Annual Report • Feb 15, 2023
Annual Report
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This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
| Amount ‘000 PLN 1.01.2022 - 31.12.2022 | Amount ‘000 PLN 1.01.2021 - 31.12.2021 | Amount ‘000 EUR 1.01.2022 - 31.12.2022 | Amount ‘000 EUR 1.01.2021 - 31.12.2021 | |
|---|---|---|---|---|
| Interest income and other of similar nature | 4,999,897 | 2,842,093 | 1,066,463 | 620,883 |
| Fee and commission income | 1,027,745 | 1,012,250 | 219,215 | 221,136 |
| Profit (loss) before income tax | (730,755) | (1,000,943) | (155,868) | (218,666) |
| Profit (loss) after taxes | (1,014,566) | (1,331,866) | (216,404) | (290,959) |
| Total comprehensive income of the period | (1,198,217) | (2,390,356) | (255,576) | (522,197) |
| Net cash flows from operating activities | 9,995,305 | 2,787,341 | 2,131,968 | 608,922 |
| Net cash flows from investing activities | 1,218,566 | (556,582) | 259,916 | (121,591) |
| Net cash flows from financing activities | (355,026) | (444,950) | (75,726) | (97,204) |
| Net cash flows, total | 10,858,845 | 1,785,809 | 2,316,158 | 390,128 |
| Earnings (losses) per ordinary share (in PLN/EUR) | (0.84) | (1.10) | (0.18) | (0.24) |
| Diluted earnings (losses) per ordinary share | (0.84) | (1.10) | (0.18) | (0.24) |
| 31.12.2022 | 31.12.2021 | 31.12.2022 | 31.12.2021 | |
|---|---|---|---|---|
| Amount ‘000 PLN | Amount ‘000 PLN | Amount ‘000 EUR | Amount ‘000 EUR | |
| Total Assets | 110,941,969 | 103,913,908 | 23,655,508 | 22,592,927 |
| Liabilities to banks and other monetary institutions | 727,571 | 539,408 | 155,136 | 117,278 |
| Liabilities to customers | 98,038,516 | 91,447,515 | 20,904,180 | 19,882,488 |
| Equity | 5,494,406 | 6,697,246 | 1,171,540 | 1,456,113 |
| Share capital | 1,213,117 | 1,213,117 | 258,666 | 263,755 |
| Number of shares (pcs.) | 1,213,116,777 | 1,213,116,777 | 1,213,116,777 | 1,213,116,777 |
| Book value per share (in PLN/EUR) | 4.53 | 5.52 | 0.97 | 1.20 |
| Diluted book value per share (in PLN/EUR) | 4.53 | 5.52 | 0.97 | 1.20 |
| Total Capital Ratio (TCR) | 14.42% | 17.06% | 14.42% | 17.06% |
| Pledged or paid dividend per share (in PLN/EUR) | - | - | - | - |
| Exchange rates accepted to convert selected financial data into EUR | ||||
| - for items as at the balance sheet date | - | - | 4.6899 | 4.5994 |
| - for items for the period covered by the report (exchange rate calculated as the average of exchange rates at the end of individual months of the period) | - | - | 4.6883 | 4.5775 |
Amount ‘000 PLN
| 1.01.2022 - 31.12.2022 | 1.10.2022 - 31.12.2022* | 1.01.2021 - 31.12.2021 | 1.10.2021 - 31.12.2021* | |
|---|---|---|---|---|
| Net interest income | 3,337,291 | 1,348,879 | 2,713,143 | 767,099 |
| Interest income and other of similar nature | 4,999,897 | 2,041,234 | 2,842,093 | 805,787 |
| Income calculated using the effective interest method | 5,028,694 | 2,023,454 | 2,778,204 | 800,465 |
| Interest income from Financial assets at amortised cost, including: | 4,560,119 | 1,886,587 | 2,620,651 | 749,737 |
| - the impact of the adjustment to the gross carrying amount of loans due to credit holidays | (1,324,208) | 98,685 | 0 | 0 |
| Interest income from Financial assets at fair value through other comprehensive income | 468,575 | 136,867 | 157,553 | 50,728 |
| Income of similar nature to interest from Financial assets at fair value through profit or loss | (28,797) | 17,780 | 63,889 | 5,322 |
| Interest expenses | (1,662,606) | (692,355) | (128,950) | (38,688) |
| Net fee and commission income | 808,305 | 201,997 | 830,612 | 214,960 |
| Fee and commission income | 1,027,745 | 259,483 | 1,012,250 | 260,504 |
| Fee and commission expenses | (219,440) | (57,486) | (181,638) | (45,544) |
| Dividend income | 3,796 | 383 | 3,761 | 323 |
| Result on derecognition of financial assets and liabilities not measured at fair value through profit or loss | (2,606) | (638) | 9,669 | (569) |
| Results on financial assets and liabilities held for trading | (312) | (1,806) | (9,296) | (2,151) |
| Result on non-trading financial assets mandatorily at fair value through profit or loss | 25,696 | 14,670 | 124,538 | 70,730 |
| Result on hedge accounting | (7,130) | (1,552) | (3,185) | (1,431) |
| Result on exchange differences | (203,544) | (18,357) | (148,999) | (72,138) |
| Other operating income | 276,245 | 65,544 | 317,295 | 106,606 |
| Other operating expenses | (216,720) | (80,417) | (239,510) | (159,641) |
| Administrative expenses | (1,884,259) | (416,102) | (1,440,706) | (383,401) |
| Impairment losses on financial assets | (342,033) | (80,110) | (318,391) | (77,023) |
| Impairment losses on non-financial assets | (3,515) | (770) | (7,672) | (2,285) |
| Provisions for legal risk connected with FX mortgage loans | (2,017,320) | (504,540) | (2,305,157) | (732,000) |
| Result on modification | (126,664) | (61,253) | (12,839) | (3,403) |
| Depreciation | (208,922) | (52,476) | (201,595) | (50,725) |
| Share of the profit of investments in subsidiaries | 0 | 0 | 0 | 0 |
| Banking tax | (169,063) | 0 | (312,611) | (82,012) |
| Profit before income taxes | (730,755) | 413,452 | (1,000,943) | (407,061) |
| Corporate income tax | (283,811) | (164,515) | (330,923) | (101,849) |
| Profit after taxes | (1,014,566) | 248,937 | (1,331,866) | (508,910) |
| Attributable to: | ||||
| Owners of the parent | (1,014,566) | 248,937 | (1,331,866) | (508,910) |
| Non-controlling interests | 0 | 0 | 0 | 0 |
| Weighted average number of outstanding ordinary shares (pcs.) | 1,213,116,777 | 1,213,116,777 | 1,213,116,777 | 1,213,116,777 |
| Profit (loss) per ordinary share (in PLN) | (0.84) | 0.21 | (1.10) | (0.42) |
* quarterly financial information has not been audited by an independent auditor
Amount ‘000 PLN
| 1.01.2022 - 31.12.2022 | 1.10.2022 - 31.12.2022* | 1.01.2021 - 31.12.2021 | 1.10.2021 - 31.12.2021* | |
|---|---|---|---|---|
| Result after taxes | (1,014,566) | 248,937 | (1,331,866) | (508,910) |
| Other comprehensive income items that may be (or were) reclassified to profit or loss | (231,194) | 464,246 | (1,312,027) | (959,115) |
| Result on debt securities at fair value through other comprehensive income | (204,045) | 278,685 | (977,534) | (698,843) |
| Hedge accounting | (27,149) | 185,561 | (334,493) | (260,272) |
| Other comprehensive income items that will not be reclassified to profit or loss | 4,464 | 4,507 | 5,249 | 5,278 |
| Actuarial gains (losses) | 8,887 | 8,887 | 6,071 | 6,071 |
| Result on equity instruments at fair value through other comprehensive income | (4,423) | (4,380) | (822) | (793) |
| Total comprehensive income items before taxes | (226,730) | 468,753 | (1,306,778) | (953,837) |
| Corporate income tax on other comprehensive income items that may be (or were) reclassified to profit or loss | 43,927 | (88,207) | 249,285 | 182,232 |
| Corporate income tax on other comprehensive income items that will not be reclassified to profit or loss | (848) | (856) | (997) | (1,003) |
| Total comprehensive income items after taxes | (183,651) | 379,690 | (1,058,490) | (772,608) |
| Total comprehensive income for the period | (1,198,217) | 628,627 | (2,390,356) | (1,281,518) |
| Attributable to: | ||||
| Owners of the parent | (1,198,217) | 628,627 | (2,390,356) | (1,281,518) |
| Non-controlling interests | 0 | 0 | 0 | 0 |
* quarterly financial information has not been audited by an independent auditor
6 This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version. Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31 st December 2022
| Amount ‘000 PLN | Nota | 1.01.2022 - 31.12.2022 | 1.01.2021 - 31.12.2021 |
|---|---|---|---|
| Net interest income | 3 | 337 291 | 2 713 143 |
| Interest income and other of similar nature | 1 | 4 999 897 | 2 842 093 |
| Income calculated using the effective interest method | 5 028 694 | 2 778 204 | |
| Interest income from Financial assets at amortised cost, including: | 4 560 119 | 2 620 651 | |
| - the impact of the adjustment to the gross carrying amount of loans due to credit holidays | (1 324 208) | 0 | |
| Interest income from Financial assets at fair value through other comprehensive income | 468 575 | 157 553 | |
| Income of similar nature to interest from Financial assets at fair value through profit or loss | (28 797) | 63 889 | |
| Interest expenses | 2 | (1 662 606) | (128 950) |
| Net fee and commission income | 808 305 | 830 612 | |
| Fee and commission income | 3 | 1 027 745 | 1 012 250 |
| Fee and commission expenses | 3 | (219 440) | (181 638) |
| Dividend income | 4 | 3 796 | 3 761 |
| Result on derecognition of financial assets and liabilities not measured at fair value through profit or loss | 5 | (2 606) | 9 669 |
| Results on financial assets and liabilities held for trading | 6 | (312) | (9 296) |
| Result on non-trading financial assets mandatorily at fair value through profit or loss | 7 | 25 696 | 124 538 |
| Result on hedge accounting | 8 | (7 130) | (3 185) |
| Result on exchange differences, including: | (203 544) | (148 999) | |
| - costs of settlements on foreign currency mortgage loans | (382 239) | (364 525) | |
| Other operating income | 9 | 276 245 | 317 295 |
| Other operating expenses | 10 | (216 720) | (239 510) |
| Administrative expenses | 11 | (1 884 259) | (1 440 706) |
| Impairment losses on financial assets | 12 | (342 033) | (318 391) |
| Impairment losses on non-financial assets | 13 | (3 515) | (7 672) |
| Provisions for legal risk connected with FX mortgage loans | 14 | (2 017 320) | (2 305 157) |
| Result on modification, including: | (126 664) | (12 839) | |
| - costs of settlements on foreign currency mortgage loans | (102 153) | 0 | |
| Depreciation | 15 | (208 922) | (201 595) |
| Share of the profit of investments in subsidiaries | 0 | 0 | |
| Banking tax | (169 063) | (312 611) | |
| Profit before income taxes | (730 755) | (1 000 943) | |
| Corporate income tax | 16 | (283 811) | (330 923) |
| Profit after taxes | (1 014 566) | (1 331 866) | |
| Attributable to: | |||
| Owners of the parent | (1 014 566) | (1 331 866) | |
| Non-controlling interests | 0 | 0 | |
| Weighted average number of outstanding ordinary shares | 1 213 116 777 | 1 213 116 777 | |
| Profit (loss) per ordinary share (in PLN) | 17 | (0.84) | (1.10) |
| Notes on pages 13-178 are integral part of these consolidated financial statements. | |||
| 7 This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version. Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31 st December 2022 | |||
| # 2.# Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31st December 2022 |
| Amount ‘000 PLN | 1.01.2022 - 31.12.2022 | 1.01.2021 - 31.12.2021 |
|---|---|---|
| Profit after taxes | (1 014 566) | (1 331 866) |
| Other comprehensive income items that may be (or were) reclassified to profit or loss | (231 194) | (1 312 027) |
| Result on debt securities at fair value through other comprehensive income | (204 045) | (977 534) |
| Hedge accounting | (27 149) | (334 493) |
| Other comprehensive income items that will not be reclassified to profit or loss | 4 464 | 5 249 |
| Actuarial gains (losses) | 8 887 | 6 071 |
| Result on equity instruments at fair value through other comprehensive income | (4 423) | (822) |
| Other comprehensive income items before taxes | (226 730) | (1 306 778) |
| Corporate income tax on other comprehensive income items that may be (or were) reclassified to profit or loss | 43 927 | 249 285 |
| Corporate income tax on other comprehensive income items that will not be reclassified to profit or loss | (848) | (997) |
| Other comprehensive income items after taxes | (183 651) | (1 058 490) |
| Total comprehensive income for the period | (1 198 217) | (2 390 356) |
| Attributable to: | ||
| Owners of the parent | (1 198 217) | (2 390 356) |
| Non-controlling interests | 0 | 0 |
Notes on pages 13-178 are integral part of these consolidated financial statements.
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
| ASSETS | Amount ‘000 PLN | Note | 31.12.2022 | 31.12.2021 |
|---|---|---|---|---|
| Cash, cash balances at central banks | 18 | 9 536 090 | 3 179 736 | |
| Financial assets held for trading | 19 | 363 519 | 172 483 | |
| Derivatives | 339 196 | 85 900 | ||
| Equity instruments | 113 145 | |||
| Debt securities | 24 210 | 86 438 | ||
| Non-trading financial assets mandatorily at fair value through profit or loss, other than | ||||
| Loans and advances to customers | 20 | 201 036 | 265 903 | |
| Equity instruments | 128 979 | 138 404 | ||
| Debt securities | 72 057 | 127 499 | ||
| Financial assets at fair value through other comprehensive income | 21 | 16 505 606 | 17 997 699 | |
| Equity instruments | 24 396 | 28 727 | ||
| Debt securities | 16 481 210 | 17 968 972 | ||
| Loans and advances to customers | 22 | 76 565 163 | 78 603 326 | |
| Mandatorily at fair value through profit or loss | 97 982 362 | 992 | ||
| Valued at amortised cost | 76 467 181 | 78 240 334 | ||
| Financial assets at amortised cost other than Loans and advances to customers | 23 | 4 631 170 | 1 076 456 | |
| Debt securities | 3 893 212 | 37 088 | ||
| Deposits, loans and advances to banks and other monetary institutions | 733 095 | 770 531 | ||
| Reverse sale and repurchase agreements | 4 863 268 | 837 | ||
| Derivatives – Hedge accounting | 24 | 135 804 | 14 385 | |
| Investments in subsidiaries, joint ventures and associates | 25 | 0 | 0 | |
| Tangible fixed assets | 26 | 572 810 | 549 788 | |
| Intangible fixed assets | 27 | 436 622 | 392 438 | |
| Income tax assets | 805 624 | 785 750 | ||
| Current income tax assets | 4 232 | 8 644 | ||
| Deferred income tax assets | 28 | 801 392 | 777 106 | |
| Other assets | 29 | 1 177 134 | 857 650 | |
| Non-current assets and disposal groups classified as held for sale | 30 | 11 391 | 18 294 | |
| Total assets | 110 941 969 | 103 913 908 |
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
| LIABILITIES AND EQUITY | Amount '000 PLN | Note | 31.12.2022 | 31.12.2021 |
|---|---|---|---|---|
| LIABILITIES | ||||
| Financial liabilities held for trading | 31 | 385 062 | 143 016 | |
| Derivatives | 380 278 | 126 402 | ||
| Liabilities from short sale of securities | 4 784 | 16 614 | ||
| Financial liabilities measured at amortised cost | 100 577 923 | 93 585 673 | ||
| Liabilities to banks and other monetary institutions | 32 | 727 571 | 539 408 | |
| Liabilities to customers | 33 | 98 038 516 | 91 447 515 | |
| Sale and repurchase agreements | 34 | 0 | 18 038 | |
| Debt securities issued | 35 | 243 753 | 39 568 | |
| Subordinated debt | 36 | 1 568 083 | 1 541 144 | |
| Derivatives – Hedge accounting | 24 | 554 544 | 614 573 | |
| Provisions | 37 | 1 016 169 | 595 530 | |
| Pending legal issues | 976 552 | 551 176 | ||
| Commitments and guarantees given | 39 | 617 | 44 354 | |
| Income tax liabilities | 32 533 | 1 496 | ||
| Current income tax liabilities | 32 533 | 1 496 | ||
| Deferred income tax liabilities | 0 | 0 | ||
| Other liabilities | 38 | 2 881 332 | 2 276 374 | |
| Total Liabilities | 105 447 563 | 97 216 662 | ||
| EQUITY | ||||
| Share capital | 39 | 1 213 117 | 1 213 117 | |
| Own shares | (21) | (21) | ||
| Share premium | 1 147 502 | 1 147 502 | ||
| Accumulated other comprehensive income | 39 | (1 042 284) | (858 633) | |
| Retained earnings, including: | 39 | 4 176 092 | 5 195 281 | |
| - current profit /loss | (1 014 566) | (1 331 866) | ||
| - other | 5 190 658 | 6 527 147 | ||
| Total equity | 5 494 406 | 6 697 246 | ||
| Total equity and total liabilities | 110 941 969 | 103 913 908 |
| 31.12.2022 | 31.12.2021 | |
|---|---|---|
| Book value of net assets | 5 494 406 | 6 697 246 |
| Number of shares (pcs.) | 1 213 116 777 | 1 213 116 777 |
| Book value per share (in PLN) | 4,53 | 5,52 |
Notes on pages 13-178 are integral part of these financial statements.
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
| Amount ‘000 PLN | Total consolidated equity | Share capital | Own shares | Share premium | Accumulated other comprehensive income | Retained earnings | Unappropriated result | Other reserves |
|---|---|---|---|---|---|---|---|---|
| 01.01.2022 – 31.12.2022 | ||||||||
| Equity at the beginning of the period | 6 697 246 | 1 213 117 | (21) | 1 147 502 | (858 633) | (1 198 425) | 6 393 706 | |
| Total comprehensive income for 2021 (net) | (1 198 217) | 0 | 0 | 0 | (183 651) | (1 014 566) | 0 | |
| current profit /loss | (1 014 566) | (1 014 566) | ||||||
| other comprehensive income items after taxes | (183 651) | |||||||
| Purchase and transfer of own shares to employees | (4 623) | 0 | 0 | 0 | 0 | 0 | (4 623) | |
| Transfer between items of reserves | 0 | 0 | 0 | 0 | 0 | 1 388 118 | (1 388 118) | |
| Equity at the end of the period | 5 494 406 | 1 213 117 | (21) | 1 147 502 | (1 042 284) | (824 873) | 5 000 965 |
| Amount ‘000 PLN | Total consolidated equity | Share capital | Own shares | Share premium | Accumulated other comprehensive income | Retained earnings | Unappropriated result | Other reserves |
|---|---|---|---|---|---|---|---|---|
| 01.01.2021 – 31.12.2021 | ||||||||
| Equity at the beginning of the period | 9 090 976 | 1 213 117 | (21) | 1 147 502 | 199 857 | 156 258 | 6 374 263 | |
| Total comprehensive income for 2020 (net) | (2 390 356) | 0 | 0 | 0 | (1 058 490) | (1 331 866) | 0 | |
| current profit /loss | (1 331 866) | (1 331 866) | ||||||
| other comprehensive income items after taxes | (1 058 490) | |||||||
| Purchase and transfer of own shares to employees | (3 374) | 0 | 0 | 0 | 0 | 0 | (3 374) | |
| Transfer between items of reserves | 0 | 0 | 0 | 0 | 0 | (22 817) | 22 817 | |
| Equity at the end of the period | 6 697 246 | 1 213 117 | (21) | 1 147 502 | (858 633) | (1 198 425) | 6 393 706 |
Detailed information concerning changes in different equity items are presented in the note (39).
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
| Amount ‘000 PLN | 1.01.2022 - 31.12.2022 | 1.01.2021 - 31.12.2021 |
|---|---|---|
| Profit (loss) after taxes | (1 014 566) | (1 331 866) |
| Total adjustments: | 11 009 488 | 4 119 208 |
| Interest received | 4 581 321 | 2 840 116 |
| Interest paid | (1 310 466) | (117 173) |
| Depreciation and amortization | 208 922 | 201 595 |
| Foreign exchange (gains)/ losses | 0 | 0 |
| Dividends | (3 796) | (3 761) |
| Changes in provisions | 420 639 | 436 880 |
| Result on sale and liquidation of investing activity assets | (1 490) | (11 483) |
| Change in financial assets held for trading | (306 541) | (207 232) |
| Change in loans and advances to banks | 110 198 | (74 610) |
| Change in loans and advances to customers | (1 984 810) | (7 533 210) |
| Change in receivables from securities bought with sell-back clause (loans and advances) | 237 878 | (202 947) |
| Change in financial liabilities valued at fair value through profit and loss (held for trading) | 182 018 | (149 815) |
| Change in deposits from banks | 481 852 | (364 842) |
| Change in deposits from customers | 7 826 048 | 10 050 781 |
| Change in liabilities from securities sold with buy-back clause | 34 833 | (228 737) |
| Change in debt securities | 204 828 | (265 008) |
| Change in income tax settlements | 289 733 | 333 839 |
| Income tax paid | (235 492) | (235 473) |
| Change in other assets and liabilities | 154 631 | (399 748) |
| Other | 119 182 | 50 036 |
| Net cash flows from operating activities | 9 994 922 | 2 787 342 |
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
| Amount ‘000 PLN | 1.01.2022 - 31.12.2022 | 1.01.2021 - 31.12.2021 |
|---|---|---|
| Inflows: | 160 586 | 389 223 |
| Proceeds from sale of property, plant and equipment and intangible assets | 15 706 | 13 323 |
| Proceeds from sale of shares in related entities | 0 | 0 |
| Proceeds from sale of investment financial assets | 160 566 | 378 958 |
| Other | 3 796 | 3 761 |
| Outflows: | (159 367 440) | (223 952 624) |
| Acquisition of property, plant and equipment and intangible assets | (157 008) | (94 510) |
| Purchase of Euro Bank shares less cash acquired | 0 | 0 |
| Acquisition of investment financial assets | (159 210 432) | (223 858 114) |
| Other | 0 | 0 |
| Net cash flows from investing activities | 1 218 949 | (556 582) |
| Amount ‘000 PLN | 1.01.2022 - 31.12.2022 | 1.01.2021 - 31.12.2021 |
|---|---|---|
| Inflows from financing activities: | 0 | 0 |
| Long-term bank loans | 0 | 0 |
| Issue of debt securities | 0 | 0 |
| Increase in subordinated debt | 0 | 0 |
| Net proceeds from issues of shares and additional capital paid-in | 0 | 0 |
| Other inflows from financing activities | 0 | 0 |
| Outflows from financing activities: | (355 026) | (444 950) |
| Repayment of long-term bank loans | (265 988) | (147 960) |
| Redemption of debt securities | 0 | (250 000) |
| Decrease in subordinated debt | 0 | 0 |
| Issue of shares expenses | 0 | 0 |
| Redemption of shares | 0 | 0 |
| Dividends paid and other payments to owners | 0 | 0 |
| Other outflows from financing activities | (89 038) | (46 990) |
| Net cash flows from financing activities | (355 026) | (444 950) |
D. Net cash flows. Total (A + B + C) | 10 858 845 | 1 785 810
- including change resulting from FX differences | 4 630 | 4 072
E. Cash and cash equivalents at the beginning of the reporting period | 3 372 244 | 1 586 434
F. Cash and cash equivalents at the end of the reporting period (D + E) | 14 231 089 | 3 372 244
Additional information regarding cash flows statement is presented in point 5) of chapter 15. “Supplementary information”. Information on liabilities classified as financing activities is presented in points 32), 35), 36) of chapter 14. “Notes to the Consolidated Financial Report”.
13
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31 st December 2022
Bank Millennium S.A. (the Bank) is a universal bank that operates in Poland, offering its services to all market segments via a network of branches, corporate centres, individual advisors and mobile and electronic banking. The Bank, entered under the number KRS 0000010186 in the National Court Register kept by the Local Court for the Capital City of Warsaw (Poland), 13th Business Department of the National Court Register, with its registered office in Warsaw, ul. Stanisława Żaryna 2A, 02-593 Warsaw, Poland. The Bank is listed on the Warsaw Stock Exchange since 1992, first Bank ever to float its shares on the WSE. The Bank is a parent company of a Bank Millennium Capital Group (the Group) with almost 6,900 employees with core business comprising banking, leasing, factoring, brokerage, capital operations, investment fund management and web portals activity.
Composition of the Supervisory Board as at 31 December 2022 was as follows:
Composition of the Management Board as at 31 December 2022 was as follows:
14
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31 st December 2022
The Group’s parent entity is Bank Millennium S.A. while the ultimate parent entity of the Bank Millennium S.A. is the Banco Comercial Portugues - company listed on the stock exchange in Lisbon. The companies that belong to the Capital Group as at 31 December 2022, are presented by the table below:
| Company | Activity domain | Head office | % of the Group’s capital share | % of the Group’s voting share | Recognition in financial statements |
|---|---|---|---|---|---|
| MILLENNIUM BANK HIPOTECZNY S.A. | mortgage bank | Warsaw | 100 | 100 | full consolidation |
| MILLENNIUM LEASING Sp. z o.o. | leasing services | Warsaw | 100 | 100 | full consolidation |
| MILLENNIUM CONSULTING S.A.* | advisory services | Warsaw | 100 | 100 | full consolidation |
| MILLENNIUM TFI S.A. | investment funds management | Warsaw | 100 | 100 | full consolidation |
| MILLENNIUM SERVICE Sp. z o.o. | rental and management of real estate, insurance and brokers activity | Warsaw | 100 | 100 | full consolidation |
| MILLENNIUM GOODIE Sp. z o.o. | web portals activity | Warsaw | 100 | 100 | full consolidation |
| MILLENNIUM TELECOMMUNICATION SERVICES Sp. z o.o. | financial operations - equity markets, advisory services | Warsaw | 100 | 100 | full consolidation |
| MILLENNIUM FINANCIAL SERVICES Sp. z o.o. | the company is not yet operating | Warsaw | 100 | 100 | full consolidation |
| Piast Expert Sp. z o.o. in liquidation | marketing services | Tychy | 100 | 100 | full consolidation |
| LUBUSKIE FABRYKI MEBLI S.A. in liquidation | furniture manufacturer | Świebodzin | 50 (+1 share) | 50 (+1 share) | equity method valuation |
* The Bank and Millennium Dom Maklerski made a decision on the Demerger by including the brokerage activity in the Bank's structures, while the organized part of the enterprise conducting activities not related brokerage services changed its name to Millennium Consulting S.A., more information on the issue is presented in Chapter 15.9 “Additional information and other essential events between the date for which the financial report was prepared and its publication date”.
** Despite having a control over the Lubuskie Fabryki Mebli S.A., due to insignificant nature of this company from the realization of the primary goal of the consolidated financial statements point of view, which is the correct presentation of Group’s financial situation, the Group does not consolidate capital involvement in aforementioned enterprise.
15
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31 st December 2022
These financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (‘IFRS’), as adopted by the European Union and with respect to matters not regulated by the above standards, in accordance with the accounting principles as set out in the Accounting Act dated 29 September 1994 (unified text - Official Journal from 2023, item 120) and the respective bylaws and regulations and the requirements for issuers of securities admitted or sought to be admitted to trading on an official stock-exchange listing market.
These financial statements meet the reporting requirements described in the Regulation of the Minister of Finance of March 29, 2018 regarding current and periodic information published by issuers of securities and conditions for recognizing as equivalent information required by the laws of a non-member state (Journal of Laws of 2018, item 757).
This financial report was approved for publication by the Management Board on 15 February 2023.
Following the signing by the President of the Republic of Poland and announcement in the Journal of Laws of the Republic of Poland on the same day of the Act of 7 July 2022 on crowdfunding for business ventures and assistance to borrowers (‘the Act’), introducing, among others, a possibility of up to 8 months of Credit Holidays in 2022-2023 for PLN mortgage borrowers, the Group recorded in 2022 a pre-tax cost of PLN 1,324.2 million (PLN 1,072,6 million after tax), of which PLN 1,291.6 million related to the Bank, and PLN 32.6 million related to Millennium Bank Hipoteczny S.A. (more information on the method of recognizing the adjustment in the financial statements is presented in this Chapter in point 7.3 Adopted accounting principles).
In 2022 the Group incurred a financial loss. The financial loss of the Group in the amount of PLN 1,014.6 million was caused by the above mentioned Act. If not the above mentioned cost, the Group (the Bank) would have shown a positive result, even after the creation of provisions for legal risk related to the portfolio of foreign currency mortgage loans (excluding Euro Bank) in the amount of PLN 1,844.1 million, additional costs incurred with individual amicable settlements with FX mortgage borrowers and with legal costs (more information on the issue is presented in Chapter 10 “Legal risk related to foreign currency mortgage loans”).
Beside of aforementioned costs the Bank incurred single-row costs of the reserve related to the establishment of the Institutional Protection Scheme amounting to PLN 276.1 million. Due to costs generated as a result of the above mentioned Act, and as informed by the Bank by current report published on 15 July 2022, it could be reasonably assumed that the Bank would record a negative net result for the 3rd quarter of 2022 and as a result its capital ratios could fall below the current minimum requirements set by Polish Financial Supervision Authority (‘PFSA’). As the emergence of risk of a breach of respective capital ratios represents a prerequisite stipulated in the art. 142 sec.# Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31 st December 2022
1 and 2 of the Banking Act of 29 August 1997 (Journal of Laws 2021, item 2439, i.e. 28 December 2021, as amended), on July 15th the Management Board of the Bank took a decision to launch the Recovery Plan, notifying of the fact both PFSA and Bank Guarantee Fund.
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
Additionally, the Bank has also submitted to PFSA the Capital Protection Plan, pursuant to the Article 60 sec. 1 of the Act of 5 August 2015 on macroprudential supervision of the financial system and crisis management in the financial system (Journal of Laws of 2022, item 963, i.e. of 6 May 2022, as amended). PFSA approved this plan on 28th October 2022 and communicated this fact to the Bank on 14th November 2022. The Plan foresees the increase of capital ratios comfortably above the minimum required levels through a combination of further improvement of operational profitability and capital optimisation initiatives such as management of risk weighted assets (including securitisations). The Bank/Group managed in the 4th quarter 2022 to significantly improve its capital ratios, bringing them clearly above the new regulatory requirements (without P2G): Tier 1 ratio stood 115 bps (Bank) and 107 bps (Group) above minimum requirement and Total Capital Ratio stood 183 bps (Bank) and 173 bps (Group) above minimum requirement, detailed information on this subject is presented in tabular form in Chapter 8.2 Capital Management. Assuming no other extraordinary factors, the Bank plans to keep capital ratios above the minimum required levels throughout the year of 2023. The Bank monitors, on the current basis, the financial situation and, if needed, will undertake actions to launch additional remedial activities. In particular, the Bank is aware of potential risks connected with potential extension of so-called Credit Holidays for 2024. If such risk would materialize, it could imply additional provisions that would decrease the net result of the Bank/Group. Additionally, further negative developments regarding the legal risk of FX mortgage loans could imply the need to increase the level of provisions for such risk apart from the provisions that might result from current trends. In the Bank’s view, these events, if materialized, would adversely affect the results of the Bank/Group in 2023-2024, and would reduce the organic generation of capital that is envisaged, but would not prevent the Bank/Group from continuing to implement its strategy and the generation of results that would mitigate the impact of such events. The liquidity situation of the Bank/Group is strong, as illustrated by indicators as of 31/12/2022: loan- to-deposit ratio reached [78%] and LCR 223%. During the year 2022, total deposits grew more than total loans. The Bank would like to emphasise that the only reason for forecasted exceeding of the leading indicators of the Recovery Plan in the area of capital were external factors independent from the Bank, in the form of the announcement of the Act on Crowdfunding and the need to recognise the cost of Credit Holidays. At same time the Bank achieved good operational and business results, while actively managing and mitigating the different risks related to the banking activity. Taking into account the above circumstances and identified uncertainties, in particular, the Bank's possible failure to meet capital solvency ratios in subsequent reporting periods - the Bank's Management Board based on the analyzes of all aspects of the Bank's operations and its current and forecast financial position, concluded that the application of the going concern assumption in the preparation of these financial statements is appropriate.
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
In 2021, the Bank (and in consequence – the Group) changed the accounting policy regarding the recognition of provisions for future claims related to active CHF mortgage loans in the balance sheet. As a result of changes in market conditions, such as the growing number of unfavourable court judgments declaring the entire agreement or certain provisions of these credits to be invalid, the Bank does not expect that all contractual cash flows related to these loans will be recovered. As a result, commencing from 2021, the Bank allocates provisions for future claims and recognizes them as a reduction of the gross carrying amount of loans for which a decrease in future cash flows is expected, in accordance with paragraph B5.4.6 of IFRS 9 "Financial Instruments" (previously provisions for future claims used to be recognized in accordance with IAS 37 "Provisions, Contingent Liabilities and Contingent Assets"). As a result of the above change, the approach applied in accordance with IAS 37 will be continued only with regard to claims relating to already repaid (or almost fully repaid) receivables not recognised in the Bank's balance sheet. In the opinion of the Bank, this way of presentation better reflects the risk related to FX mortgage loans and enables the users of the financial statements a better assessment of the Bank's balance sheet. Additionally, it is a change adjusting the Bank's accounting standards to the majority market practice applied by the banking sector in this area.
The Group changed the presentation of interest on derivatives not covered by formal hedge accounting. According to the Group's verified assessment, these revenues, even though they are related with instruments included in the trading portfolio, but according to the economic sense of cash flows from these transactions, constitute interest income and should be an element of the interest margin, not one of the components of the financial instrument valuation, as it was previously the case. In view of the above, the Group, starting from 2021, presents the interest in the Income statement as part of the "Net interest income", while previously this interest was included in the item “Results on financial assets and liabilities held for trading".
The following amendments to existing standards issued by the International Accounting Standards Board (IASB) and approved for use in the EU were first applied in the Group's financial statements for 2022:
The adoption of mentioned above amendments to the existing standards has not led to any material changes in the Group’s financial statements 2022.
Standards and amendments to the existing standards issued by IASB and adopted by the EU but not yet effective:
• Amendments to IAS 12 “Income Taxes” - Deferred Tax related to Assets and Liabilities arising from a Single Transaction adopted by the EU on 11 August 2022 (effective for annual periods beginning on or after 1 January 2023). The Group anticipates that the adoption of the aforementioned standard and amendments to existing standards will have no material impact on the financial statements of the Group.
NEW STANDARDS AND AMENDMENTS TO THE EXISTING STANDARDS ISSUED BY IASB BUT NOT YET ADOPTED BY THE EU
At present, IFRS as adopted by the EU do not significantly differ from regulations adopted by the International Accounting Standards Board (IASB) except for the following new standards and amendments to the existing standards, which were not endorsed for use in EU:
• Amendments to IAS 1 “Presentation of Financial Statements” - Classification of Liabilities as Current or Non-Current (effective for annual periods beginning on or after 1 January 2023),
• Amendments to IAS 1 “Presentation of Financial Statements” - Non-current Liabilities with Covenants (effective for annual periods beginning on or after 1 January 2024),
• Amendments to IFRS 16 “Leases” - Lease Liability in a Sale and Leaseback (effective for annual periods beginning on or after 1 January 2024),
• IFRS 14 “Regulatory Deferral Accounts” (effective for annual periods beginning on or after 1 January 2016) - the European Commission has decided not to launch the endorsement process of this interim standard and to wait for the final standard,
• Amendments to IFRS 10 “Consolidated Financial Statements” and IAS 28 “Investments in Associates and Joint Ventures” - Sale or Contribution of Assets between an Investor and its Associate or Joint Venture and further amendments (effective date deferred indefinitely until the research project on the equity method has been concluded).
The Group anticipates that the adoption of the aforementioned standard and amendments to existing standards will have no material impact on the financial statements of the Group.
20
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31 st December 2022
Consolidated financial statements of the Group prepared for the financial year from 1 January 2022 to 31 December 2022 include financial data of the Bank and its subsidiaries forming the Group. These financial statements are prepared on the basis of the going concern assumption of the Group, namely scale of business is not to be reduced substantially in a period of not less than one year from the balance sheet date. The financial statements have been prepared in PLN, and all values, unless otherwise indicated, are given in PLN rounded to one thousand.
The financial statements have been prepared based on the fair value principle for financial assets and liabilities recognised at FVTPL including derivative instruments, and financial assets classified as FVTOCI. Other items of financial assets and liabilities (including loans and advances) are presented at amortized cost with effective interest rate applied less impairment charges (except loans which failed SPPI test), or at their purchase price less impairment charges.
The preparation of financial statements in accordance with IFRS, as adopted by the EU, requires from the management the use of estimates and assumptions that affect applied accounting principles and the amounts (assets, liabilities, incomes and costs) reported in the financial statements and notes thereto. The respective unit of the Group is responsible for selection, application, development, and verification of adopted estimations; the assumptions are then subject to approval by the Group’s management. Estimations and assumptions applied to the presentation of value of assets, liabilities, revenues and costs, are made on basis of historical data available and other factors considered to be relevant in given circumstances. Applied assumptions related to the future and available data sources are the base for making estimations regarding carrying value of assets and liabilities, which cannot be determined explicitly on basis of other sources. The actual results may differ from those estimates. The conformity between actual results and adopted estimations and assumptions is verified on regular basis. Adjustments to estimates are recognized in the period when the estimation was changed, provided that the adjustment applies to this period alone, or in the period when the estimation was changed and in the following periods, should the adjustment impact both the current and future periods. The below-presented accounting principles have been applied to all reporting periods presented in the consolidated financial statements. All the entities subject to consolidation prepare their financial statements in accordance with the same accounting standards applied by the whole Capital Group which is IFRS as adopted by the EU, at the same balance sheet date.
The merger method is used to account for business combination in which the Group acts as an acquirer. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange excluding acquisition related costs such as advisory, legal, valuation and similar professional services.
21
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31 st December 2022
Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any non-controlling interests. The excess of the cost of acquisition over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill. If the cost of combination is lower than the Group’s interest in net fair value of identifiable assets, liabilities, contingent liabilities of the acquired subsidiary, the Group reassesses identification and measures again the identifiable assets, liabilities and contingent liabilities of the entity being acquired as well as measurement of the cost of the combination. Any surplus remaining after the reassessment is immediately recognised in the Profit and Loss Account.
Subsidiaries are those investees, including structured entities, that the Group controls because the Group (i) has power to direct relevant activities of the investees that significantly affect their returns, (ii) has exposure, or rights, to variable returns from its involvement with the investees, and (iii) has the ability to use its power over the investees to affect the amount of investor’s returns. The existence and effect of substantive rights, including substantive potential voting rights, are considered when assessing whether the Group has power over another entity. For a right to be substantive, the holder must have practical ability to exercise that right when decisions about the direction of the relevant activities of the investee need to be made. Subsidiaries are subject to consolidation from the date of taking over control by the Group until the date on which the parent ceases to control the subsidiary. Transactions, settlements and unrealized profits resulting from transactions among Group’s entities are eliminated. The unrealised losses are also subject to elimination, as long as the transaction does not provide evidence that the transferred asset is impaired.
Associates are any entities over which the Group has significant influence but do not control them, generally accompanying a shareholding between 20% and 50% of the voting rights. Investments in associates are initially accounted at purchase price and then accounted for by using the equity method. The Group’s investment in associates includes goodwill (net of any accumulated impairment loss) identified on acquisition. The share of the Group in the profits (losses) of associates since the date of acquisition is recognised in the profit and loss, whereas its share in changes in other reserves since the date of acquisition – in other reserves. The carrying amount of the investment is adjusted by the total changes of different items of equity after the date of their acquisition. When the share of the Group in the losses of an associate becomes equal or greater than the share of the Group in that associate, the Group discontinues the recognition of any further losses or creates provision only to such amount, it has assumed obligations or has settled payments on behalf of the respective associate. Any unrealised profits on transactions between the Group and its associates shall be eliminated in proportion to the Group’s shareholding in the associates. Also unrealised losses are subject to elimination, as long as the transaction does not deliver evidence that the transferred asset is impaired.
22
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31 st December 2022
The items contained in the consolidated financial statements of the Group are presented in the currency of their basic economic environment, in which a given entity operates (‘the functional currency’).# Consolidated Financial Statements
The consolidated financial statements are presented in Polish zlotys, being the functional currency and the presentation currency for the Bank – a parent company of the Group and for other companies of the Group.
Transactions expressed in foreign currency are translated into the functional currency by applying the exchange rate at the date of the transaction. Exchange rate profits and losses due to settlements of these transactions and to the balance sheet valuation of assets and monetary commitments expressed in foreign currency are accounted for in the profit and loss account. Exchange rate differences on monetary items, both those valued at fair value through the profit and loss account or valued at fair value through other comprehensive income are disclosed in the profit and loss account. Exchange rate differences on non-monetary items valued at fair value through the profit and loss, are accounted in the profit and loss account. Exchange rate differences due to items, such as equity instruments valued at fair value through other comprehensive income, are included in Other comprehensive income.
The preparation of financial statements in accordance with IFRS requires from the Group the use of estimates and assumptions that affect the amounts reported in the financial statements. The estimates and assumptions, revised by the Group management on a regular basis, are made on basis of historical experience and other factors, including expectations concerning future events, considered being relevant in given circumstances. Despite the fact, that such estimates are based on best knowledge about current conditions and activities undertaken by the Group, the actual results may differ from the estimates. The major areas for which the Group makes estimates are presented below:
Impairment estimation model within the Group has been based on the concept of “expected credit loss”, (hereinafter: ECL). In result impairment charges are calculated based on expected credit losses and forecasts of expected future economic conditions have to be taken into account when conducting evaluation of credit risk of an exposure. The methodology and assumptions adopted for determining credit impairments are regularly reviewed in order to reduce discrepancies between the estimated and actual losses. In order to assess the adequacy of the impairment determined both in individual analysis and collective analysis a historical verification (backtesting) is conducted from time to time (at least once a year), which results will be taken into account in order to improve the quality of the process.
23 This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version. Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31 st December 2022
Further details are presented in Chapter 8. “Financial Risk Management”.
Fair value of financial instruments not quoted on active markets is determined with use of measurement techniques consistent with the Group’s accounting policy. With respect to non-option derivatives and debt securities use is made of models based on discounted cash flows. Option pricing models are applied to option instruments. All models are approved prior to use and also calibrated to ensure that attained results reflect the actual fair value of the measured instruments. If possible, only observable data from the active market are used in the models. In case of lack of measurement parameters coming from the active market, fair value is determined on the basis of application of measurement techniques using estimated input parameters.
The Group measures financial instruments using the measurement methods below in the following hierarchical order:
In order to determine the fair value of VISA preferred shares, the time value of money and the time line for conversion of preferred stock in common stock of VISA were taken into account. To estimate the fair value of loans, due to the lack of availability of the market value, an internal valuation model was used, taking into account the assumption that at the time of granting the loan the fair value is equal to transaction price. The fair value of loans without recognized impairment is equal to the sum of future expected cash flows discounted at the balance sheet date. The discounting rate is the sum of: the cost of risk, the cost of financing, the value of the expected return. The fair value of impaired loans is equal to the sum of future expected recoveries discounted using the effective interest rate, recognizing that the average expected recoveries fully take into account the element of credit risk. For derivative financial instruments valuation the Group applies the component of credit risk taking into account both: counterparty risk (credit value adjustment – CVA) and own Group’s risk (debit value adjustment - DVA). The Group assesses that unobservable inputs related to applying this component used for fair value measurement are not significant.
24 This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version. Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31 st December 2022
The Group assesses the existence of any indications that a non-current asset may be impaired at each balance sheet date. If such indications exist, the Group performs an estimation of recoverable amount. Estimation of value-in-use of a non-current asset (or cash generating units) requires assumptions to be adopted, regarding, among others, amounts and timing of future cash flows, which the Group may obtain from the given non-current asset (or cash generating unit). The Group performs an estimation of the fair value less costs to sell on the basis of available market data regarding this subject or estimations made by external parties.
A detailed description of the adopted valuation methodology is presented in Chapter 13 "Legal risk related to foreign currency mortgage loans".
The way the adjustment has been recognised is presented later in this Chapter.
Taking into consideration The Court of Justice of the European Union verdict, in which it stated that consumer has rights to demand the reduction of the total loan cost corresponding to interest and costs for the remaining term of the agreement in case of early repayment of loan, Bank creates a provision for potential returns to the clients. The provision is estimated based on the maximum amount of potential returns and the probability of payment being made.
Retirement provision is calculated using an actuarial method by an independent actuary as the present value of future liabilities of the Group due to employees based on headcount and remuneration as of the date of the update. The estimation of the provision is made on the basis of several assumptions, regarding macroeconomic conditions and employee turnover, mortality risk and other. With regard to employee benefits, such as bonuses granted to directors and key management personnel, bonuses for employees, the Management Board makes assumptions and estimates regarding the amount of benefits as at the balance sheet date. The final amount of bonuses granted is established by Personnel Committee of the Management Board or Personnel Committee of the Supervisory Board.
In accordance with the IFRS 9 requirements financial assets are classified at the moment of their initial recognition (and the date of IFRS implementation) into one of three categories:
The classification of financial instruments into one of the above categories is performed based on:
25 This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version. Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31 st December 2022
In accordance with IFRS 9 the manner of assets management may be assigned to the following models: 1) Held To Collect (herein from „HTC”), 2) Both Held to Collect and for Sale (herein from “HTC&FS”), 3) Other models, e.g. trading activity, management of assets based on fair value fluctuations, maximising cash flows through sales.
Model characteristics:
1) The objective of the model is to hold financial assets in order to collect their contractual cash flows,
2) Sales are infrequent,
3) In principle, lower levels of sales compared to other models (in terms of frequency and volume).
Conditions allowing sale in the HTC model:
1) Low frequency,
2) Low volume,
3) Sale connected with credit risk (sale caused by the deterioration of the credit quality of a given financial asset to a level at which it no longer meets the investment policy requirements).
A sale having at least one of the above features does not preclude qualifying a group of assets in the HTC module.
Impact on classification and valuation:
Instruments assigned to the HTC model are classified as valued at amortised cost (AC) on condition that the criteria of the SPPI Test are met. The value of instruments is calculated based on effective interest rate which is applied to determine interest income and then adjusted for impairment allowances reflecting expected credit losses. Consequently, subject to valuation at amortised cost is the Group’s credit portfolio (except loans not meeting the SPPI test) and debt securities issued by local government units (municipal bonds portfolio), because these instruments in principle are held by the Group in order to collect contract cash flows, while sales transactions occur infrequently.
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version. Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31st December 2022
Model characteristics:
1) The integral objectives of the business model are both to collect contractual cash flows and sell assets (in particular the model meets the assumptions of HTC&FS, if its objective is to manage everyday liquidity needs, maintain an adopted interest yield profile and/or match the duration of the financial assets and liabilities),
2) The levels of sales are usually higher than in the HTC model.
Impact on classification and valuation:
In accordance with IFRS 9 instruments assigned to the HTC&FS model are classified as valued at fair value through other comprehensive income (FVTOCI) on condition that the contractual terms of these instruments trigger at particular moments cash flows constituting solely a payment of principal and interest on such principal (the SPPI test is met). These instruments are measured at fair value net of impairment allowances, the fair value result is recognised in other comprehensive income until financial assets is derecognised. The HTC&FS model is applied mainly to the portfolio of debt government securities and money bills of the National Bank of Poland in particular the liquidity and investment portfolio.
Equity instruments (with the exception of related entities) are classified as valued at fair value through profit & loss (FVTPL), provided that entities which manage them do not intend to hold them as a strategic investment, or at fair value through other comprehensive income (FVTOCI) for instruments which are not held for trading purposes. The decision to use the option to value capital instruments at fair value through other comprehensive income is taken by the Group on the day of the initial recognition of the instrument and constitute an irrevocable designation (even at the moment of selling, the profit/loss on the transaction shall not be recognised in the Profit and Loss Account).
Model characteristics:
1) The business model does not meet the assumptions of the HTC and HTC&FS models.
2) The collecting of cash flows on interest and principal is not the main objective of the business model (the SPPI test is not satisfied),
This category should include in particular:
1) Portfolios managed in order to collect cash flows from the sale of assets, in particular „held for trading”,
2) Portfolios whose management results are evaluated at fair value.
A financial asset should be considered as held for trading, if:
1) It was purchased mainly for the purpose of selling in a very short term,
2) At the moment of initial recognition it is part of a portfolio of financial instruments managed jointly for which there is evidence confirming a regularity that they have recently actually generated short-term profits, or
3) Is a derivative instrument, with the exclusion of derivative instruments included in hedge accounting and being effective hedging instruments.
The term „trading” means active and frequent purchases and sales of instruments. However, these features do not constitute a necessary condition in order to classify a financial instrument as held for trading.
Impact on classification and valuation:
Financial assets kept under models other than HTC or HTC&FS are valued at fair value through profit & loss (FVTPL).
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version. Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31st December 2022
A business model other than HTC or HTC&FS shall apply to portfolios of the following financial assets:
1) Derivative instruments,
2) Debt securities held for trading,
3) Capital instruments not appointed to be a strategic investment
4) Financial assets irrevocably designated at initial recognition to be valued at fair value through profit & loss (even in case the asset does not meet criteria to be FVTPL) in order to eliminate or significantly mitigate accounting mismatch if would appear in case such designation is not made.
The evaluation of the fulfilment of the SPPI Test is carried out in the following cases:
▪ granting a debt instrument;
▪ purchase of debt instrument;
▪ renegotiation of contractual terms.
The subject of the SPPI Test are the contractual terms of debt instruments recognised in the balance sheet, whereas the off-balance sheet products are not analysed. The SPPI test is carried out at the design stage of the product/loan agreement, which allows making approvals with taking into account the future method of exposure valuation. As part of the SPPI Test, the impact of the modified element on the cash flows resulting from the concluded contract is assessed. Contract characteristics introducing volatility or cash flow risk not directly related to interest and capital interest payments may be assessed as having no impact on the classification (fulfilment of SPPI criteria) if they are defined as having negligible classification impact (existence of a "de minimis" characteristic) or such impact is not negligible (no "de minimis" character) but can only occur in extremely rare cases (existence of the "not genuine" attribute). In cases where there is a modification of the time value of money, e.g. in case where a period of interest rate mismatch with the base rate tenor, in order to verify the fulfilment of the SPPI Test, the Group performs an assessment based on the Benchmark Test, i.e. a comparison of the instrument resulting from the contract with the base instrument (which has the same contractual features as the instrument under analysis, with the exception of the time value of money element). Non-recourse assets (products for which the Group's claim is limited to certain debtor's assets or cash flows from specific assets), in particular "project finance" and "object finance" products (products in which the borrower, most often a special purpose vehicle is characterized by the minimum level of equity, and the only component of its assets is the credited asset), are assessed by comparing the value of the collateral in relation to the principal amount of the loan. Identification of the appropriate buffer to cover the risk of changes in the value of the collateral satisfies the SPPI Test conditions. The negative result of the SPPI Test implies the valuation of the debt instrument at FVTPL, causing a departure from the valuation at amortized cost or FVTOCI.# Modifications to the terms of the loan agreement
Modifications to the terms of the loan agreement during the loan period include:
▪ changing the dates of repayment of all or part of the receivables,
▪ changes in the amount of the repayment instalments,
▪ changing the interest or stop charging interest,
▪ capitalization of arrears or current interest,
▪ currency conversion (unless such a possibility results from the original contract),
▪ establishing, amending or abolishing the existing security for receivables.
Any mentioned above modification may result in the need to exclude from the balance sheet and re-classify the financial asset taking into account the SPPI test.
28
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31 st December 2022
If the contractual terms of the loan are modified, the Group performs a qualitative and quantitative assessment to determine whether a given modification should be considered significant and, consequently, derecognize the original financial asset from the balance sheet and recognize it as a new (modified) asset at fair value. A significant modification takes place if the following conditions are met:
▪ quantitative criteria:
- increase in the debtor's exposure, understood as an increase in the capital of each single credit exposure above 10% compared to the capital before the increase. If the quantitative criterion exceeds 10%, the modification is considered significant, while the occurrence of the quantitative criterion up to 10% results in the modification being considered insignificant.
- extending the financing period, understood as extending the maturity date of the current agreement. The modification is considered significant if the financing period is extended by:
* 8 years for mortgage loans,
* 5 years for other credit exposures in the retail segment,
* 3 years for exposures in the corporate segment.
▪ qualitative criteria:
* conversion of the exposure to another currency (unless the possibility of conversion was included in the original agreement),
* change of SPPI test result,
* change of debtor,
* change of legal form or type of financial instrument.
The occurrence of a qualitative criterion results in recognizing the modification as significant.
If the cash flows resulting from the agreement are subject to modification, which does not lead to derecognition of a given asset (so called “insignificant modification”), the Group adjusts the gross carrying amount of the financial asset and recognizes the profit or loss due to insignificant modification in the financial result (in a separate item of the Loss Profit Statement - "result on modification"). The adjustment of the gross carrying amount of a financial asset is the difference between the discounted cash flows before and after the contract modification. All costs and fees incurred adjust the carrying amount of the modified financial asset and are depreciated in the period remaining until the maturity date of the modified financial asset.
Following the signing by the President of the Republic of Poland and announcement in the Journal of Laws of the Republic of Poland on the same day of the Act of 7 July 2022 on crowdfunding for business ventures and assistance to borrowers (‘the Act’), introducing, among others, a possibility of up to 8 months of credit holidays in 2022-2023 (‘credit holidays’) for PLN mortgage borrowers, the Group recognized a one-off cost in the third quarter in the amount of PLN 1,422.9 million (of which PLN 1,384.6 million related to the Bank, while the costs of PLN 38.3 million were charged to Millennium Bank Hipoteczny S.A.). The adjustment was calculated and recognized in accordance with IFRS 9, reducing interest income on assets measured at amortized cost and, on the other hand, the gross value of mortgage loans in PLN. The amount of the adjustment was originally calculated as the difference between the gross value of the loan portfolio as at the calculation date and the current value of estimated cash flows under loan agreements, taking into account 80% of loan principals that will suspend the repayment instalment. As a result of the analysis of customer behaviour carried out in December 2022, the Group adjusted the estimates of the percentage of loan principals that will suspend repayment instalments to 68%. As a result of the above and the currently expected costs, the value of the adjustment recognized as a reduction of the Group's interest income in 2022 was reduced to PLN 1,324.2 million. (out of this amount, PLN 1,291.6 million related to the Bank, while costs in the amount of PLN 32.6 million were charged to Millennium Bank Hipoteczny S.A.).
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Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31 st December 2022
POCI assets ("purchased or originated credit-impaired") are financial assets that, upon initial recognition, have an identified impairment. Financial assets that were classified as POCI at the time of initial recognition are treated by the Group as POCI in all subsequent periods until they are derecognized from balance sheet, and expected credit loss is estimated based on ECL covering remaining life time of the financial asset, regardless of future changes in estimates of cash flows generated by them (possible improvement of assets quality). POCI assets can be created in 3 different ways, i.e.:
1) through the acquisition of a contract that meets the definition of POCI (e.g. as a result of the purchase of the "bad credit" portfolio),
2) by entering into a contract that is POCI at the time of original granting (e.g. granting a loan to a client in bad financial condition with the hope of improving it in the future),
3) through a significant modification of the contract included in stage 3 leading to derecognition of the contract from the balance sheet, and then to its further recognition in the balance sheet as a contract meeting the definition of POCI.
The Group is a party to lease contracts, on the basis of which it grants for paid use or benefit of non- current assets or intangible assets for an agreed period of time. In the case of lease contracts, which result in transferring substantially all risks and rewards incidental to ownership of the asset under lease, the subject of the lease is derecognized. A receivable amount is recognized instead, however, in an amount equal to the present value of minimum lease payments. Lease payments are accounted for (apportioned between the financial income and the reduction of the balance of receivables) to reach constant periodic rate of return from the outstanding receivables. Lease payments for contracts, which do not fulfil qualifications of a finance lease, are recognized as income in the profit and loss, using the straight-line method, throughout the period of the lease.
The Group is also a party to lease contracts, under which it takes for paid use or drawing benefits another party’s non-current assets or intangible assets for an agreed period. These are mainly rental agreements. In case of these contracts the financial report shows, both assets under the right of use and liabilities under the lease, in separate items of the explanatory notes to the lines “Tangible fixed assets” and “Other liabilities” respectively.
On the start date of the lease, lease payments contained in the valuation of the lease liability shall comprise following payments for the right to use the underlying asset during the lease period, which remain due on that date:
• fixed lease payments less any and all due lease incentives,
• variable lease payments, which depend on the index or rate, initially valuated with use of this index or this rate in accordance with their value on start date,
• amounts expected to be paid by the lessee under the guaranteed final value,
• the buy option strike price if it can be assumed with sufficient certainty that the lessee will exercise this option,
• monetary penalties for lease termination if the lease terms and conditions stipulated that the lessee may exercise the lease termination option.
A right to use asset comprises:
• amount of initial valuation of the lease liability,
• any and all lease payments paid on the start date or before it, less any and all lease incentives received.
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Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31 st December 2022
Financial result reflects following items:
• depreciation of right to use,
• interest on lease liabilities,
• VAT on rent invoices reported in cost of rent.
The Group has adopted the following assumptions, based on which lease agreements are carried in financial statements:
• calculation of liabilities and assets will use net values (VAT is excluded) of future cash flows,
• in case of agreements denominated in currency the liabilities will be carried in the original currency of the contract while assets in Polish zloty converted at the rate from date of signing the contract or an annex to the contract, which is also the day when the leasing starts,
• the right to use the asset will be depreciated according to the lease period,
• the Group uses the option of not recognizing leasing in the case of short-term contracts for space lease,
• the Group also uses the option of not recognizing leasing in the case of leasing assets with a low initial value, such as renting small areas, e.g.# Financial Liabilities
Upon initial recognition a financial liability shall be classified as:
1) a financial liability measured at fair value through profit loss, or
2) other financial liability (measured at AC).
Additionally, financial liabilities shall not be reclassified subsequent to their initial recognition.
The Group recognizes financial assets or liabilities on the balance sheet, when it becomes a party to the contractual provisions of the instrument. Standardized purchase and sale transactions of financial assets are recognized at the trade date. All financial instruments at their initial recognition are valued at fair value adjusted, in the case of a financial instrument not valued at fair value through profit or loss, by transaction costs that are directly attributable to the acquisition or issue of the financial asset/liability.
The Group derecognizes a financial asset when:
* the contractual rights to the cash flows from the financial asset expire, or
* the Group transfers the financial asset to third party.
The transfer takes place when the Group:
* transfers the contractual right to receive the cash flows from the financial asset, or
* retains the contractual rights to receive the cash flows from the financial asset, but assumes a contractual obligation to pay those cash flows to an entity from outside the Group.
On transferring a financial asset, the Group evaluates the extent to which it retains the risks and rewards of ownership of the financial asset. Accordingly, where the Group:
* transfers substantially all the risks and rewards of ownership of the financial asset, it derecognises the financial asset from the balance sheet,
* retains substantially all the risks and rewards of ownership of the financial asset, it continues to recognise the financial asset in the balance sheet,
* neither transfers nor retains substantially all the risks and rewards of ownership of the financial asset, it determines whether it has retained control of the financial asset. In this case if the Group has retained control, it continues to recognise the financial asset in the balance sheet to the extent of its continuing involvement in the financial asset, and if the Group has not retained control, it derecognises the financial asset accordingly.
The Group removes a financial liability (or a part of a financial liability) from its balance sheet when the obligation specified in the contract is discharged or cancelled or expired.
Derivative instruments are reported at fair value starting from the day of conclusion of the transaction. Fair value is determined on the basis of quotations of instruments on active markets, including pricing of recently concluded transactions. A market is considered as active when the quoted instrument prices are regularly available and result from actual transactions on the market and represent a level, at which the Group could conclude such transactions.
If the market for the instruments is not active the Group determines fair value with use of measurement techniques, including models based on discounted cash flows and options measurement models. The measurement techniques used by the Group are based on maximum use of input data coming from the active market, such as interest rates, FX rates and implied volatilities. In case of lack of input data from the active market the Group makes use in the measurement techniques of proprietary estimates of measurement parameters, based on best knowledge and experience.
An additional element of the valuation of derivatives is a component of credit risk including both the risk of the counterparty (credit value adjustment - CVA) and own Group’s risk (debit value adjustment - DVA).
The Group distinguishes and records in the balance sheet the derivatives which are a component of hybrid instruments. A hybrid agreement contains an underlying (host) contract (not being a derivative) and an embedded derivative which on the basis of a specific interest rate, price of financial instrument, price of a commodity, rate of a currency, index of prices or rates or another variable modifies part or the total of the cash flows resulting from the underlying contract. Embedded derivative instruments are treated as stand-alone derivative instruments provided they meet conditions presented below.
Embedded derivative instruments are valued at fair value, and their changes are recognized in the profit and loss. Embedded derivative instruments are recognized and valued separately from the host contract if, and only if:
* the economic characteristics and risks of the embedded derivative are not closely related to the economic characteristics and risks of the host contract,
* a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative; and
* the hybrid (combined) financial instrument is not measured at fair value with changes in fair value recognized in profit or loss.
The method of recognizing the resulting fair value gain or loss depends on whether the given derivative instrument is designated as a hedging instrument, and if it is, it also depends on the nature of the hedging relationship and the hedged item.
The Group uses derivative instruments in order to hedge against interest rate risk and FX risk arising from operating, financing and investing activities of the Group. Some derivative instruments are designated as a hedging instrument of:
* cash flows hedges of recognized asset or liability or highly probable forecasted transaction (cash flow hedges), or
* fair value hedges of recognized asset or liability or firm commitment (fair value hedges).
The Group uses hedge accounting, if the following conditions are met:
* At the inception of the hedge there is formal designation and documentation of the hedging relationship and the Group's risk management objective and strategy for undertaking the hedge. That documentation includes identification of the hedging instrument, the hedged item or transaction, the nature of the risk being hedged. It documents also, at the inception of the hedge and through the period of hedge relationship, the assessment of the hedging instrument's effectiveness in offsetting the exposure to changes in fair value or cash flows of the hedged item.
* The hedge is expected to be highly effective in achieving offsetting changes in fair value or cash flows attributable to the hedged risk, consistently with the originally documented risk management strategy for that particular hedging relationship (prospective effectiveness test);
* For cash flow hedges, a forecast transaction that is the subject of the hedge must be highly probable and must present an exposure to variations in cash flows that could ultimately affect profit or loss (high probability test);
* The effectiveness of the hedge can be reliably measured, i.e. the fair value or cash flows of the hedged item that are attributable to the hedged risk and the fair value of the hedging instrument can be reliably measured;
* The hedge is assessed on an ongoing basis and determined actually to have been highly effective throughout the financial reporting periods for which the hedge was designated (backward-looking effectiveness test).
Cash flow hedge: a hedge of the exposure to variability in cash flows that (i) is attributable to a particular risk associated with a recognised asset or liability (such as all or some future interest payments on variable rate debt) or a highly probable forecast transaction and (ii) could affect profit or loss.
A cash flow hedge is accounted for as follows:
* the portion of the gain or loss on the hedging instrument that is determined to be an effective hedge is recognised in equity through the other comprehensive income; and
* the ineffective portion of the gain or loss on the hedging instrument is recognised in Result on financial instruments valued at fair value through profit and loss.
The associated gains or losses that were recognised in other comprehensive income (effective hedge), at the moment of recognition of a financial asset and liability being a result of planned hedged future transaction, are transferred into profit or loss in the same period or periods during which the asset acquired or liability assumed affects the profit or loss.## Fair value hedge
A hedge of the exposure to changes in fair value of a recognised asset or liability or an unrecognised firm commitment, or an identified portion of such an asset, liability or firm commitment, that is attributable to a particular risk and could affect the profit or loss.
Changes in the fair value of derivative instruments classified and eligible as fair value hedges are recognised in the Profit and Loss along with their corresponding changes of the hedged asset or liability relating to the risk hedged by the Group. It means that any gains or losses resulting from re-measuring the hedging instrument at fair value (for a derivative hedging instrument) are recognised in profit or loss and the gains or losses on the hedged item attributable to the hedged risk adjust the carrying amount of the hedged item and are recognised in profit or loss. This applies if the hedged item is otherwise measured at cost. Recognition of the gain or loss attributable to the hedged risk in profit or loss applies if the hedged item is an FVOCI asset. The valuation of hedged financial assets classified as FVOCI, resulting from factors other than risk hedged, is recognized in other comprehensive income till the date of sale or maturity of this financial asset.
If the fair value hedge no longer meets the criteria for applying hedge accounting, the carrying value adjustment of the hedged instrument valued at amortized cost and effective interest rate, is linearly amortized through profit and loss account over the period ending on the maturity date. The value of hedged financial assets classified as FVOCI resulting from factors other than hedged risks is recognized in the revaluation reserve till the date of sale or maturity of this financial asset.
If the cash flow hedge no longer meets the criteria for hedge accounting, the valuation of hedging instrument recognized in other comprehensive income at the date of the last effectiveness test remains in equity until the realization of cash flow resulting from the hedged item. Then the amount is transferred into profit and loss account in the periods, in which the hedged transaction influences the profit and loss account.
Derivative instruments that are not subject to hedge accounting principles are classified as instruments held for trading, and valued at fair value. The changes in fair value of derivative instruments held for trading are recognized in the profit and loss in item ‘Results on financial assets and liabilities held for trading’/‘Result on exchange differences’, which was described below.
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Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31st December 2022
The Group uses the following principles of recognition of gains and losses resulting from the valuation of derivative instruments:
FX forward
Forward transactions are valued at fair value on discounted future cash flows basis, taking into account the credit risk of the counterparty (and the Group) as long as there is non-performance risk of the transaction parties with respect to future settlement of the deal. Any changes in fair value of FX forward transactions are recorded in ‘Result on exchange differences’ of the Profit and Loss Account. Moreover the Group designated selected FX forward transactions as hedging instruments. The method of capturing and valuating hedging financial instruments was described in the part on hedge accounting.
FX SWAP
FX SWAP transactions are measured at fair value based on the discounted future cash-flow method with use of interest rate curves based on spread reflecting current market conditions and with taking into account the credit risk of the counterparty (and the Group) as long as there is non-performance risk of the transaction parties with respect to future settlement of the deal. Changes of fair value of FX SWAP transactions are reported in ‘Results on financial assets and liabilities held for trading’ in the Profit and Loss Account.
Interest Rate SWAP (IRS)
IRS transactions are valued at fair value on discounted future cash flows basis, taking into account the credit risk of the counterparty (and the Group) as long as there is non-performance risk of the transaction parties with respect to future settlement of the deal. Any changes in fair value of IRS transactions are recorded in ‘Results on financial assets and liabilities held for trading’ of the Profit and Loss Account. Moreover the Group designated selected IRS transactions as hedging instruments. The method of capturing and valuating hedging financial instruments was described in the part on hedge accounting.
Cross – Currency Swap (CCS)
CCS transactions are measured at fair value based on the discounted future cash-flows method with use of interest rate curves adjusted with market spread reflecting its term structure and with taking into account the credit risk of the counterparty (and the Group) as long as there is non-performance risk of the transaction parties with respect to future settlement of the deal. Changes of fair value of CCS transactions are reported in ‘Results on financial assets and liabilities held for trading’. Moreover the Group designated selected CCS transactions as hedging instruments. The method of recognition and measurement of hedging instruments was described in the part devoted to hedge accounting.
IRS transactions with embedded options
The transactions are valued at fair value: the swap component is valued with use of the future cash flows discounting method taking into account the credit risk of the counterparty (and the Group) as long as there is non-performance risk of the transaction parties with respect to future settlement of the deal, while the option component is valued with use of the option valuation models. Any changes in fair value of the above transactions are recorded in ‘Results on financial assets and liabilities held for trading’ of the Profit and Loss Account. The option component hedges options embedded in securities or deposits offered by the Group.
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Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31st December 2022
FX and Index options
Option transactions are measured at fair value with use of option measurement models. In case of options issued by the Group’s counterparties, the model measurement is supplemented with impact on fair value of the estimated credit risk parameter. Changes of fair value of options are reported in ‘Results on financial assets and liabilities held for trading’ line of the Profit and Loss Account.
Forward Rate Agreement (FRA)
FRA transactions are valued at fair value on discounted future cash flows basis and with taking into account the credit risk of the counterparty (and the Group) as long as there is non-performance risk of the transaction parties with respect to future settlement of the deal. Any changes in fair value of FRA transactions are recorded in ‘Results on financial assets and liabilities held for trading’ of the Profit and Loss Account.
Commodity futures
Commodity futures are measured at fair value based on the discounted future cash flow methodology, using reference prices set at the LME reference market (London Metal Exchange), whereas the Group does not keep own positions on the commodity market. Changes of fair value are reported in ‘Results on financial assets and liabilities held for trading’ of the Profit and Loss Account.
Commodity options
Commodity options are measured at fair value with use of option valuation models as well as reference prices set at the LME reference market (London Metal Exchange), whereas the Group does not keep own positions on the commodity market. Changes of fair value are reported in ‘Results on financial assets and liabilities held for trading’ of the Profit and Loss Account.
Since 1 January 2018, impairment estimation model has been based on the concept of “expected credit loss”, (hereinafter: ECL). As a direct result of this change, impairment charges now have to be calculated based on expected credit losses and forecasts and expected future economic conditions have to be taken into account when conducting evaluation of credit risk of an exposure. The implemented impairment model applies to financial assets classified in accordance with IFRS 9 as financial assets measured at amortized cost or at fair value through other comprehensive income, (except for equity instruments) and for off balance liabilities.According to IFRS 9, credit exposures are classified in the following categories:
In the case of exposures classified as POCI (purchased or originated credit impaired) which, upon their initial recognition in the balance sheet, are recognized as impaired, expected credit loss is estimated based on ECL covering the remaining life time of the financial asset.
36 This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version. Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31st December 2022
Assets, for which there has been identified a significant increase in credit risk compared to the initial recognition in the balance sheet, are classified in Stage 2. The significant increase in credit risk is recognized based on qualitative and quantitative criteria. The qualitative criteria include:
The quantitative criterion involves a comparison of the lifetime PD value determined on initial recognition of an exposure in the balance sheet, with the lifetime PD value determined at the current reporting date. If an empirically determined threshold of the relative change in the lifetime PD value is exceeded then an exposure is automatically transferred to Stage 2. The quantitative assessment does not cover exposures analyzed individually.
In the process of calculation of expected credit losses, the Group uses forward looking information about macroeconomic events. The Macroeconomic Analysis Office prepares three macroeconomic scenarios (base, optimistic and pessimistic) and determines the probability of their occurrence. The forecasts translate directly or indirectly into the values of estimated parameters and exposures.
Since the implementation of IFRS 9, the Group has adopted an uniform definition of default, both for the purpose of calculation of capital requirements and for the estimation of impairment. Starting from 2020, for the retail portfolio, the Group uses the definition of default, which is in line with the EBA Guidelines (EBA/GL/2016/07), the so-called New Definition of Default. Unified Default definition includes following triggers:
Bank is using cross-default approach for all segments.
The PD model, created for the calculation of expected credit losses, is based on empirical data concerning 12-month default rates, which are then used to estimate lifetime PD values (including FLI) using appropriate statistical and econometric methods. The segmentation adopted for this purpose at the customer level is consistent with the segmentation used for capital requirement calculation purposes. Additionally, the Bank has been using rating information from internal rating models to calculate PDs.
The LGD models for the retail portfolio used by the Bank in the capital calculation process were adjusted to IFRS 9 requirements in the area of estimating impairment. The main components of these models are the probability of cure and the recovery rate estimated on the basis of discounted cash flows. The necessary adaptations to IFRS 9 include, among other things, exclusion of the conservatism buffer, indirect costs, adjustments for economic slowdown. In addition, adjustments have been made to reflect the current economic situation and to utilize forward looking information on macroeconomic events.
37 This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version. Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31st December 2022
For the corporate portfolio, LGD model is based on a component determining parameterized recovery for the key types of collateral and a component determining the recovery rate for the unsecured part. All the parameters were calculated on the basis of historical data, including discounted cash flows achieved by the corporate debt recovery unit.
The EaD model used in the Group includes calculation of parameters such as: average limit utilization (LU), credit conversion factor (CCF), prepayment ratio, behavioural life expectancy. Segmentation is based on the type of customer (retail, corporate, leasing) and product (products with/without a schedule). Forecasts of foreign exchange rates are used as FLI adjustment.
The Group directly reduces the gross carrying amount of a financial asset if there are no reasonable grounds to recover a given financial asset in whole or partially. As a result of write-off, a financial asset component ceases, in whole or partially, to be recognized in the financial statements.
Financial assets and financial liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously.
Repo and sell-buy back transactions as well as reverse-repo and buy-sell-back transactions, are transactions of sale and purchase of securities for which a commitment has been made to repurchase or resell them at a contractual date and for specified contractual price. The Group presents financial assets sold with the repurchase clauses (repo, sell buy-back) in its balance sheet, by simultaneously recognizing a financial liability resulting from the repurchase clause, provided that risks and rewards relating to this asset are retained by the Group after the transfer. When the Group purchases securities with a sell back clause (reverse repo, buy-sell-back), the financial assets are presented as receivables arising from sell back clause. Transactions with repurchase/resell agreement are measured at amortized cost. Securities, which are the subjects of transactions with repurchase clause, are not removed from the balance sheet and are measured in accordance with principles applicable for particular securities portfolio. The difference between sale and repurchase price is treated as interest cost/income, and is accrued over the period of the agreement by application of an effective interest rate.
Tangible fixed assets are the controlled fixed assets and outlays made to build such assets. Tangible fixed assets include fixed assets with an expected period of use above one year, maintained to be used to serve the Group’s needs or to be transferred to other entities, based on the lease contract or for administrative purposes. Tangible fixed assets are reported at historical cost less depreciation and impairment.
38 This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version. Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31st December 2022
Fixed assets under construction are disclosed at purchase price or production costs and are not subject to depreciation. The Group recognizes as a part of the asset’s carrying value, the replacement costs as incurred, only when it is probable that future economic benefits associated with these items will flow to the Group, and the cost of the item can be reliably measured. Other outlays are recognised in profit and loss. Costs of repairs and maintenance of property, plant and equipment are charged to the profit and loss in the reporting period in which they were incurred.
An intangible asset is an identifiable non-pecuniary asset which does not have physical form and will generate economic benefits for the Group in the future. The main components of intangible assets are licenses for computer software. Purchased computer software licences are capitalised in the amount of costs incurred for the purchase and adaptation for use of specific computer software. Expenses attached to the development or maintenance of computer software is expensed when incurred. Other intangibles purchased by the Group are recognized at cost less accumulated amortization and accumulated impairment allowances. Subsequent costs incurred after initial recognition of acquired intangible assets are recognized only when it is probable that future economic benefits will flow to the Group. In the other cases, costs are charged to the profit and loss in the reporting period in which they were incurred.All intangible assets are subject to periodic review in order to verify whether there were triggers indicating possible loss of values, which would require a test for the loss of values and an impairment recognition. Depreciation and amortization charges The depreciation charge of tangible and intangible assets is accounted for on a straight line basis with the use of defined depreciation rates throughout the period of their useful lives. The depreciable amount is the cost of an asset, or other amount substituted for cost, less its residual value. The useful life, amortization/ depreciation rates and residual values of tangible and intangible assets are reviewed annually. Conclusions of the review may lead to a change of depreciation periods recognized prospectively from the date of application. Land, an intangible asset with an unspecified useful life, outlays for tangible assets and intangible assets are not depreciated. At each balance sheet date intangible assets with indefinite useful life are regularly tested for impairment. The following depreciation rates are applied to basic categories of tangible and intangible assets and for investment property:
Selected categories of property, plant and equipment:
* Bank buildings: 2.5%
* Lease holding improvements: usually for 10 years
* Computer hardware: 20%
* Network devices: 20%
* Vehicles as standard: 25%
* Telecommunication equipment: 10%
* Intangibles (software): expected useful life
* Main applications (systems): expected useful life
Depreciation and amortization charges are recognized as operating expenses in the profit and loss account.
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Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31 st December 2022
The Group classifies a non-current asset as held for sale, if its carrying amount will be recovered principally through a sale transaction rather than through continuing use. For this to be the case the asset is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets and its sale is highly probable. The sale is highly probable if the appropriate level of management is committed to a plan to sell the asset (or disposal group), and an active programme to locate a buyer and complete the plan has been initiated. Further, the asset is actively marketed for sale at a price that is reasonable in relation to its current fair value. In addition, the sale is expected to qualify for recognition as a completed sale within one year from the date of classification.
Non- current assets held for sale are measured at the lower of:
* its carrying amount or
* fair value less cost to sell.
Assets classified in this category are not depreciated.
When criteria for classification to non-current assets held for sale are not met, the Group ceases to classify the assets as held for sale and makes reclassification to other assets category. The Group measures a non-current asset that ceases to be classified as held for sale at the lower of:
▪ its carrying amount before the asset (or disposal group) was classified as held for sale, adjusted for any depreciation, amortisation or revaluations that would have been recognised had the asset (or disposal group) not been classified as held for sale, and
▪ its recoverable amount at the date of the subsequent decision not to sell.
The Group assesses the existence of any indications that a non-current asset may be impaired at each balance sheet date. If such indications exist, the Group estimates the recoverable amount of the asset and if the recoverable amount of an asset is less than its carrying amount, the Group recognizes impairment charge in the profit and loss. The impairment loss is the difference between the carrying amount and the recoverable amount of the asset. Recoverable amount is the higher of an asset’s fair value less cost to sell and its value in use. Value in use is established for particular assets, if a given asset generates cash flows substantially independent of those generated by other assets or groups of assets. If such indications exist, the Group performs an estimation of recoverable value. If, and only if, the recoverable value of an asset is less than its carrying amount, the carrying amount of the asset is reduced to its recoverable value. If pursuant to IAS 36, paragraph 21 there is no reason to believe that an asset’s value in use materially exceeds its fair value less costs to sell, the asset’s fair value less costs to sell may be used as its recoverable amount. This will be particularly the case of an asset that is held for disposal. An impairment loss can be reversed only to the amount, where the book value of impaired asset does not exceed its book value, which decreased by depreciation charge, would be established, if any impairment loss would not be recognized.
Prepayments comprise of particular expenses which will be settled against the profit and loss as being accrued over the future reporting periods. Prepayments are presented in the caption ‘Other assets’ in the balance sheet.
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Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31 st December 2022
Accruals are liabilities for costs arising from services provided to the Group, which will be payable over future periods. The accruals are recognized in the caption „Other Liabilities” in the balance sheet. Deferred income comprises among others received amounts of future services and other types of income received in advance to be settled against in the profit and loss in future reporting periods. They are presented in the caption „Other Liabilities’ in the balance sheet.
Provisions are established when (1) the Group has an obligation (legal or constructive) as a result of past events, and (2) it is probable (i.e. more likely than not) that an outflow of resources embodying economic benefits will be required to settle the obligation; and (3) a reliable estimate can be made of the amount of the obligation. If the effect is material, the amount of provision is measured by discounted, expected cash flows using pre-tax rate that reflects current market assessments of the time value of money and those risks specific to the liability. A provision for restructuring costs is recognised only when the general criteria for provisions recognition as well as specific criteria for restructuring provision recognition specified in IAS 37 are met. In particular, the constructive obligation to restructure arises only when the Group has a detailed formal plan for the restructuring and has raised a valid expectation in those affected that it would carry out the restructuring by starting to implement that plan or announcing its main features to those affected by it. A detailed formal plan for the restructuring identifies at least: the business or part of a business concerned; the principal locations affected; the location, function, and approximate number of employees who will be compensated for terminating their services; the expenditures that will be undertaken; and when the plan will be implemented. A restructuring provision includes only the direct expenditures arising from the restructuring, which are those that are both: (a) necessarily entailed by the restructuring; and (b) not associated with the ongoing activities of the entity. The restructuring provision does not cover future operating expenses.
Short-term employee benefits of the Group (other than termination benefits due wholly within 12 months after work is completed) comprises of wages, salaries, bonuses and paid annual leave and social security contributions. The Group recognizes the anticipated, undiscounted value of short-term employee benefits as an expense of an accounting period when an employee has rendered service (regardless of payment date) in correspondence with other on-balance liabilities. The amount of short-term employee benefits on the unused holidays to which Group employees are entitled is calculated as the sum of unused holidays to which particular Group employees are entitled.
The Group’s liabilities on long-term employee benefits are equal to the amount of future benefits, which the employee will receive in return for providing his services in the current and earlier periods, which are not fully due within 12 months from carrying out the work. In accordance with the Employees Remuneration By-laws and the Labour Code employees having worked a specific number of years and attained the required age are entitled to receive a pension severance payment.
41
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31 st December 2022
Retirement pension severance payments provision is calculated using an actuarial method by an independent actuary as the present value of the Group’s future liabilities due to employees according to the headcount and wages as at the date of revaluation. Valuation is done using the projected unit credit method. Under this method, each period of service gives power to an additional unit of benefit entitlement and each unit of benefit is calculated separately. Computation takes into account that the base salary of each employee will vary over time according to certain assumptions. The provision is updated on an annual basis.The parameters that have a significant impact on the amount of current liabilities are: the rate of mobility (rotation), the discount rate, the rate of wage growth. The nominal discount rate for the calculation for 2022 has been set at 7.33%. The calculation of the commitments is made for employees currently employed and do not apply to persons who will start working in the future. In 2012, the Group implemented a policy specifying the principles of remuneration for persons having a material impact on the risk profile of Bank Millennium Group, as amended, in accordance with the requirements described in Resolution of the Polish Financial Supervision Authority No. 258/2011, and then the Regulation of the Minister of Development and Finance of March 6, 2017 on the risk management system and the internal control system, remuneration policy and the detailed method of internal capital estimation in banks. In accordance with the policy, employees of the Group having a significant impact on the Group's risk profile receive variable remuneration, part of which is paid in the form of financial instruments: the Bank's phantom shares in 2017-2018; Bank Millennium own shares: for 2019 and 2020. Commencing from 2019, by the decision of the General Meeting of Bank’s Shareholders of August 27, 2019, the Group introduced an incentive program to remuneration entitled persons previously identified as having a significant impact on the risk profile (Risk Taker). Under this framework, the Own Shares acquired by the Company will be, in accordance with the applicable Risk Taker's remuneration policy, intended for free acquisition in the appropriate number by the indicated Risk Takers during the Program Term. Policy details are presented in Chapter 15, point 7). Provisions for short-term and long-term employee benefits are recognized in the caption ‘Other Liabilities’ in balance sheet in correspondence with the ‘staff costs’ in the profit and loss. The Group fulfils a programme of post – employment benefits called defined contribution plan. Under this plan the Group pays fixed contributions into the state pension fund. Post – employment benefits are paid to an employee from the proceeds of the fund including the return on the invested contributions. Consequently, the Group does not have a legal or constructive obligation to pay further contributions if the fund does not hold sufficient assets to pay all employee benefits relating to employee service.
Equity consists of capital and funds established in compliance with the respective provisions of the law, i.e., the appropriate legislative acts, the Company by-laws, or the Articles of Association. Equity is comprised of the share capital, share premium, revaluation reserve and retained earnings. All balances of capital and funds are presented at nominal value.
Share capital is presented at nominal value, in accordance with the Articles of Association and the entry in the Register of Companies. If the entity acquires its own shares, then the paid amount together with the costs directly attributed to such purchase is treated as a change in the Equity. Acquired own shares are treated as own shares and disclosed as reduction of the Equity until the time they are cancelled.
42 This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version. Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31 st December 2022
Dividends for the financial year, which have been approved by the General Shareholders’ Meeting, but not distributed as of the balance sheet day, are disclosed in the caption „Other Liabilities” in the balance sheet.
Share premium is formed from agio obtained from the issue of shares reduced by the attached direct costs incurred with that issue.
Accumulated other comprehensive income consists of: the valuation of financial assets measured at fair value through other comprehensive income, the result of cash flow hedge valuation and actuarial gains (losses) regarding provisions for retirement benefits with deferred income tax effect applied. Accumulated other comprehensive income is not subject to distribution.
Retained earnings are created with charges against profit and are allocated for purposes specified in the Articles of Association or other legal regulations (the remaining part of supplementary capital, additional reserve capital, including general banking risk fund) or constitute previous years’ profit/loss or year-to-date net financial result. The General Banking Risk Fund at Bank Millennium S.A. is created from profit after tax in accordance with the Banking Act dated 29 August 1997 as later amended. Net profit of the current year represents net profit adjusted by corporate income tax. Losses attributed to non-controlling interests and exceeding the value of equity attributed to them are charged to the Group’s equity.
A financial guarantee contract is a contract that requires the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due in accordance with the original or modified terms of a debt instrument. The financial guarantees granted are valued at the higher of the following values:
• amounts of write-offs for expected credit losses,
• the amount initially recognized less the cumulative amount of income recognized in accordance with IFRS 15.
Interest income includes interest on financial instruments measured at amortized cost and financial assets measured at fair value through other comprehensive income using the effective interest rate method. The effective interest rate method is a method of calculating the amortized cost of a financial asset or financial liability and the allocation of interest cost or interest income and certain commissions (constituting an integral part of the interest rate) to the relevant period. The effective interest rate is the rate that exactly discounts the estimated future cash flows (in the period until the financial instrument expires) up to the gross carrying amount of the asset / amortised cost of the liability.
43 This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version. Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31 st December 2022
When calculating the effective interest rate, the Group estimates cash flows considering all contractual terms of a given financial instrument, without taking into account possible future losses due to unpaid loans. This calculation includes all fees paid or received between parties to the contract, which are an integral part of the effective interest rate, and transaction costs and all other differences due to the premium or discount. Interest income includes interest and commissions (received or due) included in the calculation of the effective interest rate on: loans, interbank deposits and debt securities not classified into held for trading category. Interest income also includes costs directly related to the conclusion of a loan agreement borne by the Group (mainly commissions paid to external and own agents for concluding a mortgage agreement and related property valuation costs related to this type of contract) that are a component of the effective interest rate and are settled in time. Upon recognizing the impairment of a financial instrument measured at amortized cost and financial assets measured at fair value through other comprehensive income, interest income is recognized in the Profit and Loss Account but is calculated on the newly established carrying amount of the financial instrument (that is, less impairment). Interest income also includes net interest income on derivative instruments designated and being effective hedging instruments in hedge accounting (a detailed description of the existing hedging relationships is included in note (24)). Interest income and costs on derivatives classified as held for trading as well as interest income and the settlement of a discount or premium on debt financial instruments classified as held for trading are recognized under the item "Result of similar nature to interest from financial assets at fair value through profit and loss" of the Profit and Loss Account. This item also includes interest income arising from assets that are measured at fair value through profit and loss.
Interest costs include in particular interest resulting from financial instruments measured at amortized cost using the effective interest rate method described above.
Fee and commission income and expenses received from banking operations on client accounts, from operations on payment cards and brokerage activity is recognized in the profit and loss at the time the service is rendered; other fees and commissions are deferred and recognized as revenue over time. The basic types of commissions related to credit operations in the Group include among others: loan origination fees and commissions, and commitment fees. Fees and commissions (both income and expense) directly attributable to initial recognition of financial assets with established repayment schedules are recognized in profit and loss account as effective interest rate component and are part of interest income. Other, attributed to initial recognition of financial assets without established repayment schedules are amortized on a straight- line basis through the expected life of the financial instrument.# Fees and commissions
Fees and commissions on pledge to grant a loan, which is probable to be drawn, are deferred and since initial recognition of financial assets are amortized as component of effective interest rate or on a straight-line basis based on above mentioned criteria. In the case of loans and advances with undetermined instalment payments and changes in interest, e.g. overdraft facilities and credit cards commissions are settled over the duration of the card or overdraft limit by the straight-line method and included in commission income.
44 This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31 st December 2022
In connection with the Group's bancassurance activity (selling insurance services), based on the criterion how the income from aforementioned activity is recorded, two groups of products can be identified. The first group consists of insurance products without direct links with the financial instrument (for example: health insurance, personal accident insurance) - in this case the Group's remuneration is recognised as income after performance of a significant act, i.e. in a date of commencement or renewal of insurance policies, taking into account provisions for thinkable returns. In the second group (where there is a direct link to a financial instrument, particularly when the insurance product is offered to the customer only with credit product, i.e. there is not possibility to buy from the bank separately, without a credit product, the same insurance product in terms of form, legal and economic conditions) two sub-groups can be identified:
a) With respect to insurance connected with housing loans, in case of insurance premiums collected monthly (life insurance and property insurance) remuneration is applied to Profit and Loss Account upon remuneration receipt.
b) With respect to insurance associated with cash loans the Group allocate the total value of remuneration for combined transaction due to their respect for the individual elements of the transaction, after deducting by provision on the part of the remuneration to be reimbursed, for example as a result of the cancellation by the customer with insurance, prepayments or other titles. Provision estimate is based on an analysis of historical information about the real returns in the past and predictions as to the trend returns in the future. Allocation of remuneration referred to above is based on the methodology of ‘relative fair value’ involving division of the total remuneration pro rata to, respectively, fair value of remuneration with respect to financial instrument and fair value of intermediation service. Determination of the above fair values is based on market data including, in particular, for:
▪ Intermediation services – upon market approach involving the use of prices and other market data for similar market transactions,
▪ Remuneration relative to financial instrument – upon income approach based on conversion of future amounts into present value using information on interest rates and other charges applicable to identical or similar financial instruments offered separately from the insurance product.
Individual, separated elements of a given transaction or several transactions considered jointly are subject to the following income recognition principles:
▪ Fees charged by insurance agencies – partially including fee for performance of a significant act, recognised in revenue on the day of commencement or renewal of insurance policy.
▪ Fees/charges constituting an integral part of effective interest rate accruing on financial instrument – treated as adjustment of effective interest rate and recognised under interest income.
In 2022 Bank has reviewed the assumptions of the model applied for recognition of revenue from bancassurance. In consequence in the field of insurance of cash loans the part of revenue recognized on a one-off basis as commission for the execution of significant amounted to 7% (in 2021 it was also 7%)
As of 31 December 2022, with respect to insurance products linked with cash loans, the Bank estimated provisions against refunds of premiums, expressed as percentage ratio of refunds to the level of gross fees, at 53%.
45 This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31 st December 2022
Remaining fees and commissions connected with financial services offered by the Group, such as:
▪ Asset management services;
▪ Services connected with cash management;
▪ Brokerage services;
are recognised in the Profit and Loss Account on an one-off basis.
Dividend income is recognized in the profit and loss when the shareholders’ right to receive payment is established.
The result on derecognition of financial assets and liabilities not measured at fair value through profit or loss includes gains and losses arising from the sale of debt financial instruments classified to the portfolio measured at fair value through comprehensive income and other gains and losses resulting from investing activities.
The result on financial assets and financial liabilities held for trading contains gains and losses on disposal of financial instruments classified as financial assets / liabilities measured held for trading and the effect of valuation of these instruments at fair value (incl. debt, equity and derivative instruments intended for trading).
The result on non-trading financial assets mandatorily at fair value through profit or loss includes gains and losses on disposal and the effect of the measurement of financial instruments classified to this category of assets.
The result on hedge accounting includes in particular: changes in the fair value of the hedging instrument (including discontinuation), changes in the fair value of the hedged item resulting from the hedged risk and inefficiencies resulting from cash flow hedges recognized in profit or loss.
Foreign exchange differences include:
i) realized result and result from the valuation of FX spot and FX Forward transactions
ii) positive and negative exchange rate differences, both realized and unrealized, resulting from the daily valuation of foreign currency assets and liabilities, valid as at the balance sheet day average NBP exchange rate and affecting income or expenses from the exchange position.
46 This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31 st December 2022
Other operating income and expenses include expenses and incomes not associated directly with the Group’s banking and brokerage activity. In particular, this is result on sale and liquidation of fixed assets, income from sale of other services, received and paid damages, penalties and fines and provisions for litigations issues.
Franchise is a model of cooperation between the Bank and independent entrepreneurs who, based on concluded agreements of the nature of agency agreements, defined by law, perform agency activities in the sale of products and services from the Bank’s offer to the Bank’s clients and potential clients. The cooperating franchisees use the Bank’s trademarks and know-how when performing the agreement, and franchise outlets are almost as functional for customers as Bank’s own outlets (excluding investment products). For cooperation, the Bank charges a franchise fee for the use of trademarks and fees for renting IT equipment from the Bank necessary to perform activities in a given branch and pays franchisees commissions on banking products and services sold.
The tax on certain financial institutions ("banking tax") is the tax presented in the Consolidated Income Statement under "Banking tax" levied on bank’s assets (it is not an income tax). In accordance with the Polish Act of January 15, 2016 on the tax on certain financial institutions (Journal of Laws 2022, item 1685, as amended), domestic banks are the taxpayers and the tax base is defined as a surplus of the total value of the bank's assets resulting from the trial balance, determined as at the last day of the month, based on entries in the general ledger accounts, over the amount of PLN 4 billion. The banking tax is 0.0366% of the tax base per month. As a result of the implementation of the Recovery Plan from July 2022, Bank Millennium S.A. benefited from the exemption from the banking tax starting from that month. In case of Millennium Bank Hipoteczny S.A. assets do not exceed PLN 4 billion.
The Bank and its subsidiaries are also taxpayers of the following taxes:
1) value added tax (VAT) performing activities both taxable (e.g. leasing, factoring services) and exempt from VAT (e.g. banking services, brokerage, insurance brokerage and investment fund distribution);
2) real estate tax;
3) tax on means of transport;
4) other taxes occasionally charged to them (e.g. tax on civil law transactions, excise duty, foreign withholding tax not subject to deduction).
In addition, the Bank and its subsidiaries are required to pay various fees (e.g. stamp duty, fees for perpetual usufruct of land).# Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31st December 2022
Costs related to these taxes and fees are presented in the Administrative Expenses Note under "Taxes and fees".
Revenues, costs and assets are recognized in the amount less VAT, tax on civil law transactions and other sales taxes, except when the sales tax paid on the purchase of goods and services is not recoverable from tax authorities; then VAT is recognized as an expense or as part of the cost of acquiring an asset, respectively. The amount of tax recoverable or payable to the tax authorities is presented in the financial statement as part of receivables or liabilities.
Corporate income tax comprises current and deferred tax. Current income tax is calculated on profit before tax, established in accordance with appropriate accounting regulations adjusted by non-taxable income and non-tax deductible expenses, with usage of binding tax rate. Moreover, for tax purposes, the gross profit is adjusted by previous years’ income and expenses realised for tax purposes in a given reporting period and deductions from income arising from e.g. donations.
Deferred income tax is recognized in profit and loss, except for when it is recognized in other comprehensive income or directly in equity because it relates to transactions that are also recognized in other comprehensive income or directly in equity. Provision for deferred income tax is recognized in liabilities in the caption ‘deferred income tax liabilities’. Deferred income tax asset is recognized in assets as ‘deferred income tax assets’.
The Group offsets deferred tax assets and deferred tax liabilities within each individual companies of the Group, because it has a legally enforceable right for such netting and the deferred tax assets and the deferred tax liabilities relate to income taxes (levied by the same taxation authority).
Deferred income tax provision is recognised using the balance sheet method for all positive temporary differences except when it arises from the amortization of goodwill or initial recognition of an asset or liability in a transaction which is not a business combination and at the time of the transactions affects neither accounting profit nor taxable profit (tax loss).
Deferred income tax assets are recognised using the balance sheet method with respect to tax loss carry forwards and all negative temporary differences as at the balance sheet date between carrying amount of an asset or liability in the balance sheet and its tax value only to the extent that it is probable that future taxable profit will be available against which the deductions can be utilised. Deferred income tax assets are not recognised for negative temporary differences arising from the initial recognition of an asset or liability in a transaction which is not a business combination and at the time of the transactions affects neither accounting profit nor taxable profit (tax loss).
An asset or a liability arising from temporary differences associated with investments in subsidiaries and associates are not included in calculation of deferred income tax assets or liabilities, unless the Group is able to control the timing of the reversal of the temporary differences and it is probable that the temporary difference will reverse in the foreseeable future.
The amount of calculated deferred tax is based on expected degree of realisation of balance-sheet values of assets and liabilities with use of tax rates, which are expected to be in force when the asset is realised or provision eliminated, assuming the tax rates (and tax legislation) legally or factually in force as of the balance sheet date.
The management of risk is one of the key tasks of the Management Board in the process of effective management of the Group. It defines the framework for business development, profitability, and stability, by creating rules ensuring the Group’s compliance with best internal control practices and legal requirements and coordination of the strategy for managing all risks.
The mission of risk management in the Bank Millennium Group is to ensure that all types of risks are managed, monitored, and controlled as required for the risk profile (risk appetite), nature and scale of the Group's operations. Important principle of risk management is the optimization of the risk and profitability trade-off – the Group pays special attention to ensure that its business decisions balance risk and profit adequately.
The goals of the risk management mission are achieved through implementation of the following actions:
* Development of risk management strategies, credit policy, processes and procedures defining the principles for acceptance of the allowable level of types of risk,
* Increasingly wider implementation of the IT tools for risks identification, control, and measurement,
* Increasing awareness of employees as regards their responsibility for proper risk management at every level of the Group's organizational structure.
Risk management is centralized for the Group and considers the need to obtain the assumed profitability and to maintain proper risk-capital relationship, in the context of having proper level of capital to cover the risk. Within risk management system, a broad range of methods is used, both qualitative and quantitative, including advanced mathematical and statistical tools supported by adequate IT systems.
When defining the business and profitability targets, the Group considers the specified risk framework (Risk Appetite) to ensure that business structure and growth will respect the risk profile that is targeted and that will be reflected in several indicators such as:
* Loan growth in specific products / segments
* Structure of the loan portfolio
* Asset quality indicators
* Cost of risk
* Capital requirements / Economic capital
* Amount and structure of liquidity needed.
The risk management and control model at the Group’s level is based on the following main principles:
* ensuring the full-scope quantification and parameterization of various types of risks in the perspective of optimizing balance sheet and off-balance sheet items to the assumed level of profitability of business activity. The main areas of analysis encompass credit risk, market risk, liquidity risk and operational risk, legal and litigation risk also are subject to specific attention;
* all types of risks are monitored and controlled in reference to the profitability of operations and the level of capital necessary to ensure the safety of operations from the point of view of capital adequacy. The results of risk measuring are regularly reported as part of the management information system;
* the segregation of duties between risk origination, risk management and risk control.
The Risk management process of the Group is presented in the below diagram:
The split of competence in the field of risk management is as follows:
* The Supervisory Board is responsible for overseeing the compliance of the Group’s risk-taking policy with the Group’s strategy and its financial plan. Within the Supervisory Board acts the Committee for Risk Matters, which supports it in realization of those tasks, among others, issuing opinion on the Group's Risk Strategy, including the Group's Risk Appetite.
* The Management Board is responsible for the effectiveness of the risk management system, internal capital estimation process, for reviewing the internal capital calculation and maintenance process and the internal control systems;
* The Credit Committee, the Capital, Assets and Liabilities Committee, and the Liabilities at Risk Committee are responsible for current management of different areas of banking risk, within the framework determined by the Management Board;
* The Risk Committee and the Processes and Operational Risk Committee are responsible for defining the policy and for monitoring and control of different areas of banking risk, within the framework determined by the Management Board;
* The AML Committee is responsible for supervision of anti-money laundering and terrorism financing in the Bank and cooperation in the area of combating financial crime;
* The Validation Committee is responsible for confirmation of risk models validation results and follow-up in the implementation of the measures defined by the Models Validation Office;
* The Sustainability Committee is responsible for making key decisions regarding sustainable development in the Bank Millennium S.A. Group, in relation to environmental, social and governance factors.
* The Sub-Committee for Court Cases is responsible for expressing opinions and taking decisions in matters regarding court proceedings, for the cases when value of the dispute or direct effect for assets value as a consequence of court verdict exceeds 1 mln PLN or as result of multiple cases with the same nature, excluding cases belonging to the restructuring and recovery portfolio of Bank’s receivables managed by the Corporate Recovery Department and Retail Restructuring and Debt Collection Department.# H1: Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31st December 2022
The Sub-Committee for Court Cases is also competent for disputes in the portfolio of the Retail Restructuring and Debt Collection Department, which the nature of the dispute corresponds to the nature of court disputes supervised by the Court Cases Risk Sub-committee referred to in the first sentence above and matters relating to the determination of terms of settlement as to the effects of legal relationships at the pre-trial stage or in circumstances indicating a significant likelihood of litigation, (such as in the process of FX mortgage negotiations and amicable settlements with borrowers), and if materialized, would fall within the competence of the Court Cases Risk Sub- committee, excluding cases managed by Corporate Recovery Department.
The Group has prepared a comprehensive guideline document for the risk management policy/strategy: “Risk Strategy for 2023-2025”. The document takes a 3-year perspective and is reviewed and updated annually. It is approved by the Bank’s Management Board and Supervisory Board. The risk strategy is inextricably linked to other strategic documents, such as: Budget, Liquidity Plan, and Capital Plan. The Risk Strategy bases on the two concepts defined by the Group:
Risk appetite must ensure that business structure and growth will respect the forward risk profile. Risk appetite was reflected through defined indicators in several key areas, such as:
The Group has a clear risk strategy, covering retail credit, corporate credit, markets activity and liquidity, operational and capital management. For each risk type and overall, the Group clearly define the risk appetite. The Risk Management is mainly defined through the principles and targets defined in Risk Strategy and complemented in more detail by the principles and qualitative guidelines defined in the following documents:
Within risk appetite, the Group has defined tolerance zones for its measures (build up based on the “traffic lights” principle). As for all tolerance zones for risk appetite, it has been set:
The Group pays particular attention to continuous improvement of the risk management process. One measurable effect of this is a success of the received authorization to the further use of the IRB approach in the process of calculating capital requirements.
Capital management relates to two areas: capital adequacy management and capital allocation. For both areas, management goals were set. The goal of capital adequacy management is: (a) meeting the requirements specified in external regulations (regulatory capital adequacy) and (b) ensuring the solvency in normal and stressed conditions (economic capital adequacy/internal capital). Completing that goal, the Group strives to achieve internal long-term capital limits (targets), defined in Risk Strategy.
Capital allocation purpose is to create value for shareholders by maximizing the return on risk in business activity, considering established risk tolerance. In a scope of capital management process, there is also a capital planning process. The goal of capital planning is to designate the own funds (capital base that is risk-taking capacity) and capital usage (regulatory capital requirements and economic capital) in a way to ensure that capital targets/limits shall be met, given forecasted business strategy and risk profile – in normal and stressed macroeconomic conditions.
The Bank is obliged by law to meet minimum own funds requirements, set in art. 92 of Regulation (EU) No 575/2013 on prudential requirements for credit institutions and investment firms, amending Regulation (EU) No 648/2012 (CRR).At the same time, the following buffers were included in capital targets/limits:
▪ Pillar II FX mortgage loans buffer (P2R buffer) - KNF decision regarding order to maintain additional own funds to secure risk resulting from FX mortgage loans granted to households, under the art. 138.2.2 of Banking Act. A value of that buffer is defined for particular banks by KNF every year because of Supervisory Review and Evaluation Process (SREP) and relates to risk that is in KNF’s opinion - inadequately covered by minimum own funds requirements, set in CRR art. 92. At present, the buffer was set by KNF in the decisions issued in the end of 2022 in the level of 1.95 p.p. (Bank) and 1.94 p.p. (Group) as for Total Capital Ratio (TCR), which corresponds to capital requirements over Tier 1 ratio of 1.47 p.p. in Bank and of 1.46 p.p. in Group, and which corresponds to capital requirements over CET 1 ratio of 1.10 p.p. in Bank and 1.09 p.p. in Group 1 ;
▪ Combined buffer – defined in Act on macro prudential supervision over the financial system and crisis management – that consists of:
▪ Capital conservation buffer at the level of 2.5%;
▪ Other systemically important institution buffer (OSII) – at the level of 0.25%, and the value is set by KNF each year 2 ;
▪ Systemic risk buffer at the level of 0% in force from March 2020, in line with Regulation of Ministry of Development and Finance;
▪ Countercyclical buffer at the 0% level.
In accordance to binding legal requirements and recommendations of Polish Financial Supervisory Authority (KNF), the Bank defined regulatory minimum levels of capital ratios, being at the same time the base of defining capital limits.
1 That decision replaces the previous recommendation from 2021, to maintain own funds for the coverage of additional capital requirements at the level of 2.82 pp (Bank) and 2.79 pp (Group) as for TCR, which should have consisted of at least 2.11 pp (Bank) and 2.09 pp (Group) as for Tier 1 capital and which should have consisted of at least 1.58 pp (Bank) and 1.56 pp (Group) as for CET1 capital.
2 In November 2020 KNF issued the decision on identification the Bank as other systemically important institution and imposing OSII Buffer of 0.25%
53 This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version. Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31 st December 2022
The below table presents these levels as of 31 December 2022. The Bank will inform on each change of required capital levels in accordance with regulations.
| Capital ratio | 31.12.2022 | ||
|---|---|---|---|
| Bank | Group | ||
| CET1 ratio | Minimum | 4.50% | 4.50% |
| P2R Buffer | 1.10% | 1.09% | |
| TSCR CET1 (Total SREP Capital Requirements) | 5.60% | 5.59% | |
| Capital Conservation Buffer | 2.50% | 2.50% | |
| OSII Buffer | 0.25% | 0.25% | |
| Systemic risk buffer | 0.00% | 0.00% | |
| Countercyclical capital buffer | 0.00% | 0.00% | |
| Combined buffer | 2.75% | 2.75% | |
| OCR CET1 (Overall Capital Requirements CET1) | 8.35% | 8.34% | |
| T1 ratio | Minimum | 6.00% | 6.00% |
| P2R Buffer | 1.47% | 1.46% | |
| TSCR T1 (Total SREP Capital Requirements) | 7.47% | 7.46% | |
| Capital Conservation Buffer | 2.50% | 2.50% | |
| OSII Buffer | 0.25% | 0.25% | |
| Systemic risk buffer | 0.00% | 0.00% | |
| Countercyclical capital buffer | 0.00% | 0.00% | |
| Combined buffer | 2.75% | 2.75% | |
| OCR T1 (Overall Capital Requirements T1) | 10.22% | 10.21% | |
| TCR ratio | Minimum | 8.00% | 8.00% |
| P2R Buffer | 1.95% | 1.94% | |
| TSCR TCR (Total SREP Capital Requirements) | 9.95% | 9.94% | |
| Capital Conservation Buffer | 2.50% | 2.50% | |
| OSII Buffer | 0.25% | 0.25% | |
| Systemic risk buffer | 0.00% | 0.00% | |
| Countercyclical capital buffer | 0.00% | 0.00% | |
| Combined buffer | 2.75% | 2.75% | |
| OCR TCR (Overall Capital Requirements TCR) | 12.70% | 12.69% |
In December 2022, the Bank received a recommendation to maintain, own funds to cover an additional capital charge (“P2G”) to absorb potential losses resulting from the occurrence of stresses, at the level of 1.72 pp and 1.75 (on an individual and consolidated level) over the OCR value. According to the recommendation, the additional capital charge should consist fully of common equity Tier 1 capital (CET1 capital).
54 This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version. Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31 st December 2022
Capital risk, expressed in the above capital targets/limits, is measured, and monitored in a regular manner. Capital limits were defined based on the minimum regulatory capital levels. They are the basis of setting safety zones and risk appetite. Capital ratios in each zone determine the need to make appropriate decisions or management actions. Regular monitoring of capital risk is based on the classification of capital ratios into appropriate zones, and then the assessment of trends and factors influencing the level of capital adequacy is carried out.
The Group calculates its own funds requirements using standard methodologies and is implementing at the same time a project of an implementation of internal ratings-based method (IRB) for calculation of own funds requirements for credit risk and obtaining of approval decisions from Regulatory Authorities on that matter. In the end of 2012, Banco de Portugal (consolidating Regulator) with cooperation of Polish Financial Supervision Authority (KNF) granted an approval to the use of IRB approach as to following loan portfolios: (i) Retail exposures to individual persons secured by residential real estate collateral (RRE), (ii) Qualifying revolving retail exposures (QRRE). According to the mentioned approval, minimum own funds requirements calculated using the IRB approach should be temporarily maintained at no less than 80% (“Regulatory floor”) of the respective capital requirements calculated using the Standardized approach. In the end of 2014, the Group received another decision by Competent Authorities regarding the IRB process. According to its content, for the RRE and QRRE loan portfolios, the minimum own funds requirements calculated using the IRB approach had to be temporarily maintained at no less than 70% (“Regulatory floor”) of the respective capital requirements calculated using the Standardized approach until the Bank fulfils further defined conditions. In July 2017 the Group received the decision of Competent Authorities (ECB cooperating with KNF) on approval the material changes to IRB LGD models and revoking the “Regulatory floor”. Since 2018, the Group has been successively implementing a multi-stage process of implementing changes to the IRB method, related to the requirements regarding the new definition of default. In the first phase, in line with the “two-step approach” approved by Competent Authorities, the Group in 2020 successfully implemented solutions for the new definition of default in the production environment. The Group is obliged to include an additional conservative charge on the estimates of the RWA value for exposures classified under the IRB approach. The level of this add-on, calculated based on the supervisory algorithm, was set at 5% above the value resulting from the IRB method. In 2021, all credit risk models included in the rating system subject to the current regulatory approval were recalibrated and rebuilt. In 2021 the Group also obtained a decision from Competent Authorities to approve significant changes to the IRB models used (LGD, LGD in-default and ELBE) for rating systems subject to the IRB approval. In 2022, further work was carried out on credit risk models for the remaining credit portfolios covered by the IRB method roll-out plan: other retail exposures and corporate exposures.
The Group defines internal capital according to Polish Banking Act, as the estimated amount needed to cover all identified, material risks found in the Bank’s activity and changes in economic environment, considering the anticipated level of risk in the future.
55 This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version. Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31 st December 2022
Internal capital is used in capital management in following processes: economic capital adequacy management and capital allocation. The Bank defined an internal (economic) capital estimation process. To this end, as for measurable risk types, mathematic and statistic models and methods are used. Maintaining economic capital adequacy means a coverage (provision) of internal capital (that is an aggregated risk measure) by available financial resources (own funds). An obligation to banks to have in place that sort of risk coverage stems from Banking Act. It was mirrored in the Group’s capital targets/limits: economic capital buffer and economic capital buffer in stressed conditions. In 2022, both above capital targets were met with a surplus. At the same time internal capital is utilized in capital allocation process, to assign an internal capital to products/business lines, calculating risk-adjusted performance measures, setting risk limits and internal capital reallocation.# Capital ratios and capital adequacy – current state, evaluation, and trends
Capital ratios of the Group over the last three years were as follows 3 :
| 31.12.2022 | 31.12.2021 | 31.12.2020 | |
|---|---|---|---|
| Risk-weighted assets | 48,497.3 | 49,442.8 | 51,138.0 |
| Own Funds requirements, including: | 3,879.8 | 3,955.4 | 4,091.0 |
| - Credit risk and counterparty credit risk | 3,380.6 | 3,479.8 | 3,677.0 |
| - Market risk | 18.0 | 32.3 | 26.7 |
| - Operational risk | 474.5 | 433.0 | 382.6 |
| - Credit Valuation Adjustment CVA | 6.7 | 10.3 | 4.8 |
| Own Funds, including: | 6,991.1 | 8,436.3 | 9,969.0 |
| Common Equity Tier 1 Capital | 5,469.9 | 6,906.3 | 8,439.0 |
| Tier 2 Capital | 1,521.2 | 1,530.0 | 1,530.0 |
| Total Capital Ratio (TCR) | 14.42% | 17.06% | 19.49% |
| Tier 1 Capital ratio (T1) | 11.28% | 13.97% | 16.50% |
| Common Equity Tier 1 Capital ratio (CET1) | 11.28% | 13.97% | 16.50% |
| MREL ratio | 14.45% | 16.99% | 19.49% |
| Leverage ratio | 4.72% | 6.46% | 8.30% |
3 Group uses transitional arrangements for IFRS 9 and considers a temporary treatment of unrealized gains and losses on bonds measured by fair value through other comprehensive income (FVOCI) in accordance with Art. 468 of the CRR. As at 31.12.2022, if IFRS 9 transitional arrangements and temporary treatment according to Art. 468 of the CRR had not been applied, capital ratios were as follows: - TCR: 13.29% - T1: 10.14% - CET1: 10.14% - Leverage ratio: 4.25% The impact of transitional arrangements caused the improvement of capital ratios TCR, T1, CET1 by ca 113-114 bps, including the impact of art. 468 CRR (FVOCI) brought about an increase of capital ratios TCR, T1, CET1 by ca 70 bps, and impact of IFRS9 transitional arrangements was ca 43-44 bps.
56 This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version. Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31 st December 2022
Capital adequacy showed as surpluses/deficits on required or recommended levels is presented in the below table.
| Capital adequacy | 31.12.2022 | 31.12.2021 | 31.12.2020 |
|---|---|---|---|
| Total Capital Ratio (TCR) | 14.42% | 17.06% | 19.49% |
| Minimum required level (OCR) | 12.69% | 13.54% | 14.10% |
| Surplus(+) / Deficit(-) of TCR capital adequacy (p.p.) | 1.73 | 3.52 | 5.39 |
| Minimum recommended level TCR (OCR+P2G) | 14.44% | 13.54% | 14.10% |
| Surplus(+) / Deficit(-) on recommended level (p.p.) | -0.02 | 3.52 | 5.39 |
| Tier 1 Capital ratio (T1) | 11.28% | 13.97% | 16.50% |
| Minimum required level (OCR) | 10.21% | 10.84% | 11.27% |
| Surplus(+) / Deficit(-) of T1 capital adequacy (p.p.) | 1.07 | 3.13 | 5.23 |
| Minimum recommended level T1 (OCR+P2G) | 11.96% | 10.84% | 11.27% |
| Surplus(+) / Deficit(-) on recommended level (p.p.) | -0.68 | 3.13 | 5.23 |
| Common Equity Tier 1 Capital ratio (CET1) | 11.28% | 13.97% | 16.50% |
| Minimum required level (OCR) | 8.34% | 8.81% | 9.13% |
| Minimum recommended level CET1 (OCR+P2G) | 10.09% | 8.81% | 9.13% |
| Surplus(+) / Deficit(-) on recommended level (p.p.) | 1.19 | 5.16 | 7.37 |
| MREL ratio | 14.45% | 16.99% | 19.49% |
| Minimum required level | 15.60% | 15.60% | |
| Surplus(+) / Deficit(-) of MREL (p.p.) | -1.15 | 1.39 | |
| Leverage ratio | 4.72% | 6.46% | 8.30% |
| Minimum required level | 3.00% | 3.00% | 3.00% |
| Surplus(+) / Deficit(-) of Leverage ratio (p.p.) | 1.72 | 3.46 | 5.30 |
As at 2022 end, capital adequacy, measured by Common Equity Tier 1 Capital ratio and Total Capital Ratio, decreased in one year period by ca 2.69 pp and by ca 2.64 pp respectively. In 2022, risk-weighted assets (RWA) went down by almost PLN 945 million (by 1.9%). The biggest yearly change was credit risk RWA (fall by ca PLN 1.240 million, by 2.9%). One of the drivers of that fall were completed loans securitisation transactions this was partially offset by an operational risk RWA rise (by ca PLN 519 million), what stems from including in calculation higher operational results from the last three years (without provisions). Changes of market risk and CVA (credit valuation adjustment) RWA were not so material. In 2022 Own Funds fell by ca PLN 1.445 million (by 17.1%), mainly because of net financial loss caused by legal risk and assistance program “Credit holidays” provisions, and a decrease of revaluation reserve – a value of securities valued at fair value through Other Comprehensive Income and affecting Own Funds. Minimum capital levels required by KNF were achieved with a safe surplus. Minimum required by KNF capital ratios in terms of overall capital requirements were achieved at the end of 2022. Leverage ratio stood at the safe level of 4.72%, and it significantly exceeds the regulatory minimum (3%). Bank and Group did not meet in the second half of 2022 (till December) some of the capital limits in terms of combined buffer requirements what was announced in the current report no 21/2022. In accordance with the regulations, Bank developed the Capital Protection Plan, which was delivered to KNF and approved on 28 th October 2022. The Plan assumed a restoration of capital adequacy until the 2nd half of 2023.
57 This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version. Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31 st December 2022
In March 2022, Bank conclude synthetic securitization transaction with the participation of European Investment Bank (EIB) and European Investment Fund (EIF). The portfolio covered by the transaction concerned receivables from small and medium-sized enterprises (SME) worth ca PLN 1.5 billion. PLN. The Bank obtained the EIF guarantee for the senior tranche (ca PLN 1.2 billion) and the junior tranche (ca PLN 300 million), which is unfunded credit protection within the meaning of the CRR. The selected loan portfolio covered by the securitization remained in the Bank's balance sheet. On 23 December 2022, Bank Millennium settled another synthetic securitisation transaction executed on a portfolio of corporate and SME receivables. The selected loan portfolio securitised remained on the bank's balance sheet. The risk transfer was achieved by a recognised credit protection instrument in the form of Credit Linked Notes (CLNs). The issued bonds with a total nominal value of 242.5 mln PLN were acquired by the Christofferson Robb & Company, LLC fund. The CLN bonds marked with ISIN code XS2569449791 were introduced to trading in the alternative trading system on the Vienna MTF organised by the Vienna Stock Exchange, which admitted them to trading on December 22, 2022. The bonds are listed from December 27, 2022. At the same time, collateral is provided to the investor in the form of qualified debt securities (and/or cash), blocked in an independent trust institution - Bank of New York Mellon. The role of the organiser and agent placing the transaction was performed by UniCredit Bank AG. The transaction meets the requirements for the transfer of a material part of the risk, set out in the CRR Regulation (Regulation of the European Parliament and of the Council No. 575/2013 of 26 June 2013 on prudential requirements for credit institutions and investment firms).
The Bank received the joint decision of the resolution authorities obliging to meet MREL requirements. At the moment of communication of the decision, the Bank at the consolidated level is obliged to meet the minimum MRELtrea requirements of 15.60% and MRELtem of 3.00%. At the individual level, the minimum MRELtrea was set at 15.55% and MRELtem 3.00%. Additionally, the above-mentioned decision sets updated minimum requirements that must be met by December 31, 2023, along with mid-term objectives. The Bank is still to meet MREL requirements due to the net loss booked in recent periods and the fact that an issue of senior non-preferred bonds on the Polish market initially planned for 4Q21 was not possible to execute due to a gap in the Polish bond law and later due to the combination of unfavourable market conditions (markets were effectively shut for issuers of SNP bonds from the CEE region) and looming risk of Poland’s government enforcement of costly extraordinary measures on the banking sector (credit holidays and replacement of WIBOR, among others). Following the changes in the Polish bond law in May, the Bank also started preparations for a domestic issue, but due to the above-mentioned external factors, the decision to officially start the domestic offering was also put on hold. The Bank prepared a Eurobond Issue Programme of the total nominal value not higher than EUR 3 billion, what was communicated in a current report in January 2022. The Bank monitors the developments on the bond market that will allow for the issue. Restoring capital ratios to minimum required ratios is currently the Bank’s priority and once this is achieved the Bank will take the further needed steps aimed at meeting the MREL requirements. In particular, as far as MREL requirements are concerned, the Bank intends to close the gap by year- end 2023 through a combination of organic capital generation and issuance of debt instruments, if required and market conditions allow.
58 This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version. Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31 st December 2022
The credit risk is one of the most important risk types for the Group and therefore considerable attention is given to management of credit risk-bearing exposures. Credit risk relates to balance-sheet credit exposures as well as off-balance sheet financial instruments, such as granted and unutilized credit lines, guarantees and letters of credit, as well as limits for transactions in financial instruments. The credit policy is subject to periodic reviews and verification process considering the prevailing market conditions and changes in the Group’s regulatory environment.# The Group uses several rating systems to manage credit risk depending on the type of exposure and the customer segment involved. A rating system is a set of methods (models), processes, controls, data collection procedures and IT systems that identify and measure credit risk, sort levels of exposure by grades or pools (granting of credit rating) and quantify probability of default and expected loss estimates for specific types of exposure. In 2022, due to the outbreak of war in Ukraine and increased uncertainty in the macroeconomic environment, the Bank took additional measures to monitor the level of credit risk. In the corporate segment, the Group focused on analysis of the loan portfolio and borrowers' industries in order to monitor risk, with particular emphasis on customers directly affected by the negative effects of the conflict in Ukraine, as well as customers with low profitability, potentially most exposed to negative changes in the macroeconomic environment. In the retail segment, the Bank focused on adaptation its lending policy to the changing macroeconomic environment, in particular, changes were implemented to mitigate the potential increase in risk related to rising credit costs and inflation. In addition, the frequency of monitoring the loan portfolio granted to Polish residents with Ukrainian citizenship was increased.
Measurement of credit risk, for the purpose of the credit portfolio management, on the level of individual customers and transactions, on account of granted loans is done with the consideration of three base parameters:
(i) Probability of Default (PD) of a customer or counterparty as regards their liability;
(ii) amount of Exposure At Default (EAD) and
(iii) the ratio of Loss Given Default (LGD) regarding the customer’s liability.
(i) The Group assesses the probability of default (PD) of individual counterparties, using internal rating models adapted to various categories of customers and transactions. Models were developed in-house or at the level of the BCP Group, or with help of external providers, and combine statistical analysis with assessment by a credit professional. The Group’s customers are divided into 15 rating classes, which for the purposes of this Report have been grouped into 6 main brackets. The Group’s Master Ratings Scale, presented below, also contains the scale of probabilities of non-compliance with the liabilities specified for a given class/rating group. Rating models are subject to regular reviews and whenever necessary to relevant modification. Modifications of models are confirmed by Validation Committee. The Group regularly analyses and assesses rating results and their predictive power with respect to cases of default. The process of assigning client risk assessments (for Corporates performed by Rating Department independently from credit decision process and transactions) is supported by IT systems, obtaining, and analysing information from internal and external databases.
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version. Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31st December 2022
The Group’s internal rating scale
| Master scale | Description of rating |
|---|---|
| 1-3 | Highest quality |
| 4-6 | Good quality |
| 7-9 | Medium quality |
| 10-12 | Low quality |
| 13-14 | Watched/Procedural |
| 15 | Default |
(ii) EAD – amount of exposure at default – concerns amount which according to the Group’s predictions will be the Group’s receivables at the time of default against liabilities. Liabilities are understood by the Group to mean every amount disbursed plus further amounts, which may be disbursed until default, if such occurs.
(iii) LGD – loss given default is what the Group expects will be its losses resulting from actual cases of default, with the consideration of internal and external costs of recovery and the discount effect.
Since the implementation of IFRS 9, the Group has adopted a uniform definition of default, both in the calculation of capital requirements and for the purposes of estimating impairment. The Group uses the definition of default in line with the EBA Guidelines, the so-called New Definition of Default. Unified Default definition includes following triggers:
The Group is using cross-default approach for all segments.
Debt securities from State Treasury and from the Central Bank are monitored based on Polish rating. Whereas the economic and financial situation of issuers of municipal debt securities is monitored on a quarterly basis based on their finance reporting. The Group doesn’t apply Low Credit Risk (LCR) exemption neither for State Treasury and Central Bank exposures nor for any other groups of exposures.
The Group maintains strict control over the limits of net open derivative positions both with respect to amounts and transaction maturities. Credit risk exposures resulting from derivatives are managed as part of total credit limits defined for individual customers calculated based on verification of natural exposure and analysis of customer’s financial situation, and as part of counterparties’ limits. The Group offers Treasury products for FX risk or interest rate risk only for hedging purposes and under Treasury limits assigned to clients or secured by specific collateral (deposit). Most of the Group’s agreements include the possibility of calling the client to replenish the margin deposit, (if the valuation of the client’s open position exceeds treasury limit, the so-called margin call); and if the client does not supplement the deposit, the Group has the right to close the position.
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version. Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31st December 2022
Credit risk-based off-balance sheet liabilities include granted guarantees and letters of credit, granted and unused limits (credit, factoring, guarantees and letters of credit and cards) as well as granted and unpaid tranches of non-renewable loans. The primary purpose of these instruments is to enable the customer to manage in a specific manner the funds allocated by the Group. Granted guarantees and letters of credit granted are unconditional and irrevocable - after the receipt of a claim compliant with the terms of the guarantee or letter of credit, the Group must make a payment. Typically, guarantees and letters of credit are related to commercial transactions. In the case of most of the granted and unused limits, the Group has the option of refusing to execute the client's instruction regarding the use of funds from these limits - either unconditionally or upon meeting the conditions set out in the documents and by-laws applicable to a given limit. In the case of granted and undisbursed tranches of non-revolving loans, their disbursement depends on the fulfilment of the conditions set out in the documents and by-laws applicable to a given non- revolving loan.
The Group measures, monitors and controls large credit exposures and high credit risk concentrations, wherever they are identified. Concentration risk management process encompasses single-name exposures with respect to an individual borrower or group of connected borrowers (with material capital, organizational or significant economic relations) and sectoral concentration – to economic industries, geographical regions, countries, and the real estate financing portfolio (including FX loans), portfolio in foreign currencies and other. Above types of sectoral exposures are subject to internal limits system. Information about the utilization of limits is presented at the Supervisory Board, the Committee for Risk Matters, and the Risk Committee. The internal (mentioned above) limits are monitored quarterly. Limits are subject to annual or more frequent review, when deemed appropriate. The limits are approved by the Supervisory Board or the Risk Committee. Management of credit risk exposure is also performed through regular monitoring of customers’ economic and financial situation and/or track record of their relationship with the Group from the point of view of punctual repayment of their principal and interest liabilities.
The Group accepts collateral to mitigate its credit risk exposure; the main role of collateral is to minimize loss in the event of customers' default in repayment of credit transactions in contractual amounts and on contractual dates by ensuring an alternative source of repayment of due and payable amounts. Collateral is accepted in accordance with the credit policy principles defined for each customer segment. The key principle is that collateral for credit transaction should correspond to the credit risk incurred by the Group, considering the specific nature of the transaction (i.e., its type, amount, repayment period and the customer's rating). The credit policy defines the types, kinds and legal forms of collateral accepted in the Group as well as more detailed requirements that are to ensure the probability of selling collateral of respective types in the context of the Group's recovery experiences.
This document is a translation of a document originally issued in Polish.# Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31st December 2022
The Group pays special attention to the correct determination of collateral value. It defined the rules for preparing and verifying collateral valuation and does its utmost to ensure that such valuations are objective, conservative and reflect the true value of the collateral. To ensure effective establishment of collateral, the Group has developed appropriate forms of collateral agreements, applications, powers-of-attorney, and representations. In the retail segment, accepted collateral consists mainly of residential real property (mortgage loans) and financial assets. In the case of the corporate segment, all types of real estate (residential, commercial, land) are accepted, as well as assignments of receivables under contracts. Temporary collateral is also accepted in the period before the final collateral is established. Additionally, the Group uses various forms of instruments supplementing the collateral, which facilitate enforcement or increase probability of effective repayment of debt from a specific collateral. Those instruments include statement of submitting to enforcement in the form of a notarial deed, blank promissory note, power-of-attorney to a bank account, assignment of rights under an insurance agreement. The Group monitors the collateral to ensure that it satisfies the terms of the agreement, i.e., that the final collateral of the transaction has been established in a legally effective manner or that the insurance policies are renewed. The value of the collateral is also monitored during the term of the credit transaction. In accordance with credit policy adopted in the Group it is also allowed to grant a transaction without collateral, but this takes place according to principles, which are different depending on the client’s segment. But in the case of the deterioration of the debtor’s economic and financial situation, in documents signed with the client the Group stipulates the possibility of taking additional collateral for the transaction.
The process of impairment identification and measurement with respect to loan exposures is regulated in the internal instruction introduced with IFRS9 application. The documentary defines in detail the mode and principles of individual and collective analysis, including algorithms for calculating parameters. The methodology and assumptions adopted for determining credit impairments are regularly reviewed to reduce discrepancies between the estimated and actual losses. To assess the adequacy of the impairment determined both in individual analysis and collective analysis a historical verification (back testing) is conducted periodically (at least once a quarter), which results will be considered to improve the quality of the process. Supervision over the process of estimating impairment charges and provisions is exercised at the Group by the Risk Department (DMR), which also has direct responsibility for individual analysis in the business portfolio at the Bank, as well as collective analysis. In addition to DMR, the process also involves recovery and restructuring units. These are the Corporate Recovery Department – DNG (individual analysis for the recovery-restructuring portfolio for corporate customers) and the Retail Liabilities Restructuring and Recovery Department - DRW (individual analysis of individually significant retail impairments, mainly mortgages). DMR is a unit not connected with the process of lending; it is supervised by the Management Board Member responsible for risk management. Similarly organized is the impairment process at Millennium Leasing.
The Management Board of the Bank plays an active role in the process of determining impairment charges and provisions. The results of credit portfolio valuation are submitted to the Management Board for acceptance in a monthly cycle with a detailed explanation of the most important changes with an impact on the overall level of impairment charges and provisions, in the period covered by the analysis. Methodological changes resulting from the validation process and methodological improvements are presented at the Validation Committee, and subsequently at the Risk Committee which includes all the Management Board Members. In monthly periods detailed reports are prepared presenting information about the Group’s retail portfolio in various cross-sections, including the level of impairment charges and provisions, their dynamics and structure. The recipients of these reports are Members of the Management Board, supervising the activity of the Group in finance, risk, and management information.
Since implementation of IFRS9 in 2018, impairment estimation model within the Group has been based on the concept of “expected credit loss”, (hereinafter: ECL). As a direct result of using this approach, impairment charges now must be calculated based on expected credit losses and forecasts of expected future economic conditions must be considered when conducting evaluation of credit risk of an exposure. The implemented impairment model applies to financial assets classified in accordance with IFRS 9 as financial assets measured at amortized cost or at fair value through other comprehensive income, except for equity instruments.
According to IFRS 9, credit exposures are classified in the following categories:
Assets, for which there has been identified a significant increase in credit risk compared to the initial recognition in the balance sheet, are classified in Stage 2. The significant increase in credit risk is recognized based on qualitative and quantitative criteria.
The qualitative criteria include:
The quantitative criterion involves a comparison of the lifetime PD value determined on initial recognition of an exposure in the balance sheet, with the lifetime PD value determined at the current reporting date. If an empirically determined threshold of the relative change in the lifetime PD value is exceeded, then an exposure is automatically transferred to Stage 2. The quantitative assessment does not cover exposures analysed individually.
Individual analysis contains customers identified as significantly important both for business portfolio and recovery portfolio. Credit exposures are selected for individual analysis based on materiality criteria which ensure that case-by case analysis covers at least 50% of the Group’s business corporate portfolio and 80% of the portfolio managed by entities responsible for the recovery and restructuring of corporate receivables.
Principal elements of the process of individual analysis:
1) Identification of soft signs of impairment being one of qualitative triggers of Significant Increase of Credit Risk (SICR). This process covers biggest business corporate customers, for which financial-economic situation is analysed on a quarterly basis based on latest financial statement, events connected with company activities, information concerning related entities and economic environment, expectation about future changes, etc. There was defined catalogue of so called “soft signs of impairment”, identification of which means significant increase of credit risk (SICR) and causing classification of all exposures of such customer to Stage 2.
2) Identification of impairment triggers. The Group defined impairment triggers for individual analysis and adjusted them to its operational profile.# The catalogue of triggers contains among others following elements:
▪ The economic and financial situation pointing to the Customer’s considerable financial problems,
▪ Breach of the contract, e.g., significant delays in payments of principal or interest,
▪ Stating the Customer’s unreliability in communicating information about his economic and financial situation,
▪ Permanent lack of possibility of establishing contact with the Customer in the case of violating the terms of the agreement,
▪ High probability of bankruptcy or a different type of reorganizing the Customer’s enterprise/business,
▪ Declaring bankruptcy or opening a recovery plan with respect to the Customer,
▪ Granting the Customer who has financial difficulties, facilities concerning financing conditions (restructuring).
Internal regulations allow discovering above-mentioned triggers by indicating specific cases and situations corresponding to them, with respect to triggers resulting from the Customer’s considerable financial problems, violating the critical terms of the agreement and high probability of a bankruptcy or different enterprise reorganization.
If at least one of impairment triggers has been identified during the individual analysis, all exposures of given customer are classified in Stage 3 and then detailed analysis of forecasted cash-flows should be performed. Since introducing IFRS9 the Group is using scenario approach. It means that analyst should define at least two recovery scenarios which reflect described and approved recovery strategies: the main and alternative ones with assigned probabilities of realization. The Group has defined guidelines regarding the weights used for individual scenarios. Scenarios can be based on restructuring or vindication strategy; mixed solutions are also used. The whole process of individual analysis is supported by especially dedicated Case-By-Case IT Tool especially useful in terms of calculation impairment amount with usage of scenario approach. Every scenario contains two general types of recoveries: direct cash-flows from customers and recovered amounts from collateral.
64 This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version. Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31 st December 2022
One element of the impairment calculation process is the estimation of the probability of cash flows included in the timetable, pertaining to the following items: principal, interest, and other cash flows. The probability of realizing cash flows included in the timetable results from the conducted assessment of the customer’s economic and financial situation (indication of the sources of potential repayments) must be justified and assessed based on current documentation and knowledge (broadly understood) of his situation with the inclusion of financial projections. This information is gathered by an analyst prior to the actual analysis in accordance with the guidelines specified in appropriate Group regulations. In the event of estimating the probability of cash flows for customers in the portfolio managed by restructuring-recovery departments analysts will consider the individual nature of each transaction pointing among others to the following elements which may have an impact on the value of potential cash flows:
▪ Operational strategy with respect to the Customer adopted by the Group,
▪ Results of negotiations with the customer and his attitude, i.e., willingness to settle his arrears,
▪ Improvement/deterioration of his economic and financial situation.
The Group also uses the formal terms of setting and justifying the amount of probability and amount of the payment by the Bank of funds under the extended off-balance sheet credit exposure such as guarantees and letters of credit.
The inclusion of cash flows from realization of collateral must be preceded by an analysis of how realistically it can be sold and estimation of its fair value after recovery costs. To ensure the fairness of the principles of establishing collateral recoveries, the Group prepared guidelines for corporate segment with respect to the recommended parameters of the recovery rate and recovery period for selected collateral groups. Depending on the place of the exposure in the Bank’s structure (business portfolio, restructuring-recovery portfolio) and type of exposure (credit, leasing) separate principles have been specified for portfolio types: business, restructuring-recovery, and leasing portfolio. The recommended recovery rates and period of collateral recovery are verified in annual periods.
Subject to collective analysis are the following receivables from the group of credit exposures:
▪ Individually insignificant exposures;
▪ Individually significant exposures for which there has not been recognized impairment triggers because of an individual analysis.
For the purposes of collective analysis, the Group has defined homogenous portfolios consisting of exposures with a similar credit risk profile. These portfolios have been created based on segmentation into business lines, types of credit products, number of days of default, type of collateral etc. The division into homogenous portfolios is verified from time to time for their uniformity.
65 This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version. Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31 st December 2022
The expected credit loss in a collective analysis is calculated using Probability of Default (PD), Exposure at Default (EAD), and Loss Given Default (LGD) parameters, which are the outcome of the following models:
▪ The PD model is based on empirical data concerning 12-month default rates, which are then used to estimate lifetime PD values using appropriate statistical and econometric methods. The segmentation adopted for this purpose at the customer level is consistent with the segmentation used for capital requirement calculation purposes. Additionally, the Bank has been using rating information from internal rating models to calculate PDs.
▪ The LGD models for the retail portfolio used by the Group in the capital calculation process were adjusted to IFRS 9 requirements in estimating impairment. The main components of these models are the probability of cure and the recovery rate estimated based on discounted cash flows. The necessary adaptations to IFRS 9 include, among other things, exclusion of the conservatism buffer, indirect costs, and adjustments for economic slowdown. For the corporate portfolio LGD model is based on a component determining parameterized recovery for the key types of collateral and a component determining the recovery rate for the unsecured part. All the parameters were calculated based on historical data, including discounted cash flows achieved by the corporate debt recovery unit.
▪ The EAD model used in the Group includes calculation of parameters such as: average limit utilization (LU), credit conversion factor (CCF), prepayment ratio and behavioural lifetime. Segmentation is based on the type of customer (retail, corporate, leasing) and product (products with/without a schedule).
The results of models employed in collective analysis are subject to periodical verification. The parameters and models are also covered by the process of models’ management governed by the document „Principles of Managing Credit Risk Models”, which specifies, among others, the principles of creating, approving, monitoring and validation, and historical verification of models.
In the process of calculation of expected credit losses, the Group uses forward-looking information (FLI) about future macroeconomic events. FLI is used in PD, LGD, and EAD as well as in the process of determination of SICR and allocation of exposures to Stage 2 (Transfer Logic). The Macroeconomic Analysis Office prepares three macroeconomic scenarios (baseline, optimistic and pessimistic) and determines the probability of their occurrence. Forecasts translate directly or indirectly into the values of estimated parameters and exposures and their impact vary by model, product type, rating- class etc. The Group uses macroeconomic forecasts prepared only internally. Forecasts are provided on a quarterly basis for a 3-year time horizon. As with any economic forecasts, the projections and likelihoods of occurrence are subject to a high degree of inherent uncertainty and therefore the actual outcomes may be significantly different to those projected.
66 This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version. Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31 st December 2022
The most significant period-end assumptions used for the ECL estimate as of 31 December 2022 are set out below.# Macroeconomic variable Scenario 2023 2024 2025
Base 100.7 102.6 103.4
Optimistic 101.7 103.6 103.9
Mild recession 99.2 101.2 103.2
Base 102.1 103.0 104.3
Optimistic 103.3 104.1 105.2
Mild recession 100.2 101.5 104.2
Base 5.8 6.0 5.9
Optimistic 5.2 5.0 4.9
Mild recession 7.4 7.9 7.8
The weightings assigned to each economic scenario on 31 December 2022 were as follows:
| Base | Optimistic | Mild recession | |
|---|---|---|---|
| Applied weighting | 65% | 10% | 25% |
For assessing the sensitivity of ECL for future macroeconomic conditions, the Group calculated unweighted ECL for each defined scenario separately. The impact for ECL of application of each of the scenario separately does not exceed 2.0%.
Instruction, being core document of Internal regulations, provides a detailed definition of the principle of reversing impairment losses. In principle, reversing a loss and elimination of a revaluation charge is possible in the case of cessation of the impairment triggers, including the repayment of arrears or in the case of selling receivables. Reclassification to the Non-Impaired category is possible only when the customer has successfully passed the „quarantine” period, during which he will not show delay in the repayment of principal or interest above 30 days. The quarantine period only starts counting after any eventual grace period that may be granted on the restructuring. Detailed rules regarding the applicable quarantine periods (at least 3 or 12 months for forced restructuring) and reclassification from default are in line with the EBA guidelines regarding the definition of default.
In 2022, the Group sold credit exposures classified as impaired, in the total value of PLN 338 million.
67
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31st December 2022
| 31.12.2022 | 31.12.2021 | |
|---|---|---|
| Exposures exposed to credit risk connected with balance sheet assets | 95 148 407 | 98 387 882 |
| Deposits, loans and advances to banks and other monetary institutions | 733 095 770 | 531 |
| Loans and advances to customers: | 76 565 163 | 78 603 326 |
| Mandatorily at fair value through profit or loss: | 97 982 362 | 992 |
| Loans to private individuals: | 97 916 362 | 952 |
| Receivables on account of payment cards | 74 208 264 | 628 |
| Credit in current account | 23 708 98 | 324 |
| Loans to companies and public sector | 66 40 | |
| Valued at amortized cost: | 76 467 181 | 78 240 334 |
| Loans to private individuals: | 57 761 466 | 59 182 858 |
| Receivables on account of payment cards | 977 618 745 | 735 |
| Cash loans and other loans to private individuals | 14 835 646 | 14 724 155 |
| Mortgage loans | 41 948 202 | 43 712 968 |
| Loans to companies | 18 650 655 | 18 976 250 |
| Loans to public entities | 55 060 81 | 226 |
| Financial derivatives and Adjustment from fair value hedge | 475 000 | 100 285 |
| Debt instruments held for trading | 24 210 86 | 438 |
| Debt instruments mandatorily at fair value through profit or loss | 72 057 127 | 499 |
| Debt instruments at fair value through other comprehensive income | 16 481 210 | 17 968 973 |
| Repurchase agreements | 4 863 268 | 837 |
| Other financial assets | 792 809 461 | 993 |
| Credit risk connected with off-balance sheet items | 12 830 457 | 13 882 138 |
| Financial guarantees | 2 047 856 | 1 847 442 |
| Credit commitments | 10 782 601 | 12 034 696 |
The table above presents the structure of the Group’s exposures to credit risk as of 31st December 2022 and 31st December 2021, not considering risk-mitigating instruments. As regards balance-sheet assets, the exposures presented above are based on net amounts presented in the balance sheet.
| 31.12.2022 | 31.12.2021 | |
|---|---|---|
| Mandatorily at fair value through profit or loss * | 97 982 362 | 992 |
| Companies | 66 40 | |
| Individuals | 97 916 362 | 952 |
| Public sector | 0 | 0 |
| * The above data includes the fair value adjustment, in the amount of: | (38 999) | (66 349) |
68
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31st December 2022
PLN’000, as of the end of 2022
| Stage 1 (12- month ECL) | Stage 2 (lifetime ECL) | Stage 3 (lifetime ECL) | POCI | Total | |
|---|---|---|---|---|---|
| Balance exposures exposed to credit risk | 86 503 526 | 6 692 183 | 3 330 656 | 152 407 | 96 678 772 |
| Balance impairment | 372 172 | 415 492 | 1 619 982 | 13 163 | 2 420 810 |
| Loans and advances to banks (external rating Fitch: from BBB to AAA; Moody's: from B3 to Aaa; S&P: from B+ to AAA) | 733 376 | 733 376 | |||
| Loans and advances to private individuals (according to Master Scale): | 51 740 262 | 5 182 887 | 2 706 207 | 137 197 | 59 766 553 |
| ▪ 1-3 Highest quality | 33 259 461 | 160 847 | 0 | 2 811 | 33 423 119 |
| ▪ 4-6 Good quality | 9 433 048 | 1 438 594 | 0 | 4 272 | 10 875 914 |
| ▪ 7-9 Medium quality | 6 824 965 | 1 599 355 | 0 | 5 196 | 8 429 516 |
| ▪ 10-12 Low quality | 2 215 848 | 1 313 385 | 0 | 3 241 | 3 532 475 |
| ▪ 13-14 Watched | 1 904 670 | 688 | 0 | 1 131 | 673 723 |
| ▪ 15 Default | 0 | 0 | 2 706 207 | 120 546 | 2 826 752 |
| ▪ Without rating * | 5 036 | 18 | 0 | 0 | 5 054 |
| Impairment | 254 891 | 356 129 | 1 380 931 | 13 137 | 2 005 088 |
| Loans and advances to companies (according to Master Scale): | 7 849 092 | 729 985 | 325 848 | 15 209 | 8 920 135 |
| ▪ 1-3 Highest quality | 128 755 | 11 777 | 0 | 0 | 140 532 |
| ▪ 4-6 Good quality | 1 972 706 | 84 885 | 0 | 0 | 2 057 591 |
| ▪ 7-9 Medium quality | 3 571 405 | 209 531 | 0 | 0 | 3 780 936 |
| ▪ 10-12 Low quality | 1 056 509 | 380 069 | 0 | 0 | 1 436 579 |
| ▪ 13-14 Watched | 0 | 19 628 | 0 | 0 | 19 628 |
| ▪ 15 Default | 0 | 0 | 325 587 | 15 209 | 340 797 |
| ▪ Without rating * | 1 119 717 | 24 095 | 261 | 0 | 1 144 072 |
| Impairment | 63 479 | 28 945 | 159 697 | 26 252 | 147 |
| Loans and advances to public entities (according to Master Scale): | 54 187 | 0 | 0 | 0 | 54 187 |
| ▪ -3 Highest quality | 0 | 0 | 0 | 0 | 0 |
| ▪ 4-6 Good quality | 0 | 0 | 0 | 0 | 0 |
| ▪ 7-9 Medium quality | 0 | 0 | 0 | 0 | 0 |
| ▪ 10-12 Low quality | 0 | 0 | 0 | 0 | 0 |
| ▪ 13-14 Watched | 0 | 0 | 0 | 0 | 0 |
| ▪ 15 Default | 0 | 0 | 0 | 0 | 0 |
| ▪ Without rating* | 54 187 | 0 | 0 | 0 | 54 187 |
| Impairment | 115 | 0 | 0 | 0 | 115 |
| Factoring (according to Master Scale): | 2 822 857 | 147 251 | 16 467 | 0 | 2 986 576 |
| ▪ 1-3 Highest quality | 2 126 | 0 | 0 | 0 | 2 126 |
| ▪ 4-6 Good quality | 1 090 884 | 3 729 | 0 | 0 | 1 094 613 |
| ▪ 7-9 Medium quality | 1 286 389 | 99 826 | 0 | 0 | 1 386 215 |
| ▪ 10-12 Low quality | 409 431 | 43 673 | 0 | 0 | 453 104 |
| ▪ 13-14 Watched | 0 | 0 | 0 | 0 | 0 |
| ▪ 15 Default | 0 | 0 | 16 467 | 0 | 16 467 |
| ▪ Without rating * | 34 027 | 23 | 0 | 0 | 34 050 |
| Impairment | 20 014 | 2 869 | 9 546 | 0 | 32 429 |
| Leasing (according to Master Scale): | 6 246 413 | 632 059 | 282 134 | 0 | 7 160 606 |
| ▪ 1-3 Highest quality | 109 660 | 8 218 | 0 | 0 | 117 879 |
| ▪ 4-6 Good quality | 570 666 | 13 979 | 82 | 0 | 584 726 |
| ▪ 7-9 Medium quality | 1 163 252 | 75 029 | 44 | 0 | 1 238 325 |
| ▪ 10-12 Low quality | 533 536 | 47 263 | 0 | 0 | 580 800 |
| ▪ 13-14 Watched | 0 | 5 723 | 0 | 0 | 5 723 |
| ▪ 15 Default | 0 | 0 | 280 267 | 0 | 280 267 |
| ▪ Without rating * | 3 869 298 | 481 846 | 1 742 | 0 | 4 352 886 |
| Impairment | 33 673 | 27 549 | 69 808 | 0 | 131 031 |
69
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31st December 2022
PLN’000, as of the end of 2022
| Stage 1 (12- month ECL) | Stage 2 (lifetime ECL) | Stage 3 (lifetime ECL) | POCI | Total | |
|---|---|---|---|---|---|
| Derivatives and adjustment from fair value hedge (according to Master Scale): | 475 000 | 0 | 0 | 0 | 475 000 |
| ▪ 1-3 Highest quality | 179 635 | 179 635 | |||
| ▪ 4-6 Good quality | 63 791 | 63 791 | |||
| ▪ 7-9 Medium quality | 18 068 | 18 068 | |||
| ▪ 10-12 Low quality | 5 261 | 5 261 | |||
| ▪ 13-14 Watched | 5 | 5 | |||
| ▪ 15 Default | 0 | 0 | 0 | ||
| ▪ Without rating | 72 436 | 72 436 | |||
| ▪ fair value adjustment due to hedge accounting | 0 | 0 | |||
| ▪ Valuation of future FX payments | 0 | 0 | |||
| ▪ Hedging derivative | 135 804 | 135 804 | |||
| Trading debt securities (State Treasury** bonds) | 24 210 | 24 210 | |||
| Debt securities mandatorily at fair value through profit or loss | 72 057 | 72 057 | |||
| Investment debt securities (State Treasury , Central Bank, Local Government, EIB) | 16 481 210 | 16 481 210 | |||
| Receivables from securities bought with sell-back clause | 4 863 | 4 863 | |||
| * - the group of clients without an internal rating includes, among others, exposures related to loans to local government units as well as investment projects and some leasing clients; ** – rating for Poland in 2022 A- (S&P), A2 (Moody’s), A- (Fitch) |
PLN’000, as of the end of 2021
| Stage 1 (12- month ECL) | Stage 2 (lifetime ECL) | Stage 3 (lifetime ECL) | POCI | Total | |
|---|---|---|---|---|---|
| Balance exposures exposed to credit risk | 92 585 900 | 3 841 024 | 3 269 181 | 241 276 | 99 937 381 |
| Balance impairment | 340 172 | 296 298 | 1 722 517 | 15 259 | 2 374 246 |
| Loans and advances to banks (external rating Fitch: from BBB to AAA; Moody's: from B3 to Aaa; S&P: from B+ to AAA) | 770 770 | 770 770 | |||
| Loans and advances to private individuals (according to Master Scale): | 55 562 450 | 2 808 509 | 2 462 479 | 241 217 | 61 074 655 |
| ▪ 1-3 Highest quality | 36 891 356 | 113 844 | 0 | 3 235 | 37 008 435 |
| ▪ 4-6 Good quality | 10 534 893 | 416 400 | 0 | 6 736 | 10 958 029 |
| ▪ 7-9 Medium quality | 6 564 080 | 952 980 | 0 | 8 223 | 7 525 283 |
| ▪ 10-12 Low quality | 1 549 913 | 828 615 | 0 | 4 201 | 2 382 729 |
| ▪ 13-14 Watched | 5 379 496 | 627 | 0 | 2 997 | 505 003 |
| ▪ 15 Default | 0 | 0 | 2 462 254 | 215 817 | 2 678 071 |
| ▪ Without rating * | 16 829 | 43 225 | 8 | 17 | 105 |
| Impairment | 224 192 | 250 421 | 1 401 696 | 15 490 | 1 891 799 |
| Loans and advances to companies (according to Master Scale): | 8 391 177 | 410 854 | 561 891 | 59 | 9 363 981 |
| ▪ 1-3 Highest quality | 108 751 | 1 526 | 0 | 0 | 110 277 |
| ▪ 4-6 Good quality | 2 056 585 | 19 171 | 0 | 0 | 2 075 756 |
| ▪ 7-9 Medium quality | 3 683 368 | 69 822 | 0 | 0 | 3 753 190 |
| ▪ 10-12 Low quality | 1 136 115 | 297 168 | 0 | 0 | 1 433 283 |
| ▪ 13-14 Watched | 0 | 10 043 | 0 | 0 | 10 043 |
| ▪ 15 Default | 0 | 0 | 561 891 | 59 | 561 950 |
| ▪ Without rating * | 1 406 358 | 13 124 | 0 | 0 | 1 419 482 |
| Impairment | 68 447 | 18 872 | 216 026 | (231) | 303 114 |
70
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
Annual Consolidated Financial Report of the Bank Millennium S.A.# Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31st December 2022
The gross amount of impaired loans and advances broken down into customer segments is as follows:
| Loans and advances to customers | Loans and advances to banks | Total Companies | Mortgages | Other retail | |
|---|---|---|---|---|---|
| By type of analysis | |||||
| Case by case analysis | 354 497 | 147 889 | 1 988 | 0 | 504 374 |
| Collective analysis | 284 899 | 982 991 | 1 693 885 | 0 | 2 961 775 |
| Total | 639 396 | 1 130 880 | 1 695 873 | 0 | 3 466 149 |
| Loans and advances to customers | Loans and advances to banks | Total Companies | Mortgages | Other retail | |
|---|---|---|---|---|---|
| By type of analysis | |||||
| Case by case analysis | 598 790 | 217 799 | 3 873 | 0 | 820 462 |
| Collective analysis | 207 970 | 744 084 | 1 712 540 | 0 | 2 664 594 |
| Total | 806 760 | 961 883 | 1 716 413 | 0 | 3 485 056 |
The quantification of the value of the portfolio subjected to case-by-case analysis as well as of the value of created charges, split between impaired receivables (and respectively charges) is presented in financial notes. The tables below present the structure of the impaired portfolio subjected to case-by-case analysis.
| 31.12.2022 | 31.12.2021 | |
|---|---|---|
| Amount in ‘000 PLN | Share % | |
| PLN | 360 475 | 71,5% |
| CHF | 74 311 | 14,7% |
| EUR | 69 588 | 13,8% |
| USD | 0 | 0,0% |
| SEK | 0 | 0,0% |
| Total (Case by Case impaired) | 504 374 | 100,0% |
| 31.12.2022 | 31.12.2021 | |
|---|---|---|
| Amount in ‘000 PLN | Share % | |
| Up to 20% | 217 856 | 43,2% |
| 20% - 40% | 95 737 | 19,0% |
| 40% - 60% | 59 213 | 11,7% |
| 60% - 80% | 98 809 | 19,6% |
| Above 80% | 32 759 | 6,5% |
| Total (Case by Case impaired) | 504 374 | 100,0% |
At the end of 2022, the financial impact from the established collaterals securing the Group’s receivables with impairment recognized under individual analysis (Case by Case) amounted to PLN 244.4 million (at the end of 2021 respectively PLN 397.6 million). It is the amount, by which the level of required provisions assigned to relevant portfolio would be higher if flows from collaterals were not to be considered in individual analysis.
The restructuring of receivables is done by dedicated units (separately for corporate and retail receivables). The restructuring of both corporate and retail receivables allows the Group to take effective action towards the customers, the purpose of which is to minimize losses and mitigate, as quickly as possible, any risks to which the Group is exposed in connection with client transactions giving rise to the Group's off-balance sheet receivables or liabilities. The restructuring process applies to the receivables which, based on the principles in place in the Group, are transferred to restructuring and recovery portfolios and includes setting new terms of transactions which are acceptable for the Group (including the terms of their repayment and their collateral and possibly obtaining additional collateral).
Recovery of retail receivables is a fully centralized process implemented in two stages:
▪ monitoring and amicable debt collection proceedings - conducted by Retail Liabilities Monitoring and Collection Department,
▪ restructuring and execution proceedings – implemented by Retail Liabilities Restructuring and Recovery Department.
Process performed by Retail Liabilities Monitoring and Collection Department involves direct telephone contacts with Customers and obtaining repayment of receivables due to the Group. In case of failure to receive repayment or in case the Customer applies for debt restructuring, the case is taken over by the Retail Liabilities Restructuring and Recovery Department and involves all restructuring and execution activities. Recovery process is supported by specialized IT system covering the entire Customer portfolio, fully automated at the stage of portfolio monitoring and supporting actions undertaken in later restructuring and recovery phases. The behavioural scoring model constitutes an integral component of the system, used at the warning stage. The system is used for retail liabilities collection process applicable to all retail Customer segments. The scoring model is based on internal calculations including, inter alia, Customer’s business segment type of credit risk-based product (applicable, primarily, to mortgage products) and history of cooperation with the Customer relative to previous restructuring and execution activities. Late receivables from retail customers are sent to the IT system automatically no later than 4 days after the date of the receivable becoming due and payable.
The restructuring and recovery process applicable to corporate receivables (i.e., balance and off- balance receivables due from corporate and SME customers) is centralized and performed by the Corporate Recovery Department. Recovery of corporate receivables aims to maximize the recovery amounts and to mitigate risk incurred by the Group in the shortest possible periods of time by carrying out the accepted restructuring and recovery strategies towards:
▪ the customer,
▪ corporate receivables,
▪ collateral ensuring their repayment.
The actions performed as part of those strategies include, among others: setting the terms and conditions of Customer financing, terms and conditions of restructuring corporate receivables (also within court restructuring proceedings), including the terms on which they will be repaid and secured, obtaining valuable and liquid collateral, achieving amicable repayment, recovery of due and payable receivables (also by court executive officer), also from collateral, actions performed within debtors’ bankruptcy proceedings, conducting required legal actions. Corporate Recovery Department manages the corporate receivable restructuring and recovery process by using IT applications supporting the decision-making process and monitoring. They provide instantaneous information on receivables, collateral, approach used and key actions and dates. All restructured exposures are classified directly after signing sufficient annex/agreement to Stage 3. In terms of regular payments such exposure can be cured when fulfil internally defined quarantine rules in accordance with EBA Guidelines concerning New Definition of Default. Cured restructured cases are classified to Stage 2 for at least following 2 years after cure in accordance with EBA technical standards for forborne exposures.The table below presents the loan portfolio with recognized impairment managed by the Group’s organizational units responsible for loan restructuring. Gross exposure in ‘000 PLN
| 31.12.2022 | 31.12.2021 | |
|---|---|---|
| Loans and advances to private individuals | 1 489 221 | 1 102 917 |
| Loans and advances to companies | 209 193 | 215 258 |
| Total | 1 698 414 | 1 318 175 |
Exposures subject to measures applied in response to the COVID-19 crisis (in ‘000 PLN)
Information on loans and advances subject to legislative and non-legislative moratoria, TOTAL
| Performing | Accumulated impairment | Performing | Accumulated impairment | |
|---|---|---|---|---|
| Of which: grace period of capital and interest | ||||
| Of which: Instruments with significant increase in credit risk since initial recognition but not credit-impaired (Stage 2) | ||||
| Loans and advances subject to moratorium | 0 | 0 | 0 | 0 |
| of which: Households | 0 | 0 | 0 | 0 |
| of which: Collateralised by residential immovable property | 0 | 0 | 0 | 0 |
| of which: Non-financial corporations | 0 | 0 | 0 | 0 |
| of which: Small and Medium-sized Enterprises | 0 | 0 | 0 | 0 |
| of which: Collateralised by commercial immovable property | 0 | 0 | 0 | 0 |
74 This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version. Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31 st December 2022
Loans and advances subject to legislative and non-legislative moratoria
| Non-performing | Inflows to non-performing exposures | Gross carrying amount | Non-performing | Of which: Unlikely to pay that are not past-due or past-due | Gross carrying amount | <= 90 days | |
|---|---|---|---|---|---|---|---|
| Loans and advances subject to moratorium | 0 | 0 | 0 | 0 | |||
| of which: Households | 0 | 0 | 0 | 0 | |||
| of which: Collateralised by residential immovable property | 0 | 0 | 0 | 0 | |||
| of which: Non-financial corporations | 0 | 0 | 0 | 0 | |||
| of which: Small and Medium-sized Enterprises | 0 | 0 | 0 | 0 | |||
| of which: Collateralised by commercial immovable property | 0 | 0 | 0 | 0 |
Information on loans and advances subject to legislative and non-legislative moratoria,
| Non-performing | Accumulated impairment | Non-performing | Accumulated impairment | |
|---|---|---|---|---|
| Of which: grace period of capital and interest | ||||
| Of which: Unlikely to pay that are not past-due or past-due | ||||
| <= 90 days | ||||
| Loans and advances subject to moratorium | 0 | 0 | 0 | 0 |
| of which: Households | 0 | 0 | 0 | 0 |
| of which: Collateralised by residential immovable property | 0 | 0 | 0 | 0 |
| of which: Non-financial corporations | 0 | 0 | 0 | 0 |
| of which: Small and Medium-sized Enterprises | 0 | 0 | 0 | 0 |
| of which: Collateralised by commercial immovable property | 0 | 0 | 0 | 0 |
Breakdown of loans and advances subject to legislative and non-legislative moratoria by residual maturity of moratoria,
| Gross carrying amount | Number of obligors | TOTAL | Of which: | Of which: | |
|---|---|---|---|---|---|
| legislative moratoria expired | |||||
| Loans and advances for which moratorium was offered | 49 409 | 5 708 | 466 | ||
| Loans and advances subject to moratorium (granted) | 49 175 | 5 146 | 437 | 8 920 | 5 146 |
| of which: Households | 4 607 | 391 | 8 920 | 4 607 | 391 |
| of which: Collateralised by residential immovable property | 3 540 | 138 | 7 735 | 3 540 | 138 |
| of which: Non-financial corporations | 539 047 | 0 | 539 047 | ||
| of which: Small and Medium-sized Enterprises | 280 934 | 0 | 280 934 | ||
| of which: Collateralised by commercial immovable property | 56 739 | 0 | 56 739 |
75 This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version. Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31 st December 2022
Breakdown of loans and advances subject to legislative and non-legislative moratoria by residual maturity of moratoria,
| Gross carrying amount | Residual maturity of moratoria | ||||||
|---|---|---|---|---|---|---|---|
| <= 3 months | > 3 months | > 6 months | > 9 months | > 1 year | <= 6 months | ||
| Loans and advances subject to moratorium (granted) | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| of which: Households | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| of which: Collateralised by residential immovable property | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| of which: Non-financial corporations | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| of which: Small and Medium-sized Enterprises | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| of which: Collateralised by commercial immovable property | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
Information on newly originated loans and advances provided under newly applicable public guarantee schemes introduced in response to COVID-19 crisis
| Gross carrying amount | Gross carrying amount | Inflows to non-performing exposures | |
|---|---|---|---|
| TOTAL | of which: forborne | ||
| Newly originated loans and advances subject to public guarantee schemes | 1 667 104 | 2 573 | 33 202 |
| of which: Households | 0 | 0 | |
| of which: Collateralised by residential immovable property | 0 | 0 | |
| of which: Non-financial corporations | 1 667 104 | 2 573 | 33 202 |
| of which: Small and Medium-sized Enterprises | 831 381 | 11 179 | |
| of which: Collateralised by commercial immovable property | 0 | 0 |
(3f) Collateral transferred to the Group
In 2022 there were no major seizures by the Bank or sale of fixed assets constituting loan collateral. The above situation was caused by the implementation of other more cost-effective paths of satisfying oneself from lien or transfers of title (more effective in terms of time and money with the limitation of costs), i.e., leading to the sale of the object of collateral under the Bank’s supervision and with the allocation of obtained sources for repayment. A variety of such action is concluding agreements with official receivers based on which the receiver for an agreed fee secures and stores objects of collateral and in agreement with the Bank puts them up for sale and sells them (also as part of selling organized parts or the debtor’s whole enterprise). Funds obtained in such a way are allocated directly for repayment of the Bank’s receivables (such debt-collection procedure is implemented without recording transferred collateral on the so-called “Fixed Assets for Sale”). At the same time, a subsidiary of Bank - Millennium Leasing, takes control over some of assets leased and leads active measures aimed at their disposal. Data about the value of these assets and their changes during the reporting period are shown in note (30) "Non-current assets held for sale” of the consolidated balance sheet.
76 This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version. Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31 st December 2022
(3g) Policy for writing off receivables
Credit exposures, with respect to which the Group no longer expects any cash flows to be recovered and for which impairment provisions (or fair value adjustments in case of overdue receivables originated from derivatives) have been created fully covering the outstanding debt are written-off the balance sheet against said provisions and transferred to off-balance. This operation does not cause the debt to be cancelled and the legal and recovery actions, reasonable from the economic point of view, are not interrupted to enforce repayment. In most of cases the Group writes off receivables against impairment provisions when said receivables are found to be unrecoverable i.e., among other things:
Gross exposure write-offs in ‘000 PLN
| In 2022 | Loans and advances to customers | Loans and advances to banks | Total | Companies | Mortgages | Other retail |
|---|---|---|---|---|---|---|
| Receivables written-off excluded from enforcement activity | 10 807 | 8 485 | 27 356 | 0 | 46 648 | |
| Receivables written-off being subject to enforcement activity | 72 547 | 0 | 173 496 | 0 | 246 043 | |
| Total written-off | 83 355 | 8 485 | 200 852 | 0 | 292 691 |
Gross exposure write-offs in ‘000 PLN
| In 2021 | Loans and advances to customers | Loans and advances to banks | Total | Companies | Mortgages | Other retail |
|---|---|---|---|---|---|---|
| Receivables written-off excluded from enforcement activity | 12 013 | 7 605 | 48 765 | 0 | 68 383 | |
| Receivables written-off being subject to enforcement activity | 170 385 | 5 088 | 100 977 | 0 | 276 450 | |
| Total written-off | 182 398 | 12 693 | 149 742 | 0 | 344 833 |
(3h) Concentration of risks of financial assets with exposure to credit risk
Economy sectors
The table below presents the Group’s main categories of credit exposure broken down into components, according to category of customers.
77 This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version. Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31 st December 2022
31.12.2022
| Financial intermediation | Industry and constructions | Wholesale and retail business | Transport and communication | Public sector | Mortgage loans | Consumer loans* | Other sectors | Total | |
|---|---|---|---|---|---|---|---|---|---|
| Loans and advances to banks | 733 376 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 733 376 |
| Loans and advances to customers (Amortized cost) | 252 431 | 5 894 552 | 5 729 350 | 2 824 157 | 33 187 | 42 596 972 | 17 169 580 | 4 387 761 | 78 887 990 |
| Loans and advances to customers (FAIR VALUE) | 0 | 6 4 | 50 | 0 | 0 | 97 916 | 6 97 | 982 | 982 |
| Trading securities | 27 | 69 | 8 | 8 | 24 210 | 0 | 0 | 1 24 | 323 |
| Instruments valued at amort. |
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
The market risk encompasses current and prospective impact on earnings or capital, arising from changes in the value of the Group’s portfolio due to adverse movement in interest rates, foreign exchange rates or prices of bonds, equities, or commodities. The interest rate risk arising from Banking Book activities (IRRBB) encompasses current or prospective impact to both the earnings and the economic value of the Group’s portfolio arising from adverse movements in interest rates that affect interest rate sensitive instruments. The risk includes gap risk, basis risk and option risk. The framework of market risk and interest rate risk management and its control are defined on a centralized basis with the use of the same concepts and metrics which are used in all the entities of the BCP Group.
The Group’s market risk measurement allows monitoring of all the risk types, which are generic risk (including interest rate risk, foreign exchange risk, and equity risk), non-linear risk, specific risk, and commodity risk. In 2022 the commodities risk did not exist in the Group. The equity risk assumed to be irrelevant since the Group’s engagement in equity instruments is immaterial. Each market risk type is measured individually using an appropriate risk model and then integrated measurement of total market risk is built from those assessments without considering any type of diversification between the four risk types (the worst-case scenario). The main measure used by the Group to evaluate market risks (interest rate risk, foreign exchange risk, equity risk) is the parametric VaR (Value at Risk) model – an expected loss that may arise on the portfolio over a specified period (holding period) and with specified probability (confidence level) from an adverse market movement. The Value at Risk in the Group (VaR) is calculated considering the holding period of ten working days and a 99% confidence level (one tail). In line with regulatory requirements of CRD / CRR, the volatility associated with each market risk vertex considered in the VaR model (and respective correlation between them) has been estimated by the equally weighted changes of market parameters using the effective observation period of historical data of last year. The EWMA method (exponentially weighted moving average method) with effectively shorter observation period is only justified by a significant upsurge in price volatility. To monitor and limit the positions in instruments, for which it is not possible to accurately assess market risk with the use of the VaR model (non-linear risk, commodity risk and specific risk), the appropriate assessment rules were defined. The non-linear risk is measured according to internally developed methodology which is in line with the VaR methodology – the same time horizon and significant level is used. Specific and commodities’ risks are measured through standard approach defined in supervisory regulations, with a corresponding change of the time horizon considered. The market risk measurement is carried out daily (intra-day and end-of-day), both on an individual basis for each of the areas responsible for risk taking and risk management, and in consolidated terms for Global Bank, Trading and Banking Book considering the effect of the diversification that exists between the portfolios. In addition, each Book is divided into the risk management areas.
To ensure that the VaR model adopted is appropriate for the evaluation of the risks involved in the open positions, a back-testing process has been instituted and is carried out daily. All reported excesses are documented. This includes an explanation of their causes and their incorporation in one of the three classes of excess explanation: adequacy of the model, insufficient model accuracy or unanticipated market movements. Parallel to the VaR calculation the portfolios are subject to a set of sensitivity analysis and stress scenarios, to:
* Estimate the potential economic loss resulting from extreme variations in market risk factors,
* Identify the market risk movements, possibly not captured by VaR, to which the portfolios are more sensitive,
* Identify the actions that can be taken to reduce the impact of extreme variations in the risk factors.
The following types of market scenarios are being applied:
* Parallel shifts of the yield curves;
* More steep or flat shape of the yield curves;
* Variations of the exchange rates;
* Historical adverse scenarios;
* Customized scenarios based on observed, adverse changes of market risk parameters.
The global VaR limit is expressed as a fraction of the consolidated Own Funds. The limit is divided into the books, risk management areas and several types of risk, which enables the Group for full measurement, monitoring and control of market risk. The market risk exposure (VaR) together with the limit utilization is reported daily to all areas responsible for management and control of market risk in the Group. The market risk limits are revised at least once a year and to consider, inter alia, the change of the consolidated Own Funds, current and projected balance sheet structure as well as the market environment. The market risk limits valid for 2022 reflected the assumptions and risk appetite defined under Risk Strategy 2022 - 2024.
Taking into consideration segments and activity sectors concentration risk, the Group defines internal concentration limits in accordance with the risk tolerance allowing it to keep well diversified loan portfolio. The main items of loan book are mortgage loans (53.9%) and cash loans (18.8%). The portfolio of loans to companies (including leasing) from different sectors like industry, construction, transport and communication, retail and wholesale business, financial intermediation and public sector represents almost 24% of the total portfolio.
| Sector name | 2022 Balance Exposure (PLN million) | Share (%) | 2021 Balance Exposure (PLN million) | Share (%) |
|---|---|---|---|---|
| Credits for individual persons | 59 903.4 | 75.8% | 61 503.7 | 75.9% |
| Mortgage | 42 597.0 | 53.9% | 44 288.6 | 54.6% |
| Cash loan | 14 893.9 | 18.8% | 14 831.6 | 18.3% |
| Credit cards and other | 2 412.5 | 3.1% | 2 383.5 | 2.9% |
| Credit for companies* | 19 121.5 | 24.2% | 19 540.2 | 24.1% |
| Wholesale and retail trade; repair | 5 729.4 | 7.3% | 5 741.5 | 7.1% |
| Manufacturing | 4 696.0 | 5.9% | 4 846.1 | 6.0% |
| Construction | 1 198.6 | 1.5% | 1 193.6 | 1.5% |
| Transportation and storage | 2 824.2 | 3.6% | 2 853.3 | 3.5% |
| Public administration and defence | 33.2 | 0.0% | 53.4 | 0.1% |
| Information and communication | 1 086.4 | 1.4% | 1 066.0 | 1.3% |
| Other Services | 1 144.8 | 1.4% | 1 245.2 | 1.5% |
| Financial and insurance activities | 252.4 | 0.3% | 179.2 | 0.2% |
| Real estate activities | 883.0 | 1.1% | 1 164.3 | 1.4% |
| Professional, scientific, and technical services | 363.2 | 0.5% | 285.2 | 0.3% |
| Mining and quarrying | 82.4 | 0.1% | 91.5 | 0.1% |
| Water supply, sewage, and waste | 159.7 | 0.2% | 164.2 | 0.2% |
| Electricity, gas, water | 102.8 | 0.1% | 137.2 | 0.2% |
| Accommodation and food service activities | 217.1 | 0.3% | 195.4 | 0.2% |
| Education | 69.8 | 0.1% | 64.3 | 0.1% |
| Agriculture, forestry, and fishing | 107.1 | 0.1% | 93.2 | 0.1% |
| Human health and social work activities | 131.5 | 0.2% | 130.3 | 0.2% |
| Culture, recreation, and entertainment | 39.9 | 0.1% | 36.3 | 0.0% |
| Total (gross) | 79 025.0 | 100.0% | 81 043.9 | 100.0% |
* incl. Microbusiness, annual turnover below PLN 5 million
Concentration ratio of the 20 largest customers in the Group’s loan portfolio (considering groups of connected entities) at the end of 2022 equals 6.1% comparing with 6.2% at the end of 2021. Concentration ratio in 2021 for the 10 largest customers increased: to 4.7% from 4.5% at the end of the previous year.
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
| cost | 398 828 | 0 | 0 | 0 | 3 494 | 390 000 | 0 | 0 | 0 | 3 893 218 | |
|---|---|---|---|---|---|---|---|---|---|---|---|
| Instruments mandatorily at fair value through P&L | 201 036 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 201 036 | ||
| Derivatives and adjustment due to fair value hedge | 434 413 | 28 040 | 11 530 | 251 | 0 | 0 | 0 | 766 475 | 000 | ||
| Investment securities | 24 033 | 4 996 | 0 | 313 | 16 481 | 222 | 0 | 0 | 39 16 510 | 603 | |
| Repurchase agreements | 4 863 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 4 863 | ||
| Total | 2 049 007 | 5 927 663 | 5 740 892 | 2 824 779 | 20 033 009 | 42 596 972 | 17 267 496 | 4 388 573 | 100 828 391 | ||
| * Including: credit cards, cash loans, current accounts overdrafts | |||||||||||
| 31.12.2021 | |||||||||||
| Financial intermediation | |||||||||||
| Industry and constructions | |||||||||||
| Wholesale and retail business | |||||||||||
| Transport and communication | |||||||||||
| Public sector | |||||||||||
| Mortgage loans | |||||||||||
| Consumer loans* | |||||||||||
| Other sectors | |||||||||||
| Total | |||||||||||
| Loans and advances to banks | 770 770 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 770 770 | ||
| Loans and advances to customers (Amortized cost) | 179 229 | 6 039 623 | 5 741 512 | 2 853 161 | 53 419 | 44 288 635 | 16 786 020 | 4 672 981 | 80 614 580 | ||
| Loans and advances to customers (FAIR VALUE) | 0 | 12 1 | 16 | 0 | 0 | 362 952 | 11 362 992 | 0 | 0 | ||
| Trading securities | 53 | 32 | 0 | 12 | 86 438 | 0 | 0 | 48 | 86 583 | ||
| Instruments valued at amort. cost | 0 | 0 | 0 | 0 | 37 089 | 0 | 0 | 0 | 37 089 | ||
| Instruments mandatorily at fair value through P&L | 265 903 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 265 903 | ||
| Derivatives and adjustment due to fair value hedge | 59 698 | 28 040 | 11 530 | 251 | 0 | 0 | 0 | 766 100 | 285 | ||
| Investment securities | 28 374 | 5 004 | 0 | 307 | 17 968 | 984 | 0 | 0 | 34 18 002 | 703 | |
| Repurchase agreements | 268 837 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 268 837 | ||
| Total | 1 572 864 | 6 072 711 | 5 753 043 | 2 853 747 | 18 145 930 | 44 288 635 | 17 148 972 | 4 673 840 | 100 509 742 | ||
| * Including: credit cards, cash loans, current accounts overdrafts | |||||||||||
| 78 | The current limits in place have been valid since 1st June 2022 and remains conservative - nominal level for Global Bank is equivalent to no more than 7.9% and for Trading Book at 0.34% of Own Funds. Within the current market environment, the Group continued to act very prudently. The strong market volatility in connection with the war in Ukraine as well as with Monetary Policy Council’s (MPC’s) series of decisions to increase interest rates in Poland resulted in increased Group’s market risk. The VaR limits were not breached for Trading Book. However, due to high market volatility and relatively low levels of internal limits, the VaR in Banking Book and in consequences for the Group (jointly Trading Book and Banking Book) remained above limits in place between January 2022 and August 2022. It should be noted that the value at risk in Banking Book is only complementary risk measurement tool as positions are expected to be held to maturity and are normally not marked to market (see next section - Interest rate risk in Banking Book, IRRBB). All excesses of market risk limits are always reported, documented, and ratified at the proper competence level. In 2022 the VaR indicators for the Group remained on average at the level of PLN 456.6 million (124% of the limit) and PLN 372.7 million (67% of the limit) as of the end of December 2022. The diversification effect applies to the generic risk and reflects correlation between its constituents. The low level of diversification effect relates to the fact that the Group’s market risk is mainly the interest rate risk. The figures in the Table below also include the exposures to market risk generated in subordinated companies, as the Bank manages market risk at central level. |
81 This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version. Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31st December 2022
| VaR (2022) | 31.12.2021 | Average | Maximum | Minimum | 31.12.2022 |
|---|---|---|---|---|---|
| Total risk | 391 280 | 456 628 | 736 729 | 270 212 | 372 712 |
| Generic risk | 389 833 | 451 590 | 735 324 | 257 021 | 359 279 |
| Interest Rate Risk | 389 761 | 451 587 | 735 219 | 257 020 | 359 270 |
| FX Risk | 232 113 | 2 958 | 13 229 | ||
| Diversification Effect | 0.0% | 0.1% | |||
| Specific risk | 1 445 | 5 035 | 13 465 | 1 375 | 13 432 |
| VaR (2021) | 31.12.2020 | Average | Maximum | Minimum | 31.12.2021 |
|---|---|---|---|---|---|
| Total risk | 96 894 | 161 704 | 586 186 | 63 847 | 391 280 |
| Generic risk | 95 256 | 160 151 | 584 728 | 62 220 | 389 833 |
| Interest Rate Risk | 95 227 | 160 153 | 584 748 | 62 224 | 389 761 |
| FX Risk | 190 149 | 2 917 | 8 232 | ||
| Diversification Effect | 0.2% | 0.0% | |||
| Specific risk | 1 638 | 1 542 | 1 641 | 1 445 | 1 445 |
| VaR (2022) | 31.12.2021 | Average | Maximum | Minimum | 31.12.2022 |
|---|---|---|---|---|---|
| Total risk | 390 289 | 455 758 | 731 045 | 270 331 | 372 708 |
| Generic risk | 388 846 | 450 725 | 729 643 | 257 143 | 359 277 |
| Interest Rate Risk | 388 846 | 450 725 | 729 643 | 257 143 | 359 277 |
| FX Risk | 0 | 0 | 0 | 0 | 0 |
| Diversification Effect | 0.0% | 0.0% | |||
| Specific risk | 1 443 | 5 033 | 13 463 | 1 373 | 13 430 |
| VaR (2021) | 31.12.2020 | Average | Maximum | Minimum | 31.12.2021 |
|---|---|---|---|---|---|
| Total risk | 95 897 | 161 824 | 585 895 | 63 897 | 390 289 |
| Generic risk | 94 261 | 160 285 | 584 441 | 62 273 | 388 846 |
| Interest Rate Risk | 94 261 | 160 290 | 584 441 | 62 276 | 388 846 |
| FX Risk | 0 | 72 249 | 0 | 0 | |
| Diversification Effect | 0.0% | 0.0% | |||
| Specific risk | 1 636 | 1 539 | 1 639 | 1 443 | 1 443 |
| VaR (2022) | 31.12.2021 | Average | Maximum | Minimum | 31.12.2022 |
|---|---|---|---|---|---|
| Total risk | 2 518 | 3 111 | 9 532 | 743 | 1 336 |
| Generic risk | 2 514 | 3 106 | 9 528 | 741 | 1 334 |
| Interest Rate Risk | 2 485 | 3 090 | 9 507 | 734 | 1 310 |
| FX Risk | 228 113 | 2 961 | 13 240 | ||
| Diversification Effect | 7.9% | 16.2% | |||
| Specific risk | 2 | 2 | 18 | 2 | 2 |
| VaR (2021) | 31.12.2020 | Average | Maximum | Minimum | 31.12.2021 |
|---|---|---|---|---|---|
| Total risk | 1 239 | 1 645 | 5 860 | 424 | 2 518 |
| Generic risk | 1 237 | 1 632 | 5 858 | 422 | 2 514 |
| Interest Rate Risk | 1 190 | 1 610 | 5 850 | 420 | 2 485 |
| FX Risk | 183 100 | 2 940 | 9 228 | ||
| Diversification Effect | 11.0% | 7.9% | |||
| Specific risk | 2 | 2 | 5 | 2 | 2 |
Open positions mostly included interest-rate instruments and FX risk instruments. The FX risk covers all the foreign exchange exposures of the Group. According to the Risk Strategy approved in the Group, the FX open position is allowed, however should be kept at low levels. For this purpose, the Group has introduced a system of conservative limits for FX open positions (both Intraday and Overnight limits) and allows keeping FX open positions only in Trading Book. In 2022, as a rule FX position generated in the Banking Book was fully transferred to the Trading Book where it was managed daily. During 2022 the FX open position remained on average at the level of PLN 10.5 million with maximum of PLN 42.3 million. In 2022, the FX Total open position (Intraday as well as Overnight) remained below 2% of Own Funds and well below the maximum limits in place.
| Total position | Period Average | Period Minimum | Period Maximum | The Last Day of Period |
|---|---|---|---|---|
| 2022 | 10 549 | 2 126 | 42 300 | 6 202 |
| 2021 | 9 464 | 3 153 | 59 313 | 10 021 |
In addition to above mentioned market risk limits, the stop loss limits are introduced for the financial markets’ portfolios. The aim is to limit the maximum losses of the trading activity of the Group. In case the limit is reached, a review of the management strategy and assumptions for the positions in question must be undertaken.
83 This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version. Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31st December 2022
In the back-testing calculation for VaR model in Global Bank, four excesses were detected during the last twelve months (see table below, PLN thousand).
| Reporting Date | VaR (generic risk) | Theoretical change in the value of the portfolio (absolute values) | Number of excesses in last 12 months * |
|---|---|---|---|
| 2022-12-31 | 359 279 | 100 072 | 4 |
| 2021-12-31 | 389 833 | 4 056 | 19 |
In 2022, all excesses in the process of VaR model back testing were caused by unanticipated market movements caused mainly by the war in Ukraine uncertainty and MPC’s decisions to increase interest rates in Poland, of which strong changes in Polish government bonds yields and short-term interest rates had the most impact on VaR model performance. The number of excesses proves the model adequacy (green zone: 1 - 8 excesses acceptable). VaR assessment is supplemented by monitoring the market rate sensitivity to the above-mentioned stress tests scenarios of portfolios carrying market risk. The results of market risk sensitivity and customized stress tests were regularly reported to the Capital, Assets and Liabilities Committee.
In case of the Banking Book, the main component of the market risk is interest rate risk. Exposure to interest rate risk in the Banking Book are primarily generated by the differences in repricing dates of assets and liabilities as well as its reference indexes, if contractually existing. It is specifically affected by the unbalance between assets and liabilities that have fixed rate, especially by the liabilities which cannot have interest rate lower than zero. Consequently, the level of sensitivity to interest rate changes is influenced by the level of interest rates taken as a reference. Additionally, due to specificity of the polish legal system, the interest rate of credits is limited (it cannot exceed two times Reference Rate of the National Bank of Poland increased by 7 percentage points). In situations of decreasing interest rates, the impact on Net Interest Income is negative and depends on the share of the fixed rate loan portfolio that is affected by the new maximum rate. On the other hand, assumptions regarding the timing and size of deposits repricing are also important when assessing the interest rate sensitivity and risk. Regarding the interest rate risk in Banking Book, the following principles are in place:
The variations in market interest rate have an influence on the Group’s net interest income, both under a short and medium-term perspective, also affecting its economic value in the long term. The measurement of both is complementary in understanding the complete scope of interest rate risk in Banking Book.
84 This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version. Annual Consolidated Financial Report of the Bank Millennium S.A.Capital Group for the 12-month period ending 31 st December 2022.
For this reason, apart from daily market risk measurement in terms of value at risk, the scope of the additional measurement of interest rate risk covers both earnings-based and economic value measures, which are quarterly:
and monthly:
The interest rate risk measurement is carried for all the risk management areas in the Bank, with the particular attention on Banking Book. For interest rate risk management for non-maturing assets and liabilities or for the instruments with Client’s option embedded, the Group is defining specific assumptions, including:
The results of the above-mentioned analysis for BPVx100 and economic value measures were regularly monitored and reported to the Capital, Assets and Liabilities Committee, to Risk Committee, the Management Board and Supervisory Board. The results of the IRRBB measurement as of the end of December 2022 indicate that the Group remains the most exposed to the scenario of interest rates decrease. The supervisory outlier test results of December 2022 show that even under the most severe outlier test scenario, the decline of EVE for Banking Book is below supervisory limit of 15% of Tier 1. Similarly, decline of EVE under standard scenario of sudden parallel +/-200 basis points shift of the yield curve also stayed far below supervisory maximum of 20% of Own Funds.
85 This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31 st December 2022
The results of the sensitivity of the Banking Book to changes of interest rates in terms of BPVx100 and EVE under supervisory stress tests are presented in Table below. Sensitivity of the Banking Book to changes of interest rates was as follows (‘000 PLN):
| 31.12.2022 | 31.12.2021 | |
|---|---|---|
| BPVx100 | ||
| PLN | 164 | 145 |
| CHF | (6,573) | 9,890 |
| EUR | 28,615 | 125,092 |
| USD | 19,695 | 33,099 |
| Other | 3,751 | 6,385 |
| TOTAL | 209,632 | 394,682 |
| Equity, fixed and other assets | 28,570 | 53,142 |
| TOTAL | 238,203 | 447,813 |
| Sensitivity to changes of interest rates (*) | 31.12.2022 | 31.12.2021 |
| Standard, supervisory test (parallel yield curve +/-200 bp % Own Funds) | -6.05% | -7.29% |
| Supervisory outlier test (the most severe scenario, % CET1) | -9.33% | -10.64% |
(*) The principles listed in section 115 of the EBA IRRBB Guidelines were applied to calculate the change in EVE. The most severe decline of EVE is presented.
The results of the sensitivity of NII for the next 12 months after 31 st December 2022 and for position in Polish Zloty in Banking Book are carried out under the following assumptions:
In a scenario of parallel decrease of interest rates by 100 bps, the results are negative and equal to -192 million or 4.1% of the Group’s NII reference level. In a scenario of parallel increase of interest rates by 100 bps, the results are positive and equal to 192 million or 4.1% of the Group’s NII reference level. The results show that the Group is now in balanced situation regarding impacts in the scenario of a decline or increase in interest rates. The degree of asymmetry that existed in previous reporting dates is not observable as interest rates were significantly above 0% as of 31 st December 2022.
Sensitivity of NII for PLN to changes of interest rates
| 31.12.2022 | 31.12.2021 | |
|---|---|---|
| Parallel yield curve increase by 100bp | +4.1% | +5.9% |
| Parallel yield curve decrease by 100bp | -4.1% | -6.0% |
86 This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31 st December 2022
The objective of liquidity risk management is to ensure and maintain the Group’s ability to meet both current, as well as future funding requirements considering costs of funding. Liquidity risk reflects the possibility of incurring significant losses because of deteriorated financing conditions (financing risk) and/or of the sale of assets for less than their market value (market liquidity risk) to meet the needs for funding arising from the Group’s obligations. There were no exposures to liquidity risk at a subsidiary level because the Bank manages liquidity risk centrally. Both the financing requirements and any liquidity surplus of subsidiaries are managed by transactions with the Bank unless specific market transactions are previously decided and agreed. The Treasury Department is responsible for the day-to-day management of the Group’s liquidity position in accordance with the adopted rules and procedures considering goals defined by the Management Board and the Capital, Assets and Liabilities Committee. In 2022, the war in Ukraine had an impact on global financial markets, however the Bank did not observe any threat to its liquidity position. The Group continued to be characterized by solid liquidity position. In 2022, in consequences of the increase of the deposits from Customers at the faster pace than loans, the Group’s Loan-to-Deposit ratio decreased and was equalled to 78% at the end of December 2022 (comparing to level of 86% as of end of December 2021). The liquid assets portfolio is treated by the Group’s as liquidity reserve, which will overcome crisis situations. The liquidity assets portfolio consists of liquid debt securities issued or guaranteed by Polish government, other EU’s sovereigns and multilateral development banks. It is additionally supplemented by the cash and exposures to the National Bank of Poland. At the end of 2022, the share of above mentioned liquid debt securities (including NBP Bills) in total debt securities portfolio amounted to 99% and allowed to reach the level of approx. PLN 20.4 billion (18% of total assets), whereas at the end of December 2021 was at the level of approx. PLN 18.0 billion (17% of total assets). Consequently, the large, diversified, and stable funding from retail, corporate and public sector Clients remains the main source of financing of the Group. At the end of 2022 total Clients’ deposits of the Group reached the level of PLN 98.0 billion. The deposit base constituted mainly funds of individuals Clients, of which the share in total Client’s deposits equalled to approx. 70.2% at the end of December 2022 (72.2% at the end of December 2021). The high share of funds from individuals had a positive impact on the Group’s liquidity and supported the compliance of the supervisory liquidity measures. Concentration of the deposits base, based on the share of top 5 and top 20 depositors, at the end of 2022 amounted respectively to 4.0% and 7.3% (in December 2021 it was respectively 3.6% and 6.5%). The level of deposit concentration is regularly monitored and did not have any negative impact on the stability of the deposit base in 2022. In case of significant increase of the share of the largest depositors, the additional funds from the depositors are not treated as stable. Despite of that, to prevent deposit base fluctuations, the Group maintains the reserves of liquid assets in the form of securities portfolio. The deposit base is supplemented by the deposits from financial institutions and other money market operations. At the end of 2022, the source of medium-term funding remained also subordinated debt and medium-term loans.# Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31st December 2022
During 2022, the Bank issued Credit Link Notes amounted to PLN 242.5 million in the framework of synthetic securitisation transaction. No new loans were taken from financial institutions. The total balance sheet value of medium-term loans from financial institutions at the end of 2022 amounted to PLN 108.5 million (at the end of December 2021 it was PLN 369.3 million). The decrease of the total amount of the medium-term loans from financial institutions related to both standard repayment in accordance with the schedule as well as voluntary prepayment. In 4Q 2022, the Bank decided for prepayment of outstanding amount of the loan granted in December 2018 by the European Investment Bank, in original amount of EUR 100 million (the Bank was a Guarantor, while the Borrower of the loan was Millennium Leasing, the Bank’s wholly owned subsidiary). The total outstanding of EUR 30.0 million within the loan in question was repaid in the December 2022. Early repayment was decided in the context of excess of foreign currency liquidity and planned future issuance of bonds as well as possible cost reduction in the area.
The Group manages FX liquidity using FX-denominated bilateral loans as well as Cross Currency Swap and FX Swap transactions. The importance of swaps has been decreasing because of the reduction of the FX mortgage loan portfolio and the hedge in foreign currency of the provisions for legal risk. The swaps portfolio is diversified in term of counterparties and maturity dates. For most counterparties, the Group has signed a Credit Support Annex to the master agreements. As a result, in case of unfavourable changes of FX rates (PLN depreciation), the Group is obliged to place deposits as a collateral with counterparties to secure the settlement of derivative instruments in the future, and in case of favourable FX rates changes (PLN appreciation) receives deposits as a collateral from the counterparties. In none of signed ISDA Schedules and Credit Support Annex (both international and domestic) there exists a relationship between level of the Bank’s ratings and parameters of collateral. The potential downgrade of any of the ratings will not have impact on method of calculation and collateral exchange. The Group assesses the possibility of unfavourable changes of FX rates (especially CHF and EUR, which causes increase of liquidity needs), analyses the impact on liquidity risk and reflects this risk in the liquidity plans.
The estimation of the Group’s liquidity risk is carried out with the use of both measures defined by the supervisory authorities and internally, for which exposure limits were established. The evolution of the Group’s liquidity position in short-term horizons is tested daily based on liquid asset portfolio, Central Bank’s eligible collateral for standard monetary operation and two internally defined indicators: immediate liquidity and quarterly liquidity. The last two indicators measure the maximum borrowing requirement, which could arise on a particular day, taking into consideration the cash-flow projections for spot date and period of 3 months, respectively. These figures are compared with the exposure limits in force and reported daily to the areas responsible for the management and control of the liquidity risk in the Group as well as presented in monthly and/or quarterly basis to the Bank’s Management Board and Supervisory Board. The liquidity risk limits are revised at least once a year to consider, inter alia, the change of the size of the consolidated own funds, current and expected balance sheet structure, historical limits’ consumption, as well as current market conditions and supervisory requirements. According to rules in place, all eventual excesses of internal liquidity risk limits are always reported, documented, and ratified at the proper competence level.
According to the final provisions of CRD V/CRR II package, the Group is calculating the liquidity coverage requirement (LCR) and the net stable funding ratio (NSFR). The regulatory minimum of 100% for both LCR and NSFR was complied by the Group. LCR reached the level of 223% at the end of December 2022 (150% as of the end of December 2021). The increase was mainly connected with increase of deposit form Clients, which was invested in liquid assets portfolio. The measure is calculated daily and has been reported on the monthly basis to NBP since March 2014. Internally, the LCR is estimated daily and reported to the areas responsible for the management and control of the liquidity risk in the Group. NSFR is monitored and reported quarterly. In each of the quarter of 2022, the NSFR was above the supervisory minimum of 100% (supervisory minimum valid since June 2021). NSFR reached the level of 156% at the end of December 2022 (144% as of the end of December 2021).
| 31.12.2022 | 31.12.2021 | |
|---|---|---|
| Immediate liquidity ratio (%)* | 28% | 22% |
| Quarterly liquidity ratio (%)* | 28% | 22% |
| Central Bank Collateral / Total Deposits (%)** | 25% | 19% |
| Liquid assets Portfolio (m PLN)*** | 24 349 | 18 793 |
| LCR (%) Indicator | 223% | 150% |
** - Central Bank Collateral / Total Deposits: Ratio between value of the Central Bank Collateral that is the liquidity buffer available for discount with the Central Bank after applying haircuts for standard monetary transactions, plus the cash and deposits in the Central Bank deducted of the minimum reserve requirement and the total deposits. This ratio is calculated based on the face amount of the referred products.
*** - Liquid Assets Portfolio: The sum of cash, exposure to Central Bank (the surplus above the required obligatory reserve) and Polish Government debt securities, NBP-Bills and due from banks with maturity up to 1 month. The debt securities portfolio is reduced by NBP haircut for repo transactions and securities encumbered for non-liquidity purposes.
The Group monitors liquidity based on internal liquidity measures, considering the impact of FX rates on the liquidity situation. Additionally, the Group employs an internal structural liquidity analysis based on cumulative, behaviour liquidity gaps. The safe level adopted by the Group for the ratio of liquidity shortfall is established for each time bucket below 5 years.
In December 2022, liquidity gaps were maintained positive. The results of cumulative, behaviour liquidity gaps (normal conditions) are presented in tables below.
| Up to 6M | Up to 1Y | Up to 2Y | Up to 5Y | |
|---|---|---|---|---|
| Counterbalancing capacity | 25 134 | 25 134 | 25 134 | 25 134 |
| Outflows | 12 035 | 4 665 | 3 722 | 6 721 |
| Outflows Cumulated | 12 035 | 16 700 | 20 422 | 27 143 |
| Inflows | 11 953 | 4 752 | 10 404 | 13 212 |
| Inflows Cumulated | 11 953 | 16 705 | 27 109 | 40 321 |
| Liquidity Gap | 25 052 | 87 | 6 682 | 6 491 |
| Liquidity Gap Cumulated | 25 052 | 25 139 | 31 821 | 38 312 |
| Up to 6M | Up to 1Y | Up to 2Y | Up to 5Y | |
|---|---|---|---|---|
| Counterbalancing capacity | 18 471 | 18 471 | 18 471 | 18 471 |
| Outflows | 21 436 | 4 956 | 11 092 | 18 062 |
| Outflows Cumulated | 21 436 | 26 392 | 37 484 | 55 546 |
| Inflows | 20 913 | 8 223 | 15 942 | 26 976 |
| Inflows Cumulated | 20 913 | 29 136 | 45 078 | 72 054 |
| Liquidity Gap | 17 948 | 3 266 | 4 850 | 8 914 |
| Liquidity Gap Cumulated | 17 948 | 21 215 | 26 065 | 34 979 |
(*) For comparative purposes, the results as of December 2021 were recalculated taking under consideration assumptions valid for internal structural liquidity analysis as of December 2022 (e.g., FX swaps maturing are presented separately in outflows and inflows in total amounts, which increased both symmetrically comparing to approach valid in 2021).
The Group has developed a liquidity risk management tool defining sensitivity analysis and stress scenarios (idiosyncratic, systemic and combination of both). For stress tests, liquidity gaps are calculated on a real basis assuming a conservative approach to the assessment of probability of cash flow occurrence among others considering increased deposits outflows, decreased or delayed of loans repayment inflows, deteriorated liquidity of the secondary securities market, the highest cost of funding - the assumption of the worst observed margins on deposits in the Bank, parallel shift of the yield curve and PLN depreciation. Stress tests are performed at least quarterly, to determine the Group’s liquidity-risk profile, to ensure that the Group can fulfil its obligations in the event of a liquidity crisis and to update the liquidity contingency plan and management decisions.Additionally, stress test results are used for setting thresholds for early warning signals, which aim is to identify upcoming liquidity problems and to indicate to the Management Board the eventual necessity of launching Liquidity Contingency Plan. 90 This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version. Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31st December 2022
The assumptions for both internal structural liquidity analysis and stress tests are annually revised. The last revision was carried out in December 2022. The current approach is based on additional liquidity monitoring metrics’ maturity ladder for supervisory liquidity reporting, however, includes internal adjustments according to behavioural assumptions on balance and off-balance outflows and inflows. As the maturity ladder is a contractual liquidity gap that assumes static balance sheet, the internal assumptions regarding roll-over of funding and future interests cash flows were aligned and eliminated. Additionally, the way of presentation of internal structural liquidity analysis was changed in line with categories defined in supervisor’s maturity ladder report.
In December 2022 cumulative liquidity gap was positive and significantly better in December 2021, mainly due to increase on deposits from Clients, which was reflected in liquid assets portfolio (counterbalancing capacity). The internally defined limit of 12% total assets was not breached and the liquidity position was confirmed as solid. As of December 2022, also the results of the stress test analysis demonstrated that liquidity position is not threatened as even in the most severe scenario the survival period is still above the limit of 3 months.
The information regarding the liquidity risk management, including the utilization of the established limits for internal and supervisory measures, is reported monthly to the Capital, Assets and Liabilities Committee and quarterly to the Management Board and Supervisory Board. The process of the Group’s planning and budgeting covers the preparation of the Liquidity Plan to make sure that the growth of business will be supported by an appropriate liquidity financing structure and supervisory requirements in terms of quantitative liquidity measures will be met.
The Group has also emergency procedures for situations of increased liquidity risk – the Liquidity Contingency Plan (contingency plan in case the Group’s financial liquidity deteriorates). The Liquidity Contingency Plan establishes the concepts, priorities, responsibilities, and specific measures to be taken in the event of a liquidity crisis. The Liquidity Contingency Plan is revised at least once a year. In 2022 the Liquidity Contingency Plan was tested and revised to guarantee that it is operationally robust. The Plan also adapted revised warning thresholds for early warning indicators, considering scenarios and stress test results. The revised Plan was approved by the Supervisory Board in December 2022.
Operational risk is defined as the risk of loss resulting from inadequate or failed internal processes, people, and systems, or from external events, including legal risk and excluding strategic and reputational risk (last two are treated as separate categories). Operational risk is demonstrated in every aspect of activity of the organization and constitutes its intrinsic part. In the year 2022 there could be observed a continuous use of standards implemented for the purpose of efficient management of operational risk, which are in line with the best practice of national and international financial institutions. The solutions adopted also proved successful in the situation related to the COVID-19 pandemic and the war in Ukraine.
The adopted risk management structure describes the various management levels and scopes of their duties and responsibilities. Owners of defined business and support processes play a key role in the day-to-day operation of the Bank. Process owner, basing on thorough knowledge about the process, accurately identifies and mitigates recognized risks, thus constituting the first line of defence. The second line of defence is the level of specialized units dealing with the organization of the management and control of an acceptable level of risk, with consideration of the areas such as: compliance, anti-money laundering, antifraud, security and business continuity as well as insurance and outsourcing. The third line of defence is the independent internal audit unit. Every decision regarding optimizing operational risk is preceded by cost-benefit analysis.
91 This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version. Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31st December 2022
A higher risk management level is the Processes and Operational Risk Committee, which focuses on threats identified in more than one process. All and any activities concerning operational risk are coordinated and supervised by the Risk Committee, the Management Board, and the Supervisory Board. In keeping with the adopted model, risk management is a process of continuous improvement as regards identification, assessment, monitoring, mitigating, and reporting by:
The Group gathers operational risk events in an IT tool. The tool supports management of operational risk. Such events are being afterwards analysed in what concerns the source of event and possibility of mitigating the effects and apply appropriate preventive actions. In the IT tool, events are being ascribed to a certain risk category and proper process type, which is later used as a part of reporting and risk self-assessment validation. The internal database of risk events additionally meets qualitative and quantitative requirements for following the advanced approach in calculating capital requirements on account of operational risk.
The risk self-assessment was being realized together with the processes review. It relied on assessment of adopted solutions’ effectiveness in fulfilling expectations of Clients and business partners in the scope of both, services quality, and costs optimization. Approved operational risk and control methodology allowed assessment of risk level in each process, considering existing controls and basing on accepted scenarios. Mitigation actions were proposed implemented and are monitored for purposes of assessment of risk levels above the accepted tolerance threshold.
During the risk and control self-assessment exercise an analysis of performance indicators was made, including risk indicators defined for each process. Key persons - responsible for creating and implementation activities in given processes - have defined and adjusted the indicators thus to make them the best forecasts of future risks. On-going monitoring of indicators serves the purpose of increasing effectiveness and productivity of processes as well as effective control of risk on the level of individual actions within processes. Information about operational risk in processes is included in the top-level dashboards consolidating information about the processes’ performance.
Considering the degree of development of operational risk management and the scale and profile of its activity, the Bank calculates its capital requirement due to the operational risk using the Standard Approach.
The risk of impact on the natural environment is associated mainly with the possible negative impact of the Group on the environment and climate through its own operations, banking products and services offered, including project finance, and managing climate, transformation and physical risks to the Group. The Group prevents this risk by submitting to legal regulations, monitoring its own environmental impact and implementing environmentally-friendly actions and observing the “Environmental Policy of the Bank Millennium Group” and the “Responsible Financing Principles”.
The Group has incorporated environmental and social risks in the client assessment, lending and project financing processes or offering investment products (including Millennium TFI), taking into account not only the risks related to the business sectors in which the clients operate, but also their approach to environmental, social and corporate governance issues. More information on managing the Group's impact on the environment and climate is presented in the ESG report of the Bank and the Group.
92 This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version. Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31st December 2022
Information about operating segments has been prepared based on the reporting structure which is used by the Management Board of the Bank for evaluating the results and managing resources of operating segments. Group does not apply additional breakdown of activity by geographical areas because of the insignificant scale of operations performed outside the Poland, in result such complementary division is not presented.
The Group’s activity is pursued on the basis of diverse business lines, which offer specific products and services targeted at the market segments listed below:
The Retail Customers Segment covers activity targeted at mass-market Customers, affluent Customers, small companies and individual entrepreneurs.The activity of the above business lines is developed with use of the full offer of banking products and services as well as sales of specialised products offered by subsidiaries in the group. In the credit products area the key products are mortgage loans, retail credit products, credit card revolving credit as well leasing products for small companies. Meanwhile key Customers funds include: current and saving accounts, term deposits, mutual funds and structured products. Additionally the offer comprises insurance products, mainly linked with loans and credit cards, as well as specialised savings products. The product offer for affluent customers was enriched to include selected mutual funds of other financial intermediaries, foreign funds and structured bonds issued by the Bank.
The Corporate Customers Segment is based on activity targeted at Small and Medium sized Companies as well as Large Corporations. The offer is also addressed to Customers from the Public Sector. Business in the Corporate Customers segment is pursued with use of a high quality offer of typical banking products (loans for day-to-day activity, investment loans, current accounts, term deposits) supplemented by a range of cash management products as well as treasury products (including derivatives) and leasing and factoring services.
This segment covers the Group’s activity as regards investments by the Treasury Department, brokerage, inter-bank market transactions and taking positions in debt securities, which are not assigned to other segments. This segment includes other assets and other liabilities, assets and liabilities connected with hedging derivatives, liabilities connected with external funding of the Group and deferred income tax assets not assigned to any of the segments.
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version. Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31st December 2022
For each segment the pre-tax profit is determined, comprising:
The assets and liabilities of commercial segments are the operating assets and liabilities used by the segment in its operations, allocated on business grounds. The difference between operating assets and liabilities is covered by money market assets/liabilities and debt securities. The assets and liabilities of the Treasury, ALM & Other segment are money market assets/liabilities and debt securities not allocated to commercial segments.
Bank Millennium recent financial performance is significantly influenced by the costs related to managing legacy FX mortgage portfolio of loans. To isolate these costs and other financial results related to this portfolio Bank decided to isolate, commencing from 2021, a new segment from Retail and present it in financial statements as “FX mortgage”. Such change impacts only results presentation and is not triggering any organizational changes in the Bank. New segment includes loans separated based on active FX mortgage contracts for a given period and is applying to portfolios of retail mortgages originated in Bank Millennium and Eurobank in foreign currencies. This portfolio is expected to run-off in line with repayments of FX loans and conversions to PLN loans.
Following P&L categories are presented as part of financial performance of new segment:
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version. Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31st December 2022
| Retail Banking | Corporate Banking | Treasury, ALM & Other | Segments excluding FX mortgage | FX mortgage | TOTAL | |
|---|---|---|---|---|---|---|
| Net interest income | 3 088 577 | 836 133 | (681 058) | 3 243 652 | 93 639 | 3 337 291 |
| Net fee and commission income | 597 222 | 196 957 | 41 794 | 835 973 | 14 085 | 850 058 |
| Dividends, other income from financial operations and foreign exchange profit | 140 720 | 95 175 | (64 960) | 170 935 | (380 731) | (209 796) |
| Result on non-trading financial assets mandatorily at fair value through profit or loss | 12 503 | 0 | 13 193 | 25 696 | 0 | 25 696 |
| Other operating income and cost | (26 412) | (1 353) | 4 299 | (23 466) | 82 991 | 59 525 |
| Operating income | 3 812 610 | 1 126 912 | (728 485) | 4 211 037 | (190 016) | 4 021 021 |
| Staff costs | (728 879) | (157 476) | (29 787) | (916 142) | 0 | (916 142) |
| Administrative costs, including: | (715 226) | (82 885) | (111 418) | (909 529) | (58 588) | (968 117) |
| - BFG and IPS costs | (305 581) | (8 225) | (83 430) | (397 236) | 0 | (397 236) |
| Depreciation and amortization | (176 733) | (27 660) | (4 529) | (208 922) | 0 | (208 922) |
| Operating expenses | (1 620 838) | (268 021) | (145 734) | (2 034 593) | (58 588) | (2 093 181) |
| Impairment losses on assets | (374 638) | (2 851) | (3 514) | (381 003) | 35 455 | (345 548) |
| Results on modification | (24 153) | (358) | 0 | (24 511) | (102 153) | (126 664) |
| Provisions for legal risk connected with FX mortgage loans | 0 | 0 | 0 | 0 | (2 017 320) | (2 017 320) |
| Total operating result | 1 792 981 | 855 682 | (877 733) | 1 770 930 | (2 332 622) | (561 692) |
| Share in net profit of associated companies | 0 | |||||
| Banking tax | (169 063) | (169 063) | ||||
| Profit / (loss) before income tax | (730 755) | |||||
| Income taxes | (283 811) | |||||
| Profit / (loss) after taxes | (1 014 566) |
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version. Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31st December 2022
| Retail Banking | Corporate Banking | Treasury, ALM & Other | Segments excluding FX mortgage | FX mortgage | TOTAL | |
|---|---|---|---|---|---|---|
| Loans and advances to customers | 54 252 736 | 15 471 937 | 0 | 69 724 673 | 6 840 490 | 76 565 163 |
| Liabilities to customers | 73 068 148 | 24 970 368 | 0 | 98 038 516 | 0 | 98 038 516 |
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version. Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31st December 2022
| Retail Banking | Corporate Banking | Treasury, ALM & Other | Segments excluding FX mortgage | FX mortgage | TOTAL | |
|---|---|---|---|---|---|---|
| Net interest income | 1 847 076 | 335 342 | 431 001 | 2 613 419 | 99 724 | 2 713 143 |
| Net fee and commission income | 639 993 | 186 389 | 4 215 | 830 597 | 15 830 | 846 427 |
| Dividends, other income from financial operations and foreign exchange profit | 111 344 | 75 912 | 28 596 | 215 852 | (363 902) | (148 050) |
| Result on non-trading financial assets mandatorily at fair value through profit or loss | 39 881 | 0 | 84 657 | 124 538 | 0 | 124 538 |
| Other operating income and cost | (19 673) | (5 884) | (105 813) | (131 370) | 209 155 | 77 785 |
| Operating income | 2 618 621 | 591 759 | 442 656 | 3 653 036 | (55 008) | 3 598 028 |
| Staff costs | (645 620) | (139 811) | (29 891) | (815 322) | 0 | (815 322) |
| Administrative costs, including: | (429 410) | (70 042) | (76 257) | (575 709) | (49 675) | (625 384) |
| - BFG costs | (67 667) | (1 910) | (48 640) | (118 217) | 0 | (118 217) |
| Depreciation and amortization | (171 352) | (25 528) | (4 715) | (201 595) | 0 | (201 595) |
| Operating expenses | (1 246 382) | (235 381) | (110 863) | (1 592 626) | (49 675) | (1 642 301) |
| Impairment losses on assets | (324 446) | (1 784) | (7 671) | (333 901) | 7 838 | (326 063) |
| Results on modification | (13 390) | 551 | 0 | (12 839) | 0 | (12 839) |
| Provisions for legal risk connected with FX mortgage loans | 0 | 0 | 0 | 0 | (2 305 157) | (2 305 157) |
| Total operating result | 1 034 403 | 355 145 | 324 122 | 1 713 670 | (2 402 002) | (688 332) |
| Share in net profit of associated companies | 0 | |||||
| Banking tax | (312 611) | (312 611) | ||||
| Profit / (loss) before income tax | (1 000 943) | |||||
| Income taxes | (330 923) | |||||
| Profit / (loss) after taxes | (1 331 866) |
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version. Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31st December 2022
| Retail Banking | Corporate Banking | Treasury, ALM & Other | Segments excluding FX mortgage | FX mortgage | TOTAL | |
|---|---|---|---|---|---|---|
| Loans and advances to customers | 52 364 612 | 16 441 570 | 0 | 68 806 182 | 9 797 144 | 78 603 326 |
| Liabilities to customers | 70 999 352 | 20 208 669 | 239 494 | 91 447 515 | 0 | 91 447 515 |
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version. Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31st December 2022
All and any transactions between entities of the Group in 2022 resulted from the current operations.# 10. RELATED PARTY TRANSACTIONS
Apart from transactions described herein, in the indicated period neither Bank Millennium S.A., nor subsidiaries of Bank Millennium S.A. made any other transactions with related entities, which individually or jointly may have been significant and concluded under terms and conditions other than market-based.
The following are the amounts of transactions with the Capital Group of Bank’s parent company - Banco Comercial Portugues (ultimate parent company), these transactions are mainly of banking nature (in ‘000 PLN):
| With parent company | With other entities from parent group | ||
|---|---|---|---|
| 31.12.2022 | 31.12.2021 | 31.12.2022 | |
| ASSETS | |||
| Loans and advances to banks – accounts and deposits | 2 575 611 | 0 | 0 |
| Financial assets held for trading | 32 | 0 | 0 |
| Hedging derivatives | 0 | 0 | 0 |
| Other assets | 0 | 0 | 0 |
| LIABILITIES | |||
| Loans and deposits from banks | 434 100 | 0 | 0 |
| Debt securities | 0 | 0 | 0 |
| Financial liabilities held for trading | 0 | 159 | 0 |
| Hedging derivatives | 0 | 0 | 0 |
| Other liabilities | 0 | 0 | 68 |
| With parent company | With other entities from parent group | ||
|---|---|---|---|
| 2022 | 2021 | 2022 | |
| Income from: | |||
| Interest | 1 008 | (325) | 0 |
| Commissions | 149 | 101 | 0 |
| Financial assets and liabilities held for trading | 30 | 0 | 0 |
| Expense from: | |||
| Interest | 75 161 | 0 | (190) |
| Commissions | 0 | 0 | 0 |
| Financial assets and liabilities held for trading | 0 | 160 | 0 |
| Other net operating | 0 | 5 | 0 |
| Administrative expenses | 0 | 0 | 138 |
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31st December 2022
| With parent company | With other entities from parent group | ||
|---|---|---|---|
| 31.12.2022 | 31.12.2021 | 31.12.2022 | |
| Conditional commitments | 141 185 | 103 198 | 0 |
| granted | 120 593 | 101 500 | 0 |
| obtained | 20 593 | 1 698 | 0 |
| Derivatives (par value) | 13 705 | 14 675 | 0 |
Information on total exposure towards the managing and supervising persons as at 31.12.2022 (in ‘000 PLN):
| The managing persons | The supervising persons | |
|---|---|---|
| Total debt limit including an unutilized limit | 236.0 | 178.5 |
| 111.0 | 106.0 |
The Group provides standard financial services to Members of the Management Board and Members of the Supervisory Board and their relatives, which services comprise i.a.: keeping bank accounts, accepting deposits or sale of financial instruments. In the Group’s opinion these transactions are concluded on market terms and conditions. In accordance with the credit lending policy adopted in the Bank, term credits described in this section have appropriate collateral to mitigate its credit risk exposure.
Information on total exposure towards companies and groups personally related as at 31.12.2022 (in ‘000 PLN):
| Entity | Loans granted | Guarantees provided | Open credit lines | Relationship |
|---|---|---|---|---|
| Client 1 | - | - | - | Personal with a supervising person |
As a result of changes in the composition of the Supervisory Board, the personal relationship with the client ceased in 2021.
Information on total exposure towards the managing and supervising persons as at 31.12.2021 (in ‘000 PLN):
| The managing persons | The supervising persons | |
|---|---|---|
| Total debt limit including an unutilized limit | 211.5 | 145.2 |
| 112.0 | 64.2 |
Information on total exposure towards companies and groups personally related as at 31.12.2021 (in ‘000 PLN):
| Entity | Loans granted | Guarantees provided | Open credit lines | Relationship |
|---|---|---|---|---|
| Client 1 | - | - | - | Personal with a supervising person |
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31st December 2022
Salaries (including the balance of created and reversed provisions for payments of bonuses) and benefits of managing persons recognized in Profit and loss account of the Group were as follows (data in thousand PLN):
| Year | Salaries and bonuses | Benefits | Total |
|---|---|---|---|
| 2022 | 9 937.5 | 1 962.4 | 11 899.9 |
| 2021 | 10 500.0 | 1 831.1 | 12 331.1 |
The benefits are mainly the costs of accommodation of the foreign members of the Management Board. The values presented in the table above include items classified to the category of short-term benefits and provision for variable remuneration components. In 2022 and 2021, the Members of the Management Board did not receive any salaries or any fringe benefits from Subsidiaries.
Remuneration of the Members of the Supervisory Board of the Bank (data in thousand PLN):
| Period | Short term salaries and benefits |
|---|---|
| 2022 | 2 051.1 |
| 2021 | 2 167.3 |
In 2022 the Members of the Bank's Supervisory Board received remuneration for performing their functions in subsidiaries in the amount of PLN 140.0 thousand, (in 2021 - PLN 105.6 thousand).
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31st December 2022
The best reflection of fair value of financial instruments is the price which can be obtained for the sale of assets or paid for the transfer of liability in case of market transactions (an exit price). For many products and transactions for which market value to be taken directly from the quotations in an active market (marking-to-market) is not available, the fair value must be estimated using internal models based on discounted cash flows (marking-to-model). Financial cash flows for the various instruments are determined according to their individual characteristics, and discounting factors include changes in time both in market interest rates and margins.
According to IFRS 13 “Fair value measurement” in order to determinate fair value the Group applies models that are appropriate under existing circumstances and for which sufficient input data is available, based to the maximum extent on observable input whereas minimizing use of unobservable input, namely:
Valuation techniques used to determine fair value are applied consistently. Change in valuation techniques resulting in a transfer between these methods occurs when:
All estimation models are arbitrary to some extent and this is why they reflect only the value of those instruments for which they were built. In these circumstances the presented differences between fair values and balance-sheet values cannot be understood to mean adjustments of the economic value of the Group. Fair value of these instruments is determined solely in order to meet the disclosure requirements of IFRS 13 and IFRS 7. The main assumptions and methods applied in estimating fair value of assets and liabilities of the Group are as follows:
The fair value of these instruments was determined by discounting the future principal and interest flows with current rates, assuming that the flows arise on contractual dates.
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31st December 2022
The fair value of such instruments without specified repayment schedule, given their short-term nature and the time-stable policy of the Group with respect to this portfolio, is close to balance-sheet value. With respect to floating rate leasing products fair value was assessed by adjusting balance-sheet value with discounted cash flows resulting from difference of spreads. The fair value of instruments with defined maturity is estimated by discounting related cash flows on contractual dates and under contractual conditions with the use of current zero-coupon rates and credit risk margins. In case of mortgage loans due to their long-term nature estimation of the future cash flows also includes: the effect of early repayment and liquidity risk in foreign currencies.
The fair value of such instruments without maturity or with maturity under 30 days is considered by the Group to be close to balance-sheet value. Fair value of instruments due and payable in 30 days or more is determined by discounting future cash flows from principal and interest (including the current average margins by major currencies and time periods) using current interest (including the original average margins by major currencies and time periods) in contractual terms.
The fair value of these financial instruments is estimated on the basis of a model used for determining the market value of floating-rate bonds with the current level of market rates and historical margin for credit risk.Similar as in loan portfolio the Bank includes the level of the original margin as a part of mid-term cost of financing obtained in the past in relation to the current margin level for the comparable instruments, as long as reliable assessment is possible. Due to lack of the mid-term loans liquid market as a reference to estimate current level of margins, the Bank used the original margin.
101
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31st December 2022
The table below presents results of the above-described analyses as at 31.12.2022 (data in PLN thousand):
| Note | Balance sheet value | Fair value |
|---|---|---|
| ASSETS MEASURED AT AMORTISED COST | ||
| Debt securities | 23 3 893 212 | 3 811 648 |
| Deposits, loans and advances to banks and other monetary institutions | 23 733 095 | 733 016 |
| Loans and advances to customers* | 22 76 467 181 | 74 107 571 |
| LIABILITIES MEASURED AT AMORTISED COST | ||
| Liabilities to banks and other monetary institutions | 32 727 571 | 727 598 |
| Liabilities to customers | 33 98 038 516 | 98 063 169 |
| Debt securities issued | 35 243 753 | 244 519 |
| Subordinated debt | 36 1 568 083 | 1 568 949 |
The table below presents data as at 31.12.2021 (data in PLN thousand):
| Note | Balance sheet value | Fair value |
|---|---|---|
| ASSETS MEASURED AT AMORTISED COST | ||
| Debt securities | 23 37 088 | 37 764 |
| Deposits, loans and advances to banks and other monetary institutions | 23 770 531 | 770 446 |
| Loans and advances to customers* | 22 78 240 334 | 76 143 058 |
| LIABILITIES MEASURED AT AMORTISED COST | ||
| Liabilities to banks and other monetary institutions | 32 539 408 | 538 811 |
| Liabilities to customers | 33 91 447 515 | 91 385 178 |
| Debt securities issued | 35 39 568 | 40 148 |
| Subordinated debt | 36 1 541 144 | 1 538 598 |
102
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31st December 2022
The table below presents balance-sheet values of instruments measured at fair value, by applied fair value measurement technique:
Data in PLN‘000, as at 31.12.2022
| Quoted market prices | Valuation techniques - observable inputs | Valuation techniques - significant unobservable inputs | |
|---|---|---|---|
| Level 1 | Level 2 | Level 3 | |
| ASSETS | |||
| Financial assets held for trading | |||
| Valuation of derivatives | 19 | 87 760 | 251 436 |
| Equity instruments | 23 | ||
| Debt securities | 24 | 210 | |
| Non-trading financial assets mandatorily at fair value through profit or loss | |||
| Equity instruments | 20 | 62 370 | 66 609 |
| Debt securities | 72 057 | ||
| Loans and advances | 22 | 97 982 | |
| Financial assets at fair value through other comprehensive income | |||
| Equity instruments | 21 | 247 | 24 149 |
| Debt securities | 13 952 | 900 | 2 528 310 |
| Derivatives – Hedge accounting | 24 | 135 804 | |
| LIABILITIES | |||
| Financial liabilities held for trading | |||
| Valuation of derivatives | 31 | 125 856 | 254 422 |
| Short positions | 4 | 784 | |
| Derivatives – Hedge accounting | 24 | 554 544 |
Data in ‘000 PLN, as at 31.12.2021
| Quoted market prices | Valuation techniques - observable inputs | Valuation techniques - significant unobservable inputs | |
|---|---|---|---|
| Level 1 | Level 2 | Level 3 | |
| ASSETS | |||
| Financial assets held for trading | |||
| Valuation of derivatives | 19 | 56 892 | 29 008 |
| Equity instruments | 145 | ||
| Debt securities | 86 438 | ||
| Non-trading financial assets mandatorily at fair value through profit or loss | |||
| Equity instruments | 20 | 71 795 | 66 609 |
| Debt securities | 127 499 | ||
| Loans and advances | 22 | 362 992 | |
| Financial assets at fair value through other comprehensive income | |||
| Equity instruments | 21 | 290 | 28 437 |
| Debt securities | 17 933 | 983 | 34 990 |
| Derivatives – Hedge accounting | 24 | 14 385 | |
| LIABILITIES | |||
| Financial liabilities held for trading | |||
| Valuation of derivatives | 31 | 96 918 | 29 483 |
| Short positions | 16 614 | ||
| Derivatives – Hedge accounting | 24 | 614 573 |
103
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31st December 2022
Group classified into the third category following financial instruments:
▪ credit exposures with a leverage / multiplier feature inbuilt in the definition of interest rate (these are credit card exposures and overdraft limits for which the interest rate is based on a multiplier: 4 times the lombard rate). To estimate the fair value of loans, due to the lack of availability of the market value, an internal valuation model was used, taking into account the assumption that at the time of granting the loan the fair value is equal to the carrying value. The fair value of loans without recognized impairment is equal to the sum of future expected cash flows discounted at the balance sheet date. The discounting rate is the sum of: the cost of risk, the cost of financing, the value of the expected return. The fair value of impaired loans is equal to the sum of future expected recoveries discounted using the effective interest rate, recognizing that the average expected recoveries fully take into account the element of credit risk. In case of an increase in the discount rate by 1 p.p. valuation of the portfolio would have been reduced by -0.1% (sensitivity analysis: based on the FV model for the portfolio of credit cards);
▪ index options, option transactions are measured at fair value with use of option measurement models, the model measurement is supplemented with impact on fair value of the estimated credit risk parameter;
▪ VISA Inc. engagement shares; the method of fair value calculation of this instrument considers the time value of money and the time line for conversion of preferred stock in common stock of VISA.
▪ other equity instruments measured at fair value (unquoted on an active market).
In the reporting period, the Group did not make transfers of financial instruments between the techniques of fair value measurement. Changes of fair values of instruments measured on the basis of valuation techniques with use of significant parameters not derived from the market are presented in the table below (in ’000 PLN):
| Indexes options | Options embedded in securities issued and deposits | Shares | Debt securities | Loans and advances | |
|---|---|---|---|---|---|
| Balance on 31.12.2021 | 28 397 | (28 872) | 95 046 | 127 499 | 362 992 |
| Settlement/sell/purchase | 214 | 404 | (216 420) | 85 | (60 296) |
| Change of valuation recognized in equity | 0 | 0 | (4 380) | 0 | 0 |
| Interest income and other of similar nature | 0 | 0 | 0 | 0 | 28 604 |
| Results on financial assets and liabilities held for trading | 4 613 | (5 109) | 0 | 0 | 0 |
| Result on non-trading financial assets mandatorily at fair value through profit or loss | 0 | 0 | 0 | 4 854 | 12 503 |
| Result on exchange differences | 0 | 0 | 7 | 0 | 0 |
| Balance on 31.12.2022 | 247 414 | (250 400) | 90 758 | 72 057 | 97 982 |
For options on indexes concluded on an inactive market, and FX options the Group concludes back- to-back transactions on the interbank market, in result estimated credit risk component has no impact on the financial result.
104
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31st December 2022
Accordingly Group’s estimation impact of adjustments for counterparty credit risk was not significant from the point of view of individual derivative transactions concluded by the Bank. Consequently, the Bank does not consider the impact of unobservable inputs used in the valuation of derivative transactions for significant and in accordance with the provisions of IFRS 13.73 does not classify such transactions for level 3 fair value measurements.
| Indexes options | Options embedded in securities issued and deposits | Shares | Debt securities | Loans and advances | |
|---|---|---|---|---|---|
| Balance on 31.12.2020 | 19 911 | (19 559) | 95 827 | 50 335 | 1 615 753 |
| Settlement/sell/purchase | 4 158 | (5 055) | 3 | 0 | (1 348 014) |
| Change of valuation recognized in equity | 0 | 0 | (785) | 0 | 0 |
| Interest income and other of similar nature | 0 | 0 | 0 | 0 | 55 372 |
| Results on financial assets and liabilities held for trading | 4 328 | (4 258) | 0 | 0 | 0 |
| Result on non-trading financial assets mandatorily at fair value through profit or loss | 0 | 0 | 0 | 77 164 | 39 881 |
| Result on exchange differences | 0 | 0 | 0 | 0 | 0 |
| Balance on 31.12.2021 | 28 397 | (28 872) | 95 046 | 127 499 | 362 992 |
105
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31st December 2022
Below please find the data on the court cases pending, brought up by and against entities of the Group. A separate category are the proceedings related to the activities of the Tax Control Authority described in Chapter 14. note 16) "Corporate Income Tax".# Court cases and legal proceedings
The value of the court litigations, as at 31.12.2022, in which entities of the Group were a plaintiff, totalled PLN 728.5 million. The increase in the value of the subject of litigation in cases brought by the Group in relation to previous periods results from the fact of filing lawsuits against FX mortgage loan customers.
On January 3, 2018, the Bank received a decision of the Chairman of the Office for Protection of Competition and Consumers (OPCC Chairman), in which the OPCC Chairman found infringement by the Bank of the rights of consumers. In the opinion of the OPCC Chairman, the essence of the violation is that the Bank informed consumers (it regards 78 agreements) in responses to their complaints, that the court verdict stating the abusiveness of the provisions of the loan agreement regarding exchange rates does not apply to them. According to the position of the OPCC Chairman, the abusiveness of contract’s clauses determined by the court in the course of abstract control is constitutive and effective for every contract from the beginning.
As a result of the decision, the Bank was obliged to:
1) send information on the UOKiK’s decision to the said 78 clients,
2) place the information on decision and the decision itself on the website and on Twitter,
3) to pay a fine amounting to PLN 20.7 million.
The Bank lodged an appeal within the statutory time limit. On January 7, 2020, the first instance court dismissed the Bank's appeal in its entirety. The bank appealed against the judgment within the statutory deadline. The court presented the view that the judgment issued in the course of the control of a contractual template (in the course of an abstract control), recognizing the provisions of the template as abusive, determines the abusiveness of similar provisions in previously concluded contracts. Therefore, the information provided to consumers was incorrect and misleading.
As regards the penalty imposed by OPCC, the court pointed out that the policy of imposing penalties by the Office had changed in the direction of tightening penalties and that the court agrees with this direction. In the Bank's assessment, the Court should not assess the Bank's behaviour in 2015 from the perspective of today's case-law views on the importance of abstract control (it was not until January 2016 that the Supreme Court's resolution supporting the view of the OPCC Chairman was published), the more penalties for these behaviours should not be imposed using current policy. The above constitutes a significant argument against the validity of the judgment and supports the appeal which the Bank submitted to the Court of second instance.
The second instance court, in its judgment of February 24, 2022, completely revoked the decision of the OPCC Chairman. On August 31, 2022, the OPCC Chairman lodged a cassation appeal to the Supreme Court. The Bank believes that the prognosis regarding the litigation chances of winning the case before the Supreme Court is positive.
106 This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version. Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31 st December 2022
The Bank (along with other banks) is also a party to the dispute with OPCC, in which the OPCC Chairman recognized the practice of participating banks, including Bank Millennium, in an agreement aimed at jointly setting interchange fee rates charged on transactions made with Visa and Mastercard cards as restrictive of competition, and by decision of 29 December 2006 imposed a fine on the Bank in the amount of PLN 12.2 million. The Bank, along with other banks, appealed the decision. In connection with the judgment of the Supreme Court and the judgment of the Court of Appeal in Warsaw of November 23, 2020, the case is currently pending before the court of first instance - the Court of Competition and Consumer Protection. The Bank has created a provision in the amount equal to the imposed penalty.
On 22 September 2020, the Bank received a decision of the Chairman of the Office for Protection of Competition and Consumers (OPCC Chairman) recognising clauses stipulating principles of currency exchange applied in the so-called anti-spread annex as abusive and prohibited the use thereof. Penalty was imposed upon the Bank in the amount of 10.5 million PLN. Penalty amount takes account of two mitigating circumstances: cooperation with the Office for Protection of Competition and Consumers and discontinuation of the use of provisions in question. The Bank was also requested, after the decision becomes final and binding, to inform consumers, by registered mail, to the effect that the said clauses were deemed to be abusive and therefore not binding upon them (without need to obtain court’s decision confirming this circumstance) and publish the decision in the case on the Bank’s web site.
In the decision justification delivered in writing, the OPCC Chairman stated that FX rates determined by the Bank were determined at Bank’s discretion (on the basis of a concept, not specified in any regulations, of average inter-bank market rate). Moreover, the client had no precise knowledge on where to look for said rates since the provision referred to Reuters, without precisely defining the relevant site. Provisions relating to FX rates in Bank’s tables were challenged since the Bank failed to define when and how many times a day these tables were prepared and published. In justification of the decision, the OPCC Chairman also indicated that in the course of the proceeding, Bank Millennium presented various proposed solutions, which the OPCC Chairman deemed to be insufficient.
The decision is not final and binding. The Bank appealed against the said decision within statutory term. On March 31, 2022, the first instance court revoked the entire decision of the Chairman of the OPCC. On May 23, 2022, the Chairman of the OPCC filed an appeal. On October 26, 2022, the Court of Appeal changed the judgment of the court of first instance and shared the position of the Chairman of the OPCC as to the abusiveness of the provisions regarding the determination of exchange rates in the annexes concluded with foreign currency borrowers. On November 21, 2022, the Court of Appeals, at the request of the Bank, suspended the execution of the judgment until the end of the cassation proceedings. The Bank filed a cassation appeal to the Supreme Court.
107 This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version. Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31 st December 2022
As at 31.12.2022, the most important proceedings, in the group of the court cases where the Group’s companies were defendant, were following:
The Bank is a defendant in three court proceedings in which the subject of the dispute is the amount of the interchange fee. In two of the abovementioned cases, the Bank was sued jointly and severally with another bank, and in one with another bank and card organizations. The total value of claims submitted in these cases is PLN 729.6 million. The proceedings with the highest value of the submitted claim are brought by PKN Orlen SA, in which the plaintiff demands payment of PLN 635.7 million. The plaintiff in this proceeding alleges that the banks acted under an agreement restricting competition on the acquiring services market by jointly setting the level of the national interchange fee in the years 2006-2014. In the other two cases, the charges are similar to those raised in the case brought by PKN Orlen SA, while the period of the alleged agreement is indicated for the years 2008-2014. According to current estimates of the risk of losing a dispute in these matters, the Bank did not create a provision. In addition, we point out that the Bank participates as a side intervener in four other proceedings regarding the interchange fee. Other banks are the defendant. Plaintiffs in these cases also accuse banks of acting as part of an agreement restricting competition on the acquiring services market by jointly setting the level of the national interchange fee in the years 2008-2014.
A lawsuit brought up by Europejska Fundacja Współpracy Polsko-Belgijskiej/European Foundation for Polish-Belgian Cooperation (EFWP-B) against Bank Millennium S.A., worth of the dispute 521.9 million PLN with statutory interest from 05.04.2016 until the day of payment. The plaintiff filed the suit dated 23.10.2015 to the Regional Court in Warsaw; the suit was served to the Bank on 04.04.2016. According to the plaintiff, the basis for the claim is damage to their assets, due to the actions taken by the Bank and consisting in the wrong interpretation of the Agreement for working capital loan concluded between the Bank and PCZ S.A., which resulted in placing the loan on demand. In the case brought by EFWP-B, the plaintiff moved for securing the claim in the amount of 250.0 million PLN. The petition was dismissed on 5.09.2016 with legal validity by the Appellate Court. The Bank is requesting complete dismissal of the suit, stating disagreement with the charges raised in the claim. Supporting the position of the Bank, the Bank’s attorney submitted a binding copy of final verdict of Appeal Court in Wrocław favourable to the Bank, issued in the same legal state in the action brought by PCZ SA against the Bank. At present, the Court of first instance is conducting evidence proceedings.# 12.2. OFF – BALANCE ITEMS
| Amount ’000 PLN | 31.12.2022 | 31.12.2021 |
|---|---|---|
| Off-balance conditional commitments granted and received | 15 162 308 | 16 007 921 |
| Commitments granted: | 12 830 458 | 13 882 138 |
| loan commitments | 10 782 601 | 12 034 696 |
| guarantee | 2 047 856 | 1 847 442 |
| Commitments received: | 2 331 850 | 2 125 784 |
| financial | 6 884 | 40 000 |
| guarantee | 2 324 966 | 2 085 784 |
The granted conditional commitments presented in the table above comprise commitments to grant credit (such as: unutilised credit card limits, unutilised current account overdraft facilities, unutilised tranches of investment loans) and issued guarantees and Letters of Credit (securing performance by customers of the Group of their obligations to third parties). The value of above-presented guarantee commitments presents the maximum value of a loss, which may be incurred by the Group, should the customers default on their obligations. The Group creates provisions for impaired irrevocable conditional commitments, reported in the “provisions” item under liabilities in the balance-sheet. The provision value is determined as the difference between the estimated amount of utilised conditional exposure and the present value of expected future cash flows under this credit exposure. In this context, the Group considers that the values presented in the above table are similar to the fair value of contingent liabilities.
The breakdown by entity of all net guarantee liabilities, reported in off-balance sheet items is presented in the table below:
| Customer – sector | 31.12. 2022 | 31.12. 2021 |
|---|---|---|
| financial sector | 111 466 | 90 163 |
| non-financial sector (companies) | 1 932 152 | 1 755 666 |
| public sector | 4 238 | 1 613 |
| Total | 2 047 856 | 1 847 442 |
| Commitments granted | 31.12. 2022 | 31.12.2021 |
|---|---|---|
| Active guarantees and sureties | 1 133 590 | 998 662 |
| Lines for guarantees and sureties | 920 437 | 854 763 |
| Total | 2 054 027 | 1 853 425 |
| Provisions created | (6 171) | (5 983) |
| Commitments granted – guarantee after provisions | 2 047 856 | 1 847 442 |
The structure of liabilities under active guarantees and sureties divided by particular criteria are presented by the tables below (PLN’000):
| 31.12. 2022 | 31.12.2021 | |
|---|---|---|
| PLN | 755 150 | 694 618 |
| Other currencies | 378 440 | 304 044 |
| Total: | 1 133 590 | 998 662 |
| 31.12.2022 | 31.12.2021 | |||
|---|---|---|---|---|
| Number | Amount | Number | Amount | |
| Guarantee | 3 390 | 1 118 199 | 3 429 | 983 461 |
| Surety | 0 | 0 | 0 | 0 |
| Re-guarantee | 58 | 15 391 | 48 | 15 201 |
| Total: | 3 448 | 1 133 590 | 3 477 | 998 662 |
| 31.12.2022 | 31.12.2021 | |||||
|---|---|---|---|---|---|---|
| Number | Amount | % share | Number | Amount | % share | |
| good performance of contract | 2 767 | 553 990 | 48.87% | 2 750 | 529 664 | 53.03% |
| punctual payment for goods or services | 287 | 339 003 | 29.91% | 325 | 244 684 | 24.50% |
| bid bond | 74 | 11 198 | 0.99% | 90 | 13 483 | 1.35% |
| rent payment | 185 | 83 118 | 7.33% | 200 | 100 245 | 10.04% |
| advance return | 52 | 48 423 | 4.27% | 56 | 40 102 | 4.02% |
| customs | 36 | 53 251 | 4.70% | 39 | 49 159 | 4.92% |
| other | 33 | 35 601 | 3.14% | 3 | 13 262 | 1.33% |
| payment of bank loan | 14 | 9 006 | 0.79% | 14 | 8 063 | 0.81% |
| Total: | 3 448 | 1 133 590 | 100.00% | 3 477 | 998 662 | 100.00% |
On December 31, 2022, the Bank had 16,008 loan agreements and additionally 1,272 loan agreements from former Euro Bank under individual ongoing litigations (excluding claims submitted by the bank against clients i.e. debt collection cases) concerning indexation clauses of FX mortgage loans submitted to the courts (78% loans agreements before the courts of first instance and 22% loans agreements before the courts of second instance) with the total value of claims filed by the plaintiffs amounting to PLN 2,758.4 million and CHF 201.9 million (Bank Millennium portfolio: PLN 2,536 million and CHF 197.3 million and former Euro Bank portfolio: PLN 222.5 million and CHF 4.6 million). The claims formulated by the clients in individual proceedings primarily concern the declaration of invalidity of the contract and payment for reimbursement of paid principal and interest instalments as undue performance, due to the abusive nature of indexation clauses, or maintenance of the agreement in PLN with interest rate indexed to CHF Libor.
In addition, the Bank is a party to the group proceedings (class action) subject matter of which is to determine the Bank's liability towards the group members based on unjust enrichment (undue benefit) ground in connection with the foreign currency mortgage loans concluded. It is not a payment dispute. The judgment in these proceedings will not directly grant any amounts to the group members. The number of credit agreements covered by these proceedings is 3,273. On 24 May 2022 the court issued a judgment on the merits, dismissing the claim in full. Both parties requested a written justification of the judgment. On 13 December 2022 the claimant filed on appeal against the judgment of 24 May 2022. The appeal has not been served yet to the Bank’s counsel.
The pushy advertising campaign observed in the public domain affects the number of court disputes. Until the end of 2019, 1,982 individual claims were filed against the Bank (in addition, 236 against former Euro Bank), in 2020 the number increased by 3,006 (265), in 2021 the number increased by 6,153 (422), while in 2022 the number increased by 5,750 (408). Based on ZBP (the Polish Banking Association) data gathered from all banks having FX mortgage loans, vast majority of disputes were finally resolved in favour of banks until 2019 year.# Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31st December 2022
However, after the Court of Justice of the European Union (CJEU) judgment issued on 3 October 2019 (Case C-260/18) the proportion have adversely changed and vast majority of court cases have been lost by banks. As far as the Bank itself is concerned, since from 2015 and until the end of 2022, 1,173 cases were finally resolved (1,111 in claims submitted by clients against the Bank and 62 in claims submitted by the Bank against clients i.e. debt collection cases) out of which 354 were settlements, 46 were remissions, 53 rulings were favorable for the Bank and 720 were unfavorable including both invalidation of loan agreements as well as conversions into PLN+LIBOR. The Bank files appeals against negative judgements of the courts of 1st instance as well as submits cassation appeals to the Supreme Court against unfavourable for the Bank legally binding verdicts. Currently, the statistics of first and second instance court decisions are much more unfavourable and its number is also increasing. The outstanding gross balance of the loan agreements under individual court cases and class action against the Bank on 31.12.2022 was PLN 5,576 million (of which the outstanding amount of the loan agreements under the class action proceeding was 897 million PLN).
112 This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version. Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31st December 2022
If all Bank Millennium’s originated loan agreements currently under individual and class action court proceedings would be declared invalid without proper compensation for the use of capital, the pre-tax cost could reach PLN 5,499 million. Overall losses would be higher or lower depending on the final court jurisprudence in this regard. During 2022 the Bank created PLN 1,844 million provisions and PLN 173 million for former Euro Bank originated portfolio. The balance sheet value of provisions for the Bank Millennium portfolio at the end of December 2022 was at the level of PLN 4,986 million, and PLN 409 million for former Euro Bank originated portfolio. The methodology developed by the Bank of calculating provisions for legal risk involved with indexed loans is based on the following main parameters:
(1) the number of current cases (including class actions) and potential future lawsuits, that arise within a specified (three-year) time horizon,
(2) the amount of the Bank's potential loss in the event of a specific court judgment,
(3) the probability of obtaining a specific court judgment calculated on the basis of statistics of decisions of the banking sector in Poland and legal opinions obtained.
(4) in the case of the scenario of cancellation of the loan agreement, the element taken into account, with a view to legal assessments, is the calculation of the Bank's loss, taking into account the assignment of a minimum probability of obtaining remuneration for the use of capital.
(5) estimates involved with amicable settlements with clients, concluded in court or out of court.
a. negotiations are conducted on a case-by-case basis and can be stopped at any time by the Bank
b. as the negotiations efforts have already been material in the past, the probability of success may be lower in the future and at the same time, gradually most of the client base has had contact with the Bank regarding potential negotiation of the conversion of the loans to PLN, so the Bank is taking a conservative approach when calculating the potential future impact for the time being.
Legal risk from former Euro Bank portfolio is fully covered by Indemnity Agreement with Societe Generale. The Bank analyzed the sensitivity of the methodology for calculating provisions, for which a change in the parameters would affect the value of the estimated loss to the legal risk of litigation:
| Parameter | Scenario | Impact on loss due to legal risk related to the portfolio of mortgage loans in convertible currencies |
|---|---|---|
| Change in the number of lawsuits | Additionally, 1 p.p. of active clients file a lawsuit against the Bank | PLN 35 million |
| Change in the probability of winning a case | The probability of the Bank winning a case is lower by 1 p.p | PLN 41 million |
| Change in estimated losses for each variant of the judgment | Increase in losses for each variant of the judgment by 1 p.p | PLN 40 million |
113 This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version. Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31st December 2022
The Bank is open to negotiate case by case favourable conditions for early repayment or conversion of loans to PLN. As a result of these negotiations and other natural drivers, the number of active FX mortgage loans decreased by 8,449 in 2021 and 7,943 in 2022. As of end 2022, the Bank had 38,011 active FX mortgage loans. Cost incurred in conjunctions with these negotiations totalled PLN 364.5 million in 2021 and PLN 515.2 million in 2022 is presented mainly in ‘Result on exchange differences’ in the profit and loss statement, and in 2022 also in ‘Result on modification’ (the values of costs charged to particular items of the Income Statement due to settlements are presented in Note 14 in Chapter 13 of the Notes to the Financial Statements). Finally it should also be mentioned, that the Bank, as at 31.12.2022, had to maintain additional own funds for the coverage of additional capital requirements related to FX mortgage portfolio risks (Pillar II FX buffer) in the amount of 1.95 p.p. (1.94 p.p. at the Group level), part of which is allocated to operational/legal risk.
On 3 October 2019, the Court of Justice of the European Union ('the CJEU') issued the judgment in Case C-260/18 in connection with the preliminary questions formulated by the District Court of Warsaw in the case against Raiffeisen Bank International AG. The judgment of the CJEU, as regards the interpretation of European Union law made therein, is binding on domestic courts. The judgment in question interpreted Article 6 of Directive 93/13. In the light of the subject matter judgment the said provision must be interpreted in such a way that:
(i) the national court may invalidate a credit agreement if the removal of unfair terms detected in this agreement would alter the nature of the main subject-matter of the contract;
(ii) the effects for the consumer’s situation resulting from the cancellation of the contract must be assessed in the light of the circumstances existing or foreseeable at the time when the dispute arose and the will of the consumer is decisive as to whether he wishes to maintain the contract;
(iii) Article 6 of the Directive precludes the filling-in of gaps in the contract caused by the removal of unfair terms from the contract solely on the basis of national legislation of a general nature or established customs;
(iv) Article 6 of the Directive precludes the maintenance of unfair terms in the contract if the consumer has not consented to the maintenance of such terms.
It can be noticed the CJEU found doubtful the possibility of a credit agreement being performed further in PLN while keeping interest calculated according to LIBOR. The CJEU judgment concerns only the situation where the national court has previously found the contract term to be abusive. It is the exclusive competence of the national courts to assess, in the course of judicial proceedings, whether a particular contract term can be regarded as abusive in the circumstances of the case.
On 29th April 2021, the CJEU issued the judgement in the case C-19/20 in connection with the preliminary questions formulated by the District Court in Gdańsk in the case against of ex-BPH S.A., CJEU said that:
(i) it is for the national court to find that a term in a contract is unfair, even if it has been contractually amended by those parties. Such a finding leads to the restoration of the situation that the consumer would have been in in the absence of the term found to be unfair, except where the consumer, by means of amendment of the unfair term, has waived such restoration by free and informed consent. However, it does not follow from Council Directive 93/13 that a finding that the original term is unfair would, in principle, lead to annulment of the contract, since the amendment of that term made it possible to restore the balance between the obligations and rights of those parties arising under the contract and to remove the defect which vitiated it.
114 This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version. Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31st December 2022
(ii) the national court may remove only the unfair element of a term in a contract concluded between a seller or supplier and a consumer where the deterrent objective pursued by Council Directive 93/13 is ensured by national legislative provisions governing the use of that term, provided that that element consists of a separate contractual obligation, capable of being subject to an individual examination of its unfair nature. At the same time, provisions of the Directive preclude the referring court from removing only the unfair element of a term in a contract concluded between a seller or supplier and a consumer where such removal would amount to revising the content of that term by altering its substance.(iii) the consequences of a judicial finding that a term if a contract concluded between a seller or supplier and a consumer is unfair are covered by national law and the question of continuity of the contract should be assessed by the national court of its own motion in accordance with an objective approach on the basis of those provisions. (iv) the national court, finding that a term in a contract concluded between a seller or supplier and a consumer is unfair, shall inform the consumer, in the context of the national procedural rules after both parties have been heard, of the legal consequences entailed by annulment of the contract, irrespective of whether the consumer is represented by a professional representative. On November 18, 2021, the Court of Justice of the European Union (CJEU) issued a judgment in case C-212/20 in connection with questions submitted by the District Court for Warsaw Wola in Warsaw in the case against Raiffeisen Bank International AG. The CJEU stated that: (i) The content of the clause of the loan agreement concluded between the entrepreneur and the consumer fixing the purchase and sale price of the foreign currency to which the loan is indexed should, on the basis of clear and comprehensible criteria, enable the consumer who is reasonably well informed and sufficiently observant and rational to understand how the exchange rate of the foreign currency used to calculate the amount of the loan instalments is determined, so that the consumer is able to determine himself at any time the exchange rate used by the entrepreneur. (ii) A national court which has found that a term of the agreement concluded between an entrepreneur and a consumer is unfair cannot interpret that term in order to mitigate its unfairness, even if such an interpretation would correspond to the common will of the parties. On 10 June 2021, the Court of Justice of the European Union (CJEU) issued an order in case C-198/20 in connection with questions submitted by the District Court for Warsaw Wola in Warsaw in the case against Santander Bank Polska SA. The CJEU stated that the protection provided for in Council Directive 93/13/EEC is granted to all consumers, not just those who can be considered to be "duly informed and reasonably observant and circumspect average consumer". On 8 September 2022, the Court of Justice of the European Union (CJEU) issued a judgment in joined cases C-80/21, C-81/21, C-82/21 in connection with questions submitted by the District Court for Warsaw Śródmieście in Warsaw in cases against Deutsche Bank SA and mBank SA. The CJEU stated that: (i) A national court may find that the parts of a contractual term of the agreement concluded between a consumer and an entrepreneur which render it unfair are unfair, if such a deletion would not amount to a change in the content of that term that affects its substance, which is for the referring court to verify. (ii) A national court cannot, after annulling an unfair term contained in an agreement concluded between a consumer and an entrepreneur which does not render the agreement invalid in its entirety, replace that term with a supplementary provision of the national law.
115 This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version. Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31st December 2022
(iii) A national court may not, after having declared invalid an unfair term contained in an agreement concluded between a consumer and an entrepreneur which entails the invalidity of that agreement in its entirety, replace the contractual term which has been declared invalid either by interpretation of the parties' declaration of intent in order to avoid the cancellation of that agreement or by a provision of national law of a supplementary nature, even if the consumer has been informed of the effects of the invalidity of that agreement, and accepted them. (iv) The ten-year limitation period for a consumer's claim seeking reimbursement of sums unduly paid to the entrepreneur in performance of an unfair term of a loan agreement does not start to run on the date of each performance made by the consumer if the consumer was not able on that date to assess on his own the unfairness of the contractual term or if he had not become aware of the unfair nature of that term and without taking into account the circumstances that the agreement provided for a repayment period – in this case thirty years – well in excess of the ten-year statutory limitation period. On 7th May 2021, the Supreme Court composed of 7 judges of the Supreme Court, issued a resolution for which the meaning of legal principle has been granted, stating that: 1. An abusive contractual clause (art. 3851 § 1 of the Civil Code), by force of the law itself, is ineffective to the benefit of the consumer who may consequently give conscious and free consent to this clause and thus restore its effectiveness retroactively. 2. If without the ineffective clause the loan agreement cannot bind, the consumer and the lender shall be eligible for separate claims for return of monetary performances made in exercising this agreement (art. 410 § 1 in relation to art. 405 of the Civil Code). The lender may demand return of the performance from the moment the loan agreement becomes permanently ineffective. On April 28, 2022 the Supreme Court issued a resolution (III CZP 40/22) in which it indicated that in disputes with consumers, the provision of Article 358 1 of the Civil Code is a special provision to Article 353 1 of the Civil Code, which means that if the prerequisites for the application of both provisions exist, the court should apply the special provision and declare the contractual provision permanently ineffective, rather than invalid. This decision of the Supreme Court should be perceived as significantly limiting the risk of the bank's claims for return of capital being time-barred. In this context, taking into consideration the recent negative evolution in the court verdicts regarding FX mortgage loans, and if such trend continues, the Bank will have to regularly review and may need to continue to increase the balance of provisions allocated to court litigations. It can reasonably be assumed that the legal issues relating to foreign currency mortgage loans will be further examined by the national courts within the framework of disputes considered which would possibly result in the emergence of further interpretations, which are relevant for the assessment of the risks associated with subject matter proceedings. This circumstance indicates the need for constant analysis of these matters. Further request for clarification and ruling addressed to the European Court of Justice and Polish Supreme Court have already been filed and may still be filed with potential impact on the outcome of the court cases.
116 This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version. Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31st December 2022
On 29 January 2021 a set of questions addressed by the First President of the Supreme Court to the full Civil Chamber of the Supreme Court was published. This may have important consequences in terms of clarifications of relevant aspects of the court rulings and their consequences. The Civil Chamber of the Supreme Court has been requested for answering the questions concerning key matters related to FX mortgage agreements: (i) is it permissible to replace - with the law provisions or with a custom - the abusive provisions of an agreement which refer to FX exchange rate determination; moreover, (ii) in case of impossibility of determining the exchange rate of a foreign currency in the indexed/denominated credit agreement - is it permissible to keep the agreement still valid in its remaining scope; as well as (iii) if in case of invalidity of the CHF credit there would be applicable the theory of balance (i.e. does arise a single claim which is equal to the difference between value of claims of bank and the customer) or the theory of two condictions (separate claims for the bank and for the client that should be dealt with separately). The Supreme Court has also been requested for answering the question on (iv) from which point in time there shall be starting the limitation period in case of bank's claim for repayment of amounts paid as a loan and (v) whether banks and consumers may receive remuneration for using their pecuniary means by another party. On 11 May 2021 the Civil Chamber of the Supreme Court requested opinions on Swiss franc mortgage loans from five institutions including the National Bank of Poland (NBP), the Polish Financial Supervision Authority (UKNF), the Commissioner for Human Rights, the Children's Rights Ombudsman and the Financial Ombudsman. The positions of: the Commissioner for Human Rights, the Children's Rights Ombudsman and the Financial Ombudsman are in general favorable to consumers, while the National Bank of Poland and the Polish Financial Supervision Authority present a more balanced position, including fair principles of treatment of FX mortgage borrowers vis-à-vis PLN mortgage borrowers, as well as balanced economic aspects regarding solutions for the problem that could be considered by the Supreme Court. In the next meeting of the Supreme Court that took place on 2 September 2021, the Court did not address the answers to the submitted questions and no new meeting date is known.On 12 August 2021, in the case for payment brought by a consumer against Bank Millennium S.A., the CJEU was asked for a preliminary ruling (C-520/21) whether, in the event that a loan agreement concluded by a bank and a consumer is deemed invalid from the beginning due to unfair contract terms, the parties, in addition to the reimbursement of the money paid in contracts (bank - loan capital, consumer - installments, fees, commissions and insurance premiums) and statutory interest for delay from the moment of calling for payment, may also claim any other benefits, including receivables in particular, remuneration, compensation, reimbursement of costs or valorization of the performance. The hearing was held on October 12, 2022. The hearing was attended by representatives of the Bank, the consumer's representative, representatives of the European Commission, the Polish government, the Financial Ombudsman, the Commissioner for Human Rights, the Polish Financial Supervision Authority and the prosecutor. In its position, the European Commission opposed granting banks the right to an additional financial benefit for the consumer's use of the capital provided. At the same time, the Commission concluded that granting consumers the right to an additional financial benefit will not be contrary to the EU law. The representatives of the Polish government, the Financial Ombudsman, the Commissioner for Human Rights and the prosecutor also objected to granting banks the right to an additional benefit. The Chairman of the Polish Financial Supervision Authority pointed out that the essence of the problem is not the abusiveness of contractual clauses, but the appreciation of the Swiss franc (CHF) against the zloty (PLN). In the opinion of the Chairman of the Polish Financial Supervision Authority, banks are entitled to economic compensation for allowing another entity to use the capital.
117 This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version. Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31 st December 2022
The next stage in the case will be the issuance of an opinion by the Advocate General in the case. The opinion is scheduled for 16 February 2023. On 9 December 2022, in the case brought by the Bank against the borrower for payment – return of the capital made available to the borrower on the basis of an invalid capital contract and the equivalent value of the benefit related to the borrower's use of capital, the court referred a question to the CJEU for a preliminary ruling whether, if it is found that the loan contract concluded by the bank and the consumer is invalid from the beginning due to the conclusion of unfair contractual terms, in addition to the return of money paid in the performance of this contract (loan principal) and statutory late payment interest from the moment of the request for payment, the bank may also demand any other benefits, including receivables, in particular remuneration, compensation, reimbursement of costs or valorisation of the benefit. The case was registered under the reference number C-756/22. Referring the question, the court asked the CJEU to join the case with the above- mentioned ongoing proceedings under ref. C-520/21. The Court has decided not to join the cases. With the scope of settlements between the Bank and borrower following the fall of the loan agreement is also connected the legal issue directed to the seven-person composition of the Supreme Court (case sign: III CZP 54/21). The date of case review has not been specified yet. The Supreme Court was also presented with the issue of whether the loan agreement is a mutual agreement in the light of the regulations concerning retention right. On December 8, 2020, Mr. Jacek Jastrzębski, the Chairman of the Polish Financial Supervision Authority (‘PFSA’) proposed a ‘sector’ solution to address the sector risks related to FX mortgages. The solution would consist in offering by banks to their clients a voluntary possibility of concluding arrangements based on which a client would conclude with the bank a settlement as if his/her loan from the very beginning had been a PLN loan bearing interest at an appropriate WIBOR rate increased by the margin historically employed for such loan. Following that public announcement, the idea was subject of consultations between banks under the auspices of the PFSA and Polish Banking Association. Banks in general have assessed the conditions under which such solution could be implemented and consequent impacts. As expressed in our previous financial reports, when that assessment was done, in the view of the Management Board of the Bank, important aspects to take into consideration when deciding on potential implementation of such program were: a) favorable opinion or at least non-objection from important public institutions; b) support from National Bank of Poland to the implementation; c) level of legal certainty of the settlement agreements to be signed with the borrowers; d) level of the financial impact on a pre- and after tax basis; e) capital consequences including regulatory adjustments in the level of capital requirements associated with FX mortgage loans. Based on current information some of the above mentioned aspects are not likely to be fully clarified and / or achieved. Any decision regarding implementation of such program would require the Management Board to submit it to the Supervisory Board and General Shareholders meeting taking into consideration the relevance of such decision and its implications. Despite the fact that not all of those aspects have been possible to clarify, the Bank in practice has been using elements of such solution on several individual negotiations with FX mortgage borrowers, including in the course of court proceedings.
118 This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version. Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31 st December 2022
The effect of the Supreme Court's resolution of 7 May 2021 is that the bank is entitled to a refund of the cash benefit provided by the bank in performance of a permanently ineffective contract. Taking into account the uncertainty as to the starting point of the limitation period for the bank's claims, the Bank, in order to protect its interests, files lawsuits for payment against borrowers in a court dispute with the bank. The bank's demand consists of: a claim for return of the capital made available to the borrower under the contract and a claim for reimbursement of the equivalent of the benefit obtained by the borrower in connection with the use of the capital made available (equivalent to the financial service). By 31 December 2022 the bank filed over 3,000 lawsuits against the borrowers. Due to the ongoing proceedings on questions referred for a preliminary ruling (C-520/21, C-756/22) concerning the scope of claims of the parties to an invalid contract, no final decision has yet been issued in the Bank's cases containing a substantive assessment of the Bank's claims for reimbursement of benefits related to the use of capital. Due to the complexity and uncertainty regarding the outcome of court cases, including counter- claims, as well as from potential implementation of KNF Chairman solution or other negotiation solutions or from potential Supreme Court decisions or European Court of Justice decisions, it is difficult to reliably estimate final impacts from different potential outcomes as at the date of publication of the financial statements.
119 This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version. Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31 st December 2022
Amounts presented in the notes to the consolidated financial statements are presented in PLN thousands.
| 01.01.2022 - 31.12.2022 | 01.01.2021 - 31.12.2021 | |
|---|---|---|
| Interest income from Financial assets at fair value through other comprehensive income | 468 575 | 157 554 |
| Debt securities | 468 575 | 157 554 |
| Interest income from Financial assets at amortised cost | 4 560 119 | 2 620 651 |
| Balances with the Central Bank | 166 369 | 3 753 |
| Loans and advances to customers, including | 4 165 807 | 2 511 866 |
| - the impact of the adjustment to the gross carrying amount of loans due to credit holidays | (1 324 208) | 0 |
| Debt securities | 85 566 | 620 |
| Deposits, loans and advances to banks | 26 152 | 287 |
| Transactions with repurchase agreements | 26 095 | 461 |
| Hedging derivatives | 90 130 | 103 664 |
| Income of similar nature to interest, including: | (28 798) | 63 888 |
| Loans and advances to customers mandatorily at fair value through profit or loss | 28 604 | 55 372 |
| Financial assets held for trading - derivatives | (61 492) | 7 902 |
| Financial assets held for trading - debt securities | 4 091 | 614 |
| Total | 4 999 897 | 2 842 093 |
In the line „Hedging derivatives” the Group presents net interest income from derivatives set as and being effective cash flow and fair value hedges. A detailed description of the hedging relations used by the Group is presented in note (24). Interest income for the year 2022 contains interest accrued on impaired loans in the amount of PLN 174,546 thous. (for corresponding data in the year 2021 the amount of such interest stood at PLN 106,321 thous.). Interest income from instruments measured at amortized cost for 2022 includes an adjustment for credit holidays (reducing income) in the amount of PLN 1,324.2 million, more information on this subject is presented in Chapter 7.3 Adopted accounting principles.
| 01.01.2022 - 31.12.2022 | 01.01.2021 - 31.12.2021 | |
|---|---|---|
| Interest expense from Financial liabilities measured at amortised cost | (1 662 605) | (128 947) |
| Liabilities to banks and other monetary institutions | (34 590) | (6 619) |
| Liabilities to customers | (1 455 102) | (68 744) |
| Transactions with repurchase agreement | (52 871) | (1 791) |
| Debt securities issued | (1 778) | (3 769) |
| Subordinated debt | (110 182) | (40 076) |
| Liabilities due to leasing agreements | (8 083) | (7 948) |
| Hedging derivatives | 0 | 0 |
| Other | (1) | (3) |
| Total | (1 662 606) | (128 950) |
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31st December 2022
| 01.01.2022 - 31.12.2022 | 01.01.2021 - 31.12.2021 | |
|---|---|---|
| Resulting from accounts service | 137 709 | 131 476 |
| Resulting from money transfers, cash payments and withdrawals and other payment transactions | 91 497 | 78 916 |
| Resulting from loans granted | 203 640 | 212 472 |
| Resulting from guarantees and sureties granted | 14 325 | 13 425 |
| Resulting from payment and credit cards | 268 501 | 235 579 |
| Resulting from sale of insurance products | 174 667 | 156 824 |
| Resulting from distribution of investment funds units and other savings products | 34 930 | 63 876 |
| Resulting from brokerage and custody service | 15 384 | 17 259 |
| Resulting from investment funds managed by the Group | 55 264 | 72 690 |
| Other | 31 829 | 29 733 |
| Total | 1 027 745 | 1 012 250 |
| 01.01.2022 - 31.12.2022 | 01.01.2021 - 31.12.2021 | |
|---|---|---|
| Resulting from accounts service | (22 873) | (6 029) |
| Resulting from money transfers. cash payments and withdrawals and other payment transactions | (5 480) | (4 671) |
| Resulting from loans granted | (26 031) | (28 165) |
| Resulting from payment and credit cards | (105 252) | (86 391) |
| Resulting from brokerage and custody service | (3 008) | (3 087) |
| Resulting from investment funds managed by the Group | (10 916) | (11 675) |
| Resulting from insurance activity | (11 546) | (15 036) |
| Other | (34 334) | (26 584) |
| Total | (219 440) | (181 638) |
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31st December 2022
| 01.01.2022 - 31.12.2022 | 01.01.2021 - 31.12.2021 | |
|---|---|---|
| Financial assets held for trading | 17 | 2 |
| Non-trading financial assets mandatorily at fair value through profit or loss | 1 322 | 1 333 |
| Financial assets at fair value through other comprehensive income | 2 457 | 2 426 |
| Total | 3 796 | 3 761 |
| 01.01.2022 - 31.12.2022 | 01.01.2021 - 31.12.2021 | |
|---|---|---|
| Operations on debt instruments | (166) | 12 896 |
| Costs of financial operations | (2 440) | (3 227) |
| Total | (2 606) | 9 669 |
| 01.01.2022 - 31.12.2022 | 01.01.2021 - 31.12.2021 | |
|---|---|---|
| Result on debt instruments | (13 179) | (6 043) |
| Result on derivatives | 12 786 | (3 247) |
| Result on other financial operations | 81 | (6) |
| Total | (312) | (9 296) |
| 01.01.2022 - 31.12.2022 | 01.01.2021 - 31.12.2021 | |
|---|---|---|
| Loans and advances to customers | 12 503 | 39 881 |
| Result on equity instruments | 8 339 | 7 493 |
| Result on debt instruments | 4 854 | 77 164 |
| Total | 25 696 | 124 538 |
The decrease in the result on non-trading debt instruments mandatorily measured at fair value through profit or loss in 2022 results from the positive valuation of part of VISA Incorporation shares not admitted to trading (which the Group presents as a debt instrument based on the interpretation of IAS 32, while VISA shares admitted to trading are recognized as equity instruments) recorded in year 2021.
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31st December 2022
| 01.01.2022 - 31.12.2022 | 01.01.2021 - 31.12.2021 | |
|---|---|---|
| Changes in the fair value of the hedging instrument (including abandonment) | 5 230 | 13 813 |
| Changes in the fair value of the hedged item resulting from the hedged risk | (6 119) | (13 301) |
| Inefficiency in cash flow hedges | (6 241) | (3 697) |
| Inefficiencies due to net investment hedges in foreign operations | 0 | 0 |
| Total | (7 130) | (3 185) |
| 01.01.2022 - 31.12.2022 | 01.01.2021 - 31.12.2021 | |
|---|---|---|
| Gain on sale and liquidation of property, plant and equipment, intangible assets | 21 034 | 22 189 |
| Indemnifications, penalties and fines received | 6 572 | 3 376 |
| Income from sale of other services | 36 090 | 42 072 |
| Income from collection service | 4 552 | 5 653 |
| Income from leasing business | 4 703 | 4 044 |
| Other | 203 294 | 239 961 |
| Total | 276 245 | 317 295 |
| 01.01.2022 - 31.12.2022 | 01.01.2021 - 31.12.2021 | |
|---|---|---|
| Loss on sale and liquidation of property, plant and equipment, intangible assets | (16 938) | (20 375) |
| Indemnifications, penalties and fines paid | (22 638) | (15 992) |
| Costs of provisions for disputed claims | (27 325) | (113 173) |
| Costs of leasing business | (4 109) | (2 445) |
| Donations made | (1 673) | (900) |
| Costs of collection service | (101 782) | (52 620) |
| Provisions for potential returns to clients* | 5 009 | (1 941) |
| Other | (47 264) | (32 064) |
| Total | (216 720) | (239 510) |
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31st December 2022
| 01.01.2022 – 31.12.2022 | 01.01.2021 – 31.12.2021 | |
|---|---|---|
| Staff costs: | (916 142) | (815 324) |
| Salaries | (753 869) | (672 585) |
| Surcharges on pay | (127 331) | (112 158) |
| Employee benefits, including: | (34 942) | (30 581) |
| provisions for retirement benefits | (6 010) | (7 124) |
| provisions for unused employee holiday | 18 | 1 288 |
| other | (28 950) | (24 745) |
| Other administrative expenses: | (968 117) | (625 382) |
| Costs of advertising, promotion and representation | (65 542) | (64 559) |
| IT and communications costs | (138 409) | (126 931) |
| Costs of renting | (50 300) | (54 214) |
| Costs of buildings maintenance, equipment and materials | (45 386) | (40 710) |
| ATM and cash maintenance costs | (32 561) | (27 536) |
| Costs of consultancy, audit and legal advisory and translation | (97 393) | (77 104) |
| Taxes and fees | (38 817) | (33 937) |
| KIR - clearing charges | (11 310) | (9 325) |
| PFRON costs | (6 537) | (7 147) |
| Banking Guarantee Fund costs | (121 116) | (118 217) |
| Financial Supervision costs | (12 657) | (12 776) |
| Cost of payments to IPS | (276 120) | 0 |
| Other | (71 969) | (52 926) |
| Total | (1 884 259) | (1 440 706) |
| 01.01.2022 – 31.12.2022 | 01.01.2021 – 31.12.2021 | |
|---|---|---|
| Impairment losses on loans and advances to customers | (346 838) | (325 829) |
| Impairment charges on loans and advances to customers | (1 672 300) | (1 607 589) |
| Reversal of impairment charges on loans and advances to customers | 1 192 437 | 1 167 777 |
| Amounts recovered from loans written off | 47 609 | 57 421 |
| Sale of receivables | 85 394 | 62 555 |
| Other directly recognised in profit and loss | 22 | (5 993) |
| Impairment losses on securities | (5) | 1 |
| Impairment charges on securities | (5) | (6) |
| Reversal of impairment charges on securities | 0 | 7 |
| Impairment losses on off-balance sheet liabilities | 4 810 | 7 437 |
| Impairment charges on off-balance sheet liabilities | (42 174) | (55 368) |
| Reversal of impairment charges on off-balance sheet liabilities | 46 984 | 62 805 |
| Total | (342 033) | (318 391) |
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31st December 2022
| 01.01.2022 - 31.12.2022 | 01.01.2021 - 31.12.2021 | |
|---|---|---|
| Fixed assets | 0 | 0 |
| Other assets | (3 515) | (7 642) |
| Total | (3 515) | (7 642) |
01.01.2022 - 31.12.2022
| TOTAL | Allocated for credit portfolio | Provisions for pending legal issues | |
|---|---|---|---|
| Balance at the beginning of the period | 3 332 614 | 2 916 779 | 415 835 |
| Amounts written off | (223 036) | (223 036) | 0 |
| Costs of provisions for legal risk connected wIth FX mortgage loans | 2 017 320 | 0 | 2 017 320 |
| Allocation to the loans portfolio | 0 | 1 610 712 | (1 610 712) |
| Increase of provisions due to FX rates differences | 268 445 | 268 445 | 0 |
| Balance at the end of the period | 5 395 344 | 4 572 901 | 822 443 |
01.01.2021 - 31.12.2021
| TOTAL | Allocated for credit portfolio | Provisions for pending legal issues | |
|---|---|---|---|
| Balance at the beginning of the period | 960 046 | 884 755 | 75 291 |
| Amounts written off | (24 059) | (24 059) | 0 |
| Costs of provisions for legal risk connected wIth FX mortgage loans | 2 305 157 | 0 | 2 305 157 |
| Allocation to the loans portfolio | 0 | 1 964 613 | (1 964 613) |
| Increase of provisions due to FX rates differences | 91 470 | 91 470 | 0 |
| Balance at the end of the period | 3 332 614 | 2 916 779 | 415 835 |
01.01.2022 - 31.12.2022 | 01.01.2021 - 31.12.2021
| :-------------------------- | :-------------------------- |
| Costs of settlements recognized in the profit and loss account, including: | (484 392) | (364 525) |
| - included in the “Result on exchange differences” | (382 239) | (364 525) |
| - included in the “Result on modification” | (102 153) | 0 |
| Costs of settlements charged to previously created provisions | (30 774) | 0 |
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
| 01.01.2022 – 31.12.2022 | 01.01.2021 – 31.12.2021 | |
|---|---|---|
| Current tax | (263 766) | (199 030) |
| Current year | (263 766) | (199 030) |
| Adjustment to previous years | 0 | 0 |
| Deferred tax: | (20 045) | (131 893) |
| Recognition and reversal of temporary differences | (22 676) | (129 643) |
| Recognition / (Utilisation) of tax loss | 2 631 | (2 250) |
| Total income tax reported in income statement | (283 811) | (330 923) |
| 01.01.2020 - 31.12.2020 | 01.01.2019 - 31.12.2019 | |
|---|---|---|
| Profit before tax | (730 754) | (1 000 943) |
| Statutory tax rate | 19% | 19% |
| Income tax according to obligatory income tax rate of 19% | 138 843 | 190 179 |
| Impact of permanent differences on tax charges: | (425 461) | (523 326) |
| - Non-taxable income | 34 147 | 43 815 |
| Dividend income | 469 | 461 |
| Release of other provisions | 32 027 | 43 057 |
| Other | 1 651 | 297 |
| - Cost which is not a tax cost | (459 608) | (567 141) |
| Write-down of unrealized deferred tax assets | 0 | 0 |
| Loss on sale of receivables | (4 425) | (17) |
| PFRON fee | (1 232) | (1 357) |
| Fees for Banking Guarantee Fund | (23 009) | (22 460) |
| Settlement of BFG SKOK PIAST | (142) | (397) |
| Banking tax | (32 122) | (59 396) |
| Income/cost of provisions for factoring and leasing receivables | 469 | 1 073 |
| Receivables written off | (6 421) | (21 535) |
| Costs of litigations and claims | (393 575) | (458 454) |
| Ccosts related to concluded agreements | 5 310 | (1 068) |
| Depreciation and insurance costs of cars (in excess of PLN 150,000) | (804) | (773) |
| Other | (3 657) | (2 757) |
| Amount of deductible temporary differences for which no deferred tax asset was recognized in the balance sheet | 2 116 | 0 |
| Deduction of the tax paid abroad | 234 | 0 |
| Other differences between gross financial result and taxable income with income tax (including R&D relief) | 456 | 2 224 |
| Total income tax reported in income statement | (283 811) | (330 923) |
| Effective tax rate | /-/* | /-/* |
* For the years 2022 and 2021, the Group recorded a negative gross financial result and at the same time a tax burden of a cost nature, therefore the Group did not calculate the effective tax rate.
| 31.12.2022 | 31.12.2021 | |
|---|---|---|
| Valuation of investment assets at fair value through other comprehensive income | 169 468 | 129 857 |
| Valuation of cash flow hedging instruments | 77 151 | 71 993 |
| Actuarial gains (losses) | (2 133) | (444) |
| Deferred tax reported directly in equity | 244 486 | 201 406 |
Changes in deferred tax recognized directly in equity are presented in Note (39b).
On February 2019 the Head of Western Pomeranian Customs & Tax Office (Zachodniopomorski Urząd Celno-Skarbowy w Szczecinie, ZUCS) commenced tax audits regarding the correctness of withholding tax (WHT) settlements for years 2015 and 2016. On 17 December 2019 the Bank received audit results as of 13 December 2019, in which ZUCS questioned WHT-exemption on coupon interest from bonds paid to MB Finance AB with the seat in Sweden constituting a collateral to 10Y subordinated bonds with a par value of EUR 150 mio. issued by this company in December 2007 (fully amortized in December 2017). On 11 June 2021 Bank received 2nd instance decisions of ZUCS decreasing the amount of WHT arrear from PLN 6.6 to 5.3 mio. This amount with penalty interests were paid by Bank on 18 June 2021. Bank lodged complaints on these decisions to the administrative court in Szczecin (WSA). WSA in its judgements as of 13 and 27 October 2021 wholly overruled both ZUCS’s decisions. ZUCS appealed from these judgments to the Supreme Administrative Court.
On 13 April 2021 Head of ZUCS commenced a WHT audit for year 2017. As expected in the audit result ZUCS challenged WHT-exemption on coupon interests paid by Bank to MBF in this year as well (disputable WHT amount is ca. PLN 2.2 mio.). Bank does not agree with such findings as well and will continue a dispute with ZUCS. On 21 March 2022 Bank received the ZUCS’s decision on WHT audit transformation into a tax proceeding. On 30 June 2022 Bank received the ZUCS’s decision determining WHT arrear of ca. PLN 2.2 mio. Bank appealed from this decision. Bank received an expert opinion as of January 29, 2020 of tax professors from the Public Finances Law Department of the Faculty of Law and Administration at Nicolaus Copernicus University in Torun, according to which ZUCS’s statement violates binding tax law provisions.
| 01.01.2022- 31.12.2022 | 01.01.2021 – 31.12.2021 | |
|---|---|---|
| Profit/loss after taxes | (1 014 566) | (1 331 866) |
| Weighted average number of shares in the period | 1 213 116 777 | 1 213 116 777 |
| Profit/loss per share – basic and diluted | (0.84) | (1.10) |
Earnings per share have been calculated by dividing net profit for the period by the weighted average number of shares. At the same time due to the nature of the issue it was not necessary to make a separate calculation of diluted Earnings per Share (the calculation methodology in case of absence of diluting instruments is the same as in case of Earnings per Share; as a result diluted Earnings per Share equals basic Earnings Per Share).
| 31.12.2022 | 31.12.2021 | |
|---|---|---|
| Cash | 935 916 | 874 739 |
| Cash in Central Bank | 8 600 174 | 2 304 997 |
| Other funds | 0 | 0 |
| Total | 9 536 090 | 3 179 736 |
In the period from 30 November 2022 to 2 January 2023 the Bank was obliged to keep on its current account with NBP (the central bank) an average balance of PLN 3,270,802 thousand (arithmetic average of balances on the NBP current account on all days of the deposit-holding period).
| 31.12.2022 | 31.12.2021 | |
|---|---|---|
| in Polish currency | 4 406 496 | 2 918 689 |
| in foreign currencies (after conversion to PLN): | 5 129 594 | 261 047 |
| - currency: USD | 100 673 | 41 867 |
| - currency: EUR | 4 991 057 | 180 932 |
| - currency: CHF | 15 756 | 15 396 |
| - currency: GBP | 17 508 | 19 203 |
| - other currencies | 4 600 | 3 649 |
| Total | 9 536 090 | 3 179 736 |
| 31.12.2022 | 31.12.2021 | |
|---|---|---|
| Debt securities | 24 210 | 86 438 |
| Issued by State Treasury | 24 210 | 86 438 |
| a) bills | 0 | 0 |
| b) bonds | 24 210 | 86 438 |
| Other securities | 0 | 0 |
| a) quoted | 0 | 0 |
| b) non quoted | 0 | 0 |
| Equity instruments | 113 | 145 |
| Quoted on the active market | 113 | 145 |
| a) financial institutions | 27 | 53 |
| b) non-financial institutions | 86 | 92 |
| Adjustment from fair value hedge | 0 | 0 |
| Positive valuation of derivatives | 339 196 | 85 900 |
| Total | 363 519 | 172 483 |
Information on financial assets securing liabilities is presented in point 2) of chapter 15.
| 31.12.2022 | 31.12.2021 | |
|---|---|---|
| with fixed interest rate | 18 353 | 61 340 |
| with variable interest rate | 5 857 | 25 098 |
| Total | 24 210 | 86 438 |
| 31.12.2022 | 31.12.2021 | |
|---|---|---|
| to 1 month | 912 | 0 |
| above 1 month to 3 months | 0 | 0 |
| above 3 months to 1 year | 2 050 | 1 729 |
| above 1 year to 5 years | 15 995 | 70 202 |
| above 5 years | 5 253 | 14 507 |
| Total | 24 210 | 86 438 |
| 01.01.2022 - 31.12.2022 | 01.01.2021 - 31.12.2021 | |
|---|---|---|
| Balance at the beginning of the period | 86 583 | 269 658 |
| Increases (purchase and accrual of interest and discount) | 5 891 180 | 9 575 937 |
| Reductions (sale and redemption) | (5 954 166) | (9 758 399) |
| Differences from valuation at fair value | 726 | (613) |
| Balance at the end of the period | 24 323 | 86 583 |
| Par value of instruments with future maturity | Fair value | below 3 months | from 3 months to 1 year | from 1 year to 5 years | above 5 years | Total Assets | Liabilities | |
|---|---|---|---|---|---|---|---|---|
| 31.12.2022 | ||||||||
| 1. Interest rate derivatives | 1 039 534 | 1 664 | 741 9 | 507 306 244 | 137 (28 842) | 29 235 | 58 077 | |
| Forward Rate Agreements (FRA) | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Interest rate swaps (IRS) | 1 039 534 | 1 526 | 317 8 | 751 790 219 | 985 (29 344) | 1 293 | 30 637 | |
| Other interest rate contracts: options | 0 | 138 | 424 | 755 516 | 24 152 | 502 | 27 440 | 27 440 |
| 2. FX derivatives* | 12 009 192 | 1 648 | 761 160 | 657 0 (9 254) | 58 525 | 67 779 | ||
| FX contracts | 1 868 977 | 1 023 | 642 8 | 5933 0 | (12 289) | 11 840 | 24 129 | |
| FX swaps | 9 203 270 | 625 | 119 7 | 4724 0 | 1 436 | 44 663 | 43 227 | |
| Other FX contracts (CIRS) | 936 945 | 0 | 0 | 0 | 1 599 | 2 022 | 423 | |
| FX options | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
| 31.12.2022 | 31.12.2021 | |
|---|---|---|
| Equity instruments | 128,979 | 138,404 |
| credit institutions | 0 | 0 |
| other corporates | 128,979 | 138,404 |
| Debt securities | 72,057 | 127,499 |
| credit institutions | 0 | 0 |
| other corporates | 72,057 | 127,499 |
| Total | 201,036 | 265,903 |
| 31.12.2022 | 31.12.2021 | |
|---|---|---|
| Debt securities | 16,481,210 | 17,968,972 |
| Issued by State Treasury | 13,554,072 | 17,498,704 |
| a) bills | 0 | 0 |
| b) bonds | 13,554,071 | 17,498,704 |
| Issued by Central Bank | 2,528,310 | 34,990 |
| a) bills | 2,528,310 | 34,990 |
| b) bonds | 0 | 0 |
| Other securities | 398,828 | 435,278 |
| a) listed | 398,828 | 435,278 |
| b) not listed | 0 | 0 |
| Shares and interests in other entities | 24,396 | 28,727 |
| Other financial instruments | 0 | 0 |
| Total financial assets at fair value through other comprehensive income | 16,505,606 | 17,997,699 |
| Including | ||
| Instrument listed on active market | 13,953,147 | 17,934,272 |
| Instrument not listed on active market | 2,552,459 | 63,427 |
| 31.12.2022 | 31.12.2021 | |
|---|---|---|
| with fixed interest rate | 13,557,656 | 14,783,038 |
| with variable interest rate | 2,923,554 | 3,185,934 |
| Total | 16,481,210 | 17,968,972 |
| 31.12.2022 | 31.12.2021 | |
|---|---|---|
| to 1 month | 4,434,647 | 34,990 |
| above 1 month to 3 months | 0 | 0 |
| above 3 months to 1 year | 2,305,894 | 4,892,493 |
| above 1 year to 5 years | 9,056,094 | 12,617,995 |
| above 5 years | 684,575 | 423,494 |
| Total | 16,481,210 | 17,968,972 |
| 01.01.2022 - 31.12.2022 | 01.01.2021 - 31.12.2021 | |
|---|---|---|
| Balance at the beginning of the period | 17,997,699 | 18,642,615 |
| Increases (purchase and accrual of interest and discount) | 302,222,310 | 310,958,000 |
| Reductions (sale and redemption) | (156,636,934) | (221,977,525) |
| Difference from measurement at fair value | (208,468) | (978,348) |
| Impairment allowances | 0 | 0 |
| Other | 7 | (1) |
| Balance at the end of the period | 16,505,606 | 17,997,699 |
| # Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31st December 2022
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
| 31.12.2022 | 31.12.2021 | |
|---|---|---|
| Loans and advances to customers (gross) | 78 887 990 | 80 614 580 |
| case by case analysis | 501 115 | 462 |
| collective analysis | 78 386 875 | 79 794 118 |
| Impairment allowances | (2 420 809) | (2 374 246) |
| on the basis of case by case analysis | (168 105) | (261 290) |
| on the basis of collective analysis | (2 252 704) | (2 112 956) |
| Loans and advances to customers (net) | 76 467 181 | 78 240 334 |
| 31.12.2022 | 31.12.2021 | |
|---|---|---|
| Loans and advances to customers (gross) | 78 887 990 | 80 614 580 |
| corporate customers | 19 121 437 | 19 539 924 |
| individuals | 59 766 553 | 61 074 656 |
| Impairment allowances | (2 420 809) | (2 374 246) |
| for receivables from corporate customers | (415 722) | (482 448) |
| for receivables from private individuals | (2 005 087) | (1 891 798) |
| Loans and advances to customers (net) | 76 467 181 | 78 240 334 |
| 01.01.2022 - 31.12.2022 | 01.01.2021 - 31.12.2021 | |
|---|---|---|
| Balance at the beginning of the period | 2 374 246 | 2 372 635 |
| Change in value of provisions: | 46 563 | 1 611 |
| Impairment allowances created in the period | 1 671 698 | 1 607 350 |
| Amounts written off | (281 934) | (340 852) |
| Impairment allowances released in the period | (1 191 876) | (1 167 777) |
| Sale of receivables | (241 148) | (145 828) |
| KOIM created in the period* | 71 224 | 35 850 |
| Changes resulting from FX rates differences | 19 594 | 9 287 |
| Other | (995) | 3 581 |
| Balance at the end of the period | 2 420 809 | 2 374 246 |
The Group records POCI assets in the balance sheet mainly as a result of recognition of impaired loans after the merger with Euro Bank and takeover of SKOK Piast. At the time of the merger, the aforementioned assets included in the Bank's books at fair value. The value of POCI assets is as follows:
| Gross balance sheet value | Accumulated impairment | Net balance sheet value | |
|---|---|---|---|
| 31.12.2022 | |||
| - Companies | 15 216 | (26) | 15 190 |
| - Individuals | 137 235 | (13 150) | 124 085 |
| - Public sector | 0 | 0 | 0 |
| 31.12.2021 | |||
| - Companies | 59 231 | 290 | |
| - Individuals | 241 218 | (15 488) | 225 730 |
| - Public sector | 0 | 0 | 0 |
| Stage 1 | Stage 2 | Stage 3 | POCI | Total | |
|---|---|---|---|---|---|
| Balance at the beginning of the period | 114 852 | 45 876 | 320 822 | (231) | 481 319 |
| Transfers between stages | 13 948 | (33 210) | 19 262 | 0 | 0 |
| Increase due to granting or purchase | 55 560 | 0 | 0 | 0 | 55 560 |
| Changes in credit risk | (58 333) | 51 262 | 57 748 | 257 | 50 934 |
| Decrease due to derecognition (except exposures sold and written off) | (10 251) | (4 992) | (32 749) | 0 | (47 991) |
| Sale of loans and advances | 0 | 0 | (45 077) | 0 | (45 077) |
| Loans and advances written off | 0 | 0 | (86 414) | 0 | (86 414) |
| KOIM | 0 | 0 | 6 997 | 0 | 6 997 |
| Other (including FX differences) | 199 | 432 | (1 791) | 0 | (1 160) |
| Balance at the end of the period | 115 976 | 59 368 | 238 798 | 26 414 | 168 |
| Stage 1 | Stage 2 | Stage 3 | POCI | Total | |
|---|---|---|---|---|---|
| Balance at the beginning of the period | 17 458 183 | 1 032 369 | 806 709 | 59 19 | 19 297 320 |
| Transfers between stages | (1 331 727) | 1 015 796 | 300 774 | 15 157 | 0 |
| Granted or purchased loans and advances | 9 177 613 | 0 | 0 | 0 | 9 177 613 |
| Repaid loans and advances | (8 629 101) | (563 667) | (321 651) | 0 | (9 514 419) |
| Loans and advances sold | 0 | 0 | (78 758) | 0 | (78 758) |
| Loans and advances written off | 0 | 0 | (86 414) | 0 | (86 414) |
| Other (including FX differences) | 100 405 | 24 124 | 1 806 | 0 | 126 335 |
| Balance at the end of the period | 16 775 373 | 1 508 622 | 622 465 | 15 216 | 18 921 677 |
| Stage 1 | Stage 2 | Stage 3 | POCI | Total | |
|---|---|---|---|---|---|
| Balance at the beginning of the period | 224 196 | 188 477 | 1 463 637 | 15 488 | 1 891 798 |
| Transfers between stages | 424 786 | (531 894) | 107 108 | 0 | 0 |
| Increase due to granting or purchase | 76 142 | 0 | 0 | 0 | 76 142 |
| Changes in credit risk | (433 318) | 718 926 | 172 963 | 74 856 | 533 427 |
| Decrease due to derecognition (except exposures sold and written off) | (38 520) | (24 172) | (125 983) | 0 | (188 675) |
| Sale of loans and advances | 0 | 0 | (181 453) | (14 618) | (196 071) |
| Loans and advances written off | 0 | 0 | (132 944) | (62 576) | (195 520) |
| KOIM | 0 | 0 | 64 227 | 0 | 64 227 |
| Other (including FX differences) | 1 347 | 4 892 | 13 521 | 0 | 19 760 |
| Balance at the end of the period | 254 633 | 356 229 | 1 381 076 | 13 150 | 2 005 088 |
| Stage 1 | Stage 2 | Stage 3 | POCI | Total | |
|---|---|---|---|---|---|
| Balance at the beginning of the period | 55 561 932 | 2 832 407 | 2 439 099 | 241 218 | 61 074 656 |
| Transfers between stages | (3 614 613) | 2 807 586 | 807 027 | 0 | 0 |
| Granted or purchased loans and advances | 10 658 155 | 0 | 0 | 0 | 10 658 155 |
| Repaid loans and advances | (9 864 555) | (289 798) | (218 632) | (38 858) | (10 411 843) |
| Allocation of credit holidays adjustment | (483 579) | (43 642) | (12 921) | 0 | (540 142) |
| Allocation of legal risk provisions to the loan portfolio | (1 407 888) | (124 378) | (78 534) | 0 | (1 610 800) |
| Loans and advances sold | 0 | 0 | (240 918) | (18 808) | (259 726) |
| Loans and advances written off | 0 | 0 | (149 202) | (46 318) | (195 520) |
| Other (including FX differences) | 872 950 | 16 859 | 161 965 | 0 | 1 051 774 |
| Balance at the end of the period | 51 722 402 | 5 199 033 | 2 707 885 | 137 235 | 59 766 554 |
| Stage 1 | Stage 2 | Stage 3 | POCI | Total | |
|---|---|---|---|---|---|
| Balance at the beginning of the period | 1 129 | 0 | 0 | 0 | 1 129 |
| Transfers between stages | 0 | 0 | 0 | 0 | 0 |
| Increase due to granting or purchase | 40 | 1 | 0 | 0 | 41 |
| Changes in credit risk | 384 | 0 | 0 | 0 | 384 |
| Decrease due to derecognition (except exposures sold and written off) | 0 | 0 | 0 | 0 | 0 |
| Other (including FX differences) | 1 | 0 | 0 | 0 | 1 |
| Balance at the end of the period | 1 554 | 1 | 0 | 0 | 1 555 |
| Stage 1 | Stage 2 | Stage 3 | POCI | Total | |
|---|---|---|---|---|---|
| Balance at the beginning of the period | 242 600 | 4 | 0 | 0 | 242 604 |
| Transfers between stages | (1 040) | 1 040 | 0 | 0 | 0 |
| Granted or purchased loans and advances | 57 030 | 0 | 0 | 0 | 57 030 |
| Repaid loans and advances | (99 872) | 0 | 0 | 0 | (99 872) |
| Other (including FX differences) | 0 | (1) | 0 | 0 | (1) |
| Balance at the end of the period | 198 718 | 1 043 | 0 | 0 | 199 761 |
| 31.12.2022 | 31.12.2021 | |
|---|---|---|
| Current accounts | 3 292 013 | 3 968 352 |
| to 1 month | 2 211 028 | 1 570 044 |
| above 1 month to 3 months | 2 269 577 | 2 759 234 |
| above 3 months to 1 year | 8 342 673 | 8 345 528 |
| above 1 year to 5 years | 24 299 800 | 25 530 917 |
| above 5 years | 35 802 677 | 36 043 346 |
| past due | 2 107 744 | 1 999 245 |
| Interest | 562 478 | 397 914 |
| Total gross | 78 887 990 | 80 614 580 |
| Balance sheet value, gross | Impairment allowances | Balance sheet value | Balance sheet value, gross | Impairment allowances | Balance sheet value | |
|---|---|---|---|---|---|---|
| in Polish currency | 67 681 948 | (2 145 353) | 65 536 595 | 66 605 331 | (2 073 560) | 64 531 771 |
| in foreign currencies (after conversion to PLN) | 11 206 042 | (275 456) | 10 930 586 | 14 009 249 | (300 686) | 13 708 563 |
| currency: USD | 67 654 | (1 560) | 66 095 | 116 213 | (3 138) | 113 075 |
| currency: EUR | 4 107 584 | (73 387) | 4 034 197 | 3 888 269 | (78 771) | 3 809 498 |
| currency: CHF* | 7 027 404 | (200 085) | 6 827 319 | 9 998 378 | (218 561) | 9 779 817 |
| currency: JPY | 0 | 0 | 0 | 112 | (111) | 1 |
| other currencies | 3 400 | (425) | 2 975 | 6 277 | (105) | 6 172 |
| Total | 78 887 990 | (2 420 809) | 76 467 181 | 80 614 580 | (2 374 246) | 78 240 334 |
* gross carrying amount of mortgage is decreased by the change in expected cash flows resulting from the issue of legal risk of CHF mortgage loans, the adjustment is presented in note 14.
| 31.12.2022 | 31.12.2021 | |
|---|---|---|
| Financial leasing receivables (gross) | 8,059,679 | 7,408,772 |
| Unrealised financial income | (899,073) | (459,238) |
| Financial leasing receivables (net) | 7,160,606 | 6,949,534 |
| 31.12.2022 | 31.12.2021 | |
|---|---|---|
| Under 1 year | 2,865,429 | 2,734,015 |
| From 1 year to 2 years | 2,165,786 | 1,909,331 |
| From 2 year to 3 years | 1,482,582 | 1,379,296 |
| From 3 year to 4 years | 871,021 | 744,956 |
| From 4 year to 5 years | 414,376 | 371,272 |
| Above 5 years | 260,485 | 269,902 |
| Total | 8,059,679 | 7,408,772 |
| 31.12.2022 | 31.12.2021 | |
|---|---|---|
| Under 1 year | 2,487,311 | 2,537,130 |
| From 1 year to 2 years | 1,914,392 | 1,785,043 |
| From 2 year to 3 years | 1,340,827 | 1,308,550 |
| From 3 year to 4 years | 796,794 | 709,426 |
| From 4 year to 5 years | 384,436 | 354,657 |
| Above 5 years | 236,846 | 254,728 |
| Total | 7,160,606 | 6,949,534 |
The main groups of items financed through leasing are the means of transport (tractors, trailers, trucks, vans, cars, etc.), machinery and equipment, computers as well as industrial and commercial real estate. The leasing portfolio of the Group includes contracts in which fees are set in PLN or in EUR, based on floating or fixed interest rates. Agreements with customers are concluded for term from 1 year to 10 years. Offered lease agreements provide a diverse client's own contribution and the residual value of the object, as well as a diverse amount of lease payments, e.g., depending on seasonality. After the end of the lease, a customer is obliged to buy the item at a final price specified at the time of the conclusion of the agreement. The 140 This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version. Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31 st December 2022 object during the entire lease term is owned by the Group and constitutes a major collateral of lease payments.
| Balance sheet value, gross | Accumulated impairment allowances | Balance sheet value, net | |
|---|---|---|---|
| Stage 1 Stage 2 Stage 3 | Stage 1 Stage 2 Stage 3 | Stage 1 Stage 2 Stage 3 | |
| 31.12.2022 | |||
| Debt securities | 3,893,218 | 0 | 0 |
| Deposits, loans and advances to banks and other monetary institutions | 733,376 | 0 | 0 |
| Repurchase agreements | 4,863 | 0 | 0 |
| 31.12.2021 | |||
| Debt securities | 37,089 | 0 | 0 |
| Deposits, loans and advances to banks and other monetary institutions | 770,770 | 0 | 0 |
| Repurchase agreements | 268,837 | 0 | 0 |
| 31.12.2022 | 31.12.2021 | |
|---|---|---|
| credit institutions | 458,623 | 0 |
| other companies | 0 | 0 |
| public sector | 3,434,589 | 37,088 |
| Total | 3,893,212 | 37,088 |
| 31.12.2022 | 31.12.2021 | |
|---|---|---|
| Current accounts | 181,896 | 152,661 |
| Deposits | 548,647 | 617,949 |
| Interest | 2,833 | 160 |
| Total (gross) deposits, loans and advances | 733,376 | 770,770 |
| Impairment allowances | (281) | (239) |
| Total (net) deposits, loans and advances | 733,095 | 770,531 |
141 This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version. Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31 st December 2022
| 31.12.2022 | 31.12.2021 | |
|---|---|---|
| Current accounts | 181,895 | 152,661 |
| to 1 month | 498,649 | 572,949 |
| above 1 month to 3 months | 10,000 | 40,000 |
| above 3 months to 1 year | 40,000 | 5,000 |
| above 1 year to 5 years | 0 | 0 |
| above 5 years | 0 | 0 |
| past due | 0 | 0 |
| Interest | 2,832 | 160 |
| Total (gross) deposits, loans and advances | 733,376 | 770,770 |
| 31.12.2022 | 31.12.2021 | |
|---|---|---|
| in Polish currency | 409,016 | 265,915 |
| in foreign currencies (after conversion to PLN) | 324,360 | 504,855 |
| currency: USD | 33,062 | 22,964 |
| currency: EUR | 151,707 | 364,048 |
| currency: CNY | 35,119 | 32,430 |
| currency: GBP | 25,328 | 29,031 |
| currency: CHF | 8,709 | 20,189 |
| currency: JPY | 4,428 | 4,390 |
| other currencies | 66,007 | 31,803 |
| Total | 733,376 | 770,770 |
| 01.01.2022 - 31.12.2022 | 01.01.2021 - 31.12.2021 | |
|---|---|---|
| Balance at the beginning of the period | (239) | 0 |
| Impairment allowances created in the period | (603) | (239) |
| Impairment allowances released in the period | 561 | 0 |
| Balance at the end of the period | (281) | (239) |
142 This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version. Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31 st December 2022
| 31.12.2022 | 31.12.2021 | |
|---|---|---|
| credit institutions | 0 | 0 |
| other customers | 4,854 | 268,533 |
| budget | 0 | 9,303 |
| Total | 4,863 | 268,836 |
Starting from 1 January 2006 the Group established first formal hedging relationship against cash flow volatility. The Risk Strategy approved in the Group defines a general rules for hedging of market risk generated by its commercial activity. External transactions eligible for hedge accounting are pointed in the Strategy just after the natural economic hedge. The Group applied (as at 31.12.2022) Cash Flow Hedge relations to eliminate the variability of cash flows:
In addition, the Group applied a fair value hedge for a fixed interest rate debt instrument. The underlying of hedged and hedging items are economically related in a way that they respond in a similar way to the hedged risk, their fair value will offset in response to the market interest and FX rates movements. The Group performs the effectiveness tests on a monthly basis, calculates and compares the changes in fair value of hedged and hedging positions. Hedge effectiveness is tested using hypothetical derivative method, hedged items are presented as a hypothetical derivative, for which changes in the fair value are calculated and compared with changes in fair value of hedging instruments. Hedge ineffectiveness can arise from differences in repricing dates of hedged and hedging positions or from designation as hedging item the existing derivative instrument. The Group designates hedging instruments on their trade date and by this eliminates this source of ineffectiveness. Hedge ineffectiveness reported by the Group includes amortization of the fair value changes recognized as effective for derivatives classified on their termination date as hedging.
143 This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version. Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31 st December 2022
Detailed information on cash flow hedge relations applied by the Group, items designated as hedged and hedging and presentation of the result (as at 31.12.2022) is shown in a table below:
| Hedge of volatility of the cash flows generated by PLN denominated financial assets | Cash flow volatility hedge for the flows generated by FX mortgage portfolio and its underlying PLN liabilities | Fair value hedge of a fixed interest rate debt instrument | Cash flow volatility hedge due to future income and interest costs denominated in foreign currencies | |
|---|---|---|---|---|
| Description of hedge transactions | The Group hedges the risk of the volatility of cash flows generated by PLN denominated financial assets. The volatility of cash flows results from interest rate risk. | The Group hedges the risk of the volatility of cash flows generated by FX mortgages and by PLN liabilities financially underlying such loans. The volatility of cash flows results from the currency risk and interest rate risk. | The Group hedges part of the interest rate risk associated with the change in the fair value of a fixed-rate debt instrument recorded in other comprehensive income, resulting from fluctuations in market interest rate. | The Group hedges the risk of the volatility of cash flows generated by income and interest costs denominated in foreign currencies. The volatility of cash flows results from the currency risk. |
| Hedged items | Cash flows resulting from PLN denominated financial assets. | Cash flows resulting from the FX mortgage loan portfolio and PLN deposits together with issued debt PLN securities funding them. | ||
| Hedging instruments | IRS transactions | CIRS transactions | ||
| Presentation of the result on the hedged and hedging transactions | Effective part of the valuation of hedging instruments is recognised in revaluation reserve; interest on both the hedged and the hedging instruments are recognised in net interest income. Ineffective part of the valuation of hedging instruments is recognized in the income statement as a result on instruments measured at fair value through profit and loss. | Effective part of the valuation of hedging instruments is recognised in revaluation reserve; interest on both the hedged and the hedging instruments are recognised in net interest income; valuation of hedging and hedged instruments on FX differences is recognised in Result on exchange differences. Ineffective part of the valuation of hedging instruments is recognized in the income statement as a result on instruments measured at fair value through profit and loss. |
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
As at 31.12.2022
| Par value of instruments with future maturity | Fair values below 3 months | from 3 months to 1 year | from 1 year to 5 years | above 5 years | Total Assets | Liabilities |
|---|---|---|---|---|---|---|
| 1. Derivative instruments constituting cash flow hedges related to interest rate and/or exchange rate | ||||||
| * CIRS contracts | 1 434 840 | 6 331 579 | 4 203 916 | 0 | (60 707) | 135 804 |
| * IRS contracts | 1 125 500 | 1 305 000 | 2 645 000 | 0 | (358 033) | 0 |
| * FXS contracts | 0 | 0 | 0 | 0 | 0 | 0 |
| 2. Derivatives used as interest rate hedges related to interest rates | ||||||
| * IRS contracts | 0 | 0 | 90 000 | 0 | 0 | 0 |
| 3. Total hedging derivatives | 2 560 340 | 7 636 579 | 6 938 916 | 0 | (418 740) | 135 804 |
* Notional value for double-currency derivatives constitutes the sum of both transactions expressed in PLN.
As at 31.12.2021
| Par value of instruments with future maturity | Fair values below 3 months | from 3 months to 1 year | from 1 year to 5 years | above 5 years | Total Assets | Liabilities |
|---|---|---|---|---|---|---|
| 1. Derivative instruments constituting cash flow hedges related to interest rate and/or exchange rate | ||||||
| * CIRS contracts | 1 963 585 | 1 491 326 | 12 328 234 | 0 | (283 605) | 14 385 297 |
| * IRS contracts | 0 | 800 000 | 5 075 500 | 0 | (316 584) | 0 |
| * FXS contracts | 0 | 0 | 0 | 0 | 0 | 0 |
| 2. Derivatives used as interest rate hedges related to interest rates | ||||||
| * IRS contracts | 0 | 0 | 90 000 | 0 | 0 | 0 |
| 3. Total hedging derivatives | 1 963 585 | 2 291 326 | 17 493 734 | 0 | (600 189) | 14 385 614 |
* Notional value for double-currency derivatives constitutes the sum of both transactions expressed in PLN.
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
| Hedge relationship | Maximum date of occurrence of cash flows whose value is hedged |
|---|---|
| Cash flow volatility hedge for the flows generated by PLN denominated financial assets | 2026-11-05 |
| Cash flow volatility hedge for the flows generated by FX mortgage portfolio and its underlying PLN liabilities | 2025-01-07 |
| Fair value hedge of a fixed interest rate debt instrument | 2026-08-26 |
| Hedge of the volatility of cash flows generated by the portfolio of floating-rate foreign currency mortgage loans | 2030-04-30 |
The inefficient part of the valuation of hedging instruments recognized in the Profit and Loss Account in 2022 amounted to PLN -7,130 thousand. (in 2021, it was PLN -3,696 thousand, respectively) The inefficient part of the valuation of hedging instruments recognized in the Profit and loss account and losses was presented in note (8).
| Type of contract | Balance sheet item | Changes in fair value used in the calculation of the ineffectiveness in the period | Balance in cash flow hedge reserve for continuing hedges | Balance in cash flow hedge reserve for discontinued hedges |
|---|---|---|---|---|
| - CIRS | Loans and advances to customers | 49 282 | (72 833) | (1 312) |
| - IRS | Loans and advances to customers | (1 049) | 0 | 0 |
| - FX spot | Future interest income and costs | 4 428 | (21 372) | 0 |
| - IRS | Issued debt securities | 2 193 | (176 511) | 0 |
| - IRS | Debt securities | (24 351) | (134 031) | 0 |
| Total | 30 504 | (404 748) | (1 312) |
| Type of contract | Changes in fair value used in the calculation of the ineffectiveness in the period | Ineffectiveness recognized in P&L | Amounts reclassified from reserves to results |
|---|---|---|---|
| - CIRS | (49 282) | (6 241) | 0 |
| - IRS | 1 049 | (1 112) | 0 |
| - FX spot | (4 428) | 0 | 0 |
| - IRS | (2 193) | 0 | 0 |
| - IRS | 24 351 | 0 | 0 |
| Total | (30 504) | (7 353) | 0 |
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
| Type of contract | Balance sheet item | Changes in the fair value of the hedged instrument used in the calculation of the ineffectiveness in the period |
|---|---|---|
| IRS | Debt instruments valued in other comprehensive income | (6 119) |
| Total | (6 119) |
| Type of contract | Changes in the fair value of the hedging instrument used in the calculation of the ineffectiveness in the period | Ineffectiveness recognized in P&L |
|---|---|---|
| IRS | 6 342 | 223 |
| Total | 6 342 | 223 |
| 31.12.2021 | 31.12.2020 | |
|---|---|---|
| Investments in associates | 0 | 0 |
| 01.01.2021 - 31.12.2021 | 01.01.2020 - 31.12.2020 | |
|---|---|---|
| Balance at the beginning of the period | 0 | 0 |
| sale | 0 | 0 |
| equity method valuation | 0 | 0 |
| Balance at the end of the period | 0 | 0 |
| 31.12.2022 | 31.12.2021 | |
|---|---|---|
| Land | 2 369 | 2 434 |
| Buildings and premises | 71 360 | 67 944 |
| Machines and equipment | 105 387 | 89 749 |
| Vehicles | 17 819 | 9 664 |
| Other fixed assets | 23 853 | 23 077 |
| Fixed assets under construction | 74 030 | 63 315 |
| Rights to use office space | 277 992 | 293 605 |
| Total | 572 810 | 549 788 |
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
| Land | Buildings and premises | Machines and equipment | Vehicles | Other fixed assets | Fixed assets under construction | Rights to use office space | TOTAL | |
|---|---|---|---|---|---|---|---|---|
| a) gross value of property, plant and equipment at the beginning of the period | 2 434 | 320 812 | 297 062 | 36 894 | 101 988 | 63 315 | 529 226 | 1 351 731 |
| b) increases (on account of) | 0 | 8 617 | 49 588 | 18 135 | 9 359 | 77 434 | 91 742 | 254 875 |
| purchase | 0 | 0 | 850 | 18 135 | 95 50 | 200 | 0 | 69 280 |
| transfer from fixed assets under construction | 0 | 8 617 | 48 738 | 0 | 9 264 | 0 | 0 | 66 619 |
| unpaid investments | 0 | 0 | 0 | 0 | 0 | 27 234 | 0 | 27 234 |
| recognition of rights to use office space | 0 | 0 | 0 | 0 | 0 | 0 | 91 742 | 91 742 |
| c) reductions (on account of) | 65 | 18 925 | 50 886 | 10 087 | 20 080 | 66 719 | 66 485 | 233 247 |
| sale | 6 | 6 519 | 7 920 | 9 039 | 5 236 | 0 | 376 | 29 096 |
| liquidation | 45 | 12 406 | 42 922 | 1 048 | 14 814 | 31 66 | 109 137 | 137 375 |
| settlement of fixed assets under construction | 0 | 0 | 0 | 0 | 0 | 66 619 | 0 | 66 619 |
| other | 14 | 0 | 44 | 0 | 30 | 69 | 0 | 157 |
| d) gross value of property, plant and equipment at the end of the period | 2 369 | 310 504 | 295 764 | 44 942 | 91 267 | 74 030 | 554 483 | 1 373 359 |
| e) cumulated depreciation (amortization) at the beginning of the period | 0 | 243 994 | 207 313 | 27 230 | 78 910 | 0 | 235 621 | 793 068 |
| f) depreciation over the period (on account of) | 0 | (5 665) | (16 936) | (107) | (11 497) | 0 | 40 870 | 6 665 |
| current write-off (P&L) | 0 | 10 286 | 33 144 | 8 194 | 8 180 | 0 | 95 019 | 154 823 |
| reductions on account of sale | 0 | (4 204) | (8 147) | (7 842) | (5 247) | 0 | (376) | (25 816) |
| reductions on account of liquidation | 0 | (11 744) | (41 924) | (459) | (14 430) | 0 | (53 773) | (122 330) |
| transfer from impairment allowance | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| other | 0 | (3) | (9) | 0 | 0 | 0 | 0 | (12) |
| g) cumulated depreciation (amortization) at the end of the period | 0 | 238 329 | 190 377 | 27 123 | 67 413 | 0 | 276 491 | 799 733 |
| h) impairment allowances at the beginning of the period | 0 | 8 874 | 0 | 0 | 1 | 0 | 0 | 8 875 |
| creation of allowances | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| release of allowances | 0 | 8 059 | 0 | 0 | 0 | 0 | 0 | 8 059 |
| i) impairment allowances at the end of the period | 0 | 815 | 0 | 0 | 1 | 0 | 0 | 816 |
| j) net value of property, plant and equipment at the end of the period | 2 369 | 71 360 | 105 387 | 17 819 | 23 853 | 74 030 | 277 992 | 572 810 |
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.# Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31st December 2022
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
| 31.12.2022 | 31.12.2021 | |
|---|---|---|
| Goodwill due to merger with Euro Bank | 192 126 | 192 126 |
| Other intangible fixed assets: | 244 496 | 200 312 |
| concessions, patents, licenses, know-how and similar assets | 34 759 | 35 600 |
| computer software | 92 296 | 96 638 |
| other | 9 524 | 12 867 |
| advances for intangible assets | 107 917 | 55 207 |
| Total | 436 622 | 392 438 |
| concessions, patents, licenses, know-how and similar assets | computer software | other | advances for intangible assets | TOTAL | |
|---|---|---|---|---|---|
| a) gross value of intangible fixed assets at the beginning of the period | 82 725 | 429 140 | 26 865 | 55 207 | 593 937 |
| b) increases (on account of) | 17 162 | 34 211 | 261 | 100 363 | 151 997 |
| purchase | 5 | 2 0 | 87 721 | 87 728 | 87 728 |
| unpaid investments | 0 | 0 | 0 | 12 642 | 12 642 |
| takeover from investments and addvances | 17 157 | 29 861 | 261 | 0 | 47 279 |
| other | 0 | 4 348 | 0 | 0 | 4 348 |
| c) reductions (on account of) | 9 183 | 118 073 | 0 | 47 653 | 174 909 |
| liquidation | 4 835 | 117 593 | 0 | 347 | 122 775 |
| settlement of advances | 0 | 0 | 0 | 47 279 | 47 279 |
| other | 4 348 | 480 | 0 | 27 | 4 855 |
| d) gross value of intangible fixed assets at the end of the period | 90 704 | 345 278 | 27 126 | 107 917 | 571 025 |
| e) cumulated depreciation at the beginning of the period | 47 125 | 328 514 | 13 998 | 0 | 389 637 |
| f) depreciation over the period (on account of) | 8 820 | (79 528) | 3 604 | 0 | (67 104) |
| current write-off (P&L) | 17 941 | 32 555 | 3 604 | 0 | 54 100 |
| liquidation | (4 773) | (115 887) | 0 | 0 | (120 660) |
| other | (4 348) | 3 804 | 0 | 0 | (544) |
| g) cumulated depreciation at the end of the period | 55 945 | 248 986 | 17 602 | 0 | 322 533 |
| h) impairment allowances at the beginning of the period | 0 | 3 988 | 0 | 0 | 3 988 |
| other | 0 | 8 | 0 | 0 | 8 |
| j) impairment allowances at the end of the period | 0 | 3 996 | 0 | 0 | 3 996 |
| j) net value of intangible fixed assets at the end of the period | 34 759 | 92 296 | 9 524 | 107 917 | 244 496 |
| concessions, patents, licenses, know-how and similar assets | computer software | other | advances for intangible assets | TOTAL | |
|---|---|---|---|---|---|
| a) gross value of intangible fixed assets at the beginning of the period | 65 645 | 366 492 | 28 171 | 84 730 | 545 038 |
| b) increases (on account of) | 17 328 | 70 519 | 0 | 58 740 | 146 587 |
| purchase | 0 | 39 | 0 | 44 239 | 44 278 |
| unpaid investments | 0 | 0 | 0 | 14 501 | 14 501 |
| takeover from investments and addvances | 17 328 | 70 480 | 0 | 0 | 87 808 |
| other | 0 | 0 | 0 | 0 | 0 |
| c) reductions (on account of) | 248 | 7 871 | 1 306 | 88 263 | 97 688 |
| liquidation | 248 | 7 853 | 1 306 | 28 945 | 38 352 |
| settlement of advances | 0 | 0 | 0 | 88 175 | 88 175 |
| other | 0 | 18 | 0 | 60 | 78 |
| d) gross value of intangible fixed assets at the end of the period | 82 725 | 429 140 | 26 865 | 55 207 | 593 937 |
| e) cumulated depreciation at the beginning of the period | 33 716 | 304 391 | 10 288 | 0 | 348 395 |
| f) depreciation over the period (on account of) | 13 409 | 24 123 | 3 710 | 0 | 41 242 |
| current write-off (P&L) | 13 657 | 28 127 | 5 016 | 0 | 46 800 |
| liquidation | (248) | (3 987) | (1 306) | 0 | (5 541) |
| other | 0 | (17) | 0 | 0 | (17) |
| g) cumulated depreciation at the end of the period | 47 125 | 328 514 | 13 998 | 0 | 389 637 |
| h) impairment allowances at the beginning of the period | 0 | 3 988 | 0 | 0 | 3 988 |
| i) impairment allowances at the end of the period | 0 | 3 988 | 0 | 0 | 3 988 |
| j) net value of intangible fixed assets at the end of the period | 35 600 | 96 638 | 12 867 | 55 207 | 200 312 |
| 31.12.2022 | 31.12.2021 | |
|---|---|---|
| Deferred income tax asset | Deferred income tax provision | |
| Difference between tax and balance sheet depreciation | (202) | (23 027) |
| Balance sheet valuation of financial instruments | 33 393 | (47 466) |
| Unrealised receivables/ liabilities on account of derivatives | 73 405 | (59 804) |
| Interest on deposits and securities to be paid/ received | 79 570 | (290 234) |
| Interest and discount on loans and receivables | 0 | (109 345) |
| Income and cost settled at effective interest rate | 238 828 | (795) |
| Impairment of loans presented as temporary differences | 516 489 | 0 |
| Employee benefits | 20 807 | 0 |
| Rights to use | 4 756 | 0 |
| Provisions for future costs | 84 037 | 0 |
| Valuation of investment assets, cash flows hedge and actuarial gains (losses) recognized in other comprehensive income | 299 930 | (55 444) |
| Shares valuation | 1 273 | (19 420) |
| Tax loss deductible in the future | 57 486 | 0 |
| Other | (3 017) | 172 |
| Net deferred income tax asset | 1 406 755 | (605 363) |
| including long-term net deferred income tax asset | 285 979 |
| 31.12.2021 | Adjustments to previous years | Changes to financial result | Changes to equity | 31.12.2022 | |
|---|---|---|---|---|---|
| Difference between tax and balance sheet depreciation | (1 221) | (22 008) | (23 229) | ||
| Balance sheet valuation of financial instruments | (10 362) | (3 711) | (14 073) | ||
| Unrealised receivables/ liabilities on account of derivatives | (834) | 14 436 | 13 602 | ||
| Interest on deposits and securities to be paid/ received | (65 143) | (145 520) | (210 663) | ||
| Interest and discount on loans and receivables | (75 831) | (33 514) | (109 345) | ||
| Income and cost settled at effective interest rate | 145 939 | 92 094 | 238 033 | ||
| Impairment of loans presented as temporary differences | 445 223 | 71 266 | 516 489 | ||
| Employee benefits | 19 874 | 933 | 20 807 | ||
| Rights to use | 6 691 | (1 935) | 4 756 | ||
| Provisions for future costs | 93 345 | (9 308) | 84 037 | ||
| Valuation of investment assets, cash flows hedge and actuarial gains (losses) recognized in other comprehensive income | 201 406 | 0 | 43 080 | 244 486 | |
| Shares valuation | (35 167) | 17 020 | (18 147) | ||
| Tax loss deductible in the future | 54 855 | 2 631 | 57 486 | ||
| Other | (1 669) | 1 251 | (2 429) | (2 847) | |
| Total | 777 106 | 1 251 | (20 045) | 43 080 | 801 392 |
| ## 1.01.2022 - 31.12.2022 | 1.01.2021 - 31.12.2021 |
|---|---|
| Difference between tax and balance sheet depreciation | (22 008) |
| Balance sheet valuation of financial instruments | (3 711) |
| Unrealised receivables/ liabilities on account of derivatives | 14 436 |
| Interest on deposits and securities to be paid/ received | (145 520) |
| Interest and discount on loans and receivables | (33 514) |
| Income and cost settled at effective interest rate | 92 094 |
| Impairment of loans presented as temporary differences | 71 266 |
| Employee benefits | 933 |
| Rights to use | (1 935) |
| Provisions for future costs | (9 308) |
| Shares valuation | 17 020 |
| Tax loss deductible in the future | 2 631 |
| Other | (2 429) |
| Change of deferred income tax recognized in financial result | (20 045) |
| Valuation of investment assets, cash flows hedge and actuarial gains (losses) recognized in other comprehensive income | 43 080 |
| Temporary differences expiry year | 31.12.2022 | 31.12.2021 |
|---|---|---|
| Unlimited | 10 009 | 12 125 |
| Total | 10 009 | 12 125 |
The value of negative temporary differences presented in the above table was recalculated with the valid tax rate. In accordance with IAS 12, the Group offset deferred income tax assets with deferred income tax liabilities.
| 31.12.2022 | 31.12.2021 | |
|---|---|---|
| Net deferred income tax assets | 801 392 | 777 106 |
| Net deferred income tax provision | - | - |
| TOTAL | 801 392 | 777 106 |
| 31.12.2022 | 31.12.2021 | |
|---|---|---|
| Expenses to be settled | 122 025 | 116 040 |
| Income to be received | 39 199 | 34 688 |
| Interbank settlements | 0 | 0 |
| Settlements of financial instruments transactions | 539 | 23 469 |
| Receivables from sundry debtors | 765 036 | 411 022 |
| Settlements with the State Treasury | 25 361 | 57 701 |
| Settlements of brokerage activities | 17 440 | 22 581 |
| Other | 236 939 | 221 916 |
| Total other assets (gross) | 1 206 539 | 887 417 |
| Impairment allowances | (29 405) | (29 767) |
| Total other assets (net) | 1 177 134 | 857 650 |
| including other financial assets* | 792 809 | 461 993 |
| including long-term other assets | 102 157 |
* - other financial assets includes all of the remaining other net assets excluding the Expenses to be settled and Settlements with the State Treasury and Other items
As at December 31, 2022, the item "Receivables from sundry debtors" includes receivables due from Société Générale S.A. under an “CHF Portfolio Indemnity and Guarantee Agreement” aimed at limiting the risk associated with mortgage loans of the former Euro Bank in the amount of PLN 411.3 million. As at December 31, 2022, the item "Receivables from sundry debtors" includes receivables due to legally invalidated foreign currency mortgage loans in the amount of PLN 179.6 million.
| land | buildings, premises, civil and hydro- engineering structures | machines and equipment | vehicles | other fixed assets | TOTAL | |
|---|---|---|---|---|---|---|
| a) value at the beginning of the period | 70 | 67 | 27 | 6 | 18 261 | 18 431 |
| b) impairment allowances at the beginning of the period | (64) | (40) | (27) | (6) | 0 | (137) |
| c) net value of non-current assets held for sale at the beginning of the period | 6 | 28 | 0 | 0 | 18 261 | 18 295 |
| d) change of value in the period, including: | 0 | 0 | 0 | 0 | (6 903) | (6 903) |
| - sale of non-current assets held for sale | 0 | 0 | 0 | 0 | 0 | 0 |
| e) value at the end of the period | 70 | 67 | 27 | 6 | 11 358 | 11 528 |
| f) change of impairment allowances in the period, including: | 0 | 0 | 0 | 0 | 0 | 0 |
| - sale of non-current assets held for sale | 0 | 0 | 0 | 0 | 0 | 0 |
| g) impairment allowances at the end of the period | (64) | (40) | (27) | (6) | 0 | (137) |
| h) net value of non-current assets held for sale at the end of the period | 6 | 28 | 0 | 0 | 11 358 | 11 392 |
| land | buildings, premises, civil and hydro- engineering structures | machines and equipment | vehicles | other fixed assets | TOTAL | |
|---|---|---|---|---|---|---|
| a) value at the beginning of the period | 70 | 67 | 27 | 6 | 25 917 | 26 087 |
| b) impairment allowances at the beginning of the period | (64) | (40) | (27) | (6) | (3 560) | (3 697) |
| c) net value of non-current assets held for sale at the beginning of the period | 6 | 27 | 0 | 0 | 22 357 | 22 390 |
| d) change of value in the period, including: | 0 | 0 | 0 | 0 | (7 656) | (7 656) |
| - sale of non-current assets held for sale | 0 | 0 | 0 | 0 | 0 | 0 |
| e) value at the end of the period | 70 | 67 | 27 | 6 | 18 261 | 18 431 |
| f) change of impairment allowances in the period, including: | 0 | 0 | 0 | 0 | 3 560 | 3 560 |
| - sale of non-current assets held for sale | 0 | 0 | 0 | 0 | 0 | 0 |
| g) impairment allowances at the end of the period | (64) | (40) | (27) | (6) | 0 | (137) |
| h) net value of non-current assets held for sale at the end of the period | 6 | 27 | 0 | 0 | 18 261 | 18 294 |
| 31.12.2022 | 31.12.2021 | |
|---|---|---|
| Negative valuation of derivatives | 380 278 | 126 402 |
| Adjustment due to fair value hedge | 0 | 0 |
| Short sale of securities | 4 784 | 16 614 |
| Financial liabilities valued at fair value through profit and loss | 385 062 | 143 016 |
The division of the negative valuation of derivatives into specific types of instruments is presented in note (19).
| 31.12.2022 | 31.12.2021 | |
|---|---|---|
| In current account | 25 287 | 63 176 |
| Term deposits | 589 046 | 106 570 |
| Loans and advances received | 105 000 | 368 313 |
| Interest | 8 238 | 1 349 |
| Total | 727 571 | 539 408 |
| 31.12.2022 | 31.12.2021 | |
|---|---|---|
| Current accounts | 25 287 | 63 176 |
| to 1 month | 472 074 | 22 669 |
| above 1 month to 3 months | 119 972 | 93 900 |
| above 3 months to 1 year | 102 000 | 128 329 |
| above 1 year to 5 years | 0 | 229 985 |
| above 5 years | 0 | 0 |
| Interest | 8 238 | 1 349 |
| Total | 727 571 | 539 408 |
| 31.12.2022 | 31.12.2021 | |
|---|---|---|
| in Polish currency | 420 538 | 366 222 |
| in foreign currencies (after conversion to PLN) | 307 033 | 173 186 |
| currency: USD | 10 456 | |
| currency: EUR | 307 023 | 172 730 |
| currency: CHF | 0 | 0 |
| other currencies | 0 | 0 |
| Total | 727 571 | 539 408 |
| 31.12.2022 | 31.12.2021 | |
|---|---|---|
| Amounts due to private individuals | 68 787 007 | 66 022 086 |
| Balances on current accounts | 49 106 928 | 56 192 055 |
| Term deposits | 19 247 973 | 9 565 716 |
| Other | 248 573 | 237 776 |
| Accrued interest | 183 533 | 26 539 |
| Amounts due to companies | 23 616 227 | 21 814 451 |
| Balances on current accounts | 13 263 263 | 15 070 590 |
| Term deposits | 9 889 840 | 6 398 936 |
| Other | 402 878 | 342 618 |
| Accrued interest | 60 246 | 2 307 |
| Amounts due to public sector | 5 635 282 | 3 610 978 |
| Balances on current accounts | 3 195 080 | 3 385 597 |
| Term deposits | 2 418 727 | 215 889 |
| Other | 8 193 | 9 417 |
| Accrued interest | 13 282 | 75 |
| Total | 98 038 516 | 91 447 515 |
| 31.12.2022 | 31.12.2021 | |
|---|---|---|
| Current accounts | 65 565 271 | 74 408 748 |
| to 1 month | 12 871 178 | 7 004 091 |
| above 1 month to 3 months | 7 515 540 | 5 254 940 |
| above 3 months to 1 year | 7 574 732 | 2 803 883 |
| above 1 year to 5 years | 4 213 399 | 1 906 400 |
| above 5 years | 41 336 | 40 532 |
| Interest | 257 060 | 28 921 |
| Total | 98 038 516 | 91 447 515 |
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
Liabilities from securities sold with buy-back clause
| 31.12.2022 | 31.12.2021 | |
|---|---|---|
| a) to the Central Bank | 0 | 0 |
| b) to banks | 0 | 0 |
| c) to customers | 0 | 18 037 |
| d) interest | 0 | 1 |
| Total | 0 | 18 038 |
| 31.12.2022 | 31.12.2021 | |
|---|---|---|
| Outstanding bonds and bills | 242 500 | 39 450 |
| Bank Securities | 0 | 0 |
| Interest | 1 253 | 118 |
| Total | 243 753 | 39 568 |
| 31.12.2022 | 31.12.2021 | |
|---|---|---|
| to 1 month | 0 | 0 |
| above 1 month to 3 months | 0 | 0 |
| above 3 months to 1 year | 0 | 39 450 |
| above 1 year to 5 years | 0 | 0 |
| above 5 years | 242 500 | 0 |
| Interest | 1 253 | 118 |
| Total | 243 753 | 39 568 |
| 01.01.2022 - 31.12.2022 | 01.01.2021 - 31.12.2021 | |
|---|---|---|
| Balance at the beginning of the period | 39 568 | 558 560 |
| Increases, on account of: | 244 278 | 3 769 |
| issue of Banking Securities | 0 | 0 |
| Purchase of Euro Bank S.A. bonds | 0 | 0 |
| issue of bonds by the Bank | 242 500 | 0 |
| issue of bonds by the Millennium Leasing | 0 | 0 |
| interest accrual | 1 778 | 3 769 |
| Reductions, on account of: | (40 093) | (522 761) |
| repurchase of Banking Securities | 0 | (234 427) |
| repurchase of Euro Bank S.A. bonds | 0 | (250 000) |
| repurchase of bonds by the Bank | 0 | 0 |
| repurchase of bonds by the Millennium Leasing | (39 450) | (34 350) |
| interest payment | (643) | (3 984) |
| Balance at the end of the period | 243 753 | 39 568 |
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
As at 31.12.2022
| Balance sheet value | Final legal maturity | Market | |
|---|---|---|---|
| BMCN_012040 | 243 753 | 2040-01-25 | Vienna MTF |
In the case of the above bonds, as at December 31, 2022, the balance of accrued interest amounted to PLN 1,253 thousand.
As at December 31, 2021, the balance of issued debt securities for the Group comprised only of Millennium Leasing's bonds:
As at 31.12.2021
| Balance sheet value | Final legal maturity | Market | |
|---|---|---|---|
| Millennium Leasing - G13 | 39 568 | 2022-05-17 | - |
| Razem | 39 568 |
In the case of the above bonds, interest was accrued on the nominal value of the bonds and paid quarterly. As at December 31, 2021, their balance was PLN 118 thousand.
Redemption of Banking Securities (BPW) was made by means of payment on redemption date of the settlement amount, which was calculated on the date of determination of the settlement amount with use of formulas indicated in terms and conditions of the issue. Calculation of the settlement amount was made on the basis of financial or commodity market ratios.
| 31.12.2022 | 31.12.2021 | |
|---|---|---|
| Amount of subordinated bonds in PLN - BKMO_071227R | 700 000 | 700 000 |
| Currency | PLN | PLN |
| Interest rate | 9.70% | 4.81% |
| Maturity | 2027-12-07 | 2027-12-07 |
| Interest | 4 465 | 2 214 |
| Amount of subordinated bonds PLN in PLN - BKMO_300129W | 830 000 | 830 000 |
| Currency | PLN | PLN |
| Interest rate | 9.60% | 2.55% |
| Maturity | 2029-01-30 | 2029-01-30 |
| Interest | 33 618 | 8 930 |
| Balance sheet value of subordinated debt | 1 568 083 | 1 541 144 |
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
| 01.01.2022 - 31.12.2022 | 01.01.2021 - 31.12.2021 | |
|---|---|---|
| Balance at the beginning of the period | 1 541 144 | 1 540 209 |
| Increases, on account of: | 110 182 | 40 076 |
| issue of subordinated bonds | 0 | 0 |
| Merger with Euro Bank S.A. | 0 | 0 |
| interest accrual | 110 182 | 40 076 |
| Reductions, on account of: | (83 243) | (39 141) |
| Settlement of subordinated debt of Euro Bank S.A. | 0 | 0 |
| interest payment | (83 243) | (39 141) |
| Balance at the end of the period | 1 568 083 | 1 541 144 |
During 2022 and 2021 the Group did not have any delays in the payment of principal and interest instalments, nor did it infringe any contractual provisions resulting from its subordinated liabilities.
| 31.12.2022 | 31.12.2021 | |
|---|---|---|
| Provision for commitments and guarantees given | 39 617 | 44 354 |
| Provision for pending legal issues | 976 552 | 551 176 |
| Total | 1 016 169 | 595 530 |
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
| 01.01.2022 - 31.12.2022 | 01.01.2021 - 31.12.2021 | |
|---|---|---|
| Balance at the beginning of the period | 44 354 | 51 728 |
| Charge of provision | 42 174 | 55 368 |
| Release of provision | (46 984) | (62 805) |
| FX rates differences | 73 | 62 |
| Balance at the end of the period | 39 617 | 44 354 |
| 01.01.2022 - 31.12.2022 | 01.01.2021 - 31.12.2021 | |
|---|---|---|
| Balance at the beginning of the period | 551 176 | 106 922 |
| Charge of provision | 27 325 | 113 173 |
| Release of provision | (8 382) | (9 463) |
| Utilisation of provision | (175) | 0 |
| Creation of provisions for legal risk connected with FX mortgage loans* | 2 017 320 | 2 305 157 |
| Allocation to the loans portfolio | (1 610 712) | (1 964 613) |
| Reclassification | 0 | 0 |
| FX differences | 0 | |
| Balance at the end of the period | 976 552 | 551 176 |
| 31.12.2022 | 31.12.2021 | |
|---|---|---|
| Short-term | 2 375 767 | 1 794 292 |
| Accrued costs - bonuses, salaries | 47 383 | 41 022 |
| Accrued costs - other | 175 844 | 199 379 |
| Provisions for return of insurance fees | 271 420 | 306 955 |
| Interbank settlements | 814 674 | 484 728 |
| Provisions for potential return of fees in the event of early repayment of the loan | 78 923 | 89 091 |
| Settlement of transactions on financial instruments | 3 338 | 31 833 |
| Other creditors | 575 826 | 300 503 |
| Liabilities to public sector | 64 320 | 42 624 |
| Deferred income | 64 772 | 45 613 |
| Liabilities due to lease | 84 850 | 97 886 |
| Provisions for unused employee holiday | 14 113 | 14 216 |
| Provisions for retirement benefits | 3 023 | 3 402 |
| Settlement accounts for activities of Millennium Dom Maklerski S.A. | 859 | 9 495 |
| Other | 176 422 | 127 545 |
| Long-term | 505 565 | 482 082 |
| Provisions for retirement benefits | 30 794 | 34 659 |
| Liabilities due to lease | 234 309 | 238 535 |
| Accrued costs | 4 223 | 9 173 |
| Commitment to pay – BGF* | 209 209 | 173 039 |
| Other | 27 030 | 26 676 |
| Total | 2 881 332 | 2 276 374 |
| including other financial liabilities** | 1 989 236 | 1 464 831 |
As at December 31, 2022, the item "Other creditors" includes liabilities due to legally invalidated foreign currency mortgage loans in the amount of PLN 146 million.
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
| 31.12.2022 | 31.12.2021 | |
|---|---|---|
| Liabilities due to lease (gross) | 335 684 | 352 353 |
| Unrealised financial costs | (16 526) | (15 932) |
| Current value of minimum lease instalments | 319 158 | 336 421 |
| Liabilities due to lease (gross) by maturity | ||
| Under 1 year | 90 708 | 102 356 |
| From 1 year to 5 years | 188 480 | 170 682 |
| Above 5 years | 56 496 | 79 315 |
| Total | 335 684 | 352 353 |
| Liabilities due to lease (net) by maturity | ||
| Under 1 year | 84 850 | 97 886 |
| From 1 year to 5 years | 178 894 | 161 337 |
| Above 5 years | 55 415 | 77 198 |
| Total | 319 159 | 336 421 |
| 01.01.2022 - 31.12.2022 | 01.01.2021 - 31.12.2021 | |
|---|---|---|
| Balance at the beginning of the period | 14 216 | 15 951 |
| Charge of provisions/ reversal of provisions | (18) | (1 288) |
| Utilisation of provisions | (85) | (447) |
| Balance at the end of the period | 14 113 | 14 216 |
| 01.01.2022 - 31.12.2022 | 01.01.2021 - 31.12.2021 | |
|---|---|---|
| Balance at the beginning of the period | 38 061 | 38 234 |
| Charge of provisions/ reversal of provisions | 6 010 | 7 124 |
| Utilisation of provisions/ reclassification of provision | (1 478) | (1 233) |
| Actuarial gains (losses) | (8 776) | (6 064) |
| Balance at the end of the period | 33 817 | 38 061 |
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
The share capital of the Bank Millennium S.A. (equal to the Group’s share capital) is PLN 1,213,116,777 divided into 1,213,116,777 shares of PLN 1 par value each, as presented by the table below.
SHARE CAPITAL
Par value of one share = 1 PLN.# Series/ issue Share type Type of preference Number of shares Value of series/issue (PLN) Manner of capital coverage Registration date Right to dividend
| Series/ issue | Share type | Type of preference | Number of shares | Value of series/issue (PLN) | Manner of capital coverage | Registration date | Right to dividend |
|---|---|---|---|---|---|---|---|
| A | registered | founder | 106 | 106 | cash | 30.06.1989 | 30.06.1989 |
| B1 | registered | ordinary | 150 000 | 150 000 | cash | 13.06.1990 | 01.01.1990 |
| B2 | registered | ordinary | 150 000 | 150 000 | cash | 13.12.1990 | 01.01.1990 |
| C | bearer | ordinary | 4 693 150 | 4 693 150 | cash | 17.05.1991 | 01.01.1991 |
| D1 | bearer | ordinary | 1 700 002 | 1 700 002 | cash | 31.12.1991 | 01.01.1992 |
| D2 | bearer | ordinary | 2 611 366 | 2 611 366 | cash | 31.01.1992 | 01.01.1992 |
| D3 | bearer | ordinary | 1 001 500 | 1 001 500 | cash | 10.03.1992 | 01.01.1992 |
| E | bearer | ordinary | 6 000 000 | 6 000 000 | cash | 28.05.1993 | 01.01.1992 |
| F | bearer | ordinary | 9 372 721 | 9 372 721 | cash | 10.12.1993 | 01.01.1993 |
| G | bearer | ordinary | 8 000 000 | 8 000 000 | cash | 30.05.1994 | 01.10.1993 |
| H | bearer | ordinary | 7 082 129 | 7 082 129 | cash | 24.10.1994 | 01.10.1994 |
| Increasing of par value of shares from 1 to 4 PLN | 122 603 154 | surplus | 24.11.1994 | 1:4 split | |||
| 122 603 154 | cash | 05.12.1994 | |||||
| I | bearer | ordinary | 65 000 000 | 65 000 000 | cash | 12.08.1997 | 01.10.1996 |
| J | bearer | ordinary | 196 120 000 | 196 120 000 | capitals of Bank Gdański S.A. | 12.09.1997 | 01.10.1996 |
| K | bearer | ordinary | 424 590 872 | 424 590 872 | cash | 31.12.2001 | 01.01.2001 |
| L | bearer | ordinary | 363 935 033 | 363 935 033 | cash | 26.02.2010 | 01.01.2009 |
Total number of shares 1 213 116 777
Total share capital 1 213 116 777
In the reporting period there were no conversions of ordinary registered shares into the bearer shares. As a consequence number of registered shares as of 31.12.2022 amounted to 107,608, of which 61,600 are founders’ shares, privileged so that one share entitles to two votes at the Annual General Meeting.
Information presented below, according to the data held by the Bank, on shareholders holding directly or indirectly significant blocks of shares, together with an indication of the number of shares held by these entities, their share in the share capital and in the total number of votes at the General Meeting of the Bank.
According to the information available to the Bank, with regard to shareholders holding over 5% of votes at the General Meeting, as at 31 December 2022, the Bank's shareholders were the following entities:
| Shareholder | 31.12.2022 | Number of shares | % share in share capital | Number of votes | % share in votes at Shareholders’ Meeting |
|---|---|---|---|---|---|
| Banco Comercial Portugues S.A. | 607 771 505 | 50.10 | 607 771 505 | 50.10 | |
| Nationale-Nederlanden Otwarty Fundusz Emerytalny | 107 970 039 | 8.90 | 107 970 039 | 8.90 | |
| Allianz Polska OFE + Drugi Allianz Polska OFE (*) | 96 792 815(*) | 7.98(*) | 96 792 815(*) | 7.98(*) | |
| Otwarty Fundusz Emerytalny PZU „Złota Jesień” | 67 417 542 | 5.56 | 67 417 542 | 5.56 |
(*) Additionally, PTE Allianz Polska S.A. manages the , Allianz Polska Dobrowolny Fundusz Emerytalny. Pursuant to the notification of PTE Allianz Polska S.A., published by the Bank in Current Report No. 3/2023, Allianz Polska Dobrowolny Fundusz Emerytalny, Allianz Polska OFE and Drugi Allianz Polska OFE held jointly 96,810,815 shares in the Bank (7.98% of votes), including Second Allianz Polska OFE 80,760,035 shares of the Bank (6.66% of votes).
164 This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version. Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31 st December 2022
The data contained in the table have been determined according to the rules described below. With regard to Banco Comercial Portugues S.A. these are data collected in connection with the registration of shareholders entitled to participate in the Ordinary General Meeting of Shareholders held on March 30, 2022. However, in the scope of Nationale-Nederlanden Otwarty Fundusz Emerytalny, Allianz Polska Otwarty Fundusz Emerytalny and Drugi Allianz Polska Otwarty Fundusz Emerytalny and Otwarty Fundusz Emerytalny PZU "Złota Jesień", the number of shares and their participation in the share capital of the Bank were calculated on the basis of the annual structure of assets of the above mentioned Funds as at 30 December 2022 (announced on the websites respectively: www.nn.pl , www.allianz.pl and www.pzu.pl) and notifications from PTE Allianz Polska S.A. (Bank's current report No. 3/2023). In terms of the calculations made on the basis of the annual structures of the above mentioned funds, the volume-weighted average price (VWAP) of the Bank's shares was assumed at PLN 4.6013.
| Shareholder | 31.12.2021 | Number of shares | % share in share capital | Number of votes | % share in votes at Shareholders ’ Meeting |
|---|---|---|---|---|---|
| Banco Comercial Portugues S.A. | 607 771 505 | 50.10 | 607 771 505 | 50.10 | |
| Nationale-Nederlanden Otwarty Fundusz Emerytalny | 99 291 825 | 8.18 | 99 291 825 | 8.18 | |
| Aviva Otwarty Fundusz Emerytalny Aviva Santander | 72 760 035 | 6.00 | 72 760 035 | 6.00 | |
| Otwarty Fundusz Emerytalny PZU „Złota Jesień” | 69 451 428 | 5.73 | 69 451 428 | 5.73 |
Other comprehensive income arises on the recognition of:
165 This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version. Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31 st December 2022
| 31.12.2022 | 31.12.2021 | |
|---|---|---|
| Effect of valuation (gross) | (1 286 769) | (1 060 039) |
| Deferred income tax | 244 485 | 201 406 |
| Net effect of valuation | (1 042 284) | (858 633) |
The sources of revaluation reserve are as follows (data in PLN thousand):
| Gross value | Deferred tax | Total | |
|---|---|---|---|
| Revaluation reserve at the beginning of the period | (683 468) | 129 858 | (553 610) |
| Transfer to income statement of the period as a result of sale | (166) | 32 | (134) |
| Change connected with maturity of securities | 41 231 | (7 834) | 33 397 |
| Profit/loss on revaluation of FVTOCI debt securities, recognized in equity | (245 112) | 46 571 | (198 541) |
| Profit/loss on revaluation of FVTOCI shares, recognized in equity | (4 422) | 840 | (3 582) |
| Revaluation reserve at the end of the period | (891 937) | 169 467 | (722 470) |
| Gross value | Deferred tax | Total | |
|---|---|---|---|
| Revaluation reserve at the beginning of the period | 294 881 | (56 027) | 238 854 |
| Transfer to income statement of the period as a result of sale | (12 896) | 2 450 | (10 446) |
| Change connected with maturity of securities | (660) | 125 | (535) |
| Profit/loss on revaluation of FVTOCI debt securities, recognized in equity | (963 979) | 183 155 | (780 824) |
| Profit/loss on revaluation of FVTOCI shares, recognized in equity | (814) | 155 | (659) |
| Revaluation reserve at the end of the period | (683 468) | 129 858 | (553 610) |
| Gross value | Deferred tax | Total | |
|---|---|---|---|
| Revaluation reserve at the beginning of the period | (378 911) | 71 992 | (306 919) |
| Gains or losses on valuation of financial instruments recognized in equity | (34 502) | 6 556 | (27 946) |
| Transfer to income statement during period | 7 353 | (1 397) | 5 956 |
| Revaluation reserve at the end of the period | (406 060) | 77 151 | (328 909) |
| Gross value | Deferred tax | Total | |
|---|---|---|---|
| Revaluation reserve at the beginning of the period | (44 420) | 8 439 | (35 981) |
| Gains or losses on valuation of financial instruments recognized in equity | (338 189) | 64 256 | (273 933) |
| Transfer to income statement during period | 3 698 | (703) | 2 995 |
| Revaluation reserve at the end of the period | (378 911) | 71 992 | (306 919) |
166 This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version. Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31 st December 2022
| Gross value | Deferred tax | Total | |
|---|---|---|---|
| Revaluation reserve at the beginning of the period | 2 340 | (444) | 1 896 |
| Change in the obligations arising from the provision for retirement benefits | 8 888 | (1 689) | 7 199 |
| Revaluation reserve at the end of the period | 11 228 | (2 133) | 9 095 |
| Gross value | Deferred tax | Total | |
|---|---|---|---|
| Revaluation reserve at the beginning of the period | (3 724) | 708 | (3 016) |
| Change in the obligations arising from the provision for retirement benefits | 6 064 | (1 152) | 4 912 |
| Revaluation reserve at the end of the period | 2 340 | (444) | 1 896 |
| below 1 month | from 1 month to 3 months | from 3 months to 1 year | from 1 year to 5 years | above 5 years | TOTAL | |
|---|---|---|---|---|---|---|
| Deposits from banks | 500 580 | 125 443 | 106 359 | 0 | 0 | 732 382 |
| Deposits from customers | 78 554 147 | 7 662 298 | 7 838 875 | 4 235 695 | 41 336 | 98 332 351 |
| Liabilities from securities sold with buy-back clause | 0 | 0 | 0 | 0 | 0 | 0 |
| Debt securities | 0 | 0 | 52 056 | 203 215 | 856 181 | 1 111 452 |
| Subordinated debt | 33 618 | 0 | 118 426 | 590 320 | 1 646 005 | 2 388 369 |
| Liabilities from trading derivatives - notional value | 4 642 350 | 1 892 400 | 1 751 535 | 5 118 184 | 2 567 845 | 15 972 314 |
| Liabilities from hedging derivatives - notional value | 0 | 1 840 685 | 4 427 975 | 4 814 395 | 0 | 11 083 055 |
| Commitments granted - financial | 10 782 601 | 0 | 0 | 0 | 0 | 10 782 601 |
| Commitments granted - guarantee | 2 047 856 | 0 | 0 | 0 | 0 | 2 047 856 |
| TOTAL | 96 561 152 | 11 520 826 | 14 295 226 | 14 961 809 | 5 111 367 | 142 450 380 |
| below 1 month | from 1 month to 3 months | from 3 months to 1 year | from 1 year to 5 years | above 5 years | TOTAL | |
|---|---|---|---|---|---|---|
| Deposits from banks | 86 199 | 97 607 | 130 669 | 232 407 | 0 | 546 882 |
| Deposits from customers | 81 477 566 | 5 214 179 | 2 824 137 | 1 910 432 | 40 532 | 91 466 846 |
| Liabilities from securities sold with buy-back clause | 18 040 | 0 | 0 | 0 | 0 | 18 040 |
| Debt securities | 231 | 0 | 39 681 | 0 | 0 | 39 912 |
| Subordinated debt | 8 930 | 0 | 48 119 | 219 340 | 1 614 664 | 1 891 053 |
| Liabilities from trading derivatives - notional value | 6 573 344 | 2 815 476 | 3 585 701 | 4 675 899 | 116 999 | 17 767 419 |
| Liabilities from hedging derivatives - notional value | 444 840 | 556 050 | 1 556 228 | 11 347 744 | 0 | 13 904 862 |
| Commitments granted - financial | 12 034 696 | 0 | 0 | 0 | 0 | 12 034 696 |
| Commitments granted - guarantee | 1 847 442 | 0 | 0 | 0 | 0 | 1 847 442 |
| TOTAL | 102 491 288 | 8 683 312 | 8 184 535 | 18 385 822 | 1 772 195 | 139 517 152 |
Bank Millennium has a dividend policy of distribution between 35% and 50% of net profit, taking into account supervisory recommendations. The Bank recorded a net loss in 2021, resulting from the creation of provisions for legal risk related to FX mortgage loans, hence there was no basis for the payment of dividends. The Management Board of the Bank presented a proposal and the Ordinary General Meeting of the Bank, held on March 30, 2022, decided to allocate the amount of PLN 1,357,451,533.94 from the reserve capital to cover the loss incurred in 2021.
As at 31 December 2022 following assets of the Group constituted collateral of liabilities (PLN’000):
| No. | Type of assets | Portfolio | Secured liability | Par value of assets | Balance sheet value of assets |
|---|---|---|---|---|---|
| 1. | Treasury bonds | Held to Collect and for Sale | Lombard credit granted to the Bank by the NBP | 130 000 | 127 582 |
| 2. | Treasury bonds | Held to Collect and for Sale | Securing the Fund for Protection of Funds Guaranteed as part of the Bank Guarantee Fund | 314 000 | 308 160 |
| 3. | Treasury bonds | Held to Collect and for Sale | Security of payment obligation to BFG contribution - guarantee fund | 134 100 | 131 606 |
| 4. | Treasury bonds | Held to Collect and for Sale | Security of payment obligation to BFG contribution - compulsory resolution fund | 124 000 | 121 694 |
| 5. | Cash receivables | initial settlement deposit in KDPW CCP (MAGB) | 5 000 | 5 000 | |
| 6. | Cash receivables | ASO guarantee fund (PAGB) | 172 | 172 | |
| 7. | Cash receivables | payment to the OTC Guarantee Fund - KDPW_CCP | 304 | 304 | |
| 8. | Cash receivables | Settlement on transactions concluded | 106 797 | 106 797 | |
| 9. | Deposits | Deposits in banks | Settlement on transactions concluded | 403 647 | 403 647 |
| TOTAL | 1 218 020 | 1 204 960 |
As at 31 December 2022, the Group did not have concluded transactions of sale of treasury securities with repurchase agreements.
As at 31 December 2021 following assets of the Bank constituted collateral of liabilities (PLN’000):
| No. | Type of assets | Portfolio | Secured liability | Par value of assets | Balance sheet value of assets |
|---|---|---|---|---|---|
| 1. | Treasury bonds | Held to Collect and for Sale | Lombard credit granted to the Bank by the NBP | 130 000 | 124 254 |
| 2. | Treasury bonds | Held to Collect and for Sale | Securing the Fund for Protection of Funds Guaranteed as part of the Bank Guarantee Fund | 328 000 | 313 502 |
| 3. | Treasury bonds | Held to Collect and for Sale | Securing the Fund for Protection of Funds Guaranteed as part of the Bank Guarantee Fund | 7 000 | 6 399 |
| 4. | Treasury bonds | Held to Collect and for Sale | Security of payment obligation to BFG contribution - guarantee fund | 130 100 | 124 350 |
| 5. | Treasury bonds | Held to Collect and for Sale | Security of payment obligation to BFG contribution - compulsory resolution fund | 106 500 | 101 793 |
| 6. | Cash receivables | initial deposit in KDPW CCP (MAGB) | 5 000 | 5 000 | |
| 7. | Cash receivables | ASO guarantee fund (PAGB) | 398 | 398 | |
| 8. | Cash receivables | payment to the OTC Guarantee Fund - KDPW_CCP | 8 989 | 8 989 | |
| 9. | Cash receivables | Settlement on transactions concluded | 111 907 | 111 907 | |
| 10. | Deposits | Deposits in banks | Settlement on transactions concluded | 572 681 | 572 681 |
| 11. | Leasing receivables | Loans and advances | Loans granted to Millennnium Leasing | 215 120 | 215 120 |
| TOTAL | 1 615 696 | 1 584 394 |
Additionally, as at December 31, 2021, the Group had concluded short-term transactions (usually settled within 7 days) of Treasury securities sale with a repurchase agreement, subject of securities worth PLN 17,933 thousand (corresponding liabilities are presented in Chapter 14, note (34)). The Bank is also obliged to maintain the obligatory reserve on the current account with the NBP, the amount of which depends on the average balance of funds of customer deposit accounts and the reserve rate set by the NBP. From the Bank's point of view, the funds held as part of the obligsatory reserve constitute restricted assets. The value of the provision maintained at the end of the financial year is presented in note (18).
As at 31 December 2022, the Group did not have any repurchase agreements (SBB) involving securities presented in the Group's balance sheet.
As at 31 December 2021 following securities (presented in the Group’s balance-sheet) were underlying Sell-buy-back transactions (PLN’000):
| Type of security | Par value | Balance sheet value |
|---|---|---|
| Treasury bonds | 21 347 | 17 933 |
| TOTAL | 21 347 | 17 933 |
The majority of the Group's derivatives portfolio arises due to conclusion by the Bank framework ISDA agreements (International Swaps and Derivatives Agreements). Provisions included in the agreements define comprehensive procedures in case of infringement (mainly difficulties in payments), and provide possibility to cancel a deal, making settlements with counterparty base on offset amount of mutual receivables and liabilities. To date, the Bank has not exercised that option, however, in order to meet information requirements as described in IFRS 7 the following table presents the fair values of derivative instruments (both classified as held for trading and dedicated to hedge accounting) as well as cash collaterals under ISDA framework agreements with a theoretical maximum amount resulting from the settlement on the basis of compensation.
| PLN’000 | |
|---|---|
| Amounts to be received | 329 095 |
| Amounts to be paid | 483 779 |
| Valuation of derivatives | |
| Amount of cash collaterals accepted/granted | (267 089) |
| (403 863) | |
| Financial assets and liabilities covered by framework ISDA agreements allowing compensation | 62 006 |
| 79 916 | |
| Theoretical maximum amount of compensation | (62 006) |
| (62 006) | |
| Financial assets and liabilities covered by framework ISDA agreements allowing compensation taking into account theoretical amount of compensation | 0 |
| 17 910 |
For the purpose of the cash flow statement the following financial assets are classified by the Group as cash or its equivalents (PLN’000):
| 31.12.2022 | 31.12.2021 | |
|---|---|---|
| Cash and balances with the Central Bank | 9 536 090 | 3 179 735 |
| Receivables from interbank deposits* | 288 219 | 192 509 |
| Debt securities issued by the State Treasury* | 4 406 780 | 0 |
| of which FVTOCI | 4 405 868 | 0 |
| of which held for trading | 912 | 0 |
| Total | 14 231 089 | 3 372 244 |
* Financial assets with maturity below three months
171
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31 st December 2022
For the purpose of the cash flow statement the following classification of activity types was adopted:
As of 31.12.2022 the Custody Department of Bank Millennium S.A. maintained 12,954 accounts in which Customers’ assets were kept with the total value of PLN 31.7 billion. Net revenue from the custody business for 2022 amounted to PLN 5.1 million (including PLN 2.9 million from Capital Group entities). The Custody Department serves as a depositary bank for 22 mutual funds including 21 of Millennium TFI S.A.
In 2012, the Group implemented a policy specifying the principles of remuneration for persons having a material impact on the risk profile of Bank Millennium Group, as amended, in accordance with the requirements described in Resolution of the Polish Financial Supervision Authority No. 258/2011, and then the Regulation of the Minister of Development and Finance of March 6, 2017 on the risk management system and the internal control system, remuneration policy and the detailed method of internal capital estimation in banks. In accordance with the policy, employees of the Group having a significant impact on the Group's risk profile receive variable remuneration, part of which is paid in the form of financial instruments: the Bank's phantom shares in 2018; Bank Millennium own shares: for 2019-2021. Commencing from 2019, by the decision of the General Meeting of Bank’s Shareholders of August 27, 2019, the Group introduced an incentive program to remuneration entitled persons previously identified as having a significant impact on the risk profile (Risk Taker). Under this framework, the Own Shares acquired by the Company will be, in accordance with the applicable Risk Taker's remuneration policy, intended for free acquisition in the appropriate number by the indicated Risk Takers during the Program Term.
172
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31 st December 2022
| Variable remuneration – 2021 | 2020 | 2019 | 2018 | |
|---|---|---|---|---|
| Kind of transactions in the light of IFRS 2 | Share-based payment transactions | Cash-settled share- based payments | ||
| Commencement of vesting period | 1 January 2021 | 1 January 2020 | 1 January 2019 | 1 January 2018 |
| The date of announcing the program | 27 August 2019 | 30 July 2012 | ||
| Starting date of the program in accordance with the definition of IFRS 2 | ||||
| Date of the Personnel Committee meeting taking place after closing of financial year | ||||
| Number of granted instruments | Determined at the grant date of the program in accordance with the definition of IFRS 2 | |||
| Maturity date | 3 years since the date of granting program | |||
| Vesting date* | 31 December 2021 | 31 December 2020 | 31 December 2019 | 31 December 2018 |
| Vesting conditions | Employment in the Group 2021, results of the Group and individual performance | Employment in the Group 2020, results of the Group and individual performance | Employment in the Group 2019, results of the Group and individual performance | Employment in the Group 2018, results of the Group and individual performance |
| Program settlement | Programs 2018: on the settlement date, the participant will be paid the amount of cash being equal to the amount of held by a participant phantom shares multiplied by arithmetic mean of the Bank's share price at the closing of last 10 trading sessions on the Stock Exchange in Warsaw, preceding the settlement date. Aforementioned value cannot be greater or less than 20% compared to the original value of the deferred share pool. Phantom shares are settled in three equal annual instalments starting from the date of the Personnel Committee which decides about assignment. Programs 2019 – 2021: on the program settlement date, the participant will receive the allocated treasury shares. |
|||
| Program valuation | The fair value of the program is determined at each balance sheet date according to the rules adopted for determining the value of the program on the settlement date. |
* Confirmed by decisions of the Bank's Personnel Committees assessing the work of eligible employee
Financial instruments granted to Group’s employees who are not members of the Management Board of the Bank, for the year:
| 2022 | 2021 | 2020 | 2020* | 2019 | 2019* | |
|---|---|---|---|---|---|---|
| Own shares | Own shares | Phantom shares | Own shares | Phantom shares | ||
| Date of shares assigning | - | - | - | - | 03.07.2020 | 21.02.2020 |
| Number of shares | 206 378 | 2 672 | ||||
| granted | - | - | - | - | 0 | 0 |
| deferred | - | - | - | - | 206 378 | 2 672 |
| Value as at assigning date (PLN) | - | - | - | - | 657 685 | 24 426 |
| granted | - | - | - | - | 0 | 0 |
| deferred | - | - | - | - | 657 685 | 24 426 |
| Fair value as at 31.12.2022 (PLN) | - | - | - | - | 945 211 | 21 465 |
* Millennium TFI S.A. and Millennium Dom Maklerski S.A. continue to settle their programs on the basis of phantom shares in accordance with the Remuneration Policy of these Group entities. At the balance sheet date, the Personnel Committee of the Management Board has not taken a decision on the amount of variable remuneration for Group’s employees who are not members of the Management Board of the Bank for 2022.
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This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31 st December 2022
Financial instruments granted to members of the Management Board of the Bank, for the year:
| 2022 | 2021 | 2020 | 2019 | |
|---|---|---|---|---|
| Own shares | Own shares | Phantom shares | ||
| Date of shares assigning | - | 13.04.2022 | - | 03.07.2020 |
| Number of shares | - | 319 978 | - | 162 264 |
| granted | - | 0,00 | - | 0 |
| deferred | - | 319 978 | - | 162 264 |
| Value as at assigning date (PLN) | - | 2 100 000 | - | 517 104 |
| granted | - | 0,00 | - | 0 |
| deferred | - | 2 100 000 | - | 517 104 |
| Fair value as at 31.12.2022 (PLN) | - | 1 465 499 | - | 743 169 |
At the publication date of the Annual Report, the Personnel Committee of the Supervisory Board has not taken a decision on the amount of variable remuneration for the members of the Management Board for 2022.
Bank Millennium took over the liabilities of Euro Bank to employees who were identified as having a significant impact on the risk profile and received variable remuneration, part of which was paid in the form of shares of the former Euro Bank in the years preceding the merger. On the day Euro Bank was taken over by Bank Millennium, these shares ceased to exist. Therefore, Bank Millennium adopted by decision of the Supervisory Board the rules of converting nonexistent Euro Bank shares into Bank Millennium shares. In 2022, the last part of Bank Millennium shares was paid out.
Management Board of the Bank informed that on 7 June 2022 it received information that the Management Boards and Supervisory Boards Alior Bank S.A., Bank Millennium S.A. Bank Polska Kasa Opieki S.A., BNP Paribas Bank Polska S.A., ING Bank Śląski S.A., mBank S.A., Powszechna Kasa Oszczędności Bank Polski S.A., Santander Bank Polska S.A. (Member Banks) had passed resolutions on consenting to submitting an application to the Polish Financial Supervision Authority for approval and recognition of the Institutional Protection Scheme, the members of which are banks operating in the form of a joint-stock company together with the draft agreement on the Institutional Protection Scheme, i.e. Member Bank’s participation in the creation of the Institutional Protection Scheme referred to in Article 4(1)(9a) of the Banking Law Act of 29 August 1997 (Banking Law).
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This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31 st December 2022
The objective of the Institutional Protection Scheme is to:
The Bank and Millennium Dom Maklerski (100% subsidiary of the Bank, “MDM”) made a decision on the Demerger by way of the inclusion of the Brokerage Activity in the Bank’s structures in order to integrate within a single entity the brokerage services so far provided through the Demerged Company. The decision to effectuate the Demerger is dictated by:
The MDM division plan (the “MDM Division Plan”) has been made available pursuant to Article 535 § 3 of the CCC by being posted on the Bank’s website at: https://www.bankmillennium.pl/plan_podzialu_MDM
The MDM Division has been carried out (in accordance with the procedure specified in Article 529 § 1.4 of the CCC, i.e. through:
a) a transfer to the Bank of a part of the property (assets and liabilities) and the rights and obligations of the Company Being Divided in the form of an organised part of the enterprise of MDM connected with the provision of brokerage services (the “Brokerage Business”); and
b) the retaining by MDM of a part of the property (assets and liabilities) and the rights and obligations of the Company Being Divided in the form of an organised part of the enterprise of MDM connected with the remaining business activity (the “Non-Regulated Business”).
On 29 July 2022, the Bank became aware of the registration of the decrease of the share capital of MDM, the registration of amendments to the articles of association of MDM and the registration of the information on the MDM Division in the registration files of MDM in the National Court Register by the District Court for the City of Warsaw in Warsaw, XIII Commercial Division of the National Court Register. Thus, the division of MDM, as a result of which the Bank took over the Brokerage Business, took place and was registered by the competent registry court on 29 July 2022.
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This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31 st December 2022
In May 2022, the Polish government announced that WIBOR would be replaced by a different (lower) rate from 1 January 2023. In June 2022, a Working Group was established, including commercial banks, GPW Benchmark (Administrator of WIBOR), KNF. In July 2022, the National Working Group on Reference Rate Reform (NGR) was established in connection with the planned reform of reference rates in Poland. The objective of the NGR's work to introduce a new interest rate benchmark and replace the currently used WIBOR index with it while ensuring the compliance with BMR, including in particular ensuring credibility, transparency and reliability in the development and application of the new benchmark.
The National Working Group involves representatives of the Ministry of Finance, the National Bank of Poland, the Office of the Financial Supervision Authority, the Bank Guarantee Fund, the Polish Development Fund, the Warsaw Stock Exchange, the National Depository for Securities, Bank Gospodarstwa Krajowego, the GPW Benchmark, as well as representatives of credit institutions, i.e. in particular, banks, financial institutions, including investment funds, insurance companies, factoring and leasing companies, entities that are bond issuers, including corporate and municipal bonds, clearing houses.
The work of the National Working Group is coordinated and supervised by a Steering Committee including representatives of key institutions: Financial Supervision Authority, the National Bank of Poland, the Ministry of Finance, the Bank Guarantee Fund, the Polish Development Fund, as well as the GPW Benchmark - the administrator of the reference rates - and the Polish Bank Association (Polish: Związek Banków Polskich).
The NGR's activities are executed in a project formula, where project streams have been identified and where Bank Millennium representatives are actively contributing to the work. The National Working Group selected the WIRON index to become the key interest rate benchmark under the BMR and to be used in financial contracts, financial instruments. In connection with this, Bank Millennium S.A. established, by resolution of the Bank's Management Board of 24 August 2022, an internal project reporting to the Management Board (Deputy Chairman of the Management Board - CFO and Member of the Management Board overseeing the areas of retail and corporate products), in order to duly manage the WIBOR to WIRON transition process and to implement the work in accordance with the roadmap. This work involves representatives from a significant number of the Bank's business units, including, in particular, representatives responsible for product areas and risk management issues, including, in particular, interest rate risk and operational risk. The structure of the project includes the division into streams covering products and processes where the WIBOR benchmark is applied, the management of the project by a dedicated project manager and the periodical reporting of statuses on the individual streams. In the current phase of the project, intensive work is underway at the Bank to adjust the technological infrastructure, as well as including the preparation of internal processes and documentation.
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This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31 st December 2022
The Bank uses the WIBOR reference rate in the following products (in million PLN):
The Bank also applies instruments based on WIBOR benchmarks in hedge accounting, details of the hedging relationships used by the Group, the items designated as hedged and hedging and the presentation of the result on these transactions are presented in Note (23) "Derivatives - Hedge accounting" in Chapter 14. "Notes to the Consolidated Financial Statements.
Bank Millennium S.A. is working on the analysis of the risks and monitors them on a regular basis, however, due to the early stage of the reform, more detailed information on the transition process will be provided as the work on the WIBOR reform progresses. In addition, due to the lack of formal information regarding the potential regulatory event referred to in Article 23c(1) of the BMR, the lack of a regulation of the Minister of Finance referred to in Article 61c of the Act of 5 August 2015. on macro-prudential supervision of the financial system and crisis management in the financial system concerning a substitute or at least a draft of such a regulation, the lack of information on the amount of the adjustment spread or the method of calculating this spread as well as the lack of a market for hedging instruments and given the current stage of the work of the National Working Group and the implementation of the Roadmap, it is currently not possible to estimate the financial impact of the WIBOR reform.
The Bank applies the USD LIBOR benchmark to the following products (in million PLN):
In the case of the products offered by the Bank within Corporate banking, each contract with a term longer than 30 June 2023 has a so-called contingency clause indicating an alternative RFR (risk free rate). In the case of the products offered by Bank within Retail Banking, the mortgage loan agreements with interest rates based on the 3M or 6M LIBOR USD index, the term of which is longer than 30 June 2023, were concluded prior to the entry into force of the BMR. For the time being, the Bank, in accordance with the applicable Plan in the event of a material change or cessation of the development of benchmarks, is conducting analyses on the impact and effects of the absence of the fallback clauses indicating an alternative benchmark to USD LIBOR on the concluded contracts. Considering the marginal, number of such contracts in the Bank's portfolio, the possibility of applying an individual approach to each of these contracts is also being analyzed.
It should be noted that the Bank has a Plan in the event of a material change or discontinuation of the development of benchmarks covering retail banking products including financial contracts within the meaning of the BMR , corporate banking products and financial instruments within the meaning of the BMR specifying the actions it will take in the event of a material change or discontinuation of the applicable benchmark.
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This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31 st December 2022
The Management Board of Bank Millennium S.A. (the "Bank") on February 13, 2023 informed in the form of a current report, that following necessary corporate approvals, on February 13, 2023, the Bank executed the agreement (the "Agreement") for the sale of 80% of the shares (the “Shares”) in Millennium Financial Services sp. z o.o. (the “Company”) to Towarzystwo Ubezpieczeń na Życie Europa S.A. which acquires 72% of the Company’s shares and Towarzystwo Ubezpieczeń Europa S.A. which acquires 8% of the Company’s shares (collectively the "Buyers"). Bank Millennium concluded also with the Buyers and the Company certain agreements concerning exclusive insurance distribution model, including a cooperation agreement, distribution agreements and agency agreements (the "Strategic Insurance Cooperation").
The Strategic Insurance Cooperation provides for long term (10 years) bancassurance liaison in relation specified insurance products linked to loans offered by Bank Millennium. The essence of the transaction contemplated by the Agreement is the direct acquisition of the Shares by the Buyers from Bank Millennium for a pre-defined initial price which may be subject to a price adjustment mechanism after the Transaction is closed, (i.e. after transfer of legal title to the Shares to the Buyers and payment of the Price, "Closing") and establishment of the Strategic Insurance Cooperation (the "Transaction").
If the Transaction will close successfully, the Bank expects to recognize an upfront pre-tax gain on the transaction of approximately PLN 500 million. The Closing of the Transaction is subject to the fulfilment of a condition precedent – obtaining the relevant consent of the relevant antimonopoly authority (the "Condition"). Bank Millennium will publish information on the fulfilment or non-fulfilment of the Condition in relevant current reports. The Parties may also withdraw from the Agreement in certain situations indicated therein and penalties may apply in case of failure of one of the Parties to fulfil its obligations under the Transaction documentation. The Transaction documentation contains a certain catalogue of representations and warranties from Bank Millennium and the Buyers with respect to the Shares and Strategic Insurance Cooperation, as well as sets out the principles of the Parties' liability thereunder.
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This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31st December 2022
There were no other significant events affecting the financial statements and future results of the Group between the date on which the report was prepared and the date of its publication.
| Date | Name and surname | Position/Function | Signature |
|---|---|---|---|
| 15.02.2023 | Joao Bras Jorge | Chairman of the Management Board | Signed by a qualified electronic signature |
| 15.02.2023 | Fernando Bicho | Deputy Chairman of the Management Board | Signed by a qualified electronic signature |
| 15.02.2023 | Wojciech Haase | Member of the Management Board | Signed by a qualified electronic signature |
| 15.02.2023 | Andrzej Gliński | Member of the Management Board | Signed by a qualified electronic signature |
| 15.02.2023 | Wojciech Rybak | Member of the Management Board | Signed by a qualified electronic signature |
| 15.02.2023 | Antonio Pinto Junior | Member of the Management Board | Signed by a qualified electronic signature |
| 15.02.2023 | Jarosław Hermann | Member of the Management Board | Signed by a qualified electronic signature |
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