Selected financial data

 

[in PLN thousand]

[in EUR thousand]*

 

period

period

period

period

from 01.01.2023

from 01.01.2022

from 01.01.2023

from 01.01.2022

to 31.12.2023

to 31.12.2022

to 31.12.2023

to 31.12.2022

Net interest income

77,527.3

-27,062.1

17,062.6

-5,773.1

Net income on basic activities

76,274.7

-28,560.6

16,786.9

-6,092.8

General and administrative expenses, including:

-25,810.0

-25,626.4

-5,680.4

-5,466.9

operating expenses

-23,122.5

-22,307.1

-5,088.9

-4,758.7

regulatory costs

-2,687.5

-3,319.3

-591.5

-708.1

Gross profit (loss)

51,558.1

-56,127.8

11,347.2

-11,973.7

Net profit (loss)

41,306.5

-46,004.8

9,090.9

-9,814.1

Profit/loss per ordinary share (PLN)

108.70

-121.07

23.92

-25.83

 

 

 

 

 

 * Figures expressed in EUR have been calculated using the weighted average NBP exchange rate of 2023 for the reporting period and the weighted average NBP exchange rate of 2022 for the comparative figures.

 

 

[in PLN thousand]

[in EUR thousand]*

 

as at

as at

as at

as at

31.12.2023

31.12.2022

31.12.2023

31.12.2022

Amounts due from banks

26,143.2

13,348.0

6,012.7

2,846.1

Debt securities

86,293.0

84,623.0

19,846.6

18,043.7

Loans to customers

3,660,051.8

2,901,111.1

841,778.2

618,587.0

Total assets

3,777,242.4

3,020,271.5

868,731.0

643,994.9

Liabilities to other banks

2,920,927.6

2,043,049.2

671,786.5

435,627.5

Liabilities under issue of bonds

0.0

135,927.4

0.0

28,983.0

Liabilities under issue of covered bonds

405,303.0

406,711.6

93,216.0

86,720.7

Total liabilities

3,336,620.0

2,595,259.1

767,391.9

553,371.9

Share capital

380,000.0

380,000.0

87,396.5

81,025.2

Total equity

440,622.4

425,012.4

101,339.1

90,622.9

 

 

 

 

 

*) Figures expressed in EUR have been calculated using the average NBP exchange rate of 31 December 2023 for the reporting date and of 31 December 2022 for the comparative figures.

 

The basic ratios

 

 

 

 

 

as at

as at

31.12.2023

31.12.2022

ROA - return on assets (%)

1.20%

-1.32%

ROE - return on equity (%)

9.62%

-10.06%

DR - total debt ratio (%)

88.33%

85.93%

TCR - total capital ratio (%)*

23.31%

35.53%

LR - leverage ratio (%)*

10.57%

14.13%

LCR - liquidity coverage ratio (%)

1348.48%

142%

 

 

 

ROA - return on assets ratio (%) - calculated as the ratio of net profit from 4 consecutive quarters to average assets from 5 consecutive quarters

ROE - return on equity ratio (%) - calculated as the ratio of net profit from 4 consecutive quarters to average shareholders' equity from 5 consecutive quarters

DR - debt ratio (%) - calculated as the ratio of total debt to total assets

TCR - total capital ratio (%) - calculated as required by the provisions of the CRR (for details go to section Risk and Capital Management)

LR - leverage ratio (%) - calculated as required by the provisions of the CRR (for details go to section Risk and Capital Management)

LCR - liquidity coverage ratio (%) - calculated as required by the provisions of the CRR (for details go to section Risk and Capital Management)

*) In accordance with supervisory recommendations, the ratios as at 31 December 2022 are recalculated after the profit distribution is approved by the General Meeting of ING Bank Hipoteczny S.A., and then they are reported to the Supervisor. The above presented ratios as at 31 December 2022 take into account the recalculation. Prior to the approval of the 2022 profit distribution, the ratios in question published in the financial statements for the period from 1 January 2022 to 31 December 2022 stood at: TCR 36.06%; LR 14.13%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



Table of contents

 

Income statement

Statement of comprehensive income

Statement of financial position

Statement of changes in equity

Cash flow statement

Accounting policy and additional notes

1. Bank details

2. Significant events after the end of the reporting period

3. Statement of compliance with International Financial Reporting Standards

4. Significant accounting principles and key estimates

5. Comparability of financial data

6. Notes to the financial statements

 NOTES TO INCOME STATEMENT

6.1. Net interest income

6.2. Net commission income

6.3. Net income on other basic activities

6.4. General and administrative expenses

6.5. Expected loss provision

6.6. Income tax

6.7. Earnings and book value per share

NOTES TO STATEMENT OF FINANCIAL POSITION

6.8. Amounts due from banks

6.9. Debt securities

6.10. Loans and other receivables to customers

6.11. Property, plant and equipment

6.12. Intangible assets

6.13. Other assets

6.14. Liabilities to banks

6.15. Liabilities under issue of bonds

6.16. Liabilities under issue of covered bonds

6.17. Provisions

6.18. Other liabilities

6.19. Lease liabilities

6.20. Share capital

6.21. Accumulated other comprehensive income

6.22. Retained earnings

OTHER NOTES

6.23. Additional information to the cash flow statement

6.24. Fair value

6.25. Off-balance sheet items

6.26. Related party transactions

6.27. Transactions with the management staff and employees

6.28. Headcount

6.29. Segment reporting

6.30. Qualitative information

6.31. Quantitative information

6.32. Capital adequacy disclosures

 

 

Income statement

 

 

 

 

 

Note

period

period

from 01.01.2023

from 01.01.2022

to 31.12.2023

to 31.12.2022

Interest income, including:

6.1.

285,109.6

121,385.9

calculated using the effective interest method

6.1.

285,109.6

121,385.9

Interest costs

6.1.

-207,582.3

-148,448.0

Net interest income

6.1.

77,527.3

-27,062.1

Fee and commission income

6.2.

1.9

184.9

Commission expenses

6.2.

-719.9

-687.0

Net commission income

6.2.

-718.0

-502.1

FX result

 

-2.3

-51.7

Net income on other basic activities

 

-532.3

-944.7

Net income on basic activities

 

76,274.7

-28,560.6

General and administrative expenses, including:

6.4.

-25,810.0

-25,626.5

operating expenses

6.4.

-23,122.5

-22,307.1

regulatory costs

6.4.

-2,687.5

-3,319.3

Expected credit loss provision

6.5.

1,093.4

-1,940.7

Gross profit (loss)

 

51,558.1

-56,127.8

Income tax

6.6.

-10,251.6

10,123.0

Net profit (loss)

 

41,306.5

-46,004.8

 

 

 

 

Number of shares

 

380,000

380,000

Profit(+)/loss(-) per ordinary share - basic (in PLN)

6.7.

108.70

-121.07

Profit(+)/loss(-) per ordinary share - diluted (in PLN)

6.7.

108.70

-121.07

 

 

 

 

 In 2023, as in 2022, there were no discontinued operations at ING Bank Hipoteczny S.A.

The Income Statement should be read in conjunction with the notes to the financial statements being the integral part thereof.

 

Statement of comprehensive income

 

 

 

 

period

period

from 01.01.2023

from 01.01.2022

to 31.12.2023

to 31.12.2022

Profit (loss) after tax for the period

41,306.5

-46,004.8

Other net comprehensive income, of which:

1,241.7

-614.0

Items which can be reclassified to income statement, of which:

1,237.4

-830.3

Unrealised result on securities at fair value through other comprehensive income

1,237.4

-830.3

including deferred tax

-290.2

194.8

Items which will not be reclassified to income statement, of which:

4.3

216.2

Actuarial gains/losses

4.3

216.2

including deferred tax

-1.0

-50.7

Net comprehensive income for the period

42,548.2

-46,618.8

 

 

 

The statement of comprehensive income should be read in conjunction with the notes to the financial statements being the integral part thereof.

 

 

Statement of financial position  

 

 

 

 

 

Note

as at

as at

31.12.2023

31.12.2022

Amounts due from banks

6.8

26,143.2

13,348.0

Debt securities measured at fair value through other comprehensive income

6.9

86,293.0

84,623.0

Loans to customers

6.10

3,660,051.8

2,901,111.1

Property, plant and equipment

6.11

1,413.5

1,306.0

Current income tax assets

 

416.8

6,112.7

Deferred tax assets

 6.6

839.7

11,382.6

Other assets

6.13

2,084.4

2,388.1

Total assets

 

3,777,242.4

3,020,271.5

 

 

 

 

 

 

 

 

Liabilities to banks

6.14

2,920,927.6

2,043,049.2

Liabilities under issue of bonds

6.15

0.0

135,927.4

Liabilities under issue of covered bonds

6.16

405,303.0

406,711.6

Provisions

6.17

641.0

561.7

Other liabilities

6.18

9,748.4

9,009.2

Total liabilities

 

3,336,620.0

2,595,259.1

Share capital

6.20

380,000.0

380,000.0

Supplementary capital - share premium

 

15,997.4

62,002.2

Accumulated other income

6.21

73.5

-1,168.2

Retained earnings

6.22

44,551.5

-15,821.6

Total equity

 

440,622.4

425,012.4

Total equity and liabilities

 

3,777,242.4

3,020,271.5

 

 

 

 

Carrying amount

 

440,622.4

425,012.4

Number of shares

 

380,000

380,000

Carrying amount per share (in PLN)

 

1,159.53

1,118.45

 

 

 

 

  The Statement of Financial Position should be read in conjunction with the notes to the financial statements being the integral part thereof.

 

Statement of changes in equity

period from 01.01.2023 to 31.12.2023

 

 

 

 

 

  

 

 

 

 

 

 

Share capital

Supplementary capital - share premium

Accumulated other comprehensive income

Retained earnings

Total equity

Opening balance of equity

380,000.0

62,002.2

-1,168.2

-15,821.6

425,012.4

Coverage of losses from previous years

0.0

-46,004.8

0.0

46,004.8

0.0

Net result for the current period

0.0

0.0

0.0

41,306.5

41,306.5

Dividend payout

0.0

0.0

0.0

-26,938.2

-26,938.2

Other net comprehensive income

0.0

0.0

1,241.7

0.0

1,241.7

Unrealised result on measurement of securities measured at fair value through other comprehensive income

0.0

0.0

1,237.4

0.0

1,237.4

Actuarial gains/losses

0.0

0.0

4.3

0.0

4.3

Closing balance of equity

380,000.0

15,997.4

73.5

44,551.5

440,622.4

  

 

 

 

 

 

 

 

 

 

 

 

period from 01.01.2022 to 31.12.2022

 

 

 

 

 

  

 

 

 

 

 

 

Share capital

Supplementary capital - share premium

Accumulated other comprehensive income

Retained earnings

Total equity

Opening balance of equity

380,000.0

62,002.2

-554.1

40,538.8

481,986.9

Net result for the current period

0.0

0.0

0.0

-46,004.8

-46,004.8

Dividend payout

0.0

0.0

0.0

-10,355.6

-10,355.6

Other net comprehensive income, of which:

0.0

0.0

-614.0

0.0

-614.0

Unrealised result on measurement of securities measured at fair value through other comprehensive income

0.0

0.0

-830.3

0.0

-830.3

Actuarial gains/losses

0.0

0.0

216.2

0.0

216.2

Closing balance of equity

380,000.0

62,002.2

-1,168.2

-15,821.6

425,012.4

  

 

 

 

 

 

 The Statement of Changes in Equity should be read in conjunction with the notes to the financial statements being the integral part thereof.

 

Cash flow statement

 

 

 

 

 

Note

period

period

from 01.01.2023

from 01.01.2022

to 31.12.2023

to 31.12.2022

Profit after tax

 

41,306.5

-46,004.8

Adjustments

 

-540,332.7

1,211,276.8

Depreciation and amortisation

6.4, 6.11, 6.12

400.7

347.1

Interest accrued (from the income statement)

6.1

-77,527.3

27,062.1

Interest paid

 

-381.6

-362.0

Interest received

 

278,035.9

117,267.3

Income tax (from the income statement)

6.6

-10,251.6

10,123.0

Income tax paid

 

26,490.4

-26,947.4

Change in provisions

6.23

83.6

-45.6

Change in loans and other receivables from banks

6.23

0.0

4.0

Change in debt securities measured at fair value through other comprehensive income

6.23

-6,739.3

-35,906.9

Change in loans to customers

6.23

-751,672.1

984,199.9

Change in fixed assets due to recognition of lease

 

-183.6

56.6

Change in other assets

6.23

-20.7

-477.1

Change in liabilities to other banks

6.23

-2.4

0.8

Change in liabilities under issue of bonds

6.23

0.0

134,000.0

Change in liabilities under issue of covered bonds

6.23

328.7

321.6

Change in other liabilities

6.23

1,106.6

1,633.4

Net cash flow from operating activities

 

-499,026.2

1,165,272.0

  

  

  

  

Purchase of securities measured at amortized cost

6.9

0.0

14,995.6

Interest received on debt securities

 

6,111.8

1,897.6

Net cash flow from investing activities

 

6,111.8

16,893.1

  

  

  

  

Dividend payout

 

-26,938.2

-10,355.6

Long-term loans received

 

3,304,525.4

2,361,000.0

Long-term loans repaid

 

-2,429,000.0

-2,778,000.0

Interest on long-term loans repaid

 

-168,889.2

-115,663.8

Proceeds from the issue of bonds

 

376,000.0

79,000.0

Redemption of bonds

 

-510,000.0

-733,000.0

Payment of interest on issued bonds

 

-8,618.0

-5,132.3

Payment of interest on issued covered bonds

 

-31,002.9

-13,143.9

Lease liabilities repaid

 

-367.5

-349.8

Net cash flow from financing activities

 

505,709.6

-1,215,645.5

  

  

  

  

Net increase/decrease in cash and cash equivalents

 

12,795.2

-33,480.4

Opening balance of cash and cash equivalents

 

13,348.0

46,828.4

Closing balance of cash and cash equivalents

6.8,  6.23

26,143.2

13,348.0

  

  

  

  

The Cash Flow Statement should be read in conjunction with the notes to the financial statements being the integral part thereof.

 

Accounting policy and additional notes

 

1.                Bank details

 

1.1.              Key Bank data

ING Bank Hipoteczny Spółka Akcyjna (“Bank”, “Company”) with its registered office in Poland, in Katowice, ul. Chorzowska 50, postal code 40-101, entered to the Register of Entrepreneurs of the National Court Register maintained by the District Court Katowice – Wschód in Katowice, 8th Commercial Division of the National Court Register under the number KRS 0000723965 on 20 March 2018. The Bank statistical number is REGON 369582281, and the tax identification number is NIP 205-000-51-99.

 

1.2.              Scope of operations and duration

ING Bank Hipoteczny S.A. is a specialised bank conducting its business on the basis of the Act of 29 August 1997 on covered bonds and mortgage banks, the Banking Law Act of 29 August 1997, the Commercial Companies Code and other generally applicable laws, the good banking practice principles and the Bank Charter.

ING Bank Hipoteczny S.A.'s strategic objective is to acquire and subsequently increase the share of long-term funding in the Bank's balance sheet through the issuance of long-term mortgage-backed covered bonds purchased from ING Bank Śląski S.A. or other banks and to become one of the major issuers of these debt instruments in the Polish market. The duration of the Bank is indefinite. The Bank pursues business exclusively within the territory of the Republic of Poland.

 

1.3.              Share capital

The share capital of ING Bank Hipoteczny S.A. amounts to PLN 380,000,000 and is divided into 380,000 ordinary registered shares of nominal value of PLN 1,000.00 each.

Structure of the share capital

 

Series

Type of share

Number of shares

Nominal value of one share (PLN)

Series nominal value (PLN)

Date on which a resolution was passed by the General Meeting

Issue date

Date of registration

in the National Court Register (KRS)

A

ordinary

120,000

1,000.00

120,000,000

not applicable*

26.02.2018

20.03.2018

B

ordinary

90,000

1,000.00

90,000,000

03.01.2019

03.01.2019

06.02.2019

C

ordinary

170,000

1,000.00

170,000,000

11.12.2019

11.12.2019

09.01.2020

* Issue of shares of series A stems from the Deed of Incorporation of 26 February 2018.

 

The share capital has been fully covered with pecuniary contributions. Each ordinary share entitles its holder to dividend and one vote during the General Meeting of ING Bank Hipoteczny S.A.

 

1.4.              Shareholders of ING Bank Hipoteczny S.A.

ING Bank Hipoteczny S.A. is a subsidiary of ING Bank Śląski S.A., which, as at 31 December 2023, held 100% of the share capital of ING Bank Hipoteczny S.A. and 100% of the total number of votes at the General Meeting of ING Bank Hipoteczny S.A. The Bank is part of a Group that, for the purposes of these financial statements, is referred to as the ING Bank Śląski S.A. Group.

 

Ordinary General Meeting of ING Bank Hipoteczny S.A.

On 27 April 2023, the General Meeting of the Bank took place. The resolutions that were passed there concerned:

o      consideration and approval of the financial statements of ING Bank Hipoteczny S.A. for 2022,

o      consideration and approval of the Management Board Report on Operations of ING Bank Hipoteczny S.A. for 2022  inclusive of Statements of the Management Board on observance of corporate governance principles,

o      acceptance of the report of the Supervisory Board of ING Bank Hipoteczny S.A. for 2022 and assessment of the functioning of the Remuneration Policy of ING Bank Hipoteczny S.A. in 2022,

o      assessment of the adequacy of the internal regulations concerning the functioning of the Supervisory Board of ING Bank Hipoteczny S.A. and its effectiveness,

o      acknowledgement of the fulfilment of duties by the members of the Supervisory Board of ING Bank Hipoteczny S.A. in 2022,

o      acknowledgement of the fulfilment of duties by the members of the Management Board of ING Bank Hipoteczny S.A. in 2022,

o      the method of covering the loss for 2022,

o      the method of distribution of retained earnings for 2020 and 2021, subject to the approval of the Polish Financial Supervision Authority,

o      the payment of dividend from retained earnings for 2020 and 2021 subject to the approval of the Polish Financial Supervision Authority,

o      amendment to the Charter of ING Bank Hipoteczny S.A., including a reduction of the term of office of the Management Board and the Supervisory Board starting from the new term of office of these bodies and specifying the rules for the exercise of the term of office,

o      amendment to the Charter of ING Bank Hipoteczny S.A., including the adaptation of its provisions to the amended Commercial Companies and Partnerships Code and the Act on Covered Bonds and Mortgage Banks,

o      acceptance of the information regarding the adopted amendment to the Bylaw of the Supervisory Board of ING Bank Hipoteczny S.A.

 

1.5.              ING Bank Hipoteczny S.A. Management Board and Supervisory Board composition

Management Board

The following changes in the composition of the Management Board of ING Bank Hipoteczny S.A. took place in 2023:

o      On 8 February 2023, for personal reasons, Mr Paweł Serocki resigned from being a member of the Management Board of ING Bank Hipoteczny S.A. and from his function effective as of 9 February 2023.

o      On 9 February 2023, the Supervisory Board of ING Bank Hipoteczny S.A. appointed Mr Roman Telepko as Vice President of the Management Board of ING Bank Hipoteczny S.A.

o      On 31 August 2023, Mr Roman Telepko resigned from being a Member of the Management Board of ING Bank Hipoteczny S.A. and from his function effective as of 31 August 2023.

o      On 31 August 2023, the Supervisory Board of ING Bank Hipoteczny S.A. appointed Ms Katarzyna Majchrzak to the position of Vice-President of the Management Board of ING Bank Hipoteczny S.A. effective as of 1 September 2023 after prior approval of the Polish of the Polish Financial Supervision Authority.

 

As at 31 December 2023, the composition of the Management Board of ING Bank Hipoteczny S.A. was as follows:

o      Mr Jacek Frejlich, President of the Management Board,

o      Mr Marek Byczek, Vice-President of the Bank Management Board,

o      Ms Katarzyna Majchrzak, Vice-President of the Bank Management Board.

 

Supervisory Board

As at the end of 2023, similarly as at the end of 2022, the Supervisory Board of ING Bank Hipoteczny S.A. worked in the following composition:

o      Ms Bożena Graczyk, Chairwoman,

o      Mr Marcin Giżycki, Deputy Chairman,

o      Mr Jacek Michalski, Member (independent member),

o      Mr Brunon Bartkiewicz, Member,

o      Ms Joanna Erdman, Member,

o      Mr Krzysztof Gmur, Member (independent member).

 

1.6.              Auditing firm authorised to audit the financial statements

The auditing firm authorised to conduct the audit is Mazars Audyt Sp. z o. o. with its registered office in Warsaw.

 

Detailed information regarding the termination of the agreement with the auditing firm BDO Spółka z ograniczoną odpowiedzialnością sp. k. and the selection and signing of the agreement with the auditing firm Mazars Audyt Spółka z ograniczoną odpowiedzialnością based in Warsaw (including the process of selecting the auditing firm to audit the Bank's financial statements) can be found in the Management Board Report on Operations of the Bank.

 

1.7.              Approval of financial statements

These annual financial statements of ING Bank Hipoteczny S.A. for the period from 1 January 2023 to 31 December 2023 were accepted for publication by the Bank Management Board on 18 April 2024.

 

The annual financial statements of ING Bank Hipoteczny S.A. for the period from 1 January 2022 to 31 December 2022 were approved by the General Meeting of ING Bank Hipoteczny S.A. on 27 April 2023.

 

1.8.  Information on the impact of the economic situation on the operations of ING Bank Hipoteczny S.A.

The Bank continuously monitors the development of events related to the ongoing armed conflict in Ukraine and analyses its impact both on the macroeconomic environment and on the Bank itself. The direct impact of the above may translate into credit, market, liquidity and operational risks in the future. Poland and the global economy have partly adjusted to the situation, but continue to be heavily influenced by it (high price of food, raw materials and energy). Throughout 2023, the Bank monitored the number and volume of loans where borrowers requested a suspension of instalment payments (so-called 'credit holiday'), as well as monitored on a permanent basis the credit situation of customers due to high interest rates, the rising cost of living, and the impact of these factors on securing the issue of covered bonds. The Bank also analyses the market situation regarding covered bonds and changes in the regulatory and economic environment on an ongoing basis. Moreover, it is monitored all the time whether the suppliers are able to provide services.

 

The Bank’s standing is good in terms of its liquidity and capital position. In fact, it significantly exceeds the required regulatory levels. The Bank's LCR ratio as at 31 December 2023 was 1,348.5%. The Bank's Common Equity Tier 1 ratio was 23.31% as at 31 December 2023. The level of this ratio is currently almost 2 times higher than required by law.

 

 

2. Significant events after the end of the reporting period

 

Signing of a contract with auditing firm

On 15 January 2024, the Bank entered into an audit services agreement, including the audit of the statutory financial statements of ING Bank Hipoteczny S.A. for 2023, with Mazars Audyt Spółka z ograniczoną odpowiedzialnością based in Warsaw. Detailed information on the process of selecting the auditing firm to audit the Bank's financial statements can be found in the Management Board Report on Operations of the Bank.

 

Signing of the Final Loan Agreement with ING Bank Śląski S.A.

On 12 February 2024, the Bank signed a Final Loan Agreement with ING Bank Śląski allowing for a commitment of up to PLN 1.0 billion under an unconditional credit line. The availability date of the line is until 14 December 2026 and the maximum utilisation period is 2 years.

On 3 April 2024, the Bank got PFSA’s approval to include undrawn funds under the loan agreement as liquidity inflows in the LCR measurement.

 

Individual recommendation of the Polish Financial Supervision Authority on meeting the criteria for dividend payout from net profit for 2023

On 22 February 2024, the Bank received a letter from the Polish Financial Supervision Authority (PFSA), in which the PFSA indicated that the Bank meets the requirements to pay dividends at a level of up to 75% of the net profit for 2023, with the maximum payment amount not exceeding the amount of the annual profit less the profit earned in 2023 already included into own funds. The Bank did not include profits during 2023 to own funds, and thus the maximum dividend amount paid from 2023 profit for the Bank is 75%. At the same time, the PFSA recommended mitigating the inherent risk of the Bank by not taking, without prior consultation with the supervisory authority, other actions, in particular those outside the scope of current business and operational activities, which could lead to lowering the Bank’s own funds, including possible dividend payout from undivided profit from previous years and repurchase or buy-back of own shares.

It is the intention of the Bank Management Board to recommend to the General Meeting to adopt a resolution on allocating approximately 75% of the Bank's separate profit for 2023 to dividend payout

 

Purchase of mortgage debt claims portfolio

Under the Debt Transfer Agreement to Issue Covered Bonds No. 15 that was signed with ING Bank Śląski S.A. on 11 April 2024, ING Bank Hipoteczny S.A acquired another mortgage-backed housing loans debt claims portfolio for the total amount of PLN 365.2 million.

 

Likely extension of credit moratoria to 2024

On 12 March 2024, the Government Bill amending the Act on support for borrowers who have taken out a housing loan and are in a difficult financial situation and the Act on crowdfunding for business ventures and assistance to borrowers was submitted to the Sejm. The legislative proposal provides for the possibility of suspending 4 loan instalments in 2024 and would cover borrowers for whom the instalment-to-income ratio exceeds 30%.

The Sejm passed a resolution to this effect on 12 April 2024. The bill will be debated by the Senate on 18 or 19 April 2024, i.e. after the date of signing and before the publication date of this report. The Bank plans to make a disclosure of the impact of the law on the Bank's results in the form of a current report when the law is signed by the President.

 

3. Statement of compliance with International Financial Reporting Standards

 

These annual financial statements of ING Bank Hipoteczny S.A. for the period from 1 January 2023 to 31 December 2023 were prepared in compliance with the International Financial Reporting Standards (“IFRS”) approved by the European Union. The financial statements incorporate the requirements of the standards and interpretations endorsed by the European Union.

Income statement, Statement of comprehensive income, Statement of changes in equity and Cash flow statement for the period from 1 January 2023 to 31 December 2023 and Statements of financial position as at 31 December 2023 together with comparable data have been prepared using the same accounting principles for each of the periods.

 

3.1.              Changes to accounting standards

In these annual financial statements the following binding standards and new interpretations approved by the European Union for annual periods starting on or after 1 January 2023 were taken into account by the Bank:

 

 

Change

 

Influence on the Bank’s statements

IFRS 17

Insurance contracts, taking into account the extension of the temporary exemption from the application of IFRS 9.

The implementation of the amendments to the standard has no material impact on the Bank’s financial statements.

IAS 1 and practical stand to IFRS

Accounting Policy disclosures

 

Amendment regarding the scope of disclosure of significant accounting principles in the financial statements. In accordance with the implemented amendments, the disclosures will apply only to these accounting policies that have a material effect on the information in the financial statements.

The practical position attached to the amendment provides a detailed illustrative example. The implementation of the amendment has not had a significant impact on the scope of disclosure of significant accounting principles in the Bank's financial statements.

IAS 8:

definition of accounting estimates

The amendment clarifies the definition of accounting estimates, i.e.: monetary amounts in the financial statements that are subject to measurement uncertainty. The implementation of the amendment has not had a significant impact on the Bank's financial statements.

IAS 12

Deferred tax related to assets and liabilities arising from a single transaction

The amendment clarifies the rules for recognizing income tax and the applicable exemption from deferred tax recognition. The amendment specifies that this exemption does not apply to leases and decommissioning obligations, i.e. transactions for which an asset and a liability are recognised at the same time. Application of the amendment has not affected the financial statements of the Bank.

IFRS 17

Insurance contracts: First-time adoption of IFRS 17 and IFRS 9 - comparative information.

Implementation of the changes has not affected the financial statements of the Bank.

IAS 12

Income taxes: International tax reform - model provisions for pillar two

The amendment introduces the possibility of applying a temporary exemption from the general rules for the recognition of deferred tax arising from the implementation of international tax rules in specific jurisdictions. The Bank’s analyses show that the implementation of these changes may affect the scope of disclosures, but nevertheless will not have a material impact on the Bank's financial statements.

The published standards and interpretations which were issued by 31 December 2023 and approved by the European Union but were not previously applied by the Bank:

 

Change

(EU effective date is given in the parentheses)

Influence on the Bank’s statements

IAS 1

Presentation of financial statements:

• classification of financial liabilities as short-term or long-term

• deferral of the date of application and

• long-term liabilities with covenants

(financial year beginning on 1 January 2024)

 

 

Classification of financial liabilities as long-term will depend on the existence of rights to prolong the liability for a period longer than 12 months and on meeting the conditions (covenants) for such prolongation as at the balance sheet date. Disclosure of these covenants in the notes to the financial statements will also be required.

In the Bank’s opinion, the implementation of the amendment will have no impact on the Bank's financial statements.

 

IFRS 16

Leases: lease liability in sale and leaseback transactions.

(financial year beginning on 1 January 2024)

 

The Bank’s analyses indicate that the implementation of the changes will not affect the Bank’s financial statements.

 

The published standards and interpretations which were issued by 31 December 2023, but were not approved by the European Union as at 31 December 2023 and were not previously applied by the Bank:

 

Change

(expected IASB implementation date is provided for in the parentheses)

Influence on the Bank’s statements

IAS 7

Statement of Cash Flows and IFRS 7 Financial Instruments: disclosures - supplier financing arrangements

(financial year beginning on 1 January 2024)

The Bank’s analyses show that the implementation of these changes will affect the scope of disclosures, but nevertheless will not have a material impact on the Bank's financial statements.

IAS 21

The Effects of Changes in Foreign Exchange Rates: lack of exchangeability

(financial year beginning on 1 January 2025)

 

The Bank’s analyses show that the implementation of these changes will have no significant impact on the financial statements of the Bank.

 

As at the date of approving these statements for publication, given the ongoing process of implementing the IFRS standards in the European Union as well as the Bank’s operations, with regard to the accounting principles applied by the Bank – there is no difference between the IFRS standards which came into force and the IFRS standards approved by the European Union.

 

3.2.              Going concern

The financial statements of ING Bank Hipoteczny S.A. for the period from 1 January 2023 to 31 December 2023 have been prepared on the assumption that the Bank will continue as a going concern in the foreseeable future, i.e. for a period of at least 12 months from the date of publication, i.e. from 19 April 2024. As at the date of signing the financial statements, the Bank Management Board, identify no facts or circumstances that could pose a threat to the Bank’s operation as a going concern for 12 months from the publication date due to intended or forced discontinuation or significant limitation by the Bank of its current operations.

 

3.3.              Financial statements scope and currency

The Bank is neither the parent entity nor the major investor for associates, jointly controlled entities or subsidiaries. Thus, ING Bank Hipoteczny S.A. does not prepare consolidated financial statements of the Group covering the financial data of such entities.

The parent entity of ING Bank Hipoteczny S.A. is ING Bank Śląski S.A. The latter prepares consolidated financial statements of the ING Bank Śląski S.A. Group. ING Bank Śląski S.A. is a subsidiary of ING Bank N.V. being a part of the capital group that is called herein as the ING Group. ING Groep N.V. with its registered office in the Netherlands is the ultimate parent of the Group.

These annual financial statements of the Bank have been developed in Polish Zloty (“PLN”). Unless otherwise specified, all values are given after rounding to the nearest thousand PLN with one decimal place. Therefore, some totals and individual notes can be inconsistent in mathematical terms.

 

3.4.              Reporting period and comparable data

The annual financial statements of the Bank cover the period from 1 January 2023 to 31 December 2023 and include comparative data:

o      for items from the statement of financial position as at 31 December 2022,

o      for the items in the income statement, statement of comprehensive income, statement of cash flows, statement of changes in equity for the period from 1 January 2022 to 31 December 2022,

 

 

 

4.                Significant accounting principles and key estimates

 

The presented herein below accounting policy of the Bank follows the requirements of IFRS.

In 2023, no material changes were made to the accounting principles applied by the Bank.

 

Basis for preparing the financial statements

The financial statements are presented in Polish zloty, rounded to the nearest thousand, with one decimal place (unless stated otherwise).

In the statements, the concept of fair value of financial assets and financial liabilities measured at fair value and financial assets classified as measured at fair value through other comprehensive income is applied. Other items of financial assets are presented at amortized cost less impairment or at cost less impairment.

Property, plant and equipment and intangible assets are recognised at cost less cumulative amortisation and impairment.

 

4.1.              Professional judgement

In the process of applying the accounting principles to the issues indicated below, the professional judgement of the management was of utmost importance, apart from accounting estimates.

4.1.1.         Deferred tax asset

The Bank recognises deferred tax assets assuming that it will probably have sufficient taxable income to fully realise the deferred tax asset.

4.1.2.         Classification of financial assets

The Bank classifies financial assets based on assessment of a business model under which assets are held and based on assessment whether the contractual terms and conditions entail only payments of principal and interests thereon. Detailed information about the assumptions made in this respect are presented under 4.4.2. Classification of financial assets.

 

4.2.              Accounting estimates

The development 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 and notes thereto.

Estimates and assumptions applied to the presentation of amounts of assets and liabilities, as well as revenues and costs are made on the basis of available historical data and other factors considered to be relevant in given circumstances. The assumptions made about the future and the available data sources form the basis for making accounting estimates about the carrying amounts of assets and liabilities that cannot be clearly determined on the basis of other sources. The estimates reflect the reasons for/ sources of uncertainties as at the balance sheet date. The actual results may differ from estimates.

Estimates and assumptions are subject to ongoing review. 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 in which the change is made and future periods if the change affects both current and future periods.

 

Below, there are the most significant accounting estimates made by the Bank.

 

4.2.1.    Estimation of expected credit losses on financial assets and impairment of non-current assets

The Bank assesses whether there is objective evidence of impairment of financial assets (individual items or groups) and non-current assets as at balance sheet date.

4.2.1.1.  Estimation of expected credit losses on financial assets

The Bank applies the requirements of IFRS 9 as regards impairment in order to recognise and measure loss allowance for expected credit losses attributable to debt financial assets that are measured:

o      at amortised cost or

o      at fair value through other comprehensive income.

Expected loss in the portfolio of individually non-significant exposures is calculated collectively as a probability weighted average based on three macroeconomic scenarios of various probability of occurrence. The final level of provisions results from the sum of expected losses calculated each year into the future up to the maturity date for Stages 2 and 3 and over a 12-month horizon for Stage 1, taking into account discounting.

Due to the specifics of its operations, the Bank distinguishes only collective provisions.

In compliance with IFRS 9, a collective provision is made for individually not significant financial assets (provisions for the portfolio at Stage 3 subject to collective evaluation) if there is evidence of impairment for a single financial assets item or for a group of financial assets as a result of a single event or multiple events of default. Provisions for the portfolio at Stage 3 subject to collective evaluation are made for financial assets falling into the risk rating 20, 21, 22 (detailed mapping of risk classes is presented hereinbelow). If after the assessment we find that for a given financial assets item there is no evidence of impairment, the item is included in the group of financial assets with similar credit risk characteristics, which indicate that the debtor is capable to repay the entire debt under to the contractual terms and conditions. For such groups, collective provisions are calculated and, in accordance with IFRS 9, they are defined as provisions for non-impaired assets. Provisions for non-impaired assets are made for financial assets falling into the risk rating 1-19.

Collective provisions are calculated with the collective provisioning method that uses, adjusted to the requirements of IFRS 9, models of risk parameters assessment (PD, LGD, EAD).

Some examples of impairment evidence and triggers for financial assets, methodology of impairment computation and the recording rules applied thereto were described later herein.

 

Customer exposure by risk class

The Bank divides the risk classes into four basic groups. The different risk class ranges correspond to Moody's short-term ratings, as indicated in the table below.

  

 

  

 

No.                      

a group of risk classes

risk classes

 

Moody’s ST rating

1.

a group of classes corresponding to investment grade

1-10

from Aaa to Baa3

2.

a group of classes corresponding to speculative ratings

11-17

from Ba1 to Caa3

3.

a group of classes of potentially non-performing exposures

18-19

from Ca to C

4.        

a group of classes of non-regular exposures

20-22

-

  

 

  

 

For ratings 20-22, the probability of default is 100%.

 

Expected credit loss provisioning

The increases in interest rates and inflation observed in previous periods, and the fact that the PD models for the mortgage portfolio do not include these components, resulted in the need for the Bank to carry out additional analyses of the potential underestimation of write-downs on this account. Strong increases in interest rates and expenses are reflected in significant increases in customers' financial and living expenses and, as a consequence thereof, some customers may no longer be able to service their loans on a regular basis. The analyses carried out showed the need for an additional adjustment of allowances, the so-called Post Model Adjustment (“PMA”), reflecting the impact of interest rate increases and inflation on the risk level of the Bank's lending portfolio, referred to as the "DSTI adjustment". The DSTI adjustment was implemented starting from the end of the second quarter of 2022 and is still maintained (+PLN 753,690 at the end of 2023). In addition, the implementation of the government programme allowing customers to suspend paying instalments between 2022 and 2023 caused difficulties in correct assessment of customers' credit risk. Due to the widespread and discretionary use of this instrument, it is not considered as a forbearance, however, due to the specifics of the IFRS PD models, the risk parameters may be underestimated in relation to the customer's actual situation. Therefore, starting from the end of 4Q2022, the Bank introduced an additional PMA adjustment, which was also applied throughout 2023 (+PLN 783,050 at the end of 2023). The cumulative effect of the adjustments indicated herein above resulted in an increase in write-downs as at 31 December 2023 of approximately PLN 1.5 million. On the other hand, an update to the expected loss model was implemented in November 2023. It consisted of recalibrating the parameters of the IFRS PD and IFRS LGD models. This implementation translated into a decrease in the level of write-downs by approximately PLN 1.36 million.

In other respects, the Bank continues with the methodology for calculating expected losses.

 

 

Estimation of expected losses given the current macroeconomic environment

Credit risk models for IFRS 9 were built based on historical relationships between changes in economic parameters (i.e. GDP, unemployment rate, house price index or interest rates) and their subsequent effect on the realisation of changes in credit risk level (PD/LGD). Every quarter the Bank verifies forecasts of macroeconomic factors used in IFRS models adjusting them to the current situation. In 2023, the Bank has continued this approach, including probability-weighted macroeconomic scenarios, supplemented by management adjustments where, in the opinion of the management, recent economic events have not been fully captured. In previous economic cycles, changes to macroeconomic forecasts have been relatively slow to materialise, moving smoothly from one phase of the cycle to another, without drastic or shock events changing the macroeconomic situation. The current economic situation triggered by, among other things, the war in Ukraine has very different characteristics - sudden changes in interest rates, inflation, disruption of supply chains.

Sensitivity analysis of expected losses to the level of the adopted PD threshold

In order to show the sensitivity of expected losses to the level of the PD threshold adopted, the Bank has estimated the allowance for expected losses in Stages 1 and 2 with the following assumptions:

o      all of these financial assets would be below the PD threshold and have an associated 12-month expected loss; and

o      all these assets would exceed this PD threshold and have lifetime expected losses attributed to them.

These estimates show as at 31 December 2023, respectively, hypothetical lower expected losses for assets in Stages 1 and 2 by approximately PLN 0.38 million (under the first assumption) or higher by approximately PLN 4.37 million (under the second assumption).

For comparison, estimates made as at 31 December 2022 showed, respectively, hypothetical lower expected losses for assets in Stages 1 and 2 by approximately PLN 0.65 million (under the first assumption) or higher by approximately PLN 6.40 million (under the second assumption).

In 2023, the Bank introduced one change in the classification of mortgages to Stage 2 (so-called SICR - significant increase in credit risk) by adding a threefold increase in the PD parameter since the exposure was granted as one of the criteria for classification into this stage.

A detailed description of the significant increase in credit risk is presented in section 4.4.9 Expected credit losses

Macroeconomic factor projections and weights assigned to each macroeconomic scenario

The macroeconomic assumptions used to determine expected credit losses were based on forecasts prepared by the Macroeconomic Research Bureau of ING Bank Śląski S.A., with forward curves adopted for interest rates as at the end of 2023. The following tables present the macroeconomic projections of the main indicators adopted as at 31 December 2023 and 31 December 2022 and the deviation of expected losses in the positive, baseline and negative scenarios from the reported expected losses, weighted by the scenario probability (assuming that the time horizon of the expected loss calculation remains unchanged at 12 months or over the lifetime of the exposures, respectively, broken down by stage according to IFRS 9 methodology).

The selective application of the negative scenario with a weighting of 100% results in an increase in the level of write-downs in all Stages (1/2/3). The average increase in write-downs over the entire portfolio, is approximately 6% compared to the averaged scenario used in the calculation of write-downs for 2023. The increase in write-downs in this scenario is mainly driven by lower GDP values, decreasing house prices and moderately higher unemployment rate (compared to the baseline scenario).

Similarly, the selective application of the positive scenario with a weighting of 100% results in a decrease in the level of write-downs in all Stages (1/2/3). The average decrease in write-downs across the portfolio, is approximately -6% (compared to the averaged scenario used in the calculation of write-downs for 2023). The decrease in write-downs in this scenario is mainly driven by higher GDP values and increased real property prices (compared to the baseline scenario).

If a 100% weighting is applied to the baseline scenario, the value of the write-downs remains virtually unchanged.

 

 

2023

 

 

 

2024

2025

2026

Expected losses unweighted by probability - deviation from reported losses in %

Scenario weight

Reported expected losses

(collective assessment in Stages 1, 2 and 3)

 

 

 

 

 

Total            by Stages

 

Total

by Stages

Positive scenario

GDP

5.4%

4.6%

4.6%

-6%

Stage 1   -10%

Stage 2   -11%

Stage 3    - 4%

20%

2,905.6

 

Unemployment according to LFS

2.2%

2.2%

2.0%

Property price index

5.6%

5.4%

7.8%

3M interest rate

7.0%

7.9%

8.1%

Baseline scenario

GDP

2.5%

3.5%

3.0%

0%

Stage 1     0%

Stage 2   -1%

Stage 3     +1%

60%

Stage 1      311.2

Stage 2      516.2

Stage 3   1,485.4

Unemployment according to LFS

3.0%

3.0%

3.0%

Property price index

3.7%

4.1%

6.0%

3M interest rate

4.4%

4.4%

4.6%

Negative scenario

GDP

-0.2%

1.5%

0.0%

+6%

Stage 1   +9%

Stage 2   +15%

Stage 3   +2%

20%

 

Unemployment according to LFS

4.2%

6.0%

7.1%

Property price index

-0.2%

2.2%

3.9%

3M interest rate

2.8%

2.3%

2.2%

 

 

 

2022

 

 

 

2023

2024

2025

Expected losses unweighted by probability - deviation from reported losses in %

Scenario weight

Reported expected losses

(collective assessment in Stages 1, 2 and 3, without adjustments)

 

 

 

 

 

Total

by Stages

 

Total

by Stages

Positive scenario

GDP

4.2%

4.3%

5.2%

-12%

Stage 1   -18%

Stage 2   -15%

Stage 3     -9%

20%

3,333.8

 

Unemployment according to LFS

2.1%

2.2%

1.8%

Property price index

2.1%

3.9%

5.0%

3M interest rate

10.2%

10.2%

9.9%

Baseline scenario

GDP

1.5%

3.3%

3.5%

+1%

Stage 1     +2%

Stage 2     +1%

Stage 3     +1%

60%

 

 

Stage 1      571.2

Stage 2      917.1

Stage 3   1,865.6

Unemployment according to LFS

3.1%

2.9%

2.8%

Property price index

0.3%

2.5%

3.2%

3M interest rate

8.0%

7.3%

7.1%

Negative scenario

GDP

-2.8%

1.1%

1.5%

+9%

Stage 1  +11%

Stage 2  +13%

Stage 3   +6%

20%

 

Unemployment according to LFS

4.6%

5.9%

6.9%

Property price index

-5.1%

0.6%

1.2%

3M interest rate

6.7%

5.4%

4.6%

 

4.2.1.2.  Impairment of property, plant and equipment and intangible assets

At each balance sheet date, the Bank assesses property, plant and equipment and intangible assets for indications of impairment. If such evidence exists, the Bank performs an estimation of the recoverable value. If, and only if, the recoverable amount of an asset is less than its carrying amount, the carrying amount of the asset shall be reduced to its recoverable amount.

The accounting policies in this respect are indicated in Chapter 4. Significant accounting policies and key estimates, under section 4.5.4 Impairment losses on non-financial assets.

4.2.1.3 Deferred tax asset for unused tax loss

The Bank recognises a deferred tax asset for deductible temporary differences and unused tax losses to the extent that it is probable that taxable profit will be generated to offset the deductible temporary differences and settle the tax losses. Based on the Bank's projected tax results for the period 2024-2026, it has been estimated that the Bank will generate sufficient taxable income to reduce the tax base by the full amount of the tax loss.

Accordingly, the Bank recognised the full amount of the tax loss in the deferred tax asset. At the end of 2023, the deferred tax asset relating to unused tax losses amounted to PLN 3,043,500 (PLN 458,400 at the end of 2022).

4.2.2.  Provisions for retirement and pension benefits

The Bank establishes the provisions for retirement and pension benefit in accordance with IAS 19. The provision for retirement and pension benefit pay awarded as part of the benefits under the Labour Code regulations is calculated using the actuarial method by an independent actuary as the present value of the future long-term Bank’s obligations towards their employees considering the headcount and payroll status as at the update date.

The provisions are calculated based on a range of assumptions, relating to both discount rates and projected salary raises as well as to staff rotation, death risk and others. The assumptions are verified at the end of the financial year.

The tables below show model sensitivity to the values adopted for individual assumptions as at 31 December 2023 and 31 December 2022. The value of pension provisions recognised in the Bank's books as at 31 December 2023 and 31 December 2022, respectively, is presented as the base case.

Assumptions made for the needs of valuation:

o      discount rate - 7.00%,

o      long-term wage growth rate - 5.40%.

2023

 

 

 

 

 

Provisions for retirement and pension benefits (in PLN thousand)

Lower bracket

Base variant

Upper bracket

Discount Rate (- 1% / baseline variant / + 1%)

574.6

620.9

674.3

Deviation from assumed wage growth (-0.25% / baseline / +0.25%)

607.2

620.9

635.1

 

2022

 

 

 

 

 

Provisions for retirement and pension benefits (in PLN thousand)

Lower bracket

Base variant

Upper bracket

Discount Rate (-1% / baseline variant / + 1%)

493.3

541.7

598.6

Deviation from assumed wage growth (-0.25% / baseline / +0.25%)

527.5

541.7

556.5

 

4.2.3.  Valuation of variable remuneration programme benefits

As at the balance sheet date, the Bank presents in the books the estimated value of benefits to be rendered under the variable remuneration programme. Benefits will be granted to employees covered with the programme, based on their performance appraisal for a given year. The programme was launched in 2018.

Value of benefits granted in a form of financial instruments entitling to receive cash is estimated based on book value of net assets of ING Bank Hipoteczny S.A. per share adjusted with factors affecting the said assets, other than the financial result.

The value of the deferred benefit element is adjusted with the reduction factor which accounts for probability of occurrence of an event requiring adjustment of the value of the granted benefit which the employee is not fully eligible to as at the balance sheet date. The catalogue of events has been defined in the programme assumptions.

4.2.4.  Amortisation period and method for intangible assets

The amortisation period and method for intangible assets are verified at the end of each financial year. Changes to the useful life or expected pattern of consumption of the future economic benefits embodied in the intangible asset are recognised by changing the amortisation period or method, accordingly, and are deemed to be changes in the estimates. The Bank applies the capitalisation limit established by the ING Bank Śląski S.A. Group for purchase (PLN 440,000) or in-house production (PLN 10 million) of computer software. Expenditure for acquisition of items of intangible assets below the capitalisation limit are recognised by the Bank directly in expenses when incurred.

 

4.2.5.  Lease term for open-ended contracts

Lease period was determined taking into account contractual options to prolong or shorten lease period if it is probable that such an option would be used. In case of contracts concluded for an indefinite period with an option to terminate them by any of the parties thereto, the Bank assessed whether there would be any significant costs of contract termination. Contracts signed for an indefinite period by the Bank are mostly real estate lease contracts. If there are no significant costs, the lease period was determined as a notice period to which both parties to the contract are entitled. If the costs of contract termination are significant, the Bank assumed a 4-year period as the lease period. The assumed period results from the strategy of physical presence in a given location that ensures flexibility and business efficacy.

The estimates adopted do not have a material impact on the value of the right-of-use assets.

4.3.  Foreign currency

4.3.1.  Functional currency and presentation currency

The items given in the financial statement of the Bank are priced in the currency of the basic economic environment in which the Bank operates (“functional currency”).

These financial statements are presented in Polish Zloty, which is the functional currency and the presentation currency of the Bank.

4.3.2.  Transactions in foreign currency

Transactions expressed in foreign currencies are translated at FX rate prevailing at the transaction date. The financial assets and liabilities, being result of the said transactions and denominated in foreign currencies are translated at the FX rate prevailing on a given day. The foreign exchange differences resulting from the settlements of the said transactions and the balance sheet valuation of the financial assets and liabilities denominated in foreign currency are recognized in the income statement under the FX result.

 

4.4.   Financial assets and liabilities

4.4.1.  Initial recognition

The Bank recognises financial assets or liabilities item in the statement of financial position when it becomes bound with the stipulations of the instrument-related contract.

Purchases and sales of financial assets are recognised on the settlement date - the date on which the asset is delivered to or by the entity.When a financial asset or financial liability is recognized initially, it is measured at its fair value plus, in the case of a financial asset or financial liability not carried at fair value through profit or loss, transaction costs that are directly attributable to the acquisition or issue of the financial asset or financial liability.

The purchased mortgage loans related debt claims are recognised as at the transaction date [1]based on the Debt Transfer Agreement in order to issue covered bonds (hereinafter referred to as: “transfer agreements”).

4.4.2.  Classification of financial assets

Financial assets are classified by the Bank to one of the following categories:

o      measured at amortised cost,

o      measured at fair value through other comprehensive income.

 

Financial assets measured at amortised cost

A financial asset is measured at amortised cost if both of the following conditions are met and it is not designated to measurement at fair value through profit or loss:

o      the financial asset is held within a business model whose objective is to hold financial assets in order to collect contractual cash flows and

o      the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

 

Debt financial assets measured at fair value through other comprehensive income

A debt financial assets item is measured at fair value through other comprehensive income if both of the following conditions are met and it is not designated to measurement at fair value through profit or loss:

o      the financial asset is held within a business model whose objective is to hold financial assets in order to collect contractual cash flows or to sell the financial assets item,

o      the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

4.4.3. Business Model Assessment

The Bank assesses goals of the business model per organisational unit of the Bank that manages a given portfolio of financial assets and is its owner.

Business models of holding financial assets are designed for various reasons, namely:

o      to receive contractual cash flows,

o      to receive contractual cash flows or to sell,

o      for other reasons (including, but not limited to, in order to maximise profit on sales).

Business models are set at the level that reflects best the Bank’s approach to management of financial assets items in order to achieve business goals and to generate cash flows.

Portfolios are classified into business models based on the objectives of the business models at the portfolio level. Classification shall be based on all relevant and objective evidence that is available as at the date of the assessment to determine the business model of a specific financial asset, including in particular:

o      organisational structure of the unit,

o      assumptions concerning assessment of the yield from the portfolio of assets (for instance, approach to planning, management information assumptions, or key ratios of assessment),

o      approach to remuneration for the key management in relation to the portfolio results and cash flows,

o      risk of the assets portfolio and management approach to that risk,

o      analysis of transactions of sale from the assets portfolio (frequency, volume and reasons for the decisions taken),

o      analysis of projected future sales.

As a general rule, the execution of sales of financial assets from the model held to receive contractual cash flows is inconsistent with the objectives of the model. However, certain sales may be consistent with these objectives. Such cases include sales that are driven by the following considerations:

o      increase in credit risk,

o      closeness to maturity date,

o      occasional sale,

o      sale of insignificant value,

The Bank assumes that:

o      any sale close to the maturity date is the sale of financial assets:

- if the initial maturity date is longer than 1 year - less than 6 months before the maturity date,

- if the initial maturity date is shorter than 1 year - less than 3 months before the maturity date.

o      occasional sale means the sale at the level below 10% of the sales transactions in relation to the average number of items within a given business model, 

o      sale of insignificant value means sale at the level lower than a ratio determined based on the quotient of 10% rate and the average maturity term of the portfolio in relation to:

- quotient of the carrying amount of the sold position in relation to the carrying amount of the whole portfolio under a given business model, or

- quotient of the realised result in relation to net interest margin of the whole portfolio held under a given business model.

4.4.4.  Cash flows assessment

For the needs of cash flows assessment, the Bank assumes the following definitions:

o      principal – is defined as fair value of the financial assets item at initial recognition in the Bank’s books,

o      interest – is defined as payment that includes:

- fee for the change in time value of money,

- fee for the credit risk of the principal amount due and payable throughout a stipulated period of time,

- fee for other basic credit-related risks and costs (for instance, liquidity risk and overheads) and

- profit margin.

Assessment is to find out whether cash flows are effected solely to repay principal and interest due and payable thereon. The Bank verifies the contractual clauses affecting both the time of cash flows and their amount resulting from specific financial assets.

Most notably, the following terms and conditions are verified:

o      contingencies affecting the amount or timelines of cash flows,

o      leverages,

o      terms and conditions of early payment or prolongation of financing,

o      terms and conditions limiting the right to sue attributable to the cash flows realised,

o      terms and conditions modifying the fee for the change in time value of money.

The terms and conditions modifying the change in time value of money are assessed using qualitative or quantitative analysis.

Should the qualitative appraisal not be enough to confirm the conclusion concerning characteristics of the realised cash flows, the Bank carries out the quantitative one. Quantitative appraisal is carried out by comparing:

o      undiscounted cash flows resulting from the analysed contract with

o      undiscounted cash flows from the reference asset that does not have any terms and conditions modifying the fee for the change in time value of money.

If the analysed cash flows differ significantly from each other, the assessed asset has to be classified for measurement at fair value through the income statement, because cash flows are not effected solely to repay principal and interest due and payable thereon.

4.4.5.  Classification of financial liabilities

The Bank classifies its financial liabilities into categories measured at amortised cost.

Financial liabilities measured at amortized cost are financial liabilities that are contractual obligations to deliver cash or other financial asset to another entity not carried at fair value through profit or loss.

4.4.6.  Derecognition

The Bank derecognizes a financial asset from the Bank’s statement of financial position when, and only when the contractual rights to the cash flows from the financial asset expire or the Bank transfers the financial asset and the transfer meets the conditions for derecognition.

The Bank transfers the financial asset if and only if:

o      it transfers contractual rights to receive cash flows, or

o      it retains the contractual rights to receive cash flows but assumes a contractual obligation to transfer the cash flows to another entity. 

When the Bank retains contractual rights to cash flows, but assumes a contractual obligation to transfer those cash flows to third parties, the Bank treats such a transaction as a transfer of a financial asset only if all three of the following conditions are met:

o      the Bank is not obliged to pay the amount to eventual recipients until it has received the corresponding amounts that result from the original asset,

o      under the transfer contract, the Bank may not sell or pledge the original asset, other than as security for the obligation to transfer cash flows established in favour of eventual recipients,

o      the Bank is obliged to transfer all cash flows received from the original asset without material delay. 

On transferring the 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:

o      transfers substantially all the risks and rewards of ownership of the financial asset, it derecognises the financial asset from the statement of financial position,

o      retains substantially all the risks and rewards of ownership of the financial asset, it continues to recognise the financial asset in the statement of financial position,

o      neither transfers nor retains substantially all the risks and rewards of ownership of the financial asset, then the Bank determines whether it has retained control of the financial asset. If control is retained, the financial asset continues to be recognised in the Bank’s balance sheet; accordingly, if control is not retained, the financial asset is derecognised from the statement of financial position up to the amount resulting from continuing involvement.

The Bank derecognizes a financial liability (or a part thereof) from its statements of financial position when, and only when the obligation specified in the contract is satisfied, cancelled or expires.

The Bank derecognizes a financial asset or a part thereof from the statement of financial position if the rights resulting from that asset expire, the Bank waives those rights, sells the receivables, is redeemed or as a result of a material modification of the terms and conditions of the credit agreement. 

The Bank writes down all (or part) of the gross carrying amount of a financial asset if there is no reasonable prospect of recovering the financial asset in whole or in part. Enforcement costs of debt claims which the Bank may recover from the customer or increased interest costs are written off in full due to the low probability of recovering these amounts from the customer. The amounts of receivables written down as loss and recovered thereafter reduce the value of impairment loss in the income statement

4.4.7.  Modification of contractual cash flows

If, after renegotiation of the terms and conditions, cash flows from a given financial assets item are subject to modification, the Bank assesses whether the modification is major and whether it leads to expiry of that financial assets item from the Bank’s statements of financial position and the recognition of a new financial asset. A financial asset expires if any of the qualitative or quantitative criteria are met.

 

Qualitative criteria

The Bank assumes that modification of the terms and conditions of an agreement is major in case of:

o      a change in debtor with the consent of the Bank, or

o      a change in legal form/type of financial instrument, or

o      a modification of the financial asset which does not meet the definition of a basic credit agreement, i.e.: the cash flows from the financial assets item on the specified dates do not solely represent repayment of principal and interest on the principal outstanding, or

o      a change in the borrowing rate from fixed to variable or vice versa for financial assets for which no impairment loss has been identified, or

o      an extension of the term of the loan by 50% if the present value of the contractual cash flows as a result of the modification of the terms of the contract discounted at the original effective interest rate is at least 10% different from the present value of the contractual cash flows before the modification discounted at the original effective interest rate.

Quantitative criterion

A financial asset is deemed to be expired if the present value of the contractual cash flows as a result of the modification of the terms of the contract discounted at the original effective interest rate is at least 10% different from the present value of the contractual cash flows before the modification discounted at the original effective interest rate.

For modifications that do not result in the derecognition of a financial assets item, the difference between the present value of the future cash flows (determined using the original effective interest rate) of the asset before and after the modification is recognised in the income statement. The net modification gains/losses are presented in note 6.10. Loans and other receivables to customers.

4.4.8.  Measurement

After initial recognition, the Bank measures financial assets, at fair value, except for financial assets measured at amortised cost using the effective interest rate.

After initial recognition, all financial liabilities are measured at amortised cost using the effective interest method.

4.4.9.  Expected credit losses

Assessment of impairment allowances (provisions) is based on measurement of expected credit losses. This approach applies to debt financial assets measured at amortised cost and financial assets measured at fair value through other comprehensive income.

At each reporting date, the Bank will assess loss allowance for expected credit losses of the financial asset in the amount equal to the lifetime expected credit losses if the credit risk on a given financial instrument has increased significantly since initial recognition. If as at the reporting date the credit risk on a given financial instrument has not increased significantly since initial recognition, the Bank assesses loss allowance for expected credit losses of that asset in the amount equal to 12-month expected credit losses.

For accounting and regulatory purposes, the Bank assumes that the past due positions include major financial assets for which there was a delay in repayment of principal or interest. The days past due are calculated starting from the date on which the past due credit obligation is deemed material. The Bank defines the materiality of a credit obligation as exceeding two materiality thresholds jointly: PLN 400 and 1% of the balance sheet exposure amount.

The Bank measures expected credit losses taking into account:

o      unencumbered and probability weighted amount that is determined by assessing numerous possible results;

o      time value of money; and

o      reasonable and supportable information that is available without undue cost or effort as at the reporting date, referring to past events, current conditions and projections concerning future business conditions.

The Bank classifies balance sheet credit exposures as impaired, and impairment loss was incurred when the following two conditions are met:

o      there is evidence of impairment resulting from one event or more events occurring after initial recognition of the balance sheet credit exposure in the accounting books,

o      the event (or events) causing loss impacts (or impact) the expected future cash flows resulting from the balance sheet credit exposure or a group of the balance sheet credit exposures that can be reliably assessed.

Any delay in performance of any major credit obligations of the client towards the Bank, parent entity in excess of 90 days is a default on the client’s part.

The Bank applies the definition of default, impaired and non-performing exposures in accordance with regulatory requirements. A debtor or an exposure that is assessed as defaulted is simultaneously considered as impaired and non-performing.

The Bank applies the definition of default at the credit exposure level and additionally applies the principles of contagion: intra-segment - if default is recognised on any customer's exposure in the MTG segment (comprising the Bank's and ING Bank Śląski's portfolios), all other credit exposures of that customer in that segment get a default status (they become “infected”).

 

Approach based on 3 stages

In the expected credit losses process, the change in the quality of a credit exposure since its initial recognition is described in the Bank in three stages with different measurement of expected credit losses:

o      Stage 1 – covers exposures working without any recognised significant increase in the credit risk since the date on which they were granted. The expected credit loss is calculated based on a 12month expected loss (or to the remaining maturity if less than 12 months).

o      Stage 2 – covers exposures working with recognised significant increase in the credit risk since the date on which they were granted. The provision expected credit loss is calculated based on lifetime expected credit loss of the exposure, namely from the reporting date to the remaining maturity.

o      Stage 3 are exposures with identified impairment, i.e. in default. The expected credit loss is calculated based on the asset lifetime expected credit loss for probability of default (PD) = 100%.

The Bank classifies the exposures to Stage 1, 2 or 3 using a cascade approach in the following order:

1.          Identification of the impaired exposures and classifying them to Stage 3.

2.          Allocation of exposures to Stage 2 based on the criteria of a significant increase in credit risk.

3.          Allocation of the remaining exposures to Stage 1.

 

Definition of a significant increase in credit risk

A significant increase in credit risk, resulting in the classification to Stage 2, is evidenced by the occurrence of at least one of the following prerequisites, the leading one being the first:

o      a major increase in the PD over the exposure lifetime determined for the reporting date in relation to the PD ‘lifetime’ as of the date the exposure was granted in the perspective of the period remaining from the reporting date to the maturity date.

The thresholds for the increase in the PD parameter over the life of the exposure relative to the PD at the date of initial recognition, representing a significant increase in credit risk, are determined in accordance with the adopted methodology. At the end of 2023, their values were as follows:

  

  

 

 

 

Mortgage Portfolio (MTG model)

Relative threshold

 

                       0.5

Absolute threshold

 

                       75 p.b.

 

 

 

Absolute threshold - indicates the maximum difference between the cumulative PD over the period between the initial recognition date and the maturity date measured at the reporting date and the cumulative PD between the reporting date and the maturity date, relative to the number of years between the reporting date and the maturity date, beyond which the asset is classified into Stage 2.

Relative threshold - indicates the maximum measure of the relationship between the PD at the reporting date and the PD at initial recognition of the exposure, taking into account a scaling factor determined at the individual exposure level, based on the PD at initial recognition, beyond which the asset is classified into Stage 2.

o      a threefold increase in the PD parameter since exposure was granted,

o      granting of forbearance to the client,

o      the asset is rated 18 or 19,

o      delay in debt repayment in excess of 30 days,

o      a deterioration in the risk profile of the portfolio of a given exposure.

In the process of impairment identification, the Bank first assesses whether there is objective evidence or indications of impairment for financial assets.

The entire lending portfolio of retail clients is tested for exposure impairment. The assessment of credit exposure for impairment is performed for the obligor automatically on a daily basis for retail customers. The occurrence of objective evidence of impairment requires the customer to be reclassified to the non-performing portfolio.

 

Rationale for classifying an asset measured at amortised cost to Stage 3

At each balance sheet date, the Bank assesses whether a financial asset or a group of financial assets is impaired. A financial asset item or a group of financial assets is impaired, if, and only if, there is evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset item (a ‘loss event’) and that loss event (or events) has (have) an impact on the expected future cash flows of the financial asset item or a group of financial assets that can be reliably estimated. The Bank recognises expected credit losses based on reasonable and supportable information that is available without undue cost or effort as at the reporting date, referring to past events, current conditions and projections concerning future business conditions.

In the process of impairment identification, the Bank first assesses whether there is objective evidence or indications of impairment for financial assets.

The entire lending portfolio of retail clients is tested for exposure impairment. The assessment of credit exposure for impairment is performed for the obligor automatically on a daily basis for retail customers. The occurrence of objective evidence of impairment requires the customer to be reclassified to the non-performing portfolio.

Impairment triggers require an individual expert assessment of the debtor’s situation and a decision whether classification of default as an impaired exposure is justified. 

Impairment triggers applied to retail credit exposures include the occurrence of one or more of the following situations:

o      there have been a minimum of three failed debt repayment arrangements in row under the current Debt Episode,

o      an individual who has given a surety in the ING Bank Śląski S.A. Group for material liabilities of his company is in default or an individual is a debtor of the Bank and his company is in default,

o      if an individual client is in default, it is a default premise for his company, if the company is in default, it is a default premise for the individual,

o      not willing or not able to repay - the Bank is of the opinion that the debtor is not willing or not able to repay. Liability cannot be repaid when the debtor’s sources of income are insufficient to pay the instalments due,

Examples when retail clients may not be able to repay their debt:

- loss of job,

- discontinuation of social benefits payments,

- divorce,

- serious illness,

- debtor’ death,

- learning by the Bank about the untimely service of debt of significant value in another bank (pastdue debt over 90 DPD) or about initiation of enforcement/collection actions by another bank.

o      granting a forbearance to a client who is unable to meet his financial obligations under a loan agreement concluded with the Bank due to existing or expected financial difficulties,

o      credit fraud - credit fraud made by the debtor and targeted at the Bank.

In the case of retail credit exposures, a justified suspicion of credit fraud, i.e. a commitment whose credit documentation or established facts indicate that it was granted as a result of a deliberate misrepresentation of the Bank by presenting documents, certificates or statements inconsistent with the facts. In particular, the following events occur:

- the account has been registered by the Bank as a suspected credit fraud,

- after an analysis, a suspected crime has been reported,

- termination of the credit facility and establishing 100% reserve for the debt are recommended,

- the Bank decided to terminate the credit facility and establish 100% reserve for the debt.

o      the occurrence of at least 2 forbearances within 5 years of the application of the first forbearance,

o      the identification of cases of suspected criminal conduct involving a credit exposure.

 

Objective evidence of impairment

The Bank defined objective evidence of impairment the occurrence of which has a direct impact on valuation of future financial cash flows related to the credit receivables. Objective evidence of impairment does not require expert assessment - the identification of the occurrence of the evidence results in the recognition of the credit exposure as being in default and at the same time an impaired exposure without any further analysis.

Objective evidence of impairment may be:

o      a state - i.e., it works as long as the condition that applies to it exists; or

o      an event - it occurs at a specific moment.

Objective impairment evidence of retail credit exposure covers the occurrence of at least one of the following situations:

o      the client has discontinued to repay the principal, pay interest or commissions, with the delay of more than 90 days, provided that the amount of the arrears is higher than both materiality thresholds indicated in item 4.4.9. Expected credit losses

o      the exposure has been recognised as impaired under IFRS 9 (due to the unification of the definition, the default is equivalent to impaired exposure),

o      restructuring of non-performing (event),

o      filing a bankruptcy petition by the client (state),

o      the credit exposure becomes due and payable as a consequence of the Bank’s having terminated the loan agreement.

- termination: the Bank demands early repayment of the loan in full by the debtor, which results in termination of the relationship with the Bank (event),

o      amortization or write-off of retail credit exposures by the Bank:

- amortization of the balance of the principal or/and interest in the total amount exceeding PLN 200, however the debt together with the amortized amount exceed the materiality threshold,

- written-off, and the balance amount increased by the written-off amount plus interest exceed the materiality threshold (event),

o      The Bank sold credit liabilities (or some of them) at a loss > 5% of its balance sheet exposure, and a decision to sell was taken due to the deteriorating quality of the exposure (event),

o      the occurrence of overdue amount for more than 30 days on a credit exposure initially classified as forbearance non-performing, but subsequently remedied and of the forbearance performing status in the trial period (event),

o      the granting of a further forbearance on a credit exposure initially classified as forbearance non-performing forbearance non-performing, but subsequently remedied and of the forbearance performing status in the trial period (event),

o      interest-free status (no interest accrue) for the credit exposure (status).

Should an objective evidence of impairment be identified on the exposure of a given client, it is assumed that impairment is also recognised on other exposures of that client.

Identification of the objective evidence of impairment requires downgrading the client to the worst risk rating. For the credit portfolio of the Bank current monitoring of the timely repayment of the amounts due to the Bank is carried out based on available tools and reports, which makes it possible to identify any threat of future indications or objective evidence of impairment before they crystallize.

The entire lending portfolio of retail clients is tested for exposure impairment.

If after the assessment we find that for a given financial assets item there are no reasons for impairment, the item is included in the group of financial assets with similar credit risk characteristics, which indicate that the debtor is capable to repay the entire debt under to the contractual terms and conditions. Impairment loss for such groups is subject to collective assessment based on measurement of expected credit losses. If there is any evidence of impairment of assets item measured at amortised cost, then the amount of the impairment is the difference between the carrying amount of an asset and the present value of estimated future cash flows, discounted with the initial effective interest rate of a given financial instrument item.

In practice, this means that for Stage 3 portfolio (financial assets that individually are insignificant) - the loss is determined with the collective impairment calculation method using the lifetime expected credit loss of the asset. When estimating future cash flows, available information on the debtor is taken into account, in particular the possibility of repayment of the exposure is assessed, and for backed credit exposures, the expected future cash flows on collateral execution are also used in the estimation, considering the time, costs and impediments of payment recovery under collateral sale, among other factors.

If the existing evidence of impairment of an assets item or financial assets group measured at the amortised cost indicate that there will be no expected future cash flows from the abovementioned financial assets, the impairment loss of assets equals their carrying amount.

 

Measurement of the expected credit losses

To measure expected credit loss in a collective approach, the Bank uses regulatory models of estimating risk parameters (PD, LGD and EAD) adjusted to the requirements of IFRS 9, built for the needs of the Advanced Internal Ratings Based Approach (hereinafter: AIRB method, the Bank is now obtaining the PFSA's approval to use this method). The risk parameter models for the purposes of IFRS 9 maintain the same structure as the regulatory models, while the method of estimating specific parameter values (PD, LGD, EAD) is adapted to the requirements of IFRS 9, and in particular includes reasonable and supportable information that is available without undue cost or effort as at the reporting date, referring to past events, current conditions and projections concerning future business conditions. Parameters of these models were calibrated in line with the PiT (point-in-time) approach and forecasted for 30 years. Parameter EAD takes account of schedules of repayments in accordance with the credit agreements.

The impairment loss calculated collectively is based on historical loss experience for assets portfolios with similar credit risk characteristics.

The Bank measures the Lifetime Expected Loss (LEL) on an exposure with no recognised impairment (Stage 2) as the discounted sum of the fractional lifetime losses relating to default events in each 12-month time window remaining until the maturity date of the exposure, taking into account scenario weights.

For Stage 1 exposures, a 12-month expected loss is applied.

For exposures with recognised impairment from Stage 3 (exposures in default), for which a collective provision is calculated, the Bank measures the remaining lifetime expected credit losses.

The time value of money is reflected in the expected loss by two discounting factors:

o      Discounting between the point in time when the debt claim defaults and the point in time when it is recovered. It is included in the regulatory parameters of the LGD models.

o      Discounting between the reporting date and the point in time at which the exposure defaults, which is additionally taken into account in the calculation of lifetime expected loss (LEL). It is assumed that for each annual time interval, a default event occurs on average in the middle of the 0-12 month period.

The Bank calculates the expected credit loss as a probability weighted average based on a few macroeconomic scenarios of various probability of occurrence. The expected loss is calculated for each scenario separately and the probability weighted average results from the weights (probabilities) assigned to each scenario (sum of weights = 100%). Such an approach meets the requirement of the standard that the loss allowance for expected credit losses should be unencumbered and probability-weighted by the amount determined based on a range of possible outcomes.

The weights of the scenarios are a direct result of the macroeconomic assumptions made. The Bank decided to use the 90th percentile of the distribution of macroeconomic variables as the worst case scenario, in line with the assumptions of other risk appetite calculations in the Bank that use a 90% confidence interval (e.g. RWA at risk) and the 10th percentile for the positive scenario as a symmetric approach. The 90th and 10th percentile directly affect the probability of realisation of these scenarios - both have a statistical probability of 20% each. Ultimately, the baseline scenario probability is complemented by the stress scenarios probabilities and is 60%.

The projection (valuation) of the expected loss is made at each point in time in the future, depending on the economic conditions expected at a given point. Based on historical data, the Bank has defined the relations between the observed parameters of expected loss (PD, LGD) and macroeconomic factors as functions based on which - with the given projections of macroeconomic factors - the expected values of the parameters of expected loss in a given year in the future are calculated according to the forward looking PiT approach.

For the needs of estimating the expected loss, the Bank determines the level of EAD exposure only for irrevocable credit obligations by applying CCF conversion factors (percentage of the use of the free part of the credit limit in the period from the reporting date to the occurrence of a default) from regulatory EAD models (estimated according to the TTC approach - ‘through the cycle’). EAD decreases over time in line with the repayment schedule of a given exposure.

For exposures with a specified final repayment date the time to maturity is limited to 30 years.  Where a material portion of the portfolio has a duration in excess of 30 years, the length of the period to maturity shall correspond to the expected duration of such exposures.

The LGD parameter, which is a function of the applied credit risk mitigation techniques and which is expressed as a percentage of EAD, is estimated at the product and exposure level based on parameters from regulatory LGD models calibrated for the needs of IFRS 9 (estimated according to the TTC approach - ‘through the cycle’). Collateral recoveries are an integral part of the construction of the LGD models and, in principle, the collateral recognition criteria are in line with CRR requirements. The most important collateral recognised by the Bank includes residential mortgage collateral.

The level of the LGD parameter used to calculate the amount of impairment loss using the collective approach for impaired exposures (PD = 100%) depends additionally on how long the credit exposure defaults. 

 

Recognition of an allowance for expected credit losses relating to assets measured at amortised cost

The impairment is presented as a decrease in the carrying amount of the assets item and the amount of the loss is recognised in the income statement for the period.

If in a consecutive period, the amount of loss due to the impairment decreases as a result of an event that took place after the impairment (e.g. improved credit capacity assessment of the debtor), the previous impairment loss is reversed through the income statement. The Bank has identified events that result in the possibility of reversing the impairment of a credit exposure - the cumulative fulfilment of all of the following conditions is required.

The Bank applies the same criteria to the customer’s exit from the default and reversal of an impairment loss. The trial period and then the recovery process, i.e. transition from the non-performing portfolio to the performing one is carried out at the level of the whole portfolio, unless it concerns a situation recognised at debtor level (e.g. bankruptcy).

If a debtor is in the impaired portfolio and has no exposure with forbearance granted, he is deemed recovered and qualified to the performing portfolio if all the conditions are met in the following order:

o      no evidence of impairment or impairment trigger which is a source of default or which indicates a high probability of default is active,

o      at least 3 months have elapsed since the end date of the evidence of impairment/impairment trigger (trial period) and during that period the client’s conduct (intention to repay) and his situation (ability to repay) has been positively assessed,

o      the client made regular repayments, i.e. no amounts past due >30 days during the trial period,

o      after the end of the trial period, the client was deemed to be able to repay the credit obligations in full without making use of the collateral,

o      there are no overdue amounts exceeding the absolute limit; should there be overdue amounts exceeding the absolute limit, the trial period shall be extended until the amount of the arrears falls below the limit.

A client classified to an impaired portfolio who holds exposure with forbearance granted is deemed to be recovered and classified to the performing portfolio if all the following conditions are met:

o      no evidence of impairment or impairment trigger which is a source of default or which indicates a high probability of default is active,

o      at least 12 months (trial period) have elapsed since the last of the following events:

- granting of the last means under restructuring, namely forbearance,

- the exposure was given a default status,

- end of the grace period specified in the restructuring agreement,

o      during the trial period, the client made substantial/regular repayments:

- having made regular payments in accordance with the agreed restructuring terms and conditions, the client has repaid a substantial amount being earlier overdue payments (if there were any overdue amounts) or amortisation (if there were no overdue amounts),

- the client made regular repayments, in accordance with the new schedule taking into account the terms and conditions of restructuring, i.e. no amounts past due > 30 days during the trial period.

o      at the end of the trial period, the client has no overdue amounts and there are no concerns about the full repayment of the exposure under the terms and conditions of the restructuring agreement.

The Bank established the following additional terms and conditions for impairment reversal / exit from the default status applicable to all clients:

o      if during the trial period evidence or indication of impairment is identified as being the source of default / indicating a high probability of non-payment, the end date of the trial period shall be re-established and the trial period shall start again from the expiry of the evidence / indication of impairment,

o      if during the trial period and after the grace period, a DPD event > 30 has occurred, the end date of the trial period will be reset and the trial period will start again from the date when the DPD has fallen below 31 days,

o      all terms and conditions for impairment reversal / exit from default should also be met with regard to new exposures of the client, especially if that client’s previous credit exposures that were under restructuring have been disposed of or permanently written off,

An exception to the principle of no active evidence / indication of impairment being the source of the default is the evidence ‘classification to Stage 3/ provision’ - its existence does not withhold the start of the trial period (because it is an effect and not a cause of default) - classification to Stage 3 and the provision are also upheld during the trial period.

 

4.4.10.  Gains and losses resulting from subsequent measurement

A gain or loss arising from a change in the fair value of a financial asset or financial liability is recognized, as follows:

o      a gain or loss on a financial assets item carried at fair value through other comprehensive income is recognized directly in equity through the statement of changes in equity.

 

Settlement of interest using the effective interest method

Interest income is calculated using the effective interest method. The value is calculated by applying the effective interest rate to the gross carrying amount of the financial assets item, except of:

o      purchased or originated credit-impaired financial assets. For these financial assets items, the Bank applies credit-adjusted effective interest rate to amortised cost of the financial assets item since initial recognition and,

o      financial assets items other than purchased or originated credit-impaired financial assets, which then became credit-impaired financial assets (Stage 3).

In case of such financial assets items, the Bank applies credit-adjusted effective interest rate to (net) amortised cost of the financial assets item in later reporting periods.

 

Non-interest elements

FX gains and losses arising from a change in financial assets item measured at fair value through other comprehensive income denominated in foreign currency are recognized directly in equity only in case of non-monetary assets, whereas FX differences generated by monetary assets (for instance, debt securities) are recognised in the income statement.

When a debt financial asset is removed from the statement of financial position, the cumulative gain or loss previously recognised in equity in respect of the debt financial asset is recognised in the income statement.

Fair value of financial assets and liabilities quoted on an active market (including securities) is determined using a bid price for a long position and an offer price for a short position. If there is no alternative market for a given instrument, or in case of securities that are not quoted on an active market, the Bank determines the fair value using valuation techniques, including but not limited to, using recent arm’s length transactions, discounted cash flow analysis, option pricing models and other valuation techniques commonly used by market participants. The fair value of financial assets and liabilities is determined with the use of the prudent valuation approach. This approach aims at determining the fair value with a high, 90%, confidence level, considering uncertain market pricing and closing cost.

Market activity is assessed on the basis of frequency and volume of effected transactions as well as access to information about quoted prices which by and large should be delivered on a continuous basis.

The main market and the most beneficial one at the same time is the market the Bank can access and on which in normal conditions it would enter into sale/purchase transactions for the item of assets or transfer of a liability.

Based on the employed fair value methods, financial assets/liabilities are classified as:

o      Level I: financial assets/liabilities measured directly on the basis of prices quoted in the active market,

o      Level II: financial assets/liabilities measured using the measurement techniques based on assumptions using data from an active market or market observations,

o      Level III: financial assets/liabilities measured using the measurement techniques commonly used by the market players, the assumptions of which are not based on data from an active market.

The Bank verifies on a monthly basis whether any changes occurred to the quality of the input data used in individual measurement techniques and determines the reasons and their impact on the fair value calculation for the financial assets/liabilities item. Each identified case is reviewed individually. Following detailed analyses, the Bank takes a decision whether its identification entails any changes to the approach for fair value measurement or not.

In justified circumstances, the Bank decides to modify the fair value methodologies and their effective date construed as the circumstances change date. Then, they assess the impact of changes on the classification to the individual categories of the fair value measurement hierarchy. Any amendments to the measurement methodology and its rationale are subject to detailed disclosures in a separate note to the financial statements.

 

4.4.11.  Cost basis method for debt securities

For the purposes of estimating the fair value and the result realised on the sale of securities, it is necessary to apply a specific cost basis method. The application of the cost basis method in this respect is based on an interpretation resulting in an analogous application of the guidelines indicated in IAS 2 Inventories, but to the extent possible given the specifics of this type of financial instrument.

The Bank uses the "first in, first out" method (FIFO) as the applicable cost basis method for debt securities.

 

4.5.  Non-financial assets

4.5.1.  Property, plant and equipment

4.5.1.1.  Own property, plant and equipment

Property, plant and equipment consist of controlled non-current assets and costs to construct such assets. Non-current assets include property, plant and equipment 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.

Property, plant and equipment are recognised using the model based on the purchase price or manufacturing cost, namely, after initial recognition they are recognized at historical cost less depreciation/amortization and impairment.

The historical cost is made up of the purchase price/ manufacturing cost and the costs directly related to the purchase of assets.

Each component part of the property, plant and equipment item whose purchasing price or manufacturing cost is material in comparison with the purchase price or manufacturing cost of the entire item, is depreciated separately. The Bank allocates the initial value of the property, plant and equipment to its significant parts.

4.5.1.2.  Non-current assets leased

The Bank is a party to lease contracts, under which it receives the right to control the use of an identified assets item in a given period for a fee. The Bank applies the stipulations of IFRS 16 to all lease contracts, except for intangible assets lease contracts and with exceptions provided for in the standard and described herein below.

Lease and non-lease components are identified in contracts by the Bank. Non-lease contract charges are recognised as expenses under the relevant IFRS. Lease payments are recognised in accordance with the principles described herein below.

As at the beginning of lease, the Bank recognises right-of-use assets. Initially, lease liabilities are measured by the Bank at present value of future lease payments. Since, under the Polish tax system, the invoice is the basis for the payment of value added tax, the value added tax is an expense at the time of receipt of the invoice from the lessor and is not included in the measurement of the lease liability. The identification of future lease payments requires the determination of the lease term. Doing it, the Bank takes into account an irrevocable lease period together with the periods for which the lease may be extended and the periods in which the lease may be terminated. At the commencement of the lease contract, the Bank assesses whether it can be reasonably assumed that it will exercise an option to extend the lease, or it will not exercise an option to terminate the lease. To carry out the assessment, the Bank takes into account all major facts and circumstances that give economic incentive to exercise or not to exercise the said options. The Bank reviews the lease term in order to re-assess major events or circumstances that may affect the estimated lease term. Lease is no longer enforceable when both the lessee and the lessor have the right to terminate the lease without a prior permit of the other party, which would result in minor penalty at most. For lease contracts concluded for an indefinite period, in case of which both parties may exercise the option to terminate and in case of which there are potentially high costs of contract termination, the Bank assesses the lease term.

To determine the discounted value of lease payments, the Bank applies lease interest rate, and if such a rate is hardly available, the Bank applies the marginal interest rate. The Bank determines the interest rate for lease as the sum of the interest rate for swaps and internal transfer price, taking into account currencies of the lease contracts and maturity dates of the contracts. After the initial lease date, the carrying amount of the liability:

o      is increased by accrued lease interest that is recognised in the income statement as interest expenses,

o      is decreased by effected lease payments,

o      is revised as a result of re-assessment, change in lease or change in generally fixed lease payments.

As at the initial lease date, the Bank recognises right-of-use assets at cost, the basis of which is the amount of the initial measurement of lease liability. The cost of the right-of-use assets item includes also:

o      payments made at or prior to commencement of lease, less the received lease incentives,

o      initial direct costs incurred by the lessee,

o      costs to be incurred by the lessee in order to return the assets item to its initial condition.

The right-of-use is depreciated throughout the lease period and is impaired. During the term of lease, the right-of-use value is reset as a result of a modification of the lease agreement.

The Bank avails itself of exemption for:

o      short-term leases - a contract may be classified as a short-term one if the contract term is no longer than 12 months, and there is no option to buy the object of the lease contract,

o      leases of low-value objects of lease - assets may be classified as low-value assets if the gross price of acquisition of a new assets item is not higher than EUR 5,000, and the object of lease contract neither is nor will be sub-leased.

Lease payments under the abovementioned contracts are recognised by the Bank in the income statement as expenses throughout the lease term on a systematic basis.

4.5.1.3.  Subsequent costs

Under the property, plant and equipment item of the balance sheet the Bank recognizes the costs of replacement of certain elements thereof at the time they are incurred if it is probable that the Bank is likely to earn any asset-related prospective economic benefits and the purchase price or the manufacturing cost may be measured reliably. Other costs are recognised in the income statement at the time they are incurred.

4.5.2.  Intangible assets

An intangible asset is an identifiable non-monetary asset without physical substance.

Intangible assets are deemed to include assets which fulfil the following requirements:

o      they can be separated from an economic entity and sold, transferred, licensed or granted for use for a fee to third parties, both separately, and together with their accompanying contracts, assets or liabilities, and

o      they arise from contractual titles or other legal titles, irrespective of whether those are transferable or separable from the business entity or from other rights and obligations.

4.5.2.1.  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.

Costs of computer software development or maintenance are recognized when incurred.

 

4.5.2.2.  Subsequent costs

Expenditure incurred after initial recognition of an acquired intangible asset is capitalised only if the following conditions are met:

o      it is likely that the expenditure (including the new software version) will result in a significant increase in functionality over the original performance standard assessed, and

o      the expenditure can be reliably measured and attributed to the existing software used internally.

In other cases, costs are recognised in the income statement as costs when incurred.

4.5.3.  Depreciation and amortization charges

The depreciation/amortization charge of property, plant and equipment and intangible assets is applied using the straight line method, using defined depreciation/amortization rates throughout the period of their useful lives. The depreciable/amortizable amount is the purchase price or production cost of an asset, less its residual value. The useful life, amortization/depreciation rates and residual values of property, plant and equipment and intangible assets are reviewed annually. Conclusions of the review may lead to a change of depreciation/amortization periods recognized prospectively from the date of application (the effect of this change is in accordance with IAS 8 carried through profit or loss).

Depreciation and amortization charges of property, plant and equipment are recognized in the income statement. The depreciation/amortization periods are as follows:

o      devices:   3 - 7 years

o      equipment:   5 years

o      costs of software development:   3 years

o      software licenses:  3 years

4.5.4.  Impairment of other non- financial assets

For each balance sheet date, the Bank assesses the existence of objective evidence indicating impairment of property, plant and equipment items.

If such evidence exists, the Bank performs an estimation of the recoverable value.

If, and only if, the recoverable amount of an asset is less than its carrying amount, the carrying amount of the asset shall be reduced to its recoverable amount.

4.5.5.  Recognition of impairment loss

An impairment loss is recognised in the income statement under General and administrative expenses if the book value of an asset exceeds its recoverable amount.

4.5.6.  Reversing impairment loss

An impairment loss of other assets is reversed if, and only if, there has been a change in the estimates used to determine the asset’s recoverable amount.

An impairment loss can be reversed only up to the amount, at which the book value of impaired asset does not exceed its book value, which decreased by depreciation/amortization charge, would be established, if no impairment loss had been recognized.

 

4.6.   Other items of the statement of financial position

4.6.1.  Trade debtors and other receivables

The Bank applied a simplified approach to the assessment of a loss allowance for expected credit losses and recognises the allowance in the amount equal to the receivables lifetime expected credit losses.

Trade receivables are covered by impairment loss when they are past due 60 days. In justified cases, and in particular in the case of receivables due for shortages and damages, claims contested by debtors and other receivables for which the risk of non-recovery is assessed by the Bank as high, impairment losses are made earlier - before the end of the 60-day overdue threshold.

If the effect of the time value of money is material, the value of receivable is determined by discounting the projected future cash flows to present value, using a discount rate reflecting the current time value of money. If the discounting method has been applied, the increase in receivables due to time lapse is recognized as financial income.

Budgetary receivables are recognized as part of other financial assets, except for corporate income tax receivables, which are a separate item on the statements of financial position.

4.6.2.  Cash and cash equivalents

From the point of view of the cash flow statement, the cash balance consists of cash in the Bank and cash equivalents, whereby ING Bank Hipoteczny S.A. does not keep cash in hand, only balances on current accounts and short-term deposit accounts with other banks (with a maturity of up to 3 months).

 

4.7.   Equity

Equity comprises of: share capital, supplementary capital from the sale of shares above their nominal value, retained earnings and cumulated other comprehensive income. The equity is established by the Bank in accordance with the applicable law and the Charter. All balances of capital are recognized at nominal value.

4.7.1.  Share capital

Share capital is presented at nominal value, in accordance with the charter and entry to the Register of Entrepreneurs.

4.7.2.  Supplementary capital - share premium

This capital is formed from the share premium less any direct costs incurred in connection with that issue, and the capital is to be used to cover balance sheet losses that may arise in connection with the Bank's operations.

4.7.3.  Retained earnings 

Retained earnings are created from profit write-offs and is allocated for purposes specified in the Articles of Association (the Company’s Charter) or other legal regulations. The retained earnings include the net financial result. The financial result after tax represents the result before tax from the income statement for the current year adjusted with the amount owed under the corporate income tax.

4.7.4.  Accumulated other net comprehensive income

Accumulated other comprehensive income occurs as a result of:

o      measurement of financial instruments classified to be measured through other comprehensive income,

o      actuarial gains / losses.

Changes in the deferred tax assets and liabilities resulting from recognition of the said measurements are carried through accumulated other comprehensive income. The accumulated other comprehensive income is not distributable.

 

4.8.   Prepayments and deferred income

4.8.1.   Prepayments

Prepayments comprise particular expenses which will be carried through the income statement as being accrued over the future reporting periods. Prepayments include primarily provisions for material costs due to services provided for the Bank by counterparties, as well as subscription, insurance and IT services costs paid in advance to be settled in the future periods. Prepayments are presented in the statement of financial position in the Other assets item.

 

4.9.  Employee benefits

4.9.1.  Benefits under the Act on employee pension programmes

Expenses incurred due to a programme of certain contributions are recognised as costs in the income statement.

4.9.2.  Short-term employee benefits

Short-term employee benefits of the Bank (other than termination benefits) comprise of remuneration, bonuses, 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 liabilities from the statements of financial position.

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.

4.9.3.  Long-term employee benefits

4.9.3.1.  Benefits under the Labour Code regulations

Provisions for retirement severance pay granted under benefits due to regulations of the Labour Code are estimated on the basis of the actuarial valuation. The provisions being the result of an actuarial valuation are recognised and adjusted on an annual basis.

Provisions for long-term employee benefits are recognised in the Provisions item of the statements of financial position in correspondence with costs of labour in the income statement.

The assumptions of the method used to compute and present actuarial gains and losses are given in the item concerning estimates on pension and disability provisions.

4.9.3.2.  Variable remuneration programme benefits

Variable remuneration programme benefits are granted in two parts:

o      at least 50% in instruments entitling to receive cash, the amount of which depends on the book value of the net assets of ING Bank Hipoteczny S.A., adjusted for factors affecting those assets other than the financial result,

o      the remainder in cash to the employee's bank account designated for the purpose of remuneration payment, no later than 31 March of the following year in the case of Management Board Members, the cash shall be paid no later than 30 April of the following calendar year.

 

The portion of the plan payable in cash is recognised in accordance with the projected unit method and is settled over time in the employee performance appraisal period (i.e.: during 12 months of employees’ work for which they receive the benefit). The value of non-deferred benefit is recognised as liability towards employees in correspondence with the income statement. As regards the benefits granted in the form of instruments a one-year retention period applies. In 2023, the Bank applied the principle of deferral of variable remuneration, subject to the amount of variable remuneration that was not subject to deferral, i.e. is neither higher than PLN 40,000 nor 10% of the annual total remuneration of an employee who is an Identified Staff (i.e. persons employed by the Bank, identified as having a material impact on the risk profile of ING Bank Hipoteczny S.A., to whom the variable remuneration policy is applied to its full extent). The deferral period is five years from the variable remuneration determination by the Management Board or Supervisory Board. The vesting of the deferred variable remuneration takes place annually over a period of five years, in five equal parts, unless there are grounds for reduction or non-payment. The fair value of the non-deferred benefit during the assessment period is recognised as a liability to employees in correspondence with the income statement, while the fair value of the deferred benefit is recognised as an accrued expense in correspondence with the income statement.

The variable remuneration policy for Identified Staff applies in full to the Management Board Members and the Chief Accountant. For the other Identified Staff, the variable remuneration policy is applied to a limited extent, i.e. variable remuneration is paid in full in cash and the deferral principle does not apply to variable remuneration.

 

Information on the value of net assets on which the value of variable components of remuneration depends:

 

  

  

 

 

period

period

as at 

as at

31.12.2023

31.12.2022

Net assets (carrying amount)

440,622.4

425,012.4

Number of shares

380,000.0

380,000.0

Carrying amount per share

1,159.53

1,118.45

 

 

 

 

4.10.  Provisions

Provisions, are recognised in the statement of financial position when the Bank has a legal or constructive obligation that arises from past events and it is probable that an outflow of resources will be required to settle the obligation.

If the effect is material, the amount of the provision is determined using discounted expected cash flows at a pre-tax rate that reflects the current market assessment of the time value of money and, where applicable, the risks associated with the liability.

 

4.11.  Income statement

4.11.1.  Net interest income

Interest income and expense for all financial instruments are recognised in the income statement using the effective interest method. Fees and commissions that are directly related to the generation of financial assets or financial liabilities are part of the effective interest rate of the assets or liabilities and are therefore presented in net interest income.

The main items of the Bank’s statement of financial position in case of which the effective interest rate method is applied are loans and other amounts due to clients, as well as liabilities due to the issue of covered bonds. The main transaction costs related to loans to customers are the costs of purchasing receivables attributable to mortgage loans (costs of court entries related to the transfer of a mortgage and costs of extended inspections included), whereas with regard to liabilities arising from the issue of covered bonds, the costs of court entries related to the mention of the loan being entered in the cover register (=register of collaterals of covered bonds) may be listed among the examples of transaction costs settled with the effective interest rate method.

For financial assets or a group of similar financial assets classified as Stage 3, interest income is calculated on the present value of the receivable (that is, the value less any impairment loss) using the interest rate used to discount future cash flows for the purpose of impairment loss estimation.

4.11.2.  Commission income and costs

Commission income arises from providing financial services by the Bank and comprises, among others, fees for certificates about credit liabilities owed/repaid, commission for early repayment of mortgage loans, fees for commissioned real estate inspection in connection with a change in collateral by the client.

Fees and commissions (both income and expenses) directly related to the origination of financial assets or financial liabilities with specific repayment schedules are recognised as part of the gross carrying amount. As a result, these fees and commissions are part of the effective interest rate and are recognised in the income statement as interest income or expense. The Bank includes, for example, commission for amending the credit agreement as to the amount or schedule of loan repayments as commissions adjusting the effective interest rate;

Other commissions that are interwoven with occurrence of assets without defined schedules are cleared on a straight line basis throughout the contract.

The following commissions are settled by the Bank on a straight line basis:

o      commissions for issuing, confirming or prolonging the time and increasing the amount of the guarantee or letter of credit,

If the terms of the credit exposure are immaterially modified during the life of the contract, the entire outstanding portion of the commission is recognised in the income statement on the update date as a modification gain or loss.

Charges arising from overdue loans are written off because there is no reasonable expectation of collection.

Other fees and commissions relating to the financial services offered by the Bank are recognised in the income statement taking into account the five steps principle:

1.     identification of an agreement signed with a customer,

2.     identification of specific obligations in the agreement,

3.     setting of the transaction price,

4.     price allocation to specific contractual obligations, and

5.     recognition of income when specific obligations are met.

The Bank recognises fee and commission income:

o      on a one-off basis, when the service was provided (also for advance payments), that is when the control over goods or services is transferred;

o      over time, if the services are provided over certain period of time;

o      at a specific point-in-time when the Bank performs key activities;

o      when, from the customer’s point of view, there is an actual benefit.

After an obligation to provide service is met (or in the period when it is being met), the Bank recognises as income the transaction price assigned thereto.

Commission income that was accrued and is due but was not paid on time is derecognised from the Bank’s financial result upon the lapse of 90 days.

4.11.3.  FX result

Transactions expressed in foreign currencies are translated at FX rate prevailing at the transaction date. The financial assets and liabilities, being result of the said transactions and denominated in foreign currencies are translated at the FX rate prevailing on a given day. The foreign exchange differences resulting from the settlements of the said transactions and the balance sheet valuation of the financial assets and liabilities denominated in foreign currency are recognized in the income statement under the FX result.

4.11.4.  Net income on other basic activities

Net income on other basic activities comprises expenses and income not attributed directly to banking activity. These include, in particular: refunds of commissions on prepaid loans, the result from the disposal of non-current assets, damages, penalties and fines received and paid.

 

4.12. Taxes

4.12.1.  Income tax

Income tax is recognized as current and deferred tax. Current income tax is recognized in the income statement. Deferred income tax, depending on the source of the temporary differences, is recognised in the income statement or in other comprehensive income.

Current tax is a liability calculated based on taxable income at the binding tax rate at the balance sheet date including adjustments of prior year tax liability.

4.12.2.  Deferred income tax

The Bank creates a provision for deferred tax in respect of a temporary difference caused by different moment of recognising income as generated and costs as incurred in accordance with the accounting regulations and corporate income tax provisions. The positive net difference is shown as Deferred tax provisions. The net negative difference is reported as Deferred tax assets.

The deferred tax liability is created by using the balance-sheet method for all positive temporary differences occurring as at the balance-sheet date between the tax value of assets and liabilities and their carrying amount disclosed in the financial statements.

Deferred tax assets are recognized for all negative temporary differences as at the balance sheet date between the tax value of assets and liabilities and their carrying amount disclosed in the financial statements and unused tax losses.

Deferred tax assets are recognized in such amount in which taxable income is likely to be earned allowing to set off negative temporary differences, except for the situations when the component of deferred tax assets arises from the initial recognition of an asset or liability.

The carrying amount of a deferred tax asset shall be verified for each balance sheet date and reduced if it is no longer likely to achieve taxable income sufficient for a partial or full realization of the deferred tax component.

Deferred tax assets and deferred tax liability are estimated with the use of the tax rates which are expected to be in force when the asset is realized or provision released, assuming the tax rates (and tax provisions) legally or factually in force as of the balance sheet date.

 

4.12.3.  Other taxes

Income, costs and assets are recognised less the value added tax, tax on civil law acts, and other sales taxes, except where the sales tax, paid upon purchase of goods and services, is not recoverable from the tax authorities; in that case, the value-added tax is recognized accordingly as a part of the cost of acquisition of an asset, or as part of a cost item. The net amount of sales tax recoverable from or payable to the tax authorities is recognized in the statement of financial position as an item of receivables or liabilities.

 

 

5. Comparability of financial data

 

In these annual financial statements for the period from 1 January 2023 to 31 December 2023, the Bank has resigned from the presentation in the income statement of the item impact of adjustment of gross carrying amount of loans due to credit moratoria, which is a refinement of the presentation of interest income. This item was added in the annual financial statements of the Bank for the period from 1 January 2022 to 31 December 2022. As the effect of loan moratoria was fully recognised in 2022, the presentation of a separate line in the income statement in the financial statements for the period from 1 January 2023 to 31 December 2023, is no longer relevant.

 

 

6. Notes to the financial statements

 

NOTES TO INCOME STATEMENT

 

6.1. Net interest income

 

 

 

 

period

period

from 01.01.2023

from 01.01.2022

to 31.12.2023

to 31.12.2022

Interest income

285,109.6

121,385.9

Interest income calculated using the effective interest method

285,109.6

121,385.9

Interest on loans and other receivables from customers measured at amortised cost

275,117.2

148,880.3

Interest on receivables from banks measured at amortised cost

905.1

2,146.1

Interest on securities measured at amortized cost

2,836.5

1,355.8

Purchase of securities measured at fair value through other comprehensive income

6,250.8

3,941.0

Interest expenses

-207,582.3

-148,448.0

Interest on liabilities to other banks

-171,247.6

-122,032.2

Interest on liabilities under issue of bonds

-6,690.5

-6,399.7

Interest on liabilities under issue of covered bonds

-29,594.4

-19,978.5

Interest on lease liabilities

-49.8

-37.6

Net interest income

77,527.3

-27,062.1

 

 

 

 

The interest expense presented in the table relates to financial liabilities measured at amortised cost.

For Stage 3 assets, interest income is calculated on the basis of net exposure amounts, i.e. amounts including the loss allowance for expected credit losses.

For 2023, interest income on financial assets in Stage 3 amounted to PLN 391,100 compared to PLN 194,000 for 2022.

 

Impact of adjustment to gross carrying amount of loans due to credit moratoria

In 2022, due to the entry into force of the Act on crowdfunding for business ventures and assistance to borrowers, the Bank recognised an adjustment to the gross carrying amount of mortgage loans in PLN in interest income (as a reduction of interest income on loans and other amounts due to customers). The amount of the adjustment was PLN 96,094,900 as at 31 December 2022.

In 2023, an average of 65.5% of the PLN mortgage portfolio was subject to credit holidays (in terms of value to the total portfolio meeting the eligibility criteria to benefit from credit holidays). The indicator was defined as the average customer interest in the credit holidays based on the four quarters of 2023 during which customers could avail themselves of credit holidays.

 

6.2. Net commission income

 

 

 

 

period

period

from 01.01.2023

from 01.01.2022

to 31.12.2023

to 31.12.2022

Commission income

1.9

184.9

Commission for early repayment of mortgage loans

0.0

174.0

Other commission income

1.9

10.9

Commission expenses

-719.9

-687.0

Fees and commissions to the National Depository for Securities (KDPW), issue registration included

-23.4

-16.3

Fees and commissions to other financial entities, inclusive of fees and commissions for disclosure of credit information

-118.0

-108.9

Fees and commissions to banks for issued guarantees

0.0

0.0

Fees and commissions to banks attributable to acquired debt claims

-285.3

-309.0

Fees and commissions for maintaining a custody account by ING Bank Śląski S.A.

-223.8

-205.1

Other commission expenses

-69.4

-47.7

Net commission income

-718.0

-502.1

 

 

 

 

6.3. Net income on other basic activities

 

 

 

 

period

period

from 01.01.2023

from 01.01.2022

to 31.12.2023

to 31.12.2022

Commission refunds for early repayment of mortgages

-542.9

-946.9

Other income and expenses from other basic activities

10.6

2.2

Net income on other basic activities

-532.3

-944.7

 

 

 

 

6.4. General and administrative expenses, including:

 

 

 

 

period

period

from 01.01.2023

from 01.01.2022

to 31.12.2023

to 31.12.2022

Personnel expenses

-12,514.9

-12,484.2

Wages and salaries

-10,486.8

-10,474.4

of which variable remuneration programme

-1,403.9

-1,381.0

Employee benefits

-2,028.1

-2,009.8

Regulatory costs

-2,687.5

-3,319.3

Bank Guarantee Fund charges*

-2,138.2

-2,812.6

Other regulatory costs

-549.3

-506.7

Other general and administrative expenses

-10,607.6

-9,823.0

Depreciation and amortisation

-400.7

-347.1

Costs of auxiliary activities provided under the Cooperation Agreement**

-6,069.8

-5,459.5

IT costs

-1,135.0

-971.0

Costs of news service platforms

-353.5

-313.4

Costs of rental of buildings

-214.1

-196.7

Legal services

-480.6

-330.0

Communications costs

-215.3

-163.2

Other advisory and consulting costs

-240.7

-17.4

Consumption of materials and assets other than non-current assets

-213.2

-282.0

Taxes and charges

-11.5

-11.2

Representation costs

-0.1

-2.7

CRA fees

-508.4

-694.0

Other third-party services

-285.0

-550.8

Other costs***

-479.7

 

-484.0

General and administrative expenses

-25,810.0

-25,626.5

 

 

 

*) On 24 April 2023, the Management Board of ING Bank Hipoteczny S.A. got information from the Bank Guarantee Fund on the amount of the annual contribution to the banks’ compulsory resolution fund for 2023. The total cost to the Bank is PLN 2,138,200. The amount of the contribution was charged to the costs of the first quarter of 2023 and paid in July 2023.

 

**) A scope of services provided by ING Bank Śląski S.A. for ING Bank Hipoteczny S.A. resulting from the Cooperation agreement is described in Note 6.26 Related party transactions.

***) In the data for 2022, the amount presented under “Other” includes PLN 29,900 for the contribution to the Borrower Financial Assistance Fund (BFAF) attributable to the Bank. In July 2022, the Act on crowdfunding for business ventures and assistance to borrowers came into force, which introduced, among other things, an obligation for the banking sector to make an additional contribution to the Borrower Financial Assistance Fund of PLN 1.4 billion by the end of 2022. In 2023, there was no payment to the BFAF.

 

6.5. Expected credit loss provision

 

 

 

 

period

period

from 01.01.2023

from 01.01.2022

to 31.12.2023

to 31.12.2022

Establishment of expected credit loss provisions

-1,261.7

-2,773.3

Loans and other receivables to clients

-1,255.8

-2,752.0

Debt securities at fair value through other comprehensive income

-5.9

-21.3

Release of expected credit loss provisions

2,355.1

832.6

Loans and other receivables to clients

2,345.8

818.5

Debt securities measured at amortized cost

0.1

0.0

Debt securities at fair value through other comprehensive income

9.2

14.1

Expected credit loss provision

1,093.4

-1,940.7

 

 

 

 

 

6.6. Income tax

Income tax recognized in the income statement

 

 

 

 

period

period

from 01.01.2023

from 01.01.2022

to 31.12.2023

to 31.12.2022

Current tax

0.0

0.0

Deferred tax

-10,251.6

10,123.0

Recognized and reversed temporary differences

-10,251.6

10,123.0

Recognized and reversed negative temporary differences due to:

-8,744.9

11,001.5

Tax loss

2,585.1

458.4

Costs of provision for personnel, tangible and others expenses

136.3

147.5

Expenses attributable to accrued but not paid interest

-248.8

2,887.1

Loan loss provisioning

-201.5

366.6

Income settled at the effective interest rate

0.7

488.1

Adjustment of gross carrying amount of loans due to credit moratoria

-11,039.5

6,638.1

Other

22.8

15.7

Recognized and reversed positive temporary differences due to:

-1,506.7

-878.5

Income on accrued but not paid interest

-1,344.4

-781.3

Difference between tax and balance sheet depreciation/amortization

-0.3

1.4

Measurement of securities

-162.0

-98.6

Total tax recognized in the income statement

-10,251.6

10,123.0

 

 

 

*The ‘Tax loss’ item presents the tax loss incurred by the Bank in the amount of PLN 13,605.7 million recognised in full in deferred tax, i.e. in the amount of PLN 2,585.1 million. The tax loss incurred in 2022-2023 will be settled in 2024-2025. In the Bank's opinion, there is no risk of impairment of deferred tax assets as at 31 December 2023.

 

Effective tax rate calculation

 

 

 

 

period

period

from 01.01.2023

from 01.01.2022

to 31.12.2023

to 31.12.2022

A. Profit before tax

51,558.1

-56,127.8

B. (-) 19% of profit before tax

-9,796.0

10,664.3