45. Provisions

The provision for financial liabilities and guarantees is established at the amount of the expected credit losses (for details please see the note “Net expected credit losses”).

In the portfolio analysis, when determining provisions, portfolio parameters estimated using statistical methods are used, based on historical observations of exposures with the same characteristics, the parameters which define a marginal probability of evidence of impairment, the average utilization of an off-balance sheet liability and the level of anticipated loss in the event of impairment in subsequent months in the period from the reporting date to the horizon of the calculation of the anticipated loss.

With regard to exposures which are material on an individual basis, and are subject to assessment, the provision is determined on a case by case basis – as the difference between the expected amount of the balance sheet exposure which will arise as a result of an off-balance sheet liability at the date of overdue amounts arising treated as evidence of impairment, and the present value of the expected future cash flows obtained from the exposure.

The provisions for legal claims include disputes with business partners, customers and external institutions (e.g. UOKiK), and are created based on an evaluation of the probability of a court case being lost by the Group and the expected amount of payment (litigation pending has been discussed in the detail in the note “Legal claims”). Provisions for legal claims are recognized in the amount of expected outflow of economic benefits.

The provisions are described in the note “Cost of the legal risk of mortgage loans in convertible currencies”.

The amount of the provision for refunds of costs to customers on early repayment of consumer loans is affected by the percentage of prepaid consumer loans, expected amount of consumer claims referring to refunds of loan costs prepaid before the balance sheet data and the average amount of the refund. The expected amount of consumer claims and the average amount of the refund are based on the historical data relating to the number of claims filed and the average amounts of the refunds to customers.

The provision for retirement and disability benefits resulting from the Labour Code is recognized individually for each employee on the basis of an actuarial valuation. The provision for employee benefits is determined on the basis of the Group’s internal regulations.

Valuation of the provision for employee benefits is performed using actuarial techniques and assumptions. The calculation of the provision includes all retirement and pension benefits expected to be paid in the future. The provision was recognized on the basis of a list of persons with all necessary employee information, in particular the length of their service, age and gender. The provisions calculated are equal to discounted future payments, taking into account staff turnover.

The provision for accrued holiday entitlements is recognized at the amount of expected inflows of cash, excluding discounting, based on the number of days of holiday remaining to be utilized by the Bank’s employees and average monthly salary.

Other provisions mainly include provisions for potential claims on the sale of receivables, described in detail in the Note “Information on securitization of the lease portfolio and package sale of receivables”.

Provisions for future payments are measured at reliably estimated, justified amounts necessary to meet the present obligation as at the end of the reporting period. All provisions are recognized in the profit and loss account, excluding actuarial gains and losses recognized in other comprehensive income.

If the effect of the time value of money is material, the amount of the provision is determined by discounting the estimated future cash flows to their present value, using the discount rate before tax which reflects the current market assessments of the time value of money and the potential risk related to a given obligation.

The Group updated its estimates of provisions for pensions and other liabilities in respect of defined post-employment benefit plans as at 31 December 2023 using an external independent actuary’s calculations.

The impact of the increase/decrease in the financial discount rate and of the planned increases of 1 p.p. in the provision base on the decrease/increase in the value of the provision for retirement and other defined benefit post- employment plans as at 31 December 2023 and as at 31 December 2022 is presented in the tables below:

The Group performed a sensitivity analysis of the provision for reimbursement for customers on early repayments of consumer and mortgage loans before the balance sheet date as at 31 December 2023 and 31 December 2022 due to changes in the number of claims and average value of a refund.