Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31st December 2023

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

FINANCIAL HIGHLIGHTS

	Amount ‘000 PLN	Amount ‘000 PLN	Amount ‘000 EUR	Amount ‘000 EUR
	1.01.2023 - 31.12.2023	1.01.2022 - 31.12.2022	1.01.2023 - 31.12.2023	1.01.2022 - 31.12.2022
Interest income and other of similar nature	8 435 773	4 999 897	1 862 860	1 066 463
Fee and commission income	1 037 135	1 027 745	229 029	219 215
Profit (loss) before income tax	1 312 487	(730 755)	289 835	(155 868)
Profit (loss) after taxes	575 717	(1 014 566)	127 135	(216 404)
Total comprehensive income of the period	1 400 489	(1 198 217)	309 268	(255 576)
Net cash flows from operating activities	14 395 773	9 994 922	3 178 998	2 131 886
Net cash flows from investing activities	(12 187 857)	1 218 949	(2 691 427)	259 998
Net cash flows from financing activities	2 060 342	(355 026)	454 982	(75 726)
Net cash flows, total	4 268 258	10 858 845	942 553	2 316 158
Earnings (losses) per ordinary share (in PLN/EUR)	0.47	(0.84)	0.10	(0.18)
Diluted earnings (losses) per ordinary share	0.47	(0.84)	0.10	(0.18)
	31.12.2023	31.12.2022	31.12.2023	31.12.2022
Total Assets	125 520 004	110 941 969	28 868 446	23 655 508
Liabilities to banks and other monetary institutions	563 512	727 571	129 603	155 136
Liabilities to customers	107 246 427	98 038 516	24 665 692	20 904 180
Equity	6 894 895	5 494 406	1 585 762	1 171 540
Share capital	1 213 117	1 213 117	279 006	258 666
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)	5.68	4.53	1.31	0.97
Diluted book value per share (in PLN/EUR)	5.68	4.53	1.31	0.97
Total Capital Ratio (TCR)	18.06%	14.42%	18.06%	14.42%
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	-	-	4.3480	4.6899
Exchange rates accepted to convert selected financial data into EUR 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)	-	-	4.5284	4.6883

QUARTERLY FINANCIAL INFORMATION

CONSOLIDATED INCOME STATEMENT

	Amount ‘000 PLN	Amount ‘000 PLN	Amount ‘000 PLN	Amount ‘000 PLN
	1.01.2023 - 31.12.2023	1.10.2023 - 31.12.2023*	1.01.2022 - 31.12.2022	1.10.2022 - 31.12.2022*
Net interest income	5 253 489	1 283 778	3 337 291	1 348 879
Interest income and other of similar nature	8 435 773	2 119 668	4 999 897	2 041 234
Income calculated using the effective interest method	8 326 843	2 085 837	5 028 694	2 023 454
Interest income from Financial assets at amortised cost, including:	7 446 886	1 854 565	4 560 119	1 886 587
- the impact of the adjustment to the gross carrying amount of loans due to credit holidays	(9 228)	(9 228)	(1 324 208)	98 685
Interest income from Financial assets at fair value through other comprehensive income	879 957	231 272	468 575	136 867
Income of similar nature to interest from Financial assets at fair value through profit or loss	108 930	33 831	(28 797)	17 780
Interest expenses	(3 182 284)	(835 890)	(1 662 606)	(692 355)
Net fee and commission income	782 385	190 475	808 305	201 997
Fee and commission income	1 037 135	256 754	1 027 745	259 483
Fee and commission expenses	(254 750)	(66 279)	(219 440)	(57 486)
Dividend income	3 431	153	3 796	383
Result on derecognition of financial assets and liabilities not measured at fair value through profit or loss	538 922	(859)	(2 606)	(638)
Results on financial assets and liabilities held for trading	48 420	50 736	(312)	(1 806)
Result on non-trading financial assets mandatorily at fair value through profit or loss	12 359	761	25 696	14 670
Result on hedge accounting	1 160	(357)	(7 130)	(1 552)
Result on exchange differences	(75 968)	(29 013)	(203 544)	(18 357)
Other operating income	458 982	143 208	276 245	65 544
Other operating expenses	(301 614)	(72 882)	(216 720)	(80 417)
Administrative expenses	(1 781 439)	(476 336)	(1 884 259)	(416 102)
Impairment losses on financial assets	(262 475)	(58 591)	(342 033)	(80 110)
Impairment losses on non-financial assets	(84)	(31)	(3 515)	(770)
Provisions for legal risk connected with FX mortgage loans	(3 065 380)	(701 580)	(2 017 320)	(504 540)
Result on modification	(88 184)	(20 323)	(126 664)	(61 253)
Depreciation	(211 517)	(52 833)	(208 922)	(52 476)
Share of the profit of investments in subsidiaries	0	0	0	0
Banking tax	0	0	(169 063)	0
Profit before income taxes	1 312 487	256 306	(730 755)	413 452
Corporate income tax	(736 770)	(141 207)	(283 811)	(164 515)
Profit after taxes	575 717	115 099	(1 014 566)	248 937
Attributable to:
Owners of the parent	575 717	115 099	(1 014 566)	248 937
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)	0.47	0.09	(0.84)	0.21

quarterly financial information has not been audited by an independent auditor

CONSOLIDATED STATEMENT OF TOTAL COMPREHENSIVE INCOME

	Amount ‘000 PLN	Amount ‘000 PLN	Amount ‘000 PLN	Amount ‘000 PLN
	1.01.2023 - 31.12.2023	1.10.2023 - 31.12.2023*	1.01.2022 - 31.12.2022	1.10.2022 - 31.12.2022*
Result after taxes	575 717	115 099	(1 014 566)	248 937
Other comprehensive income items that may be (or were) reclassified to profit or loss	1 024 886	171 284	(231 194)	464 246
Result on debt securities at fair value through other comprehensive income	673 019	93 091	(204 045)	278 685
Hedge accounting	351 867	78 193	(27 149)	185 561
Other comprehensive income items that will not be reclassified to profit or loss	(6 649)	(6 565)	4 464	4 507
Actuarial gains (losses)	(11 071)	(10 987)	8 887	8 887
Result on equity instruments at fair value through other comprehensive income	4 422	4 422	(4 423)	(4 380)
Total comprehensive income items before taxes	1 018 237	164 719	(226 730)	468 753
Corporate income tax on other comprehensive income items that may be (or were) reclassified to profit or loss	(194 728)	(32 544)	43 927	(88 207)
Corporate income tax on other comprehensive income items that will not be reclassified to profit or loss	1 263	1 247	(848)	(856)
Total comprehensive income items after taxes	824 772	133 422	(183 651)	379 690
Total comprehensive income for the period	1 400 489	248 521	(1 198 217)	628 627
Attributable to:
Owners of the parent	1 400 489	248 521	(1 198 217)	628 627
Non-controlling interests	0	0	0	0

quarterly financial information has not been audited by an independent auditor

ANNUAL CONSOLIDATED FINANCIAL STATEMENTS OF THE BANK MILLENNIUM S.A. CAPITAL GROUP FOR THE 12-MONTH PERIOD ENDING 31ST DECEMBER 2023

TABLE OF CONTENT

CONSOLIDATED INCOME STATEMENT ............................................................... 6
CONSOLIDATED STATEMENT OF TOTAL COMPREHENSIVE INCOME ............................ 7
CONSOLIDATED BALANCE SHEET .................................................................... 8
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY ......................................... 10
CONSOLIDATED CASH FLOW STATEMENT ........................................................ 11
GENERAL INFORMATION ABOUT ISSUER AND THE ISSUER’S CAPITAL GROUP ............. 13
ACCOUNTING POLICY ................................................................................ 15
7.1. STATEMENT OF COMPLIANCE WITH THE INTERNATIONAL FINANCIAL REPORTING STANDARDS .................. 15
7.2. STANDARDS AND INTERPRETATIONS APPLIED IN 2023 AND THOSE NOT BINDING AT THE BALANCE SHEET DATE.. 17
7.3. ADOPTED ACCOUNTING PRINCIPLES ......................................................................... 19
FINANCIAL RISK MANAGEMENT .................................................................... 47
8.1. RISK MANAGEMENT ........................................................................................ 47
8.2. CAPITAL MANAGEMENT .................................................................................... 51
8.3. CREDIT RISK ............................................................................................... 57
8.4. MARKET RISK AND INTEREST RATE RISK .................................................................... 77
8.5. LIQUIDITY RISK ............................................................................................ 84
8.6. OPERATIONAL RISK ........................................................................................ 88
8.7. RISK OF NEGATIVE IMPACT ON THE NATURAL ENVIRONMENT .................................................. 89
OPERATIONAL SEGMENTS ........................................................................... 90
TRANSACTIONS WITH RELATED ENTITIES ........................................................ 94
10.1. DESCRIPTION OF THE TRANSACTIONS WITH THE PARENT GROUP ............................................. 94
10.2. TRANSACTIONS WITH THE MANAGING AND SUPERVISING PERSONS ........................................... 95
10.3. INFORMATION ON COMPENSATIONS AND BENEFITS OF THE PERSONS SUPERVISING AND MANAGING THE BANK ... 96
11.# FAIR VALUE ........................................................................................... 97

12. CONTINGENT LIABILITIES AND ASSETS .......................................................... 103

12.1. LAWSUITS ............................................................................................... 103

12.2. OFF – BALANCE ITEMS .................................................................................... 107

13. LEGAL RISK RELATED TO FOREIGN CURRENCY MORTGAGE LOANS ........................ 109

13.1. COURT CLAIMS AND CURRENT PROVISIONS ON LEGAL RISK .................................................. 109

13.2. EVENTS THAT MAY IMPACT FX MORTGAGE LEGAL RISK AND RELATED PROVISION ............................. 118

14. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS .................................... 119

1. INTEREST INCOME AND OTHER OF SIMILAR NATURE ........................................................ 119

2. INTEREST EXPENSE ....................................................................................... 119

3. FEE AND COMMISSION INCOME AND EXPENSE ............................................................... 120

4. DIVIDEND INCOME ........................................................................................ 120

5. RESULT ON DERECOGNITION OF FINANCIAL ASSETS AND LIABILITIES NOT MEASURED AT FAIR VALUE THROUGH PROFIT OR LOSS ... 121

6. RESULTS ON FINANCIAL ASSETS AND LIABILITIES HELD FOR TRADING ........................................ 122

7. RESULTS ON NON-TRADING FINANCIAL ASSETS MANDATORILY AT FAIR VALUE THROUGH PROFIT OR LOSS ..... 122

8. RESULT ON HEDGE ACCOUNTING .......................................................................... 122

9. OTHER OPERATING INCOME .............................................................................. 123

10. OTHER OPERATING EXPENSE .............................................................................. 123

5 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 2023

11. ADMINISTRATIVE EXPENSES ............................................................................... 124

12. IMPAIRMENT LOSSES ON FINANCIAL ASSETS ................................................................ 124

13. IMPAIRMENT LOSSES ON NON-FINANCIAL ASSETS ........................................................... 125

14. PROVISIONS FOR LEGAL RISK CONNECTED WITH FX MORTGAGE LOANS ...................................... 125

15. DEPRECIATION AND AMORTIZATION ....................................................................... 125

16. CORPORATE INCOME TAX ................................................................................. 126

17. EARNINGS PER SHARE .................................................................................... 128

18. CASH, BALANCES AT THE CENTRAL BANK .................................................................. 128

19. FINANCIAL ASSETS HELD FOR TRADING .................................................................... 129

20. NON-TRADING FINANCIAL ASSETS MANDATORILY AT FAIR VALUE THROUGH PROFIT OR LOSS, OTHER THAN LOANS AND ADVANCES TO CUSTOMERS ... 131

21. FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME............................... 132

22. LOANS AND ADVANCES TO CUSTOMERS .................................................................... 133

23. FINANCIAL ASSETS AT AMORTISED COST OTHER THAN LOANS AND ADVANCES TO CUSTOMERS ................ 140

24. DERIVATIVES – HEDGE ACCOUNTING ...................................................................... 142

25. INVESTMENTS IN SUBSIDIARIES, JOINT VENTURES AND ASSOCIATES .......................................... 146

26. TANGIBLE FIXED ASSETS .................................................................................. 147

27. INTANGIBLE FIXED ASSETS ................................................................................ 150

28. DEFERRED INCOME TAX ASSETS........................................................................... 153

29. OTHER ASSETS ........................................................................................... 156

30. NON-CURRENT ASSETS AND DISPOSAL GROUPS CLASSIFIED AS HELD FOR SALE ............................... 157

31. FINANCIAL LIABILITIES HELD FOR TRADING ................................................................ 158

32. LIABILITIES TO BANKS AND OTHER MONETARY INSTITUTIONS ............................................... 158

33. LIABILITIES TO CUSTOMERS ............................................................................... 159

34. SALE AND REPURCHASE AGREEMENTS ..................................................................... 160

35. DEBT SECURITIES ISSUED ................................................................................. 160

36. SUBORDINATED DEBT ..................................................................................... 161

37. PROVISIONS ............................................................................................. 162

38. OTHER LIABILITIES ....................................................................................... 163

39. EQUITY .................................................................................................. 165

40. FINANCIAL LIABILITIES BY CONTRACTUAL MATURITY ....................................................... 169

15. SUPPLEMENTARY INFORMATION ................................................................. 170

15.1. 2022 DIVIDEND .......................................................................................... 170

15.2. DATA ABOUT ASSETS, WHICH SECURE LIABILITIES .......................................................... 170

15.3. SECURITIES COVERED BY TRANSACTIONS WITH A BUY-BACK CLAUSE (SBB) ................................. 171

15.4. OFFSETTING OF ASSETS AND LIABILITIES ON THE BASIS OF ISDA AGREEMENTS .............................. 171

15.5. ADDITIONAL EXPLANATIONS TO THE CASH FLOW STATEMENT ............................................... 172

15.6. INFORMATION ON CUSTODY ACTIVITY ..................................................................... 172

15.7. SHARE BASED PAYMENTS ................................................................................. 173

15.8. ADDITIONAL INFORMATION AND OTHER ESSENTIAL EVENTS BETWEEN THE DATE, FOR WHICH THE FINANCIAL REPORT WAS PREPARED AND ITS PUBLICATION DATE ... 174

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 2023

1. Consolidated Income Statement

Amount ‘000 PLN	Note	1.01.2023 - 31.12.2023	1.01.2022 - 31.12.2022
Net interest income	5	253 489	3 337 291
Interest income and other of similar nature	1	8 435 773	4 999 897
Income calculated using the effective interest method		8 326 843	5 028 694
Interest income from Financial assets at amortised cost, including:		7 446 886	4 560 119
- the impact of the adjustment to the gross carrying amount of loans due to credit holidays		(9 228)	(1 324 208)
Interest income from Financial assets at fair value through other comprehensive income		879 957	468 575
Income of similar nature to interest from Financial assets at fair value through profit or loss		108 930	(28 797)
Interest expenses	2	(3 182 284)	(1 662 606)
Net fee and commission income		782 385	808 305
Fee and commission income	3	1 037 135	1 027 745
Fee and commission expenses	3	(254 750)	(219 440)
Dividend income	4	3 431	3 796
Result on derecognition of financial assets and liabilities not measured at fair value through profit or loss	5	538 922	(2 606)
Results on financial assets and liabilities held for trading	6	48 420	(312)
Result on non-trading financial assets mandatorily at fair value through profit or loss	7	12 359	25 696
Result on hedge accounting	8	1 160	(7 130)
Result on exchange differences, including:		(75 968)	(203 544)
- costs of settlements on foreign currency mortgage loans		(273 791)	(382 239)
Other operating income	9	458 982	276 245
Other operating expenses	10	(301 614)	(216 720)
Administrative expenses	11	(1 781 439)	(1 884 259)
Impairment losses on financial assets	12	(262 475)	(342 033)
Impairment losses on non-financial assets	13	(84)	(3 515)
Provisions for legal risk connected with FX mortgage loans	14	(3 065 380)	(2 017 320)
Result on modification, including:		(88 184)	(126 664)
- costs of settlements on foreign currency mortgage loans		(52 227)	(102 153)
Depreciation	15	(211 517)	(208 922)
Share of the profit of investments in subsidiaries		0	0
Banking tax		0	(169 063)
Profit before income taxes		1 312 487	(730 755)
Corporate income tax	16	(736 770)	(283 811)
Profit after taxes		575 717	(1 014 566)
Attributable to:
Owners of the parent		575 717	(1 014 566)
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	0.47	(0.84)

Notes on pages 13-177 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 2023

2.# Consolidated Statement of Total Comprehensive Income

Amount ‘000 PLN
| | 1.01.2023 - 31.12.2023 | 1.01.2022 - 31.12.2022 |
| :--------------------------------------------------------------------------------------- | :------------------- | :------------------- |
| Profit after taxes | 575 717 | (1 014 566) |
| Other comprehensive income items that may be (or were) reclassified to profit or loss | 1 024 886 | (231 194) |
| Result on debt securities at fair value through other comprehensive income | 673 019 | (204 045) |
| Hedge accounting | 351 867 | (27 149) |
| Other comprehensive income items that will not be reclassified to profit or loss | (6 649) | 4 464 |
| Actuarial gains (losses) | (11 071) | 8 887 |
| Result on equity instruments at fair value through other comprehensive income | 4 422 | (4 423) |
| Other comprehensive income items before taxes | 1 018 237 | (226 730) |
| Corporate income tax on other comprehensive income items that may be (or were) reclassified to profit or loss | (194 728) | 43 927 |
| Corporate income tax on other comprehensive income items that will not be reclassified to profit or loss | 1 263 | (848) |
| Other comprehensive income items after taxes | 824 772 | (183 651) |
| Total comprehensive income for the period | 1 400 489 | (1 198 217) |
| Attributable to: | | |
| Owners of the parent | 1 400 489 | (1 198 217) |
| Non-controlling interests | 0 | 0 |

Notes on pages 13-177 are integral part of these consolidated financial statements.
8
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 2023

3. Consolidated Balance Sheet

ASSETS
Amount ‘000 PLN
| | Note | 31.12.2023 | 31.12.2022 |
| :----------------------------------------------------------------------- | :--- | :--------- | :--------- |
| Cash, cash balances at central banks | 18 | 5 094 984 | 9 536 090 |
| Financial assets held for trading | 19 | 608 924 | 363 519 |
| Derivatives | | 498 249 | 339 196 |
| Equity instruments | | 121 113 | |
| Debt securities | | 110 554 | 24 210 |
| Non-trading financial assets mandatorily at fair value through profit or loss, other than Loans and advances to customers | 20 | 147 623 | 201 036 |
| Equity instruments | | 66 609 | 128 979 |
| Debt securities | | 81 014 | 72 057 |
| Financial assets at fair value through other comprehensive income | 21 | 22 096 200 | 16 505 606 |
| Equity instruments | | 28 793 | 24 396 |
| Debt securities | | 22 067 407 | 16 481 210 |
| Loans and advances to customers | 22 | 73 643 060 | 76 565 163 |
| Mandatorily at fair value through profit or loss | 19 | 349 97 | 982 |
| Valued at amortised cost | | 73 623 711 | 76 467 181 |
| Financial assets at amortised cost other than Loans and advances to customers | 23 | 20 706 585 | 4 631 170 |
| Debt securities | | 18 749 907 | 3 893 212 |
| Deposits, loans and advances to banks and other monetary institutions | | 793 436 | 733 095 |
| Reverse sale and repurchase agreements | | 1 163 242 | 4 863 |
| Derivatives – Hedge accounting | 24 | 74 213 | 135 804 |
| Investments in subsidiaries, joint ventures and associates | 25 | 52 509 | 0 |
| Tangible fixed assets | 26 | 565 630 | 572 810 |
| Intangible fixed assets | 27 | 481 631 | 436 622 |
| Income tax assets | | 486 803 | 805 624 |
| Current income tax assets | | 1 810 | 4 232 |
| Deferred income tax assets | 28 | 484 993 | 801 392 |
| Other assets | 29 | 1 544 328 | 1 177 134 |
| Non-current assets and disposal groups classified as held for sale | 30 | 17 514 | 11 391 |
| Total assets | | 125 520 004 | 110 941 969 |

9
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 2023

LIABILITIES AND EQUITY
Amount '000 PLN
| | Note | 31.12.2023 | 31.12.2022 |
| :----------------------------------------------------------------------- | :--- | :--------- | :--------- |
| LIABILITIES | | | |
| Financial liabilities held for trading | 31 | 579 553 | 385 062 |
| Derivatives | | 576 833 | 380 278 |
| Liabilities from short sale of securities | | 2 720 | 4 784 |
| Financial liabilities measured at amortised cost | | 112 692 833 | 100 577 923 |
| Liabilities to banks and other monetary institutions | 32 | 563 512 | 727 571 |
| Liabilities to customers | 33 | 107 246 427 | 98 038 516 |
| Sale and repurchase agreements | 34 | 0 | 0 |
| Debt securities issued | 35 | 3 317 849 | 243 753 |
| Subordinated debt | 36 | 1 565 045 | 1 568 083 |
| Derivatives – Hedge accounting | 24 | 193 664 | 554 544 |
| Provisions | 37 | 1 445 472 | 1 016 169 |
| Pending legal issues | | 1 403 105 | 976 552 |
| Commitments and guarantees given | | 42 367 | 39 617 |
| Income tax liabilities | | 461 457 | 32 533 |
| Current income tax liabilities | | 461 217 | 32 533 |
| Deferred income tax liabilities | | 240 | 0 |
| Other liabilities | 38 | 3 252 130 | 2 881 332 |
| Total Liabilities | | 118 625 109 | 105 447 563 |
| 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 | (217 512) | (1 042 284) |
| Retained earnings, including: | 39 | 4 751 809 | 4 176 092 |
| - current profit /loss | | 575 717 | (1 014 566) |
| - other | | 4 176 092 | 5 190 658 |
| Total equity | | 6 894 895 | 5 494 406 |
| Total equity and total liabilities | | 125 520 004 | 110 941 969 |

	31.12.2023	31.12.2022
Book value of net assets	6 894 895	5 494 406
Number of shares (pcs.)	1 213 116 777	1 213 116 777
Book value per share (in PLN)	5.68	4.53

Notes on pages 13-177 are integral part of these financial statements.
10
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 2023

4. Consolidated Statement of Changes in Equity

Amount ‘000 PLN
| | Total consolidated equity | Share capital | Own shares | Share premium | Accumulated other comprehensive income | Retained earnings | Unappropriated result | Other reserves |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| 01.01.2023 – 31.12.2023 | | | | | | | | |
| Equity at the beginning of the period | 5 494 406 | 1 213 117 | (21) | 1 147 502 | (1 042 284) | (824 873) | 5 000 965 | |
| Total comprehensive income for 2023 (net) | 1 400 489 | 0 | 0 | 0 | 824 772 | 575 717 | | |
| current profit /loss | | | | | | 575 717 | 575 717 | |
| other comprehensive income items after taxes | | | | | 824 772 | | | |
| Purchase and transfer of own shares to employees | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Transfer between items of reserves | 0 | 0 | 0 | 0 | 0 | 1 041 432 | (1 041 432) | |
| Equity at the end of the period | 6 894 895 | 1 213 117 | (21) | 1 147 502 | (217 512) | 792 276 | 3 959 533 | |

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 2022 (net) | (1 198 217) | 0 | 0 | 0 | (183 651) | (1 014 566) | | |
| 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 | |

Detailed information concerning changes in different equity items are presented in the note (39).
11
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 2023

5. Consolidated Cash Flow Statement

A. CASH FLOWS FROM OPERATING ACTIVITIES
Amount ‘000 PLN
| | 1.01.2023 - 31.12.2023 | 1.01.2022 - 31.12.2022 |
| :-------------------------------------------------------------------------------------- | :------------------- | :------------------- |
| Profit (loss) after taxes | 575 717 | (1 014 566) |
| Total adjustments: | 13 820 056 | 11 009 488 |
| Interest received | 7 920 157 | 4 581 321 |
| Interest paid | (2 775 090) | (1 310 466) |
| Depreciation and amortization | 211 517 | 208 922 |
| Foreign exchange (gains)/ losses | 0 | 0 |
| Dividends | (3 431) | (3 796) |
| Changes in provisions | 429 302 | 420 639 |
| Result on sale and liquidation of assets | (659 934) | (1 490) |
| Change in financial assets held for trading | 142 273 | (306 541) |
| Change in loans and advances to banks | 228 676 | 110 198 |
| Change in loans and advances to customers | (3 588 055) | (1 984 810) |
| Change in receivables from securities bought with sell-back clause (loans and advances) | (1 226 207) | 237 878 |
| Change in financial liabilities valued at fair value through profit and loss (held for trading) | (166 389) | 182 018 |
| Change in deposits from banks | (31 544) | 481 852 |
| Change in deposits from customers | 11 940 652 | 7 826 048 |
| Change in liabilities from securities sold with buy-back clause | (35 178) | 34 833 |
| Change in debt securities | 814 042 | 204 828 |
| Change in income tax settlements | 756 524 | 289 733 |
| Income tax paid | (207 088) | (235 492) |
| Change in other assets and liabilities | (60 642) | 154 631 |
| Other | 130 471 | 119 182 |
| Net cash flows from operating activities | 14 395 773 | 9 994 922 |

12
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 2023

B. CASH FLOWS FROM INVESTING ACTIVITIES
Amount ‘000 PLN
| | 1.01.2023 - 31.12.2023 | 1.01.2022 - 31.12.2022 |
| :-------------------------------------------------------------------- | :------------------- | :------------------- |
| Inflows: | 477 677 | 349 160 |
| Proceeds from sale of property, plant and equipment and intangible assets | 27 724 | 15 706 |
| Proceeds from sale of shares in related entities | 599 912 | 0 |
| Proceeds from sale of investment financial assets | 477 046 | 282 160 |
| Other | 3 431 | 3 796 |
| Outflows: | (489 865 206) | (159 367 440) |
| Acquisition of property, plant and equipment and intangible assets | (187 888) | (157 008) |
| Acquisition of shares in related entities | 0 | 0 |
| Acquisition of investment financial assets | (489 677 318) | (159 210 432) |
| Other | 0 | 0 |
| Net cash flows from investing activities | (12 187 857) | 1 218 949 |

C.# CASH FLOWS FROM FINANCING ACTIVITIES

Amount ‘000 PLN	1.01.2023 - 31.12.2023	1.01.2022 - 31.12.2022
Inflows from financing activities:	2 316 276	0
Long-term bank loans	0	0
Issue of debt securities	2 316 276	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:	(255 934)	(355 026)
Repayment of long-term bank loans	(105 000)	(265 988)
Redemption of debt securities	0	0
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	(150 934)	(89 038)
Net cash flows from financing activities	2 060 342	(355 026)

D. Net cash flows. Total (A + B + C) 4 268 258 10 858 845
- including change resulting from FX differences (21 705) 4 630
E. Cash and cash equivalents at the beginning of the reporting period 14 231 089 3 372 244
F. Cash and cash equivalents at the end of the reporting period (D + E) 18 499 347 14 231 089

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”.

6. General Information about Issuer and the Issuer’s Capital Group

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 over 6,700 employees with core business comprising banking, leasing, factoring, brokerage, capital operations, investment fund management, web portals activity and insurance activity.

Supervisory Board and Management Board of Bank Millennium S.A. as at 31 December 2023

Composition of the Supervisory Board as at 31 December 2023 was as follows:

Bogusław Kott - Chairman of the Supervisory Board,
Nuno Manuel da Silva Amado – Deputy Chairman of the Supervisory Board,
Dariusz Rosati – Deputy Chairman and Secretary of the Supervisory Board,
Miguel de Campos Pereira de Bragança – Member of the Supervisory Board,
Olga Grygier-Siddons – Member of the Supervisory Board,
Anna Jakubowski – Member of the Supervisory Board,
Grzegorz Jędrys – Member of the Supervisory Board,
Alojzy Nowak – Member of the Supervisory Board,
Jose Miguel Bensliman Schorcht da Silva Pessanha – Member of the Supervisory Board
Miguel Maya Dias Pinheiro – Member of the Supervisory Board,
Beata Stelmach – Member of the Supervisory Board
Lingjiang Xu – Member of the Supervisory Board.

Composition of the Management Board as at 31 December 2023 was as follows:

Joao Nuno Lima Bras Jorge – Chairman of the Management Board,
Fernando Maria Cardoso Rodrigues Bicho – Deputy Chairman of the Management Board,
Wojciech Haase – Member of the Management Board,
Andrzej Gliński – Member of the Management Board,
Wojciech Rybak – Member of the Management Board,
Antonio Ferreira Pinto Junior – Member of the Management Board,
Jarosław Hermann – Member of the Management Board.

Capital Group of Bank Millennium S.A.

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 2023, 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
EUROPA MILLENNIUM FINANCIAL SERVICES Sp. z o.o.*	activities of insurance agents and brokers	Warsaw	20	20	equity method valuation
Piast Expert Sp. z o.o. in liquidation	marketing services	Wrocław	100	100	full consolidation
LUBUSKIE FABRYKI MEBLI S.A. in liquidation**	furniture manufacturer	Świebodzin	50 (+1 share)	50 (+1 share)	equity method valuation

On March 29, 2023, 80% of shares in Millennium Financial Services sp. z o.o. (currently Europa Millennium Financial Services sp. z o.o ) were transferred from the Bank to Towarzystwo Ubezpieczeń na Życie Europa S.A., which acquired 72% of the Company's shares, and Towarzystwo Ubezpieczeń Europa S.A., which acquired 8% of the Company's shares, respectively, which is described in more details in note 5 "Result on derecognition of financial assets and liabilities not measured at value fair through profit or loss” in Chapter 14 “Notes to Consolidated Financial Data”.

** 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

7. Accounting Policy

7.1. STATEMENT OF COMPLIANCE WITH THE INTERNATIONAL FINANCIAL REPORTING STANDARDS

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 28 February 2024.

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. Due to costs generated as a result of the above mentioned Act, 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. 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 15 th the Management Board of the Bank took a decision to launch the Recovery Plan, notifying of the fact both PFSA and Bank Guarantee Fund. 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.In 2023 Bank continued to realize Capital Protection Plan (and Recovery Plan, which according to the rules of the banking law is updated yearly), which foresaw the increase of capital ratios comfortably above the minimum required levels through a combination of further improvement of operational profitability and capital optimization initiatives such as management of risk weighted assets (including securitizations). Since the launch of the Capital Protection Plan, the Bank/Group has managed to significantly improve its capital ratios, placing them clearly above the new regulatory requirements: as at December 31, 2023, the Tier 1 ratio was 555 bps (Bank) and 488 bps (Group) above the minimum requirement, and the total capital ratio (TCR) was 682 bps (Bank) and 585 bps (Group) above the minimum requirement.

16 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 2023

As part of the capital improvement initiatives, in 2023, the Group completed two synthetic securitization transactions: the first was completed in July and concerned a portfolio of leasing receivables, while the second one was completed in December and concerned a cash loan portfolio. As part of these transactions, the Bank/Group transferred a significant part of the credit risk of the securitized portfolios to investors. Assuming no extraordinary factors, the Bank/Group plans to maintain capital ratios above the minimum required levels with a safe surplus.

In terms of MRELtrea and MRELtem requirements, the Group presents a surplus compared to the minimum levels required as at December 31, 2023, and also meets the MRELtrea requirement after the inclusion of the Combined Buffer Requirement. Assuming no extraordinary factors, the Group plans to maintain both MREL ratios above the minimum required levels with a safe surplus. 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 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 position of Bank Millennium Group remained strong in 2023. LCR ratio reached the level of 327% at the of December 2023, well above the supervisory minimum of 100%. Loan-to-deposit ratio remained at secure level of 69% and the share of liquid debt securities (mainly bonds issued by the sovereigns, multilateral development banks and NBP bills) in the Group’s total assets remains significant at 32%. 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 capacity to meet capital solvency ratios and MREL requirements in subsequent reporting periods - the Bank's Management Board based on the analysis 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. In 2023, the Group did not change its accounting principles or the method of financial data presentation.

17 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 2023

7.2. STANDARDS AND INTERPRETATIONS APPLIED IN 2023 AND THOSE NOT BINDING AT THE BALANCE SHEET DATE

STANDARDS INITIALLY APPLIED IN CONSOLIDATED FINANCIAL STATEMENTS 2023

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 2023:

Standard Title
IFRS 17 New standard IFRS 17 “Insurance Contracts” including the June 2020 and December 2021 Amendments to IFRS 17
Amendments to IAS 1 Disclosure of Accounting Policies
Amendments to IAS 8 Definition of Accounting Estimates
Amendments to IAS 12 Deferred Tax related to Assets and Liabilities arising from a Single Transaction
Amendments to IAS 12 International Tax Reform — Pillar Two Model Rules*

* exception specified in amendments to IAS 12 (that an entity does not recognise and does not disclose information about deferred tax assets and liabilities related to the OECD pillar two income taxes) is applicable immediately upon issuance of the amendments and retrospectively in accordance with IAS 8. The remaining disclosure requirements are required for annual reporting periods beginning on or after 1 January 2023. The adoption of mentioned above amendments to the existing standards has not led to any material changes in the Group’s financial statements 2023.

INFORMATION REGARDING ISSUED STANDARDS AND AMENDMENTS TO THE EXISTING STANDARDS ISSUED BY IASB AND ADOPTED BY THE EU BUT NOT YET EFFECTIVE

Standards and amendments to the existing standards issued by IASB and adopted by the EU but not yet effective:

Standard Title	Effective date
Amendments to IFRS 16 Lease Liability in a Sale and Leaseback	1 January 2024
Amendments to IAS 1 Classification of Liabilities as Current or Non-Current and Non-current Liabilities with Covenants	1 January 2024

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.

18 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 2023

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:

Standard Title	EU adoption status
Amendments to IFRS 16 Lease Liability in a Sale and Leaseback (IASB effective date: 1 January 2024)	Not yet adopted by EU
Amendments to IAS 7 and IFRS 7 Supplier Finance Arrangements (IASB effective date: 1 January 2024)	Not yet adopted by EU
Amendments to IAS 21 Lack of Exchangeability (IASB effective date: 1 January 2025)	Not yet adopted by EU
IFRS 14 Regulatory Deferral Accounts (IASB effective date: 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 and IAS 28 Sale or Contribution of Assets between an Investor and its Associate or Joint Venture and further amendments (effective date deferred by IASB indefinitely but earlier application permitted)	Endorsement process postponed 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.

19 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 2023

7.3. ADOPTED ACCOUNTING PRINCIPLES

Basis of Financial Statements Preparation

Consolidated financial statements of the Group prepared for the financial year from 1 January 2023 to 31 December 2023 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.# Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31st December 2023

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

Basis of Consolidation

Merger method

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. 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

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

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.

Functional currency and presentation currency

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’). 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 and balances

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.

Application of estimates in connection with Accounting Policies

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 of loans and advances
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. Further details are presented in Chapter 8. “Financial Risk Management”.
Fair value of financial instruments
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:
Prices quoted on the active market for identical instruments for following financial instruments: Treasury fixed-coupon, zero-coupon debt securities and floating interest debt securities;
Techniques of measurement based on parameters coming from the market for following financial instruments: Treasury floating interest debt securities, Derivatives:
- FRA, IRS, CIRS,
- FX Swap, FX Forward,
- Embedded derivatives, Bills issued by the Central Bank;
Techniques of measurement with use of significant parameters not coming from the market: Debt securities of other issuers (e.g. municipalities), Shares of VISA Incorporation, Loans and advances mandatorily at fair value through profit or loss, Derivatives:
- FX Options acquired by the Group,
- Indexes options acquired/placed by the Group.

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.

23

Impairment of other non-current assets

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.

Provisions for legal risk connected with FX mortgage loans

The Bank estimated the impact of legal risk on the recoverability of the expected cash flows resulting from concluded contracts for the active portfolio of mortgage loans in CHF, adjusting, in accordance with point B5.4.6 of IFRS 9, the gross carrying amount of the portfolio by reducing the expected cash flows from mortgage loan contracts denominated or indexed to CHF, and recognized a provision in accordance with International Accounting Standard 37 Provisions, Contingent Liabilities and Contingent Assets (“IAS 37”) for fully repaid loans and in a situation where the gross carrying amount of the loan was lower than the value of the assessed risk. A detailed description of the adopted valuation methodology is presented in Chapter 13 "Legal risk related to foreign currency mortgage loans".

Adjustment due to Credit Holidays

The way the adjustment has been recognised is presented later in this Chapter.

Provisions for potential returns of costs associated with loans in case of early repayment

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.

Other Estimate Values

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.

Financial assets and liabilities

Classification

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:
1) Financial assets valued at amortised cost (herein from „AC” – Amortised Cost),
2) Financial assets valued at fair value through profit & loss (herein from „FVTPL),
3) Financial assets valued at fair value through other comprehensive income (herein from „FVTOCI”).

24

The classification of financial instruments into one of the above categories is performed based on:
1) The business model of managing financial assets,
The assessment of the business model is aimed at determining whether the financial asset is held:
* to collect contractual cash flows resulting from the contract,
* both in order to collect contractual cash flows arising from the contract and the sale of a financial asset or
* for other business purposes.

2) Test of contractual cash flow characteristics connected with financial assets (herein from „SPPI test”).
The purpose of the SPPI test (Solely Payment of Principal and Interest) is to assess the characteristics of contract cash flows in order to verify if:
* The contractual terms trigger, at specific dates, certain cash flows which constitute solely a payment of principal and interest on such principal,
* The principal constitutes the fair value of a loan at the moment of its recognition,
* The interest reflects the value of money over time and credit risk, liquidity risk, the Group’s margin and other administrative costs connected with the value of the principal outstanding at any given moment.

Financial instruments are classified at the moment of recognition or significant modification of the instrument. A change in the classification of financial assets is caused by a change in the business model. Reclassification is made prospectively, i.e. it does not affect fair value measurements, write- downs or accrued interests recorded to the date of reclassification.

Business Models of the Group

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.

Held To Collect Model (HTC)

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.

25 Both Held to Collect and for Sale Model (HTC&FS)

Model characteristics:

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).
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).

Other models

Model characteristics:

The business model does not meet the assumptions of the HTC and HTC&FS models.
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 2023

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.

Test of characteristics of contractual cash flows (SPPI test)

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.

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 2023

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.# Credit Holidays

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 recognized a one-off cost in July 2022 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.). As a result of the final settlement, in December 2023 the Bank recognized an additional adjustment (reduction) of interest income by the amount of PLN 9.2 million.

POCI assets

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.

Receivables and liabilities from lease contracts

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.

The 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. for garbage arbors, ramps, ATMs and devices such as coffee machines, water dispensers, audiomarketing and aromatamarketing devices,
• new contracts will be discounted according to the SWAP rate on the day of signing the contract / annex to the contract appropriate for the duration of the contract and applicable for the currency, increased by the margin determined and updated in relation to the risk premium for the financial liabilities incurred by the Group.

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.

Recognition of financial instruments in the balance sheet

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.

De-recognition of financial instruments from the balance sheet

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.

Hedge Accounting and Derivatives Valuation at Fair Value

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).

Recognition of Derivative Instruments Embedded in Liabilities

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.

31 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 2023

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.

Derivative Instruments Designated as Hedging Instruments – Hedge Accounting

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).

Hedge Accounting Criteria

The Group uses hedge accounting, based on IAS 39, 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

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.

32 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 2023

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. In case of a hedge of non-financial asset or a non-financial liability, the associated gains and losses recognised in other comprehensive income as an effective hedge, are transferred successively into the profit or loss account in the same period or periods during which the asset acquired or liability assumed affects the profit or loss account directly from equity or are transferred from equity to initial purchase price in the balance sheet and recognized successfully in the periods, in which non – financial asset or liability has impact on profit and loss account.

Fair Value Hedge

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.

Termination of Hedge Accounting

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 not qualifying as hedging instruments

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.

Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31st December 2023

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.

Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31st December 2023

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.

Impairment of financial assets

General assumptions of the model

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:

Stage 1 – non-impaired exposures, for which expected credit loss is estimated for the 12-month period,
Stage 2 – non-impaired exposures, for which a significant increase in risk has been identified and for which expected credit loss is estimated for the remaining life time of the financial asset,
Stage 3 – exposures with identified signs of impairment, for which expected credit loss is estimated for the remaining life time of the financial asset.

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.

Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31st December 2023

Identification of a significant increase in credit risk

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:

repayment delays of more than 30 days,
forborne exposures in non-default status,
using the support of the Borrower Support Fund,
occurrence of seizures on current accounts resulting from enforcement orders,
procedural rating, which is reflecting early delays in payments,
taking a risk-mitigating decision for corporate clients, triggered by the early warning system,
events related to an increase in credit risk, the so called “soft signs” of impairment, identified as part of an individual analysis involving individually significant customers.

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.

Incorporation of forward looking information on economic conditions (FLI)

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.

Unification of the default definition across the Group

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.# Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31st December 2023

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

Risk Management

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:
▪ DPD>90 days considering materiality thresholds for due amount: absolute PLN 400 for retail and PLN 2000 for corporates and relative threshold of 1% in relation to total exposure,
▪ Restructured loans (forborne),
▪ Loans in vindication process,
▪ Other triggers defined in EBA Guidelines,
▪ Qualitative triggers identified in the individual analysis.

Bank is using cross-default approach for all segments.

PD Model

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.

LGD Models

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. 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.

EaD Model

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.

Write-offs

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.

Offsetting of financial instruments

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.

Transactions with sell/buy-back clauses

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.

Property, plant and equipment and Intangible Fixed Assets

Own property, plant and equipment

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. 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 when incurred. 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.

Intangible Fixed Assets

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	Depreciation Rate
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.

Non-current assets held for sale

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.

Impairment of non-financial non-current assets

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.

39
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 2023

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

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.

Accruals and Deferred Income

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

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.

Employee Benefits

Short-term employee benefits

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.

40
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 2023

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.

Long-term employee benefits

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. 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 2023 has been set at 5.35%. 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 significant impact on the risk profile of the Group, as amended. In accordance with the policy, the Group's employees who have a significant impact on its risk profile receive variable remuneration, part of which is paid in the form of financial instruments. Until 2018, the financial instrument took the form of phantom shares. From 2019, the Group, by decision of the General Meeting of Shareholders of the Bank on August 27, 2019, introduced a 3-year incentive program to reward eligible persons previously identified as having a significant impact on the risk profile (Risk Taker). As part of it, the Own Shares purchased by the Bank were, in accordance with the applicable Risk Takers' remuneration policy, intended as a financial instrument for free acquisition in an appropriate number by designated Risk Takers during the Program Period. In bonus programs effective from January 1, 2020, financial instruments were awarded to Risk Takers I - Members of the Management Board of Bank Millennium SA. In 2023, the Personnel Committee of the Supervisory Board decided to convert own shares granted to Members of the Management Board in the 2021 program in the form of own shares into phantom shares. Under the 2022 program, phantom shares were granted as a financial instrument. 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.

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 2023

Group’s Equity

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

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. 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

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

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

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.

Financial guarantee

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.

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 2023

Interest income and other of similar nature

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. 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

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/ Fee and commission Costs

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.

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 2023

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 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. 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.

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

Dividend income is recognized in the profit and loss when the shareholders’ right to receive payment is established.

Result on derecognition of financial assets and liabilities not measured at fair value through profit or loss

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. In 2023, the Bank completed a bancassurance transaction, part of the result of which was recognized in “Result on derecognition of financial assets and liabilities not measured at fair value through profit or loss”, more information on this subject is presented in Chapter 14., note (5).

Result on financial assets and liabilities held for trading

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).

Result on non-trading financial assets mandatorily at fair value through profit or loss

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.

Result on hedge accounting

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.

Result on exchange differences

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.

Other Operating Income and Expenses

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 fees

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.

Banking tax

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 (consolidated text - Journal of Laws 2023, item 623), 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.

Other taxes

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). 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.

Income Tax

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.# 47 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 2023

8. Financial Risk Management

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.

8.1. RISK MANAGEMENT

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 distinct 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, compliance and litigation risks 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.

48 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 2023

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 Product Committee reviews proposals for the implementation and withdrawal of products and services from the bank's offering;
▪ The AML Committee is responsible for supervision of anti-money laundering and terrorism financing in the Bank and cooperation in 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. 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 Risk Department is responsible for risk management, including identifying, measuring, analysing, monitoring, and reporting on risk within the Group. The Risk Department also prepares risk management policies and procedures as well as provides information and proposes courses of action necessary for the Capital, Assets and Liabilities Committee, Risk Committee, and the Management Board to make decisions with respect to risk management;
Delineate key risk definitions
Delineate the models and definitions to classify customers, products, processes, and risk measures
Define Risk Strategy
Defining principles and risk targets according to risk appetite, risk capacity and business strategy
Define risk policy
Defining thresholds, levels, competences, limits, cut-offs according to Risk Strategy
Implement defined policy
Designing products with Business and implement them in tools and regulations, Decision processes
Monitor, Control, Reporting
Monitor the models performance and the portfolios behavior

49 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 2023

▪ The Rating Department is mainly responsible for risk rating assignment for Corporate clients (based on the evaluation of clients’ creditworthiness) as well as for rating monitoring and potential revision during the period of its validity.# Rating assignment process is independent from credit decision process;

▪ The Corporate Credit Underwriting Department, Mortgage Credit Underwriting Department and Consumer Finance Underwriting Department, are responsible within the Corporate Customer segment and Retail Customer segment, respectively, for the credit decision process, including analysing customers’ financial situation, preparing credit proposals for the decision-making levels, and making credit decisions within specified limits;

▪ The Retail Liabilities Monitoring and Collection Department and Retail Liabilities Restructuring and Recovery Department have responsibility for monitoring repayment of overdue debts by retail customers and their collection;

▪ The Corporate Recovery Department develops specific strategies with respect to each debtor from recovery portfolio, which aims to maximize timely collection of the outstanding debt and minimize the risk incurred by the Group. This approach is constantly revised to reflect updated information, and the best practices and experiences regarding collection of overdue debts;

▪ The Treasury Control and Analyses Office has responsibility for monitoring the use of part of the Group’s limits, including counterparty and stop-loss limits, the Group’s FX position, results of active trading and control of operations of the treasury segment;

▪ The Models Validation Office has responsibility for qualitative and quantitative models’ analysis and validation, independent from the function of models development; development of the models validation and monitoring tools; activities connected with issuing opinions on the adequacy of the models for the segment, for which they were developed; preparing reports for the Validation Committee needs;

▪ The purpose of the Sustainability Department is to supervise and coordinate the process of implementing the principles of sustainable development in the Bank and the Group.

▪ The Anti-fraud Sub-unit has responsibility for implementation and monitoring Bank policy execution in the scope of fraud risk management in cooperation with others Bank units. The Sub- unit constitutes a competence centre for anti-fraud process;

▪ The Compliance Department has the responsibility to ensure compliance with legal regulations, related regulatory standards, market principles and standards as well as internal organization regulations and codes of conduct, and in anti-money laundering process;

▪ The Legal Department has responsibility for handling the litigation cases of the Bank, with support of external legal offices and legal experts whenever necessary.

The Group has prepared a comprehensive guideline document for the risk management policy/strategy: “Risk Strategy for 2024-2026”. 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 profile – current risk profile in amount or type of risk the Group is currently exposed. The Group should also have a forward-looking view how their risk profile may change under both expected and stress economic scenarios in accordance with risk appetite,
Risk appetite – the maximum amount or type of risk the Group is prepared to accept/tolerate to achieve its financial and strategic objective. Three zones are defined in accordance with warning / action required level. 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:
* Solvency,
* Liquidity and funding,
* Earnings volatility and Business mix,
* Operational activity and reputation.

50 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 2023

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:
* Capital Management and Planning Framework
* Credit Principles and Guidelines
* Rules on Concentration Risk Management
* Principles and Rules of Liquidity Risk Management
* Principles and Guidelines on Market Risk Management on Financial Markets
* Principles and Guidelines for Market Risk Management in Banking Book
* Investment Policy
* Principles and Guidelines for Management of Operational Risk
* Policy, Rules, and Principles of the Model Risk Management
* Stress tests policy
* Sustainability Policy
* Regulations of Bank Millennium S.A. - Program of counteracting Anti-Money Laundering and financing terrorism.

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:
* Risk appetite status – green zone means a measure within risk appetite, yellow zone means an increased risk of risk appetite breach, red zone means risk appetite breach
* Escalation process of actions/decisions taken - bodies/organizational entities responsible for decisions and actions in a particular zone
* Risk appetite monitoring process.

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.

51 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 2023

8.2. CAPITAL MANAGEMENT

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.

Regulatory capital adequacy

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 2023 in the level of 1.47 p.p. (Bank) and 1.46 pp (Group) as for Total Capital Ratio (TCR), which corresponds to capital requirements over Tier 1 ratio of 1.10 pp (Bank and Group), and which corresponds to capital requirements over CET 1 ratio of 0.82 pp (Bank and 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 2022, to maintain own funds for the coverage of additional capital requirements at the level of 1.95 pp (Bank) and 1.94 pp (Group) as for TCR, which should have consisted of at least 1.47 pp (Bank) and 1.46 pp (Group) as for Tier 1 capital and which should have consisted of at least 1.10 pp (Bank) and 1.09 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%

52 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 2023

The below table presents these levels as of 31 December 2023. The Bank will inform on each change of required capital levels in accordance with regulations.

Capital ratio	31.12.2023	Bank Group	Minimum
CET1 ratio
Minimum			4.50%
P2R Buffer			0.82%
TSCR CET1 (Total SREP Capital Requirements)			5.32%
Capital Conservation Buffer			2.50%
OSII Buffer			0.25%
Systemic risk buffer			0.00%
Countercyclical capital buffer			0.00%
Combined buffer			2.75%
OCR CET1 (Overall Capital Requirements CET1)			8.07%
T1 ratio
Minimum			6.00%
P2R Buffer			1.10%
TSCR T1 (Total SREP Capital Requirements)			7.10%
Capital Conservation Buffer			2.50%
OSII Buffer			0.25%
Systemic risk buffer			0.00%
Countercyclical capital buffer			0.00%
Combined buffer			2.75%
OCR T1 (Overall Capital Requirements T1)			9.85%
TCR ratio
Minimum			8.00%
P2R Buffer			1.46%
TSCR TCR (Total SREP Capital Requirements)			9.46%
Capital Conservation Buffer			2.50%
OSII Buffer			0.25%
Systemic risk buffer			0.00%
Countercyclical capital buffer			0.00%
Combined buffer			2.75%
OCR TCR (Overall Capital Requirements TCR)			12.21%

In December 2023, 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 1.59 pp and 1.60 pp (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). 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.

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 2023

Own funds capital requirements

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 and 2023, 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.

Internal capital

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. 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.

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 2023

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 2023, 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 follows³:

	31.12.2023	31.12.2022	31.12.2021
Risk-weighted assets	41 354.5	48 497.3	49 442.8
Own Funds requirements, including:	3 308.4	3 879.8	3 955.4
- Credit risk and counterparty credit risk	2 841.2	3 380.6	3 479.8
- Market risk	15.4	18.0	32.3
- Operational risk	446.4	474.5	433.0
- Credit Valuation Adjustment CVA	5.4	6.7	10.3
Own Funds, including:	7 470.6	6 991.1	8 436.3
Common Equity Tier 1 Capital	6 089.7	5 469.9	6 906.3
Tier 2 Capital	1 380.9	1 521.2	1 530.0
Total Capital Ratio (TCR)	18.06%	14.42%	17.06%
Tier 1 Capital ratio (T1)	14.73%	11.28%	13.97%
Common Equity Tier 1 Capital ratio (CET1)	14.73%	11.28%	13.97%
Leverage ratio	4.66%	4.72%	6.46%

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 31.12.2023, 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: 17.83% - T1: 14.49% - CET1: 14.49% - Leverage ratio: 4.58%.

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 31st December 2023

Capital adequacy showed as surpluses/deficits on required or recommended levels is presented in the below table.

Capital adequacy	31.12.2023	31.12.2022	31.12.2021
Total Capital Ratio (TCR)	18.06%	14.42%	17.06%
Minimum required level (OCR)	12.21%	12.69%	13.54%
Surplus (+) / Deficit (-) of TCR capital adequacy (p.p.)	5.85	1.73	3.52
Minimum recommended level TCR (OCR+P2G)	13.81%	14.44%	13.54%
Surplus (+) / Deficit (-) on recommended level (p.p.)	4.25	-0.02	3.52
Tier 1 Capital ratio (T1)	14.73%	11.28%	13.97%
Minimum required level (OCR)	9.85%	10.21%	10.84%
Surplus (+) / Deficit (-) of T1 capital adequacy (p.p.)	4.88	1.07	3.13
Minimum recommended level T1 (OCR+P2G)	11.45%	11.96%	10.84%
Surplus (+) / Deficit (-) on recommended level (p.p.)	3.28	-0.68	3.13
Common Equity Tier 1 Capital ratio (CET1)	14.73%	11.28%	13.97%
Minimum required level (OCR)	8.07%	8.34%	8.81%
Minimum recommended level CET1 (OCR+P2G)	9.67%	10.09%	8.81%
Surplus (+) / Deficit (-) on recommended level (p.p.)	5.06	1.19	5.16
Leverage ratio	4.66%	4.72%	6.46%
Minimum required level	3.00%	3.00%	3.00%
Surplus (+) / Deficit (-) of Leverage ratio (p.p.)	1.66	1.72	3.46

As at 2023 end, capital adequacy, measured by Common Equity Tier 1 Capital ratio and Total Capital Ratio, increased in one year period by ca 3.45 pp and by ca 3.64 pp, respectively. Risk-weighted assets (RWA) decreased in 2023 by PLN 7,143 million (by 14.7%). The largest annual change concerned RWA for credit risk - a decrease of PLN 6,743 million (by 16%).# Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31st December 2023

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

One of the main factors of this decline were loan securitization transactions - the total impact of securitization on the RWA reduction at the end of 2023 is estimated at PLN 7,155 million. Changes in RWA for operational risk, market risk and CVA (due to fair value adjustment due to credit risk) were not significant – a total decrease of PLN 400 million. Own funds increased in 2023 by PLN 480 million (by 6.9%), mainly because of including the net profit for the first half of 2023 in own funds (an increase by PLN 358 million). The minimum capital ratios required by the Polish Financial Supervision Authority in terms of the combined buffer requirement (OCR) are achieved with a large surplus at the end of 2023. Also, in terms of the levels expected by the Polish Financial Supervision Authority, including the additional P2G level, they were achieved for all capital ratios with a clear surplus. The Bank has fully regained capital adequacy. Leverage ratio stood at the safe level of 4.66%, and it significantly exceeds the regulatory minimum (3%).

Securitization transactions

In December 2023, the Bank carried out a synthetic securitization transaction of a portfolio of unsecured cash loans with a total value of PLN 7.2 billion. This was the largest synthetic securitization transaction concluded by the Bank so far. As part of the transaction, the Bank transferred a significant part of the credit risk of the securitized portfolio to the investor. The securitized loan portfolio remains on the Bank's balance sheet. The risk of the securitized portfolio is transferred via a credit protection instrument in the form of credit risk-related bonds issued in December 2023 ("CLN Bonds") in the amount of PLN 489 million.

Earlier, in July 2023, the Bank's subsidiary, Millennium Leasing, conducted another synthetic securitization transaction. The reference portfolio of leasing transactions was worth PLN 4.0 billion. As part of the transaction, Millennium Leasing transferred a significant part of the credit risk of the securitized portfolio to the investor. The securitized loan portfolio remains on Millennium Leasing's balance sheet. The risk transfer of the securitized portfolio is carried out through a credit protection instrument in the form of credit risk bonds issued in July 2023 ("CLN Bonds") in the amount of PLN 280 million. UniCredit Bank AG acted as the organizer and placement agent of both transaction. Both transaction meet the requirements for transferring a significant part of the risk specified in the CRR Regulation (Regulation No. 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms).

Minimum requirement for own funds and eligible liabilities (MREL)

The Bank manages MREL requirements ratios in a manner analogous to capital adequacy ratios. The Bank received a joint decision from the resolution authorities in June 2023, obliging it to comply with MREL requirements. The decision sets updated minimum requirements that must be met by December 31, 2023 - at the levels of 18.89% (consolidated MRELtrea) and 5.91% (consolidated MRELtem). Additionally, in relation to the above decisions, the Bank should also meet the MREL requirement considering the Combined Buffer Requirement (currently 2.75%). Taking into account the above, in September 2023, the Bank successfully completed the subscription of senior non-preferred bonds with a total value of EUR 500 million under the Euro Medium Term Notes Issuance Program with a total nominal value of no more than EUR 3 billion (Current Reports No. 27/2023 and 30/2023).

MREL	31.12.2023	30.09.2023	30.06.2023	31.12.2022
MRELtrea ratio (consolidated)	23.77%	22.05%	14.93%	14.77%
Minimum required level MRELtrea	18.89%	14.42%	14.42%	15.60%
Surplus (+) / Deficit (-) of MRELtrea (p.p.)	4.88	7.63	0.51	-0.83
Minimum required level including Combined Buffer requirement (CBR)	21.64%	17.17%	17.17%	18.35%
Surplus (+) / Deficit (-) of MRELtrea+CBR (p.p.)	2.13	4.88	-2.24	-3.58
MRELtem (consolidated)	7.50%	7.72%	5.87%	6.04%
Minimum required level of MRELtem	5.91%	4.46%	4.46%	3.00%
Surplus (+) / Deficit (-) of MRELtem (p.p.)	1.59	3.26	1.41	3.04

In terms of the MRELtrea and MRELtem requirements, the Group presents a surplus compared to the minimum required levels as of December 31, 2023, and also meets the MRELtrea Requirement after the inclusion of the Combined Buffer Requirement. In addition, in December 2023, the Bank received a letter from the Bank Guarantee Fund informing that due to the update of the P2R buffer by the PFSA, the target updated minimum required MRELtrea be of the combined buffer requirement for the Bank would be 18.03% MRELtrea with a minimum subordination requirement, while the target MRELtem would be 5.91%, with a subordination requirement. The Fund will propose the above MRELtem levels as part of the joint decision process in the 2023/2024 planning cycle.

8.3. CREDIT RISK

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 2023, 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.

(3a) Measurement of Credit Risk

Loans and advances

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) Probability of Default (PD)

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.

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) Exposure at Default (EAD)

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) Loss Given Default (LGD)

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.# Unification of the default definition across the Group

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:

DPD>90 days considering materiality thresholds for due amount: absolute PLN 400 for retail and PLN 2000 for corporates and relative threshold of 1% in relation to total exposure,
Restructured loans (forborne),
Loans in vindication process,
Other triggers defined in EBA Guidelines,
Qualitative triggers identified in the individual analysis.

The Group is using cross-default approach for all segments.

Debt Securities

Debt securities from Polish State Treasury and from the Polish 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 financial reporting. Debt securities from other European Union member states and supra national institutions are monitored based on their respective ratings. 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.

59 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 2023

Derivatives

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-so-called margin call); and if the client does not supplement the deposit, the Group has the right to close the position.

Credit risk-based off-balance sheet liabilities

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.

(3b) Limits control and risk mitigation policy

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.

60 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 2023

Collateral

The Group accepts collateral to mitigate its credit risk exposure; the key 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. 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.

(3c) Policy with respect to impairment and creation of impairment charges

Organization of the Process

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.

61 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 2023

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.# H1

Corporate Recovery and Retail Liabilities Restructuring and Recovery Departments

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 significant 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.

Expected Credit Loss Measurement

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:

Stage 1 – non-impaired exposures, for which expected credit loss is estimated for the 12-month period,
Stage 2 – non-impaired exposures, for which a significant increase in risk has been identified (SICR) and for which expected credit loss is estimated for the remaining lifetime of the financial asset,
Stage 3 – credit impaired exposures, for which expected credit loss is estimated for the remaining lifetime of the financial asset,
POCI (purchased or originated credit impaired) – exposures which, upon their initial recognition in the balance sheet, are recognized as impaired, expected losses are estimated for the remaining life of the financial asset.

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Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31st December 2023

Identification of a Significant Increase in Credit Risk (SICR)

repayment delays of more than 30 days,
forborne exposures in non-default status,
using the support from Banking Support Fund,
occurrence of seizures on current accounts resulting from enforcement orders,
procedural rating, which is reflecting early delays in payments,
taking a risk-mitigating decision for corporate clients, triggered by the early warning system,
events related to an increase in credit risk, the so called “soft signs of impairment”, identified as part of an individual analysis involving individually significant customers.

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 of Impairment for Credit Receivables

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).

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Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31st December 2023

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.

3) Scenario approach in calculation of impairment allowances for individually analysed customers. 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 entire 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.

4) Estimating expected cash-flows. 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 (universally 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.# Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31st December 2023

Collective analysis of the credit portfolio

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.

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.

Forward-looking information incorporated in the ECL 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.

Economic variable assumptions

The most significant period-end assumptions used for the ECL estimate as of 31 December 2023 are set out below.

Macroeconomic variable	Scenario	2024	2025	2026
Gross Domestic Product	Base	102.9	103.5	103.3
	Optimistic	104.1	104.6	104.0
	Mild recession	101.5	102.3	103.2
Retail Sales	Base	105.0	106.1	105.2
	Optimistic	106.0	106.9	105.8
	Mild recession	103.0	104.3	104.8
Unemployment rate	Base	5.3	5.2	5.0
	Optimistic	4.4	4.5	4.4
	Mild recession	6.8	7.1	7.0

The weightings assigned to each economic scenario on 31 December 2023 were as follows:

Scenario	Base	Optimistic	Mild recession
Applied weighting	70%	10%	20%

ECL sensitivity to macroeconomic scenarios

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%.

Reversal of impairment

Impairment 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.

Sale of receivables

In 2023, the Bank sold credit exposures classified as impaired, in the total balance sheet amount of PLN 240 million.

(3d) Maximum exposure to credit risk

	31.12.2023	31.12.2022
Exposures exposed to credit risk connected with balance sheet assets	118,407,061	99,041,619
Deposits, loans and advances to banks and other monetary institutions	793,436	733,095
Loans and advances to customers:	73,643,060	76,565,163
Mandatorily at fair value through profit or loss:	19,349	97,982
Loans to private individuals:	19,280	97,916
Receivables on account of payment cards	8,753	74,208
Credit in current account	10,527	23,708
Loans to companies and public sector	69	66
Valued at amortized cost:	73,623,711	76,467,181
Loans to private individuals:	56,366,565	57,761,466
Receivables on account of payment cards	1,148	1,629,777
Cash loans and other loans to private individuals	15,872,651	14,835,646
Mortgage loans	39,345,752	41,948,202
Loans to companies	17,205,706	18,650,655
Loans to public entities	51,440	55,060
Financial derivatives and Adjustment from fair value hedge	572,462	475,000
Debt instruments held for trading	110,554	24,210
Debt instruments mandatorily at fair value through profit or loss	81,014	72,057
Debt instruments at fair value through other comprehensive income	22,067	407,164
Debt instruments valued at amortised cost	18,749	907,389
Repurchase agreements	1,163,242	4,863
Other financial assets	1,225,979	792,809
Credit risk connected with off-balance sheet items	13,385,540	12,830,457
Financial guarantees	1,676,248	2,047,856
Credit commitments	11,709,292	10,782,601

The table above presents the structure of the Group’s exposures to credit risk as of 31 December 2023 and 31 December 2022, not considering risk-mitigating instruments. As regards balance-sheet assets, the exposures presented above are based on net amounts presented in the balance sheet.

Loans and advances to customers mandatorily at fair value through profit or loss	31.12.2023	31.12.2022
Mandatorily at fair value through profit or loss *	19,345	97,982
Companies	65	66
Individuals	19,280	97,916
Public sector	0	0

The above data includes the fair value adjustment, in the amount of: (21,772) (38,999)# Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31 st December 2023

PLN’000, as of the end of 2023

	Stage 1 (12- month ECL)	Stage 2 (lifetime ECL)	Stage 3 (lifetime ECL)	POCI	Total
Balance exposures exposed to credit risk	110 089 678	6 039 402	3 353 498	116 789	119 599 367
Balance impairment	427 170	364 404	1 681 057	23 924	2 496 554
Loans and advances to banks (external rating Fitch: from BBB to AAA; Moody's: from B3 to Aaa; S&P: from B+ to AAA)	793 596	0	0	0	793 596
Loans and advances to private individuals (according to Master Scale):	50 994 828	4 736 343	2 645 443	93 690	58 470 304
▪ 1-3 Highest quality	32 156 310	195 568	0	2 941	32 354 819
▪ 4-6 Good quality	9 639 229	1 206 623	0	3 332	10 849 184
▪ 7-9 Medium quality	6 991 636	1 401 125	0	3 021	8 395 782
▪ 10-12 Low quality	2 103 155	1 328 358	0	1 154	3 432 667
▪ 13-14 Watched	1 428 604	659 000	0	741	2 088 345
▪ 15 Default	0	0	2 645 443	82 501	2 727 944
▪ Without rating *	103 071	10 000	0	0	113 071
Impairment	322 765	321 598	1 434 253	25 124	2 103 740
Loans and advances to companies (according to Master Scale):	7 313 399	636 401	362 465	23 099	8 335 364
▪ 1-3 Highest quality	218 968	1 732	0	0	220 700
▪ 4-6 Good quality	1 548 483	43 490	0	0	1 591 973
▪ 7-9 Medium quality	3 454 666	186 005	0	0	3 640 671
▪ 10-12 Low quality	1 141 101	330 044	0	0	1 471 145
▪ 13-14 Watched	0	37 072	0	0	37 072
▪ 15 Default	0	0	362 204	23 099	385 303
▪ Without rating *	950 181	38 059	261	0	988 501
Impairment	53 744	24 425	145 862	-1 200	222 831
Loans and advances to public entities (according to Master Scale):	51 748	1 000	0	0	51 749
▪ 1-3 Highest quality	0	0	0	0	0
▪ 4-6 Good quality	558	0	0	0	558
▪ 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 *	51 190	1 000	0	0	52 191
Impairment	120	0	0	0	120
Factoring (according to Master Scale):	2 402 318	83 896	38 319	0	2 524 533
▪ 1-3 Highest quality	28 385	1 360	0	0	29 745
▪ 4-6 Good quality	918 089	0	0	0	918 089
▪ 7-9 Medium quality	1 103 218	28 638	0	0	1 131 856
▪ 10-12 Low quality	302 794	53 877	0	0	356 671
▪ 13-14 Watched	0	0	0	0	0
▪ 15 Default	0	0	38 319	0	38 319
▪ Without rating *	49 831	21 000	0	0	49 831
Impairment	16 240	2 107	12 251	0	30 598
Leasing (according to Master Scale):	5 848 348	582 761	307 271	0	6 738 380
▪ 1-3 Highest quality	164 952	3 518	31	0	168 501
▪ 4-6 Good quality	494 918	8 228	0	0	503 147
▪ 7-9 Medium quality	1 229 146	54 963	26	0	1 284 135
▪ 10-12 Low quality	323 370	33 812	105	0	357 287
▪ 13-14 Watched	0	4 870	0	0	4 870
▪ 15 Default	0	0	297 032	0	297 032
▪ Without rating *	3 635 962	477 370	10 077	0	4 123 409
Impairment	34 301	16 274	88 691	0	139 266
Derivatives and adjustment from fair value hedge (according to Master Scale):	513 317	0	0	0	513 317
▪ 1-3 Highest quality	317 785	0	0	0	317 785
▪ 4-6 Good quality	58 323	0	0	0	58 323
▪ 7-9 Medium quality	23 339	0	0	0	23 339
▪ 10-12 Low quality	1 330	0	0	0	1 330
▪ 13-14 Watched	2	0	0	0	2
▪ 15 Default	0	0	0	0	0
▪ Without rating *	97 469	0	0	0	97 469
▪ fair value adjustment due to hedge accounting	0	0	0	0	0
▪ Valuation of future FX payments	0	0	0	0	0
▪ Hedging derivative	15 069	0	0	0	15 069
Trading debt securities (State Treasury** bonds)					110 554
Debt securities mandatorily at fair value through profit or loss					81 014
Investment debt securities (State Treasury , Central Bank , Local Government, EIB)					22 067 407
Receivables from securities bought with sell-back clause					1 163 242
Debt securities valued at amortised cost					18 749 907

* 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 2023 A- (S&P), A2 (Moody’s), A- (Fitch)

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	90 396 738	6 692 183	3 330 656	152 407	100 571 984
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	0	0	0	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	688 000	0	1 131	2 593 801
▪ 15 Default	0	0	2 706 207	120 546	2 826 753
▪ Without rating *	5 036	18 000	0	0	23 036
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	340 796
▪ Without rating *	1 119 717	24 095	261	0	1 144 073
Impairment	63 479	28 945	159 697	26 252	278 373
Loans and advances to public entities (according to Master Scale):	54 186	0	0	0	54 187
▪ 1-3 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 *	54 186	0	0	0	54 187
Impairment	115	0	0	0	115
Factoring (according to Master Scale):	2 822 857	147 251	16 467	0	2 986 575
▪ 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	23 000	0	0	34 027
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	584 727
▪ 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	131 030
Derivatives and adjustment from fair value hedge (according to Master Scale):	475 000	0	0	0	475 000
▪ 1-3 Highest quality	179 635	0	0	0	179 635
▪ 4-6 Good quality	63 791	0	0	0	63 791
▪ 7-9 Medium quality	18 068	0	0	0	18 068
▪ 10-12 Low quality	5 261	0	0	0	5 261
▪ 13-14 Watched	5	0	0	0	5
▪ 15 Default	0	0	0	0	0
▪ Without rating *	72 436	0	0	0	72 436
▪ fair value adjustment due to hedge accounting	0	0	0	0	0
▪ Valuation of future FX payments	0	0	0	0	0
▪ Hedging derivative	135 804	0	0	0	135 804
Trading debt securities (State Treasury ** bonds)					24 210
Debt securities mandatorily at fair value through profit or loss					72 057
Investment debt securities (State Treasury , Central Bank , Local Government, EIB)					16 481 210
Receivables from securities bought with sell-back clause					4 863
Debt securities valued at amortised cost					3 893 212

(3e) Loans

Impaired loans and advances

The gross amount of impaired loans and advances broken down into customer segments is as follows:

Gross exposure in ‘000 PLN 31.12.2023

By type of analysis	Loans and advances to customers	Loans and advances to banks	Total Companies	Mortgages	Other retail
Case by case analysis	370 293	119 988.04	2 881	0	493 162
Collective analysis	360 600	829 592.19	1 775	483 000	2 965 675
Total	730 893	949 580.23	4 656	483 000	3 458 837

Gross exposure in ‘000 PLN 31.12.2022

By type of analysis	Loans and advances to customers	Loans and advances to banks	Total Companies	Mortgages	Other retail
Case by case analysis	354 497	147 888	1 988	0	504 374
Collective analysis	284 899	982 991	1 693	885 000	2 961 775
Total	639 396	1 130 879	3 681	885 000	3 466 149

Loans and advances covered by case-by-case analysis

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.# Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31st December 2023

Case by Case loans and advances to customers - by currency

	31.12.2023	31.12.2022
Amount in ‘000 PLN
Share %
Coverage by impairment provisions
PLN	348 322	360 475
Share %	70.6%	71.5%
Coverage by impairment provisions	30.2%	34.6%
CHF	36 341	74 311
Share %	7.4%	14.7%
Coverage by impairment provisions	19.2%*	17.3%*
EUR	108 500	69 588
Share %	22.0%	13.8%
Coverage by impairment provisions	35.4%	44.2%
USD	0	0
Share %	0.0%	0.0%
SEK	0	0
Share %	0.0%	0.0%
Total (Case by Case impaired)	493 162	504 374
Share %	100.0%	100.0%
Coverage by impairment provisions	30.6%	33.4%

*) coverage excluding legal risk provisions, if included the coverage would be 53.6% (2023) and 35.8% (2022)

Case by Case loans and advances to customers - by coverage ratio

	31.12.2023	31.12.2022
Amount in ‘000 PLN
Share %
Up to 20%	230 051	217 856
Share %	46.6%	43.2%
20% - 40%	126 752	95 737
Share %	25.7%	19.0%
40% - 60%	47 733	59 213
Share %	9.7%	11.7%
60% - 80%	27 574	98 809
Share %	5.6%	19.6%
Above 80%	61 052	32 759
Share %	12.4%	6.5%
Total (Case by Case impaired)	493 162	504 374
Share %	100.0%	100.0%

At the end of 2023, the financial impact from the established collaterals securing the Group’s receivables with impairment recognized under individual analysis (Case by Case) amounted to PLN 230.0 million (at the end of 2022 respectively PLN 244.4 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.

Restructured loans and advances

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	31.12.2023	31.12.2022
Loans and advances to private individuals	1 373 791	1 489 221
Loans and advances to companies	192 951	209 193
Total	1 566 742	1 698 414

(3f) Collateral transferred to the Group

In 2023 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.

(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:

obtaining a decision on ineffectiveness of execution proceedings;
death of a debtor;
confirmation that there are no chances to satisfy claims from the estate in bankruptcy;
exhaustion of all opportunities to carry out execution due to the lack of assets of the main debtor and other obligors (e.g., collateral providers)

Gross exposure write-offs in ‘000 PLN	In 2023
Loans and advances to customers
Loans and advances to banks	482
Total	12 498
Companies	23 506
Mortgages	0
Other retail	36 486
Receivables written-off excluded from enforcement activity
Receivables written-off being subject to enforcement activity	29 313
Companies	62 114
Mortgages	155
Other retail	143 530
Invalidated Mortgage FX receivables	0
	23 907
Total written-off	29 795
	36 467
	137 660
	0
	203 923

Gross exposure write-offs in ‘000 PLN

	In 2022	Loans and advances to customers	Loans and advances to banks	Total Companies	Mortgages	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

(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.

31.12.2023

	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	793 596	0	0	0	0	0	0	0	793 596
Loans and advances to customers (Amortized cost)	346 576	5 199	698 5 347	480 2 732	293 25 426	39 994	178 18 476	125 3 998	489 76 120
Loans and advances to customers (FAIR VALUE)	0	8 358	0	0	19 280	0	0	0	19 349
Trading securities	28 86	0	4 110	554 0	0	3 110	675
Instruments valued at amortised cost	1 716 205	0	0	0	17 033	708 0	0	0	18 749 913
Instruments mandatorily at fair value through P&L	147 623	0	0	0	0	0	0	0	147 623
Derivatives and adjustment due to fair value hedge	541 560	19 001	7 830	2 032	0	0	2 040	572 463
Investment securities	473 361	4 996	0	290 21	622 512	0	0	36 22 101	195
Repurchase agreements	1 163 242	0	0	0	0	0	0	0	1 163 242
Total	5 182 191	5 223	789 5 355	313 2 734	677 38 792	200 39 994	178 18 495	405 4 000	568 119 778

Including: credit cards, cash loans, current accounts overdrafts

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 2023

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	5 729	350 2 824	157 33 187	42 596	972 17 169	580 4 387	79 887 990
Loans and advances to customers (FAIR VALUE)	0	6 450	0	0	97 916	6 97 982	0	0	6 97 982
Trading securities	27 69	8 8	24 210	0	0	1 24 323
Instruments valued at amortised cost	398 828	0	0	0	3 494 390	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

Loans and advances to customers by economy sectors and segment

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 (52.5%) and cash loans (21.1%). 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 23.2% of the total portfolio.

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 2023

Sector name	2023 Balance Exposure (PLN million)	Share (%)	2022 Balance Exposure (PLN million)	Share (%)
Credits for individual persons	58 511.4	76.8%	59 903.4	75.8%
Mortgage	39 994.2	52.5%	42 597.0	53.9%
Cash loan	16 037.3	21.1%	14 893.9	18.8%
Credit cards and other	2 479.8	3.3%	2 412.5	3.1%
Credit for companies*	17 650.0	23.2%	19 121.5	24.2%
Wholesale and retail trade; repair	5 347.5	7.0%	5 729.4	7.3%
Manufacturing	4 132.0	5.4%	4 696.0	5.9%
Construction	1 067.7	1.4%	1 198.6	1.5%
Transportation and storage	2 732.4	3.6%	2 824.2	3.6%
Public administration and defence	25.4	0.0%	33.2	0.0%
Information and communication	890.0	1.2%	1 086.4	1.4%
Other Services	900.3	1.2%	1 144.8	1.4%
Financial and insurance activities	346.6	0.5%	252.4	0.3%
Real estate activities	857.0	1.1%	883.0	1.1%
Professional, scientific, and technical services	444.5	0.6%	363.2	0.5%
Mining and quarrying	74.2	0.1%	82.4	0.1%
Water supply, sewage, and waste	131.4	0.2%	159.7	0.2%
Electricity, gas, water	51.6	0.1%	102.8	0.1%
Accommodation and food service activities	227.8	0.3%	217.1	0.3%
Education	84.2	0.1%	69.8	0.1%
Agriculture, forestry, and fishing	95.3	0.1%	107.1	0.1%
Human health and social work activities	194.6	0.3%	131.5	0.2%
Culture, recreation, and entertainment	47.5	0.1%	39.9	0.1%
Total (gross)	76 161.4	100.0%	79 025.0	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 2023 equals 5.6% comparing with 6.1% at the end of 2022. Concentration ratio in 2023 for the 10 largest customers decreased: from 4.7% at the end of the previous year to 4.1%.

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 2023

8.4. MARKET RISK AND INTEREST RATE RISK

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.

Market risk

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 2023 the non-linear and 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 V/CRR II, 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.

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 2023

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 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 2023

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 in million PLN. 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 2023 reflected the assumptions and risk appetite defined under Risk Strategy 2023-2025. The current limits in place have been valid since 1 October 2023 and remain conservative - level for Global Bank no more than 537.7m PLN and for Trading Book no more than 19.4m PLN. In 2023, the VaR limits were not breached for Global Bank and also for Trading and Banking Book. 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 in large majority 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. Within the current market environment, the Group continued to act very prudently. In 2023 the VaR indicators for the Group remained on average at the level of PLN 317.2 million (58% of the limit) and PLN 270.0 million (50% of the limit) as of the end of December 2023. 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.

79 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 2023

The market risk in terms of VaR for the Group (‘000 PLN):

VaR measures for market risk (‘000 PLN)

VaR (2023)	31.12.2022	Average	Maximum	Minimum	31.12.2023
Total risk	372,712	317,222	422,101	190,970	269,971
Generic risk	359,279	288,142	395,934	172,162	199,442
Interest Rate Risk	359,270	288,120	395,935	172,158	199,439
FX Risk	229,156	6,704	19,229
Equity Risk	0	3,180	0	13
Diversification Effect	0.1%	0.0%
Specific risk	13,432	29,080	70,818	13,432	70,529

The corresponding exposures as of 2022 respectively amounted to (‘000 PLN):

VaR measures for market risk (‘000 PLN)

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
Equity Risk	0	0	0	0	0
Diversification Effect	0.0%	0.1%
Specific risk	1,445	5,035	13,465	1,375	13,432

The market risk exposure divided into Trading Book and Banking Book together with risk type division is presented in the table below (‘000 PLN):

Banking Book:

VaR measures for market risk (‘000 PLN)

VaR (2023)	31.12.2022	Average	Maximum	Minimum	31.12.2023
Total risk	372,708	314,227	412,345	189,577	269,052
Generic risk	359,277	285,148	386,154	170,770	198,527
Interest Rate Risk	359,277	285,148	386,154	170,770	198,527
FX Risk	0	0	0	0	0
Equity Risk	0	0	0	0	0
Diversification Effect	0.0%	0.0%
Specific risk	13,430	29,079	70,813	13,430	70,525

80 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 2023

VaR measures for market risk (‘000 PLN)

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
Equity Risk	0	0	0	0	0
Diversification Effect	0.0%	0.0%
Specific risk	1,443	5,033	13,463	1,373	13,430

Trading Book:

VaR measures for market risk (‘000 PLN)

VaR (2023)	31.12.2022	Average	Maximum	Minimum	31.12.2023
Total risk	1,336	4,116	12,309	393	1,078
Generic risk	1,334	4,115	12,309	389	1,075
Interest Rate Risk	1,310	4,064	12,146	390	1,071
FX Risk	240	111	4,375	19	24
Equity Risk	0	3,180	0	13
Diversification Effect	16.2%	3.1%
Specific risk	2	1,180	0	3

VaR measures for market risk (‘000 PLN)

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
Equity Risk	0	0	0	0	0
Diversification Effect	7.9%	16.2%
Specific risk	2	2,180	2	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 2023, as a rule FX position generated in the Banking Book was fully transferred to the Trading Book where it was managed daily. During 2023 the FX open position remained on average at the level of PLN 12.1 million with maximum of PLN 50.6 million. In 2023, the FX Total open position (Intraday as well as Overnight) remained below 2% of Own Funds and well below the maximum limits in place.

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 2023

Evolution of the total FX open position (Overnight) in Trading Portfolio (PLN thousand):

Period	Average	Period Minimum	Period Maximum	The Last Day of Period
2023	12,149	3,320	50,622	13,344
2022	10,549	2,126	42,300	6,202

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. Stop loss limits were not reached. In the back-testing calculation for VaR model in Trading Book eight 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 *
2023-12-31	1,075	502	8
2022-12-31	1,334	617	0

The excess is said to happen whenever the difference between the absolute change in portfolio value and VaR measure is positive.

In 2023, all excesses in the process of VaR model back testing were caused by unanticipated market movements caused mainly by changes on Swap Curve, PLN Government Yield Curve and Money Market. 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.

Interest rate risk in Banking Book (IRRBB)

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.# 8. RISK MANAGEMENT (Continued)

8.4. INTEREST RATE RISK IN BANKING BOOK (IRRBB)

Regarding the interest rate risk in Banking Book, the following principles are in place:

The market risk that results from the commercial banking activity is hedged or transferred on the monthly basis to areas that actively manage market risk and that are measured in terms of risk and profit and loss.
The Bank primarily uses natural hedging between loans and deposits as well as fixed rate bonds and derivatives to manage interest rate risk with the main purpose of protecting the net interest income.

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. 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:

the impact on the economic value of equity (EVE) resulting from 200 bps upward/downward yield curve movements, including scenarios defined by the supervisor (standard, supervisory test assuming sudden parallel +/-200 basis points shift of the yield curve as well as supervisory outlier test (SOT) with set of six interest rate risk stress scenarios).
the impact on net interest income over a time horizon of next 12 months resulting from supervisory outlier test (SOT) shocks including parallel up and parallel down scenarios.

and monthly:

the impact on the economic value of equity (EVE) resulting from 100 bps upward/downward yield curve movements,
the interest rate sensitivity in terms of BPVx100, that is the change of the portfolio’s value for the parallel movement in the yield curve by 1 basis point multiplied by 100,
the impact on net interest income over a time horizon of next 12 months resulting from one-off interest rate shock of 100 basis points.

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:

Due date for balances and interest flows arising from non-maturing deposits are defined based on historical data regarding customer behaviour, considering the stability of the volumes and with assumption of a maximum maturity of 5 years for Polish Zlotys and 2 years for other currencies.
The tendency to faster repayment of receivables than contractually scheduled is taken under consideration by calculating a prepayment rate in respect to all relevant Banks’ loan portfolios based on historical data. The scope of repayment analysis includes mortgage and personal loans indexed both to fixed and variable rate.
The equity, fixed assets, and other assets that are assumed to have repricing period of 1 or 3 years. However, to understand the impact of the chosen maturity profile the IRRBB measurement is carried out without inclusion of the equity capital to isolate the effects on both EVE and earnings perspectives.

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 2023 indicate that from a economic value of equity perspective, the Group is most exposed to the scenario of interest rates increase (which is caused by significant growth of fixed rate assets portfolio in 2023). The supervisory outlier test results of December 2023 (last available data) 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.

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):

	31.12.2023	31.12.2022
BPVx100
PLN	-291 188	164 145
CHF	-8 200	-6 573
EUR	3 046	28 615
USD	23 121	19 695
Other	3 588	3 751
TOTAL	-269 634	209 632
Equity, fixed and other assets	112 975	28 570
TOTAL	-159 659	238 203

Sensitivity to changes of interest rates

	30.12.2023	31.12.2022
Standard, supervisory test (parallel yield curve +/-200 bp % Own Funds)	-7.94%	-6.05%
Supervisory outlier test (the most severe scenario, % CET1)	-11.36%	-9.33%

The results of sensitivity of NII for the next 12 months after 31 December 2023 and for position in Polish Zloty in Banking Book are carried out under the following assumptions:

static balance sheet structure as of that reference date (no change during the following 12 months),
reference level of net interest income if all assets and liabilities with variable interest rate already reflect market interest rates levels as of 31 December 2023 (for example, the NBP Reference rate at the end of 2023 was set at 5.75%),
application of a parallel move of 100 bps in the PLN yield curve up and down is an additional shock to all market interest rates levels as of 31 December 2023 and is set at the repricing date of the assets and liabilities that happens during the 12 following months.

In a scenario of parallel decrease of Polish interest rates by 100 bps, the results are negative and equal to PLN -67 million or 1.3% of the Group’s NII reference level. In a scenario of parallel increase of Polish interest rates by 100 bps, the results are positive and equal to PLN 46 million or 0.9% 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 impact is currently significantly below limit (10% of a reference NII level from previous 12 months).

Sensitivity of NII for PLN to changes of interest rates

	31.12.2023	31.12.2022
Parallel yield curve increase by 100bp	0.9%	+4.1%
Parallel yield curve decrease by 100bp	1.3%	-4.1%

Similar sensitivity results for all significant currencies (PLN, CHF, EUR, USD) under a 100 bp shock (for each currency) are presented in the table below.

Sensitivity of NII for all significant currencies to changes of interest rates

	31.12.2023	31.12.2022
Parallel yield curve increase by 100bp	2.1%	5.2%
Parallel yield curve decrease by 100bp	-2.6%	-5.5%

8.5. LIQUIDITY RISK

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 2023, the Group continued to be characterized by solid liquidity position. All the supervisory and internal liquidity indicators remained significantly above minimum limits in place. The steps taken as part of standard and binding risk management procedures have proved sufficient for managing liquidity in the current market environment.

In 2023, in consequences of the increase of the deposits from Customers at the faster pace than loans, there was further improvement of the Group’s Loan-to-Deposit ratio to 69% at the end of December 2023 (comparing to level of 78% as of end of December 2022). 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, European Union, and multilateral development banks. It is additionally supplemented by the cash and exposures to the National Bank of Poland. At the end of 2023, the share of above mentioned liquid debt securities (including NBP Bills) in total debt securities portfolio amounted to 99.9% and allowed to reach the level of approx. PLN 40.9 billion (33% of total assets), whereas at the end of December 2022 was at the level of approx. PLN 20.4 billion (18% 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.# Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31st December 2023

At the end of 2023, total Clients’ deposits of the Group reached the level of PLN 107.2 billion (PLN 98.0 billion at the end of December 2022). The deposit base constituted mainly funds of individuals Clients, of which the share in total Client’s deposits equalled to approx. 71.4% at the end of December 2023 (70.2% at the end of December 2022). 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 2023 amounted respectively to 2.3% and 5.4% (in December 2022 it was respectively 4.0% and 7.3%). The level of deposit concentration is regularly monitored and did not have any negative impact on the stability of the deposit base in 2023. 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 2023, the source of medium-term funding included subordinated debt, own EUR bonds issue and securitization of loan and leasing portfolios. The total Credit Linked Notes issued by the Group amounts to PLN 1011.5 million at the end of 2023 year (PLN 242.5 million at the end of 2022). During 2023, the Bank issued Credit Link Notes amounted to PLN 489 million and Millennium Leasing issued PLN 280 million, both in the framework of synthetic securitisation transactions.

The Group has no medium-term loans from financial institutions at the end of 2023 (at the end of December 2022 it was PLN 108.5 million). The Group manages FX liquidity using FX-denominated deposits, own issue of EUR bonds 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 most 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. There is no relationship between level of the Bank’s ratings and parameters of collateral in any of the signed ISDA Schedules and Credit Support Annexes (both international and domestic). The potential downgrade of any of the ratings will not have impact on method of calculation and collateral exchange.

It should be noted that the need of currency swaps has been decreasing at a relevant pace due to the reduction in the FX mortgage loan portfolio. 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.

Liquidity risk evaluation measures

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.

Additionally, the liquid asset portfolio is calculated on the daily basis. 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 improved substantially during 2023 and reached the level of 327% at the end of December 2023 (223% as of the end of December 2022). The increase was mainly connected with significant increase of deposits from retail 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 monthly. In 2023, the NSFR was above the supervisory minimum of 100% (supervisory minimum valid since June 2021). NSFR reached the level of 180% at the end of December 2023 (156% as of the end of December 2022).

Current Liquidity indicators

	PLN million	31.12.2023	31.12.2022
Immediate liquidity ratio (%)*		34%	28%
Quarterly liquidity ratio (%)*		37%	28%
Central Bank Collateral / Total Deposits (%)**		25%	25%
Liquid assets Portfolio (m PLN)***		41 529	24 349
LCR (%)	Indicator	327%	223%

- Immediate and Quarterly Liquidity Indicator: Ratio between value of the liquidity buffer available for discount with the Central Bank (NBP) minus the net outflows projected for the next 3 working days for Immediate Liquidity Indicator and for the next 3 months for Quarterly Liquidity Indicator in all convertible currencies and the total deposits. The liquidity buffer is determined as the difference between the sum of the portfolio of unencumbered central bank (NBP) eligible assets after haircuts, mobilized or not to the respective monetary policy pool, and by cash and deposits held in the NBP in the part available for withdrawal, and the gross funding with NBP and accrued interest.

** - Central Bank Collateral / Total Deposits: Ratio between the value after haircuts of the eligible collateral for NBP, plus the cash and deposits in the Central Bank (NBP) deducted of the minimum reserve requirements and the total customers’ deposits.

*** - Liquid Assets Portfolio: The sum of cash, nostro balance (reduced by the required obligatory reserve), unencumbered liquid securities portfolio, NBP-Bills and short-term, due from banks (up to 1 month).

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 2023, liquidity gaps were maintained positive. The results of cumulative, behaviour liquidity gaps (normal conditions) are presented in tables below.

2023-12-31 Adjusted Liquidity Gap (PLN mln)

	Up to 6M	Up to 1Y	Up to 2Y	Up to 5Y
Counterbalancing capacity	40 671	40 671	40 671	40 671
Outflows	11 999	1 726	2 761	9 174
Outflows Cumulated	11 999	13 725	16 487	25 661
Inflows	13 194	4 282	7 999	13 299
Inflows Cumulated	13 194	17 476	25 475	38 775
Liquidity Gap	41 866	2 556	5 238	4 125
Liquidity Gap Cumulated	41 866	44 422	49 660	53 785

2022-12-31 Adjusted Liquidity Gap (PLN mln)

	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

The Group structural liquidity risk management tool covers sensitivity analysis and stress scenarios (idiosyncratic, systemic and combination of both).# Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31st December 2023

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

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.

The assumptions for both internal structural liquidity analysis and stress tests are annually revised. The last revision was carried out in December 2023. The 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. In December 2023 cumulative liquidity gap was positive and significantly better than in December 2022, mainly due to increase on deposits from retail 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 2023, 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 significantly 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 2023 the Liquidity Contingency Plan was tested and revised to guarantee that it is operationally robust. The Plan also confirmed warning thresholds for early warning indicators, considering scenarios and stress test results. The revised Plan was approved by the Supervisory Board in November 2023.

8.6. OPERATIONAL RISK

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 2023 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. 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:
* Gathering operational risk events,
* Self-assessment of operational risk in individual processes,
* Analysis and monitoring of risk indicators.

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.

8.7. RISK OF NEGATIVE IMPACT ON THE NATURAL ENVIRONMENT

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, implementing environmentally-friendly actions, and observing the “Environmental Policy of the Bank Millennium Group,” “ESG – Management and control principles,” 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), considering 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.

9. Operational Segments

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:

Retail Customer Segment

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.

Corporate Customer Segment

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.

Treasury, ALM (assets and liabilities management) and Other

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.

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 31 st December 2023

For each segment the pre-tax profit is determined, comprising:

Net interest income calculated on the basis of interest on external working assets and liabilities of the segment as well as allocated assets and liabilities generating internal interest income or cost. Internal income and costs are calculated based on market interest rates with internal valuation model applied;
Net commission income;
Other income from financial transactions and FX gains, such as: dividend income, result on investment and trading activity, FX gains/losses and result on other financial instruments;
Other operating income and expenses;
Costs on account of impairment of financial and non-financial assets;
Segment share in operating costs, including personnel and administration costs;
Segment share in depreciation costs;
Operating profit calculated as a measure of segment profit differs from the IFRS financial result before tax due to: share in net profits of associates and charge of bank tax. These items and the income tax burden were presented only at the Group level.

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, conversions to PLN loans, realization of court verdicts and write-offs. Following P&L categories are presented as part of financial performance of new segment:

Net Interest Income: Margin on FX loans (interest results less Fund Transfer Pricing).
FX results related to portfolio (mainly costs of amicable negotiations).
Cost of provisions for FX mortgage portfolio legal risk partially offset by valuation of SG Indemnity in other operating income line regarding ex-EB portfolio.
Cost of Credit Risk related to current FX portfolio.
Result on modification resulting from settlements with borrowers.
Other Costs that are directly related to FX mortgages including, but not limited to:
- Legal chancellery costs (administrative costs),
- Court costs related to FX mortgage cases (other operating costs).

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 31 st December 2023

Income statement 1.01.2023 – 31.12.2023

	In ‘000 PLN
	Retail Banking	Corporate Banking	Treasury. ALM & Other	Segments excluding FX mortgage	FX mortgage	TOTAL
Net interest income	4 684 190	776 653	(226 859)	5 233 984	19 505	5 253 489
Net fee and commission income	590 751	175 569	4 457	770 777	11 608	782 385
Dividends, other income from financial operations and foreign exchange profit	132 701	85 157	571 697	789 555	(273 590)	515 965
Result on non-trading financial assets mandatorily at fair value through profit or loss	(958)	0	13 317	12 359	0	12 359
Other operating income and cost	(20 764)	7 426	72 738	59 400	97 968	157 368
Operating income	5 385 920	1 044 805	435 350	6 866 075	(144 509)	6 721 566
Staff costs	(829 290)	(179 012)	(26 336)	(1 034 638)	0	(1 034 638)
Administrative costs, including:	(461 201)	(91 388)	(90 194)	(642 783)	(104 018)	(746 801)
- BFG costs	0	0	(60 039)	(60 039)	0	(60 039)
Depreciation and amortization	(181 810)	(25 749)	(3 958)	(211 517)	0	(211 517)
Operating expenses	(1 472 301)	(296 149)	(120 488)	(1 888 938)	(104 018)	(1 992 956)
Impairment losses on assets	(280 495)	(14 989)	(84)	(295 568)	33 009	(262 559)
Results on modification	(32 881)	(3 076)	0	(35 957)	(52 227)	(88 184)
Provisions for legal risk connected with FX mortgage loans	0	0	0	0	(3 065 380)	(3 065 380)
Total operating result	3 600 243	730 591	314 778	4 645 612	(3 333 125)	1 312 487
Share in net profit of associated companies	0
Banking tax	0
Profit / (loss) before income tax						1 312 487
Income taxes						(736 770)
Profit / (loss) after taxes						575 717

Balance sheet items as at 31.12.2023

	In ‘000 PLN
	Retail Banking	Corporate Banking	Treasury. ALM & Other	Segments excluding FX mortgage	FX mortgage	TOTAL
Loans and advances to customers	57 154 036	13 499 640	0	70 653 676	2 989 384	73 643 060
Liabilities to customers	81 043 632	26 202 795	0	107 246 428	0	107 246 428

93 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 2023

Income statement 1.01.2022 – 31.12.2022

	In ‘000 PLN
	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	836 073	14 085	808 305
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)
Profit / (loss) before income tax						(730 755)
Income taxes						(283 811)
Profit / (loss) after taxes						(1 014 566)

Balance sheet items as at 31.12.2022

	In ‘000 PLN
	Retail Banking	Corporate Banking	Treasury. ALM & Other
# Liabilities to customers	73 068 148	24 970 368	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 2023

10. Transactions with Related Entities

All and any transactions between entities of the Group in 2023 resulted from the current operations. 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.

10.1. DESCRIPTION OF THE TRANSACTIONS WITH THE PARENT GROUP

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
	31.12.2023	31.12.2022
ASSETS
Loans and advances to banks – accounts and deposits	2 097	2 575
Financial assets held for trading	0	32
Hedging derivatives	0	0
Other assets	0	0
LIABILITIES
Loans and deposits from banks	719	434
Debt securities	0	0
Financial liabilities held for trading	0	0
Hedging derivatives	0	0
Other liabilities	215	0

	With parent company	With other entities from parent group
	2023	2022
Income from:
Interest	2 676	1 008
Commissions	120	149
Financial assets and liabilities held for trading	28	30
Expense from:
Interest	2	75
Commissions	0	0
Financial assets and liabilities held for trading	0	0
Other net operating	0	0
Administrative expenses	431	0

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

	With parent company	With other entities from parent group
	31.12.2023	31.12.2022
Conditional commitments	25 513	141 185
granted	0	120 593
obtained	25 513	20 593
Derivatives (par value)	0	13 705

10.2. TRANSACTIONS WITH THE MANAGING AND SUPERVISING PERSONS

Information on total exposure towards the managing and supervising persons as at 31.12.2023 (in ‘000 PLN):

	The managing persons	The supervising persons
Total debt limit including an unutilized limit	258.0	193.0

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 31.12.2023 (in ‘000 PLN):

Entity	Loans granted	Guarantees provided	Open credit lines	Relationship
Client 1	-	-	-	Personal with a supervising person

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

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

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

10.3. INFORMATION ON COMPENSATIONS AND BENEFITS OF THE PERSONS SUPERVISING AND MANAGING THE BANK

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
2023	18 801.7	2 112.2	20 914.0
2022	9 937.5	1 962.4	11 899.9

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 2023 and 2022, 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):

Year	Short term salaries and benefits
2023	2 125.5
2022	2 051.1

In 2023 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 2022 - PLN 140.0 thousand).

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

11. Fair Value

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:

Level 1 - valuation based on the data fully observable (active market quotations);
Level 2 - valuation models using the information not constituting the data from level 1, but observable, either directly or indirectly;
Level 3 - valuation models using unobservable data (not derived from an active market).

Valuation techniques used to determine fair value are applied consistently. Change in valuation techniques resulting in a transfer between these methods occurs when:

transfer from Level 1 to 2 takes place when for the financial instruments measured according to Level 1 quoted market prices from an active market are not available at the balance sheet day (previously used to be);
transfer from Level 2 to 3 takes place when for the financial instruments measured according to the Level 2 value of parameters not derived from the market has become significant at the balance sheet day (and previously used to be irrelevant).

Financial instruments not recognized at fair value in the balance sheet

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:

Receivables and liabilities with respect to banks

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.

Loans and advances granted to customers valued at amortised cost

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.

Debt securities valued at amortised cost

The fair value of debt securities at amortised cost (mainly Polish Treasury and Sovereign bonds in the Held to Collect portfolio) was calculated on market quotations basis.

Liabilities to customers

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. Subordinated liabilities, debt securities issued and medium-term loans 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 and in the case of fixed-rate coupon bonds, by discounting cash flows at the current level of market rates and the original credit risk margin. 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.

99 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 2023

The table below presents results of the above-described analyses as at 31.12.2023 (data in PLN thousand):

	Note	Balance sheet value	Fair value
ASSETS MEASURED AT AMORTISED COST
Debt securities	23	18,749,907	19,104,300
Deposits, loans and advances to banks and other monetary institutions	23	793,436	793,433
Loans and advances to customers*	22	73,623,711	72,628,747
LIABILITIES MEASURED AT AMORTISED COST
Liabilities to banks and other monetary institutions	32	563,512	563,512
Liabilities to customers	33	107,246,427	107,283,572
Debt securities issued	35	3,317,849	3,662,089
Subordinated debt	36	1,565,045	1,563,479

The negative impact of fair value valuation of the loans portfolio is largely attributable to growth of loan spreads. The methodology, which the Bank uses for valuation of the loans portfolio, assumes that current spreads best reflect existing market conditions and economic situation. A corresponding rule is widely applied for valuation of debt securities, which are not quoted on active markets. In result, paradoxically whenever the spreads of new loans increase, fair value of the “old” loans portfolio falls. Models used for determination of the fair value of financial instruments presented in the above table and not recognized at fair value in Group’s balance sheet, use techniques based on parameters not derived from the market. Therefore, they are considered as the third level of valuation.

The table below presents data 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

100 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 2023

Financial instruments recognized at fair value in the balance sheet

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 31.12.2023

	Note	Quoted market prices (Level 1)	Valuation techniques - observable inputs (Level 2)	Valuation techniques - significant unobservable inputs (Level 3)
ASSETS
Financial assets held for trading	19
Valuation of derivatives		81,491,416	75,860
Equity instruments		121
Debt securities		110,554
Non-trading financial assets mandatorily at fair value through profit or loss	20
Equity instruments		0	66,609
Debt securities		81,014
Loans and advances	22			19,349
Financial assets at fair value through other comprehensive income	21
Equity instruments		247	28,545
Debt securities		12,270,330	9,797,077
Derivatives – Hedge accounting	24		74,213
LIABILITIES
Financial liabilities held for trading	31
Valuation of derivatives		151,487,425	346,761
Short positions		2,720
Derivatives – Hedge accounting	24		193,664

Data in ‘000 PLN, as at 31.12.2022

	Note	Quoted market prices (Level 1)	Valuation techniques - observable inputs (Level 2)	Valuation techniques - significant unobservable inputs (Level 3)
ASSETS
Financial assets held for trading	19
Valuation of derivatives		87,760,251	436,784
Equity instruments		113
Debt securities		24,210
Non-trading financial assets mandatorily at fair value through profit or loss	20
Equity instruments		62,370	66,609
Debt securities		72,057
Loans and advances	22			97,982
Financial assets at fair value through other comprehensive income	21
Equity instruments		247	24,149
Debt securities		13,952,900	2,528,310
Derivatives – Hedge accounting	24		135,804
LIABILITIES
Financial liabilities held for trading	31
Valuation of derivatives		125,856,254	422,696
Short positions		4,784
Derivatives – Hedge accounting	24		554,544

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 31 st December 2023

Using the criterion of valuation techniques as at 31.12.2023

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 31.12.2022	247,414	(250,400)	90,758	72,057	97,982
Settlement/sell/purchase	94,879	(96,807)	0	0	(87,670)
Change of valuation recognized in equity	4,422	0	0	0	0
Interest income and other of similar nature	0	0	9,995	0	0
Results on financial assets and liabilities held for trading	63,319	(66,993)	0	0	0
Result on non-trading financial assets mandatorily at fair value through profit or loss	0	0	0	8,957	(958)
Result on exchange differences	0	0	(26)	0	0
Balance on 31.12.2023	405,612	(414,200)	95,154	81,014	19,349

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.

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 31 st December 2023

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.# Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31st December 2023

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

12. Contingent liabilities and assets

12.1. LAWSUITS

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 brought up by the Group

Value of the court litigations, as at 31.12.2023, in which entities of the Group were a plaintiff, totalled PLN 3,568.0 million. The increase in the value of claims in cases brought by the Bank Millennium (the Bank) compared to previous periods results from the fact that lawsuits were filed against clients from the portfolio of foreign currency mortgage loans.

Proceedings on infringement of collective consumer interests

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 mln.

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.

Proceedings on competition-restricting practice

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.

Proceedings in the matter of recognition of provisions of the agreement format as abusive

On 22 September 2020 The Bank received 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, client had no precise knowledge on where to look for said rates since 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 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. On January 30, 2023 the Bank filled a cassation appeal to the Supreme Court.

Court cases against the Group

As at 31.12.2023, 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 court proceedings brought by PKN Orlen SA, in which the subject of the dispute is the amount of the interchange fee and 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 this case, the Bank was sued jointly with another bank and card organizations. 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 shareholder of PCZ S.A. in bankruptcy (PHM, then the European Foundation for Polish-Belgian Cooperation - EFWP-B, currently called The European Foundation for Polish-Kenyan Cooperation) 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.

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)	(306 117)
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

	Amount ‘000 PLN
	31.12.2023	31.12.2022
Off-balance conditional commitments granted and received	16 101 465	15 162 308
Commitments granted:	13 385 540	12 830 458
loan commitments	11 709 292	10 782 601
guarantee	1 676 248	2 047 856
Commitments received:	2 715 925	2 331 850
financial	0	6 884
guarantee	2 715 925	2 324 966

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	Amount ‘000 PLN
	31.12. 2023	31.12. 2022
financial sector	144 734	111 466
non-financial sector (companies)	1 524 214	1 932 152
public sector	7 300	4 238
Total	1 676 248	2 047 856

Guarantees and sureties granted to Clients

Commitments granted:

	Amount ‘000 PLN
	31.12.

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

Commitments and Guarantees

	31.12.2023	31.12.2022
Active guarantees and sureties	1 073 531	1 133 590
Lines for guarantees and sureties	606 335	920 437
Total	1 679 866	2 054 027
Provisions created	(3 617)	(6 171)
Commitments granted – guarantee after provisions	1 676 248	2 047 856

Structure of Liabilities Under Active Guarantees and Sureties

By Currency (PLN’000)

	31.12.2023	31.12.2022
PLN	716 748	755 150
Other currencies	356 783	378 440
Total:	1 073 531	1 133 590

By Type of Commitment

	31.12.2023	31.12.2022
	Number	Amount
Guarantee	3 290	1 057 228
Surety	0	0
Re-guarantee	65	16 303
Total:	3 355	1 073 531

By Object of the Commitment

	31.12.2023	31.12.2022
	Number	Amount
good performance of contract	2 755	572 549
punctual payment for goods or services	249	295 486
bid bond	78	14 290
rent payment	155	80 787
advance return	42	42 591
customs	29	19 481
other	31	40 758
payment of bank loan	16	7 589
Total:	3 355	1 073 531

13. Legal risk related to foreign currency mortgage loans

13.1. COURT CLAIMS AND CURRENT PROVISIONS ON LEGAL RISK

On December 31, 2023, the Bank had 20,914 loan agreements and additionally 1,780 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 (64% loans agreements before the courts of first instance and 36% loans agreements before the courts of second instance) with the total value of claims filed by the plaintiffs amounting to PLN 4,130.6 million and CHF 281.5 million (Bank Millennium portfolio: PLN 3,780.2 million and CHF 272.6 million and former Euro Bank portfolio: PLN 350.4 million and CHF 8.8 million).

Out of 20,914 BM loan agreements in ongoing individual cases 240 are also part of class action. From the total number of individual litigations against the Bank approximately 2,260 or 11% were submitted by borrowers that had already naturally or early fully repaid the loan or were converted to polish zloty at the moment of submission and had not a settlement agreement and approximately another 730 cases correspond to loans that were fully repaid since then (as court proceedings are lengthy).

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. Out of 3,273 loan agreements in class action 240 are also part of ongoing individual cases, 858 concluded settlements and 7 received final verdicts (invalidation of loan agreement). On 24 May 2022 the court issued a judgment on the merits, dismissing the claim in full. On 13 December 2022 the claimant filed an appeal against the judgment of 24 May 2022. On 20 November 2023 the claimant requested granting interim measures to secure the claims against the Bank. In a decision of 27 December 2023, the request for granting interim measures was dismissed.

The pushy advertising campaign observed in the public domain affects the number of court disputes. Until the end of 2019, 1,985 individual claims were filed against the Bank (in addition, 236 against former Euro Bank), in 2020 the number increased by 3,005 (265), in 2021 the number increased by 6,159 (423), in 2022 the number increased by 5,755 (408), while in 2023 the number increased by 6,871 (647).

Based on ZBP (the Polish Banking Association) data gathered from all banks having FX mortgage loans, vast majority of disputes were finally resolved against the banks. As far as the Bank Millennium (incl. former Euro Bank portfolio) is concerned, from 2015 until the end of 2023, 3,341 cases were finally resolved (3,263 in claims submitted by clients against the Bank and 78 in claims submitted by the Bank against clients i.e. debt collection cases) out of which 925 were settlements, 56 were remissions, 64 rulings were favourable for the Bank and 2,296 were unfavourable 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 declaring invalidation of loan agreements. Simultaneously the Bank undertakes proper legal actions in order to secure repayment of initially disbursed capital of the loan.

The outstanding gross balance of the loan agreements under individual court cases and class action against the Bank (incl. former Euro Bank portfolio) on 31 December 2023 was PLN 6,264 million (of which the outstanding amount of the loan agreements under the class action proceeding was PLN 763 million). If all Bank Millennium’s originated loan agreements currently under individual and class action court proceedings would be declared invalid without any compensation for the use of capital, the pre-tax cost could reach PLN 6,955 million excluding potential amounts connected with interest. Overall losses would be higher or lower depending on the final court jurisprudence in this regard.

In the 12 months of 2023, the Bank created PLN 2,828.1 million of provisions for Bank Millennium originated portfolio and PLN 237.3 million for former Euro Bank originated portfolio. The balance sheet value of provisions for the Bank Millennium portfolio at the end of December 2023 was at the level of PLN 7,268.8 million, and PLN 603.0 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:

(i) the number of ongoing cases (including class action agreements) and potential future lawsuits that will arise within the specified (three-year) time horizon. As regards the number of future court cases, the Bank monitors customer behaviours, follows market trends and expert comments, which resulted in the adjustment of previous assumptions. As a result, in the methodology of calculating provisions for legal risk in the case of active loans (loans with an outstanding balance as at the date of filing the lawsuit), the Bank increased the estimated percentage of customers covered by methodology in this group of clients to 83% of the total number of currently active loans compared to 77% at the end of IIIQ2023. Regarding loans already fully repaid or converted to polish zloty, the Bank attributes a much lower probability of becoming the subject of a court case based on statistical analysis. In particular:
a) the Bank assesses the risk connected with the settlements reached with the clients in the past as negligible
b) from the group of loans that have been repaid (naturally or early, or converted into polish zloty loan) and were not subject of a settlement agreement, the Bank assumes that circa 16% sued or will decide to sue the Bank in the future;

(ii) the currently estimated amount of the Bank's potential loss in the event of a specific court judgment;

(iii) the probability of obtaining a specific court judgment calculated on the basis of statistics of judgments in cases where Bank is a party and legal opinions obtained;

(iv) the Bank does not include in the methodology of calculating an element related to to the potential claim for remuneration for the client in connection with the repayments made by him or her;

(v) estimates involved with amicable settlements with clients, concluded in court or out of court:
a. the Bank assumes 12% probability of success of reaching a settlement within negotiations made with clients during court proceedings;
b. negotiations in court or out of court are conducted on a case-by-case basis and can be stopped at any time by the Bank;
c. due to significant negotiation efforts already made in the past, the probability of success in these negotiations in the future is decreasing, and at the same time most customers have already been contacted by or contacted the Bank regarding the possible conversion of loans into PLN, so at the moment the Bank adopts a conservative approach when taking into account the potential impact of this factor.# Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31st December 2023

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, the number of active FX mortgage loans originated by Bank Millennium decreased by 21,428: 1,363 in 2020; 8,450 in 2021; 7,943 in 2022 and 3,672 in 2023. As of the end of 2023, the Bank had 32,425 active FX mortgage loans. Cost incurred in conjunctions with these negotiations totalled PLN 1,340.1 million: PLN 44.5 million in 2020; PLN 364.6 million in 2021; PLN 515.2 million in 2022 and PLN 415.8 million in 2023 is presented mainly in ‘Result on exchange differences’ and also in ‘Result on modification’ in the profit and loss statement (the values of costs charged to particular items of the Income Statement due to settlements are presented in Note 14 in Chapter 14 of the Notes to the Financial Statements).

Legal risk from former Euro Bank portfolio is fully covered by Indemnity Agreement with Société Générale S.A. 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 the loss
Change in the assumed number of court cases	In addition to above assumed numbers, 1,000 new customers file a lawsuit against the Bank	PLN 167 mln
Change of estimated losses for each variant of judgment	Change of losses for each judgment variant by 1 p.p.	PLN 75 mln
Change in probability of success in negotiations with court client	Change of probability by 1 p.p.	PLN 18 mln

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 banks’ clients a voluntary possibility of concluding arrangements based on which a client would settle a CHF Mortgage Loan as if it was a PLN loan bearing interest at an appropriate WIBOR rate increased by the margin historically employed for such loans. The decision to generally implement this solution could imply the need of creating upfront provisions for the losses resulting from the conversion of CHF Mortgage Loans. The Bank in practice has been using elements of the proposal of above system solution on many individual negotiations with FX mortgage borrowers, including in the course of court proceedings. Due to the circumstances stemming from the CJEU which excludes demanding by the Bank amounts exceeding the return of disbursed capital, the possibility of successful implementation of a general offer of KNF solution is low. Finally it should also be mentioned, that the Bank, as at 31 December 2023, 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 1.47 p.p. (1.46 p.p. at the Group level), part of which is allocated to operational/legal risk. Taking into consideration the recent negative evolution in the court verdicts regarding FX mortgage loans, 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.

The Court of Justice of the European Union and the Polish Supreme Court rulings relevant to risk assessment

Jurisprudence of the Court of Justice of the European Union

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 29 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., the 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; (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.

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 2023On 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; (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.

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 31 st December 2023

On March 16, 2023, the Court of Justice of the European Union issued a judgment in a case registered under case number C-6/22, following preliminary questions submitted by the District Court for Warsaw-Wola in a case against the former Getin Noble Bank S.A. In the judgment, the CJEU ruled that: (i) in the event that a contract concluded between a consumer and a seller or supplier is declared invalid because one of its terms is unfair, it is for the Member States, by means of their national law, to make provision for the effects of that invalidation, in compliance with the protection granted to the consumer by that directive, in particular, by ensuring the restoration of the legal and factual situation that he or she would have been in if that unfair term had not existed; (ii) a national court is not allowed: a. to examine of its own motion, without any prerogative conferred on it by national law in that regard, the financial situation of a consumer who has sought the invalidation of the contract between him or her and a seller or supplier on account of the presence of an unfair term without which the contract cannot legally continue to exist, even if that invalidation is liable to expose the consumer to particularly unfavourable consequences and b. to refuse to declare that invalidation where the consumer has expressly sought it, after being objectively and exhaustively informed of the legal consequences and the particularly unfavourable financial consequences which it may have for him or her; (iii) a national court is not allowed, after it has found that a term in a contract concluded between a seller or supplier and a consumer is unfair, to fill gaps resulting from the removal of the unfair term contained therein by the application of a provision of national law which cannot be characterised as a supplementary provision. However, it is for the national court, taking account of its domestic law as a whole, to take all the measures necessary to protect the consumer from the particularly unfavourable consequences which annulment of the contract might entail for him or her.

On June 8, 2023, the Court of Justice of the European Union issued a judgment in a case registered under case number C-570/21, following preliminary questions submitted by the District Court in Warsaw in a case against the former Getin Noble Bank S.A. In the judgment, the CJEU ruled that: (i) provisions of Council Directive 93/13 must be interpreted as meaning that the concept of ‘consumer’, within the meaning of that provision, covers a person who has concluded a loan contract intended for a purpose in part within and in part outside his or her trade, business or profession, together with a joint-borrower who did not act within his or her trade, business or profession, where the trade, business or professional purpose is so limited as not to be predominant in the overall context of that contract; (ii) provisions of Directive 93/13 must be interpreted as meaning that in order to determine whether a person falls within the concept of ‘consumer’, within the meaning of that provision, and, specifically, whether the trade, business or professional purpose of a loan contract concluded by that person is so limited as not to be predominant in the overall context of that contract, the referring court is required to take into consideration all the relevant circumstances surrounding that contract, both quantitative and qualitative, such as, in particular, the distribution of the borrowed capital between, on the one hand, a trade, business or profession and, on the other hand, a non-professional activity and, where there are several borrowers, the fact that only one of them is pursuing a professional purpose or that the lender made the grant of credit intended for consumer purposes conditional on a partial allocation of the amount borrowed to the repayment of debts connected with a trade, business or profession.

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 31 st December 2023

On June 15, 2023, the Court of Justice of the European Union issued a judgment in a case registered under case number C-287/22, following preliminary questions submitted by the District Court in Warsaw in a case against the former Getin Noble Bank S.A. In the judgment, the CJEU ruled that provisions of the Directive 93/13 must be interpreted as precluding national case-law according to which a national court may dismiss an application for the grant of interim measures lodged by a consumer seeking the suspension, pending a final decision on the invalidity of the loan agreement concluded by that consumer on the ground that that loan agreement contains unfair terms, of the payment of the monthly instalments due under that loan agreement, where the grant of those interim measures is necessary to ensure the full effectiveness of that decision.

On June 15, 2023, the CJEU issued a judgment in a case registered under case number C-520/21, following preliminary questions submitted by the District Court in Warsaw in a case against Bank Millennium, in which indicated that Directive 93/13 does not expressly regulate the consequences of invalidity of a contract concluded between a credit institution and a consumer after the removal of unfair terms contained therein. The CJEU stated that: (i) the provisions of the Directive 93/13 do not preclude a judicial interpretation of national law, according to which the consumer has the right to demand compensation from the credit institution beyond the reimbursement of monthly instalments and costs paid for the performance of this contract and the payment of statutory default interest from the date of the request for payment provided that the objectives of Directive 93/13 and the principle of proportionality are respected; (ii) the provisions of Directive 93/13 preclude the judicial interpretation of national law, according to which a credit institution has the right to demand compensation from the consumer that goes beyond the return of the capital paid for the performance of this contract and beyond the payment of statutory default interest from the date of the request for payment.

On September 21, 2023, the CJEU issued a judgement in a case registered under case number C- 139/22, following preliminary questions submitted by the District Court in Warsaw in a case against mBank.The CJEU stated that: (i) provisions of the Directive 93/13 must be interpreted as not precluding a contractual term which has not been individually negotiated from being regarded as unfair by the national authorities concerned merely by virtue of the fact that its content is equivalent to that of a standard contract term entered in the national register of standard business terms held to be unlawful; (ii) the contractual term which, because of the circumstances for the performance of certain obligations of the consumer concerned provided for in that term, must be regarded as unfair, may not cease to be considered unfair on account of another term of that contract which provides for the possibility for that consumer to perform those obligations under different circumstances; (iii) a seller or supplier is obliged to inform the consumer concerned of the essential characteristics of the contract concluded with that seller or supplier and the risks associated with that contract, even though that consumer is its employee and has relevant knowledge in the field of the contract. On December 7, 2023, the CJEU issued the judgement in the case C-140/22 in connection with the preliminary questions formulated by the District Court in Warsaw in the case against of mBank S.A. The Court stated that provisions of the Directive 93/13 must be interpreted as meaning that, in the context of the cancellation, in its entirety, of a mortgage loan agreement concluded with a consumer by a banking institution on the ground that that agreement contains an unfair term without which it cannot continue in existence: 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 31 st December 2023 (i) they preclude the judicial interpretation of national law according to which the exercise of the rights which that consumer draws from that directive is conditional on the lodging, by that consumer, before a court, of a declaration by which he or she states, first, not to consent to that unfair term remaining effective, secondly, to be aware of the fact that the nullity of that term entails the cancellation of that agreement and, moreover, of the consequences of that cancellation and, thirdly, to consent to the cancellation of that agreement; (ii) they preclude the compensation sought by the consumer concerned in respect of the restitution of the sums paid by him or her in the performance of the agreement at issue being reduced by the equivalent of the interest which that banking institution would have received if that agreement had remained in force. The Court of Justice of European Union by an order of December 11, 2023, closed the case registered under case number C-756/22 initiated by the District Court in Warsaw in the case brought by Bank Millennium and ruled that the provisions of Directive 93/13 must be interpreted as meaning that, in the context of declaring a mortgage loan agreement concluded with a consumer by a banking institution to be invalid in its entirety on the grounds that, that the contract contains unfair terms without which it cannot be continued, they preclude a judicial interpretation of the law of a Member State according to which that institution is entitled to recover from that consumer amounts other than the capital paid in performance of that contract and statutory interest for delay from the time of the demand for payment. On December 14, 2023, the CJEU issued the judgement in the case C-28/22 in connection with the preliminary questions referred by the District Court in Warsaw in the case of ex-Getin Noble Bank S.A. The Court stated that: (i) provisions of Directive 93/13 read in the light of the principle of effectiveness must be interpreted as precluding a judicial interpretation of national law according to which, following the cancellation of a mortgage loan agreement concluded with a consumer by a seller or supplier, on account of unfair terms contained in that agreement, the limitation period for the claims of that seller or supplier stemming from the nullity of that agreement starts to run only as from the date on which the agreement becomes definitively unenforceable, whereas the limitation period for the claims of that consumer stemming from the nullity of that agreement begins to run as from the day on which the consumer became aware, or should reasonably have become aware, of the unfair nature of the term entailing such nullity; (ii) provisions of the Directive 93/13 must be interpreted as not precluding a judicial interpretation of national law according to which it is not for a seller or supplier who has concluded a mortgage loan agreement with a consumer to ascertain whether the consumer is aware of the consequences of the removal of the unfair terms contained in that agreement or of that agreement being no longer capable of continuing in existence if those terms were removed; (iii) provisions of the Directive 93/13, read in the light of the principle of effectiveness, must be interpreted as precluding a judicial interpretation of national law according to which, where a mortgage loan agreement concluded with a consumer by a seller or supplier is no longer capable of continuing in existence after the unfair terms in that agreement have been removed, that seller or supplier may rely on a right of retention which allows him or her to make the restitution of the sums which it has received from that consumer conditional on that consumer making an offer to repay the sums which he or she has himself or herself received from that seller or supplier or to provide a security for the repayment of those sums, where the exercise by that seller or supplier of that right of retention entails the loss, for that consumer, of the right to obtain default interest as from the expiry of the time limit set for performance by the seller or supplier concerned, following receipt by that seller or supplier of a request to repay the sums he or she had been paid in performance of that agreement. 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 2023 The Court of Justice of the European Union by an order of January 15, 2024, closed the case registered under case number C-488/23 following a question from the District Court of Warsaw, indicating that the right of a financial institution to demand the valorization of the disbursed capital after a loan agreement has been declared invalid was excluded in the judgment of June 15, 2023 issued in case C-520/21. On January 18, 2024, the CJEU issued the judgement in the case C-531/22 in connection with the preliminary questions referred by the District Court in Warsaw in the case of ex-Getin Noble Bank S.A. The Court stated that: (i) the provisions of Directive 93/13 preclude national legislation which provides that a national court may not examine of its own motion the potentially unfair nature of the terms contained in a contract and draw the consequences thereof, where it is supervising enforcement proceedings carried out on the basis of a final decision to issue an order for payment which is subject to res judicata: a. if the regulations do not provide for such an examination at the stage of issuing a payment order, or b. if such examination is provided for only at the stage of opposition to the order for payment in question, provided that there is a significant risk that the consumer in question will not file the required opposition either because the time limit specified for this purpose is very short, or because of the cost of the proceedings before the court in relation to the amount of the disputed debt, or because the national legislation does not provide for the obligation to provide that consumer with all the information necessary for him to establish the extent of his rights; (ii) the provisions of Directive 93/13 do not preclude national case law according to which the entry of a term of a contract in a national register of prohibited clauses has the effect of declaring that term unfair in any proceedings involving a consumer, including against a trader other than the one against whom proceedings for the entry of the said term in that national register were pending, and where that term does not have the same wording as the term entered in the said register, but has the same meaning and has the same effect with respect to the consumer in question. Jurisprudence of the Polish Supreme Court On 7 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: (i) an abusive contractual clause (art. 385(1) § 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; (ii) 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. 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 31st December 2023 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. By 31 December 2023, the Bank filed about 8.1 thousand lawsuits against the borrowers. Due to the CJEU jurisprudence interpreting the causes and effects of invalidity of foreign currency mortgage loan agreements, the area of interpretation of regulations by Polish courts in this respect appears to be limited. However, further jurisprudential practice of the Polish courts will play an important role in fulfilling the content of the CJEU's guidance and, moreover, this practice will be of significant importance as regards issues that, given the scope of the CJEU's competence, are subject to national jurisprudence.

13.2. EVENTS THAT MAY IMPACT FX MORTGAGE LEGAL RISK AND RELATED PROVISION

The issues related to the statute of limitations for the Bank's and the customer's restitutionary claims following the invalidation of a loan agreement remain an area that may be subject to further analysis in the jurisprudence of Polish courts. Legal interpretations in this subject may be particularly significant for the Bank's claims as to the commencement of the running of the limitation period of its claims, by eliminating or confirming the risk of its claims being deemed time-barred in a given case. In addition, the extent of the consumer's and the bank's entitlement to statutory interest for delay on restitution claims may be an important legal issue. The issue that remains unresolved in the jurisprudence of common courts and the Supreme Court is also the issue of the admissibility of borrowers’ claims in the event of the invalidity of a loan agreement for payment of amounts beyond the reimbursement of monthly installments and costs paid for the execution of that agreement and beyond the payment of statutory default interest from the date of the demand for payment, which, in light of the CJEU's judgment of June 15, 2023, in case C-520/21, remains not excluded. Due to the uncertainty of the direction of case law in this area, as of the date of publication of the report, it is difficult to reliably assess the impact of potential rulings. 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 31st December 2023

14. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Amounts presented in the notes to the consolidated financial statements are presented in PLN thousands.

1. INTEREST INCOME AND OTHER OF SIMILAR NATURE

	01.01.2023 - 31.12.2023	01.01.2022 - 31.12.2022
Interest income from Financial assets at fair value through other comprehensive income	879 957	468 575
Debt securities	879 957	468 575
Interest income from Financial assets at amortised cost	7 446 886	4 560 119
Balances with the Central Bank	222 277	166 369
Loans and advances to customers, including	6 562 351	4 165 807
- the impact of the adjustment to the gross carrying amount of loans due to credit holidays	(9 228)	(1 324 208)
Debt securities	559 642	85 566
Deposits, loans and advances to banks	34 788	26 152
Transactions with repurchase agreements	67 828	26 095
Hedging derivatives	0	90 130
Income of similar nature to interest, including:	108 930	(28 797)
Loans and advances to customers mandatorily at fair value through profit or loss	9 995	28 604
Financial assets held for trading - derivatives	94 069	(61 492)
Financial assets held for trading - debt securities	4 866	4 091
Total	8 435 773	4 999 897

Interest income for the year 2023 contains interest accrued on impaired loans in the amount of PLN 229,818 thous. (for corresponding data in the year 2022, the amount of such interest stood at PLN 174,546 thous.). Interest income from instruments measured at amortized cost for 2023 includes an adjustment for credit holidays (reducing income) in the amount of PLN 9.2 million (for corresponding data in the year 2022, the amount of adjustment stood at PLN 1,324.2 million), more information on this subject is presented in Chapter 7.3 Adopted accounting principles.

2. INTEREST EXPENSE

	01.01.2023 - 31.12.2023	01.01.2022 - 31.12.2022
Interest expense from Financial liabilities measured at amortised cost	(3 182 284)	(1 662 605)
Liabilities to banks and other monetary institutions	(15 003)	(34 590)
Liabilities to customers	(2 823 259)	(1 455 102)
Transactions with repurchase agreement	(35 178)	(52 871)
Debt securities issued	(140 285)	(1 778)
Subordinated debt	(141 686)	(110 181)
Liabilities due to leasing agreements	(9 863)	(8 083)
Hedging derivatives	(17 010)	0
Other	0	(1)
Total	(3 182 284)	(1 662 606)

In the "Hedging derivatives" line, the Bank presents interest income on account of derivative instruments designated and being effective hedging instruments in terms of securing cash flows and fair value. A detailed description of the hedging relationships used by the Bank is included in note (24). 120 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 2023

3. FEE AND COMMISSION INCOME AND EXPENSE

3a. Fee and commission income

	01.01.2023 - 31.12.2023	01.01.2022 - 31.12.2022
Resulting from accounts service	117 331	137 709
Resulting from money transfers, cash payments and withdrawals and other payment transactions	94 976	91 497
Resulting from loans granted	208 248	203 640
Resulting from guarantees and sureties granted	14 393	14 325
Resulting from payment and credit cards	293 979	268 501
Resulting from sale of insurance products	164 769	174 667
Resulting from distribution of investment funds units and other savings products	25 669	34 930
Resulting from brokerage and custody service	11 373	15 384
Resulting from investment funds managed by the Group	64 235	55 264
Other	42 162	31 829
Total	1 037 135	1 027 745

3b. Fee and commission expense

	01.01.2023 - 31.12.2023	01.01.2022 - 31.12.2022
Resulting from accounts service	(44 337)	(22 873)
Resulting from money transfers, cash payments and withdrawals and other payment transactions	(4 930)	(5 480)
Resulting from loans granted	(23 287)	(26 031)
Resulting from payment and credit cards	(111 310)	(105 252)
Resulting from brokerage and custody service	(2 233)	(3 008)
Resulting from investment funds managed by the Group	(11 114)	(10 916)
Resulting from insurance activity	(9 518)	(11 546)
Other	(48 021)	(34 334)
Total	(254 750)	(219 440)

4. DIVIDEND INCOME

	01.01.2023 - 31.12.2023	01.01.2022 - 31.12.2022
Financial assets held for trading	0	17
Non-trading financial assets mandatorily at fair value through profit or loss	630	1 322
Financial assets at fair value through other comprehensive income	2 801	2 457
Total	3 431	3 796

121 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 2023

5. RESULT ON DERECOGNITION OF FINANCIAL ASSETS AND LIABILITIES NOT MEASURED AT FAIR VALUE THROUGH PROFIT OR LOSS

	01.01.2023 - 31.12.2023	01.01.2022 - 31.12.2022
Result on bancassurance transaction	553 912	0
Operations on debt instruments	(12 415)	(166)
Costs of financial operations	(2 575)	(2 440)
Total	538 922	(2 606)

Bancassurance transaction

On February 13, the Bank's Management Board announced that after obtaining the necessary corporate approvals, on February 13, 2023, the Bank concluded an agreement ("Agreement") for the sale of 80% of shares in Millennium Financial Services sp. z o. o. ("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 "Buyer"). The Bank also concluded agreements with the Buyers and the Company regarding the exclusive insurance distribution model, including cooperation agreements, distribution agreements and agency agreements. Strategic insurance cooperation provides for long-term (10 years) cooperation in the field of bancassurance in relation to specific insurance related to credit products offered by the Bank. The essence of the transaction provided for in the Agreement was the direct purchase of Shares by the Buyers from the Bank for a defined initial price, which may be subject to a price adjustment mechanism after the closing of the Transaction.On March 29, 2023, 80% of the shares in the company were transferred to the Buyers, and the final settlement of the transaction, together with the price adjustment, took place in December 2023. Since as part of the transaction, in addition to Agreement, the Bank also concluded other agreements with the Buyers and the Company, the Bank analyzed individual agreements and their economic effects in accordance with the requirements of IFRS 10, IFRS 15 and IFRS 9. As a result, the Bank identified contractual obligations and assessed the assignment of contractual remuneration for individual elements of the transaction, determining the appropriate method of recognizing revenues from single contractual obligations. As a result, the Bank recognized in 2023 in the Profit and Loss Account total result of PLN 652.4 million (gross), which consisted of: 1) profit realized on sale: payment of the price less the fair value of the shares at the moment of loss of control in the amount of PLN 553.9 million (gross) was included in the item “Result on derecognition of financial assets and liabilities not measured at fair value through profit or loss”; 2) an inflow of PLN 54.0 million (gross) as a valuation of the derivative at the time of final settlement of the transaction in December 2023, resulting from the agreed potential future remuneration payments, was recognized as “Result on financial assets and liabilities held for trading”; 3) At the same time, due to the loss of control over the Company, the Bank valued the remaining non-controlling share in the Company at fair value of PLN 52.2 million (gross), this amount was included in "Other operating income".

Starting from the moment of loss of control, the investment in the Company is treated as an involvement in an associated entity (the Bank holds 20% of the shares in the Company) and is valued at the Group level using the equity method, while in the Bank's financial statements the valuation model is fair value with the valuation effect recorded in the Profit and Loss Account. The Bank's assessment was made on the basis of IFRS and their interpretations applicable as at the date of these financial statements.

6. RESULTS ON FINANCIAL ASSETS AND LIABILITIES HELD FOR TRADING

	01.01.2023 - 31.12.2023	01.01.2022 - 31.12.2022
Result on debt instruments	6 003	(13 179)
Result on derivatives	42 393	12 786
Result on other financial operations	24	81
Total	48 420	(312)

7. RESULTS ON NON-TRADING FINANCIAL ASSETS MANDATORILY AT FAIR VALUE THROUGH PROFIT OR LOSS

	01.01.2023 - 31.12.2023	01.01.2022 - 31.12.2022
Loans and advances to customers	(958)	12 503
Result on equity instruments	4 360	8 339
Result on debt instruments	8 957	4 854
Total	12 359	25 696

8. RESULT ON HEDGE ACCOUNTING

	01.01.2023 - 31.12.2023	01.01.2022 - 31.12.2022
Changes in the fair value of the hedging instrument (including abandonment)	42 413	5 230
Changes in the fair value of the hedged item resulting from the hedged risk	(43 499)	(6 119)
Inefficiency in cash flow hedges	2 246	(6 241)
Inefficiencies due to net investment hedges in foreign operations	0	0
Total	1 160	(7 130)

9. OTHER OPERATING INCOME

	01.01.2023 - 31.12.2023	01.01.2022 - 31.12.2022
Gain on sale and liquidation of property, plant and equipment, intangible assets	36 388	21 034
Indemnifications, penalties and fines received	9 656	6 572
Income from sale of other services	36 952	36 090
Income from collection service	11 745	4 552
Income from leasing business	7 320	4 703
Income from write-back of provisions for disputed claims	11 936	8 382
Valuation of the Société Générale S.A. guarantee and indemnity agreement	259 921	169 682
Valuation of the remaining non-controlling share in the Europa MFS Sp. z o.o.	52 487	0
Other	32 577	25 230
Total	458 982	276 245

10. OTHER OPERATING EXPENSE

	01.01.2023 - 31.12.2023	01.01.2022 - 31.12.2022
Loss on sale and liquidation of property, plant and equipment, intangible assets	(16 438)	(16 938)
Indemnifications, penalties and fines paid	(42 614)	(22 638)
Costs of provisions for disputed claims	(30 208)	(27 325)
Costs of ‘Cashback’ operations	(14 805)	(14 721)
Costs of leasing business	(4 419)	(4 109)
Donations made	(1 086)	(1 673)
Costs of collection service	(148 575)	(101 782)
Costs of legal representation	(26 568)	(10 040)
Other	(16 900)	(17 494)
Total	(301 614)	(216 720)

On 11 September 2019 The Court of Justice of the European Union ruled in the case of Lexitor against SKOK Stefczyka, Santander Consumer Bank and mBank (case C 383/18) 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. Taking into consideration this verdict, the Group creates provisions for potential returns which as at December 31, 2023 amounted to PLN 76.4 million.

11. ADMINISTRATIVE EXPENSES

	01.01.2023 – 31.12.2023	01.01.2022 – 31.12.2022
Staff costs:	(1 034 638)	(916 142)
Salaries	(848 372)	(753 869)
Surcharges on pay	(145 999)	(127 331)
Employee benefits, including:	(40 267)	(34 942)
provisions for retirement benefits	(4 937)	(6 010)
provisions for unused employee holiday	(3 367)	18
other	(31 963)	(28 950)
Other administrative expenses:	(746 801)	(968 117)
Costs of advertising, promotion and representation	(72 282)	(65 542)
IT and communications costs	(158 561)	(138 409)
Costs of renting	(63 759)	(50 300)
Costs of buildings maintenance, equipment and materials	(48 505)	(45 386)
ATM and cash maintenance costs	(34 793)	(32 561)
Costs of consultancy, audit and legal advisory and translation	(148 839)	(97 393)
Taxes and fees	(43 723)	(38 817)
KIR - clearing charges	(12 855)	(11 310)
PFRON costs	(8 548)	(6 537)
Banking Guarantee Fund costs	(60 039)	(121 116)
Financial Supervision costs	(14 216)	(12 657)
Cost of payments to IPS	0	(276 120)
Other	(80 681)	(71 969)
Total	(1 781 439)	(1 884 259)

12. IMPAIRMENT LOSSES ON FINANCIAL ASSETS

	01.01.2023 - 31.12.2023	01.01.2022 - 31.12.2022
Impairment losses on loans and advances to customers	(259 509)	(346 838)
Impairment charges on loans and advances to customers	(1 580 006)	(1 672 300)
Reversal of impairment charges on loans and advances to customers	1 200 558	1 192 437
Amounts recovered from loans written off	42 015	47 609
Sale of receivables	77 926	85 394
Other directly recognised in profit and loss	(2)	22
Impairment losses on securities	1	(5)
Impairment charges on securities	(2)	(5)
Reversal of impairment charges on securities	3	0
Impairment losses on off-balance sheet liabilities	(2 967)	4 810
Impairment charges on off-balance sheet liabilities	(40 884)	(42 174)
Reversal of impairment charges on off-balance sheet liabilities	37 917	46 984
Total	(262 475)	(342 033)

13. IMPAIRMENT LOSSES ON NON-FINANCIAL ASSETS

	01.01.2023 - 31.12.2023	01.01.2022 - 31.12.2022
Fixed assets	0	0
Other assets	(84)	(3 515)
Total	(84)	(3 515)

14. PROVISIONS FOR LEGAL RISK CONNECTED WITH FX MORTGAGE LOANS

01.01.2023 – 31.12.2023

	TOTAL	Allocated for credit portfolio	Provisions for pending legal issues
Balance at the beginning of the period	5 395 344	4 572 901	822 443
Amounts written off	(521 769)	(521 769)	0
Costs of provisions for legal risk connected wIth FX mortgage loans	3 065 380	0	3 065 380
Allocation to the loans portfolio	0	2 532 494	(2 532 494)
Increase of provisions due to FX rates differences	(67 166)	(67 166)	0
Balance at the end of the period	7 871 789	6 516 460	1 355 329

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

	01.01.2023 - 31.12.2023	01.01.2022 - 31.12.2022
Costs of settlements recognized in the profit and loss account, including:	(326 018)	(484 392)
- included in the “Result on exchange differences”	(273 791)	(382 239)
- included in the “Result on modification”	(52 227)	(102 153)
Costs of settlements charged to previously created provisions	(90 169)	(30 774)

15. DEPRECIATION AND AMORTIZATION

	01.01.2023 - 31.12.2023	01.01.2022 - 31.12.2022
Property, plant and equipment	(156 440)	(154 823)
Intangible assets	(55 077)	(54 099)
Total	(211 517)	(208 922)

16. CORPORATE INCOME TAX

16a.# Income tax reported in income statement

01.01.2023 - 31.12.2023 | 01.01.2022 - 31.12.2022


Current tax	(612 654)	(263 766)
Current year	(614 924)	(263 766)
Adjustment to previous years	2 270	0
Deferred tax:	(124 116)	(20 045)
Recognition and reversal of temporary differences	(112 435)	(22 676)
Recognition / (Utilisation) of tax loss	(11 681)	2 631
Total income tax reported in income statement	(736 770)	(283 811)

16b. Effective tax rate

01.01.2023 - 31.12.2023 | 01.01.2022 - 31.12.2022

	01.01.2023 - 31.12.2023	01.01.2022 - 31.12.2022
Profit before tax	1 312 487	(730 755)
Statutory tax rate	19%	19%
Income tax according to obligatory income tax rate of 19%	(249 373)	138 843
Impact of permanent differences on tax charges:	(495 311)	(425 460)
- Non-taxable income	49 215	34 147
Dividend income	532 469
Release of other provisions	48 570	32 027
Other	113	1 651
- Cost which is not a tax cost	(544 526)	(459 607)
PFRON fee	(1 624)	(1 232)
Fees for Banking Guarantee Fund	(11 408)	(23 009)
Banking tax	(604)	(32 122)
Receivables written off	(15 151)	(10 846)
Costs of litigations and claims	(514 848)	(388 265)
Other	(892)	(4 134)
Amount of deductible temporary differences for which no deferred tax asset was recognized in the balance sheet	0	2 116
Deduction of the tax paid abroad	112 234
Other differences between gross financial result and taxable income with income tax (including R&D relief)	7 802	456
Total income tax reported in income statement	(736 770)	(283 811)
Effective tax rate	56%	/-/

For the year 2022, 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.

16c. Deferred tax reported in equity

31.12.2023 | 31.12.2022

	31.12.2023	31.12.2022
Valuation of investment assets at fair value through other comprehensive income	40 752	169 468
Valuation of cash flow hedging instruments	10 297	77 151
Actuarial gains (losses)	(30)	(2 133)
Deferred tax reported directly in equity	51 019	244 486

Changes in deferred tax recognized directly in equity are presented in Note (39b).

Withholding tax audit for years 2015-17

On 12 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 (NSA).

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. On 23 February 2023 WSA suspended the court litigation concerning WHT for 2017 until the final NSA’s judgements regarding WHT for years 2015-16.

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.

Judgement of the Supreme Administrative Court

On 6 December 2023, the Supreme Administrative Court issued a judgment on the Bank's complaint against the tax ruling of the Director of the National Tax Information Service on the rules for recognizing the effects in CIT of cancellations of mortgage loans indexed to foreign currencies and foreign currency loans (in particular in CHF) adjudicated by common courts. According to the ruling, the Bank should recognise the tax consequences not by recognising the resulting losses as tax- deductible costs, but by adjusting the revenues from the above-mentioned loans and advances (FX gains, interest, commissions and fees) previously taxed with CIT, taking into account the rules of limitation of tax liabilities. Until the above judgment was issued, the Bank prudently did not recognize losses due to cancellations for CIT and deferred tax purposes and is currently in the process of analysing and preparing a methodology and process both in order to make appropriate adjustments to CIT liabilities due to cancellations in previous years, as well as to recognize the relevant asset in deferred tax relating in a fair manner to the probable cancellations of the above-mentioned loans and advances in the future. Indeed, there are doubts as to the detailed rules for the adjustment of revenues, which may change the final amounts of the adjustments.

17. EARNINGS PER SHARE

01.01.2023 - 31.12.2023 | 01.01.2022 - 31.12.2022

	01.01.2023 - 31.12.2023	01.01.2022 - 31.12.2022
Profit/loss after taxes	575 717	(1 014 566)
Weighted average number of shares in the period	1 213 116 777	1 213 116 777
Profit/loss per share – basic and diluted	0.47	(0.84)

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).

18. CASH, BALANCES AT THE CENTRAL BANK

18a. Cash, balances at the central bank

31.12.2023 | 31.12.2022

	31.12.2023	31.12.2022
Cash	919 265	935 916
Cash in Central Bank	4 175 719	8 600 174
Total	5 094 984	9 536 090

In the period from 30 November 2023 to 1 January 2024 the Bank was obliged to keep on its current account with NBP (the central bank) an average balance of PLN 3,517,988 thousand (arithmetic average of balances on the NBP current account on all days of the deposit-holding period).

18b. Cash, balances at the Central Bank – by currency

31.12.2023 | 31.12.2022

	31.12.2023	31.12.2022
in Polish currency	4 399 501	4 406 496
in foreign currencies (after conversion to PLN):	695 483	5 129 594
- currency: USD	69 123	100 673
- currency: EUR	582 187	4 991 057
- currency: CHF	17 089	15 756
- currency: GBP	18 251	17 508
- other currencies	8 833	4 600
Total	5 094 984	9 536 090

19. FINANCIAL ASSETS HELD FOR TRADING

19a. Financial assets held for trading

31.12.2023 | 31.12.2022

	31.12.2023	31.12.2022
Debt securities	110 554	24 210
Issued by State Treasury	110 554	24 210
a) bills	0	0
b) bonds	110 554	24 210
Other securities	0	0
a) quoted	0	0
b) non quoted	0	0
Equity instruments	121	113
Quoted on the active market	121	113
a) financial institutions	31	27
b) non-financial institutions	90	86
Adjustment from fair value hedge	0	0
Positive valuation of derivatives	498 249	339 196
Total	608 924	363 519

Information on financial assets securing liabilities is presented in point 2) of chapter 15.

19b. Debt securities valued at fair value through profit and loss (held for trading), at balance sheet value

31.12.2023 | 31.12.2022

	31.12.2023	31.12.2022
with fixed interest rate	48 243	18 353
with variable interest rate	62 311	5 857
Total	110 554	24 210

19c. Debt securities valued at fair value through profit and loss (held for trading), by maturity

31.12.2023 | 31.12.2022

	31.12.2023	31.12.2022
to 1 month	2 790	912
above 1 month to 3 months	0	0
above 3 months to 1 year	1 657	2 050
above 1 year to 5 years	75 307	15 995
above 5 years	30 800	5 253
Total	110 554	24 210

19d. Change of debt securities and equity instruments valued at fair value through profit and loss (held for trading)

01.01.2023 - 31.12.2023 | 01.01.2022 - 31.12.2022

	01.01.2023 - 31.12.2023	01.01.2022 - 31.12.2022
Balance at the beginning of the period	24 323	86 583
Increases (purchase and accrual of interest and discount)	10 685 599	5 891 180
Reductions (sale and redemption)	(10 599 136)	(5 954 166)
Differences from valuation at fair value	(111)	726
Balance at the end of the period	110 675	24 323

19e. Financial assets and liabilities held for trading - Valuation of derivatives, Adjustment from fair value hedge and Short positions as at:

31.12.2023

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
1.

31.12.2023


Equity instruments	66,609
credit institutions	0
other corporates	66,609
Debt securities	81,014
credit institutions	0
other corporates	81,014
Total	147,623

31.12.2022


Equity instruments	128,979
credit institutions	0
other corporates	128,979
Debt securities	72,057
credit institutions	0
other corporates	72,057
Total	201,036

21. FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME

21a. Financial assets at fair value through other comprehensive income (split by category)

31.12.2023


Debt securities	22,067,407
Issued by State Treasury	11,825,424
a) bills	0
b) bonds	11,825,424
Issued by Central Bank	9,797,077
a) bills	9,797,077
b) bonds	0
Other securities	444,906
a) listed	444,906
b) not listed	0
Shares and interests in other entities	28,793
Other financial instruments	0
Total financial assets at fair value through other comprehensive income	22,096,200
Including
Instrument listed on active market	12,270,577
Instrument not listed on active market	9,825,623

31.12.2022


Debt securities	16,481,210
Issued by State Treasury	13,554,072
a) bills	0
b) bonds	13,554,071
Issued by Central Bank	2,528,310
a) bills	2,528,310
b) bonds	0
Other securities	398,828
a) listed	398,828
b) not listed	0
Shares and interests in other entities	24,396
Other financial instruments	0
Total financial assets at fair value through other comprehensive income	16,505,606
Including
Instrument listed on active market	13,953,147
Instrument not listed on active market	2,552,459

21b. Debt securities at fair value through other comprehensive income (split by interest rate applied)

31.12.2023


with fixed interest rate	18,234,682
with variable interest rate	3,832,725
Total	22,067,407

31.12.2022


with fixed interest rate	13,557,656
with variable interest rate	2,923,554
Total	16,481,210

21c. Debt securities at fair value through other comprehensive income by maturity

31.12.2023


to 1 month	10,080,554
above 1 month to 3 months	22,012
above 3 months to 1 year	2,177,193
above 1 year to 5 years	9,450,824
above 5 years	336,824
Total	22,067,407

31.12.2022


to 1 month	4,434,647
above 1 month to 3 months	0
above 3 months to 1 year	2,305,894
above 1 year to 5 years	9,056,094
above 5 years	684,575
Total	16,481,210

21d. Change of financial assets at fair value through other comprehensive income

	01.01.2023 - 31.12.2023	01.01.2022 - 31.12.2022
Balance at the beginning of the period	16,505,606	17,997,699
Increases (purchase and accrual of interest and discount)	473,407,836	155,353,302
Reductions (sale and redemption)	(468,494,658)	(156,636,934)
Difference from measurement at fair value	677,441	(208,468)
Impairment allowances	0	0
Other	(25)	7
Balance at the end of the period	22,096,200	16,505,606

22. LOANS AND ADVANCES TO CUSTOMERS

22a. Loans and advances to customers mandatorily at fair value through profit or loss

	31.12.2023	31.12.2022
Balance sheet value:
Mandatorily at fair value through profit or loss *	19,349	97,982
Companies	0	0
Individuals	19,280	97,916
Public sector	0	0

*At the implementation of IFRS 9 Group separated credit exposures which include, in the interest rate definition, leverage/multiplier feature and presents aforementioned exposures in these financial statements as "Non-trading financial assets mandatorily at fair value through profit or loss - Credits and advances". The provisions of IFRS 9 indicate that the multiplier feature modifies money over time and causes the need to apply fair value measurement, however the economic sense of the transaction, i.e. portfolio management not based on fair value and maintaining the portfolio to obtain cash flows from the contract, constitute characteristics of portfolios valued at amortized cost. In 2021, as a result of a change in contractual provisions (eliminating the multiplier feature), some of these exposures began to be re-measured at amortized cost. The change concerned loans where clients fully repaid their commitment, the interest on which was calculated based on the old formula containing a multiplier. Exposures recorded after that time under new contractual conditions (without a multiplier) are measured at amortized cost.

22b. Loans and advances to customers valued at amortised cost

31.12.2023

	Balance sheet value, gross	Accumulated impairment allowances	Balance sheet value, net	Stage 1	Stage 2	Stage 3	Stage 1
Valued at amortised cost	66,610,808	6,050,620	3,458,837	(427,418)	(322,955)	(1,746,181)	73,623,711
Companies	15,453,270	1,303,085	730,805	(103,386)	(42,529)	(245,469)	17,095,776
Individuals	50,994,741	4,747,531	2,728,032	(322,601)	(280,426)	(1,500,712)	56,366,565
Public sector	162,797	4	0	(1,431)	0	0	161,370

31.12.2022

	Balance sheet value, gross	Accumulated impairment allowances	Balance sheet value, net	Stage 1	Stage 2	Stage 3	Stage 1
Valued at amortised cost	68,696,492	6,725,350	3,466,149	(372,163)	(364,173)	(1,684,475)	76,467,182
Companies	16,775,373	1,508,622	637,682	(115,976)	(59,368)	(238,824)	18,507,510
Individuals	51,722,402	5,215,685	2,828,467	(254,633)	(304,804)	(1,445,651)	57,761,466
Public sector	198,718	1,043	0	(1,554)	(1)	0	198,206

The Bank writes down the gross carrying amount of a financial asset when there is no reasonable probability that it will be fully (total writes off) or partially (partial writes off) recovered. Following the recorded partial writes off the Bank transferred to off-balance sheet evidence (deducting the carrying value of gross receivables) penalty interest amounting to PLN 445 million as at 31.12.2023.

22c. Loans and advances to customers

	31.12.2023	31.12.2022
	Valued at amortised cost	Mandatorily at fair value through profit or loss
Loans and advances	67,292,473	10,527
▪ to companies	10,654,494	0
▪ to private individuals	56,586,451	10,527
▪ to public sector	51,528	0
Receivables on account of payment cards	1,209,584	8,822
▪ due from companies	13,541	69
▪ due from private individuals	1,196,043	8,753
Purchased receivables	143,844	195,655
▪ from companies	143,844	195,655
▪ from public sector	0	0
Guarantees and sureties realised	560	7,203
Debt securities eligible for rediscount at Central Bank	0	76
Financial leasing receivables	6,738,380	0
Other	104,560	30,277
Interest	630,864	562,478
Total:	76,120,265	19,349
Impairment allowances	(2,496,554)	-
Total balance sheet value:	73,623,711	19,349

22e. Loans and advances to customers portfolio valued at amortised cost by methodology of impairment assessment

	31.12.2023	31.12.2022
Loans and advances to customers (gross)	76 120 265	78 887 990
case by case analysis	493 162	501 115
collective analysis	75 627 103	78 386 875
Impairment allowances	(2 496 554)	(2 420 809)
on the basis of case by case analysis	(150 724)	(168 105)
on the basis of collective analysis	(2 345 830)	(2 252 704)
Loans and advances to customers (net)	73 623 711	76 467 181

22f. Loans and advances to customers portfolio valued at amortised cost by customers

	31.12.2023	31.12.2022
Loans and advances to customers (gross)	76 120 265	78 887 990
corporate customers	17 649 961	19 121 437
individuals	58 470 304	59 766 553
Impairment allowances	(2 496 554)	(2 420 809)
for receivables from corporate customers	(392 815)	(415 722)
for receivables from private individuals	(2 103 739)	(2 005 087)
Loans and advances to customers (net)	73 623 711	76 467 181

22g. Movements in impairment allowances for loans and advances to customers carried at amortised cost

	01.01.2023 - 31.12.2023	01.01.2022 - 31.12.2022
Balance at the beginning of the period	2 420 809	2 374 246
Change in value of provisions:	75 745	46 563
Impairment allowances created in the period	1 579 846	1 671 698
Amounts written off	(191 115)	(281 934)
Impairment allowances released in the period	(1 200 277)	(1 191 876)
Sale of receivables	(175 477)	(241 148)
KOIM created in the period*	71 261	71 224
Changes resulting from FX rates differences	(10 192)	19 594
Other	1 699	(995)
Balance at the end of the period	2 496 554	2 420 809

In accordance with IFRS 9, the Group calculates interest on the loan portfolio with a recognized impairment based on the net exposure value. For this purpose, the so-called impaired interest adjustment (“KOIM") is calculated and recorded as a reduction of interest income. Aforementioned KOIM adjustment in the balance sheet is presented as an impairment allowances, and as a consequence the reconciliation of the change in impairment allowances requires consideration of the KOIM recognized in the interest income.

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
31.12.2023
- Companies	23 106	1 200	24 306
- Individuals	93 690	(25 136)	68 554
- Public sector	0	0	0
31.12.2022
- Companies	15 216	(26)	15 190
- Individuals	137 235	(13 150)	124 085
- Public sector	0	0	0

22h. Changes in impairment allowances and gross carrying amount of loans and advances valued at amortised cost divided into stages and classes:

Companies: impairment allowances

	Stage 1	Stage 2	Stage 3	POCI	Total
Balance at the beginning of the period	115 976	59 368	238 799	26 414	169
Transfers between stages	5 560	(36 758)	31 198	0	0
Increase due to granting or purchase	67 103	0	0	0	67 103
Changes in credit risk	(70 734)	25 420	64 045	170	18 902
Decrease due to derecognition (except exposures sold and written off)	(13 252)	(4 299)	(41 357)	0	(58 909)
Sale of loans and advances	0	0	(20 815)	0	(20 815)
Loans and advances written off	0	0	(28 648)	0	(28 648)
KOIM	0	0	7 822	25	7 847
Other (including FX differences)	(1 267)	(925)	(4 652)	(1 420)	(8 264)
Balance at the end of the period	103 386	42 805	246 392	(1 199)	391 384

Companies: loans and advances balance sheet value, gross

	Stage 1	Stage 2	Stage 3	POCI	Total
Balance at the beginning of the period	16 775 372	1 508 622	622 465	15 216	18 921 676
Transfers between stages	(683 947)	339 728	344 219	0	0
Granted or purchased loans and advances	12 550 552	0	0	0	12 550 552
Repaid loans and advances	(12 792 270)	(517 312)	(188 292)	(2 291)	(13 500 165)
Loans and advances sold	0	0	(29 487)	0	(29 487)
Loans and advances written off	0	0	(30 097)	0	(30 097)
Other (including FX differences)	(396 438)	(27 982)	(11 079)	10 180	(425 319)
Balance at the end of the period	15 453 270	1 303 056	707 728	23 106	17 487 159

Individuals: impairment allowances

	Stage 1	Stage 2	Stage 3	POCI	Total
Balance at the beginning of the period	254 737	356 124	1 381 076	13 150	2 005 087
Transfers between stages	297 854	(452 812)	154 958	0	0
Increase due to granting or purchase	181 421	0	0	0	181 421
Changes in credit risk	(363 095)	451 222	230 921	433	362 360
Decrease due to derecognition (except exposures sold and written off)	(48 147)	(30 358)	(106 397)	(6 289)	(191 192)
Sale of loans and advances	0	0	(140 294)	(14 368)	(154 662)
Loans and advances written off	0	0	(150 680)	(11 787)	(162 467)
KOIM	0	0	62 356	1 058	63 414
Other (including FX differences)	(171)	(2 578)	2 465	61	(222)
Balance at the end of the period	322 601	321 598	1 434 404	25 136	2 103 739

Individuals: loans and advances balance sheet value, gross

	Stage 1	Stage 2	Stage 3	POCI	Total
Balance at the beginning of the period	51 722 402	5 199 033	2 707 885	137 235	59 766 554
Transfers between stages	(842 943)	294 368	548 575	0	0
Granted or purchased loans and advances	11 750 930	3 708	(2 233)	0	11 752 405
Repaid loans and advances	(9 547 953)	(711 604)	(222 552)	(13 771)	(10 495 880)
Reversal of Credit Holidays adjustment	503 437	40 468	4 963	0	548 868
Allocation of legal risk provisions to the loan portfolio	(2 402 463)	(81 448)	(48 583)	0	(2 532 494)
Loans and advances sold	0	0	(187 711)	(14 887)	(202 599)
Loans and advances written off	0	0	(149 430)	(11 588)	(161 018)
Other (including FX differences)	(188 669)	(8 197)	(5 368)	(3 298)	(205 532)
Balance at the end of the period	50 994 740	4 736 329	2 645 545	93 690	58 470 304

Public sector: impairment allowances

	Stage 1	Total
Balance at the beginning of the period	1 553	1 553
Transfers between stages	0	0
Increase due to granting or purchase	24	24
Changes in credit risk	(95)	(95)
Decrease due to derecognition (except exposures sold and written off)	(46)	(46)
Other (including FX differences)	(5)	(5)
Balance at the end of the period	1 431	1 431

Public sector: loans and advances balance sheet value, gross

	Stage 1	Stage 2	Total
Balance at the beginning of the period	198 718	1 043	199 761
Transfers between stages	0	0	0
Granted or purchased loans and advances	158 809	1	158 810
Repaid loans and advances	(194 730)	(1 040)	(195 770)
Other (including FX differences)	0	0	0
Balance at the end of the period	162 797	4	162 801

22i. Loans and advances to customers portfolio valued at amortised cost by maturity

	31.12.2023	31.12.2022
Current accounts	3 549 229	3 292 013
to 1 month	2 441 333	2 211 028
above 1 month to 3 months	2 697 873	2 269 577
above 3 months to 1 year	7 743 639	8 342 673
above 1 year to 5 years	23 785 493	24 299 800
above 5 years	33 274 610	35 802 677
past due	1 997 224	2 107 744
Interest	630 864	562 478
Total gross	76 120 265	78 887 990

22j. Loans and advances to customers portfolio valued at amortised cost by currency

	Balance sheet value, gross	Impairment allowances	Balance sheet value	Balance sheet value, gross	Impairment allowances	Balance sheet value
in Polish currency	69 016 046	(2 265 635)	66 750 411	67 681 948	(2 145 353)	65 536 595
in foreign currencies (after conversion to PLN)	7 104 219	(230 918)	6 873 301	11 206 042	(275 456)	10 930 586
currency: USD	55 055	(1 333)	53 722	67 654	(1 560)	66 095
currency: EUR	3 906 098	(88 298)	3 817 800	4 107 584	(73 387)	4 034 197
currency: CHF*	3 121 979	(141 014)	2 980 965	7 027 404	(200 085)	6 827 319
currency: JPY	0	0	0	0	0	0
other currencies	21 087	(273)	20 814	3 400	(425)	2 975
Total	76 120 265	(2 496 554)	73 623 711	78 887 990	(2 420 809)	76 467 181

* 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.# 23. FINANCIAL ASSETS AT AMORTISED COST OTHER THAN LOANS AND ADVANCES TO CUSTOMERS

23a. Financial assets at amortised cost other than Loans and advances to customers

	31.12.2023			31.12.2022
	Balance sheet value, gross	Accumulated impairment allowances	Balance sheet value, net	Balance sheet value, gross	Accumulated impairment allowances	Balance sheet value, net
	Stage 1	Stage 2	Stage 3	Stage 1	Stage 2	Stage 3
Debt securities	18 749 913	(6)	0	0	18 749 907	3 893 218
Deposits, loans and advances to banks and other monetary institutions	793 596	(160)	0	0	793 436	733 376
Repurchase agreements	1 163 242	0	0	0	1 163 242	4 863

23b. Debt securities

	31.12.2023	31.12.2022
Banks and other financial institutions	1 716 205	458 623
Other companies	0	0
Public sector	17 033 702	3 434 589
Total	18 749 907	3 893 212

23c. Deposits, loans and advances to banks and other monetary institutions

	31.12.2023	31.12.2022
Current accounts	571 479	181 896
Deposits	219 804	548 647
Interest	2 313	2 833
Total (gross) deposits, loans and advances	793 596	733 376
Impairment allowances	(160)	(281)
Total (net) deposits, loans and advances	793 436	733 095

23d. Deposits, loans and advances to banks and other monetary institutions by maturity date

	31.12.2023	31.12.2022
Current accounts	571 479	181 895
to 1 month	199 804	498 649
above 1 month to 3 months	0	10 000
above 3 months to 1 year	20 000	40 000
above 1 year to 5 years	0	0
above 5 years	0	0
past due	0	0
Interest	2 313	2 832
Total (gross) deposits, loans and advances	793 596	733 376

23e. Deposits, loans and advances to banks and other monetary institutions by currency

	31.12.2023	31.12.2022
in Polish currency	104 680	409 016
in foreign currencies (after conversion to PLN)	688 916	324 360
currency: USD	426 214	33 062
currency: EUR	127 401	151 707
currency: CNY	22 741	35 119
currency: GBP	17 951	25 328
currency: CHF	18 203	8 709
currency: JPY	2 792	4 428
other currencies	73 614	66 007
Total	793 596	733 376

23f. Change of impairment allowances for deposits, loans and advances to banks and other monetary institutions

	01.01.2023 - 31.12.2023	01.01.2022 - 31.12.2022
Balance at the beginning of the period	(281)	(239)
Impairment allowances created in the period	(160)	(603)
Impairment allowances released in the period	281	561
Balance at the end of the period	(160)	(281)

23g. Reverse sale and repurchase agreements

	31.12.2023	31.12.2022
Banks and other credit institutions	1 146 305	0
customers	11 553	4 854
interests	5 384	9
Total	1 163 242	4 863

24. DERIVATIVES – HEDGE ACCOUNTING

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 31.12.2023) Cash Flow Hedge relations to eliminate the variability of cash flows: ✓ on FX denominated mortgage loans and financing them PLN deposits, ✓ on PLN denominated financial assets, ✓ due to future income and interest costs denominated in foreign currencies, attributable to interest rate risk and currency risk in the time horizon limited to maturity of hedging instruments, presented in note (24b). In addition, the Group applied a fair value hedge for a fixed interest rate debt instrument and during 2023, a new relationship was established to hedge the fair value of flows from issued fixed-rate liabilities denominated in foreign currencies. 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.

Detailed information on cash flow hedge relations applied by the Group, items designated as hedged and hedging and presentation of the result (as at 31.12.2023) is shown in a table below:

	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	Hedging the fair value of cash flows from issued fixed-rate liabilities denominated in foreign currencies
Description of hedge transactions	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.	The Group hedges part of the interest rate risk related to changes in the fair value of cash flows from issued fixed-rate liabilities denominated in foreign currencies, resulting from the volatility of market interest rates.
Hedged items	A portfolio of fixed coupon debt securities classified as financial assets measured at fair value through other comprehensive income denominated in PLN.	Cash flows resulting from income and interest costs denominated in foreign currencies.	Cash flows from issued fixed- rate liabilities denominated in foreign currencies
Hedging instruments	IRS transactions	FX position resulting from recognized future leasing liabilities.	IRS transactions
Presentation of the result on the hedged and hedging transactions	The result on the change in the fair value measurement of hedged items in the hedged risk is referred to the result on hedge accounting. The remaining part of the change in fair value measurement is recognized in other comprehensive income. Interest on debt securities is recognized in net interest income.	The change in fair value measurement of derivative instruments being a hedge is presented in the result on hedge accounting, and interest on these instruments is recognized in the interest result. The effective part of the spot revaluation of hedging instruments is recognized in the revaluation reserve.

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

24a. Hedge accounting

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

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.

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.

31.12.2023

	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	3 083 034 203	445 817	400 0	(150 631)	15 069	165 700
IRS contracts	2 170 000	0	475 000	0	(27 964)	0	27 964
FXS contracts	0	0	0	0	0	0	0
2. Derivatives used as interest rate hedges related to interest rates
IRS contracts	0	0	2 264 000	0	59 144	59 144	0
3. Total hedging derivatives	5 253 034 203	445 817	3 556 400	0	(119 451)	74 213	193 664

* Notional value for double-currency derivatives constitutes the sum of both transactions expressed in PLN.

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	196 511
IRS contracts	1 125 500	1 305 000	2 645 000	0	(358 033)	0	358 033
FXS contracts	0	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	0
3. Total hedging derivatives	2 560 340	7 636 579	6 938 916	0	(418 740)	135 804	554 544

* Notional value for double-currency derivatives constitutes the sum of both transactions expressed in PLN.

24b. Hedge accounting for cash flow volatility

Hedge relationship	Maximum date of occurrence of cash flows whose value is hedged
Hedge of volatility of the cash flows generated by PLN denominated financial assets	2025-11-05
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	2026-08-25
Hedge of the volatility of cash flows generated by the portfolio of floating-rate foreign currency mortgage loans	2030-04-01
Hedging the variability of cash flows due to future interest income and expenses denominated in foreign currencies	2026-09-18

The inefficient part of the valuation of hedging instruments recognized in the Profit and Loss Account in 2023 amounted to PLN 1,160 thousand. (in 2022, it was PLN -7,130 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).

24c. Cash flow hedge – Hedged Instruments

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	(69 617)	(4 308)	(221)
IRS	Loans and advances to customers	(125 750)	(8 282)	0
FX spot	Future interest income and costs	(16 393)	(4 979)	0
IRS	Issued debt securities	0	0	0
IRS	Debt securities	(140 107)	(36 404)	0
Total		(351 867)	(53 973)	(221)

24d. Cash flow hedge – Hedging instruments

Type of contract	Changes in fair value used in the calculation of the ineffectiveness in the period	Ineffectiveness recognized in P&L
CIRS	71 863	2 246
IRS	125 750	0
FX spot	16 393	0
IRS	0	0
IRS	140 107	0
Total	354 113	2 246

24e. Fair value hedge – Hedged instruments

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	5 806
IRS	Issued liabilities	(49 305)
Total		(43 499)

24f. Fair value hedge – Hedging instruments

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	(6 151)	(346)
IRS	48 564	(740)
Total	42 413	(1 086)

25. INVESTMENTS IN SUBSIDIARIES, JOINT VENTURES AND ASSOCIATES

25a. Investments in associates

	31.12.2023	31.12.2022
Investments in associates	52 509	0

25b. Change of investments in related entities

	01.01.2023 - 31.12.2023	01.01.2022 - 31.12.2022
Balance at the beginning of the period	0	0
valuation of 20% stake in Europa MFS	52 509	0
other	0	0
Balance at the end of the period	52 509	0

26. TANGIBLE FIXED ASSETS

26a. Property, plant and equipment

	31.12.2023	31.12.2022
Land	2 339	2 369
Buildings and premises	95 212	71 360
Machines and equipment	98 765	105 387
Vehicles	25 851	17 819
Other fixed assets	23 121	23 853
Fixed assets under construction	66 328	74 030
Rights to use office space	254 014	277 992
Total	565 630	572 810

26b. Change of balance of property, plant and equipment (by type groups) in the period 01.01.2023 – 31.12.2023

	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	2 369	310 504	295 764	44 942	91 267	74 030	554 483	1 373 359
b) increases (on account of)	0	37 970	27 893	18 241	8 014	68 136	81 112	241 366
purchase	0	0	0	18 241	0	33 194	0	51 435
transfer from fixed assets under construction	0	37 970	27 893	0	8 014	0	0	73 877
unpaid investments	0	0	0	0	0	34 942	0	34 942
recognition of rights to use office space	0	0	0	0	0	0	81 112	81 112
c) reductions (on account of)	30	15 938	13 259	12 596	5 948	75 838	65 832	189 441
sale	30	3 050	93	3 431	693	0	7 297	14 594
liquidation	0	12 888	13 166	9 165	5 255	0	65 832	106 306
settlement of fixed assets under construction	0	0	0	0	0	73 910	0	73 910
other	0	0	0	0	0	1 928	0	1 928
d) gross value of property, plant and equipment at the end of the period	2 339	332 536	310 398	50 587	93 333	66 328	569 763	1 425 284
e) cumulated depreciation (amortization) at the beginning of the period	0	238 329	190 377	27 123	67 413	0	276 491	799 733
f) depreciation over the period (on account of)	0	(1 820)	21 256	(2 387)	2 798	0	39 258	59 105
current write-off (P&L)	0	12 023	34 096	8 983	8 270	0	93 068	156 440
reductions on account of sale	0	(1 702)	(108)	(11 370)	(705)	0	0	(13 885)
reductions on account of liquidation	0	(12 141)	(12 732)	0	(4 767)	0	(53 810)	(83 450)
transfer from impairment

26c. Change of balance of property, plant and equipment (by type groups) in the period 01.01.2022 – 31.12.2022

	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	0
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.

27. INTANGIBLE FIXED ASSETS

27a. Intangible fixed assets

	31.12.2023	31.12.2022
Goodwill due to merger with Euro Bank	192 126	192 126
Other intangible fixed assets:	289 505	244 496
concessions, patents, licenses, know-how and similar assets	24 157	34 759
computer software	79 397	92 296
other	7 296	9 524
advances for intangible assets	178 655	107 917
Total	481 631	436 622

As a result of the purchase by Bank Millennium of 99.787% of shares of Euro Bank S.A. from SG Financial Services Holdings, a 100% subsidiary of Société Générale S.A., and the subsequent merger with the above-mentioned entity in 2019, the difference in the fair value of the acquired assets and liabilities as at the acquisition date to the purchase price was determined and, in accordance with the provisions of IFRS 3.32, was recognized as goodwill in intangible assets (assigned to retail activities). With respect to goodwill, an impairment test is performed at least once a year, regardless of any indication that impairment may have occurred. The input data for the goodwill test include the result on retail assets and liabilities allocated to related activities. To determine the amount of capital, an estimate of risk-weighted assets and a capital adequacy ratio that meets regulatory minimums for the business were used. The test is performed by comparing the present value of cash flows generated by the listed assets with the estimated amount of capital. Cash flow forecasts have been prepared based on management's assumptions about all the conditions that will occur over the remaining useful lives of the assets. They are consistent with the medium-term financial plan adopted by the Bank for 2024-2026 and the Bank's Strategy. Data for subsequent years after 2026 are the result of extrapolation of forecasts assuming continued changes in the balance sheet and income statement. To discount the flows, the cost of capital index was used, consisting of the sum of the market rate and the risk premium. The test, executed as at the end of 2023, showed a surplus of the current value of cash flows over the net book value of the cash-generating unit and therefore no impairment was found for this unit.

27b. Change of balance of intangible fixed assets (by type groups) in the period 01.01.2023 – 31.12.2023

	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	90 704	345 278	27 126	107 917	571 025
b) increases (on account of)	12 159	18 648	0	102 109	132 916
purchase	0	0	0	92 156	92 156
unpaid investments	0	0	0	9 953	9 953
takeover from investments and addvances	12 159	18 648	0	0	30 807
other	0	0	0	0	0
c) reductions (on account of)	0	1 602	0	31 371	32 973
liquidation	0	1 602	0	358	1 960
settlement of advances	0	0	0	30 774	30 774
other	0	0	0	239	239
d) gross value of intangible fixed assets at the end of the period	102 863	362 324	27 126	178 655	670 968
e) cumulated depreciation at the beginning of the period	55 945	248 986	17 602	0	322 533
f) depreciation over the period (on account of)	22 761	29 945	2 228	0	54 934
current write-off (P&L)	22 761	30 088	2 228	0	55 077
liquidation	0	(143)	0	0	(143)
other	0	0	0	0	0
g) cumulated depreciation at the end of the period	78 706	278 931	19 830	0	377 467
h) impairment allowances at the beginning of the period	0	3 996	0	0	3 996
other	0	0	0	0	0
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	24 157	79 397	7 296	178 655	289 505

27c. Change of balance of intangible fixed assets (by type groups) in the period 01.01.2022 – 31.12.2022

	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
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
i) 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

28. DEFERRED INCOME TAX ASSETS

28a.# 28b. Change of net temporary differences

	31.12.2022	Adjustments to previous years	Changes to financial result	Changes to equity	31.12.2023
Difference between tax and balance sheet depreciation	(23 229)	32 396			9 167
Balance sheet valuation of financial instruments	(14 073)	(39 030)			(53 103)
Unrealised receivables/ liabilities on account of derivatives	13 602	(14 174)			(572)
Interest on deposits and securities to be paid/ received	(210 663)	14 348			(196 315)
Interest and discount on loans and receivables	(109 345)	(4 474)			(113 819)
Income and cost settled at effective interest rate	238 033	(179 791)			58 242
Impairment of loans presented as temporary differences	516 489	31 063			547 552
Employee benefits	20 807	2 461			23 268
Rights to use	4 756	(552)			4 204
Provisions for future costs	84 037	58 898			142 935
Valuation of investment assets, cash flows hedge and actuarial gains (losses) recognized in other comprehensive income	244 486	(193 464)			51 022
Shares valuation	(18 147)	(13 880)			(32 027)
Tax loss deductible in the future	57 486	(11 681)			45 805
Other	(2 847)	942			(1 605)
Total	801 392	942	(124 117)	(193 464)	484 753

28c. Change of net temporary differences

	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)
Total	777 106	1 251	(20 045)	43 080	801 392

28d. Change of deferred income tax

	1.01.2023 - 31.12.2023	1.01.2022 - 31.12.2022
Difference between tax and balance sheet depreciation	32 396	(22 008)
Balance sheet valuation of financial instruments	(39 030)	(3 711)
Unrealised receivables/ liabilities on account of derivatives	(14 174)	14 436
Interest on deposits and securities to be paid/ received	14 348	(145 520)
Interest and discount on loans and receivables	(4 474)	(33 514)
Income and cost settled at effective interest rate	(179 791)	92 094
Impairment of loans presented as temporary differences	31 063	71 266
Employee benefits	2 461	933
Rights to use	(552)	(1 935)
Provisions for future costs	58 898	(9 308)
Shares valuation	(13 880)	17 020
Tax loss deductible in the future	(11 681)	2 631
Other	300	(2 429)
Change of deferred income tax recognized in financial result	(124 117)	(20 045)
Valuation of investment assets, cash flows hedge and actuarial gains (losses) recognized in other comprehensive income	(193 464)	43 080

28e. Negative temporary differences for which the deferred income tax asset was not recognised in the balance sheet

	31.12.2023	31.12.2022
Unlimited	10 009	10 009
Total	10 009	10 009

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’s companies offset deferred income tax assets with deferred income tax liabilities.

	31.12.2023	31.12.2022
Net deferred income tax assets	484 993	801 392
Net deferred income tax provision	(240)	-
TOTAL	484 753	801 392

29. OTHER ASSETS

	31.12.2023	31.12.2022
Expenses to be settled	136 982	122 025
Income to be received	42 861	39 199
Interbank settlements	4 349	0
Settlements of financial instruments transactions	44 539	0
Receivables from sundry debtors, including:	1 192 881	765 036
- receivables due from Société Générale S.A. under an ‘CHF Portfolio Indemnity and Guarantee Agreement’	625 100	411 300
- receivables due to legally invalidated foreign currency mortgage loans	325 700	179 600
Settlements with the State Treasury	19 664	25 361
Settlements of brokerage activities	16 123	17 440
Other	161 703	236 939
Total other assets (gross)	1 574 607	1 206 539
Impairment allowances	(30 279)	(29 405)
Total other assets (net)	1 544 328	1 177 134
including other financial assets*	1 225 979	792 809
including long-term other assets	0	102

- 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

The “CHF Portfolio Indemnity and Guarantee Agreement”, concluded with Société Générale S.A., aimed at limiting the risk associated with mortgage loans of the former Euro Bank.

30. NON-CURRENT ASSETS AND DISPOSAL GROUPS CLASSIFIED AS HELD FOR SALE

30a. Change of balance of non-current assets held for sale in the period 01.01.2023 – 31.12.2023

	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	11 358	11 528
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	11 358	11 392
d) change of value in the period, including:	(70)	(67)	(27)	(6)	156	5 986
- sale of non-current assets held for sale	0	0	0	0	0	0
e) value at the end of the period	0	0	0	0	17 514	17 514
f) change of impairment allowances in the period, including:	64	40	27	6	0	137
- sale of non-current assets held for sale	0	0	0	0	0	0
g) impairment allowances at the end of the period	0	0	0	0	0	0
h) net value of non-current assets held for sale at the end of the period	0	0	0	0	17 514	17 514

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

31. FINANCIAL LIABILITIES HELD FOR TRADING

	31.12.2023	31.12.2022
Negative valuation of derivatives	576 833	380 278
Adjustment due to fair value hedge	0	0
Short sale of securities	2 720	4 784
Financial liabilities valued at fair value through profit and loss	579 553	385 062

The division of the negative valuation of derivatives into specific types of instruments is presented in note (19).

32. LIABILITIES TO BANKS AND OTHER MONETARY INSTITUTIONS

32a. Liabilities to banks and other monetary institutions

	31.12.2023	31.12.2022
In current account	25 424	25 287
Term deposits	536 152	589 046
Loans and advances received	0	105 000
Interest	1 936	8 238
Total	563 512	727 571

32b. Liabilities to banks and other monetary institutions by maturity

	31.12.2023	31.12.2022
Current accounts	25 424	25 287
to 1 month	530 573	472 074
above 1 month to 3 months	3 103	119 972
above 3 months to 1 year	2 476	102 000
above 1 year to 5 years	0	0
above 5 years	0	0
Interest	1 936	8 238
Total	563 512	727 571

32c. Liabilities to banks and other monetary institutions by currency

	31.12.2023	31.12.2022
in Polish currency	259 177	420 538
in foreign currencies (after conversion to PLN)	304 335	307 033
currency: USD	3	10
currency: EUR	304 332	307 023
currency: CHF	0	0
other currencies	0	0
Total	563 512	727 571

33. LIABILITIES TO CUSTOMERS

33a. Structure of liabilities to customers by type

	31.12.2023	31.12.2022
Amounts due to private individuals	76 599 831	68 787 007
Balances on current accounts	50 242 523	49 106 928
Term deposits	25 771 736	19 247 973
Other	278 997	248 573
Accrued interest	306 575	183 533
Amounts due to companies	26 346 440	23 616 227
Balances on current accounts	14 675 577	13 263 263
Term deposits	11 162 998	9 889 840
Other	462 439	402 878
Accrued interest	45 426	60 246
Amounts due to public sector	4 300 156	5 635 282
Balances on current accounts	3 318 533	3 195 080
Term deposits	974 507	2 418 727
Other	1 677	8 193
Accrued interest	5 439	13 282
Total	107 246 427	98 038 516

33b. Liabilities to customers by maturity

	31.12.2023	31.12.2022
Current accounts	68 236 633	65 565 271
to 1 month	13 610 001	12 871 178
above 1 month to 3 months	11 948 566	7 515 540
above 3 months to 1 year	11 291 505	7 574 732
above 1 year to 5 years	1 766 561	4 213 399
above 5 years	35 721	41 336
Interest	357 440	257 060
Total	107 246 427	98 038 516

33c. Liabilities to customers by currency

	31.12.2023	31.12.2022
in Polish currency	96 001 431	86 381 559
in foreign currencies (after conversion to PLN)	11 244 996	11 656 957
currency: USD	2 549 971	3 014 978
currency: EUR	8 021 679	7 870 175
currency: GBP	382 962	441 125
currency: CHF	242 240	237 721
other currencies	48 144	92 958
Total	107 246 427	98 038 516

34. SALE AND REPURCHASE AGREEMENTS

Liabilities from securities sold with buy-back clause

	31.12.2023	31.12.2022
a) to the Central Bank	0	0
b) to banks	0	0
c) to customers	0	0
d) interest	0	0
Total	0	0

35. DEBT SECURITIES ISSUED

35a. Liabilities from debt securities

	31.12.2023	31.12.2022
Bonds	3 183 111	242 500
Valuation of the Bank's bonds designated to fair value hedging	49 305	0
Interest	85 433	1 253
Total	3 317 849	243 753

35b. Liabilities from debt securities by final legal maturity

	31.12.2023	31.12.2022
to 1 month	0	0
above 1 month to 3 months	0	0
above 3 months to 1 year	0	0
above 1 year to 5 years	2 220 916	0
above 5 years	1 011 500	242 500
Interest	85 433	1 253
Total	3 317 849	243 753

35c. Change of debt securities

	01.01.2023 - 31.12.2023	01.01.2022 - 31.12.2022
Balance at the beginning of the period	243 753	39 568
Increases, on account of:	3 130 201	244 278
issue of Banking Securities	2 660 611	242 500
issue of bonds by the Millennium Leasing	280 000	0
Valuation of Bank’s bonds designated to fair value hedge	49 305	0
interest accrual	140 285	1 778
Reductions, on account of:	(56 105)	(40 093)
repurchase of Millennium Leasing bonds	0	(39 450)
interest payment	(56 105)	(643)
Balance at the end of the period	3 317 849	243 753

35d. Debt securities by type

As at 31.12.2023

	Balance sheet value	Including interests	Final legal maturity	Market
Bank Millennium - BMCN_012040	251 341	8 841	2040-01-25	Vienna MTF
Bank Millennium - BMCN_082036	494 107	5 107	2036-08-25	Vienna MTF
Bank Millennium - MILP-2027/09	2 282 505	61 589	2027-09-18	Luxembourg SE
Millennium Leasing - CLN 23-38	289 896	9 896	2038-10-20	Vienna MTF
Total	3 317 849	85 433

As at 31.12.2022

	Balance sheet value	Including interests	Final legal maturity	Market
Bank Millennium - BMCN_012040	243 753	1 253	2040-01-25	Vienna MTF

36. SUBORDINATED DEBT

36a. Subordinated debt

	31.12.2023	31.12.2022
Amount of subordinated bonds in PLN - BKMO_071227R	700 000	700 000
Currency	PLN	PLN
Interest rate	8.12%	9.70%
Maturity	2027-12-07	2027-12-07
Interest	3 738	4 465
Amount of subordinated bonds PLN in PLN - BKMO_300129W	830 000	830 000
Currency	PLN	PLN
Interest rate	8.94%	9.60%
Maturity	2029-01-30	2029-01-30
Interest	31 307	33 618
Balance sheet value of subordinated debt	1 565 045	1 568 083

36b. Change of subordinated debt

	01.01.2023 - 31.12.2023	01.01.2022 - 31.12.2022
Balance at the beginning of the period	1 568 083	1 541 144
Increases, on account of:	141 686	110 182
interest accrual	141 686	110 182
Reductions, on account of:	(144 724)	(83 243)
interest payment	(144 724)	(83 243)
Balance at the end of the period	1 565 045	1 568 083

During 2023 and 2022 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.

37. PROVISIONS

37a. Provisions

	31.12.2023	31.12.2022
Provision for commitments and guarantees given	42 367	39 617
Provision for pending legal issues	1 403 105	976 552
Total	1 445 472	1 016 169

37b. Change of provision for commitments and guarantees given

	01.01.2023 - 31.12.2023	01.01.2022 - 31.12.2022
Balance at the beginning of the period	39 617	44 354
Charge of provision	40 884	42 174
Release of provision	(37 917)	(46 984)
FX rates differences	(217)	73
Balance at the end of the period	42 367	39 617

37c. Change of provision for pending legal issues

	01.01.2023 - 31.12.2023	01.01.2022 - 31.12.2022
Balance at the beginning of the period	976 552	551 176
Charge of provision	30 208	27 325
Release of provision	(11 936)	(8 382)
Utilisation of provision	(112 313)	(175)
Creation of provisions for legal risk connected with FX mortgage loans*	3 065 380	2 017 320
Allocation to the loans portfolio	(2 544 786)	(1 610 712)
Balance at the end of the period	1 403 105	976 552

Creation of provisions for legal risk related to foreign currency mortgage loans is described in more detail in Chapter 13 “Legal risk related to foreign currency mortgage loans”.

38. OTHER LIABILITIES

38a.# Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31st December 2023

38b. Liabilities due to lease

	31.12.2023	31.12.2022
Liabilities due to lease (gross)	295,402	335,684
Unrealised financial costs	(16,780)	(16,526)
Current value of minimum lease instalments	278,622	319,158

Liabilities due to lease (gross) by maturity
Under 1 year	87,749	90,708
From 1 year to 5 years	178,312	188,480
Above 5 years	29,340	56,496
Total	295,401	335,684

Liabilities due to lease (net) by maturity
Under 1 year	80,792	84,850
From 1 year to 5 years	168,812	178,894
Above 5 years	29,017	55,415
Total	278,621	319,159

38c. Change of provisions for unused employee holiday

	01.01.2023 - 31.12.2023	01.01.2022 - 31.12.2022
Balance at the beginning of the period	14,113	14,216
Charge of provisions/ reversal of provisions	3,367	(18)
Utilisation of provisions	(35)	(85)
Balance at the end of the period	17,445	14,113

38d. Change of provisions for retirement benefits

	01.01.2023 - 31.12.2023	01.01.2022 - 31.12.2022
Balance at the beginning of the period	33,817	38,061
Charge of provisions/ reversal of provisions	4,937	6,010
Utilisation of provisions/ reclassification of provision	(1,497)	(1,478)
Actuarial gains (losses)	11,071	(8,776)
Balance at the end of the period	48,328	33,817

39. EQUITY

39a. Capital

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
A	registered	founder x2 as to voting	106,850	106,850	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	122,603,154	surplus	24.11.1994	1:4 split
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 a conversions of 128 ordinary registered shares into the bearer shares took place. As a consequence number of registered shares as of 31.12.2023 amounted to 107,480 of which 61,600 are founders’ shares, privileged so that one share entitles to two votes at the Annual General Meeting.

According to the information available to the Bank, with respect to shareholders holding more than 5% of votes at the General Meeting, the Bank's shareholders are the following entities:

Shareholder	31.12.2023		Number of votes
	Number of shares	% share in share capital		% 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 Otwarty Fundusz Emerytalny	100,990,351	8.32	100,990,351	8.32
Otwarty Fundusz Emerytalny PZU „Złota Jesień”	65,492,207	5.40	65,492,207	5.40

The data contained in the table has been determined according to the rules described below. With regard to Banco Comercial Portugues S.A. this data collected in connection with the registration of shareholders entitled to participate in the Ordinary General Meeting of Shareholders held on March 30, 2023. In the scope of Nationale-Nederlanden Otwarty Fundusz Emerytalny Allianz Polska Otwarty Fundusz Emerytalny oraz Otwartego Funduszu Emerytalnego 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 29 December 2023 (announced on the websites respectively: www.nn.pl, www.allianz.pl and www.pzu.pl) 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 8.3321.

Shareholder	31.12.2022		Number of votes
	Number of shares	% share in share capital		% 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).

39b. Accumulated other comprehensive income

Other comprehensive income arises on the recognition of:

▪ effect of valuation (at fair value) of financial assets FVTOCI in the net amount, i.e. after having accounted for deferred tax. These values are taken off revaluation reserve at the moment of excluding the valued assets from the books of account - in full or in part or at the moment of recognising impairment (the effect of valuation is then put through the profit and loss account), the effect on capital instruments valuation is not transferred to the profit and loss account.

▪ effect of valuation (at fair value) of derivatives hedging cash flows in the net amount, i.e. having accounted for deferred tax. Revaluation reserve records such part of profits or losses connected with the derivatives hedging cash flows which is an effective hedge, while the ineffective part of the profits or losses connected with such hedging instrument is recognised in the profit and loss account.

▪ actuarial gains (losses) at their net value, i.e. after deferred tax. Aforementioned gains or losses result from the discounting of future liabilities arising from a provision created for retirement benefits. Valuation is done using the projected unit cost method. The parameters that have a significant impact on the amount of current liabilities are: the rate of mobility (rotation) of employees, the discount rate, the rate of wage growth. These values are not reclassified to the profit and loss account.Accumulated other comprehensive income 31.12.2023 31.12.2022
Effect of valuation (gross) (268 531) (1 286 769)
Deferred income tax 51 019 244 485
Net effect of valuation (217 512) (1 042 284)

The sources of revaluation reserve are as follows (data in PLN thousand):

Revaluation reserve on FVTOCI assets 1.01.2023 - 31.12.2023

	Gross value	Deferred tax	Total
Revaluation reserve at the beginning of the period	(891 937)	169 467	(722 470)
Transfer to income statement of the period as a result of sale	12 353	(2 347)	10 006
Change connected with maturity of securities	70 973	(13 485)	57 488
Profit/loss on revaluation of FVTOCI debt securities, recognized in equity	589 694	(112 043)	477 651
Profit/loss on revaluation of FVTOCI shares, recognized in equity	4 422	(840)	3 582
Revaluation reserve at the end of the period	(214 495)	40 752	(173 743)

Revaluation reserve on on FVTOCI assets 1.01.2022 - 31.12.2022

	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)

168

Revaluation reserve on cash flows hedge financial instruments 1.01.2023 - 31.12.2023

	Gross value	Deferred tax	Total
Revaluation reserve at the beginning of the period	(406 060)	77 151	(328 909)
Gains or losses on valuation of financial instruments recognized in equity	354 113	(67 281)	286 832
Transfer to income statement during period	(2 246)	427	(1 819)
Revaluation reserve at the end of the period	(54 193)	10 297	(43 896)

Revaluation reserve on cash flows hedge financial instruments 1.01.2022 - 31.12.2022

	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)

Revaluation reserve due to actuarial gains (losses) 1.01.2023 - 31.12.2023

	Gross value	Deferred tax	Total
Revaluation reserve at the beginning of the period	11 228	(2 133)	9 095
Change in the obligations arising from the provision for retirement benefits	(11 071)	2 103	(8 968)
Revaluation reserve at the end of the period	157	(30)	127

Revaluation reserve due to actuarial gains (losses) 1.01.2022 - 31.12.2022

	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

39c. Retained earnings

	Supplementary capital	Reserve capital	General banking risk fund	Retained earnings	TOTAL
Retained earnings at the beginning of the period 01.01.2023	4 299 365	228 902	(824 873)	4 176 092
appropriation of profit, including:
transfer to reserve capital/covering financial loss	(1 041 432)	1 041 432	0
charge due to transfer of own shares to employees	0	0	0
net profit/ (loss) of the period				575 717	575 717
Retained earnings at the end of the period 31.12.2023	3 257 933	228 902	792 276	4 751 809

169

	Supplementary capital	Reserve capital	General banking risk fund	Retained earnings	TOTAL
Retained earnings at the beginning of the period 01.01.2022	5 692 106	228 902	(1 198 425)	5 195 281
appropriation of profit, including:
transfer to reserve capital/covering financial loss	(1 388 118)	1 388 118	0
charge due to transfer of own shares to employees	(4 623)	0	0
net profit/ (loss) of the period				(1 014 566)	(1 014 566)
Retained earnings at the end of the period 31.12.2022	4 299 365	228 902	(824 873)	4 176 092

FINANCIAL LIABILITIES BY CONTRACTUAL MATURITY

31.12.2023

	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	559 021	3 102	2 477	0	0	564 600
Deposits from customers	81 984	188	12 164	71 714	11 572 894	1 776 691
Liabilities from securities sold with buy- back clause	0	0	0	0	0	0
Debt securities	21 968	5 106	451 628	3 784 272	2 467 295	6 730 269
Subordinated debt	0	31 307	134 779	1 170 252	830 000	2 166 338
Liabilities from trading derivatives - notional value	2 755 171	2 737 730	5 093 097	4 773 421	173 335	15 532 754
Liabilities from hedging derivatives - notional value	1 708 280	1 945 044	117 070	3 117 280	0	6 887 674
Commitments granted - financial	11 709 292	0	0	0	0	11 709 292
Commitments granted - guarantee	1 676 248	0	0	0	0	1 676 248
TOTAL	100 414 168	16 887 003	17 371 945	14 621 916	3 506 351	152 801 383

31.12.2022

	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	298 775	7 838 875	4 235 695
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

170

Supplementary Information

15.1. 2022 DIVIDEND

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 2022, mainly as a result of recognizing the impact of Credit Holidays and creating provisions for legal risk related to foreign currency mortgage loans, additionally the Bank continues to realize the Capital Protection Plan 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, 2023, decided to allocate the amount of PLN 1,029,898,772.97 from the reserve capital to cover the loss incurred in 2022.

15.2. DATA ABOUT ASSETS, WHICH SECURE LIABILITIES

As at 31 December 2023 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	DS0727	Held to maturity Securing the Fund for Protection of Funds Guaranteed as part of the Bank Guarantee Fund	255 000	228 434
2.	Treasury Bonds	DS0726	Held to maturity Securing the Fund for Protection of Funds Guaranteed as part of the Bank Guarantee Fund	52 000	48 267
3.	Treasury Bonds	PS0527	Held to maturity Security of payment obligation to BFG contribution - guarantee fund	142 000	136 644
4.	Treasury Bonds	DS0726	Held to maturity Security of payment obligation to BFG contribution - compulsory resolution fund	135 000	125 307
5.	Treasury Bonds	PS0425	Held to Collect and for Sale pledge on the Bank's account related to a securitization transaction	572 500	544 528
6.	Treasury Bonds	WZ0525	Held to Collect and for Sale pledge on the Bank's account related to a securitization transaction	220 500	221 887
7.	Treasury Bonds	PS0524	Held to Collect and for Sale pledge on the Bank's account related to a securitization transaction	50 000	50 425
8.	Treasury Bonds	PS0527	Held to maturity financial and registered pledge on the Bank's account in the brokerage house	64 850	62 404
9.	Treasury Bonds	PS0527	Held to maturity financial pledge on the Bank's account in the brokerage house	583 659	561 643
10.	Treasury Bonds	PS0527	Held to maturity financial pledge on the Bank's account in the brokerage house	124 000	119 323
11.	Treasury Bonds	PS0527	Held to maturity pledge on the Millennium Leasing account related to a securitization transaction	317 000	310 127
12.	Cash receivables		initial settlement deposit in KDPW CCP (MAGB)	11 000	11 000
13.	Cash receivables		ASO guarantee fund (PAGB)	1 927	1 927
14.	Cash receivables		settlement of concluded transactions	47 909	47 909
15.	Deposits placed	Deposits in banks	settlement of concluded transactions	159 804	160 135
	TOTAL			2 737 149	2 629 958

As at 31 December 2023, the Group did not have concluded transactions of sale of treasury securities with repurchase agreements.

171

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

15.1. RESTRICTED ASSETS

	31.12.2023	31.12.2022
1. Treasury bonds OK0423 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
2. Treasury bonds OK0423 Held to Collect and for Sale Security of payment obligation to BFG contribution - guarantee fund	134 100	131 606
3. Treasury bonds OK0423 Held to Collect and for Sale Security of payment obligation to BFG contribution - compulsory resolution fund	124 000	121 694
4. Cash receivables initial settlement deposit in KDPW CCP (MAGB)	5 000	5 000
5. Cash receivables ASO guarantee fund (PAGB)	172	172
6. Cash receivables payment to the OTC Guarantee Fund - KDPW_CCP	304	304
7. Cash receivables Settlement on transactions concluded	106 797	106 797
8. Deposits Deposits in banks Settlement on transactions concluded	403 647	403 647
TOTAL	1 088 020	1 077 380

As at 31 December 2022, the Group did not have concluded transactions of sale of treasury securities with repurchase agreements. 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).

15.2. SECURITIES COVERED BY TRANSACTIONS WITH A BUY-BACK CLAUSE (SBB)

As at December 31, 2023 and December 31, 2022, the Group had no concluded repurchase transactions (SBB) involving securities.

15.3. OFFSETTING OF ASSETS AND LIABILITIES ON THE BASIS OF ISDA AGREEMENTS

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.

	Amounts to be received	Amounts to be paid
Valuation of derivatives	402 042	226 042
Amount of cash collaterals accepted/granted	(293 544)	(135 370)
Financial assets and liabilities covered by framework ISDA agreements allowing compensation	108 498	90 672
Theoretical maximum amount of compensation	(108 498)	(108 498)
Financial assets and liabilities covered by framework ISDA agreements allowing compensation taking into account theoretical amount of compensation	0	(17 826)

15.4. ADDITIONAL EXPLANATIONS TO THE CASH FLOW STATEMENT

For the purpose of the cash flow statement the following financial assets are classified by the Group as cash or its equivalents (PLN’000):

	PLN’000
	31.12.2023
Cash and balances with the Central Bank	5 094 984
Receivables from interbank deposits*	612 467
Debt securities issued by the State Treasury*	12 791 896
of which FVTOCI and HTC	12 789 106
of which held for trading	2 790 912
Total	18 499 347

* Financial assets with maturity below three months

For the purpose of the cash flow statement the following classification of activity types was adopted:

Operating activities – cover the basic scope of operations connected with services provided by the Group’s units covering events whose purpose is to earn profit and not being investment or financial activity,
Investment activities cover operations connected with the purchasing and selling of fixed assets, in particular financial assets not included in the ”for trading” category, shares and shares in subsidiaries, tangible and intangible fixed assets,
Financial activities cover activities connected with raising of funds in the form of capital or liabilities, as well as servicing sources of funding.

15.5. INFORMATION ON CUSTODY ACTIVITY

As of 31.12.2023 the Custody Department of Bank Millennium S.A. maintained 13,002 accounts in which Customers’ assets were kept with the total value of PLN 55.35 billion. Net revenue from the custody business for 2023 amounted to PLN 4.5 million (including PLN 3.1 million from Capital Group entities). The Custody Department serves as a depositary bank for 22 mutual funds including 21 of Millennium TFI S.A.

15.6. SHARE BASED PAYMENTS

In 2012, the Group implemented a policy specifying the principles of remuneration for persons having a significant impact on the risk profile of the Group, as amended. In accordance with the policy, the Group's employees who have a significant impact on its risk profile receive variable remuneration, part of which is paid in the form of financial instruments. Until 2018, the financial instrument took the form of phantom shares. From 2019, the Group, by decision of the General Meeting of Shareholders of the Bank on August 27, 2019, introduced a 3-year incentive program to reward eligible persons previously identified as having a significant impact on the risk profile (Risk Taker). As part of it, the Own Shares purchased by the Bank were, in accordance with the applicable Risk Takers' remuneration policy, intended as a financial instrument for free acquisition in an appropriate number by designated Risk Takers during the Program Period. In bonus programs effective from January 1, 2020, financial instruments were awarded to Risk Takers I - Members of the Management Board of Bank Millennium SA. In 2023, the Personnel Committee of the Supervisory Board decided to convert own shares granted to Members of the Management Board in the 2021 program in the form of own shares into phantom shares. Under the 2022 program, phantom shares were granted as a financial instrument.

	Variable remuneration – 2019	2020	2021	2022
Kind of transactions in the light of IFRS 2 Share-based payment transactions	Cash-settled share- based payments
Commencement of vesting period	1 January 2019	1 January 2020	1 January 2021	1 January 2022
The date of announcing the program	27 August 2019	1 January 2022
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 2019	31 December 2020	31 December 2021	31 December 2022
Vesting conditions	Employment in the Bank	2019, results of the Bank and individual performance	2020, results of the Bank and individual performance	2021, results of the Bank and individual performance
Program settlement
Program 2022: On the settlement day, the participant will be paid an amount of cash constituting the product of the phantom shares held by the participant and the arithmetic average price of the Bank's shares on the WSE at the closing of 20 consecutive sessions preceding the settlement day. Phantom shares are settled in 5 equal annual installments starting from the date of the Personnel Committee at which they were allocated.
Programs 2019-2021: On the settlement date of the program, the participant was granted own shares; a deferred tranche of the program in 2023.
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

	2020	2021	2022
Financial instruments granted to members of the Management Board of the Bank, for the year:
Phantom shares		Phantom shares	Phantom shares
Date of shares assigning	-	13.04.2022	03.11.2023
Number of shares	-	255 982	282 053
granted	-	0.00	0.00
deferred	-	255 982	282 053
Value as at assigning date (PLN)	-	1 680 000	1 968 750
granted	-	0.00	0.00
deferred	-	1 680 000	1 968 750
Fair value as at 31.12.2023 (PLN)	-	2 138 730	2 356 553

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 2023.

15.7. ADDITIONAL INFORMATION AND OTHER ESSENTIAL EVENTS BETWEEN THE DATE, FOR WHICH THE FINANCIAL REPORT WAS PREPARED AND ITS PUBLICATION DATE

REFORM OF BENCHMARKS

WIBOR

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.# Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31st December 2023

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

Reference Rate Reform

Poland

In July 2022, the National Working Group on Reference Rate Reform (NWG) was established in connection with the planned reform of reference rates in Poland. The objective of the NWG's work is to introduce a new interest rate benchmark and replace the currently used WIBOR index with it, while ensuring 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, and 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 NWG'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, and as the preferred alternative benchmark to WIBOR.

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, work is underway at the Bank to adjust the technological infrastructure, as well as including the preparation of internal processes and documentation.

The Bank uses the WIBOR reference rate in the following products (in million PLN):

Mortgage loans: 25,179.55 mortgage loans based on WIBOR (excluding 9,962.46 mortgage loans currently with temporary fixed rate where the clients have the option to switch to variable rate indexed to WIBOR after the end of such temporary fixed rate initial period).
Loan products, factoring and corporate discounting products: 15,988.55.
Debt instruments: 6,122.50
- Assets: 3,861.00
- Liabilities: 2,261.50
Derivative instruments: 16,394.16

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 (24) "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. In addition, according to the project of changes of the Roadmap announced by the Steering Committee of the National Working Group in October 2023, the final moment of conversion would happen by end of 2027. Currently, the Roadmap is being updated to reflect the provisions of the NGR SC with regard to the revision of the benchmark reform schedule. Therefore, a regulatory event has been postponed and should occur in Q3/Q4 2026.

However, there is currently:
a) no information regarding the potential regulatory event referred to in Article 23c(1) of the BMR;
b) 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 replacement or at least a draft of such a regulation and thus information, whether the Minister of Finance will designate one or several WIBOR replacements;
c) lack of information on the amount of the adjustment spread or the method of calculating this spread, whether there will be corresponding adjustment changes related to this (and if so, which ones).

Therefore, given the current stage of the work of the National Working Group and the planned postponement of the maximum dates for the implementation of the Roadmap, indicating a final conversion date at the end of 2027, it is currently not possible to estimate the financial impact of the WIBOR reform.

In March 2023, the Steering Committee of the National Working Group on Benchmark Reform adopted recommendations on new products, both banking, leasing and factoring, as well as previously published ones on bonds and derivatives. In July 2023, the NWG SC adopted a Recommendation on applying a fallback rate for WIBOR benchmark in interest rate derivatives. The recommendation presents the method of replacing WIBOR with an Alternative Benchmark in WIBOR-based interest rate derivatives in the event where a Fallback Trigger of a permanent nature occurs. In August 2023, the NWG Steering Committee has adopted a Recommendation on the rules and methods of conversion of WIBOR-based debt instruments. The recommendation was prepared assuming the occurrence of a Regulatory Event, i.e., an event resulting in the cessation of the development of the WIBOR benchmark (according to the adopted Roadmap, the readiness to cease and publish the WIBID and WIBOR Reference Rates should occur in 2025).

2. LIBOR USD

The Bank applies the USD LIBOR benchmark to the following products (in million PLN):

Retail banking/mortgage portfolio: 2.85.

On 3 April 2023, the Financial Conduct Authority supervising ICE Benchmark Administration Limited announced a decision regarding the future of LIBOR USD 3M and LIBOR USD 6M. FCA indicated that LIBOR USD 3M and LIBOR USD 6M will continue to be calculated and published after 30 June 2023 using the revised “synthetic” methodology, most likely until 30 September 2024. Considering the marginal number of such contracts in the Bank’s portfolio, the Bank is taking effort to implement an individual approach to each of these contracts.

CREDIT HOLIDAYS

The Bank is aware of risks connected with a potential extension of the so-called credit holidays for 2024. A legislative proposal was made public but until the moment of publication of these Financial Statements, the proposal was not formally approved by the government and submitted to the Parliament. If such risk would materialize, it could imply upfront provision for such cost that would decrease the net interest income and the net result of the Bank/Group.

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
28.02.2024	Joao Bras Jorge	Chairman of the Management Board	Signed by a qualified electronic signature
28.02.2024	Fernando Bicho	Deputy Chairman of the Management Board	Signed by a qualified electronic signature
28.02.2024	Wojciech Haase	Member of the Management Board	Signed by a qualified electronic signature
28.02.2024	Andrzej Gliński	Member of the Management Board	Signed by a qualified electronic signature
28.02.2024	Wojciech Rybak	Member of the Management Board	Signed by a qualified electronic signature
28.02.2024	Antonio Pinto Junior	Member of the Management Board	Signed by a qualified electronic signature
28.02.2024	Jarosław Hermann	Member of the Management Board	Signed by a qualified electronic signature

AI Terminal

Bank Millennium S.A.

5525_rns_2024-02-29_321377ed-6552-4803-8a6c-57732257cd66.xhtml

Annual Consolidated Financial Report of the Bank Millennium S.A. Capital Group for the 12-month period ending 31st December 2023

FINANCIAL HIGHLIGHTS

QUARTERLY FINANCIAL INFORMATION

CONSOLIDATED INCOME STATEMENT

CONSOLIDATED STATEMENT OF TOTAL COMPREHENSIVE INCOME

ANNUAL CONSOLIDATED FINANCIAL STATEMENTS OF THE BANK MILLENNIUM S.A. CAPITAL GROUP FOR THE 12-MONTH PERIOD ENDING 31ST DECEMBER 2023

TABLE OF CONTENT

12. CONTINGENT LIABILITIES AND ASSETS .......................................................... 103

12.1. LAWSUITS ............................................................................................... 103

12.2. OFF – BALANCE ITEMS .................................................................................... 107

13. LEGAL RISK RELATED TO FOREIGN CURRENCY MORTGAGE LOANS ........................ 109

13.1. COURT CLAIMS AND CURRENT PROVISIONS ON LEGAL RISK .................................................. 109

13.2. EVENTS THAT MAY IMPACT FX MORTGAGE LEGAL RISK AND RELATED PROVISION ............................. 118

14. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS .................................... 119

1. INTEREST INCOME AND OTHER OF SIMILAR NATURE ........................................................ 119

2. INTEREST EXPENSE ....................................................................................... 119

3. FEE AND COMMISSION INCOME AND EXPENSE ............................................................... 120

4. DIVIDEND INCOME ........................................................................................ 120

5. RESULT ON DERECOGNITION OF FINANCIAL ASSETS AND LIABILITIES NOT MEASURED AT FAIR VALUE THROUGH PROFIT OR LOSS ... 121

6. RESULTS ON FINANCIAL ASSETS AND LIABILITIES HELD FOR TRADING ........................................ 122

7. RESULTS ON NON-TRADING FINANCIAL ASSETS MANDATORILY AT FAIR VALUE THROUGH PROFIT OR LOSS ..... 122

8. RESULT ON HEDGE ACCOUNTING .......................................................................... 122

9. OTHER OPERATING INCOME .............................................................................. 123

10. OTHER OPERATING EXPENSE .............................................................................. 123

11. ADMINISTRATIVE EXPENSES ............................................................................... 124

12. IMPAIRMENT LOSSES ON FINANCIAL ASSETS ................................................................ 124

13. IMPAIRMENT LOSSES ON NON-FINANCIAL ASSETS ........................................................... 125

14. PROVISIONS FOR LEGAL RISK CONNECTED WITH FX MORTGAGE LOANS ...................................... 125

15. DEPRECIATION AND AMORTIZATION ....................................................................... 125

16. CORPORATE INCOME TAX ................................................................................. 126

17. EARNINGS PER SHARE .................................................................................... 128

18. CASH, BALANCES AT THE CENTRAL BANK .................................................................. 128

19. FINANCIAL ASSETS HELD FOR TRADING .................................................................... 129

20. NON-TRADING FINANCIAL ASSETS MANDATORILY AT FAIR VALUE THROUGH PROFIT OR LOSS, OTHER THAN LOANS AND ADVANCES TO CUSTOMERS ... 131

21. FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME............................... 132

22. LOANS AND ADVANCES TO CUSTOMERS .................................................................... 133

23. FINANCIAL ASSETS AT AMORTISED COST OTHER THAN LOANS AND ADVANCES TO CUSTOMERS ................ 140

24. DERIVATIVES – HEDGE ACCOUNTING ...................................................................... 142

25. INVESTMENTS IN SUBSIDIARIES, JOINT VENTURES AND ASSOCIATES .......................................... 146

26. TANGIBLE FIXED ASSETS .................................................................................. 147

27. INTANGIBLE FIXED ASSETS ................................................................................ 150

28. DEFERRED INCOME TAX ASSETS........................................................................... 153

29. OTHER ASSETS ........................................................................................... 156

30. NON-CURRENT ASSETS AND DISPOSAL GROUPS CLASSIFIED AS HELD FOR SALE ............................... 157

31. FINANCIAL LIABILITIES HELD FOR TRADING ................................................................ 158

32. LIABILITIES TO BANKS AND OTHER MONETARY INSTITUTIONS ............................................... 158

33. LIABILITIES TO CUSTOMERS ............................................................................... 159

34. SALE AND REPURCHASE AGREEMENTS ..................................................................... 160

35. DEBT SECURITIES ISSUED ................................................................................. 160

36. SUBORDINATED DEBT ..................................................................................... 161

37. PROVISIONS ............................................................................................. 162

38. OTHER LIABILITIES ....................................................................................... 163

39. EQUITY .................................................................................................. 165

40. FINANCIAL LIABILITIES BY CONTRACTUAL MATURITY ....................................................... 169

15. SUPPLEMENTARY INFORMATION ................................................................. 170

15.1. 2022 DIVIDEND .......................................................................................... 170

15.2. DATA ABOUT ASSETS, WHICH SECURE LIABILITIES .......................................................... 170

15.3. SECURITIES COVERED BY TRANSACTIONS WITH A BUY-BACK CLAUSE (SBB) ................................. 171

15.4. OFFSETTING OF ASSETS AND LIABILITIES ON THE BASIS OF ISDA AGREEMENTS .............................. 171

15.5. ADDITIONAL EXPLANATIONS TO THE CASH FLOW STATEMENT ............................................... 172

15.6. INFORMATION ON CUSTODY ACTIVITY ..................................................................... 172

15.7. SHARE BASED PAYMENTS ................................................................................. 173

15.8. ADDITIONAL INFORMATION AND OTHER ESSENTIAL EVENTS BETWEEN THE DATE, FOR WHICH THE FINANCIAL REPORT WAS PREPARED AND ITS PUBLICATION DATE ... 174

1. Consolidated Income Statement

2.# Consolidated Statement of Total Comprehensive Income

3. Consolidated Balance Sheet

4. Consolidated Statement of Changes in Equity

5. Consolidated Cash Flow Statement

6. General Information about Issuer and the Issuer’s Capital Group

Supervisory Board and Management Board of Bank Millennium S.A. as at 31 December 2023

Capital Group of Bank Millennium S.A.

7. Accounting Policy

7.1. STATEMENT OF COMPLIANCE WITH THE INTERNATIONAL FINANCIAL REPORTING STANDARDS

7.2. STANDARDS AND INTERPRETATIONS APPLIED IN 2023 AND THOSE NOT BINDING AT THE BALANCE SHEET DATE

STANDARDS INITIALLY APPLIED IN CONSOLIDATED FINANCIAL STATEMENTS 2023

INFORMATION REGARDING ISSUED STANDARDS AND AMENDMENTS TO THE EXISTING STANDARDS ISSUED BY IASB AND ADOPTED BY THE EU BUT NOT YET EFFECTIVE

NEW STANDARDS AND AMENDMENTS TO THE EXISTING STANDARDS ISSUED BY IASB BUT NOT YET ADOPTED BY THE EU