This document is a translation of a document originally issued in Polish.

The only binding version is the original Polish version.

SELECTED FINANCIAL DATA RELATING TO THE FINANCIAL STATEMENTS

	in PLN ‘000			in EUR ‘000


SELECTED FINANCIAL DATA	period from 01.01.2024 to 31.12.2024	period from 01.01.2023 to 31.12.2023	period from 01.01.2024 to 31.12.2024		period from 01.01.2023 to 31.12.2023

Net interest income	286,820	365,267	66,637		80,661
Net fee and commission income	(4,676)	(3,111)	(1,086)		(687)
Profit / (loss) on business activities	291,919	350,635	67,822		77,430
Profit before tax	176,080	222,883	40,909		49,219
Net profit	130,317	165,789	30,277		36,611
Net comprehensive income	191,127	234,623	44,405		51,811
Net cash from/used in operating activities	2,496,846	2,399,918	580,095		529,970
Net cash from/used in investing activities	245,487	141,423	57,034		31,230
Net cash from/used in financing activities	(2,734,506)	(2,599,371)	(635,311)		(574,015)
Net change in cash and cash equivalents	7,827	(58,030)	1,818		(12,815)

	in PLN ‘000			in EUR ‘000


SELECTED FINANCIAL DATA	as at 31.12.2024	as at 31.12.2023	as at 31.12.2024		as at 31.12.2023

Total assets	17,376,660	18,935,922	4,066,618		4,355,088
Total equity / book value	1,743,472	1,638,905	408,021		376,933
Share capital	1,611,300	1,611,300	377,089		370,584
Number of shares (in thousands)	1,611,300	1,611,300	1,611,300		1,611,300
Book value per share (in PLN/EUR)	1.08	1.02	0.25		0.23
Diluted number of shares (in thousands)	1,611,300	1,611,300	1,611,300		1,611,300
Diluted book value per share (in PLN/EUR)	1.08	1.02	0.25		0.23
Total capital ratio (TCR)	22.9%	20.9%	22.9%		20.9%
Common equity Tier 1 (CET1)	1,662,317	1,615,124	389,028		371,464
Own funds	1,662,317	1,615,124	389,028		371,464

Selected financial statement items have been translated to EUR at the following foreign exchange rates

items of the income statement, statement of comprehensive income and statement of cash flows – the average of the NBP exchange rates prevailing as at the last day of each month of the period	01.01.2024- 31.12.2024	01.01.2023 - 31.12.2023
	4.3042	4.5284
items of the statement of financial position – the average NBP exchange rate as at the last day of the period	31.12.2024	31.12.2023
	4.2730	4.3480

Financial statements

of PKO Bank Hipoteczny SA

for the year ended

31 December 2024

Table of contents

INCOME STATEMENT

STATEMENT OF COMPREHENSIVE INCOME

STATEMENT OF FINANCIAL POSITION

STATEMENT OF CHANGES IN EQUITY

STATEMENT OF CASH FLOWS

NOTES TO THE FINANCIAL STATEMENTS

1. Business activities of the Bank

2. Information on the composition of the Bank’s Supervisory Board and Management Board

3. Approval of the financial statement

4. Representations of the Management Board

5. Statement of compliance

6. Going concern

7. Basis for preparation of the financial statements

8. Environmental matters

DESCRIPTION OF MAJOR ACCOUNTING POLICIES

9. Foreign currencies

10. General accounting policies for financial instruments

11. Material changes in accounting policies and explanation of differences between previously published reports

12. New standards and interpretations and IBOR interest rate benchmarks reform

NOTES TO THE INCOME STATEMENT

13. Interest income and expense

14. Fee and commission income and expense

15. Gains/(Losses) on financial transactions

16. Net foreign exchange gains / (losses)

17. Net allowances for expected credit losses

18. Administrative expenses

19. Regulatory charges

20. Tax on certain financial institutions

21. Corporate income tax

NOTES TO THE STATEMENT OF FINANCIAL POSITION

22. Cash and balances with the Central Bank

23. Amounts due from banks

24. Derivative hedging instruments

25. Securities

26. Loans and advances to customers

27. Expected credit losses

28. Intangible assets and property, plant and equipment

29. Other assets

30. Amounts due to banks

31. Amounts due to customers

32. Liabilities in respect of mortgage covered bonds issued

33. Liabilities in respect of bonds issued

34. Other liabilities

35. Provisions

36. Equity and shareholding structure of the Bank

OTHER NOTES TO FINANCIAL DATA

37. Contingent liabilities granted and received

38. Legal claims

39. Information about leases

40. Notes to the statement of cash flows

41. Related party transactions

42. Value of financial liabilities incurred, including overdue liabilities

43. Fair value of financial assets and liabilities

44. Operating segments

OBJECTIVES AND PRINCIPLES OF RISK MANAGEMENT

45. Risk management at PKO Bank Hipoteczny SA

46. Credit risk management

47. Liquidity risk management

48. Interest rate risk management

49. Foreign exchange risk management

50. Operational risk management

51. Model risk management

52. Business risk management

53. Capital adequacy and the management of capital risk

OTHER NOTES

54. Events after the end of the reporting period

INCOME STATEMENT

INCOME STATEMENT	Note	01.01.2024 - 31.12.2024	01.01.2023 - 31.12.2023

Interest income and income similar to interest income	13	1,321,210	1,641,080
Interest expense and expenses similar to interest expense	13	(1,034,390)	(1,275,813)
Net interest income		286,820	365,267
Fee and commission income	14	5,400	6,213
Fee and commission expense	14	(10,076)	(9,324)
Net fee and commission income		(4,676)	(3,111)
Gains/(losses) on financial transactions	15	(5)	(13)
Net foreign exchange gains / (losses)	16	4,019	(4,157)
Net allowances for expected credit losses	17	5,427	(7,593)
Other operating income		527	409
Other operating expenses		(193)	(167)
Profit / (loss) on business activities		291,919	350,635
Administrative expenses	18	(47,411)	(47,376)
Regulatory charges	19	(17,398)	(22,384)
Tax on certain financial institutions	20	(51,030)	(57,992)
Operating profit		176,080	222,883
Profit before tax		176,080	222,883
Corporate income tax	21	(45,763)	(57,094)

Net profit		130,317	165,789

STATEMENT OF COMPREHENSIVE INCOME

STATEMENT OF COMPREHENSIVE INCOME	Note	01.01.2024 - 31.12.2024	01.01.2023 - 31.12.2023

Net profit		130,317	165,789
Other comprehensive income		60,810	68,834
Items which may be reclassified to profit or loss		60,810	68,834
Cash flow hedges (gross)		74,041	76,592
Deferred tax		(14,068)	(14,552)
Cash flow hedges (net)	24	59,973	62,040
Remeasurement of financial assets measured at fair value through other comprehensive income (gross)		1,033	8,388
Deferred tax		(196)	(1,594)
Remeasurement of financial assets measured at fair value through other comprehensive income (net)		837	6,794

Total net comprehensive income		191,127	234,623

STATEMENT OF FINANCIAL POSITION

STATEMENT OF FINANCIAL POSITION	Note	31.12.2024	31.12.2023
ASSETS
Cash and balances with the Central Bank	22	368	306
Amounts due from banks	23	10,186	2,421
Derivative hedging instruments	24	-	55,383
Securities	25	749,307	945,251
Loans and advances to customers	26, 27	16,600,671	17,898,707
Intangible assets	28	246	217
Property, plant and equipment	28	8,953	10,104
Current income tax receivable		-	17,567
Other assets	29	6,929	5,966
TOTAL ASSETS		17,376,660	18,935,922

LIABILITIES AND EQUITY
Liabilities
Amounts due to banks	30	5,342,830	4,580,744
Derivative hedging instruments	24	208,696	213,187
Amounts due to customers	31	3,398	3,710
Liabilities in respect of mortgage covered bonds issued	32	7,233,355	10,444,645
Liabilities in respect of bonds issued	33	2,721,264	1,991,260
Other liabilities	34	56,283	56,215
Current income tax liabilities		40,360	-
Deferred tax provision	21	26,684	6,981
Provisions	35	318	275
TOTAL LIABILITIES		15,633,188	17,297,017

Equity
Share capital	36	1,611,300	1,611,300
Supplementary capital		13,263	-
Accumulated other comprehensive income		(11,408)	(72,218)
Retained earnings / (Accumulated losses)		-	(65,966)
Net profit /(loss) for the period		130,317	165,789
TOTAL EQUITY		1,743,472	1,638,905

TOTAL LIABILITIES AND EQUITY		17,376,660	18,935,922

STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 DECEMBER 2024	Note	Share capital	Supplementary capital	Accumulated other comprehensive income	including:		Retained earnings / (Accumulated losses)	Net profit /(loss) for the period	Total equity
FOR THE YEAR ENDED 31 DECEMBER 2024	Note	Share capital	Supplementary capital	Accumulated other comprehensive income	Cash flow hedges	Financial assets measured at fair value through other comprehensive income	Retained earnings / (Accumulated losses)	Net profit /(loss) for the period	Total equity

As at 1 January 2024		1,611,300	-	(72,218)	(74,386)	2,168	(65,966)	165,789	1,638,905
Transfer from retained earnings		-	-	-	-	-	165,789	(165,789)	-
Transfer from profit to equity		-	13,263	-	-	-	(13,263)	-	-
Dividend paid		-	-	-	-	-	(86,560)	-	(86,560)
Total comprehensive income, including:		-	-	60,810	59,973	837	-	130,317	191,127
Net profit		-	-	-	-	-	-	130,317	130,317
Other comprehensive income		-	-	60,810	59,973	837	-	-	60,810

31 December 2024	36	1,611,300	13,263	(11,408)	(14,413)	3,005	-	130,317	1,743,472

FOR THE YEAR ENDED 31 DECEMBER 2023	Note	Share capital	Supplementary capital	Accumulated other comprehensive income	including:		Retained earnings / (Accumulated losses)	Net profit /(loss) for the period	Total equity
FOR THE YEAR ENDED 31 DECEMBER 2023	Note	Share capital	Supplementary capital	Accumulated other comprehensive income	Cash flow hedges	Financial assets measured at fair value through other comprehensive income	Retained earnings / (Accumulated losses)	Net profit /(loss) for the period	Total equity

As at 1 January 2023		1,611,300	339,852	(141,052)	(136,426)	(4,626)	-	(405,818)	1,404,282
Transfer from retained earnings		-	-	-	-	-	(405,818)	405,818	-
Loss offset against supplementary capital		-	(339,852)	-	-	-	339,852	-	-
Total comprehensive income, including:		-	-	68,834	62,040	6,794	-	165,789	234,623
Net profit		-	-	-	-	-	-	165,789	165,789
Other comprehensive income		-	-	68,834	62,040	6,794	-	-	68,834

31 December 2023	36	1,611,300	-	(72,218)	(74,386)	2,168	(65,966)	165,789	1,638,905

1. Business activities of the Bank

PKO Bank Hipoteczny Spółka Akcyjna (“PKO Bank Hipoteczny SA”, “Bank”) with its registered office in Warsaw ul. Puławska 15, 02-515 Warsaw is entered in the Register of Businesses of the National Court Register (KRS) maintained by the District Court in Warsaw, 13th Business Department of the National Court Register with the reference number KRS 0000528469. The Bank was entered to the Register of Businesses on 24 October 2014. The Bank was assigned the statistical number REGON 222181030. Its share capital as at 31 December 2024 was PLN 1,611,300,000 and it was fully paid up.

PKO Bank Hipoteczny is a specialized bank that operates on the basis of the Polish Covered Bonds and Mortgage Banks Act dated 29 August 1997, the Banking Law of 29 August 1997, the Commercial Companies Code and other generally applicable provisions of the law, regulatory recommendations and good corporate governance practices, and the Bank’s Articles of Association.

The Bank specializes in granting residential mortgage loans for individuals. The Bank also acquires receivables in respect of such loans from PKO Bank Polski SA. The Bank acquires loans for its portfolio based on its strategic cooperation with PKO Bank Polski SA.

The Bank’s principal objective, in terms of funding, is to issue mortgage covered bonds, which are to serve as the primary source of long-term funding for residential mortgage loans.

The Parent Company of PKO Bank Hipoteczny SA is PKO Bank Polski SA, in the share capital of which the State Treasury holds a 29.43% share. PKO Bank Polski SA prepares consolidated financial statements for the PKO Bank Polski SA Group.

2. Information on the composition of the Bank’s Supervisory Board and Management Board

The following table presents the composition of the Supervisory Board of PKO Bank Hipoteczny SA as at 31 December 2024.

No.	Name and surname	Position	Date of appointment
1	Marek Radzikowski	Chairman of the Supervisory Board (from 23.08.2024) Member of the Supervisory Board (from 19.08.2024 to 22.08.2024)	19.08.2024
2	Jakub Niesłuchowski	Deputy Chairman of the Supervisory Board (from 22.02.2024) Member of the Supervisory Board (from 28.04.2024 to 21.02.2024)	28.04.2022
3	Iwona Brzozowska-Poniedzielska	Member of the Supervisory Board (independent)	29.05.2024
4	Robert Ciborowski	Member of the Supervisory Board (independent)	29.05.2024
5	Lucyna Kopińska	Member of the Supervisory Board	01.09.2019
6	Paweł Metrycki	Member of the Supervisory Board	30.03.2019

The following table presents the composition of the Management Board of PKO Bank Hipoteczny SA as at 31 December 2024.

No.	Name and surname	Position	Date of appointment
1	Wojciech Papierak	President of the Management Board (from 06.12.2024) Vice-President of the Management Board responsible for the work of the Management Board (from 10.08.2024 to 05.12.2024)	10.08.2024
2	Katarzyna Kurkowska-Szczechowicz	Vice-President of the Management Board (from 10.08.2024) President of the Management Board (from 27.01.2023 to 09.08.2024) Vice-President of the Management Board responsible for the work of the Management Board (from 01.10.2022 to 26.01.2023)	01.10.2022
3	Piotr Kochanek	Vice-President of the Management Board	01.01.2019

Changes in the composition of the Supervisory Board and the Management Board of PKO Bank Hipoteczny SA in the reporting period are presented, respectively, in Chapter 6.5 and 6.4 of the Directors’ Report of PKO Bank Hipoteczny SA for the year ended 31 December 2024.

3. Approval of the financial statement

These financial statements, having been reviewed with an opinion issued by the Audit and Finance Committee of the Supervisory Board on 5 March 2025, evaluated by the Supervisory Board on 6 March 2025 and approved by the Bank’s Management Board on 6 March 2025 for publication.

4. Representations of the Management Board

The Management Board hereby represents that according to its best knowledge the financial statements and the comparative data have been prepared in accordance with the applicable accounting policies and give a true, fair and clear view of the Bank’s financial position and results of operations.

5. Statement of compliance

These financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) endorsed by the European Union as at 31 December 2024, and to the extent not governed by the said standards, in accordance with the requirements of the Accounting Act of 29 September 1994 and implementing regulations issued on the basis of the said Act, and the requirements applicable to issuers of securities admitted or seeking admission to trading on a market for official stock exchange listing.

6. Going concern

The financial statements have been prepared on the assumption of the Bank continuing its business activities in the foreseeable future (i.e. in the period of at least 12 months of the date of preparing these financial statements). As at the date of signing these financial statements, the Bank’s Management Board has not identified any facts or circumstances which would indicate any threats to the Bank’s ability to continue as a going concern for at least 12 months of the date of preparing these financial statements as a result of intended or forced discontinuing or significantly curtailing the Bank’s existing operations.

7. Basis for preparation of the financial statements

The financial statements of PKO Bank Hipoteczny Spółka Akcyjna cover the year ended 31 December 2024 and include comparative data as at and for the year ended 31 December 2023. The financial data is presented in thousands of Polish zlotys (PLN), rounded to a thousand, unless otherwise indicated; therefore, discrepancies resulting from the rounding may appear.

These financial statements have been prepared on a fair value basis in respect of assets and liabilities measured at fair value through profit or loss or other comprehensive income, including derivatives and securities measured at fair value through other comprehensive income. Other assets and liabilities are measured in accordance with the accounting policies described in these financial statements.

The Bank recognized all items of costs and income on the accruals basis, the principles of recognition and measurement of assets and liabilities, and the recognition of impairment allowances. Accounting policies applicable to individual items are presented in the notes to the statement of financial position and to the income statement.

When preparing the financial statements, the Bank makes certain estimates and adopts assumptions which directly affect the financial statements. The estimates and assumptions that are used by the Bank in determining the value of its assets and liabilities, as well as revenues and costs, are made based on historical data and other factors which are available and are considered to be proper in the given circumstances.

Assumptions regarding the future and the data available are used for assessing the carrying amounts of assets and liabilities which cannot be unequivocally determined using other sources. In making estimates, the Bank takes into consideration the reasons and sources of the uncertainties that are anticipated at the end of the reporting period. Actual results may differ from the estimates.

Estimates and assumptions made by the Bank are subject to reviews on an on-going basis. Adjustments to estimates are recognized in the periods in which the estimates were adjusted, provided that these adjustments only affect a given period. If the adjustments affect both the period in which the adjustment was made as well as future periods, they are recognized in the period in which the adjustments were made and in future periods.

8. Environmental matters

The Bank has not identified a material impact of environmental matters on the financial statements. Due to the nature of its business activity, the Bank’s direct impact on the natural environment is limited to using natural resources. The Bank’s indirect impact on the environment is realized by designing a product offer in such a way so as to motivate customers to invest in energy-saving properties and by issuing green covered bonds. These issues are discussed in the PKO Bank Hipoteczny SA Directors’ Report for the year ended 31 December 2024.

There were no material estimates or judgments in the Bank (including those used to calculate the allowances for expected credit losses) related to environmental factors which would have a significant impact on the amounts recognized in these financial statements.

DESCRIPTION OF MAJOR ACCOUNTING POLICIES

The most important accounting policies, estimates and judgements applied when preparing these financial statements have been presented below and in individual Notes to the financial statements.

The accounting policies were applied consistently in all the reporting periods presented.

9. Foreign currencies

9.1 Functional currency and currency of presentation

These financial statements are presented in Polish zlotys which are the Bank’s functional currency and the currency of presentation.

9.2 Transactions and balances in foreign currencies

Transactions denominated in foreign currencies are translated into the functional currency based on the exchange rate as at the date of transaction. At the end of each reporting period, the Bank translates:

■ monetary items in foreign currencies – at the closing exchange rate, i.e. the average exchange rate announced by the National Bank of Poland applicable at the end of the reporting period;

■ non-monetary items carried at historical cost in foreign currencies, such as for example: property, plant and equipment – at the mid exchange rate published by the National Bank of Poland as at the date of the transaction;

■ non-monetary items measured at fair value in a foreign currency are translated using the mid exchange rates published by the National Bank of Poland prevailing as at the date of determination of the fair value.

10. General accounting policies for financial instruments

10.1 Recognition of transactions in the books of account

Financial assets and financial liabilities, including forward contracts which result in an obligation or a right to buy or sell a fixed quantity of specific financial instruments at a fixed price at a future date are recognized in the books of account as at the date of their origination, irrespective of the contractual settlement date.

10.2 Derecognition of financial instruments

Financial assets are derecognized when:

■ the Bank transfers the financial assets to another entity in a transaction in which substantially all risks and rewards of ownership of a financial asset are being transferred or in which the Bank does not transfer or retain substantially all risks and rewards of ownership nor maintain control over the financial asset, or

■ they are redeemed, expired or uncollectible (the derecognized assets are charged to respective allowances for expected losses, and if no such allowances had been set up or if their value is less than the value of the financial assets before they are written off, the allowance for expected losses is increased before the assets’ derecognition).

The Bank derecognizes a financial liability (or a part thereof) if and when it is no longer binding, i.e. when a contractual liability has been settled, annulled, or has expired.

10.3 Classification and measurement of financial instruments

10.3.1. Financial instruments’ classification policies

Classification of a financial asset as at the date of its acquisition or arising depends on the business model adopted by the Bank to manage a given group of assets and the contractual characteristics of the cash flows from a single asset. The Bank distinguishes the following business models:

■ “held to collect” – a model according to which financial assets which were acquired or arose are held to benefit from contractual cash flows – a model typical for lending operations;

■ “held to collect or sell” – a model according to which financial assets which after their acquisition or arising are held to benefit from contractual cash flows, but which may also be sold – a model typical of liquidity management;

■ residual – other than the model “held to collect”, and “held to collect or sell.

Financial instruments are classified upon their recognition or significant modification.

Business model

A business model is selected at the initial recognition of financial assets. It is selected at the level of particular groups of assets, in the context of the area of operations in connection with which the financial assets arose or were acquired, and is based, among other things, on:

■ the manner of assessing and reporting financial asset portfolio results;

■ the manner of managing those assets’ risk and policies for remunerating asset managers.

In the “held to collect” business model, the sale of assets is incidental and may only take place in the event of increased credit risk, changes in laws or regulations – to maintain the assumed regulatory capital level, on the terms and conditions described in the management strategies of such portfolios or on the condition that the sale is close to maturity, material internal restructuring or the acquisition of another business, execution of a contingency or recovery plan or other unforeseeable factors which are beyond the Bank’s control.

Assessment of characteristics resulting from contractual cash flows

Characteristics resulting from contractual cash flows are assessed by determining, on the basis of the SPPI test, whether the cash flows resulting from an asset constitute exclusively repayment of the principal and interest on the amount remaining to be repaid. Interest comprises payment for the time value of money and the credit risk associated with the outstanding principal over a specified period, and for other basic risks and costs relating to granting or acquiring the financial asset, as well as a profit margin.

The characteristics resulting from contractual cash flows have no impact on the classification of financial assets if:

■ they would only have an insignificant impact on the contractual cash flows from the asset (de minimis feature);

■ they would impact the contractual cash flows from the instrument only if an extremely rare, atypical and unlikely event occurred (non-genuine feature).

To determine this, the potential impact of characteristics resulting from contractual cash flows in each reporting period and throughout the life cycle of the financial instrument are taken into account.

SPPI tests are conducted for each financial asset in the “held to collect” or “held to collect and sell” model as at the date of initial recognition (including for material modifications after re-recognizing the financial asset) and in the case of a change in the terms and condition of the contract.

Category of measurement of financial assets at amortized cost

A financial asset (this relates to debt financial assets) is measured at amortized cost if the following conditions are jointly met:

■ a financial asset is “held to collect”;

■ the contractual terms relating to the financial asset cause cash flows to arise in certain periods, which are only the result of repayment of the principal amount and the interest on the principal amount remaining to be repaid (passed SPPI test).

The initial value of an asset measured at amortized cost is adjusted by all commissions and fees which have an impact on its effective return and constitute an integral part of the effective interest rate on the asset (commissions and fees arising as a result of the Bank conducting activities which lead to the asset arising). Commission for granting and increasing the amount of a mortgage loan in the part which may need to be returned to a customer on early repayment is recognized as an adjustment of the gross carrying amount of that financial instrument taking into account the expected economic life of the loan. After that time, the adjustment of the gross carrying amount due to a potential refund to a customer is credited to interest income using the straight line method over the remaining life of the financial instrument.

The present value of this category of assets is determined using the effective interest rate used to determine (accrue) interest income generated by the asset in a given period, on a current basis, adjusted for allowances for expected credit losses.

Category of measurement of financial assets at fair value through other comprehensive income

A financial asset (this relates to debt financial assets) is measured at fair value through other comprehensive income if the following conditions are jointly met:

■ the financial asset is held in accordance with the business model aimed at both receiving contractual cash flows and selling the asset; and

The effects of changes in the fair value of such financial assets, until derecognition or reclassification, are recognized in other comprehensive income, with the exception of interest income, net expected credit losses and foreign exchange gains and losses, which are recognized in the income statement. If a financial asset has been derecognized, accumulated gains and losses previously reported in other comprehensive income are reclassified from other comprehensive income to the income statement.

Category of measurement of financial assets at fair value through profit or loss

If financial assets do not meet the above-mentioned qualification criteria to be measured at amortized cost or at fair value through other comprehensive income, they are classified to financial assets measured at fair value through profit or loss.

In addition, upon initial recognition, a financial asset may be irrevocably designated as measured at fair value through profit or loss (the option of measurement at fair value through profit or loss), provided that this will eliminate or significantly reduce inconsistency in the measurement or recognition (accounting mismatch). This option is available for debt instruments both under the “held to collect” and “held to collect and sell” model.

Pursuant to IFRS 9, financial assets measured at fair value through profit or loss are presented as follows:

1) held for trading – financial assets which:

■ have been purchased mainly to sell or redeem in the foreseeable future; or

■ upon initial recognition constitute part of a portfolio of specific financial instruments which are managed jointly and for which there is evidence that they currently generate short-term profits; or

■ are derivative financial instruments (with the exception of derivatives which are financial guarantee agreements or designated and effective hedges);

2) financial assets not held for trading, mandatorily measured at fair value through profit or loss – financial assets which have not met the criterion of cash flow characteristics (the SPPI test) (irrespective of the business model);

3) financial assets designated at fair value through profit or loss at initial recognition (the option of measurement at fair value through profit or loss).

Gains or losses on a financial asset measured at fair value through profit or loss are recognized in the income statement.

10.3.2. Change in the classification of financial assets

Financial assets may be reclassified only in the event of a change in the business model relating to an asset or a group of assets resulting from the commencement or discontinuation of a material part of operations. Such changes are incidental. Changes in classification are recognized prospectively, i.e. without changing the effects of fair value measurement, allowances or accrued interest which have been recognized to-date.

10.3.3. Change in estimated contractual cash flows – Modifications

A modification is a change in contractual flows of a financial asset based on an annex to the respective contract or changes in the terms and conditions of the contract resulting from legal regulations. A modification may be substantial or non-substantial. Changes in contractual flows resulting from meeting the contractual terms and conditions are not considered to be modifications.

If the contractual cash flows relating to a financial asset are subject to renegotiation or any other modification, and the renegotiation or modification does not lead to derecognition of the given financial asset (“Non-substantial Modification”) the gross carrying amount of the financial asset is recalculated and the difference in relation to its former gross carrying amount is recognized in the income statement. The present gross carrying amount of a financial asset is calculated as the value of renegotiated or modified contractual cash flows discounted at the original effective interest rate of the financial asset (or effective interest rate adjusted for credit risk in the event of purchased or originated credit-impaired financial assets) or, if applicable under IFRS 9, at the updated effective interest rate. All the costs and fees incurred adjust the carrying amount of the modified financial asset and are amortized over the period to maturity of the modified financial asset.

In some situations, renegotiation or modification of contractual cash flows relating to a financial asset may lead to the derecognition of an existing financial asset. If the modification of a financial asset leads to its derecognition and then to the recognition of a modified financial asset, the modified financial asset is considered to be a new financial asset (“Substantial Modification”). The new asset is recognized at fair value and a new effective interest rate to be applied to the new asset is calculated. If the characteristics of a modified new financial asset (after the execution of an annex) reflect the arm’s length basis, the carrying amount of the financial asset is equal to its fair value.

The assessment of whether a modification of a financial asset is substantial or non-substantial depends on the qualitative and quantitative criteria being met.

The following Qualitative Criteria have been adopted:

■ change in debtor, with the exception of a change following from the debtor’s death;

■ introducing a contractual feature to the contract which leads to failing the cash flow characteristics test or removal of the feature.

If at least one of these criteria is present, a substantial modification occurs.

The following Quantitative Criteria have been adopted:

■ a 10% test consisting of analysing the changes in the contractual terms of a financial asset resulting in a difference arising between the amount of the future cash flows from the modified financial asset discounted using the original effective interest rate and the amount of corresponding future cash flows from the original financial asset discounted using the same interest rate;

■ an increase in a debtor’s exposure which includes the value of a capital increase and loan commitments exceeding 10% in relation to equity and loan commitments before the increase for each individual exposure;

■ an extension of the original lending period in respect of residential loans of more than 4 years.

If the quantitative criterion (difference) exceeds 10% or the period of a residential loan has been extended by more than 4 years, the modification is considered substantial. On the other hand, if the quantitative criterion (difference) is not higher than 10% or the period of a residential loan has been extended by no more than 4 years, the modification is considered non-substantial.

The accounting treatment of gains or losses on the derecognition of a financial instrument not measured at fair value through profit or loss (including on sale or material modification) and of income/expense on non-substantial modification is presented is presented in Note 10.3.5.

10.3.4. Measurement of purchased or originated credit-impaired financial assets (POCI)

Purchased or originated credit-impaired assets (“POCI”) are debt financial assets measured at amortized cost and measured at fair value through other comprehensive income, i.e. loans and debt securities which were impaired at the moment of their purchase or origination.

Restructuring procedures which result in a substantial modification of impaired contracts are the main source of POCI assets in the Bank.

10.3.5. Recognition of gains/(losses) on derecognition of financial instruments not measured at fair value through profit or loss and income/expense on modification

Gains and losses on derecognition of financial assets and liabilities not measured at fair value through profit or loss (including gains and losses on disposal or substantial modification) are recognized in “Gains/(losses) on derecognition of financial assets and liabilities not measured at fair value through profit or loss”.

The result on non-substantial modification of financial assets is recognized in “Interest income”.

Both these income statement items are presented separately for the following financial instruments:

■ measured at fair value through other comprehensive income;

■ measured at amortized cost.

11. Material changes in accounting policies and explanation of differences between previously published reports

With the exception of changes required by standards and amendments to standards which entered into force starting from 1 January 2024, the Bank did not implement any other changes during the reporting period. Amendments to standards which entered into force as of 1 January 2024 had no material impact on the Bank’s financial statements.

In the current reporting period, the Bank changed the presentation of cash flows relating to interest income and expense from operating activities. After the change, interest received and interest paid in relation to operating activities is presented in separate lines of cash flows from operating activities. The Bank believes that presentation of net interest income/(expense) and separate presentation of interest realized (received and paid) contributed to the transparency of disclosure and is consistent with the market practice.

Comparative data was restated accordingly.

	01.01.2023 – 31.12.2023 before restatement	impact of presentation change	01.01.2023 - 31.12.2023 restated data

Cash flows from operating activities
Profit before tax	222,883	-	222,883
Income tax paid / settlement of tax within the Tax Group	47,411	-	47,411
Total adjustments:	2,129,624	-	2,129,624
Amortization and depreciation	1,662	-	1,662
Interest recognized in cash flows from investing activities and cash flows from financing activities	753,716	(753,716)
Net interest income (from the income statement)		(365,267)	(365,267)
Interest received		1,286, 091	1,286, 091
Interest paid		(561,748)	(561,748)
Change in the balance of:
derivative financial instruments		666,684	666,684
derivative financial instruments (asset)	452,669	(452,669)
loans and advances to customers (gross)	1,048,984	388,587	1,437, 571
securities measured at fair value through other comprehensive income	750	(750)
other assets and right-of-use assets	(5,494)	-	(5,494)
amounts due to banks	3,726	(4,784)	(1,058)
derivative financial instruments (liability)	187,522	(187,522)
amounts due to customers	(1,867)	-	(1,867)
liabilities in respect of mortgage covered bonds issued	(509,683)	(2,360)	(512,043)
liabilities in respect of bonds issued	105,128	(12,474)	92,654
allowances for expected credit losses and provisions	7,661	-	7,661
other liabilities	8,256	-	8,256
Other adjustments (including changes in the measurement of derivative instruments recognized in other comprehensive income)	76,594	(72)	76,522
Net cash from/used in operating activities	2,399,918	-	2,399,918

12. New standards and interpretations and IBOR interest rate benchmarks reform

12.1 New standards and interpretations and amendments to the published standards and interpretations which became binding as of 1 January 2024

Standards and interpretations	Amendment	Effective from
Amendment to IAS 1 Presentation of financial statements	The amendment is intended to clarify the principles of classification of liabilities in the statement of financial position as current or non-current.	1 January 2024
Amendments to IAS 7 Statement of Cash Flows and IFRS 7 Financial Instruments: Disclosures – Supplier Finance Arrangements	The amendments introduce the requirements for the disclosure of additional information on supplier finance arrangements (reverse factoring), including, among others, information on extended payment terms, collateral provided and guarantees granted. The amendments are intended to increase transparency of the supplier finance arrangements and their impact on a company’s liabilities, cash flows and liquidity risk.	1 January 2024 (endorsed by the EU on 15 May 2024)
Amendments to IFRS 16 Leases	The amendments set out the requirement for an entity which sold an asset and is simultaneously using it under a lease contract to recognize a lease liability in a way so as not to recognize any amount of the gain or loss that relates to the right of use it retains.	1 January 2024

New standards and amendments have no material impact on the Bank’s financial statements.

12.2 New standards and interpretations, and amendments thereto, which have been published, but are not yet binding and have not been applied by the Bank

Standards and interpretations	Amendment	Effective from
Amendments to IAS 21 The Effects of Changes in Foreign Exchange Rates – Lack of Exchangeability	The amendments introduce a requirement to disclose information which will enable users of the financial statements to understand the impact of the lack of exchangeability of currencies and will explain how to assess exchangeability of the currencies and determine the exchange rate if a currency is not exchangeable. Amendments to IAS 21 will not have an impact on the financial statements.	1 January 2025 (endorsed by the EU)
Amendments to: IFRS 9 Financial Instruments and IFRS 7 Financial Instruments: Disclosures	The amendments relate to the settlement of financial liabilities using an electronic payment system and an the assessment of the characteristics resulting from contractual cash flows from financial assets, including those associated with ESG. In addition, the requirements relating to the disclosure of information on investments in equity instruments measured at fair value through other comprehensive income have been changed. The Bank is in the process of estimating the impact of these amendments on the financial statements.	1 January 2026
Amendments to: IFRS 9 Financial Instruments and IFRS 7 Financial Instruments: Disclosures	The amendments relate to contracts on nature-dependent electricity and cover the requirements for the possibility of applying an “own use” exception and hedge accounting and the related disclosures. The scope of the amendments is narrow and only those contracts which meet certain features will be covered. The amendments will have no impact on the financial statements.	On or after 1 January 2026, with earlier application permitted
IFRS 19 Subsidiaries without Public Accountability: Disclosures	IFRS 19 introduces simplified reporting requirements and reduces mandatory disclosures for eligible subsidiaries in their separate financial statements. IFRS 19 will have no impact on the financial statements.	1 January 2027
IFRS 18 Presentation and Disclosure in Financial Statements	IFRS 18 will replace the currently applicable IAS 1. Changes compared with the replaced standard will mainly be visible in three areas: ■ defining mandatory subtotals in the statement of profit or loss; ■ introducing disclosures of management-defined Alternative Performance Measures ■ enhanced guidelines on aggregation of information The Bank is in the process of estimating the impact of IFRS 18 on the financial statements.	1 January 2027
Annual Improvements to IFRS - Volume 11 of the International Accounting Standards Board	On 18 July 2024, IASB published a document containing explanations, simplifications, corrections and amendments aimed at improving the consistency of a number of accounting standards (IFRS 1 First-time Adoption of International Financial Reporting Standards, IFRS 7 Financial Instruments: Disclosures and the accompanying Guidance on implementing IFRS 7, IFRS 9 Financial Instruments, IFRS 10 Consolidated Financial Statements and IAS 7 Statement of Cash Flows). The Bank has not yet assessed the impact of these amendments on the financial statements.	On or after 1 January 2026, with earlier application permitted

12.3 IBOR interest rate benchmarks reform

Work on the reform of the WIBOR rate in Poland

The reform of benchmark interest rates and the related activities undertaken by the Bank in this respect have been discussed extensively in the financial statements of PKO Bank Hipoteczny SA for the year ended 31 December 2023 in Note 58 “IBOR interest rate benchmarks reform”.

In December 2024, the Steering Committee of the National Working Group for the benchmarks reform (NWG SC) discussed and decided to select a proposed index technically named WIRF, which is based on unsecured deposits of Credit Institutions and Financial Institutions, as the target interest rate benchmark to replace the WIBOR benchmark. GPW Benchmark, entered in the register of the European Securities and Markets Authority (ESMA), is the administrator of WIRF within the meaning of the BMR Regulation. Therefore, NWG SC verified and modified its earlier decision adopted in September 2022 to select WIRON.

The selection of the proposed index was preceded by a process of review and analysis of the Risk Free Rate (RFR) indices alternative to WIBOR which began on 29 March 2024. This review was intended to verify the NWG SC decision taken in September 2022, based on a broader range of analyses and market information in the dynamically changing macroeconomic environment of the Polish economy. The process involved conducting additional internal analysis by the institutions involved in the work of NWG SC, including the Polish Financial Supervision Authority, the National Bank of Poland and the GPW Benchmark SA, and included two rounds of public consultation addressed to all stakeholders, including financial market participants.

In the near future, the NWG SC also intends to review and update the NWG recommendations issued so far, in particular the standards for the application of the new target RFR (risk-free-rate) in new banking, leasing and factoring products and financial instruments, as well as the voluntary conversion standards for portfolios of existing contracts and financial instruments where the WIBOR benchmark is used.

Ultimately, WIRF is intended to become a key interest rate benchmark within the meaning of the BMR Regulation to be used in financial contracts (e.g. loan agreements), financial instruments (e.g. debt securities or derivatives) and by investment funds (e.g. in setting management fees).

On 25 January 2025, after reviewing opinions on legal, market and marketing aspects, the NWG SC decided on the target name POLSTR (Polish Short Term Rate) for the proposed index.

According to the NWG Sc’s assumptions, the final point at which the portfolio of contracts and instruments is to be converted from WIBOR to the new index is to be the end of 2027.

Status of work at the Bank and exposure to the risk associated with the WIBOR reform

The evolving regulatory environment and migration of the market to benchmarks consistent with the BMR Regulation have an impact on the Bank's operations through its contracts with customers and counterparties, remeasurement of financial instruments and the need to adapt IT processes and systems.

In connection with the assumed replacement of WIBOR with another benchmark as part of the reform, a WIBOR Benchmark Reform Taskforce (the”Taskforce”) is working on preparing the Bank for the implementation of the new interest rate benchmark. The Taskforce’s objectives include, in particular:

■ aligning contracts with counterparties and customers and changing the product offer;

■ aligning methodologies and tools relating to valuation and risk management;

■ aligning methodologies and tools relating to accounting (including, among other things, hedge accounting and transfer pricing);

■ implementing changes to IT systems;

■ estimating the impact of the reform on the Bank’s financial results.

Taskforce representatives actively participate in meetings of specific NWG workstreams and in the work performed at the level of the PKO Bank Polski SA Group.

The table below presents the Bank’s exposure to the WIBOR benchmark as at 31 December 2024.

	31.12.2024				31.12.2023
	WIBOR PLN	Fixed rate or no rate1)	Total	WIBOR PLN		Fixed rate or no rate1)	Total
Financial assets
Cash and balances with the Central Bank	-	368	368	-		306	306
Amounts due from banks	-	10,186	10,186	-		2,421	2,421
Securities	749,307	-	749,307	945,251		-	945,251
Loans and advances to customers	14,327,747	2,272,924	16,600,671	15,645,686		2,253,021	17,898,707
Other financial assets	-	609	609	-		1,072	1,072
Total financial assets	15,077,054	2,284,087	17,361,141	16,590,937		2,256,820	18,847,757

Financial liabilities
Amounts due to banks	3,088,218	2,254,612	5,342,830	2,571,830		2,008,914	4,580,744
Amounts due to customers	-	3,398	3,398	-		3,710	3,710
Liabilities in respect of mortgage covered bonds issued	5,013,449	2,219,906	7,233,355	3,711,011		6,733,634	10,444,645
Liabilities in respect of bonds issued	-	2,721,264	2,721,264	-		1,991,260	1,991,260
Other financial liabilities	-	11,986	11,986	-		14,341	14,341
Total financial liabilities	8,101,667	7,211,166	15,312,833	6,282,841		10,751, 859	17,034, 700
Contingent liabilities granted (financing), net	45,576	54,703	100,279	61,948		28,936	90,884

1) For loans and advances to customers and the corresponding contingent liabilities (financing), also instruments based on a periodically fixed rate are presented.

	31.12.2024			31.12.2023
Nominal amount of derivatives translated to PLN	WIBOR PLN	Fixed rate or no rate	Total	WIBOR PLN	Fixed rate or no rate	Total
Derivative hedging instruments
- Purchase (floating leg buy)		2,196,073	2,196,073	-	6,689,953	6,689,953
- Sale (floating leg sell)	2,408,030	-	2,408,030	6,752,499	4,631	6,757,130

Since a significant part of the Bank’s financial assets and financial liabilities is based on the WIBOR benchmark, the Bank is exposed to the risk associated with the replacement of that benchmark.

Within the PKO Bank Polski SA Group, the Bank is working on the risk analysis. Having in mind the current stage of work of the National Working Group and the implementation of the Road Map, the Bank believes it is currently impossible to estimate the financial impact of the WIBOR benchmark reform.

NOTES TO THE INCOME STATEMENT

13. Interest income and expense

Accounting policies

Interest income and expense comprise interest, including premium and discount on financial instruments measured at amortized cost, and on instruments measured at fair value. Interest income and expense also include fees and commissions received and paid, accounted for using the effective interest rate method, included in the measurement of a financial instrument.

Interest income and interest expense are calculated by applying the effective interest rate method to the gross carrying amount of a financial asset, with the exception of:

■ purchased or originated credit-impaired financial assets (POCI assets). Interest income on such assets is calculated on the net carrying amount using the effective interest rate adjusted for credit risk recognized over the life of the asset;

■ financial assets other than POCI, which subsequently became credit-impaired. Interest income on such assets is calculated based on their net carrying amount using the original effective interest rate as at the date of recognition of the impairment indication.

Interest income also includes the result on non-substantial modification of financial assets, including in 2024, in particular, resulting from the extension of statutory loan repayment holidays described in Note 26.

The Bank consistently uses the method of presenting net interest income/(expense) on hedging instruments for individual hedging instruments in the “hedging transactions” line under “Net interest income”: net interest income for a period is presented under “Interest income and income similar to interest income” and net interest income expense for a given period is presented under “Interest expense and expenses similar to interest expense”.

Financial information

INTEREST INCOME AND INCOME SIMILAR TO INTEREST INCOME	01.01.2024 - 31.12.2024	01.01.2023 - 31.12.2023

Interest income recognized under the effective interest rate method, including:	1,321,210	1,641,080
on financial instruments measured at amortized cost, including:	1,272,444	1,575,532
loans and advances to customers, including:	1,267,920	1,572,742
result on non-substantial modification, including recognition of the adjustment relating to loan repayment holidays	(34,593)	(3,392)
amounts due from banks and mandatory reserve	4,524	2,790
on instruments measured at fair value through other comprehensive income, including:	48,766	65,548
debt securities	48,766	65,548

Total	1,321,210	1,641,080
including: interest income on impaired financial instruments	3,138	4,107

INTEREST EXPENSE AND EXPENSES SIMILAR TO INTEREST EXPENSE	01.01.2024 - 31.12.2024	01.01.2023 - 31.12.2023

Interest expense on financial instruments measured at amortized cost, including:	(828,788)	(840,734)
loans received and overdraft facility used	(317,635)	(410,059)
mortgage covered bonds issued	(341,688)	(309,767)
bonds issued	(169,250)	(120,742)
lease liabilities	(215)	(166)
Expenses similar to interest expense on instruments measured at fair value through profit or loss, including:	(205,602)	(435,079)
hedging CIRS transactions (net)	(203,774)	(432,680)
hedging IRS transactions (net)	(1,828)	(2,399)

Total	(1,034,390)	(1,275,813)

14. Fee and commission income and expense

Accounting policies

Fee and commission income is recognized when the service has been provided.

The following fees and commissions, in particular, are classified as fee and commission income: commission collected by the Bank for early repayment of loans and fees for real estate valuations and inspections.

Commission expense includes fees and commissions accrued on a straight-line basis, paid in connection with the funding obtained by the Bank where the timing of the future cash flows is unspecified, for which the effective interest rate cannot be determined, and relating to issuance programmes, as well as the costs incurred by the Bank in connection with the preparation of appraisal reports on Property Value for Mortgage Lending Purposes (MLV) by property appraisers for the purposes of loans granted.

Financial information

FEE AND COMMISSION INCOME	01.01.2024 - 31.12.2024	01.01.2023 - 31.12.2023
Commission for full or partial prepayment of loans	3,767	3,869
Fees for property inspection	217	155
Fees for property valuation	640	952
Other	776	1,237

Total	5,400	6,213

FEE AND COMMISSION EXPENSE	01.01.2024 - 31.12.2024	01.01.2023 - 31.12.2023
Preparation of appraisal reports on Property Value for Mortgage Lending Purposes (MLV) by property appraisers	(1,700)	(2,145)
Expenses related to bond issuance programmes	(3,516)	(2,242)
Expenses related to credit lines	(3,185)	(3,024)
Expenses related to mortgage covered bond issuance programmes	(813)	(1,342)
Loan insurance costs	(517)	(226)
Commissions for other operating services	(284)	(275)
Costs of debt collection and intermediation in selling collateral	(61)	(70)

Total	(10,076)	(9,324)

15. Gains/(Losses) on financial transactions

Accounting policies

The item also includes the ineffective part of cash flow hedges for hedging strategies where Interest Rate Swap (IRS) contracts are hedging instruments.

Financial information

GAINS/(LOSSES) ON FINANCIAL TRANSACTIONS	01.01.2024 - 31.12.2024	01.01.2023 - 31.12.2023

Gain/(loss) on derivative instruments (IRS) related to hedge ineffectiveness	(5)	(13)

Total	(5)	(13)

The Bank concludes and maintains IRS derivative instruments solely for hedging purposes.

16. Net foreign exchange gains / (losses)

Accounting policies

Net foreign exchange gains/(losses) include:

■ foreign exchange gains and losses, both realized and unrealized, on measurement of foreign currency assets and liabilities at average exchange rates announced by the National Bank of Poland applicable as at the end of the reporting period;

■ net gains/(losses) on derivative instruments, i.e. Cross Currency Interest Rate Swaps (CIRS) and Foreign Exchange Forwards (FX-Forward) in the period before designation as hedge accounting and the ineffective portion of cash flow hedges for hedging strategies where CIRS and FX Forward contracts are the hedging instruments.

Financial information

NET FOREIGN EXCHANGE GAINS / (LOSSES)	01.01.2024 - 31.12.2024	01.01.2023 - 31.12.2023

Result on revaluation	128	4,169
Gain/(loss) on derivative instruments (CIRS, FX-Forward) before designation to hedge accounting and in respect of the final settlement	3,323	(7,773)
Gain/(loss) on derivative instruments (CIRS, FX-Forward) related to hedge ineffectiveness	568	(553)

Total	4,019	(4,157)

The Bank concludes and maintains CIRS and FX Forward derivative instruments solely for hedging purposes.

17. Net allowances for expected credit losses

Accounting policies

Accounting policies for recognizing net allowances for expected credit losses for specific items are described in Notes: 27 and 46, as appropriate. Net allowances for expected credit losses comprise allowances for loans and advances to customers recognized and released, securities and provisions for loan commitments relating to residential loans which have not been drawn in full.

Financial information

NET ALLOWANCES FOR EXPECTED CREDIT LOSSES	Note	01.01.2024 - 31.12.2024	01.01.2023 - 31.12.2023

Net allowances for loans and advances to customers	26, 27	5,436	(7,647)
Net allowances for securities	25, 27	(4)	75
Net provisions for loan commitments granted relating to residential loans which have not been drawn in full	35, 27	(5)	(21)

Total		5,427	(7,593)

18. Administrative expenses

Accounting policies

Employee benefits

Employee benefits include costs of salaries and wages and social insurance (including provisions for pension and disability benefits, described in detail in Note 35 “Provisions”).

Employee benefits also include costs of employee benefits which are attributable to the current period but will be paid in the next period, including bonuses and holiday pay, taking into account all outstanding days of holiday.

Employee benefits also include a variable remuneration plan for the top management, which is recognized in part as a liability in respect of payments based on the net book value of phantom shares settled in cash. The plan is accounted for based on IAS 19 Employee Benefits and is described in Section 6.6 of the PKO Bank Hipoteczny SA Directors’ Report for the year ended 31 December 2024.

Overheads

These include, among others: the costs of services relating to supporting tasks and the costs of servicing loans under the Outsourcing Agreement (described in Note 41.1 “Related-party transactions – capital links”), costs of external services resulting from other agreements and IT costs.

Lease payments under short-term and low-value leases are charged to the income statement on a straight line basis over the period of the lease..

Amortization and depreciation

Amortization and depreciation policies are described in detail in Note 28 “Intangible assets and property, plant and equipment”.

Financial information

ADMINISTRATIVE EXPENSES	01.01.2024 - 31.12.2024	01.01.2023 - 31.12.2023

Employee benefits	(18,177)	(19,757)
Overheads	(27,026)	(25,957)
Amortization and depreciation, including:	(2,208)	(1,662)
property, plant and equipment	(595)	(203)
right-of-use assets, including:	(1,498)	(1,334)
real estate	(1,248)	(1,134)
cars	(250)	(200)
intangible assets	(115)	(125)

Total	(47,411)	(47,376)

EMPLOYEE BENEFITS	01.01.2024 - 31.12.2024	01.01.2023 - 31.12.2023

Wages and salaries, including:	(15,717)	(16,859)
provisions for disability and retirement benefits	(38)	(42)
costs of contributions to the Employee Pension Plan	(383)	(390)
Salary surcharges	(1,892)	(2,434)
Other employee benefits	(568)	(464)

Total	(18,177)	(19,757)

OVERHEADS	01.01.2024 - 31.12.2024	01.01.2023 - 31.12.2023

Services relating to supporting operations under the Outsourcing Agreement 1)	(5,079)	(4,615)
Servicing of loans granted and receivables purchased under the Outsourcing Agreement 1)	(14,079)	(14,665)
External services under other contracts	(2,716)	(2,318)
IT costs	(1,812)	(1,800)
Life- and non-life insurance costs	(1,057)	(691)
Costs associated with variable lease payments not included in the measurement of lease liabilities	(190)	-
Costs related to lease contracts for low-value assets (other than short-term), non-deductible VAT expenses and service charges	(1,020)	(919)
Other	(1,073)	(949)

Total	(27,026)	(25,957)

1) The Outsourcing Agreement is described in Note 41.1 “Related-party transactions – capital links”

19. Regulatory charges

Selected accounting policies

Contribution to BGF

In accordance with IFRIC 21 Levies, the contributions made by the Bank to the Bank Guarantee Fund (BGF) are recognized in the income statement upon the occurrence of the obligating event. The Bank pays a contribution to the bank resolution fund once a year. The contribution is not a tax-deductible expense.

Payments to PFSA

The payments made by the Bank to the Polish Financial Supervision Authority pursuant to IFRIC 21 – Levies are recognized in the income statement upon the occurrence of the obligating event. Both payments (the payment towards the costs of banking supervision and the payment made by the issuer of securities other than shares) are made once a year. The payments to the Polish Financial Supervision Authority are tax-deductible expenses.

Financial information

REGULATORY CHARGES	01.01.2024 - 31.12.2024	01.01.2023 - 31.12.2023

Contribution the Bank Guarantee Fund (BGF), including:	(13,947)	(18,520)
resolution fund	(13,947)	(18,520)
Payments to Polish Financial Supervision Authority (PFSA)	(2,697)	(3,128)
Other taxes and charges	(754)	(736)

Total	(17,398)	(22,384)

20. Tax on certain financial institutions

For banks, when calculating tax on certain financial institutions, the tax base is calculated as the excess of total assets over PLN 4 billion as per the trial balance as at the end of each month. Banks are entitled to reduce the tax base by deducting, among other things, own funds and the value of Treasury securities held. The tax rate is 0.0366% per month and the tax is paid monthly by the 25th day of the month following the month to which the tax relates. The tax paid is not deductible for the purposes of corporate income tax. Tax on certain financial institutions amounted to PLN 51,030 thousand for 2024 and PLN 57,992 thousand for 2023.

21. Corporate income tax

Recognition	Income tax expense comprises current and deferred tax. Current income tax expense is recognized in the income statement. Deferred tax is recognized in the income statement or other comprehensive income, depending on the source of the timing differences.
Tax Group	Since 1 January 2019, PKO Bank Hipoteczny SA has been functioning as part of the Powszechna Kasa Oszczędności Bank Polski SA Tax Group established by PKO Bank Polski SA as the Parent Company together with PKO Leasing SA (“PKO Bank Polski SA Tax Group” or the “PGK”). A tax group is an institution of the tax law stipulated in the provisions of the Corporate Income Tax Act. Its creation means that the income of the Tax Group companies will be consolidated for corporate income tax purposes and that solutions will be available facilitating the application of other, in particular operational, regulations of the Corporate Income Tax Act, dedicated specifically to Tax Groups. By the contract of 5 November 2024, PKO Bank Polski SA as the Parent Company, jointly with its two subsidiaries: PKO Bank Hipoteczny SA and PKO Leasing SA, extended the functioning of the Tax Group for the next three tax years, i.e. until 31 December 2027.
Settlements within PGK	In 2022, the conditions for the PGK to make advance payments on a simplified basis were met, so that each of the subsidiaries forming the PGK is remitting to the Parent Company a monthly advance payment of 1/12th of the tax due on the subsidiary's income as shown in the PGK’s tax return for the year preceding the current tax year by two years. Since PKO Bank Hipoteczny SA incurred a tax loss in its final tax return for 2022, the Bank did not remit monthly advances to the Parent Company of the PGK. Due to PKO Bank Hipoteczny SA’s participation in the PKO Bank Polski SA Tax Group, the current income tax liability as at 31 December 2024 is the liability to the PGK Parent Company, i.e. to PKO Bank Polski SA.
Global minimum tax	In connection with implementation of the global regulations relating to the minimum level of taxation as part of OECD’s Pillar 2, the Bank estimates that they will not have a material impact on the Bank’s financial position.

Financial information

INCOME TAX EXPENSE	01.01.2024 - 31.12.2024	01.01.2023 - 31.12.2023

Current income tax	(40,360)	17,567
Compensation of the tax loss for 2022 from PGK	-	9,074
Adjustment to previous periods	36	(14)
Deferred income tax due to temporary differences	(5,439)	(83,721)
Income tax reported in the income statement	(45,763)	(57,094)
Income tax reported in other comprehensive income due to temporary differences	(14,264)	(16,146)

Total	(60,027)	(73,240)

RECONCILIATION OF THE EFFECTIVE TAX RATE	01.01.2024 - 31.12.2024	01.01.2023 - 31.12.2023

Profit / (loss) before income tax	176,080	222,883
Corporate income tax calculated at the statutory tax rate in force in Poland (19%)	(33,455)	(42,348)
Effect of permanent differences between profit before income tax and taxable income, including:	(12,344)	(14,732)
tax on certain financial institutions	(9,696)	(11,019)
contribution to BGF	(2,650)	(3,519)
PFRON (State Disabled Persons Fund) costs	(16)	(14)
impact of tax costs under Article 15cb of the CIT Act (internal financing)	143	(95)
impact of other permanent differences	(125)	(85)
Effect of other differences between profit before income tax and taxable income, including adjustments to previous periods	36	(14)
Income tax reported in the income statement	(45,763)	(57,094)

Effective tax rate (excluding adjustments to previous periods)	26.01%	25.61%

NET DEFERRED TAX ASSET / (PROVISION) IN 2024	01.01.2024	Income statement	Other comprehensive income	31.12.2024

Deferred tax provision
Interest accrued on amounts due from banks	54	(54)	-	-
Interest accrued on loans and advances to customers	15,288	(1,247)	-	14,041
Interest accrued and discount on securities	5,392	(2,531)	-	2,861
Adjustment of measurement under the straight-line and effective interest rate methods	44,231	6,132		50,363
Deferred costs	273	105	-	378
Difference between carrying amount and tax value of property, plant and equipment, intangible assets and right-of-use assets (IFRS 16)	1,111	(147)	-	964
Measurement of securities	503	-	196	699
Measurement of derivatives	8,904	(4,274)	(3)	4,627
Other temporary differences	-	20	-	20
Gross deferred income tax provision	75,756	(1,996)	193	73,953

Deferred income tax asset
Interest accrued and discount on liabilities	23,445	2,501	-	25,946
Allowances for credit losses	15,859	(1,564)	-	14,295
Expenses to be paid	2,129	(211)	-	1,918
Measurement of derivatives	26,241	(8,169)	(14,071)	4,001
Difference relating to the lease liability (IFRS 16)	1,101	(87)	-	1,014
Tax loss and recognition of tax relief under Art. 15cb	-	95	-	95
Gross deferred income tax assets	68,775	(7,435)	(14,071)	47,269

Net deferred income tax assets / (provision)(presented in the statement of financial position)	(6,981)	(5,439)	(14,264)	(26,684)

NET DEFERRED TAX ASSET / (PROVISION) IN 2023	01.01.2023	Income statement	Other comprehensive income	31.12.2023

Deferred tax provision
Interest accrued on amounts due from banks	68	(14)	-	54
Interest accrued on loans and advances to customers	17,902	(2,614)	-	15,288
Interest accrued and discount on securities	5,534	(142)	-	5,392
Adjustment of measurement under the straight-line and effective interest rate methods	83,706	(39,475)	-	44,231
Deferred costs	308	(35)	-	273
Difference between carrying amount and tax value of property, plant and equipment, intangible assets and right-of-use assets (IFRS 16)*	519	592	-	1,111
Measurement of securities	69	-	434	503
Measurement of derivatives	13,480	(4,571)	(5)	8,904
Gross deferred income tax provision	121,586	(46,259)	429	75,756

Deferred income tax assets
Adjustment of the loan portfolio value due to loan repayment holidays	116,966	(116,966)	-	-
Interest accrued and discount on liabilities	20,953	2,492	-	23,445
Allowances for credit losses	14,892	973	(6)	15,859
Expenses to be paid	1,975	154	-	2,129
Measurement of securities	1,153	-	(1,153)	-
Measurement of derivatives	48,819	(8,020)	(14,558)	26,241
Difference relating to the lease liability (IFRS 16)	545	556	-	1,101
Tax loss and recognition of tax relief under Art. 15cb	9,169	(9,169)	-	-
Gross deferred income tax assets	214,472	(129,980)	(15,717)	68,775

Net deferred income tax assets / (provision)(presented in the statement of financial position)	92,886	(83,721)	(16,146)	(6,981)

NOTES TO THE STATEMENT OF FINANCIAL POSITION

22. Cash and balances with the Central Bank

Financial information

CASH AND BALANCES WITH THE CENTRAL BANK	31.12.2024	31.12.2023

Current account with the Central Bank (including interest accrued on mandatory reserve)	368	306

Total	368	306

Mandatory reserve

In the period from 31 December 2024 to 9 February 2025 and from 30 November 2023 to 01 January 2024, the Bank maintained a mandatory reserve of PLN 73,899 thousand and PLN 56,515 thousand, respectively. The interest rate on the mandatory reserve account was 5.75% as at 31 December 2024 and 31 December 2023.

During the day, the Bank may use the funds deposited in the mandatory reserve account for current cash settlements on the basis of an instruction submitted to the National Bank of Poland, but the Bank must ensure that the monthly average balance is maintained on the account at an appropriate level consistent with the declared mandatory reserve amount.

23. Amounts due from banks

Financial information

AMOUNTS DUE FROM BANKS	31.12.2024	31.12.2023

Measured at amortized cost
current accounts	10,186	2,421

Total	10,186	2,421

Information on exposures to credit risk relating to amounts due from banks is provided in Note 46 “Credit risk management”.

In the periods ended on 31 December 2024 and 31 December 2023, there were no transfers of amounts due from banks between the stages – all amounts due from banks were classified as Stage 1.

24. Derivative hedging instruments

Accounting policies, estimates and assessments

The use of hedge accounting	As at the effective date of IFRS 9, the Bank decided to further apply the provisions of IAS 39 and continues to apply this standard in respect of hedge accounting. In its operations, the Bank uses derivative instruments: CIRS, IRS, FX-Forward for hedging purposes only, in accordance with the risk management strategy described in more detail in Notes 45-49. Such transactions are only concluded with PKO Bank Polski SA and, since they are intercompany transactions, they are excluded from the hedge exchange. All derivatives are designated for hedge accounting. The Bank applies hedge accounting when all the following terms and conditions are met: ■ upon setting up the hedge, the hedging relationship, the purpose of risk management by the entity and the hedging strategy were officially established and documented. Such documentation contains the identification of the hedging instrument, the hedged item or transaction, the nature of the hedged risk, and the method used by the entity to assess the hedging instrument’s effectiveness in compensating the risk of changes in the fair value of the hedged risk or the cash flows relating to the hedged risk; ■ the hedge is expected to be highly effective in compensating the changes in the fair value or cash flows resulting from the hedged risk, in accordance with the originally documented risk management strategy relating to this specific hedging relationship; ■ in the case of cash flow hedges, the planned hedged transaction must be highly probable and must be exposed to a risk of variability of cash flows which may, as a result, have an impact on the income statement; ■ the hedge effectiveness can be assessed reliably, , i.e. the fair value or cash flows relating to the hedged item and resulting from the hedged risk and the fair value of the hedging instrument can be assessed reliably; ■ the hedge is regularly assessed and its high effectiveness is confirmed in all the reporting periods for which the hedge had been designated.
Discontinuation of hedge accounting	The Bank discontinues the application of hedge accounting when: ■ a hedging instrument expires, is sold, terminated or exercised (replacing a hedging instrument with another hedging instrument or extending the validity of a hedging instrument is not treated as its expiry or termination, if such replacement or extension is a part of a documented hedging strategy adopted by the entity). In such cases, accumulated gains or losses associated with a hedging instrument, which were directly recognized in other comprehensive income over the period in which the hedge was effective, continue to be recognized as a separate item of other comprehensive income and credited or charged to profit or loss over the period in which the hedged item is recognized in profit or loss; ■ the hedge no longer meets the criteria of hedge accounting. In such cases, accumulated gains or losses associated with the hedging instrument, which were directly recognized in other comprehensive income over the period in which the hedge was effective, continue to be recognized as a separate item of other comprehensive income and are credited or charged to profit or loss over the period in which the hedged item is recognized in profit or loss; ■ the planned transaction is no longer expected to be exercised – in such cases, all accumulated gains or losses relating to the hedging instrument which were recognized directly in other comprehensive income over the period in which the hedge was effective, are recognized in profit or loss; ■ the hedging relationship has been invalidated.
Fair value hedges	The Bank does not apply fair value hedging.
Cash flow hedges	Cash flow hedges are hedges against cash flow volatility, which may be attributed to a specific type of risk associated with a recognized asset or liability (such as future payments of interest on variable-interest debt (or a part thereof)) or a highly probable planned transaction, and which could affect the income statement. Changes in the fair value of a derivative financial instrument designated as a cash flow hedge are recognized directly in other comprehensive income in respect of the portion constituting the effective part of the hedge. The ineffective portion of the hedge is recognized in the income statement in the item “Gains/(losses) on financial transactions” or “Foreign exchange gains (losses)”. Moreover, the amounts recognized directly in other comprehensive income are transferred to the income statement as “Net interest income and income similar to interest income” or “Interest expense and expenses similar to interest expense”, as appropriate, and in Foreign exchange gains / (losses)” in the period or periods in which the impact of the hedged transaction is recognized in the income statement. The effectiveness tests comprise the valuation of hedging transactions, net of interest accrued and foreign exchange gains (losses) on the nominal value of the hedging transactions (in the case of CIRS and FX-Forward transactions). Hedge effectiveness is verified through the use of prospective and retrospective effectiveness tests. The tests are performed on a monthly basis.
Potential sources of ineffectiveness	The main sources of hedge ineffectiveness may include: ■ applying the CVA/DVA adjustment to the hedging instrument only; ■ the existence of minimal differences in the structure and the basic parameters of hedging transactions and hedged items. The monthly tests show continuous high effectiveness of the hedging strategies applied. The extension of statutory loan repayment holidays described in Note 26 did not negatively affect the effectiveness of the hedging strategies used.
Estimates and judgements	The fair value of derivative instruments is determined using valuation models based on discounted future cash flows from a given financial instrument. The model variables and assumptions used for valuation purposes comprise, subject to availability, data from observable markets (e.g. deposit rates on the interbank market, foreign exchange rates, IRS transaction quotations). The fair value of derivatives includes the Bank’s own credit risk, DVA (debit value adjustment) as well as counterparty credit risk, CVA (credit value adjustment). The process of calculation of CVA and DVA adjustments includes the selection of a method for determining the spread of the counterparty’s or the Bank’s credit risk (e.g. a market price method based on the continuous price quotations of debt instruments issued by the counterparty, a method of spread implied from Credit Default Swap contracts), an estimation of the probability of default by the counterparty or the Bank and the recovery rate.

Hedging strategies used by the Bank

As at 31 December 2024, the Bank had active relationships as part of two strategies hedging cash flow volatility.

Strategy 1	Hedge of the variability of cash flows generated by mortgage loans in PLN due to changes in the reference interest rates and by mortgage covered bonds denominated in a convertible foreign currency due to changes in the exchange rate, using CIRS and FX-Forward hedging instruments
Description of the hedging relationship	Elimination of the variability of cash flows generated by mortgage loans in PLN due to changes in the reference interest rates and by mortgage covered bonds denominated in a convertible foreign currency (EUR) due to changes in the exchange rate, using CIRS hedging instruments and a series of FX-Forward transactions in the foreign currency serving as hedges of the FX exposures maturing on the dates of payment of coupons on the mortgage covered bonds in the foreign currency.
Hedged risk	Forex and interest rate risks.
Hedging instruments	■ CIRS transactions in which the Bank pays a coupon based on a variable PLN rate and receives a coupon based on a fixed rate for the convertible currency (EUR). If PKO Bank Hipoteczny SA is declared bankrupt by the court, the CIRS transactions will automatically be extended by 12 months on the terms and conditions set out on the transaction date; ■ an optional series of FX-Forward transactions in the convertible foreign currency serving as hedges of the FX exposures maturing on the dates of payment of coupons on the mortgage covered bonds in the foreign currency.
Hedged item	■ part of the portfolio of the residential loans included in the cover pool of PLN mortgage covered bonds at floating rates. The interest rates on the loans are indexed by the 3M WIBOR rate. The mortgage loan margin is excluded from the hedge; ■ fixed-rate covered bonds issued in a convertible currency.
The period in which cash flows are expected	The period in which cash flows are expected to occur and affect the financial results: January 2025 – June 2025.

DERIVATIVE HEDGING INSTRUMENTS	NOMINAL VALUE OF DERIVATIVE HEDGING INSTRUMENTS		CARRYING AMOUNT (FAIR VALUE) OF HEDGING INSTRUMENTS		INEFFECTIVE PORTION OF CASH FLOW HEDGES RECOGNIZED IN THE INCOME STATEMENT	CHANGE IN THE FAIR VALUE OF HEDGING INSTRUMENT SINCE DESIGNATION
			Assets	Liabilities
31.12.2024
CIRS EUR/PLN	EUR fixed leg	499,900	-	204,877	558	(204,740)
	PLN floating leg	2,348,030
FX forward	purchase of EUR	65	-	81	10
	sale of EUR	-
31.12.2023
CIRS EUR/PLN	EUR fixed leg	1,523,890	55,353	209,290	(543)	(150,880)
	PLN floating leg	6,692,499
FX forward	purchase of EUR	898	30	527	(10)
	sale of EUR	33

The average fixed interest rate weighted with the nominal value for CIRS transactions amounted to 2.132% as at 31 December 2024, and 1.215% as at 31 December 2023.

HEDGED ITEMS	CARRYING AMOUNT OF HEDGED ITEMS	ITEM OF THE STATEMENT OF FINANCIAL POSITION	CHANGE IN THE FAIR VALUE OF HEDGED ITEMS SINCE DESIGNATION
31.12.2024
floating rate PLN loans	2,348,030	Loans and advances to customers	205,107
fixed-rate mortgage covered bonds issued in a convertible currency	2,136,350	Liabilities in respect of mortgage covered bonds issued	205,107
31.12.2023
floating rate PLN loans	6,692,499	Loans and advances to customers	150,451
fixed-rate mortgage covered bonds issued in a convertible currency	6,629,635	Liabilities in respect of mortgage covered bonds issued	150,451

Strategy 2	Hedges against fluctuations in cash flows from fluctuating interest rate loans in PLN, resulting from the risk of changes in interest rates, using IRS transactions
Description of the hedging relationship	Elimination of the risk of cash flow fluctuations generated by the fluctuating interest rate PLN loan portfolio resulting from the risk of changes in interest rates in the period covered by the hedge using IRS transactions.
Hedged risk	Interest rate risk.
Hedging instruments	IRS (Interest Rate Swap) transactions where the Bank pays coupons based on the floating 3M WIBOR rate, and receives coupons based on a fixed rate on the nominal value for which they were concluded.
Hedged item	A part of the portfolio of residential loans in PLN indexed to the WIBOR 3M fluctuating rate. The mortgage loan margin is excluded from the hedge;
The period in which cash flows are expected	The period in which cash flows are expected to occur and affect the financial results: January 2025 – August 2028.

DERIVATIVE HEDGING INSTRUMENTS	NOMINAL VALUE OF DERIVATIVE HEDGING INSTRUMENTS		CARRYING AMOUNT (FAIR VALUE) OF HEDGING INSTRUMENTS		INEFFECTIVE PORTION OF CASH FLOW HEDGES RECOGNIZED IN THE INCOME STATEMENT	CHANGE IN THE FAIR VALUE OF HEDGING INSTRUMENT SINCE DESIGNATION
DERIVATIVE HEDGING INSTRUMENTS	NOMINAL VALUE OF DERIVATIVE HEDGING INSTRUMENTS		Assets	Liabilities
31.12.2024
IRS PLN	PLN	60,000	-	3,738	(5)	(3,765)
31.12.2023
IRS PLN	PLN	60,000	-	3,370	(13)	(3,397)

The average fixed interest rate weighted with the nominal value for IRS transactions amounted to 3.49% as at 31 December 2024 and as at 31 December 2023.

HEDGED ITEMS	CARRYING AMOUNT OF HEDGED ITEMS	ITEM OF THE STATEMENT OF FINANCIAL POSITION	CHANGE IN THE FAIR VALUE OF HEDGED ITEMS SINCE DESIGNATION
31.12.2024
floating rate PLN loans	60,000	Loans and advances to customers	3,747
31.12.2023
floating rate PLN loans	60,000	Loans and advances to customers	3,384

Financial information

CARRYING AMOUNT / FAIR VALUE OF DERIVATIVES USED AS CASH FLOW HEDGES	31.12.2024		31.12.2023
	Assets	Liabilities	Assets	Liabilities

IRS	-	3,738	-	3,370
CIRS	-	204,877	55,353	209,290
FX forward	-	81	30	527

Total	-	208,696	55,383	213,187

The Bank concludes and maintains derivative instruments exclusively for hedging purposes.

NOMINAL VALUE OF HEDGING INSTRUMENTS BY MATURITY AS AT 31 DECEMBER 2024	up to 1 month	from 1 to 3 months	from 3 months to 1 year	from 1 to 5 years	after more than 5 years	Total

IRS
PLN fixed - float	-	-	-	60,000	-	60,000
CIRS
float PLN sale	-	-	2,348,030	-	-	2,348,030
fixed EUR purchase (original currency)	-	-	499,900	-	-	499,900
FX forward
PLN sale	-	-	366	-	-	366
EUR purchase (original currency)	-	-	65	-	-	65
PLN purchase	-	-	-	-	-	-
EUR sale (original currency)	-	-	-	-	-	-

NOMINAL VALUE OF HEDGING INSTRUMENTS BY MATURITY AS AT 31 DECEMBER 2023	up to 1 month	from 1 to 3 months	from 3 months to 1 year	from 1 to 5 years	after more than 5 years	Total

IRS
PLN fixed - float	-	-	-	-	60,000	60,000
CIRS
float PLN sale	2,101,228	108,500	2,134,741	2,348,030	-	6,692,499
fixed EUR purchase (original currency)	499,460	25,000	499,530	499,900	-	1,523,890
FX forward
PLN sale	2,144	-	1,978	366	-	4,488
EUR purchase (original currency)	440	-	393	65	-	898
PLN purchase	-	-	176	-	-	176
EUR sale (original currency)	-	-	33	-	-	33

CHANGE IN OTHER COMPREHENSIVE INCOME ON CASH FLOW HEDGES AND INEFFECTIVE PORTION OF CASH FLOW HEDGES	01.01.2024 - 31.12.2024	01.01.2023 - 31.12.2023

Accumulated other comprehensive income on cash flow hedges at the beginning of the period, gross	(91,835)	(168,427)
Gains / (Losses) recognized in other comprehensive income during the period	(192,715)	(865,689)
Amounts transferred from other comprehensive income to the income statement during the period	266,756	942,281
- interest expense (net)	205,602	435,079
- net foreign exchange gains/(losses)	61,154	507,202
Accumulated other comprehensive income on cash flow hedges as at the end of the period, gross	(17,794)	(91,835)
Tax effect	3,381	17,449
Accumulated other comprehensive income on cash flow hedges at the end of the period, net	(14,413)	(74,386)

Ineffective portion of cash flow hedges recognized in the income statement	563	(566)

Impact on other comprehensive income during the period, gross	74,041	76,592
Deferred tax on cash flow hedges	(14,068)	(14,552)
Impact on other comprehensive income during the period, net	59,973	62,040

Calculation of estimates

The Bank conducted a simulation to assess the potential impact of changes in the yield curves on the transaction value.

ESTIMATED CHANGE IN VALUE WITH PARALLEL SHIFT OF YIELD CURVES:	31.12.2024		31.12.2023
	scenario +50 b.p.	scenario -50 b.p.	scenario +50 b.p.	scenario -50 b.p.
IRS	(868)	868	(1,052)	1,052
CIRS	(2,490)	2,490	(18,864)	18,864
FX forward	-	-	1	(1)

25. Securities

Accounting policies

The classification and measurement policies in respect of debt securities are described in Note 10.3 “Classification and measurement of financial instruments”.

Financial information

SECURITIES	31.12.2024	31.12.2023

Measured at fair value through other comprehensive income, including:	749,307	945,251
issued by the State Treasury, PLN Treasury bonds	749,307	945,251

Total	749,307	945,251

SECURITIES BY MATURITY	31.12.2024	31.12.2023

issued by the State Treasury, PLN Treasury bonds
up to 1 month	-	395,800
from 1 to 3 months	-	-
from 3 months to 1 year	161,398	-
from 1 to 5 years	587,909	549,451

Total	749,307	945,251

SECURITIES BY NOMINAL VALUE AND AVERAGE YIELD	31.12.2024	31.12.2023

issued by the State Treasury, PLN Treasury bonds	738,000	922,000
Average yield	5.84%	6.54%

Information on credit risk exposure in connection with securities is provided in Note 46 “Credit risk management”.

In the periods ended on 31 December 2023 and 31 December 2022, there were no transfers of securities between the stages – all securities were classified as Stage 1.

Securities put up as collateral

■ Collateral for liabilities in respect of the payment of contributions to the Bank Guarantee Fund

As at 31 December 2024, the contribution to the bank resolution fund, which is contributed as an obligation to pay to the Bank Guarantee Fund (“BGF”), amounted to PLN 32,843 thousand, and the Bank held Treasury bonds with a carrying value of PLN 39,230 thousand to cover the contribution. As at 31 December 2023, these amounted to PLN 28,659 thousand and PLN 34,986 thousand respectively.

Such funds are treated as assets pledged as collateral for own liabilities, they cannot be pledged or encumbered in any other way, are excluded from judicial or administrative enforcement proceedings and do not form part of the estate in bankruptcy.

■ Collateral for mortgage covered bonds

The amount of additional collateral entered in the Covered Bonds Cover Pool maintained in the form of Treasury securities in PLN was PLN 80,000 thousand as at 31 December 2024 and PLN 205,000 thousand as at 31 December 2023. The disclosure of assets in the Covered Bonds Cover Pool is described in Note 32 “Liabilities in respect of mortgage covered bonds issued”.

26. Loans and advances to customers

Accounting policies

The classification and measurement policies in respect of loans and advances to customers are described in Note 10 “General accounting policies for financial instruments”.

The Bank adjusts the gross carrying amounts of residential loans measured at amortized cost by recognizing the impact of:

 potential refunds of costs to customers relating to anticipated early repayment of active residential loans in the future;

 extension of statutory loan repayment holidays into 2024.

Extension of statutory loan repayment holidays

Pursuant to the amendment dated 12 April 2024 of the Act on support for borrowers who have taken out a residential loan and are in financial difficulty and the Act of 7 July 2022 on crowdfunding for businesses and aid to borrowers, borrowers who meet the following criteria may take advantage of loan repayment holidays:

 the value of the loan granted did not exceed PLN 1.2 million; and

 the loan instalment exceeded 30% of the household income, calculated as the average household income for the last three months, or the borrower had at least three dependent children (as at the date of submitting a loan application).

In accordance with the Act, residential loan instalments could be suspended four times in 2024 – twice between 1 June and 31 August 2024 and twice between 1 September and 31 December 2024.

The Bank adopted a judgment that the customers’ right to take advantage of the loan repayment suspension constituted a statutory modification of cash flows which occurred on the date of the Act being signed by the President.

The Bank adjusted the gross carrying amount of mortgage loans for an amount of PLN 60.8 million in May 2024, recognizing it as a reduction in interest income. The adjustment was determined as the difference between the value of estimated cash flows from loan agreements taking into account the suspension of instalment repayment, discounted using the pre-modification effective interest rate and the present gross carrying amount of the loan portfolio. The loss estimate was based on the assumption that 15% of the maximum loss would be realized during the programme (customer participation rate).

By the end of December 2024, 5.2 thousand of the Bank's customers had applied for a suspension of one or more instalments of the mortgage loan, which amounted to 5.4% of the total number of customers and 8.3% of the value of total gross loans.

In the fourth quarter of 2024, on the basis of empirical data on the actual use of loan repayment holidays by customers, the Bank updated the level of the related loss and reduced the loss accounted for so far on a pro rata basis. The cumulative effect recognized by the Bank in this respect amounted to PLN 28.3 million (including the reduction of the loss recognized in May 2024 of PLN 29.4 million and the pro rata reduction of the amortization to date of PLN 1.1 million), which translated to an increase in net interest income and a decrease in the adjustment of the gross carrying amount of the loans. The realized loss on statutory loan repayment holidays for the Bank, excluding the effect of the settlement to date, amounted to PLN 31.4 million.

Financial information

LOANS AND ADVANCES TO CUSTOMERS	31.12.2024	31.12.2023

Measured at amortized cost
Residential loans, gross, including:	16,689,397	17,992,474
loans granted	9,250,254	9,848,640
receivables acquired	7,439,143	8,143,834

Allowances for expected credit losses	(88,726)	(93,767)

Loans and advances to customers, net	16,600,671	17,898,707

The division into loans granted and receivables acquired presented in the table above relates solely to the source of obtaining credit. The Bank manages its whole loan portfolio in a uniform manner.

In 2024, based on the Framework Agreement for the Sale of Receivables signed with PKO Bank Polski SA on 17 November 2015, the Bank purchased mortgage covered residential loan portfolios amounting to PLN 403,771 thousand, and in 2023 – a portfolio of receivables amounting to PLN 325,182 thousand.

Residential loans that have been entered in the Bank’s Cover Pool represent collateral for mortgage covered bonds issued by the Bank, as described in Note 32 “Liabilities in respect of mortgage covered bonds issued”.

Information about exposure to credit risk for loans and advances to customers granted measured at amortized cost is described in Note 27 “Expected credit losses”. Information about the quality of the loan portfolio is presented in Note 46.1 “Credit risk – Financial information”.

27. Expected credit losses

Estimates and judgements

The allowance for expected credit losses is recognized in the financial statements as follows:

■ Financial assets measured at amortized cost: the allowance decreases the gross carrying amount of the financial asset; changes in the allowance are recognized in the income statement;

■ Off-balance sheet liabilities granted of a credit nature: the allowance is presented as a provision in liabilities; changes in provisions are recognized in the income statement;

■ Debt securities measured at fair value through other comprehensive income: an allowance for expected credit losses in not recognized in the carrying amount, because the carrying amount of these asset is their fair value.

The information about the methodology for the assessment of expected credit losses and calculation of the impairment of credit exposures is provided in Note 46.5 “Allowances for expected credit losses”.

Financial information

Financial assets and allowances for expected credit losses

FINANCIAL ASSETS AND ALLOWANCES FOR EXPECTED CREDIT LOSSES AS AT 31 December 2024	Assets with no significant increase in credit risk since initial recognition (Stage 1)	Assets with a significant increase in credit risk since initial recognition, but not credit-impaired (Stage 2)	Credit-impaired assets (Stage 3)	Purchased or originated credit-impaired assets (POCI) 1)	Total

	Measured at fair value through other comprehensive income
Securities	749,307	-	-	-	749,307

	Measured at amortized cost
Amounts due from banks
Gross amount	10,186	-	-	-	10,186
Allowances	-	-	-	-	-
Net amount	10,186	-	-	-	10,186
Loans and advances to customers
Gross amount	15,964,644	645,928	77,715	1,110	16,689,397
Allowances	(5,185)	(45,669)	(38,416)	544	(88,726)
Net amount	15,959,459	600,259	39,299	1,654	16,600,671
Other financial assets
Gross amount	609	-	-	-	609
Allowances	-	-	-	-	-
Net amount	609	-	-	-	609

1) Financial assets presented as POCI result from a substantial modification of an impaired agreement. The Bank does not purchase impaired receivables.

FINANCIAL ASSETS AND ALLOWANCES FOR EXPECTED CREDIT LOSSES AS AT 31 DECEMBER 2023	Assets with no significant increase in credit risk since initial recognition (Stage 1)	Assets with a significant increase in credit risk since initial recognition, but not credit-impaired (Stage 2)	Credit-impaired assets (Stage 3)	Purchased or originated credit-impaired assets (POCI)	Total

	Measured at fair value through other comprehensive income
Securities	945,251	-	-	-	945,251

	Measured at amortized cost
Amounts due from banks
Gross amount	2,421	-	-	-	2,421
Allowances	-	-	-	-	-
Net amount	2,421	-	-	-	2,421
Loans and advances to customers
Gross amount	17,109,703	810,010	71,480	1,281	17,992,474
Allowances	(10,036)	(48,731)	(35,351)	351	(93,767)
Net amount	17,099,667	761,279	36,129	1,632	17,898,707
Other financial assets
Gross amount	1,072	-	-	-	1,072
Allowances	-	-	-	-	-
Net amount	1,072	-	-	-	1,072

Loan commitments and provisions

LOAN COMMITMENTS AND PROVISIONS AS AT 31 DECEMBER 2024	Nominal amount of loan commitments with no significant increase in credit risk since initial recognition (Stage 1)	Loan commitments with a significant increase in credit risk since initial recognition, but not credit-impaired (Stage 2)	Credit-impaired loan commitments (Stage 3)	Credit-impaired loan commitments (Stage 3)		Total

In respect of residential loans
Nominal amount	100,086	236	-		-	100,322
Provisions	(39)	(4)	-		-	(43)

LOAN COMMITMENTS AND PROVISIONS AS AT 31 December 2023	Nominal amount of loan commitments with no significant increase in credit risk since initial recognition (Stage 1)	Loan commitments with a significant increase in credit risk since initial recognition, but not credit-impaired (Stage 2)	Credit-impaired loan commitments (Stage 3)	Credit-impaired loan commitments (Stage 3)		Total

In respect of residential loans
Nominal amount	90,802	120	-		-	90,922
Provisions	(35)	(3)	-		-	(38)

Changes in gross carrying amount of financial instruments and changes in allowances for expected credit losses

CHANGES IN GROSS CARRYING AMOUNTS OF FINANCIAL INSTRUMENTS IN 2024	Carrying amount, gross as at 01.01.2024	Increase due to granting and purchase of loans and accrual of interest	Changes due to disbursement of tranches and interest capitalization	Decrease due to repayment / redemption	Changes due to non-substantial modification, net	Decrease due to substantial modification (derecognition)	Changes on loans for which the loss recognition horizon was lengthened from 12 months to lifetime	Changes on loans for which the loss recognition horizon was shortened from lifetime to 12 months	Change in connection with a partial write-down or other	Transfers to S1	Transfers to S2	Transfers to S3	Other changes, incl. remeasurement	Carrying amount, gross as at 31.12.2024

Measured at fair value through other comprehensive income
securities (S1)	945,251	2,453,876	-	(2,699,614)	-	-	-	-	-				49,794	749,307
Total	945,251	2,453,876	-	(2,699,614)	-	-	-	-	-				49,794	749,307

Measured at amortized cost
amounts due from banks (S1)	2,421	10,186	-	(2,421)	-	-	-	-	-					10,186
loans and advances to customers	17,992,474	881,245	112,654	(2,171,892)	(34,379)	(46,891)	(6,171)	(38,158)	515				-	16,689,397
residential loans	17,992,474	881,245	112,654	(2,171,892)	(34,379)	(46,891)	(6,171)	(38,158)	515				-	16,689,397
Stage 1 (S1)	17,109,703	879,652	110,242	(2,124,497)	(30,762)	(45,298)	(6,171)	-	(64)	1,134,583	(1,054,340)	(8,404)	-	15,964,644
Stage 2 (S2)	810,010	969	2,085	(31,811)	(3,321)	(969)	-	(37,426)	205	(1,134,583)	1,078,210	(37,441)	-	645,928
Stage 3 (S3)	71,480	624	324	(15,236)	(280)	(624)	-	(732)	184	-	(23,870)	45,845	-	77,715
POCI	1,281	-	3	(348)	(16)	-	-	-	190				-	1,110
other financial assets (S1)	1,072	609	-	(1,072)	-	-	-	-	-				-	609
Total	17,995,967	892,040	112,654	(2,175,385)	(34,379)	(46,891)	(6,171)	(38,158)	515				-	16,700, 192

CHANGES IN ALLOWANCES FOR EXPECTED CREDIT LOSSES ON FINANCIAL INSTRUMENTS IN 2024	As at 01.01.2024	Increase due to granting and purchase of loans and accrual of interest*	Changes due to changes in credit risk (net), including total repayment*	Changes due to non-substantial modification, net*	Decrease due to substantial modification (derecognition)*	Changes due to lengthening the loss recognition horizon from 12 months to lifetime*	Changes due to shortening the loss recognition horizon from lifetime to 12 months*	Change in connection with a partial write-down or other	Transfers to S1	Transfers to S2	Transfers to S3	Other changes	As at 31.12.2024

Measured at fair value through other comprehensive income
securities (S1)	-	12	(8)	-	-	-	-	-				(4)	-
Total	-	12	(8)	-	-	-	-	-				(4)	-

Measured at amortized cost
amounts due from banks (S1)	-	-	-	-	-	-	-	-				-	-
loans and advances to customers	93,767	781	(9,480)	295	(320)	39,155	(35,867)	395				-	88,726
residential loans	93,767	781	(9,480)	295	(320)	39,155	(35,867)	395				-	88,726
Stage 1 (S1)	10,036	480	(4,384)	42	(19)	39,155	-	(64)	2,768	(39,937)	(2,892)	-	5,185
Stage 2 (S2)	48,731	14	12,224	565	(14)	-	(35,576)	205	(2,768)	41,580	(19,292)	-	45,669
Stage 3 (S3)	35,351	287	(17,055)	(312)	(287)	-	(291)	182	-	(1,643)	22,184	-	38,416
POCI	(351)	-	(265)	-	-	-	-	72				-	(544)
other financial assets (S1)	-	-	-	-	-	-	-	-				-	-
Total	93,767	781	(9,480)	295	(320)	39,155	(35,867)	395				-	88,726

* - items affecting net allowances for expected credit losses

CHANGES IN GROSS CARRYING AMOUNTS OF FINANCIAL INSTRUMENTS IN 2023	Carrying amount, gross as at 01.01.2023	Increase due to granting and purchase of loans	Changes due to disbursement of tranches and interest capitalization	Decrease due to repayment / redemption	Changes due to non-substantial modification, net	Decrease due to substantial modification (derecognition)	Changes on loans for which the loss recognition horizon was lengthened from 12 months to lifetime	Changes on loans for which the loss recognition horizon was shortened from lifetime to 12 months	Gross carrying amount decrease in connection with a partial write-down	Transfers to S1	Transfers to S2	Transfers to S3	Other changes, incl. remeasurement	Carrying amount, gross as at 31.12.2023

Measured at fair value through other comprehensive income
securities (S1)	1,017,558	109,845	-	(256,053)	-	-	-	-	-				73,901	945,251
Total	1,017,558	109,845	-	(256,053)	-	-	-	-	-				73,901	945,251

Measured at amortized cost
amounts due from banks (S1)	61	2,421	-	(61)	-	-	-	-	-				-	2,421
loans and advances to customers	19,041,457	1,051,371	49,883	(2,055,445)	(3,396)	(39,324)	(4,652)	(47,517)	97				-	17,992,474
residential loans	19,041,457	1,051,371	49,883	(2,055,445)	(3,396)	(39,324)	(4,652)	(47,517)	97				-	17,992,474
Stage 1 (S1)	18,163,173	1,049,378	48,977	(2,025,607)	(3,424)	(37,468)	(4,652)	-	(67)	1,288,570	(1,359,896)	(9,281)	-	17,109,703
Stage 2 (S2)	816,130	1,646	827	(15,675)	(26)	(1,440)	-	(46,968)	195	(1,288,187)	1,383,606	(40,098)	-	810,010
Stage 3 (S3)	60,841	175	75	(13,941)	54	(416)	-	(549)	(45)	(383)	(23,710)	49,379	-	71,480
POCI	1,313	172	4	(222)	-	-	-	-	14				-	1,281
other financial assets (S1)	98	1,072	-	(98)	-	-	-	-	-				-	1,072
Total	19,041,616	1,054,864	49,883	(2,055,604)	(3,396)	(39,324)	(4,652)	(47,517)	97				-	17,995,967

CHANGES IN ALLOWANCES FOR EXPECTED CREDIT LOSSES ON FINANCIAL INSTRUMENTS IN 2023	As at 01.01.2023	Increase due to granting and purchase of loans*	Changes due to changes in credit risk (net), including total repayment*	Changes due to non-substantial modification, net*	Decrease due to substantial modification (derecognition)*	Changes due to lengthening the loss recognition horizon from 12 months to lifetime*	Changes due to shortening the loss recognition horizon from lifetime to 12 months*	Decrease in connection with a partial write-down	Transfers to S1	Transfers to S2	Transfers to S3	Other changes	As at 31.12.2023

Measured at fair value through other comprehensive income
securities (S1)	111	-	(75)	-	-	-	-	-				(36)	-
Total	111	-	(75)	-	-	-	-	-				(36)	-

Measured at amortized cost
amounts due from banks (S1)	-	-	-	-	-	-	-	-				-	-
loans and advances to customers	86,093	659	(2,414)	(96)	(258)	57,167	(47,410)	26				-	93,767
residential loans	86,093	659	(2,414)	(96)	(258)	57,167	(47,410)	26				-	93,767
Stage 1 (S1)	12,586	477	(2,198)	68	(21)	57,167	-	(87)	4,916	(59,636)	(3,236)	-	10,036
Stage 2 (S2)	45,439	36	15,964	(51)	(21)	-	(47,089)	195	(4,916)	60,651	(21,477)	-	48,731
Stage 3 (S3)	28,439	89	(16,188)	(113)	(216)	-	(321)	(37)	-	(1,015)	24,713	-	35,351
POCI	(371)	57	8	-	-	-	-	(45)					(351)
other financial assets (S1)	-	-	-	-	-	-	-	-				-	-
Total	86,093	659	(2,414)	(96)	(258)	57,167	(47,410)	26				-	93,767

* - items affecting net allowances for expected credit losses

Calculation of estimates

The Bank performed a simulation of a change in allowances for expected credit losses resulting from a deterioration or improvement in risk parameters.

ESTIMATED CHANGE IN ALLOWANCES FOR EXPECTED CREDIT LOSSES DUE TO A DETERIORATION OR IMPROVEMENT IN RISK PARAMETERS, INCLUDING:1	31.12.2024		31.12.2023
	scenario +10%	scenario -10%	scenario +10%	scenario -10%

changes in probability of default	3,960	(4,963)	4,021	(5,124)
changes in rates of recovery	(11,346)	11,353	(11,470)	11,492

1 in plus – an increase in allowances, in minus – a decrease in allowances

The table below presents sensitivity of allowances for expected credit losses as estimated as at 31 December 2024 and 31 December 2023, calculated as the change in allowances for expected credit losses on non-impaired exposures as a result of materialization of various macroeconomic scenarios. Projections of these macroeconomic scenarios, including the adopted values of specific macroeconomic parameters, are presented in Note 46.5 “Allowances for expected credit losses”.

ESTIMATED CHANGE IN ALLOWANCES FOR EXPECTED CREDIT LOSSES ON NON-IMPAIRED EXPOSURES AS A RESULT OF THE MATERIALIZATION OF VARIOUS MACROECONOMIC SCENARIOS	31.12.2024				31.12.2023
	initial amount of allowances	scenario			initial amount of allowances	scenario
	initial amount of allowances	baseline	optimistic	pessimistic	initial amount of allowances	baseline	optimistic	pessimistic
Stage 1	5,185	(188)	(1,089)	1,064	10,036	(528)	(2,912)	2,631
Stage 2	45,669	(1,054)	(6,168)	5,058	48,731	(1,488)	(8,998)	7,763

Total	50,854	(1,242)	(7,257)	6,122	58,767	(2,016)	(11,910)	10,394

1 in plus – an increase in allowances, in minus – a decrease in allowances

The table below presents sensitivity of migrations of gross non-impaired exposures between Stages 1 and 2 to materialization of specific macroeconomic scenarios as at 31 December 2024 and 31 December 2023.

ESTIMATED MIGRATIONS OF GROSS NON-IMPAIRED EXPOSURES BETWEEN STAGES 1 AND 2 TO MATERIALIZATION OF SPECIFIC MACROECONOMIC SCENARIOS	31.12.2024				31.12.2023
	initial amount of allowances	scenario			initial amount of allowances	scenario
	initial amount of allowances	baseline	optimistic	pessimistic	initial amount of allowances	baseline	optimistic	pessimistic
Stage 1	5,185	12,442	81,991	(70,240)	10,036	31,527	195,055	(170,267)
Stage 2	45,669	(12,442)	(81,991)	70,240	48,731	(31,527)	(195,055)	170,267

28. Intangible assets and property, plant and equipment

Accounting policies and estimates

Intangible assets

Intangible assets comprise identifiable non-monetary assets, which do not have a physical form.

Recognition of intangible assets:

■ software – computer software licenses acquired are recognized at the amount of the costs incurred on their purchase and preparation for use, taking into account amortization and impairment;

■ other intangible assets acquired by the Bank are recognized at the purchase price or cost of manufacture less amortization and total impairment allowances;

■ the costs of completed development projects are recognized in intangible assets when expected economic benefits are obtained and specific conditions are satisfied, i.e. if there is a possibility and intention to complete and use the asset, appropriate technical and financial means are available to complete the work and the use the asset and the amount of expenditure incurred during development work, which can be allocated to the development of intangible assets, can be assessed reliably.

Property, plant and equipment

Property, plant and equipment are recognized at the end of a reporting period at the purchase price or cost of manufacture less accumulated depreciation and impairment.

Right-of-use assets, which are measured at cost, are also recognized in this category. The cost of a right-of-use asset includes:

■ the amount of the initial measurement of the lease liability;

■ any lease payments made at or before the commencement date, less any lease incentives received;

■ any initial direct costs incurred by the lessee in connection with concluding the lease agreement;

■ an estimate of the costs to be incurred by the lessee under the contract in connection with the obligation to dismantle and remove the underlying asset or restore the underlying asset.

Expenditure

The carrying amount of property, plant and equipment and intangible assets is increased by additional expenditure incurred over the period of their use.

Financial information

Intangible assets

FOR THE PERIOD FROM 1 JANUARY 2024 TO 31 DECEMBER 2024	Software	Other, including expenditure	Total

Gross carrying amount at the beginning of the period	8,921	20	8,941
Purchases	144	-	144
Gross carrying amount at the end of the period	9,065	20	9,085

Accumulated amortization at the beginning of the period	(8,723)	(1)	(8,724)
Amortization charge	(113)	(2)	(115)
Accumulated amortization at the end of the period	(8,836)	(3)	(8,839)

Net carrying amount at the beginning of the period	198	19	217
Net carrying amount at the end of the period	229	17	246

FOR THE PERIOD FROM 1 JANUARY 2023 TO 31 DECEMBER 2023	Software	Other, including expenditure	Total

Gross carrying amount at the beginning of the period	8,665	-	8,665
Purchases	256	20	276
Gross carrying amount at the end of the period	8,921	20	8,941

Accumulated amortization at the beginning of the period	(8,599)	-	(8,599)
Amortization charge	(124)	(1)	(125)
Accumulated amortization at the end of the period	(8,723)	(1)	(8,724)

Net carrying amount at the beginning of the period	66	-	66
Net carrying amount at the end of the period	198	19	217

Property, plant and equipment

FOR THE PERIOD FROM 1 JANUARY 2024 TO 31 DECEMBER 2024	Property, plant and equipment under construction	Leasehold improvements	Plant and machinery	Right-of-use assets, including:		Other	Total
FOR THE PERIOD FROM 1 JANUARY 2024 TO 31 DECEMBER 2024	Property, plant and equipment under construction	Leasehold improvements	Plant and machinery	real estate	cars	Other	Total

Gross carrying amount at the beginning of the period	99	3,971	1,230	10,446	870	626	17,242
Purchases	68	-	39	-	-	-	107
Transfers	(167)	-	166	-	-	1	-
Disposal and sale	-	-	(320)	-	-	(1)	(321)
Lease contracts concluded	-	-	-	-	705	-	705
Modification/ indexation of lease contracts	-	-	-	495	-	-	495
Termination of lease contracts	-	-	-	(4,047)	(489)	-	(4,536)
Gross carrying amount at the end of the period	-	3,971	1,115	6,894	1,086	626	13,692

Accumulated depreciation at the beginning of the period	-	(126)	(989)	(5,018)	(592)	(413)	(7,138)
Depreciation charge	-	(397)	(154)	(1,248)	(250)	(44)	(2,093)
Disposal and sale	-	-	320	-	-	1	321
Termination of lease contracts	-	-	-	3,682	489	-	4,171
Accumulated depreciation at the end of the period	-	(523)	(823)	(2,584)	(353)	(456)	(4,739)

Net carrying amount at the beginning of the period	99	3,845	241	5,428	278	213	10,104
Net carrying amount at the end of the period	-	3,448	292	4,310	733	170	8,953

FOR THE PERIOD FROM 1 JANUARY 2023 TO 31 DECEMBER 2023	Property, plant and equipment under construction	Leasehold improvements	Plant and machinery	Right-of-use assets, including:		Other	Total
FOR THE PERIOD FROM 1 JANUARY 2023 TO 31 DECEMBER 2023	Property, plant and equipment under construction	Leasehold improvements	Plant and machinery	real estate	cars	Other	Total

Gross carrying amount at the beginning of the period	-	34	1,007	6,226	904	403	8,574
Purchases	498	3,937	39	-	-	33	4,507
Transfers	(399)	-	209	-	-	190	-
Disposal and sale	-	-	(25)	-	-	-	(25)
Lease contracts concluded	-	-	-	4,572	113	-	4,685
Modification/ indexation of lease contracts	-	-	-	(352)	-	-	(352)
Termination of lease contracts	-	-	-	-	(147)	-	(147)
Gross carrying amount at the end of the period	99	3,971	1,230	10,446	870	626	17,242

Accumulated depreciation at the beginning of the period	-	(24)	(923)	(3,884)	(532)	(403)	(5,766)
Depreciation charge	-	(102)	(91)	(1,134)	(200)	(10)	(1,537)
Disposal and sale	-	-	25	-	-	-	25
Termination of lease contracts	-	-	-	-	140	-	140
Accumulated depreciation at the end of the period	-	(126)	(989)	(5,018)	(592)	(413)	(7,138)

Net carrying amount at the beginning of the period	-	10	84	2,342	372	-	2,808
Net carrying amount at the end of the period	99	3,845	241	5,428	278	213	10,104

The item “Other” comprises mainly the value of fixtures and fittings in the Bank’s offices, including furniture.

Legal limitations relating to the Bank’s title

In the years 2024 and 2023, there were no intangible assets or property, plant and equipment items to which the Bank’s legal title would be limited or pledged as collateral for the Bank’s liabilities.

29. Other assets

Accounting policies

Financial assets recognized in this item are measured at amounts due, including interest on such assets (if any) and taking into account allowances for expected credit losses. Non-financial assets are measured in accordance with the principles applicable to the specific categories of assets recognized in this item.

Financial information

OTHER ASSETS	31.12.2024	31.12.2023

Prepayments and deferred costs, including:	5,901	4,674
deferred costs relating to overdraft facilities	1,641	920
deferred costs relating to bond issuance programmes 1)	292	458
deferred costs relating to mortgage covered bonds issuance programmes 1)	55	56
other prepayments and deferred costs	3,913	3,240
Deferred commissions and costs relating to loans granted, in the part corresponding to undrawn principal	419	220
Settlements relating to appraisal reports on Property Value for Mortgage Lending Purposes (MLV) *	329	1,004
Settlements with the State Budget	0	0
Other *	280	68

Total	6,929	5,966
including financial assets – marked with * above	609	1,072

1) Costs associated with issuance programmes relate to the issuance programmes as a whole and cannot be allocated to the individual issues executed as part of the programmes.

30. Amounts due to banks

Accounting policies

Amounts due to banks are measured at amortized cost using the effective interest rate method. If a schedule of future cash flows cannot be determined for a financial liability (and, therefore, the effective interest rate cannot be determined), the liability is measured at the amount due.

Financial information

AMOUNTS DUE TO BANKS	31.12.2024	31.12.2023

Measured at amortized cost
overdraft within the limit available	-	1,653
liability related to overdraft facilities	3,088,218	2,570,177
liability related to term loans	2,254,612	2,008,914

Total	5,342,830	4,580,744

Liabilities in respect of loans

Type of loan	Lender	Effective date of agreement	Maturity as at 31 December 2024	Amount of loan drawn as at 31 December 2024	Liabilities as at 31 December 2024	Liabilities as at 31 December 2023

Overdrafts	PKO Bank Polski SA 1)	29.10.2015	27.10.2028	2,000,000	509,171	1,652,544
	PKO Bank Polski SA	02.02.2017	03.02.2026	2,000,000	495,087	3,133
	PKO Bank Polski SA 2)	10.07.2019	30.06.2028	3,100,000	2,083,960	914,500
Term loans	PKO Bank Polski SA	10.09.2020	22.03.2026	210,000	209,965	210,696
	PKO Bank Polski SA	11.02.2022	22.12.2027	1,522,000	1,521,814	1,530,143
	PKO Bank Polski SA 3)	03.01.2023	03.01.2030	600,000	522,833	268,075

Total				9,432,000	5,342,830	4,579,091

1) In connection with an annex concluded on 22 October 2024, the lending period was extended until 27 October 2028.

2) In connection with an annex concluded on 28 June 2024, the lending period was extended until 30 June 2028 and the amount of the loan was reduced to PLN 3,100,000 thousand starting from 1 July 2024.

3) The period during which the 5-year tranches may be used expired on 3 January 2025, therefore the maturity date of the tranche that would be drawn on the last available day was specified as the maturity date. Moreover, Annex no. 2 was signed on 30 December 2024, based on which the amount of the limit was increased to PLN 900,000 thousand and the loan utilization period was extended until 3 January 2026.

31. Amounts due to customers

Accounting policies

Amounts due to customers are measured at amortized cost. Amounts due to customers comprise solely funds on non-interest bearing technical accounts dedicated to loan servicing and relate mainly to overpayments made by the customers. The Bank does not accept deposits.

Financial information

AMOUNTS DUE TO CUSTOMERS	31.12.2024	31.12.2023

Measured at amortized cost
amounts due to retail customers – funds on the non-interest bearing technical account dedicated to loan servicing	3,398	3,710

Total	3,398	3,710

32. Liabilities in respect of mortgage covered bonds issued

Accounting policies

Liabilities in respect of mortgage covered bonds issued are measured at amortized cost using the effective interest rate method.

Financial information

LIABILITIES IN RESPECT OF MORTGAGE COVERED BONDS ISSUED	31.12.2024	31.12.2023

Measured at amortized cost
Mortgage covered bonds, including issued under:	7,233,355	10,444,645
International Mortgage Covered Bonds Issuance Programme	6,434,161	8,433,219
National Mortgage Covered Bonds Issuance Programme	799,194	2,011,426

Total	7,233,355	10,444,645

REPAYMENT PERIOD OF MORTGAGE COVERED BONDS ISSUED	31.12.2024	31.12.2023

up to 1 month	-	2,189,197
from 1 to 3 months	-	109,510
from 3 months to 1 year	2,897,727	3,391,816
from 1 to 5 years	4,335,628	4,754,122
after more than 5 years	-	-

Total	7,233,355	10,444,645

In 2024, under the International Mortgage Covered Bonds Issuance Programme for the European market, the Bank conducted issues of mortgage covered bonds in PLN totalling PLN 2,500,000 thousand, including:

■ on 15 March 2024, the largest issue of series 12 green mortgage covered bonds in its history with the total nominal value of PLN 1,000 000 thousand which were to be issued on 22 March 2024, and to mature on 22 March 2028. The securities bear a floating interest rate of WIBOR 3M+ 0.55 p.p. margin;

■ on 27 June 2024, a subscription for series 13 mortgage covered bonds with a nominal value of PLN 500,000 thousand to which were to be issued on 5 July 2024 and to mature on 4 July 2028. The securities bear a floating interest rate of WIBOR 3M+ 0.55 p.p. margin;

■ on 17 October 2024, a subscription for series 14 mortgage covered bonds with a nominal value of PLN 500,000 thousand which were to be issued on 24 October 2024 and to mature on 24 October 2028. The securities bear a floating interest rate of WIBOR 3M+ 0.70 p.p. margin;

■ in addition, on 27 December 2024, PKO Bank Hipoteczny SA conducted an issue of the 2nd tranche of series 14 mortgage covered bonds with a nominal value of PLN 500,000 thousand with the same maturity date, interest rate and margin as the 1st tranche.

Moreover, in 2024, the Bank redeemed mortgage covered bonds with the value of PLN 1,200,000 thousand and EUR 1,025,000 thousand. In 2023, the Bank issued mortgage covered bonds with a nominal value of PLN 1,750,000 thousand and redeemed mortgage covered bonds with a value of PLN 500,000 thousand and EUR 500,000 thousand.

As at 31 December 2024, the PLN- and EUR-denominated mortgage covered bonds issued by the Bank were rated by Moody’s Investors Service at Aa1. The limit for the ratings is the Polish country ceiling for debt instruments which is currently is at the level of Aa1.

The total nominal value of the issued mortgage covered bonds in trading as at 31 December 2024 amounted to PLN 7,176,500 thousand and PLN 10,370,700 as at 31 December 2023.

Mortgage covered bonds issued and outstanding as at 31 December 2024

ISIN	Currency	Nominal amount	Interest rate as 31.12.2024	Rate +margin/ fixed rate	Issue date	Redemption date	Quotation market

PLPKOHP00090	PLN	500,000	6.47%	WIBOR + 0.62 p.p.	27.07.2018	25.07.2025	LuxSE, WSE parallel market
PLPKOHP00108	PLN	60,000	3.488%	fixed rate	24.08.2018	24.08.2028	LuxSE, WSE parallel market
PLPKOHP00116	PLN	230,000	6.51%	WIBOR + 0.66 p.p.	26.10.2018	28.04.2025	LuxSE, WSE parallel market
XS2495085784	EUR	500,000	2.125%	fixed rate	04.07.2022	25.06.2025	LuxSE, WSE parallel market
XS2583335943	PLN	500,000	6.69%	WIBOR + 0.85 p.p.	09.02.2023	09.02.2026	LuxSE, WSE parallel market
XS2641919639	PLN	500,000	6.63%	WIBOR + 0.78 p.p.	28.06.2023	29.06.2026	LuxSE, WSE parallel market
XS2711876370	PLN	750,000	6.63%	WIBOR + 0.78 p.p.	02.11.2023	02.11.2026	LuxSE, WSE parallel market
XS2787873541	PLN	1,000,000	6.40%	WIBOR + 0.55 p.p.	22.03.2024	22.03.2028	LuxSE, WSE parallel market
XS2854926701	PLN	500,000	6.39%	WIBOR + 0.55 p.p.	05.07.2024	04.07.2028	LuxSE, WSE parallel market
PLL219200010	PLN	500,000	6.55%	WIBOR + 0.70 p.p.	24.10.2024	24.10.2028	WSE parallel market
PLL219200028 1)	PLN	500,000	6.55%	WIBOR + 0.70 p.p.	27.12.2024	24.10.2028	WSE parallel market

1) On 27 January 2025, the 2nd tranche of the 14 series was assimilated into the existing issue of the securities with ISIN PLL219200010.

Security for mortgage covered bonds

The mortgage covered bonds are secured with loans which in turn are secured with the highest priority mortgage entered in the Land and Mortgage Register. Additionally, the mortgage covered bonds may also be issued based on the Bank’s own funds:

■ invested in securities issued or guaranteed by the National Bank of Poland, the European Central Bank, the governments and central banks of the Member States of the European Union, the Organization for Economic Cooperation and Development, excluding countries that are restructuring or have restructured their foreign debt in the past 5 years;

■ deposited with the National Bank of Poland;

■ deposited with domestic banks or a credit institution referred to in Article 18(3)(3) of the Polish Covered Bonds and Mortgage Banks Act of 29 August 1997.

The nominal value of loans entered in the Bank’s Cover Pool and representing collateral for the mortgage covered bonds issued as at 31 December 2024 amounted to PLN 15,292,409 thousand, whereas the nominal value of additional collateral in the form of PLN-denominated securities issued by the State Treasury amounted to PLN 80,000 thousand. As at 31 December 2023, these amounted to PLN 16,768,213 thousand and PLN 205,000 thousand respectively. The Mortgage Covered Bonds Cover Pool also included CIRS transactions hedging the currency and interest rate risk of mortgage covered bonds denominated in EUR and IRS transactions hedging the interest rate risk of fixed rate mortgage covered bonds denominated in PLN.

In 2024 and in the previous years the Mortgage Covered Bonds Cover Pool did not include asset-backed securities (ABS), which do not meet the requirements specified in paragraph 1 of Article 80 of the Guideline (EU) 2015/510 of the European Central Bank of 19 December 2014 on the implementation of the Eurosystem monetary policy framework (ECB/2014/60) (recast).

33. Liabilities in respect of bonds issued

Accounting policies

Liabilities in respect of bonds issued are measured at amortized cost using the effective interest rate method.

Financial information

LIABILITIES IN RESPECT OF BONDS ISSUED	31.12.2024	31.12.2023

Measured at amortized cost
bonds, including bonds issued under the Bond Issuance Programme	2,721,264	1,991,260

Total	2,721,264	1,991,260

REPAYMENT PERIOD OF LIABILITIES IN RESPECT OF BONDS ISSUED	31.12.2024	31.12.2023

up to 1 month	796,018	-
from 1 to 3 months	700,056	853,429
from 3 months to 1 year	1,225,190	1,137,831

Total	2,721,264	1,991,260

Bond Issuance Programme

In 2024, as part of the Bond Issuance Programme, the Bank issued bonds with a total nominal value of PLN 5,910,500 thousand (i.e. 11,821 bonds with PLN 500,000 nominal value each) and redeemed bonds with a total nominal value of PLN 5,175,000 thousand (i.e. 10,350 bonds with PLN 500,000 nominal value each). In 2023, the Bank issued bonds with a total nominal value of PLN 3,564,000 thousand (i.e. 7,128 bonds with PLN 500,000 nominal value each) and redeemed bonds with a total nominal value of PLN 3,058,500 thousand (i.e. 6,117 bonds with PLN 500,000 nominal value each).

The aforementioned issues of bonds are regulated by the Bond Issuance Programme Agreement concluded with PKO Bank Polski SA. on 30 September 2015. In accordance with the said agreement, the maximum nominal value of bonds issued and not yet redeemed is PLN 6,000,000 thousand. At the same time, pursuant to the Underwriting Agreement concluded, PKO Bank Polski SA as the Underwriter shall be obliged to take up the Issuer’s bonds up to the amount of PLN 1,000,000 thousand. Based on annexes to the aforesaid agreements signed in September 2023, the agreements were prolonged until 30 September 2026.

As at 31 December 2024, the Bank’s liability in respect of bonds issued as part of the Bond Issuance Programme had a nominal value of PLN 2,760,500 thousand, and as at 31 December 2023 its nominal value was PLN 2,025,000 thousand. As at 31 December 2024 and as at 31 December 2023, PKO Bank Polski SA did not hold any bonds under the Underwriting Agreement.

Bonds issued as at 31 December 2024

ISIN	Nominal value of 1 bond (in PLN)	Number of bonds	Nominal value (in PLN ‘000)	Carrying value (in PLN ‘000)	Currency	Interest rate	Issue date	Redemption date

PLO219200659	500,000	1,597	798,500	796,018	PLN	zero-coupon	24.07.2024	20.01.2025
PLO219200667	500,000	1,419	709,500	700,056	PLN	zero-coupon	01.10.2024	24.03.2025
PLO219200675	500,000	508	254,000	249,399	PLN	zero-coupon	05/11/2024	23.04.2025
PLO219200683	500,000	917	458,500	448,055	PLN	zero-coupon	26.11.2024	23.05.2025
PLO219200691	500,000	1,080	540,000	527,736	PLN	zero-coupon	18/12/2024	23.05.2025

Total		5,521	2,760, 500	2,721,264

34. Other liabilities

Accounting policies

Liabilities

The liabilities recognized in this item are measured at the amounts due including interest, if any. Non-financial liabilities are measured in accordance with the principles of measurement applicable to the specific categories of liabilities recognized in this item.

Expenses to be paid

The Bank recognizes accruals in respect of future payments in justified, reliably estimated amounts that are necessary to fulfil the present obligation as at the end of the reporting period.

The Bank also recognizes accruals in respect of costs which are attributable to the current period, but will be incurred in the following period, including bonuses and unused holiday, taking into account all outstanding days of holiday.

Financial information

OTHER LIABILITIES	31.12.2024	31.12.2023

Expenses to be paid *	3,055	2,991
Provision for holiday pay	830	699
Provision for other employee benefits	5,931	7,302
Liabilities in respect of contributions to the Bank Guarantee Fund (BGF), including:	32,843	28,659
maintained in the form of payment commitments to the resolution fund	32,843	28,659
Other liabilities, including:	8,407	10,798
sundry creditors*	3,714	5,584
settlements with the State budget, including:	4,693	5,214
liabilities in respect of tax on certain financial institutions	4,031	4,588
Lease liabilities *	5,217	5,766

Total	56,283	56,215
including financial liabilities marked with * above	11,986	14,341

As at 31 December 2024 and 31 December 2023, the Bank had no overdue contractual liabilities.

35. Provisions

Accounting policies

Principles for recording provisions	Provisions are liabilities whose amount or date of payment are uncertain. Provisions are created when the Bank has a current (legal or constructive) obligation resulting from past events and fulfilling this obligation is likely to cause an outflow of economic benefits whose amount can be estimated reliably. If the effect of the time value of money is material, the amount of the provision is determined by discounting the forecast future cash flows to their present value, using the gross discount rate reflecting the current market assessments of the time value of money and the potential risk related to a given obligation. All provisions are charged to the income statement.
Provisions for legal claims	The Bank recognizes provisions for disputes with counterparties, customers and third parties after being informed by a legal counsel about the high probability of losing a court case or administrative proceedings. Such provisions are recognized in the amount of the expected outflow of economic benefits. As at 31 December 2024 and 31 December 2023, no such provisions were recognized.
Provisions for disability and retirement benefits	In accordance with the Labour Code, the employees of PKO Bank Hipoteczny SA are entitled to disability or retirement benefits upon their retirement or obtaining a qualification for disability pension. The Bank periodically calculates provisions for employee benefits. Provisions for disability and retirement benefits resulting from the Labour Code are recognized for every employee individually based on periodical valuations. The calculation takes into account all retirement and disability benefits which may be payable in the future. The provision is recognized based on a list of employees and contains all the necessary details, in particular the length of service, age and gender.
Provisions for loan commitments	Provisions for loan commitments relating to residential loans which have not been drawn in full are recorded in the amount of expected credit losses. The provision is determined using portfolio parameters estimated with the use of statistical methods, based on historical observations of exposures with the same characteristics, defining the marginal probability of occurrence of impairment indications and the level of expected loss in the event of the occurrence of an impairment indication in the consecutive months of the period from the reporting date to the expected loss horizon.

Financial information and estimates

PROVISIONS FOR THE PERIOD FROM 1 JANUARY 2024 TO 31 DECEMBER 2024	Provision for disability and retirement benefits	Provisions for loan commitments	Total

As at 1 January 2024, including:	237	38	275
Short-term provision	-	38	38
Long-term provision	237	-	237
Set-up/reassessment of provisions	38	57	95
Release/utilization	-	(52)	(52)

As at 31 December 2024, including:	275	43	318
Short-term provision	-	43	43
Long-term provision	275	-	275

PROVISIONS FOR THE PERIOD FROM 1 JANUARY 2023 TO 31 DECEMBER 2023	Provision for disability and retirement benefits	Provisions for loan commitments	Total

As at 1 January 2023, including:	195	17	212
Short-term provision	-	17	17
Long-term provision	195	-	195
Set-up/reassessment of provisions	42	41	83
Release/utilization	-	(20)	(20)

As at 31 December 2023, including:	237	38	275
Short-term provision	-	38	38
Long-term provision	237	-	237

36. Equity and shareholding structure of the Bank

Accounting policies

Equity

Equity comprises the capital and funds created by the Bank in accordance with the applicable laws and the Articles of Association.

Components of the Bank’s equity:

■ share capital is recognized in the nominal amount presented in the Articles of Association and entered in the business register;

■ supplementary capital is created from profit and share premiums less share issue costs;

■ accumulated other comprehensive income comprises the amounts resulting from valuation of financial assets measured at fair value through other comprehensive income and the effective portion of cash flow hedges and the related deferred tax amounts;

■ reserves are created from net profit. The reserves are created solely for the purpose of offsetting potential losses.

Financial information

EQUITY	31.12.2024	31.12.2023

Share capital	1,611,300	1,611,300
Supplementary capital	13,263	-
Accumulated other comprehensive income, including:	(11,408)	(72,218)
cash flow hedges	(14,413)	(74,386)
measurement of financial assets measured at fair value through other comprehensive income	3,005	2,168
Retained earnings / (Accumulated losses)	-	(65,966)
Net profit /(loss) for the period	130,317	165,789

Total equity	1,743,472	1,638,905

Shareholding structure

Series	Type of shares	Number of shares	Nominal value of 1 share (in PLN)	Series value at nominal value (in PLN)	Date of passing the resolution by the GSM	Issue date	Date of registration in the National Court Register

A	ordinary egistered	300,000,000	1	300,000,000	06.10.2014	06.10.2014	24.10.2014
B	ordinary egistered	200,000,000	1	200,000,000	14.03.2016	07.04.2016	22.04.2016
C	ordinary egistered	200,000,000	1	200,000,000	01.07.2016	15.07.2016	28.07.2016
D	ordinary egistered	100,000,000	1	100,000,000	28.10.2016	18.11.2016	01.12.2016
E	ordinary egistered	150,000,000	1	150,000,000	21.03.2017	04.04.2017	12.04.2017
F	ordinary egistered	150,000,000	1	150,000,000	28.06.2017	04.07.2017	11.09.2017
G	ordinary egistered	100,000,000	1	100,000,000	18.10.2017	20.10.2017	16.11.2017
H	ordinary egistered	95,000,000	1	95,000,000	13.08.2018	17.08.2018	08.10.2018
I	ordinary egistered	100,000,000	1	100,000,000	19.12.2018	21.12.2018	21.02.2019
J	ordinary egistered	131,500,000	1	131,500,000	07.03.2019	19.03.2019	16.05.2019
K	ordinary egistered	84,800,000	1	84,800,000	27.06.2019	01.07.2019	20.08.2019
Total		1,611,300,000		1,611,300,000

PKO Bank Polski SA was the Bank’s sole shareholder as at 31 December 2024 and 31 December 2023.

The Bank’s share capital amounts to PLN 1,611,300,000 and comprises 1,611,300,000 ordinary registered shares with a nominal value of PLN 1 (one zloty) each. The PKO Bank Hipoteczny SA shares are non-preference shares and have been paid up in full.

On 26 June 2024, the Ordinary General Shareholders’ Meeting of PKO Bank Hipoteczny SA adopted a resolution on the appropriation of the net profit for the financial year ended 31 December 2023, based on which the net profit of

■ PLN 13,263 thousand, i.e. 8% of the net profit was allocated to the Bank’s supplementary capital;

■ PLN 65,966 thousand was allocated to cover accumulated losses;

■ PLN 86,560 thousand was allocated to the payment of dividend.

In connection with the said resolution of the Ordinary General Shareholders’ Meeting, on 28 June 2024, the Bank transferred the funds for the payment of dividend to PKO Bank Polski SA to the non-public market register maintained by the Brokerage Office of PKO Bank Polski SA.

The Bank did not pay dividend in 2023.

OTHER NOTES TO FINANCIAL DATA

37. Contingent liabilities granted and received

37.1 Contractual commitments

As at 31 December 2024 and 31 December 2023 the Bank had no contractual commitments relating to the purchase of intangible assets and property, plant and equipment.

37.2 Loan commitments

Accounting policies

As part of its operations, the Bank concludes transactions that are not initially recognized in the statement of financial position as assets or liabilities, but give rise to contingent liabilities. A contingent liability is:

■ a potential obligation that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Bank;

■ a current obligation that arises from past events, but is not recognized in the statement of financial position, because an outflow of cash or other assets for the purpose of fulfilling the obligation is not likely, or the amount of the liability cannot be estimated reliably.

Contingent liabilities of a financial nature granted relate to residential loans which have not been drawn in full.

Financial information

LOAN COMMITMENTS (CONTINGENT)	31.12.2024	31.12.2023

Relating to residential loans not drawn in full (nominal value)	100,322	90,922

provision for residential loans not drawn in full	(43)	(38)

Total, net	100,279	90,884
including irrevocable loan commitments	-	-

Information on provisions for loan commitments is provided in Note 35 “Provisions”.

CONTINGENT LOAN COMMITMENTS GRANTED AT NOMINAL VALUE - ESTIMATED PAYMENT DEADLINES	31.12.2024	31.12.2023

up to 1 month	28,090	43,643
from 1 to 3 months, inclusive	25,215	16,933
from 3 months to 1 year, inclusive	42,602	26,597
from 1 year to 5 years, inclusive	4,415	3,749

Total	100,322	90,922

37.3 Guarantee commitments granted

PKO Bank Hipoteczny SA does not grant guarantee commitments.

37.4 Contingent liabilities received

Financial information

CONTINGENT LIABILITIES RECEIVED AT NOMINAL VALUE	31.12.2024	31.12.2023

Contingent liabilities received
financial	4,126,155	5,943,956
guarantees	1,000,000	1,000,000

Total	5,126,155	6,943,956

Contingent liabilities of a financial nature received represent initiated and available loans, while guarantee commitments received represent the guarantees available to underwrite bonds issued.

Right to sell or pledge collateral established for the Bank

As at 31 December 2024 and 31 December 2023, no collateral was established for the Bank, which the Bank would be entitled to sell or re-pledge, in the event of fulfilling all obligations by the owner of the collateral.

38. Legal claims

As at 31 December 2024 and 31 December 2023 there were no legal claims.

39. Information about leases

Financial information

LEASE AMOUNTS RECOGNIZED IN THE INCOME STATEMENT - LESSEE	01.01.2024 - 31.12.2024	01.01.2023 - 31.12.2023

Amortization of right-of-use assets	(1,498)	(1,334)
real estate	(1,248)	(1,134)
cars	(250)	(200)
Interest expense	(215)	(166)
Costs related to short-term lease contracts	-	(0)
Costs associated with variable lease payments not included in the measurement of lease liabilities	(190)	-
Costs related to lease contracts for low-value assets (other than short-term), non-deductible VAT expenses and service charges	(1,020)	(919)

Total	(2,923)	(2,419)

RIGHT-OF-USE ASSETS	31.12.2024	31.12.2023

Real estate	4,310	5,428
Cars	733	278

Total	5,043	5,706

FUTURE LEASE PAYMENTS	31.12.2024	31.12.2023

Future lease payments, due:	5,943	6,600
up to 1 month	63	110
from 1 to 3 months	125	217
from 3 months to 1 year	531	937
from 1 to 5 years	2,653	2,231
after more than 5 years	2,571	3,105

Total	5,943	6,600

40. Notes to the statement of cash flows

Cash and cash equivalents

Cash and cash equivalents comprise: cash, balances with the Central Bank, current amounts due from banks, as well as cash equivalents with maturities up to 3 months from the date of acquisition.

Financial information

Cash and cash equivalents	31.12.2024	31.12.2023

Cash and balances with the Central Bank (including interest accrued on mandatory reserve)	368	306
Amounts due from banks - current accounts	10,186	2,421

Total	10,554	2,727
- including restricted cash and cash equivalents	158	158

INTEREST INCOME – RECEIVED	01.01.2024 - 31.12.2024	01.01.2023 - 31.12.2023

From operating activities
Interest received on loans and advances to customers	1,251,787	1,184,155
Interest received on CIRS transactions	79,757	96,981
Interest received on IRS transactions	2,093	2,093
Interest received on deposits	0	0
Other interest received	4,809	2,862
From investing activities
Interest received on securities measured at fair value through other comprehensive income	61,330	66,298

Total	1,399,776	1,352,389

INTEREST EXPENSE – PAID	01.01.2024 - 31.12.2024	01.01.2023 - 31.12.2023

From operating activities
Interest paid on CIRS transactions	300,144	556,063
Interest paid on IRS transactions	3,920	4,584
Interest paid for extending overdraft limits	90	935
Other interest paid	215	176
From financing activities
Interest paid on loans	293,397	404,340
Interest paid on mortgage covered bonds issued	361,129	307,407
Interest and Interest paid on bonds issued	159,446	108,267

Total	1,118,341	1,381, 772

RECONCILIATION OF ITEMS PRESENTED IN THE STATEMENT OF FINANCIAL POSITION WITH THE STATEMENT OF CASH FLOWS			In the statement of cash flows, recognized in
	Note	01.01.2024	financing activities		operating activities			31.12.2024
	Note	01.01.2024	Incurred	Repaid	Monetary changes	Non-monetary changes, including:1)	foreign exchange gains/(losses)	31.12.2024

Amounts due to banks	30	4,580,744	13,130,835	(12,684,431)	(1,653)	317,335	-	5,342,830
overdraft within the limit available		1,653	-	-	(1,653)	-	-	-
liability related to overdraft facilities		2,570,177	12,874,835	(12,549,007)	-	192,213	-	3,088,218
liability related to term loans		2,008,914	256,000	(135,424)	-	125,122	-	2,254,612
Liabilities in respect of mortgage covered bonds issued	32	10,444,645	2,500,000	(5,994,247)	(3,170)	286,127	(61,109)	7,233,355
Liabilities in respect of bonds issued	33	1,991,260	5,735,754	(5,334,446)	-	328,696	-	2,721,264

Total		17,016,649	21,366,589	(24,013,124)	(4,823)	932,158	(61,109)	15,297,449

RECONCILIATION OF ITEMS PRESENTED IN THE STATEMENT OF FINANCIAL POSITION WITH THE STATEMENT OF CASH FLOWS			In the statement of cash flows, recognized in
	Note	01.01.2023	financing activities		operating activities			31.12.2023
	Note	01.01.2023	Incurred	Repaid	Monetary changes	Non-monetary changes, including:1)	foreign exchange gains/(losses)	31.12.2023

Amounts due to banks	30	5,635,860	14,143,881	(15,607,062)	(799)	408,864	-	4,580,744
overdraft within the limit available		2,142	-	-	(489)	-	-	1,653
liability related to overdraft facilities		3,893,095	13,876,881	(15,496,005)	-	296,206	-	2,570,177
liability related to term loans		1,740,623	267,000	(111,057)	(310)	112,658	-	2,008,914
Liabilities in respect of mortgage covered bonds issued	32	12,063,629	1,750,000	(3,166,707)	(2,982)	(199,295)	(507,423)	10,444,645
Liabilities in respect of bonds issued	33	1,495,904	3,448,728	(3,166,767)	-	213,395	-	1,991,260

Total		19,195,393	19,342,609	(21,940,536)	(3,781)	422,964	(507,423)	17,016,649

1) Non-cash changes comprise mainly accrued interest, discount settlements and foreign exchange gains/(losses).

41. Related party transactions

41.1 Related party transactions – capital links

PKO Bank Polski SA and PKO Bank Polski SA Group entities are the Bank’s related parties.

Financial information

As at 31 December 2024

ENTITY	ASSETS
ENTITY	Receivables	including derivatives

PKO Bank Polski SA	10,515	-

Total	10,515	-

ENTITY	LIABILITIES
ENTITY	Loans and overdraft	Mortgage covered bonds and bonds	Other liabilities	including derivatives

PKO Bank Polski SA	5,342,830	506,024	218,150	208,696
PKO BP Finat Sp. z o.o.	-	17,588	35	-
Prime Car Management SA	-	-	760	-
PKO Towarzystwo Ubezpieczeń SA	-	98,033	-	-
PKO Życie Towarzystwo Ubezpieczeń SA	-	95,501	-	-
PKO VC - fizan	-	19,739	-	-
NEPTUN - fizan	-	35,899	-	-
Bankowe Towarzystwo Kapitałowe SA	-	22,569	-	-

Total	5,342, 830	795,353	218,945	208,696

ENTITY	Contingent commitments received

PKO Bank Polski SA	5,126,155

Total	5,126,155

For the period from 1 January 2024 to 31 December 2024

ENTITY	Total revenues	including interest and commissions	Total costs	including interest and commissions	Net income / (expense) from financial instruments measured at fair value	Net foreign exchange gains / (losses)

PKO Bank Polski SA	59	2	556,218	535,283	(5)	(57,749)
PKO BP Finat Sp. z o.o.	-	-	1,043	739	-	-
PKO Leasing SA	-	-	14	0	-	-
Prime Car Management SA	-	-	185	32	-	-
PKO Towarzystwo Ubezpieczeń SA	-	-	6,336	6,336	-	-
PKO Życie Towarzystwo Ubezpieczeń SA	-	-	5,041	5,041	-	-
PKO VC - fizan	-	-	1,477	1,477	-	-
NEPTUN - fizan	-	-	1,977	1,977	-	-
Bankowe Towarzystwo Kapitałowe SA	-	-	1,587	1,587	-	-

Total	59	2	573,878	552,472	(5)	(57,749)

As at 31 December 2023

ENTITY	ASSETS
ENTITY	Receivables	including derivatives

PKO Bank Polski SA	58,808	55,383

Total	58,808	55,383

ENTITY	LIABILITIES
ENTITY	Loans and overdraft	Mortgage covered bonds and bonds	Other liabilities	including derivatives

PKO Bank Polski SA	4,580, 744	28,279	225,694	213,187
PKO BP Finat Sp. z o.o.	-	7,835	28	-
PKO Leasing SA	-	-	10	-
Prime Car Management SA	-	-	283	-
PKO Towarzystwo Ubezpieczeń SA	-	97,999	-	-
PKO Życie Towarzystwo Ubezpieczeń SA	-	81,939	-	-
PKO VC - fizan	-	19,826	-	-
Bankowe Towarzystwo Kapitałowe SA	-	28,579	-	-

Total	4,580, 744	264,457	226,015	213,187

ENTITY	Contingent commitments received

PKO Bank Polski SA	6,943,956

Total	6,943,956

For the period from 1 January 2023 to 31 December 2023

ENTITY	Total revenues	including interest and commissions	Total costs	including interest and commissions	Net income / (expense) from financial instruments measured at fair value	Net foreign exchange gains / (losses)

PKO Bank Polski SA	21	0	871,005	850,324	(13)	(515,505)
PKO BP Finat Sp. z o.o.	-	-	431	159	-	-
PKO Leasing SA	-	-	71	3	-	-
Prime Car Management SA	-	-	100	14	-	-
PKO Towarzystwo Ubezpieczeń SA	-	-	7,060	7,060	-	-
PKO Życie Towarzystwo Ubezpieczeń SA	-	-	5,676	5,676	-	-
PKO VC - fizan	-	-	1,433	1,433	-	-
Bankowe Towarzystwo Kapitałowe SA	-	-	1,973	1,973	-	-

Total	21	0	887,749	866,642	(13)	(515,505)

The Bank holds current accounts and made deposits with PKO Bank Polski SA during the reporting period. In addition, the Bank cooperates strategically with PKO Bank Polski SA. Residential loan sales as well as after-sales servicing, excluding risk management, internal audit and control, are carried out within the framework of the Outsourcing Agreement with PKO Bank Polski SA dated 16 January 2015. Assistance is also provided with respect to support activities under this agreement.

The Bank also obtains funding from PKO Bank Polski SA in the form of overdrafts bearing interest at a fluctuating rate, i.e. a base rate increased by a margin:

Working capital loans in the current account	Agreement date	Initial contractual period	Initial contractual amount	Lending period acc. to the latest annex	Limit amount acc. to the latest annex
I	29.10.2015	3 years	900,000	until 27.10.2028	2,000,000
II	02.02.2017	3 years	1,500,000	until 03.02.2026	2,000,000
III	10.07.2019	3 years	1,000,000	until 30.06.2028	3,100,000

The Bank also obtains funding from PKO Bank Polski SA in the form of non-revolving term loans which are disbursed in tranches, with each tranche bearing a fixed interest rate determined separately for each drawing and which should be repaid within 5 years.

Non-revolving term loans	Start of lending period	Loan to be utilized by	Initial loan amount	Loan amount acc. to the latest annex	Amount disbursed	Amount available
I	10.09.2020	10.09.2021	300,000	300,000	210,000	-
II	11.02.2022	11.02.2023	400,000	1,700,000	1,522,000	-
III 1)	03.01.2023	03.01.2025	300,000	600,000	523,000	77,000

1) On 30 December 2024, Annex no. 2 was signed based on which starting from 16 January 2025, the amount of the limit was increased to PLN 900,000 thousand and the loan utilization period was extended until 3 January 2026.

The Bank also has agreements with PKO Bank Polski SA relating to the issues of bonds and mortgage covered bonds as part of:

■ the Bond Issuance Programme:

□ On 30 September 2015, the Bank entered into a PKO Bank Hipoteczny Bond Issuance Programme Agreement (the “Programme”) with PKO Bank Polski SA for a Programme amount of up to PLN 2 000 000 thousand over a period of 4 years, as well as an Underwriting Agreement under which the Underwriter assumes the obligation to take up the Issuer’s Bonds for its own account up to the amount of PLN 2 000 000 thousand.

□ Based on an annex signed on 30 September 2019, the parties extended both agreements for a subsequent 4-year period, and by an annex of 11 February 2020 the amount of the Programme was increased by PLN 2,000,000 thousand, i.e. to PLN 4,000,000.

□ On 16 October 2020, an annex to the Bond Issuance Programme was signed, extending the maximum maturity of the bonds issued from 12 to 36 months and extending the list of the types of bonds issued from discount bonds to zero coupon bonds, fixed coupon bonds and variable coupon bonds.

□ As a result of signing and annex of 15 March 2021, the amount of the Programme was increased by PLN 2,000,000 thousand, i.e. to PLN 6,000,000 thousand;

□ On 26 September 2023, an annex to the Bond Issuance Programme was signed based on which the parties extended the Programme to 30 September 2026;

□ Based on an annex to the Underwriting Agreement signed on 27 September 2023, the period during which the Underwriter is obliged to take up the Issuer’s bonds was extended until 30 September 2026, while the amount was decreased to PLN 1,000,000 thousand after 30 September 2023;

□ On 18 July 2019, the Bank signed the Issue Agent Agreement with the PKO Bank Polski Brokerage Office, subsequently amended by agreement of 21 December 2020. At the same time, on 18 December 2019 PKO Bank Hipoteczny signed a Dealership Agreement with PKO Bank Polski SA, on the basis of which PKO Bank Polski SA acts as a dealer with respect to bonds issued under the PKO Bank Hipoteczny SA Own Bonds Issuance Programme. Based on an annex to the Dealership Agreement signed on 26 September 2023, the parties extended the term of the agreement until 30 September 2026.

■ the International Mortgage Covered Bonds Issuance Programme:

□ On 18 June 2024, upon approval of the Basic Prospectus of PKO Bank Hipoteczny SA relating to the issue of mortgage covered bonds for the European market (including the Polish market) by Commission de Surveillance du Secteur Financier (CSSF) in Luxembourg, PKO Bank Hipoteczny SA signed the Programme Agreement with PKO Bank Polski SA, on the basis of which PKO Bank Polski SA acts as the Arranger and Dealer.

□ On 5 September 2024, PKO Bank Hipoteczny SA signed the Issue Agent Agreement with the PKO Bank Polski Brokerage Office based on which the PKO Bank Polski Brokerage Office will act as the Issue Agent for mortgage covered bonds in PLN issued under the International Mortgage Covered Bonds Issuance Programme of PKO Bank Hipoteczny SA.

On 17 November 2015, the Framework Agreement for the Sale of Receivables was concluded with PKO Bank Polski SA. Based on the agreement, the Bank purchases portfolios of receivables under mortgage backed residential loans. Further details are available in Notes 26 and 32.

Furthermore, as part of the transactions with parties related by capital, PKO BP Finat Sp. z o.o. provides accounting services to the Bank with respect to the Bank’s general administration, as well as personnel and payroll services, PKO Bank Polski SA rents office space, PKO Leasing SA and Prime Car Management SA provide vehicles under lease agreements, and PKO Towarzystwo Ubezpieczeniowe SA insures the Bank’s credit risk by providing bridging insurance and low down payment insurance.

During the reporting period the Bank did not conclude any transactions with related parties other than on an arm’s length basis.

41.2 Transactions with the State Treasury and its related entities

Since the State Treasury holds 29.43% of the share capital of PKO Bank Polski SA, PKO Bank Hipoteczny SA (which is a part of the PKO Bank Polski SA Group) is a related entity of the State Treasury.

The Bank concludes the following transactions with the State Treasury and its related entities:

■ purchases of Treasury bonds issued by the State Treasury and NBP bills, which are described in Note 25 “Securities”;

■ purchases of goods and services from related entities of the State Treasury which are not PKO Bank Polski SA Group entities as part of the Bank’s operating activities, which are immaterial both individually and cumulatively from the financial statements perspective.

In addition, related entities of the State Treasury acquire mortgage covered bonds and bonds issued by the Bank.

The aforementioned transactions were conducted on the arm’s length basis.

41.3 Related-party transactions – personal links

As at 31 December 2024, three entities were related to the Bank through members of the Management Board and Supervisory Board of PKO Bank Hipoteczny SA or their close relatives, whereas at 31 December 2023 it was six entities. In 2024, PKO Bank Hipoteczny SA did not conclude any transactions with entities related through personal links.

41.4 Benefits for PKO Bank Hipoteczny SA key management personnel

The key management personnel of PKO Bank Hipoteczny includes members of the Supervisory Board and of the Management Board. The principles for determining a policy of variable remuneration components for the Bank’s managers are described in the PKO Bank Hipoteczny SA Directors’ Report for the year ended 31 December 2024 (Chapter 6.6).

Financial information

COST OF REMUNERATION OF THE BANK’S MANAGEMENT BOARD AND SUPERVISORY BOARD	01.01.2024- 31.12.2024	01.01.2023 - 31.12.2023

The Bank’s Management Board1)
Short-term employee benefits2)	2,580	3,095
Post-employment benefits	667	187
Long-term benefits3)	191	160
Share-based payments settled in cash 4)	191	160
Total	3,629	3,602

Supervisory Board of the Bank5)
Short-term employee benefits2)	260	269
Total	260	269

1) Including the Management Board members who no longer perform their functions.

2) Short-term employee benefits comprise remuneration, social insurance contributions, employee pension plans, other benefits and the provision for non-deferred variable remuneration components, which have been or will be settled within 12 months of the end of a reporting period.

3) Long-term benefits comprise provisions for deferred variable remuneration components granted in cash, which will be payable after 12 months from the end of a reporting period.

4) Share-based payments settled in cash comprise provisions for deferred variable remuneration components granted in the form of financial instruments, i.e. phantom shares. Phantom shares are converted into cash after the retention period.

5) Only independent members of the Supervisory Board are remunerated.

41.5 Variable components of remuneration of the Bank’s Management Board and other managers

PROVISION FOR VARIABLE REMUNERATION COMPONENTS	31.12.2024	31.12.2023
PROVISION FOR VARIABLE REMUNERATION COMPONENTS	(for the years 2021-2024)	(for the years 2020-2023)

The Bank’s Management Board1)	3,026	2,412
other members of the management (MRT)2)	2,516	4,112

Total provisions	5,542	6,524

REMUNERATION PAID DURING THE YEAR	01.01.2024- 31.12.2024	01.01.2023 - 31.12.2023
REMUNERATION PAID DURING THE YEAR	(for the years 2020-2023)	(for the years 2019-2022)

granted in cash
The Bank’s Management Board1)	577	991
other members of the management (MRT) 2)	1,501	2,021
granted in the form of financial instruments
The Bank’s Management Board1)	180	114
other members of the management (MRT) 2)	41	87

Total paid	2,299	3,213

1) Including the Management Board members who no longer perform their functions.

2) MRT – Material Risk Takers.

41.6 Loans and advances granted by the Bank to key management personnel and other managers of the Bank

In the period from 1 January to 31 December 2024 and from 1 January to 31 December 2023, no loans or advances were granted to the Bank’s key management personnel and other managers of the Bank. As at 31 December 2024 and as at 31 December 2023, the carrying amount of loans and advances to key management personnel and other managers of the Bank or their close relatives amounted to PLN 709 thousand and PLN 598 thousand respectively. The interest rate and repayment terms are consistent with the arm’s length principle.

42. Value of financial liabilities incurred, including overdue liabilities

As at 31 December 2024, the value of financial liabilities incurred, in the context of Article 35(1)(1) of the Bonds Act of 15 January 2015 amounted to PLN 15,521,572 thousand, including overdue liabilities of PLN 0 thousand. The Bank classifies the following as financial liabilities: amounts due to banks and to customers, liabilities in respect of derivative hedging instruments, liabilities in respect of mortgage covered bonds and bonds issued, provisions for loan commitments and other financial liabilities.

43. Fair value of financial assets and liabilities

43.1 Categories of fair value measurement of financial assets and financial liabilities measured at fair value in the statement of financial position

Accounting policies

Classification of financial assets and liabilities	Individual financial assets and liabilities measured at fair value are classified by the Bank to the following categories: ■ Level 1: Prices quoted on active markets; ■ Level 2: Measurement techniques based on observable market data; ■ Level 3: Other measurement techniques. Depending on the category to which financial assets and liabilities are classified, different fair value measurement methods are applied.
Level 1 Prices quoted on active markets	Financial assets and liabilities whose fair value is measured directly on the basis of prices quoted on active markets for identical assets or liabilities (unadjusted). In this category the Bank classifies financial instruments for which there is an active market and whose fair value is determined based on the market purchase price. Securities are measured in accordance with Bondspot fixing.
Level 2 Measurement techniques based on observable market data	Financial assets and liabilities whose fair value is determined using measurement models, when all significant input data is observable on the market either directly (as prices) or indirectly (based on prices). In this category the Bank classifies financial instruments for which there is no active market, i.e. CIRS, IRS and FX forward derivatives.
Level 3 Other measurement techniques	Financial assets and liabilities whose fair values are measured using measurement models, if inputs are not based on observable market data (unobservable inputs). The Bank did not have any instruments classified to this category.
Transfers	Transfers of instruments between Level 1 and Level 2 are based on the availability of quotations from an active market as at the end of a reporting period. Instruments are transferred from Level 2 to Level 3 if an observable factor is replaced in the measurement with an unobservable one or if a new unobservable risk factor having a significant effect on the measurement of an instrument is applied. Instruments are transferred from Level 3 to Level 2 if an unobservable factor is replaced in the measurement with an observable one or if the effect of an unobservable factor on the measurement is no longer significant. There were no transfers between the fair value hierarchy levels in 2024 and 2023.

Measurement techniques and observable input data

FINANCIAL INSTRUMENTS MEASURED AT FAIR VALUE	Measurement methods (techniques)	Observable input data

Treasury bonds	Prices quoted on active markets	Purchase price based on fixing from the BondSpot platform
NBP bills	Yield curve method	Yield curves are based on money market data and OIS (Overnight Index Swap) transaction market data
CIRS	Discounted cash flow model based on profitability curves	Profitability curves are based on market rates and data for the money market, FRA (Forward Rate Agreement) transactions market, IRS (Interest Rate Swap) market, basis swap, CDS (Credit Default Swap) quotations.
IRS	Discounted cash flow model based on profitability curves	Profitability curves are based on market rates and data for the money market, FRA (Forward Rate Agreement) transactions market, IRS (Interest Rate Swap).
FX forward	Discounted cash flow model based on profitability curves	Profitability curves are based on market rates and data for the money market and the FX-Forward transactions market

Financial information

ASSETS AND LIABILITIES MEASURED AT FAIR VALUE AS AT 31 DECEMBER 2024	Note	Carrying amount	Level 1	Level 2	Level 3
	Note	Carrying amount	Prices quoted on active markets	Measurement techniques based on observable market data	Other measurement techniques

Derivative hedging instruments	24	-	-	-	-
Securities	25	749,307	749,307	-	-
measured at fair value through other comprehensive income		749,307	749,307	-	-
Total financial assets measured at fair value		749,307	749,307	-	-

Derivative hedging instruments	24	208,696	-	208,696	-
CIRS		204,877	-	204,877	-
FX forward		81	-	81	-
IRS		3,738	-	3,738	-
Total financial liabilities measured at fair value		208,696	-	208,696	-

ASSETS AND LIABILITIES MEASURED AT FAIR VALUE AS AT 31 DECEMBER 2023	Note	Carrying amount	Level 1	Level 2	Level 3
	Note	Carrying amount	Prices quoted on active markets	Measurement techniques based on observable market data	Other measurement techniques

Derivative hedging instruments	24	55,383	-	55,383	-
CIRS		55,353	-	55,353	-
FX forward		30	-	30	-
Securities	25	945,251	945,251	-	-
measured at fair value through other comprehensive income		945,251	945,251	-	-
Total financial assets measured at fair value		1,000,634	945,251	55,383	-

Derivative hedging instruments	24	213,187	-	213,187	-
CIRS		209,290	-	209,290	-
FX forward		527	-	527	-
IRS		3,370	-	3,370	-
Total financial liabilities measured at fair value		213,187	-	213,187	-

43.2 Financial assets and liabilities not presented at fair value in the statement of financial position

Accounting policies

Market values are unavailable for most financial instruments, therefore, the fair values are estimated based on a number of measurement techniques. The fair values of financial instruments are determined using a model based on estimating the present value of future cash flows by discounting the cash flows using the appropriate discount rates. The model calculations include certain simplifications and are sensitive to the assumptions adopted.

The summary of the main methods and assumptions used to estimate the fair values of financial instruments which are not measured at fair value are presented below.

In the case of some groups of financial instruments, due to a lack of expected significant differences between their carrying amount and the fair value, resulting from the characteristics of those groups (e.g. short-term nature, high correlation with market parameters, short periods of rate overstatement, unique nature of an instrument or a short period from the issue date), it was assumed that the carrying amount of the instrument approximates its fair value. This applies to the following groups of financial instruments:

■ cash and balances with the Central Bank;

■ amounts due from banks;

■ amounts due to banks (loans based on a floating rate);

■ amounts due to customers;

■ bonds issued.

The model used with respect to loans and advances to customers without recognized impairment was based on the estimated present values of future cash flows, which were discounted using current interest rates taking into account the amount of credit risk margin and real repayment deadlines resulting from loan agreements. The current margin levels were determined for transactions concluded in the last quarter ended with a balance sheet date. In the case of loans with recognized impairment it is assumed that the fair value is equal to the carrying amount.

Financial information

FINANCIAL ASSETS AND LIABILITIES NOT PRESENTED AT FAIR VALUE AS AT 31 DECEMBER 2024	fair value hierarchy level	measurement method	31.12.2024
	fair value hierarchy level	measurement method	carrying amount	fair value

Cash and balances with the Central Bank	N/A	amount of consideration due	368	368
Amounts due from banks	2	discounted cashflows	10,186	10,186
Loans and advances to customers, including:			16,600,671	15,964,079
residential loans	3	discounted cashflows	16,600,671	15,964,079
Other financial assets	3	amount of consideration due taking into account impairment	609	609
Amounts due to banks	2	discounted cashflows	5,342,830	5,356,155
Amounts due to customers	2	discounted cashflows	3,398	3,398
Liabilities in respect of mortgage covered bonds issued	2	discounted cashflows	7,233,355	7,256,149
Liabilities in respect of bonds issued	2	discounted cashflows	2,721,264	2,721,264
Other financial liabilities	3	amount of consideration due	11,986	11,986
Provisions for loan commitments	3	discounted cashflows	43	43

FINANCIAL ASSETS AND LIABILITIES NOT PRESENTED AT FAIR VALUE AS AT 31 DECEMBER 2023	fair value hierarchy level	measurement method	31.12.2023
	fair value hierarchy level	measurement method	carrying amount	fair value

Cash and balances with the Central Bank	N/A	amount of consideration due	306	306
Amounts due from banks	2	discounted cashflows	2,421	2,421
Loans and advances to customers, including:			17,898,707	17,314,013
residential loans 1)	3	discounted cashflows	17,898,707	17,314,013
Other financial assets	3	amount of consideration due taking into account impairment	1,072	1,072
Amounts due to banks	2	discounted cashflows	4,580,744	4,632,020
Amounts due to customers	2	discounted cashflows	3,710	3,710
Liabilities in respect of mortgage covered bonds issued	2	discounted cashflows	10,444,645	10,343,611
Liabilities in respect of bonds issued	2	discounted cashflows	1,991,260	1,991,260
Other financial liabilities	3	amount of consideration due	14,341	14,341
Provisions for loan commitments	3	discounted cashflows	38	38

1) As fair value is the price that would be received for the sale of an asset in a transaction between independent, knowledgeable and willing market participants, carried out under normal conditions as at the valuation date, i.e. 31 December 2023, the Bank has included in the fair value of the residential loan portfolio the impact of a potential extension to 2024 of the statutory loan repayment holidays described in Note 26 Loans and advances to customers to the financial statements of PKO Bank Hipoteczny SA for the year ended 31 December 2023.

44. Operating segments

In 2024 and 2023 the Bank did not analyse its operations by segments due to the specific nature of its operations. The whole loan portfolio of the Bank is uniform and consists of residential loans granted to retail customers for the financing of real estate located in Poland. All operations of the Bank represent one segment. The main operational decision-maker is the Bank’s Management Board. The Bank’s gross profit/(loss) is analysed at the level of all operations of the Bank. Therefore, the financial data presented in the statement of financial position and the income statement is representative for the Bank as a whole, which consists of a single operating segment.

OBJECTIVES AND PRINCIPLES OF RISK MANAGEMENT

45. Risk management at PKO Bank Hipoteczny SA

Risk management at PKO Bank Hipoteczny SA is aimed at ensuring the financial stability of the Bank, safeguarding the value and security of the mortgage covered bonds issued and guaranteeing the safety of funds resulting from the issue of bonds and the other sources of funding of the Bank’s operations. The risk management system is also intended to ensure that information on the risk is appropriate and as comprehensive as possible when making decisions, to improve processes and to effectively embed risk management in the Bank’s organizational culture. The level of risk is an important part of the planning processes.

The Bank identifies risks which are to be managed in its activities and analyses the impact of particular types of risk on its business operations. All the risks are managed; some of them have a material effect on the profitability and capital needed to cover them. The following risks are considered material for the Bank: credit risk, interest rate risk, liquidity risk (including the financing risk), operational risk, business risk, including the risk of macroeconomic changes, and model risk. The Bank assesses the materiality of all the identified risks on a regular basis, at least annually.

Key risk management policies

Risk management in the Bank is based in particular on the following principles:

■ the Bank manages all identified types of risk associated with its operations;

■ the risk management process is appropriate to the scale of the operations and to the significance, scale and complexity of a given risk and tailored to new risk factors and sources of risk as they emerge;

■ the risk management methods (in particular, models and assumptions for models) and risk measurement and assessment systems are adjusted to the scale and complexity of the risk, the operations currently conducted and planned, and the environment in which the Bank operates, and are periodically verified and validated;

■ the risk management area retains organizational independence from the business;

■ risk management is integrated with planning and controlling systems;

■ the Bank monitors and controls the level of risk on an ongoing basis;

■ the risk management process supports the execution of the Bank’s strategy in compliance with the risk management strategy, in particular with respect to the risk tolerance level;

■ the risk management process is consistent with the principles of risk management of the PKO Bank Polski SA Group, including the application of group risk models, modified to reflect the nature of activities of PKO Bank Hipoteczny SA and approved by the adequate authorities of PKO Bank Hipoteczny SA.

Risk management process

The risk management processes at the Bank comprise the following elements:

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Identification of Risk

Risk identification consists of identifying actual and potential sources of risk and assessing the materiality of their potential influence on the financial position of the Bank. As part of the risk identification process, material types of risk for the Bank’s activities are identified.

Risk measurement and assessment

Risk measurement and assessment are aimed at determining the scale of threats connected with the existence of risk. Risk measurement covers defining risk measures adequate to the type and materiality of the risk and data availability. Quantitative and qualitative results of risk measurement form the basis of a risk assessment which determines the level or extent of risk. As part of risk measurement, the Bank conducts the following tests:

■ specific stress tests, conducted separately for individual types of risks, aimed at assessing the sensitivity of a risk to the occurrence of adverse market situations;

■ comprehensive stress tests, aimed at determining sensitivity of capital adequacy measures and the Bank’s results to the materialization of an adverse scenario of changes in the Bank’s environment and functioning.

Stress tests are conducted on the basis of assumptions which ensure a fair risk assessment, in particular taking into account recommendations of the Polish Financial Supervision Authority.

Risk control

Risk control comprises determining risk controls appropriate for the scale and complexity of the Bank’s operations, in particular in the form of strategic tolerance limits for individual types of risks subject to monitoring, and in the event that these are exceeded, management actions are taken.

Risk forecasting and monitoring

Risk forecasting involves predicting the future level of risk, taking into account the assumed projection of business development and internal and external events. The Bank’s forecasts of the risk levels are back-tested to verify their accuracy. Risk monitoring consists of monitoring deviations from forecasts or assumed benchmarks (e.g. limits, thresholds, plans, measurements from the previous period and recommendations issued by supervisory and control authorities). Risk monitoring and forecasting is performed at a frequency appropriate to the materiality and volatility of a specific risk.

Risk reporting

Risk reporting involves informing the Supervisory Board, the Management Board, the relevant committees and the persons holding managerial positions at the Bank responsible for a given risk about the risk profile, the results of risk identification, measurement and assessment, risk monitoring and forecasting, the causes of changes to risks and potential threats, the results of stress tests, actions taken and recommended.

Management actions

The management actions consist in determining the desired level of risk to shape the structure of assets and liabilities. Management actions may result, in particular, in:

■ risk acceptance – determining the acceptable level of risk taking into account business needs and developing management actions in the event that this level is exceeded;

■ risk reduction – mitigating the impact of risks or the effects of their materialization (e.g. by reducing or diversifying exposure to risk, setting hedging limits);

■ risk transfer – transferring the responsibility for covering potential losses (e.g. by transferring the risk to another entity using legal instruments such as insurance contracts, facility security contracts, accepting guarantees);

■ risk avoidance – discontinuing activities that generate risk or eliminating the possibility of the occurrence of a risk factor, including, in particular, setting zero tolerance to risk.

Organization of risk management at the Bank

Risk management at the Bank is carried out in all units of the Bank.

The Supervisory Board supervises and evaluates the risk management process, in particular based on periodical risk reports which take into account an assessment of the adequacy and effectiveness of the risk management system and information on the implementation of the risk management strategy, including the levels of limits used to reduce the risk and the results of stress tests, and requires the process to be reviewed if necessary.

The Supervisory Board is supported by the following committees, among others: the Remuneration and Nomination Committee of the Supervisory Board, the Risk Committee of the Supervisory Board and the Audit and Finance Committee of the Supervisory Board.

In terms of risk management, the Management Board of PKO Bank Hipoteczny SA is responsible for strategic risk management, including supervising and monitoring the risk management actions taken by the Bank. It makes key decisions affecting the profile of the Bank’s risk and adopts the Bank’s internal regulations concerning risk management. It ensures the operation of the risk management process, monitors and assesses its functioning and provides the related information to the Supervisory Board. The Management Board is assisted in risk management by the following committees operating within the Bank:

■ Assets & Liabilities Management Committee (ALCO);

■ Credit Committee (CC);

■ Operational and Data Quality Risk Committee (ODQRC);

■ Strategy and Business Initiatives Committee (SBIC).

The risk management system is exercised at three independent, complementary levels:

■ the first level consists of the organizational structures performing product management, sales and customer service tasks and other organizational units whose operations generate risk, or performing administrative and executive tasks, operating in accordance with internal regulations;

■ the second level consists of the operations of the compliance unit as well as the identification, measurement or assessment, controlling, monitoring and reporting of risk, threats and irregularities – these tasks are performed by specialist organizational units operating in accordance with the Bank’s internal regulations; the purpose of these units is to develop internal regulations defining the risk management principles, methods, tools and procedures and to measure performance;

■ the third level comprises the operations of the internal audit unit, which performs independent audits of the elements of the Bank’s management system, including the risk management system and the internal control system; internal audit is separate from the first and the second level.

The independence of the levels is achieved by preserving organizational independence in the following areas:

■ the function of the second level in creating systemic solutions is independent of the function of the first level;

■ the function of the third level is independent of the functions of the first and the second level.

46. Credit risk management

Definition

Credit risk is understood as the risk of the occurrence of losses due to a counterparty’s default on obligations to the Bank or the risk of a decrease in the economic value of the Bank’s receivables as a result of deterioration in a counterparty’s ability to service its obligations.

Risk management objective

The objective of credit risk management is to minimize losses on the loan portfolio as well as to minimize the risk of occurrence of exposures at risk of impairment to an acceptable level, while maintaining the expected level of profitability and value of the loan portfolio.

Credit risk Identification and measurement

PKO Bank Hipoteczny SA has policies for credit risk management which are aimed at the proper risk assessment of loan transactions at the loan application stage and throughout the life of the transaction (monitoring), as well as proper safeguarding of risk by applying appropriate credit risk mitigation techniques.

The policies are executed by the Bank through the use of advanced credit risk management methods, both at the level of individual credit exposures and at the level of the entire loan portfolio of the Bank. These methods are verified and developed to ensure compliance with internal rating based requirements (IRB), i.e. an advanced credit risk measurement approach.

The measurement and assessment of the risk of individual loan transactions is performed by PKO Bank Hipoteczny SA with the use of group risk models adapted to the specificity of PKO Bank Hipoteczny’s business and approved by the relevant governing bodies of PKO Bank Hipoteczny SA. The group risk models used by PKO Bank Hipoteczny SA are based on application data, behavioural data and data from the Credit Information Bureau. The review (monitoring) of the models and their validation are performed separately based on the Bank’s portfolio, PKO Bank Polski SA’s portfolio and the combined portfolios of both banks.

The detailed principles and scope of cooperation within the PKO Bank Polski SA Group regarding the group risk models are laid down in the Outsourcing Agreement with PKO Bank Polski SA described in Note 41.1. “Related-party transactions – capital links”.

In the lending process, as part of the risk assessment of an individual loan transaction, the Bank assesses the customer’s creditworthiness on a qualitative and quantitative basis and evaluates the collateral. The qualitative assessment of creditworthiness means the review of all the available customer information originating from internal and external sources of information, as well as the assessment of certain socio-demographic features describing the customer from the perspective of statistical risk as a debtor. The quantitative assessment consists of investigating the customer’s financial position in order to determine if the customer has sufficient funds for timely repayment of liabilities, including those arising from the requested loan. Creditworthiness is assessed, among other things, based on the documentation supplied by the customer, which is verified for completeness, authenticity and consistency with the facts and the legal status. The assessment of the collateral, particularly the property value for mortgage lending purposes, consists of verifying the criteria determining the acceptability and effectiveness of the collateral as a possible source of recovery of the receivable.

When purchasing receivables in respect of residential loans from PKO Bank Polski SA the Bank also performs an assessment of the credit risks of the contracts to be purchased, in accordance with the Bank’s methodology for assessing purchased receivables. The assessment covers, in particular: the customer’s creditworthiness at the time PKO Bank Polski SA granted the loan to be transferred, the current behavioural scoring and the current timeliness of repayments, eliminating from the transfer receivables which do not satisfy the methodology criteria.

In addition, the purchased portfolios are measured by an independent third party to guarantee an unbiased valuation of the portfolios to be acquired. As part of the valuation, the costs of risk anticipated with regard to the given receivables portfolio are also assessed and are reflected in the final price which the Bank pays for the portfolio.

In order to determine the level of credit risk at the portfolio level, the Bank uses the following risk measurement and assessment methods:

■ probability of default – “PD”;

■ loss given default – “LGD”;

■ expected credit loss – “ECL”;

■ share and structure of non-performing loans – “NPL”;

■ coverage ratio – “CR”;

■ risk cost – “RC”;

■ vintage analyses;

■ stress testing.

The Bank is systematically developing the range of credit risk measures used, taking into account the requirements of the Internal Ratings Based (IRB) method, as well as extending the use of risk measures in order to fully cover the Bank’s loan portfolio with these methods.

Methods for measuring portfolio credit risk allow, among other things, credit risk to be factored into the pricing of products, the determination of optimum terms for the availability of funding and the determination of the level of allowances for expected credit losses.

The Bank performs analyses and stress-tests regarding the effect of potential changes in the macroeconomic environment on the quality of the Bank’s loan portfolio and presents the results in reports for the Bank’s bodies. The aforementioned information makes it possible to identify and take action to mitigate the negative effects of adverse market conditions on the Bank’s net profit or loss.

Credit risk control

To manage credit risk, the Bank uses, in particular, the following risk control tools and mechanisms:

■ strategic and internal (portfolio) risk tolerance limits;

■ minimum transaction conditions (i.e. the maximum value of LTV, maximum loan amount, required down payment, required collateral, the amount of a single loan to the Mortgage Lending Value (MLV);

■ the scoring system, including specific cut-off points based on the expected credit loss (the maximum value of the product of PD and LGD for a given customer over a 12-month horizon at which a loan transaction is acceptable);

■ limits of loan exposures of Bank customers – limits defining the Bank’s appetite for credit risk resulting, among other things, from Recommendation S (such as the level of the relationship between the expenses of servicing the loan and financial liabilities to the customer’s income, i.e. Debt-to-Income (DtI) ratio acceptable to the Supervisory Board);

■ competence limits – defining the maximum level of loan decision-making powers concerning the customers of the Bank; the level of competence limits depends on the authority level at which the loan decision is made (within the Bank’s organization);

■ minimum loan margins, taking into account the costs of credit risk.

Credit risk forecasting and monitoring

Credit risk forecasting and monitoring consists of preparing forecasts and monitoring deviations from forecasts or adopted reference points (e.g. limits, thresholds, plans, measures from the previous period, recommendations) and stress testing. The Bank's risk level forecasts are subject to regular backtesting.

PKO Bank Hipoteczny SA monitors credit risk at the level of individual transactions and at the level of the entire portfolio.

The monitoring of credit risk at the level of individual loan transactions is governed by the Bank’s policies concerning, among other things, the early monitoring of delays in the payment of dues.

The monitoring of credit risk at the portfolio level consists of:

■ monitoring the level of the portfolio credit risk taking into account the identified sources of credit risk and an analysis of the consequences and measures applied as part of systemic management;

■ recommending remedial actions if an increased level of credit risk is detected.

Credit risk reporting

Monthly and quarterly credit risk reports are prepared in the Bank. Credit risk reporting involves periodical reporting on the structure and scale of risk exposure of the Bank’s loan portfolio. The reports are submitted to the Credit Committee on a monthly basis and to the Bank’s Management Board, the Supervisory Board Risk Committee and the Supervisory Board on a quarterly basis.

Credit risk management actions

Management activities in credit risk management include, in particular:

■ issuing internal rules governing the credit risk management system;

■ issuing recommendations, procedural guidelines, clarifications and interpretations of internal regulations;

■ making decisions on the acceptable level of credit risk, including credit decisions;

■ developing and improving credit risk control tools and mechanisms to maintain the level of credit risk within limits acceptable to the Bank;

■ developing and monitoring the operation of controls in credit risk management;

■ developing and refining credit risk assessment methods and models;

■ developing and improving the IT tools used in credit risk management;

■ planning activities and making recommendations.

46.1 Credit risk – Financial information

Maximum exposure to credit risk

The following table presents the maximum exposure to credit risk with respect to financial instruments covered by the provisions of IFRS 7 to which the requirements of IFRS 9 relating to impairment do not apply.

MAXIMUM EXPOSURE TO CREDIT RISK	31.12.2024	31.12.2023

Derivative hedging instruments	-	55,383

Balance sheet exposure - total	-	55,383

Amounts due from banks

AMOUNTS DUE FROM BANKS	31.12.2024	31.12.2023

Amounts not overdue, not impaired (counterparty rating A2)	10,186	2,421

Total, gross	10,186	2,421
Allowances for expected credit losses	-	-

Total, net	10,186	2,421

Securities

SECURITIES	31.12.2024	31.12.2023

Issued by the State Treasury, PLN Treasury bonds (A rating)	749,307	945,251

Total	749,307	945,251

Loans and advances to customers

The loan portfolio is characterized by a low level of impaired exposures. As at 31 December 2024, the share of impaired loans in the total gross loan portfolio was 0.47%, and at 31 December 2023, it was 0.40%.

The structure of overdue loans is presented below:

LOANS OVERDUE AND IMPAIRED OR IMPAIRED AS AT 31.12.2024	up to 30 days	from 30 to 90 days	more than 90 days	TOTAL

Stage 1	36,508	1,796	-	38,304
Stage 2	52,682	29,682	9,423	91,787
Stage 3	10,986	6,690	34,515	52,191
POCI	16	54	293	363
Total, gross	100,192	38,222	44,231	182,645

LOANS OVERDUE AND IMPAIRED OR IMPAIRED AS AT 31.12.2023	up to 30 days	from 30 to 90 days	more than 90 days	TOTAL

Stage 1	60,507	802	-	61,309
Stage 2	72,430	22,242	8,251	102,923
Stage 3	8,110	5,735	30,687	44,532
POCI	-	247	154	401
Total, gross	141,047	29,026	39,092	209,165

In the tables above, exposures past due for more than 30 days classified in Stage 1 and exposures past due for more than 90 days classified in Stage 2 have not been included in the respective higher stages due to the failure to meet the materiality thresholds in relation to total customer exposure in the PKO Bank Polski SA Group.

Financial assets subject to modification

CARRYING AMOUNT AND NET INCOME/(EXPENSE) ON MODIFICATION RECOGNIZED IN RESPECT OF FINANCIAL ASSETS IN THE CASE OF WHICH CONTRACTUAL CASH FLOWS WERE MODIFIED DURING THE REPORTING PERIOD, WHILE THE CORRESPONDING ALLOWANCE FOR EXPECTED CREDIT LOSSES WAS MEASURED AT THE AMOUNT OF LIFETIME EXPECTED CREDIT LOSSES	01.01.2024 - 31.12.2024	01.01.2023 - 31.12.2023

Carrying amount at amortized cost before modification (Stage 2)	149,417	5,859
Gain/(loss) recognized on modification (Stage 2) in the period	(3,324)	(26)

Carrying amount at amortized cost before modification (Stage 3)	19,711	4,496
Gain/(loss) recognized on modification (Stage 3) in the period	(292)	54

The gross amount of financial assets which have been modified after initial recognition and for which the loss has been calculated over their whole life at the time of their modification, in respect of which the allowance for expected credit losses changed during the reporting period to 12-month expected credit loss, was PLN 169,183 thousand as at 31 December 2024 and PLN 122,502 thousand as at 31 December 2023.

46.2 Use of credit risk mitigation techniques - hedging

A key role in establishing minimum transaction conditions is played by the collateral policy. It is executed by setting up mortgages on the funded properties, and its main purpose is to limit credit losses resulting from the customers’ inability to repay amounts due to the Bank. At the same time, the Bank follows the overriding principle that collateral is only accepted as a loan support instrument and may not be used as a substitute for the customer’s ability to pay his/her dues.

The Bank’s policy regarding loan collateral and collateral valuation takes into account the provisions of the following statutory acts: the Banking Act, the Covered Bonds and Mortgage Banks Act, the Land and Mortgage Registers and Mortgage Act. In addition, the matter of collateral is also addressed by the guidelines and recommendations of the Polish Financial Supervision Authority, including Recommendations F, S, and J, and the internal regulations of the Bank.

The Bank has enacted and follows the Rules for Determining the Property Value for Mortgage Lending Purposes approved by the Polish Financial Supervision Authority, issued on the basis of the Polish Covered Bonds and Mortgage Banks Act of 29 August 1997, taking into account Recommendation F concerning the basic criteria applied by the Polish Financial Supervision Authority in approving the rules of determination of the property value for mortgage lending purposes enacted by mortgage banks.

The Property Value for Mortgage Lending Purposes (MLV) is the value determined by the Bank, which in the Bank’s opinion reflects the level of risk associated with the property serving as collateral for loans, and is used to determine the ceiling of a granted or purchased loan secured by a mortgage on a specific property or to reach a decision by the Bank as to whether the loan secured on the property may be acquired by the Bank.

PKO Bank Hipoteczny SA determines MLV on the basis of expert valuations of the Mortgage Lending Value of a property. Such valuations are carried out with due diligence and prudence. They take into account only those property characteristics and expenditures necessary for its construction, which will be of a permanent nature and which any property holder will be able to obtain assuming rational exploitation. The expert valuation, made on a specified date, documents assumptions and parameters underlying the analysis, the process of determining the MLV and the resulting MLV proposal. The expert valuation report takes into account the analyses and forecasts concerning specific parameters for a given property that affect the credit risk assessment, as well as general factors such as: population growth, unemployment rate, and local zoning plans.

The Bank accepts the following as mandatory legal collateral for loans granted or acquired:

■ the highest priority mortgage on the property registered in the land and mortgage register;

■ the assignment of rights from the insurance policies against fire and other accidental causes for the mortgaged property underwritten on behalf of the Bank.

The tables below show the distribution of the gross carrying amount of the portfolio of loans and advances to customers as measured by LtV based on current market values (including indexation).

GROSS LOANS AND ADVANCES TO CUSTOMERS BY LTV BASED ON MARKET VALUATION - SHARE	31.12.2024	31.12.2023

below 50%	92.7%	87.9%
51% - 60%	3.4%	7.9%
61% - 70%	1.9%	2.0%
71% - 80%	1.3%	1.7%
81% - 90%	0.7%	0.5%
more than 90%	0.0%	0.0%
Total	100.0%	100.0%
Average LtV based on market valuation	31.4%	35.0%

LOANS AND ADVANCES TO CUSTOMERS BY LTV BASED ON MARKET VALUATION - GROSS AMOUNT	31.12.2024	31.12.2023

below 50%	15,471,857	15,807,095
51% - 60%	571,102	1,420,119
61% - 70%	317,498	365,880
71% - 80%	213,037	300,662
81% - 90%	115,903	98,495
more than 90%	-	223
Total, gross	16,689,397	17,992,474

The following table presents the distribution of the gross carrying amount for the portfolio of loans and advances to customers by geographical region in which the real estate put up as collateral for the loan is located.

GROSS LOANS AND ADVANCES TO CUSTOMERS - BY GEOGRAPHICAL REGION	31.12.2024	31.12.2023

Warsaw region	21.4%	21.4%
Wrocław region	12.2%	12.2%
Gdańsk region	11.6%	11.5%
Poznań region	10.7%	10.6%
Katowice region	10.0%	10.0%
Kraków region	8.0%	8.1%
Szczecin region	7.4%	7.4%
Łódź region	7.4%	7.4%
Lublin region	6.1%	6.1%
Białystok region	5.2%	5.3%
Total	100.0%	100.0%

46.3 Forbearance practices

The Bank defines forbearance as actions aimed at changing the contractual terms agreed with a debtor, caused by the debtor’s financial distress (restructuring activities introducing concessions that would otherwise not have been granted). The purpose of forbearance activities is to restore a debtor’s ability to fulfil his/her obligations towards the Bank and to maximize the effectiveness of non-performing loan management, i.e. obtain the highest recoveries while minimizing their costs.

Forbearance changes in repayment terms may consist in:

■ dividing the overdue debt into instalments;

■ changing the repayment formula (annuity instalments, decreasing instalments);

■ extending the loan period;

■ changing the interest rate;

■ changing the margin;

■ reducing the amounts due.

As a result of signing and repaying the amounts due under a forbearance agreement on a timely basis, a non-performing loan becomes a performing loan.

The granting of forbearance concessions recognized as impairment triggers the recognition of a default event and the classification of the credit exposure to the impaired portfolio.

The inclusion of such exposures in the portfolio of serviced exposures (discontinuation of recognition of the forbearance agreement as an impairment trigger) takes place at least 12 months after the introduction of forbearance, provided that all payments in arrears and at least six scheduled payments have been made by the customer and, in the Bank’s opinion, the current situation of the customer does not pose a threat to their compliance with the terms of the restructuring agreement.

Exposures cease to satisfy the criteria of forborne exposure when the following conditions are jointly met:

■ at least 24 months have lapsed since the forborne exposure was included in the serviced exposures portfolio (probation period);

■ at the end of the probation period mentioned above, the customer does not have any debt owed to the Bank overdue by more than 30 days;

■ at least 12 instalments have been repaid in the target amounts.

Forborne exposures are monitored on a current basis. Due to the impairment trigger or a significant increase in credit risk identified in connection therewith, throughout the period of their recognition, allowances are recognized for these exposures in the amount of expected losses over the life horizon of the exposure.

EXPOSURES SUBJECT TO FORBEARANCE IN THE LOAN PORTFOLIO	31.12.2024	31.12.2023

Gross loans and advances to customers, including:	16,689,397	17,992,474
subject to forbearance	21,111	12,633
Allowances for expected credit losses, including:	(88,726)	(93,767)
on loans and advances subject to forbearance	(7,716)	(4,445)

Net loans and advances to customers, including:	16,600,671	17,898,707
subject to forbearance	13,395	8,188

46.4 Write-offs

The table below presents the outstanding amounts of loans and advances to customers, which were written off during the reporting period and which are still the subject of debt recovery activities.

RECEIVABLES WRITTEN OFF	31.12.2024		31.12.2023
RECEIVABLES WRITTEN OFF	Partly written off	Fully written off	Partly written off	Fully written off

Loans and advances to customers	-	61	-	10

The Bank applies the following criteria of writing off receivables:

■ a receivable is due in full;

■ in accordance with IAS and IFRS, the allowance for expected credit losses:

□ covers 100% of the gross carrying amount of an asset, or

□ exceeds 90% of the gross carrying amount of an asset and actions which have been or are taken with regard to the amount due have not resulted in its recovery, and an assessment of the possibility of recovering the dues which has been conducted and taken into account, in particular the findings of a bailiff or receiver, the category of satisfaction, and ranking of the mortgage entry, indicated that it will be impossible to fully recover the dues, or inflows in respect of the repayment of the amount due in the last 12 months did not cover current interest accrued.

46.5 Allowances for expected credit losses

PKO Bank Hipoteczny SA performs monthly reviews of credit exposures in order to identify those that are at risk of impairment or whose credit risk has increased significantly since the initial recognition, to measure the impairment of credit exposures and to record allowances for expected credit losses.

In the area of impairment measurement, the Bank applies IFRS 9, which is based on the concept of expected losses. The impairment model is applicable to financial assets which are not measured at fair value through profit or loss, and which comprise:

■ debt financial instruments in the form of credit exposures and securities;

■ off-balance-sheet financial and guarantee exposures.

In accordance with IFRS 9, impairment is measured as 12-month expected credit losses or perpetual expected credit losses. The time horizon of an expected loss depends on whether a significant increase in credit risk occurred since the moment of initial recognition. Therefore, financial assets are allocated to 3 stages.

■ Stage 1 – exposures whose credit risk has not increased materially since initial recognition and no indications of impairment have been identified;

■ Stage 2 – exposures whose credit risk has increased materially since initial recognition, but no indications of impairment have been identified;

■ Stage 3 – assets with identified indications of impairment.

Material credit risk increase

Material credit risk increase is determined taking into account the probability of insolvency and its changes in relation to the level recorded at the initial recognition of the loan. In order to assess a material credit risk increase, the Bank uses a model based on the calculation of marginal PD, i.e. the probability of default in a given month. Such probability depends on the amount of time that has passed since the inception of the exposure. Therefore, it is possible to obtain a projection of changes in credit quality over the life of an exposure which are characteristic of retail exposures. Marginal PD curves have been determined based on historical data. Marginal PD is assigned to individual exposures by scaling the curve determined at the portfolio level to the individual exposure/customer assessment obtained using application models (which use data from loan applications) and behavioural models. The Bank identifies material credit risk increases for individual exposures based on the comparison of probability of default curves over the lifetime of an exposure on initial recognition and on a given reporting date. For each reporting date, only those parts of the initial and current PD curve are compared which correspond to the period from the reporting date to the maturity of the exposure. The comparison is based on average PD values over the life of a loan in the analysed period adjusted for present and forecast macroeconomic ratios.

The result of such comparison, referred to as α statistical value, is applied to a threshold value above which an increase in credit risk is considered material. The threshold value is determined based on historical relations between α statistical value and the occurrence of default. In this process, the probability of the following events is reduced to a minimum:

■ classifying an exposure which was not in default in the period analysed to the set of credit exposures with significantly increased credit risk (based on statistics) (type I error);

■ not classifying an exposure which was in default in the period analysed to the set of credit exposures with significantly increased credit risk (based on statistics) (type II error).

According to data as at the end of 2024, a 2.2 times or bigger increase in PD in relation to the value at the moment of recognition in the Bank’s books is an indication of a significant deterioration in credit quality.

With respect to credit exposures for which the current risk of insolvency does not exceed the level reflected in the price of the funding granted, the results of a comparison of PD curves as at the date of initial recognition and as at the reporting date do not entail the recognition of a significant credit risk increase.

To identify other indications of a significant credit risk increase, the Bank uses full quantitative and qualitative information available, including information on:

■ delays in repayment of a material amount of principal or interest or fees (understood as an amount exceeding PLN 400 and 1% with regard to the total combined on-balance sheet credit exposure of a borrower in the Bank and other entities of the PKO Bank Polski SA’s Group) exceeding 30 days;

■ the conclusion of a restructuring agreement or the application of debt relief for economic or legal reasons arising from the customer’s financial difficulties (forbearance), provided that it does not meet the criterion of impairment, up to 24 months after recognition and payment of the 12 full instalments under the schedule;

■ a significant increase in LtV ratio – over 100%;

■ petitioning for bankruptcy by any of the co-borrowers;

■ putting a credit exposure under the management of restructuring and debt collection units of the Bank;

■ suspicion that a credit exposure has been obtained fraudulently;

■ use of the Borrowers Support Fund by a borrower;

■ death of a borrower (for 6 months after the date of death);

■ suspension of the execution of the loan agreement under statutory loan repayment holidays combined with simultaneous occurrence of a delay in repayment of more than 30 days during the period from the beginning of the programme;

■ quarantine of exposures for which the indication of impairment ceased to exist in the last 3 months in Stage 2.

Impaired loans and definition of default

Indications of impairment of credit exposures comprise in particular:

■ delays in repayment of a material amount of principal or interest or fees exceeding 90 days;

■ the conclusion of a restructuring agreement or the application of debt relief for economic or legal reasons arising from the customer's financial difficulties (forbearance), up to 12 months after recognition and payment of 6 full instalments under the schedule;

■ the Bank giving notice and requesting immediate repayment of the loan;

■ bankruptcy being declared in respect of any of the co-borrowers or the filing of a bankruptcy petition by all the borrowers;

■ death of all the borrowers;

■ a material deterioration in the borrower’s financial and economic position in respect of credit obligations to other PKO Bank Polski SA Group entities;

■ suspension of the execution of the loan agreement based on statutory loan repayment holidays in connection with the borrower losing his/her job or another source of income, combined with simultaneous occurrence of a delay in repayment exceeding 30 days during the last 12 months.

In accordance with Regulation (EU) No 575/2013 of the European Parliament and of the Council on prudential requirements for credit institutions and investment firms (the “CRR”), the Bank defines default of a borrower if it considers that the borrower cannot repay his/her credit obligations without the Bank taking advantage of the respective collateral, or the borrower is past due more than 90 days on any material credit obligation. Indications of default are the same as the indications of impairment. The Bank follows EBA guidelines (EBA/GL/2016/07) on the application of the definition of default set out in Article 178 of the CRR. The main principles for identification of default introduced by the Bank in connection with the Guidelines are as follows:

■ consistent identification of default at the level of borrower in the PKO Bank Polski SA Group;

■ a borrower’s past due default occurs when amounts overdue in respect of principal, interest or fees within the PKO Bank Polski SA Group have exceeded the materiality threshold for 90 days;

■ determining an absolute materiality threshold for all exposures at the level of PLN 400 and introducing a relative threshold for amounts overdue of 1% expressed as a ratio of credit obligations to total balance sheet exposures in the Group;

■ the contagion by default of private exposures belonging to owners of business entities which have been identified as being in default where owners have unlimited liability.

Calculation of expected credit losses

Due to the specialized nature of its business, i.e. having one type of credit product on offer, the Bank calculates its expected credit losses on the basis of one homogeneous portfolio without applying additional segmentation. The Bank applies the portfolio method to calculate the expected credit losses.

The expected losses are calculated as the product of credit risk parameters: probability of default (PD), loss given default (LGD) and exposure at default (EAD); each of these parameters is a vector representing the number of months covering the expected credit loss horizon. The expected loss over both the life of the exposure and the 12-month period is the sum of the expected losses over the individual periods discounted at the effective interest rate.

In order to determine the value of an asset at the time of default, the Bank adjusts the parameter corresponding to the amount of the exposure at the time of default for future payments according to the repayment schedule and potential over- or underpayments.

In calculating the expected credit losses, the Bank also considers estimates of the future macroeconomic conditions. In the case of portfolio analysis, the impact of macroeconomic scenarios is taken into account in the level of specific risk parameters. The methodology of calculation of the risk parameters includes back-testing of the dependence of the value of the parameters on macroeconomic conditions. Three macroeconomic scenarios based on Group forecasts are used to calculate the loss:

■ a baseline scenario with a probability of 75%;

■ and two alternative scenarios, with probabilities of 20% and 5% respectively.

The forecast ratios include:

■ GDP growth rate;

■ unemployment rate;

■ real estate price index.

The ultimate expected loss is the average of expected losses in each scenario, weighted by the probability of the scenarios.

The Bank ensures that the macroeconomic scenarios used for the calculation of risk parameters are consistent with the macroeconomic scenarios used in the credit risk budgeting processes.

The baseline scenario is based on baseline macroeconomic forecasts. The forecasts are prepared on the basis of quantitative models and adjusted for one-off events.

Stress scenarios refer to so-called internal shocks, where the external variables (interest rates abroad) do not change relative to the baseline scenario. Stress scenarios are developed on the basis of statistical and econometric analyses which result in the projected path of macroeconomic parameters. Two scenarios are identified: an optimistic scenario and a pessimistic scenario.

The share of scenarios for the GDP (growth rate) path that falls between the optimistic and the pessimistic scenario is referred to as the baseline scenario probability. Based on this assumption, GDP dynamics are projected assuming a time-varying potential growth rate of the Polish economy calculated using quarterly data provided by Central Statistics. After determining the extreme paths of GDP dynamics, the values of other macroeconomic variables used in the scenarios (unemployment rate, property price index) are estimated.

The unemployment rate is calculated on the basis of a quantified relationship with the difference between the GDP dynamics and the potential economic growth rate. The result is adjusted for important structural changes occurring in the Polish economy which are not covered by the quantitative model, in particular:

■ the ageing of the Polish population (and the emergence of unsatisfied demand for labour, which will limit the scale of the increase in the unemployment rate in a situation of a slowdown in economic growth);

■ the Polish labour market reaching a state close to full employment (due to supply constraints, the space for further decline in the unemployment rate is getting smaller);

■ migrant inflows (only partially included in official statistics).

The level of the property price index is determined on the basis of changes in GDP, taking into account supply and demand conditions on the market, based on data and trends presented by the NBP in its publication “Information on housing prices and the situation on the residential and commercial property market in Poland” and the Group's own analyses.

The tables below present forecasts of the main macroeconomic indices adopted as at 31 December 2024 and 31 December 2023, and the respective probabilities of occurrence assumed.

Scenario as at 31.12.2024	baseline			optimistic			pessimistic
probability	75%			5%			20%
	2025	2026	2027	2025	2026	2027	2025	2026	2027
GDP growth y/y	3.4	3.3	3.1	8.8	8.3	4.7	(1.9)	(1.8)	1.6
Unemployment rate	2.8	2.8	2.8	2.6	2.7	2.8	4.6	5.2	2.8
Real estate price index	100.2	102.6	105.7	107.3	118.5	124.0	93.5	88.5	89.8

Scenario as at 31.12.2023	baseline				optimistic			pessimistic
probability	75%			5%					20%
	2024	2025	2026	2024		2025	2026		2024	2025	2026
GDP growth y/y	3.9	3.8	3.2	9.4		8.8	4.7		(1.7)	(1.7)	1.3
Unemployment rate	2.7	2.7	2.5	2.4		2.5	2.7		4.3	4.4	3.0
Real estate price index	107.7	115.4	118.3	115.1		130.7	134.0		100.6	101.6	104.2

The Bank applies the low credit risk criterion in accordance with IFRS 9, which allows exposures considered to be at low credit risk to remain in Stage 1. In accordance with IFRS 9, credit risk of a financial instrument is considered low when:

■ the financial instrument has a low risk of default;

■ the borrower has a strong capacity to meet its contractual cash flow obligations in the near term;

■ adverse changes in economic and business conditions in the longer term may, but will not necessarily, reduce the ability of the borrower to fulfil his/her contractual cash flow obligations.

The Bank applies the low credit risk criterion to exposures to PKO Bank Polski SA and exposures to the State Treasury and the National Bank of Poland.

Both the process of assessing a material increase in credit risk and the process of calculating the expected loss are carried out on a monthly basis at the individual exposure level using a dedicated computing environment, with macroeconomic forecast data updated on a quarterly basis.

Parameters of the impairment measurement model

The tables below present parameters of the impairment measurement model for non-impaired exposures. Values in the tables below are presented in PLN million, unless stated otherwise in a given column.

31.12.2024
Stage	PD range	Residential loans, gross	Loan commitments	Exposure at default (EAD)	Average probability of default (PD)	Number of exposures	Average loss given default (LGD)	Average maturity in years	Allowances for expected credit losses

1	(0 - 0.15%]	13,757.3	49.9	13,807.4	0.05%	79,247	31.9%	20	(2.2)
	(0.15 - 0.25%]	1,030.3	42.1	1,072.4	0.19%	6,121	30.9%	19	(0.6)
	(0.25 - 0.50%]	735.7	6.1	741.8	0.34%	4,485	30.9%	18	(0.7)
	(0.50 - 0.75%]	202.7	1.4	204.1	0.60%	1,229	31.3%	19	(0.4)
	(0.75 - 2.5%]	196.8	0.6	197.4	1.22%	962	32.8%	20	(0.7)
	(2.5 - 10%]	41.9	-	41.9	4.27%	173	36.6%	21	(0.6)
	(10 - 45%]	-	-	-	-	-	-	-	-
	(45 - 100%)	-	-	-	-	-	-	-	-
	Total	15,964.7	100.1	16,065		92,217			(5.2)
2	(0 - 0.15%]	130.0	-	130.0	0.06%	584	33.9%	21	(1.3)
	(0.15 - 0.25%]	14.4	-	14.4	0.19%	78	31.5%	20	(0.1)
	(0.25 - 0.50%]	32.8	-	32.8	0.41%	132	31.2%	19	(0.4)
	(0.50 - 0.75%]	47.7	0.1	47.8	0.63%	208	32.6%	20	(0.5)
	(0.75 - 2.5%]	171.5	0.1	171.7	1.41%	904	33.3%	20	(3.9)
	(2.5 - 10%]	163.2	-	163.6	5.10%	733	38.1%	21	(12.6)
	(10 - 45%]	69.8	-	70.1	18.71%	290	43.5%	22	(17.8)
	(45 - 100%)	16.5	-	16.5	73.57%	76	45.3%	19	(9.1)
	Total	645.9	0.2	646.9		3,005			(45.7)

31.12.2023
Stage	PD range	Residential loans, gross	Loan commitments	Exposure at default (EAD)	Average probability of default (PD)	Number of exposures	Average loss given default (LGD)	Average maturity in years	Allowances for expected credit losses

1	(0 - 0.15%]	11,858.9	69.4	11,928.8	0.07%	74,707	32.3%	20	(2.7)
	(0.15 - 0.25%]	2,658.6	12.7	2,671.4	0.19%	12,203	32.9%	21	(1.6)
	(0.25 - 0.50%]	1,602.6	8.5	1,611.3	0.35%	7,233	32.5%	21	(1.7)
	(0.50 - 0.75%]	383.3	0.2	383.5	0.61%	1,769	32.6%	21	(0.7)
	(0.75 - 2.5%]	519.3	-	519.3	1.28%	2,229	33.5%	22	(2.1)
	(2.5 - 10%]	87.0	-	87.0	4.16%	355	36.4%	21	(1.2)
	(10 - 45%]	-	-	-	-	-	-	-	-
	(45 - 100%)	-	-	-	-	-	-	-	-
	Total	17,109.7	90.8	17,201.3		98,496			(10.0)
2	(0 - 0.15%]	74.7	-	74.7	0.08%	382	33.6%	21	(1.1)
	(0.15 - 0.25%]	29.2	-	29.2	0.20%	112	33.3%	23	(0.5)
	(0.25 - 0.50%]	55.9	0.0	56.0	0.41%	203	32.7%	22	(1.0)
	(0.50 - 0.75%]	76.7	-	76.8	0.62%	289	33.1%	22	(1.3)
	(0.75 - 2.5%]	322.2	0.1	322.4	1.40%	1,429	34.3%	22	(9.3)
	(2.5 - 10%]	186.4	-	186.7	4.88%	814	38.1%	22	(14.2)
	(10 - 45%]	48.2	-	48.3	16.63%	191	40.7%	22	(9.8)
	(45 - 100%)	16.7	-	16.7	77.02%	69	52.9%	21	(11.5)
	Total	810.0	0.1	810.8		3,489			(48.7)

The tables below present parameters of the impairment measurement model for impaired exposures. Values in the tables below are presented in PLN million, unless stated otherwise in a given column.

Stage	Number of months in default	Exposure at default (EAD)	Number of exposures	Average loss given default (LGD)	Allowances for expected credit losses	Exposure at default (EAD)	Number of exposures	Average loss given default (LGD)	Allowances for expected credit losses
		31.12.2024				31.12.2023
3	[0- 12]	35.6	178	43.4%	(15.0)	36.5	171	46.6%	(16.6)
	[13- 24]	20.0	93	49.8%	(9.3)	15.4	75	45.0%	(6.3)
	[25- 36]	8.1	45	50.1%	(3.6)	8.2	55	49.4%	(3.7)
	[37- 48]	5.9	40	63.7%	(3.4)	6.0	32	68.4%	(3.9)
	[49- 60]	4.4	25	81.5%	(3.4)	3.3	20	84.4%	(2.7)
	over 60	3.7	25	100.0%	(3.7)	2.1	14	100.0%	(2.1)
	Total	77.7	406		(38.4)	71.5	367		(35.3)
POCI	[0- 12]	1.3	7	32.3%	0.7	1.3	8	35.3%	0.5
	[13- 24]	0.0	1	27.3%	0.0	0.2	1	37.8%	0.0
	[25- 36]	0.2	1	66.6%	(0.1)	0.2	2	86.7%	(0.1)
	[37- 48]	0.1	1	60.2%	0.0	0.1	2	80.3%	(0.0)
	[49- 60]	0.1	2	92.4%	(0.1)	-	-	-	-
	over 60	-	-	n/a	-	-	-	-	-
	Total	1.7	12		0.5	1.8	13		0.4

47. Liquidity risk management

Definition

Liquidity risk is the risk of the inability to settle the Bank’s obligations when due as a result of a lack of liquid assets. Liquidity risk comprises funding risk which is a risk of the inability to renew the required funding resources or a loss of access to new sources of funding.

Lack of liquidity may arise, in particular, from an inappropriate structure of assets and liabilities, including off-balance sheet, mismatch of cash flows, counterparty default, customers’ sudden realization of contingent commitments, the inability to roll over bonds or other market events.

Risk management objective

The objective of liquidity risk management is to ensure a sufficient level of funds to settle present and future obligations (including potential obligations) when due, taking into account the nature of activities and requirements which may occur due to changes in market conditions, by means of appropriately shaping the structure of the balance sheet and loan commitments.

Liquidity risk identification and measurement

The Bank applies the following liquidity risk measures:

■ contractual, adjusted and stress-test liquidity gap;

■ liquidity surplus and survival horizon with no external support;

■ liquidity coverage ratio (LCR);

■ net stable funding ratio (NSFR);

■ concentration of funding sources;

■ coverage ratio of long-term assets with long-term funding;

■ liquidity stress tests.

Liquidity risk control

Liquidity risk control consists of determining strategic tolerance limits appropriate for the scale and complexity of the Bank, and internal limits for short-, medium-, and long-term liquidity risk.

Liquidity risk forecasting and monitoring

The Bank regularly monitors:

■ the utilization of the strategic limit of liquidity risk;

■ the utilization of supervisory liquidity standards;

■ the utilization of internal liquidity risk limits;

■ the concentration of funding sources;

■ early warning indicators - monitoring their level is aimed at early detection of unfavourable developments that may have a negative impact on the Bank's or the financial sector's liquidity position (exceeding their limits triggers liquidity contingency plans).

The Bank also makes cyclical forecasts of the level of liquidity risk, which take into account the current development of the Bank’s operations. The liquidity forecasts primarily take into account the levels of selected measures of liquidity risk under conditions where the Bank's asset and liability forecasts are realized and where selected stress-test scenarios are realized.

Liquidity risk reporting

The Bank prepares liquidity risk reports on a daily, weekly, monthly and quarterly basis. Reports containing information about the exposure to liquidity risk and information about the utilization of the liquidity risk limits are submitted to the ALCO on a monthly basis and to the Management Board and the Supervisory Board of the Bank on a quarterly basis.

Liquidity risk management actions

The main tools of liquidity risk management at the Bank comprise:

■ procedures for liquidity risk management, including in particular emergency plans;

■ internal limits limiting liquidity risk;

■ deposit and derivative transactions, including structural currency transactions and transactions for the sale or purchase of securities;

■ unconditional liquidity support instruments obtained from PKO Bank Polski SA;

■ transactions ensuring long-term funding of the lending activity.

The fundamental principle of the Bank’s liquidity policy is to maintain an appropriate portfolio of liquid securities and stable sources of funding (in particular from the issue of mortgage covered bonds), and to ensure appropriate liquidity supporting tools. Money market instruments and unsecured bonds issued are also used in liquidity risk management. The Bank pays particular attention to matching the timing of cash flows with the maturity of material liabilities (redemption of mortgage covered bonds).

47.1 Liquidity risk – Financial information

The Bank’s exposure to liquidity risk as at 31 December 2024 and 31 December 2023 was within the strategic and internal limits set. During 2024 and 2023 the Bank did not exceed any of the liquidity standards nor any strategic or internal limits.

Liquidity gap

The adjusted liquidity gaps as at 31 December 2024 and as at 31 December 2023 are presented below.

LIQUIDITY GAP AS AT 31.12.2024	on demand	0-1 month	1-3 months	3 - 6 months	6-12 months	12-24 months	24-60 months	over 60 months

Adjusted periodic gap	3,037,710	376,131	347,521	(2,812,524)	372,947	(2,749,782)	(4,483,409)	5,911,406
Adjusted cumulative periodic gap	3,037,710	3,413,841	3,761,362	948,838	1,321,785	(1,427,997)	(5,911,406)	-

The adjusted liquidity gap is based on contractual inflows and outflows, which are adjusted mainly in terms of including:

■ receipts within up to 7 days in respect of liquid securities;

■ prepayments realized on mortgage loans;

■ funds available for use under the credit lines from PKO Bank Polski SA;

■ partial renewal of funding from the issue of own bonds.

As at 31 December 2024, in the ranges of up to 12 months, the cumulative adjusted liquidity gap was positive, which means a surplus of maturing assets increased by estimated inflows from the available overdraft limit over mature liabilities in the short and medium term. The negative gap in the subsequent periods is related to the maturity of large volumes of mortgage covered bonds, with the Bank having liquidity support from PKO Bank Polski SA in the form of credit lines which are used to redeem mortgage covered bond issues. The Bank also seeks to raise further funds from new issues in place of the maturing ones, in line with its financial plans and strategy.

LIQUIDITY GAP AS AT 31.12.2023	on demand	0-1 month	1-3 months	3 - 6 months	6-12 months	12-24 months	24-60 months	over 60 months

Adjusted periodic gap	2,350,182	355,401	78,179	(622,680)	(2,375,478)	(9,499,906)	(3,739,191)	13,453,493
Adjusted cumulative periodic gap	2,350,182	2,705,583	2,783,762	2,161,082	(214,396)	(9,714,302)	(13,453,493)	-

Liquidity surplus

The liquidity surplus is determined taking account of outflows of funds under stress conditions.

The liquidity surplus consists of liquid assets (comprising the main part aimed at providing protection against the most acute crises and the supplementary part providing protection against less acute, but longer lasting crises) adjusted for net stress test flows (outflows less inflows) over a 30-day horizon.

SENSITIVITY MEASURE	31.12.2024	31.12.2023

Excess liquidity in the horizon of up to 1 month	2,813,976	2,659,529

Supervisory liquidity measures

The liquidity coverage ratio (LCR) of net outflows of up to 1 month is shown in the following table:

SENSITIVITY MEASURE	31.12.2024	31.12.2023

Liquidity coverage ratio up to 1 month (LCR)	565.1%	249.9%
LCR regulatory limit	100.0%	100.0%

The net stable funding ratio (NSFR) is presented in the table below:

SENSITIVITY MEASURE	31.12.2024	31.12.2023

Net stable funding ratio (NSFR)	105.4%	106.9%
NSFR regulatory limit	100.0%	100.0%

In the periods ended 31 December 2024 and 31 December 2023, liquidity measures remained above their respective supervisory limits.

Liquidity gap in the presentation of contractual cash flows

Liquidity gap in the presentation of contractual cash flows is a mismatch between the inflows and outflows classified in a given range. In the calculation of the liquidity gap relating to cash flows, the Bank takes into account all instruments concluded as at the balance sheet date. An increase in the amount of loans granted or rolling over of funding for a consecutive period is not taken into account. However, in accordance with the Bank’s internal methodology, it is assumed that funds available under its credit lines will be used, given the nature of these instruments (stand-by line used to finance current operations).

31.12.2024	on demand	0-1 month	1-3 months	3 - 6 months	6-12 months	12-24 months	24-60 months	over 60 months	Total

Inflows	10,554	182,100	286,127	604,309	889,931	2,142,704	5,359,920	22,811,778	32,287,423
securities	-	11,094	-	170,458	16,273	397,679	215,214	-	810,718
loans and advances to customers	-	171,006	286,127	433,851	873,658	1,745,025	5,144,706	22,811,778	31,466,151
other1)	10,554	-	-	-	-	-	-	-	10,554

Outflows	-	952,829	841,089	3,848,520	971,087	2,804,978	7,746,561	-	17,165,064
amounts due to banks	-	18,344	61,455	81,067	312,681	846,369	4,965,299	-	6,285,215
liabilities in respect of mortgage covered bonds issued	-	30,598	44,919	2,491,695	639,062	1,954,196	2,781,260	-	7,941,730
unsecured bonds issued	-	798,500	709,500	1,252,500	-	-	-	-	2,760,500
disbursement of loan commitments	-	28,090	25,215	23,258	19,344	4,413	2	-	100,322
other1)	-	77,297	-	-	-	-	-	-	77,297

Inflows due to initialled and available revolving current account loans	3,027,155	875,500	223,500	-	-	-	-	-	4,126,155
Outflows due to repayment of current account loans used	-	-	-	-	-	1,511,000	2,538,155	77,000	4,126,155

Inflows from derivative hedging instruments	-	-	-	2,181,891	2,093	2,093	4,185	-	2,190,262
Outflows from derivative hedging instruments	-	-	40,463	2,388,950	1,861	3,187	5,359	-	2,439,820

Periodic gap	3,037,709	104,771	(371,925)	(3,451,270)	(80,924)	(2,174,368)	(4,925,970)	22,734,778	14,872,801

Cumulative gap	3,037,709	3,142,480	2,770,555	(680,715)	(761,639)	(2,936,007)	(7,861,977)	14,872,801

1) Under “Other” inflows show funds in current accounts and outflows show a shortfall in the reserve account with the NBP and funds in technical accounts for mortgage repayments.

31.12.2023	on demand	0-1 month	1-3 months	3 - 6 months	6-12 months	12-24 months	24-60 months	over 60 months	Total

Inflows	2,442	583,079	305,757	469,025	951,350	2,054,336	5,919,602	25,754,605	36,040,196
securities	-	409,527	-	4,632	15,468	182,313	384,761	-	996,701
loans and advances to customers	-	173,552	305,757	464,393	935,882	1,872,023	5,534,841	25,754,605	35,041,053
other1)	2,442	-	-	-	-	-	-	-	2,442

Outflows	-	2,328,075	1,086,331	2,051,659	2,947,102	6,020,119	3,890,674	-	18,323,960
amounts due to banks	-	11,453	60,240	70,354	151,119	2,950,194	2,023,177	-	5,266,537
liabilities in respect of mortgage covered bonds issued	-	2,212,754	146,158	805,465	2,783,226	3,066,226	1,867,447	-	10,881,276
unsecured bonds issued	-	-	863,000	1,162,000	-	-	-	-	2,025,000
disbursement of loan commitments	-	43,643	16,933	13,840	12,757	3,699	50	-	90,922
other1)	-	60,225	-	-	-	-	-	-	60,225

Inflows due to initialled and available revolving current account loans	2,347,456	2,174,000	971,700	117,800	-	-	-	-	5,610,956
Outflows due to repayment of current account loans used	-	-	-	-	-	3,277,956	2,000,000	333,000	5,610,956

Inflows from derivative hedging instruments	-	2,190,265	109,591	46,516	2,192,351	2,222,280	6,278	-	6,767,281
Outflows from derivative hedging instruments	-	2,137,327	185,955	74,196	2,241,709	2,413,524	7,385	-	7,060,096

Periodic gap	2,349,898	481,942	114,762	(1,492,514)	(2,045,110)	(7,434,983)	27,821	25,421,605	17,423,421

Cumulative gap	2,349,898	2,831,840	2,946,602	1,454,088	(591,022)	(8,026,005)	(7,998,184)	17,423,421

Concentration of funding sources

The Bank recognizes the risk of concentration of funding sources as an element of liquidity risk determined by circumstances under which the funding structure becomes susceptible to the occurrence of individual events or single factors, such as sudden significant withdrawal of funds or insufficient access to new funding.

The Bank’s business model assumes that the risk of concentration of funding sources results from:

■ a high proportion of covered bonds in the funding structure (covered bonds are a stable source of funding, however the balloon nature of their redemption causes further need for a new issue or alternative source of funding to arise at redemption in most cases);

■ funding supplied by the Parent Company;

■ issue of own bonds.

The table below presents the structure of the Bank’s funding sources:

STRUCTURE OF THE BANK'S FUNDING	31.12.2024	31.12.2023

Mortgage covered bonds issued	41.6%	55.2%
Loans from the Parent Company	30.8%	24.2%
Bonds issued	15.7%	10.5%
Equity	10.0%	8.7%
Other	1.9%	1.4%

Total	100.0%	100.0%

Seeking to reduce the concentration risk of funding sources, the Bank has implemented a system of internal limits, both in short-term and long-term horizons, according to the mortgage covered bond issues carried out by the Bank. In the period ended 31 December 2024 and 31 December 2023, none of these limits were exceeded.

48. Interest rate risk management

Definition

Interest rate risk is defined as the risk of loss on balance sheet items and the Bank’s loan commitments sensitive to movements in interest rates as a result of changes in the market interest rates.

Risk management objective

The objective of interest rate risk management is to limit any potential losses incurred due to changes in the market interest rates to an acceptable level by the proper shaping of the structure of the balance sheet items and off-balance sheet items, among other things, in terms of the matching of the repricing periods.

Interest rate risk identification and measurement

The Bank uses measures of interest rate risk such as interest income sensitivity, economic value sensitivity, stress tests and repricing gaps.

Interest rate risk control

The control of interest rate risk involves determining risk limits appropriate to the scale and complexity of the Bank’s operations, in particular the strategic tolerance limits for interest rate risk.

Interest rate risk forecasting and monitoring

The Bank regularly monitors:

■ the levels of interest rate risk measures;

■ utilization of strategic interest rate risk tolerance limits;

■ utilization of internal limits on interest rate risk.

The Bank also makes cyclical forecasts of the level of interest rate risk, which take into account the current development of the Bank’s business. The forecasts of the level of interest rate risk mainly take into account the levels of selected measures of interest rate risk in the case of realization of the Bank’s asset and liability forecasts.

Interest rate risk reporting

The Bank prepares reports concerning its liquidity risk on a daily, weekly, monthly and quarterly basis. Reports containing information about the exposure to interest rate risk and information about the utilization of the interest rate risk limits are submitted to the ALCO on a monthly basis and to the Management Board and the Supervisory Board of the Bank on a quarterly basis.

Interest rate risk management actions

The basic interest rate risk management tools used by PKO Bank Hipoteczny SA comprise in particular:

■ procedures concerning the management of interest rate risk;

■ internal limits on interest rate risk, among other things for basis point value sensitivity and net interest income sensitivity;

■ specification of the permitted types of interest-rate based transactions;

■ concluding acceptable transactions based on interest rate;

■ the proper selection of transaction parameters making it possible to apply natural hedges between assets and liabilities.

The Bank manages interest rate risk by matching the repricing structure of the assets and funding sources (natural hedging) and, on an as needed basis, enters into hedging transactions (derivative contracts). The Bank uses IRS and CIRS derivative transactions to hedge against interest rate risk associated with issues of fixed interest mortgage covered bonds in PLN and EUR aimed at funding variable interest rate loans.

48.1 Interest rate risk – Financial information

The Bank’s exposure to interest rate risk as at 31 December 2024 and 31 December 2023 was within the strategic and internal limits set. During 2024 and 2023, the Bank did not exceed any of the internal or strategic limits of the interest rate risk.

Due to the specialized nature of its business, the Bank does not have a trading book, but only a banking book, comprising on-balance sheet and off-balance sheet items arising from the Bank's core business, transactions entered into for liquidity purposes and hedging transactions.

In the Bank, measures reflecting the identified five main types of interest rate risk are used to monitor the interest rate risk of the banking book:

■ repricing mismatching risk;

■ yield curve risk;

■ baseline risk;

■ customer option risk;

■ credit spread risk from activities included in the banking book (CSRBB).

Sensitivity of interest income

The sensitivity of interest income to sudden shifts in the yield curve is determined by a potential financial effect of such a shift reflected in a changed amount of interest income in a given time horizon. The change results from the mismatch between repricing dates of assets, liabilities and off-balance sheet liabilities granted and received (in particular derivative instruments) sensitive to interest rate fluctuations.

Sensitivity of the Bank’s interest income in the banking book to downward shifts in the yield curve of 100 b.p. in a one-year horizon in all currencies is shown in the table below:

SENSITIVITY MEASURE	31.12.2024	31.12.2023

Net interest income sensitivity (NIIS)	(16,019)	(12,785)

Sensitivity of economic value

Economic value sensitivity reflects a change in the fair value of an item in the portfolio resulting from a parallel shift in yield curves of 100 b.p. upwards or downwards (the less favourable of the scenarios).

Sensitivity of the economic value of the Bank’s banking book to downward jumps in the yield curve of 100 b.p. in a one-year horizon in all currencies is shown in the table below:

SENSITIVITY MEASURE	31.12.2024	31.12.2023

Economic value of equity (EVE) sensitivity	(7,359)	(1,449)

Repricing gap

The repricing gap presents the difference between the value of the assets and liabilities exposed to interest rate risk, which are repriced within the given time band, where positions which are not repriced (fixed-interest items) are recognized at their maturity dates.

The repricing gap report presented below includes assets, liabilities and financial liabilities granted which are sensitive to changes in interest rates. They do not include contingent liabilities which are insensitive to interest rate risk, the Bank’s own funds, amounts due from banks in the form of current account balances.

31.12.2024	0-1 month	1-3 months	3-6 months	6-12 months	1-2 years	2-5 years	>5 years	Total

Assets, including:	4,546,244	8,375,211	2,119,038	183,502	295,897	1,541,331	65,356	17,126,579
balances with the Central Bank	368	-	-	-	-	-	-	368
securities	378,000	-	360,000	-	-	-	-	738,000
loans and advances to customers	4,167,876	8,375,211	1,759,038	183,502	295,897	1,541,331	65,356	16,388,211

Liabilities	(5,590,345)	(3,948,500)	(3,389,000)	(150,000)	(60,000)	(2,105,000)	-	(15,242,845)
amounts due to banks	(2,561,845)	(489,000)	-	(150,000)	(60,000)	(2,045,000)	-	(5,305,845)
liabilities in respect of mortgage covered bonds issued	(2,230,000)	(2,750,000)	(2,136,500)	-	-	(60,000)	-	(7,176,500)
unsecured bonds issued	(798,500)	(709,500)	(1,252,500)	-	-	-	-	(2,760,500)

Derivative hedging instruments – assets	-	-	2,136,350	-	-	60,000	-	2,196,350
Derivative hedging instruments – liabilities	-	(2,408,030)	(366)	-	-	-	-	(2,408,396)

Periodic gap	(1,044,101)	2,018,681	866,022	33,502	235,897	(503,669)	65,356	1,671,688

Cumulative gap	(1,044,101)	974,580	1,840,602	1,874,104	2,110,001	1,606,332	1,671,688

31.12.2023	0-1 month	1-3 months	3-6 months	6-12 months	1-2 years	2-5 years	>5 years	Total

Assets, including:	5,384,112	9,348,517	1,779,164	123,772	321,369	1,621,089	33,213	18,611,236
balances with the Central Bank	21	-	-	-	-	-	-	21
securities	762,000	-	160,000	-	-	-	-	922,000
loans and advances to customers	4,622,091	9,348,517	1,619,164	123,772	321,369	1,621,089	33,213	17,689,215

Liabilities	(6,172,698)	(3,221,700)	(1,162,000)	(2,174,000)	(2,324,000)	(1,909,000)	-	(16,963,398)
amounts due to banks	(2,568,698)	-	-	-	(150,000)	(1,849,000)	-	(4,567,698)
liabilities in respect of mortgage covered bonds issued	(3,604,000)	(2,358,700)	-	(2,174,000)	(2,174,000)	(60,000)	-	(10,370,700)
unsecured bonds issued	-	(863,000)	(1,162,000)	-	-	-	-	(2,025,000)

Derivative hedging instruments – assets	2,173,565	108,700	176	2,173,664	2,173,847	60,000	-	6,689,952
Derivative hedging instruments – liabilities	(2,103,373)	(4,651,272)	(143)	(1,978)	(366)	-	-	(6,757,132)

Periodic gap	(718,394)	1,584,245	617,197	121,458	170,850	(227,911)	33,213	1,580,658

Cumulative gap	(718,394)	865,851	1,483,048	1,604,506	1,775,356	1,547,445	1,580,658

49. Foreign exchange risk management

Definition

Foreign exchange risk is the risk of loss due to changes in foreign exchange rates generated by the maintenance of open positions in various currencies.

Risk management objective

The objective of foreign exchange risk management is to limit any potential losses incurred due to changes in the exchange rates to an acceptable level by the proper shaping of the currency structure of the balance sheet items and loan commitments, and the use of derivative instruments.

Foreign exchange risk identification and measurement

In the process of foreign exchange risk management the Bank in particular uses individual and aggregate FX positions and stress tests. Stress tests are used to estimate the potential loss on the positions taken in foreign currencies in the event of an extraordinary situation on the FX market. The Bank uses hypothetical scenarios – which assume a hypothetical appreciation or depreciation of foreign exchange rates (20 per cent and 50 per cent).

Foreign exchange risk control

The control of foreign exchange risk involves setting limits and thresholds for foreign exchange risk that are adapted to the scale and complexity of the Bank's activities, in particular the strategic limit for foreign exchange risk tolerance.

Foreign exchange risk forecasting and monitoring

The Bank regularly monitors:

■ the level of foreign exchange risk measures;

■ utilization of the strategic limit of foreign exchange risk;

■ utilization of internal limits on foreign exchange risk.

Foreign exchange risk reporting

The Bank prepares foreign exchange risk reports on a daily, weekly, monthly and quarterly basis. Reports containing information about the exposure to foreign exchange risk and information about the utilization of the foreign exchange risk limits are submitted to the ALCO on a monthly basis and to the Management Board and the Supervisory Board of the Bank on a quarterly basis.

Foreign exchange risk management actions

The main tools of foreign exchange risk management at the Bank comprise:

■ procedures concerning the management of foreign exchange risk;

■ limits on foreign exchange risk;

■ specification of the permitted types of foreign exchange transactions.

The Bank closes open FX positions on an ongoing basis, and the control and reporting procedures implemented by the Bank significantly limit the impact of changes in exchange rates on the Bank’s financial performance. The biggest FX positions of the Bank are associated with liabilities in respect of mortgage covered bonds issued in EUR and they are closed on an ongoing basis using CIRS and FX Forward derivative transactions.

49.1 Foreign exchange risk – Financial information

The Bank’s exposure to foreign exchange risk as at 31 December 2024 and 31 December 2023 was within the strategic and internal limits set. During 2024 and 2023 the Bank did not exceed any of the strategic or internal limits of foreign exchange risk.

Foreign currency position

The Bank’s FX positions are presented in the following table:

FOREIGN CURRENCY POSITION IN ‘000 PLN	31.12.2024	31.12.2023

EUR	(2,120)	(2,069)
USD	4	3

Sensitivity measures

The FX VaR measure is the potential amount of loss that may occur in normal market conditions at a specific time (i.e. horizon) and with an assumed level of probability related to changes in foreign exchange rates. Stress tests are used to estimate loss in an event of abrupt changes on the currency market which are not described using statistical measures by default. The Bank’s combined FX VaR for all currencies is presented in the following table:

SENSITIVITY MEASURE	31.12.2024	31.12.2023

10-day FX VaR at 99% confidence level in PLN ‘000	50.3	86.9

Currency structure of assets and liabilities

The currency structure of financial assets and financial liabilities is presented in the table below:

CURRENCY STRUCTURE 31.12.2024	Currency translated to PLN
CURRENCY STRUCTURE 31.12.2024	PLN	EUR	USD	Total

FINANCIAL ASSETS
Cash and balances with the Central Bank	368	-	-	368
Amounts due from banks	7,998	2,184	4	10,186
Securities	749,307	-	-	749,307
Loans and advances to customers	16,600,671	-	-	16,600,671
Other financial assets	609	-	-	609
Total financial assets	17,358,953	2,184	4	17,361,141

FINANCIAL LIABILITIES AND OFF-BALANCE SHEET LIABILITIES
Amounts due to banks	5,342,830	-	-	5,342,830
Derivative hedging instruments	208,696	-	-	208,696
Amounts due to customers	3,398	-	-	3,398
Liabilities in respect of mortgage covered bonds issued	5,073,394	2,159,961	-	7,233,355
Liabilities in respect of bonds issued	2,721,264	-	-	2,721,264
Other financial liabilities	7,588	4,398	-	11,986
Total financial liabilities	13,357,170	2,164,359	-	15,521,529

Contingent liabilities granted (funding), net	100,279	-	-	100,279

DERIVATIVE HEDGING INSTRUMENTS	PLN	EUR	USD
Commitments arising on (purchase)/sale agreements - nominal amount	2,348,396	(2,136,350)	-

CURRENCY STRUCTURE 31.12.2023	Currency translated to PLN
CURRENCY STRUCTURE 31.12.2023	PLN	EUR	USD	Total

FINANCIAL ASSETS
Cash and balances with the Central Bank	306	-	-	306
Amounts due from banks	198	2,220	3	2,421
Derivative hedging instruments	55,383	-	-	55,383
Securities	945,251	-	-	945,251
Loans and advances to customers	17,898,707	-	-	17,898,707
Other financial assets	1,072	-	-	1,072
Total financial assets	18,900,917	2,220	3	18,903,140

FINANCIAL LIABILITIES AND OFF-BALANCE SHEET LIABILITIES
Amounts due to banks	4,580,744	-	-	4,580,744
Derivative hedging instruments	213,187	-	-	213,187
Amounts due to customers	3,710	-	-	3,710
Liabilities in respect of mortgage covered bonds issued	3,768,818	6,675,827	-	10,444,645
Liabilities in respect of bonds issued	1,991,260	-	-	1,991,260
Other financial liabilities	9,969	4,372	-	14,341

Total financial liabilities	10,567,688	6,680,199	-	17,247,887

Contingent liabilities granted (funding), net	90,884	-	-	90,884

DERIVATIVE HEDGING INSTRUMENTS	PLN	EUR	USD	Total
Commitments arising on (purchase)/sale agreements - nominal amount	6,696,812	(6,629,634)	-

50. Operational risk management

Definition

Operational risk is the risk of the occurrence of a loss due to non-compliance or failure of internal processes, people and systems or external events. Operational risk comprises:

■ legal risk - the risk of incurring a loss due to ignorance, misunderstanding and non-application of legal norms and accounting standards, inability to enforce contractual provisions, unfavourable interpretations or decisions of courts or public administration bodies;

■ ICT risk - the risk of loss associated with a reasonably identifiable circumstance in relation to the use of networks and information systems which, if realized, could compromise the security of networks and information systems, any tools or processes using technology, operations and processes or the provision of services, by causing adverse effects in the digital or physical environment.

Operational risk excludes reputation risk and business risk.

Risk management objective

The objective of operational risk management is to ensure operational and cost effectiveness and the safety of the activities conducted by reducing the occurrence of operational events and their negative consequences.

Operational risk identification and measurement

The process of operational risk management is executed at the level of the Bank as a whole and at the level of each systemic operational risk management area. Systemic operational risk management involves the development of solutions which enable the Bank to exercise control over the level of operational risk so that it can accomplish its goals. Ongoing operational risk management is conducted by every employee of the Bank, within their responsibilities and tasks.

For the purpose of managing operational risk, the Bank gathers internal and external data about operational incidents, business environment factors, the results of operational risk self-assessment, data on key risk indicators in respect of operational risk (KRI) and data related to the quality of internal control.

Given the scale of outsourcing and its potential impact on its operational risk profile, the Bank has prepared a risk management process for outsourcing, which includes a number of elements, including procedures for outsourcing the performance of tasks for the Bank, analysis and assessment of the risks associated with outsourcing, assessment of the reliability and financial situation of service providers, ensuring that the Bank has contingency plans and monitoring the correct execution of contracts.

Operational risk measurement covers:

■ calculating key risk indicators (KRI);

■ calculating the own funds requirement for operational risk under the BIA approach (BIA requirement);

■ stress testing;

■ calculating the internal capital level.

The operational risk self-assessment includes the identification and assessment of operational risk in relation to the Bank’s products, processes and applications, as well as organizational changes. The operational risk self-assessment is conducted once a year for the key processes or once in two years for other processes and before the introduction of new or significantly changed products, processes or applications used by the Bank, with the use of:

■ data collected on operational incidents;

■ results of inspections, proceedings and functional internal control;

■ KRIs.

Operational risk control

The control of operational risk involves determining the risk limits appropriate for the scale and complexity of the Bank’s operations, in particular strategic tolerance limits for operational risk and KRI limits, including threshold and critical values.

Operational risk forecasting and monitoring

The Bank regularly monitors:

■ the utilization of strategic tolerance limits and operational risk loss limits;

■ the effectiveness and timeliness of actions undertaken to reduce or transfer the operational risk;

■ the values of the KRIs;

■ the results of operational risk self-assessment;

■ the results of stress tests;

■ operational incidents and their consequences.

Operational risk reporting

Operational risk information is reported for:

■ the Bank’s internal purposes, in particular: the Management Board and the Supervisory Board;

■ supervisory and regulatory bodies;

■ the shareholders and the financial market.

Operational risk information is reported for the Bank’s internal purposes on a quarterly basis. Quarterly reports contain, in particular, information about:

■ the results of the measurement and monitoring of operational risk;

■ the operational risk profile of the Bank resulting from the process of identifying and assessing the threats to products, processes and applications of the Bank;

■ the level of operational risk and the tools applied in operational risk management;

■ the actions taken to limit operational risk and the evaluation of the effectiveness of the actions taken to reduce the operational risk level;

■ recommendations, decisions and suggestions of the Management Board.

The quarterly reports also include information on operational risks identified in relation to the activities outsourced by the Bank to external entities.

Operational risk management actions

Management actions are taken when the self-assessed operational risk, KRI or adjusted operational risk reaches an elevated or high level at the Bank.

If the risk level is elevated or high, the Bank uses the following approach:

■ risk reduction – mitigating the impact of the risk factors or the consequences of its materialization;

■ risk transfer – the transfer of responsibility for covering potential losses to a third-party;

■ risk avoidance – discontinuance of activities that generate risk or eliminate the possibility of occurrence of a risk factor.

51. Model risk management

Definition

Model risk is the risk of losses resulting from wrong business decisions made on the basis of the models used.

Risk management objective

The objective of the management of model risk is to mitigate the risk of losses resulting from a wrong business decision made on the basis of the models used by way of a properly defined and implemented model management process.

All models of significance for the Bank are subject to a process of regular and impartial validation conducted in cooperation with the Model Validation Department at PKO Bank Polski SA.

The model risk management process in PKO Bank Hipoteczny SA is consistent with the solutions in place in the PKO Bank Polski Group.

Model risk identification and measurement

Identification of model risk consists in particular of:

■ collecting information about the models in use and those to be implemented;

■ periodical determination of the significance of the models.

The assessment of model risk is aimed at determining the scale of threats connected with the existence of model risk. The assessment is carried out at the level of a single model as well as on an aggregate basis for the whole Bank.

Model risk control

The control of model risk consists of defining mechanisms for diagnosing the model risk level and the risk mitigation tools. The tools used for diagnosing model risk include in particular a strategic limit of model risk tolerance and model risk thresholds.

Model risk forecasting and monitoring

The objective of model risk monitoring is to diagnose the areas requiring management action. The following in particular are monitored as part of the model risk monitoring process:

■ updating the model risk level;

■ evaluating the utilization of the strategic limit of model risk tolerance and the values of the model risk thresholds;

■ verifying the status of implementation and evaluation of the effectiveness of the model risk mitigating actions.

Model risk reporting

The results of monitoring are presented in quarterly reports for the Management Board and annual reports for the Supervisory Board Risk Committee and the Supervisory Board containing a comprehensive assessment of model risk, including in particular:

■ information about the utilization of the strategic limit of model risk;

■ information about the level of model risk;

■ the model risk map;

■ the status of implementation of the recommendations issued after model reviews or validation;

■ suggested management actions to mitigate the model risk.

Model risk management actions

The objective of management actions is to develop the model risk management process and shape the risk level, in particular by setting acceptable risk levels and making decisions about the use of risk management supporting tools.

52. Business risk management

Definition

Business risk is a risk of failing to achieve the assumed financial targets, including a risk of losses, resulting from adverse changes in the business environment, wrong decisions made, incorrect implementation of decisions made or failing to take proper action in response to changes occurring in the business environment. It also takes into account a risk of macroeconomic changes (a risk of deterioration in the Bank’s financial position due to an adverse effect of changing macroeconomic conditions).

Risk management objective

Maintaining the negative financial consequences resulting from adverse changes in the business environment at an acceptable level – from unfavourable decisions taken, incorrect implementation of decisions taken to a failure to take appropriate actions to respond to changes in the business environment, and identifying macroeconomic factors that have a significant impact on the Bank's operations, and taking measures to mitigate the adverse impact of potential changes in the macroeconomic situation on the Bank’ financial position.

Business risk identification and measurement

Identification of business risk consists of recognizing and defining actual as well as potential factors which result from the current or contemplated business operations of the Bank and may adversely affect the Bank’s financial position, the occurrence or the volume of the Bank’s income and expenses.

Operational risk measurement covers:

■ determining the strategic operational risk tolerance limits;

■ stress testing;

■ calculating the internal capital level.

Business risk control

The purpose of business risk control is to define the acceptable level of business risk adequate to the Bank’s scale of operations and its impact on the functioning and the financial condition of the Bank in the form of strategic tolerance limits.

Business risk forecasting and monitoring

The objective of business risk monitoring is to determine whether its level after applying risk controls reflects the admissible level and to diagnose the need to take management actions and the areas in which they have to be taken. Particular attention is paid to monitoring the strategic business risk tolerance limit.

Business risk reporting

Business risk is reported via reports addressed to the ALCO, the Management Board and the Supervisory Board.

Business risk management actions

Management actions consist in particular of:

■ verifying and updating the quarterly financial forecasts and the financial plan taking into account measures aimed at mitigating the level of business risk in line with the set limits;

■ monitoring the level of the strategic business risk tolerance limit.

53. Capital adequacy and the management of capital risk

Capital adequacy is a process aimed at ensuring that, for a given level of risk tolerance, the level of risk assumed by the Bank associated with the development of its business activities may be covered with capital held within a given time horizon. The process of managing capital adequacy comprises, in particular, compliance with prevailing regulatory standards and the level of risk tolerance determined at the Bank, the process of capital planning, including the policies in respect of capital sourcing.

Capital adequacy risk is the risk of failing to arrange an adequate level and structure of own funds or the inability to ensure an adequate level of equity given the business risk borne by the Bank, necessary to cover unexpected losses and satisfy regulatory requirements, making it possible for the Bank to continue independent operations. Capital adequacy risk includes the risk of excessive leverage, i.e. the risk resulting from vulnerability to threats due to financial leverage or conditional financial leverage, which may necessitate taking involuntary action to modify business plans, including the forced sale of assets which could lead to losses or to the need to adjust the valuation of other assets.

Managing the Bank’s capital adequacy covers:

■ Pillar I: minimum capital requirements specified in the legislation;

■ Pillar II: internal capital, determined by means of the Bank’s own models for the risks considered material.

The objective of capital adequacy management is to maintain, on a continuous basis, own funds at a level that is adequate to the scale and risk profile of the Bank’s activities, with due regard to regulatory requirements.

The following legal acts constituted the legal basis of the capital adequacy assessment process as at 31 December 2024:

■ Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms and amending Regulation (EU) No 648/2012 (the “CRR”), as amended;

■ Regulation (EU) 2020/873 of the European Parliament and of the Council of 24 June 2020 amending Regulations (EU) No 575/2013 and (EU) 2019/876 as regards certain adjustments in response to the COVID-19 pandemic;

■ the Act of 29 August 1997 “Banking Law”;

■ the Act of 5 August 2015 on macroprudential supervision over the financial system and crisis management in the financial system (“Macroprudential Act”);

■ the Regulation of the Minister of Finance, Funds and Regional Policy of 27 July 2021 on a detailed manner of estimating internal capital and reviewing estimation strategies and procedures by banks, and on continued maintenance of the internal capital.

The capital adequacy process is described in Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013 on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms, amending Directive 2002/87/EC and repealing Directives 2006/48/EC and 2006/49/EC (“CRD”). The CRD has been implemented in the Polish law by way of updating the Banking Law.

The process of managing the Bank’s capital adequacy comprises:

■ defining and achieving the capital adequacy targets desired by the Bank;

■ identifying and monitoring material risks;

■ assessing internal capital to cover the individual risk types and assessing total internal capital;

■ establishing internal limits with respect to capital adequacy;

■ forecasting, monitoring, and reporting the level and structure of own capital and capital adequacy;

■ capital contingency activities.

Capital adequacy risk is classified as a risk subject to monitoring. In 2024 and since the beginning of the Bank’s operations, capital adequacy remained at a safe level above the supervisory limits.

At 31 December 2024, the total capital ratio of the Bank amounted to 22.9% (as at 31 December 2023: 20.9%). Without taking account of the temporary solutions related to COVID-19, the total capital ratio of the Bank would have amounted to 22.8% (20.8% as 31 December 2023). All capital ratios as at 31 December 2024 and throughout the year 2024 remained at safe levels, much above the internal limits adopted by the Bank and the external regulatory requirements.

Own funds for the purpose of capital adequacy

The Bank’s own funds for capital adequacy purposes have been calculated in accordance with the Banking Law and the CRR with implementing legislation.

The Bank’s own funds consist entirely of common equity Tier 1 capital (CET 1). In determining its own funds, the Bank makes use of the transitional provisions related to the COVID-19 pandemic.

BANK’S OWN FUNDS	31.12.2024	31.12.2023

Share capital	1,611,300	1,611,300
Supplementary capital	13,263	-
Retained earnings / (Accumulated losses)	-	(65,966)
Net profit for the period	130,317	165,789
Accumulated other comprehensive income - cash flow hedges	(14,413)	(74,386)
Accumulated other comprehensive income - financial assets measured at fair value through other comprehensive income	3,005	2,168
Equity	1,743,472	1,638,905

Equity adjustments	(81,155)	(23,781)
Net profit for the period	(130,317)	(165,789)
Net profit for the first half of the year included in equity by permission from the PFSA	32,513	59,695
Accumulated other comprehensive income - cash flow hedges	14,413	74,386
Intangible assets	(0)	(0)
Adjustment to assets measured at fair value (AVA)	(920)	(1,139)
Adjustment relating to the transitional period relating to COVID-19	3,156	9,066

Own funds	1,662,317	1,615,124

As at 31 December 2024, the Bank’s own funds, Tier 1 common equity capital and Tier 1 capital would have amounted to PLN 1,659,161 thousand without taking into account the transitional solution, and as at 31 December 2023 they would have amounted to PLN 1,606,058 thousand.

Capital buffers

On 19 March 2020, the Minister of Finance signed a regulation on revoking the systemic risk buffer which amounted to 3%, decreasing the regulatory requirement relating to the core Tier 1 capital ratio (CET1) and the total capital ratio (TCR) to 10.5%.

Since the beginning of 2020, the banks have been required to maintain capital ratios at the following levels:

■ Total capital ratio (TCR) = 8% + an add-on + the combined buffer requirement;

■ Tier 1 capital ratio (T1) = 6% + 75%*add-on + the combined buffer requirement;

■ Core Tier 1 capital ratio (CET1) = 4.5% + 56%*add-on + the combined buffer requirement.

where the add-on means the requirement specified in Article 138 (1) (2a) of the Banking Law and the combined buffer requirement is the sum total of the mandatory buffers, i.e.:

■ the systemic risk buffer of 2.5%;

■ the counter-cyclical buffer of 0% for loan exposures on the territory of Poland;

■ the buffer for other systemically important institutions set by the PFSA on a case by case basis;

■ the systemic risk buffer of 0%.

Pursuant to a letter from the PFSA of 20 December 2024, as a result of an assessment based on regulatory stress tests conducted by the Office of the PFSA in 2024, the P2G capital buffer PKO Bank Hipoteczny SA was determined at 0.00 p.p. above the total capital ratio referred to in Article 92(1)(c) of Regulation (EU) No 575/2013, plus an additional capital requirement referred to in Article 138(2)(2) of the Banking Law and plus the combined buffer requirement referred to in Article 55(4) of the Act on Macroprudential Supervision. The additional buffer should comprise solely common equity Tier1 capital.

PKO Bank Hipoteczny SA has not been recognized as another systemically important institution by the PFSA and therefore it is not required to satisfy the applicable additional capital requirements.

The Bank is also not required to satisfy the requirements specified in Article 138 (1) 2a of the Banking Law (add-on).

Financial leverage

The risk of excessive leverage is defined as the risk resulting from vulnerability to risks because of financial leverage or conditional financial leverage, which may necessitate taking involuntary actions to modify business plans, including the forced sale of assets which could result in losses or in the need to adjust the valuation of other assets.

Financial leverage is defined as the relative amount of a Bank’s assets, off-balance sheet obligations and contingent obligations to pay or to deliver, or to provide collateral, including obligations from received funding, commitments made, derivatives or repurchase agreements, but excluding obligations which can only be enforced during the liquidation of a Bank, compared to the Bank’s own funds.

The Bank calculates financial leverage in accordance with the CRR.

The financial leverage ratio is monitored on a monthly basis, whereas the Bank recognizes a ratio in excess of 5% to be safe and not requiring further action.

LEVERAGE	31.12.2024	31.12.2023

Leverage ratio (LR)	9.5%	8.5%

As at 31 December 2024 and 31 December 2023, the Bank’s financial leverage ratio was above the 3% level required by Regulation (EU) 2019/876 of the European Parliament and of the Council of 20 May 2019.

As at 31 December 2024, the leverage ratio, without taking account of the transitional solutions relating to COVID-19, would have amounted to 9.5%, and as at 31 December 2023 it would have amounted to 8.5%.

Requirements regarding own funds (Pillar I)

In accordance with the CRR, the Bank calculates requirements in respect of own funds for the following risk types:

■ credit risk – according to the standardized approach;

■ credit valuation adjustment (CVA) risk – according to the standardized approach;

■ settlement and delivery risk – according to the standardized approach;

■ operational risk – using the Basic Indicator Approach (BIA);

■ market risk (foreign exchange risk only) – according to basic methods.

At 31 December 2024 and as at 31 December 2023, the own fund requirements in respect of the risk of credit valuation adjustment, settlement and delivery, and market risk were nil, therefore, the total requirement in respect of own funds comprised the requirements in respect of credit and operational risk.

OWN FUNDS REQUIREMENTS	31.12.2024	31.12.2023

Credit risk	531,617	570,132
Operational risk	49,338	47,336
Total own funds requirement	580,955	617,468
Common equity Tier 1 capital ratio (CET1)	22.9%	20.9%
Tier 1 capital ratio (T1);	22.9%	20.9%

Total capital ratio (TCR)	22.9%	20.9%

OTHER NOTES

54. Events after the end of the reporting period

■ On 30 January 2025, the Bank and PKO Bank Polski SA concluded an Annex to the Contract for a revolving working capital loan in the current account dated 2 February 2017, extending the lending period until 2 February 2029.

■ On 20 February 2025, the Bank subscribed to series 15 mortgage covered bonds issued with a nominal value of PLN 800,000 thousand, for which the issue date was set at 27 February 2025 and the maturity date at 27 February 2029. The securities bear interest at a floating interest rate of WIBOR 3M + 0.80 p.p. margin.

■ On 27 February 2005, the international rating agency Moody's Investors Service Ltd published information in which it confirmed the existing ratings and assessments of PKO Bank Hipoteczny SA. Detailed information on the level of the Bank's ratings can be found in Chapter 1. of PKO Bank Hipoteczny SA Directors’ Report for the year ended 31 December 2024 in the section ‘Evaluation of PKO Bank Hipoteczny SA’s financial credibility – Rating’.

■ On 28 February 2025, the Bank's Supervisory Board appointed Mr Michał Stępniewski to the Bank's Management Board as Vice-President of the Bank's Management Board, effective 1 March 2025, within the current joint term of office of the Bank's Management Board.

Signatures of all members of the Bank's Management Board

07.03.2025

Wojciech Papierak

President of the Management Board

Signed on Polish original

......................................................

(signature)

07.03.2025

Piotr Kochanek

Vice-President of the Management Board

Signed on Polish original

......................................................

(signature)

07.03.2025

Katarzyna Kurkowska-Szczechowicz

Vice-President of the Management Board

Signed on Polish original

......................................................

(signature)

07.03.2025

Michał Stępniewski

Vice-President of the Management Board

Signed on Polish original

......................................................

(signature)

Signature of the person responsible for the Bank’s accounts

07.03.2025

Tomasz Rynkowski

Chief Accountant

Signed on Polish original

......................................................

(signature)

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