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 Highlights

	Amount ‘000 PLN 1.01.2023 - 31.12.2023	Amount ‘000 PLN 1.01.2022 - 31.12.2022	Amount ‘000 EUR 1.01.2023 - 31.12.2023	Amount ‘000 EUR 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 for
- items as at the balance sheet date	-	-	4.3480	4.6899
- items for the period covered by the report (exchange rate calculated as the average of exchange rates at the end of individual months of the period)	-	-	4.5284	4.6883

Quarterly financial information

INCOME STATEMENT

	Amount ‘000 PLN 1.01.2023 - 31.12.2023	Amount ‘000 PLN 1.10.2023 - 31.12.2023*	Amount ‘000 PLN 1.01.2022 - 31.12.2022	Amount ‘000 PLN 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)	(638)
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

quarterly financial information has not been audited by an independent auditor

STATEMENT OF TOTAL COMPREHENSIVE INCOME

	Amount ‘000 PLN 1.01.2023 - 31.12.2023	Amount ‘000 PLN 1.10.2023 - 31.12.2023*	Amount ‘000 PLN 1.01.2022 - 31.12.2022	Amount ‘000 PLN 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.

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

TABLE OF CONTENT

INCOME STATEMENT ................................................................................... 6
STATEMENT OF TOTAL COMPREHENSIVE INCOME ................................................ 7
BALANCE SHEET ........................................................................................ 8
STATEMENT OF CHANGES IN EQUITY ............................................................. 10
CASH FLOW STATEMENT ............................................................................ 11
GENERAL INFORMATION ABOUT ISSUER .......................................................... 13
ACCOUNTING POLICY ................................................................................ 14
7.1. STATEMENT OF COMPLIANCE WITH THE INTERNATIONAL FINANCIAL REPORTING STANDARDS .................. 14
7.2. STANDARDS AND INTERPRETATIONS APPLIED IN 2023 AND THOSE NOT BINDING AT THE BALANCE SHEET DATE.. 16
7.3. ADOPTED ACCOUNTING PRINCIPLES ......................................................................... 18
FINANCIAL RISK MANAGEMENT .................................................................... 46
8.1. RISK MANAGEMENT ........................................................................................ 46
8.2. CAPITAL MANAGEMENT .................................................................................... 51
8.3. CREDIT RISK ............................................................................................... 57
8.4. MARKET RISK AND INTEREST RATE RISK .................................................................... 78
8.5. LIQUIDITY RISK ............................................................................................ 85
8.6. OPERATIONAL RISK ........................................................................................ 89
8.7. RISK OF NEGATIVE IMPACT ON THE NATURAL ENVIRONMENT .................................................. 90
TRANSACTIONS WITH RELATED ENTITIES ........................................................ 91
9.1. TRANSACTIONS WITH THE SUBSIDIARIES AND PARENT’S GROUP .............................................. 91
9.2. TRANSACTIONS WITH THE MANAGING AND SUPERVISING PERSONS ........................................... 94
9.3. INFORMATION ON COMPENSATIONS AND BENEFITS OF THE PERSONS SUPERVISING AND MANAGING THE BANK ... 95
FAIR VALUE ........................................................................................... 96
CONTINGENT LIABILITIES AND ASSETS .......................................................... 101
11.1. LAWSUITS ............................................................................................... 101
11.2. OFF BALANCE SHEET ITEMS ............................................................................... 106
LEGAL RISK RELATED TO FOREIGN CURRENCY MORTGAGE LOANS ........................ 108
12.1. COURT CLAIMS AND CURRENT PROVISIONS ON LEGAL RISK .................................................. 108
12.2. EVENTS THAT MAY IMPACT FX MORTGAGE LEGAL RISK AND RELATED PROVISION ............................# NOTES TO THE FINANCIAL STATEMENTS

1. INTEREST INCOME AND OTHER OF SIMILAR NATURE

2. INTEREST EXPENSE

3. FEE AND COMMISSION INCOME AND EXPENSE

4. DIVIDEND INCOME

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

6. RESULTS ON FINANCIAL ASSETS AND LIABILITIES HELD FOR TRADING

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

8. RESULT ON HEDGE ACCOUNTING

9. OTHER OPERATING INCOME

10. OTHER OPERATING EXPENSE

11. ADMINISTRATIVE EXPENSES

12. IMPAIRMENT LOSSES ON FINANCIAL ASSETS

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.

13. IMPAIRMENT LOSSES ON NON-FINANCIAL ASSETS

14. PROVISIONS FOR LEGAL RISK CONNECTED WITH FX MORTGAGE LOANS

15. DEPRECIATION AND AMORTIZATION

16. CORPORATE INCOME TAX

17. EARNINGS PER SHARE

18. CASH, BALANCES AT THE CENTRAL BANK

19. FINANCIAL ASSETS HELD FOR TRADING

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

21. FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME

22. LOANS AND ADVANCES TO CUSTOMERS

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

24. DERIVATIVES – HEDGE ACCOUNTING

25. INVESTMENTS IN SUBSIDIARIES, JOINT VENTURES AND ASSOCIATES

26. TANGIBLE FIXED ASSETS

27. INTANGIBLE FIXED ASSETS

28. DEFERRED INCOME TAX ASSETS

29. OTHER ASSETS

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

31. FINANCIAL LIABILITIES HELD FOR TRADING

32. LIABILITIES TO BANKS AND OTHER MONETARY INSTITUTIONS

33. LIABILITIES TO CUSTOMERS

34. SALE AND REPURCHASE AGREEMENTS

35. DEBT SECURITIES ISSUED

36. SUBORDINATED DEBT

37. PROVISIONS

38. OTHER LIABILITIES

39. EQUITY

40. FINANCIAL LIABILITIES BY CONTRACTUAL MATURITY

14. SUPPLEMENTARY INFORMATION

14.1. 2022 DIVIDEND

14.2. DATA ABOUT ASSETS, WHICH SECURE LIABILITIES

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

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

14.5. ADDITIONAL EXPLANATIONS TO THE CASH FLOW STATEMENT

14.6. INFORMATION ON CUSTODY ACTIVITY

14.7. SHARE BASED PAYMENTS

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

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.

1. Income Statement

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.

2. Statement of Total Comprehensive Income

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.

3. Balance Sheet

ASSETS	Amount '000 PLN	Note	31.12.2023
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	982
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 AND EQUITY

	Amount '000 PLN	Note	31.12.2023
LIABILITIES
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.

4. Statement of Changes in Equity

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
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	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)
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	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.

5. Cash Flow Statement

A. Cash flows from operating activities

Amount ‘000 PLN	1.01.2023 - 31.12.2023	1.01.2022 - 31.12.2022
Profit (loss) after taxes	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.

B. Cash flows from investing activities

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	157 306 943
Other	32 137	45 592
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

C. Cash flows from financing activities

Amount ‘000 PLN	1.01.2023 - 31.12.2023	1.01.2022 - 31.12.2022
Inflows from financing activities:	2 316 276	0
Long-term bank loans	0	0
Issue of debt securities	2 316 276	0
Increase in subordinated debt	0	0
Net proceeds from issues of shares and additional capital paid-in	0	0
Other inflows from financing activities	0	0
Outflows from financing activities:	(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)

D. Net cash flows. Total (A + B + C)

	4 165 324	10 858 845
- including change resulting from FX differences	(21 705)	4 630
E. Cash and cash equivalents at the beginning of the reporting period	14 231 089	3 372 244
F. Cash and cash equivalents at the end of the reporting period (D + E)	18 396 413	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.

6. General Information about Issuer

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.

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

Composition of the Supervisory Board as at 31 December 2023 was as follows:
▪ Bogusław Kott - Chairman of the Supervisory Board,
▪ Nuno Manuel da Silva Amado – Deputy Chairman of the Supervisory Board,
▪ Dariusz Rosati – Deputy Chairman and Secretary of the Supervisory Board,
▪ Miguel de Campos Pereira de Bragança – Member of the Supervisory Board,
▪ Olga Grygier-Siddons – Member of the Supervisory Board,
▪ Anna Jakubowski – Member of the Supervisory Board,
▪ Grzegorz Jędrys – Member of the Supervisory Board,
▪ Alojzy Nowak – Member of the Supervisory Board,
▪ Jose Miguel Bensliman Schorcht da Silva Pessanha – Member of the Supervisory Board
▪ Miguel Maya Dias Pinheiro – Member of the Supervisory Board,
▪ Beata Stelmach – Member of the Supervisory Board
▪ Lingjiang Xu – Member of the Supervisory Board.

Composition of the Management Board as at 31 December 2023 was as follows:
▪ Joao Nuno Lima Bras Jorge – Chairman of the Management Board,
▪ Fernando Maria Cardoso Rodrigues Bicho – Deputy Chairman of the Management Board,
▪ Wojciech Haase – Member of the Management Board,
▪ Andrzej Gliński – Member of the Management Board,
▪ Wojciech Rybak – Member of the Management Board,
▪ Antonio Ferreira Pinto Júnior – Member of the Management Board,
▪ Jarosław Hermann – Member of the Management Board.

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.

7. Accounting Policy

7.1. STATEMENT OF COMPLIANCE WITH THE INTERNATIONAL FINANCIAL REPORTING STANDARDS

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.

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.

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

STANDARDS INITIALLY APPLIED IN FINANCIAL STATEMENTS 2023

The following amendments to existing standards issued by the International Accounting Standards Board (IASB) and approved for use in the EU were first applied in the 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*

* exception specified in amendments to IAS 12 (that an entity does not recognise and does not disclose information about deferred tax assets and liabilities related to the OECD pillar two income taxes) is applicable immediately upon issuance of the amendments and retrospectively in accordance with IAS 8. The remaining disclosure requirements are required for annual reporting periods beginning on or after 1 January 2023.

The adoption of mentioned above amendments to the existing standards has not led to any material changes in the Bank’s financial statements 2023.

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

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

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

The 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 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.

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

At present, IFRS as adopted by the EU do not significantly differ from regulations adopted by the International Accounting Standards Board (IASB) except for the following new standards and amendments to the existing standards, which were not endorsed for use in EU:

Standard	Title	EU adoption status
Amendments to IFRS 16	Lease Liability in a Sale and Leaseback (IASB effective date: 1 January 2024)	Not yet adopted by EU
Amendments to IAS 7 and IFRS 7	Supplier Finance Arrangements (IASB effective date: 1 January 2024)	Not yet adopted by EU
Amendments to IAS 21	Lack of Exchangeability (IASB effective date: 1 January 2025)	Not yet adopted by EU
IFRS 14	Regulatory Deferral Accounts (IASB effective date: 1 January 2016)	the European Commission has decided not to launch the endorsement process of this interim standard and to wait for the final standard
Amendments to IFRS 10 and IAS 28	Sale or Contribution of Assets between an Investor and its Associate or Joint Venture and further amendments (effective date deferred by IASB indefinitely but earlier application permitted)	Endorsement process postponed indefinitely until the research project on the equity method has been concluded

The 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 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.

7.3. ADOPTED ACCOUNTING PRINCIPLES

Basis of Financial Statements Preparation

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.

Functional currency and presentation currency

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 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.

Transactions and balances

Transactions expressed in foreign currency are translated into the functional currency by applying the exchange rate at the date of the transaction. Exchange rate profits and losses due to settlements of these transactions and to the balance sheet valuation of assets and monetary commitments expressed in foreign currency are accounted for in the profit and loss account. Exchange rate differences on monetary items, both those valued at fair value through the profit and loss account or valued at fair value through other comprehensive income are disclosed in the profit and loss account. Exchange rate differences on non-monetary items valued at fair value through the profit and loss, are accounted in the profit and loss account. Exchange rate differences due to items, such as equity instruments valued at fair value through other comprehensive income, are included in Other comprehensive income.

Mergers under joint control

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".

Application of estimates in connection with Accounting Policies

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:

Impairment of loans and advances
Impairment estimation model within the Bank has been based on the concept of “expected credit loss”, (hereinafter: ECL).# In result impairment charges are calculated based on expected credit losses and forecasts of expected future economic conditions have to be taken into account when conducting evaluation of credit risk of an exposure. The methodology and assumptions adopted for determining credit impairments are regularly reviewed in order to reduce discrepancies between the estimated and actual losses. In order to assess the adequacy of the impairment determined both in individual analysis and collective analysis a historical verification (backtesting) is conducted from time to time (at least once a year), which results will be taken into account in order to improve the quality of the process. Further details are presented in Chapter 8. “Financial Risk Management”.

20 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.

▪ 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 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 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 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 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.

Business Models of the Bank

In accordance with IFRS 9 the manner of assets management may be assigned to the following models:
1) Held To Collect (herein from „HTC”),
2) Both Held to Collect and for Sale (herein from “HTC&FS”),
3) Other models, e.g. trading activity, management of assets based on fair value fluctuations, maximising cash flows through sales.

Held To Collect Model (HTC)

Model characteristics:

1) The objective of the model is to hold financial assets in order to collect their contractual cash flows,
2) Sales are infrequent,
3) In principle, lower levels of sales compared to other models (in terms of frequency and volume).

23 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.

Conditions allowing sale in the HTC model:

1) Low frequency,
2) Low volume,
3) Sale connected with credit risk (sale caused by the deterioration of the credit quality of a given financial asset to a level at which it no longer meets the investment policy requirements).

A sale having at least one of the above features does not preclude qualifying a group of assets in the HTC module.

Impact on classification and valuation:

Instruments assigned to the HTC model are classified as valued at amortised cost (AC) on condition that the criteria of the SPPI Test are met. The value of instruments is calculated based on effective interest rate which is applied to determine interest income and then adjusted for impairment allowances reflecting expected credit losses. Consequently, subject to valuation at amortised cost is the 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.

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

Model characteristics:

1) The integral objectives of the business model are both to collect contractual cash flows and sell assets (in particular the model meets the assumptions of HTC&FS, if its objective is to manage everyday liquidity needs, maintain an adopted interest yield profile and/or match the duration of the financial assets and liabilities),
2) The levels of sales are usually higher than in the HTC model.

Impact on classification and valuation:

In accordance with IFRS 9 instruments assigned to the HTC&FS model are classified as valued at fair value through other comprehensive income (FVTOCI) on condition that the contractual terms of these instruments trigger at particular moments cash flows constituting solely a payment of principal and interest on such principal (the SPPI test is met). These instruments are measured at fair value net of impairment allowances, the fair value result is recognised in other comprehensive income until financial assets is derecognised. The HTC&FS model is applied mainly to the portfolio of debt government securities and money bills of the National Bank of Poland in particular the liquidity and investment portfolio 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).

Other models

Model characteristics:

1) The business model does not meet the assumptions of the HTC and HTC&FS models.
2) The collecting of cash flows on interest and principal is not the main objective of the business model (the SPPI test is not satisfied),

24 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.

This category should include in particular:
1) Portfolios managed in order to collect cash flows from the sale of assets, in particular „held for trading”,
2) Portfolios whose management results are evaluated at fair value.

A financial asset should be considered as held for trading, if:
1) It was purchased mainly for the purpose of selling in a very short term,
2) At the moment of initial recognition it is part of a portfolio of financial instruments managed jointly for which there is evidence confirming a regularity that they have recently actually generated short-term profits, or
3) Is a derivative instrument, with the exclusion of derivative instruments included in hedge accounting and being effective hedging instruments.

The term “trading” means active and frequent purchases and sales of instruments. However, these features do not constitute a necessary condition in order to classify a financial instrument as held for trading.

Impact on classification and valuation:

Financial assets kept under models other than HTC or HTC&FS are valued at fair value through profit & loss (FVTPL). A business model other than HTC or HTC&FS shall apply to portfolios of the following financial assets:
1) Derivative instruments,
2) Debt securities held for trading,
3) Capital instruments not appointed to be a strategic investment,
4) Financial assets irrevocably designated at initial recognition to be valued at fair value through profit & loss (even in case the asset does not meet criteria to be FVTPL) in order to eliminate or significantly mitigate accounting mismatch if would appear in case such designation is not made.

Test of characteristics of contractual cash flows (SPPI test)

The evaluation of the fulfilment of the SPPI Test is carried out in the following cases:
▪ granting a debt instrument;
▪ purchase of debt instrument;
▪ renegotiation of contractual terms.

The subject of the SPPI Test are the contractual terms of debt instruments recognised in the balance sheet, whereas the off-balance sheet products are not 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 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.

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:

▪ quantitative criteria:
- increase in the debtor's exposure, understood as an increase in the capital of each single credit exposure above 10% compared to the capital before the increase. If the quantitative criterion exceeds 10%, the modification is considered significant, while the occurrence of the quantitative criterion up to 10% results in the modification being considered insignificant.
- extending the financing period, understood as extending the maturity date of the current agreement. The modification is considered significant if the financing period is extended by: 8 years for mortgage loans, 5 years for other credit exposures in the retail segment, 3 years for exposures in the corporate segment.

▪ qualitative criteria: conversion of the exposure to another currency (unless the possibility of conversion was included in the original agreement), change of SPPI test result, change of debtor, change of legal form or type of financial instrument. The occurrence of a qualitative criterion results in recognizing the modification as significant.

If the cash flows resulting from the agreement are subject to modification, which does not lead to derecognition of a given asset (so called ‘insignificant modification”), the 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.

26 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.

Credit Holidays

Following the signing by the President of the Republic of Poland and announcement in the Journal of Laws of the Republic of Poland on the same day of the Act of 7 July 2022 on crowdfunding for business ventures and assistance to borrowers (“the Act”), introducing, among others, a possibility of up to 8 months of credit holidays (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

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.

Receivables and liabilities from lease contracts

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.

27 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.

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.

Recognition of financial instruments in the balance sheet

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.

De-recognition of financial instruments from the balance sheet

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.

Hedge Accounting and Derivatives

Valuation at fair value

Derivative instruments are reported at fair value starting from the day of conclusion of the transaction. Fair value is determined on the basis of quotations of instruments on active markets, including pricing of recently concluded transactions. A market is considered as active when the quoted instrument prices are regularly available and result from actual transactions on the market and represent a level, at which the 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).

Recognition of derivative instruments embedded in liabilities

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.

Derivative instruments designated as hedging instruments – hedge accounting

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).

Hedge accounting criteria

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).

Cash flow hedge

Cash flow hedge: a hedge of the exposure to variability in cash flows that (i) is attributable to a particular risk associated with a recognised asset or liability (such as all or some future interest payments on variable rate debt) or a highly probable forecast transaction and (ii) could affect profit or loss.# A cash flow hedge is accounted for as follows: the portion of the gain or loss on the hedging instrument that is determined to be an effective hedge is recognised in equity through the other comprehensive income; and the ineffective portion of the gain or loss on the hedging instrument is recognised in Result on financial instruments valued at fair value through profit and loss. The associated gains or losses that were recognised in other comprehensive income (effective hedge), at the moment of recognition of a financial asset and liability being a result of planned hedged future transaction, are transferred into profit or loss in the same period or periods during which the asset acquired or liability assumed affects the profit or loss. In case of a hedge of non-financial asset or a non-financial liability, the associated gains and losses recognised in other comprehensive income as an effective hedge, are transferred successively into the profit or loss account in the same period or periods during which the asset acquired or liability assumed affects the profit or loss account directly from equity or are transferred from equity to initial purchase price in the balance sheet and recognized successfully in the periods, in which non – financial asset or liability has impact on profit and loss account.

Fair value hedge

Fair value hedge: a hedge of the exposure to changes in fair value of a recognised asset or liability or an unrecognised firm commitment, or an identified portion of such an asset, liability or firm commitment, that is attributable to a particular risk and could affect the profit or loss. Changes in the fair value of derivative instruments classified and eligible as fair value hedges are recognised in the Profit and Loss along with their corresponding changes of the hedged asset or liability relating to the risk hedged by the 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.

Termination of hedge accounting

If the fair value hedge no longer meets the criteria for applying hedge accounting, the carrying value adjustment of the hedged instrument valued at amortized cost and effective interest rate, is linearly amortized through profit and loss account over the period ending on the maturity date. The value of hedged financial assets classified as FVOCI resulting from factors other than hedged risks is recognized in the revaluation reserve till the date of sale or maturity of this financial asset. If the cash flow hedge no longer meets the criteria for hedge accounting, the valuation of hedging instrument recognized in other comprehensive income at the date of the last effectiveness test remains in equity until the realization of cash flow resulting from the hedged item. Then the amount is transferred into profit and loss account in the periods, in which the hedged transaction influences the profit and loss account.

31 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.

Derivative instruments not qualifying as hedging instruments

Derivative instruments that are not subject to hedge accounting principles are classified as instruments held for trading, and valued at fair value. The changes in fair value of derivative instruments held for trading are recognized in the profit and loss in item “Results on financial assets and liabilities held for trading”/“Result on exchange differences”, which was described below. The Bank uses the following principles of recognition of gains and losses resulting from the valuation of derivative instruments:

FX forward

Forward transactions are valued at fair value on discounted future cash flows basis, taking into account the credit risk of the counterparty (and the 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

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.

Interest Rate SWAP (IRS)

IRS transactions are valued at fair value on discounted future cash flows basis, taking into account the credit risk of the counterparty (and the 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.

Cross – Currency Swap (CCS)

CCS transactions are measured at fair value based on the discounted future cash-flows method with use of interest rate curves adjusted with market spread reflecting its term structure and with taking into account the credit risk of the counterparty (and the 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 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.

IRS transactions with embedded options

The transactions are valued at fair value: the swap component is valued with use of the future cash flows discounting method taking into account the credit risk of the counterparty (and the 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.

FX and Index options

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.

Forward Rate Agreement (FRA)

FRA transactions are valued at fair value on discounted future cash flows basis and with taking into account the credit risk of the counterparty (and the 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

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

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.

Impairment of financial assets

General assumptions of the model

Since 1 January 2018, impairment estimation model has been based on the concept of “expected credit loss”, (hereinafter: ECL). As a direct result of this change, impairment charges now have to be calculated based on expected credit losses and forecasts and expected future economic conditions have to be taken into account when conducting evaluation of credit risk of an exposure.The implemented impairment model applies to financial assets classified in accordance with IFRS 9 as financial assets measured at amortized cost or at fair value through other comprehensive income, (except for equity instruments) and for off balance liabilities.

33 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.

According to IFRS 9, credit exposures are classified in the following categories:
▪ Stage 1 – non-impaired exposures, for which expected credit loss is estimated for the 12-month period,
▪ Stage 2 – non-impaired exposures, for which a significant increase in risk has been identified and for which expected credit loss is estimated for the remaining life time of the financial asset,
▪ Stage 3 – exposures with identified signs of impairment, for which expected credit loss is estimated for the remaining life time of the financial asset.

In the case of exposures classified as POCI (purchased or originated credit impaired) which, upon their initial recognition in the balance sheet, are recognized as impaired, expected credit loss is estimated based on ECL covering the remaining life time of the financial asset.

Identification of a significant increase in credit risk

Assets, for which there has been identified a significant increase in credit risk compared to the initial recognition in the balance sheet, are classified in Stage 2. The significant increase in credit risk is recognized based on qualitative and quantitative criteria.

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

The quantitative criterion involves a comparison of the lifetime PD value determined on initial recognition of an exposure in the balance sheet, with the lifetime PD value determined at the current reporting date. If an empirically determined threshold of the relative change in the lifetime PD value is exceeded then an exposure is automatically transferred to Stage 2. The quantitative assessment does not cover exposures analyzed individually.

Incorporation of forward looking information on economic conditions (FLI)

In the process of calculation of expected credit losses, the 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.

Unification of the default definition across the Group

Since the implementation of IFRS 9, the Group has adopted an uniform definition of default, both for the purpose of calculation of capital requirements and for the estimation of impairment. Starting from 2020, for the retail portfolio, the Group uses the definition of default, which is in line with the EBA Guidelines (EBA/GL/2016/07), the so-called New Definition of Default.

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

Bank is using cross-default approach for all segments.

34 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.

PD Model

The PD model, created for the calculation of expected credit losses, is based on empirical data concerning 12-month default rates, which are then used to estimate lifetime PD values (including FLI) using appropriate statistical and econometric methods. The segmentation adopted for this purpose at the customer level is consistent with the segmentation used for capital requirement calculation purposes. Additionally, the Bank has been using rating information from internal rating models to calculate PDs.

LGD Models

The LGD models for the retail portfolio used by the Bank in the capital calculation process were adjusted to IFRS 9 requirements in the area of estimating impairment. The main components of these models are the probability of cure and the recovery rate estimated on the basis of discounted cash flows. The necessary adaptations to IFRS 9 include, among other things, exclusion of the conservatism buffer, indirect costs, adjustments for economic slowdown. In addition, adjustments have been made to reflect the current economic situation and to utilize forward looking information on macroeconomic events (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.

EaD Model

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.

Write-offs

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.

Offsetting of financial instruments

Financial assets and financial liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously.

Transactions with sell/buy-back clauses

Repo and sell-buy back transactions as well as reverse-repo and buy-sell back transactions, are transactions of sale and purchase of securities for which a commitment has been made to repurchase or resell them at a contractual date and for specified contractual price.

35 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 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.

Property, plant and equipment and Intangible Assets

Own property, plant and equipment

Tangible fixed assets are the controlled fixed assets and outlays made to build such assets. Tangible fixed assets include fixed assets with an expected period of use above one year, maintained to be used to serve the 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.

Intangible Assets

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 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 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.

Depreciation and amortization charges

The depreciation charge of tangible and intangible assets is accounted for on a straight line basis with the use of defined depreciation rates throughout the period of their useful lives. The depreciable amount is the cost of an asset, or other amount substituted for cost, less its residual value. The useful life, amortization/ depreciation rates and residual values of tangible and intangible assets are reviewed annually. Conclusions of the review may lead to a change of depreciation periods recognized prospectively from the date of application. Land, an intangible asset with an unspecified useful life, outlays for tangible assets and intangible assets are not depreciated. At each balance sheet date intangible assets with indefinite useful life are regularly tested for impairment. The following depreciation rates are applied to basic categories of tangible and intangible assets and for investment property:

Selected categories of property, plant and equipment:

Bank buildings: 2.5%
Lease holding improvements: usually for 10 years
Computer hardware: 20%
Network devices: 20%
Vehicles as standard: 25%
Telecommunication equipment: 10%
Intangibles (software): expected useful life
Main applications (systems): expected useful life

Depreciation and amortization charges are recognized as operating expenses in the profit and loss account.

Non-current assets held for sale

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:

its carrying amount before the asset (or disposal group) was classified as held for sale, adjusted for any depreciation, amortisation or revaluations that would have been recognised had the asset (or disposal group) not been classified as held for sale, and
its recoverable amount at the date of the subsequent decision not to sell.

37 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.

Impairment of non-financial 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 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

Prepayments comprise of particular expenses which will be settled against the profit and loss as being accrued over the future reporting periods. Prepayments are presented in the caption “Other assets” in the balance sheet.

Accruals and Deferred Income

Accruals are liabilities for costs arising from services provided to the Group, which will be payable over future periods. The accruals are recognized in the caption “Other Liabilities” in the balance sheet.

Deferred income comprises among others received amounts of future services and other types of income received in advance to be settled against in the profit and loss in future reporting periods. They are presented in the caption “Other Liabilities” in the balance sheet.

Provisions

Provisions are established when (1) the 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 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.

A detailed formal plan for the restructuring identifies at least: the business or part of a business concerned; the principal locations affected; the location, function, and approximate number of employees who will be compensated for terminating their services; the expenditures that will be undertaken; and when the plan will be implemented.

A restructuring provision includes only the direct expenditures arising from the restructuring, which are those that are both:

(a) necessarily entailed by the restructuring; and

(b) not associated with the ongoing activities of the entity.

The restructuring provision does not cover future operating expenses.

Employee Benefits

Short-term employee benefits

Short-term employee benefits of the 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.

Long-term employee benefits

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 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 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.

Bank’s Equity

Equity consists of capital and funds established in compliance with the respective provisions of the law, i.e., the appropriate legislative acts, the Company by-laws, or the Articles of Association. Equity is comprised of the share capital, share premium, revaluation reserve and retained earnings. All balances of capital and funds are presented at nominal value.

Share Capital

Share capital is presented at nominal value, in accordance with the Articles of Association and the entry in the Register of Companies. If the entity acquires its own shares, then the paid amount together with the costs directly attributed to such purchase is treated as a change in the Equity. Acquired own shares are treated as own shares and disclosed as reduction of the Equity until the time they are cancelled. Dividends for the financial year, which have been approved by the General Shareholders’ Meeting, but not distributed as of the balance sheet day, are disclosed in the caption „Other Liabilities” in the balance sheet.

Share Premium

Share premium is formed from agio obtained from the issue of shares reduced by the attached direct costs incurred with that issue.

Accumulated other comprehensive income

Accumulated other comprehensive income consists of: the valuation of financial assets measured at fair value through other comprehensive income, the result of cash flow hedge valuation and actuarial gains (losses) regarding provisions for retirement benefits with deferred income tax effect applied. Accumulated other comprehensive income is not subject to distribution.

Retained Earnings

Retained earnings are created with charges against profit and are allocated for purposes specified in the Articles of Association or other legal regulations (the remaining part of supplementary capital, additional reserve capital, including general banking risk fund) or constitute previous years’ profit/loss or year-to-date net financial result. The General Banking Risk Fund at Bank Millennium 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 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 guarantee

A financial guarantee contract is a contract that requires the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due in accordance with the original or modified terms of a debt instrument. The financial guarantees granted are valued at the higher of the following values:
* amounts of write-offs for expected credit losses,
* the amount initially recognized less the cumulative amount of income recognized in accordance with IFRS 15.

Interest income and other of similar nature

Interest income includes interest on financial instruments measured at amortized cost and financial assets measured at fair value through other comprehensive income using the effective interest rate method. The effective interest rate method is a method of calculating the amortized cost of a financial asset or financial liability and the allocation of interest cost or interest income and certain commissions (constituting an integral part of the interest rate) to the relevant period. The effective interest rate is the rate that exactly discounts the estimated future cash flows (in the period until the financial instrument expires) up to the gross carrying amount of the asset / amortised cost of the liability. When calculating the effective interest rate, the 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 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 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.

Interest costs

Interest costs include in particular interest resulting from financial instruments measured at amortized cost using the effective interest rate method described above.

Fee and commission Income/ Fee and commission Costs

Fee and commission income and expenses received from banking operations on client accounts, from operations on payment cards and brokerage activity is recognized in the profit and loss at the time the service is rendered; other fees and commissions are deferred and recognized as revenue over time. The basic types of commissions related to credit operations in the Bank include among others: loan origination fees and commissions, and commitment fees.# Fees and Commissions

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

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

Result on Derecognition of Financial Assets and Liabilities Not Measured at Fair Value Through Profit or Loss

The result on derecognition of financial assets and liabilities not measured at fair value through profit or loss includes gains and losses arising from the sale of debt financial instruments classified to the portfolio measured at fair value through comprehensive income and other gains and losses resulting from investing activities. In 2023, the Bank completed a bancassurance transaction, part of the result of which was recognized in “Result on derecognition of financial assets and liabilities not measured at fair value through profit or loss”, more information on this subject is presented in Chapter 13., note (5).

Result on Financial Assets and Liabilities Held for Trading

The result on financial assets and financial liabilities held for trading contains gains and losses on disposal of financial instruments classified as financial assets / liabilities measured held for trading and the effect of valuation of these instruments at fair value (incl. debt, equity and derivative instruments intended for trading).

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.

Result on Non-Trading Financial Assets Mandatorily at Fair Value Through Profit or Loss

The result on non-trading financial assets mandatorily at fair value through profit or loss includes gains and losses on disposal and the effect of the measurement of financial instruments classified to this category of assets.

Result on Hedge Accounting

The result on hedge accounting includes in particular: changes in the fair value of the hedging instrument (including discontinuation), changes in the fair value of the hedged item resulting from the hedged risk and inefficiencies resulting from cash flow hedges recognized in profit or loss.

Result on Exchange Differences

Foreign exchange differences include:
i) realized result and result from the valuation of FX spot and FX Forward transactions
ii) positive and negative exchange rate differences, both realized and unrealized, resulting from the daily valuation of foreign currency assets and liabilities, valid as at the balance sheet day average NBP exchange rate and affecting income or expenses from the exchange position.

Other Operating Income and Expenses

Other operating income and expenses include expenses and incomes not associated directly with the 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 Fees

Franchise is a model of cooperation between the Bank and independent entrepreneurs who, based on concluded agreements of the nature of agency agreements, defined by law, perform agency activities in the sale of products and services from the Bank’s offer to the Bank’s clients and potential clients. The cooperating franchisees use the Bank’s trademarks and know-how when performing the agreement, and franchise outlets are almost as functional for customers as Bank’s own outlets (excluding investment products). For cooperation, the Bank charges a franchise fee for the use of trademarks and fees for renting IT equipment from the Bank necessary to perform activities in a given branch and pays franchisees commissions on banking products and services sold.

Banking Tax

The tax on certain financial institutions ("banking tax") is the tax presented in the 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.

Other Taxes

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 are recognized in the amount less VAT, tax on civil law transactions and other sales taxes, except when the sales tax paid on the purchase of goods and services is not recoverable from tax authorities; then VAT is recognized as an expense or as part of the cost of acquiring an asset, respectively. The amount of tax recoverable or payable to the tax authorities is presented in the financial statement as part of receivables or liabilities.

Income Tax

Corporate income tax comprises current and deferred tax. Current income tax is calculated on profit before tax, established in accordance with appropriate accounting regulations adjusted by non-taxable income and non-tax deductible expenses, with usage of binding tax rate. Moreover, for tax purposes, the gross profit is adjusted by previous years’ income and expenses realised for tax purposes in a given reporting period and deductions from income arising from e.g. donations.

Deferred income tax is recognized in profit and loss, except for when it is recognized in other comprehensive income or directly in equity because it relates to transactions that are also recognized in other comprehensive income or directly in equity. Provision for deferred income tax is recognized in liabilities in the caption “Deferred income tax liabilities”. Deferred income tax asset is recognized in assets as “Deferred income tax assets”. The 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.

8. Financial Risk Management

The management of risk is one of the key tasks of the Management Board in the process of effective management of the 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.

8.1. RISK MANAGEMENT

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:

Development of risk management strategies, credit policy, processes and procedures defining the principles for acceptance of the allowable level of types of risk,
Increasingly wider implementation of the IT tools for risks identification, control, and measurement,
Increasing awareness of employees as regards their responsibility for proper risk management at every level of the Bank's organizational structure.

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:

Loan growth in specific products / segments
Structure of the loan portfolio
Asset quality indicators
Cost of risk
Capital requirements / Economic capital
Amount and structure of liquidity needed.

The risk management and control model at the Bank’s level is based on the following main principles:

ensuring the full-scope quantification and parameterization of distinct types of risks in the perspective of optimizing balance sheet and off-balance sheet items to the assumed level of profitability of business activity. The primary areas of analysis encompass credit risk, market risk, liquidity risk and operational risk; legal, compliance and litigation risks also are subject to specific attention,
all types of risks are monitored and controlled in reference to the profitability of operations and the level of capital necessary to ensure the safety of operations from the point of view of capital adequacy. The results of risk measuring are regularly reported as part of the management information system,
the segregation of duties between risk origination, risk management and risk control.

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 Supervisory Board is responsible for overseeing the compliance of the Bank’s risk-taking policy with the Bank’s strategy and its financial plan. Within the Supervisory Board acts the Committee for Risk Matters, which supports it in realization of those tasks, among others, issuing opinion on the Bank's Risk Strategy, including the Bank's Risk Appetite.
The Management Board is responsible for the effectiveness of the risk management system, internal capital estimation process, for reviewing the internal capital calculation and maintenance process and the internal control systems.
The Credit Committee, the Capital, Assets and Liabilities Committee, and the Liabilities at Risk Committee are responsible for current management of different areas of banking risk, within the framework determined by the Management Board.
The Risk Committee and the Processes and Operational Risk Committee are responsible for defining the policy and for monitoring and control of different areas of banking risk, within the framework determined by the Management Board.
The Product Committee reviews proposals for the implementation and withdrawal of products and services from the bank's offering.
The AML Committee is responsible for supervision of anti-money laundering and terrorism financing in the Bank and cooperation in the area of combating financial crime.
The Validation Committee is responsible for confirmation of risk models’ validation results and follow-up in the implementation of the measures defined by the Models Validation Office.
The Sustainability Committee is responsible for making key decisions regarding sustainable development in the Bank Millennium S.A.

Delineate key risk definitions
Delineate the models and definitions to classify customers, products, processes, and risk measures
Define Risk Strategy
Defining principles and risk targets according to risk appetite, risk capacity and business strategy
Define risk policy
Defining thresholds, levels, competences, limits, cut-offs according to Risk Strategy
Implement defined policy
Designing products with Business and implement them in tools and regulations, Decision processes
Monitor, Control, Reporting
Monitor the models performance and the portfolios behavior## 8.2. RISK MANAGEMENT

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 profile – current risk profile in amount or type of risk the Bank is currently exposed. The Bank should also have a forward-looking view how their risk profile may change under both expected and stress economic scenarios in accordance with risk tolerance.
Risk appetite – the maximum amount or type of risk the Bank is prepared to accept/tolerate to achieve its financial and strategic objective. Three zones are defined in accordance with warning/action required level. Risk appetite must ensure that business structure and growth will respect the forward risk profile. Risk appetite was reflected through defined indicators in several key areas, such as:
- Solvency
- Liquidity and funding
- Earnings volatility and Business mix
- Operational activity and reputation.

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.

8.2. CAPITAL MANAGEMENT

Capital management and planning

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.

Regulatory capital adequacy

The Bank is obliged by law to meet minimum own funds requirements, set in art. 92 of Regulation (EU) No 575/2013 on prudential requirements for credit institutions and investment firms, amending Regulation (EU) No 648/2012 (CRR).At the same time, the following buffers were included in capital targets/limits:

Pillar II FX mortgage loans buffer (P2R buffer) - KNF decision regarding order to maintain additional own funds to secure risk resulting from FX mortgage loans granted to households, under the art. 138.2.2 of Banking Act. A value of that buffer is defined for particular banks by KNF every year as a result of Supervisory Review and Evaluation Process (SREP) and relates to risk that is in KNF’s opinion - inadequately covered by minimum own funds requirements, set in CRR art. 92. At present, the buffer was set by KNF in the decisions issued in the end of 2023 in the level of 1.47 pp (Bank) and 1.46 pp (Group) as for Total Capital Ratio (TCR), which corresponds to capital requirements over Tier 1 ratio of 1.10 pp (Bank and Group), and which corresponds to capital requirements over CET1 ratio of 0.82 pp (Bank and Group) 1 ;
Combined buffer – defined in Act on macro prudential supervision over the financial system and crisis management – that consists of:
- Capital conservation buffer at the level of 2.5%;
- Other systemically important institution buffer (OSII) – at the level of 0.25%, and the value is set by KNF each year 2 ;
- Systemic risk buffer at the level of 0% in force from March 2020, in line with Regulation of Ministry of Development and Finance;
- Countercyclical buffer at the 0% level.

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 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 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%
P2R Buffer	0.82%	0.82%
TSCR CET1 (Total SREP Capital Requirements)	5.32%	5.32%
Capital Conservation Buffer	2.50%	2.50%
OSII Buffer	0.25%	0.25%
Systemic risk buffer	0.00%	0.00%
Countercyclical capital buffer	0.00%	0.00%
Combined buffer	2.75%	2.75%
OCR CET1 (Overall Capital Requirements CET1)	8.07%	8.07%
T1 ratio
Minimum	6.00%	6.00%
P2R Buffer	1.10%	1.10%
TSCR T1 (Total SREP Capital Requirements)	7.10%	7.10%
Capital Conservation Buffer	2.50%	2.50%
OSII Buffer	0.25%	0.25%
Systemic risk buffer	0.00%	0.00%
Countercyclical capital buffer	0.00%	0.00%
Combined buffer	2.75%	2.75%
OCR T1 (Overall Capital Requirements T1)	9.85%	9.85%
TCR ratio
Minimum	8.00%	8.00%
P2R Buffer	1.47%	1.46%
TSCR TCR (Total SREP Capital Requirements)	9.47%	9.46%
Capital Conservation Buffer	2.50%	2.50%
OSII Buffer	0.25%	0.25%
Systemic risk buffer	0.00%	0.00%
Countercyclical capital buffer	0.00%	0.00%
Combined buffer	2.75%	2.75%
OCR TCR (Overall Capital Requirements TCR)	12.22%	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 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 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.

Own funds capital requirements

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 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 capital

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 and capital adequacy – current state, evaluation, and trends.# Capital Ratios and Adequacy

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.

Capital adequacy

	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.

Securitization transaction

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).

Minimum requirement for own funds and eligible liabilities (MREL)

The Bank manages MREL requirements ratios in a manner analogous to capital adequacy ratios. The Bank received a joint decision from the resolution authorities in June 2023, obliging it to comply with MREL requirements. The decision sets updated minimum requirements that must be met by December 31, 2023 - at the levels of 18.89% (consolidated MRELtrea) and 5.91% (consolidated MRELtem). Additionally, in relation to the above decisions, the Bank should also meet the MREL requirement 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).

MREL

	31.12.2023	30.09.2023	30.06.2023	31.12.2022
MRELtrea ratio (consolidated)	23.77%	22.05%	14.93%	14.77%
Minimum required level MRELtrea	18.89%	14.42%	14.42%	15.60%
Surplus (+) / Deficit (-) of MRELtrea (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.

8.3. CREDIT RISK

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.

(3a) Measurement of Credit Risk

Loans and advances

Measurement of credit risk, for the purpose of the credit portfolio management, on the level of individual customers and transactions, on account of granted loans is done with the consideration of three base parameters:
(i) Probability of Default (PD) of a customer or counterparty as regards their liability;
(ii) amount of Exposure at Default (EAD) and
(iii) the ratio of Loss Given Default (LGD) regarding the customer’s liability.# 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.

Risk Management and Capital Adequacy

(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.

The Bank’s internal rating scale

Master scale	Description of rating
1-3	Highest quality
4-6	Good quality
7-9	Medium quality
10-12	Low quality
13-14	Watched/Procedural
15	Default

(ii) EAD – Amount of Exposure at Default

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.

(iii) LGD – Loss Given Default

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.

Unification of the default definition in the Bank

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:

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

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

Debt Securities

Debt securities from Polish State Treasury and from the Polish Central Bank are monitored based on Polish rating. Whereas the economic and financial situation of issuers of municipal debt securities is monitored on a quarterly basis based on their financial reporting. Debt securities from other European Union member states and supra national institutions are monitored based on their respective ratings. The Bank doesn’t apply Low Credit Risk (LCR) exemption neither for State Treasury and Central Bank exposures nor for any other groups of exposures.

Derivatives

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.

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

Credit risk-based off-balance sheet liabilities include granted guarantees and letters of credit, granted and unused limits (credit, factoring, guarantees and letters of credit and cards) as well as granted and unpaid tranches of non-renewable loans. The primary purpose of these instruments is to enable the customer to manage in a specific manner the funds allocated by the Group. Granted guarantees and letters of credit granted are unconditional and irrevocable - after the receipt of a claim compliant with the terms of the guarantee or letter of credit, the Group must make a payment. Typically, guarantees and letters of credit are related to commercial transactions. In the case of most of the granted and unused limits, the Group has the option of refusing to execute the client's instruction regarding the use of funds from these limits - either unconditionally or upon meeting the conditions set out in the documents and by-laws applicable to a given limit. In the case of granted and undisbursed tranches of non-revolving loans, their disbursement depends on the fulfilment of the conditions set out in the documents and by-laws applicable to a given non- revolving loan.

(3b) Limits control and risk mitigation policy

The 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.

Collateral

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)

Policy with respect to impairment and creation of impairment charges

Organisation of the Process

The process of impairment identification and measurement with respect to loan exposures is regulated in the internal instruction introduced with IFRS9 application. The 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 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 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.

Expected credit loss measurement

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:

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

62 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.

Identification of a significant increase in credit risk (SICR)

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

The quantitative criterion involves a comparison of the lifetime PD value determined on initial recognition of an exposure in the balance sheet, with the lifetime PD value determined at the current reporting date. If an empirically determined threshold of the relative change in the lifetime PD value is exceeded, then an exposure is automatically transferred to Stage 2. The quantitative assessment does not cover exposures analysed individually.

Individual analysis of impairment for credit receivables

Individual analysis contains customers identified as significantly important both for business portfolio and recovery portfolio. Credit exposures are selected for individual analysis based on materiality criteria which ensure that case-by case analysis covers at least 50% of the 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:

1) Identification of soft signs of impairment being one of qualitative triggers of Significant Increase of Credit Risk (SICR). This process covers biggest business corporate customers, for which financial-economic situation is analysed on a quarterly basis based on latest financial statement, events connected with company activities, information concerning related entities and economic environment, expectation about future changes, etc. There was defined catalogue of so called “soft signs of impairment,” identification of which means significant increase of credit risk (SICR) and causing classification of all exposures of such customer to Stage 2.
2) Identification of impairment triggers. The Bank defined impairment triggers for individual analysis and adjusted them to its operational profile. The catalogue of triggers contains among others following elements:

The economic and financial situation pointing to the Customer’s considerable financial problems,
Breach of the contract, e.g., significant delays in payments of principal or interest
Stating the customer’s unreliability in communicating information about his economic and financial situation,
Permanent lack of possibility of establishing contact with the customer in the case of violating the terms of the agreement,
High probability of bankruptcy or a different type of reorganising the Customer’s enterprise/business,
Declaring bankruptcy or opening a recovery plan with respect to the Customer,
Granting the Customer who has financial difficulties, facilities concerning financing conditions (restructuring).

63 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.

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.

3) Scenario approach in calculation of impairment allowances for individually analysed customers. If at least one of impairment triggers has been identified during the individual analysis, all exposures of given customer are classified in Stage 3 and then detailed analysis of forecasted cash-flows should be performed. Since introducing IFRS9 the Bank is using scenario approach. It means that analyst should define at least two recovery scenarios which reflect described and approved recovery strategies: the main and alternative ones with assigned probabilities of realisation. The Bank has defined guidelines regarding the weights used for individual scenarios. Scenarios can be based on restructuring or vindication strategy; mixed solutions are also used.# 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 entire process of individual analysis is supported by especially dedicated Case-By-Case IT Tool especially useful in terms of calculation impairment amount with usage of scenario approach. Every scenario contains two general types of recoveries: direct cash-flows from customers and recovered amounts from collateral.

4) Estimating expected cash-flows. One element of the impairment calculation process is the estimation of the probability of cash flows included in the timetable, pertaining to the following items: principal, interest, and other cash flows. The probability of realising cash flows included in the timetable results from the conducted assessment of the customer’s economic and financial situation (indication of the sources of potential repayments) must be justified and assessed based on current documentation and knowledge (universally understood) of his situation with the inclusion of financial projections. This information is gathered by an analyst prior to the actual analysis in accordance with the guidelines specified in appropriate Bank regulations. In the event of estimating the probability of cash flows for customers in the portfolio managed by restructuring-recovery departments analysts will consider the individual nature of each transaction pointing among others to the following elements which may have an impact on the value of potential cash flows:

Operational strategy with respect to the Customer adopted by the Bank,
Results of negotiations with the customer and his attitude, i.e., willingness to settle his arrears,
Improvement/deterioration of his economic and financial situation,

The Bank also uses the formal terms of setting and justifying the amount of probability and amount of the payment by the Bank of funds under the extended off-balance sheet credit exposure such as guarantees and letters of credit.

5) Estimation of the fair value of collateral, specifying the expected date of sale and estimation of expected revenues from the sale after deduction of the costs of the recovery process. The inclusion of cash flows from realisation of collateral must be preceded by an analysis of how realistically it can be sold and estimation of its fair value after recovery costs. To ensure the fairness of the principles of establishing collateral recoveries, the Bank prepared guidelines for corporate segment with respect to the recommended parameters of the recovery rate and recovery period for selected collateral groups. Depending on the place of the exposure in the Bank’s structure (business portfolio, restructuring-recovery portfolio) and type of exposure separate principles have been specified for portfolio types: business and restructuring-recovery. The recommended recovery rates and period of collateral recovery are verified in annual periods.

Collective analysis of the credit portfolio

Subject to collective analysis are the following receivables from the group of credit exposures:

Individually insignificant exposures.
Individually significant exposures for which there has not been 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.

Forward-looking information incorporated in the ECL 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.

Economic variable assumptions

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

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

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

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

ECL sensitivity to macroeconomic scenarios

For assessing the sensitivity of ECL for future macroeconomic conditions, the 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%.

Reversal of impairment

Impairment Instruction being core document of Internal regulations provides a detailed definition of the principle of reversing impairment losses. In principle, reversing a loss and elimination of a revaluation charge is possible in the case of cessation of the impairment triggers, including the repayment of arrears or in the case of selling receivables. Reclassification to the Non-Impaired category is possible only when the customer has successfully passed the “quarantine” period, during which he will not show delay in the repayment of principal or interest above 30 days. The quarantine period only starts counting after any eventual grace period that may be granted on the restructuring. Detailed rules regarding the applicable quarantine periods (at least 3 or 12 months for forced restructuring) and reclassification from default are in line with the EBA guidelines regarding the definition of default.

Sale of receivables

In 2023, the Bank sold credit exposures classified as impaired, in the total balance sheet amount of PLN 238 million.# (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.

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

	31.12.2023	31.12.2022
Mandatorily at fair value through profit or loss *	19 349 97 982
▪ Companies	69 66
▪ Individuals	19 280 97 916
▪ Public sector	0	0

* The above data includes the fair value adjustment, in the amount of: (21 772) (38 999)

Annual 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.

Loans and advances to customers at fair value through other comprehensive income

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

* The above data includes the fair value adjustment, in the amount of: 101 810 255 824

The credit quality of financial assets

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	0	2 941	22 071 485
▪ 4-6 Good quality	8 297 717	940 110	0	3 332	9 241 159
▪ 7-9 Medium quality	6 585 768	1 165 848	0	3 021	7 754 637
▪ 10-12 Low quality	2 021 353	1 140 779	0	1 154	3 163 287
▪ 13-14 Watched	1 428 578	470 0	741 580	639	580 639
▪ 15 Default	0	0	2 579 655	82 501	2 662 156
▪ Without rating (*)	102 814	10	0	0	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	0	0	220 700
▪ 4-6 Good quality	1 548 483	43 490	0	0	1 591 973
▪ 7-9 Medium quality	3 454 666	186 005	0	0	3 640 671
▪ 10-12 Low quality	1 141 101	330 044	0	0	1 471 144
▪ 13-14 Watched	0	37 072	0	0	37 072
▪ 15 Default	0	0	362 233	23 099	385 332
▪ Without rating (*)	1 818 995	38 060	261	0	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	1	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

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.

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	0	29 745
▪ 4-6 Good quality	918 089	0	0	0	918 089
▪ 7-9 Medium quality	1 103 218	28 638	0	0	1 131 856
▪ 10-12 Low quality	302 794	53 877	0	0	356 671
▪ 13-14 Watched	0	0	0	0	0
▪ 15 Default	0	0	38 319	0	38 319
▪ Without rating (*)	49 831	21	0	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				317 799
▪ 4-6 Good quality	58 159				58 159
▪ 7-9 Medium quality	23 339				23 339
▪ 10-12 Low quality	1 330				1 330
▪ 13-14 Watched	0				0
▪ 15 Default	0				0
▪ Without rating	97 949				97 949
▪ fair value adjustment due to hedge accounting	0				0
▪ Valuation of future FX payments	0				0
▪ Hedging derivative	15 069				15 069
Trading debt securities (State Treasury** bonds)	110 554				110 554
Debt securities mandatorily at fair value through profit or loss	81 014				81 014
Investment debt securities (State Treasury, Central Bank, Local Government, EIB)	21 895 863				21 895 863
Receivables from securities bought with sell-back clause	1 163 242				1 163 242
Debt securities valued at amortised cost	18 439 780				18 439 780

* The group of clients without an internal rating includes, among others, exposures related to loans to local government units as well as investment projects and some leasing clients.
** rating for Poland in 2023 A- (S&P), A2 (Moody’s), A- (Fitch).

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.

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	0	2 811	23 831 188
▪ 4-6 Good quality	8 352 277	1 154 450	0	4 272	9 510 999
▪ 7-9 Medium quality	6 552 017	1 359 188	0	5 196	7 916 401
▪ 10-12 Low quality	2 167 401	1 217 930	0	3 241	3 388 572
▪ 13-14 Watched	1 904 648	529 0	1 131 651	564	564
▪ 15 Default	0	0	2 590 354	120 546	2 710 899
▪ Without rating (*)	4 642	18	0	0	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	0	0	101 568
▪ 4-6 Good quality	1 972 706	84 885	0	0	2 057 591
▪ 7-9 Medium quality	3 571 405	209 531	0	0	3 780 936
▪ 10-12 Low quality	1 056 509	380 069	0	0	1 436 579
▪ 13-14 Watched	0	19 992	0	0	19 992
▪ 15 Default	0	0	325 574	15 209	340 783
▪ Without rating (*)	1 701 024	24 095	261	0	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

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.

	Stage 1 (12- month ECL)	Stage 2 (lifetime ECL)	Stage 3 (lifetime ECL)	Total
Factoring (according to Master Scale):	2 822 857	147 251	16 467	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	0	0
▪ 15 Default	0	0	16 467	16 467
▪ Without rating (*)	34 027	23	0	34 050
Impairment	20 014	2 869	9 546	32 429

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.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	6 221 283
▪ 1-3 Highest quality	109	240	0	0	109 240
▪ 4-6 Good quality	509	803	0	0	509 803
▪ 7-9 Medium quality	1 086	666	0	0	1 086 666
▪ 10-12 Low quality	497	792	0	0	497 792
▪ 13-14 Watched	3 620	0	0	0	3 620
▪ 15 Default	216	763	0	0	216 763
▪ Without rating (*)	3 797	399	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
▪ 4-6 Good quality	63 791	63 791
▪ 7-9 Medium quality	18 068	18 068
▪ 10-12 Low quality	5 261	5 261
▪ 13-14 Watched	0	0
▪ 15 Default	0	0
▪ Without rating	72 540	72 540
▪ fair value adjustment due to hedge accounting	0	0
▪ Valuation of future FX payments	0	0
▪ Hedging derivative	135 804	135 804
Debt securities mandatorily at fair value through profit or loss	24 210
Trading debt securities (State Treasury** bonds)	72 057
Investment debt securities (State Treasury, Central Bank, Local Government, EIB)	16 414 065
Receivables from securities bought with sell- back clause	4 863
Debt securities valued at amortised cost	3 893 212

* - the group of clients without an internal rating includes, among others, exposures related to loans to local government units as well as investment projects and some leasing clients;
** rating for Poland in 2022: A- (S&P), A2 (Moody’s), A- (Fitch).

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

Impaired loans and advances

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

Gross exposure in ‘000 PLN 31.12.2023

	Loans and advances to customers	Loans and advances to banks	Total	Companies	Mortgages
By type of analysis
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

	Loans and advances to customers	Loans and advances to banks	Total	Companies	Mortgages
By type of analysis
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

Loans and advances covered by case-by-case analysis

The quantification of the value of the portfolio subjected to case-by-case analysis as well as of the value of created charges, split between impaired receivables (and respectively charges) is presented in financial notes. The tables below present the structure of the impaired portfolio subjected to case-by-case analysis.

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	Share %	Coverage by impairment provisions
PLN	291 133	71.9%	30.8%	299 501	72.7%	37.4%
CHF	36 341	9.0%	19.2%*	74 311	18.0%	17.3%*
EUR	77 348	19.1%	47.7%	38 287	9.3%	68.4%
USD	0	0.0%	0	0	0.0%	0
SEK	0	0.0%	0	0	0.0%	0
Total (Case by Case impaired)	404 821	100.0%	33.0%	412 098	100.0%	36.6%

* ) 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.

Restructured loans and advances

The restructuring of receivables is done by dedicated units (separately for corporate and retail receivables). The restructuring of both corporate and retail receivables allows the 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:

monitoring and amicable debt collection proceedings - conducted by Retail Liabilities Monitoring and Collection Department,
restructuring and execution proceedings – implemented by Retail Liabilities Restructuring and Recovery Department.

Process performed by Retail Liabilities Monitoring and Collection Department involves direct telephone contacts with Customers and obtaining repayment of receivables due to the 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 customer,
corporate receivables,
collateral ensuring their repayment.

The actions performed as part of those strategies include, among others: setting the terms and conditions of Customer financing, terms and conditions of restructuring corporate receivables (also within court restructuring proceedings), including the terms on which they will be repaid and secured, obtaining valuable and liquid collateral, achieving amicable repayment, recovery of due and payable receivables (also by court executive officer), also from collateral, actions performed within debtors’ bankruptcy proceedings, conducting required legal actions. Corporate Recovery Department manages the corporate receivable restructuring and recovery process by using IT applications supporting the decision-making process and monitoring. They provide instantaneous information on receivables, collateral, approach used and key actions and dates. All restructured exposures are classified directly after signing sufficient annex/agreement to Stage 3. In terms of regular payments such exposure can be cured when fulfil internally defined quarantine rules in accordance with EBA Guidelines concerning New Definition of Default. Cured restructured cases are classified to Stage 2 for at least following 2 years after cure in accordance with EBA technical standards for forborne exposures. The table below presents the loan portfolio with 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.# 8.3 CREDIT RISK MANAGEMENT (cont'd)

A variety of such action is concluding agreements with official receivers based on which the receiver for an agreed fee secures and stores objects of collateral and in agreement with the Bank puts them up for sale and sells them (also as part of selling organized parts or the debtor’s whole enterprise). Funds obtained in such a way are allocated directly for repayment of the Bank’s receivables (such debt-collection procedure is implemented without recording transferred collateral on the so-called “Fixed Assets for Sale”).

Gross exposure in ‘000 PLN

	31.12.2023	31.12.2022
Loans and advances to private individuals	1 327 462	1 379 028
Loans and advances to companies	191 320	206 328
Total	1 518 782	1 585 355

74 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.

(3g) Policy for writing off receivables

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:

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

Gross exposure write-offs in ‘000 PLN In 2023

	Loans and advances to customers	Loans and advances to banks	Total	Companies	Other retail
Receivables written-off excluded from enforcement activity	482	12	498	23 506	36 486
Receivables written-off being subject to enforcement activity	3 459	62	3 521	114 155	117 676
Invalidated Mortgage FX Receivables	0	23 907	23 907	0	23 907
Total written-off	3 941	36 467	40 408	137 660	178 069

Gross exposure write-offs in ‘000 PLN In 2022

	Loans and advances to customers	Loans and advances to banks	Total	Companies	Other retail
Receivables written-off excluded from enforcement activity	10 807	8 485	19 292	27 356	46 648
Receivables written-off being subject to enforcement activity	16 801	0	16 801	173 496	190 297
Total written-off	27 609	8 485	36 094	200 852	236 945

75 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.

(3h) Concentration of risks of financial assets with exposure to credit risk

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	19 349
Trading securities	28	86	0	4	110 554	0	0	3 110 675
Instruments valued at amortised cost	1 716 205	0	0	0	16 723 581	0	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

76 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.

31.12.2022

	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	97 982
Trading securities	27	69	8	8	24 210	0	0	1 24 323
Instruments valued at amortised cost	398 828	0	0	0	3 494 390	0	0	0	3 893 218
Instruments mandatorily at fair value through P&L	201 036	0	0	0	0	0	0	0	201 036
Derivatives and adjustment due to fair value hedge	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.

77 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.

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%.

78 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 AND INTEREST RATE RISK

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.

Market 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).# Market Risk Management

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

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

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.

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 Period	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.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

The excess is said to happen whenever the difference between the absolute change in portfolio value and VaR measure is positive. In 2023, all excesses in the process of VaR model back testing were caused by unanticipated market movements caused mainly by changes on Swap Curve, PLN Government Yield Curve and Money Market. The number of excesses proves the model adequacy (green zone: 1 - 8 excesses acceptable). VaR assessment is supplemented by monitoring the market risk sensitivity to the above-mentioned stress tests scenarios of portfolios carrying market risk. The results of market risk sensitivity and customized stress tests were regularly reported to the Capital, Assets and Liabilities Committee.

Interest rate risk in Banking Book (IRRBB)

In case of the Banking Book, the main component of the market risk is interest rate risk. Exposure to interest rate risk in the Banking Book are primarily generated by the differences in repricing dates of assets and liabilities as well as its reference indexes, if contractually existing. It is specifically affected by the unbalance between assets and liabilities that have fixed rate, especially by the liabilities which cannot have interest rate lower than zero. Consequently, the level of sensitivity to interest rate changes is influenced by the level of interest rates taken as a reference. Additionally, due to specificity of the polish legal system, the interest rate of credits is limited (it cannot exceed two times Reference Rate of the National Bank of Poland increased by 7 percentage points). In situations of decreasing interest rates, the impact on Net Interest Income is negative and depends on the share of the fixed rate loan portfolio that is affected by the new maximum rate. On the other hand, assumptions regarding the timing and size of deposits repricing are also important when assessing the interest rate sensitivity and risk.

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

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

The variations in market interest rate have an influence on the 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.

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:

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

and monthly:

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

The interest rate risk measurement is carried for all the risk management areas in the Bank, with the particular attention on Banking Book. For interest rate risk management for non-maturing assets and liabilities or for the instruments with Client’s option embedded, the Bank is defining specific assumptions, including:

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

The results of the above-mentioned analysis for BPVx100 and economic value measures were regularly monitored and reported to the Capital, Assets and Liabilities Committee, to Risk Committee, the Management Board and Supervisory Board. The results of the IRRBB measurement as of the end of December 2023 indicate that from 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.

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
BPVx100 CHF	-8 200	-6 573
BPVx100 EUR	3 046	28 615
BPVx100 USD	23 121	19 695
BPVx100 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:

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

In a scenario of parallel decrease of Polish interest rates by 100 bps, the results are negative and equal to PLN -67 million or 1.3% of the 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%

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.

8.5. LIQUIDITY RISK

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.

Liquidity risk evaluation measures

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.

Current Liquidity indicators

	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

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.

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.

8.6. OPERATIONAL RISK

Operational risk is defined as the risk of loss resulting from inadequate or failed internal processes, people, and systems, or from external events, including legal risk and excluding strategic and reputational risk (last two are treated as separate categories). Operational risk is demonstrated in every aspect of activity of the organization and constitutes its intrinsic part. In the year 2023 there could be observed a continuous use of standards implemented for the purpose of efficient management of operational risk, which are in line with the best practice of national and international financial institutions. The solutions adopted also proved successful in the situation related to the COVID-19 pandemic and the war in Ukraine. The adopted risk management structure describes the various management levels and scopes of their duties and responsibilities. Owners of defined business and support processes play a key role in the day-to-day operation of the Bank. Process owner, basing on thorough knowledge about the process, accurately identifies and mitigates recognized risks, thus constituting the first line of defence. The second line of defence is the level of specialized units dealing with the organization of the management and control of an acceptable level of risk, with consideration of the areas such as: compliance, anti-money laundering, antifraud, security and business continuity as well as insurance and outsourcing. The third line of defence is the independent internal audit unit. Every decision regarding optimizing operational risk is preceded by cost-benefit analysis. A higher risk management level is the Processes and Operational Risk Committee, which focuses on threats identified in more than one process. All and any activities concerning operational risk are coordinated and supervised by the Risk Committee, the Management Board, and the Supervisory Board. In keeping with the adopted model, risk management is a process of continuous improvement as regards identification, assessment, monitoring, mitigating, and reporting by:
▪ Gathering operational risk events,
▪ Self-assessment of operational risk in individual processes,
▪ Analysis and monitoring of risk indicators.

The 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.

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.

9. TRANSACTIONS WITH RELATED ENTITIES

9.1. TRANSACTIONS WITH THE SUBSIDIARIES AND PARENT’S 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.

ASSETS AND LIABILITIES FROM TRANSACTIONS WITH RELATED PARTIES (DATA IN ‘000 PLN) AS AT 31.12.2023

	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
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
Subordinated debt	0	0	0
Other liabilities, including:	39 951	215	8
financial leasing liabilities	34 675	0

ASSETS AND LIABILITIES FROM TRANSACTIONS WITH RELATED PARTIES (DATA IN ‘000 PLN) AS AT 31.12.2022

	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
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
Subordinated debt	0	0	0
Other liabilities, including:	48 264	0	68
financial leasing liabilities	41 467	0

PROFIT AND LOSS ON TRANSACTIONS WITH RELATED PARTIES (DATA IN ‘000 PLN) FOR THE PERIOD OF 1.01-31.12.2023

	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
Other net operating	25 100	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

PROFIT AND LOSS ON TRANSACTIONS WITH RELATED PARTIES (DATA IN ‘000 PLN) FOR THE PERIOD OF 1.01-31.12.2022

	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
Other net operating	19 507	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

OFF-BALANCE TRANSACTIONS WITH RELATED PARTIES (DATA IN ‘000 PLN) AS AT 31.12.2023

	With subsidiaries	With parent company
Conditional commitments	1 181 891	25 513
granted	879 028	0
obtained	302 863	25 513
Derivatives (par value)	124 156	0

OFF-BALANCE TRANSACTIONS WITH RELATED PARTIES (DATA IN ‘000 PLN) AS AT 31.12.2022

	With subsidiaries	With parent company
Conditional commitments	1 203 256	141 185
granted	1 199 836	120 593
obtained	3 420	20 593
Derivatives (par value)	139 897	13 705

9.2. TRANSACTIONS WITH THE MANAGING AND SUPERVISING PERSONS

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

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

Salaries (including the balance of created and reversed provisions for payments of bonuses) and benefits of managing persons recognized in Profit and loss account of the 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 31st December 2023

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

10. Fair Value

The best reflection of fair value of financial instruments is the price which can be obtained for the sale of assets or paid for the transfer of liability in case of market transactions (an exit price). For many products and transactions for which market value to be taken directly from the quotations in an active market (marking-to-market) is not available, the fair value must be estimated using internal models based on discounted cash flows (marking-to-model). Financial cash flows for the various instruments are determined according to their individual characteristics, and discounting factors include changes in time both in market interest rates and margins.

According to IFRS 13 “Fair value measurement” in order to determinate fair value the 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:

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

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

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

Financial instruments not recognized at fair value in the balance sheet

All estimation models are arbitrary to some extent and this is why they reflect only the value of those instruments for which they were built. In these circumstances the presented differences between fair values and balance-sheet values cannot be understood to mean adjustments of the economic value of the Group. Fair value of these instruments is determined solely in order to meet the disclosure requirements of IFRS 13 and IFRS 7.

The main assumptions and methods applied in estimating fair value of assets and liabilities of the 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 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 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	18,439,780	18,794,293
Deposits, loans and advances to banks and other monetary institutions	1,866,688	1,866,684
Loans and advances to customers (*)	60,586,349	59,576,844
LIABILITIES MEASURED AT AMORTISED COST
Liabilities to banks and other monetary institutions	565,384	565,384
Liabilities to customers	107,505,636	107,542,781
Debt securities issued	3,027,952	3,369,409
Subordinated debt	1,565,045	1,563,479

The negative impact of fair value valuation of the loans portfolio is largely attributable to growth of loan spreads. The methodology, which the Bank uses for valuation of the loans portfolio, assumes that current spreads best reflect existing market conditions and economic situation. A corresponding rule is widely applied for valuation of debt securities, which are not quoted on active markets. In result, paradoxically whenever the spreads of new loans increase, fair value of the “old” loans portfolio falls. Models used for determination of the fair value of financial instruments presented in the above table and not recognized at fair value in 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 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 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	3,893,212	3,811,648
Deposits, loans and advances to banks and other monetary institutions	1,410,245	1,410,166
Loans and advances to customers (*)	64,536,372	62,166,022
LIABILITIES MEASURED AT AMORTISED COST
Liabilities to banks and other monetary institutions	625,144	625,163
Liabilities to customers	98,264,816	98,289,469
Debt securities issued	243,753	244,519
Subordinated debt	1,568,083	1,568,949

Financial instruments recognized at fair value in the balance sheet

The table below presents balance-sheet values of instruments measured at fair value, by applied fair value measurement technique:

Data in PLN‘000, as at 31.12.2023

Note	Quoted market prices (Level 1)	Valuation techniques - observable inputs (Level 2)	Valuation techniques - significant unobservable inputs (Level 3)
ASSETS
Financial assets held for trading
Valuation of derivatives	81,416	758
Equity instruments		121
Debt securities		110,554
Non-trading financial assets mandatorily at fair value through profit or loss
Equity instruments	0	66,609
Debt securities	81,014
Loans and advances		19,349
Financial assets at fair value through other comprehensive income
Equity instruments	247	28,542
Debt securities	12,201	721	9,694,142
Loans and advances		11,799	748
Derivatives – Hedge accounting		213
LIABILITIES
Financial liabilities held for trading
Valuation of derivatives	151,265	425	346
Short positions	2,720
Derivatives – Hedge accounting		193,664

99 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.## 10. Fair Value Measurement

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	87,579	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	533,249	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.

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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.

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.

11. Contingent Liabilities and Assets

11.1. LAWSUITS

Below please find the data on the court cases pending, brought up by and against entities of the Group. A separate category are the proceedings related to the activities of the Tax Control Authority described in Chapter 13. note 16) "Corporate Income Tax".

Court cases brought up by the Bank

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.

Proceedings on infringement of collective consumer interests

On January 3, 2018, the Bank received a decision of the Chairman of the Office for Protection of Competition and Consumers (OPCC Chairman), in which the OPCC Chairman found infringement by the Bank of the rights of consumers. In the opinion of the OPCC Chairman the essence of the violation is that the Bank informed consumers (it regards 78 agreements) in responses to their complaints, that the court verdict stating the abusiveness of the provisions of the loan agreement regarding exchange rates does not apply to them. According to the position of the OPCC Chairman the abusiveness of contract’s clauses determined by the court in the course of abstract control is constitutive and effective for every contract from the beginning. As a result of the decision, the Bank was obliged to:
1) send information on the UOKiK’s decision to the said 78 clients,
2) place the information on decision and the decision itself on the website and on Twitter,
3) to pay a fine amounting to PLN 20.7 mln.

The Bank lodged an appeal within the statutory time limit. On January 7, 2020, the first instance court dismissed the Bank's appeal in its entirety. The Bank appealed against the judgment within the statutory deadline. The court presented the view that the judgment issued in the course of the control of a contractual template (in the course of an abstract control), recognizing the provisions of the template as abusive, determines the abusiveness of similar provisions in previously concluded contracts. Therefore, the information provided to consumers was incorrect and misleading. As regards the penalty imposed by OPCC, the court pointed out that the policy of imposing penalties by the Office had changed in the direction of tightening penalties and that the court agrees with this direction. In the Bank's assessment, the Court should not assess the Bank's behaviour in 2015 from the perspective of today's case-law views on the importance of abstract control (it was not until January 2016 that the Supreme Court's resolution supporting the view of the OPCC Chairman was published), the more penalties for these behaviours should not be imposed using current policy. The above constitutes a significant argument against the validity of the judgment and supports the appeal which the Bank submitted to the Court of second instance. The second instance court, in its judgment of February 24, 2022, completely revoked the decision of the OPCC Chairman. On August 31, 2022, the OPCC Chairman lodged a cassation appeal to the Supreme Court. The Bank believes that the prognosis regarding the litigation chances of winning the case before the Supreme Court is positive.

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.

Proceedings on competition-restricting practice

The Bank (along with other banks) is also a party to the dispute with OPCC, in which the OPCC Chairman recognized the practice of participating banks, including Bank Millennium, in an agreement aimed at jointly setting interchange fee rates charged on transactions made with Visa and Mastercard cards as restrictive of competition, and by decision of 29 December 2006 imposed a fine on the Bank in the amount of PLN 12.2 million. The Bank, along with other banks, appealed the decision.# In connection with the judgment of the Supreme Court and the judgment of the Court of Appeal in Warsaw of November 23, 2020, the case is currently pending before the court of first instance - the Court of Competition and Consumer Protection. The Bank has created a provision in the amount equal to the imposed penalty.

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

On 22 September 2020 The Bank received decision of the Chairman of the Office for Protection of Competition and Consumers (OPCC Chairman) recognising clauses stipulating principles of currency exchange applied in the so-called anti-spread annex as abusive and prohibited the use thereof. Penalty was imposed upon the Bank in the amount of 10.5 million PLN. Penalty amount takes account of two mitigating circumstances: cooperation with the Office for Protection of Competition and Consumers and discontinuation of the use of provisions in question. The Bank was also requested, after the decision becomes final and binding, to inform consumers, by registered mail, to the effect that the said clauses were deemed to be abusive and therefore not binding upon them (without need to obtain court’s decision confirming this circumstance) and publish the decision in the case on the Bank’s web site.

In the decision justification delivered in writing the OPCC Chairman stated that FX rates determined by the Bank were determined at Bank’s discretion (on the basis of a concept, not specified in any regulations, of average inter-bank market rate). Moreover, client had no precise knowledge on where to look for said rates since provision referred to Reuters, without precisely defining the relevant site. Provisions relating to FX rates in Bank’s tables were challenged since the Bank failed to define when and how many times a day these tables were prepared and published. In justification of the decision, the OPCC Chairman also indicated that in the course of the proceeding, Bank Millennium presented various proposed solutions, which the OPCC Chairman deemed to be insufficient.

The Bank appealed against the said decision within statutory term. On March 31, 2022, the first instance court revoked the entire decision of the Chairman of the OPCC. On May 23, 2022, the Chairman of the OPCC filed an appeal. On October 26, 2022, the Court of Appeal changed the judgment of the court of first instance and shared the position of the Chairman of the OPCC as to the abusiveness of the provisions regarding the determination of exchange rates in the annexes concluded with foreign currency borrowers. On November 21, 2022, the Court of Appeals, at the request of the Bank, suspended the execution of the judgment until the end of the cassation proceedings. On January 30, 2023 the Bank filled a cassation appeal to the Supreme Court.

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.

Court cases against the Bank

As at 31.12.2023, the most important proceedings, in the group of the court cases where the Bank was defendant, were following:

The Bank is a defendant in court proceedings brought by PKN Orlen SA, in which the subject of the dispute is the amount of the interchange fee and the plaintiff demands payment of PLN 635.7 million. The plaintiff in this proceeding alleges that the banks acted under an agreement restricting competition on the acquiring services market by jointly setting the level of the national interchange fee in the years 2006-2014. In this case, the Bank was sued jointly with another bank and card organizations. According to current estimates of the risk of losing a dispute in these matters, the Bank did not create a provision. In addition, we point out that the Bank participates as a side intervener in four other proceedings regarding the interchange fee. Other banks are the defendant. Plaintiffs in these cases also accuse banks of acting as part of an agreement restricting competition on the acquiring services market by jointly setting the level of the national interchange fee in the years 2008-2014.
A lawsuit brought up by shareholder of PCZ S.A. in bankruptcy (PHM, then the European Foundation for Polish-Belgian Cooperation - EFWP-B, currently called The European Foundation for Polish-Kenyan Cooperation) against Bank Millennium S.A., worth of the dispute 521.9 million PLN with statutory interest from 05.04.2016 until the day of payment. The plaintiff filed the suit dated 23.10.2015 to the Regional Court in Warsaw; the suit was served to the Bank on 04.04.2016. According to the plaintiff, the basis for the claim is damage to their assets, due to the actions taken by the Bank and consisting in the wrong interpretation of the Agreement for working capital loan concluded between the Bank and PCZ S.A., which resulted in placing the loan on demand. The Bank is requesting complete dismissal of the suit, stating disagreement with the charges raised in the claim. Supporting the position of the Bank, the Bank’s attorney submitted a binding copy of final verdict of Appeal Court in Wrocław favourable to the Bank, issued in the same legal state in the action brought by PCZ SA against the Bank. On May 10, 2023, the Court of First Instance announced a judgment dismissing the claim in its entirety. The verdict is not final, the plaintiff filed an appeal, the date of the appeal hearing has not yet been set.

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.

The class action related to the LTV insurance:

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.

Lawsuits filed by Financial Ombudsman for discontinuation of unfair market practices

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:

presenting the offered loan repayment insurance as protecting interests of the insured in case when insurance structure indicates that it protects the Bank’s interests;
use of clauses linking the value of insurance benefit with the amount of borrower’s debt;
use of clauses determining the amount of insurance premium without prior risk assessment (underwriting);
use of clauses excluding insurer’s liability for insurance accidents resulting from earlier causes.

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.

Court cases concerning Art. 45 of the Consumer Credit Act

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.

Court cases regarding mortgage loans in PLN

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 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.

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 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.

11.2. OFF BALANCE SHEET ITEMS

OFF-BALANCE ITEMS	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 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.

Guarantees and sureties granted to Clients

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 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.

12. Legal risk related to foreign currency mortgage loans

12.1. COURT CLAIMS AND CURRENT PROVISIONS ON LEGAL RISK

On December 31, 2023, the Bank had 20,914 loan agreements and additionally 1,780 loan agreements from former Euro Bank under individual ongoing litigations (excluding claims submitted by the Bank against clients i.e. debt collection cases) concerning indexation clauses of FX mortgage loans submitted to the courts (64% loans agreements before the courts of first instance and 36% loans agreements before the courts of second instance) with the total value of claims filed by the plaintiffs amounting to PLN 4,130.6 million and CHF 281.5 million (Bank Millennium portfolio: PLN 3,780.2 million and CHF 272.6 million and former Euro Bank portfolio: PLN 350.4 million and CHF 8.8 million). Out of 20,914 BM loan agreements in ongoing individual cases 240 are also part of class action. From the total number of individual litigations against the Bank approximately 2,260 or 11% were submitted by borrowers that had already naturally or early fully repaid the loan or were converted to polish zloty at the moment of submission and had not a settlement agreement and approximately another 730 cases correspond to loans that were fully repaid since then (as court proceedings are lengthy). The claims formulated by the clients in individual proceedings primarily concern the declaration of invalidity of the contract and payment for reimbursement of paid principal and interest instalments as undue performance, due to the abusive nature of indexation clauses, or maintenance of the agreement in PLN with interest rate indexed to CHF Libor. In addition, the Bank is a party to the group proceedings (class action) subject matter of which is to determine the Bank's liability towards the group members based on unjust enrichment (undue benefit) ground in connection with the foreign currency mortgage loans concluded. It is not a payment dispute. The judgment in these proceedings will not directly grant any amounts to the group members. The number of credit agreements covered by these proceedings is 3,273. Out of 3,273 loan agreements in class action 240 are also part of ongoing individual cases, 858 concluded settlements and 7 received final verdicts (invalidation of loan agreement). On 24 May 2022 the court issued a judgment on the merits, dismissing the claim in full. On 13 December 2022 the claimant filed an appeal against the judgment of 24 May 2022. On 20 November 2023 the claimant requested granting interim measures to secure the claims against the Bank. In a decision of 27 December 2023, the request for granting interim measures was dismissed. The pushy advertising campaign observed in the public domain affects the number of court disputes.# 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 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.

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

Jurisprudence of the Court of Justice of the European Union

On 3 October 2019, the Court of Justice of the European Union (the CJEU) issued the judgment in Case C-260/18 in connection with the preliminary questions formulated by the District Court of Warsaw in the case against Raiffeisen Bank International AG. The judgment of the CJEU, as regards the interpretation of European Union law made therein, is binding on domestic courts. The judgment in question interpreted Article 6 of Directive 93/13.In the light of the subject matter judgment, the said provision must be interpreted in such a way that (i) the national court may invalidate a credit agreement if the removal of unfair terms detected in this agreement would alter the nature of the main subject-matter of the contract; (ii) the effects for the consumer’s situation resulting from the cancellation of the contract must be assessed in the light of the circumstances existing or foreseeable at the time when the dispute arose and the will of the consumer is decisive as to whether he wishes to maintain the contract; (iii) Article 6 of the Directive precludes the filling-in of gaps in the contract caused by the removal of unfair terms from the contract solely on the basis of national legislation of a general nature or established customs; (iv) Article 6 of the Directive precludes the maintenance of unfair terms in the contract if the consumer has not consented to the maintenance of such terms. It can be noticed the CJEU found doubtful the possibility of a credit agreement being performed further in PLN while keeping interest calculated according to LIBOR. The CJEU judgment concerns only the situation where the national court has previously found the contract term to be abusive. It is the exclusive competence of the national courts to assess, in the course of judicial proceedings, whether a particular contract term can be regarded as abusive in the circumstances of the case.

On 29 April 2021, the CJEU issued the judgement in the case C-19/20 in connection with the preliminary questions formulated by the District Court in Gdańsk in the case against of ex-BPH S.A., the CJEU said that:
(i) it is for the national court to find that a term in a contract is unfair, even if it has been contractually amended by those parties. Such a finding leads to the restoration of the situation that the consumer would have been in in the absence of the term found to be unfair, except where the consumer, by means of amendment of the unfair term, has waived such restoration by free and informed consent. However, it does not follow from Council Directive 93/13 that a finding that the original term is unfair would, in principle, lead to annulment of the contract, since the amendment of that term made it possible to restore the balance between the obligations and rights of those parties arising under the contract and to remove the defect which vitiated it;
112 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.

(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 31st 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 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.

On January 18, 2024, the CJEU issued the judgement in the case C-531/22 in connection with the preliminary questions referred by the District Court in Warsaw in the case of ex-Getin Noble Bank S.A. The Court stated that: (i) the provisions of Directive 93/13 preclude national legislation which provides that a national court may not examine of its own motion the potentially unfair nature of the terms contained in a contract and draw the consequences thereof, where it is supervising enforcement proceedings carried out on the basis of a final decision to issue an order for payment which is subject to res judicata: a. if the regulations do not provide for such an examination at the stage of issuing a payment order, or b. if such examination is provided for only at the stage of opposition to the order for payment in question, provided that there is a significant risk that the consumer in question will not file the required opposition either because the time limit specified for this purpose is very short, or because of the cost of the proceedings before the court in relation to the amount of the disputed debt, or because the national legislation does not provide for the obligation to provide that consumer with all the information necessary for him to establish the extent of his rights; (ii) the provisions of Directive 93/13 do not preclude national case law according to which the entry of a term of a contract in a national register of prohibited clauses has the effect of declaring that term unfair in any proceedings involving a consumer, including against a trader other than the one against whom proceedings for the entry of the said term in that national register were pending, and where that term does not have the same wording as the term entered in the said register, but has the same meaning and has the same effect with respect to the consumer in question.

Jurisprudence of the Polish Supreme Court

On 7 May 2021, the Supreme Court composed of 7 judges of the Supreme Court, issued a resolution for which the meaning of legal principle has been granted, stating that: (i) an abusive contractual clause (art. 385(1) § 1 of the Civil Code), by force of the law itself, is ineffective to the benefit of the consumer who may consequently give conscious and free consent to this clause and thus restore its effectiveness retroactively; (ii) if without the ineffective clause the loan agreement cannot bind, the consumer and the lender shall be eligible for separate claims for return of monetary performances made in exercising this agreement (art. 410 § 1 in relation to art. 405 of the Civil Code). The lender may demand return of the performance from the moment the loan agreement becomes permanently ineffective.

On April 28, 2022 the Supreme Court issued a resolution (III CZP 40/22) in which it indicated that in disputes with consumers, the provision of Article 358(1) of the Civil Code is a special provision to Article 353(1) of the Civil Code, which means that if the prerequisites for the application of both provisions exist, the court should apply the special provision and declare the contractual provision permanently ineffective, rather than invalid. This decision of the Supreme Court should be perceived as significantly limiting the risk of the bank's claims for return of capital being time-barred.

The effect of the Supreme Court's resolution of 7 May 2021 is that the bank is entitled to a refund of the cash benefit provided by the bank in performance of a permanently ineffective contract. Taking into account the uncertainty as to the starting point of the limitation period for the bank's claims, the Bank, in order to protect its interests, files lawsuits for payment against borrowers in a court dispute with the bank. The bank's demand consists of a claim for return of the capital made available to the borrower under the contract. By 31 December 2023 the Bank filed about 8.1 thousands lawsuits against the borrowers.

Due to the CJEU jurisprudence interpreting the causes and effects of invalidity of foreign currency mortgage loan agreements, the area of interpretation of regulations by Polish courts in this respect appears to be limited. However, further jurisprudential practice of the Polish courts will play an important role in fulfilling the content of the CJEU's guidance and, moreover, this practice will be of significant importance as regards issues that, given the scope of the CJEU's competence, are subject to national jurisprudence.

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

The issues related to the statute of limitations for the Bank's and the customer's restitutionary claims following the invalidation of a loan agreement remain an area that may be subject to further analysis in the jurisprudence of Polish courts. Legal interpretations in this subject may be particularly significant for the Bank's claims as to the commencement of the running of the limitation period of its claims, by eliminating or confirming the risk of its claims being deemed time-barred in a given case. In addition, the extent of the consumer's and the bank's entitlement to statutory interest for delay on restitution claims may be an important legal issue.

The issue that remains unresolved in the jurisprudence of common courts and the Supreme Court is also the issue of the admissibility of borrowers’ claims in the event of the invalidity of a loan agreement for payment of amounts beyond the reimbursement of monthly installments and costs paid for the execution of that agreement and beyond the payment of statutory default interest from the date of the demand for payment, which, in light of the CJEU's judgment of June 15, 2023 in case C- 520/21, remains not excluded. Due to the uncertainty of the direction of case law in this area, as of the date of publication of the report, it is difficult to reliably assess the impact of potential rulings.

13. NOTES TO THE FINANCIAL STATEMENTS

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

1. INTEREST INCOME AND OTHER OF SIMILAR NATURE

	01.01.2023 - 31.12.2023	01.01.2022 - 31.12.2022
Interest income from Financial assets at fair value through other comprehensive income	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 31st December 2023
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.

3. FEE AND COMMISSION INCOME AND EXPENSE

3a. Fee and commission income

	01.01.2023 - 31.12.2023	01.01.2022 - 31.12.2022
Resulting from accounts service	117 576	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

3b. Fee and commission expense

	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)

4. DIVIDEND INCOME

	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 31st December 2023
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.

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

	01.01.2023 - 31.12.2023	01.01.2022 - 31.12.2022
Result on bancassurance transaction	553 912	0
Operations on debt instruments	(12 353)	(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 31st 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.

6. RESULTS ON FINANCIAL ASSETS AND LIABILITIES HELD FOR TRADING

	01.01.2023 - 31.12.2023	01.01.2022 - 31.12.2022
Result on debt instruments	6 003	(13 179)
Result on derivatives	41 955	12 646
Result on other financial operations	24	528
Total	47 982	(528)

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

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

8. RESULT ON HEDGE ACCOUNTING

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

123 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.

9. OTHER OPERATING INCOME

	01.01.2023 - 31.12.2023	01.01.2022 - 31.12.2022
Gain on sale and liquidation of property, plant and equipment, intangible assets	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

10. OTHER OPERATING EXPENSE

	01.01.2023 - 31.12.2023	01.01.2022 - 31.12.2022
Loss on sale and liquidation of property, plant and equipment, intangible assets	(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 31st December 2023
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.

11.# ADMINISTRATIVE EXPENSES

	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)

12. IMPAIRMENT LOSSES ON FINANCIAL ASSETS

	01.01.2023 - 31.12.2023	01.01.2022 - 31.12.2022
Impairment losses on loans and advances to customers	(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 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.

13. IMPAIRMENT LOSSES ON NON-FINANCIAL ASSETS

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

14. PROVISIONS FOR LEGAL RISK CONNECTED WITH FX MORTGAGE LOANS

	01.01.2023 - 31.12.2023	TOTAL	Allocated for credit portfolio	Provisions for pending legal issues
Balance at the beginning of the period	5 395 344	4 572 901	822 443
Amounts written off	(521 769)	(521 769)		0
Costs of provisions for legal risk connected wIth FX mortgage loans	3 065 380	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	2 017 320
Allocation to the loans portfolio	0	1 610 712	(1 610 712)
Increase of provisions due to FX rates differences	268 445	268 445		0
Balance at the end of the period	5 395 344	4 572 901	822 443

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

15. DEPRECIATION AND AMORTIZATION

	01.01.2023 - 31.12.2023	01.01.2022 - 31.12.2022
Property, plant and equipment	(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 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.

16. CORPORATE INCOME TAX

16a. Income tax reported in income statement

	01.01.2023 - 31.12.2023	01.01.2022 - 31.12.2022
Current tax	(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)

16b. Effective tax rate

	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 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.

16c. Deferred tax reported in equity

	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).

Withholding tax audit for years 2015-17

On 12 February 2019 the Head of Western Pomeranian Customs & Tax Office (Zachodniopomorski Urząd Celno-Skarbowy w Szczecinie, ZUCS) commenced tax audits regarding the correctness of withholding tax (WHT) settlements for years 2015 and 2016. On 17 December 2019 the Bank received audit results as of 13 December 2019, in which ZUCS questioned WHT-exemption on coupon interest from bonds paid to MB Finance AB with the seat in Sweden constituting a collateral to 10Y subordinated bonds with a par value of EUR 150 mio. issued by this company in December 2007 (fully amortized in December 2017). On 11 June 2021 Bank received 2nd instance decisions of ZUCS decreasing the amount of WHT arrear from PLN 6.6 to 5.3 mio. This amount with penalty interests were paid by Bank on 18 June 2021. Bank lodged complaints on these decisions to the administrative court in Szczecin (WSA). WSA in its judgements as of 13 and 27 October 2021 wholly overruled both ZUCS’s decisions. ZUCS appealed from these judgments to the Supreme Administrative Court (NSA).

On 13 April 2021 Head of ZUCS commenced a WHT audit for year 2017. As expected in the audit result ZUCS challenged WHT-exemption on coupon interests paid by Bank to MBF in this year as well (disputable WHT amount is ca. PLN 2.2 mio.). Bank does not agree with such findings as well and will continue a dispute with ZUCS. On 21 March 2022 Bank received the ZUCS’s decision on WHT audit transformation into a tax proceeding. On 30 June 2022 Bank received the ZUCS’s decision determining WHT arrear of ca. PLN 2.2 mio. Bank appealed from this decision. On 23 February 2023 WSA suspended the court litigation concerning WHT for 2017 until the final NSA’s judgements regarding WHT for years 2015-16. Bank received an expert opinion as of January 29, 2020 of tax professors from the Public Finances Law Department of the Faculty of Law and Administration at Nicolaus Copernicus University in Torun, according to which ZUCS’s statement violates binding tax law provisions.

Judgement of the Supreme Administrative Court

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

128 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.

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.

18. CASH, BALANCES AT THE CENTRAL BANK

18a. Cash, balances at the central bank

	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).

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

	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.

19. FINANCIAL ASSETS HELD FOR TRADING

19a. Financial assets held for trading

	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	0
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.

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

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

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

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

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

	01.01.2023 - 31.12.2023	01.01.2022 - 31.12.2022
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.

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

31.12.2023

	Par value of instruments with future maturity	Fair value	below 3 months	from 3 months to 1 year	from 1 year to 5 years	above 5 years	Total	Assets	Liabilities
1. Interest rate derivatives	2 317 330	2 514 918	7 492	383 670	(9 488)	12 060	21 548	0	0
Forward Rate Agreements (FRA)	0	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	0	0
Other interest rate contracts: options	119 456	259 711	655	20 670	0	11 522	11 522	0	0
2. FX derivatives*	7 839 593	3 413 391	122 070	0	(59 958)	69 759	129 717	0	0
FX contracts	1 526 891	737 568	61 066	0	(28 087)	9 993	38 080	0	0
FX swaps	6 312 702	2 675 823	61 004	0	(31 871)	59 766	91 637	0	0
Other FX contracts (CIRS)	0	0	0	0	0	0	0	0	0
FX options	0	0	0	0	0	0	0	0	0
3. Embedded instruments	472 247	2 018 329	858 866	0	(414 200)	0	414 200	0	0
Options embedded in deposits	472 247	2 018 329	858 866	0	(414 200)	0	414 200	0	0
Options embedded in securities issued	0	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	0	0
Total	11 178 335	10 118 723	9 348 709	383 670	(78 034)	498 577	576 611	0	0
Valuation of hedged position in fair value hedge accounting	-	0	0	0	0	0	0	0	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	257 449	(28 540)	29 235	57 775	0	0
Forward Rate Agreements (FRA)	0	0	0	0	0	0	0	0	0
Interest rate swaps (IRS)	1 039 534	1 526 317	8 751 790	233 297	(29 042)	1 293	30 335	0	0
Other interest rate contracts: options	0	138 424	755 516	24 152	502	27 942	27 440	0	0
2. FX derivatives*	12 135 778	1 648 761	160 657	0	(9 323)	58 624	67 947	0	0
FX contracts	1 995 563	1 023 642	85 933	0	(12 358)	11 939	24 297	0	0
FX swaps	9 203 270	625 119	74 724	0	1 436	44 663	43 227	0	0
Other FX contracts (CIRS)	936 945	0	0	0	0	1 599	2 022	0	0
FX options	0	0	0	0	0	0	0	0	0
3. Embedded instruments	0	257 952	2 439 784	0	(250 400)	0	250 400	0	0
Options embedded in deposits	0	257 952	2 439 784	0	(250 400)	0	250 400	0	0
Options embedded in securities issued	0	0	0	0	0	0	0	0	0
4. Indexes options	0	301 357	2 551 648	0	247 414	251 436	4 022	0	0
Total	13 175 312	3 872 811	14 659 395	257 449	(40 849)	339 295	380 144	0	0
Valuation of hedged position in fair value hedge accounting	-	0	0	0	0	0	0	0	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.

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

	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

21. FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME

21a. Financial assets at fair value through other comprehensive income

	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

21b. Debt securities at fair value through other comprehensive income

	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.

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

	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

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

	01.01.2023 - 31.12.2023	01.01.2022 - 31.12.2022
Balance at the beginning of the period	16 438 458	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

22. LOANS AND ADVANCES TO CUSTOMERS

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

| # 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.

22b. Loans and advances to customers at fair value through other comprehensive income

	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

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

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

31.12.2023

	Balance sheet value, gross	Accumulated impairment allowances	Balance sheet value, net
	Stage 1	Stage 2	Stage 3
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	(120)

31.12.2022

	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	(141)

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.

22d. Loans and advances to customers

	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
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

22e. Quality of loans and advances to customers portfolio valued at amortised cost

	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

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

	31.12.2023	31.12.2022
Loans and advances to customers (gross)	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

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

	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

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

	01.01.2023 - 31.12.2023	01.01.2022 - 31.12.2022
Balance at the beginning of the period	2,242,135	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

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

The Bank records POCI assets in the balance sheet mainly as a result of recognition of impaired loans after the merger with Euro Bank S.A. and takeover of SKOK Piast. At the time of the merger, the aforementioned assets were included in the Bank's books at fair value.

The value of POCI assets is as follows:

	Gross balance sheet value	Accumulated impairment	Net balance sheet value
31.12.2023		:	:
- Companies	23,106	1,200	24,306
- Individuals	93,690	(25,136)	68,554
- Public sector	0	0	0
31.12.2022		:	:
- Companies	15,216	(26)	15,190
- Individuals	137,235	(13,150)	124,085
- Public sector	0	0	0

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

Companies: impairment allowances

	Stage 1	Stage 2	Stage 3	POCI	Total
Balance at the beginning of the period	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	0	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

Companies: loans and advances balance sheet value, gross

	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

Individuals: impairment allowances

	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	433	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

Individuals: loans and advances balance sheet value, gross

	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	3,867,855	2,682,216	93,690	45,577,377
## Public sector: impairment allowances
Stage	Stage 2	Stage 3	POCI	Total
---	---	---	---	---
Balance at the beginning of the period	141	0	0	0	141
Transfers between stages	0	0	0	0	0
Increase due to granting or purchase	24	0	0	0	24
Changes in credit risk	7	0	0	0	7
Decrease due to derecognition (except exposures sold and written off)	(46)	0	0	0	(46)
Other (including FX differences)	(6)	0	0	0	(6)
Balance at the end of the period	120	0	0	0	120

Public sector: loans and advances balance sheet value, gross

Stage	Stage 2	Stage 3	POCI
Balance at the beginning of the period	201	688	3
Transfers between stages	(0)	0	0
Granted or purchased loans and advances	12	319	1
Repaid loans and advances	(162 259)	0	0
Loans and advances sold	0	0	0
Loans and advances written off	0	0	0
Other (including FX differences)	0	0	0
Balance at the end of the period	51	748	4

138

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.

22j. Loans and advances to customers portfolio valued at amortised cost by maturity 31.12.2023 31.12.2022

	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

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

gross carrying amount of mortgage is decreased by the change in expected cash flows resulting from the issue of legal risk of CHF mortgage loans, the adjustment is presented in note (14).

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

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

31.12.2023
| | 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 | (6) | 0 | 0 | 18 439 780 |
| Deposits, loans and advances to banks and other monetary institutions | 1 866 848 | 0 | 0 | (160) | 0 | 0 | 1 866 688 |
| Repurchase agreements | 1 163 242 | 0 | 0 | 0 | 0 | 0 | 1 163 242 |

31.12.2022
| | 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 | (6) | 0 | 0 | 3 893 212 |
| Deposits, loans and advances to banks and other monetary institutions | 1 410 526 | 0 | 0 | (281) | 0 | 0 | 1 410 245 |
| Repurchase agreements | 4 863 | 0 | 0 | 0 | 0 | 0 | 4 863 |

23b. Debt securities

	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

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

	31.12.2023	31.12.2022
Current accounts	571 479	181 896
Deposits	219 804	548 647
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

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

	31.12.2023	31.12.2022
Current accounts	571 479	181 896
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

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

	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

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

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

23g. Reverse sale and repurchase agreements

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

141

24. DERIVATIVES – HEDGE ACCOUNTING

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:

142

	Fair value hedge of a fixed interest rate debt instrument	Cash flow volatility hedge due to future income and interest costs denominated in foreign currencies	Hedging the fair value of cash flows from issued fixed-rate liabilities denominated in foreign currencies
Description of hedge transactions	The Group hedges part of the interest rate risk associated with the change in the fair value of a fixed-rate debt instrument recorded in other comprehensive income, resulting from fluctuations in market interest rate.	The Group hedges the risk of the volatility of cash flows generated by income and interest costs denominated in foreign currencies. The volatility of cash flows results from the currency risk.	The Group hedges part of the interest rate risk related to changes in the fair value of cash flows from issued fixed-rate liabilities denominated in foreign currencies, resulting from the volatility of market interest rates.
Hedged items	A portfolio of fixed coupon debt securities classified as financial assets measured at fair value through other comprehensive income denominated in PLN.	Cash flows resulting from income and interest costs denominated in foreign currencies.

Cash flows from issued fixed- rate liabilities denominated in foreign currencies Hedging instruments IRS transactions FX position resulting from recognized future leasing liabilities. IRS transactions Presentation of the result on the hedged and hedging transactions The result on the change in the fair value measurement of hedged items in the hedged risk is referred to the result on hedge accounting. The remaining part of the change in fair value measurement is recognized in other comprehensive income. Interest on debt securities is recognized in net interest income. The change in fair value measurement of derivative instruments being a hedge is presented in the result on hedge accounting, and interest on these instruments is recognized in the interest result. The effective part of the spot revaluation of hedging instruments is recognized in the revaluation reserve. 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 31st December 2023

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

Hedge of volatility of the cash flows generated by PLN denominated financial assets

Cash flow volatility hedge for the flows generated by FX mortgage portfolio and its underlying PLN liabilities

Description of hedge transactions

The Group hedges the risk of the volatility of cash flows generated by PLN denominated financial assets. The volatility of cash flows results from interest rate risk. The Group hedges the risk of the volatility of cash flows generated by FX mortgages and by PLN liabilities financially underlying such loans. The volatility of cash flows results from the currency risk and interest rate risk.

Hedged items

Cash flows resulting from PLN denominated financial assets. Cash flows resulting from the FX mortgage loan portfolio and PLN deposits together with issued debt PLN securities funding them.

Hedging instruments

IRS transactions CIRS transactions

Presentation of the result on the hedged and hedging transactions

Effective part of the valuation of hedging instruments is recognised in revaluation reserve; interest on both the hedged and the hedging instruments are recognised in net interest income. Ineffective part of the valuation of hedging instruments is recognized in the income statement as a result on instruments measured at fair value through profit and loss. Effective part of the valuation of hedging instruments is recognised in revaluation reserve; interest on both the hedged and the hedging instruments are recognised in net interest income; valuation of hedging and hedged instruments on FX differences is recognised in Result on exchange differences. Ineffective part of the valuation of hedging instruments is recognized in the income statement as a result on instruments measured at fair value through profit and loss.

24a. Hedge accounting

		Par value of instruments with future maturity
		Below 3 months	From 3 months to 1 year	From 1 year to 5 years	Above 5 years	Total Assets	Total Liabilities
31.12.2023
1. Derivative instruments constituting cash flow hedges related to interest rate and/or exchange rate *	CIRS contracts	3 083 034	203 445	817 400	0	(150 631)	15 069
	IRS contracts	2 170 000	0	475 000	0	(27 964)	0
	FXS contracts	0	0	0	0	0	0
2. Derivatives used as interest rate hedges related to interest rates	IRS contracts	0	0	2 264 000	0	59 144	59 144
3. Total hedging derivatives		5 253 034	203 445	3 556 400	0	(119 451)	74 213

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

		Par value of instruments with future maturity
		Below 3 months	From 3 months to 1 year	From 1 year to 5 years	Above 5 years	Total Assets	Total Liabilities
31.12.2022
1. Derivative instruments constituting cash flow hedges related to interest rate and/or exchange rate *	CIRS contracts	1 434 840	6 331 579	4 203 916	0	(60 707)	135 804
	IRS contracts	1 125 500	1 305 000	2 645 000	0	(358 033)	0
	FXS contracts	0	0	0	0	0	0
2. Derivatives used as interest rate hedges related to interest rates	IRS contracts	0	0	90 000	0	0	0
3. Total hedging derivatives		2 560 340	7 636 579	6 938 916	0	(418 740)	135 804

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

144 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.

24b. Hedge accounting for cash flow volatility

Hedge relationship	Maximum date of occurrence of cash flows whose value is hedged
Hedge of volatility of the cash flows generated by PLN denominated financial assets	2025-11-05
Cash flow volatility hedge for the flows generated by FX mortgage portfolio and its underlying PLN liabilities	2025-01-07
Fair value hedge of a fixed interest rate debt instrument	2026-08-25
Hedge of the volatility of cash flows generated by the portfolio of floating-rate foreign currency mortgage loans	2030-04-01
Hedging the variability of cash flows due to future interest income and expenses denominated in foreign currencies	2026-09-18

The inefficient part of the valuation of hedging instruments recognized in the Profit and Loss Account in 2023 amounted to PLN 1,160 thousand. (in 2022, it was PLN -7,130 thousand, respectively) The inefficient part of the valuation of hedging instruments recognized in the Profit and loss account and losses was presented in note (8).

24c. Cash flow hedge – Hedged Instruments

Type of contract	Balance sheet item	Changes in fair value used in the calculation of the ineffectiveness in the period	Balance in cash flow hedge reserve for continuing hedges	Balance in cash flow hedge reserve for discontinued hedges
- CIRS	Loans and advances to customers	(69 617)	(4 308)	(221)
- IRS	Loans and advances to customers	(125 750)	(8 282)	0
- FX spot	Future interest income and costs	(16 393)	(4 979)	0
- IRS	Issued debt securities	0	0	0
- IRS	Debt securities	(140 107)	(36 404)	0
Total		(351 867)	(53 973)	(221)

24d. Cash flow hedge – Hedging instruments

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

24e. Fair value hedge – Hedged instruments

Type of contract	Balance sheet item	Changes in the fair value of the hedged instrument used in the calculation of the ineffectiveness in the period
IRS	Debt instruments valued in other comprehensive income	5 806
IRS	Issued liabilities	(49 305)
Total		(43 499)

145 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.

24f. Fair value hedge – Hedging instruments

Type of contract	Changes in the fair value of the hedging instrument used in the calculation of the ineffectiveness in the period	Ineffectiveness recognized in P&L
IRS	(6 151)	(346)
IRS	48 564	(740)
Total	42 413	(1 086)

25. INVESTMENTS IN SUBSIDIARIES, JOINT VENTURES AND ASSOCIATES

25a. Investments in related entities

	31.12.2023	31.12.2022
Investments in subsidiaries	399 223	247 823

25b. Change of investments in related entities

	01.01.2023 - 31.12.2023	01.01.2022 - 31.12.2022
Balance at the beginning of the period	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 31st December 2023

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

25c. Investments in related entities as at 31.12.2023

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.# 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.

25d. Investments in related entities as at 31.12.2023

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 subordinated
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.

147 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.

25d. Investments in related entities as at 31.12.2022

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	the company is not yet operating					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 subordinated
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.

148 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.

26. TANGIBLE FIXED ASSETS

26a. Property, plant and equipment

	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

149 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.

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

	Land	Buildings and premises	Machines and equipment	Vehicles	Other fixed assets	Fixed assets under construction	Rights to use office space	TOTAL
a) gross value of property, plant and equipment at the beginning of the period	2 219	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	278 654

150 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.

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

	Land	Buildings and premises	Machines and equipment	Vehicles	Other fixed assets	Fixed assets under construction	Rights to use office space	TOTAL
a) gross value of property, plant and equipment at the beginning of the period	2 270	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	303 174

151 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.

27. INTANGIBLE FIXED ASSETS

27a. Intangible fixed assets

	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 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.

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

	concessions, patents, licenses, know-how and similar assets	computer software	other	advances for intangible assets	TOTAL
a) gross value of intangible fixed assets at the beginning of the period	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 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.

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

	concessions, patents, licenses, know-how and similar assets	computer software	other	advances for intangible assets	TOTAL
a) gross value of intangible fixed assets at the beginning of the period	82 509 382 427	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 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.

28. DEFERRED INCOME TAX ASSETS

28a. Deferred income tax assets and liability

	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	22 137 171 658

28b. Change of temporary differences

	31.12.2022	Adjustments to previous years	Changes to financial result	Changes to equity	31.12.2023
Difference between tax and balance sheet depreciation	(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

155 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.

28c. Change of temporary differences

	31.12.2021	Adjustments to previous years	Changes to financial result	Changes to equity	31.12.2022
Difference between tax and balance sheet depreciation	(1 762)	(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.

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

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

29. OTHER ASSETS

	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.

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

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. FINANCIAL LIABILITIES HELD FOR TRADING

	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).

32. LIABILITIES TO BANKS AND OTHER MONETARY INSTITUTIONS

32a. Liabilities to banks and other monetary institutions

	31.12.2023	31.12.2022
In current account	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

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

	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

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

	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

33. LIABILITIES TO CUSTOMERS

33a. Structure of liabilities to customers by type

	31.12.2023	31.12.2022
Amounts due to private individuals	76 599 831	68 787 007
Balances on current accounts	50 242 523	49 106 928
Term deposits	25 771 736	19 247 973
Other	278 997	248 573
Accrued interest	306 575	183 533
Amounts due to companies	26 605 648	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

33b. Liabilities to customers by maturity

	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

33c. Liabilities to customers by currency

	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

34. SALE AND REPURCHASE AGREEMENTS

	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

35. DEBT SECURITIES ISSUED

35a. Liabilities from debt securities

	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

35b. Liabilities from debt securities by final legal maturity

	31.12.2023	31.12.2022
▪ to 1 month	0	0
▪ above 1 month to 3 months	0	0
▪ above 3 months to 1 year	0	0
▪ above 1 year to 5 years	2 220 915	0
▪ above 5 years	731 500	242 500
Interest	75 537	1 253
Total	3 027 952	243 753

35c. Change of debt securities

	01.01.2023 - 31.12.2023	01.01.2022 - 31.12.2022
Balance at the beginning of the period	243 753	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

35d. Debt securities by type

As at 31.12.2023

	Balance sheet value	Including interests	Final legal maturity	Market
Bank Millennium - BMCN_012040	251 341	8 841	2040-01-25	Vienna MTF
Bank Millennium - BMCN_082036	494 106	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

36. SUBORDINATED DEBT

36a. Subordinated debt

	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

36b. Change of subordinated debt

	01.01.2023 - 31.12.2023	01.01.2022 - 31.12.2022
Balance at the beginning of the period	1 568 083	1 541 144
Increases, on account of:	141 686	110 181
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.

37. PROVISIONS

37a. Provisions

	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

Creation of provisions for legal risk related to foreign currency mortgage loans is described in more detail in Chapter 12 “Legal risk related to foreign currency mortgage loans”.

162 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.

38. OTHER LIABILITIES

38a. Other liabilities

	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
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

* The Bank uses the option of contributing some of the fees paid to the BGF in the form of a payment obligation, which involves recognizing a commitment to pay and simultaneously recording encumbered assets in the form of debt securities held on a separate account created for this purpose.
** 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

38b. Liabilities from lease

	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 payments	312 710	352 483

Liabilities from lease (gross) by maturity

	31.12.2023	31.12.2022
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

	31.12.2023	31.12.2022
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 31st December 2023
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.

38c. Change of provisions for unused employee holiday

	01.01.2023 - 31.12.2023	01.01.2022 - 31.12.2022
Balance at the beginning of the period	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

38d. Change of provisions for retirement benefits

	01.01.2023 - 31.12.2023	01.01.2022 - 31.12.2022
Balance at the beginning of the period	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

39. EQUITY

39a. Capital

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	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	122 603 154			05.12.1994
I	bearer	ordinary	65 000 000	65 000 000	cash	12.08.1997	01.10.1996
J	bearer	ordinary	196 120 000	196 120 000	capitals of Bank Gdański S.A.	12.09.1997	01.10.1996
K	bearer	ordinary	424 590 872	424 590 872	cash	31.12.2001	01.01.2001
L	bearer	ordinary	363 935 033	363 935 033	cash	26.02.2010	01.01.2009
Total number of shares			1 213 116 777
Total share capital				1 213 116 777

164 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 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	% 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	% 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 31st December 2023
This document is a translation of a document originally issued in Polish. The only binding version is the original Polish version.

39b. Accumulated other comprehensive income

Other comprehensive income arises on the recognition of:

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

The Accumulated Other Comprehensive Income section comprises unrealized gains and losses that have not been recognized in profit or loss. These items include:

Effect of valuation (at fair value) of derivatives hedging cash flows in the net amount, i.e. having accounted for deferred tax. Revaluation reserve records such part of profits or losses connected with the derivatives hedging cash flows which is an effective hedge, while the ineffective part of the profits or losses connected with such hedging instrument is recognised in the profit and loss account.
Actuarial gains (losses) at their net value, i.e. after deferred tax. Aforementioned gains or losses result from the discounting of future liabilities arising from a provision created for retirement benefits. Valuation is done using the projected unit cost method. The parameters that have a significant impact on the amount of current liabilities are: the rate of mobility (rotation) of employees, the discount rate, the rate of wage growth. These values are not reclassified to the profit and loss account.

Accumulated other comprehensive income	31.12.2023	31.12.2022
Effect of valuation (gross)	(172 027)	(1 035 621)
Deferred income tax	32 685	196 768
Net effect of valuation	(139 342)	(838 853)

Revaluation Reserve on FVTOCI Assets

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

Revaluation reserve on FVTOCI assets (1.01.2023 - 31.12.2023)	Gross value	Deferred tax	Total
Revaluation reserve at the beginning of the period	(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)

Revaluation reserve on FVTOCI assets (1.01.2022 - 31.12.2022)	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.

Revaluation Reserve on Cash Flows Hedge Financial Instruments

Revaluation reserve on cash flows hedge financial instruments (1.01.2023 - 31.12.2023)	Gross value	Deferred tax	Total
Revaluation reserve at the beginning of the period	(406 061)	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)

Revaluation reserve on cash flows hedge financial instruments (1.01.2022 - 31.12.2022)	Gross value	Deferred tax	Total
Revaluation reserve at the beginning of the period	(378 912)	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)

Revaluation Reserve Due to Actuarial Gains (Losses)

Revaluation reserve due to actuarial gains (losses) (1.01.2023 - 31.12.2023)	Gross value	Deferred tax	Total
Revaluation reserve at the beginning of the period	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)

Revaluation reserve due to actuarial gains (losses) (1.01.2022 - 31.12.2022)	Gross value	Deferred tax	Total
Revaluation reserve at the beginning of the period	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

Revaluation Reserve on FVTOCI Credit Portfolio

Revaluation reserve on FVTOCI credit portfolio (1.01.2023 - 31.12.2023)	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

Revaluation reserve on FVTOCI credit portfolio (1.01.2022 - 31.12.2022)	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.

Retained Earnings

	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

FINANCIAL LIABILITIES BY CONTRACTUAL MATURITY

31.12.2023

	Below 1 month	From 1 month to 3 months	From 3 months to 1 year	From 1 year to 5 years	Above 5 years	TOTAL
Deposits from banks	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	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.

31.12.2022

	Below 1 month	From 1 month to 3 months	From 3 months to 1 year	From 1 year to 5 years	Above 5 years	TOTAL
Deposits from banks	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.

SUPPLEMENTARY INFORMATION

14.1. 2022 DIVIDEND

Bank Millennium has a dividend policy of distribution between 35% and 50% of net profit, taking into account supervisory recommendations. The Bank recorded a net loss in 2022, mainly as a result of recognizing the impact of credit holidays and creating provisions for legal risk related to foreign currency mortgage loans, additionally the Bank continues to realize the Capital Protection Plan hence there was no basis for the payment of dividends. The Management Board of the Bank presented a proposal and the Ordinary General Meeting of the Bank, held on March 30, 2023, decided to allocate the amount of PLN 1,029,898,772.97 from the reserve capital to cover the loss incurred in 2022.

14.2. DATA ABOUT ASSETS, WHICH SECURE LIABILITIES

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.

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

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

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.

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

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

14.5. ADDITIONAL EXPLANATIONS TO THE CASH FLOW STATEMENT

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:

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

14.6. INFORMATION ON CUSTODY ACTIVITY

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

14.7. SHARE BASED PAYMENTS

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.

	Variable remuneration – 2019	2020	2021	2022
Kind of transactions in the light of IFRS 2 Share-based payment transactions
Cash-settled share- based payments
Commencement of vesting period	1 January 2019	1 January 2020	1 January 2021	1 January 2022
The date of announcing the program	27 August 2019
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	Employment in the Bank 2020, results of the Bank and individual performance	Employment in the Bank 2021, results of the Bank and individual performance	Employment in the Bank 2022, results of the Bank and individual performance
Program settlement
Program 2022: On the settlement day, the participant will be paid an amount of cash constituting the product of the phantom shares held by the participant and the arithmetic average price of the Bank's shares on the WSE at the closing of 20 consecutive sessions preceding the settlement day.

	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 (PLN)	-	0.00	0.00
Value deferred (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 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.

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

REFORM OF BENCHMARKS

1. WIBOR

In May 2022, the Polish government announced that WIBOR would be replaced by a different (lower) rate from 1 January 2023. In June 2022, a Working Group was established, including commercial banks, GPW Benchmark (Administrator of WIBOR), KNF. In July 2022, the National Working Group on Reference Rate Reform (NWG) was established in connection with the planned reform of reference rates in Poland. The objective of the NGR's work to introduce a new interest rate benchmark and replace the currently used WIBOR index with it while ensuring the compliance with BMR, including in particular ensuring credibility, transparency and reliability in the development and application of the new benchmark. The National Working Group involves representatives of the Ministry of Finance, the National Bank of Poland, the Office of the Financial Supervision Authority, the Bank Guarantee Fund, the Polish Development Fund, the Warsaw Stock Exchange, the National Depository for Securities, Bank Gospodarstwa Krajowego, the GPW Benchmark, as well as representatives of credit institutions, i.e. in particular, banks, financial institutions, including investment funds, insurance companies, factoring and leasing companies, entities that are bond issuers, including corporate and municipal bonds, clearing houses. The work of the National Working Group is coordinated and supervised by a Steering Committee including representatives of key institutions: Financial Supervision Authority, the National Bank of Poland, the Ministry of Finance, the Bank Guarantee Fund, the Polish Development Fund, as well as the GPW Benchmark - the administrator of the reference rates - and the Polish Bank Association (Polish: Związek Banków Polskich). The 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 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 uses the WIBOR reference rate in the following products (in million PLN):

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

The Bank also applies instruments based on WIBOR benchmarks in hedge accounting, details of the hedging relationships used by the Group, the items designated as hedged and hedging and the presentation of the result on these transactions are presented in Note 24 "Derivatives - Hedge accounting" in Chapter 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).

2. LIBOR USD

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

Retail banking/mortgage portfolio: 2.85;

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

176 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.

CREDIT HOLIDAYS

The Bank is aware of risks connected with a potential extension of the so-called credit holidays for 2024. A legislative proposal was made public but until the moment of publication of these Financial Statements the proposal was not formally approved by the government and submitted to the Parliament. If such risk would materialize, it could imply upfront provision for such cost that would decrease the net interest income and the net result of the Bank/Group.There were no other significant events affecting the financial statements and future results of the Group between the date on which the report was prepared and the date of its publication.

Date	Name and surname	Position/Function	Signature
28.02.2024	Joao Bras Jorge	Chairman of the Management Board	Signed by a qualified electronic signature
28.02.2024	Fernando Bicho	Deputy Chairman of the Management Board	Signed by a qualified electronic signature
28.02.2024	Wojciech Haase	Member of the Management Board	Signed by a qualified electronic signature
28.02.2024	Andrzej Gliński	Member of the Management Board	Signed by a qualified electronic signature
28.02.2024	Wojciech Rybak	Member of the Management Board	Signed by a qualified electronic signature
28.02.2024	Antonio Pinto Junior	Member of the Management Board	Signed by a qualified electronic signature
28.02.2024	Jarosław Hermann	Member of the Management Board	Signed by a qualified electronic signature

AI Terminal

Bank Millennium S.A.

5525_rns_2024-02-29_0a3e8518-aa84-4c8a-9964-00986bf79284.xhtml

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

Financial Highlights

Quarterly financial information

INCOME STATEMENT

STATEMENT OF TOTAL COMPREHENSIVE INCOME

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

TABLE OF CONTENT

1. INTEREST INCOME AND OTHER OF SIMILAR NATURE

2. INTEREST EXPENSE

3. FEE AND COMMISSION INCOME AND EXPENSE

4. DIVIDEND INCOME

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

6. RESULTS ON FINANCIAL ASSETS AND LIABILITIES HELD FOR TRADING

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

8. RESULT ON HEDGE ACCOUNTING

9. OTHER OPERATING INCOME

10. OTHER OPERATING EXPENSE

11. ADMINISTRATIVE EXPENSES

12. IMPAIRMENT LOSSES ON FINANCIAL ASSETS

13. IMPAIRMENT LOSSES ON NON-FINANCIAL ASSETS

14. PROVISIONS FOR LEGAL RISK CONNECTED WITH FX MORTGAGE LOANS

15. DEPRECIATION AND AMORTIZATION

16. CORPORATE INCOME TAX

17. EARNINGS PER SHARE

18. CASH, BALANCES AT THE CENTRAL BANK

19. FINANCIAL ASSETS HELD FOR TRADING

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

21. FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME

22. LOANS AND ADVANCES TO CUSTOMERS

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

24. DERIVATIVES – HEDGE ACCOUNTING

25. INVESTMENTS IN SUBSIDIARIES, JOINT VENTURES AND ASSOCIATES

26. TANGIBLE FIXED ASSETS

27. INTANGIBLE FIXED ASSETS

28. DEFERRED INCOME TAX ASSETS

29. OTHER ASSETS

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

31. FINANCIAL LIABILITIES HELD FOR TRADING

32. LIABILITIES TO BANKS AND OTHER MONETARY INSTITUTIONS

33. LIABILITIES TO CUSTOMERS

34. SALE AND REPURCHASE AGREEMENTS

35. DEBT SECURITIES ISSUED

36. SUBORDINATED DEBT

37. PROVISIONS

38. OTHER LIABILITIES

39. EQUITY

40. FINANCIAL LIABILITIES BY CONTRACTUAL MATURITY

14. SUPPLEMENTARY INFORMATION

14.1. 2022 DIVIDEND

14.2. DATA ABOUT ASSETS, WHICH SECURE LIABILITIES

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

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

14.5. ADDITIONAL EXPLANATIONS TO THE CASH FLOW STATEMENT

14.6. INFORMATION ON CUSTODY ACTIVITY

14.7. SHARE BASED PAYMENTS

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

1. Income Statement

2. Statement of Total Comprehensive Income

3. Balance Sheet

LIABILITIES AND EQUITY

4. Statement of Changes in Equity

5. Cash Flow Statement

A. Cash flows from operating activities

B. Cash flows from investing activities

C. Cash flows from financing activities

D. Net cash flows. Total (A + B + C)

6. General Information about Issuer

7. Accounting Policy

7.1. STATEMENT OF COMPLIANCE WITH THE INTERNATIONAL FINANCIAL REPORTING STANDARDS

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

STANDARDS INITIALLY APPLIED IN FINANCIAL STATEMENTS 2023

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

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

7.3. ADOPTED ACCOUNTING PRINCIPLES

Basis of Financial Statements Preparation

Functional currency and presentation currency

Transactions and balances