Provisions

Accounting policies

Provisions for legal claims

A provision for disputes with employees, business partners, customers and external institutions (e.g. UOKiK) which is created on obtaining information from the competent person in the Legal Department or another person representing the Group before courts and other adjudicating bodies as part of providing legal assistance with potential probability of a court case being lost (litigation pending has been discussed in detail in note “Legal claims”).

Provisions for legal claims are created in the amount of the expected outflow of economic benefits.

Provision for retirement and disability benefits

The provision for retirement and disability benefits resulting from the Labour Code is created individually for each employee on the basis of an actuarial valuation. The basis for the calculation of these provisions are internal Group regulations, in particular the Collective Labour Agreement in force in the Group.

Provision for loan commitments and guarantees granted

A provision for off-balance sheet loan exposures is recognized in the amount equal to the resulting expected (possible to estimate) loss of economic benefits. When determining a provision for off-balance sheet loan exposures the Group:

• assesses on an individual basis in respect of the individually significant credit exposures on unconditional liabilities with the evidence of individual impairment or those relating to debtors whose other exposures fulfil such evidence, and the individually significant exposures which do not fulfil the evidence of individual impairment, for which determining provisions using the portfolio parameters would not be reasonable;
• assesses on a portfolio basis (if an exposure fulfils evidence of individual impairment) or a group basis (if an exposure does not show evidence of impairment) – in respect of the remaining off-balance sheet loan exposures.

The provision is determined as the difference between the expected amount of exposure in the statement of financial position, which will arise as a result of off-balance sheet liabilities granted (from the date at which the assessment is performed until the date of overdue amounts treated as an individual impairment trigger) and the present value of the expected future cash flows obtained from the exposure in the statement of financial position arising out of the liability.

When assessing a provision on an individual basis, the expected future cash flows are estimated for each loan exposure separately.

When assessing a provision on a portfolio basis or a group basis, the portfolio parameters are used, estimated using statistical methods, based on the historical observation of exposures with the same characteristics.

Other provisions

Other provisions include mainly restructuring provision and provisions for potential claims on the sale of impaired loan portfolios, details of which have been presented in the note “Sale of receivable portfolios”.

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 gain 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.

Estimates and judgements

Valuation of the employee benefits provision is performed using actuarial techniques and assumptions. The calculation of the provision includes all retirement and pension benefits which it is expected will be paid in the future. The provision was created 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, and are related to the period ending on the balance sheet date.

Financial information

Calculation of estimates

The Group performed a reassessment of its estimates as at 31 December 2017, on the basis of a calculation conducted by an independent external actuary. The provisions calculated are equal to discounted future payments, taking into account staff turnover, and are related to the period ending on the balance sheet date. An important factor affecting the amount of the provision is the financial discount rate which was adopted by the Bank at the level of 3.25%. As at 31 December 2016 the adopted financial discount rate amounted to 3.50%.

The impact of an increase/decrease in the financial discount rate and the planned increase in the provision base of 1 pp. on a decrease/increase in the amount of the provision for retirement and disability benefits as at 31 December 2017 and as at 31 December 2016 is presented in the tables below: