Annual Report • Feb 29, 2024
Annual Report
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This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
| Amount ‘000 PLN | 1.01.2023 - 31.12.2023 | 1.01.2022 - 31.12.2022 | Amount ‘000 EUR | 1.01.2023 - 31.12.2023 | 1.01.2022 - 31.12.2022 |
|---|---|---|---|---|---|
| Interest income and other of similar nature | 8 300 383 | 4 900 722 | 1 832 962 | 1 045 309 | |
| Fee and commission income | 912 357 | 906 708 | 201 474 | 193 398 | |
| Profit (loss) before income tax | 1 224 773 | (764 694) | 270 465 | (163 107) | |
| Profit (loss) after taxes | 510 259 | (1 029 899) | 112 680 | (219 674) | |
| Total comprehensive income of the period | 1 209 770 | (1 223 066) | 267 152 | (260 876) | |
| Net cash flows from operating activities | 13 945 189 | 9 697 560 | 3 079 496 | 2 068 460 | |
| Net cash flows from investing activities | (11 946 312) | 1 254 962 | (2 638 087) | 267 680 | |
| Net cash flows from financing activities | 2 166 447 | (93 677) | 478 413 | (19 981) | |
| Net cash flows, total | 4 165 324 | 10 858 845 | 919 822 | 2 316 158 |
| 31.12.2023 | 31.12.2022 | 31.12.2023 | 31.12.2022 | ||
|---|---|---|---|---|---|
| Total Assets | 124 887 757 | 110 643 322 | 28 723 035 | 23 591 830 | |
| Liabilities to banks and other monetary institutions | 565 384 | 625 144 | 130 033 | 133 296 | |
| Liabilities to customers | 107 505 636 | 98 264 816 | 24 725 307 | 20 952 433 | |
| Equity | 6 614 263 | 5 404 493 | 1 521 220 | 1 152 368 | |
| 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) | 5.45 | 4.46 | 1.25 | 0.95 | |
| Diluted book value per share (in PLN/EUR) | 5.45 | 4.46 | 1.25 | 0.95 | |
| Total Capital Ratio (TCR) | 19.04% | 14.53% | 19.04% | 14.53% | |
| Pledged or paid dividend per share (in PLN/EUR) | - | - | - | - |
Exchange rates accepted to convert selected financial data into EUR
| 31.12.2023 | 31.12.2022 | |||
|---|---|---|---|---|
| for items as at the balance sheet date | 4.3480 | 4.6899 | ||
| 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 |
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
| Amount ‘000 PLN | 1.01.2023 - 31.12.2023 | 1.10.2023 - 31.12.2023* | 1.01.2022 - 31.12.2022 | 1.10.2022 - 31.12.2022* |
|---|---|---|---|---|
| Net interest income | 5 134 504 | 1 255 492 | 3 237 781 | 1 312 562 |
| Interest income and other of similar nature | 8 300 383 | 2 080 855 | 4 900 722 | 2 005 149 |
| Income calculated using the effective interest method | 8 191 912 | 2 047 483 | 4 929 519 | 1 987 369 |
| Interest income from Financial assets at amortised cost, including: | 6 385 562 | 1 615 466 | 3 696 751 | 1 604 806 |
| - the impact of the adjustment to the gross carrying amount of loans due to credit holidays | (11 404) | (11 404) | (1 291 600) | 93 000 |
| Interest income from Financial assets at fair value through other comprehensive income | 1 806 350 | 432 017 | 1 232 768 | 382 563 |
| Result of similar nature to interest from Financial assets at fair value through profit or loss | 108 471 | 33 372 | (28 797) | 17 780 |
| Interest expenses | (3 165 879) | (825 363) | (1 662 941) | (692 587) |
| Net fee and commission income | 683 726 | 166 413 | 714 957 | 180 056 |
| Fee and commission income | 912 357 | 225 147 | 906 708 | 231 501 |
| Fee and commission expenses | (228 631) | (58 734) | (191 751) | (51 445) |
| Dividend income | 32 137 | 153 | 45 592 | 384 |
| Result on derecognition of financial assets and liabilities not measured at fair value through profit or loss | 541 | 425 | 1 582 | (2 377) |
| Results on financial assets and liabilities held for trading | 47 982 | 50 355 | (528) | (1 828) |
| 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) | (1 551) |
| Result on exchange differences | (76 838) | (29 243) | (203 746) | (18 692) |
| Other operating income | 405 347 | 125 840 | 239 141 | 56 033 |
| Other operating expenses | (260 264) | (63 675) | (176 977) | (73 658) |
| Administrative expenses | (1 713 662) | (456 226) | (1 817 488) | (399 928) |
| Impairment losses on financial assets | (222 266) | (50 782) | (300 641) | (70 255) |
| 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 | (207 189) | (51 855) | (202 412) | (50 534) |
| Share of the profit of investments in subsidiaries | 0 | 0 | 0 | 0 |
| Banking tax | 0 | 0 | (169 063) | 0 |
| Profit before income taxes | 1 224 773 | 226 524 | (764 694) | 380 058 |
| Corporate income tax | (714 514) | (135 353) | (265 205) | (157 309) |
| Profit after taxes | 510 259 | 91 171 | (1 029 899) | 222 749 |
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
| Amount ‘000 PLN | 1.01.2023 - 31.12.2023 | 1.10.2023 - 31.12.2023* | 1.01.2022 - 31.12.2022 | 1.10.2022 - 31.12.2022* |
|---|---|---|---|---|
| Profit after taxes | 510 259 | 91 171 | (1 029 899) | 222 749 |
| Other comprehensive income items that may be (or were) reclassified to profit or loss | 869 606 | 115 111 | (242 703) | 562 767 |
| Result on debt securities at fair value through other comprehensive income | 671 753 | 92 337 | (204 299) | 278 172 |
| Result on credit portfolio at fair value through other comprehensive income | (154 014) | (55 419) | (11 255) | 99 034 |
| Hedge accounting | 351 867 | 78 193 | (27 149) | 185 561 |
| Other comprehensive income items that will not be reclassified to profit or loss | (6 012) | (6 012) | 4 225 | 4 097 |
| Actuarial gains (losses) | (10 434) | (10 434) | 8 367 | 8 477 |
| Result on equity instruments at fair value through other comprehensive income | 4 422 | 4 422 | (4 142) | (4 380) |
| Total comprehensive income items before taxes | 863 594 | 109 099 | (238 478) | 566 864 |
| Corporate income tax on other comprehensive income items that may be (or were) reclassified to profit or loss | (165 225) | (21 871) | 46 114 | (106 926) |
| Corporate income tax on other comprehensive income items that will not be reclassified to profit or loss | 1 142 | 1 142 | (803) | (779) |
| Total comprehensive income items after taxes | 699 511 | 88 370 | (193 167) | 459 160 |
| Total comprehensive income for the period | 1 209 770 | 179 541 | (1 223 066) | 681 909 |
* quarterly financial information has not been audited by an independent auditor
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
5 Annual Financial Report of the Bank Millennium S.A. 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.
6 Annual Financial Report of the Bank Millennium S.A. 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.
| Amount ‘000 PLN | Note | 1.01.2023 - 31.12.2023 | 1.01.2022 - 31.12.2022 |
|---|---|---|---|
| Net interest income | 5 | 134 504 | 3 237 781 |
| Interest income and other of similar nature | 1 | 8 300 383 | 4 900 722 |
| Income calculated using the effective interest method | 8 191 912 | 4 929 519 | |
| Interest income from Financial assets at amortised cost, including: | 6 385 562 | 3 696 751 | |
| - the impact of the adjustment to the gross carrying amount of loans due to credit holidays | (11 404) | (1 291 600) | |
| Interest income from Financial assets at fair value through other comprehensive income | 1 806 350 | 1 232 768 | |
| Result of similar nature to interest from Financial assets at fair value through profit or loss | 108 471 | (28 797) | |
| Interest expenses | 2 | (3 165 879) | (1 662 941) |
| Net fee and commission income | 683 726 | 714 957 | |
| Fee and commission income | 3 | 912 357 | 906 708 |
| Fee and commission expenses | 3 | (228 631) | (191 751) |
| Dividend income | 4 | 32 137 | 45 592 |
| Result on derecognition of financial assets and liabilities not measured at fair value through profit or loss | 5 | 541 425 | (2 377) |
| Results on financial assets and liabilities held for trading | 6 | 47 982 | (528) |
| 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: | (76 838) | (203 746) | |
| - costs of settlements on foreign currency mortgage loans | 14 | (273 791) | (382 239) |
| Other operating income | 9 | 405 347 | 239 141 |
| Other operating expenses | 10 | (260 264) | (176 977) |
| Administrative expenses | 11 | (1 713 662) | (1 817 488) |
| Impairment losses on financial assets | 12 | (222 266) | (300 641) |
| 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 | 14 | (52 227) | (102 153) |
| Depreciation | 15 | (207 189) | (202 412) |
| Share of the profit of investments in subsidiaries | 0 | 0 | |
| Banking tax | 0 | (169 063) | |
| Profit before income taxes | 1 224 773 | (764 694) | |
| Corporate income tax | 16 | (714 514) | (265 205) |
| Profit after taxes | 510 259 | (1 029 899) |
Notes on pages 13-176 are integral part of these financial statements.
7 Annual Financial Report of the Bank Millennium S.A. 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.
| Amount ‘000 PLN | 1.01.2023 - 31.12.2023 | 1.01.2022 - 31.12.2022 |
|---|---|---|
| Profit after taxes | 510 259 | (1 029 899) |
| Other comprehensive income items that may be (or were) reclassified to profit or loss | 869 606 | (242 703) |
| Result on debt securities at fair value through other comprehensive income | 671 753 | (204 299) |
| Result on credit portfolio at fair value through other comprehensive income | (154 014) | (11 255) |
| Hedge accounting | 351 867 | (27 149) |
| Other comprehensive income items that will not be reclassified to profit or loss | (6 012) | 4 225 |
| Actuarial gains (losses) | (10 434) | 8 367 |
| Result on equity instruments at fair value through other comprehensive income | 4 422 | (4 142) |
| Other comprehensive income items before taxes | 863 594 | (238 478) |
| Corporate income tax on other comprehensive income items that may be (or were) reclassified to profit or loss | (165 225) | 46 114 |
| Corporate income tax on other comprehensive income items that will not be reclassified to profit or loss | 1 142 | (803) |
| Other comprehensive income items after taxes | 699 511 | (193 167) |
| Total comprehensive income for the period | 1 209 770 | (1 223 066) |
Notes on pages 13-176 are integral part of these financial statements.
8 Annual Financial Report of the Bank Millennium S.A.# Annual Financial Report of the Bank Millennium S.A. 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.
| 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 | 609 252 | 363 618 | |
| Derivatives | 498 577 | 339 295 | ||
| 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 | 21 924 652 | 16 438 458 | |
| Equity instruments | 28 789 | 24 393 | ||
| Debt securities | 21 895 863 | 16 414 065 | ||
| Loans and advances to customers | 22 | 72 405 446 | 75 855 606 | |
| Mandatorily at fair value through profit or loss | 19 | 349 97 | 9 82 | |
| Fair valued through other comprehensive income | 11 799 748 | 11 221 252 | ||
| Valued at amortised cost | 60 586 349 | 64 536 372 | ||
| Financial assets at amortised cost other than Loans and advances to customers | 23 | 21 469 710 | 5 308 320 | |
| Debt securities | 18 439 780 | 3 893 212 | ||
| Deposits, loans and advances to banks and other monetary institutions | 1 866 688 | 1 410 245 | ||
| 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 | 399 223 | 247 823 | |
| Tangible fixed assets | 26 | 553 087 | 557 542 | |
| Intangible fixed assets | 27 | 481 128 | 432 820 | |
| Income tax assets | 368 279 | 643 196 | ||
| Current income tax assets | 0 | 0 | ||
| Deferred income tax assets | 28 | 368 279 | 643 196 | |
| Other assets | 29 | 1 360 160 | 923 009 | |
| Non-current assets and disposal groups classified as held for sale | 30 | 0 | 0 | |
| Total assets | 124 887 757 | 110 643 322 |
Annual Financial Report of the Bank Millennium S.A. 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.
| LIABILITIES | Amount '000 PLN | Note | 31.12.2023 | 31.12.2022 |
|---|---|---|---|---|
| Financial liabilities held for trading | 31 | 579 331 | 384 928 | |
| Derivatives | 576 611 | 380 144 | ||
| Liabilities from short sale of securities | 2 720 | 4 784 | ||
| Financial liabilities measured at amortised cost | 112 664 017 | 100 701 796 | ||
| Liabilities to banks and other monetary institutions | 32 | 565 384 | 625 144 | |
| Liabilities to customers | 33 | 107 505 636 | 98 264 816 | |
| Sale and repurchase agreements | 34 | 0 | 0 | |
| Debt securities issued | 35 | 3 027 952 | 243 753 | |
| Subordinated debt | 36 | 1 565 045 | 1 568 083 | |
| Derivatives – Hedge accounting | 24 | 193 664 | 554 544 | |
| Provisions | 37 | 1 444 173 | 1 015 266 | |
| Pending legal issues | 1 401 798 | 975 092 | ||
| Commitments and guarantees given | 42 375 | 40 174 | ||
| Income tax liabilities | 460 456 | 31 662 | ||
| Current income tax liabilities | 460 456 | 31 662 | ||
| Deferred income tax liabilities | 0 | 0 | ||
| Other liabilities | 38 | 2 931 853 | 2 550 633 | |
| Total Liabilities | 118 273 494 | 105 238 829 | ||
| EQUITY | ||||
| Share capital | 39 | 1 213 117 | 1 213 117 | |
| Own shares | (21) | (21) | ||
| Share premium | 1 147 241 | 1 147 241 | ||
| Accumulated other comprehensive income | 39 | (139 342) | (838 853) | |
| Retained earnings, including: | 39 | 4 393 268 | 3 883 009 | |
| - current profit /loss | 510 259 | (1 029 899) | ||
| - other | 3 883 009 | 4 912 908 | ||
| Total equity | 6 614 263 | 5 404 493 | ||
| Total equity and total liabilities | 124 887 757 | 110 643 322 |
| 31.12.2023 | 31.12.2022 | |
|---|---|---|
| Book value of net assets | 6 614 263 | 5 404 493 |
| Number of shares (pcs.) | 1 213 116 777 | 1 213 116 777 |
| Book value per share (in PLN) | 5.45 | 4.46 |
Notes on pages 13-176 are integral part of these financial statements.
Annual Financial Report of the Bank Millennium S.A. 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.
| Amount ‘000 PLN | Total 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 | 5 404 493 | 1 213 117 | (21) | 1 147 241 | (838 853) | (1 029 899) | 4 912 908 | |
| Total comprehensive income for 2023 (net) | 1 209 770 | 0 | 0 | 0 | 699 511 | 510 259 | 0 | |
| current profit /loss | 510 259 | 510 259 | ||||||
| other comprehensive income items after taxes | 699 511 | 0 | ||||||
| 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 | 0 | 1 029 899 | (1 029 899) |
| Equity at the end of the period | 6 614 263 | 1 213 117 | (21) | 1 147 241 | (139 342) | 510 259 | 3 883 009 | |
| Amount ‘000 PLN | Total 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 | 6 632 182 | 1 213 117 | (21) | 1 147 241 | (645 686) | (1 357 452) | 6 274 983 | |
| Total comprehensive income for 2022 (net) | (1 223 066) | 0 | 0 | 0 | (193 167) | (1 029 899) | 0 | |
| current profit /loss | (1 029 899) | (1 029 899) | ||||||
| other comprehensive income items after taxes | (193 167) | 0 | ||||||
| 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 | 0 | 1 357 452 | (1 357 452) |
| Equity at the end of the period | 5 404 493 | 1 213 117 | (21) | 1 147 241 | (838 853) | (1 029 899) | 4 912 908 |
Detailed information concerning changes in different equity items are presented in the note (39).
Annual Financial Report of the Bank Millennium S.A. 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.
| Amount ‘000 PLN | 1.01.2023 - 31.12.2023 | 1.01.2022 - 31.12.2022 |
|---|---|---|
| Profit (loss) after taxes | 510 259 | (1 029 899) |
| Total adjustments: | 13 434 930 | 10 727 459 |
| Interest received | 7 783 242 | 4 533 681 |
| Interest paid | (2 835 628) | (1 318 210) |
| Depreciation and amortization | 207 189 | 202 412 |
| Foreign exchange (gains)/ losses | 0 | 0 |
| Dividends | (32 137) | (45 592) |
| Changes in provisions | 428 907 | 420 861 |
| Result on sale and liquidation of assets | (643 337) | 3 030 |
| Change in financial assets held for trading | 142 502 | (306 034) |
| Change in loans and advances to banks | (167 390) | (394 536) |
| Change in loans and advances to customers | (3 087 504) | (1 615 669) |
| Change in receivables from securities bought with sell-back clause (loans and advances) | (1 226 207) | 237 879 |
| Change in financial liabilities valued at fair value through profit and loss (held for trading) | (166 477) | 181 490 |
| Change in deposits from banks | (39 152) | 471 373 |
| Change in deposits from customers | 11 984 160 | 7 835 818 |
| Change in liabilities from securities sold with buy-back clause | 35 178 | 34 833 |
| Change in debt securities | 509 530 | 243 753 |
| Change in income tax settlements | 744 479 | 265 139 |
| Income tax paid | (204 851) | (222 967) |
| Change in other assets and liabilities | (128 685) | 84 995 |
| Other | 131 111 | 115 203 |
| Net cash flows from operating activities | 13 945 189 | 9 697 560 |
Annual Financial Report of the Bank Millennium S.A. 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.
| Amount ‘000 PLN | 1.01.2023 - 31.12.2023 | 1.01.2022 - 31.12.2022 |
|---|---|---|
| Inflows: | 474 152 | 795 157 |
| Proceeds from sale of property, plant and equipment and intangible assets | 9 150 | 3 204 |
| Proceeds from sale of shares in related entities | 600 000 | 12 161 |
| Proceeds from sale of investment financial assets | 473 511 | 508 157 |
| Other | 306 943 | 32 137 |
| Outflows: | (486 099 107) | (156 112 938) |
| Acquisition of property, plant and equipment and intangible assets | (184 006) | (138 079) |
| Purchase of shares in subordinated companies | (99 000) | (51 095) |
| Acquisition of investment financial assets | (485 816 101) | (155 923 764) |
| Other | 0 | 0 |
| Net cash flows from investing activities | (11 946 312) | 1 254 962 |
Annual Financial Report of the Bank Millennium S.A. 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.
| 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: | (149 829) | (93 677) |
| Repayment of long-term bank loans | (5 000) | (10 000) |
| 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 | (144 829) | (83 677) |
| Net cash flows from financing activities | 2 166 447 | (93 677) |
| 4 165 324 | 10 858 845 | |
|---|---|---|
| - including change resulting from FX differences | (21 705) | 4 630 |
| | 14 231 089 | 3 372 244 |
| | 18 396 413 | 14 231 089 |
Additional information regarding cash flows statement is presented in point 5) of chapter 14. “Supplementary information”. Information on liabilities classified as financing activities is presented in points 32), 35), 36) of chapter 13. “Notes to the Financial Statements”.
Annual Financial Report of the Bank Millennium S.A. 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.
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 centers, 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 and web portals activity.
14 Annual Financial Report of the Bank Millennium S.A. for the 12-month period ending 31 st December 2023
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
These financial statements of the Bank 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.
15 Annual Financial Report of the Bank Millennium S.A. for the 12-month period ending 31 st December 2023
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
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 Bank did not change its accounting principles or the method of financial data presentation.
16 Annual Financial Report of the Bank Millennium S.A. for the 12-month period ending 31 st December 2023
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
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 Bank'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* |
The adoption of mentioned above amendments to the existing standards has not led to any material changes in the Bank’s financial statements 2023.
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 Bank anticipates that the adoption of the aforementioned standard and amendments to existing standards will have no material impact on the financial statements of the Bank.
17 Annual Financial Report of the Bank Millennium S.A. 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.
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 Bank anticipates that the adoption of the aforementioned standard and amendments to existing standards will have no material impact on the financial statements of the Bank.
18 Annual Financial Report of the Bank Millennium S.A. 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 statements of the Bank are prepared for the financial year from 1 January 2023 to 31 December 2023 on the basis of the going concern assumption of the Bank, namely scale of business is not to be reduced substantially in a period of not less than one year from the balance sheet date. The financial statements have been prepared in PLN, and all values, unless otherwise indicated, are given in PLN rounded to one thousand. The financial statements, have been prepared based on the fair value principle for financial assets and liabilities recognised at FVTPL including derivative instruments, and financial assets classified as FVTOCI. Other items of financial assets and liabilities (including loans and advances) are presented at amortized cost with effective interest rate applied less impairment charges (except loans which failed SPPI test), or at their purchase price less impairment charges.
The preparation of financial statements in accordance with IFRS, as adopted by the EU, requires from the management the use of estimates and assumptions that affect applied accounting principles and the amounts (assets, liabilities, incomes and costs) reported in the financial statements and notes thereto. The respective unit of the Bank is responsible for selection, application, development, and verification of adopted estimations; the assumptions are then subject to approval by the Bank’s management. Estimations and assumptions applied to the presentation of value of assets, liabilities, revenues and costs, are made on basis of historical data available and other factors considered to be relevant in given circumstances. Applied assumptions related to the future and available data sources are the base for making estimations regarding carrying value of assets and liabilities, which cannot be determined explicitly on basis of other sources. The actual results may differ from those estimates. The conformity between actual results and adopted estimations and assumptions is verified on regular basis. Adjustments to estimates are recognized in the period when the estimation was changed, provided that the adjustment applies to this period alone, or in the period when the estimation was changed and in the following periods, should the adjustment impact both the current and future periods.
The below-presented accounting principles have been applied to all reporting periods presented in the financial statements.
The items contained in the financial statements of the Bank are presented in the currency of their basic economic environment, in which a given entity operates (‘the functional currency’). The financial statements are presented in Polish zlotys, being the functional currency and the presentation currency for the Bank.
19 Annual Financial Report of the Bank Millennium S.A. 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.
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.
In the case of mergers of the Capital Group companies (transaction under joint control), the Bank adopts the accounting principle consisting in the application of the "predecessor accounting" method. In the separate financial statements, the Bank recognizes the carrying amounts of the assets and liabilities of the acquiree that is a subsidiary according to the values included in the consolidated financial statements of the Capital Group in relation to this subsidiary, including also goodwill arising on the acquisition of this subsidiary. A possible difference between the carrying amount of the net assets acquired after the adjustments referred to above and the value of investments in a subsidiary disclosed in the separate financial statements of the Bank is recognized in equity as "Retained earnings". The net financial result achieved by the company being acquired up to the day preceding the date of merger is disclosed in the Bank's financial statements under equity as "Retained earnings".
The preparation of financial statements in accordance with IFRS requires from the Bank the use of estimates and assumptions that affect the amounts reported in the financial statements. The estimates and assumptions, revised by the Bank 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 Bank, the actual results may differ from the estimates. The major areas for which the Bank makes estimates are presented below:
▪ 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 Bank’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 Bank 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 Bank,
▪ Indexes options acquired/placed by the Bank.
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 Bank applies the component of credit risk taking into account both: counterparty risk (credit value adjustment – CVA) and own Bank’s risk (debit value adjustment - DVA). The Bank assesses that unobservable inputs related to applying this component used for fair value measurement are not significant.
▪ Impairment of other non-current assets
The Bank assesses the existence of any indications that a non-current asset may be impaired at each balance sheet date. If such indications exist, the Bank 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 Bank may obtain from the given non-current asset (or cash generating unit). The Bank 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.
21 Annual Financial Report of the Bank Millennium S.A. for the 12-month period ending 31 st December 2023 This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
▪ 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 12 "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.
• Valuation of the portfolio of loans dedicated to pooling to Mortgage Bank
In the case of the portfolio of mortgage loans in PLN, which will be subject to sale (pooling) to Mortgage Bank in the future, it is measured at fair value through other comprehensive income. The fair value of the loans is calculated as the sum of discounted cash flows from principal repayments and interest payments on individual accounts. Key assumptions:
i) for loans, the starting point for determining the projected cash flows (interest and principal installments) are the schedules of principal and interest
ii) the calculation of the discount rate adopted to estimate the value of cash flows takes into account: the WIBOR reference rate, the calibration margin determined on the basis of the latest production of the mortgage loan portfolio analogous to the valued portfolio, the cost of risk of the valued portfolio and the percentage of prepayment adjustment.
▪ 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 Bank 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.
22 Annual Financial Report of the Bank Millennium S.A. for the 12-month period ending 31 st December 2023 This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
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”).
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 Bank’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.
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.
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).
23 Annual Financial Report of the Bank Millennium S.A. 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.
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.
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 Bank’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 Bank in order to collect contract cash flows, while sales transactions occur infrequently.
1) The integral objectives of the business model are both to collect contractual cash flows and sell assets (in particular the model meets the assumptions of HTC&FS, if its objective is to manage everyday liquidity needs, maintain an adopted interest yield profile and/or match the duration of the financial assets and liabilities),
2) The levels of sales are usually higher than in the HTC model.
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 as well as to the portfolio of mortgage loans dedicated to pooling to Bank Hipoteczny. 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 Bank 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).
1) The business model does not meet the assumptions of the HTC and HTC&FS models.
2) The collecting of cash flows on interest and principal is not the main objective of the business model (the SPPI test is not satisfied),
24 Annual Financial Report of the Bank Millennium S.A. 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.
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.
Financial assets kept under models other than HTC or HTC&FS are valued at fair value through profit & loss (FVTPL). A business model other than HTC or HTC&FS shall apply to portfolios of the following financial assets:
1) Derivative instruments,
2) Debt securities held for trading,
3) Capital instruments not appointed to be a strategic investment,
4) Financial assets irrevocably designated at initial recognition to be valued at fair value through profit & loss (even in case the asset does not meet criteria to be FVTPL) in order to eliminate or significantly mitigate accounting mismatch if would appear in case such designation is not made.
The evaluation of the fulfilment of the SPPI Test is carried out in the following cases:
▪ granting a debt instrument;
▪ purchase of debt instrument;
▪ renegotiation of contractual terms.
The subject of the SPPI Test are the contractual terms of debt instruments recognised in the balance sheet, whereas the off-balance sheet products are not analyzed. 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, eg 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 Bank performs an assessment based on the Benchmark Test, ie 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).
25 Annual Financial Report of the Bank Millennium S.A. 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.
Non-recourse assets (products for which the Bank’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 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. If the contractual terms of the loan are modified, the Bank 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:
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 Bank 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.
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
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 (suspension of instalment payments up to 8 monthly instalments) in 2022- 2023 (“Credit Holidays”) for PLN mortgage borrowers, the Bank initially recognized a one-off cost in July 2022 in the amount of PLN 1,384.6 million. 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 initially 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 the assumption that 80% of eligible loan principals that will suspend the repayment instalment. As a result of the analysis of customer behaviour carried out in December 2022, the Bank adjusted the estimates of the percentage of eligible 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 Bank's interest income in 2022 was reduced to PLN 1,291.6 million. 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 11.4 million. Pursuant to the concluded agreement, in the event of the entry into force of regulations enabling customers to take advantage of subsequent credit holidays (not mentioned above), Bank Millennium undertakes to return to Millennium Mortgage Bank the equivalent of benefits in the form of lost interest income in connection with the suspension of repayment of loans constituting an element of proceeds from sold mortgage loan portfolios (applies to proceeds from the portfolio that was sold by Bank Millennium to Millennium Mortgage Bank in November 2023 and tranches sold later).
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 Bank as POCI in all subsequent periods until they are derecognized from balance sheet, and expected credit loss is estimated based on ECL covering the remaining life time of the financial asset, regardless of future changes in estimates of cash flows generated by them (possible improvement of assets quality). POCI assets can be created in 3 different ways, i.e.:
1) through the acquisition of a contract that meets the definition of POCI (e.g. as a result of the purchase of the "bad credit" portfolio),
2) by entering into a contract that is POCI at the time of original granting (e.g. granting a loan to a client in bad financial condition with the hope of improving it in the future)
3) through a significant modification of the contract included in stage 3 leading to derecognition of the contract from the balance sheet, and then to its further recognition in the balance sheet as a contract meeting the definition of POCI.
The Bank 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.
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
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 Bank 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.
Financial result reflects following items:
* depreciation of right to use,
* interest on lease liabilities,
* VAT on rent invoices reported in cost of rent.The Bank 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 Bank uses the option of not recognizing leasing in the case of short-term contracts for space lease and car leasing contracts,
• the Bank 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 Bank.
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.
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
The Bank recognizes financial assets or liabilities on the balance sheet, when it becomes a party to the contractual provisions of the instrument. Standardized purchase and sale transactions of financial assets are recognized at the trade date. All financial instruments at their initial recognition are valued at fair value adjusted, in the case of a financial instrument not valued at fair value through profit or loss, by transaction costs that are directly attributable to the acquisition or issue of the financial asset/liability.
The Bank derecognizes a financial asset when: the contractual rights to the cash flows from the financial asset expire, or the Bank transfers the financial asset to third party. The transfer takes place when the Bank:
▪ 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 Bank.
On transferring a financial asset, the Bank evaluates the extent to which it retains the risks and rewards of ownership of the financial asset. Accordingly, where the Bank:
▪ 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 Bank 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 Bank has not retained control, it derecognises the financial asset accordingly.
The Bank removes a financial liability (or a part of a financial liability) from its balance sheet when the obligation specified in the contract is discharged or cancelled or expired.
Derivative instruments are reported at fair value starting from the day of conclusion of the transaction. Fair value is determined on the basis of quotations of instruments on active markets, including pricing of recently concluded transactions. A market is considered as active when the quoted instrument prices are regularly available and result from actual transactions on the market and represent a level, at which the Bank could conclude such transactions. If the market for the instruments is not active the Bank 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 Bank 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 Bank 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 Bank’s risk (debit value adjustment - DVA).
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
The Bank distinguishes and records in the balance sheet the derivatives which are a component of hybrid instruments. A hybrid agreement contains an underlying (host) contract (not being a derivative) and an embedded derivative which on the basis of a specific interest rate, price of financial instrument, price of a commodity, rate of a currency, index of prices or rates or another variable modifies part or the total of the cash flows resulting from the underlying contract. Embedded derivative instruments are treated as stand-alone derivative instruments provided they meet conditions presented below. Embedded derivative instruments are valued at fair value, and their changes are recognized in the profit and loss. Embedded derivative instruments are recognized and valued separately from the host contract if, and only if:
▪ the economic characteristics and risks of the embedded derivative are not closely related to the economic characteristics and risks of the host contract,
▪ a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative; and
▪ the hybrid (combined) financial instrument is not measured at fair value with changes in fair value recognized in profit or loss.
The method of recognizing the resulting fair value gain or loss depends on whether the given derivative instrument is designated as a hedging instrument, and if it is, it also depends on the nature of the hedging relationship and the hedged item.
The Bank uses derivative instruments in order to hedge against interest rate risk and FX risk arising from operating, financing and investing activities of the Bank. Some derivative instruments are designated as a hedging instrument of:
▪ cash flows hedges of recognized asset or liability or highly probable forecasted transaction (cash flow hedges), or:
▪ fair value hedges of recognized asset or liability or firm commitment (fair value hedges).
The Bank 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 Bank’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).
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
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.# Cash flow hedge
A cash flow hedge is accounted for as follows: the portion of the gain or loss on the hedging instrument that is determined to be an effective hedge is recognised in equity through the other comprehensive income; and the ineffective portion of the gain or loss on the hedging instrument is recognised in Result on financial instruments valued at fair value through profit and loss. The associated gains or losses that were recognised in other comprehensive income (effective hedge), at the moment of recognition of a financial asset and liability being a result of planned hedged future transaction, are transferred into profit or loss in the same period or periods during which the asset acquired or liability assumed affects the profit or loss. 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: 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 Bank. It means that any gains or losses resulting from re-measuring the hedging instrument at fair value (for a derivative hedging instrument) are recognised in profit or loss and the gains or losses on the hedged item attributable to the hedged risk adjust the carrying amount of the hedged item and are recognised in profit or loss. This applies if the hedged item is otherwise measured at cost. Recognition of the gain or loss attributable to the hedged risk in profit or loss applies if the hedged item is an FVOCI asset. The valuation of hedged financial assets classified as FVOCI, resulting from factors other than risk hedged, is recognized in other comprehensive income till the date of sale or maturity of this financial asset.
If the fair value hedge no longer meets the criteria for applying hedge accounting, the carrying value adjustment of the hedged instrument valued at amortized cost and effective interest rate, is linearly amortized through profit and loss account over the period ending on the maturity date. The value of hedged financial assets classified as FVOCI resulting from factors other than hedged risks is recognized in the revaluation reserve till the date of sale or maturity of this financial asset.
If the cash flow hedge no longer meets the criteria for hedge accounting, the valuation of hedging instrument recognized in other comprehensive income at the date of the last effectiveness test remains in equity until the realization of cash flow resulting from the hedged item. Then the amount is transferred into profit and loss account in the periods, in which the hedged transaction influences the profit and loss account.
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Annual Financial Report of the Bank Millennium S.A. 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.
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. The Bank uses the following principles of recognition of gains and losses resulting from the valuation of derivative instruments:
Forward transactions are valued at fair value on discounted future cash flows basis, taking into account the credit risk of the counterparty (and the Bank) 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 Bank 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 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 Bank) 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.
IRS transactions are valued at fair value on discounted future cash flows basis, taking into account the credit risk of the counterparty (and the Bank) 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 Bank designated selected IRS transactions as hedging instruments. The method of capturing and valuating hedging financial instruments was described in the part on hedge accounting.
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 Bank) 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 Bank 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.
32
Annual Financial Report of the Bank Millennium S.A. 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.
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 Bank) 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 Bank.
Option transactions are measured at fair value with use of option measurement models. In case of options issued by the Bank’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.
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 Bank) 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 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 Bank 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 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 Bank 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.
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.
33 Annual Financial Report of the Bank Millennium S.A. for the 12-month period ending 31 st December 2023
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
According to IFRS 9, credit exposures are classified in the following categories:
In the case of exposures classified as POCI (purchased or originated credit impaired) which, upon their initial recognition in the balance sheet, are recognized as impaired, expected credit loss is estimated based on ECL covering the remaining life time of the financial asset.
Assets, for which there has been identified a significant increase in credit risk compared to the initial recognition in the balance sheet, are classified in Stage 2. The significant increase in credit risk is recognized based on qualitative and quantitative criteria. The qualitative criteria include:
The quantitative criterion involves a comparison of the lifetime PD value determined on initial recognition of an exposure in the balance sheet, with the lifetime PD value determined at the current reporting date. If an empirically determined threshold of the relative change in the lifetime PD value is exceeded then an exposure is automatically transferred to Stage 2. The quantitative assessment does not cover exposures analyzed individually.
In the process of calculation of expected credit losses, the Bank uses forward looking information about macroeconomic events. The Macroeconomic Analysis Office prepares three macroeconomic scenarios (base, optimistic and pessimistic) and determines the probability of their occurrence. The forecasts translate directly or indirectly into the values of estimated parameters and exposures.
Since the implementation of IFRS 9, the Group has adopted an uniform definition of default, both for the purpose of calculation of capital requirements and for the estimation of impairment. Starting from 2020, for the retail portfolio, the Group uses the definition of default, which is in line with the EBA Guidelines (EBA/GL/2016/07), the so-called New Definition of Default. Unified Default definition includes following triggers:
Bank is using cross-default approach for all segments.
34 Annual Financial Report of the Bank Millennium S.A. for the 12-month period ending 31 st December 2023
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
The PD model, created for the calculation of expected credit losses, is based on empirical data concerning 12-month default rates, which are then used to estimate lifetime PD values (including FLI) using appropriate statistical and econometric methods. The segmentation adopted for this purpose at the customer level is consistent with the segmentation used for capital requirement calculation purposes. Additionally, the Bank has been using rating information from internal rating models to calculate PDs.
The LGD models for the retail portfolio used by the Bank in the capital calculation process were adjusted to IFRS 9 requirements in the area of estimating impairment. The main components of these models are the probability of cure and the recovery rate estimated on the basis of discounted cash flows. The necessary adaptations to IFRS 9 include, among other things, exclusion of the conservatism buffer, indirect costs, adjustments for economic slowdown. In addition, adjustments have been made to reflect the current economic situation and to utilize forward looking information on macroeconomic events (FLI). For the corporate portfolio, LGD model is based on a component determining parameterized recovery for the key types of collateral and a component determining the recovery rate for the unsecured part. All the parameters were calculated on the basis of historical data, including discounted cash flows achieved by the corporate debt recovery unit.
The EaD model used in the Bank includes calculation of parameters such as: average limit utilization (LU), credit conversion factor (CCF), prepayment ratio, behavioural life expectancy. Segmentation is based on the type of customer (retail, corporate, leasing) and product (products with/without a schedule). Forecasts of foreign exchange rates are used as FLI adjustment.
The Bank directly reduces the gross carrying amount of a financial asset if there are no reasonable grounds to recover a given financial asset in whole or partially. As a result of write-off, a financial asset component ceases, in whole or partially, to be recognized in the financial statements.
Financial assets and financial liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously.
Repo and sell-buy back transactions as well as reverse-repo and buy-sell back transactions, are transactions of sale and purchase of securities for which a commitment has been made to repurchase or resell them at a contractual date and for specified contractual price.
35 Annual Financial Report of the Bank Millennium S.A. for the 12-month period ending 31 st December 2023
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
The Bank 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 Bank after the transfer. When the Bank purchases securities with a sell back clause (reverse repo, buy-sell-back), the financial assets are presented as receivables arising from sell back clause. Transactions with repurchase/resell agreement are measured at amortized cost. Securities, which are the subjects of transactions with repurchase clause, are not removed from the balance sheet and are measured in accordance with principles applicable for particular securities portfolio. The difference between sale and repurchase price is treated as interest cost/ income, and is accrued over the period of the agreement by application of an effective interest rate.
Tangible fixed assets are the controlled fixed assets and outlays made to build such assets. Tangible fixed assets include fixed assets with an expected period of use above one year, maintained to be used to serve the Bank’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 Bank 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 Bank, 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.
An intangible asset is an identifiable non-pecuniary asset which does not have physical form and will generate economic benefits for the Bank 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
Other intangibles purchased by the Bank 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 Bank. 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.
36 Annual Financial Report of the Bank Millennium S.A. 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.
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:
Depreciation and amortization charges are recognized as operating expenses in the profit and loss account.
The Bank 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 Bank ceases to classify the assets as held for sale and makes reclassification to other assets category. The Bank measures a non-current asset that ceases to be classified as held for sale at the lower of:
37 Annual Financial Report of the Bank Millennium S.A. 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.
The Bank assesses the existence of any indications that a non-current asset may be impaired at each balance sheet date. If such indications exist, the Bank estimates the recoverable amount of the asset and if the recoverable amount of an asset is less than its carrying amount, the Bank 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 Bank performs an estimation of recoverable value. If, and only if, the recoverable value of an asset is less than its carrying amount, the carrying amount of the asset is reduced to its recoverable value. If pursuant to IAS 36, paragraph 21 there is no reason to believe that an asset’s value in use materially exceeds its fair value less costs to sell, the asset’s fair value less costs to sell may be used as its recoverable amount. This will be particularly the case of an asset that is held for disposal. An impairment loss can be reversed only to the amount, where the book value of impaired asset does not exceed its book value, which decreased by depreciation charge, would be established, if any impairment loss would not be recognized.
Prepayments comprise of particular expenses which will be settled against the profit and loss as being accrued over the future reporting periods. Prepayments are presented in the caption “Other assets” in the balance sheet.
Accruals are liabilities for costs arising from services provided to the Group, which will be payable over future periods. The accruals are recognized in the caption “Other Liabilities” in the balance sheet. Deferred income comprises among others received amounts of future services and other types of income received in advance to be settled against in the profit and loss in future reporting periods. They are presented in the caption “Other Liabilities” in the balance sheet.
Provisions are established when (1) the Bank 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 Bank 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.
38 Annual Financial Report of the Bank Millennium S.A. 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.
A detailed formal plan for the restructuring identifies at least: the business or part of a business concerned; the principal locations affected; the location, function, and approximate number of employees who will be compensated for terminating their services; the expenditures that will be undertaken; and when the plan will be implemented. A restructuring provision includes only the direct expenditures arising from the restructuring, which are those that are both: (a) necessarily entailed by the restructuring; and (b) not associated with the ongoing activities of the entity. The restructuring provision does not cover future operating expenses.
Short-term employee benefits of the Bank (other than termination benefits due wholly within 12 months after work is completed) comprises of wages, salaries, bonuses and paid annual leave and social security contributions. The Bank 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 Bank employees are entitled is calculated as the sum of unused holidays to which particular Bank employees are entitled.
The Bank’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 Bank’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 Bank implemented a policy specifying the principles of remuneration for persons having a significant impact on the risk profile of Bank Millennium, as amended. In accordance with the policy, the Bank'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 Bank, 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. Detailed information is presented in Chapter 14) point 7).
39 Annual Financial Report of the Bank Millennium S.A. 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.
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 Bank fulfils a programme of post – employment benefits called defined contribution plan. Under this plan the Bank 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 Bank does not have a legal or constructive obligation to pay further contributions if the fund does not hold sufficient assets to pay all employee benefits relating to employee service.
Equity consists of capital and funds established in compliance with the respective provisions of the law, i.e., the appropriate legislative acts, the Company by-laws, or the Articles of Association. Equity is comprised of the share capital, share premium, revaluation reserve and retained earnings. All balances of capital and funds are presented at nominal value.
Share capital is presented at nominal value, in accordance with the Articles of Association and the entry in the Register of Companies. If the entity acquires its own shares, then the paid amount together with the costs directly attributed to such purchase is treated as a change in the Equity. Acquired own shares are treated as own shares and disclosed as reduction of the Equity until the time they are cancelled. Dividends for the financial year, which have been approved by the General Shareholders’ Meeting, but not distributed as of the balance sheet day, are disclosed in the caption „Other Liabilities” in the balance sheet.
Share premium is formed from agio obtained from the issue of shares reduced by the attached direct costs incurred with that issue.
Accumulated other comprehensive income consists of: the valuation of financial assets measured at fair value through other comprehensive income, the result of cash flow hedge valuation and actuarial gains (losses) regarding provisions for retirement benefits with deferred income tax effect applied. Accumulated other comprehensive income is not subject to distribution.
Retained earnings are created with charges against profit and are allocated for purposes specified in the Articles of Association or other legal regulations (the remaining part of supplementary capital, additional reserve capital, including general banking risk fund) or constitute previous years’ profit/loss or year-to-date net financial result. The General Banking Risk Fund at Bank Millennium SA 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 Bank’s equity.
40 Annual Financial Report of the Bank Millennium S.A. 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.
A financial guarantee contract is a contract that requires the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due in accordance with the original or modified terms of a debt instrument. The financial guarantees granted are valued at the higher of the following values:
* amounts of write-offs for expected credit losses,
* the amount initially recognized less the cumulative amount of income recognized in accordance with IFRS 15.
Interest income includes interest on financial instruments measured at amortized cost and financial assets measured at fair value through other comprehensive income using the effective interest rate method. The effective interest rate method is a method of calculating the amortized cost of a financial asset or financial liability and the allocation of interest cost or interest income and certain commissions (constituting an integral part of the interest rate) to the relevant period. The effective interest rate is the rate that exactly discounts the estimated future cash flows (in the period until the financial instrument expires) up to the gross carrying amount of the asset / amortised cost of the liability. When calculating the effective interest rate, the Bank 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.
41 Annual Financial Report of the Bank Millennium S.A. 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.
Interest costs include in particular interest resulting from financial instruments measured at amortized cost using the effective interest rate method described above.
Fee and commission income and expenses received from banking operations on client accounts, from operations on payment cards and brokerage activity is recognized in the profit and loss at the time the service is rendered; other fees and commissions are deferred and recognized as revenue over time. The basic types of commissions related to credit operations in the Bank include among others: loan origination fees and commissions, and commitment fees.# Fees and commissions (both income and expense) directly attributable to initial recognition of financial assets with established repayment schedules are recognized in profit and loss account as effective interest rate component and are part of interest income. Other, attributed to initial recognition of financial assets without established repayment schedules are amortized on a straight-line basis through the expected life of the financial instrument. Fees and commissions 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 Bank'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 Bank'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 Bank 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.
42 Annual Financial Report of the Bank Millennium S.A. for the 12-month period ending 31 st December 2023
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
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 Bank, such as:
▪ Asset management services;
▪ Services connected with cash management;
▪ Brokerage services;
are recognised in the Profit and Loss Account on an one-off basis.
Dividend income is recognized in the profit and loss when the shareholders’ right to receive payment is established.
The result on derecognition of financial assets and liabilities not measured at fair value through profit or loss includes gains and losses arising from the sale of debt financial instruments classified to the portfolio measured at fair value through comprehensive income and other gains and losses resulting from investing activities. 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 13., note (5).
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).
43 Annual Financial Report of the Bank Millennium S.A. for the 12-month period ending 31 st December 2023
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
The result on non-trading financial assets mandatorily at fair value through profit or loss includes gains and losses on disposal and the effect of the measurement of financial instruments classified to this category of assets.
The result on hedge accounting includes in particular: changes in the fair value of the hedging instrument (including discontinuation), changes in the fair value of the hedged item resulting from the hedged risk and inefficiencies resulting from cash flow hedges recognized in profit or loss.
Foreign exchange differences include:
i) realized result and result from the valuation of FX spot and FX Forward transactions
ii) positive and negative exchange rate differences, both realized and unrealized, resulting from the daily valuation of foreign currency assets and liabilities, valid as at the balance sheet day average NBP exchange rate and affecting income or expenses from the exchange position.
Other operating income and expenses include expenses and incomes not associated directly with the banking activity. In particular, this is result on sale and liquidation of fixed assets, income from sale of other services, received and paid damages, penalties and fines and provisions for litigations issues.
Franchise is a model of cooperation between the Bank and independent entrepreneurs who, based on concluded agreements of the nature of agency agreements, defined by law, perform agency activities in the sale of products and services from the Bank’s offer to the Bank’s clients and potential clients. The cooperating franchisees use the Bank’s trademarks and know-how when performing the agreement, and franchise outlets are almost as functional for customers as Bank’s own outlets (excluding investment products). For cooperation, the Bank charges a franchise fee for the use of trademarks and fees for renting IT equipment from the Bank necessary to perform activities in a given branch and pays franchisees commissions on banking products and services sold.
The tax on certain financial institutions ("banking tax") is the tax presented in the 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.
44 Annual Financial Report of the Bank Millennium S.A. for the 12-month period ending 31 st December 2023
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
The Bank is also taxpayer 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);
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 is 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
Revenues, costs, and assets are recognized in the amount less VAT, tax on civil law transactions and other sales taxes, except when the sales tax paid on the purchase of goods and services is not recoverable from tax authorities; then VAT is recognized as an expense or as part of the cost of acquiring an asset, respectively. The amount of tax recoverable or payable to the tax authorities is presented in the financial statement as part of receivables or liabilities.
Corporate income tax comprises current and deferred tax. Current income tax is calculated on profit before tax, established in accordance with appropriate accounting regulations adjusted by non-taxable income and non-tax deductible expenses, with usage of binding tax rate. Moreover, for tax purposes, the gross profit is adjusted by previous years’ income and expenses realised for tax purposes in a given reporting period and deductions from income arising from e.g. donations.
Deferred income tax is recognized in profit and loss, except for when it is recognized in other comprehensive income or directly in equity because it relates to transactions that are also recognized in other comprehensive income or directly in equity. Provision for deferred income tax is recognized in liabilities in the caption “Deferred income tax liabilities”. Deferred income tax asset is recognized in assets as “Deferred income tax assets”. The Bank offsets deferred tax assets and deferred tax liabilities, because it has a legally enforceable right for such netting and the deferred tax assets and the deferred tax liabilities relate to income taxes (levied by the same taxation authority).
Deferred income tax provision is recognised using the balance sheet method for all positive temporary differences except when it arises from the amortization of goodwill or initial recognition of an asset or liability in a transaction which is not a business combination and at the time of the transactions affects neither accounting profit nor taxable profit (tax loss).
Deferred income tax assets are recognised using the balance sheet method with respect to tax loss carry forwards and all negative temporary differences as at the balance sheet date between carrying amount of an asset or liability in the balance sheet and its tax value only to the extent that it is probable that future taxable profit will be available against which the deductions can be utilised.
Deferred income tax assets are not recognised for negative temporary differences arising from the initial recognition of an asset or liability in a transaction which is not a business combination and at the time of the transactions affects neither accounting profit nor taxable profit (tax loss).
An asset or a liability arising from temporary differences associated with investments in subsidiaries and associates are not included in calculation of deferred income tax assets or liabilities, unless the Bank is able to control the timing of the reversal of the temporary differences and it is probable that the temporary difference will reverse in the foreseeable future.
The amount of calculated deferred tax is based on expected degree of realisation of balance-sheet values of assets and liabilities with use of tax rates, which are expected to be in force when the asset is realised or provision eliminated, assuming the tax rates (and tax legislation) legally or factually in force as of the balance sheet date.
The management of risk is one of the key tasks of the Management Board in the process of effective management of the Bank. It defines the framework for business development, profitability, and stability, by creating rules ensuring the Bank’s compliance with best internal control practices and legal requirements and coordination of the strategy for managing all risks.
The mission of risk management in the Bank Millennium 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 Bank's operations. Important principle of risk management is the optimization of the risk and profitability trade-off – the Bank 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:
Risk management is centralized for the Bank 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 Bank 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:
The risk management and control model at the Bank’s level is based on the following main principles:
The Risk management process of the Bank is presented in the below diagram:
The split of competence in the field of risk management is as follows:
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.
Delineate key risk definitions
Monitor the models performance and the portfolios behavior
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 Bank. 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.
▪ 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 Credit Underwriting Department have responsibility, 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.
49 Annual Financial Report of the Bank Millennium S.A. for the 12-month period ending 31 st December 2023 This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
▪ 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 Bank 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 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.
The Bank 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 Bank 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 SA - Program of counteracting Anti-Money Laundering and financing terrorism.
50 Annual Financial Report of the Bank Millennium S.A. for the 12-month period ending 31 st December 2023 This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
Within risk appetite, the Bank 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 Bank 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 Annual Financial Report of the Bank Millennium S.A. for the 12-month period ending 31 st December 2023 This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
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, Bank 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 appetite. In a scope of capital management process, there is also a capital planning process. The goal of capital planning is to designate the own funds (capital base that is risk-taking capacity) and capital usage (regulatory capital requirements and economic capital) in a way to ensure that capital targets/limits shall be met, given forecasted business strategy and risk profile – in normal and stressed macroeconomic conditions.
The Bank is obliged by law to meet minimum own funds requirements, set in art. 92 of Regulation (EU) No 575/2013 on prudential requirements for credit institutions and investment firms, amending Regulation (EU) No 648/2012 (CRR).At the same time, the following buffers were included in capital targets/limits:
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 Annual Financial Report of the Bank Millennium S.A. 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.
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. 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 | |
|---|---|---|---|---|
| CET1 ratio | Minimum | 4.50% | 4.50% | 4.50% |
| P2R Buffer | 0.82% | 0.82% | 0.82% | |
| TSCR CET1 (Total SREP Capital Requirements) | 5.32% | 5.32% | 5.32% | |
| Capital Conservation Buffer | 2.50% | 2.50% | 2.50% | |
| OSII Buffer | 0.25% | 0.25% | 0.25% | |
| Systemic risk buffer | 0.00% | 0.00% | 0.00% | |
| Countercyclical capital buffer | 0.00% | 0.00% | 0.00% | |
| Combined buffer | 2.75% | 2.75% | 2.75% | |
| OCR CET1 (Overall Capital Requirements CET1) | 8.07% | 8.07% | 8.07% | |
| T1 ratio | Minimum | 6.00% | 6.00% | 6.00% |
| P2R Buffer | 1.10% | 1.10% | 1.10% | |
| TSCR T1 (Total SREP Capital Requirements) | 7.10% | 7.10% | 7.10% | |
| Capital Conservation Buffer | 2.50% | 2.50% | 2.50% | |
| OSII Buffer | 0.25% | 0.25% | 0.25% | |
| Systemic risk buffer | 0.00% | 0.00% | 0.00% | |
| Countercyclical capital buffer | 0.00% | 0.00% | 0.00% | |
| Combined buffer | 2.75% | 2.75% | 2.75% | |
| OCR T1 (Overall Capital Requirements T1) | 9.85% | 9.85% | 9.85% | |
| TCR ratio | Minimum | 8.00% | 8.00% | 8.00% |
| P2R Buffer | 1.47% | 1.46% | 1.46% | |
| TSCR TCR (Total SREP Capital Requirements) | 9.47% | 9.46% | 9.46% | |
| Capital Conservation Buffer | 2.50% | 2.50% | 2.50% | |
| OSII Buffer | 0.25% | 0.25% | 0.25% | |
| Systemic risk buffer | 0.00% | 0.00% | 0.00% | |
| Countercyclical capital buffer | 0.00% | 0.00% | 0.00% | |
| Combined buffer | 2.75% | 2.75% | 2.75% | |
| OCR TCR (Overall Capital Requirements TCR) | 12.22% | 12.21% | 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 (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).
53 Annual Financial Report of the Bank Millennium S.A. 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.
Capital risk, expressed in the above capital targets/limits, is measured, and monitored in a regular manner. Capital limits were defined based on the minimum regulatory capital levels. They are the basis of setting safety zones and risk appetite. Capital ratios in each zone determine the need to make appropriate decisions or management actions. Regular monitoring of capital risk is based on the classification of capital ratios into appropriate zones, and then the assessment of trends and factors influencing the level of capital adequacy is carried out.
The Bank 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 Bank received another decision by Regulatory 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 Bank 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 Bank 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 Bank in 2020 successfully implemented solutions for the new definition of default in the production environment.
The Bank 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 Bank 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.
54 Annual Financial Report of the Bank Millennium S.A. 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.
The Bank 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 the 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. 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 of the Bank over the last three years was as follows ³:
| 31.12.2023 | 31.12.2022 | 31.12.2021 | |
|---|---|---|---|
| Risk-weighted assets | 37 960.4 | 48 046.0 | 48 895.7 |
| Own Funds requirements, including: | 3 036.8 | 3 843.7 | 3 911.7 |
| - Credit risk and counterparty credit risk | 2 589.0 | 3 386.7 | 3 477.7 |
| - Market risk | 15.4 | 18.0 | 32.3 |
| - Operational risk | 427.0 | 432.3 | 391.4 |
| - Credit Valuation Adjustment CVA | 5.4 | 6.7 | 10.3 |
| Own Funds, including: | 7 228.3 | 6 980.1 | 8 397.1 |
| Common Equity Tier 1 Capital | 5 847.4 | 5 458.9 | 6 867.1 |
| Tier 2 Capital | 1 380.9 | 1 521.2 | 1 530.0 |
| Total Capital Ratio (TCR) | 19.04% | 14.53% | 17.17% |
| Tier 1 Capital ratio (T1) | 15.40% | 11.36% | 14.04% |
| Common Equity Tier 1 Capital ratio (CET1) | 15.40% | 11.36% | 14.04% |
| Leverage ratio | 4.77% | 4.74% | 6.45% |
³ Bank 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: 18.84% - T1: 15.20% - CET1: 15.20% - Leverage ratio: 4.71%
55
Annual Financial Report of the Bank Millennium S.A. for the 12-month period ending 31 st December 2023
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
Capital adequacy showed as surpluses/deficits on required or recommended levels is presented in the below table.
| 31.12.2023 | 31.12.2022 | 31.12.2021 | |
|---|---|---|---|
| Total Capital Ratio (TCR) | 19.04% | 14.53% | 17.17% |
| Minimum required level (OCR) | 12.22% | 12.70% | 13.57% |
| Surplus (+) / Deficit (-) of TCR capital adequacy (p.p.) | 6.82 | 1.83 | 3.6 |
| Minimum recommended level TCR (OCR+P2G) | 13.81% | 14.42% | 13.57% |
| Surplus (+) / Deficit (-) on recommended level (p.p.) | 5.23 | 0.11 | 3.6 |
| Tier 1 Capital ratio (T1) | 15.40% | 11.36% | 14.04% |
| Minimum required level (OCR) | 9.85% | 10.22% | 11.31% |
| Surplus (+) / Deficit (-) of T1 capital adequacy (p.p.) | 5.55 | 1.14 | 2.73 |
| Minimum recommended level T1 (OCR+P2G) | 11.44% | 11.94% | 11.31% |
| Surplus (+) / Deficit (-) on recommended level (p.p.) | 3.96 | -0.58 | 2.73 |
| Common Equity Tier 1 Capital ratio (CET1) | 15.40% | 11.36% | 14.04% |
| Minimum required level (OCR) | 8.07% | 8.35% | 8.83% |
| Minimum recommended level CET1 (OCR+P2G) | 9.66% | 10.07% | 8.83% |
| Surplus (+) / Deficit (-) on recommended level (p.p.) | 5.74 | 1.29 | 5.21 |
| Leverage ratio | 4.77% | 4.74% | 6.45% |
| Minimum required level | 3.00% | 3.00% | 3.00% |
| Surplus (+) / Deficit (-) of Leverage ratio (p.p.) | 1.77 | 1.74 | 3.45 |
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 4.04 pp and by ca 4.51 pp, respectively. Risk-weighted assets (RWA) decreased in 2023 by PLN 10,086 million (by 21%). The largest annual change concerned RWA for credit risk - a decrease of PLN 9,972 million (by 23.6%). 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 approximately PLN 5,035 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 114 million. Own funds increased in 2023 by PLN 248 million (by 3.6%), mainly as a result of including the net profit for the first half of 2023 in own funds (an increase by PLN 339 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 4.77%, and it significantly exceeds the regulatory minimum (3%).
56
Annual Financial Report of the Bank Millennium S.A. for the 12-month period ending 31 st December 2023
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
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. UniCredit Bank AG acted as the organizer and placement agent of the transaction. The transaction meets 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).
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 taking into account 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).
| 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 (pp) | 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 (pp) | 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 (pp) | 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.
57
Annual Financial Report of the Bank Millennium S.A. for the 12-month period ending 31 st December 2023
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
The credit risk is one of the most important risk types for the Bank Millennium SA 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 Bank’s regulatory environment. The Bank 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.
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 Bank 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 Bank’s customers are divided into 15 rating classes, which for the purposes of this Report have been grouped into 6 main brackets. The Bank’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. Validation Committee confirm modifications of models. The Bank 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. 58 Annual Financial Report of the Bank Millennium S.A. 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.
| 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 |
EAD – amount of exposure at default – concerns amount which according to the Bank’s predictions will be the Bank’s receivables at the time of default against liabilities. Liabilities are understood by the Bank to mean every amount disbursed plus further amounts, which may be disbursed until default, if such occurs.
LGD – loss given default is what the Bank expects will be its losses resulting from actual cases of default, with the consideration of internal and external costs of recovery and the discount effect.
Since the implementation of IFRS 9, the Bank has adopted a uniform definition of default, both in the calculation of capital requirements and for the purposes of estimating impairment. The Group uses the definition of default in line with the EBA Guidelines, the so-called New Definition of Default. Unified Default definition includes following triggers:
The Bank is using cross-default approach for all segments.
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 Bank doesn’t apply Low Credit Risk (LCR) exemption neither for State Treasury and Central Bank exposures nor for any other groups of exposures.
The Bank 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. 59 Annual Financial Report of the Bank Millennium S.A. 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.
The Bank offers Treasury products for FX risk or interest rate risk only for hedging purposes and under Treasury limits assigned to clients or secured by collateral - deposit. Most of the Bank’s agreements include the possibility of calling the client to replenish the margin deposit, (if the valuation of the client’s open position exceeds treasury limit, the so-called margin call); and if the client does not supplement the deposit, the Bank has the right to close the position.
Credit risk-based off-balance sheet liabilities include granted guarantees and letters of credit, granted and unused limits (credit, factoring, guarantees and letters of credit and cards) as well as granted and unpaid tranches of non-renewable loans. The primary purpose of these instruments is to enable the customer to manage in a specific manner the funds allocated by the Group. Granted guarantees and letters of credit granted are unconditional and irrevocable - after the receipt of a claim compliant with the terms of the guarantee or letter of credit, the Group must make a payment. Typically, guarantees and letters of credit are related to commercial transactions. In the case of most of the granted and unused limits, the Group has the option of refusing to execute the client's instruction regarding the use of funds from these limits - either unconditionally or upon meeting the conditions set out in the documents and by-laws applicable to a given limit. In the case of granted and undisbursed tranches of non-revolving loans, their disbursement depends on the fulfilment of the conditions set out in the documents and by-laws applicable to a given non-revolving loan.
The Bank 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 limits (mentioned above) 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 Bank from the point of view of punctual repayment of their principal and interest liabilities. 60 Annual Financial Report of the Bank Millennium S.A. 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.
The Bank 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 Bank, 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 Bank as well as more detailed requirements that are to ensure the probability of selling collateral of respective types in the context of the Bank's recovery experiences. The Bank 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 Bank 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 Bank 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 Bank 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 Bank 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 Bank stipulates the possibility of taking additional collateral for the transaction. (3c)
The process of impairment identification and measurement with respect to loan exposures is regulated in the internal instruction introduced with IFRS9 application. The document 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 from time to time (at least once a quarter), which results will be considered to improve the quality of the process.
61 Annual Financial Report of the Bank Millennium S.A. for the 12-month period ending 31 st December 2023
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
The Supervision over the process of estimating impairment charges and provisions is exercised at the Bank by the Risk Department (DMR), which also has direct responsibility for individual analysis in the business portfolio at the Bank, as well as collective analysis. In addition to DMR, the process also involves recovery and restructuring units. These are the Corporate Recovery Department – DNG (individual analysis for the recovery-restructuring portfolio for corporate customers) and the Retail Liabilities Restructuring and Recovery Department - DRW (individual analysis of individually significant retail impairments, mainly mortgages). DMR is a unit not connected with the process of lending; it is supervised by the Management Board Member responsible for risk management.
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 Bank’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 Bank in finance, risk, and management information.
Since implementation of IFRS9 in 2018, impairment estimation model within the Bank 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:
62 Annual Financial Report of the Bank Millennium S.A. for the 12-month period ending 31 st December 2023
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
Assets, for which there has been identified a significant increase in credit risk compared to the initial recognition in the balance sheet, are classified in Stage 2. The significant increase in credit risk is recognized based on qualitative and quantitative criteria. The qualitative criteria include:
The quantitative criterion involves a comparison of the lifetime PD value determined on initial recognition of an exposure in the balance sheet, with the lifetime PD value determined at the current reporting date. If an empirically determined threshold of the relative change in the lifetime PD value is exceeded, then an exposure is automatically transferred to Stage 2. The quantitative assessment does not cover exposures analysed individually.
Individual analysis contains customers identified as significantly important both for business portfolio and recovery portfolio. Credit exposures are selected for individual analysis based on materiality criteria which ensure that case- by-case analysis covers at least 50% of the Bank’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:
63 Annual Financial Report of the Bank Millennium S.A. for the 12-month period ending 31 st December 2023
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
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 a different enterprise reorganisation.
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
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 recognised impairment triggers because of an individual analysis.
For the purposes of collective analysis, the Bank 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 Bank 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 Bank 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) and product (products with/without a schedule).
The results of models employed in collective analysis are subject to periodical verification. The parameters and models are also covered by the process of models’ management governed by the document „Principles of Managing Credit Risk Models,” which specifies, among others, the principles of creating, approving, monitoring and validation, and historical verification of models.
In the process of calculation of expected credit losses, the Bank 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 Bank 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.
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
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:
| Base | Optimistic | Mild recession | Applied weighting |
|---|---|---|---|
| 70% | 10% | 20% |
For assessing the sensitivity of ECL for future macroeconomic conditions, the Bank 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%.
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.
In 2023, the Bank sold credit exposures classified as impaired, in the total balance sheet amount of PLN 238 million.
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.# (3d) Maximum exposure to credit risk
| 31.12.2023 | 31.12.2022 | |
|---|---|---|
| Exposures exposed to credit risk connected with balance sheet assets | 117 750 843 | 98 943 261 |
| Deposits, loans and advances to banks and other monetary institutions | 1 866 688 | 1 410 245 |
| Loans and advances to customers: | 72 405 447 | 75 855 607 |
| 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 | 69 | 66 |
| Valued at fair value through other comprehensive income | 11 799 748 | 11 221 252 |
| Valued at amortised cost: | 60 586 349 | 64 536 373 |
| Loans to private individuals: | 43 531 149 | 46 059 185 |
| Receivables on account of payment cards | 1 148 190 | 977 645 |
| Cash loans and other loans to private individuals | 15 872 412 | 14 835 620 |
| Mortgage loans | 26 510 547 | 30 245 920 |
| Loans to companies and public sector | 17 003 760 | 18 275 638 |
| Loans to public entities | 51 440 | 201 550 |
| Financial derivatives and Adjustment from fair value hedge | 572 790 | 475 099 |
| 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 | 21 895 863 | 16 414 065 |
| Debt instruments at amortised cost | 18 439 780 | 3 893 212 |
| Repurchase agreements | 1 163 242 | 4 863 |
| Other financial assets | 1 215 465 | 793 903 |
| Credit risk connected with off-balance sheet items | 14 264 568 | 14 030 294 |
| Financial guarantees | 1 713 980 | 2 419 611 |
| Credit commitments | 12 550 588 | 11 610 683 |
The table above presents the structure of the Bank’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.
| 31.12.2023 | 31.12.2022 | |
|---|---|---|
| Mandatorily at fair value through profit or loss* | 19 349 97 | 982 |
| ▪ Companies | 69 | 66 |
| ▪ Individuals | 19 280 97 | 916 |
| ▪ Public sector | 0 | 0 |
67
Annual Financial Report of the Bank Millennium S.A. for the 12-month period ending 31 st December 2023 This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
Balance sheet value:
| 31.12.2023 | 31.12.2022 | |
|---|---|---|
| at fair value through other comprehensive income* | 11 799 748 | 11 221 252 |
| ▪ Companies | 0 | 0 |
| ▪ Individuals | 11 799 748 | 11 221 252 |
| ▪ Public sector | 0 | 0 |
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 | 99 170 260 | 4 689 208 | 2 980 468 | 116 789 | 106 956 725 |
| Balance impairment | 368 334 | 329 468 | 1 577 638 | 23 924 | 2 299 364 |
| Loans and advances to banks (external rating Fitch: from BBB to AAA; Moody's: from B3 to Aaa; S&P: from B+ to AAA) | 1 866 848 | 1 866 848 | |||
| Loans and advances to private individuals (according to Master Scale): | 38 933 934 | 3 968 908 | 2 579 655 | 93 690 | 45 576 188 |
| ▪ 1-3 Highest quality | 21 924 854 | 143 690 | 2 941 | 22 071 485 | |
| ▪ 4-6 Good quality | 8 297 717 | 940 110 | 3 332 | 9 241 159 | |
| ▪ 7-9 Medium quality | 6 585 768 | 1 165 848 | 3 021 | 7 754 637 | |
| ▪ 10-12 Low quality | 2 021 353 | 1 140 779 | 1 154 | 3 163 287 | |
| ▪ 13-14 Watched | 1 428 578 | 470 000 | 741 | 580 639 | |
| ▪ 15 Default | 2 579 655 | 82 501 | 2 662 156 | ||
| ▪ Without rating (*) | 102 814 | 10 | 102 825 | ||
| Impairment | 297 243 | 302 936 | 1 419 526 | 25 124 | 2 044 828 |
| Loans and advances to companies (according to Master Scale): | 8 182 213 | 636 402 | 362 494 | 23 099 | 9 204 208 |
| ▪ 1-3 Highest quality | 218 968 | 1 732 | 220 700 | ||
| ▪ 4-6 Good quality | 1 548 483 | 43 490 | 1 591 973 | ||
| ▪ 7-9 Medium quality | 3 454 666 | 186 005 | 3 640 671 | ||
| ▪ 10-12 Low quality | 1 141 101 | 330 044 | 1 471 144 | ||
| ▪ 13-14 Watched | 37 072 | 37 072 | |||
| ▪ 15 Default | 362 233 | 23 099 | 385 332 | ||
| ▪ Without rating (*) | 1 818 995 | 38 060 | 261 000 | 1 857 316 | |
| Impairment | 53 867 | 24 425 | 145 862 | -1 200 | 222 954 |
| Loans and advances to public entities (according to Master Scale): | 51 748 | 0 | 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 | 0 | 0 | 51 191 |
| Impairment | 120 | 0 | 0 | 0 | 120 |
68
Annual Financial Report of the Bank Millennium S.A. for the 12-month period ending 31 st December 2023 This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
PLN’000, as of the end of 2023
| Stage 1 (12- month ECL) | Stage 2 (lifetime ECL) | Stage 3 (lifetime ECL) | POCI | Total | |
|---|---|---|---|---|---|
| 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 | 29 745 | |
| ▪ 4-6 Good quality | 918 089 | 0 | 918 089 | ||
| ▪ 7-9 Medium quality | 1 103 218 | 28 638 | 0 | 1 131 856 | |
| ▪ 10-12 Low quality | 302 794 | 53 877 | 0 | 356 671 | |
| ▪ 13-14 Watched | 0 | 0 | |||
| ▪ 15 Default | 38 319 | 0 | 38 319 | ||
| ▪ Without rating (*) | 49 831 | 21 | 0 | 49 852 | |
| Impairment | 16 240 | 2 107 | 12 251 | 0 | 30 598 |
| Repurchased receivables from Millennium Leasing (according to Master Scale): | 5 529 101 | 0 | 0 | 0 | 5 529 101 |
| ▪ 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 (*) | 5 529 101 | 0 | 0 | 0 | 5 529 101 |
| Impairment | 864 | 0 | 0 | 0 | 864 |
| Derivatives and adjustment from fair value hedge (according to Master Scale): | 513 645 | 0 | 0 | 0 | 513 645 |
| ▪ 1-3 Highest quality | 317 799 | 0 | 317 799 | ||
| ▪ 4-6 Good quality | 58 159 | 0 | 58 159 | ||
| ▪ 7-9 Medium quality | 23 339 | 0 | 23 339 | ||
| ▪ 10-12 Low quality | 1 330 | 0 | 1 330 | ||
| ▪ 13-14 Watched | 0 | 0 | 0 | ||
| ▪ 15 Default | 0 | 0 | 0 | ||
| ▪ Without rating | 97 949 | 0 | 97 949 | ||
| ▪ fair value adjustment due to hedge accounting | 0 | 0 | 0 | ||
| ▪ Valuation of future FX payments | 0 | 0 | 0 | ||
| ▪ Hedging derivative | 15 069 | 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) | 21 895 863 | ||||
| Receivables from securities bought with sell- back clause | 1 163 242 | ||||
| Debt securities valued at amortised cost | 18 439 780 |
69
Annual Financial Report of the Bank Millennium S.A. for the 12-month period ending 31 st December 2023 This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
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 | 80 599 294 | 5 388 250 | 2 932 656 | 152 407 | 89 072 606 |
| Balance impairment | 330 475 | 369 400 | 1 529 098 | 13 163 | 2 242 135 |
| Loans and advances to banks (external rating Fitch: from BBB to AAA; Moody's: from B3 to Aaa; S&P: from B+ to AAA) | 1 410 526 | 1 410 526 | |||
| Loans and advances to private individuals (according to Master Scale): | 40 776 086 | 4 510 648 | 2 590 354 | 137 197 | 48 014 285 |
| ▪ 1-3 Highest quality | 23 697 845 | 130 532 | 2 811 | 23 831 188 | |
| ▪ 4-6 Good quality | 8 352 277 | 1 154 450 | 4 272 | 9 510 999 | |
| ▪ 7-9 Medium quality | 6 552 017 | 1 359 188 | 5 196 | 7 916 401 | |
| ▪ 10-12 Low quality | 2 167 401 | 1 217 930 | 3 241 | 3 388 572 | |
| ▪ 13-14 Watched | 1 904 648 | 529 000 | 1 131 | 1 564 564 | |
| ▪ 15 Default | 2 590 354 | 120 546 | 2 710 899 | ||
| ▪ Without rating (*) | 4 642 | 18 | 4 661 | ||
| Impairment | 244 528 | 337 581 | 1 359 855 | 13 137 | 1 955 100 |
| Loans and advances to companies (according to Master Scale): | 8 430 850 | 730 350 | 325 835 | 15 209 | 9 502 244 |
| ▪ 1-3 Highest quality | 129 205 | 11 777 | 101 568 | ||
| ▪ 4-6 Good quality | 1 972 706 | 84 885 | 2 057 591 | ||
| ▪ 7-9 Medium quality | 3 571 405 | 209 531 | 3 780 936 | ||
| ▪ 10-12 Low quality | 1 056 509 | 380 069 | 1 436 579 | ||
| ▪ 13-14 Watched | 19 992 | 19 992 | |||
| ▪ 15 Default | 325 574 | 15 209 | 340 783 | ||
| ▪ Without rating (*) | 1 701 024 | 24 095 | 261 000 | 1 725 380 | |
| Impairment | 64 827 | 28 950 | 159 697 | 26 253 | 500 |
| 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 | 2 986 576 |
| ▪ 1-3 Highest quality | 2 126 | 0 | 0 | 2 126 | |
| ▪ 4-6 Good quality | 1 090 884 | 3 729 | 0 | 1 094 613 | |
| ▪ 7-9 Medium quality | 1 286 389 | 99 826 | 0 | 1 386 215 | |
| ▪ 10-12 Low quality | 409 431 | 43 673 | 0 | 453 104 | |
| ▪ 13-14 Watched | 0 | 0 | |||
| ▪ 15 Default | 16 467 | 0 | 16 467 | ||
| ▪ Without rating (*) | 34 027 | 23 | 0 | 34 050 | |
| Impairment | 20 014 | 2 869 | 9 546 | 0 | 32 429 |
70
Annual Financial Report of the Bank Millennium S.A. for the 12-month period ending 31 st December 2023 This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.PLN’000, as of the end of 2022
| Stage 1 (12- month ECL) | Stage 2 (lifetime ECL) | Stage 3 (lifetime ECL) | POCI | Total | |
|---|---|---|---|---|---|
| Repurchased receivables from Millennium Leasing (according to Master Scale): | 6 221 283 | 0 | 0 | 0 | 6 221 283 |
| ▪ 1-3 Highest quality | 109 240 | 0 | 0 | 0 | 109 240 |
| ▪ 4-6 Good quality | 509 803 | 0 | 0 | 0 | 509 803 |
| ▪ 7-9 Medium quality | 1 086 666 | 0 | 0 | 0 | 1 086 666 |
| ▪ 10-12 Low quality | 497 792 | 0 | 0 | 0 | 497 792 |
| ▪ 13-14 Watched | 3 620 | 0 | 0 | 0 | 3 620 |
| ▪ 15 Default | 216 763 | 0 | 0 | 0 | 216 763 |
| ▪ Without rating (*) | 3 797 399 | 0 | 0 | 0 | 3 797 399 |
| Impairment | 991 | 0 | 0 | 0 | 991 |
| Derivatives and adjustment from fair value hedge (according to Master Scale): | 475 099 | 0 | 0 | 0 | 475 099 |
| ▪ 1-3 Highest quality | 179 635 | 179 635 | 0 | 0 | |
| ▪ 4-6 Good quality | 63 791 | 63 791 | 0 | 0 | |
| ▪ 7-9 Medium quality | 18 068 | 18 068 | 0 | 0 | |
| ▪ 10-12 Low quality | 5 261 | 5 261 | 0 | 0 | |
| ▪ 13-14 Watched | 0 | 0 | 0 | 0 | |
| ▪ 15 Default | 0 | 0 | 0 | 0 | |
| ▪ Without rating | 72 540 | 72 540 | 0 | 0 | |
| ▪ fair value adjustment due to hedge accounting | 0 | 0 | 0 | 0 | |
| ▪ Valuation of future FX payments | 0 | 0 | 0 | 0 | |
| ▪ Hedging derivative | 135 804 | 135 804 | 0 | 0 | |
| Debt securities mandatorily at fair value through profit or loss | 24 210 | 0 | 0 | 0 | 24 210 |
| Trading debt securities (State Treasury bonds) | 72 057 | 0 | 0 | 0 | 72 057 |
| Investment debt securities (State Treasury, Central Bank**, Local Government, EIB) | 16 414 065 | 0 | 0 | 0 | 16 414 065 |
| Receivables from securities bought with sell- back clause | 4 863 | 0 | 0 | 0 | 4 863 |
| Debt securities valued at amortised cost | 3 893 212 | 0 | 0 | 0 | 3 893 212 |
71
Annual Financial Report of the Bank Millennium S.A. for the 12-month period ending 31 st December 2023
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
(3e) Loans
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 | 286 606 | 115 334,57 | 2 881 | 0 | 404 821 | |
| Collective analysis | 137 045 | 768 457,86 | 1 775 | 483 | 0 | 2 680 986 |
| Total | 423 651 | 883 792 | 1 778 | 364 | 0 | 3 085 807 |
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 | 265 382 | 144 728 | 1 988 | 0 | 412 098 | |
| Collective analysis | 91 867 | 870 298 | 1 693 | 885 | 0 | 2 656 050 |
| Total | 357 248 | 1 015 027 | 1 695 | 873 | 0 | 3 068 148 |
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.
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 | Amount in ‘000 PLN | |
| PLN | 291 133 | 71.9% | 30.8% | 299 501 |
| CHF | 36 341 | 9.0% | 19.2%* | 74 311 |
| EUR | 77 348 | 19.1% | 47.7% | 38 287 |
| USD | 0 | 0.0% | 0 | 0 |
| SEK | 0 | 0.0% | 0 | 0 |
| Total (Case by Case impaired) | 404 821 | 100.0% | 33.0% | 412 098 |
*) coverage excluding legal risk provisions, if included the coverage would be 53.6% (2023) and 35.8% (2022)
72
Annual Financial Report of the Bank Millennium S.A. for the 12-month period ending 31 st December 2023
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
Case by Case loans and advances to customers - by coverage ratio
| 31.12.2023 | 31.12.2022 | |||
|---|---|---|---|---|
| Amount in ‘000 PLN | Share % | Amount in ‘000 PLN | Share % | |
| Up to 20% | 168 186 | 41.5% | 151 870 | 36.9% |
| 20% - 40% | 119 674 | 29.6% | 84 240 | 20.4% |
| 40% - 60% | 40 637 | 10.0% | 55 748 | 13.5% |
| 60% - 80% | 20 892 | 5.2% | 87 632 | 21.3% |
| Above 80% | 55 431 | 13.7% | 32 609 | 7.9% |
| Total (Case by Case impaired) | 404 821 | 100.0% | 412 098 | 100.0% |
At the end of 2023, the financial impact from the established collaterals securing the Bank’s receivables with impairment recognised under individual analysis (Case by Case) amounted to PLN 198.8 million (at the end of 2022 respectively PLN 200.6 million). It is the amount, by which the level of required provisions assigned to relevant portfolio would be higher if flows from collaterals were not to be considered in individual analysis.
The restructuring of receivables is done by dedicated units (separately for corporate and retail receivables). The restructuring of both corporate and retail receivables allows the Bank 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 Bank is exposed in connection with client transactions giving rise to the Bank's off-balance sheet receivables or liabilities. The restructuring process applies to the receivables which, based on the principles in place in the Bank, are transferred to restructuring and recovery portfolios and includes setting new terms of transactions which are acceptable for the Bank (including the terms of their repayment and their collateral and possibly obtaining additional collateral).
Recovery of retail receivables is a fully centralised process implemented in two stages:
Process performed by Retail Liabilities Monitoring and Collection Department involves direct telephone contacts with Customers and obtaining repayment of receivables due to the Bank. 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 specialised 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.
73
Annual Financial Report of the Bank Millennium S.A. for the 12-month period ending 31 st December 2023
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
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 Bank in the shortest possible periods of time by carrying out the accepted restructuring and recovery strategies towards:
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 recognised impairment managed by the Bank’s organisational units responsible for loan restructuring.
(3f) Collateral transferred to the Bank
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.# 74
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
Credit exposures, with respect to which the Bank 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 Bank writes off receivables against impairment provisions when said receivables are found to be unrecoverable i.e., among other things:
Gross exposure write-offs in ‘000 PLN
In 2023
| Loans and advances to customers | Loans and advances to banks | Total | Companies | Mortgages | Other retail | |
|---|---|---|---|---|---|---|
| Receivables written-off excluded from enforcement activity | 482 | 12 | 498 | 23 | 506 | 0 |
| Receivables written-off being subject to enforcement activity | 3 459 | 62 | 114 | 155 | 0 | 117 676 |
| Invalidated Mortgage FX Receivables | 0 | 23 907 | 0 | 0 | 0 | 23 907 |
| Total written-off | 3 941 | 36 467 | 137 660 | 0 | 36 486 | 178 069 |
Gross exposure write-offs in ‘000 PLN
In 2022
| Loans and advances to customers | Loans and advances to banks | Total | Companies | Mortgages | Other retail | |
|---|---|---|---|---|---|---|
| Receivables written-off excluded from enforcement activity | 10 807 | 8 485 | 27 356 | 0 | 46 648 | 0 |
| Receivables written-off being subject to enforcement activity | 16 801 | 0 | 173 496 | 0 | 190 297 | 0 |
| Total written-off | 27 609 | 8 485 | 200 852 | 0 | 236 945 | 0 |
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
Economy sectors
The table below presents the Bank’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 | 1 866 848 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 1 866 848 |
| Loans and advances to customers (Amortized cost) | 6 625 870 | 3 184 931 | 4 305 847 | 557 179 | 25 262 | 27 100 062 | 18 476 051 | 2 610 511 | 62 885 713 |
| Loans and advances to customers (Fair value through OCI) | 0 | 0 | 0 | 0 | 0 | 11 799 748 | 0 | 0 | 11 799 748 |
| Loans and advances to customers (Fair value through P&L) | 0 | 8 3 | 58 | 0 | 0 | 19 280 | 0 | 0 | 19 349 |
| Trading securities | 28 | 86 | 0 | 4 | 110 554 | 0 | 0 | 3 110 675 | 3 110 675 |
| Instruments valued at amortised cost | 1 716 205 | 0 | 0 | 0 | 0 | 16 723 581 | 0 | 0 | 18 439 786 |
| 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 | 541 888 | 19 001 | 7 830 | 2 032 | 0 | 0 | 0 | 2 040 572 | 791 |
| Investment securities | 473 361 | 4 996 | 0 | 290 | 21 450 968 | 0 | 0 | 33 21 929 | 648 |
| Repurchase agreements | 1 163 242 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 1 163 242 |
| Total | 12 535 065 | 3 209 022 | 4 313 680 | 559 563 | 38 310 | 365 38 899 810 | 18 495 331 | 2 612 587 | 118 935 423 |
* 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.
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 | 1 410 526 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 1 410 526 |
| Loans and advances to customers (Amortized cost) | 784 926 | 5 724 949 | 5 560 871 | 2 708 668 | 33 159 | 30 845 153 | 17 169 580 | 3 951 201 | 66 778 507 |
| Loans and advances to customers (Fair value through OCI) | 0 | 0 | 0 | 0 | 0 | 11 221 252 | 0 | 0 | 11 221 252 |
| Loans and advances to customers (Fair value through P&L) | 0 | 6 4 | 50 | 0 | 0 | 97 916 | 6 | 0 | 97 982 |
| Trading securities | 27 | 69 | 8 | 8 | 24 210 | 0 | 0 | 1 24 323 | 323 |
| Instruments valued at amortised cost | 398 828 | 0 | 0 | 0 | 0 | 3 494 390 | 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 | 447 219 | 17 209 | 8 339 | 223 | 0 | 0 | 0 | 2 109 475 | 099 |
| Investment securities | 24 033 | 4 996 | 0 | 313 | 16 414 077 | 0 | 0 | 35 16 443 | 454 |
| Repurchase agreements | 4 863 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 4 863 |
| Total | 3 271 458 | 5 747 229 | 5 569 222 | 2 709 262 | 19 965 | 836 42 066 405 | 17 267 496 | 3 953 352 | 100 550 260 |
* 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 Bank 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%) and cash loans (21.5%). The portfolio of loans to companies from different sectors like industry, construction, transport and communication, retail and wholesale business, financial intermediation and public sector represents 23% 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.
| Sector name | 2023 Balance Exposure (PLN million) | Share (%) | 2022 Balance Exposure (PLN million) | Share (%) |
|---|---|---|---|---|
| Credits for individual persons | 57 370.7 | 76.8% | 59 165.0 | 75.9% |
| Mortgage | 38 853.6 | 52.0% | 41 858.5 | 53.7% |
| Cash loan | 16 037.3 | 21.5% | 14 893.9 | 19.1% |
| Credit cards and other | 2 479.8 | 3.3% | 2 412.5 | 3.1% |
| Credit for companies* | 17 309.6 | 23.2% | 18 763.9 | 24.1% |
| Wholesale and retail trade; repair | 4 305.8 | 5.8% | 5 560.9 | 7.1% |
| Manufacturing | 2 631.1 | 3.5% | 4 572.9 | 5.9% |
| Construction | 553.9 | 0.7% | 1 152.0 | 1.5% |
| Transportation and storage | 557.1 | 0.7% | 2 708.7 | 3.5% |
| Public administration and defence | 25.3 | 0.0% | 33.2 | 0.0% |
| Information and communication | 813.1 | 1.1% | 1 077.1 | 1.4% |
| Other Services | 293.6 | 0.4% | 874.9 | 1.1% |
| Financial and insurance activities | 6 625.9 | 8.9% | 784.9 | 1.0% |
| Real estate activities | 675.8 | 0.9% | 792.2 | 1.0% |
| Professional, scientific, and technical services | 288.8 | 0.4% | 345.7 | 0.4% |
| Mining and quarrying | 2.3 | 0.0% | 61.0 | 0.1% |
| Water supply, sewage, and waste | 55.8 | 0.1% | 157.6 | 0.2% |
| Electricity, gas, water | 35.3 | 0.0% | 100.6 | 0.1% |
| Accommodation and food service activities | 183.6 | 0.2% | 206.8 | 0.3% |
| Education | 68.1 | 0.1% | 68.2 | 0.1% |
| Agriculture, forestry, and fishing | 17.9 | 0.0% | 101.8 | 0.1% |
| Human health and social work activities | 142.8 | 0.2% | 128.0 | 0.2% |
| Culture, recreation, and entertainment | 33.4 | 0.0% | 37.3 | 0.0% |
| Total (gross) | 74 680.3 | 100.0% | 77 928.9 | 100.0% |
* incl. Microbusiness, annual turnover below PLN 5 million
Concentration ratio of the 20 largest customers in the Bank’s loan portfolio (considering groups of connected entities) at the end of 2023 equals 5.2% comparing with 5.7% at the end of 2022. Concentration ratio in 2023 also decreased for the 10 largest customers: from 4.4% at the end of the previous year to 4.0%.
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
The market risk encompasses current and prospective impact on earnings or capital, arising from changes in the value of the Bank’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 Bank’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 Bank’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 Bank. The equity risk assumed to be irrelevant since the Bank’s engagement in equity instruments is immaterial. Each market risk type is measured individually using appropriate risk models 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 Bank 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 Bank (VaR) is calculated considering the holding period of 10 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. 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.
79 Annual Financial Report of the Bank Millennium S.A. for the 12-month period ending 31 st December 2023
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
All reported excesses are documented. This includes an explanation of their causes and their incorporation in one of the three classes of excess explanation: adequacy of the model, insufficient model accuracy or unanticipated market movements. Parallel to the VaR calculation the portfolios are subject to a set of sensitivity analysis and stress scenarios, to:
▪ Estimate the potential economic loss resulting from extreme variations in market risk factors,
▪ Identify the market risk movements, possibly not captured by VaR, to which the portfolios are more sensitive,
▪ Identify the actions that can be taken to reduce the impact of extreme variations in the risk factors.
The following types of market scenarios are being applied:
▪ Parallel shifts of the yield curves;
▪ More steep or flat shape of the yield curves;
▪ Variations of the exchange rates;
▪ Historical adverse scenarios;
▪ Customized scenarios based on observed, adverse changes of market risk parameters.
The global VaR limit is expressed in million PLN. The limit is divided into the books, risk management areas and distinct types of risk, which enables the Bank 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 Bank. 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 remains conservative - level for Global Bank is 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 Bank continued to act very prudently. In 2023 the VaR indicators for the Bank remained on average at the level of PLN 317.2million (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 Bank’s market risk is mainly the interest rate risk. The figures in the Table also include the exposures to market risk generated in subordinated companies, as the Bank manages market risk at central level.
80 Annual Financial Report of the Bank Millennium S.A. for the 12-month period ending 31 st December 2023
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
The market risk in terms of VaR for the Bank (‘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 22 | |||
| Equity Risk | 0 | 3 | 18 | 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 |
| 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 |
81 Annual Financial Report of the Bank Millennium S.A. for the 12-month period ending 31 st December 2023
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
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 | 18 | 0 | 13 | |
| Diversification Effect | 16.2% | 3.1% | ||||
| Specific risk | 2 | 1 | 18 | 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 | 18 | 2 | 2 |
Open positions mostly included interest-rate instruments and FX risk instruments. The FX risk covers all the foreign exchange exposures of the Bank. According to the Risk Strategy, the FX open position is allowed, however should be kept at low levels. For this purpose, the Bank 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.
Evolution of the total FX open position (Overnight) in Trading Portfolio (PLN thousand):
| Total position | 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 Bank. 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.
82 Annual Financial Report of the Bank Millennium S.A. for the 12-month period ending 31 st December 2023
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.# 8.4. MARKET RISK
The only binding version is the original Polish version. 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 |
In case of the Banking Book, the main component of the market risk is interest rate risk. Exposure to interest rate risk in the Banking Book are primarily generated by the differences in repricing dates of assets and liabilities as well as its reference indexes, if contractually existing. It is specifically affected by the unbalance between assets and liabilities that have fixed rate, especially by the liabilities which cannot have interest rate lower than zero. Consequently, the level of sensitivity to interest rate changes is influenced by the level of interest rates taken as a reference. Additionally, due to specificity of the polish legal system, the interest rate of credits is limited (it cannot exceed two times Reference Rate of the National Bank of Poland increased by 7 percentage points). In situations of decreasing interest rates, the impact on Net Interest Income is negative and depends on the share of the fixed rate loan portfolio that is affected by the new maximum rate. On the other hand, assumptions regarding the timing and size of deposits repricing are also important when assessing the interest rate sensitivity and risk.
Regarding the interest rate risk in Banking Book, the following principles are in place:
The variations in market interest rate have an influence on the Bank’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.
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Annual Financial Report of the Bank Millennium S.A. for the 12-month period ending 31 st December 2023
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version. For this reason, apart from daily market risk measurement in terms of value at risk, the scope of the additional measurement of interest rate risk covers both earnings-based and economic value measures, which are quarterly:
and monthly:
The interest rate risk measurement is carried for all the risk management areas in the Bank, with the particular attention on Banking Book. For interest rate risk management for non-maturing assets and liabilities or for the instruments with Client’s option embedded, the Bank is defining specific assumptions, including:
The results of the above-mentioned analysis for BPVx100 and economic value measures were regularly monitored and reported to the Capital, Assets and Liabilities Committee, to Risk Committee, the Management Board and Supervisory Board. The results of the IRRBB measurement as of the end of December 2023 indicate that from an economic value of equity perspective, the Bank 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.
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Annual Financial Report of the Bank Millennium S.A. for the 12-month period ending 31 st December 2023
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
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 | -156 659 | 238 203 |
| EVE sensitivity to changes of interest rates | 30.12.2023 | 31.12.2022 |
| Standard, supervisory test (parallel yield curve +/-200 bp % Own Funds) | -7.33% | -6.05% |
| Supervisory outlier test (the most severe scenario, % CET1) | -11.05% | -9.33% |
The results of the 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:
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 Bank’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 Bank’s NII reference level. The results show that the Bank 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) under the same assumptions 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% |
85
Annual Financial Report of the Bank Millennium S.A. for the 12-month period ending 31 st December 2023
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
The objective of liquidity risk management is to ensure and maintain the Bank’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 Bank’s obligations. 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 Bank’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 Bank 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 Bank’s Loan-to-Deposit ratio to 67% at the end of December 2023 (comparing to level of 77% as of end of December 2022).
The liquidity assets portfolio is treated by the Bank’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 securities portfolio amounted to 99.9% and allowed to reach the level of approx. PLN 40.7 billion (33% of total assets), whereas at the end of December 2022 PLN 20.3 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 Bank. At the end of 2023 total Clients’ deposits of the Bank reached the level of PLN 107.5 billion (PLN 98.3 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. 71.3% at the end of December 2023 (70.0% at the end of December 2022). The high share of funds from individuals had a positive impact on the Bank’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 Bank 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 remained also subordinated debt, own EUR bonds issue and securitization of loan portfolio.
86 Annual Financial Report of the Bank Millennium S.A. for the 12-month period ending 31 st December 2023
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
The total Credit Linked Notes issued by the Bank amounts to PLN 731.5 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 in the framework of synthetic securitisation transaction. The Bank has no medium- term loans from financial institutions at the end of 2023 (at the end of December 2022 it was PLN 5.0 million).
The Bank 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 Bank has signed a Credit Support Annex to the master agreements. As a result, in case of unfavourable changes of FX rates (PLN depreciation), the Bank 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 Bank assesses the possibility of unfavourable changes of FX rates (especially CHF and EUR, which causes increase of liquidity needs), analyses the impact on liquidity risk and reflects this risk in the liquidity plans.
The estimation of the Bank’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 Bank’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 Bank 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 Bank 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 Bank. LCR improved substantially during 2023 and reached the level of 309% at the end of December 2023 (218% 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 Bank. 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 185% at the end of December 2023 (160% as of the end of December 2022).
87 Annual Financial Report of the Bank Millennium S.A. for the 12-month period ending 31 st December 2023
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
| Indicator | 31.12.2023 | 31.12.2022 |
|---|---|---|
| Immediate liquidity ratio (%)* | 34% | 28% |
| Quarterly liquidity ratio (%)* | 37% | 28% |
| Central Bank Collateral / Total Deposits (%)** | 28% | 25% |
| Liquid assets Portfolio (m PLN)*** | 41 358 | 24 349 |
| LCR (%) | 309% | 218% |
* - 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 Bank monitors liquidity based on internal liquidity measures, considering the impact of FX rates on the liquidity situation. Additionally, the Bank employs an internal structural liquidity analysis based on cumulative, behaviour liquidity gaps calculated. The safe level adopted by the Bank for the ratio of liquidity shortfall is established for each time bucket below 5 years. In December 2023, liquidity gaps were maintained positive and still at safe levels. 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 | 40 501 | 40 501 | 40 501 | 40 501 |
| Outflows | 12 051 | 1 691 | 2 639 | 9 017 |
| Outflows Cumulated | 12 051 | 13 742 | 16 381 | 25 399 |
| Inflows | 13 557 | 4 421 | 7 642 | 14 518 |
| Inflows Cumulated | 13 557 | 17 979 | 25 620 | 40 138 |
| Liquidity Gap | 42 008 | 2 730 | 5 002 | 5 500 |
| Liquidity Gap Cumulated | 42 008 | 44 738 | 49 740 | 55 240 |
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Annual Financial Report of the Bank Millennium S.A. for the 12-month period ending 31 st December 2023
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
2022-12-31 Adjusted Liquidity Gap (PLN mln)
| Up to 6M | Up to 1Y | Up to 2Y | Up to 5Y | |
|---|---|---|---|---|
| Counterbalancing capacity | 25 068 | 25 068 | 25 068 | 25 068 |
| Outflows | 12 099 | 4 670 | 3 726 | 6 734 |
| Outflows Cumulated | 12 099 | 16 769 | 20 495 | 27 229 |
| Inflows | 12 588 | 5 192 | 11 325 | 13 561 |
| Inflows Cumulated | 12 588 | 17 779 | 29 105 | 42 666 |
| Liquidity Gap | 25 556 | 522 | 7 599 | 6 827 |
| Liquidity Gap Cumulated | 25 556 | 26 078 | 33 677 | 40 504 |
The Bank structural liquidity risk management tool covers sensitivity analysis and stress scenarios (idiosyncratic, systemic and combination of both). For stress tests, liquidity gaps are calculated on a real basis assuming a conservative approach to the assessment of probability of cash flow occurrence among others considering increased deposits outflows, decreased or delayed 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 Bank’s liquidity-risk profile, to ensure that the Bank 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 Bank’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.
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Annual Financial Report of the Bank Millennium S.A. for the 12-month period ending 31 st December 2023
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
The Bank has also emergency procedures for situations of increased liquidity risk – the Liquidity Contingency Plan (contingency plan in case the Bank’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.
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 Bank gathers operational risk events in an IT tool. The tool supports management of operational risk. Such events are being 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.
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Annual Financial Report of the Bank Millennium S.A. for the 12-month period ending 31 st December 2023
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
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.# 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, and 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), taking into account not only the risks related to the business sectors in which the clients operate, but also their approach to environmental, social and corporate governance issues. More information on managing the Group's impact on the environment and climate is presented in the ESG report of the Bank and the Group.
All transactions among members of the Group made in 2023 and 2022 were driven by current activity. The below table presents major amounts of intergroup transactions, these were transactions with the following entities:
▪ MILLENNIUM BANK HIPOTECZNY,
▪ MILLENNIUM LEASING,
▪ MILLENNIUM CONSULTING,
▪ MILLENNIUM TFI
▪ MILLENNIUM SERVICE,
▪ MILLENNIUM TELECOMMUNICATION SERVICES,
▪ MILLENNIUM GOODIE,
▪ PIAST EXPERT.
and with the Capital Group of Bank parent company - Banco Comercial Portugues (ultimate parent company), these transactions are mainly of banking nature. 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.
| With subsidiaries | With parent company | With other entities from parent group | |
|---|---|---|---|
| ASSETS | |||
| Loans and advances to banks – accounts and deposits | 1 073 252 | 2 097 | 0 |
| Loans and advances to customers | 6 397 168 | 0 | 0 |
| Investments in associates | 346 714 | 0 | 0 |
| Financial assets valued at fair value through profit and loss (held for trading) | 328 | 0 | 0 |
| Hedging derivatives | 0 | 0 | 0 |
| Other assets | 18 815 | 0 | 0 |
| LIABILITIES | |||
| Deposits from banks | 1 873 719 | 0 | |
| Deposits from customers | 259 209 | 0 | 0 |
| Liabilities from securities sold with buy-back clause | 0 | 0 | 0 |
| Liabilities arising from debt securities | 0 | 0 | 0 |
| Financial liabilities valued at fair value through profit and loss (held for trading) | 423 | 0 | 0 |
| Subordinated debt | 0 | 0 | 0 |
| Other liabilities, including: | 39 951 | 215 | 8 |
| financial leasing liabilities | 34 675 | 0 | 0 |
| With subsidiaries | With parent company | With other entities from parent group | |
|---|---|---|---|
| ASSETS | |||
| Loans and advances to banks – accounts and deposits | 677 151 | 2 575 | 0 |
| Loans and advances to customers | 7 056 501 | 0 | 0 |
| Investments in associates | 247 823 | 0 | 0 |
| Financial assets valued at fair value through profit and loss (held for trading) | 99 | 32 | 0 |
| Hedging derivatives | 0 | 0 | 0 |
| Other assets | 29 259 | 0 | 0 |
| LIABILITIES | |||
| Deposits from banks | 974 434 | 0 | |
| Deposits from customers | 226 300 | 0 | 0 |
| Liabilities from securities sold with buy-back clause | 0 | 0 | 0 |
| Liabilities arising from debt securities | 0 | 0 | 0 |
| Financial liabilities valued at fair value through profit and loss (held for trading) | 1 332 | 0 | 0 |
| Subordinated debt | 0 | 0 | 0 |
| Other liabilities, including: | 48 264 | 0 | 68 |
| financial leasing liabilities | 41 467 | 0 | 0 |
| With subsidiaries | With parent company | With other entities from parent group | |
|---|---|---|---|
| Income from: | |||
| Interest | 431 240 | 2 676 | 0 |
| Commissions | 25 484 | 120 | 0 |
| Financial instruments valued at fair value through other comprehensive income | 3 221 | 28 | 0 |
| Dividends | 28 706 | 0 | 0 |
| Other net operating | 25 100 | 0 | 0 |
| Expense from: | |||
| Interest | 11 707 | 2 | 0 |
| Commissions | 2 | 0 | 0 |
| Financial instruments valued at fair value through profit and loss | 0 | 0 | 0 |
| Other net operating | 0 | 0 | 0 |
| General and administrative expenses | 9 995 | 431 | 94 |
| With subsidiaries | With parent company | With other entities from parent group | |
|---|---|---|---|
| Income from: | |||
| Interest | 328 439 | 1 008 | 0 |
| Commissions | 25 296 | 149 | 0 |
| Financial instruments valued at fair value through profit and loss | 0 | 30 | 0 |
| Dividends | 41 796 | 0 | 0 |
| Other net operating | 19 507 | 0 | 0 |
| Expense from: | |||
| Interest | 11 780 | 75 | 0 |
| Commissions | 2 | 0 | 0 |
| Financial instruments valued at fair value through profit and loss | 346 | 0 | 0 |
| Other net operating | 0 | 0 | 0 |
| General and administrative expenses | 11 240 | 0 | 138 |
| With subsidiaries | With parent company | With other entities from parent group | |
|---|---|---|---|
| Conditional commitments | 1 181 891 | 25 513 | 0 |
| granted | 879 028 | 0 | 0 |
| obtained | 302 863 | 25 513 | 0 |
| Derivatives (par value) | 124 156 | 0 | 0 |
| With subsidiaries | With parent company | With other entities from parent group | |
|---|---|---|---|
| Conditional commitments | 1 203 256 | 141 185 | 0 |
| granted | 1 199 836 | 120 593 | 0 |
| obtained | 3 420 | 20 593 | 0 |
| Derivatives (par value) | 139 897 | 13 705 | 0 |
Information on total exposure towards the Bank’s managing and supervising persons as at 31.12.2023 (in ‘000 PLN):
| The managing persons | The supervising persons | Total | |
|---|---|---|---|
| Total debt limit | 258.0 | 193.0 | |
| including an unutilized limit | 111.0 | 105.6 |
The Bank 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 Bank’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 | |
|---|---|---|---|
| Total debt limit | 236.0 | 178.5 | |
| including an unutilized limit | 111.0 | 106.0 |
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 |
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 Bank 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).
96 Annual Financial Report of the Bank Millennium S.A. for the 12-month period ending 31 st December 2023
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
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 Bank applies models that are appropriate under existing circumstances and for which sufficient input data is available, based to the maximum extent on observable input whereas minimizing use of unobservable input, namely:
Valuation techniques used to determine fair value are applied consistently. Change in valuation techniques resulting in a transfer between these methods occurs when:
All estimation models are arbitrary to some extent and this is why they reflect only the value of those instruments for which they were built. In these circumstances the presented differences between fair values and balance-sheet values cannot be understood to mean adjustments of the economic value of the Group. Fair value of these instruments is determined solely in order to meet the disclosure requirements of IFRS 13 and IFRS 7.
The main assumptions and methods applied in estimating fair value of assets and liabilities of the Bank 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.
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.
97 Annual Financial Report of the Bank Millennium S.A. for the 12-month period ending 31 st December 2023
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
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 Treasury 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.
The table below presents data as at 31.12.2023 (data in PLN thousand):
| Note | Balance sheet value | Fair value |
|---|---|---|
| ASSETS MEASURED AT AMORTISED COST | ||
| Debt securities | 23 | 18 439 780 |
| Deposits, loans and advances to banks and other monetary institutions | 23 | 1 866 688 |
| Loans and advances to customers (*) | 22 | 60 586 349 |
| LIABILITIES MEASURED AT AMORTISED COST | ||
| Liabilities to banks and other monetary institutions | 32 | 565 384 |
| Liabilities to customers | 33 | 107 505 636 |
| Debt securities issued | 35 | 3 027 952 |
| Subordinated debt | 36 | 1 565 045 |
* 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 Bank’s balance sheet, use techniques based on parameters not derived from the market. Therefore, they are considered as the third level of valuation.
98 Annual Financial Report of the Bank Millennium S.A. for the 12-month period ending 31 st December 2023
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
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 |
| Deposits, loans and advances to banks and other monetary institutions | 23 | 1 410 245 |
| Loans and advances to customers (*) | 22 | 64 536 372 |
| LIABILITIES MEASURED AT AMORTISED COST | ||
| Liabilities to banks and other monetary institutions | 32 | 625 144 |
| Liabilities to customers | 33 | 98 264 816 |
| Debt securities issued | 35 | 243 753 |
| Subordinated debt | 36 | 1 568 083 |
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 | |||
| Valuation of derivatives | 19 | 81 819 | 416 758 |
| 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 | 28 542 | |
| Debt securities | 12 201 | 721 964 | |
| Loans and advances | 22 | 11 799 | 748 |
| Derivatives – Hedge accounting | 24 | 74 213 | |
| LIABILITIES | |||
| Financial liabilities held for trading | |||
| Valuation of derivatives | 151 265 | 425 346 | |
| Short positions | 2 720 | ||
| Derivatives – Hedge accounting | 24 | 193 664 |
99 Annual Financial Report of the Bank Millennium S.A. for the 12-month period ending 31 st December 2023
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.# H1
Data in ‘000 PLN, as at 31.12.2022
| Note | Quoted market prices | Valuation techniques - observable inputs | Valuation techniques - significant unobservable inputs | Level 1 | Level 2 | Level 3 |
| :--- | :------------------- | :------------------------------------- | :-------------------------------------------------- | :------ | :------ | :------ |
| ASSETS | | | | | | |
| Financial assets held for trading | 19 | Valuation of derivatives | | 87 859 | 251 436 | |
| | | 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 | | 97 982 | | |
| Financial assets at fair value through other comprehensive income | 21 | Equity instruments | | 247 | 24 146 | |
| | | Debt securities | | 13 914 | 533 2 499 532 | |
| | | Loans and advances | | 11 221 | 252 | |
| Derivatives – Hedge accounting | 24 | | | 135 804 | | |
| LIABILITIES | | | | | | |
| Financial liabilities held for trading | 31 | Valuation of derivatives | | 125 722 | 254 422 | |
| | | Short positions | | 4 784 | | |
| Derivatives – Hedge accounting | 24 | | | 554 544 | | |
Using the criterion of valuation techniques as at 31.12.2023 Bank 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 pp 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 Bank did not make transfers of financial instruments between the techniques of fair value measurement.
100 Annual Financial Report of the Bank Millennium S.A. 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.
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 FVP&L | Loans and advances FVOCI | |
|---|---|---|---|---|---|---|
| Balance as at 31.12.2022 | 247 414 | (250 400) | 90 755 | 72 057 | 97 982 | 11 221 252 |
| Settlement/sell/purchase/transfer | 94 879 | (96 807) | 0 | 0 | (87 670) | (202 552) |
| Change of valuation recognized in equity | 0 | 0 | 4 422 | 0 | 0 | (154 014) |
| Interest income and other of similar nature | 0 | 0 | 0 | 0 | 9 995 | 935 062 |
| Results on financial assets and liabilities held for trading | 63 319 | (66 993) | 0 | 0 | 0 | 0 |
| Result on non-trading financial assets mandatorily at fair value through profit or loss | 0 | 0 | 0 | 8 957 | (958) | 0 |
| Result on exchange differences | 0 | 0 | (26) | 0 | 0 | 0 |
| Balance as at 31.12.2023 | 405 612 | (414 200) | 95 151 | 81 014 | 19 349 | 11 799 748 |
For options on indexes concluded on an inactive market, and FX options the Bank concludes back-to-back transactions on the interbank market, in result estimated credit risk component has no impact on the financial result. Accordingly Bank’s estimation impact of adjustments for counterparty credit risk was not significant from the point of view of individual derivative transactions concluded by the Bank. Consequently, the Bank does not consider the impact of unobservable inputs used in the valuation of derivative transactions for significant and in accordance with the provisions of IFRS 13.73 does not classify such transactions for level 3 fair value measurements.
| Indexes options | Options embedded in securities issued and deposits | Shares | Debt securities | Loans and advances FVP&L | Loans and advances FVOCI | |
|---|---|---|---|---|---|---|
| Balance as at 31.12.2021 | 28 397 | (28 872) | 95 042 | 127 499 | 362 992 | 11 485 351 |
| Settlement/sell/purchase/transfer | 214 404 | (216 420) | 85 | (60 296) | (306 117) | (1 021 563) |
| Change of valuation recognized in equity | 0 | 0 | (4 380) | 0 | 0 | (11 255) |
| Interest income and other of similar nature | 0 | 0 | 0 | 0 | 28 604 | 768 719 |
| Results on financial assets and liabilities held for trading | 4 613 | (5 109) | 0 | 0 | 0 | 0 |
| Result on non-trading financial assets mandatorily at fair value through profit or loss | 0 | 0 | 0 | 4 854 | 12 503 | 0 |
| Result on exchange differences | 0 | 0 | 8 | 0 | 0 | 0 |
| Balance as at 31.12.2022 | 247 414 | (250 400) | 90 755 | 72 057 | 97 982 | 11 221 252 |
101 Annual Financial Report of the Bank Millennium S.A. 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.
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 13. note 16) "Corporate Income Tax".
Value of the court litigations, as at 31.12.2023, in which the Bank was a plaintiff, totalled PLN 3,500.2 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.
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.
102 Annual Financial Report of the Bank Millennium S.A. 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.
The Bank (along with other banks) is also a party to the dispute with OPCC, in which the OPCC Chairman recognized the practice of participating banks, including Bank Millennium, in an agreement aimed at jointly setting interchange fee rates charged on transactions made with Visa and Mastercard cards as restrictive of competition, and by decision of 29 December 2006 imposed a fine on the Bank in the amount of PLN 12.2 million. The Bank, along with other banks, appealed the decision.# In connection with the judgment of the Supreme Court and the judgment of the Court of Appeal in Warsaw of November 23, 2020, the case is currently pending before the court of first instance - the Court of Competition and Consumer Protection. The Bank has created a provision in the amount equal to the imposed penalty.
On 22 September 2020 The Bank received 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.
103 Annual Financial Report of the Bank Millennium S.A. 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.
As at 31.12.2023, the most important proceedings, in the group of the court cases where the Bank was defendant, were following:
As at 31.12.2023, the total value of the subjects of the other litigations in which the Bank appeared as defendant, stood at PLN 5,546.9 million (excluding the class actions described below and in the Chapter 12). In this group the most important category are cases related with FX loans mortgage portfolio.
On the 3 of December 2015 a class action was served on the Bank. A group of the Bank's debtors (454 borrowers party to 275 loan agreements) is represented by the Municipal Consumer Ombudsman in Olsztyn. The plaintiffs demanded payment of the amount of PLN 3.5 million, claiming that the clauses of the agreements, pertaining to the low down payment insurance, are unfair and thus not binding. Plaintiff extended the group in the court letter filed on the 4 of April 2018, therefore the claims increased from PLN 3.5 million to over PLN 5 million.
Actual status: On the 1st of October 2018, the group's representative corrected the total amount of claims pursued in the proceedings and submitted a revised list of all group members, covering the total of 697 borrowers – 432 loan agreements. The value of the subject of the dispute, as updated by the claimant, is PLN 7,371,107.94. By the resolution of 1 April 2020 the court established the composition of the group as per request of the plaintiff and decided to take witness evidence in writing. The hearing date was set for October 18, 2024.
As at 31 December 2023, there were also 138 individual court cases regarding LTV insurance (cases in which only a claim for the reimbursement of the commission or LTV insurance fee is presented).
104 Annual Financial Report of the Bank Millennium S.A. 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.
On 13 August 2020 the Bank received lawsuit from the Financial Ombudsman. The Financial Ombudsman, in the lawsuit, demands that the Bank and the Insurer (TU Europa) be ordered to discontinue performing unfair market practices involving, as follows:
Furthermore, the Ombudsman requires the Bank to be ordered to publish, on its web site, information on use of unfair market practices. The lawsuit does not include any demand for payment, by the Bank, of any specified amounts. Nonetheless, if the practice is deemed to be abusive it may constitute grounds for future claims to be filed by individual clients. The case is being examined by the court of first instance.
By December 31, 2023, the Bank received 419 lawsuits in which the plaintiffs (both clients and companies purchasing claims), alleging violation of the information obligations provided in Art. 30 of the Consumer Credit Act, demand reimbursement of interest and other costs incurred in connection with taking out a loan (free loan sanction within the meaning of Article 45). As of December 31, 2023, 16 cases have been legally concluded, and in all these cases the Bank won the dispute. The Bank believes that the prognosis regarding the litigation chances of winning the remaining disputes are positive and therefore it has not created provisions in this respect.
By December 31, 2023, the Bank recorded the receipt of 63 lawsuits by borrowers of mortgage loans in PLN for reimbursement of benefits provided under the loan agreement. One final judgment was issued dismissing the borrowers' claim. The borrowers' allegations focus on the WIBOR ratio as an incomprehensible, unverifiable element affecting the consumer's liability, as well as the issue of insufficient information on the effects of variable interest rates provided to the consumer by the bank before the conclusion of the contract.Based on publicly available information, it can be assumed that there will be an increase in the number of lawsuits concerning mortgage loans in PLN. This phenomenon affects the entire sector of banking services. It is possible that a "new business model" will be created in the area of law firms, which consists in questioning mortgage contracts containing a variable interest rate clause based on the WIBOR reference index. On June 29, 2023 the Polish Financial Supervision Authority (KNF) announced that it had assessed the ability of the WIBOR interest rate reference index to measure the market and economic realities. The KNF stated that the WIBOR interest rate reference index is capable of measuring the market and economic realities for which it was established. According to the Commission's assessment, the WIBOR ratio responds appropriately to changes in liquidity conditions, changes in central bank rates and economic realities (https://www.knf.gov.pl/komunikacja/komunikaty?articleId=82924&p_id=18 ).
105
Annual Financial Report of the Bank Millennium S.A. 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.
On July 26, 2023, the Polish Financial Supervision Authority (PFSA) presented its position on legal and economic issues related to mortgage loan agreements in Polish currency in which the WIBOR interest rate reference index is used. This position can be used in court proceedings and can then be treated as an 'amicus curiae' opinion. The Polish Financial Supervision Authority stated that the WIBOR reference index meets all legal requirements. In the opinion of the Polish Financial Supervision Authority, there are no grounds to question the credibility and legality of WIBOR, in particular in the context of the use of this indicator in mortgage loan agreements in the Polish currency (Stanowisko_UKNF_dot_zagadnien_prawnych_i_ekonomicznych_zw_ze_wskaznikiem_referencyjnym_WIBOR_83233.pdf).
Administrative penalty proceedings by the Polish Financial Supervision Authority
On 22 December 2023, the Polish Financial Supervision Authority (KNF) started administrative proceedings against bank Millennium S.A. that might result in a penalty being imposed on the Bank under Article 176i(1)(4) of the Act on trading in financial instruments. At this stage of the proceedings, the amount of the potential penalty cannot be estimated.
FX mortgage loans legal risk
FX mortgage loans legal risk is described in the Chapter 12. “Legal risk related to foreign currency mortgage loans”.
106
Annual Financial Report of the Bank Millennium S.A. 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.
| OFF-BALANCE ITEMS | Amount ‘000 PLN | 31.12.2023 | 31.12.2022 |
|---|---|---|---|
| Off-balance conditional commitments granted and received | 17 283 356 | 16 365 564 | |
| Commitments granted: | 14 264 568 | 14 030 294 | |
| Loan commitments | 12 550 588 | 11 610 683 | |
| guarantee | 1 713 980 | 2 419 611 | |
| Commitments received: | 3 018 788 | 2 335 270 | |
| financial | 0 | 6 884 | |
| guarantee | 3 018 788 | 2 328 386 |
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 Bank 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 Bank, should the customers default on their obligations. The Bank 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 Bank 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 granted, 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 | 164 734 | 465 503 | |
| non-financial sector (companies) | 1 541 946 | 1 949 877 | |
| public sector | 7 300 | 4 238 | |
| Total | 1 713 980 | 2 419 618 |
As the parent company, the Bank granted subisdiaries lines for guarantees with a total value of PLN 36.4 million. In addition, the Bank provided guarantees and sureties to external entities on behalf of Group’s companies. The total value of guarantee obligations from the above titles is presented in the table:
| Subordinated company | Amount ‘000 PLN | 31.12.2023 | 31.12.2022 |
|---|---|---|---|
| Millennium Leasing Sp. z o.o. | 20 000 | 354 495 | |
| Millennium Service Sp. z o.o. | 12 732 | 12 722 | |
| Millennium Goodie Sp. z o.o. | 5 000 | 5 000 | |
| Total | 37 732 | 372 217 |
107
Annual Financial Report of the Bank Millennium S.A. 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.
| Commitments granted – guarantee | Amount ‘000 PLN | 31.12.2023 | 31.12.2022 |
|---|---|---|---|
| Active guarantees and sureties | 1 074 850 | 1 472 187 | |
| Lines for guarantees and sureties | 642 747 | 954 066 | |
| Total | 1 717 597 | 2 426 252 | |
| Provisions created | (3 617) | (6 634) | |
| Commitments granted – guarantee after provisions | 1 713 980 | 2 419 618 |
The structure of liabilities under active guarantees and sureties divided by particular criteria are presented by the tables below (PLN’000):
By currency
| 31.12.2023 | 31.12.2022 | |
|---|---|---|
| PLN | 716 929 | 857 171 |
| Other currencies | 357 921 | 615 016 |
| Total: | 1 074 850 | 1 472 187 |
By type of commitment
| 31.12.2023 | 31.12.2022 | |
|---|---|---|
| Number | Amount | |
| Guarantee | 3 299 | 1 058 547 |
| Surety | 0 | 0 |
| Re-guarantee | 65 | 16 303 |
| Total: | 3 364 | 1 074 850 |
By object of the commitment
| 31.12.2023 | 31.12.2022 | |
|---|---|---|
| Number | Amount | |
| good performance of contract | 2 760 | 573 259 |
| rent payment | 249 | 295 486 |
| punctual payment for goods or services | 78 | 14 290 |
| bid bond | 159 | 81 397 |
| Other | 42 | 42 591 |
| advance return | 29 | 19 481 |
| Customs | 16 | 7 589 |
| payment of bank loan | 31 | 40 757 |
| Total: | 3 364 | 1 074 850 |
108
Annual Financial Report of the Bank Millennium S.A. 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.
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.# Annual Financial Report of the Bank Millennium S.A. 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.
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 1 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 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.
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 13 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 pp | PLN 75 mln |
| Change in probability of success in negotiations with court client | Change of probability by 1 pp | 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 pp (1.46 pp 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.
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;
112 Annual Financial Report of the Bank Millennium S.A. for the 12-month period ending 31 st December 2023
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
(ii) the national court may remove only the unfair element of a term in a contract concluded between a seller or supplier and a consumer where the deterrent objective pursued by Council Directive 93/13 is ensured by national legislative provisions governing the use of that term, provided that that element consists of a separate contractual obligation, capable of being subject to an individual examination of its unfair nature. At the same time, provisions of the Directive preclude the referring court from removing only the unfair element of a term in a contract concluded between a seller or supplier and a consumer where such removal would amount to revising the content of that term by altering its substance;
(iii) the consequences of a judicial finding that a term if a contract concluded between a seller or supplier and a consumer is unfair are covered by national law and the question of continuity of the contract should be assessed by the national court of its own motion in accordance with an objective approach on the basis of those provisions;
(iv) the national court, finding that a term in a contract concluded between a seller or supplier and a consumer is unfair, shall inform the consumer, in the context of the national procedural rules after both parties have been heard, of the legal consequences entailed by annulment of the contract, irrespective of whether the consumer is represented by a professional representative.
On November 18, 2021, the Court of Justice of the European Union (CJEU) issued a judgment in case C-212/20 in connection with questions submitted by the District Court for Warsaw Wola in Warsaw in the case against Raiffeisen Bank International AG. The CJEU stated that:
(i) the content of the clause of the loan agreement concluded between the entrepreneur and the consumer fixing the purchase and sale price of the foreign currency to which the loan is indexed should, on the basis of clear and comprehensible criteria, enable the consumer who is reasonably well informed and sufficiently observant and rational to understand how the exchange rate of the foreign currency used to calculate the amount of the loan instalments is determined, so that the consumer is able to determine himself at any time the exchange rate used by the entrepreneur;
(ii) a national court which has found that a term of the agreement concluded between an entrepreneur and a consumer is unfair cannot interpret that term in order to mitigate its unfairness, even if such an interpretation would correspond to the common will of the parties.
On 10 June 2021, the Court of Justice of the European Union (CJEU) issued an order in case C-198/20 in connection with questions submitted by the District Court for Warsaw Wola in Warsaw in the case against Santander Bank Polska SA. The CJEU stated that the protection provided for in Council Directive 93/13/EEC is granted to all consumers, not just those who can be considered to be “duly informed and reasonably observant and circumspect average consumer”.
On 8 September 2022, the Court of Justice of the European Union (CJEU) issued a judgment in joined cases C-80/21, C-81/21, C-82/21 in connection with questions submitted by the District Court for Warsaw Śródmieście in Warsaw in cases against Deutsche Bank SA and mBank SA. The CJEU stated that:
(i) a national court may find that the parts of a contractual term of the agreement concluded between a consumer and an entrepreneur which render it unfair are unfair, if such a deletion would not amount to a change in the content of that term that affects its substance, which is for the referring court to verify;
(ii) a national court cannot, after annulling an unfair term contained in an agreement concluded between a consumer and an entrepreneur which does not render the agreement invalid in its entirety, replace that term with a supplementary provision of the national law;
113 Annual Financial Report of the Bank Millennium S.A. for the 12-month period ending 31 st December 2023
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
(iii) a national court may not, after having declared invalid an unfair term contained in an agreement concluded between a consumer and an entrepreneur which entails the invalidity of that agreement in its entirety, replace the contractual term which has been declared invalid either by interpretation of the parties' declaration of intent in order to avoid the cancellation of that agreement or by a provision of national law of a supplementary nature, even if the consumer has been informed of the effects of the invalidity of that agreement, and accepted them;
(iv) the ten-year limitation period for a consumer's claim seeking reimbursement of sums unduly paid to the entrepreneur in performance of an unfair term of a loan agreement does not start to run on the date of each performance made by the consumer if the consumer was not able on that date to assess on his own the unfairness of the contractual term or if he had not become aware of the unfair nature of that term and without taking into account the circumstances that the agreement provided for a repayment period – in this case thirty years – well in excess of the ten-year statutory limitation period.
On 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.# Annual Financial Report of the Bank Millennium S.A. 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.
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.
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: (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# Annual Financial Report of Bank Millennium S.A. 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.
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 Annual Financial Report of the Bank Millennium S.A. 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.
Amounts presented in the notes to the financial statements are presented in PLN thousands.
| 01.01.2023 - 31.12.2023 | 01.01.2022 - 31.12.2022 | |
|---|---|---|
| Interest income from Financial assets at fair value through other comprehensive income | 1,806,350 | 1,232,768 |
| Debt securities | 871,288 | 464,049 |
| Loans and advances | 935,062 | 768,719 |
| Interest income from Financial assets at amortised cost | 6,385,562 | 3,696,751 |
| Balances with the Central Bank | 222,277 | 166,369 |
| Loans and advances to customers, including: | 5,508,395 | 3,302,440 |
| - the impact of the adjustment to the gross carrying amount of loans due to credit holidays | (11,404) | (1,291,600) |
| Debt securities | 552,276 | 85,566 |
| Deposits, loans and advances to banks | 34,786 | 26,151 |
| Transactions with repurchase agreements | 67,828 | 26,095 |
| Hedging derivatives | 0 | 90,130 |
| Result of similar nature to interest, including: | 108,471 | (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 | 93,610 | (61,492) |
| Financial assets held for trading - debt securities | 4,866 | 4,091 |
| Total | 8,300,383 | 4,900,722 |
Interest income for the year 2023 contains interest accrued on impaired loans in the amount of PLN 214,843 thous. (for corresponding data in the year 2022 the amount of such interest stood at PLN 163,046 thous.). Interest income from instruments measured at amortized cost for 2023 includes an adjustment for credit holidays (reducing income) in the amount of PLN 11.4 million (for corresponding data in the year 2022 the amount of adjustment stood at PLN 1,291.6 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 | (3 165 879) | (1 662 941) |
| Liabilities to banks and other monetary institutions | (12 602) | (26 945) |
| Liabilities to customers | (2 834 187) | (1 464 489) |
| Transactions with repurchase agreement | (35 178) | (52 871) |
| Debt securities issued | (115 891) | (1 253) |
| Subordinated debt | (141 686) | (110 181) |
| Leasing liabilities | (9 325) | (7 202) |
| Hedging derivatives | (17 010) | 0 |
| Other | 0 | 0 |
| Total | (3 165 879) | (1 662 941) |
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 Annual Financial Report of the Bank Millennium S.A. for the 12-month period ending 31 st December 2023
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
| 01.01.2023 - 31.12.2023 | 01.01.2022 - 31.12.2022 | |
|---|---|---|
| Resulting from accounts service | 117 576 | 138 040 |
| Resulting from money transfers, cash payments and withdrawals and other payment transactions | 94 976 | 91 496 |
| Resulting from loans granted | 169 111 | 166 554 |
| Resulting from guarantees and sureties granted | 14 924 | 16 609 |
| Resulting from payment and credit cards | 293 979 | 268 501 |
| Resulting from sale of insurance products | 117 975 | 127 141 |
| Resulting from distribution of investment funds units and other savings products | 46 094 | 52 525 |
| Resulting from brokerage and custody service | 12 215 | 10 374 |
| Other | 45 507 | 35 468 |
| Total | 912 357 | 906 708 |
| 01.01.2023 - 31.12.2023 | 01.01.2022 - 31.12.2022 | |
|---|---|---|
| Resulting from accounts service | (44 320) | (22 858) |
| Resulting from money transfers. cash payments and withdrawals and other payment transactions | (4 930) | (5 480) |
| Resulting from loans granted | (9 466) | (10 898) |
| Resulting from payment and credit cards | (111 309) | (105 252) |
| Resulting from brokerage and fiduciary services | (2 233) | (1 383) |
| Resulting from selling insurance products | (9 518) | (11 546) |
| Other | (46 855) | (34 334) |
| Total | (228 631) | (191 751) |
| 01.01.2023 - 31.12.2023 | 01.01.2022 - 31.12.2022 | |
|---|---|---|
| Trading financial assets | 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 |
| Investments in subordinated companies | 28 706 | 41 796 |
| Total | 32 137 | 45 592 |
121 Annual Financial Report of the Bank Millennium S.A. for the 12-month period ending 31 st December 2023
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
| 01.01.2023 - 31.12.2023 | 01.01.2022 - 31.12.2022 | |
|---|---|---|
| Result on bancassurance transaction | 553 912 | 0 |
| Operations on debt instruments | (12 353) | (166) |
| Sale of the FVTOCI portfolio | 2 441 | 515 |
| Costs of financial operations | (2 575) | (2 726) |
| Total | 541 425 | (2 377) |
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".
122 Annual Financial Report of the Bank Millennium S.A. for the 12-month period ending 31 st December 2023
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
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.
| 01.01.2023 - 31.12.2023 | 01.01.2022 - 31.12.2022 | |
|---|---|---|
| Result on debt instruments | 6 003 | (13 179) |
| Result on derivatives | 41 955 | 12 646 |
| Result on other financial operations | 24 | 528 |
| Total | 47 982 | (528) |
| 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 |
| 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) |
123 Annual Financial Report of the Bank Millennium S.A. for the 12-month period ending 31 st December 2023
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
| 01.01.2023 - 31.12.2023 | 01.01.2022 - 31.12.2022 | |
|---|---|---|
| Gain on sale and liquidation of property, plant and equipment, intangible assets | 4 923 | 1 371 |
| Income from sale of other services | 10 085 | 12 167 |
| Income from collection service | 11 745 | 4 552 |
| Income from write-back of provisions for disputed claims | 11 783 | 8 116 |
| 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 | 54 403 | 43 253 |
| Total | 405 347 | 239 141 |
| 01.01.2023 - 31.12.2023 | 01.01.2022 - 31.12.2022 | |
|---|---|---|
| Loss on sale and liquidation of property, plant and equipment, intangible assets | (1 631) | (2 024) |
| Indemnifications, penalties and fines paid | (37 134) | (18 454) |
| Costs of provisions for disputed claims | (30 208) | (27 325) |
| Costs related with providing other services | (2 737) | (2 269) |
| Donations made | (1 086) | (1 673) |
| Costs of collection service | (144 561) | (98 347) |
| Costs of legal representation | (26 568) | (10 040) |
| Other | (16 339) | (16 845) |
| Total | (260 264) | (176 977) |
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.
124 Annual Financial Report of the Bank Millennium S.A. for the 12-month period ending 31 st December 2023
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
| 01.01.2023 - 31.12.2023 | 01.01.2022 - 31.12.2022 | |
|---|---|---|
| Staff costs: | (982 355) | (865 074) |
| Salaries | (805 121) | (710 949) |
| Surcharges on pay | (138 630) | (120 201) |
| Employee benefits, including: | (38 604) | (33 924) |
| - provisions for retirement benefits | (4 600) | (5 609) |
| - provisions for unused employee holiday | (3 227) | (90) |
| - other | (30 777) | (28 225) |
| Other administrative expenses: | (731 307) | (952 414) |
| Costs of advertising, promotion and representation | (70 864) | (64 201) |
| IT and communications costs | (152 432) | (131 011) |
| Costs of renting | (59 724) | (46 486) |
| Costs of buildings maintenance, equipment and materials | (49 115) | (47 224) |
| ATM and cash maintenance costs | (35 106) | (32 957) |
| Costs of consultancy, audit and legal advisory and translation | (146 957) | (95 474) |
| Taxes and fees | (42 129) | (36 976) |
| KIR - clearing charges | (12 855) | (11 305) |
| PFRON costs | (8 071) | (6 098) |
| Banking Guarantee Fund costs | (60 034) | (121 101) |
| Financial Supervision costs | (14 178) | (12 648) |
| Cost of payments to IPS | 0 | (276 120) |
| Other | (79 842) | (70 813) |
| Total | (1 713 662) | (1 817 488) |
| 01.01.2023 - 31.12.2023 | 01.01.2022 - 31.12.2022 | |
|---|---|---|
| Impairment losses on loans and advances to customers | (219 847) | (305 490) |
| Impairment charges on loans and advances to customers | (1 299 920) | (1 417 533) |
| Reversal of impairment charges on loans and advances to customers | 962 459 | 979 345 |
| Amounts recovered from loans written off | 39 689 | 47 278 |
| Sale of receivables | 77 926 | 85 416 |
| Other directly recognised in profit and loss | (1) | 4 |
| 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 | (2 420) | 4 854 |
| Impairment charges on off-balance sheet liabilities | (40 336) | (42 130) |
| Reversal of impairment charges on off-balance sheet liabilities | 37 916 | 46 984 |
| Total | (222 266) | (300 641) |
125
Annual Financial Report of the Bank Millennium S.A. 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.
| 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) |
| 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) |
| 01.01.2023 - 31.12.2023 | 01.01.2022 - 31.12.2022 | |
|---|---|---|
| Property, plant and equipment | (153 446) | (149 679) |
| Intangible assets | (53 743) | (52 733) |
| Total | (207 189) | (202 412) |
126
Annual Financial Report of the Bank Millennium S.A. 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.
| 01.01.2023 - 31.12.2023 | 01.01.2022 - 31.12.2022 | |
|---|---|---|
| Current tax | (603 679) | (254 175) |
| Current year | (605 053) | (254 175) |
| Adjustment to prior periods | 1 374 | 0 |
| Deferred tax: | (110 835) | (11 030) |
| Recognition and reversal of temporary differences | (110 835) | (11 030) |
| Total income tax reported in income statement | (714 514) | (265 205) |
| 01.01.2023 - 31.12.2023 | 01.01.2022 - 31.12.2022 | |
|---|---|---|
| Profit before tax / (loss) | 1 224 773 | (764 694) |
| Statutory tax rate | 19% | 19% |
| Income tax according to obligatory income tax rate of 19% | (232 707) | 145 292 |
| Impact of permanent differences on tax charges: | (488 299) | (413 301) |
| Non-taxable income | 54 668 | 41 596 |
| Dividend income | 5 986 | 8 411 |
| Release of other provisions | 48 570 | 32 027 |
| Other | 112 | 1 158 |
| Cost which is not a tax cost | (542 967) | (454 897) |
| PFRON fee | (1 533) | (1 158) |
| Fees for Banking Guarantee Fund | (11 406) | (23 009) |
| Banking tax | (604) | (32 122) |
| Receivables written off | (14 945) | (9 255) |
| Costs of litigations and claims | (512 055) | (388 265) |
| Other | (2 424) | (1 088) |
| 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) | 6 380 | 454 |
| Total income tax reported in income statement | (714 514) | (265 205) |
| Effective tax rate | 58.34% | /-/* |
*For the year 2022 the Bank 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.
127
Annual Financial Report of the Bank Millennium S.A. 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.
| 31.12.2023 | 31.12.2022 | |
|---|---|---|
| Valuation of investment assets at fair value through other comprehensive income | 41 599 | 170 072 |
| Valuation of credit portfolio at fair value through other comprehensive income | (19 344) | (48 607) |
| Valuation of cash flow hedging instruments | 10 297 | 77 151 |
| Actuarial gains (losses) | 133 | (1 849) |
| Deferred tax reported directly in equity | 32 685 | 196 767 |
Changes in deferred tax recognized directly in equity are presented in Note (39b).
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.
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.
128
Annual Financial Report of the Bank Millennium S.A.# 17. EARNINGS PER SHARE
In accordance with the requirements of IAS 33, the Bank calculates earnings per share based on consolidated data and presents it accordingly in the consolidated financial statements.
| 31.12.2023 | 31.12.2022 | |
|---|---|---|
| Cash | 919 265 | 935 916 |
| Cash in Central Bank | 4 175 719 | 8 600 174 |
| Other funds | 0 | 0 |
| 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).
| 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 |
129
Annual Financial Report of the Bank Millennium S.A. for the 12-month period ending 31 st December 2023
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
| 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 |
| Equity instruments | 121 | 113 |
| Positive valuation of derivatives | 498 577 | 339 295 |
| Total | 609 252 | 363 618 |
Information on financial assets securing liabilities is presented in point 2) of Chapter 14.
| 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 |
| 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 |
| 01.01.2023 - 31.12.2023 | 01.01.2022 - 31.12.2022 | |
|---|---|---|
| Balance at the beginning of the period | 24 323 | 86 438 |
| Increases (purchase, takeover and accrual of interest and discount) | 10 685 599 | 5 891 243 |
| Reductions (sale and redemption) | (10 599 136) | (5 954 084) |
| Differences from valuation at fair value | (111) | 726 |
| Balance at the end of the period | 110 675 | 24 323 |
130
Annual Financial Report of the Bank Millennium S.A. for the 12-month period ending 31 st December 2023
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
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. Interest rate derivatives | 2 317 330 | 2 514 918 | 7 492 | 383 670 | (9 488) | 12 060 | 21 548 | |
| Forward Rate Agreements (FRA) | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Interest rate swaps (IRS) | 2 197 874 | 2 255 207 | 6 836 | 363 000 | (9 488) | 538 | 10 026 | |
| Other interest rate contracts: options | 119 456 | 259 711 | 655 | 451 | 20 670 | 0 | 11 522 | 11 522 |
| 2. FX derivatives* | 7 839 593 | 3 413 391 | 122 070 | 0 | (59 958) | 69 759 | 129 717 | |
| FX contracts | 1 526 891 | 737 568 | 61 066 | 0 | (28 087) | 9 993 | 38 080 | |
| FX swaps | 6 312 702 | 2 675 823 | 61 004 | 0 | (31 871) | 59 766 | 91 637 | |
| Other FX contracts (CIRS) | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| FX options | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| 3. Embedded instruments | 472 247 | 2 018 329 | 858 | 866 | 0 | (414 200) | 0 | 414 200 |
| Options embedded in deposits | 472 247 | 2 018 329 | 858 | 866 | 0 | (414 200) | 0 | 414 200 |
| Options embedded in securities issued | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| 4. Indexes options | 549 165 | 2 172 086 | 875 | 462 | 0 | 405 612 | 416 758 | 11 146 |
| Total | 11 178 335 | 10 118 723 | 9 348 709 | 383 670 | (78 034) | 498 577 | 576 611 | |
| Valuation of hedged position in fair value hedge accounting | - | 0 | ||||||
| Liabilities from short sale of debt securities | - | 2 720 |
*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 value | below 3 months | from 3 months to 1 year | from 1 year to 5 years | above 5 years | Total Assets | Liabilities | |
|---|---|---|---|---|---|---|---|---|
| 1. Interest rate derivatives | 1 039 534 | 1 664 741 | 9 507 | 306 257 | (28 540) | 29 235 | 57 775 | |
| Forward Rate Agreements (FRA) | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Interest rate swaps (IRS) | 1 039 534 | 1 526 317 | 8 751 | 233 297 | (29 042) | 1 293 | 30 335 | |
| Other interest rate contracts: options | 0 | 138 424 | 755 | 516 | 24 152 | 502 | 27 942 | 27 440 |
| 2. FX derivatives* | 12 135 778 | 1 648 761 | 160 657 | 0 | (9 323) | 58 624 | 67 947 | |
| FX contracts | 1 995 563 | 1 023 642 | 85 933 | 0 | (12 358) | 11 939 | 24 297 | |
| FX swaps | 9 203 270 | 625 119 | 74 724 | 0 | 1 436 | 44 663 | 43 227 | |
| Other FX contracts (CIRS) | 936 945 | 0 | 0 | 0 | 0 | 1 599 | 2 022 | 423 |
| FX options | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| 3. Embedded instruments | 0 | 257 952 | 2 439 | 784 | 0 | (250 400) | 0 | 250 400 |
| Options embedded in deposits | 0 | 257 952 | 2 439 | 784 | 0 | (250 400) | 0 | 250 400 |
| Options embedded in securities issued | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| 4. Indexes options | 0 | 301 357 | 2 551 | 648 | 0 | 247 414 | 251 436 | 4 022 |
| Total | 13 175 312 | 3 872 811 | 14 659 395 | 257 449 | (40 849) | 339 295 | 380 144 | |
| Valuation of hedged position in fair value hedge accounting | - | 0 | ||||||
| Liabilities from short sale of debt securities | - | 4 784 |
*Notional value for double-currency derivatives constitutes the sum of both transactions expressed in PLN
131
Annual Financial Report of the Bank Millennium S.A. for the 12-month period ending 31 st December 2023
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
| 31.12.2023 | 31.12.2022 | |
|---|---|---|
| Equity instruments | 66 609 | 128 979 |
| credit institutions | 0 | 0 |
| other corporates | 66 609 | 128 979 |
| Debt securities | 81 014 | 72 057 |
| credit institutions | 0 | 0 |
| other corporates | 81 014 | 72 057 |
| Total | 147 623 | 201 036 |
| 31.12.2023 | 31.12.2022 | |
|---|---|---|
| Debt securities | 21 895 863 | 16 414 065 |
| Issued by State Treasury | 11 756 814 | 13 515 705 |
| a) bills | 0 | 0 |
| b) bonds | 11 756 814 | 13 515 705 |
| Issued by Central Bank | 9 694 142 | 2 499 532 |
| a) bills | 9 694 142 | 2 499 532 |
| b) bonds | 0 | 0 |
| Other securities | 444 907 | 398 828 |
| a) listed | 444 907 | 398 828 |
| b) not listed | 0 | 0 |
| Shares and interests in other entities | 28 789 | 24 393 |
| Other financial instruments | 0 | 0 |
| Total financial assets at fair value through other comprehensive income | 21 924 652 | 16 438 458 |
| Including: | ||
| Instruments listed on the active market | 12 201 967 | 13 914 781 |
| Instruments not listed on the active market | 9 722 685 | 2 523 677 |
| 31.12.2023 | 31.12.2022 | |
|---|---|---|
| ▪ with fixed interest rate | 18 131 748 | 13 528 878 |
| ▪ with variable interest rate | 3 764 115 | 2 885 187 |
| Total | 21 895 863 | 16 414 065 |
132
Annual Financial Report of the Bank Millennium S.A. for the 12-month period ending 31 st December 2023
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
| 31.12.2023 | 31.12.2022 | |
|---|---|---|
| to 1 month | 9 977 621 | 4 405 868 |
| above 1 month to 3 months | 22 012 | 0 |
| above 3 months to 1 year | 2 177 193 | 2 305 894 |
| above 1 year to 5 years | 9 406 242 | 9 031 705 |
| above 5 years | 312 795 | 670 598 |
| Total | 21 895 863 | 16 414 065 |
| 01.01.2023 - 31.12.2023 | 01.01.2022 - 31.12.2022 | |
|---|---|---|
| Balance at the beginning of the period | 16 438 458 | 17 952 492 |
| Increases (purchase and accrual of interest and discount) | 469 769 603 | 152 066 625 |
| Reductions (sale and redemption) | (464 959 558) | (153 372 234) |
| Difference from measurement at fair value | 676 175 | (208 680) |
| Impairment write-offs | 0 | 248 |
| Other | (26) | 7 |
| Balance at the end of the period | 21 924 652 | 16 438 458 |
| # Annual Financial Report of the Bank Millennium S.A. 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.
| 31.12.2023 | 31.12.2022 | |
|---|---|---|
| Balance sheet value: at fair value through other comprehensive income | 11 799 748 | 11 221 252 |
| ▪ Companies | 0 | 0 |
| ▪ Individuals | 11 799 748 | 11 221 252 |
| ▪ Public sector | 0 | 0 |
| Balance sheet value - maturity | 31.12.2023 | 31.12.2022 |
|---|---|---|
| to 1 month | 18 132 | 14 754 |
| above 1 month to 3 months | 33 532 | 21 983 |
| above 3 months to 1 year | 164 838 | 114 540 |
| above 1 year to 5 years | 1 143 687 | 865 280 |
| above 5 years | 10 439 559 | 10 204 695 |
| Total | 11 799 748 | 11 221 252 |
| Balance sheet value, gross | Accumulated impairment allowances | Balance sheet value, net | |
|---|---|---|---|
| Stage 1 | Stage 2 | Stage 3 | |
| Valued at amortised cost | 55 099 489 | 4 700 417 | 3 085 807 |
| Companies | 16 114 126 | 720 324 | 423 534 |
| Individuals | 38 933 615 | 3 980 089 | 2 662 273 |
| Public sector | 51 748 | 4 | 0 |
| Balance sheet value, gross | Accumulated impairment allowances | Balance sheet value, net | |
|---|---|---|---|
| Stage 1 | Stage 2 | Stage 3 | |
| Valued at amortised cost | 58 305 453 | 5 404 906 | 3 068 148 |
| Companies | 17 329 382 | 877 603 | 355 548 |
| Individuals | 40 774 383 | 4 527 301 | 2 712 600 |
| Public sector | 201 688 | 3 | 0 |
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.
| 31.12.2023 | 31.12.2022 | |
|---|---|---|
| Loans and advances | 60 846 292 | 58 778 633 |
| to companies | 17 052 488 | 12 224 434 |
| to private individuals | 43 742 276 | 46 499 190 |
| to public sector | 51 528 | 55 009 |
| Receivables on account of payment cards | 1 209 612 | 1 034 413 |
| due from companies | 13 569 | 13 974 |
| due from private individuals | 1 196 043 | 1 020 439 |
| Purchased receivables | 143 844 | 6 416 938 |
| from companies | 143 844 | 6 270 448 |
| from public sector | 0 | 146 490 |
| Guarantees and sureties realised | 560 | 7 203 |
| Debt securities eligible for rediscount at Central Bank | 0 | 76 |
| Other | 104 560 | 30 276 |
| Interest | 580 845 | 510 968 |
| Total: | 62 885 713 | 66 778 507 |
| Impairment allowances | (2 299 364) | (2 242 135) |
| Total balance sheet value | 60 586 349 | 64 536 372 |
| 31.12.2023 | 31.12.2022 | |
|---|---|---|
| Loans and advances to customers (gross) | 62 885 713 | 66 778 507 |
| impaired | 3 085 807 | 3 068 148 |
| not impaired | 59 799 906 | 63 710 359 |
| Impairment allowances | (2 299 364) | (2 242 135) |
| for impaired exposures | (1 642 763) | (1 593 590) |
| for not impaired exposures | (656 601) | (648 545) |
| Loans and advances to customers (net) | 60 586 349 | 64 536 372 |
| 31.12.2023 | 31.12.2022 | |
|---|---|---|
| Loans and advances to customers (gross) | 62 885 713 | 66 778 507 |
| case by case analysis | 381 751 | 411 999 |
| collective analysis | 62 503 962 | 66 366 508 |
| Impairment allowances | (2 299 364) | (2 242 135) |
| on the basis of case by case analysis | (134 507) | (150 983) |
| on the basis of collective analysis | (2 164 857) | (2 091 152) |
| Loans and advances to customers (net) | 60 586 349 | 64 536 372 |
| 31.12.2023 | 31.12.2022 | |
|---|---|---|
| Loans and advances to customers (gross) | 62 885 713 | 66 778 507 |
| corporate customers | 17 309 736 | 18 764 223 |
| individuals | 45 575 977 | 48 014 284 |
| Impairment allowances | (2 299 364) | (2 242 135) |
| for receivables from corporate customers | (254 536) | (287 036) |
| for receivables from private individuals | (2 044 828) | (1 955 099) |
| Loans and advances to customers (net) | 60 586 349 | 64 536 372 |
| 01.01.2023 - 31.12.2023 | 01.01.2022 - 31.12.2022 | |
|---|---|---|
| Balance at the beginning of the period | 2 242 135 | 2 210 000 |
| Change in value of provisions: | 57 229 | 32 135 |
| Impairment allowances created in the period | 1 214 029 | 1 343 349 |
| Amounts written off | (165 261) | (226 188) |
| Impairment allowances released in the period | (885 407) | (933 664) |
| Sale of receivables | (173 110) | (241 148) |
| KOIM created in the period(*) | 71 261 | 71 224 |
| Transfer to FVTOCI portfolio | 0 | 0 |
| Changes resulting from FX rates differences | (8 016) | 19 286 |
| Other | 3 733 | (724) |
| Balance at the end of the period | 2 299 364 | 2 242 135 |
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 |
| Stage 1 | Stage 2 | Stage 3 | POCI | Total | |
|---|---|---|---|---|---|
| Balance at the beginning of the period | 86 060 | 31 819 | 168 990 | 26 286 | 313 155 |
| Transfers between stages | 5 748 | (31 259) | 25 511 | 0 | 0 |
| Increase due to granting or purchase | 41 306 | 0 | 0 | 0 | 41 306 |
| Changes in credit risk | (51 642) | 29 083 | 17 787 | 170 | (4 602) |
| Decrease due to derecognition (except exposures sold and written off) | (11 286) | (2 989) | (37 460) | 0 | (51 734) |
| Sale of loans and advances | 0 | 0 | (18 448) | 0 | (18 448) |
| Loans and advances written off | 0 | 0 | (2 794) | 0 | (2 794) |
| KOIM | 0 | 0 | 7 822 | 25 | 7 847 |
| Other (including FX differences) | 1 198 | (123) | (3 709) | (1 420) | (4 055) |
| Balance at the end of the period | 71 384 | 26 531 | 157 700 | (1 199) | 254 416 |
| Stage 1 | Stage 2 | Stage 3 | POCI | Total | |
|---|---|---|---|---|---|
| Balance at the beginning of the period | 17 329 382 | 877 603 | 340 331 | 15 216 | 18 562 532 |
| Transfers between stages | (426 587) | 209 847 | 216 740 | 0 | 0 |
| Granted or purchased loans and advances | 10 909 052 | 0 | 0 | 0 | 10 909 052 |
| Repaid loans and advances | (11 410 308) | (353 947) | (118 943) | (2 291) | (11 885 488) |
| Loans and advances sold | 0 | 0 | (27 120) | 0 | (27 120) |
| Loans and advances written off | 0 | 0 | (4 243) | 0 | (4 243) |
| Other (including FX differences) | (287 413) | (13 208) | (6 308) | 10 180 | (296 749) |
| Balance at the end of the period | 16 114 126 | 720 295 | 400 457 | 23 106 | 17 257 984 |
| Stage 1 | Stage 2 | Stage 3 | POCI | Total | |
|---|---|---|---|---|---|
| Balance at the beginning of the period | 244 370 | 337 581 | 1 359 999 | 13 150 | 1 955 100 |
| Transfers between stages | 276 396 | (452 320) | 175 924 | 0 | 0 |
| Increase due to granting or purchase | 181 421 | 0 | 0 | 0 | 181 421 |
| Changes in credit risk | (357 854) | 450 310 | 216 304 | 43 | 352 071 |
| Decrease due to derecognition (except exposures sold and written off) | (47 088) | (30 052) | (106 397) | (6 289) | (189 826) |
| 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) | (168) | (2 583) | 2 466 | 61 | (223) |
| Balance at the end of the period | 297 078 | 302 936 | 1 419 678 | 25 136 | 2 044 828 |
| Stage 1 | Stage 2 | Stage 3 | POCI | Total | |
|---|---|---|---|---|---|
| Balance at the beginning of the period | 40 774 383 | 4 510 649 | 2 592 018 | 137 235 | 48 014 284 |
| Transfers between stages | (734 560) | 151 736 | 582 824 | 0 | 0 |
| Granted or purchased loans and advances | 9 025 966 | 0 | 0 | 0 | 9 025 966 |
| Repaid loans and advances | (8 028 068) | (643 216) | (208 749) | (13 771) | (8 893 804) |
| Reversal of credit holidays adjustment | 487 239 | 39 361 | 4 874 | 0 | 531 474 |
| 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) | (188 881) | (8 197) | (5 456) | (3 298) | (205 832) |
| Balance at the end of the period | 38 933 616 | ||||
| 31.12.2023 | 31.12.2022 | ||||
| --- | --- | --- | |||
| Current accounts | 3 549 230 | 3 874 004 | |||
| to 1 month | 7 635 654 | 1 828 952 | |||
| above 1 month to 3 months | 2 248 593 | 1 891 670 | |||
| above 3 months to 1 year | 5 794 013 | 6 959 469 | |||
| above 1 year to 5 years | 19 245 201 | 24 194 396 | |||
| above 5 years | 21 891 719 | 25 462 674 | |||
| past due | 1 940 458 | 2 056 374 | |||
| Interest | 580 845 | 510 968 | |||
| Total gross | 62 885 713 | 66 778 507 |
| 31.12.2023 | 31.12.2022 | |||||
|---|---|---|---|---|---|---|
| Balance sheet value, gross | Impairment allowances | Balance sheet value | Balance sheet value, gross | Impairment allowances | Balance sheet value | |
| in Polish currency | 55 846 851 | (2 106 279) | 53 740 572 | 55 601 404 | (1 996 926) | 53 604 478 |
| in foreign currencies (after conversion to PLN) | 7 038 862 | (193 085) | 6 845 777 | 11 177 103 | (245 209) | 10 931 894 |
| currency: USD | 55 055 | (1 333) | 53 722 | 67 654 | (1 560) | 66 094 |
| currency: EUR | 3 840 747 | (50 470) | 3 790 277 | 4 078 658 | (43 556) | 4 035 102 |
| currency: CHF* | 3 121 973 | (141 009) | 2 980 964 | 7 027 391 | (200 072) | 6 827 319 |
| other currencies | 21 087 | (273) | 20 814 | 3 400 | (21) | 3 379 |
| Total | 62 885 713 | (2 299 364) | 60 586 349 | 66 778 507 | (2 242 135) | 64 536 372 |
| Balance sheet value, gross | Accumulated impairment write-offs | Balance sheet value, net | |
|---|---|---|---|
| Stage 1 | Stage 2 | Stage 3 | |
| Debt securities | 18 439 786 | 0 | 0 |
| Deposits, loans and advances to banks and other monetary institutions | 1 866 848 | 0 | 0 |
| Repurchase agreements | 1 163 242 | 0 | 0 |
| Balance sheet value, gross | Accumulated impairment write-offs | Balance sheet value, net | |
|---|---|---|---|
| Stage 1 | Stage 2 | Stage 3 | |
| Debt securities | 3 893 218 | 0 | 0 |
| Deposits, loans and advances to banks and other monetary institutions | 1 410 526 | 0 | 0 |
| Repurchase agreements | 4 863 | 0 | 0 |
| 31.12.2023 | 31.12.2022 | |
|---|---|---|
| Banks and other credit institutions | 1 716 205 | 458 624 |
| other companies | 0 | 0 |
| public sector | 16 723 575 | 3 434 588 |
| Total | 18 439 780 | 3 893 212 |
| 31.12.2023 | 31.12.2022 | |
|---|---|---|
| Current accounts | 571 479 | 181 896 |
| Deposits | 219 804 | 548 647 |
| Loans and advances granted | 1 073 069 | 677 001 |
| Interest | 2 496 | 2 982 |
| Total (gross) deposits, loans and advances | 1 866 848 | 1 410 526 |
| Impairment allowances | (160) | (281) |
| Total (net) deposits, loans and advances | 1 866 688 | 1 410 245 |
| 31.12.2023 | 31.12.2022 | |
|---|---|---|
| Current accounts | 571 479 | 181 896 |
| to 1 month | 265 873 | 498 648 |
| 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 | 1 007 000 | 677 000 |
| above 5 years | 0 | 0 |
| past due | 0 | 0 |
| Interest | 2 496 | 2 982 |
| Total (gross) deposits, loans and advances | 1 866 848 | 1 410 526 |
| 31.12.2023 | 31.12.2022 | |
|---|---|---|
| in Polish currency | 1 177 932 | 1 086 166 |
| in foreign currencies (after conversion to PLN) | 688 916 | 324 360 |
| ▪ currency: USD | 426 214 | 33 063 |
| ▪ currency: EUR | 127 401 | 151 707 |
| ▪ currency: CNY | 22 741 | 35 119 |
| ▪ currency: CHF | 18 203 | 8 709 |
| ▪ currency: GBP | 17 951 | 25 328 |
| ▪ currency: JPY | 2 792 | 4 428 |
| ▪ other currencies | 73 614 | 66 006 |
| Total | 1 866 848 | 1 410 526 |
| 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 |
| 31.12.2023 | 31.12.2022 | |
|---|---|---|
| credit institutions | 1 146 305 | 0 |
| other customers | 11 553 | 4 854 |
| interest | 5 384 | 9 |
| Total | 1 163 242 | 4 863 |
Starting from 1 January 2006 the Bank established first formal hedging relationship against cash flow volatility. The Risk Strategy approved in the Bank 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 Bank 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 Bank 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 Bank designates hedging instruments on their trade date and by this eliminates this source of ineffectiveness. Hedge ineffectiveness reported by the Bank 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 Bank, items designated as hedged and hedging and presentation of the result (as at 31.12.2023) is shown in a table below:
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.
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.# 24. Hedge accounting
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. The ineffective part of the valuation of the hedging item is recognized in the income statement as a result on instruments measured at fair value through profit and loss. The result from the change in the fair value measurement of flows from hedged items in terms of the hedged risk is recognized in the result from hedge accounting. Interest on debt securities is recognized in interest income. The change in the fair value measurement of derivative instruments constituting hedging is presented in the result from hedge accounting, and interest on these instruments is recognized in net interest income.
143 Annual Financial Report of the Bank Millennium S.A. for the 12-month period ending 31 st December 2023 This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
Cash flow volatility hedge for the flows generated by FX mortgage portfolio and its underlying PLN liabilities
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.
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.
IRS transactions
CIRS 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 | |
| 1. Derivative instruments constituting cash flow hedges related to interest rate and/or exchange rate | |||
| * CIRS contracts | 3 083 034 | 203 445 | 817 400 |
| IRS contracts | 2 170 000 | 0 | 475 000 |
| FXS contracts | 0 | 0 | 0 |
| 2. Derivatives used as interest rate hedges related to interest rates | |||
| IRS contracts | 0 | 0 | 2 264 000 |
| 3. Total hedging derivatives | 5 253 034 | 203 445 | 3 556 400 |
* 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 | |
| 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 |
| IRS contracts | 1 125 500 | 1 305 000 | 2 645 000 |
| FXS contracts | 0 | 0 | 0 |
| 2. Derivatives used as interest rate hedges related to interest rates | |||
| IRS contracts | 0 | 0 | 90 000 |
| 3. Total hedging derivatives | 2 560 340 | 7 636 579 | 6 938 916 |
* Notional value for double-currency derivatives constitutes the sum of both transactions expressed in PLN.
144 Annual Financial Report of the Bank Millennium S.A. for the 12-month period ending 31 st December 2023 This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
| Hedge relationship | Maximum date of occurrence of cash flows whose value is hedged |
|---|---|
| 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).
| 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) |
| Type of contract | Changes in fair value used in the calculation of the ineffectiveness in the period | Ineffectiveness recognized in P&L | Amounts reclassified from reserves to results |
|---|---|---|---|
| - CIRS | 71 863 | 2 246 | 0 |
| - IRS | 125 750 | 0 | 0 |
| - FX spot | 16 393 | 0 | 0 |
| - IRS | 0 | 0 | 0 |
| - IRS | 140 107 | 0 | 0 |
| Total | 354 113 | 2 246 | 0 |
| 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) |
145 Annual Financial Report of the Bank Millennium S.A. for the 12-month period ending 31 st December 2023 This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
| 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) |
| 31.12.2023 | 31.12.2022 | |
|---|---|---|
| Investments in subsidiaries | 399 223 | 247 823 |
| 01.01.2023 - 31.12.2023 | 01.01.2022 - 31.12.2022 | |
|---|---|---|
| Balance at the beginning of the period | 247 823 | 208 889 |
| Sale of 80% stake in Millennium Financial Services Sp. z o. o. | (88) | 0 |
| Initial valuation of 20% stake in Europa Millennium Financial Services Sp. z o.o. | 52 487 | 0 |
| Increase of share in Millennium Financial Services Sp. z o. o. | 0 | 95 |
| Increase of share in Millennium Bank Hipoteczny S.A. | 99 000 | 51 000 |
| Takeover of the brokerage activities of the former Millennium Dom Maklerski S.A. | 0 | (12 161) |
| Balance at the end of the period | 399 223 | 247 823 |
146 Annual Financial Report of the Bank Millennium S.A. for the 12-month period ending 31 st December 2023 This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
| Name | Activity domain | Head office | % of the Bank’s capital share | % of the Bank’s voting share |
|---|---|---|---|---|
| MILLENNIUM BANK HIPOTECZNY S.A. | Mortgage bank | Warszawa | 100 | 100 |
| MILLENNIUM LEASING Sp. z o.o. | leasing services | Warszawa | 100 | 100 |
| MILLENNIUM CONSULTING S.A.* | advisory services | Warszawa | 100 | 100 |
| MILLENNIUM SERVICE Sp. z o.o. | rental and management of real estate, insurance and brokers activity | Warszawa | 100 | 100 |
| MILLENNIUM GOODIE Sp. z o.o. | web portals activity | Warszawa | 100 | 100 |
| MILLENNIUM TELECOMMUNICATION SERVICES Sp. z o.o. | financial operations - equity markets, advisory services | Warszawa | 100 | 100 |
| EUROPA MILLENNIUM FINANCIAL SERVICES Sp. z o.o. | agents' activities and insurance brokers | Wrocław | 20 | 20 |
| PIAST EXPERT Sp. z o.o. in liquidation | marketing services | Warszawa | 100 | 100 |
| LUBUSKIE FABRYKI MEBLI S.A. in liquidation | furniture manufacturer | Świebodzin | 50 + 1 share | 50 +1 share |
* Millennium Consulting S.A., subsidiary of the Bank, is a 100% holder of Millennium TFI S.A.# 25d. Investments in related entities
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”.
| Name | Gross value of shares/ interests | Impairment allowances | Additional capital paid in | Assets | Liabilities | Equity | Income | Profit / (Loss) | Relationship |
|---|---|---|---|---|---|---|---|---|---|
| MILLENNIUM BANK HIPOTECZNY S.A. | 270 000 | 0 | 0 | 1 324 111 | 1 078 847 | 90 000 | 26 006 | 9 523 | subordinated |
| MILLENNIUM LEASING Sp. z o.o. | 63 942 | 0 | 0 | 7 316 483 | 7 023 164 | 48 195 | 149 695 | 43 363 | subordinated |
| MILLENNIUM CONSULTING S.A.* | 4 340 | 0 | 0 | 50 776 | 108 | 4 340 | 3 301 | 2 886 | subordinated |
| MILLENNIUM SERVICE Sp. z o.o. | 1 000 | 0 | 0 | 64 741 | 8 442 | 1 000 | 37 520 | 26 616 | subordinated |
| MILLENNIUM GOODIE Sp. z o.o. | 597 | 0 | 1 000 | 14 571 | 11 972 | 500 | 5 101 | 1 082 | subordinated |
| MILLENNIUM TELECOMMUNICATION SERVICES Sp. z o.o. | 98 | 0 | 0 | 491 | 22 | 100 | 1 468 | 32 | subordinated |
| EUROPA MILLENNIUM FINANCIAL SERVICES Sp. z o.o. | 52 509 | 0 | 0 | 54 145 | 29 557 | 100 | 32 271 | 24 548 | associated |
| PIAST EXPERT Sp. z o.o. in liquidation | 5 737 | 0 | 0 | 6 032 | 105 | 5 900 | 121 | 27 | subordinated |
| LUBUSKIE FABRYKI MEBLI S.A. in liquidation | 6 700 | (6 700) | 0 | 0 | 0 | 0 | 0 | 0 | company in liquidation |
| TOTAL | 404 923 | (6 700) | 1 000 |
* Millennium Consulting S.A., subsidiary of the Bank, is a 100% holder of Millennium TFI S.A. shares.
| Name | Activity domain | Head office | % of the Bank’s capital share | % of the Bank’s voting share |
|---|---|---|---|---|
| MILLENNIUM BANK HIPOTECZNY S.A. | Mortgage bank | Warszawa | 100 | 100 |
| MILLENNIUM LEASING Sp. z o.o. | leasing services | Warszawa | 100 | 100 |
| MILLENNIUM CONSULTING S.A.* | brokerage services | Warszawa | 100 | 100 |
| MILLENNIUM SERVICE Sp. z o.o. | rental and management of real estate, insurance and brokers activity | Warszawa | 100 | 100 |
| MILLENNIUM GOODIE Sp. z o.o. | web portals activity | Warszawa | 100 | 100 |
| MILLENNIUM TELECOMMUNICATION SERVICES Sp. z o.o. | financial operations - equity markets, advisory services | Warszawa | 98 | 98 |
| MILLENNIUM FINANCIAL SERVICES Sp. z o.o. | the company is not yet operating | Warszawa | 100 | 100 |
| PIAST EXPERT Sp. z o.o. in liquidation | marketing services | Tychy | 100 | 100 |
| LUBUSKIE FABRYKI MEBLI S.A. in liquidation | furniture manufacturer | Świebodzin | 50 + 1 share | 50 + 1 share |
* Millennium Consulting S.A., subsidiary of the Bank, is a 100% holder of Millennium TFI S.A. shares.
| Name | Gross value of shares/ interests | Impairment allowances | Additional capital paid in | Assets | Liabilities | Equity | Income | Profit / (Loss) | Relationship |
|---|---|---|---|---|---|---|---|---|---|
| MILLENNIUM BANK HIPOTECZNY S.A. | 171 000 | 0 | 0 | 817 744 | 681 959 | 57 000 | (21 872) | (29 749) | subordinated |
| MILLENNIUM LEASING Sp. z o.o. | 63 942 | 0 | 0 | 7 513 717 | 7 263 291 | 48 195 | 146 567 | 42 215 | subordinated |
| MILLENNIUM CONSULTING S.A.* | 4 340 | 0 | 0 | 48 008 | 96 | 4 340 | 36 863 | 26 051 | subordinated |
| MILLENNIUM SERVICE Sp. z o.o. | 1 000 | 0 | 0 | 74 273 | 15 711 | 1 000 | 42 493 | 28 867 | subordinated |
| MILLENNIUM GOODIE Sp. z o.o. | 597 | 0 | 1 000 | 14 168 | 11 770 | 500 | 4 017 | 49 | subordinated |
| MILLENNIUM TELECOMMUNICATION SERVICES Sp. z o.o. | 98 | 0 | 0 | 457 | 20 | 100 | 1 530 | 30 | subordinated |
| MILLENNIUM FINANCIAL SERVICES Sp. z o.o. | 109 | 0 | 0 | subordinated | |||||
| PIAST EXPERT Sp. z o.o. in liquidation | 5 737 | 0 | 0 | 6 005 | 105 | 5 984 | 61 | (36) | subordinated |
| LUBUSKIE FABRYKI MEBLI S.A. in liquidation | 6 700 | (6 700) | 0 | 0 | 0 | 0 | 0 | 0 | company in liquidation |
| TOTAL | 253 523 | (6 700) | 1 000 |
* Millennium Consulting S.A., subsidiary of the Bank, is a 100% holder of Millennium TFI S.A. shares.
| 31.12.2023 | 31.12.2022 | |
|---|---|---|
| Land | 2 189 | 2 219 |
| Buildings and premises | 95 042 | 71 055 |
| Machines and equipment | 98 534 | 104 992 |
| Vehicles | 19 839 | 14 208 |
| Other fixed assets | 23 507 | 24 170 |
| Fixed assets under construction | 66 226 | 74 030 |
| Rights to use office space | 247 750 | 266 868 |
| Total | 553 087 | 557 542 |
| 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 | 2 219 | 293 448 | 264 877 | 33 824 | 80 932 | 74 030 | 522 938 | 1 272 268 |
| b) increases (on account of) | 0 | 37 970 | 27 893 | 13 951 | 8 014 | 68 033 | 77 283 | 233 144 |
| purchase | 0 | 0 | 0 | 0 | 0 | 33 091 | 0 | 33 091 |
| transfer from fixed assets under construction | 0 | 37 970 | 27 893 | 0 | 8 014 | 0 | 0 | 73 877 |
| financial lease | 0 | 0 | 0 | 13 951 | 0 | 0 | 77 283 | 91 234 |
| unpaid investments | 0 | 0 | 0 | 0 | 0 | 34 942 | 0 | 34 942 |
| other | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| c) reductions (on account of) | 30 | 15 938 | 13 250 | 9 165 | 5 934 | 75 837 | 57 527 | 177 681 |
| sale | 30 | 3 050 | 93 | 0 | 693 | 0 | 3 866 | 7 762 |
| liquidation | 0 | 12 888 | 13 139 | 0 | 5 221 | 0 | 57 527 | 88 775 |
| settlement of fixed assets under construction | 0 | 0 | 0 | 0 | 0 | 73 909 | 0 | 73 909 |
| financial lease | 0 | 0 | 18 | 9 165 | 20 | 0 | 0 | 9 203 |
| 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 | 2 189 | 315 480 | 279 520 | 38 610 | 83 012 | 66 226 | 542 694 | 1 327 731 |
| e) cumulated depreciation (amortization) at the beginning of the period | 0 | 221 596 | 159 885 | 19 616 | 56 762 | 0 | 256 070 | 713 929 |
| f) depreciation over the period (on account of) | 0 | (1 955) | 21 101 | (845) | 2 743 | 0 | 38 874 | 59 918 |
| current write-off (P&L) | 0 | 11 888 | 33 932 | 7 552 | 8 201 | 0 | 91 873 | 153 446 |
| reductions on account of sale | 0 | (1 702) | (90) | 0 | (684) | 0 | 0 | (2 476) |
| reductions on account of liquidation | 0 | (12 141) | (12 723) | 0 | (4 754) | 0 | (52 999) | (82 617) |
| financial lease | 0 | 0 | (18) | (8 397) | (20) | 0 | 0 | (8 435) |
| other | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| g) cumulated depreciation (amortization) at the end of the period | 0 | 219 641 | 180 986 | 18 771 | 59 505 | 0 | 294 944 | 773 847 |
| h) impairment allowances at the beginning of the period | 0 | 797 | 0 | 0 | 0 | 0 | 0 | 797 |
| creation of allowances | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| release of allowances | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| i) impairment allowances at the end of the period | 0 | 797 | 0 | 0 | 0 | 0 | 0 | 797 |
| j) net value of property, plant and equipment at the end of the period | 2 189 | 95 042 | 98 534 | 19 839 | 23 507 | 66 226 | 247 750 | 553 087 |
| including assets used based on leasing agreements | 0 | 1 270 | 9 745 | 19 839 | 0 | 50 247 | 278 654 | 359 755 |
| 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 | 2 270 | 303 754 | 261 834 | 27 641 | 91 624 | 63 187 | 490 593 | 1 240 903 |
| b) increases (on account of) | 0 | 8 617 | 52 336 | 14 680 | 9 264 | 76 964 | 90 924 | 252 785 |
| purchase | 0 | 0 | 789 | 0 | 0 | 49 730 | 0 | 50 519 |
| transfer from fixed assets under construction | 0 | 8 617 | 48 171 | 0 | 9 264 | 0 | 0 | 66 052 |
| financial lease | 0 | 0 | 0 | 14 680 | 0 | 0 | 90 924 | 105 604 |
| unpaid investments | 0 | 0 | 0 | 0 | 0 | 27 234 | 0 | 27 234 |
| other | 0 | 0 | 3 376 | 0 | 0 | 0 | 0 | 3 376 |
| c) reductions (on account of) | 51 | 18 923 | 49 293 | 8 497 | 19 956 | 66 121 | 58 579 | 221 420 |
| sale | 6 | 3 480 | 110 | 764 | 616 | 0 | 376 | 5 352 |
| liquidation | 45 | 12 405 | 41 373 | 49 | 14 720 | 0 | 58 203 | 126 795 |
| settlement of fixed assets under construction | 0 | 0 | 0 | 0 | 0 | 66 051 | 0 | 66 051 |
| financial lease | 0 | 3 038 | 7 810 | 7 684 | 4 620 | 0 | 0 | 23 152 |
| other | 0 | 0 | 0 | 0 | 0 | 70 | 0 | 70 |
| d) gross value of property, plant and equipment at the end of the period | 2 219 | 293 448 | 264 877 | 33 824 | 80 932 | 74 030 | 522 938 | 1 272 268 |
| e) cumulated depreciation (amortization) at the beginning of the period | 0 | 227 344 | 173 288 | 20 779 | 68 440 | 0 | 213 631 | 703 482 |
| f) depreciation over the period (on account of) | 0 | (5 748) | (13 403) | (1 163) | (11 678) | 0 | 42 439 | 10 447 |
| current write-off (P&L) | 0 | 10 197 | 32 271 | 6 518 | 7 918 | 0 | 92 775 | 149 679 |
| reductions on account of sale | 0 | (1 438) | (110) | (691) | (611) | 0 | (376) | (3 226) |
| reductions on account of liquidation | 0 | (11 742) | (40 902) | (49) | (14 348) | 0 | (49 960) | (117 001) |
| financial lease | 0 | (2 765) | (8 038) | (6 941) | (4 637) | 0 | 0 | (22 381) |
| other | 0 | 0 | 3 376 | 0 | 0 | 0 | 0 | 3 376 |
| g) cumulated depreciation (amortization) at the end of the period | 0 | 221 596 | 159 885 | 19 616 | 56 762 | 0 | 256 070 | 713 929 |
| h) impairment allowances at the beginning of the period | 0 | 8 856 | 0 | 0 | 0 | 0 | 0 | 8 856 |
| 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 | 797 | 0 | 0 | 0 | 0 | 0 | 797 |
| j) net value of property, plant and equipment at the end of the period | 2 219 | 71 055 | 104 992 | 14 208 | 24 170 | 74 030 | 266 868 | 557 542 |
| including assets used based on leasing agreements | 0 | 8 003 | 13 720 | 14 208 | 325 | 50 266 | 303 174 | 389 700 |
| 31.12.2023 | 31.12.2022 | |
|---|---|---|
| Goodwill due to merger with Euro Bank S.A. |
| 289 002 | 240 694 | |
|---|---|---|
| concessions, patents, licenses, know-how and similar assets | 24 157 | 34 759 |
| computer software | 78 921 | 89 210 |
| other | 7 296 | 9 524 |
| advances for intangible assets | 178 628 | 107 201 |
| Total | 481 128 | 432 820 |
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.
152 Annual Financial Report of the Bank Millennium S.A. 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.
| 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 | 94 856 | 301 712 | 25 021 | 107 201 | 528 790 |
| b) increases (on account of) | 12 160 | 18 467 | 0 | 102 021 | 132 648 |
| purchase | 0 | 0 | 0 | 92 067 | 92 067 |
| unpaid investments | 0 | 0 | 0 | 9 954 | 9 954 |
| settlement of advances | 12 160 | 18 467 | 0 | 0 | 30 627 |
| other | 0 | 0 | 0 | 0 | 0 |
| c) reductions (on account of) | 0 | 144 | 0 | 30 594 | 30 738 |
| liquidation | 0 | 144 | 0 | 0 | 144 |
| settlement of advances | 0 | 0 | 0 | 30 594 | 30 594 |
| other | 0 | 0 | 0 | 0 | 0 |
| d) gross value of intangible fixed assets at the end of the period | 107 016 | 320 035 | 25 021 | 178 628 | 630 700 |
| e) cumulated depreciation at the beginning of the period | 60 097 | 212 502 | 15 497 | 0 | 288 096 |
| f) depreciation over the period (on account of) | 22 762 | 28 612 | 2 228 | 0 | 53 602 |
| current write-off (P&L) | 22 762 | 28 753 | 2 228 | 0 | 53 743 |
| liquidation | 0 | (143) | 0 | 0 | (143) |
| other | 0 | 0 | 0 | 0 | 0 |
| g) cumulated depreciation at the end of the period | 82 859 | 241 114 | 17 725 | 0 | 341 698 |
| h) impairment allowances at the beginning of the period | 0 | 0 | 0 | 0 | 0 |
| i) impairment allowances at the end of the period | 0 | 0 | 0 | 0 | 0 |
| j) net value of intangible fixed assets at the end of the period | 24 157 | 78 921 | 7 296 | 178 628 | 289 002 |
153 Annual Financial Report of the Bank Millennium S.A. 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.
| 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 | 82 509 | 382 427 | 24 760 | 53 861 | 543 557 |
| b) increases (on account of) | 17 157 | 33 880 | 261 | 100 317 | 151 615 |
| purchase | 0 | 0 | 0 | 87 561 | 87 561 |
| unpaid investments | 0 | 0 | 0 | 12 756 | 12 756 |
| settlement of advances | 17 157 | 29 532 | 261 | 0 | 46 950 |
| other | 0 | 4 348 | 0 | 0 | 4 348 |
| c) reductions (on account of) | 4 810 | 114 595 | 0 | 46 977 | 166 382 |
| liquidation | 4 810 | 114 116 | 0 | 0 | 118 926 |
| settlement of advances | 0 | 0 | 0 | 46 950 | 46 950 |
| other | 0 | 479 | 0 | 27 506 | 27 985 |
| d) gross value of intangible fixed assets at the end of the period | 94 856 | 301 712 | 25 021 | 107 201 | 528 790 |
| e) cumulated depreciation at the beginning of the period | 47 039 | 291 551 | 11 894 | 0 | 350 484 |
| f) depreciation over the period (on account of) | 13 058 | (79 049) | 3 603 | 0 | (62 388) |
| current write-off (P&L) | 17 868 | 31 262 | 3 603 | 0 | 52 733 |
| liquidation | (4 810) | (114 116) | 0 | 0 | (118 926) |
| other | 0 | 3 805 | 0 | 0 | 3 805 |
| g) cumulated depreciation at the end of the period | 60 097 | 212 502 | 15 497 | 0 | 288 096 |
| h) impairment allowances at the beginning of the period | 0 | 0 | 0 | 0 | 0 |
| i) impairment allowances at the end of the period | 0 | 0 | 0 | 0 | 0 |
| j) net value of intangible fixed assets at the end of the period | 34 759 | 89 210 | 9 524 | 107 201 | 240 694 |
154 Annual Financial Report of the Bank Millennium S.A. 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.
| 31.12.2023 | 31.12.2022 | |
|---|---|---|
| Deferred income tax asset | Deferred income tax provision | |
| Difference between tax and balance sheet depreciation | 128 | (1 498) |
| Balance sheet valuation of financial instruments | 1 332 | (36 476) |
| Unrealised receivables/ liabilities on account of derivatives | 67 024 | (67 597) |
| Interest on deposits and securities to be paid/ received | 122 682 | (323 515) |
| Interest and discount on loans and receivables | 0 | (113 015) |
| Income and cost settled at effective interest rate | 60 214 | 0 |
| Impairment of loans presented as temporary differences | 494 879 | 0 |
| Employee benefits | 21 984 | 0 |
| Rights to use | 4 128 | 0 |
| Provisions for future costs | 138 929 | 0 |
| Valuation of investment assets, loans, cash flows hedge and actuarial gains (losses) recognized in other comprehensive income | 57 252 | (24 567) |
| Shares valuation | 1 273 | (33 300) |
| Other | 144 | (1 723) |
| Total | 969 970 | (601 692) |
| Net deferred income tax asset | 22 137 |
155 Annual Financial Report of the Bank Millennium S.A. 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.
| 31.12.2022 | Adjustments to previous years | Changes to financial result | Changes to equity | 31.12.2023 | |
|---|---|---|---|---|---|
| Difference between tax and balance sheet depreciation | (2 080) | 710 | (1 370) | ||
| Balance sheet valuation of financial instruments | (27 144) | (8 000) | (35 144) | ||
| Unrealised receivables/ liabilities on account of derivatives | 13 602 | (14 174) | (573) | ||
| Interest on deposits and securities to be paid/received | (217 807) | 16 975 | (200 833) | ||
| Interest and discount on loans and receivables | (108 724) | (4 292) | (113 015) | ||
| Income and cost settled at effective interest rate | 236 022 | (175 807) | 60 214 | ||
| Impairment of loans presented as temporary differences | 465 900 | 28 978 | 494 879 | ||
| Employee benefits | 19 604 | 2 380 | 21 984 | ||
| Rights to use | 4 719 | (591) | 4 128 | ||
| Provisions for future costs | 79 551 | 59 378 | 138 929 | ||
| Valuation of investment assets, loans, cash flows hedge and actuarial gains (losses) recognized in other comprehensive income | 196 768 | (164 083) | 32 685 | ||
| Shares valuation | (18 147) | (13 880) | (32 027) | ||
| Other | 931 | (2 510) | (1 579) | ||
| Total | 643 196 | 0 | (110 835) | (164 083) | 368 279 |
156 Annual Financial Report of the Bank Millennium S.A. 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.
| 31.12.2021 | Adjustments to previous years | Changes to financial result | Changes to equity | 31.12.2022 | |
|---|---|---|---|---|---|
| Difference between tax and balance sheet depreciation | (1 762) | (318) | (2 080) | ||
| Balance sheet valuation of financial instruments | (24 043) | (3 101) | (27 144) | ||
| Unrealised receivables/ liabilities on account of derivatives | (834) | 14 435 | 13 601 | ||
| Interest on deposits and securities to be paid/received | (66 544) | (151 263) | (217 807) | ||
| Interest and discount on loans and receivables | (75 737) | (32 986) | (108 723) | ||
| Income and cost settled at effective interest rate | 147 394 | 88 628 | 236 022 | ||
| Impairment of loans presented as temporary differences | 398 267 | 67 634 | 465 901 | ||
| Employee benefits | 18 687 | 917 | 19 604 | ||
| Rights to use | 6 620 | (1 901) | 4 719 | ||
| Provisions for future costs | 88 584 | (9 033) | 79 551 | ||
| Valuation of investment assets, cash flows hedge and actuarial gains (losses) recognized in other comprehensive income | 151 457 | (24) | 45 335 | 196 768 | |
| Shares valuation | (35 167) | 17 020 | (18 147) | ||
| Other | 1 096 | 897 | (1 062) | 931 | |
| Total | 608 018 | 873 | (11 030) | 45 335 | 643 196 |
28d.# Annual Financial Report of the Bank Millennium S.A. 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.
| Temporary differences expiry year | 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 Bank offset deferred income tax assets with deferred income tax liabilities.
| 31.12.2023 | 31.12.2022 | |
|---|---|---|
| Net deferred income tax assets | 368,279 | 643,196 |
| Net deferred income tax provision | - | - |
| TOTAL | 368,279 | 643,196 |
| 31.12.2023 | 31.12.2022 | |
|---|---|---|
| Expenses to be settled | 129,508 | 114,577 |
| Income to be received | 37,719 | 34,104 |
| Interbank settlements | 4,349 | 0 |
| Settlements of financial instruments transactions | 44,539 | |
| Receivables from sundry debtors, including: | 1,197,900 | 785,105 |
| - 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 |
| Public and legal settlements | 15,186 | 14,529 |
| Total other assets (gross) | 1,384,706 | 948,854 |
| Impairment allowances | (24,546) | (25,845) |
| Total other assets (net) | 1,360,160 | 923,009 |
| ▪ including other financial assets* | 1,215,466 | 793,903 |
| ▪ including long-term other assets | 0 | 587 |
* other financial assets includes all of the remaining other net assets excluding the Expenses to be settled and Public and legal settlements 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.
As at December 31, 2023 and December 31, 2022, the Bank did not classify any assets to the Non-current asset held for sale.
| 31.12.2023 | 31.12.2022 | |
|---|---|---|
| Negative valuation of derivatives | 576,611 | 380,144 |
| 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 | 579,331 | 384,928 |
The division of the negative valuation of derivatives into specific types of instruments is presented in note (19).
| 31.12.2023 | 31.12.2022 | |
|---|---|---|
| In current account | 27,260 | 26,262 |
| Term deposits | 536,188 | 589,044 |
| Loans and advances received | 0 | 5,000 |
| Interest | 1,936 | 4,838 |
| Total | 565,384 | 625,144 |
| 31.12.2023 | 31.12.2022 | |
|---|---|---|
| Current accounts | 27,260 | 26,262 |
| ▪ to 1 month | 530,573 | 472,072 |
| ▪ above 1 month to 3 months | 3,102 | 69,972 |
| ▪ above 3 months to 1 year | 2,513 | 52,000 |
| ▪ above 1 year to 5 years | 0 | 0 |
| ▪ above 5 years | 0 | 0 |
| Interest | 1,936 | 4,838 |
| Total | 565,384 | 625,144 |
| 31.12.2023 | 31.12.2022 | |
|---|---|---|
| in Polish currency | 261,050 | 318,111 |
| in foreign currencies (after conversion to PLN) | 304,334 | 307,033 |
| ▪ currency: USD | 3,10 | |
| ▪ currency: EUR | 304,331 | 307,023 |
| ▪ currency: CHF | 0 | 0 |
| ▪ other currencies | 0 | 0 |
| Total | 565,384 | 625,144 |
| 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 | 26,605,648 | 23,842,527 |
| Balances on current accounts | 14,803,963 | 13,379,634 |
| Term deposits | 11,267,674 | 9,996,536 |
| Other | 488,536 | 405,854 |
| Accrued interest | 45,475 | 60,503 |
| Amounts due to public sector | 4,300,157 | 5,635,282 |
| Balances on current accounts | 3,318,534 | 3,195,080 |
| Term deposits | 974,507 | 2,418,727 |
| Other | 1,677 | 8,193 |
| Accrued interest | 5,439 | 13,282 |
| Total | 107,505,636 | 98,264,816 |
| 31.12.2023 | 31.12.2022 | |
|---|---|---|
| Current accounts | 68,365,020 | 65,681,642 |
| to 1 month | 13,701,474 | 12,975,850 |
| above 1 month to 3 months | 11,948,566 | 7,520,540 |
| above 3 months to 1 year | 11,330,805 | 7,574,732 |
| above 1 year to 5 years | 1,766,561 | 4,213,399 |
| above 5 years | 35,721 | 41,336 |
| Interest | 357,489 | 257,317 |
| Total | 107,505,636 | 98,264,816 |
| 31.12.2023 | 31.12.2022 | |
|---|---|---|
| in Polish currency | 96,237,779 | 86,587,558 |
| in foreign currencies (after conversion to PLN) | 11,267,857 | 11,677,258 |
| ▪ currency: USD | 2,550,089 | 3,015,110 |
| ▪ currency: EUR | 8,044,025 | 7,889,980 |
| ▪ currency: GBP | 383,030 | 441,197 |
| ▪ currency: CHF | 242,561 | 238,002 |
| ▪ other currencies | 48,152 | 92,969 |
| Total | 107,505,636 | 98,264,816 |
| 31.12.2023 | 31.12.2022 | |
|---|---|---|
| Liabilities from securities sold with buy-back clause | ||
| a) to the Central Bank | 0 | 0 |
| b) to banks | 0 | 0 |
| c) to customers | 0 | 0 |
| d) interest | 0 | 0 |
| Total | 0 | 0 |
| 31.12.2023 | 31.12.2022 | |
|---|---|---|
| Bonds | 2,903,111 | 242,500 |
| Valuation of Bank’s bonds designated to fair value hedge | 49,304 | 0 |
| Interest | 75,537 | 1,253 |
| Total | 3,027,952 | 243,753 |
| 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 | 2,220,915 | 0 |
| ▪ above 5 years | 731,500 | 242,500 |
| Interest | 75,537 | 1,253 |
| Total | 3,027,952 | 243,753 |
| 01.01.2023 - 31.12.2023 | 01.01.2022 - 31.12.2022 | |
|---|---|---|
| Balance at the beginning of the period | 243,753 | 0 |
| Increases, on account of: | 2,825,806 | 243,753 |
| Issue of bonds | 2,660,611 | 242,500 |
| valuation of Bank’s bonds designated to fair value hedge | 49,304 | 0 |
| interest accrual | 115,891 | 1,253 |
| Reductions, on account of: | (41,607) | 0 |
| repurchase of bonds | 0 | 0 |
| interest payment | (41,607) | 0 |
| Balance at the end of the period | 3,027,952 | 243,753 |
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 | 494,106 | 5,107 | 2036-08-25 | Vienna MTF |
| Bank Millennium - MILP-2027/09 | 2,282,505 | 61,589 | 2027-09-18 | Luxembourg SE |
| Total | 3,027,952 | 75,537 |
As at 31.12.2022
| Balance sheet value | Final legal maturity | Market | |
|---|---|---|---|
| BMCN_012040 | 243,753 | 2040-01-25 | Vienna MTF |
| 31.12.2023 | 31.12.2022 | |
|---|---|---|
| Amount of subordinated bonds inn - 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 |
| 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 | 110,181 |
| issue of subordinated bonds | 0 | 0 |
| interest accrual | 141,686 | 110,181 |
| Reductions, on account of: | (144,724) | (83,242) |
| redemption of subordinated bonds | 0 | 0 |
| interest payment | (144,724) | (83,242) |
| Balance at the end of the period | 1,565,045 | 1,568,083 |
During 2023 and 2022 the Bank did not have any delays in the payment of principal and interest instalments, nor did it infringe any contractual provisions resulting from its subordinated liabilities.
| 31.12.2023 | 31.12.2022 | |
|---|---|---|
| Provision for commitments and guarantees given | 42,375 | 40,174 |
| Provision for pending legal issues | 1,401,798 | 975,092 |
| Total | 1,444,173 | 1,015,266 |
| 01.01.2023 - 31.12.2023 | 01.01.2022 - 31.12.2022 | |
|---|---|---|
| Balance at the beginning of the period | 975 092 | 549 450 |
| Charge of provision | 30 208 | 27 325 |
| Release of provision | (11 783) | (8 116) |
| Utilisation of provision | (112 313) | (175) |
| Creation of provision 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) |
| FX rates differences | 0 | 0 |
| Balance at the end of the period | 1 401 798 | 975 092 |
162 Annual Financial Report of the Bank Millennium S.A. for the 12-month period ending 31 st December 2023
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
| 31.12.2023 | 31.12.2022 | |
|---|---|---|
| Short-term | 2 456 966 | 2 051 796 |
| Accrued costs - bonuses, salaries | 49 735 | 43 689 |
| Accrued costs - other | 193 796 | 163 713 |
| Provisions for return of insurance fees | 186 661 | 271 420 |
| Interbank settlements | 745 986 | 814 674 |
| Provisions for potential return of fees in the event of early repayment of the loan | 76 400 | 78 923 |
| Settlement of transactions on financial instruments | 0 | 3 338 |
| Other creditors, including: | 1 013 454 | 466 902 |
| - liabilities due to legally invalidated foreign currency mortgage loans | 288 253 | 145 986 |
| - settlements for card transactions | 192 141 | 173 824 |
| - insurance settlements | 59 775 | 34 579 |
| Liabilities due to leases | 93 192 | 95 759 |
| Liabilities to public sector | 35 244 | 42 303 |
| Deferred income | 41 551 | 53 819 |
| Provisions for unused employee holiday | 17 089 | 13 863 |
| Provisions for retirement benefits | 3 263 | 2 832 |
| Other | 595 561 | 0 |
| Long-term | 474 887 | 498 838 |
| Provisions for retirement benefits | 41 964 | 28 709 |
| Accrued costs | 0 | 0 |
| Commitment to pay – BGF* | 209 209 | 209 209 |
| Liabilities due to leases | 219 518 | 256 724 |
| Accrued costs | 4 196 | 4 196 |
| Total | 2 931 853 | 2 550 634 |
| including other financial liabilities** | 2 382 194 | 1 894 398 |
** other financial liabilities includes all of the other liabilities excluding the Liabilities to public sector, Deferred income, Provisions for return, Commitment to pay – BGF, and other items
| 31.12.2023 | 31.12.2022 | |
|---|---|---|
| Liabilities from lease (gross) | 342 039 | 377 749 |
| Unrealised financial costs | (29 329) | (25 266) |
| Current value of minimum lease instalments | 312 710 | 352 483 |
| Liabilities from lease (gross) by maturity | ||
| Under 1 year | 105 182 | 104 883 |
| From 1 year to 5 years | 207 517 | 215 916 |
| Above 5 years | 29 340 | 56 950 |
| Total | 342 039 | 377 749 |
| Liabilities from lease (net) by maturity | ||
| Under 1 year | 93 192 | 95 759 |
| From 1 year to 5 years | 190 501 | 200 859 |
| Above 5 years | 29 017 | 55 865 |
| Total | 312 710 | 352 483 |
163 Annual Financial Report of the Bank Millennium S.A. for the 12-month period ending 31 st December 2023
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
| 01.01.2023 - 31.12.2023 | 01.01.2022 - 31.12.2022 | |
|---|---|---|
| Balance at the beginning of the period | 13 862 | 13 626 |
| Charge of provisions/ reversal of provisions | 3 227 | 90 |
| Utilisation of provisions | 0 | 0 |
| Takeover of the brokerage activities of the former Millennium Dom Maklerski S.A. | 0 | 146 |
| Balance at the end of the period | 17 089 | 13 862 |
| 01.01.2023 - 31.12.2023 | 01.01.2022 - 31.12.2022 | |
|---|---|---|
| Balance at the beginning of the period | 31 541 | 34 709 |
| Charge of provisions/ reversal of provisions | 4 600 | 5 609 |
| Utilisation of provisions/ reclassification of provision | (1 348) | (1 477) |
| Actuarial gains (losses) | 10 434 | (8 367) |
| Takeover of the brokerage activities of the former Millennium Dom Maklerski S.A. | 0 | 1 067 |
| Balance at the end of the period | 45 227 | 31 541 |
The share capital of the Bank Millennium S.A. 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 |
164 Annual Financial Report of the Bank Millennium S.A. for the 12-month period ending 31 st December 2023
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
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 shares | % share in share capital | Number of votes | % share in votes at Shareholders’ Meeting |
|---|---|---|---|---|---|
| Banco Comercial Portugues S.A. | 607 771 505 | 50.10 | 607 771 505 | 50.10 | |
| Nationale-Nederlanden Otwarty Fundusz Emerytalny | 107 970 039 | 8.90 | 107 970 039 | 8.90 | |
| Allianz Polska 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 shares | % share in share capital | Number of votes | % share in votes at Shareholders ’ Meeting |
|---|---|---|---|---|---|
| Banco Comercial Portugues S.A. | 607 771 505 | 50.10 | 607 771 505 | 50.10 | |
| Nationale-Nederlanden Otwarty Fundusz Emerytalny | 107 970 039 | 8.90 | 107 970 039 | 8.90 | |
| Allianz Polska OFE + Drugi Allianz Polska OFE (*) | 96 792 815(*) | 7.98(*) | 96 792 815(*) | 7.98(*) | |
| Otwarty Fundusz Emerytalny PZU „Złota Jesień” | 67 417 542 | 5.56 | 67 417 542 | 5.56 |
(*) Additionally, PTE Allianz Polska S.A. manages the , Allianz Polska Dobrowolny Fundusz Emerytalny. Pursuant to the notification of PTE Allianz Polska S.A., published by the Bank in Current Report No. 3/2023, Allianz Polska Dobrowolny Fundusz Emerytalny, Allianz Polska OFE and Drugi Allianz Polska OFE held jointly 96,810,815 shares in the Bank (7.98% of votes), including Second Allianz Polska OFE 80,760,035 shares of the Bank (6.66% of votes).
165 Annual Financial Report of the Bank Millennium S.A. for the 12-month period ending 31 st December 2023
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
Other comprehensive income arises on the recognition of:
| 31.12.2023 | 31.12.2022 | |
|---|---|---|
| Effect of valuation (gross) | (172 027) | (1 035 621) |
| Deferred income tax | 32 685 | 196 768 |
| Net effect of valuation | (139 342) | (838 853) |
The sources of revaluation reserve are as follows (data in PLN thousand):
| Gross value | Deferred tax | Total | |
|---|---|---|---|
| Revaluation reserve at the beginning of the period | (895 116) | 170 073 | (725 043) |
| 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 | 588 427 | (111 801) | 476 626 |
| Profit/loss on revaluation of FVTOCI shares, recognized in equity | 4 422 | (840) | 3 582 |
| Revaluation reserve at the end of the period | (218 941) | 41 600 | (177 341) |
| Gross value | Deferred tax | Total | |
|---|---|---|---|
| Revaluation reserve at the beginning of the period | (686 675) | 130 469 | (556 206) |
| 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 | (245 365) | 46 619 | (198 746) |
| Profit/loss on revaluation of FVTOCI shares, recognized in equity | (4 141) | 787 | (3 354) |
| Revaluation reserve at the end of the period | (895 116) | 170 073 | (725 043) |
166
Annual Financial Report of the Bank Millennium S.A. 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.
| Gross value | Deferred tax | Total | |
|---|---|---|---|
| Revaluation reserve at the beginning of the period | (406 061) | 77 151 | (328 910) |
| 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 | (54 194) | 10 297 | (43 897) |
| Gross value | Deferred tax | Total | |
|---|---|---|---|
| Revaluation reserve at the beginning of the period | (378 912) | 71 993 | (306 919) |
| Gains or losses on valuation of financial instruments recognized in equity | (34 502) | 6 555 | (27 947) |
| Transfer to income statement during period | 7 353 | (1 397) | 5 956 |
| Revaluation reserve at the end of the period | (406 061) | 77 151 | (328 910) |
| Gross value | Deferred tax | Total | |
|---|---|---|---|
| Revaluation reserve at the beginning of the period | 9 732 | (1 850) | 7 882 |
| Change in the obligations arising from the provision for retirement benefits | (10 434) | 1 982 | (8 452) |
| Revaluation reserve at the end of the period | (702) | 132 | (570) |
| Gross value | Deferred tax | Total | |
|---|---|---|---|
| Revaluation reserve at the beginning of the period | 1 365 | (260) | 1 105 |
| Change in the obligations arising from the provision for retirement benefits | 8 367 | (1 590) | 6 777 |
| Revaluation reserve at the end of the period | 9 732 | (1 850) | 7 882 |
| Gross value | Deferred tax | Total | |
|---|---|---|---|
| Revaluation reserve at the beginning of the period | 255 824 | (48 607) | 207 217 |
| Gains or losses on valuation of financial instruments recognized in equity | (145 054) | 27 561 | (117 493) |
| Transfer to Profit and loss due to impairment calculation | (8 960) | 1 702 | (7 258) |
| Revaluation reserve at the end of the period | 101 810 | (19 344) | 82 466 |
| Gross value | Deferred tax | Total | |
|---|---|---|---|
| Revaluation reserve at the beginning of the period | 267 079 | (50 745) | 216 334 |
| Gains or losses on valuation of financial instruments recognized in equity | 17 208 | (3 270) | 13 938 |
| Transfer to Profit and loss due to impairment calculation | (28 463) | 5 408 | (23 055) |
| Revaluation reserve at the end of the period | 255 824 | (48 607) | 207 217 |
167
Annual Financial Report of the Bank Millennium S.A. 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.
| Supplementary capital | Reserve capital | General banking risk fund | Retained earnings | TOTAL | |
|---|---|---|---|---|---|
| Retained earnings at the beginning of the period 01.01.2023 | 374 957 | 4 309 049 | 228 902 | (1 029 899) | 3 883 009 |
| appropriation of profit, including: | |||||
| cover of loss | 0 | (1 029 899) | 0 | 1 029 899 | 0 |
| charge due to transfer of own shares to employees | 0 | 0 | 0 | 0 | 0 |
| net profit/ (loss) of the period | 0 | 0 | 0 | 510 259 | 510 259 |
| Retained earnings at the end of the period 31.12.2023 | 374 957 | 3 279 150 | 228 902 | 510 259 | 4 393 268 |
| Supplementary capital | Reserve capital | General banking risk fund | Retained earnings | TOTAL | |
|---|---|---|---|---|---|
| Retained earnings at the beginning of the period 01.01.2022 | 374 957 | 5 671 124 | 228 902 | (1 357 452) | 4 917 531 |
| appropriation of profit, including: | |||||
| cover of loss | 0 | (1 357 452) | 0 | 1 357 452 | 0 |
| charge due to transfer of own shares to employees | 0 | (4 623) | 0 | 0 | (4 623) |
| net profit/ (loss) of the period | 0 | 0 | 0 | (1 029 899) | (1 029 899) |
| Retained earnings at the end of the period 31.12.2022 | 374 957 | 4 309 049 | 228 902 | (1 029 899) | 3 883 009 |
| 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 | 560 856 | 3 102 | 2 514 | 0 | 0 | 566 472 |
| Deposits from customers | 82 204 097 | 12 164 714 | 11 612 194 | 1 776 691 | 35 721 | 107 793 417 |
| Liabilities from securities sold with buy-back clause | 0 | 0 | 0 | 0 | 0 | 0 |
| Debt securities | 8 841 | 5 106 412 | 247 357 | 3 574 240 | 1 662 215 | 5 662 649 |
| Subordinated debt | 0 | 31 307 | 134 779 | 1 170 252 | 830 000 | 2 166 338 |
| Liabilities from trading derivatives - notional value | 2 795 970 | 2 753 193 | 5 104 452 | 4 773 421 | 173 335 | 15 600 371 |
| Liabilities from hedging derivatives - notional value | 1 708 280 | 1 945 044 | 117 070 | 3 117 280 | 0 | 6 887 674 |
| Commitments granted - financial | 12 550 588 | 0 | 0 | 0 | 0 | 12 550 588 |
| Commitments granted - guarantee | 1 713 980 | 0 | 0 | 0 | 0 | 1 713 980 |
| TOTAL | 101 542 612 | 16 902 466 | 17 383 256 | 14 411 884 | 2 701 271 | 152 941 489 |
168
Annual Financial Report of the Bank Millennium S.A. 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.
| 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 | 501 555 | 71 217 | 54 321 | 0 | 0 | 627 093 |
| Deposits from customers | 78 774 884 | 7 662 298 | 7 838 875 | 4 235 695 | 41 336 | 98 553 088 |
| 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 | 4 676 237 | 1 921 948 | 1 751 535 | 5 118 184 | 2 581 157 | 16 049 061 |
| Liabilities from hedging derivatives - notional value | 0 | 1 840 685 | 4 427 975 | 4 814 395 | 0 | 11 083 055 |
| Commitments granted - financial | 11 610 683 | 0 | 0 | 0 | 0 | 11 610 683 |
| Commitments granted - guarantee | 2 419 611 | 0 | 0 | 0 | 0 | 2 419 611 |
| TOTAL | 98 016 588 | 11 496 148 | 14 243 188 | 14 961 809 | 5 124 679 | 143 842 412 |
169
Annual Financial Report of the Bank Millennium S.A. 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.
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.
As at 31 December 2023 following assets of the Bank constituted collateral of liabilities (PLN’000):
| No. | Type of assets | Portfolio | Secured liability | Par value of assets | Balance sheet value of assets |
|---|---|---|---|---|---|
| 1. | Treasury Bonds | 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. |
As at 31 December 2023 and 31 December 2023 the Bank did not have any repurchase agreements (SBB) involving securities presented in the Bank's balance sheet.
The majority of the Bank's derivatives portfolio arises due to conclusion by the Bank framework ISDA agreements (International Swaps and Derivatives Agreements). Provisions included in the agreements define comprehensive procedures in case of infringement (mainly difficulties in payments), and provide possibility to cancel a deal, making settlements with counterparty base on offset amount of mutual receivables and liabilities. To date, the Bank has not exercised that option, however, in order to meet information requirements as described in IFRS 7 the following table presents the fair values of derivative instruments (both classified as held for trading and dedicated to hedge accounting) as well as cash collaterals under ISDA framework agreements with a theoretical maximum amount resulting from the settlement on the basis of compensation.
| PLN’000 | ||
|---|---|---|
| Amounts to be received | 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) |
For the purpose of the cash flow statement the following financial assets are classified by the Bank as cash or its equivalents:
| PLN’000 | 31.12.2023 | 31.12.2022 |
|---|---|---|
| Cash and balances with the Central Bank | 5 094 984 | 9 536 090 |
| Receivables from interbank deposits* | 612 467 | 288 219 |
| Debt securities issued by the State Treasury* | 12 688 962 | 4 406 780 |
| of which FVTOCI and HTC | 12 686 172 | 4 405 868 |
| of which held for trading | 2 790 912 | |
| Total | 18 396 413 | 14 231 089 |
* Financial assets with maturity below three months
For the purpose of the cash flow statement the following classification of activity types was adopted:
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.
In 2012, the Bank implemented a policy specifying the principles of remuneration for persons having a significant impact on the risk profile of Bank Millennium, as amended. In accordance with the policy, the Bank'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 Bank, 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.
| 2019 | 2020 | 2021 | 2022 | |
|---|---|---|---|---|
| Variable remuneration – financial instruments for: | ||||
| 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 | |||
| Starting date of the program in accordance with the definition of IFRS 2 | 1 January 2022 | |||
| 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 |
| Employment in the Bank | Employment in the Bank | Employment in the Bank | ||
| 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. |
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
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 Financial instruments granted to members of the Management Board of the Bank, for the year:
| 2020 | 2021 | 2022 | |
|---|---|---|---|
| Phantom shares | |||
| Date of shares assigning | - | 13.04.2022 | 03.11.2023 |
| Number of shares granted | - | 255 982 | 282 053 |
| Number of shares deferred | - | 0.00 | 0.00 |
| Value as at assigning date (PLN) | - | 1 680 000 | 1 968 750 |
| Value granted as at assigning date (PLN) | - | 0.00 | 0.00 |
| Value deferred as at assigning date (PLN) | - | 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.
174
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
The National Working Group involves representatives of the Ministry of Finance, the National Bank of Poland, the Office of the Financial Supervision Authority, the Bank Guarantee Fund, the Polish Development Fund, the Warsaw Stock Exchange, the National Depository for Securities, Bank Gospodarstwa Krajowego, the GPW Benchmark, as well as representatives of credit institutions, i.e. in particular, banks, financial institutions, including investment funds, insurance companies, factoring and leasing companies, entities that are bond issuers, including corporate and municipal bonds, clearing houses.
The work of the National Working Group is coordinated and supervised by a Steering Committee including representatives of key institutions: Financial Supervision Authority, the National Bank of Poland, the Ministry of Finance, the Bank Guarantee Fund, the Polish Development Fund, as well as the GPW Benchmark - the administrator of the reference rates - and the Polish Bank Association (Polish: Związek Banków Polskich).
The 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.
175
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
The Bank uses the WIBOR reference rate in the following products (in million PLN):
The Bank also applies instruments based on WIBOR benchmarks in hedge accounting, details of the hedging relationships used by the Group, the items designated as hedged and hedging and the presentation of the result on these transactions are presented in Note 24 "Derivatives - Hedge accounting" in Chapter 13 "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, r. 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).
LIBOR USD
The Bank applies the USD LIBOR benchmark to the following products (in million PLN):
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, Bank is taking effort to implement individual approach to each of these contracts.
176
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.
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 |
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