Accounting policies
Depending on the classification of financial assets and liabilities to a specific level of the hierarchy, different methods of fair value measurement are used.
Level 1: Prices quoted on active markets
Financial assets and liabilities whose fair value is stated directly at prices quoted (not adjusted) on active markets for identical assets and liabilities. In this category, the Group classifies financial and equity instruments for which there is an active market and for which the fair value is determined with reference to the market value, which is a bid price:
- debt securities valued using fixing from the Bondspot platform or Bloomberg or Reuters information services;
- debt and equity securities which are traded on regulated markets, including in the Biuro Maklerskie PKO BP portfolio;
- derivative instruments, which are traded on a regulated market.
Level 2: Valuation techniques based on observable market data
Financial assets and liabilities whose fair value is determined using valuation models where all significant entry data are observable on the market directly (as prices) or indirectly (based on prices). In this category, the Group classifies financial instruments for which there is no active market:
| FINANCIAL ASSETS AND LIABILITIES MEASURED AT FAIR VALUE | VALUATION METHOD (TECHNIQUE) | OBSERVABLE INPUTS |
|---|---|---|
| CIRS, IRS, FRA | Discounted cash flow valuation model | Yield curves built on market data: money market rates, FRA, IRS, OIS, basis swap |
| FX FORWARDS AND FX SWAPS | Discounted cash flow valuation model | Yield curves built on market data: exchange rates, swap points, basis swaps |
| CURRENCY OPTIONS | Valuation models specific for particular type of a currency option. | Yield curves built on market data: exchange rates, swap points, basis swaps; volatility surfaces for relevant currency pairs |
| INTEREST RATE OPTIONS | Valuation model for the respective currency option type | Yield curves built on market data: money market rates, FRA, IRS, OIS, basis swap, caplet/floorlet volatility surfaces for relevant tenors |
| EQUITY OPTIONS | Valuation model for the respective equity option type | Yield curves built on market data: money market rates, FRA, IRS, OIS, basis swap; volatility surfaces determined using a local volatility model based on prices and volatilities of the relevant underlying instruments |
| COMMODITY SWAPS, COMMODITY FORWARDS | Discounted cash flow valuation model | Yield curves built on market data: money market rates, FRA, IRS, OIS, basis swap; forward curves for relevant commodities constructed based on futures prices and forward exchange rates (i.e. determined based on exchange rates, swap points) |
| COMMODITY OPTIONS | Valuation model for the respective commodity option type | Yield curves built on market data: money market rates, IRS; volatility surfaces for relevant commodities |
| EQUITY SWAPS | Discounted cash flow valuation model | Yield curves built on market data: money market rates, FRA, IRS, OIS, basis swap; forward curves for relevant underlying instruments based on futures prices |
| MUNICIPAL BONDS (IN PLN) CORPORATE BONDS |
Yield curve and risk margin model. | Yield curves are built based on market rates, money market data, IRS transactions market. |
| NBP MONEY BILLS | Yield curve method | Yield curves built on money market and OIS transaction market data. |
| LIABILITIES IN RESPECT OF INSURANCE PRODUCTS MEASURED AT FAIR VALUE | The value of the liabilities is equal to the number of units accumulated in the individual insurance capital fund balance on the reporting date multiplied by the fund unit price on the valuation date | Number of fund units, unit price |
Level 3: Other valuation techniques
Financial assets and liabilities whose fair value is determined using valuation models for which input data is not based on observable market data (unobservable input data). In this category, the Group classified financial instruments, which are valued using internal valuation models.
The fair value of equity and debt securities classified as financial assets is determined by the organizational units of the Head Office responsible for them, including the Treasury Products Department and the Brokerage Office. In their internal regulations, these units specify the detailed measurement methods, including determination of the data sources used for measurement purposes and the method of performing the calculation.
The Credit Risk Department develops the assumptions of the fair value model for financial assets arising from loans and advances granted or other financing agreements being the substitute of loans. The Assets and Liabilities Management Committee approves the fair value model for loan exposures.
| FINANCIAL ASSETS AND LIABILITIES MEASURED AT FAIR VALUE | VALUATION METHOD (TECHNIQUE) | UNOBSERVABLE INPUT |
|---|---|---|
| FINANCIAL INSTRUMENTS NOT HELD FOR TRADING, MANDATORILY MEASURED AT FAIR VALUE THROUGH PROFIT OR LOSS | ||
| LOANS AND ADVANCES TO CUSTOMERS | Discounted cash flow method. | Effective margin on loans. |
| C-SERIES PREFERENCE SHARES OF VISA INC. | Estimation of the fair value based on the current market value of the listed ordinary shares of Visa Inc., including a discount which takes into account the limited liquidity of C-series shares and the terms and conditions of conversion of C-series shares into ordinary shares. | Discount taking into account the limited liquidity of C-series shares and the terms of converting the C-series shares into ordinary shares. |
| CORPORATE BONDS | Yield curve and risk margin model. Yield curves are built based on market rates, money market data and IRS transactions market data. | Credit spread (credit margins determined on the basis of initial margins modified by credit indices quotes ascribed to issuers based on their ratings and business sectors). |
| SHARES IN BIURO INFORMACJI KREDYTOWEJ S.A. | Estimation of the fair value based on the present value of projected results of the company | Projected results of the company. Discount rate. |
| SHARES IN POLSKI STANDARD PŁATNOŚCI SP. Z O.O. | Estimation of the fair value based on the present value of projected results of the company | Projected results of the company. Discount rate. |
| SHARES IN SOCIETY FOR WORLDWIDE INTERBANK FINANCIAL TELECOMMUNICATION | Market value of the shares estimated by the company. | Market value estimated by the company. Discount rate. |
| SHARES IN KRAJOWA IZBA ROZLICZENIOWA SA | Estimation of the fair value based on the present value of projected results of the company | Projected results of the company. Discount rate. |
| SHARES IN WAŁBRZYSKA SPECJALNA STREFA EKONOMICZNA“INVEST-PARK” SP Z O.O. | Fair value determined by an appraiser using the net adjusted assets method. | Value of the company’s net assets. |
| SHARES IN WIELKOPOLSKIA GILDIA ROLNO OGRODNICZA SA | Fair value determined by an appraiser using the net adjusted assets method. | Value of the company’s net assets. |
| FINANCIAL INSTRUMENTS MEASURED AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME | ||
| CORPORATE BONDS | Yield curve and risk margin model. Yield curves are built based on market rates, money market data and IRS transactions market data. | Credit spread (credit margins determined on the basis of initial margins modified by credit indices quotes ascribed to issuers based on their ratings and business sectors). |
Financial information
| ASSETS MEASURED AT FAIR VALUE 31.12.2023 | Carrying amount | Level 1 | Level 2 | Level 3 |
|---|---|---|---|---|
| Prices quoted on active markets | Valuation techniques based on observable market data | Other valuation techniques | ||
| Hedging derivatives | 1,174 | – | 1,174 | – |
| Other derivative instruments | 8,406 | 2 | 8,404 | – |
| Securities | 110,278 | 99,964 | 9,652 | 662 |
| held for trading | 578 | 578 | – | – |
| debt securities | 546 | 546 | – | – |
| shares in other entities – listed | 30 | 30 | – | – |
| participation units in investment funds, investment certificates, rights to shares, pre-emptive rights | 2 | 2 | – | – |
| not held for trading, measured at fair value through profit or loss | 1,646 | 1,132 | 128 | 386 |
| debt securities | 592 | 526 | 20 | 46 |
| shares in other entities – listed | 124 | 124 | – | – |
| shares in other entities – not listed | 342 | – | 2 | 340 |
| participation units in investment funds, investment certificates, rights to shares, pre-emptive rights | 588 | 482 | 106 | – |
| measured at fair value through other comprehensive income | 108,054 | 98,254 | 9,524 | 276 |
| debt securities | 108,054 | 98,254 | 9,524 | 276 |
| Loans and advances to customers | 2,871 | – | – | 2,871 |
| not held for trading, measured at fair value through profit or loss | 2,871 | – | – | 2,871 |
| housing loans | 1 | – | – | 1 |
| business loans | 81 | – | – | 81 |
| consumer loans | 2,789 | – | – | 2,789 |
| Total financial assets measured at fair value | 122,729 | 99,966 | 19,230 | 3,533 |
| LIABILITIES MEASURED AT FAIR VALUE | Carrying amount | Level 1 | Level 2 | Level 3 |
|---|---|---|---|---|
| 31.12.2023 | Prices quoted on active markets | Valuation techniques based on observable market data | Other valuation techniques | |
| Hedging derivatives | 2,992 | – | 2,992 | – |
| Other derivative instruments | 9,291 | – | 9,291 | – |
| Liabilities in respect of a short position in securities | 302 | 302 | – | – |
| Liabilities in respect of insurance products | 165 | – | 165 | – |
| Total financial liabilities measured at fair value | 12,750 | 302 | 12,448 | – |
| AASSETS MEASURED AT FAIR VALUE 31.12.2022 | Carrying amount | Level 1 | Level 2 | Level 3 |
|---|---|---|---|---|
| Prices quoted on active markets | Valuation techniques based on observable market data | Other valuation techniques | ||
| Hedging derivatives | 1,042 | – | 1,042 | – |
| Other derivative instruments | 13,162 | 1 | 13,161 | – |
| Securities | 67,106 | 52,864 | 13,198 | 1,044 |
| held for trading | 193 | 193 | – | – |
| debt securities | 164 | 164 | – | – |
| shares in other entities – listed | 27 | 27 | – | – |
| participation units in investment funds, investment certificates, rights to shares, pre-emptive rights | 2 | 2 | – | – |
| not held for trading, measured at fair value through profit or loss | 1,702 | 1,180 | 120 | 402 |
| debt securities | 578 | 511 | 22 | 45 |
| shares in other entities – listed | 115 | 115 | – | – |
| shares in other entities – not listed | 358 | – | 1 | 357 |
| participation units in investment funds, investment certificates, rights to shares, pre-emptive rights | 651 | 554 | 97 | – |
| measured at fair value through other comprehensive income | 65,211 | 51,491 | 13,078 | 642 |
| debt securities | 65,211 | 51,491 | 13,078 | 642 |
| Loans and advances to customers | 3,590 | – | – | 3,590 |
| not held for trading, measured at fair value through profit or loss | 3,590 | – | – | 3,590 |
| housing loans | 4 | – | – | 4 |
| business loans | 85 | – | – | 85 |
| consumer loans | 3,501 | – | – | 3,501 |
| Total financial assets measured at fair value | 84,900 | 52,865 | 27,401 | 4,634 |
| LIABILITIES MEASURED AT FAIR VALUE | Carrying amount | Level 1 | Level 2 | Level 3 |
|---|---|---|---|---|
| 31.12.2022 | Prices quoted on active markets | Valuation techniques based on observable market data | Other valuation techniques | |
| Hedging derivatives | 7,469 | – | 7,469 | – |
| Other derivative instruments | 12,978 | – | 12,978 | – |
| Liabilities in respect of a short position in securities | 7 | 7 | – | – |
| Liabilities in respect of insurance products | 149 | – | 149 | – |
| Total financial liabilities measured at fair value | 20,603 | 7 | 20,596 | – |
| IMPACT OF ESTIMATES ON FAIR VALUE MEASUREMENT OF LEVEL 3 FINANCIAL INSTRUMENTS | 31.12.2023 | 31.12.2022 | ||
| Fair value in | Fair value in | |||
| positive scenario | negative scenario | positive scenario | negative scenario | |
| Shares in Visa Inc.1 | 86 | 77 | 145 | 133 |
| Other equity investments2 | 238 | 215 | 189 | 171 |
| Corporate bonds3 | 326 | 325 | 681 | 679 |
| Loans and advances to customers4 | 2,727 | 3,015 | 3,770 | 3,410 |
1scenario assuming a discount rate in respect of the future conditions of converting C-series shares to ordinary shares at a level of 0%/100% respectively
2Scenario assuming a change in the discount rate of +/- 5%
3scenario assuming a change in the credit spread of +/-10%
4scenario assuming a change in the company’s value of +/- 0.5p.p.
2Scenario assuming a change in the discount rate of +/- 5%
3scenario assuming a change in the credit spread of +/-10%
4scenario assuming a change in the company’s value of +/- 0.5p.p.
| RECONCILIATION OF CHANGES DURING THE REPORTING PERIOD TO FAIR VALUE AT LEVEL 3 | 2023 | 2022 |
|---|---|---|
| Opening balance at the beginning of the period | 4,634 | 5,711 |
| Increase in exposure to equity instruments | 62 | 25 |
| Decrease in exposure to equity instruments | (81) | (3) |
| Increase in exposure to corporate bonds | – | 9 |
| Decrease in exposure to corporate bonds | (295) | (74) |
| Increase in exposure to loans and advances to customers | 707 | 775 |
| Decrease in exposure to loans and advances to customers | (1,207) | (1,610) |
| Reclassification from “measured at fair value through profit or loss” to “measured at amortised cost” | (176) | (207) |
| Net gain/(loss) on financial instruments measured at fair value through profit or loss | (74) | 51 |
| Change in the valuation recognized in OCI | – | (68) |
| Other, including exchange difference | (37) | 25 |
| Closing balance | 3,533 | 4,634 |