, modifications are made in the model or the credit policy.
Credit risk of the retail credit portfolio is measured based on dedicated scoring models and reporting techniques including an analysis of ratios for new customers and existing portfolios with and without impairment.
The effectiveness of scoring models used in risk assessment processes is monitored regularly with population stability reports, KS (Kolmogorov-Smirnov) test reports and portfolio quality reports (delinquency and loss ratios). Each scoring model is validated annually.
Credit risk monitoring
Risk management units, supported by business units responsible for the cooperation with customers, are responsible for monitoring the probability of obligor default.
Credit risk exposure is monitored and managed at three levels: (a) exposure level, (b) customer level, and (c) portfolio level.
Exposure monitoring and management at a customer level includes periodic control reports, an early warning system and periodic reviews of the customer’s standing.
Monitoring of portfolio performance and identification of portfolio trends include regular management reports and control reports which also support active response to negative signals or trends.
In addition to management information reports analysis, risk managers and business representatives take part in regular round tables regarding the portfolio in order to review business pipelines and discuss the credit issues.
In GCB, monitoring covers scoring models, impairment measurements, delinquencies, the effectiveness of debt collection, internal limits, customer behavior checks with BIK, benchmarks, etc.
Risk mitigation
Credit risk mitigation within the set risk appetite is an ongoing and key element of the Bank’s risk management processes. It is achieved as described below:
• customers selection and credit confirmation:
- Target market and customer selection criteria are determined;
- Maximum credit exposure against the obligor is determined through obligor limits related to customer risk ratings and/or through risk acceptance criteria;
- Limits are established and monitored in order to mitigate exposure concentration risk;
- Robust credit due diligence standards are established and maintained;
- Credit process standards are established in order to ensure a consistent approach to each segment;
- Credit documentation standards are applied;
• collateral is used in order to minimize the risk and to manage residual risk:
- Establishing acceptable collaterals and their classification in view of regain possibility in case of execution;
- Setting collaterals in right law’s form ( documentation standards);
- Expected collateral structure or credit value in relation to collateral value is determined;
- The value of collateral on property and equipment is determined by dedicated specialty functions within the Bank using external valuation where required;
• monitoring and early warning system:
- Credit exposures periodic monitoring and an early warning system are used;
- Regular inspection of portfolio ensuring identification of adverse tendencies and concentration;
- Active portfolio management includes implementation of necessary modifications to the credit strategy based on portfolio reviews or stress testing.
Policy of collateral acceptance
Apart from general rules of credit risk mitigation, the Bank has defined specific Corporate and Consumer rules of accepting, assessing, establishing and monitoring various types of collateral, including mortgages, pledge on fixed and current assets, guarantees and similar forms of support and assignment of receivables (jointly: “collateral”). The risk is limited by the requirement to insure the collateral for the time of credit exposure. These rules serve to minimize the residual risk.
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Annual Financial Statements of Bank Handlowy w Warszawie S.A. for the financial year ended 31 December 2023
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As an additional element limiting the risk, in financing of companies and individuals who pursue business activity, is the rule that revenues from the customer’s ongoing business are the key element of creditworthiness assessment of potential borrowers and the primary source of repayment of debt to the Bank.
In order to diversify risks associated with collateral, the Bank accepts various types of collateral:
• in the Consumer Bank, the most common type of collateral is residential real estate,
• in the Corporate and Commercial Bank, the following types of collateral are among other:
- guarantees,
- cash,
- securities,
- receivables,
- inventory,
- real estate,
- equipment and machines,
- vehicles.
Detailed procedures outlining the types of collateral acceptable to the Bank and the rules of their establishment and valuation as well as the creation of a special risk unit responsible for the collateral management process allow for the development of appropriate standards for this process, including:
• criteria for acceptance and valuation of collateral,
• documentation standards,
• rules and frequency of collateral value monitoring and updating (including inspections).
In addition, Corporate Banking credit regulations set such parameters as:
• the structure of collateral required for different types of credit receivables,
• the relationship of loan value to collateral value for each type of collateral,
• the desirable structure of the different types of collateral in the credit portfolio.
The Bank periodically controls whether the current structure of the collateral portfolio in Corporate Banking is compatible with the objectives and whether the value of the collateral is appropriate.
Within the Corporate Bank, the expected ratio of loan value to collateral value is determined in each case in a credit decision. This ratio is also subject to periodic inspection / monitoring.
The principal type of collateral in GCB is a mortgage register for mortgage-secured loans. The Bank also uses bridge insurance to mitigate the risk of the borrower’s default between the time of disbursement of a loan and the time of a mortgage register. The value of collateral is measured at each time on the basis of an expert valuation of real estate commissioned by the Bank. Expert valuations are reviewed by an independent valuation division according to valuation guidelines for real estate used as collateral of real estate loans for individuals who are GCB customers. The quality of the division’s performance is monitored.
Concentration in credit risk
In order to prevent adverse events resulting from excessive concentration, the Bank reduces the concentration risk by setting limits airing from law and concentration standards adopted internally, in order to ensure adequate diversification of risk in the portfolio. The Bank establishes General and specific limits to mitigate the risk of credit concentration, adequate to the approved risk appetite in the Bank as well as business strategy
In its credit risk management, the Bank takes into account in particular the risk arising from:
• exposure to single entities (including taking into account the effect of exposure to a single clearing house – KDPW CCP on the level of concentration risk exposure, particularly in the event of potential inability to meet the obligations of the clearing house), or related entities capitally or economically (counterparty concentration risk),
• exposure to the same industry, economic sector, similar type of activity or trading similar goods (industry concentration risk),
• exposure to the same geographical region, as well as individual countries (risk of geographical concentration),
• exposure to the entities belonging to the Capital Group of the Bank,
• exposure to counterparties in derivative transactions,
• used credit risk mitigation techniques (exposures secured by the same type of collateral), including due to large indirect credit exposures such as a single issuer (collateral concentration risk),
• specific of Bank products/portfolio and exposure tenor,
• individual products, markets or currencies.
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Annual Financial Statements of Bank Handlowy w Warszawie S.A. for the financial year ended 31 December 2023
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General concentration limits are approved on the Management Board level and monitored according to relevant Policy rules, primarily by the Risk and Capital Management Committee. Credit Risk and Business managers define (where appropriate) detailed internal concentration limits, control and reporting frequency and rules of approval for excesses and corrective action plans. Exceeding of established limits is reported, depending on the specific requirements of the Policy, to the approval of appropriate persons, the Risk and Capital Management Committee and the Bank Management Board together with corrective action plans.
In hedge concentration, appropriate limits are settled and controlled, including commitments hedged with a mortgage in accordance with S Recommendation.
Obligor exposure concentration risk
The Bank limits the concentration of its exposure to a single customer or a group of customers with common ownership and/or organization. As at 31 December 2023, the Bank’s exposure in bank portfolio transactions with groups of customers whose aggregate exposure exceeded 10% of the Bank’s equity (as defined below in this report) amounted to PLN 4,940,989 thousand, i.e., 70.50 % of equity (31 December 2022: 6,634,147 thousand, i.e., 128.68 %). In 2023 and 2022 the Bank complied with the provisions on limits of concentration of exposure.
Concentration of exposure to the top 10 non-banking borrowers of the Bank:
31.12.2023
31.12.2022
PLN’000
Balance sheet exposure*
Exposure due to granted financial commitments and guarantees
Total exposure
Balance sheet exposure*
Exposure due to granted financial commitments and guarantees
Total exposure
GROUP 1
953,852
86,478
1,040,330
512,765
175,513
688,278
CLIENT 2
1,002,530
-
1,002,530
1,006,608
-
1,006,608
GROUP 3
592,486
405,827
998,313
893,347
291,249
1,184,596
GROUP 4
967,561
-
967,561
788,636
-
788,636
GROUP 5
942,297
-
942,297
930,666
-
930,666
GROUP 6
118,433
582,488
700,921
8,836
729,745
738,581
GROUP 7
334,736
208,114
542,850
148,963
433,050
582,013
GROUP 8
305,976
230,451
536,427
247,304
196,108
443,412
GROUP 9
31,798
438,375
470,173
314,702
172,487
487,189
CLIENT 10
452,886
-
452,886
-
-
-
Total
5,702,555
1,951,733
7,654,288
4,851,827
1,998,152
6,849,979
*As at 31.12.2023; data from 31.12.2022 are comparative and do not illustrate concentration of exposures as at 31.12.2022.
*Excluding investment in shares and other securities
***The Group is understood as a capital group consisting of entities in relation to which the Bank Handlowy w Warszawie S.A. has exposures.
The limits of the Bank’s maximal exposure are determined in the Banking Law Bill from 29 August 1997 and Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms and amending Regulation (EU) No 648/2012 (Regulation No 575/2013). When keeping conditions determined in Regulation 575/2013, it is allowed for the Bank to maintain an overdraft of liabilities level over limits determined in paragraph 71 of the Banking Law Bill only in the case of liabilities resulting from operations rated in trade portfolio. Own funds for determining limits of exposure purposes were determined according to Regulation No 575/2013.
As at 31 December 2023, the Bank did not have an exposure to one entity exceeding the statutory exposure concentration limits.
Concentration of exposure in individual industries*
Given that there is a large diversity of customers representing individual industries, the table below shows aggregate data for the Bank’s exposure to the industrial sectors.
31.12.2023
31.12.2022
Sector of the economy according to NACE*
PLN’000
%
PLN’000
%
Financial service activities, excluding insurance and pension funds
18,591,026
44.3%
3,561,155
12,8%
Wholesale trade, except of motor vehicles
3,864,447
9.2%
3,463,795
12,5%
Financial services, insurance and pension funds supporting activities
1,880,042
4.5%
2,143,172
7,7%
Production and supply of electricity, gas, steam, hot water and air for air conditioning systems
1,721,912
4.1%
1,745,586
6,3%
Production of food products
1,589,826
3.8%
1,533,203
5,5%
Production of electrical equipment
1,259,723
3.0%
1,375,954
4,9%
Activities of head offices; consulting related to the management
1,213,314
2.9%
1,302,270
4,7%
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Annual Financial Statements of Bank Handlowy w Warszawie S.A. for the financial year ended 31 December 2023
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31.12.2023
31.12.2022
Sector of the economy according to NACE*
PLN’000
%
PLN’000
%
Retail trade, except of motor vehicles
1,048,675
2.5%
1,081,852
3,9%
Manufacture of fabricated metal products, except machinery and equipment
697,810
1.7%
955,612
3,4%
Telecommunication
674,491
1.6%
806,246
2,9%
„10” industries total
32,541,266
77.6%
17,968,845
64,6%
Other industries
9,504,624
22.4%
9,832,140
35,4%
Total
42,045,890
100.0%
27,800,985
100,0%
* Balance-sheet and off-balance-sheet exposure gross to institutional customers (including Groups) as at 31.12.2023, based on NACE Revision 2 (The Statistical Classification of Economic Activities in the European Community), data from 31.12.2022 are comparative and do not illustrate concentration of exposures as at 31.12.2022.
Gross amounts due from customers and banks by type of business:
PLN’000
31.12.2023
31.12.2022
Gross amounts due from economic entities and banks
Financial
19,693,605
4,954,065
Production
3,905,880
4,847,260
Services
3,252,568
3,657,212
Other
3,115,502
3,508,198
29,967,555
16,966,735
Gross amounts due from individual customers
6,354,874
6,553,305
Total (see Note 18, 22)
36,322,429
23,520,040
Determination of Expected Credit Loss
The Bank makes impairments for expected credit losses, according to developed internal rules and methodologies for calculating impairments for all financial assets . They are made based on aggregated level for each of the 3 Stages:
• Stage 1: Credit exposures that have not had a significant increase in credit risk since initial recognition
 For these assets, a 12-months ECLs are recognized (representing the portion of lifetime expected credit losses that result from default events that are possible within 12 months after the reporting date),
• Stage 2: Credit exposures that have experienced a significant increase in credit risk since initial recognition, but for which the exposure is not yet defaulted
 For these assets, a lifetime ECLs are recognized,
• Stage 3: Credit exposures with credit loss that has already been suffered on the assets
 For these assets, ECL is established as for defaulted assets.
The assignment of the exposure to particular Stage is based on the approach to client management (individual vs. group approach), taking into account:
• the wide range of information obtained as part of standard risk management processes (including the Early Warning process) regarding both current and future events, including macroeconomic factors and
• the number of days past due (where days past due calculation, for the purpose of exposure assignment to Stages, is done in line with EBA/GL/2016/07 guidance and the regulation of Ministry of Finance, Investment and Development of October 3rd 2019 on the significance level of overdue credit exposure).
Stage 1
All exposures not classified as Stage 2 and Stage 3 are classified as Stage 1.
In the Institutional Banking, the Bank applies the Low Credit Risk (LCR) criterion for high-rated credit exposures, however there are overriding criteria to Stage 2 classification such as 30 DPD. In case the low risk of loss results only from the value of collateral and the financial instrument without that collateral would not be considered low credit risk, then it is not accounted as LCR.
Stage 2
In case of credit exposures from the retail banking area for the Stage 2 classification, except from the 30 days criterion of arrears and forborne categories, the quantitative criterion is additionally applied - analysis of the change in PD level since the exposure was created. The Bank does not use the fixed threshold above which an increase in risk would automatically be considered significant. It results from the fact that the same increase of PD in absolute terms would be more significant
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Annual Financial Statements of Bank Handlowy w Warszawie S.A. for the financial year ended 31 December 2023
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for exposures with lower initial risk than for those with the higher initial risk. Therefore the Bank uses a dedicated model which target is to setting a threshold above which an increase in risk will be considered significant. In order to determine the relative growth, the Bank uses a variable being the quotient of the probability of default on the current reporting date and the contingent probability calculated for the same period at the time of initial recognition. A threshold is defined as the cut-off point, where the probability of a default event occurring when the value of an explanatory variable increases is maximized.
The overdue criterion of over 30 days (incl. materiality of overdue credit exposure) as well as of above 90 days (regardless of the materiality of overdue credit exposure) are a direct trigger for identifying a significant increase in credit risk. In addition, qualitative premises are included on the soft restructuring activities carried out and the fact that information about the probability of default is not available.
For credit exposures in the area of institutional banking, except from overdue by more than 30 days criterion, in order to assess if a significant increase in credit risk took place within the internal classification process and ongoing monitoring process, the Bank analyses changes in risk of default by comparing the current assessment of default with the assessment of default in the initial recognition.
Assessment of change in risk of default for given credit exposure is conducted during internal classification process and monitoring process and includes:
• qualitative indicators (including Early Warning System),
• quantitative information (including among others rating and rating change compared to initial recognition, financial data),
• expected exposure life period,
• occurrence of economic or legal reasons related to the borrower’s financial difficulties and granting to the borrower a concession to financial conditions that the lender would not otherwise consider, (assuming that those changes does not imply deterioration in future payment flows).
Stage 3
The Bank applies the general principle that the creditor's default occurs when one or both of the following events occur:
• delay in the debtor’s repayment of any material loan obligations to the Bank is 90 days or more,
• it is unlikely that the debtor fully fulfills his credit obligations towards the Bank, without the institution having to undertake activities such as collateral execution.
The Bank assess for each balance sheet date if there an objective prerequisites for impairment for given financial asset of group of financial assets.
A financial asset or a group of financial assets lost their value and the impairment loss was incurred only when there is objective evidence of impairment resulting from one or more events taking place after the initial recognition of the asset (event causing the loss), and the event (or events) causing a loss has an impact on the expected future cash flows resulting from a financial asset or a group of financial assets whose reliable estimation is possible.
In the institutional banking area, materialization of credit exposure value loss takes place if there is an objective evidence of impairment, which can be a result of, among others, events as below:
• obtaining information on significant financial difficulties of the client,
• reduction of the client credit rating by an accepted by the Bank External Credit Assessment Institution 1 ,
• occurrence of economic or legal reasons related to the borrower’s financial difficulties and granting to the borrower a concession to financial conditions that the lender would not otherwise consider, (forborne non- performing), including granting permission for emergency restructuring of credit exposure, if it might result in decreasing financial requirements, reduction of financial liabilities by redeeming a significant part of the principal, interest or, where applicable, fees or deferring their repayment or payment;
• high likelihood of bankruptcy, gaining information on:
- declaration of bankruptcy,
- commencing bankruptcy proceedings or submitting a bankruptcy petition/ petition for bankruptcy proceedings,
- putting the debtor into bankruptcy or liquidation,
- dismissing the bankruptcy petition because the debtor's assets are insufficient or only sufficient to cover the costs of bankruptcy proceedings,
- dissolution or annulment of the company,
- appointing of a guardian,
- establishing a trustee (bancupcy administrator),
- submitting an application for restructuring proceedings within the meaning of the Restructuring Law,
or granting to the obligor a similar protection if it would allow him to avoid or delay repayment of credit obligations,
• Bank initiates procedure to obtain an enforcement title,
• delay in payment equal to 90 days or more (where days past due are calculated in line with EBA/GL/2016/07 guidance and the regulation of Ministry of Finance, Investment and Development of October 3rd 2019 on the significance level of overdue credit exposure),
• default contagion in line with EBA/GL/2016/07 guidance,
• status of exposure has been changed from “accrual”/ “performing” to “non-accrual”/ “non-performing”,
• exposure has been classified (as per internal classification) to category: “Substandard non–performing/ non-
1 Below risk level corresponding to internal 7- rating (i.e. to CCC- for Standard & Poors, Caa3 Moody’s)
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Annual Financial Statements of Bank Handlowy w Warszawie S.A. for the financial year ended 31 December 2023
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accrual”/ ”Doubtful” or “Lost”,
• obligor Risk Rating (ORR) is worse than 7- which is applied for obligors that are defaulted,
• justified suspicion of abuse or extorting a credit exposure, or identifying cases of a probable criminal act related to a credit exposure, documented by submitting a notification of suspected crime to the competent state authority
• termination of the loan agreement due to high credit risk,
• obtaining information on the execution of a court judgment process against the debtor in an amount which, in the opinion of the bank, may result in the loss of creditworthiness,
• lack of payment by the debtor the amount of the realized Government guarantee,
• death, permanent disability or serious illness of the debtor (in the case of debtors running a company in the form of entrepreneurship), resulting in the inability to continue the activity,
• staying in custody or prison of the debtor (in the case of debtors running a company in the form of entrapreneurship), resulting in the inability to continue the activity.
• obtaining information about a customer's default under agreements with other Citi group entities,
• in case the Economic Loss (L) resulted from the sale of credit obligations is higher than 5%, all other remaining client exposures should be considered as defaulted,
or any other events that may have an impact on the estimated future cash flows from the financial asset that can be reliably estimated.
Objective evidence of impairment of a financial asset or a group of assets in the Retail Banking area includes the fulfillment of even one of the following conditions by any of the customer's exposures:
• occurrence of delays in repayment of principal and interest , the minimum amount to be paid, commission or exceeding the permitted limit. For the purpose of default identification it is assumed that the delay in repayment is equal to or exceeds 90 days at the moment of calculating the write-down (where days past due are calculated in line with EBA/GL/2016/07 guidance and the regulation of Ministry of Finance, Investment and Development of October 3rd 2019 on the significance level of overdue credit exposure,
• granting modifications to the terms of the agreement (restructuring), as a result of which the current value of cash flows falls below the book value before the modification,
• termination of the contract for reasons other than a delay in the repayment of mortgage products,
• default contagion in line with EBA/GL/2016/07 guidance,
• occurrence of qualitative circumstances:
- death,
- bankruptcy,
- permanent disability or serious illness,
- fraud,
- obtaining information about initiating bankruptcy proceedings of the client or announcing bankruptcy by the client,
- impairment or threat of collateral impairment,
- obtaining information about significant financial problems of the client,
- justified suspicion of extortion of credit exposure or identifying cases of the substantiated criminal offense concerning credit exposure,
- obtaining information about the execution of the debtor in the amount, which in the bank's opinion may result in the loss of creditworthiness,
- the client's stay in custody or prison,
- partial capital write-off,
- agreement termination,
- the Bank's request to initiate enforcement proceedings against the client.
- the client's stay in custody or prison,
- partial capital write-off,
- agreement termination,
- the Bank's request to initiate enforcement proceedings against the client.
In the case of clients who do not meet the restructuring criteria, and in particular, for which the legal path has been implemented (bankruptcy, enforcement, court dispute) without the prospects of returning the repayment formula from the client's core operations, the debt collection process is carried out and the receivables are written off. The main goal of this process is to maximize the amount of outstanding exposures recovered by the Bank. In the debt collection process, the Bank will develop a cooperation formula with the client, in the course of which the Bank's activity is not limited only to legal actions, but also, if possible, ongoing cooperation. In the event that the repayment of the exposure is jeopardized due to the poor financial standing of the debtor or by the transfer of assets beyond the scope of recovery, the exposures can be sold in exceptional cases.
The Bank has established and applies a quarantine period for exposures that cease to be classified as Stage 3 assets.
In the area of institutional banking, a change in status from “impairment” to “no impairment” may take place when there are no arrears to the Bank within a minimum period of 12 months and the principal amount and related additional claims under the contract are recoverable in full. The main premise for changing the status from impairment to no impairment is complete recovery of creditworthiness.
In the Retail area, the quarantine mechanism relies on maintaining the customer in the status of impairment for the next 9 months from the disappearance of all indications of impairment.
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Annual Financial Statements of Bank Handlowy w Warszawie S.A. for the financial year ended 31 December 2023
29
The expected credit loss, which is the basis for determining the level of the provision for impaired receivables and with a significant increase of credit risk since the initial recognition is determined throughout the lifetime of the exposure. In the case of installment exposures, this is the period to the contractual maturity date. For revolving exposures, the contractual maturity is not specified, in replacement of the so-called behavioral maturity resulting from the empirical estimation of the life of the credit product.
Provisions for expected credit losses for consumer banking portfolio are calculated on the basis of statistical models for groups of assets combined in portfolios with common credit risk features. The Bank aggregates financial instruments for the purpose of measurement of expected credit losses on product level in consumer banking and on segment level for homogenous micro-entrepreneurships portfolio with minimal shareholding in the sum of gross receivables of the Bank. In terms of product aggregation the following portfolios are defined: credit cards, cash loan within credit card, credit line, cash loan and mortgages.
In the financial statements, the Bank adjusts the value of credit exposures by provision for expected credit losses. In case individually significant exposure is at Stage 3, provisions are measured using individual approach. Exposures are deemed to be individually significant, if an expected credit loss for the borrower in Stage 3 exceeds 10% of average provisions related to receivables in Stage 3 in the last quarter.
In the area of Institutional Banking, the main sources of parameters included in the methodology of expected credit losses ('ECL') are the results of internal customer assessment processes and the results of loan models:
• the rate of impairment is derived from the client's rating determined based on internal rating models. The ECL methodology describes the process of applying existing migration ratings, expected in a given macroeconomic scenario, to migration schedules. In this way, in the following forecast periods, the probability of migration to a given rating range is obtained,
• the value of the LGD parameter results directly from the dedicated model for impaired clients,
• the exposure value for subsequent forecast periods is based on available repayment schedules as well as (for renewable products) on the expected change in exposure described by the value of the CCF parameter. The basis for estimating this parameter was internal data on amounts used by customers before the Bank identified impairment of value,
• the assignment to the stage is based on the customer assessment process used in the Bank to manage the client. This process includes both quantitative factors (e.g. customer rating) and a number of qualitative factors (e.g. Early Warning Signals),
• the maturity dates adopted by the Bank result directly from agreements with customers and periods in which the Bank is exposed to possible risks.
In the area of Retail Banking, the basis of parameters included in the ECL methodology are the existing internal models of the client's creditworthiness assessment in the Bank, information about the stage of debt collection proceedings and information from the Bank's data warehouse:
• the rate of impairment is the submission of a number of models of customer creditworthiness assessment, connected to each other by process called integration logic. The ECL methodology, based on forecasts provided by the Chief Economist, transforms the results of integration logic so that the result reflects the expected changes in the economy. The parameters thus obtained are then applied to the loss vectors during the life of the product, estimated on the basis of historically observed loss rates. Recovery value vectors are the result of the analysis of the amount of historically collected receivables for homogeneous populations. The populations were segmented against similar features such as product type, time from default, amount of exposure left for repayment or historically observed repayments,
• the value of the EAD parameter is based on installment products on the expected repayment schedules generated based on the length of the contract and the interest rate on the product. For renewable products, EAD is based on the internally estimated CCF vector.
The Bank uses the macroeconomic scenarios including explanatory variables in models used to measure impairment. Scenarios are prepared by the Chief Economist of the Bank min. once a quarter in a 3-year horizon divided into quarters (base scenario with 60% weight and positive and negative variation from scenario with 20% weight).
In the area of institutional banking, the Bank divided the loan portfolio into industries in terms of their sensitivity to macroeconomic conditions, identified macroeconomic variables that best explained the historical changes in credit quality and analyzed the dependence on macroeconomic factors using statistical methods. Finally, the Bank has built a model for each of the established industry sensitivity classes allowing for the dependence of the coefficient determining the level of client migration between ratings from these factors.
In the area of Retail Banking, at the level of homogeneous product portfolios, the Bank, using statistical methods, built equations making the level of annual loss rates dependent on macroeconomic factors. The models allow for dynamic shaping of the provision for impairment losses depending on the expected changes in the economy.
Macroeconomic scenarios in the area of Institutional Banking include below variables:
• annual amendment of index WIG,
• unemployment rate,
• inflation,
• PKB,
• unemployment rate „BAEL”,
• WIBOR 3M rate.
however Retail Banking uses two variables in modeling the expected credit losses:
• unemployment rate „BAEL”,
• annual change of index WIG.
TRANSLATION
Annual Financial Statements of Bank Handlowy w Warszawie S.A. for the financial year ended 31 December 2023
30
Macroeconomic scenarios for the variables used to estimate expected credit losses as at December 31, is presented below.
Basic macroeconomic scenario
4q23
1q24
2q24
3q24
4q24
1q25
2q25
3q25
4q25
1q26
2q26
3q26
4q26
GDP growth YoY
3,6
3,4
3,9
3,2
3,4
3,3
3,3
3,3
3,3
3,3
3,4
3,4
3,4
Inflation YoY (average)
6,5
4,4
3,7
4,9
5,1
5,9
5,8
4,8
4,8
3,8
3,4
2,9
2,8
Registered unemployment rate
5,2
5,5
5,1
5,1
5,4
5,8
5,3
5,2
5,3
5,5
5,2
5,1
5,4
Unemployment rate
2,9
3,2
2,8
2,8
3,1
3,5
3,0
2,9
3,0
3,2
2,9
2,8
3,1
WIBOR 3M (eop)
5,84
5,94
5,77
5,60
5,27
4,94
4,77
4,35
4,19
3,94
3,94
3,94
3,94
WIG(eop)
76515
77556
78596
79637
80677
81906
83135
84364
85594
86568
87543
88518
89493
Pessimistic macroeconomic scenario
4q23
1q24
2q24
3q24
4q24
1q25
2q25
3q25
4q25
1q26
2q26
3q26
4q26
GDP growth YoY
3,0
2,1
2,1
0,8
1,3
1,5
1,7
2,1
2,3
2,5
2,9
3,2
3,3
Inflation YoY (average)
5,9
2,0
0,9
1,8
2,3
3,0
3,1
2,3
2,5
3,2
3,0
2,7
2,6
Registered unemployment rate
5,3
5,7
5,4
5,5
5,9
6,4
6,0
6,0
6,2
6,4
6,2
6,1
6,4
Unemployment rate
3,0
3,3
3,0
3,1
3,5
4,0
3,6
3,6
3,8
4,0
3,8
3,7
4,1
WIBOR 3M (eop)
5,59
5,44
5,02
4,60
4,02
3,69
3,52
3,10
2,94
2,69
2,69
2,69
2,69
WIG (eop)
73791
71722
69697
67717
68602
69647
70692
71737
72782
73611
74440
75269
76098
Pessimistic macroeconomic scenario
4q23
1q24
2q24
3q24
4q24
1q25
2q25
3q25
4q25
1q26
2q26
3q26
4q26
GDP growth YoY
4,2
4,6
5,8
5,7
5,6
5,2
4,8
4,5
4,3
4,2
3,9
3,6
3,5
Inflation YoY (average)
7,1
7,2
6,9
8,6
8,3
8,3
8,0
6,8
6,6
5,4
4,8
4,1
4,0
Registered unemployment rate
5,1
5,3
4,8
4,7
4,9
5,1
4,6
4,4
4,4
4,5
4,2
4,1
4,4
Unemployment rate
2,8
3,1
2,6
2,5
2,7
2,9
2,4
2,2
2,2
2,3
2,0
1,9
2,1
WIBOR 3M (eop)
6,34
6,94
7,02
7,35
7,27
6,94
6,77
6,35
6,19
5,69
5,44
5,19
4,94
WIG20 (eop)
79239
83616
88221
93063
94279
95715
97151
98588
100024
101163
102302
103441
104580
Scenarios and macroeconomic variables are updated on a quarterly basis.
As part of the assessment of the adequacy of the methodology used to determine impairment and provision, the Bank regularly, at least annually, carries out an analysis to verify to which extent the revaluation provision were reflected in actual losses. In addition, the models used for determining reserves are subject to evaluation by an independent Model Validation Office.
The Bank assesses sensitivity of expected credit losses with respect to applied methods and underlying assumptions, in particular concerning macroeconomic parameters. The table below presents change of expected credit losses for not impaired exposures that were determined as a difference between the expected credit losses estimated assuming one particular scenario and expected credit losses estimated using probability-weighted approach (the "-" sign means lower and the "+" sign means higher expected losses)..
Change of expected credit losses for stage 1 and 2 assuming 100% scenario weight as at 31.12.2023
Optimistic scenario
Pessimistic scenario
Consumer Bank
(2,046)
1,634
Institutional Bank
(947)
1,411
(2,993)
3,045
Change of expected credit losses for stage 1 and 2 assuming 100% scenario weight as at 31.12.2022
Optimistic scenario
Pessimistic scenario
Consumer Bank
(874)
761
TRANSLATION
Annual Financial Statements of Bank Handlowy w Warszawie S.A. for the financial year ended 31 December 2023
31
Change of expected credit losses for stage 1 and 2 assuming 100% scenario weight as at 31.12.2022
Optimistic scenario
Pessimistic scenario
Institutional Bank
79
(506)
(795)
255
The Bank recognizes and manages counterparty credit risk in transactions in financial instruments based on internal limits for pre-settlement and settlement engagement. The exposures also include credit ratings.
In 2023, the Bank introduced methodological changes to expected credit losses estimation, which entailed:
• for credit exposures in the area of institutional banking, CCF update;
• in case of credit exposures from the retail banking, changes at the level of model construction and data selection within the LGD parameter for unsecured products.
The table below presents the maximum exposure of the Bank to credit risk:
PLN’000
Note
31.12.2023
31.12.2022
Gross receivables due from the Central Bank
17
1,241,873
671,335
Gross receivables due from banks
18
15,372,457
970,161
Gross receivables due from institutional customers**
22
14,436,699
15,921,207
Gross receivables due from individual customers**
22
6,354,874
6,553,305
Debt securities held-for-trading
19
791,112
2,272,515
Derivative instruments
19
4,081,822
4,730,752
Debt investment financial assets measured at fair value though other comprehensive income
20
29,560,292
37,180,808
Other financial assets
27
159,032
155,208
Contingent liabilities granted
40
17,342,302
16,320,507
89,340,463
84,775,798
*As at December 31, 2023, the value of collateral diminishing the maximum exposure to credit risk for receivables from institutional clients amounted to PLN 3,821,166 thousand (31 December 2022: PLN 3,506,019 thousand) and for receivables from individual clients amounted to PLN 2,225,502 thousand (31 December 2022: PLN 2,182,645 thousand).
The table below present the mortgage-backed receivables from individual customers in a given Loan-to-value (LtV) interval. The amount of exposure is measured by unpaid principal amount.
PLN’000
31.12.2023
31.12.2022
Less than 50%
1,006,584
949,029
51 - 80%
1,134,579
1 229,197
81 - 100%
56,112
17,526
2,197,275
2,195,752
The collateral amount is haircut in estimation of expected credit losses estimation to reflect the expected recovery through sale. Hypothetical impact of mortgage collateral onto expected credit losses for receivables from individual customers as at 31 December 2023 amounts to PLN 17.2 million.
The collateral amount (mainly mortgage) used to estimate expected credit losses for impaired receivables from corporate customers as at 31 December 2023 equaled PLN 95 299 thousand (before reflecting time-value-of-money). For particular exposures the collateral amount was decreased to account of accommodate the expectations in collection processes, capped by exposure amount, and weighted with a probability of a collateral collection scenario.
The tables below present the portfolio grouped whether they are impaired or not. The tables also present the details of impairment provision.
According to credit management process, Bank identifies classifiable portfolio (individual assessment) and based on portfolio classification (portfolio assessment).
Exposures without impairment are classified based on the internal risk ratings from 1 to 7, where risk category 1 is the best rating.
Exposures, classified based, with identified impairment have assigned internal risk ratings from 8 to 10.
The internal risk ratings are received in the complex credit assessment’s process, which consists of rating models and methodologies, additional corrections resulting among others from the acquired support and the security, and all the defined processes used in order to get risk ratings.
The risk rating defines the probability of breach of contract by the debtor within the 1 year period. Ratings from 1 to 4- inclusive are treated as the equivalent of ratings at investments levels of external credit rating agencies, which implies that they indicate a low or medium level of credit risk. Ratings below 4- indicate increased credit risk, wherein the rating 7 means high credit risk and low ability to service debt obligations, even in favorable macroeconomic conditions.
TRANSLATION
Annual Financial Statements of Bank Handlowy w Warszawie S.A. for the financial year ended 31 December 2023
32
The structure of the portfolio of exposures to banks and clients from the point of view of credit risk as at 31 December 2023:
PLN ‘000
31.12.2023
Receivables from institutional customers
Receivables from individual customers
Receivables from banks
Total
Not impaired receivables (Stage 1)
By risk rating
Risk rating 1-4-
10,280,827
-
15,331,662
25,612,489
Risk rating +5-6-
2,692,480
-
5,385
2,697,865
By delinquency
-
-
-
-
No delinquency
-
4,631,658
-
4,631,658
1-30 days
-
78,408
-
78,408
31-90 days
-
331
-
331
Gross amount
12,973,307
4,710,397
15,337,047
33,020,751
Provision for expected credit losses
(20,582)
(31,893)
(316)
(52,791)
Net amount
12,952,725
4,678,504
15,336,731
32,967,960
Not impaired receivables (Stage 2)
By risk rating
Risk rating 1-4-
443,774
-
5,343
449,117
Risk rating +5-6-
328,656
-
30,067
358,723
Risk rating +7 and greater
302,783
-
-
302,783
By delinquency
-
-
-
-
No delinquency
-
1,086,026
-
1,086,026
1-30 days
-
109,786
-
109,786
31-90 days
-
15,831
-
15,831
Gross amount
1,075,213
1,211,643
35,410
2,322,266
Provision for expected credit losses
(29,898)
(69,853)
(589)
(100,340)
Net amount
1,045,315
1,141,790
34,821
2,221,926
Impaired receivables (Stage 3)
By delinquency
-
414,565
-
414,565
By risk rating
Risk rating +7 and greater
379,243
-
-
379,243
Gross amount
379,243
414,565
-
793,808
Provision for expected credit losses
(260,401)
(324,962)
-
(585,363)
Net amount
118,842
89,603
-
208,445
Purchased or originated credit-impaired receivables
By delinquency
-
18,269
-
18,269
By risk rating
Risk rating +7 and greater
8,936
-
-
8,936
Gross amount
8,936
18,269
-
27,205
Provision for expected credit losses
646
(176)
-
470
Net amount
9,581
18,093
-
27,674
Total gross value
14,436,699
6,354,874
15,372,457
36,164,030
Provision for expected credit losses
(310,235)
(426,884)
(905)
(738,024)
Total net value
14,126,464
5,927,990
15,371,552
35,426,006
As described above, one of the main factors influencing the management of individual customers portfolio are days of delay, while in the institutional customers segment rating is the key determinant of credit risk.
Impaired receivables are characterized by a relatively lower and, in some circumstances, positive allowance for expected credit losses, as disclosed in the table above. Upon initial recognition, POCI assets are recognized at fair value and the fair value adjustment, which primarily reflects credit risk, is included in the gross carrying amount of the receivable.
The structure of the portfolio of exposures to banks and clients from the point of view of credit risk as at 31 December 2022:
TRANSLATION
Annual Financial Statements of Bank Handlowy w Warszawie S.A. for the financial year ended 31 December 2023
33
PLN ‘000
31.12.2022
Receivables from institutional customers
Receivables from individual customers
Receivables from banks
Total
Not impaired receivables (Stage 1)
By risk rating
Risk rating 1-4-
11,555,463
-
699,969
12,255,432
Risk rating +5-6-
2,420,141
-
7,036
2,427,177
By delinquency
No delinquency
8
4,973,199
-
4,973,207
1-30 days
-
77,510
-
77,510
31-90 days
-
730
-
730
Gross amount
13,975,612
5,051,439
707,005
19,734,056
Provision for expected credit losses
(40,985)
(40,250)
(328)
(81,710)
Net amount
13,934,627
5,011,189
706,677
19,652,346
Not impaired receivables (Stage 2)
By risk rating
Risk rating 1-4-
64,485
-
228,157
292,642
Risk rating +5-6-
1,065,852
-
34,567
1,100,419
Risk rating +7 and greater
355,308
-
432
355,740
By delinquency
No delinquency
-
941,276
-
941,276
1-30 days
-
107,818
-
107,818
31-90 days
-
23,317
-
23,317
Gross amount
1,485,645
1,072,411
263,156
2,821,212
Provision for expected credit losses
(43,614)
(64,771)
(1,085)
(109,470)
Net amount
1,442,031
1,007,640
262,071
2,711,742
Impaired receivables (Stage 3)
By delinquency
-
419,514
-
419,514
By risk rating
Risk rating +7 and greater
452,943
-
452,943
Gross amount
452,943
419,514
-
872,457
Provision for expected credit losses
(329,595)
(333,032)
-
(662,627)
Net amount
123,348
86,482
-
209,830
Purchased or originated credit-impaired receivables
By delinquency
-
9,941
-
9,941
By risk rating
Risk rating +7 and greater
7,007
-
-
7,007
Gross amount
7,007
9,941
-
16,948
Provision for expected credit losses
(1,354)
(404)
-
(1,758)
Net amount
5,653
9,537
-
15,190
Total gross value
15,921,207
6,553,305
970,161
23,025,159
Provision for expected credit losses
(415,548)
(438,457)
(1,413)
(855,565)
Total net value
15,505,659
6,114,848
968,748
22,169,594
As described above, one of the main factors influencing the management of individual customers portfolio are days of delay, while in the institutional customers segment rating is the key determinant of credit risk.
Impaired receivables are characterized by a relatively lower and, in some circumstances, positive allowance for expected credit losses, as disclosed in the table above. Upon initial recognition, POCI assets are recognized at fair value and the fair value adjustment, which primarily reflects credit risk, is included in the gross carrying amount of the receivable.
Structure of derivatives in terms of credit risk
PLN’000
31.12.2023
31.12.2022
TRANSLATION
Annual Financial Statements of Bank Handlowy w Warszawie S.A. for the financial year ended 31 December 2023
34
Transactions with institutional customers
Transactions with retail customers
Transactions with banks
Transactions with institutional customers
Transactions with retail customers
Transactions
with banks
Derivatives by risk rating
Risk rating 1-4-
2,370,564
-
1,652,238
3,619,909
-
914,692
Risk rating+ 5-6-
58,325
-
541
135,519
13,811
45,841
Risk rating +7 and greater
154
-
-
981
-
-
Total
2,429,043
-
1,652,779
3,756,409
13,811
960,533
The classification of exposures in the portfolio of debt securities held for trading and portfolio of debt securities measured at fair value though other comprehensive income by ratings agency Fitch is presented below:
PLN ‘000
31.12.2023
31.12.2022
Debt securities held- for-trading*
Debt securities measured at fair value though the income statement*
Debt securities held-for-trading
Debt securities available-for-sale
Issuer rating by Fitch agency
A (including: from A- to AAA)
791,112
29,560,292
2,272,515
37,180,808
Total
791,112
29,560,292
2,272,515
37,180,808
Structure of granted contingent liabilities in terms of credit risk as at 31 December 2023:
PLN ‘000
31.12.2023
Liabilities due to institutional customers
Liabilities due to individual customers
Liabilities due to banks
Contingent liabilities granted (Stage1)
10,744,060
3,754,304
300,512
by risk rating
-
-
-
Risk rating 1-4-
8,716,458
-
300,512
Risk rating+ 5-6-
2,027,602
-
-
Contingent liabilities granted (Stage 2)
1,052,158
1,465,679
-
by risk rating
-
-
-
Risk rating 1-4-
86,642
-
-
Risk rating+ 5-6-
814,083
-
-
Risk rating +7and greater
151,433
-
-
Contingent liabilities granted (Stage3)
1,873
5,995
-
by risk rating
Risk rating +7and greater
1,873
5,995
-
Purchased or originated credit-impaired
17,721
-
-
by risk rating
Risk rating +7and greater
17,721
-
-
Total
11,815,812
5,225,978
300,512
Structure of granted contingent liabilities in terms of credit risk as at 31 December 2022:
PLN ‘000
31.12.2022
Liabilities due to institutional customers
Liabilities due to individual customers
Liabilities due to banks
Contingent liabilities granted (Stage1)
9,831,703
3,964,409
302,538
by risk rating
Risk rating 1-4-
8,586,076
-
299,172
Risk rating+ 5-6-
1,245,627
-
3,366
Contingent liabilities granted (Stage 2)
796,619
1,393,325
-
by risk rating
Risk rating 1-4-
276,058
-
-
TRANSLATION
Annual Financial Statements of Bank Handlowy w Warszawie S.A. for the financial year ended 31 December 2023
35
PLN ‘000
31.12.2022
Liabilities due to institutional customers
Liabilities due to individual customers
Liabilities due to banks
Risk rating+ 5-6-
379,766
-
-
Risk rating +7and greater
140,795
-
-
Contingent liabilities granted (Stage3)
6,722
6,166
-
by risk rating
Risk rating +7and greater
6,722
6,166
-
Purchased or originated credit-impaired
19,025
-
-
by risk rating
-
-
-
Risk rating +7and greater
19,025
-
-
Total
10,654,069
5,363,900
302,538
“Forbearance” practices
Forborne exposures are identified in the Bank within credit risk management. Bank takes into account "forborne" exposures according to the reporting requirements under the EBA Technical Standards EBA/ITS/2013/03 and under ESMA Document 2012/852. In case of impaired or restructured exposures the Bank applies EBA guidelines, EBA/GL/2018/06.
The Bank considers as "forborne" exposures, where the Bank grants debtor experiencing or about to face financial difficulties preferential financing conditions (i.e. on non-market conditions), which would not have been considered in a different situation. Preferential financing conditions are considered situations in which for example the yield of the modified facility is lower than the contractual yield prior to the restructuring and/or the yield on the modified loan is below a market yield for the relevant tenor and credit risk.
The extent to which the financing conditions are changed is determined individually for each debtor in question. In particular, these activities include:
• receipt of assets;
• granting a new or restructured facility in partial or full satisfaction of a facility;
• modification of the terms of the existing facility, including rescheduling of future payments (e.g. extension of financing tenor), change of interest rate or methods of repayment, reduction of amount to be repaid (principal or accrued interest).
The process of assigning "forborne" status for exposures is closely related to the credit risk management process, including the impairment recognition process for exposures.
In terms of institutional clients the Bank extended recognition of “forborne" status for exposures without impairment. Therefore for institutional clients, similarly to retail exposures, , the "forborne" status may refer to both the exposures: from the impaired portfolio as well as from the portfolio without any impairment. As "forborne" without impairment are recognized by the Bank exposures, where restructuring activities were applied, but change of financing conditions has not implied any deterioration of future payment streams. In such cases the change into “forborne" status is not an evidence of exposure’s impairment.
For Retail exposures the Bank assumes, that exposures will remain in ”forborne” status until they are entirely paid off.
Exposures with modified conditions according to forbearance rules (forborne exposures) are subject to regulatory and internal reporting.
Exposure values in the "forborne" status:
As of
PLN ‘000
31.12.2023
31.12.2022
Receivables without recognized impairment
19,970,559
21,585,107
Receivables without recognized impairment (Stage 1), including
17,683,703
19,027,051
non-financial sector entities
13,505,522
15,213,891
Institutional customers
8,795,125
10,162,452
Individual customers
4,710,397
5,051,439
Receivables without recognized impairment (Stage 2), including:
2,286,856
2,558,056
non-financial sector entities
2,286,831
2,557,187
Institutional customers
1,075,188
1,484,776
„forborne”
225,616
-
Individual customers
1,211,643
1,072,411
TRANSLATION
Annual Financial Statements of Bank Handlowy w Warszawie S.A. for the financial year ended 31 December 2023
36
„forborne”
46
-
Receivables with recognized impairment (Stage 3), including:
793,809
872,457
non-financial sector entities
793,809
872,457
Institutional customers, including:
379,230
452,930
„forborne”
82,347
53,039
Individual customers, including:
414,579
419,527
„forborne”
30,062
30,663
Purchased or originated credit-impaired receivables
27,205
16,948
non-financial sector entities
27,205
16,948
Institutional customers, including:
8,936
7,007
„forborne”
8,936
7,007
Individual customers, including:
18,269
9,941
„forborne”
12,666
7,809
Total gross amount, including:
20,791,573
22,474,512
non-financial sector entities
16,613,367
18,660,483
Institutional customers, including:
10,258,479
12,107,165
„forborne”
316,899
60,046
Individual customers, including:
6,354,888
6,553,318
„forborne”
42,774
38,472
Provision for expected credit losses
(737,119)
(854,005)
On „forborne” receivables
(61,930)
(52,536)
Total net amounts due from customers, including:
20,054,454
21,620,507
„forborne” receivables
297,743
45,982
LIQUIDITY RISK
Liquidity risk is defined as the risk that the Bank may not be able to meet its financial commitments to customers or counterparties when due.
The objective of liquidity risk management is to ensure that the Bank can meet all commitments to customers when due and to secure the liquidity necessary to clear all money market transactions when due.
Liquidity risk management is based on:
• Applicable law, in particular on the Banking Law;
• Requirements of Polish regulatory institutions and especially resolutions of the Polish Financial Supervision Authority;
• Rules of prudent and stable risk management of the Bank as well as general risk levels approved by the Supervisory Board of the Bank;
taking into account the best market practice.
The ultimate responsibility for ensuring that the Bank operates under approved liquidity risk limits lies within the Management Board of the Bank, and ongoing market risk management is performed by the:
• Member of the Management Board responsible for Risk Management Sector;
• Assets and Liabilities Management Committee (ALCO);
• Head of the Market Risk unit;
• Persons delegated to risk management in the Bank’s entities.
Liquidity management
The objective of liquidity risk management is to ensure that the Bank’s entities have adequate access to liquidity in order to meet its financial obligations when due, including under extreme but probable stress conditions.
The Bank analyses and manages liquidity risk in several time horizons while distinguishing current, short-, mid- and long- term liquidity, to which appropriate risk measurement methods and limits apply. The adopted measures and limits aim to limit the excessive concentration in terms of the balance sheet structure and sources of financing.
Long-term liquidity management is the responsibility of ALCO and as such it is reflected in the Bank’s strategy. It is based on the monitoring of balance sheet structural ratios and on long-term regulatory liquidity measures and includes the analysis of liquidity gaps, the ability to acquire in the future sufficient funding sources as well as funding costs in the light of the overall business profitability.
Mid-term liquidity management, in the one-year time horizon, is the responsibility of ALCO and is based on the established on annual bases Funding and Liquidity Plan which defines the size of internal limits taking into account the business plans for changes in assets and liabilities that are being prepared by business units of the Bank as part of the financial plans for the next budget year.
TRANSLATION
Annual Financial Statements of Bank Handlowy w Warszawie S.A. for the financial year ended 31 December 2023
37
Short-term liquidity management, in the three-month time horizon, is the responsibility of the Financial Markets and Corporate Banking Sector and is performed based on short-term regulatory liquidity measures as well as internal limits. In addition, the Bank analyses liquidity under stress scenarios, assuming the lack of liquidity gaps in all tenors up to three months as a necessary condition.
Current liquidity management is the responsibility of the Financial Markets and Corporate Banking Sector and comprises the management of the balances on the Bank’s nostro accounts and especially the mandatory reserve account with NBP while applying available money market products and central bank facilitates.
Liquidity management with accordance to “Risk management principals” in Group entities is a part of the entities, management board responsibilities. ALCO is the supervisor of the Group’s entities liquidity supervision.
In 2023 the Bank has not implemented any changes significant in liquidity risk management processes, procedures, systems and policies.
Funding and Liquidity Plan
The Head of the Financial Markets and Corporate Banking Sector is responsible for preparing an annual Bank’s Funding and Liquidity Plan (“Plan”) for the Bank and obtaining the ALCO’s approval for the Plan. The Plan addresses all funding or liquidity issues resulting from business plans, especially in the customer deposits and loans area, as defined in annual budgets of particular business entities, as well as any material changes in regulatory requirements and market dynamics.
Liquidity risk management tools
The Bank measures and manages liquidity risk by applying both external regulatory measures and additional internal liquidity measures.
The supervisory liquidity measures
The LCR and NSFR regulatory liquidity measures were at a safe level and amounted to:
31.12.2023
31.12.2022
Change
LCR
191%
158%
33 p.p.
NSFR
231%
177%
54 p.p.
Internal liquidity risk management tools
In addition to the regulatory liquidity measures, the Bank’s Group applies a range of liquidity risk management tools including:
• Gap analysis –MAR/S2;
• Stress scenarios;
• Liquidity ratios;
• Market Triggers;
• Significant Funding Sources;
• Contingency Funding Plan.
Stress scenarios
Stress tests are intended to quantify the potential impact of an event on the Bank’s balance sheet and cumulative gap over a twelve-month period, and to ascertain what incremental funding may be required under any of the defined scenarios. The scenarios are proposed by the Bank’s Financial Markets and Corporate Banking Sector and Market Risk and approved by ALCO.
The Bank conducts the stress tests monthly. The scenarios assume material changes in the underlying funding parameters, i.e.:
• Concentration event;
• Highly Stressed Market Disruption (“S2”) – serious disruptions of financial markets;
• Local market event.
Contingency Funding Plan
Financial Markets and Corporate Banking Sector is responsible for the preparation and annual update of the Contingency Funding Plan, which defines the Bank’s action plan in case of a contingency, specifically in cases assumed in liquidity stress scenarios and described in the annual Funding and Liquidity Plan. The Contingency Funding Plan is approved by ALCO.
The Contingency Funding Plan defines:
TRANSLATION
Annual Financial Statements of Bank Handlowy w Warszawie S.A. for the financial year ended 31 December 2023
38
• Circumstances / symptoms of contingency events;
• Responsibilities for executing the action plan;
• Sources of liquidity, and in particular the principles of maintenance of a liquid assets portfolio to be used in the case of a liquidity contingency;
• Rules for assets disposal and balance sheet restructuring;
• Procedures for restoring customer confidence.
The levels of the cumulative liquidity gap in stress conditions and the level of liquid assets as at 31 December 2023 and 31 December 2022.
The cumulative liquidity gap as at 31 December 2023 in real terms:
PLN’000
Up to 1 month
More than 1 to 3 months
More than 3 months to 1 year
More than 1 year to 2 years
More than 2 years
Assets
40,433,270
2,702,444
821,791
-
29,604,575
Liabilities
10,668,501
5,483,299
47,030
-
57,363,250
Balance-sheet gap in the period
29,764,769
(2,780,855)
774,761
-
(27,758,675)
Conditional derivative transactions – inflows
37,963,542
17,887,414
20,613,688
25,339,909
19,199,180
Conditional derivative transactions – outflows
37,853,954
17,707,092
20,679,168
24,715,879
19,298,149
Off-balance-sheet gap in the period
109,588
180,322
(65,480)
624,030
(98,969)
Potential utilization of credit lines granted
479,020
319,346
(798,366)
-
-
Cumulative gap
29,395,337
26,475,458
27,983,105
28,607,135
749,491
The cumulative liquidity gap as at 31 December 2022 in real terms:
PLN’000
Up to 1 month
More than 1 to 3 months
More than 3 months to 1 year
More than 1 year to 2 years
More than 2 years
Assets
35,231,376
442,464
761,706
-
33,365,856
Liabilities
11,478,908
5,478,447
639,297
-
52,204,750
Balance-sheet gap in the period
23,752,468
(5,035,983)
122,409
-
(18,838,894)
Conditional derivative transactions – inflows
40,657,353
11,757,921
30,757,011
13,616,887
22,790,452
Conditional derivative transactions – outflows
40,913,368
11,810,623
30,182,850
13,751,561
22,920,604
Off-balance-sheet gap in the period
(256,015)
(52,702)
574,161
(134,674)
(130,152)
Potential utilization of credit lines granted
294,357
598,717
(893,074)
-
-
Cumulative gap
23,202,096
17,514,694
19,104,338
18,969,664
618
Liquid assets and the cumulative liquidity gap up to 1 year:
PLN’000
31.12.2023
31.12.2022
Change
Liquid assets, including:
30,621,030
39,717,501
(9,096,471)
nostro account, deposits in NBP and stable part of cash
269,626
264,178
5,448
debt securities held-for-trading
791,112
2,272,515
(1,481,403)
debt financial assets measured at fair value through other
comprehensive income
29,560,292
37,180,808
(7,620,516)
Cumulative liquidity gap up to 1 year
27,983,105
19,104,338
8,878,767
Coverage of the gap with liquid assets
Positive,gap
Positive,gap,
Financial liabilities of the Bank, by contractual maturity, are presented below. Presented amounts do not include the impact of the effective rate on the interest payable.
As at 31 December 2023
PLN’000
Note
Total
Up to 1 month
1 to 3 months
3 months to 1 year
1 to 5 years
More than 5 years
Amounts due to banks
29
3,375,693
3,365,693
-
10,000
-
-
Financial liabilities held-for-trading
Short positions in financial assets
19
132,417
132,417
-
-
-
-
Amounts due to customers, including:
30
55,162,620
49,335,602
3,505,375
2,318,684
2,959
-
TRANSLATION
Annual Financial Statements of Bank Handlowy w Warszawie S.A. for the financial year ended 31 December 2023
39
PLN’000
Note
Total
Up to 1 month
1 to 3 months
3 months to 1 year
1 to 5 years
More than 5 years
Deposits from financial sector entities
30
3,942,532
3,865,353
36,519
40,660
-
-
Deposits from non-financial sector entities
30
49,404,846
43,656,155
3,468,551
2,277,181
2,959
-
Other liabilities
30
1,815,242
1,814,094
305
843
-
-
Financial liabilities held-for-trading
Derivative financial instruments (settled on a net basis)
19
4,117,218
118,398
112,261
468,644
2,136,424
1,281,491
Hedging derivatives
92,869
-
-
-
24,458
68,411
Unused credit lines liabilities
40
14,165,469
12,408,065
91,410
380,343
941,017
344,634
Guarantee lines
40
3,018,997
3,018,997
-
-
-
-
80,065,283
68,379,172
3,709,046
3,177,671
3,104,858
1,694,536
Derivatives settled on a gross basis
Inflows
105,388,871
43,716,553
13,302,571
18,214,288
29,896,828
258,631
Outflows
104,334,434
43,621,581
13,262,534
18,142,911
29,049,997
257,411
1,054,437
94,972
40,037
71,377
846,831
1,220
As at 31 December 2022
PLN’000
Note
Total
Up to 1 month
1 to 3 months
3 months to 1 year
1 to 5 years
More than 5 years
Amounts due to banks
29
4,794,795
3,870,795
320,000
604,000
-
-
Financial liabilities held-for-trading
Short positions in financial assets
19
234,203
234,203
-
-
-
-
Amounts due to customers, including:
30
50,667,810
45,883,709
3,067,186
1,709,579
7,336
-
Deposits from financial sector entities
30
3,790,079
3,603,314
151,468
35,297
-
-
Deposits from non-financial sector entities
30
45,160,359
40,565,579
2,914,120
1,673,324
7,336
-
Other liabilities
30
1,717,372
1,714,816
1,598
958
-
-
Financial liabilities held-for-trading
Derivative financial instruments (settled on a net basis)
19
7,103,671
240,593
126,351
512,710
4,363,454
1,860,563
Hedging derivatives
6,917
-
-
-
-
6,917
Unused credit lines liabilities
40
13,683,181
11,443,966
-
76,841
1,619,511
542,863
Guarantee lines
40
2,375,216
2,375,216
-
-
-
-
78,865,793
64,048,482
3,513,537
2,903,130
5,990,301
2,410,343
Derivatives settled on a gross basis
Inflows
96,495,666
41,082,780
11,477,777
24,903,368
18,508,047
523,694
Outflows
96,496,343
41,292,151
11,558,258
24,479,769
18,644,376
521,789
(677)
(209,371)
(80,481)
423,599
(136,329)
1,905
MARKET RISK
The processes and organization of market risk management
Market risk is the risk of negative impact on the Bank’s earnings and equity resulting from changes in market interest rates, foreign exchange rates, equity and commodity prices, as well as all volatilities of these rates and prices.
The objective of market risk management is to ensure that the extent of risk accepted within the Bank corresponds to the level acceptable to the shareholders and banking supervision authorities and to ensure that all exposures to market risk are properly reflected in the calculated risk measures, communicated to relevant persons and bodies responsible for the management of the Bank. The adopted market risk measures and limits aim to prevent excessive concentration of exposure to a single risk factor or a group of related risk factors, as well as to determine the overall maximum level of risk taken in the trading or banking book. Market risk management in the Bank is based on:
• Requirements of Polish regulatory institutions and especially resolutions of the Polish Financial Supervision Authority;
• Rules of prudent and stable risk management of the Bank as well as general risk levels approved by the Supervisory Board of the Bank;
taking into account best market practice.
The ultimate responsibility for ensuring that the Bank operates under approved market risk exposure limits lies within the Management Board of the Bank, and ongoing market risk management is performed by the:
• Member of the Management Board responsible for Risk Management Sector;
• Assets and Liabilities Management Committee (ALCO);
TRANSLATION
Annual Financial Statements of Bank Handlowy w Warszawie S.A. for the financial year ended 31 December 2023
40
• Head of the Market Risk unit;
• Heads of risk-taking business units;
• Persons delegated to risk management in Group entities.
Market risk management
Scope of risk
Market risk management applies to all portfolios generating income exposed to the negative impact of market factors including interest rates, foreign exchange rates, equity prices, commodity prices and the parameters of their volatility. Two types of portfolios have been defined for the purpose of market risk management: trading portfolios and bank portfolios.
The trading portfolios include transactions in financial instruments (balance-sheet and off-balance-sheet instruments) expected to generate income owing to a change in market parameters over a short period. The trading portfolios include balance-sheet items such as debt securities held-for-trading, i.e., debt securities acquired to be further traded and meeting pre-defined liquidity criteria, as well as all derivative instrument positions broken down into portfolios acquired purely for trading and transactions executed in order to provide an economic hedge of bank portfolio positions. The trading portfolios are valued directly at market prices or using market pricing-based valuation models. The trading portfolio operations are performed by the Bank’s Financial Markets and Corporate Banking Sector in respect of interest rate risk portfolios and FX risk portfolios. The trading portfolio also includes options, manly foreign exchange options and interest rate and optional structures being a reflection of economic nature and risk resulting from products offered to customers of the Bank. In this area, the Bank concludes transactions in a way which ensures concurrent (at each time and immediate) conclusion of an opposite transaction with the same parameters and, in consequence, the option portfolio does not generate open exposition of market risk. The only item related to the conclusion of option transactions which is reflected in market risk measurement, and in particular in foreign exchange risk, is the premium paid/received in a foreign currency.
The bank portfolios include all other balance-sheet and off-balance-sheet positions not assigned to any of the trading portfolios. The transactions are executed to realize a profit over the entire contracted transaction period. The Bank’s and Corporate Banking Sector takes over the interest rate risk positions held in the bank portfolios of all other organizational units of the Bank. The mechanism of transferring the interest rate risk positions is based on the transfer price system.
Measurement of the pricing risk of the bank portfolios
The Bank typically uses the following methods for measuring the risk of the bank portfolios:
• Interest rate gap analysis;
• Value-at-Close and Total Return methods;
• Interest Rate Exposure (IRE), based both on the gap and cashflow/income method over the relevant time horizon;
• Stress testing.
Interest rate gap analysis uses the schedule of maturities or revaluations of balance-sheet positions and of derivative instruments used in hedge accounting or qualified as economic hedge for the purpose of establishing the differences between positions whose maturity or interest rate revaluation fall within a given time range.
The general rule in the interest rate gap analysis is that of classifying transactions to respective bank portfolio position revaluation bands by the contracted or assumed transaction interest rate revaluation dates.
It is assumed that:
• transactions with a fixed interest rate (such as term deposits, interbank deposits, portfolio of debt securities available- for-sale with a fixed interest rate, granted loans both repaid in full at maturity and repaid in installments) are classified into appropriate revaluation bands in accordance with their maturity dates;
• transactions with a floating interest rate, updated at a regular frequency (primarily, loans granted with interest set based on a specific market/base rate such as, e.g., WIBOR 1M) are classified into appropriate revaluation bands in accordance with the nearest interest rate revaluation date;
• transactions with an administrated floating interest rate (i.e., any changes in the interest rate and its revaluation date are reserved to sole decision of the Bank) or undefined maturity or interest rate revaluation date are classified into appropriate revaluation bands in accordance with historically observed or expert assessed shifts in the moment and scale of change in the interest rate of given positions in relation to change in the market interest rates (model of minimizing product margin variability). This group of transactions / balance-sheet positions includes among others: current accounts, card loans, overdraft facilities. Additionally, early loan repayments are taken into account based on analysis of actual repayments made by customers before the due date and product interest rate revaluation profiles are set on that basis. This pertains particularly to installment loans;
• transactions insensitive to changes of interest rates, including cash, fixed assets, equity, other assets/liabilities, are classified into the longest revaluation band;
• transactions executed directly by the Financial Markets and Corporate Banking Sector for the purpose of management of interest rate risk and liquidity risk (Financial Markets and Corporate Banking Sector own portfolio) are always classified into appropriate revaluation bands in accordance with the contracted dates.
The Value-at-Close method is an estimation of the economic or “fair” value of positions, equivalent to the market valuation of the trading portfolio. Total return on a portfolio is the sum total of the changes in the value of closing the interest rate gap, accrued interest and gains/losses on sale of assets or cancelling of obligations.
TRANSLATION
Annual Financial Statements of Bank Handlowy w Warszawie S.A. for the financial year ended 31 December 2023
41
The Interest Rate Exposure (IRE) method is used to estimate the potential impact of a specific parallel shift in the interest rate curves on interest income from the bank portfolio before tax which can be earned in a specific period of time. This is a prospective indicator, equivalent to Factor Sensitivity of trading portfolios. An assumption is made that under standard conditions interest rate shifts are identical for every currency and stand at 100 basis points upwards. IRE measures are calculated separately for positions in each currency in the time horizon of 10 years; however, for the purpose of current monitoring and limiting of interest rate risk positions in bank portfolios, the Bank normally applies IRE measures with one- year and five-year time horizons.
Additionally, the Bank measures the interest rate risk using the income method (cashflow net interest revenue NIR / IRE). This measure, like the IRE calculated using the gap method, determines the potential pre-tax impact on net interest income for banking book items due to specific changes in interest rates over a specific reporting period - generally 12 months. NIR is the difference between accrued interest income earned on assets (e.g. loans to customers) and the cost of interest paid on liabilities (e.g. customer deposits). NIR / IRE is the delta between the base NIR and NIR in the interest rate shock scenario, i.e. +/- 100 basis points for all currencies together. Similar assumptions regarding the revaluation dates as described above for the gap method are made, with the difference that items not generating interest flows and the Bank's equity are excluded from the calculation
The table below presents the IRE measures for the Bank as at 31 December 2023 and 31 December 2022, separately for measures based on the gap method and interest flows. The statement is presented separately for the main currencies, i.e., PLN, USD and EUR, which jointly account for over 90% of the Bank’s balance-sheet, and for all currencies in total for the interest flow method.
IRE – gap method
PLN’000
31.12.2023
31.12.2022
IRE 12M
IRE 5L
IRE 12M
IRE 5L
PLN
16,066
10,710
28 767
42 460
USD
30,248
54,031
28 560
44 450
EUR
(7,350)
(2,747)
(17 317)
(30 707)
IRE – cashflow method
PLN ’000
31.12.2023
31.12.2022
IRE 12M
IRE 12M
+100 bp
-100 bp
+100 bp
-100 bp
Total for All currencies
232,952
(235,707)
105,203
(10, 083)
Stress tests measure the potential impact of material changes in the level or directionality of interest rate curves on open interest positions in the bank portfolio.
The Bank runs stress tests of predefined interest rate movement scenarios, which represent combinations of market factor movements defined as large moves and stress moves occurring both in Poland and abroad. Values of the assumed market factor movements are regularly assessed, and are adjusted as appropriate to changes in the market conditions of the Bank’s operation. Stress tests also include changes in the value of capital as a result of movements in interest rates for individual currencies in scenarios compliant with the CRR requirements.
Activities relating to securities available-for-sale are the responsibility of the Assets and Liabilities Management Department within the Professional Markets Division. Three basic goals of activities in the portfolio of securities available- for-sale have been defined as follows:
• management of the liquidity;
• hedging against the risk transferred to the Financial Markets and Corporate Banking Sector from other organizational units of the Bank or the Group’s entities;
• opening of own interest rate risk positions on the Bank’s books by the Financial Markets and Corporate Banking Sector.
In order to avoid excessive fluctuations in the Bank’s capital funds, caused by the revaluation of assets held-for-sale, the maximum limits of DV01 (Dollar Value of 1 basis point), which determines the potential change in the value of risk positions on a given interest rate curve at a specific nodal point (which brings together all the cash flows in a given time horizon), caused by a shift in the market interest rate by 1 basis point upwards, are established for this kind of portfolio. The limits also concert the open positions in derivatives (i.e. interest rate swap transactions), carried out to hedge the fair value of the portfolio.
Hedge accounting program
In addition to the general rules limiting market risk, in particular, interest rate risk, the Bank has defined rules for the application of fair value hedge accounting. The main risk, which is hedged under hedge accounting, is the risk of changes in interest rates resulting from holding portfolio of securities measured at fair value through other comprehensive income with fixed interest rates. At the end of each month, when the hedging relation happened, the Bank shall evaluate the
TRANSLATION
Annual Financial Statements of Bank Handlowy w Warszawie S.A. for the financial year ended 31 December 2023
42
effectiveness of the hedging instrument used, by analyzing the changes in the fair value of the hedged and hedging instrument in respect of the risk being hedged.
The hedged item was part of a portfolio of securities measured at fair value through other comprehensive income at a fixed interest rate, denominated in PLN. In all cases, the hedging instrument was the interest rate swap (IRS), which converts the fixed interest rate on a variable. Gains and losses arising from revaluation at fair value of the hedging instrument and changes in the fair value of the hedged items are reflected - in part resulting from the hedged risk - in profit and loss item "Net income from hedge accounting ".
The table below presents the risk measured with DV01 for the portfolio of securities available-for-sale, including the economic collateral, broken down by currency:
PLN ’000
31.12.2023
Total in the period
01.01.2023 – 31.12.2023
Total
Securities
IRS
Average
Maximum
Minimum
PLN
(1,917)
(3,257)
1,339
(1,801)
(1,023)
(2,768)
USD
(12)
(12)
-
(126)
(7)
(188)
EUR
(366)
(366)
-
(520)
(366)
(735)
PLN’000
31.12.2022
Total in the period
01.01.2022 – 31.12.2022
Total
Securities
Total
Securities
Total
Securities
PLN
(1,477)
(1,829)
352
(1,622)
(841)
(2,105)
USD
(187)
(187)
-
(202)
(182)
(231)
EUR
(739)
(739)
-
(212)
(120)
(748)
The Bank’s activities involving investments in debt securities available-for-sale were also one of the main factors influencing changes in the level of the risk of mismatch in revaluation periods as expressed by the IRE measure.
Measurement of the market risk of the trading portfolios
The following methods are applicable in measurement of the risk of the trading portfolios:
• Factor Sensitivity;
• Value at Risk (VaR); and
• Stress testing.
Factor Sensitivity measures the change in the value of positions in an underlying instrument in the case of a specific change in a market risk factor (e.g., change of the interest rate by 1 basis point at a given point on the interest rate curve, change of the currency exchange rate or share price by 1%).
In the case of interest rates, the applicable sensitivity measure is DV01.
In the case of exchange rate (FX) risk, the Factor Sensitivity value is equal to the value of the FX position in a given currency.
In the case of positions held in equities, the Factor Sensitivity value is equal to the net value of the positions held in the respective instruments (shares, indices, participation units).
Value at Risk (VaR) is the integrated measure of the market risk of trading portfolios which combines the impact of positions in respective risk factors and accounts for the effect of correlation between the fluctuations of different factors. VaR is applied for the purpose of measuring the potential decrease in the value of a position or portfolio under normal market conditions, at a specific confidence level and within a specific time period. In the case of positions opened in the Bank’s trading portfolio, VaR is calculated at a 99% confidence level and a one-day holding period.
DV01 as well as VaR for the trading portfolio are calculated net of the economic hedge of the portfolio of securities available-for-sale, i.e., net of derivative instruments intended to hedge the fair value of the portfolio. The exposures to the risk of such transactions are mitigated through the application of relevant risk measurement methods and by the bank portfolio risk limits.
Each day, the Bank runs stress tests on the assumption that the risk factors change by more than expected in the Value at Risk scenario and ignoring the historical correlations of these factors.
The Bank keeps records of exposures of the bank portfolios to market risk in over twenty currencies both for currency positions and exposures to interest rates risk. These exposures are significant only for a few currencies. For a large group of currencies, the exposures are the consequence of a gap between transactions executed on the customer’s orders and closing transactions with other wholesale market counterparties. Significant exposures to market risk are opened for PLN, currencies of well-developed markets (predominantly USD and EUR with a lesser focus on GBP, CHF and JPY) and Central European currencies.
TRANSLATION
Annual Financial Statements of Bank Handlowy w Warszawie S.A. for the financial year ended 31 December 2023
43
The values of significant exposures to the interest rate risk of the trading portfolios risk in terms of DV01 in 2023 are presented in the table below:
In the period 01.01.2023 – 31.12.2023
PLN’000
31.12.2023
31.12.2022
Average
Maximum
Minimum
PLN
(20)
(45)
(204)
496
(878)
EUR
195
(214)
199
937
(260)
USD
(23)
(-1)
(14)
77
(156)
Average exposures to the interest rate risk in the local currency in 2023 was lower comparing to the average level from the previous year (PLN 368 thousands) and amounted to PLN -204 thousand. Average exposure to the interest rate risk in EUR was higher than in 2022 (DV01 amounted to PLN 199 thousand, compared to PLN 51 thousand in the previous year). Average exposure in USD was lower than in 2022 (DV01 amounted to PLN -14 thousand, compared to PLN -8 thousand in 2022). The maximum exposure in PLN of the biggest exposures accepted by the Treasury Division was PLN 496 thousand compared to PLN 1,116 thousand in 2022 and the position in EUR amounted to PLN 937 thousand compared to PLN 347 thousand in the previous year .
The Financial Markets and Corporate Banking Sector, which trades in financial instruments within the Bank, continued the strategy of very active management of exposures to FX risk and interest rate risk by adjusting the volume and direction of such exposures depending on changing market conditions, which is reflected in the range of volatility of these exposures (the minimum and the maximum values in the table above).
The table below presents the levels of risk measured by VaR (net of economic hedges of the portfolio of securities available-for-sale) broken down by FX risk and interest rate risk position in 2023:
In the period 1.01.2023 – 31.12.2023
PLN’000
31.12.2023
31.12.2022
Average
Maximum
Minimum
Currency risk ,
240
426
678
3,474
107
Interest rate risk
10,252
7,107
15,108
26,385
4,659
Spread risk
16,158
7,268
10,763
25,208
4,072
Overall risk
18,267
10,028
19,511
29,703
7,812
The main risk factor was the interest rate risk, followed by the spread risk, where the credit spread risk determines the impact on the valuation of the instrument / portfolio resulting from changes in the market perception of the credit quality of certain instruments, such as "cross currency swap", "asset swap" or a portfolio of securities denominated in a foreign currency.
The overall average level of the market risk of the trading portfolios was 22% higher in 2023 than the average level in 2022, and amounted to PLN 19,511 thousand, mainly as a result of spread risk and interest rates volatility. The maximum level of price risk remained at a similar level (29,703 thousand PLN in 2023, and 29,746 thousand PLN in 2022).
Equity instruments risk
Bank is active in capital market instruments through the Brokerage Department of Bank Handlowy (DMBH). In accordance with its core scope of activity, DMBH is authorized to accept pricing risk of the trading portfolio of shares, or rights to shares, traded or likely to be traded on the Warsaw Stock Exchange (“WSE”), or BondSpot WIG20 index futures and Indexed Participation Units, as well as shares of companies dual-listed on the WSE which are traded on international stock exchanges. The pricing risk of DMBH’s portfolios of instruments is managed by means of volume limits applicable to specific types of financial instruments and concentration warning thresholds applicable to instruments of specific issuers. Moreover, DMBH uses warning thresholds of potential loss under stress scenarios and the cumulative realized loss on the trading portfolio.
The capital instruments measured at fair value through profit and loss, for which the Bank does not actively trade, include: shares of Visa Inc, the valuation method of which is presented in note 38.
The Bank’s FX exposure
The table below presents the Bank’s FX exposure by main currencies:
31.12.2023
Balance-sheet transactions
Contingent derivatives transactions*
PLN’000
Assets
Liabilities
Assets
Liabilities
Net position
EUR
16,386,115
9,607,183
33,629,060
40,362,787
45,205
USD
7,501,060
7,443,335
18,061,886
18,129,997
(10,386)
GBP
35,712
602,923
646,689
84,788
(5,310)
TRANSLATION
Annual Financial Statements of Bank Handlowy w Warszawie S.A. for the financial year ended 31 December 2023
44
Balance-sheet transactions
Contingent derivatives transactions*
PLN’000
Assets
Liabilities
Assets
Liabilities
Net position
CHF
41,183
340,313
475,907
180,216
(3,439)
Other currencies
626,225
238,609
659,862
1,037,517
9,961
24,590,295
18,232,363
53,473,404
59,795,305
36,031
*at present value which is the sum of disco unted future cash flows
31.12.2022
Balance-sheet transactions
Contingent derivatives transactions*
PLN’000
Assets
Liabilities
Assets
Liabilities
Net position
EUR
9,241,239
8,969,070
33,013,226
33,241,235
44,160
USD
2,438,403
7,736,025
20,182,424
14,905,002
(20,200)
GBP
24,784
568,690
626,045
82,814
(675)
CHF
75,186
397,094
500,325
178,888
(471)
Other currencies
24,378
174,051
2,521,606
2,359,349
12,584
11,803,990
17,844,930
56,843,626
50,767,288
35,398
*at present value which is the sum of disco unted future cash flows
OPERATIONAL RISK
Strategic goals and assumptions of the operational risk management system
The objective of operational risk management is to ensure a permanent and effective approach to the identification, measurement/assessment, mitigation, control, monitoring and reporting of the risk, as well as the effective reduction of the level of exposure to operational risk, and as a consequence, to reduce the number and scale of operational risk events (policy of low tolerance for operational risk losses).
Operational risk management is also aimed at the full integration of this risk management processes into business decision- making processes (i.e., business strategy is supported by an operational risk assessment, and the business is assessed on the basis of pre-determined indicators of control and operational risk).
While organizing operational risk management process, the Bank takes into account business strategy, Bank’s risk profile, macroeconomic environment, available resources of capital and liquidity and regulatory requirements (in particular Recommendation M) that constitute a framework for the preparation of operational risk control and management system in the Bank.
The Management Board and subsidiary Management Boards are responsible for the development, implementation and operation of proper operational risk management system through the introduction of appropriate internal regulations, ensures consistency between operational risk management system and Bank’s Strategy, as well as its proper functioning within the organization through an analysis of information that allow to assess whether the system is adequate for operational risk profile. If needed, operational risk management system is reinforced through implementation of crucial improvements.
Operational risk management system in the Bank is built in a way that ensures risk management at every stage, i.e.: identification, assessment/measurement, mitigation, control, monitoring and reporting.
The implementation of the strategy by the Management Board shall be assessed by the Supervisory Board, assisted by Audit Committee and Risk and Capital Management Committee based on synthetic reports submitted by the Management Board with frequency correlated with the committees’ meetings, determining the scale and types of operational risk that the Bank is exposed to, methods of operational risk management, probability of risk’s occurrence, assessment of potential negative impact of operational risk management methods, as well as results of operational risk profile and operational risk appetite monitoring. If necessary, after evaluation the Supervisory Board may request revision of the entire or partial internal control system.
Operational risk definition
Operational Risk is defined as the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events (including technology, outsourcing, fraud, money laundering, information security, business continuity (external and internal events), tax and accounting, product, legal, model, human resources, conduct risks as well as reputational risk resulting from operational risk events, business or market practices, or other operational risks incorporated into other risk categories (credit, counterparty, liquidity, compliance)).Operational Risk does not cover strategic risks or the risk of loss resulting solely from authorized judgments made with respect to taking credit, market, liquidity or insurance risk.
The operational risk was considered significant for 2023. Additionally, the Compliance Risk, which is included in the Operational Risk for the purposes of the ICAAP process, has also been considered material risk.
Rules of operational risk identification
TRANSLATION
Annual Financial Statements of Bank Handlowy w Warszawie S.A. for the financial year ended 31 December 2023
45
Each Bank’s Business Unit identifies all significant operational risks related to its processes. This includes identification by the Bank’s Management of significant risks associated with all processes, products, human factors, systems and compliance with applicable laws, regulatory administrative actions, the Bank’s internal regulations and the Bank’s strategy, also taking into consideration risk associated with dependence on other entities in the Bank.
Bank’s organizational units and the Independent Control and Operational Risk Department use in the operational risk identification processes, regular analysis of information generated using the tools of operational risk management.
Operational Risk Profile
Operational Risk Profile – scale and structure of exposure to operational risk, defining the level of exposure to operational risk, expressed in selected structural measures (e.g., types of operational risk events, types of business lines, significant processes) and scale measures (e.g., assessed potential loss). The Bank defines its operational risk profile based on operational loss data and based on information gathered through utilized operational risk management tools.
Measurement and assessment
In the process of risk estimation Bank applies differentiated methods of risk measurement and assessment. Risk assessment is the determination of the probability of occurrence and scale of potential future operational losses. Bank applies quantitative and quantitative methods for the purpose of risk assessment (e.g. appetite for risk, capital requirements, the target risk profile, key risk indicators, data loss and operational risk events, issues and corrective actions, the process of self-assessment, concentration risk areas and increasing the risk level, scenario analysis, stress tests, changes in processes and products, information from internal and external reviews and audits, information reported to the Commissions and Committees). Risk assessment analyses involve internal and external threats. Proper operational risk assessment enables adequate determination of risk profile and adequate risk manage ment.
Assessed capital requirement for operational risk covers all risk categories included by the Bank in operational risk definition.
Risk tolerance framework, risk control and mitigation
The Bank sets tolerance levels for each operational risk category and business areas within a determined risk appetite. Excess of the established level of tolerance thresholds for particular operational risk category requires undertaking of corrective actions in line with the decision of the Risk and Capital Management Committee.
Risk and Capital Management Committee or Management Boards of subsidiaries can decide on the following treatment of the identified risks by:
• accepting (conscious avoidance of activities, aiming at mitigation of probability and results of an event, including ensuring of funds for covering of potential losses);
• mitigation (mainly by adequate definition of processes, products, systems, procedures and implementation of control mechanisms);
• transfer (movement of part or whole risk related to a particular threat to the external party, in particular by outsourcing of activity to an external services provider or by insurance);
• avoidance of activities, leading to risk exposure.
In key aspects, processes of risk identification, self-assessment, measurement, monitoring and reporting are unified and generally accepted in all organizational units of the Bank. Risk mitigation processes are determined for each entity and may be different for individual units.
Control is a process designed to mitigate cause(s), reduce the probability of an event occurring and/or minimize the severity of an effect. Risk mitigation measures include also risk transfer mechanisms (outsourcing, insurance). Risk mitigation measures include internal controls as well as risk transfer mechanisms, i.e., transfer of part or whole risk related to a given threat to an external entity, in particular by outsourcing or insurance. The Bank regularly assesses and monitors the proper functioning of risk transfer mechanisms.
Monitoring and reporting
The Risk and Capital Management Committee, Operational Risk, Control and Compliance Committee, New Products Committee, Remuneration Committee and commissions supporting the Committees are accountable for ongoing monitoring of operational risk. Quality and effectiveness of operational risk management processes (including the self- assessment process) in the respective organizational units of the Capital Group are subject to inspections and assessment carried out by the internal audit.
Within the consolidated oversight operational risk data of Bank and subsidiaries is presented to Commissions and Committees, supporting the Management and Supervisory Board in the operational risk management process.
The Supervisory Board supervises and assesses the adequacy and effectiveness of operational risk management. The Supervisory Board is supported by Committees of Supervisory Board - Audit Committee, Risk and Capital Committee and Remuneration and Nomination Committee.
Based on synthetic operational risk reports, presented periodically by the Management Board at least twice a year, prepared based on data resulting from operational risk monitoring, covering scale and types of operational risk the Bank
TRANSLATION
Annual Financial Statements of Bank Handlowy w Warszawie S.A. for the financial year ended 31 December 2023
46
is exposed at, probability of its occurrence, dimension of its possible negative impact, operational risk management principles and the operational risk profile, and risk concentration areas, Supervisory Board, supported by the Audit Committee and Risk and Capital Committee, monitors the effectiveness of internal control and risk management and the Supervisory Board shall review the implementation by the Management of the risk management strategy (including operational risk management).
Assumptions of internal control of operational risk
Internal control system and risk management system, functioning in the Bank, are organized at three, independent levels.
Within the Management Board, one of its members – Risk Management Sector Head - supervises Independent Control and Operational Risk Department and is responsible for providing the Management Board and the Supervisory Board with complex information on the risk.
The Management Board is supported by Risk and Capital Management Committee, Operational Risk, Control and Compliance Committee, New Products Committee, GCB and ICG Investment and Insurance Commission and Ethical Commission.
Each Business Unit must establish an appropriate system of controls that are commensurate with the level of risk (incl. operational risk), including proper documentation of the control procedures and appropriate staff training. Each Business Unit must evaluate the risks that are unacceptable or outside of the Business Unit’s risk appetite/tolerance and determine the appropriate actions for their mitigation or transfer.
Settings of control standards, coordination of the management, as well as monitoring of operational risk for key risk categories are supported by specialized organizational units.
Independent Control and Operational Risk Department - ICOR (internal control system second line of defense) is responsible for operational risk management supervision within the Bank, in particular for setting and enforcing standards and tools of the operational risk management (covering risk categories included in operational risk definition), self- assessment process, management of the operational risk indicators monitoring process, monitors prevents and reports operational losses, performs corrective action plans’ monitoring. Additionally, the Department is responsible for maintaining operational risk management-supporting systems, calculation of regulatory and assessment of economic capital requirement for operational risk, management and regulatory reporting with regard to operational risk, operational risk market disclosures, recommending changes in the processes and operations of the Bank to adjust control functions to the acceptable risk exposure level. The Department conducts also reviews within the organizational units of the Bank regarding the increased operational risk areas, and recommends changes in the procedures, processes and banking operations in order to mitigate the operational risk level. In the scope of internal control system Independent Control and Operational Risk Department is responsible for Control Function Matrix coordination and vertical monitoring
The Audit Department (IA-Internal Audit) is responsible for independent assessment of the effectiveness of operational risk management processes and assessment of adequacy and effectiveness of operational risk management system, as well as for its regular reviews. Results of internal and external audits are considered in the management information system, the process of decision making with regard to risk management and management of the Bank.
Climate risk
Due to the Bank’s business profile in the area of climate risk and environmental policy the Bank focuses its activities on reducing the negative impact on the climate and consumption of natural resources in its operational activity and the products structure.
Sustainable growth is one of the key goals defined in the Bank's strategy for 2022-2024. Customers support in the transformation of their business models towards sustainable growth is one of the Bank's key priorities. The Bank also actively strives to achieve the PLN 1 billion of green assets within the period of current business strategy implementation, i.e. from 2022 to the end of 2024. In response to the climate risks, the Bank also focuses on implementing green products and solutions and on reducing its own carbon footprint - the key goal in this area was to reduce own emission of greenhouse gases by 50% to 2024 compared to 2019, goal has already been achieved in 2022. In October 2023, the Bank announced another goal in the field of reducing the carbon footprint of its own operations - by 2030, Citi Handlowy wants to achieve climate neutrality (in scope 1 and 2 according to the GHG Protocol) by using 100 percent energy from renewable sources and increasing energy efficiency of buildings.
Initiatives and actions taken by the Bank in this area are presented in detail in the "Non-Financial statements for 2022".
The Bank is exposed to climate change risk mainly by the impact of environmental factors on the economic environment in which the Bank's operates. Climate risk didn’t have a significant direct impact on respective areas of estimates as at December 31, 2022, incl. defining the expected credit loss presented in this financial statement, or on the Bank’s COB in the period of 12 months from the date of approval of this financial statement.
EQUITY MANAGEMENT
According to the Banking Act, banks in Poland are obliged to maintain equity at a level adequate for their specific business risks. The capital level presented below is considered sufficient for conducting business activity. The capital level is regularly monitored by using the capital adequacy ratio.
In 2008, the Bank launched the process of estimating internal capital. The Bank identified significant risks and assessed
TRANSLATION
Annual Financial Statements of Bank Handlowy w Warszawie S.A. for the financial year ended 31 December 2023
47
the capital required for coverage of these risks.
The Bank determines a policy of future dividend payment to the shareholders as part of the capital management process. The dividend policy depends on a number of factors including the Bank’s profits, the Bank’s expectations concerning future financial results, the level of capital requirements, as well as tax, regulatory and legal issues.
Capital adequacy
In 2023, the Group complied with the applicable prudential capital adequacy standards. The capital ratio is determined in accordance with the applicable legal regulation in this respect.
Financial data necessary to calculate the Group’s capital adequacy ratio is presented in the table below:
PLN’000
31.12.2023
31.12.2022*
I I Common Equity Tier 1 Capital
7,022,730
5,548,967
Common Equity Tier 1 Capital
7,022,730
5,548,967
II Total capital requirements, including:
2,417 608
2,390,422
credit risk capital requirements
1,642, 593
1,746,404
counterparty risk capital requirements
102,614
149,289
credit valuation correction capital requirements
5,533
4,036
total market risk capital requirements
105,048
97,497
operational risk capital requirements
561,820
393,196
Common Equity Tier 1 Capital ratio (%)
23.2%
18.6%
Total Capital ratio (%)
23.2%
18.6%
*Data for 31 December 2022 have been recalculated taking into account the retrospective recognition of a part of the profit for 2022 as own funds in connection with the resolution of the Ordinary General Meeting of the Bank described in Note 31 Dividends paid (or declared), in accordance with the position of EBA expressed in Q&A 2018_4085.
The Bank is a resolution entity that is part of a global systemically important institution in accordance with the definition contained in CRR and according to Art. 92a CRR must satisfy the following requirements for own funds and eligible liabilities:
a) a risk-based ratio of 18%, representing the own funds and eligible liabilities of the institution expressed as a percentage of the total risk exposure amount (TLAC TREA);
b) a non-risk-based ratio of 6,75%, representing the own funds and eligible liabilities of the institution expressed as a percentage of the total exposure measure (TLAC TEM).
In accordance with the CRR regulations, the amount of the required TLAC TREA plus the combined buffer requirement for the Bank as of 31 December 2023 is 20,82 %, while TLAC TREA of the Bank on a consolidated level was 23,6%.
The Bank meets the TLAC TREA requirement after increasing the combined buffer requirement as of December 31, 2023 as a result of obtaining the consent of the Polish Financial Supervision Authority on September 29, 2023 to include an appropriate part of the profits from the current period, in the amount of PLN 800 million, into Common Equity Tier 1 capital. on the basis of the Bank’s reviewed results for the first half of 2023.
Due to the cessation at the end of 2022 of the possibility to apply a 0% risk weight to exposures to central governments and central banks of Member States, if these exposures are denominated and financed in the domestic currency of another Member State directly pursuant to Article 500a(1) of CRR, from 1 January 2023 the Group recorded exceeding the limit of concentration of exposures, referred to in Article 395(1) of the CRR concerning only foreign currency exposures under bonds issued by the State Treasury and Bank Gospodarstwa Krajowego SA and guaranteed by the State Treasury. The exceedance ceased after obtaining the consent of the Polish Financial Supervision Authority of June 5, 2023 issued on the basis of paragraph 2 of Article 500a CRR.
On 13 December 2023 the Polish Financial Supervision Authority recommended mitigating the risk of the Bank’s operations by maintaining at both stand alone and consolidated level, own funds to cover a capital add-on in order to absorb potential losses that may arise from stress conditions; the add-on should be maintained at 0.28 p.p. above the value of each own funds.
According to the recommendation, under Pillar 2 (P2G) the additional add-on should be kept above the value of the total capital ratio plus the combined buffer requirement. The additional add-on should be made up of the core capital Tier 1 only.
4. Segment reporting
Information on segment reporting is presented in Annual Consolidated Financial Statements of the Capital Group of Bank Handlowy w Warszawie S.A. for the financial year ended 31 December 2023, which have been approved by the Management Board of the Bank for publication on the same date as Annual Unconsolidated Financial Statements of Bank Handlowy w Warszawie S.A. for the financial year ended 31 December 2023.
TRANSLATION
Annual Financial Statements of Bank Handlowy w Warszawie S.A. for the financial year ended 31 December 2023
48
5. Net interest income
Accounting policy:
For all financial instruments, interest income and interest expense is recognized through the profit or loss account using the effective interest rate method.
The effective interest rate method calculates the amortized cost of a financial asset or a financial liability and allocates interest income or interest expense to appropriate periods. The effective interest rate is a rate that discounts the estimated futures inflows or payments in the expected period until the maturity of the financial instrument to the gross carrying value of a financial asset or the amortized cost for a financial liability. When calculating the effective interest rate, the Bank takes into account all the terms and conditions of a financial instrument agreement (e.g., prepayments, call options, etc.), but excludes potential future losses in connection with non-recoverable loans. The calculation covers all the commissions payable to and receivable from the parties to the agreement, integral components of the effective interest rate, transactional costs and any other premiums and discounts. As a result, commissions that are an integral part of the effective interest rate less direct costs of obtaining the financial instrument are recognized as components of interest income.
The effective interest rate applies for the gross carrying amount of financial asset, except for impaired financial assets.
In the case of financial assets for which impairment losses were recognized, interest income is measured using the interest rate that was used to discount the future cash flows to estimate such impairment losses.
Financial information:
PLN’000
2023
2022
Interest income from:
4,297,083
3,186,032
Financial assets measured at amortized cost
2,549,354
1,801,470
Balances with Central Bank and current accounts with other banks
229,518
198,993
Amounts due from banks
535,215
121,059
Amounts from customers, including:
1,784,621
1,481,418
financial sector entities
284,639
165,780
non-financial sector entities, including:
1,499,982
1,315,638
credit card
348,259
373,279
Financial assets measured at fair value through comprehensive income
1,747,729
1,384,562
Debt investment financial assets measured at fair value through comprehensive income
1,747,729
1,384,562
Similar income from:
102,517
145,241
Debt securities held-for-trading
57,219
118,664
Liabilities with negative interest rate
249
24,126
Derivatives in hedge accounting
45,049
2,451
4,399,600
3,331,273
Interest expense and similar charges for
Financial liabilities measured at amortized cost
(1,103,318)
(591,483)
Balances with the Central Bank
(5)
(4)
Amounts due to banks
(134,655)
(155,428)
Amounts due to customers
(964,633)
(432,125)
Amounts due to financial sector entities
(166,799)
(140,197)
Amounts due to non-financial sector entities
(797,834)
(291,928)
Leasing liabilities
(4,025)
(3,926)
Assets with negative interest rate
-
(2,952)
Derivatives in hedge accounting
(25,074)
(116)
(1,128,392)
(594,551)
Net interest income
3,271,208
2,736,722
The impact on value of financial assets, whose cash flows resulting from the contract were modified however were not discontinued recognition, as at 31 December 2023 amounted to PLN (286) thousand and net modification gain in 2022 amounted to PLN (1 224) thousand (PLN 629 thousand and PLN (759) thousand as at 31 December 2022, respectively).
6. Net fee and commission income
Accounting policy:
TRANSLATION
Annual Financial Statements of Bank Handlowy w Warszawie S.A. for the financial year ended 31 December 2023
49
Commission and fee income is generated when the Bank renders financial services to its customers. The Bank classifies its commission into the following categories:
• commissions that are an integral part of the effective interest rate,
• commissions for brokerage activities, including commissions for the execution of orders to buy or sell financial instruments, offering financial instruments, maintaining cash accounts, holding and registering cash instruments and acting as market makers,
• commissions for services rendered,
• commissions for executing significant transactions.
Commissions that are an integral part of the effective interest rate are recognized in the income statement adjusted by the calculation of the effective interest rate and are shown in interest income.
In the case of loans and borrowings with undetermined installment payment dates, e.g., overdrafts or credit cards, commissions and fees are recognized using the straight-line method until the expiry date of a credit limit. Such commissions and fees are recognized as commission income.
For other commissions, the Bank performs the principles of IFRS 15. In particular if the Bank transfers control of service over time and, therefore, satisfies a performance obligation and the customer simultaneously receives and consumes the benefits provided by the Bank’s performance as the Bank performs, then fees are recognized over time in proportion to the completion of the service in fee income. In other cases, the fees are recognized at a point in time when services have been completed and are presented in fee income. There are no situations of withholding services which would affect the manner of revenue recognition described above in connection with meeting the obligation to provide services. The majority of commission income is settled on a one-off basis, except situation where the commission is charged in advance for a period of service exceeding one month. Such situation arise in respect of guarantees or loans for which no repayment schedule is agreed. In the area of commission income, the remuneration received is in principle non-refundable.
The Bank considers the terms of the contract to determine the transaction price. The transaction price is the amount of consideration (fixed, variable or both) to which Bank expects to be entitled in exchange for transferring promised services to a customer, excluding amounts collected on behalf of third parties.
The Bank renders intermediary services for insurance products. Income for the distribution of insurance products not directly relating to the occurrence of financial assets is recognized in the income statement when the service has been provided or renewal of the insurance policy has taken place, except for the part of remuneration for services provided after the sale, which is amortized over the life of the facility using the straight-line method.
In the case of products directly attributable to financial assets, where income is received up front for a period longer than one month, to establish the way of showing income on distributing this insurance, a model of relative fair value is used as a result of which income from the sale of an insurance product is divided into the following components:
• income on account of services provided as an insurance agent, and
• income recognized in the Income Statement as an effective interest rate component, adjusted by the estimated amounts of potential future returns in case of early termination of insurance products based on the share of the fair value of each of these parts in the total of their fair values.
The income described above takes into account the estimation of future returns on customers renouncing their insurance in given conditions.
Costs directly attributable to the acquisition of a cash loan are amortized over the life of the product as an effective interest rate component and are part of the interest income.
If the Bank incurs costs directly associated with the sale of an insurance product, such costs are accounted for in accordance with the principle of matching revenues and expenses. Costs not directly associated with the sale of insurance products are recognized when incurred.
Financial information:
PLN’000
2023
2022
Fee and commission income:
51,935
55,513
Credit activities (other than income covered by the calculation of the effective interest rate process)
115,310
125,129
Servicing bank accounts
43,458
45,106
Insurance and investment products (agency)
126,808
131,816
Payment and credit cards
110,820
104,248
Payment services
116,596
121,685
Custody services
43,502
22,155
Cash management services on customers’ accounts
20,953
20,233
Granted financial liabilities
29,413
27,371
Other, including:
9,780
9,225
668,575
662,481
Fee and commission expense:
Payment and credit cards
(35,631)
(35,754)
Brokerage activity
(14,327)
(7,577)
TRANSLATION
Annual Financial Statements of Bank Handlowy w Warszawie S.A. for the financial year ended 31 December 2023
50
PLN’000
2023
2022
Fees paid to the National Depository for Securities (KDPW)
(32,169)
(28,563)
Brokers fees
(4,694)
(4,313)
Other
(19,980)
(23,978)
(106,801)
(100,185)
Net fee and commission income
561,774
562,296
7. Dividend income
Accounting policy:
Dividends equity investments are recognized in profit and loss when the entity’s right to receive payment is established. There is a possibility that the entity will get economic benefits connected with dividend and the dividend will be set plausibly.
Financial information:
Dividend income amounted to PLN 15,026 thousand in 2023 (2022: PLN 36,974 thousand) include dividends received and due from the Bank’s subsidiaries – PLN 3 617 thousand (in 2022: PLN 26,857 thousand). The remaining amount of dividends was received from entities with no controlling interest of the Bank.
8. Net income on trading financial instruments and revaluation
Accounting policy:
This item covers net income on trading financial instruments measured in fair value through profit or loss (as described in note 2.1 Financial assets and liabilities – classification and measurement) and net income on revaluation.
Financial information:
PLN’000
2023
2022
Net income on financial instruments measured at fair value through profit of loss from:
(153,920)
91,257
Debt instruments
9,782
2,621
Equity instruments
(33,067)
236,265
Derivative instruments, including:
(30,053)
236,332
Interest rate derivatives
(3,071)
(91)
Equity
57
24
(177,205)
330,143
Net profit on foreign exchange
Net profit on foreign currency derivatives
881,813
(98,917)
Revaluation
91,852
412,572
973,665
313,655
Net income on trading financial instruments and revaluation
796,460
643,798
The net income on trading financial instruments and revaluation for 2023 contains movement in (net) adjustment of the valuation of derivatives reflecting the counterparty credit risk and own credit risk in the amount of PLN (5,455) thousand (in 2022: PLN 1,750 thousand).
Net income from debt instruments includes the net results on trading in government securities, corporate debt securities, EBI (European Investment Bank) securities and money market instruments held-for-trading.
Net income from equity instruments includes net income from shares in other entities.
Income from derivative instruments includes net income due to transactions in interest rate swaps, options, futures and other derivatives.
Net profit on foreign exchange includes profit and losses on valuation of assets and liabilities denominated in foreign currency and foreign currency derivatives such as forward, CIRS and option contracts and also contains a margin realized on spot and forward currency transactions.
TRANSLATION
Annual Financial Statements of Bank Handlowy w Warszawie S.A. for the financial year ended 31 December 2023
51
9. Net gain/(loss) on hedge accounting
Accounting policy:
Detailed information on hedge accounting applied by the Bank, including the accounting policy, are presented in the note 37.
Financial information:
PLN’000
2023
2022
Fair value hedge accounting
Net gain on hedged transaction valuation
80,361
(3,648)
Net gain on hedging transaction valuation
(90,428)
1,834
Hedge accounting income
(10,067)
(1,814)
10. Net other operating income and expense
Financial information:
Other operating income and expenses comprise income and expenses that are not directly related to banking activities. They include the proceeds from and costs of selling or disposing of tangible fixed assets and assets held for disposal, income related to services for related parties, compensation, penalties and fines.
PLN’000
2023
2022
Other operating income
Income from provision of services for related parties
10,956
11,568
Income from office rental
6,808
7,339
Other
8,312
5,460
26,076
24,367
Other operating expenses
Amicable procedure and vindication expenses
(7,614)
(4,571)
Net provision for litigation*
(18,447)
(18,178)
Other**
(17,181)
(16,927)
(43,242)
(39,676)
Net other operating income and expense
(17,166)
(15,309)
*The item includes the (net) costs of provisions for litigation proceedings including those related to TSUE judgements
**The item “Other” includes i.a. operating losses and donation costs
11. General administrative expenses
Accounting policy:
General administrative expenses are recognized in the period they apply to.
Financial information:
In building maintenance and rent cost position there are lease payments for short term lease and low value assets, variable lease payments, non-lease components and maintenance costs related to real estate owned or leased by the Bank.
PLN’000
2023
2022
Staff expenses
Remuneration costs, including:
(510,560)
(429,748)
Provisions for retirement allowances
(38,700)
(31,013)
Bonuses and rewards
(102,218)
(82,247)
Social insurance costs
(83,916)
(70,848)
(696,694)
(582,843)
Administrative expenses
Telecommunication fees and hardware purchases
(224,276)
(232,096)
Costs of external services, including advisory, audit, consulting services
(54,791)
(48,388)
Building maintenance and rent costs
(83,827)
(59,372)
TRANSLATION
Annual Financial Statements of Bank Handlowy w Warszawie S.A. for the financial year ended 31 December 2023
52
PLN’000
2023
2022
Advertising and marketing costs
(42,084)
(37,687)
Cash management service, KIR service and other transactional costs
(36,544)
(36,786)
Costs of external services related to the distribution of banking products
(49,585)
(46,306)
Postal services, office supplies and printmaking costs
(6,527)
(6,112)
Banking and capital supervision costs
(7,663)
(7,338)
Bank Guarantee Funds costs
(73,791)
(110,937)
Other expenses
(50,877)
(48,066)
(629,965)
(633,088)
General administrative expenses, total
(1,326,659)
(1,215,931)
Staff expenses include the following employee benefits for current and former members of the Management Board.
PLN’000
2023
2022
Short-term employee benefits
16,853
14,718
Long-term employee benefits
136
2,125
Capital assets
14,263
8,456
31,252
25,299
12. Depreciation expense
Accounting policy:
Depreciation expenses is recognized on a straight-line basis according to depreciation rates described in the note 23 for tangible fixed assets and note 24 for intangible assets.
Financial information:
PLN’000
2023
2022
Depreciation of property and equipment
(45,834)
(42,329)
Amortization of intangible assets
(65,201)
(60,228)
Depreciation expense, total
(111,035)
(102,557)
13. Provisions for expected credit losses on financial assets and provisions for contingent liabilities
Accounting policy:
Net expected credit loss and net provisions for contingent commitments are presented in this position. Impairment policy is described in detail in note 3 in Credit risk part.
Financial information:
PLN ‘000
2023
2022
Provision for expected credit losses on equity investments
Provision creation
(145)
(171)
Provision release
21
4
(124)
(167)
Provision for expected credit losses on amounts due from banks
-
-
Provision creation
(4,686)
(7,527)
Provision release
5,044
7,501
358
(26)
Provision for expected credit losses on amounts due from customers
-
-
Provision creation and reversals
(41,045)
(105,382)
Provision creation
(253,044)
(338,397)
Provision release
224,547
241,313
TRANSLATION
Annual Financial Statements of Bank Handlowy w Warszawie S.A. for the financial year ended 31 December 2023
53
PLN ‘000
2023
2022
Other
(12,548)
(8,298)
Recoveries from debt sold
11,122
15,875
(29,923)
(89,507)
Provision for expected credit losses on debt investment financial assets measured at fair value through other comprehensive income
Provision creation
(3,793)
(5,583)
Provision release
5,981
1,155
2,188
(4,428)
Provision for expected credit losses on financial assets
(27,501)
(94,128)
Created provisions for granted financial and guarantee commitments
(36,126)
(62,861)
Release of provisions for granted financial and guarantee commitments
45,497
51,982
Provision for expected credit losses for contingent liabilities
9,371
(10,879)
Provision for expected credit losses on financial assets and provisions for contingent liabilities
(18,130)
(105,007)
14. Income tax expense
Accounting policy:
Income tax consists of current tax and deferred tax. Income tax is recognized in the income statement, except for taxes related to amounts that are allocated to the other comprehensive income.
Financial information:
Recognized in the income statement
PLN’000
2023
2022
Current tax
Current year
(591,070)
(404,937)
Adjustments for prior years
(2,844)
(2,998)
(593,914)
(407,935)
Deferred tax
Origination and reversal of temporary differences
(9,522)
(39,550)
(9,522)
(39,550)
Total income tax expense in income statement
(603,436)
(447,485)
Reconciliation of effective tax rate
PLN’000
2023
2022
Profit before tax
2,858,626
2,016,795
Income tax at the domestic corporate tax rate of 19%
(543,139)
(383,191)
Provisions for impairment losses not tax deductible
(3,789)
(5,082)
Deductible income not recognized in the income statement
(5,411)
(3,911)
Non-taxable income
2,797
6,990
Tax on some financial institutions
(36,149)
(40,475)
Bank Guarantee Fund
(14,020)
(21,078)
Other permanent differences, including other non-deductible expenses
(3,725)
(738)
Total tax expenses
(603,436)
(447,485)
Effective tax rate
21.11%
22.19%
Deferred tax recognized directly in equity
Deferred tax recognized directly in equity as at 31 December 2023 is related to financial assets measured at fair value through other comprehensive income and valuation of defined benefit plan and amounted to PLN (26,575) thousand (31
TRANSLATION
Annual Financial Statements of Bank Handlowy w Warszawie S.A. for the financial year ended 31 December 2023
54
December 2022: PLN 135,101 thousand).
15. Earnings per share
As at 31 December 2023, earnings per share amounted to PLN 17.26 (31 December 2022: PLN12.01).
The calculation of earnings per share as at 31 December 2023 was based on profit attributable to shareholders of PLN 2,255,190 thousand (31 December 2022: PLN 1,569,310 thousand) and the weighted average number of ordinary shares outstanding during the year ended 31 December 2023 of 130,659,600 (31 December 2022: 130,659,600).
The Bank does not have any ordinary shares that may have a dilution impact.
16. Changes in other comprehensive income
Deferred income tax and reclassification included in other comprehensive income concern the valuation of financial assets measured at fair value recognized in the revaluation reserve and valuation of defined benefit program recognized in the other reserves.
PLN’000
Gross amount
Deferred income tax
Net amount
As at 1 January 2023
(710,948)
135,081
(575,867)
Remeasurement of financial assets measured at fair value through other comprehensive income (net)
718,828
(136,578)
582,250
(Profit) or loss reclassification to income statement after derecognition of financial assets measured at fair value through other comprehensive income (net)
147,758
(28,074)
119,684
Total comprehensive income connected with financial assets measured at fair value through other comprehensive income
155,638
(29,571)
126,067
Net actuarial losses on defined benefit program valuation
(15,767)
2,996
(12,771)
As at 31 December 2023
139,871
(26,575)
113,296
PLN’000
Gross amount
Deferred income tax
Net amount
As at 1 January 2022
(397,107)
75,451
(321,656)
Remeasurement of financial assets measured at fair value through other comprehensive income (net)
(645,906)
122,722
(523,184)
(Profit) or loss reclassification to income statement after derecognition of financial assets measured at fair value through other comprehensive income (net)
323,054
(61,380)
261,674
Total comprehensive income connected with financial assets measured at fair value through other comprehensive income
(719,959)
136,793
(583,166)
Net actuarial losses on defined benefit program valuation
9,011
(1,712)
7,299
As at 31 December 2022
(710,948)
135,081
(575,867)
17. Cash and cash equivalents
PLN’000
31.12.2023
31.12.2022
Cash in hand
416,922
562,217
Current balances with Central Bank
55,850
22,079
Deposits in Central Bank
610,701
11,673
Current accounts in other banks
158,400
75,366
Total gross value
1,241,873
671,335
Provision for expected credit losses
(149)
(146)
Total net value
1,241,724
671,189
On the current account in the National Bank of Poland (NBP), the Bank maintains an obligatory reserve which may be used only under the condition that the sum of the average monthly balance on the current account in NBP is not lower than the declared balance.
The declared balance of obligatory reserve amounted as at 31 December 2023 to PLN 2,008,621 thousand (31 December
TRANSLATION
Annual Financial Statements of Bank Handlowy w Warszawie S.A. for the financial year ended 31 December 2023
55
2022: PLN 1,912,728 thousand).
18. Amounts due from banks
Accounting policy:
Classification and measurement of Amounts due from banks are described in note 2.1 ‘Financial assets and liabilities – classification and measurement’.
Financial information:
PLN’000
31.12.2023
31.12.2022
Current accounts
-
-
Deposits
35,898
35,571
Loans and advances
-
1
Receivables due to purchased securities with repurchase agreement
14,861,439
265,745
Deposits pledged as collateral of derivative instruments and stock market transactions
475,120
663,059
Other receivables
-
5,785
Total gross amount
15,372,457
970,161
Provision for expected credit losses
(905)
(1,413)
Total net amounts due from banks
15,371,552
968,748
The balance of receivables from banks increased by PLN 14.4 billion (i.e. almost fifteen times) compared to the end of 2022, mainly due to the increase in the volume of receivables from reverse repo transactions with a simultaneous decrease in the portfolio of debt securities measured at fair value through other comprehensive income ( in particular bills issued by the Central Bank).
The movement in loss allowance amounts due from banks is as follows:
PLN ‘000
Stage 1
Stage 2
Stage 3
Total
Loss allowance - amounts due from banks
Loss allowance as at 1 January 2023
(376)
(1,037)
-
(1,413)
Transfer to Stage 1
-
-
-
-
Transfer to Stage 2
-
-
-
-
Transfer to Stage 3
-
-
-
-
(Creation) / Releases in the period though the income statement
47
311
-
358
Foreign exchange and other movements
92
58
-
150
Loss allowance as at 31 December 2023
(364)
(541)
-
(905)
PLN ‘000
Stage 1
Stage 2
Stage 3
Total
Loss allowance - amounts due from banks
Loss allowance as at 1 January 2022
(1,513)
-
-
(1,513)
Transfer to Stage 1
-
-
-
-
Transfer to Stage 2
248
(248)
-
-
Transfer to Stage 3
-
-
-
-
(Creation)/Releases in the period though the income statement
915
(842)
-
73
Foreign exchange and other movements
(26)
53
-
27
Loss allowance as at 31 December 2022
(376)
(1,037)
-
(1,413)
Changes of gross amounts due from banks that contributed to movements in loss allowance amounts is as follows:
PLN’000
Stage 1
Stage 2
Stage 3
Total
Gross amounts due from banks measured at amortized cost
Gross amounts due from banks as at 1 January 2023
707,005
263,156
-
970,161
TRANSLATION
Annual Financial Statements of Bank Handlowy w Warszawie S.A. for the financial year ended 31 December 2023
56
PLN’000
Stage 1
Stage 2
Stage 3
Total
Transfer to Stage 1
654
(654)
-
-
Transfer to Stage 2
(1)
1
-
-
Transfer to Stage 3
-
-
-
-
Receivables increase / repaid
14,734,789
1,101
-
14,735,890
Other movements
(105,400)
(228,194)
-
(333,594)
Gross amounts due from banks as at 31 December 2023
15,337,047
35,410
-
15,372,457
PLN’000
Stage 1
Stage 2
Stage 3
Total
Gross amounts due from banks measured at amortized cost
Gross amounts due from banks as at 1 January 2022
929,083
2
-
929,085
Transfer to Stage 1
2
(2)
-
-
Transfer to Stage 2
(9,958)
9,958
-
-
Transfer to Stage 3
-
-
-
-
Receivables increase / repayment
(233,146)
252,333
-
19,187
Other movements
21,024
865
-
21,889
Gross amounts due from banks as at 31 December 2022
707,005
263,156
-
970,161
19. Financial assets and liabilities held-for-trading
Accounting policy:
Classification and measurement of financial assets and liabilities held for trading are described in note 2.1
Financial information:
Financial assets held-for-trading
Derivative instruments, excluding hedging instruments, and selected debt securities are classified as held-for-trading and presented in the financial statement as “Financial assets held for trading”
PLN’000
31.12.2023
31.12.2022
Debt securities held-for-trading
Bonds and notes issued by:
Banks and other financial entities*
446,280
707,416
Central governments
344,832
1,565,099
791,112
2,272,515
Including:
Listed on active market
791,112
2,272,515
Derivative financial instruments
4,081,822
4,730,752
Financial assets held-for-trading, total
4,880,332
7,029,163
*As at 31 December 2023, some of the securities (bonds) issued by banks in the amount of PLN 442 075 thousand are covered by Government guarantees (31 December 2022: 703 347 thousand).
Financial liabilities held-for-trading
PLN’000
31.12.2023
31.12.2022
Short positions in financial assets
132,417
234,203
Derivative financial instruments
3,388,708
4,661,896
Financial liabilities held-for-trading, total
3,522,203
4,896,099
As at 31 December 2023 and 31 December 2022, the Bank did not hold any financial assets and liabilities designated at fair value through profit or loss at initial recognition.
TRANSLATION
Annual Financial Statements of Bank Handlowy w Warszawie S.A. for the financial year ended 31 December 2023
57
Derivative financial instruments as at 31 December 2023
Nominal amount with remaining life of
Fair value
PLN’000
less than 3 months
between 3 months and 1 year
between 1 year and 5 years
more than 5 years
Total
Assets
Liabilities
Interest rate instruments
22,610,335
55,365,613
75,978,961
22,890,070
176,844,979
1,451,882
1,461,663
FRA
7,550,000
3,000,000
-
-
10,550,000
377
9,192
Interest rate swaps (IRS)
7,094,621
29,993,022
68,798,485
22,864,581
128,750,709
1,403,975
1,443,888
Interest rate options
-
52,703
1,130,480
25,489
1,208,672
1,560
1,554
Futures*
7,965,714
22,319,888
6,049,996
-
36,335,598
45,970
7,029
Currency instruments
60,107,163
26,255,077
30,322,110
258,631
116,942,981
2,515,210
1,812,551
FX forward
14,389,128
6,334,285
1,640,536
-
22,363,949
776,497
327,794
FX swap
35,841,199
6,560,081
12,440,867
,
54,842,147
1,126,162
919,812
Currency-interest rate swaps (CIRS)**
3,913,219
4,338,665
16,147,229
258,631
24,657,744
308,320
260,700
Foreign exchange options
5,963,617
9,022,046
93,478
-
15,079,141
304,231
304,245
Securities transactions
836,420
4,191
-
-
840,611
588
360
Futures*
7,601
4,191
11,792
-
-
Securities purchased / sold pending delivery
828,819
-
-
-
828,819
588
360
Commodity transactions
3,494
224,523
262,416
-
490,433
114,142
114,134
Swaps
3,494
224,523
262,416
-
490,433
114,142
114,134
Total derivative instruments
83,557,412
81,849,404
106,563,487
23,148,701
295,119,004
4,081,822
3,388,708
* Exchange-traded products
** Foreign exchange interest rate swaps with capital exchange
Derivative financial instruments as at 31 December 2022
Nominal amount with remaining life of
Fair value
PLN’000
less than 3 months
between 3 months and 1 year
between 1 year and 5 years
more than 5 years
Total
Assets
Liabilities
Interest rate instruments
21,584,957
43,085,758
89,525,503
25,775,955
179,972,173
2,448,292
2,303,596
FRA
7,680,000
9,708,000
250,000
-
17,638,000
9,791
21,918
Interest rate swaps (IRS)
9,676,729
22,021,542
87,811,278
25,743,847
145,253,396
2,415,101
2,226,260
Interest rate options
-
-
55,946
32,108
88,054
2,916
2,902
Futures*
4,228,228
11,356,216
1,408,279
-
16,992,723
20,484
52,516
Currency instruments
56,739,996
29,454,572
23,955,154
523,694
110,673,416
1,629,316
1,704,438
FX forward
17,487,139
14,034,564
2,371,495
-
33,893,198
737,036
283,513
FX swap
31,574,860
7,932,202
2,267,265
-
41,774,327
210,967
861,331
Currency-interest rate swaps (CIRS)**
4,334,756
3,550,711
14,462,946
523,694
22,872,107
518,532
397,031
Foreign exchange options
3,343,241
3,937,095
4,853,448
-
12,133,784
162,781
162,563
Securities transactions
236,012
7,748
-
-
243,760
341
1,080
Futures*
19,987
7,748
-
-
27,735
-
-
Securities purchased / sold pending delivery
216,025
-
-
-
216,025
341
1,080
Commodity transactions
534,386
114,727
320,419
-
969,532
652,803
652,782
Swaps
534,386
114,727
320,419
-
969,532
652,803
652,782
Total derivative instruments
79,095,351
72,662,805
113,801,076
26,299,649
291,858,881
4,730,752
4,661,896
* Exchange-traded products
** Foreign exchange interest rate swaps with capital exchange
20. Debt investment financial assets measured at fair value through other comprehensive income
Accounting policy:
TRANSLATION
Annual Financial Statements of Bank Handlowy w Warszawie S.A. for the financial year ended 31 December 2023
58
Classification and measurement of debt investment financial assets measured at fair value through other comprehensive income are described in note 2.1
Financial information:
PLN’000
31.12.2023
31.12.2022
Bonds and notes issued by:
Central Banks**
4,996,012
13,951,438
Other banks, including:
10,295,147
4,675,139
Covered bonds in fair value hedge accounting
2,595,263
485,494
Other financial sector entities
2,095,217
2,725,197
Central governments, including:
12,173,916
15,829,034
Debt securities measured at fair value through other comprehensive income, total
29,560,292
37,180,808
Including:
Listed on active market instruments
24,564,280
23,229,370
Unlisted on active market instruments
4,996,012
13,951,438
*As at 31 December 2023, the securities (bonds) issued by banks in the amount of PLN 10,295,147 thousand are covered by Government guarantees (31 December 2022: PLN 4,675,139 thousand).
For debt investment financial assets measured at fair value through other comprehensive income, the cumulated value of impairment as at 31 December 2023 amounts to PLN 8,131 thousand (as at 31 December 2022 10,319 thousand).
The movement in debt investment financial assets measured at fair value through other comprehensive income is as follows:
PLN’000
2023
2022
As at 1 January
37,180,808
20,590,284
Increases (due to):
Purchases
301,158,675
587,897,283
Foreign exchange differences
986,568
-
Foreign exchange differences
-
65,404
Depreciation of discount and interest
1,585,267
1,356,534
Decreases (due to):
Sale
(310,843,287)
(572,467,501)
Revaluation
-
(208,413)
Foreign exchange differences
(459,604)
-
Depreciation of premium
(48,135)
(52,783)
As at 31 December
29,560,292
37,180,808
21. Shares in subsidiaries and Equity and other instruments at fair value through the income statement
Accounting policy:
Subsidiaries are all entities controlled by the Bank. The Bank controls an entity when the Bank has power over an entity, is exposed to or has rights to variable returns from its involvement with the entity and has the ability to affect these returns through its power over the entity.
Investments in subsidiaries in the Bank’s separate financial statements are recognized using the cost method in accordance with IAS 27.
Shares in entities other than dependent entities (lack of affiliates and joint ventures) are classified as financial assets measured at fair value through income statement. Their classification and measurement are described in note 2.1
Financial information:
PLN’000
31.12.2023
31.12.2022
Shares in subsidiaries
102,298
102,310
Impairment
(10,659)
(10,535)
Equity and other instruments measured at fair value through income statement
141,495
106,144
Equity investments, total
233,134
197,919
TRANSLATION
Annual Financial Statements of Bank Handlowy w Warszawie S.A. for the financial year ended 31 December 2023
59
Including:
Listed on active market instruments
19,739
17,660
Unlisted on active market instruments
213,395
180,259
The movement in shares in subsidiaries, equity and other investments is as follows:
PLN’000
Subsidiaries
Other entities
Total
As at 1 January 2023
91,775
106,144
197,919
Increases (due to):
Revaluation
-
35,351
35,351
Decreases (due to):
Revaluation
(136)
-
(136)
As at 31 December 2023
91,639
141,495
233,134
PLN’000
Subsidiaries
Other entities
Total
As at 1 January 2022
91,942
97,026
188,968
Increases (due to):
Revaluation
-
9,055
9,055
Intragroup transformations
-
247
247
Decreases (due to):
Sale/liquidation
-
(184)
(184)
Revaluation
(167)
-
(167)
As at 31 December 2022
91,775
106,144
197,919
Financial information on subsidiaries, 31.12.2023
Name of subordinate
Location
Activity
Capital relationship
Share in equity [%]*
Book value of shares
Assets
Liabilities
Equity
Revenues
Profit/loss
HANDLOWY – LEASING
Sp. z o.o.
Warsaw
Leasing
Subsidiary
97.47
15,720
21,662
691
20,971
997
574
Handlowy Financial Services Sp. z o.o.( currently Dom Maklerski Banku Handlowego S.A.)* .
Warsaw
Brokerage
Subsidiary
100
70,950
118,440
913,
117,527
5,880
3,573
HANDLOWY
INVESTMENTS S.A.
Luxembourg
Investment
activity
Subsidiary
100
4,309
4,331,
21,
4,311,
821,
279,
HANDLOWY –
INWESTYCJE Sp. z o.o. 1/
Warsaw
Investment
activity
Subsidiary
100
660
10,821
68
10,753
485
293
91,639
Date in thousand of PLN
*direct share
The explanation of indirect relationships:
1/ Indirect relationship via Handlowy-Inwestycje Sp. z o.o .
Name of subordinate
Location
Activity
Capital relationship
Share in equity [%]*
Book value of shares
Assets
Liabilities
Equity
Revenues
Profit/ Loss
HANDLOWY - LEASING
Sp. z o.o.
Warsaw
Leasing
Subsidiary
2.53
414
21,662
691
20,971
997
574
Data in thousand of PLN
The above presented financial data of the entities available at the time of preparation of the financial statements originate from the non-audited financial statements of the entities. Financial data of Handlowy Investments S.A. originate from the financial statements prepared as at 29 February 2024, which is the entity’s balance sheet date.
Financial information on subsidiaries, 31.12.2022
TRANSLATION
Annual Financial Statements of Bank Handlowy w Warszawie S.A. for the financial year ended 31 December 2023
60
Name of subordinate
Location
Activity
Capital relationship
Share in equity [%]*
Book value of shares
Assets
Liabilities
Equity
Revenues
Profit/loss
HANDLOWY – LEASING
Sp. z o.o.
Warsaw
Leasing
Subsidiary
97.47
15,720
21,378
690
20,688
697
292
Handlowy Financial Services Sp. z o.o.( currently Dom Maklerski Banku Handlowego S.A.)* .
Warsaw
Brokerage
Subsidiary
100
70,950
119,220
1,934
117,286
48,399
3,333
HANDLOWY
INVESTMENTS S.A.
Luxembourg
Investment
activity
Subsidiary
100
4,433
4,383
35
4,348
109
(120)
HANDLOWY –
INWESTYCJE Sp. z o.o. 1/
Warsaw
Investment
activity
Subsidiary
100
672
10,566
94
10,472
208
12
91,775
Data in thousands of PLN
*direct share
The explanation of indirect relationships:
1/ Indirect relationship via Handlowy-Inwestycje Sp. z o.o .
. . . .
Name of subordinate
Location
Activity
Capital relationship
Share in equity [%]*
Book value of shares
Assets
Liabilities
Equity
Revenues
Profit
HANDLOWY - LEASING
Sp. z o.o.
Warsaw
Leasing
Subsidiary
2.53
2.53
414
21,378
690
20,688
697
The above presented financial data of the entities available at the time of preparation of the financial statements originate from the non-audited financial statements of the entities. Financial data of Handlowy Investments S.A. originate from the financial statements prepared as at 28 February 2023, which is the entity’s balance sheet date.
22. Amounts due from customers
Accounting policy:
Classification and measurement of amounts due from customers are described in note 2.1 ‘Financial assets and liabilities – classification and measurement’.
Financial information:
PLN’000
31.12.2023
31.12.2022
Amounts due from financial sector entities
Loans and advances
1,408,492
766,786
Debt financial assets unlisted
1,002,530
1,227,130
Receivables due to purchased securities with a repurchase agreement
181,616
-
Guarantee funds and deposits pledged as collateral
1,585,568
1,820,113
Total gross amount
4,178,206
3,814,029
Provision for expected credit losses
(2,873)
(3,517)
Total net amount
4,175,333
3,810,512
Amounts due from non-financial sector entities
Loans and advances
14,177,379
16,558,928
Purchased receivables
2,388,441
2,038,148
Realized guarantees
30,709
33,062
Guarantee funds and deposits pledged as collateral
-
8,269
Other receivables
16,838
22,076
Total gross amount
16,613,367
18,660,483
Provision for expected credit losses
(734,246)
(850,488)
Total net amount
15,879,121
17,809,995
Total net amounts due from customers
20,054,454
21,620,507
In amounts due from customers presented on the line Unlisted debt financial assets are securitization assets covered by the Bank. The Bank acts as investor in transactions involving senior tranches. The assets purchased by the Bank are not
TRANSLATION
Annual Financial Statements of Bank Handlowy w Warszawie S.A. for the financial year ended 31 December 2023
61
traded on the market. The Bank intends to maintain investments until the maturity date. The main risk of securitization transactions is credit risk. The Bank’s maximum exposure to loss from involvement in these entities is equal to their carrying gross value, as at 31 December 2023 in the of amount PLN 1,002,530 thousand (31 December 2022: PLN 1,227,130 thousand). The carrying value of assets relating in Bank participation in unconsolidated structured entities as at 31 December 2023 in the amount of PLN 1,001,976 thousand (31 December 2022: PLN 1,226,612 thousand).
Movement in loss allowance - amounts due from customers presents as follows:
PLN ‘000
Stage 1
Stage 2
Stage 3
Purchased or originated credit-impaired assets
Total
Loss allowance - amounts due from institutional customers
Provision for expected credit losses as at 1 January 2023
(40,985)
(43,613)
(329,595)
(1,354)
(415,547)
Transfer to Stage 1
(913)
913
-
-
-
Transfer to Stage 2
1,902
(1,902)
-
-
-
Transfer to Stage 3
89
959
(1,048)
-
-
Transfer to purchased or originated credit-impaired assets
-
-
795
(795)
-
(Creation)/Releases in the period though the income statement
20,232
7,852
(12,364)
229
15,949
Decrease in write-downs due to write-offs
-
-
67,505
-
67,505
Decrease in write-downs in connection with the sale of receivables
-
-
16,237
-
16,237
Changes in accrued interest in Stage 3 other than written off and sale of receivables
(10)
1
(8,678)
-
(8,687)
Decrease in provisions due to derecognition from the balance sheet as a result of significant change
-
-
-
1,428
1,428
Foreign exchange and other movements
(897)
5,892
6,747
1,138
12,880
Provision for expected credit losses as at 31 December 2023
(20,582)
(29,898)
(260,401)
646
(310,235)
Effect of minor modification on provision for expected credit losses is insignificant
PLN ‘000
Stage 1
Stage 2
Stage 3
Purchased or originated creditimpaired assets
Total
Loss allowance - amounts due from individual customers
Provision for expected credit losses as at 1 January 2022
(40,250)
(64,772)
(333,032)
(404)
(438,458)
Transfer to Stage 1
(11,848)
10,562
1,286
-
-
Transfer to Stage 2
6,039
(8,615)
2,576
-
-
Transfer to Stage 3
2,448
23,127
(25,575)
-
-
Transfer to purchased or originated credit-impaired assets
-
-
19,893
(19,893)
-
(Creation)/Releases in the period though the income statement
11,718
(30,162)
(41,365)
2,816
(56,993)
Decrease in write-downs due to write-offs
-
-
5,264
-
5,264
Decrease in write-downs in connection with the sale of receivables
-
-
80,241
417
80,658
Changes in accrued interest in Stage 3 other than written off and sale of receivables
-
7
(33,909)
(3,005)
(36,907)
Decrease in provisions due to derecognition from the balance sheet as a result of significant change
-
-
-
19,893
19,893
Foreign exchange and other movements
-
-
(341)
-
(341)
Provision for expected credit losses as at 31 December 2022
(31,893)
(69,853)
(324,962)
(176)
(426,884)
Effect of minor modification on provision for expected credit losses is insignificant
TRANSLATION
Annual Financial Statements of Bank Handlowy w Warszawie S.A. for the financial year ended 31 December 2023
62
PLN ‘000
Stage 1
Stage 2
Stage 3
Purchased or originated credit-impaired assets
Total
Loss allowance - amounts due from institutional customers
Provision for expected credit losses as at 1 January 2022
(29,135)
(46,465)
(350,464)
-
(426,064)
Transfer to Stage 1
(69)
69
-
-
-
Transfer to Stage 2
2,947
(2,947)
-
-
-
Transfer to Stage 3
57
1,446
(1,503)
-
-
Transfer to purchased or originated credit-impaired assets
-
-
1,735
(1,735)
-
(Creation)/Releases in the period though the income statement
(14,427)
4,627
(25,770)
209
(35,361)
Decrease in write-downs due to write-offs
-
-
6,477
-
6,477
Decrease in write-downs in connection with the sale of receivables
-
-
28,018
-
28,018
Changes in accrued interest in Stage 3 other than written off and sale of receivables
(1)
(1)
4,837
-
4,835
Decrease in provisions due to derecognition from the balance sheet as a result of significant change
-
-
-
62
62
Foreign exchange and other movements
(357)
(342)
7,075
110
6,486
Provision for expected credit losses as at 31 December 2022
(40,985)
(43,613)
(329,595)
(1 354)
(415,547)
Effect of minor modification on provision for expected credit losses is insignificant
The closing balance of impairment recognized on loans and advances to customers consisted of:
PLN ‘000
Stage 1
Stage 2
Stage 3
Purchased or originated credit- impaired assets
Total
Loss allowance - amounts due from individual customers
Provision for expected credit losses as at 1 January 2022
(34,339)
(71,682)
(354,424)
-
(460,445)
Transfer to Stage 1
(19,170)
16,157
3,013
-
-
Transfer to Stage 2
4,249
(8,405)
4,156
-
-
Transfer to Stage 3
2,233
22,217
(24,450)
-
-
Transfer to purchased or originated credit-impaired assets
-
-
15,538
(15,538)
-
(Creation)/Releases in the period though the income statement
4,268
(21,082)
(53,693)
734
(69,773)
Net changes due to update of estimating method (net)*
2,509
(1,967)
(790)
-
(248)
Decrease in write-downs due to write-offs
-
-
5,805
-
5,805
Decrease in write-downs in connection with the sale of receivables
-
-
99,470
-
99,470
Changes in accrued interest in Stage 3 other than written off and sale of receivables
-
(10)
(26,481)
(1,138)
(27,629)
Decrease in provisions due to derecognition from the balance sheet as a result of significant change
-
-
-
15 538
15,538
Foreign exchange and other movements
-
-
(1,176)
-
(1,176)
Provision for expected credit losses as at 31 December 2022
(40,250)
(64,772)
(333,032)
(404)
(438,458)
Effect of minor modification on provision for expected credit losses is insignificant
PLN’000
Stage 1
Stage 2
Stage 3
Purchased or originated credit- impaired assets
Total
Gross amounts due from customers measured at amortized cost
Gross amounts due from customers as at 1 January 2023
19,027,051
2,558,056
872,457
16,948
22,474,512
Transfer to Stage 1
1,085,332
(1,073,213)
(12,119)
-
-
TRANSLATION
Annual Financial Statements of Bank Handlowy w Warszawie S.A. for the financial year ended 31 December 2023
63
PLN’000
Stage 1
Stage 2
Stage 3
Purchased or originated credit- impaired assets
Total
Transfer to Stage 2
(1,528,140)
1,533,429
(5,289)
-
-
Transfer to Stage 3
(73,009)
(86,041)
159,050
-
-
Transfer to purchased or originated credit-impaired assets
(375)
(1,051)
(44,158)
45,584
-
Receivables increase / repayment
(550,329)
(553,495)
(4,585)
(12,614)
(1,121,023)
Receivables written-off
-
-
(75,326)
-
(75,326)
Disposed receivables
-
-
(104,584)
(256)
(104,840)
Other movements
(276,826)
(90,829)
8,362
(22,457)
(381,750)
Gross amounts due from customers as at 31 December 2023
17,683,704
2,286,856
793,808
27,205
20,791,573
PLN’000
Stage 1
Stage 2
Stage 3
Purchased or originated credit- impaired assets
Total
Gross amounts due from customers measured at amortized cost
Gross amounts due from customers as at 1 January 2022
19,430,735
1,744,692
898,239
-
22,073,666
Transfer to Stage 1
616,884
(606,303)
(10,581)
-
-
Transfer to Stage 2
(1,516,631)
1,524,836
(8,205)
-
-
Transfer to Stage 3
(106,232)
(98,223)
204,455
-
-
Transfer to purchased or originated credit-impaired assets
(678)
(5,690)
(29,429)
35,797
-
Receivables increase / repayment*
461,557
(27,022)
(93,224)
(3,566)
337,745
Receivables written-off
-
-
(8,789)
-
(8,789)
Disposed receivables
-
-
(122,312)
-
(122,312)
Other movements
141,416
25,766
42,303
(15,283)
194,202
Gross amounts due from customers as at 31 December 2022
19,027,051
2,558,056
872,457
16,948
22,474,512
For gross amounts due from customers and provisions for expected credit losses which changed Stages during the period, transfers are presented as the change between the Stage as of 1 January 2022 or at the moment of initial recognition and as of 31 December 2022.
23. Tangible fixed assets
Accounting policy:
Property and equipment are stated at historical cost minus accumulated depreciation or amortization and impairment losses. The historical cost of an item of property and equipment includes any directly attributable costs of purchasing and bringing the asset into use.
Subsequent expenditure relating to an item of property and equipment is added to the carrying amount of the asset or recognized as a separate asset (where appropriate) only when it is probable that future economic benefits will flow to the Bank and the cost of the asset can be measured reliably. Any other expenditure, e.g., repairs and maintenance is recognized as an expense when incurred.
Depreciation and amortization are calculated using the straight-line method over the expected useful life of an asset on the basis of rates that are approved in the depreciation and amortization plan for 2022.
Illustrative annual depreciation and amortization rates applied by the Bank are presented in the table below:
Buildings and structures
1.5%-4.5%
Motor vehicles
14.0%-34.0%
Computers
25.0%
Office equipment
20.0%
Other tangible fixed assets
7.0%-34.0%
Leasehold improvements - compliant with lease agreement period
At each balance sheet date, the residual values of non-current assets and their useful lives are reviewed, and the depreciation and amortization schedule is adjusted where appropriate.
Assets with original cost less than PLN 3,500 are fully depreciated on a one-off basis when brought into use. The total
TRANSLATION
Annual Financial Statements of Bank Handlowy w Warszawie S.A. for the financial year ended 31 December 2023
64
cost of other tangible fixed assets depreciated on a one-off basis is not material to the financial statements.
Assets in the course of construction are stated at the total of costs directly attributable to construction, assembly or improvement in progress less impairment provision.
Items of property and equipment are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. The carrying amount of an item of property and equipment asset is written down to its recoverable amount if the carrying amount exceeds the recoverable amount. The recoverable amount of an item of property and equipment is the higher of its fair value minus costs of sale and value in use.
The carrying amounts reviewed at each balance sheet date to determine whether there is any evidence of impairment. If so, the asset’s recoverable amount is estimated.
Revaluation impairment allowances are recognized if the book value of an asset or of cash- generating unit exceeds the recoverable amount. Revaluation impairment allowances are recognized in profit or loss.
In the case of a cash-generating unit, revaluation impairment allowances first reduce the goodwill allocated to such cash- generating units (group of units) and then proportionally reduce the carrying value of other assets in the unit (group of units).
The recoverable amount in the case of assets other than financial assets is higher fair value less selling costs and value in use. For value in use calculation, the estimation of future cash flows is discounted to their present value using the discount rate before taxation, which represents present market expectations regarding money value and specific risk regarding an asset. For assets that are not generating independent cash flows, the recoverable amount is estimated for cash-generating unit, the asset owner.
Revaluation provision for impairment are reversed if the estimations for the recoverable amount have changed.
The revaluation write-off for impairment can be reversed only to the level by which the book value of the asset do not exceed the depreciation decreased book value that would be estimated if the impairment write-off was not recognized.
Tangible fixed assets since the day of initial application of IFRS 16 include right of use assets. Details are presented in note 43.
Financial information:
Movements of tangible fixed assets in 2023
PLN’000
Land and buildings
Vehicles
Other
Under construction
Total
Gross amount
As at 1 January 2023
704,151
29,975
228,763
20,925
983,814
Increases:
Purchases
84
11,319
14,032
95,694
121,129
Other increases*
7,975
-
233
-
8,208
Decreases:
Disposals
-
(1,549)
-
-
(1,549)
Liquidation
(32,748)
-
(14,982)
-
(47,730)
Classified to non-current assets held-for-sale
(29,980)
-
(4,853)
-
(34,833)
Other decreases*
(4,009)
-
-
(4,497)
(8,506)
Transfers
8,194
-
5,604
(13,798)
-
As at 31 December 2023
653,667
39,745
228,797
98,324
1,020,533
Depreciation
As at 1 January 2023
334,369
3,063
190,964
-
528,396
Increases:
Amortization change for the period
28,230
3,422
14,182
-
45,834
Other increases
-
-
9
-
9
Decreases:
Disposals
-
(898)
-
-
(898)
Liquidation
(18,838)
-
(14,982)
-
(33,820)
Classified to non-current assets held-for-sale
(20,733)
-
(4,833)
-
(25,566)
Other decreases
(1,825)
-
-
-
(1,825)
As at 31 December 2023
321,203
5,587
185,340
-
512,130
Carrying amount
As at 1 January 2023
369,782
26,912
37,799
20,925
455,418
As at 31 December 2023
332,464
34,158
43,457
98,324
508,403
TRANSLATION
Annual Financial Statements of Bank Handlowy w Warszawie S.A. for the financial year ended 31 December 2023
65
*Other increases/ decreases include for example restoration of a liquidated asset to inventory, donations, settlements of fixed assts under construction, new and terminated lease agreements.
Movements of tangible fixed assets in 2022
PLN’000
Land and buildings
Vehicles
Other
Under construction
Total
Gross amount
As at 1 January 2022
715,606
21,637
215,482
13,344
966,069
Increases:
Purchases
39
21,690
16,719
21,392
59,840
Other increases*
8,018
-
468
-
8,486
Decreases:
-
-
-
-
-
Disposals
-
(13,352)
-
-
(13,352)
Liquidation
(810)
-
(5,126)
-
(5,936)
Other decreases*
(22,784)
-
(3,010)
(5,499)
(31,293)
Transfers
4,082
-
4,230
(8,312)
-
As at 31 December 2022
704,151
29,975
228,763
20,925
983,814
Depreciation
As at 1 January 2022
321,538
6,000
187,932
-
515,470
Increases:
Amortization change for the period
28,449
2,746
11,134
-
42,329
Other increases
167
-
24
-
191
Decreases:
-
-
-
-
-
Disposals
-
(5,683)
-
-
(5,683)
Liquidation
(606)
-
(5,125)
-
(5,731)
Other decreases
(15,179)
-
(3,001)
-
(18,180)
As at 31 December 2022
334,369
3,063
190,964
-
528,396
Carrying amount
As at 1 January 2022
394,068
15,637
27,550
13,344
450,599
As at 31 December 2022
369,782
26,912
37,799
20,925
455,418
*Other increases/ decreases include for example restoration of a liquidated asset to inventory, donations, settlements of fixed assts under construction, new and terminated lease agreements.
24. Intangible assets
Accounting policy:
Intangible assets are stated at historical cost minus accumulated depreciation or amortization and impairment losses. The historical cost of an item of intangibles includes any directly attributable costs of purchasing and bringing the asset into use.
Subsequent expenditure relating to an item of intangibles is added to the carrying amount of the asset or recognized as a separate asset (where appropriate) only when it is probable that future economic benefits will flow to the Bank and the cost of the asset can be measured reliably. Any other expenditure, e.g., repairs and maintenance is recognized as an expense when incurred.
Depreciation and amortization are calculated using the straight-line method over the expected useful life of an asset on the basis of rates that are approved in the depreciation and amortization plan for 2023.
Illustrative annual depreciation and amortization rates applied by the Bank are presented in the table below:
Computer software and licenses (except the main operating systems, which are depreciated at the rate of 10% and 20%)
Other intangible fixed assets
At each balance sheet date, the residual values of non-current assets and their useful lives are reviewed, and the depreciation and amortization schedule is adjusted where appropriate.
Intangibles are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. The carrying amount of an item of intangible asset is written down to its recoverable amount if the carrying amount exceeds the recoverable amount. The recoverable amount of an item of intangible assets is the higher of
TRANSLATION
Annual Financial Statements of Bank Handlowy w Warszawie S.A. for the financial year ended 31 December 2023
66
its fair value minus costs of sale and value in use.
The carrying amounts reviewed at each balance sheet date to determine whether there is any evidence of impairment. If so, the asset’s recoverable amount is estimated.
Revaluation impairment allowances are recognized if the book value of an asset or of cash- generating unit exceeds the recoverable amount. Revaluation impairment allowances are recognized in profit or loss.
In the case of a cash-generating unit, revaluation impairment allowances first reduce the goodwill allocated to such cash- generating units (group of units) and then proportionally reduce the carrying value of other assets in the unit (group of units).
The recoverable amount in the case of assets other than financial assets is higher fair value less selling costs and value in use. For value in use calculation, the estimation of future cash flows is discounted to their present value using the discount rate before taxation, which represents present market expectations regarding money value and specific risk regarding an asset. For assets that are not generating independent cash flows, the recoverable amount is estimated for cash-generating unit, the asset owner.
Revaluation provision for impairment are reversed if the estimations for the recoverable amount have changed.
The revaluation write-off for impairment can be reversed only to the level by which the book value of the asset do not exceed the depreciation decreased book value that would be estimated if the impairment write-off was not recognized.
Financial information:
Movements of intangible assets in 2023
PLN’000
Goodwill
Software
Prepayments
Total
Gross amount
As at 1 January 2023
1,245,976
717,297
106,256
2,069,529
Increases:
Purchases
-
1,226
87,220
88,446
Decreases:
Liquidation
-
(761)
-
(761)
Other decreases
-
-
(1,794)
(1,794)
Transfers
-
137,092
(137,092)
-
As at 31 December 2023
1,245,976
854,854
54,590
2,155,420
Depreciation
As at 1 January 2023
-
590,959
-
590,959
Increases:
Amortization charge for the period
-
65,201
-
65,201
Decreases:
Liquidation
-
(761)
-
(761)
As at 31 December 2023
-
655,399
-
655,399
Impairment allowances
As at 1 January 2023
214,707
-
-
214,707
As at 31 December 2023
214,707
-
-
214,707
Carrying amount
As at 1 January 2023
1,031,269
126,338
106,256
1,263,863
As at 31 December 2023
1,031,269
199,455
54,590
1,285,314
Movements of intangible assets in 2022
PLN’000
Goodwill
Software
Prepayments
Total
Gross amount
As at 1 January 2022
1,245,976
716,773
25,930
1,988,679
Increases:
Purchases
-
2,215
82,875
85,090
Decreases:
Liquidation
-
(1,741)
-
(1,741)
Other decreases
-
-
(2,499)
(2,499)
TRANSLATION
Annual Financial Statements of Bank Handlowy w Warszawie S.A. for the financial year ended 31 December 2023
67
PLN’000
Goodwill
Software
Prepayments
Total
Transfers
-
50
(50)
-
As at 31 December 2022
1,245,976
717,297
106,256
2,069,529
Depreciation
As at 1 January 2022
-
532,473
-
532,473
Increases:
Amortization charge for the period
-
60,227
-
60,227
Decreases:
Liquidation
-
(1,741)
-
(1,741)
As at 31 December 2022
-
590,959
-
590,959
Impairment allowances
As at 1 January 2022
214,707
-
-
214,707
As at 31 December 2022
214,707
-
-
-
Carrying amount
As at 1 January 2022
1,031,269
184,300
25,930
1,241,499
As at 31 December 2022
1,031,269
126,338
106,256
1,263,863
As at 31 December 2023, as well as at 31 December 2022, the Bank had no significant contractual obligations for future purchases of intangible assets.
Goodwill included PLN 1,243,645 thousand proceed from merger from 28 February 2001 between Bank Handlowy w Warszawie S.A and Citibank (Poland) S.A, and PLN 2,331 thousand proceed from acquisition of organized part of the banking enterprise ABN Amro Bank (Poland) S.A, which happened on 1 March 2005. At the end of 2020, the Management Board of Bank made a write-off reducing goodwill by PLN 214,707 thousand in the part attributable to the Consumer Banking segment.
Intangible assets in the amount of PLN thousand as at 31 December 2023 (as at 31 December 2022: PLN 1,263,863 thousand) include goodwill in the amount of PLN 1,031,269 thousand, which has not changed since 31 December 2020.
25. Impairment test for goodwill
In the financial statements of the Bank, goodwill represents the difference between the cost of the acquisition and the fair value of the Bank’s interest in identifiable assets, liabilities and contingent liabilities acquired at the business combination date. Goodwill is included in intangible assets. Goodwill is stated at cost minus any accumulated impairment losses. Goodwill is allocated to cash-generating units and is not amortized but is tested annually for impairment objective evidence of impairment. Impairment for goodwill cannot be reversed.
For the purpose of carrying out impairment tests, goodwill has been allocated to two cash generating-units: the Institutional Bank and Consumer Bank. Assignment was made on the basis of discounted cash flows models on the basis of the strategy before the merger. After merger reallocation of goodwill was conducted on the basis of the assets’ relative values transferred to another center comparing to the assets held in the center given.
The allocation of goodwill to cash-generating units is presented in the table below .
Book value of goodwill allocated to unit
PLN’000
31.12.2023
31.12.2022
Institutional Bank
851,206
851,206
Consumer Bank
180,063
180,063
1,031,269
1,031,269
The basis of valuation of the recoverable amount for a unit is the value in use, assessed on the basis financial plan. The plan is based on rational assumptions about future facts that reflect management assessment of future economic conditions and expected results of the Bank. The plan is periodically updated and approved by the Bank’s Supervisory Board. The board accepted a 3-year time period for the process of financial planning.
The valuation used different discount rates for each year of forecast (11.1-12.3%) estimated using a beta coefficient for the banking sector, a risk premium and risk-free rate.
Extrapolation of cash flows, which exceed the period covered by the financial plan, has been based on growth rates reflecting the long-term NBP inflation target that amounted to 2.5% as at 31 December 2023.
TRANSLATION
Annual Financial Statements of Bank Handlowy w Warszawie S.A. for the financial year ended 31 December 2023
68
As a result of the performed impairment test, no impairment of goodwill was recognized as at 31 December 2023.
26. Deferred income tax asset
Accounting policy:
A deferred tax provision and asset are calculated using the carrying value method by computing temporary differences between the carrying value of assets and liabilities in the statement of financial position and the tax base of assets and liabilities. In the statement of financial position, the Bank discloses deferred tax asset net of deferred tax provisions after compensation, when there is a legal title to set such a compensation and when provision and asset refer to the same taxpayer.
Deferred tax assets are recognized only to the extent that it is probable that a tax benefit will be realized in the future.
Financial information:
PLN’000
31.12.2023
31.12.2022
Deferred income tax asset
1,058,233
1,771,281
Deferred income tax liability
(945,727)
(1,487,597)
Deferred income tax net asset
112,506
283,684
Deferred tax on acquisition of the organized part of the enterprise in the value of 3,684 PLN thousand will be settled with the liability to the Tax Office for the next 5 years.
Positive and negative taxable and deductible temporary differences are presented below:
Deferred income tax asset is attributable to the following:
PLN’000
31.12.2023
31.12.2022
Interest accrued and other expense
54,534
20,557
Revaluation impairment provision
84,236
96,839
Unrealized premium from securities
16,395
26,262
Negative valuation of derivative financial instruments
770,046
1,338,349
Negative valuation of securities held-for-trading
2,421
3,772
Income collected in advance
16,794
22,215
Commissions
3,498
2,781
Debt and equity securities measured at fair value through other comprehensive income
3,421
160,908
Staff expenses and other cost due to pay
67,370
62,296
Leasing MSSF16
31,194
30,709
Other
8,323
6,593
Deferred income tax asset
1,058,233
1,771,281
Deferred income tax liability is attributable to the following:
PLN’000
31.12.2022
31.12.2022
Interest accrued (income)
65,703
56,265
Positive valuation of derivative financial instruments
729,711
1,349,763
Unrealized securities discount
48,966
16,208
Income to receive
4,920
4,620
Positive valuation of securities held-for-trading
1,226
1,357
Debt and equity securities measured at fair value through other
comprehensive income
26,575
-
Investment relief
7,158
7,528
Valuation of shares
22,126
15,631
Lease IFRS16
29,707
28,953
Other
9,636
7,272
Deferred income tax liability
945,727
1,487,597
Net asset for deferred income tax
112,506
283,684
TRANSLATION
Annual Financial Statements of Bank Handlowy w Warszawie S.A. for the financial year ended 31 December 2023
69
Movement in temporary differences during the year 2023
The movement in temporary differences relating to deferred income tax asset:
PLN’000
As at 1 January 2023
Adjustments recognized in income
Adjustments recognized in equity
As at 31 December 2023
Interest accrued and other expense
20,557
33,977
-
54,534
Revaluation impairment provision
96,839
(12,603)
-
84,236
Unrealized premium from securities
26,262
(9,867)
-
16,395
Negative valuation of derivative financial instruments
1,338,349
(568,303)
-
770,046
Negative valuation of securities held-for-trading
3,772
(1,351)
-
2,421
Income collected in advance
22,215
(5,421)
-
16,794
Commissions
2,781
717
-
3,498
Debt and equity securities measured at fair value through other comprehensive income
160,908
(22,407)
(135,080)
3,421
Staff expenses and other costs due to pay
62,296
5,074
-
67,370
Lease IFRS16
30,709
485
-
31,194
Other
6,593
1,730
-
8,323
1,771,281
(577,967)
(135,080)
1,058,233
The movement in temporary differences relating to deferred income tax provision:
PLN’000
As at 1 January 2023
Adjustments recognized in income
Adjustments recognized in equity
As at 31 December 2023
Interest accrued (income)
56,265
9,438
-
65,703
Positive valuation of derivative financial instruments
1,349,763
(620,052)
-
729,711
Unrealized securities discount
16,208
32,758
-
48,966
Income to receive
4,620
300
-
4,920
Positive valuation of securities held-for-trading
1,357
(131)
-
1,226
Debt and equity securities measured at fair value through other
comprehensive income
-
-
26,575
26,575
Investment relief
7,528
(370)
-
7,158
Valuation of shares
15,631
6,495
-
22,126
Lease IFRS16
28,953
754
-
29,707
Other
7,272
2,363
-
9,635
1,487,597
(568,445)
26,575
945,727
Change in net assets for deferred income tax
283,684
(9,523)
(161,655)
112,506
Movement in temporary differences during the year 2022
The movement in temporary differences relating to deferred income tax asset:
PLN’000
As at 1 January 2022
Adjustments recognized in income
Adjustments recognized in equity
As at 31 December 2022
Interest accrued and other expense
4,216
16,341
-
20,557
Revaluation impairment provision
103,352
(6,513)
-
96,839
Unrealized premium from securities
19,291
6,971
-
26,262
Negative valuation of derivative financial instruments
1,389,255
(50,906)
-
1,338,349
Negative valuation of securities held-for-trading
2,306
1,466
-
3,772
Income collected in advance
28,377
(6,162)
-
22,215
Commissions
2,784
(3)
-
2,781
Debt and equity securities measured at fair value through other comprehensive income
108,651
(82,823)
135,080
160,908
Staff expenses and other costs due to pay
52,750
9,546
-
62,296
Lease IFRS16
30,204
505
-
30,709
Other
4,980
1,613
-
6,593
1,746,166
(109,965)
135,080
1,771,281
TRANSLATION
Annual Financial Statements of Bank Handlowy w Warszawie S.A. for the financial year ended 31 December 2023
70
The movement in temporary differences relating to deferred income tax provision:
PLN’000
As at 1 January 2022
Adjustments recognized in income
Adjustments recognized in equity
As at 31 December 2022
Interest accrued (income)
21,544
34,721
-
56,265
Positive valuation of derivative financial instruments
1,402,553
(52,790)
-
1,349,763
Unrealized securities discount
7,241
8,967
-
16,208
Income to receive
5,383
(763)
-
4,620
Positive valuation of securities held-for-trading
612
745
-
1,357
Debt and equity securities measured at fair value through other
comprehensive income
(12,910)
(62,540)
75,450
-
Investment relief
7,814
(286)
-
7,528
Valuation of shares
16,175
(544)
-
15,631
Lease IFRS16
28,975
(22)
-
28,953
Other
5,174
2,098
-
7,272
1,482,561
(70,414)
75,450
1,487,597
Change in net assets for deferred income tax
263,605
(39,551)
59,630
283,684
27. Other assets
PLN’000
31.12.2023
31.12.2022
Interbank settlements
22,848
14,238
Settlements related to securities trade
26
16
Settlements related to brokerage activity
60,269
55,681
Income to receive
48,731
52,434
Staff loans out of the Social Fund
15,146
14,300
Sundry debtors
60,743
70,973
Prepayments
9,603
9,718
Other assets, total
217,366
217,360
Including financial assets*
159,032
155,208
*Financial assets include all the positions “Other assets”, except the positions “Income to receive” and “Prepayments”.
28. Non-current assets held-for-sale
Accounting policy :
Non-current assets held for sale are measured at the lower of book value or fair value less selling costs.
Financial information:
In the first half of 2022, the sale transaction of property previously classified as non-current assets held for sale has been finalized. Its book value amounted to PLN 6,163 thousand and the sales result amounted to PLN 3,620 thousand.
29. Amounts due to banks
Accounting policy:
Classification and measurement of amounts due to banks are described in note 2.1
Financial information:
PLN’000
31.12.2023
31.12.2022
Current accounts
2,521,721
2,230,930
Term deposits
357,829
2,419,247
Liabilities due to sold securities under repurchase agreements
-
61,131
Other liabilities, including:
496,137
83,363
margin deposits
494,205
82,902
Amounts due to banks, total
3,375,687
4,794,671
TRANSLATION
Annual Financial Statements of Bank Handlowy w Warszawie S.A. for the financial year ended 31 December 2023
71
30. Amounts due to customers
Accounting policy:
Classification and measurement of amounts due to customers are described in note 2.1
Financial information:
PLN’000
31.12.2023
31.12.2022
Deposits from financial sector entities
Current accounts
940,036
1,168,196
Term deposits
3,002,492
2,621,875
3,942,528
3,790,071
Deposits from non-financial sector entities
Current accounts, including:
35,247,407
34,496,846
institutional customers
21,561,300
20,418,782
individual customers
11,442,558
12,128,146
public sector units
2,243,549
1,949,918
Term deposits, including:
14,157,409
10,663,491
institutional customers
6,141,613
4,435,409
individual customers
7,727,411
5,670,588
public sector units
288,385
557,494
49,404,816
45,160,337
Total deposits
53,347,344
48,950,408
Other liabilities
Other liabilities, including:
1,815,242
1,717,372
liabilities due to deposits
503,263
125,429
margin deposits
1,265,983
1,526,384
Total other liabilities
1,815,242
1,717,372
Total amounts due to customers
55,162,586
50,667,780
31. Provisions
Accounting policy:
A provision is recognized in the statement of financial position when the Bank has a present legal or constructive obligation as a result of a past event, and also if it is probable that the discharge of this obligation will result in an outflow of economic benefits, and the provision amount can be reliably estimated.
A restructuring provision is recorded when the following conditions have been met: (i) the Bank has a detailed and formalized restructuring plan; (ii) the restructuring has already begun or has been publicly announced; (iii) the provision amount can be reliably estimated. The restructuring provision does not include future operating expenses.
Financial information:
PLN’000
31.12.2023
31.12.2022
Litigation
46,350
33,445
Granted financial and guarantee liabilities
34,960
44,969
Other
29,701
33,471
Provisions, total
111,011
111,885
The movement in provisions is as follows:
TRANSLATION
Annual Financial Statements of Bank Handlowy w Warszawie S.A. for the financial year ended 31 December 2023
72
PLN’000
2023
2022
As at 1 January
111,885
141,714
Provisions for:
Litigation
33,445
19,479
Granted financial and guarantee commitments
44,969
33,910
Workforce restructuring
-
275
Other
33,471
88,050
Increases:
Charges to provisions in the period:
55,315
81,266
Litigation
18,471
18,405
Granted financial and guarantee commitments
36,125
62,861
Other
719
-
Other, including
-
179
Granted financial and guarantee commitments
-
179
Decreases:
Release of provisions in the period:
(47,711)
(56,076)
Litigation
(24)
(227)
Granted financial and guarantee commitments
(45,498)
(51,981)
Workforce restructuring
-
(275)
Other
(2,189)
(3,593)
Provisions used in the period, including:
(7,842)
(55,198)
Litigation
(5,542)
(4,212)
Workforce restructuring
Restructuring of the branch network
Other
(2,300)
(50,986)
Other, including
(636)
-
Granted financial and guarantee commitments
(636)
-
As at 31 December
111,011
111,885
*Additional information concerning provisions for granted financial and guarantee commitments are presented in note 40.
**The „Other” item includes provisions related to TSUE judgements, which has been described in note 40.
32. Other liabilities
Accounting policy:
The Bank records accruals and prepayments of expenses primarily in relation to the Bank’s overhead expenses in reporting periods to which they relate. Accruals and prepayments are presented as ‘Other liabilities’ in the statement of financial position.
Within the range of liabilities to provision of providing services on time, the Bank uses a method of income on the time proportion in the time of providing services. According to the bank, this method reflects the procedure of providing services.
Within the area of methods, input data and assumptions adopted to estimate variable remuneration, the Bank uses approach most likely values in accordance to the remuneration received for achievement of the objectives, whereas within the range of remuneration reimbursements in insurance mediation, statistical methods are used, and provision is presented as accrual. The Bank addresses all issues setting the level of income subject to identified variables (remuneration under specified objectives, expected reimbursements, all discounts).
For the remuneration for mediation in distribution of insurance products, in particular with the insurance connected with Bank’s credit product, the model of relative fair value is used. According to this model, using the fair value of the credit product and the sell services of the insurance product, the Bank divides into remuneration being part of interest income and remuneration for provided services connected with the distribution and operation of these products.
Lease liabilities are measured in accordance with note 43.
Provisions due to employee benefits, including provision for retirement payments being defined benefit plan, are described in note 47.
Financial information:
PLN’000
31.12.2023
31.12.2022
Staff benefits
24,065
25,260
TRANSLATION
Annual Financial Statements of Bank Handlowy w Warszawie S.A. for the financial year ended 31 December 2023
73
PLN’000
31.12.2023
31.12.2022
Interbank settlements
220,412
448,991
Inter-system settlements
4,580
4,863
Settlements related to securities trade
10
9,815
Settlements related to brokerage activity
61,621
62,436
Liabilities due to leasing assets
113,096
121,815
Sundry creditors
182,171
175,347
Accruals, including:
397,198
361,519
Provision for employee payments
161,316
135,104
Provision for employee retirement
95,546
71,911
IT services and bank operations support
49,040
67,103
Consultancy services and business support
7,310
8,445
Other
83,986
78,956
Deferred income
16,805
13,113
Settlements with Tax Office and National Insurance (ZUS)
73,764
47,678
Other liabilities, total
1,093,722
1,270,837
Including financial liabilities*
1,003,153
1,210,046
* Financial liabilities include all the positions “Other liabilities”, except the positions “Settlements with Tax Office and National Insurance (ZUS)” and “Deferred income”.
33. Financial assets and liabilities by contractual maturity
As at 31 December 2023
PLN’000
Note
Total
Up to 1 month
Between 1 and 3 months
Between 3 months and 1 year
Between 1 and
5 years
More than
5 years
Cash and cash equivalents
17
1,241,873
1,241,873
-
-
-
-
Amounts due from banks (gross)
18
15,372,457
13,200,518
2,151,939
20,000
-
-
Financial assets held-for-trading
Debt securities held-for-trading
19
791,112
2,024
-
112,216
564,173
112,699
Financial assets measured at fair value through other comprehensive income
Debt financial assets measured at fair value through other comprehensive income
20
29,560,292
5,842,500
2,039,965
213,764
17,118,669
4,345,394
Amounts due from customers (gross)
Amounts due from financial sector entities
22
4,178,206
1,878,206
-
500,000
1,800,000
-
Amounts due from non-financial sector entities
22
16,613,367
6,553,246
2,091,013
1,976,646
3,530,878
2,461,584
Amounts due to banks
29
3,375,687
3,365,687
-
10,000
-
-
Amounts due to customers
Amounts due to financial sector entities
30
4,778,446
4,701,267
36,519
40,660
-
-
Amounts due to non-financial sector entities
30
50,384,140
44,634,301
3,468,856
2,278,024
2,959
-
As at 31 December 2022
PLN’000
Note
Total
Up to 1 month
Between 1 and 3 months
Between 3 months and 1 year
Between 1 and
5 years
More than
5 years
Cash and cash equivalents
17
671,335
671,335
-
-
-
-
Amounts due from banks (gross)
18
970,161
955,161
-
15,000
-
-
Financial assets held-for-trading
Debt securities held-for-trading
19
2,272,515
260,262
210,862
174,197
812,682
814,512
Financial assets measured at fair value through other comprehensive income
Debt financial assets measured at fair value through other comprehensive income
20
37,180,808
13,951,439
393,571
2,880,356
17,991,383
1,964,059
Amounts due from customers (gross)
Amounts due from financial sector entities
22
3,814,029
1,838,164
106,865
219,000
1,650,000
-
Amounts due from non-financial sector entities
22
18,660,483
7,253,615
1,484,623
2,162,955
5,430,649
2,328,641
Amounts due to banks
29
4,794,671
3,870,671
320,000
604,000
-
-
Amounts due to customers
Amounts due to financial sector entities
30
5,165,030
4,978,265
151,468
35,297
-
-
TRANSLATION
Annual Financial Statements of Bank Handlowy w Warszawie S.A. for the financial year ended 31 December 2023
74
PLN’000
Note
Total
Up to 1 month
Between 1 and 3 months
Between 3 months and 1 year
Between 1 and
5 years
More than
5 years
Amounts due to non-financial sector entities
30
45,502,750
40,905,414
2,915,718
1,674,282
7,336
-
34. Capital and reserves
Share capital
Series/
issue
Type of shares
Type of preference
Type of limitation
Number of
shares
Par value of series / issue [PLN’000]
Method of issue
payment
Date of
registration
Eligibility
for dividends (from date)
A
bearer
none
-
65,000,000
260,000
paid in
27.03.97
01.01.97
B
bearer
none
-
1,120,000
4,480
paid in
27.10.98
01.01.97
B
bearer
none
-
1,557,500
6,230
paid in
25.06.99
01.01.97
B
bearer
none
-
2,240,000
8,960
paid in
16.11.99
01.01.97
B
bearer
none
-
17,648,500
70,594
paid in
24.05.02
01.01.97
B
bearer
none
-
5,434,000
21,736
paid in
16.06.03
01.01.97
C
bearer
none
-
37,659,600
150,638
transfer of Citibank Poland assets to the Bank
28.02.01
01.01.00
130,659,600
522,638
The par value of 1 share amounts to PLN 4.00
As at 31 December 2023, the Bank’s share capital amounted to PLN 522,638,400 divided into 130,659,600 common bearer shares with a nominal value of PLN 4 each, which has not changed since 31 December 2022.
The Bank has not issued preferred shares.
Both in 2023 and 2022 there was no increase in the share capital by shares issuance.
Principal shareholders
During 2023 and the period from the publication of the previous annual financial statement for 2022 until the day of the publication of this annual financial statement for 2023, the structure of major shareholdings of the Bank changed .
As a result of the acquisition of the Bank's shares in transactions on the Warsaw Stock Exchange, concluded on 31 May 2023, Nationale – Nederlanden Powszechne Towarzystwo Emerytalne S.A. increased the total ownership of the Bank's shares above 5% of votes at the General Meeting of Shareholders of the Bank.
As a result of the acquisition of the Bank's shares in transactions on the Warsaw Stock Exchange concluded on 11 August 2023, Nationale-Nederlanden Otwarty Fundusz Emerytalny increased its shareholding above 5% in the share capital and in the total number of votes.
The following table presents the shareholders who, as at 31 December 2023 and 31 December 2022, held at least 5% of the total number of votes at the General Meeting or at least 5% of the Parent entity’s share capital :
Number of shares
% Shares
Number of votes at GM
% votes at GM
Citibank Overseas Investment Corporation, USA
97,994,700
75,0
97,994,700
75,0
Pension funds manager by Nationale-Nederlanden PTE S.A, including:
6,876,766
5,26
6,876,766
5,26
Nationale Nederlanden OFE
6,539,514
5,01
6,539,514
5,01
Other shareholders
25,788,134
19,74
25,788,134
19,74
130,659,600
100
130,659,600
100
*Based on current report no.16/2023 from August 1 6, 2023
On 15 November 2023 a change was made in the shareholding structure of the Bank as a result of the transfer by Citibank Overseas Investment Corporation of 97,994,700 shares of the Bank, representing 75% of the share capital of the Bank and 75% of the total number of votes at the general meeting of shareholders of the Bank, to Citibank Europe PLC. Within Citi group of companies, the company being the majority shareholder of the Bank changed from Citibank Overseas Investment Corporation with registered office in the USA to Citibank Europe PLC with registered office in Ireland in order to fulfil the statutory obligation under which domestic banks belonging to a group from a third country, i.e. from outside the European Union and in the case of the Bank - the United States, an EU intermediate parent undertaking.
The transaction results from the obligations arising from Directive (EU) 2019/878 of the European Parliament and of the Council of 20 May 2019 amending Directive 2013/36/EU as regards exempted entities, financial holding companies, mixed financial holding companies, remuneration, supervisory measures and powers and capital conservation measures and the
TRANSLATION
Annual Financial Statements of Bank Handlowy w Warszawie S.A. for the financial year ended 31 December 2023
75
Act of 29 August 1997 Banking Law.
Supplementary capital
As at 31 December 2022, supplementary capital was PLN 2,944,585 thousand (31 December 2022: PLN 2,944,585 thousand ). Supplementary capital is designated for offsetting the Bank’s financial losses or for other purposes including payment of dividends to the shareholders. The General Shareholders’ Meeting decides upon the utilization of supplementary capital, but a portion of its balance amounting to one third of total share capital may be used exclusively for offsetting losses shown in the financial statements.
The supplementary capital includes the amount of PLN 2,485,534 thousand constituting the excess of the fair value of the issued shares over their nominal value in connection with the business combination of the Bank and Citibank (Poland) S.A., which took place on 28 February 2001.
Revaluation reserve
PLN’000
31.12.2023
31.12.2022
Revaluation of financial assets measured at fair value through other comprehensive income
128,406
(573,528)
The revaluation reserve is not distributed. As at the day of derecognition of all or part of the financial assets measured at fair value through other comprehensive income from the statement of financial position, accumulated profits or losses that were previously presented in the other comprehensive and accumulated income in the revaluation reserve are reclassified to the income statement.
Other reserves
PLN’000
31.12.2023
31.12.2022
Reserve capital
2,666,857
2,273,484
General risk reserve
540,200
540,200
Net actuarial losses on defined benefit program valuation
(15,111)
(2,340)
Other reserves, total
3,191,946
2,811,344
In connection with the decision of the Extraordinary General Meeting of Shareholders of the Bank of 16 December 2022 on the implementation of incentive programs based on shares in the Bank's share capital in order to finance the acquisition of own shares, the amount of PLN 50 million was transferred from the reserve capital created out of profits (distributable as dividends) to reserve capital created for the purposes of implementing the of the Treasury Shares Buy-Back Program (capital for share buyback). This capital is presented among the Reserve capital in the financial statements. Additional information can be found in Note 47 "Employee benefits".
Reserve capital
Reserve capital is created from the annual distribution of profits or from other sources, independently of the supplementary capital.
Reserve capital is designated for offsetting the Bank’s financial position losses or for other purposes, including payment of dividends to the shareholders. The General Shareholders’ Meeting makes decisions on utilization of reserve capital.
General risk reserve
The general risk reserve is recorded out of net profit against unidentified risk arising from banking activities. The General Shareholders’ Meeting makes decisions on utilization of the general risk reserve subject to applicable regulations.
Dividends
Dividends are recognized as liabilities on the date at which the General Meeting of the Bank has approved the appropriation of earnings.
Dividends paid (or declared)
On April 26, 2023, the Annual General Meeting of the Bank adopted a resolution on distribution of net profit for 2022. Pursuant to the resolution the net profit for 2022 in the amount of PLN 1,569,309,967.45 was distributed as follows:
• Dividend: PLN 1,175,936,400.00, i.e. PLN 9.00/per share,
• Reserve capital: PLN 393,373,567.45
Dividend day was set for May 8, 2022, and the dividend payment date for May 15, 2023. The number of shares covered by dividend was 130 659 600.
TRANSLATION
Annual Financial Statements of Bank Handlowy w Warszawie S.A. for the financial year ended 31 December 2023
76
The dividend accounted for 75% of the net profit for 2022, and the payment of funds in this amount was in line with the individual recommendation of the Polish Financial Supervision Authority regarding fulfilling by the Bank of requirements for dividend payment from net profit generated in 2022.
With regard to the individual dividend recommendation of the Polish Financial Supervision Authority received by the Bank on February 23, 2024, the Bank's Management Board adopted a resolution on the acceptance the Polish Financial Supervision Authority recommendations, i.e.:
• not paying by Bank a dividend from its net profit earned in the period from January 1, 2023 to December 31, 2023 in an amount greater than 75%, however, the maximum amount of the payment cannot exceed the amount of the annual net profit less the profit earned in 2023 already included in own funds;
• not taking, without prior consultation with the Supervisory Authority, other actions, in particular those outside the scope of the Bank’s current business and operational activities, which could result in a reduction of the Bank’s own funds, including possible dividend payments from undistributed profit from previous years as well as repurchases or buybacks of own shares.
35. Repurchase and reverse repurchase agreements
The Bank enters into purchase and sale transactions under agreements to resell and repurchase the same financial assets, so called sell-buy-back and buy-sell-back respectively, as well as repo and reverse repo transactions in securities. Securities sold under repurchase agreements continue to be shown as the Bank’s assets. If the acquirer has the right to sell or pledge the assets, such assets are presented in a separate in the statement of financial positions line distinguished. At the same time liabilities arising from the repurchase promise are recognized. In the case of securities purchased under agreements to resell, securities are presented in the statement of financial position as loans and advances. Any differences between sale/purchase prices and repurchase/resale prices are recognized respectively as interest income and expense using the effective interest rate method. In the case of sale of the securities previously purchased in the reverse repo transaction, the Bank recognizes liabilities due to the short sale of securities. These liabilities are evaluated fair value.
Repurchase agreements
Repurchase agreements are commonly used as a tool for short-term financing of interest-bearing assets, depending on the prevailing interest rates.
In repo transactions, all gains and losses on the assets held are on the Bank’s side.
Assets sold under repo transactions could not be traded by the Bank further.
As at 31 December 2023 the Bank had repo liabilities which were offset in the financial statements as described in note 36.
In 2023, the total interest expense on repurchase agreements was PLN 61,394 thousand (in 2022: PLN 77,249 thousand).
Reverse repurchase agreements
Reverse repurchase agreements are entered into as a facility to provide funding to customers.
As at 31 December 2023, assets purchased subject to agreements to resell were as follows:
PLN’000
Carrying amount of receivable*
Fair value of assets held as collateral
Resale date
Resale price
Amounts due from banks
1,971,118
1,976,197
Up to 1 week
1,971,695
10,741,030
10,938,516
Up to 1 month
10,763,031
2,149,291
2,193,075
Up to 3 month
2,160,169
Amounts due from other financial sector entities
181,616
180,007
Up to 1 week
181,663
15,043,055
180,007
15,076,558
*Including interest
As at 31 December 2022, assets purchased subject to agreements to resell were as follows :
PLN’000
Carrying amount of receivable*
Fair value of assets held as collateral
Resale date
Resale price
Amounts due from banks
254,031
253,625
Up to 1 week
254,137
11,714
11,714
Up to 1 month
11,730
265,745
265,339
265,867
As at 31 December 2023 and 31 December 2022, the Bank held the option to pledge or sell the assets acquired through reverse repo.
As at 31 December 2023 the Bank had repo receivables which were offset in the financial statements as described in note 36.
TRANSLATION
Annual Financial Statements of Bank Handlowy w Warszawie S.A. for the financial year ended 31 December 2023
77
In 2023, the total interest income on reverse repurchase agreements was PLN 474,421 thousand (in 2022: PLN 97,219 thousand).
As at 31 December 2023, the liabilities due to short sale of securities purchased in reverse repo transactions amounted to PLN 132,417 thousand (as at 31 December 2022: PLN 234,203 thousand).
36. Offsetting of financial assets and financial liabilities
Financial assets and financial liabilities are offset and presented in the statement of financial position on a net basis when there is a legally enforceable right to offset, and their settlement is intended to take place on a net basis or to realize the asset and settle the liability simultaneously.
In the statement of financial position, the Bank offsets financial assets and financial liabilities resulting from derivative contracts, settled by a central counterparty (CCP) - KDPW_CCP S.A.
The disclosure below additionally presents financial assets and financial liabilities resulting from forward and derivative transactions under master agreements, which constitute market standards developed under the International Swaps and Derivatives Association (ISDA), the Polish Bank Association and other master agreements, under which, in certain breaches of the contracts’ provisions, the contract may be legally terminated and settled in the net amount of receivables and liabilities.
The table below presents the fair values of derivatives (from the trading portfolio and designated as hedging instruments) as well as executable collateral for framework deals enabling lawful compensation in defined situations.
31.12.2023
31.12.2022
PLN’000
Financial
assets
Financial
liabilities
Financial
assets
Financial liabilities
Receivables/liabilities arising from purchased/sold securities with a repurchase agreement received/granted
15,056,723
13,668
-
-
The effect of offsetting
(13,668)
(13,668)
-
-
The value of receivables and liabilities presented in the statement of financial position
15,043,055
-
-
-
Fair value of derivatives
6,313,560
5,706,585
8,655,320
8,592,756
The effect of offsetting
(2,225,007)
(2,225,007)
(3,923,944)
(3,923,944)
Valuation of derivatives (net) presented in the statement of financial position
4,088,553
3,481,578
4,731,376
4,668,812
Value of collateral received/placed
(1,718,619)
(1,339,993)
(1,586,736)
(2,011,396)
Assets and liabilities subject to offsetting under the master agreement
2,369,934
2,141,585
3,144,640
2,657,416
Maximum amount of potential offset
(2,042,072)
(2,042,072)
(2,275,677)
(2,275,677)
Assets and liabilities subject to offsetting under the master agreement considering the maximum amount of potential offset
327,862
99,513
868,963
381,739
37. Hedge accounting
Accounting policy:
The Bank hedges the risk of change in fair value of fixed interest rate debt securities measured at fair value though other comprehensive income. The hedged risk results from changes in interest rates. In respect of hedge accounting the Bank applies IAS 39.
IRS , denominated in the same currency as the hedged items, is the hedging instrument denominated in the same currency as hedged instruments in which the Bank’s receives variable inflows and pays fixed.
The gain or loss on the hedged item attributable to the hedged risk is recognized in result on hedge accounting in the income statement. The remainder of the change in the fair value of debt securities measured at fair value through other comprehensive income is recognized in other comprehensive income. Interest income on debt securities are recognized in net interest income.
Changes in the fair value of derivatives designated as qualifying hedging instruments are recognized in result on hedge accounting in the income statement. Interest income and interest expenses related to the hedging derivatives under fair value hedge are presented in the net interest income.
As at 31 December 2023 and 31 December 2022, the Bank has active hedging relations, designated in this reporting period. Details of hedging instruments and effectiveness of designated hedging relationships are presented below.
TRANSLATION
Annual Financial Statements of Bank Handlowy w Warszawie S.A. for the financial year ended 31 December 2023
78
Accounting policy:
As at 31 December 2023 and 31 December 2022, the Bank had an active hedging relationship. Details are presented below.
As at 31 December 2023:
Balance value
PLN’000
Notional value
Assets
Liabilities
Listing in the statement of financial position
Change in fair value used to take hold of hedge ineffectiveness
Hedge accounting of fair value
Interest rate risk
IRS Transactions
3,211 000
6,731
92,869
Hedging derivatives
(90,428)
Details of the hedged items are presented in the table below.
Balance value
PLN’000
Assets
Liabilities
Cumulative amount of hedging fair value in balance value of hedged item corrections
Listing in the statement of financial position
Change in fair value used to take hold of hedge ineffectiveness
Hedge accounting of fair value
Interest rate risk
Bank bonds
2,831,996
-
87,316
Debt investment securities measured at fair value through other comprehensive income
80,361
Cumulated amounts of adjustments related to fair value hedges included in the statement of financial position for all hedged items, with respect for which adjustments for gains and losses on fair value hedging have ceased, amounted to PLN (105,323) thousand as at 31 December 2023.
Information regarding hedge effectiveness is presented below.
Hedge ineffectiveness recognized in income statement
Listing in the statement of financial position
Hedge accounting of fair value
Interest rate risk
(10,067)
Hedge accounting result
As at 31 December 2022:
Balance value
PLN’000
Notional value
Assets
Liabilities
Listing in the statement of financial position
Change in fair value used to take hold of hedge ineffectiveness
Hedge accounting of fair value
Interest rate risk
IRS Transactions
683,000
623
6,917
Hedging derivatives
1,834
Details of the hedged items are presented in the table below.
Balance value
PLN’000
Assets
Liabilities
Cumulative amount of hedging fair value in balance value of hedged item corrections
Listing in the statement of financial position
Change in fair value used to take hold of hedge ineffectiveness
Hedge accounting of fair value
Interest rate risk
Treasury bonds
485,494
-
6,954
Debt investment securities measured at fair value through other comprehensive income
(3,648)
Cumulated amounts of adjustments related to fair value hedges included in the statement of financial position for all hedged items, with respect for which adjustments for gains and losses on fair value hedging have ceased, amounted to PLN (142,891) thousand as at 31 December 2022.
TRANSLATION
Annual Financial Statements of Bank Handlowy w Warszawie S.A. for the financial year ended 31 December 2023
79
Information regarding hedge effectiveness is presented below.
Hedge ineffectiveness recognized in income statement
Listing in the statement of financial position
Hedge accounting of fair value
Interest rate risk
(1,814)
Hedge accounting result
38. Fair value information
Fair value of financial assets and liabilities
Fair value is a price that would be received for selling an asset or would be paid for transferring the liability in a transaction carried out in the conditions between the market participants, at the measurement date.
The summary below provides statement of financial position (by category) and fair value information for each category of financial assets and liabilities.
As at 31 December 2023
PLN’000
Note
Held-for-trading
Loans, advances and other receivables
Available-for- sale
Other
financial assets / liabilities
Total carrying value
Fair value*
Fair value disclosure**
Financial assets
Amounts due from banks measured at amortized cost
18
-
15,371,552
-
-
15,371,552
n/a
15,371,619
Financial assets held-for-trading measured at fair value
19
4,880,332
-
-
-
4,880,332
4,880,332
n/a
Debt investment financial assets measured at fair value through other comprehensive income
20
-
-
29,560,292
-
29,560,292
29,560,292
n/a
Shares in subsidiaries
-
-
-
91,639
91,639
n/a
61,880
Equity and other instruments measured at fair value through income statement
21
-
-
-
141,495
141,495
141,495
n/a
Amounts due from customers
22
-
20,054,454
-
-
20,054,454
n/a
19,848,322
Amounts due from institutional customers
-
14,126,464
-
-
14,126,464
n/a
13,982,239
Amounts due from individual customers
-
5,927,990
-
-
5,927,990
n/a
5,866,083
4,880,332
35,426,006
29,560,292
233,134
70,099,764
34,582,119
35,281,821
Financial liabilities
Amounts due to banks
29
-
-
-
3,375,687
3,375,687
n/a
3,375,960
Financial liabilities held-for-trading
19
3,522,203
-
-
-
3,522,203
3,522,203
n/a
Amounts due to customers
30
-
-
-
55,162,586
55,162,586
n/a
55,135,468
3,522,203
-
-
58,538,273
62,060,476
3,522,203
58,511,428
* Fair value of assets and liabilities that are recognized and measured in the statement of financial position at fair value. ** Fair value of assets and liabilities that are not recognized and measured in the statement of financial position at fair value, but for which fair value is additionally disclosed in accordance with the requirements of IFRS13 .
TRANSLATION
Annual Financial Statements of Bank Handlowy w Warszawie S.A. for the financial year ended 31 December 2023
80
As at 31 December 2022
PLN’000
Note
Held-for- trading
Loans,
advances and other receivables
Available-for- sale
Other financial assets / liabilities
Total carrying value
Fair value*
Fair value disclosure**
Financial assets
Amounts due from banks measured at amortized cost
18
-
968,748
-
-
968,748
n/a
968,771
Financial assets held-for-trading measured at fair value
19
7,029,163
-
-
-
7,029,163
7,029,163
n/a
Debt investment financial assets measured at fair value through other comprehensive income
20
-
-
37,180,808
-
37,180,808
37,180,808
n/a
Shares in subsidiaries
-
-
-
91,775
91,775
n/a
61,049
Equity and other instruments measured at fair value through income statement
21
-
-
-
106,144
106,144
106,144
n/a
Amounts due from customers
22
-
21,620,507
-
-
21,620,507
n/a
21,643,547
Amounts due from institutional customers
-
15,505,659
-
-
15,505,659
n/a
15,566,995
Amounts due from individual customers
-
6,114,848
-
-
6,114,848
n/a
6,076,552
7,029,163
22,589,255
37,180,808
197,919
66,997,145
44,316,115
22,673,367
Financial liabilities
-
-
-
-
-
-
-
Amounts due to banks
29
-
-
-
4,794,671
4,794,671
n/a
4,793,332
Financial liabilities held-for-trading
19
4,896,099
-
-
-
4,896,099
4,896,099
n/a
Amounts due to customers
30
-
-
-
50,667,780
50,667,780
n/a
50,647,801
4,896,099
-
-
55,462,451
60,358,550
4,896,099
55,441,133
* Fair value of assets and liabilities that are recognized and measured in the statement of financial position at fair value. ** Fair value of assets and liabilities that are not recognized and measured in the statement of financial position at fair value, but for which fair value is additionally disclosed in accordance with the requirements of IFRS 13.
Depending on the method of determining fair value, individual financial assets or liabilities are classified into the following categories:
• Level I: financial assets / liabilities valued directly on the basis of prices from an active market where the regular quotations and turnover are available.
The active market includes stock and brokerage quotes and quotes in systems as pricing services, such as Reuters and Bloomberg, which represent the actual market transactions concluded on market conditions. Level I mainly include securities held-for-trading or available-for-sale.
• Level II: financial assets / liabilities valued on the basis of models based on input data from the active market and presented in Reuters and Bloomberg systems, depending on financial instruments, the following specific valuation techniques are used:
- listed market prices for a given instrument or listed market prices for an alternative instrument;
- fair value of interest rate swaps and forward foreign exchange contracts is calculated as the current value of future cash flows based on the market yield curves and current NBP fixing exchange rate in case of foreign currency instruments;
- other techniques, such as yield curves based on alternative prices for a given financial instrument.
• Level III: financial assets/liabilities valued on the basis of valuation techniques using relevant parameters not market based.
The tables below present carrying amounts of financial instruments presented in the statement of financial position measured at fair value, arranged according to the above categories:
TRANSLATION
Annual Financial Statements of Bank Handlowy w Warszawie S.A. for the financial year ended 31 December 2023
81
As at 31 December 2023
PLN’000
Note
Level I
Level II
Level III
Total
Financial assets
Financial assets held-for-trading
19
844,480
4,035,852
-
4,880,332
Derivatives
45,970
4,035,852
-
4,081,822
Debt securities
791,112
-
-
791,112
Equity instruments
7,398
-
-
7,398
Hedging derivatives
-
6,731
-
6,731
Debt investment financial assets measured at fair value through other comprehensive income
20
24,564,280
4,996,012
-
29,560,292
Equity and other instruments measured at fair value through income statement
21
19,739
-
121,756
141,495
Financial liabilities
-
-
-
-
Financial liabilities held-for-trading
19
140,524
3,381,679
-
3,522,203
Short sale of securities
133,495
-
-
133,495
Derivatives
7,029
3,381,679
-
3,388,708
Hedging derivatives
-
92,869
-
92,869
As at 31 December 2022
PLN’000
Note
Level I
Level II
Level III
Total
Financial assets
Financial assets held-for-trading
19
2,318,895
4,710,268
-
7,029,163
Derivatives
20,484
4,710,268
-
4,730,752
Debt securities
2,272,515
-
-
2,272,515
Equity instruments
25,896
-
-
25,896
Hedging derivatives
-
623
-
623
Debt investment financial assets measured at fair value through other comprehensive income
20
23,229,370
13,951,438
-
37,180,808
Equity and other instruments measured at fair value through income statement
21
17,660
-
88,484
106,144
Financial liabilities
-
-
-
-
Financial liabilities held-for-trading
19
286,719
4,609,380
-
4,896,099
Short sale of securities
234,203
-
-
234,203
Derivatives
52,516
4,609,380
-
4,661,896
Hedging derivatives
-
6,917
-
6,917
As at December 31, 2023, the amount of financial assets classified to level III includes the value of the share in Visa Inc. (preference series C) in the amount of PLN 15,669 thousand and the value of other minority shareholding in the amount of PLN 106 087 thousand (as at December 31, 2022 respectively PLN 14,039 thousand and PLN 74,445 thousand).
The sensitivity analysis for equity instruments classified to Level III is presented in the table below:
PLN’000
Fair value
Scenario
Fair value in the positive scenario
Fair value in the negative scenario
Capital instruments compulsorily measured at fair value through profit or loss
121,756
Change of the key parameter (cost of capital by - 10% / + 10% or conversion rate by + 10% / - 10%)
138,165
108,720
The method of estimating the fair value of series C Visa Inc preference shares takes into account the value of Visa Inc. shares and corrections resulting from disputes (current or potential) to which Visa or the Bank would be a party. Minority shareholding in structured companies are measured at fair value taking into account, inter alia, the expected discounted dividends using an assumed cost of capital and the history of profit distribution in the particular companies. Changes in the valuation are taken to the Income statement and presented in the Net gain/(loss) on equity and other instruments measured at fair value through income statement.
Changes in financial assets and liabilities in, measured at a fair value that was defined by using relevant parameters not- market based are presented below:
TRANSLATION
Annual Financial Statements of Bank Handlowy w Warszawie S.A. for the financial year ended 31 December 2023
82
01.01.- 31.12.2023
01.01.- 31.12.2022
PLN ‘000
Equity and other investments measured at fair value through income statement
As at 1 January
88,484
96,156
Conversion of shares - transfer to Level I
-
(10,466)
Sales
-
(184)
Revaluation
33,272
2,978
As at the end of period
121,756
88,484
Revaluation is recognized in the Net gain/(loss) on equity and other instruments measured at fair value through income statement.
In 2023 the Bank has made no transfers between levels of instruments fair value due to changes in method of estimating fair value. In 2023 the Bank has not made any changes in classification criteria of financial instruments (presented in the statement of financial position at fair value) to each category reflecting the fair value (level I, level II, level III).
In the same period the Bank has not made any changes in financial assets classification that could result from asset’s purpose or usage change.
Fair value measurement
In the case of short-term financial assets and liabilities, it is assumed that their carrying amount is practically equal to their fair value. In the case of other instruments, the following methods and assumptions have been adopted.
Shares in subsidiaries
In the case of financial assets which are interests in subsidiaries, the fair value was presented as the percentage of net assets of an entity that is attributable to the Bank’s interests in a given entity. The Bank’s Management Board believes that this is the best available approximation of fair value of such instruments.
Amounts due from customers and banks
The carrying amount of loans is presented at amortized cost less impairment. The fair value of loans and advances is calculated as the discounted value of expected future principal payments and takes into account fluctuations in market interest rates as well as changes in margins during the financial period. Changes in margins on loans are based on concluded transactions. It is assumed that loans and advances will be paid on the contractual date. In the case of loans for which repayment dates are not fixed (e.g., overdrafts), the fair value is the repayment that would be required if the amount were due on the balance sheet date.
The methods of valuation mentioned above are classifies to the third of the level fair value financial hierarchy: assets valued on the basis of valuation techniques using relevant parameters not market based.
Amounts due to banks and customers
In the case of on-demand deposits, as well as deposits without a pre-determined maturity date, the fair value is the amount that would be paid out if demanded on the balance date. The fair value of fixed maturity deposits is estimated on the basis of cash flows discounted with current interest rates taking into account s current margins in a similar way as adopted for the valuation of loans.
For overnight placements, the fair value is equal to their carrying amount. For fixed interest rate placements, the fair value is assessed on the basis of discounted cash flows using current money market interest rates for receivables with similar credit risk, time to maturity, and currency.
As described above, the models used to determine the fair value of assets and liabilities to banks and customers, recognized in the statement of financial position at amortized cost, the use of valuation techniques based on non-market parameters. Therefore, the Bank classifies the valuation of financial instruments for the purpose of disclosure to the third level fair value hierarchy. For all other financial instruments not at fair value, the Bank believes that the fair value is generally approximates the carrying value.
39. Derecognition of financial assets
The net gain/(loss) on derecognition of financial assets in Bank relates to the gain on debt investment financial assets measured at fair value through other comprehensive income and amounted to (147,758) thousand PLN in 2023 (in 2022: PLN (323,054) thousand).
PLN ‘000
01.01.-31.12.2023
01.01.-31.12.2022
Net gain/(loss) on debt investment financial assets measured at fair value through other comprehensive income
Polish treasury bonds
(25,492)
(237,968)
TRANSLATION
Annual Financial Statements of Bank Handlowy w Warszawie S.A. for the financial year ended 31 December 2023
83
Securities of international financial institutions
(122,338)
(52,632)
Others
72
(32,454)
(147,758)
(323,054)
Due to specific activity of the Bank, changes in debt investment financial assets measured at fair value through other comprehensive income are presented in operating activities in the statement of cash-flows.
40. Contingent liabilities and litigation proceedings
Information on pending proceedings
No proceedings regarding receivables or liabilities of the Bank conducted in 2022 in court, public administration authorities or an arbitration authority is of significant value. In Bank’s opinion no proceedings conducted before in court, public administration authority or an arbitration authority, pose a threat to the Bank’s financial liquidity, individually or in total.
In the case of legal proceedings involving the risk of cash outflow as a result of meeting the Bank’s commitments, the appropriate provisions are created.
In accordance with applicable regulations, the Bank recognizes impairment losses for receivables subject to legal proceedings.
PLN ‘000
31.12.2023
31.12.2022
Provisions for disputes, including:
46,350
33,445
provisions for option cases on derivative instruments
15,880
12,966
provisions for individual cases relating, including:
23,512
18,966
provisions for cases related to CHF-indexed loans
22,625
17,090
provisions for cases related to the return of a part of the commission for granting consumer loan
887
1,876
Provisions for disputes
46,350
33,445
This value do not include portfolio provisions created in connection with the judgments of the CJEU.
In 2023 the Bank did not make any significant settlement due to court ended with the final judgment.
• On 27 May 2019 the Bank received a statement of claim submitted by Rigall Arteria Management spółka z ograniczoną odpowiedzialnością sp. k. for the payment of PLN 386,139,180.89 along with statutory interest for delay from the date of filing the claim to the payment date and the amount of PLN 50,017,463.89 including statutory interest for delay from the date of filing the claim to the date of payment. The statement of claim refers to the agency agreement, which covered intermediary services for the Bank’s products and services, primarily in the segment of consumer banking, and was terminated in 2014. The Court has referred the matter to mediation proceedings, which have not resulted in a mutual agreement, so the case is pending before the court of first instance.
On 10 February 2020 the Bank received a statement of claim submitted by Rotsa Sales Direct sp. z o.o. for the payment of PLN 419,712.468.48 along with statutory interest for delay from the date of filing the claim to the payment date and the amount of PLN 33,047,245.20 including statutory interest for delay from the date of filing the claim to the date of payment. The statement of claim refers to the agency agreement, which covered intermediary services for the Bank’s products and services, primarily in the segment of consumer banking, and was terminated in 2014. The court referred the matter to mediation proceedings, so the case is pending before the court of first instance.
In the Bank's opinion, the amount of claims filed by the companies is not justified. The Bank's position is confirmed by legally binding resolutions of legal actions taken by the companies against the Bank, which are beneficial for the Bank, as well as by the judgement expressed in the proceedings with reference number C-64/21 pending before the Court of Justice of the European Union in connection with preliminary ruling from the Supreme Court of October 13, 2022.
• As at December 31, 2023, the Bank was, among others, a party to 13 court proceedings associated with derivative transactions. Among these, 8 proceedings have not been terminated with a legally binding conclusion, and 5 have been terminated with a legally binding conclusion, but in 3 of these proceedings are pending in the Supreme Court cassation proceeding, and in the 2 remaining proceedings regarding the costs of trial are still ongoing. In 8 proceedings the Bank acted as a defendant and in 5 as a plaintiff. The claims and allegations in the individual cases against the Bank are based on various legal bases. The subject of the dispute refers mainly to the validity of the derivative transactions and clients’ liabilities demanded by the Bank with respect to those derivative transactions, as well as potential claims regarding potential invalidation of such demands by court decisions. Clients try to prevent the Bank from seeking claims resulting from derivative transactions; they dispute their liabilities towards the Bank, question the validity of the agreements and, in some cases, demand payment from the Bank.
TRANSLATION
Annual Financial Statements of Bank Handlowy w Warszawie S.A. for the financial year ended 31 December 2023
84
• The Bank was a party to proceedings initiated by the President of the Office of Competition and Consumer Protection (UOKiK) against the Visa and Europay payment system operators and banks - issuers of Visa cards and Europay/Eurocard/Mastercard cards. The Bank was one of the addressees of the President of UOKiK’s decision in the case. The proceedings have concerned alleged practices limiting competition on the payment cards market in Poland consisting in the fixing of interchange fees for transactions made with Visa and Europay/Eurocard/Mastercard cards, as well as limiting access to the market for operators who do not belong to the unions of card issuers, against whom the proceedings were initiated. The President of UOKiK’s decision was the subject of legal analyses in appeal proceedings. On April 22, 2010, the Appeal Court overturned the verdict of the Court of Competition and Consumer Protection (SOKiK) and referred the case back to the court of first instance. On 21 November 2013 SOKiK gave a judgment, under which a penalty imposed on the Bank was modified and set in the amount of PLN 1,775,720. On October 6, 2015 the Appeal Court modified the verdict of the Competition and Consumer Protection Court and denied all appeals from the decision of the President of the Competition and Consumer Protection Office, including the changes of amounts of the fines that were imposed upon banks. As a result, the fine in the amount of 10,228,470 PLN that was originally imposed upon the Bank has been reinstated. As the Bank submitted extraordinary appeal on the 25 October 2017 the Supreme Court has overturned the Appeal Court’s verdict and the case has been returned to the Appeal Court for a second review. The appeals proceedings has begun again. In the first quarter of 2018, the Bank received the reimbursed. By the judgment of November 23, 2020, the Appeal Court set aside the judgment of November 21, 2013 and remitted the case to the court of first instance for reconsideration.
• The Bank is carefully following the changes of the legal environment arising out of the courts’ case law regarding mortgage loans indexed to foreign currencies, including the judgment of the Court of Justice of the European Union (CJEU), case no. C 260/18, of 3 October 2019. The Bank has identified a number of doubts as regards interpretation of the above-mentioned judgment. Despite the still unresolved issues as at the day of these financial statements, most courts have ruled against banks on indexed loan cases. The expected resolution of the Civil Law Division of the Supreme Court to rule again on issues on which courts are still inconsistent has been postponed to an indefinite date. The Supreme Court formulated the question of the CJEU as to whether the current composition of the Civil Law Division of the Supreme Court is competent to pass a resolution, taking into account doubts as to the correctness of appointment of some of its judges. It should be noted, however, that apart from the doubts in court cases, the measures of the Polish Financial Supervision Authority set out the direction of possible settlements between banks and the Swiss franc borrowers.
On 15 June 2023, the Court of Justice of the European Union (CJEU) in case C 520/21 essentially duplicated the opinion of the Advocate General from February 16, 2023 and ruled that only the consumer may demand additional benefits resulting from the cancellation of the Swiss franc loan agreement. The Bank may only demand the return of the loan capital together with statutory interest for delay without the possibility of demanding remuneration from the customer (consumer) for non-contractual use of capital. It has been held that Directive 93/13 does not directly govern the consequences of the invalidity of a contract concluded between a seller or supplier and a consumer after the unfair terms have been removed. It is for the Member States to determine the consequences of such a finding and the measures which they adopt in that regard must comply with EU law and, in particular, with the objectives of that directive. It will be for the national courts to assess, in the light of all the circumstances of the dispute, whether the acceptance of such consumer claims is compatible with the principle of proportionality.
When estimating the risk resulting from court litigations regarding indexation clauses in mortgage loan agreements, Bank Handlowy w Warszawie S.A. continuously did not factor in receivables under its claims against borrowers for the payment of amounts equivalent to a fee for using the loan capital, therefore, the Bank does not have to revise its assumptions following the Advocate General's and CJEU’s opinion.
As at December 31, 2023, the Bank had receivables under CHF-indexed retail mortgage loans at the gross carrying amount of PLN 34.0 million. The Bank maintains a collective provision in the amount of PLN 10.1 million. Estimation of the provision assumed the expected level of customer complaints based on the trend observed by the Bank, which is different for active loans and for loans repaid before the balance sheet date, as well as the probability of a settlement or court solution and the Bank's loss estimate in the event of a dispute in court. This value, as well as provisions for individual disputes, are included in the Bank's statement of financial position under item: Provisions.
As at December 31, 2023, the Bank was sued in 72 cases relating to a CHF-indexed loan for a total amount of approximately PLN 31.1 million. 26 cases were legally lost, and the Bank decided to file two cassation appeals (one appeal was rejected on formal grounds). Most of the cases are in the first instance.
• On September 11, 2019, CJEU passed a ruling in the case C 383/18, indicating the following interpretation of Article 16(1) of Directive 2008/48/EC of the European Parliament and of the Council of 23 April 2008 on credit agreements for consumers (Directive): “the right of the consumer to a reduction in the total cost of the credit in the event of early repayment of the credit includes all the costs imposed on the consumer.” Hence, according to the provisions of the Directive, the above-mentioned right of the consumer includes costs both related and not related to the duration of the contract.
Starting from 28 September 2020, the Bank has been reimbursing fees using the “straight-line method” to all the consumers who repaid their consumer loans before the contractual deadline, after 11 September 2019, provided that the fee was charged during the term of the consumer loan act.
On 13 November 2020, the Bank received a decision initiating proceedings by the UOKiK (Office for Competition and Consumer Protection) regarding the practice of non-lowering the total loan cost by the prorated costs (calculated by
TRANSLATION
Annual Financial Statements of Bank Handlowy w Warszawie S.A. for the financial year ended 31 December 2023
85
the straight-line method) attributable to the period by which the term of the consumer loan agreement is reduced in the event of total or partial loan prepayment.
Proceeding has been closed by means of a UOKiK’s binding decision from 6 May 2021 after Bank made commitments to change that practice. In accordance with the decision, consumers who repaid their cash or card loans before contractual maturity date in the period between 18 December 2011 and 10 September 2019 may apply for recalculating the commission indicating the product, agreement and bank account number for which repayment is due. The Bank is obligated to close all the legal proceedings regarding the recalculation of the commission in which consumers are a party, and to inform about the decision as described, in particular through e-mail communication and publication of a statement on the website. Decision is implemented in accordance with its terms.
After the decision was issued, the President of the UOKiK asked the Bank to provide explanations regarding the manner in which the Bank reimburses a proportional part of the commission in the case where customer takes out another loan with the Bank in such a way that it replaces the original agreement (“Increase agreement”). The Bank decided to align its practice with the position of the UOKiK President and decided to settle the proportionate part of the commission in relation to clients who entered into the Increased agreement after 11 September 2019.
The Bank constantly monitors and estimates provisions for legal risk resulting from the ruling of the CJEU regarding the reimbursement of commissions for prepaid consumer loans and updates the possible amount of cash outflow as reimbursement of consumer loan commissions.
As of December 31 , 2023, the Bank was sued in 941 cases concerning the return of a part of commission for granting a consumer credit for the total amount of PLN 4.2 million.
• On 23 June 2021, the President of the Office of Competition and Consumer Protection initiated explanatory proceedings to initially determine whether the Bank's actions taken after consumers reported unauthorized payment transactions may justify the initiation of proceedings regarding practices violating the collective interests of consumers or proceedings regarding to recognize the provisions of the standard contract as prohibited. On 8 February 2024, the President of the Office of Competition and Consumer Protection initiated proceedings (decision delivered on 13 February 2024) regarding practices violating the collective interests of consumers regarding unauthorized payment transactions. The charges brought are:
• failure to refund the amount of an unauthorized payment transaction to the customer within the D+1 deadline despite the lack of premises for such refusal,
• misleading consumers as to the Bank's obligations and the distribution of the burden of proving the authorization of a payment transaction.
The proceedings are the result of the explanatory proceedings of the President of the Office of Competition and Consumer Protection initiated in June 2021. As at 31 December the Bank did not created any provision in this respect because it is not possible to reliably estimate its potential outcome.
• On 22 November 2023, the Polish Financial Supervision Authority (“KNF”) started administrative proceedings against the Bank that might result in a penalty being imposed on the Bank under Article 176i(1)(4) of the Act on trading in financial instruments. At this stage of the proceedings, it is not possible to reliably estimate its potential outcome.
Commitments due to granted and received financial and guarantees liabilities
The amount of financial and guarantees commitments granted and received, by product category, is as follows:
State as at
PLN ’000
31.12.2022
31.12.2022
Contingent liabilities and guarantees granted
Letters of credit
157,836
262,110
Guarantees granted
2,999,009
2,352,867
Credit lines granted
14,165,469
13,683,181
Other financial liabilities
-
-
Other guarantees liabilities
19,988
22,349
17,342,302
16,320,507
PLN ’000
31.12.2022
31.12.2022
Letters of credit
Import letters of credit issued
157,836
262,110
157,836
262,110
Guarantees issued include credit principal repayment guarantees, other repayment guarantees, advance repayment guarantees, performance guarantees, tender guarantees, and bill of exchange guarantees.
TRANSLATION
Annual Financial Statements of Bank Handlowy w Warszawie S.A. for the financial year ended 31 December 2023
86
The Bank makes provisions for granted financial and guarantees commitments. As at 31 December 2022, the provisions created financial and guarantees commitments amounted to PLN 44,969 thousand (31 December 2022: PLN 33,910 thousand).
Movement in loss allowance - contingent liabilities and guarantees granted presents as follows:
PLN ‘000
Stage 1
Stage 2
Stage 3
Purchased or originated credit-impaired assets
Total
Provision for expected credit losses - c ontingent liabilities and guarantees granted
Provision for expected credit losses as at 1 January 2023
26,313
13,522
4,189
945
44,969
Transfer to Stage 1
3,094
(2,613)
(236)
(245)
-
Transfer to Stage 2
(1,212)
1,586
(374)
-
-
Transfer to Stage 3
(34)
(922)
956
-
-
Transfer to purchased or originated credit-impaired assets
-
-
(931)
931
-
(Creation) / Releases in the period though the income statement
(15,291)
6,947
(888)
(139)
(9,371)
Foreign exchange and other movements
(358)
(463)
970
(787)
(638)
Provision for expected credit losses as at 31 December 2023
12,512
18,057
3,686
705
34,960
PLN ‘000
Stage 1
Stage 2
Stage 3
Purchased or originated credit-impaired assets
Total
Provision for expected credit losses - c ontingent liabilities and guarantees granted
Loss allowance as at 31 December 2022
14,634
16,342
2,934
-
33,910
Transfer to Stage 1
2,606
(2,163)
(443)
-
-
Transfer to Stage 2
(1,029)
1,360
(331)
-
-
Transfer to Stage 3
(35)
(1,312)
1,347
-
-
Transfer to purchased or originated credit-impaired assets
-
(428)
(279)
707
-
(Creation) / Releases in the period though the income statement
10,013
(340)
957
249
10,879
Foreign exchange and other movements
124
63
4
(11)
180
Provision for expected credit losses as at 31 December 2022
26,313
13,522
4,189
945
44,969
Movements in contingent liabilities granted that contribute to movements in loss allowance to presents as follows:
PLN’000
Stage 1
Stage 2
Stage 3
Purchased or originated credit-impaired assets
Total
Gross amount of contingent liabilities granted
Gross amount of contingent liabilities granted as at 1 January 2023
14,098,650
2,189,944
12,888
19,025
16,320,507
Transfer to Stage 1
311,564
(311,552)
(12)
-
-
Transfer to Stage 2
(446,308)
446,664
(356)
-
-
Transfer to Stage 3
(22)
(111)
133
-
-
Transfer to purchased or originated credit-impaired assets
-
-
(3,441)
3,441
-
Increase/Decrease
1,108,791
(111)
(1,275)
(1,187)
1,321,736
Other movements
(273,799)
(22,515)
(69)
(3,558)
(299,941)
Net amount of contingent liabilities granted as at 31 December 2023
14,798,876
2,517,837
7,868
17,721
17,342,302
TRANSLATION
Annual Financial Statements of Bank Handlowy w Warszawie S.A. for the financial year ended 31 December 2023
87
PLN’000
Stage 1
Stage 2
Stage 3
Purchased or originated credit-impaired assets
Total
Gross amount of contingent liabilities granted
Gross amount of contingent liabilities granted as at 1 January 2022
16,873,533
1,523,605
5,816
-
18,402,954
Transfer to Stage 1
85,978
(85,958)
(20)
-
-
Transfer to Stage 2
(795,892)
797,988
(2,096)
-
-
Transfer to Stage 3
(1,131)
(17,750)
18,881
-
-
Transfer to purchased or originated credit-impaired assets
(13,799)
(2,436)
(181)
16,416
-
Increase/Decrease
(2,185,103)
(33,667)
(9,663)
2,133
(2,226,300)
Other movements
135,064
8,162
151
476
143,853
Net amount of contingent liabilities granted as at 31 December 2022
14,098,650
2,189,944
12,888
19,025
16,320,507
PLN’000
31.12.2023
31.12.2022
Financial and guarantees liabilities received
Guarantees
9,442,297
14,578,266
9,442,297
14,578,266
In the reporting period, the Bank reviewed the current approach to the presentation of guarantees received, in order to present the value that can be realized by the Bank more accurately, i.e. considering the amount that may be received from guarantee or warranty when realized. The Bank has implemented the below changes to the way how guarantees and warranties received are presented:
- for multilateral guarantees granted by related parties (e.g. parent company provides a guarantee for several entities from the group) guarantees has been presented in a maximum amount of benefits that the Bank may receive in this respect;
- for warranties and guaranties received - current presentation includes only warranties and guaranties received for active exposures, i.e. does not include warranties and guaranties received for exposures that have been already paid off, but the validity period has not expired yet (e.g. in case of earlier full repayment)
The changes described above are presentation changes only and do not impact financial data, presented in the statement of financial position or in the income statement. As a result of this change, the comparative data were adjusted.
41. Assets pledged as collateral
Details of the carrying amounts of assets pledged as collateral are as follows :
PLN’000
31.12.2023
31.12.2022
Assets pledged
Debt securities held-for-trading
-
60,988
Debt investment financial assets measured at fair value through other comprehensive income, including:
822,373
842,221
Assets pledged as collateral
697,771
697,698
Amounts due from banks
Settlements related to operations in derivative instruments and stock market trading
475,119
663,059
Amounts due from customers
Stock market trading guarantee funds and settlements
1,585,567
1,828,381
2,883,059
3,394,649
As at 31 December 2023, the debt securities measured at fair value through other comprehensive income presented in the table constituted a reserve against the funds guaranteed to the Bank Guarantee Fund in the amount of PLN 124,602 thousand and debt securities that serve as collateral for the settlement of derivative instruments in the Euroclear clearing house in the amount of PLN 697,771 thousand (31 December 2022 accordingly: PLN 144,523 thousand and PLN 697,698 thousand).
In the statement of financial positions, the Bank presents separately non-cash assets pledged as collateral for liabilities, where the acquirer has the right to sell or pledged the collateral.
Other assets disclosed above secure settlement of derivatives transactions and stock market transactions. The terms and
TRANSLATION
Annual Financial Statements of Bank Handlowy w Warszawie S.A. for the financial year ended 31 December 2023
88
conditions of the transactions executed to date are standard and typical for such dealings.
Restricted assets, apart from the instruments presented in this note, also include the value of the obligatory reserve that the Bank is required to maintain in its current account with the NBP. More information on the required reserve is provided in Note 17 Cash and cash equivalents.
42. Custodian activities
The Bank offers both custodian services connected with securities accounts for foreign institutional investors and custodian services for Polish financial institutions, including pension, investment and equity insurance funds. As at 31 December 2023, the Bank maintained above 16.5 thousand securities accounts.
43. Leases
Accounting policy:
At the commencement date, the Bank as a lessee measures the lease liability at the present value (discounted) of the lease payments that are not paid at that date. A right-of-use assets are measured at cost.
Right of use of assets due to perpetual usufruct of land are presented as tangible fixed assets in the statement of financial position, while lease liabilities are presented in other liabilities.
In the profit and loss account, the depreciation of the right to use assets is included in the depreciation tangible fixed and intangible assets, interest costs on lease liabilities - in interest costs, and the costs of short-term contracts, leasing low- value assets and leasing variables - in general administrative expenses.
In the statement of cash flows, interest flows are recognized in cash flows from operating activities, while the equity component is included in cash flows from financing activities.
Leases where the Bank is the lessee
Financial information:
The Bank leases office space and has the right of perpetual usufruct of land:
2023
2022
PLN’000
Rights to perpetual usufruct
Real estate and other
Total
Rights to perpetual usufruct
Real estate and other
Total
ROU - Opening
77,771
34,801
112,572
78,875
40,400
119,275
ROU - Added
-
5,791
5,791
-
5,791
5,791
ROU - Amortization
(1,104)
(11,991)
(13,095)
(1,104)
(11,991)
(13,095)
ROU - Closing
76,667
28,601
105,268
77,771
34,801
112,572
Liability Balance as at reporting date
81,328
31,768
113,096
81,517
40,298
121,815
2023
2022
PLN’000
Rights to perpetual usufruct
Real estate and other
Total
Rights to perpetual usufruct
Real estate and other
Total
Lease Cost
4,510
12,610
17,120
4,518
11,835
16,353
- Depreciation of right-of-use Assets
1,104
11,991
13,095
1,104
11,323
12,427
- Interest on Lease Liabilities
3,406
619
4,025
3,414
512
3,926
Reporting Exceptions Cost Short-term Leases
-
420
420
-
515
515
Reporting Exceptions Cost Low-value Leases
-
1,537
1,537
-
1,800
1,800
Variable Lease Cost
-
5,772
5,772
-
4,241
4,241
Result on lease modification
-
(16)
(16)
-
326
326
Total Lease Cost
4,510
20,323
24,833
4,518
18,717
23,235
2023
2022
PLN’000
Rights to perpetual usufruct
Real estate and other
Total
Rights to perpetual usufruct
Real estate and other
Total
Cash Flows - Total
3,595
12,300
15,895
3,595
11,914
15,509
TRANSLATION
Annual Financial Statements of Bank Handlowy w Warszawie S.A. for the financial year ended 31 December 2023
89
2023
2022
PLN’000
Rights to perpetual usufruct
Real estate and other
Total
Rights to perpetual usufruct
Real estate and other
Total
Cash Flows - Interest
3,406
619
4,025
3,414
512
3,926
Cash Flows - Principle Repayment
189
11,681
11,870
181
11,402
11,583
Weighted-average Remaining Lease Term (in years)
69.7
4.8
62.1
70.7
5.3
61.4
Weighted-average Incremental Borrowing Rate
4.3%
1.9%
4.1%
4.3%
1.6%
4.0%
Total Lease Cost
3,595
12,300
15,895
3,595
11,914
15,509
Bank as lessor
Irrevocable lease payments
PLN’000
31.12.2023
31.12.2022
Under 1 year
2,600
602
1 – 5 years
1,364
744
Over 5 years
650
-
4,614
1,346
Total annual amounts for agreements for undefined term
201
7,137
44. Transactions with the key management personnel
PLN’000
31.12.2023
31.12.2022
Members of the Management Board
Members of the Supervisory Board
Members of the Management Board
Members of the Supervisory Board
Loans granted
69
-
87
72
Deposits
Current accounts
8,456
3,949
6,914
14,030
Term deposits
1,566
32,916
1,261
29,788
10,022
36,865
8,175
43,818
As at 31 December 2023 and 31 December 2022, no loans or guarantees were granted to members of the Management Board or the Supervisory Board
All transactions of the Bank with members of the Management Board and the Supervisory Board are at arm’s length.
Staff expenses for current and former members of the Management Board are presented in note 11.
In 2023 there were changes in the composition of the Bank’s Management Board and the Bank’s Supervisory Board, as listed below.
Changes in the composition of the Bank’s Management Board
On September 28, 2023, Supervisory Board of the Bank decided to appoint Mr. Maciej Kropidłowski with the position of Vice-President of Management Board of Bank Handlowy w Warszawie S.A. for a three-year term of office. The term of office begins on January 1, 2024.
On September 28, 2023, Supervisory Board of the Bank decided to appoint Ms. Barbara Sobala with the position of Vice- President of Management Board of Bank Handlowy w Warszawie S.A. for a three-year term of office. The term of office begins on January 1, 2024.
On November 16, 2023 Ms. Natalia Bożek resigned from the role of Member of the Management Board effective January 31st, 2024 due to the acceptance of the role of Europe Cluster Chief Financial Officer (CFO) for Citi.
On January 25, 2024, the Supervisory Board of the Bank decided to appoint Mr. Patrycjusz Wójcik to the Management Board of Bank Handlowy w Warszawie S.A. with the position of the Vice President of the Management Board as of 1 February 2024 for a three-year term of office. As part of the internal division of powers in the Management Board, Mr. Patrycjusz Wójcik will be a Vice President of the Bank’s Management Board responsible for finance.
Changes in the composition of the Bank’s Supervisory Board
TRANSLATION
Annual Financial Statements of Bank Handlowy w Warszawie S.A. for the financial year ended 31 December 2023
90
On November 16, 2023, Ms. Kristine Braden resigned from the function of a member of the Supervisory Board with the effect from November16, 2023.
Among all employment contracts between the Bank and the members of the Management Board of the Bank, there is no contract that provides for financial compensation in the case of termination with prior notice or for reasons specified in Article 53 of the Labour Code.
Each member of the Management Board of the Bank has signed a separate non-competition agreement with the Bank. In accordance with this agreement, if the employment relationship with the Bank is terminated, the member of the Management Board is obliged to refrain from undertaking any competitive activities in a period of 12 months (or 6 months in the case of one of the Management Board members). On account of this restriction, the Bank will be obliged to pay compensation to a terminated member of the Management Board.
Among all employment contracts between the Bank and the members of the Management Board of the Bank, there is no contract that provides for financial compensation in the case of termination with prior notice or for reasons specified in Article 53 of the Labour Code.
Each member of the Management Board of the Bank has signed a separate non-competition agreement with the Bank. In accordance with this agreement, if the employment relationship with the Bank is terminated, the member of the Management Board is obliged to refrain from undertaking any competitive activities in a period of 12 months (or 6 months in the case of one of the Management Board members). On account of this restriction, the Bank will be obliged to pay compensation to a terminated member of the Management Board.
45. Related parties
The Bank is a member of Citigroup Inc. The Bank’s parent company is Citibank Europe PLC with headquarters in Ireland. Citibank Europe PLC with headquarters in Ireland, the ultimate parent is Citigroup Inc.
Until 15 November 2023, the Bank’s parent company was Citibank Overseas Investment Corporation with headquarters in New Castle, USA.
In the normal course of business activities, the Bank enters into transactions with related parties, in particular with entities of Citigroup Inc. and subsidiaries.
The transactions with related parties, resulting from the current Bank’s activities, mainly include loans, deposits, guarantees and derivatives transactions.
Apart from the transactions described in this section, in the presented period neither the Bank nor the Bank’s subsidiaries conducted any transactions with related entities, which would be individually or jointly significant. No transaction with related entities was concluded on terms other than market terms.
Transactions with subsidiaries
The receivables and liabilities towards subsidiaries are as follows:
PLN’000
31.12.2023
31.12.2022
Deposits
Current accounts
593
353
Term deposits
154,004
35,586
154,597
35,939
Deposits
Opening balance
35,939
467,704
Closing balance
154,004
35,939
PLN’000
2023
2022
Interest and commission income
237
1,388
Interest and commission expenses
7,512
1,007
Other operating income
43
1,635
As at 31 December 2023 and 31 December 2022, no receivables or contingent liabilities granted to subsidiaries were subject to impairment provision.
Transactions with other related entities
The receivables and liabilities towards Citigroup Inc. entities are as follows:
TRANSLATION
Annual Financial Statements of Bank Handlowy w Warszawie S.A. for the financial year ended 31 December 2023
91
PLN’000
31.12.2023
31.12.2022
Receivables, including:
6,579,273
718,063
Placements
-
-
Liabilities, including*:
2,878,689
2,449,657
Deposits
529,486
559,617
Balance-sheet valuation of derivative transactions:
Assets held-for-trading
1,471,839
963,376
Liabilities held-for-trading
1,308,037
1,589,866
Contingent liabilities granted
276,572
283,686
Contingent liabilities received
216,832
201,873
Contingent transactions in derivative instruments (nominal value), including:
107,160,447
76,227,497
Interest rate instruments
37,795,253
17,824,346
Interest rate swaps (IRS)
855,319
787,596
Interest rate options
604,336
44,027
Futures contracts
36,335,598
16,992,723
Currency instruments
68,813,986
57,877,530
FX forward/spot
2,172,051
6,065,739
Currency – interest rate swaps (CIRS)
20,596,473
18,067,445
FX swap
38,467,705
27,276,250
Foreign exchange options
7,577,757
6,468,096
Securities transactions
305,992
40,855
Securities purchased pending delivery
25,616
21,614
Securities sold pending delivery
280,376
19,241
Commodity transactions
245,216
484,766
Swaps
245,216
484,766
*On 31 December 2023 the Bank's liabilities from the parent company and its branches amounted to millions 1,333 PLN.
.
PLN’000
2023
2022
Interest and commission income*
128,888
53,168
Interest and commission expense*
22,968
26,834
General administrative expenses
173,764
203,184
Other operating income
10,913
9,933
*Including interest and commission income in amount of PLN 13,846 thousand (2022: PLN 1,194 thousand) and interest and commission expense in amount of PLN 2,596 thousand (2022: PLN 0 thousand) refer to the parent company
The Bank incurs costs and receives income on derivative transactions with Citigroup Inc. entities to hedge the Bank’s position in market risk. These derivative transactions are opposite (back-to-back) to derivative transactions with other Bank clients or close the proprietary position of the Bank. The net carrying amount of financial derivative transactions with related entities as at 31 December 2023 163,802 amounted to PLN thousand (as at 31 December 2022: PLN (626 490) thousand).
Furthermore, the Bank incurs costs and receives income from agreements concluded between Citigroup Inc. entities and the Bank for the mutual provision of services.
The costs arising and accrued (including VAT, reflected in the Bank’s costs) under concluded agreements in 2023 and 2022 mainly related to the cost of services provided to the Bank for the maintenance of the banking IT systems and advisory support and are included in general administrative expenses; income was mainly related to the provision of data processing services by the Bank to such entities and is presented in other operating income.
In 2023, the capitalization of investments regarding functionality modification of Retail Banking IT systems took place. Total payments for Citigroup Inc. entities amounted to PLN 130,517 thousand (In 2022, there was no capitalization of investments took place). Information on transactions with key management personnel is presented in note 45.
Information on transactions with key management personnel is presented in note 45.
46. Employee benefits
Employee benefits are divided into the following categories :
• short-term benefits, which include salaries, awards, social insurance contributions, paid leave and benefits in kind (such as medical care, company cars and other free or subsidized benefits).
TRANSLATION
Annual Financial Statements of Bank Handlowy w Warszawie S.A. for the financial year ended 31 December 2023
92
Depending on their individual grade, employees may receive an award from the incentive fund, a discretionary annual bonus under the internal employee compensation regulations. The costs of short-term benefits are expensed in the income statement in the period to which they relate. At the end of a given reporting period, if there is a balance payable which equals the expected undiscounted value of short-term benefits for that period, the Bank will record it as an accrued expense .
• Long-term employee benefits
Under its compensation scheme, the Bank guarantees its employees retirement and pension allowances, constituting defined benefit plans. Their amount depends on years worked in the Bank, falling directly before gaining rights to payment. For the future payments of retirement and pension allowances there is a reserve made, shown in “Liabilities” in “Other liabilities” and in “Activities costs and general and administrative expenses” of the profit and loss account in part resulting from costs of current employment and time. Part of the provision resulting from a change of actuarial assumptions (economics and demographic) taken to valuation is shown in other total income.
• Employee Pension Plan
The Bank conducts for its employees the Employee Pension Plan (“PPE”, “Plan”), registered by the Supervisory Authority under numbers ZM RPPE 178/02/12/19 and 993/02/12/19. Collective agreement is based on records of payment of employee contributions to the investment fund by the employer. The Plan is conducted and managed by Goldman Sachs TFI S. A. (previously NN Investment Partners TFI S.A.) who replaced Esaliens TFI S.A. (previously Legg Mason TFI S.A.).
The Bank’s pension plan is a defined contribution program in accordance with IAS 19. The Bank pays contributions for its staff to a separate organization and, after they are paid, has no other payment liabilities. Premiums are shown as employee benefit expenses in the period they concern.
The basic contribution paid by the employer is defined as a percentage of salary of the Plan member. The basic contribution rate amounts to 7%. The additional contribution – voluntary, is paid by the employee – the Plan participant. The basic contribution is the income of the Program participant, from whom he is obliged to pay personal income tax (articles 12 and 13 of the Act on the income tax from individuals of 26 July 1991, Official Journal from 2019, item 1387 with amendments).
Payments from the Plan are paid after the participant’s or entitled person’s motion and under conditions specified in the program.
The Plan participant may quit the Plan. The employer stops charging and paying basic and additional contributions for the Plan participant, and the funds that have accumulated on the Plan participant’s registers are left there till the time of payment, transfer payment, transfer or refund. In connection with the operation of the PPE in the Bank, the Bank has not implemented the Employee Capital Plan (PPK)
• other long-term employee benefits – jubilee and other long service awards and until 2021 - deferred cash awards granted to the Management Board and people, whose professional operating has a significant impact on the Bank’s risk profile. From 1 January 2015 to 31 December 2023, employees with long-term work-experience (10, 20, 30 years, etc.) were entitled to rewards in kind. Based on the agreement signed with trade unions in 2023, since 1 January 2024 instead of rewards in kind Bank introduced additional day offs subject to years of service – for every 5 years, starting from 5 th anniversary . Starting from 2022 deferred part of the remuneration is granted only as conditional financial instrument.
• employee equity benefits – in the form of existing shares in the capital of Bank Handlowy w Warszawie S.A. or phantom shares (including under the Transaction Reward) and also in the form of common stock under deferred stock award programs based on shares of Citigroup (capital accumulation plan – CAP). In 2023, the award under program based on Citigroup shares was not granted. In accordance with IFRS 2 “Share-based payment”, all the programs functioning in the Group are deemed to be cash-settled programs. A provision is created for future payments is shown in the “statement of financial position” and “General administrative expenses” in the income statement. The costs of the program are determined on the basis of the Bank’s shares price or Citigroup share price. According to IFRS, the fair value is measured at grant date and, subsequently, at each reporting date until the final settlement. Total expenses recorded in a given period are based on the fair value deferred shares at the reporting date times the part of the rights that were deemed acquired in that period. Detailed information concerning the employee equity benefits are presented further in this note .
Provisions/accruals for the above employee benefits are as follows:
PLN’000
31.12.2023
31.12.2022
Provision for remuneration
87,634
83,968
Provision for unused leave
15,848
13,810
Provision for employees’ retirement and pension allowances
95,546
71,911
Provisions for employees’ equity compensation
57,834
37,325
256,862
207,014
TRANSLATION
Annual Financial Statements of Bank Handlowy w Warszawie S.A. for the financial year ended 31 December 2023
93
The provision for retirement and pension benefits is created individually on the basis of an actuarial valuation performed periodically by an external independent actuary. The valuation of the employee benefit provisions is performed using actuarial techniques and assumptions. The calculation of the provision includes all retirement and pension benefits expected to be paid in the future. The Bank performed a reassessment of its estimates as at 31 December 20223, on the basis of calculation conducted by an independent external actuary. The provisions calculated equate to discounted future payments, taking into account staff turnover, and relate to the period ending on the balance sheet date. The discount rate was set at 5.4% and wage growth rate at 7.5% in 2023 and 4.5% in next years.
Change in provisions/accruals for employees’ retirement and pension allowances and jubilee payments
PLN’000
2023
2022
As at 1 January
71,911
72,425
Increases (due to):
25,262
1,235
Actuarial profit/loss of revaluation
15,767
(9,010)
Including those resulting from:
Change of economic assumptions
4,749
(6,286)
Change of demographic assumptions
6,909
(6,170)
Adjustments of actuarial assumptions ex post
4,109
3,446
Remuneration cost
4,650
4,737
Interest cost
4,844
2,355
Other increases
-
3,153
Decreases (due to):
(1,627)
(1,749)
Provisions utilization
(1,627)
(1,749)
As at 31 December
95,546
71,911
Analysis of sensitivity for significant actuarial assumptions
PLN’000
2023
2022
Central value
95,546
71,911
Decrease of growth salary to 1 p.p.
85,320
64,504
Increase of growth salary to 1 p.p.
107,315
80,402
Decrease of rotation by 10%
98,946
74,403
Increase of rotation by 10%
92,378
69,589
Decrease of discount rate by 0.5 p.p., including:
98,129
73,769
Falling to benefits paid within 1 year
8,130
5,969
Increase of discount rate by 0.5 p.p., including:
93,152
70,185
Falling to benefits paid within 1 year
8,130
5,969
More information about defined benefit program and the accounting is in note 2.
In 2023, the Bank’s expenses in respect of premiums for the employee pension plan amounted to PLN 31,638 thousand (in 2022: PLN 25,839 thousand).
Employment at the Bank:
FTEs
2023
2022
Average employment during the year
2,967
2,879
Employment at the end of the year
2,978
2,910
Description and principles of employee stock benefit schemes
Under the employee stock benefit program, the phantom shares of Bank Handlowy w Warszawie S.A. and awards in the form of Citigroup stock (the so-called Capital Accumulation Program, or CAP) are offered to selected employees. Bank has amended remuneration policies by introducing a possibility to payout financial instrument in form of existing shares in the capital of the Bank to employees whose professional activities have material impact on risk profile of the Bank (the “Identified Staff”) and to employees without such status, indicated in above-mentioned policies. In November, 7 2022 the Management Board by way of resolution amended remuneration policies, and in November, 14 2022 Supervisory Board adopted them. In December, 16 2022 the Extraordinary General Assembly of Shareholders decided to implement motivation programs that are based on the existing shares in capital of the Bank. In case Bank will not be able to deliver to employees required number of real shares, adopted changes to policies enable Bank to payout a part of remuneration
TRANSLATION
Annual Financial Statements of Bank Handlowy w Warszawie S.A. for the financial year ended 31 December 2023
94
as phantom share award or in case of the decision of the Bank, in form of phantom or real shares of the Bank. Remuneration policies allow for 1:1 conversion of phantom shares granted before the adoption of amendments, provided that an appropriate agreement is signed with employees concerned. On December 29, 2923 the Polish Financial Supervision Authority granted the Bank its permission to buy-back Bank’s shares referred to in Article 77 and Article 78 section 1 of Regulation (EU) No. 575/2013 of the European Parliament and of the Council of June 26, 2013 on prudential requirements for credit institutions and amending Regulation (EU) No. 648/2012. The buy-back of Bank’s shares started in January 2024.
Within the framework of the CAP, eligible employees receive so-called “deferred shares” of Citigroup. “Deferred shares” within the framework of the CAP are granted at the NYSE average closing price as at the 5 days prior to the grant date. “Deferred shares” give the right to equivalents of dividends, but without voting rights, and must not be sold prior to their conversion into stocks. “Deferred shares” are converted into stocks after the end of a period that is determined in the Program Rules. As a general rule, the employee has a right to options revoked at the moment of employment termination in the Citigroup, provided the termination of separate contract for granted options. Deferred shares granted in previous years will be transferred partially in 25% every year for the next four years, starting from the first anniversary of the option to acquire. In 2023, there were no awards granted under this Program.
The employee share program is subject to internal controls in the Compensation and Benefits Unit. As of 22 December 2017, the Bank implemented the employee remuneration Policy of Bank Handlowy w Warszawie S.A., replacing the prior policy for the remuneration of key persons in Bank Handlowy w Warszawie S.A.
According to the above-mentioned policy, the Management Board of the Bank and other managerial staff having a significant influence on the Bank's risk profile receive variable remuneration in relation to individual performance and the Bank’s financial results.
A portion of the Variable Remuneration awarded conditionally in 2022 for persons covered by the Policy will be paid out in tranches during in the next 4.5 or 6 years for the Members of the Management Board.
Undermotivational program dedicated for employees not being Identified Staff, a portion of the variable remuneration granted conditionally will be paid out in tranches during 4 years after the grant date. In 2023, three employees were granted with awards under this program.
Variable Remuneration in form of financial instruments – Phantom shares and/or real shares of the Bank
Transaction as per IFRS
Transactions share-based payments settled in cash in accordance with IFRS 2
Financial instruments grant date
15 of January 2018
14 of January 2019
14 of January 2020
11 of January 2021
13 of January 2022 (in case employees excluding the members of the Management Board)
10 of February 2022 (in case of the members of the Management Board)
11 of January 2023 (in case employees excluding the members of the Management Board)
16 of February 2023 (in case of the members of the Management Board)
Number of Phantom Shares granted
The number of shares was set on grant date
Date of maturity
• Financial instruments for the President of the Management Board financial instruments granted in 2018-2022 - at least 12, 24, 36, 48, 60, 72 months after grant date
• Financial instruments granted in 2020-2021 for other employees Including Members of the Management Board) – at least 6, 18, 30, 42 months after grant date
• Financial instruments for the Members of the Management Board financial instruments granted in 2022-2023 - at least 12, 24, 36, 48, 60, 72 months after grant date
• Financial instruments granted in 2022-2023 for other employees – at least 6, 18, 30, 42, 54 months after grant date
Vesting date
• Financial instruments for the President of the Management Board
o in 2018 –2023 – for short-term financial instruments at grant date, for long-term financial instruments at least 12, 24, 36, 48, 60 months after grant
• Financial instruments for the members of the Management Board excluding the President of the Management Board
o in 2020 –2021 – for short-term financial instruments at grant date, for long-term financial instruments at least 12, 24, 36 months after grant
TRANSLATION
Annual Financial Statements of Bank Handlowy w Warszawie S.A. for the financial year ended 31 December 2023
95
Variable Remuneration in form of financial instruments – Phantom shares and/or real shares of the Bank
o in 2022-2023 - for short-term financial instruments at grant date, for long-term financial instruments at least 12, 24, 36, 48, 60 months after grant
• Financial instruments granted for other employees
o in 2019-2021 - at least 6, 12, 24 and 36 months after grant date
o in 2022-2023– for short-term financial instruments at grant date, for long-term financial instruments at least 12, 24, 36, 48 months after grant date
Terms and conditions for acquiring rights to the award
Satisfying the conditions on the Bank’s results, individual performance of the employee and employment in the Bank in
• 2018:
o For the President of the Management Board in relation to the award from 2018-2023
• 2019:
o For the President of the Management Board in relation to the award from 2019-2024
• 2020:
o For the President of the Management Board in relation to the award from 2020-2025
o For other employee in relation to the award from 2020-2023
• 2021:
o For the President of the Management Board in relation to the award from 2021-2026
o For other employee in relation to the award from 2021-2024
• 2022:
o For the members of the Management Board (including the President of the Management Board) in relation to the award from 2022-2027
o For other employee in relation to the award from 2022-2026
• 2023:
o For the members of the Management Board (including the President of the Management Board) in relation to the award from 2023-2028
o For other employee in relation to the award from 2023-2027
Program settlement
At the settlement date the participants will get an amount of cash being the product held by a participant phantom shares and the arithmetic mean of the lowest and highest prices of shares of the Bank notified on WSE at the maturity date. Acquisition of rights to every tranche will be confirmed by a decision of the Supervisory Board of the Bank in relation to the member of the Management Board and by a decision of the Management Board in relation to other employees covered by the Policy. According to a decision of the above- mentioned Bank Management the amount of payment may be partially or fully reduced according to conditions given in the Policy. These terms and conditions relate to Bank’s results, individual performance and employment status and will relate to the vesting period of each tranche.
Another component of Variable Remuneration granted until 2022 under the Policy is the Deferred Cash Award.
Variable Remuneration – Deferred Cash Award
Transaction as per IFRS
Other long-term employee benefits in accordance with IAS 19
Grant date of the Deferred Cash Award
15 of January 2018
15 of January 2019
14 of January 2020
11 of January 2021
13 of January 2022 (in case employees excluding the Members of the Management Board)
10 of February 2022 (in case of the members of the Management Board)
Granted amount
The amount was settled on the Deferred Cash Award grant date
Date of maturity
• Deferred Cash Award for the President of the Management Board in 2018-2021 - at least 18, 30, 42, 54, 66 months after grant date
• Deferred Cash Award granted in 2018-2021 for other employees – at least 18, 30, 42 months after grant date
• Deferred Cash Award for the members of the Management Board (including the President of the Management Board) in 2022 - at least 12, 24, 36, 48, 60 months after grant date
TRANSLATION
Annual Financial Statements of Bank Handlowy w Warszawie S.A. for the financial year ended 31 December 2023
96
Variable Remuneration – Deferred Cash Award
• Deferred Cash Award granted in 2022 for other employees – at least 12, 24, 36, 48 months after grant date
Vesting date
• Deferred Cash Award for the President of the Management Board in 2018-2021 - at least 12, 24, 36, 48, 60 months after grant date
• Deferred Cash Award granted in 2020-2021 for other employees – at least 12, 24 and 36 months after grant date
• Deferred Cash Award for the members of the Management Board (including the President of the Management Board) in 2022 - at least 12, 24, 36, 48, 60 months after grant date
• Deferred Cash Award granted in 2018-2021 for other employees – at least 12, 24, 36,48 months after grant date
Terms and conditions for acquiring rights to the award
Satisfying the conditions on the Bank’s results, individual performance of the employee and employment in the Bank
• 2018:
o For the President of the Management Board in relation to the award from 2018-2023
• 2019:
o For the President of the Management Board in relation to the award from 2019-2024
• 2020:
o For the President of the Management Board in relation to the award from 2020-2025
o For other employee in relation to the award from 2020-2023
• 2021:
o For the President of the Management Board in relation to the award from 2021-2026
o For other employee in relation to the award from 2021-2024
• 2022:
o For the members of the Management Board (including the President of the Management Board) in relation to the award from 2022-2027
o For other employee in relation to the award from 2022-2026
Program settlement
At the settlement date the participants will get an amount of Deferred Cash Award increased by the amount of interest for the period of deferral and retention until the date of the pay-out. The amount of the interest was set up in January 2018, 2019, 2020, 2021 and 2022 by the resolution of the Supervisory Board of the Bank in relation to the member of the Management Board and by a decision of the Management Board in relation to other employees covered by the Policy. Acquisition of rights to every tranche will be confirmed by a decision of the Supervisory Board of the Bank in relation to the member of the Management Board and by a decision of the Management Board in relation to other employees covered by the Policy. According to a decision of the above- mentioned Bank Management the amount of payment may be partially or fully reduced according to conditions given in the Policy. These terms and conditions relate to Bank’s results, individual performance and employment status and will relate to the vesting period of each tranche.
Due to information shared by Citigroup on April, 15 2021 concerning amendment to strategy towards Consumer Bank (“GCB”), the Management Board of the Bank adopted the policy enabling to grant the award in order to recognize the effort of employees, whose support in strategy implementation towards the part of the Bank Handlowy w Warszawie S.A. (consumer banking segment) is crucial – Transaction Award Policy.
In 2022 the Supervisory of the Bank Handlowy w Warszawie S.A. made a decision to amend the Transaction Award Policy by e.g., moving away from deferred cash award and introducing existing shares in capital of the Bank as new form of pay-out of the financial instruments. Awards for 2022 are granted based on new rules in 2023. Amended remuneration policies allow for 1:1 conversion of phantom shares granted before the adoption of amendments, provided that appropriate agreements are signed with employees concerned.
Variable Remuneration in form of financial instruments – Phantom shares and/or real shares of the Bank – granted in years 2021-2022 under Transaction Award
Transaction as per IFRS
Transactions share-based payments settled in cash in accordance with IFRS 2
Phantom Shares grant date
July, 1 2021 and December, 3 2021
July, 1 2022 and November, 1 2022
Number of Financial Istruments granted
The number of shares was set on grant date
TRANSLATION
Annual Financial Statements of Bank Handlowy w Warszawie S.A. for the financial year ended 31 December 2023
97
Variable Remuneration in form of financial instruments – Phantom shares and/or real shares of the Bank – granted in years 2021-2022 under Transaction Award
Date of maturity
• For awards granted to Vice-President of Management Board Mr. Andrzej Wilk in 2022 – depending on the type of the award not sooner June, 30 2025 or the completion of Transaction if earlier and not sooner than 24, 36, 48, 60, 72 months after grant date .
• For awards granted to Mr. Andrzej Wilk in 2021 and other employees, who have material impact on risk profile of the Bank – depending on the type of the award, (June, 30 2025 or after completion of Transaction if earlier and not sooner than 18, 30, 42, 54 months after grant
Vesting date
• For awards granted to the Vice-President of the Management Board Mr. Andrzej Wilk in 2022– depending on the type of the award, and at least 12, 24, 36, 48, 60 months after grant
• For awards granted to Mr. Andrzej Wilk in 2021 and other employees, who have material impact on risk profile of the Bank – depending on the award, immediately after satisfying criteria (including these related to Transaction) and not sooner than 12, 24, 36, 48 months after grant
Terms and conditions for acquiring rights to the award
The completion of Transaction until defined date and fulfillment of the criteria related to Bank’s financial results, individual employees’ performance and employment in the Bank:
For 2021 - 2021-2025
For 2022
o For the Vice-President of the Management Board – Mr. Andrzej Wilk, in relation to the award from 2022-2027
o For other employee in relation to the award from 2022-2026
Program settlement
At the settlement date the participants will get an amount of cash being the product held by a participant phantom shares and the arithmetic mean of the lowest and highest prices of shares of the Bank notified on WSE at the maturity date. Acquisition of rights to every tranche will be confirmed by a decision of the Supervisory Board of the Bank in relation to the Vice-President of the Management Board – Mr. Andrzej Wilk and by a decision of the Management Board in relation to other employees covered by the Transaction Award Policy. According to a decision of the above-mentioned Bank Management the amount of payment may be partially or fully reduced according to conditions given in the Policy. These terms and conditions relate to Bank’s results, individual performance and employment status and will relate to the vesting period of each tranche.
Another component of Variable Remuneration granted according to the Transaction Award Policy is the Deferred Cash Award granted in 2021.
Variable Remuneration – Deferred Cash Award
Transaction as per IFRS
Other long-term employee benefits in accordance with IAS 19
Grant date of the Deferred Cash Award
July, 1 2021 and December, 3 2021
Granted amount
The amount was settled on the Deferred Cash Award grant date
Date of maturity
• depending on the type of the award, immediately after criteria fulfillment (including these related to Transaction) or not sooner than 6 months after completion of Transaction and not sooner than 18, 30, 42, 54 months after grant date
Vesting date
• depending on the award, immediately after satisfying the criteria (including these related to Transaction) or not sooner than 6 months after completion of Transaction and not sooner than 12, 24, 36, 48 months after grant date
•
Terms and conditions for acquiring rights to the award
The completion of Transaction until defined date and fulfillment of the criteria related to Bank’s financial results, individual employees’ performance and employment in the Bank:
o 2021-2025
Program settlement
At the settlement date the participants will get an amount of Deferred Cash Award. Acquisition of rights to every tranche will be confirmed by a decision of the Management Board in relation to other employees covered by the Transaction Award Policy. According to a decision of the above-mentioned Bank Management the amount of payment may be partially or fully reduced according to conditions given in the Policy. These terms and conditions relate to Bank’s results, individual performance and employment status and will relate to the vesting period of each tranche.
Assumptions of valuation of the employee equity benefit schemes
The fair value of particular awards and the assumptions used in their measurement is shown below:
CAP Program
Grant date
Exercise price/stock price at grant date [USD]
Number of
eligible employees
Number of
options/shares
1
13.02.2020
78.91
1
97
TRANSLATION
Annual Financial Statements of Bank Handlowy w Warszawie S.A. for the financial year ended 31 December 2023
98
2
10.02.2022
66.53
1
281
Phantom Shares Program
Grant Date
Exercise price/stock price at grant date [PLN]
Number of
eligible employees
Number of
options/shares
1
15.01.2018
83.02
1
2 281
2
14.01.2019
69.10
1
3 861
3
14.01.2020
52.56
1
8 049
4
5
6
11.01.2021
13.01.2022
10.02.2022
35.14
61.69
65.86
45
18
7
62 641
24 909
27 389
7
11.01.2023
77.06
29
97 595
8
16.02.2023
82.02
6
97 129
CAP Program
Phantom Shares Program
Period to acquire the title (in years)
25% after each of the following years
40% after 0.5 of a year and 20% after 3 subsequent years, 40% after a year and 12% after 5 subsequent years or 60% after 0.5 of a year and 13.33% after 3 subsequent years, 60% after a year and 8% after 5 subsequent years
Expected average life cycle of the instrument
At the time of rights acquisition
From 2020 : 40% on the grant date and 20% after 3
following years, 40% on the grant date and 12% after 5 following years or 60% on the grant date and 13.33 % after 3 following years, 60% on the grant date, and 8% after 5 following years
From 2022 : 40% on the grant date and 20% after 4
following years, 40% on the grant date and 12% after 5 following years or 60% on the grant date and 8 % after 5 following years
Expected average life cycle of the instrument
At the time of rights acquisition
At the time of rights acquisition
Probability of premature termination of employment (annual staff turnover for awarded employees)
0,00%
8.6%
Fair value of one instrument* (in USD)
50.07 (USD)
101.00 (PLN)
*Varies depending on the date of exercise
The number and weighted-average price of shares (CAP Program) are presented below:
31.12.2023
31.12.2022
Number
Weighted-average share price [USD]
Number
Weighted-average share price [USD]
At the beginning of the period
567
70,71
290
78,91
Allocated in the period
-
-
374
66,53
Executed/redeemed /expired in the period
189
49,37
97
64,24
At the end of the period
378
69,79
567
70,71
The number and weighted-average price of Phantom Shares are presented below:
31.12.2023
31.12.2022
Number
Weighted-average share price [PLN]
Number
Weighted-average share price [PLN]
At the beginning of the period
260,775
50.77
260,816
43.22
Allocated in the period
258,723
78.92
157,371
63.74
Executed in the period
194,879
40.33
156,500
57.60
Redeemed/expired in the period
764
-
912
-
At the end of the period
323,855
67.67
260,775
50.77
On 31 December 2023, the book value of liabilities from the phantom share and CAP programs amounted to PLN 57,834 thousand (31 December 2022: PLN 37,325 thousand). The costs recognized in this respect in 2023 amounted to PLN 38,934 thousand (in 2022: PLN 21,235 thousand including the costs of CAP programs).
TRANSLATION
Annual Financial Statements of Bank Handlowy w Warszawie S.A. for the financial year ended 31 December 2023
99
47. WIRON Reform
In connection with the reform of reference rates in Poland, assuming the Replacement of current WIBOR and WIBID Interest Rates with a new Reference Rate, the Polish Financial Supervision Authority established the National Working Group for Reformation Indicators ("NGR"), in the second half of 2022. In September of 2022, the Steering Committee of the National Working Group chose Wiron Benchmark as an indicator which is going to replace WIBOR and WIBID. s part of the works, the Steering Committee (NGR) adopted a Road Map determining the schedule of activities in order to replace WIBOR and WIBID rates by the Wiron bmk.
According to the road map, the verification of the premise for the regulatory event should happened in accordance with Article 23, paragraph 1 of the BMR Regulation. The regulatory event will constitute the basis for designating WIBOR replacement in the ordinance of the Minister of Finance. The replacement of WIBOR will apply to contracts and financial instruments that meet the conditions indicated in the BMR Regulation. The MF regulation will also define a corrective spread and the date from which the replacement will be used. The Bank has open exposure to rates which are going to be replaced by Wiron, in particular from loan, deposit, current accounts and financial instruments in the retail and corporate client segment.
Currently, the Bank is preparing the methodology in terms of calculation of the impact of replacing the WIBOR rates by the Wiron rates from a product perspective, customer valuation and the transfer pricing rates, what will allow calculation of impacts on each level WIRON implementation, according to Road Map' dates.
In 2022, Bank started preparatory work to be ready for new Wiron Rate. To meet requirements, Bank established key project in order to start intensive working to introduce new WIRON products in Bank offer, starting from 2023., in accordance with the Road Map of the National Working Group. The Steering Committee includes all management board members and working group was designated including representatives of all bank areas. Significant areas of work are related to changes in IT systems, operating processes, client documentation and risk management. The Bank actively participates in the work of the streams of the National Working Group.
In particular, a revision has been done for of all client agreements from emergency clauses perspective to determine the actions that the bank would take in the event of significant changes or stop developing a given reference indicator.
As a result of clients and regulations revision, appropriate changes were included in the agreement and product regulations together with the appropriate information process to the bank's clients.
There are also appropriate legal regulations like in the bank specifying the action plan in the event of significant changes in the bmk rates, the stopping of its development or the occurrence of a regulatory event regarding the reference rates.
On October 25, 2023 the National Working Group for Reformation Indicators announced a change in the maximum implementation deadlines of the Road Map and indicated the final moment of conversion at the end of 2027. However, neither the directions of the reform nor the scope of activities planned so far in the Road Map are changing.
The table below presents reference rate, to which the Bank was exposed to as well as the respective new reference rates.
Currency
Rate before the reform
Rate after the reform
31.12.2023
PLN
WIBOR
WIRON
Undergoing
EUR
LIBOR PLN
ESTR
Undergoing
CHF
LIBOR CHF
SARON
Finished
USD
LIBOR USD
SOFR
Undergoing
GBP
LIBOR GBP
SONIA
Undergoing
JPY
LIBOR JPY
TONAR
Undergoing
Financial asset and liabilities (excluding derivatives)
The following tables present financial assets and liabilities related to the reformed references rates as at 31 December 2023.
PLN’000
WIBOR
LIBOR USD
IBOR EUR
SONIA
SARON
Financial asset held for trading (excluding derivatives)
25 842
-
-
-
-
Debt investment financial assets measured at fair value through other comprehensive income
11 315 140
-
-
-
-
Amounts due from customers
16 312 760
90 955
1 471 265
11 309
157 295
PLN’000
WIBOR
LIBOR USD
ESTR
CABR
SARON
Amounts due to customers
3 304 024
124
4 569
604
82
Amounts due to and due from customers are presented as nominal balance sheet values.
Financial asset held for trading and Debt investment financial assets measured at fair value through other comprehensive income are presented at their fair values.
TRANSLATION
Annual Financial Statements of Bank Handlowy w Warszawie S.A. for the financial year ended 31 December 2023
100
Derivative instruments and hedge accounting
The following table presents derivative instruments related to reformed reference rates as at 31 December 2023.
PLN’000
WIBOR
IBOR EUR
LIBOR USD
Other
Financial assets held for trading
8 037 235
10,189,600
594 100
579,579
Hedging derivatives (assets)
6 731
-
-
-
Financial liabilities held for trading
13 323 385
4,786,772
598 527
594,756
Hedging derivatives (liabilities)
92 869
-
-
-
Derivative instruments were presented differently the in financial statement of financial position. In case both legs are related to a reformed rate they were presented as grossed-up value and in case only one leg is based on a reformed interest rate, valuation of only this leg was accounted for.
The impact of the reform on hedge accounting
The Bank has an active hedge accounting program for fix rate of AFS bond portfolio that allows the use of interest rates in PLN, USD and EUR. As at the reporting date of December 31 2023, the Bank keeps relationships in PLN only which are based on the Wibor reference index .
The daily fair value change in both instruments hedged and hedging is calculated in order to asset current effectiveness level for open relationships under hedge program. Taking into account that only open hedging relationships are in PLN and hedging instrument is based on the WIBOR rate, the RFR index reform with replacing the WIBOR/WIBID rates with a new RFR reference index, would have impact on current Fair value hedge effectiveness. In order to mitigate eventual impact, the Bank is in the process of preparing an analysis of the impact due to WIBOR reform from all product and clients perspective ,including the hedge accounting program.
48. The impact of the war in Ukraine
On February 24, 2022, an unprecedented event took place – the invasion of the independent state of Ukraine by Russian troops. The outbreak of war in a country neighboring Poland has a significant impact on the economic and operational environment in which the Bank operates.
The Bank's Management Board monitors the situation of the outbreak of war in Ukraine and its direct impact on lending activities and operational risk (mainly threats in cyberspace). In the case of lending activities, the Bank does not operate in Ukraine, Russia or Belarus, and the Bank's credit exposure to companies significantly involved in these countries is insignificant.
49. Subsequent events
The Government is working on regulations amending the principles of operation of the Act of July 7, 2022 on crowdfunding for business ventures and aid to borrowers (Journal of Laws of 2022, item 1488), which are intended to create the possibility of suspending mortgage loan repayments (so-called "credit holidays") in 2024. The presented government proposals are monitored by the Bank, and the impact of the current variants on the Bank's financial results in 2024 was not significant.
Implementing the Bank’s Own Shares buy-back program in the period from January 12, 2024 to February 20, 2024, the Brokerage Department of Bank Handlowy acquired a total of 20,316 shares of the Bank for the Bank's account. The total value of the transaction was PLN 2,135,480.80. The average unit price was PLN 105.11325064. The acquired shares with a nominal value of PLN 4.00 each represent 0.015549% of the Bank's share capital and entitle to 0.015549% of the total number of votes at the Bank's General Meeting.
The own shares were purchased on the basis of Resolution No. 5/2022 of the Bank's Extraordinary General Meeting dated December 16, 2022, authorizing the Management Board to purchase the Bank’s own shares and create a capital reserve for the Bank’s own shares buy-back program in connection with the implementation of: (i) a share-based incentive plan for persons whose professional activities have a material impact on the Bank’s risk profile, and (ii) a share-based incentive plan for selected Bank employees other than persons whose professional activities have a material impact on the Bank’s risk profile.
After 31 December 2023 there were no other major events undisclosed in these financial statements that could have a significant influence on the net result of the Bank.
TRANSLATION
Annual Financial Statements of Bank Handlowy w Warszawie S.A. for the financial year ended 31 December 2023
101
Signatures of Management Board Members
19.03.2024
Elżbieta Światopełk- Czetwertyńska
President of the Management Board
...........................
.............................................
................................
Date
Name
Position/function
19.03.2024
Maciej Kropidłowski
Vice-President of the Management Board
........................
.............................................
................................
Date
Name
Position/function
19.03.2024
Katarzyna Majewska
Vice-President of the Management Board
........................
.............................................
................................
Date
Name
Position/function
19.03.2024
Barbara Sobala
Vice-President of the Management Board
........................
.............................................
................................
Date
Name
Position/function
19.03.2024
Andrzej Wilk
Vice-President of the Management Board
........................
.............................................
................................
Date
Name
Position/function
19.03.2024
Patrycjusz Wójcik
Vice-President of the Management Board
........................
.............................................
................................
Date
Name
Position/function
19.03.2024
Ivan Vrhel
Member of the Management Board
........................
.............................................
................................
Date
Name
Position/function