35. Loans and advances to customers

Loans and advances to customers are classified in the individual measurement categories in accordance with the principles for selecting the business model and evaluating the characteristics of contractual cash flows referred to in the note „General accounting policies for financial instruments”.

Loans and advances to customers include:

• amounts due from loans and advances granted,
• factoring receivables,
• and finance lease receivables.

The category of loans and advances to customers measured at fair value through profit or loss includes the following products: cash loans, credit cards and revolving loans, whose contractual formula for interest calculation includes a multiplier.

The Group adjusts the gross carrying amount of housing loans measured at amortised cost by recognizing the effect of:

• legal risk related to potential litigation for the portfolio of mortgage loans in convertible currencies and existing legal claims related to loan exposures recognized as at the balance sheet date in the statement of financial position (see „Cost of legal risk of mortgage loans in convertible currencies”)
• the so-called statutory credit holidays, recognized in the second half of 2022.

The statutory credit holidays  were introduced by the Act of 7 July 2022 on the crowdfunding of business ventures and on assistance for borrowers of 14 July 2022 (hereinafter: the “Act”), containing a package of assistance for mortgage borrowers. According to the Act, statutory credit holidays applied to mortgage loans granted in Polish zloty and provided the possibility to suspend loan repayment for up to 8 months between 2022 and 2023 – two months in each of Q3 and Q4 of 2022 and one month in each of the four quarters of 2023. The loan repayment suspension could be used by the customer if the agreement was concluded before 1 July 2022 and the loan period ended after 31 December 2022. Credit holidays could only be used for one loan. The repayment schedule of loan instalments was extended by the number of credit holiday months used.

The Group believes that the entitlement of customers to benefit from the suspension of loan repayments was a statutory cash flow modification that occurs on the date the Act has been signed by the President, i.e. 14 July 2022.

Accordingly, in the second half of 2022, the Group adjusted the gross carrying amount of mortgage loans by deducting interest income. The value of the adjustment was determined as the difference between the present value of the estimated cash flows resulting from the loan agreements, taking into account the suspension of instalment payments, and the present gross carrying amount of the loan portfolio. The loss calculation was based on the assumption that approximately 63% of customers holding a PLN-denominated mortgage loan would choose to benefit from credit holidays (customer participation rate).

By the end of December 2023, 298.5 thousand of the Group’s customers applied for a suspension of mortgage repayment, representing 54% of the total number of loans and 64% of the gross carrying amount of total loans eligible for credit holidays. The total number of suspensions applied for as at 31 December 2023 was 2,055 thousand, representing 47% of the maximum number of instalments to be suspended for all eligible customers.

In the fourth quarter of 2023, the Group estimated the actual level of the credit holiday loss, taking into account, among other things, empirical data on the participation rate of customers’ use of credit holidays and early repayments made by customers throughout the period of the statutory credit holiday programme.

Based on the outcome of the aforementioned analysis, in 2023 the Group has remeasured the credit holiday loss and reduced, proportionally, the amortisation of this loss to date. The total effect recognised in the Group’s accounting books on this account amounted to PLN 105 million (including a reduction in the loss recognised in July 2022 of PLN 130 million and a proportional reduction in amortisation to date of PLN 25 million) – which translated into an increase in net interest income and a decrease in the adjustment of the gross carrying amount of loans. The realised loss on statutory credit holidays, excluding the effect of amortisation, was, in the opinion of the Group, PLN 2,980 million compared to PLN 3,111 million recognised in July 2022.

Work is currently underway in the Polish Parliament to agree amendments to the Act of 7 July 2022 on the crowdfunding of business ventures and on assistance for borrowers, which would provide borrowers with the opportunity to take advantage of the statutory credit holidays also in 2024. Should the amended legislation come into force, depending on the solutions adopted, it could have a significant impact on the Bank’s financial performance in 2024. In line with established practice, the Bank believes that the customers’ entitlement to benefit from the suspension of loan repayments for subsequent periods will be a statutory cash flow modification that will take place on the day the President signs the amendments to the Act.

In addition, the Group adjusts the gross carrying amount of residential and consumer loans measured at amortised cost by recognising the impact of potential commission reimbursements to customers for the expected early repayment of active consumer and mortgage loans in the future.

The recognition of finance lease receivables is described in note „Leases” Section „Leases – Lessor”.

The item “Loans and advances to customers” also includes an adjustment relating to fair value hedge accounting for loans representing hedged items (see the note „Hedge accounting and other derivative instruments”).

• „Net allowances for expected credit losses”,
• „Cost of legal risk of mortgage loans in convertible currencies”.

For more information on credit risk exposures, see note „Credit risk – financial information”.