	FINANCIAL HIGHLIGHTS	PLN k		EUR k
		31.12.2021	31.12.2020	31.12.2021	31.12.2020
Consolidated financial statements of Santander Bank Polska Group
I	Net interest income	5 962 445	5 888 149	1 302 555	1 316 023
II	Net fee and commission income	2 487 123	2 152 106	543 337	481 004
III	Profit before tax	2 057 828	1 880 897	449 553	420 387
IV	Net profit attributable to the owners of Santander Bank Polska SA	1 111 684	1 037 167	242 858	231 811
V	Total net cash flows	4 714 123	(3 633 610)	1 029 847	(812 125)
VI	Total assets	244 876 340	229 311 309	53 240 931	49 690 411
VII	Deposits from banks	4 400 138	5 373 312	956 677	1 164 365
VIII	Deposits from customers	185 373 443	171 522 255	40 303 832	37 167 863
IX	Total liabilities	217 662 764	200 653 319	47 324 165	43 480 393
X	Total equity	27 213 576	28 657 990	5 916 767	6 210 018
XI	Non-controlling interests	1 681 896	1 663 240	365 677	360 414
XII	Profit of the period attributable to non-controlling interests	140 722	200 007	30 596	44 702
XIII	Number of shares	102 189 314	102 189 314
XIV	Net book value per share in PLN/EUR	266,31	280,44	57,90	60,77
XV	Capital ratio	18,58%	20,42%*
XVI	Profit per share in PLN/EUR	10,88	10,16	2,38	2,27
XVII	Diluted earnings per share in PLN/EUR	10,88	10,15	2,38	2,27
XVIII	Declared or paid dividend per share in PLN/EUR*	2,16**	-*	0,47	-*

*Data in relevant period include profits included in own funds based on the decisions of the Polish Financial Supervision Authority and the applicable EBA requirements.

**Detailed information are described in Note 57.

The following rates were applied to determine the key EUR amounts for selected financial statements line items:

· for balance sheet items – average NBP exchange rate as at 31.12.2021: EUR 1 = PLN 4,5994 and as at 31.12.2020: EUR 1 = PLN 4.6148

· for profit and loss items – as at 31.12.2021 - the rate is calculated as the average of NBP exchange rates prevailing as at the last day of each month in 2021: EUR 1 = PLN 4,5775; as at 31.12.2020 - the rate is calculated as the average of NBP exchange rates prevailing as at the last day of each month in 2020: EUR 1 = PLN 4.4742

As at 31.12.2021, FX denominated balance sheet positions were converted into PLN in line with the NBP FX table no. 254/A/NBP/2021 dd. 31.12.2021.

I. Consolidated income statement. 66

II. Consolidated statement of comprehensive income. 77

III. Consolidated statement of financial position. 88

IV. Consolidated statement of changes in equity. 99

V. Consolidated statement of cash flows. 1010

VI. Additional notes to consolidated financial statements. 1111

1. General information about issuer. 1111

2. Basis of preparation of consolidated financial statements. 1313

3. Operating segments reporting. 4646

4. Risk management. 5050

5. Capital management. 8282

6. Net interest income. 8686

7. Net fee and commission income. 8787

8. Dividend income. 8787

9. Net trading income and revaluation. 8888

10. Gains (losses) from other financial securities. 8888

11. Other operating income. 8888

12. Impairment allowances for expected credit losses. 8989

13. Employee costs. 8989

14. General and administrative expenses. 9090

15. Other operating expenses. 9090

16. Corporate income tax. 9191

17. Earnings per share. 9191

18. Cash and balances with central banks. 9292

19. Loans and advances to banks. 9292

20. Financial assets and liabilities held for trading. 9393

21. Hedging derivatives. 9595

22. Loans and advances to customers. 9595

23. Securitisation of assets. 102102

24. Investment securities. 107107

25. Investments in associates. 108108

26. Intangible assets. 110110

27. Goodwill 111111

28. Property, plant and equipment. 113113

29. Right of use assets. 115115

30. Net deferred tax assets. 116116

31. Fixed assets classified as held for sale. 118118

32. Other assets. 118118

33. Deposits from banks. 118118

34. Deposits from customers. 119119

35. Subordinated liabilities. 119119

36. Debt securities in issue. 120120

37. Provisions for off balance sheet credit facilities. 122122

38. Other provisions. 122122

39. Other liabilities. 123123

40. Share capital 124124

41. Other reserve capital 125125

42. Revaluation reserve. 126126

43. Non - controlling interests. 128128

44. Hedge accounting. 129129

45. Sell-buy-back and buy-sell-back transaction. 136136

46. Offsetting financial assets and financial liabilities. 137137

47. Fair value. 138138

48. Legal risk connected with CHF mortgage loans. 143143

49. Contingent liabilities. 147147

50. Assets and liabilities pledged as collateral 148148

51. Information about leases. 149149

52. Consolidated statement of cash flows- additional information. 151151

53. Related parties. 151151

54. Acquisitions and disposals of investments in subsidiaries and associate. 154154

55. Employee benefits. 154154

56. Share based incentive scheme. 156156

57. Dividend per share. 158158

58. Events which occurred subsequently to the end of the reporting period. 159159

I. Consolidated income statement

	for the period:		1.01.2021- 31.12.2021	1.01.2020- 31.12.2020
Interest income and similar to income			6 362 584	6 857 160
Interest income on financial assets measured at amortised cost			5 389 776	5 946 776
Interest income on financial assets measured at fair value through other comprehensive income			955 577	853 841
Income similar to interest on financial assets measured at fair value through profit or loss			17 231	56 543
Interest expense			(400 139)	(969 011)
Net interest income		Note 6	5 962 445	5 888 149
Fee and commission income			2 972 591	2 638 807
Fee and commission expense			(485 468)	(486 701)
Net fee and commission income		Note 7	2 487 123	2 152 106
Dividend income		Note 8	112 848	22 883
Net trading income and revaluation		Note 9	267 954	150 509
Gains (losses) from other financial securities		Note 10	94 918	257 712
Other operating income		Note 11	284 294	175 979
Impairment allowances for expected credit losses		Note 12	(1 124 188)	(1 762 812)
Operating expenses incl.:			(5 487 196)	(4 487 986)
-Staff, operating expenses and management costs		Note 13,14	(3 172 130)	(3 262 541)
-Amortisation of property, plant and equipment and Intangible assets			(411 399)	(405 263)
-Amortisation of right of use asset			(167 571)	(188 332)
-Other operating expenses		Note 15	(1 736 096)	(631 850)
Share in net profits (loss) of entities accounted for by the equity method			74 068	86 360
Tax on financial institutions			(614 438)	(602 003)
Profit before tax			2 057 828	1 880 897
Corporate income tax		Note 16	(805 422)	(643 723)
Consolidated profit for the period			1 252 406	1 237 174
of which:
-attributable to owners of the parent entity			1 111 684	1 037 167
-attributable to non-controlling interests			140 722	200 007
Net earnings per share		Note 17
Basic earnings per share (PLN/share)			10,88	10,16
Diluted earnings per share (PLN/share)			10,88	10,15

II. Consolidated statement of comprehensive income

	for the period:	1.01.2021-31.12.2021	1.01.2020-31.12.2020
Consolidated profit for the period		1 252 406	1 237 174
Items that will be reclassified subsequently to profit or loss:		(2 805 251)	541 358
Revaluation and sales of debt financial assets measured at fair value through other comprehensive income gross	Note 24 and 42	(3 425 571)	649 030
Deferred tax		650 859	(123 316)
Revaluation of cash flow hedging instruments gross	Note 42 and 50	(37 702)	19 314
Deferred tax		7 163	(3 670)
Items that will not be reclassified subsequently to profit or loss:		426 257	(23 342)
Revaluation of equity financial assets measured at fair value through other comprehensive income gross	Note 24 and 42	518 751	(26 655)
Deferred and current tax		(98 352)	4 874
Provision for retirement benefits – actuarial gains/losses gross	Note 42 and 55	7 216	(1 927)
Deferred tax		(1 358)	366
Total other comprehensive income, net		(2 378 994)	518 016
TOTAL COMPREHENSIVE INCOME FOR THE PERIOD		(1 126 588)	1 755 190
Total comprehensive income attributable to:
- owners of the parent entity		(1 220 899)	1 552 918
- non-controlling interests		94 311	202 272

III. Consolidated statement of financial position

as at:		31.12.2021	31.12.2020
ASSETS
Cash and balances with central banks	Note 18	8 438 275	5 489 303
Loans and advances to banks	Note 19	2 690 252	2 926 522
Financial assets held for trading	Note 20	4 020 117	3 182 769
Hedging derivatives	Note 21	163 177	7 654
Loans and advances to customers incl.:	Note 22	148 250 421	141 998 745
- measured at amortised cost		145 966 743	139 549 728
- measured at fair value through other comprehensive income		1 729 848	1 556 791
- measured at fair value through profit or loss		553 830	892 226
Buy-sell-back transactions		453 372	293 583
Investment securities incl.:	Note 24	71 866 260	66 783 434
- debt investment securities measured at fair value through other comprehensive income		70 064 796	65 700 052
- debt investment securities measured at fair value through profit and loss		116 977	110 155
- debt investment securities measured at amortised cost		1 421 272	-
- equity investment securities measured at fair value through other comprehensive income		259 788	857 331
- equity investment securities measured at fair value through profit and loss		3 427	115 896
Assets pledged as collateral	Note 50	534 437	657 664
Investments in associates	Note 25	932 740	998 397
Intangible assets	Note 26	692 802	708 356
Goodwill	Note 27	1 712 056	1 712 056
Property, plant and equipment	Note 28	732 909	803 429
Right of use assets	Note 29	517 102	710 657
Current income tax assets		216 884	-
Net deferred tax assets	Note 30	2 383 710	1 996 552
Fixed assets classified as held for sale	Note 31	4 817	11 901
Other assets	Note 32	1 267 009	1 030 287
Total assets		244 876 340	229 311 309
LIABILITIES AND EQUITY
Deposits from banks	Note 33	4 400 138	5 373 312
Hedging derivatives	Note 21	1 762 334	1 775 098
Financial liabilities held for trading	Note 20	3 878 081	3 030 340
Deposits from customers	Note 34	185 373 443	171 522 255
Sell-buy-back transactions	Note 45	510 277	653 687
Subordinated liabilities	Note 35	2 750 440	2 754 605
Debt securities in issue	Note 36	12 805 462	11 241 312
Lease liabilities	Note 51	452 499	624 690
Current income tax liabilities		-	79 049
Provisions for off balance sheet credit facilities	Note 37	60 811	64 541
Other provisions	Note 38	2 358 989	952 115
Other liabilities	Note 39	3 310 290	2 582 315
Total liabilities		217 662 764	200 653 319
Equity
Equity attributable to owners of parent entity		25 531 680	26 994 750
Share capital	Note 40	1 021 893	1 021 893
Other reserve capital	Note 41	22 178 344	21 296 994
Revaluation reserve	Note 42	(1 354 715)	1 839 292
Retained earnings		2 574 474	1 799 404
Profit for the period		1 111 684	1 037 167
Non-controlling interests in equity	Note 43	1 681 896	1 663 240
Total equity		27 213 576	28 657 990
Total liabilities and equity		244 876 340	229 311 309

IV. Consolidated statement of changes in equity

Equity attributable to owners of parent entity

Consolidated statement of changes in equity 1.01.2021 - 31.12.2021	Share capital	Other reserve capital	Revaluation reserve	Retained earnings and profit for the period	Total	Non-controlling interests	Total equity
Note	40	41	42			43
As at the beginning of the period	1 021 893	21 296 994	1 839 292	2 836 571	26 994 750	1 663 240	28 657 990
Total comprehensive income	-	-	(2 332 583)	1 111 684	(1 220 899)	94 311	(1 126 588)
Consolidated profit for the period	-	-	-	1 111 684	1 111 684	140 722	1 252 406
Other comprehensive income	-	-	(2 332 583)	-	(2 332 583)	(46 411)	(2 378 994)
Profit allocation to other reserve capital	-	1 110 963	-	(1 110 963)	-	-	-
Interim dividend*	-	(220 729)	-	-	(220 729)	-	(220 729)
Profit allocation to dividends	-	-	-	-	-	(75 655)	(75 655)
Transfer of revaluation of equity financial assets measured at fair value through other comprehensive income**	-	-	(839 982)	839 982	-	-	-
Other changes	-	(8 884)	(21 442)	8 884	(21 442)	-	(21 442)
As at the end of the period	1 021 893	22 178 344	(1 354 715)	3 686 158	25 531 680	1 681 896	27 213 576

^*details in Note 57

^**details in Note 47

Equity attributable to owners of parent entity

Consolidated statement of changes in equity 1.01.2020 - 31.12.2020	Share capital	Other reserve capital	Revaluation reserve	Retained earnings and profit for the period	Total	Non-controlling interests	Total equity
Note	40	41	42			43
As at the beginning of the period	1 020 883	20 141 925	1 316 061	2 953 118	25 431 987	1 547 523	26 979 510
Total comprehensive income	-	-	515 751	1 037 167	1 552 918	202 272	1 755 190
Consolidated profit for the period	-	-	-	1 037 167	1 037 167	200 007	1 237 174
Other comprehensive income	-	-	515 751	-	515 751	2 265	518 016
Issue of shares	1 010	-	-	-	1 010	-	1 010
Profit allocation to other reserve capital	-	1 153 463	-	(1 153 463)	-	-	-
Profit allocation to dividends	-	-	-	-	-	(86 555)	(86 555)
Share-based payment	-	1 606	-	-	1 606	-	1 606
Transfer of revaluation of equity financial assets measured at fair value through other comprehensive income	-	-	251	(251)	-	-	-
Other changes	-	-	7 229	-	7 229	-	7 229
As at the end of the period	1 021 893	21 296 994	1 839 292	2 836 571	26 994 750	1 663 240	28 657 990

V. Consolidated statement of cash flows

for the period	1.01.2021-31.12.2021	1.01.2020-31.12.2020
Cash flows from operating activities
Profit before tax	2 057 828	1 880 897
Adjustments for:
Share in net profits of entities accounted for by the equity method	(74 068)	(86 360)
Depreciation/amortisation	578 970	593 595
Profit from investing activities	(84 139)	(236 801)
Interest accrued excluded from operating activities	(666 017)	(480 479)
Dividends	(224 269)	(22 689)
Impairment losses (reversal)	64 941	48 740
Changes in:
Provisions	1 403 144	504 932
Financial assets / liabilities held for trading	26 158	(110 894)
Assets pledged as collateral	123 227	431 894
Hedging derivatives	(128 911)	789 038
Loans and advances to banks	(32 369)	(9 989)
Loans and advances to customers	(11 676 576)	(4 669 195)
Deposits from banks	(1 618 367)	1 255 240
Deposits from customers	15 506 863	16 210 291
Buy-sell/ Sell-buy-back transactions	(274 182)	(151 958)
Other assets and liabilities	625 390	513 722
Interest received on operating activities	5 391 466	6 170 272
Interest paid on operating activities	(85 022)	(576 945)
Paid income tax	(925 151)	(1 180 644)
Net cash flows from operating activities	9 988 916	20 872 667
Cash flows from investing activities
Inflows	15 787 343	8 180 856
Sale/maturity of investment securities	14 424 187	7 049 099
Sale of intangible assets and property, plant and equipment	88 314	98 017
Dividends received	224 269	22 689
Interest received	1 050 573	1 011 051
Outflows	(21 095 319)	(30 908 013)
Purchase of investment securities	(20 670 962)	(30 519 023)
Purchase of intangible assets and property, plant and equipment	(424 357)	(388 990)
Net cash flows from investing activities	(5 307 976)	(22 727 157)
Cash flows from financing activities
Inflows	17 810 873	10 108 930
Debt securities in issue	11 363 650	5 532 720
Proceeds from issuing/shares	-	1 010
Drawing of loans	6 447 223	4 575 200
Outflows	(17 777 690)	(11 888 050)
Debt securities buy out	(9 706 612)	(5 185 553)
Repayment of loans and advances	(7 388 946)	(6 102 565)
Repayment of lease liability	(188 317)	(192 785)
Dividends to shareholders	(296 384)	(86 555)
Interest paid	(197 431)	(320 592)
Net cash flows from financing activities	33 183	(1 779 120)
Total net cash flows	4 714 123	(3 633 610)
Cash and cash equivalents at the beginning of the accounting period	13 632 245	17 265 855
Cash and cash equivalents at the end of the accounting period	18 346 368	13 632 245

Information regarding liabilities arising from financing activities relating to loans received, subordinated liabilities and the issue of debt securities were presented respectively in Notes 33-36.

VI. Additional notes to consolidated financial statements

1. General information about issuer

Santander Bank Polska SA is a bank located in Poland , 00-854 Warszawa, al. Jana Pawła II 17 , National Court Registry identification number is 0000008723, TIN os 896-000-56-73, National Official Business Register number (REGON) is 930041341.

Consolidated financial statement of Santander Bank Polska Group includes the Bank’s financial information as well as information of its subsidiaries (forming together the “Group”).

The immediate and ultimate parent entity of Santander Bank Polska is Banco Santander, having its registered office in Santander, Spain.

Santander Bank Polska Group offers a wide range of banking services to individual and business customers and operates in domestic and interbank foreign markets. It also offers the following services:

· intermediation in trading in securities,

· leasing,

· factoring,

· asset/ fund management,

· insurance distribution services,

· trading in shares of commercial companies,

· brokerage services.

Santander Bank Polska Group consists of the following entities:

Subsidiaries:

1. As at 31.12.2021, Santander Bank Polska was a co-owner of Santander Towarzystwo Funduszy Inwestycyjnych SA, together with Banco Santander SA. Both owners are members of Santander Group and each holds an equal stake of 50% in the company's share capital. In practice, Santander Bank Polska exercises control over the subsidiary Santander Towarzystwo Funduszy Inwestycyjnych SA because through it, Banco Santander implements its policy in Poland. Consequently, the company is treated as a subsidiary.

2. The General Meeting held on 23 December 2020 adopted a resolution to dissolve Santander Consumer Finanse Sp. z o.o. and start the liquidation process.

3. According to the Management Board of Santander Bank Polska Group, the investment in PSA Finance Polska Sp. z o.o. is an investment in a subsidiary for the purpose of consolidated financial statements due to the fact that it is controlled by Santander Consumer Bank S.A (directly) and Santander Bank Polska S.A. (indirectly).

4. On 18 November 2019, SCM Poland Auto 2019-1 Designated Activity Company with its registered office in Dublin was incorporated under Irish law. It is a special purpose vehicle established to securitise the lease portfolio. The company is controlled by Santander Consumer Multirent Sp. z o.o and its shareholder is a legal person that is not connected with the Group.

5. On 27 August 2020, Santander Consumer Financial Solutions Sp. z o.o. (SCFS Sp. z o.o.) with its registered office in Wrocław was incorporated under Polish law. The company offers lease of passenger cars, lease loans and finance lease for consumers. It is a wholly-owned subsidiary of Santander Consumer Multirent Sp. z o.o.

6. SC Poland Consumer 15-1 sp. z o.o. and SC Poland Consumer 16-1 sp. z o.o. were set up for the purpose of securitisation of a part of the loan portfolio; their shareholder is a Polish legal entity who has no ties with the Group; the companies are controlled by Santander Consumer Bank, in accordance with the control criteria set out in IFRS 10.7. Due to completion of the securitisation transaction in 2020, SC Poland Consumer 15-1 Sp. z o.o., a company set up to execute that transaction, was not controlled by the Group as at 31 December 2020. On 18 June 2021, a resolution was adopted at SC Poland Consumer 15-1 Sp. z o.o. to wind up the company and start the liquidation process.

Associates:

	Associates	Registered office	[%] of votes on AGM at 31.12.2021	[%] of votes on AGM at 31.12.2020
1.	POLFUND - Fundusz Poręczeń Kredytowych S.A.	Szczecin	50%	50%
2.	Santander - Aviva Towarzystwo Ubezpieczeń S.A.	Warszawa	49%	49%
3.	Santander - Aviva Towarzystwo Ubezpieczeń na Życie S.A.	Warszawa	49%	49%

2. Basis of preparation of consolidated financial statements

2.1. Statement of compliance

These consolidated financial statements of Santander Bank Polska S.A. Group were prepared in accordance with the International Financial Reporting Standards (IFRS) as adopted by the European Union, which are applied on a consistent basis, as at 31 December 2021, in the case of matters not governed by the above Standards, in accordance with the provisions of the Accounting Act of 29 September 1994 (consolidated text: Journal of Law 2021, item 217) and related implementing acts as well as the requirements imposed on issuers whose securities are admitted to trading on regulated markets or issuers who have applied to have securities admitted to trading on regulated markets outlined in the Act of 29 July 2005 on Public Offering, on Conditions for the Introduction of Financial Instruments to the Organized Trading System and on Public Companies.

These consolidated financial statements have been approved for publication by the Management Board of Santander Bank Polska S.A. on 22.02.2022.

2.2. Basis of preparation of financial statements

These consolidated financial statements have been prepared on the assumption that the Group companies will continue as going concern in the foreseeable future, i.e. for a period of at least 12 months from the date on which these financial statements were prepared.

In its assessment, the Management Board considered, inter alia, the impact of the COVID-19 pandemic and has determined that it affects the valuation of assets and estimated future results, but does not create material uncertainty about the Group's ability to continue as a going concern.

Consolidated financial statements are presented in PLN, rounded to the nearest thousand.

These consolidated financial statements of Santander Bank Polska S.A. Group have been prepared in accordance with the International Financial Reporting Standards (IFRS) adopted by the European Union. Santander Bank Polska S.A. Group prepared consolidated financial statements in accordance with following valuation rules:

Item	Balance sheet valuation rules
Held-for-trading financial instruments	Fair value through profit or loss
Loans and advances to customers which do not meet the contractual cash flows test	Fair value through profit or loss
Financial instruments measured at fair value through other comprehensive income	Fair value through other comprehensive income
Share-based payment transactions	According to IFRS 2 "Share-based payment" requirements
Equity investment financial assets	Fair value through other comprehensive income – an option
Equity financial assets	Fair value through profit or loss
Debt securities measured at fair value through profit or loss	Fair value through profit or loss
Non-current assets	The purchase price or production cost reduced by total depreciation charges and total impairment losses
Non-current assets held for sale and groups of non-current assets designated as held for sale	Are recognised at the lower of their carrying amount and their fair value less costs of disposal.

The accounting principles have been applied uniformly by all the entities forming Santander Bank Polska S.A. Group.

The same accounting principles were applied as in the case of the consolidated financial statements for the period ending 31 December 2020, changes resulting from application of new standards are described in p.2.4. of these consolidated financial statements.

2.3. New standards and interpretations or changes to existing standards or interpretations which can be applicable to Santander Bank Polska S.A. Group and are not yet effective and have not been early adopted

IFRS	Nature of changes	Effective from	Influence on Santander Bank Polska S.A. Group
Annual improvements to IFRS standards 2018-2020	As a result of annual improvements project, amendments to four IFRSs were introduced (IFRS1, IFRS9, IFRS16, IAS 41). Amendments to IFRS 9 clarify which fees an entity applies when "10% test" is performed for derecognition of financialliabilities. For IFRS 16 an illustrative example for lease incentives treatments was changed, in order not to cause confusion.	1 January 2022	The amendment will not have a significant impact on consolidated financial statements.
Amendments to IAS 37 Provisions	The changes concern the clarification of the scope of costs that should be taken into account in assessing whether the contract is a onerous contract	1 January 2022	The amendment will not have a significant impact on consolidated financial statements.
Amendments to IAS 16 Property, Plant and Equipment	The changes indicate, i.a, that revenues from the sale of goods produced in the course of bringing an asset to the desired location and condition, cannot be deducted from the costs associated with this asset. Instead, such revenues should be recognized in the profit and loss account along with the costs of manufacturing these products	1 January 2022	The amendment will not have a significant impact on consolidated financial statements.
Amendments to IFRS 3 Business combinations	IFRS 3 "Business Combinations" was amended to refer to the 2018 Conceptual Framework for Financial Reporting, in order to determine what constitutes an asset or a liability in a business combination. Prior to the amendment, IFRS 3 referred to the 2001 Conceptual Framework for Financial Reporting. In addition, a new exception in IFRS 3 was added for liabilities and contingent liabilities.	1 January 2022	The amendment will not have a significant impact on consolidated financial statements.
IFRS 17 Insurance Contracts	IFRS 17 defines a new approach to the recognition, valuation, presentation and disclosure of insurance contracts. The main purpose of IFRS 17 is to guarantee the transparency and comparability of insurers’ financial statements. In order to meet this requirement the entity will disclose a lot of quantitative and qualitative information enabling the users of financial statements to assess the effect that insurance contracts have on the financial position, financial performance and cash flows of the entity. IFRS 17 introduces a number of significant changes in relation to the existing requirements of IFRS 4. They concern, among others: aggregation levels at which the calculations are made, methods for the valuation of insurance liabilities, recognition a profit or loss over the period , reassurance recognition, separation of the investment component and presentation of particular items of the balance sheet and profit and loss account of reporting units including the separate presentation of insurance revenues, insurance service expenses and insurance finance income or expenses.	1 January 2023	The standard will not have a significant impact on consolidated financial statements.*
Amendments to IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors	Amendments to IAS 8 include definition of accounting estimates, which should help to distinguish between accounting policies and accounting estimates.	1 January 2023	The amendment will not have a significant impact on consolidated financial statements.*
Amendments to IAS 12	Amendments clarify how companies account for deferred tax on transactions such as leases and decommissioning obligations.	1 January 2023	The amendment will not have a significant impact on consolidated financial statements.*
Amendments to IAS 1	There are two amendments to IAS 1. The first one affect requirements for the classification of liabilities as non-current. The second one concerns accounting policy disclosures..	1 January 2023	The amendment will not have a significant impact on consolidated financial statements.*

*New standards and amendments to the existing standards issued by the IASB, but not yet adopted by EU.

2.4 Standards and interpretations or changes to existing standards or interpretations which were applied for the first time in the accounting year 2021

IFRS	Nature of changes	Effective from	Influence on Santander Bank Polska S.A. Group
Amendments to IFRS 16 Leasing-extention	The amendments provide the possibility of exempting lessees from recognizing rental concessions as modifications in accordance with IFRS 16, if they meet certain conditions and result from COVID-19. Extention by one year for rent concessions beyond 30 June 2021 ( May 2020 amendment)	1 April 2021	The amendment does not have a significant impact on consolidated financial statements.*
IBOR reform -Phase 2 (amendments to IFRS 9, IAS 39,IFRS 7,IFRS 4, IFRS 16)	The amendments complement the changes introduced in Phase 1 and relate to the following areas: changes in cash flows, hedge accounting and disclosures. The change in cash flows resulting from reform will only require updating the EIR , without affecting the gross carrying amount of the financial instrument or the need to derecognise it.	1 January 2021	The amendment does not have a significant impact on consolidated financial statements.**

*New standards and amendments to the existing standards issued by the IASB, but not yet adopted by EU.

** For details of Interest Rate Benchmark Reform please refer to Risk Management section p. Interest Rate Benchmark Reform.

2.5 Use of estimates

Preparation of financial statement in accordance with the IFRS requires the management to make subjective judgements and assumptions, which affects the applied accounting principles as well as presented assets, liabilities, revenues and expenses.

The estimates and assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgments about carrying amounts of assets and liabilities that are not readily apparent from other sources.

The estimates and assumptions are reviewed on an ongoing basis. Changes to estimates are recognised in the period in which the estimate is changed if the change affects only that period, or in the period of the change and future periods if the change affects both current and future periods.

Key accounting estimates made by Santander Bank Polska S.A. Group

Key estimates include:

· Allowances for expected credit losses

· Fair value of financial instruments

· Estimates for legal claims

· Estimated collective provisions for risk arising from mortgage loans in foreign currencies

· Estimates regarding reimbursement of fees related to early repaid consumer loans

Allowances for expected credit losses in respect of financial assets

The IFRS 9 approach is based on estimation of the expected credit loss (ECL). ECL allowances reflect an unbiased and probability-weighted amount that is determined by evaluating a range of possible outcomes, the time value of money; and reasonable and supportable information that is available without undue cost or effort at the reporting date about past events, current conditions and forecasts of future economic conditions. ECL allowances are measured at an amount equal to a 12-month ECL or the lifetime ECL, when it is deemed there has been a significant increase in credit risk since initial recognition (Stage 2) or impairment (Stage 3). Accordingly, the ECL model gives rise to measurement uncertainty, especially in relation to:

· measurement of a 12-month ECL or the lifetime ECL;

· determination of when a significant increase in credit risk occurred;

· determination of any forward-looking events reflected in ECL estimation, and their likelihood.

As a result, ECL allowances are estimated using the adopted model developed using many inputs and statistical techniques. Structure of the models that are used for the purpose of ECL estimation consider models for the following parameters:

· PD - Probability of Default, i.e. the estimate of the likelihood of default over a given time horizon (12-month or lifetime);

· LGD - Loss Given Default, i.e. the part of the exposure amount that would be lost in the event of default;

· EAD – Exposure at Default, i.e. expectation for the amount of exposure in case of default event in a given horizon 12-month or lifetime.

Changes in these estimates and the structure of the models may have a significant impact on ECL allowances.

In accordance with IFRS 9, the recognition of expected credit losses depends on changes in credit risk level which occur after initial recognition of the exposure. The standard defines three main stages for recognising expected credit losses:

· Stage 1 – exposures with no significant increase in credit risk since initial recognition, i.e. the likelihood of the exposure being downgraded to the impaired portfolio (Stage 3 exposures) has not increased. For such exposures, 12-month expected credit losses is recognised.

· Stage 2 – exposures with a significant increase in credit risk since initial recognition, but with no objective evidence of impairment. For such exposures, lifetime expected credit losses is recognised.

· Stage 3: exposures for which the risk of default has materialised (objective evidence of impairment has been identified). For such exposures, lifetime expected credit losses is recognised.

For the purpose of the collective evaluation of ECL, financial assets are grouped on the basis of similar credit risk characteristics that indicate the debtors' ability to pay all amounts due according to the contractual terms (for example, on the basis of the Group’s credit risk evaluation or the grading process that considers asset type, industry, geographical location, collateral type, past-due status and other relevant factors). The characteristics chosen are relevant to the estimation of future cash flows for groups of such assets by being indicative of the debtors' ability to pay all amounts due according to the contractual terms of the assets being evaluated. The rating/scoring systems have been internally developed and are continually being enhanced, e.g through external analysis that helps to underpin the aforementioned factors which determine the estimates of impairment charges.

In the individual approach, the ECL charge was determined based on the calculation of the total probability-weighted impairment charges estimated for all the possible recovery scenarios, depending on the recovery strategy currently expected for the customer.

In the scenario analysis, the key strategies / scenarios used were as follows:

· Recovery from the operating cash flows / refinancing / capital support;

· Recovery through the voluntary liquidation of collateral;

· Recovery through debt enforcement;

· Recovery through systemic bankruptcy/recovery proceeding/liquidation bankruptcy;

· Recovery by take-over of the debt / assets / sale of receivables

· Recovery as part of legal restructuring.

In addition, for exposures classified as POCI (purchased or originated credit impaired) - i.e. purchased or arising financial assets that are impaired due to credit risk upon initial recognition, expected credit losses are recognized over the remaining life horizon. Such an asset is created when impaired assets are initially recognized and the POCI classification is maintained over the life of the asset.

A credit-impaired assets

Credit-impaired assets are classified as Stage 3 or POCI. A financial asset or a group of financial assets are impaired if, and only if, there was objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset or asset was recognized as POCI and that impairment event (or events) had an impact on the estimated future cash flows of the financial asset or group of financial assets that could be reliably estimated. It may not be possible to identify a single, event that caused the impairment, rather the combined effect of several events may have caused the impairment. Objective evidence that a financial asset or group of assets was impaired includes observable data:

· significant financial difficulty of the issuer or debtor;

· a breach of contract, e.g. delay in repayment of interest or principal over 90 days in an amount exceeding the materiality threshold (PLN 400 for individual and small and medium-sized enterprises and PLN 2,000 for business and corporate clients) and at the same time relative thresholds (above 1% of the amount past due in relation to the balance sheet amount);

· the Santander Bank Polska S.A. Group, for economic or legal reasons relating to the debtor's financial difficulty, granting to the debtor a concession that the Santander Bank Polska S.A. Group would not otherwise consider, which fulfill below criteria:

(1) contingent restructuring transactions that meet the criteria for reclassification into basket 3 (quantitative and / or qualitative),

(2) contingent restructuring transactions previously classified as non-performing, which have been refinanced or restructured, or are more than 30 days past due to the customer's with observed financial difficulties,

(3) restructured transactions, where contractual clauses have been applied that defer payments through a grace period for repayment of the principal for a period longer than two years,

(4) restructured transactions including debt write-off, interest grace periods or repaid in installments without contractual interest,

(5) restructured transactions, where there was a change in the net present value of cash flows (NPV) of at least 1% compared to the NPV before the application of the forbearance measures,

(6) transactions where:

o inadequate repayment schedules (initial or later, if used) were applied, which are related to, inter alia, repeated situations of non-compliance with the schedule, changes in the repayment schedule in order to avoid situations of non-compliance with it, or

o a repayment schedule that is based on expectations, unsupported by macroeconomic forecasts or credible assumptions about the borrower's ability or willingness to repay was applied.

(7) transactions for which the Group has reasonable doubts as to the probability of payment by the customer.

· it becoming probable that the debtor will enter bankruptcy, recovery proceedings, arrangement or other financial reorganisation;

· the disappearance of an active market for that financial asset because of financial difficulties;

· exposures subject to the statutory moratorium, the so-called Shield 4.0 (Act of 19 June 2020 on interest subsidies for bank loans granted to entrepreneurs affected by COVID-19) - application of a moratorium on the basis of a declaration of loss of source of income.

Impaired exposures (Stage 3) can be reclassified to Stage 2 or Stage 1 if the reasons for their classification to Stage 3 have ceased to apply (particularly if the borrower’s economic and financial standing has improved) and a probation period has been completed (i.e. a period of good payment behaviour meaning the lack of arrears above 30 days), subject to the following:

· In the case of individual customers, the probation period is 180 days.

· In the case of SME customers, the probation period is 180 days, and assessment of the customer’s financial standing and repayment capacity is required in some cases. However, the exposure cannot be reclassified to Stage 1 or 2 in the case of fraud, client`s death, discontinuation of business, bankruptcy, or pending restructuring/ liquidation proceedings.

· In the case of business and corporate customers, the probation period is 92 days, and positive assessment of the financial standing is required (the Group assesses all remaining payments as likely to be repaid as scheduled in the agreement). The exposure cannot be reclassified to Stage 1 or 2 in the case of fraud, discontinuation of business, or pending restructuring/ insolvency/ liquidation proceedings.

· Additionally, if the customer is in Stage 3 and subject to the forbearance process ( incl. so-called Shield 4.0 moratoria), they may be reclassified to Stage 2 not earlier than after 365 days (from the start of forbearance or from the downgrade to the NPL portfolio, whichever is later) of regular payments, repayment by the client of the amount previously overdue / written off (if any) and after finding that there are no concerns as to the further repayment of the entire debt in accordance with the agreed terms of restructuring.

Detailed disclosures regarding credit risk are included in section 4:Risk management

A significant increases in credit risk

One of the key elements of IFRS 9 is the identification of a significant increase in credit risk which determines the classification to Stage 2. The Group has developed detailed criteria for the definition of a significant increase in the level of risk based on the following main assumptions:

· Qualitative assumptions:

· Implementing dedicated monitoring strategies for the customer following the identification of early warning signals that indicate a significant increase in credit risk

· Restructuring actions connected with making concessions to the customers as a result of their difficult financial standing

· Delay in payment as defined by the applicable standard, i.e. 30 days past due combined with the materiality threshold

· Quantitative assumptions:

· A risk buffer method based on the comparison of curves illustrating the probability of default over the currently remaining lifetime of the exposure based on the risk level assessment at exposure recognition and at reporting date. Risk buffer is set in relative terms for every single exposure based on its risk assessment resulting from internal models and other parameters of exposure impacting assessment of the Group whether the increase might have significantly increased since initial recognition of the exposure (such parameters considered types of the products, term structure as well as profitability). Risk buffer methodology was prepared internally and is based on the information gathered in course of the decisioning process as well as in process of transactions structuring.

Thresholds (determining the maximum permissible value of the probability of default (PD) as at the reporting date after the change in relation to the PD value at the moment of initial recognition) for classification into basket 2 are specified individually for each exposure,. The table presents the average annual values of the PD thresholds, taking into account the time to maturity of the exposure.

Average threshold (per annum) of the probability of default
mortgage loans				3,04%
consumer loans				13,95%
corporate loans				13,17%

Fact of being covered by aid measures related to COVID-19 (excluding exposures subject to statutory moratoria (Shield 4.0)) does not automatically result in classification into Stage 2 or Stage 3. Additional client`s risk is monitored on an ongoing basis. In order to manage credit risk following COVID-19 pandemic, management reports and early warning systems have been expanded, the most vulnerable populations are reviewed in detail.

· Exposure in Stage 2 may be re-classified into Stage 1 without probation period as soon as significant increase in credit risk indicators after its initial recognition end e.g. when the following conditions are met: client`s current situation does not require constant monitoring, no restructuring actions towards exposure are taken, exposure has no payment delay over 30 days for significant amounts, no suspension of the contact due to Shield 4.0, and according to risk buffer method no risk increase occurs.

Santander Bank Polska S.A. Group does not identify low credit risk exposures under IFRS 9 standard rules, which allows to recognize 12-month expected loss even in cease of significant increase of credit risk since initial recognition.

ECL measurement

Another key feature introduced by IFRS 9 is the approach to the estimation of risk parameters. For the purpose of estimating allowances for expected losses, Santander Bank Polska S.A. Group uses its own estimates of risk parameters that are based on internal models. Expected credit losses are the sum of individual products for each exposure of the estimated values of PD, LGD and EAD parameters in particular periods (depending on the stage either in the horizon of 12 months or in lifetime) discounted using the effective interest rate.

The estimated parameters are adjusted for macroeconomic scenarios in accordance with the assumptions of IFRS 9. To this end, the Group determines the factors which affect individual asset classes to estimate an appropriate evolution of risk parameters. The Group uses scenarios developed internally by the analytical team, which are updated on a monthly basis at least every six months. The models and parameters generated for the needs of IFRS 9 are subject to model management process and periodic calibration and validation. These tools are also used in the financial planning process.

Determination of forward-looking events and their likelihood

Forward-looking events are reflected both in the process of estimating ECL and when determining a significant increase in credit risk, by developing appropriate macroeconomic scenarios and then reflecting them in the estimation of parameters for each scenario. The final parameter value and the ECL is the weighted average of the parameters weighted by the likelihood of each scenario. Group uses three scenario types: the baseline scenario and two alternative scenarios, which reflect the probable alternative options of the baseline scenario: upside and downside scenario. Scenario weights are determined using the expected GDP path and the confidence intervals for this forecast in such a way that the weights reflect the uncertainty about the future development of this factor.

The Groups's models most often indicate the dependence of the quality of loan portfolios on the market situation in terms of the level of deposits, loans, as well as the levels of measures related to interest rates.

Baseline scenario

In the baseline scenario the economic growth will be supported by looser fiscal policy (Polish Deal programme) and new EU funds, with 4.9% and 3.6% GDP growth rates envisaged for 2022 and 2023. As for end of 2021, EU Recovery Fund was not available, but the scenario assumes that the government will be able to reach an agreement with the European Commission and unlock new funds in 2022. Strong domestic demand along with weaker PLN, energy hikes and higher commodity prices driven by worldwide supply chain disruptions will be fuelling CPI inflation, which is expected to average 6.2% in 2022. In late 2021 the NBP started tightening the monetary policy and hiked interest rates in October and November by a total of 115bp, to 1.25%. Interest rates are expected to reach 3.00% at the end of 2022.

Best case scenario

The upside scenario was built under an assumption that no new coronavirus waves or lockdowns appears. EU funds are unlocked and supply disruptions disappear. In 2022 the economy is expected to grow by 6.2% and then to decelerate gradually, but to remain strong. Strong growth will fuel the already elevated inflation, averaging 6.5% in 2022 and 4.1% in 2023. The NBP will continue its tightening cycle. Interest rates are expected to climb to 3.00% at the end of 2022.

Worst case scenario

The downside scenario was built under an assumption that the new coronavirus wave will lead to a renewal of epidemic restrictions. At the same time, the conflict between the Polish government and the European Commission will not be resolved anytime soon, so Recovery Fund means will not be disbursed. In 2022 the economy is expected to rise by 3.3% and then to slow down to 1.3% in 2023. Despite slower growth, CPI inflation is expected to remain elevated and to average 6.2% in 2022. Deterioration of the economic outlook will find the MCP during its hiking cycle, so after applying rate increases bringing the reference rate to 3.00% in 2Q22 rates will go down to 1.50% in 1Q23.

The tables below present the key economic indicators arising from the respective scenarios.

Scenario as at 2021.12.31		baseline		best case		worst case
likehood		60%		20%		20%
		2022	average, next 3 years	2022	average, next 3 years	2022	average, next 3 years
GDP	YoY	4,9%	3,0%	6,2%	4,8%	3,3%	1,3%
WIBOR 3M	average	3,0%	3,0%	3,0%	3,0%	2,8%	1,8%
unemployment rate	% active	3,2%	3,0%	3,2%	2,7%	3,2%	3,4%
CPI	YoY	6,2%	3,1%	6,5%	3,4%	6,3%	2,5%
EURPLN	period-end	4,46	4,34	4,39	4,3	4,73	4,51

Scenario as at 2020.12.31		baseline		best case		worst case
likehood		60%		20%		20%
		2021	average, next 3 years	2021	average, next 3 years	2021	average, next 3 years
GDP	YoY	3,1%	3,1%	4,4%	4,1%	1,8%	2,2%
WIBOR 3M	aveage	1,6%	1,6%	1,6%	1,6%	1,6%	1,6%
unemployment rate	% active	2,6%	2,1%	2,4%	1,9%	2,7%	2,4%
CPI	YoY	2,9%	2,0%	3,4%	2,4%	2,5%	1,7%
EURPLN	period-end	4,30	4,27	4,23	4,17	4,36	4,38

Management provision covering risk resulting from COVID-19 pandemic

In 2021, in connection with the cyclical review of risk parameters for expected credit losses calculation, the models and macroeconomic scenarios were updated, taking into account the current forecasts of the future economic situation in accordance with the requirements of IFRS 9.

The Group decided to withdraw the management adjustment in respect of COVID-19, which in previous periods covered a very high uncertainty about the development of macroeconomic factors. Its aim was also to capture the impact of significant and short-term economic shocks on the long-term path of economic growth. Currently, this uncertainty regarding forecasts has significantly decreased, and it was decided to take into account both the realization of the risk factors observed during the pandemic and the expectations of these factors in the future directly in the parameters of expected credit losses.

At the end of 2021, in addition to the ECL write-offs resulting from the complex calculation model implemented in the system, management adjustments were also created, updating the risk level with current and expected events in the future:

· A management reserve of PLN 17 200 k related to changes in the classification of exposures on the retail and SME portfolio resulting from the implementation of the KNF R recommendation at the beginning of 2022, in particular:

· when the Group has balance sheet exposures towards the obligor which are past due more than 90 days and which constitute over 20% of all balance sheet exposures towards this obligor, all balance sheet and off-balance sheet exposures towards that obligor are considered non-performing

· a delay in repayment for a given exposure exceeding 90 days in a situation where the materiality criterion of an overdue credit obligation has not been met for a given exposure results in the classification to stage 2

· A management reserve for the corporate portfolio of PLN 20 000 k created to reflect the estimated impact of new additional constraints related to the protracted COVID-19 pandemic on the hospitality business. When determining the amount of the additional write-off, the Group assumed an additional classification to stage 2 of the sector with a probability of 50%, and the current stage 2 with an additional probability of 2% will be reclassified to stage 3. In the calculation of the management provision, the average coverage with a write-off for the hotel industry portfolio was assumed.

· A management reserve for the SME portfolio in the amount of PLN 35 000 k related to planned changes in LGD models

(planned separation of separate portfolios with lower expected recoveries for exposures after the implementation of GDM collateral and in bankruptcy, as well as exclusion for the SME leasing portfolio during the estimation of historical recoveries at a level not currently implemented).

Potential variability of ECL

Changes in forecasts of macroeconomic indicators may result in significant effects affecting the level of created provisions. Adoption of macroeconomic parameter estimates at only one scenario level (upside or downside scenario) will result in a one-off change in ECL at the level below.

in PLN m					ECL change
scenario				31.12.2021	31.12.2020
	consumer	mortgage	corporate	Total	Total
worst case	4.7	1,8	14.0	20.5	45.3
best case	(6.7)	(0.2)	(13.2)	(20.1)	(43.7)

Data for Santander Bank Polska S.A.

The sensitivity of individual portfolios to changes in the environment largely depends on the correlation between the default risk and market indicators. This relationship is different for different portfolios, and the expected risk may depend on changes in unemployment, CPI, exchange rates, etc.

Based on the GDP indicator as the main factor determining the condition of the economy, Santander Bank Polska S.A. Group estimates that the target level of gross domestic production will be reduced by 1% in 2022, would translate into an increase in expected credit losses in the amount of PLN 14 776 k. The above analysis was made assuming the preservation of the relationship between macroeconomic factors.

Significant volatility for the income statement may be reclassifications to stage 2 from stage 1. The reclassification of given percentage of exposures from stage 1 with the highest risk level to stage 2 for each type of exposure would result in an increase in ECL according to below table.

	additional expected credit loss (PLN m)
reclassification from stage 1 to stage 2	individual	mortgage	corporate	Total 31.12.2021	Total 31.12.2020
1%	27,7	13,0	6,1	46,8	34,3
5%	144,0	54,7	33,6	232,3	166,2
10%	281,3	86,8	62,0	430,1	305,5

The theoretical reclassification of 1% of exposures from stage 1 with the highest risk level to stage 2 for each type of exposure would result in an increase in ECL by PLN 46 800 k according to the portfolio as of 31 December 2021 for Santander Bank Polska S.A. Group (in relation to PLN 34 300 k as at 31 December 2020).

The above estimates show expected variability of loss allowances as a result of transfers between stage 1 and stage 2, resulting in significant changes in the degree to which exposures are covered with allowances in respect of different ECL horizons.

Fair value of financial instruments, including instruments which do not meet the contractual cash flows test

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

Santander Bank Polska S.A. Group applies a methodology for measuring the fair value of credit exposures and debt instruments measured at fair value through profit or loss.

In the case of the instruments with distinguishable on-balance sheet and off-balance sheet components, the extent of fair value measurement will depend on the nature of the underlying exposure, and:

· the on-balance sheet portion always will be measured at fair value;

· the off-balance sheet portion will be measured at fair value only if at least one of the following conditions is met:

· condition 1: the exposure has been designated as measured at fair value (option) or

· condition 2: the exposure may be settled net in cash or through another instrument or

· condition 3: Santander Bank Polska S.A. Group sells the obligation immediately after its granting or

· condition 4: the obligation was granted below the market conditions.

The fair value is measured with the use of valuation techniques appropriate in the circumstances and for which sufficient data are available, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.

The Group applies following valuation techniques:

· market approach – uses prices and other relevant information generated by market transactions involving identical or comparable (similar) assets, liabilities, or a group of assets and liabilities (e.g. a business unit)

· income approach – converts future amounts (cash flows or income and expenses) to a single current (discounted) date. When the income approach is used, the fair value measurement reflects the current market expectations as to the future amounts.

Santander Bank Polska S.A. Group uses the income approach for fair value measurement relating to financial instruments which do not meet contractual cash flows test.

The following arguments support the use of the income approach:

· no active market;

· the cost approach is not used in the case of financial assets (it usually applies to property, plant and equipment and property investments).

In the case of credit exposures and debt instruments, the present value method within income approach is typically used. In this method, the expected future cash flows are estimated and discounted using a relevant interest rate. In the case of the present value method, Santander Bank Polska S.A. Group uses the following elements in the valuation:

· expectations as to the future cash flows;

· expectations as to potential changes in cash flow amounts and timing (uncertainties are inherent in cash flow estimates);

· the time value of money, estimated using risk-free market rates;

· the price of uncertainty risk inherent in cash flows (risk premium) and

· other factors that market participants would take into account in the circumstances.

The present value measurement approach used by Santander Bank Polska S.A. Group is based on the following key assumptions:

· cash flows and discount rates reflect the assumptions that market participants would adopt in the measurement of an asset;

· cash flows and discount rates reflect only the factors allocated to the asset which was subject to measurement;

· discount rates reflect the assumptions which are in line with the cash flow assumptions;

· discount rates are consistent with the key economic factors relating to the currency in which the cash flows are denominated.

The fair value determination methodology developed by Santander Bank Polska S.A. Group provides for adaptation of the fair value measurement model to the characteristics of the financial asset subject to measurement. When determining the need for adaptation of the model to the features of the asset subject to measurement, Santander Bank Polska S.A. Group takes into account the following factors:

· approach to the measurement (individual/collective) given the characteristics of the instrument subject to measurement;

· whether a schedule of payments is available;

· whether the asset subject to measurement is still offered by Santander Bank Polska S.A. Group and whether the products recently provided to customers can be a reference group for that asset.

Other significant groups of financial instruments measured at fair value are all derivatives, financial assets held within a residual business model, debt investment financial assets held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets, and equity investment financial assets. These financial instruments are either measured with reference to a quoted market price for that instrument or by using a respective measurement model.

Where the fair value is calculated using financial-markets pricing models, the methodology is to calculate the expected cash flows under the terms of each specific contract and then discount these values back to a present value. These models use as their basis independently sourced market parameters including, for example, interest rate yield curves, securities and commodities prices, option volatilities and currency rates. Most market parameters are either directly observable or are implied from instrument prices.

In justified cases, for financial instruments whose carrying amount is based on current prices or valuation models, Santander Bank Polska S.A. Group takes into account the need to identify additional adjustments to the fair value of the counterparty credit risk.

The fair value measurement models are reviewed periodically.

A summary of the carrying amounts and fair values of the individual groups of assets and liabilities is presented in Note 47.

Estimates for legal claims

Santander Bank Polska S.A. Group raises provisions for legal claims on the basis of likelihood of unfavourable verdict and recognises them in accordance with IAS 37.

The provisions have been estimated considering the likelihood of payment, and their impact is presented in other operating income and cost.

As at 31 December 2021, Santander Bank Polska S.A .Group increased provisions for legal claims in connection with the inflow of new court cases and a change in the estimated probabilities of negative conclusions for the Group.

Details on the value of the provisions and the assumptions made for their calculation are provided in Notes 38, 48 and 49.

Estimated collective provisions for risk arising from mortgage loans in foreign currencies

In connection with the CJEU’s ruling described in Note 48, there is an increased risk that clauses in agreements from the portfolio of mortgage loans denominated in or indexed to foreign currencies may be effectively challenged by customers. The Management Board considered the risk that the scheduled cash flows may not be fully recoverable and/or a liability may arise resulting in a future cash outflow. The Group decided to maintain additional collective provision for legal risk, in addition to provisions for individual court cases.

The collective provision, in particular the provision for mortgage loans denominated in or indexed to foreign currencies, has been estimated on the basis of a specific time horizon, the likelihood of a number of events, such as finding contractual clauses abusive or losing a court case, and different scenarios for possible judgments.

The Group, based on observed data, has changed portfolio provision for mortgage loans in foreign currencies as at 31 December 2021, and will carry on with monitoring of the risk in subsequent reporting periods. As at 31 December 2021 collective provision amounts to PLN 838 843k ( PLN 278 247k as at 31 December 2020). Result of collective provisions impacts other operating income and cost.

Details on the value of the provisions and the assumptions made for their calculation are provided in Notes 38, 48 and 49.

Estimates regarding reimbursement of fees related to early repaid consumer loans

The Group has changed estimated future cash flows for cash loan portfolio due to early prepayments done by clients. Change in cash flows was assessed on the base of historical prepayment levels, volume and portfolio characteristics and amounted to PLN 4 016k in 2021. The decrease in cash flows was recognised as an adjustment to gross carrying amount of loan receivables and decrease in interest income.

In addition, due to early prepayments causing shorter tenors, the Group decided to adjust third party intermediary cost calculated according to EIR in respect of expected early prepayments. The adjustment amounted to PLN 8 129k, and was recognised as an adjustment to gross carrying amount of loan receivables and decrease in interest income. As at 31 December 2020 intermediary cost adjustment amounted to PLN 35 155k.

Potential variability

Change in client`s behavior regarding complaints may cause current provisions levels to be changed in following manner. Extension of the period for which the Group expects consumer complaints to continue is assessed by Bank as a pessimistic scenario, whereas the shortening is regarded as optimistic.

in PLN m		change in provision level
scenario	31.12.2021	31.12.2020
pessimistic	12,7	27,3
optimistic	(11,4)	(26,4)

2.6. Judgements that may significantly affect the amounts recognized in the financial statements

When applying the accounting principles, the management of Santander Bank Polska S.A. Group makes various judgements that may significantly affect the amounts recognized in financial statements.

Consolidation scope

The preparation of consolidated financial statements by Santander Bank Polska S.A. as a parent entity of Santander Bank Polska S.A. Group requires an extensive use of judgement and multiple assumptions as to the nature of entities in which the investment is made including, determination of whether Santander Bank Polska S.A. as a parent entity exercises control over the investee. Presented below are the key judgements and assumptions regarding the bank’s equity investments where the bank has 50% voting rights in the investee.

According to the Management Board of Santander Bank Polska S.A. Group, investment in Santander Towarzystwo Funduszy Inwestycyjnych S.A. is an investment in a subsidiary for the purpose of preparation of the consolidated financial statement in the light of the strategy adopted by the ultimate parent entity. As at 31 December 2021 and 2020, Santander Bank Polska S.A. co-owed Santander Towarzystwo Funduszy Inwestycyjnych S.A. with Banco Santander S.A. Both owners are members of Banco Santander Group and each holds 50% of the shares in the company. Santander Bank Polska S.A. exercises control over the subsidiary company, Santander Towarzystwo Funduszy Inwestycyjnych S.A. due to the fact that:

· Santander Bank Polska S.A. has rights to manage significant current operations,

· Santander Bank Polska S.A. has rights to variable returns due to its exposure and

· Santander Bank Polska S.A. may use its powers to affect the amount of its financial results.

The investment in POLFUND - Fundusz Poręczeń Kredytowych S.A., where 50% of the voting rights are held by the Santander Bank Polska S.A. on Annual General Meeting, in accordance with the best knowledge and estimates was classified, as an investment in an associate as the ownership structure does not allow Santander Bank Polska S.A. to control and to joint-control the company.

According to Santander Bank Polska S.A. Group Management Board, the investment in PSA Finance Polska Sp. z o.o. is treated as an investment in a subsidiary, due to the fact that Santander Consumer Bank SA has a direct control and Santander Bank Polska S.A. has indirect control over the investment. The control over the company results from the fact that:

· Santander Consumer Bank S.A. has control over PSA Finance Polska Sp. z o.o. as it has existing rights that give it the current ability to direct the relevant activities, namely the activities which materially influence the returns made by PSA Finance Polska Sp. z o.o. Taking into account the core business of PSA Finance Polska Sp. z o.o., which is leasing, activities supporting financial services, car lease and rental of cars and activities of insurance agents and brokers, and the sector in which PSA Finance Polska Sp. z o.o. is active, Santander Bank Polska S.A. has decided that PSA Finance Polska Sp. z o.o. relevant activities are:

· funding and ALM activity;

· risk management activity and

· commercial activity.

On the basis of an analysis of written agreements between the shareholders of PSA Finance Polska Sp. z o.o., Santander Consumer Bank S.A. manages the first two types of activities indicated above, namely the activity connected with the provision of funding and risk management. The right to manage those activities results from the fact that committee members appointed by Santander Consumer Bank S.A. have casting votes in the event of a tied vote, and the fact that Santander Consumer Bank S.A. has the right to shape the company’s external funding policy in a manner consistent with the internal rules of Santander Consumer Bank S.A.

· As Santander Consumer Bank S.A. plays a key role in funding the activities of PSA Finance Polska Sp. z o.o., the former is exposed to variable returns from its investment into the investee and

· Santander Consumer Bank S.A. may use its power to affect returns from its investment into PSA Finance Polska Sp. z o.o. as the former does not act for or on behalf of another entity (acts as a principal rather than as an agent).

The list of fully consolidated subsidiaries is presented in note 1 “Information about the issuer”.

Assessment whether contractual cash flows are solely payments of principal and interest

The key issue for Santander Bank Polska S.A. Group's business, is to assess whether the contractual terms related to financial assets component indicate the existence of certain cash flow dates, which are only the repayment of the nominal value and interest on the outstanding nominal value.

For the purposes of this assessment, ‘principal’ is defined as the fair value of the financial asset on initial recognition and ‘interest’ is defined as consideration for the time value of money, for the credit risk associated with the principal amount outstanding during a particular period of time and for other basic lending risks and costs (e.g. liquidity risk and administrative costs), as well as a profit margin.

In assessing whether the contractual cash flows are solely payments of principal and interest, Santander Bank Polska S.A. Group considers the contractual terms of the instrument. This includes assessing whether the financial assets contains a contractual term that could change the timing or amount of contractual cash flows such that it would not meet this condition. In making the assessment the Santander Bank Polska S.A. Group considers:

· contingent events that would change the amount and timing of cash flows,

· leverage features,

· prepayment and extension terms,

· terms that limit Santander Bank Polska S.A. Group’s claim to cash flows from specified assets (e.g. non-recourse asset arrangements),

· features that modify consideration for the time value of money.

A prepayment feature is consistent with the SPPI criterion if the prepayment amount substantially represents unpaid amounts of principal and interest on the principal amount outstanding, which may include reasonable compensation for early termination of the contract.

In addition, a prepayment feature is treated as consistent with this criterion if a financial asset is acquired or originated at a premium or discount to its contractual paramount, the prepayment amount substantially represents the contractual par amount plus accrued (but unpaid) contractual interest (which may also include reasonable compensation for early termination), and the fair value of the prepayment feature is insignificant on initial recognition.

In the process of applying Santander Bank Polska S.A. Group’s accounting policy management assessed whether financial assets, including loan agreements, whose interest rate construction contains a multiplier greater than 1, meet classification criteria allowing their valuation at Amortised cost, that is:

· business model and

· characteristics of contractual cash flows.

The most significant portfolio of financial assets, whose interest rate construction contained a multiplier greater than 1, includes credit cards granted until 01.08.2016, whose interest rate formula was based on 4x lombard rate and did not contain direct reference to the provisions of the Civil Code in the regard of interest cap.

This financial asset portfolio is maintained in a business model whose objective is to hold financial assets in order to collect contractual cash flows. Credit risk for these assets is the basic risk managed in portfolios, and historical analysis of frequency and volume of sales do not indicate significant sales of asset portfolios for reasons other than credit risk.

In addition, it was not found that:

· fair value was a key performance indicator (KPI) for assessing portfolio performance for internal reporting purposes,

· the assessment of the portfolio's results was based only on the fair value of assets in the analyzed portfolio,

· remuneration of portfolio managers was related to the fair value of assets in the analyzed portfolio.

Whereas contractual terms related to a financial asset indicate that there are specific cash flow terms that are not solely payments of principal and interest on the principal outstanding due to the existence of a financial leverage in the construction of interest rate. It increases the variability of the contractual cash flows with the result that they do not have the economic characteristics of interest. The credit card portfolio with the above characteristics has been reclassified from the portfolio measured at amortised cost to the portfolio measured at fair value through profit or loss.

Business Model Assessment

Business models at Santander Bank Polska S.A. Group are determined at a level that reflects how groups of financial assets are managed together to achieve a particular business objective. The business model does not depend on the intentions of the Santander Bank Polska S.A. Group management regarding a particular instrument, which is why the model is assessed at a higher level of aggregation.

All business models, quantitative and qualitative criteria used for business model assessment are described in p.2.9 regarding financial asset classification.

2.7. Basis of consolidation

Subsidiaries

Santander Bank Polska S.A. defines the consolidation scope by assessing whether it controls an investee. Santander Bank Polska S.A. controls an entity if, due to its involvement, Santander Bank Polska S.A. is exposed or has rights to variable returns and can affect those returns through its power over the investee.

Santander Bank Polska S.A., being the parent entity, controls directly or indirectly an investee when:

· if has power over the investee;

· if has exposure or rights to variable returns from its involvement with the investee;

· if has the ability to use its power over the investee to affect the amount of it’s own financial results.

When assessing whether it controls an investee, Santander Bank Polska S.A. considers all facts and circumstances, among other things following factors:

· the purpose and design of the investee;

· what the relevant activities are and how decisions about those activities are made;

· whether the rights of Santander Bank Polska S.A. give it the current ability to direct the relevant activities;

· whether Santander Bank Polska S.A. is exposed or has rights to variable returns from its involvement with the investee;

· whether Santander Bank Polska S.A. has the ability to use its power over the investee to affect the amount of the investor’s returns.

The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases.

Acquisition method

Santander Bank Polska S.A. Group applies the acquisition method to account for acquisition of subsidiaries. Under this method, the acquirer has to:

· recognise and measure all identifiable acquired assets and liabilities and any non-controlling interest in the acquiree as at the acquisition date (the date on which the acquirer obtains control of the acquiree);

· recognise and measure goodwill or gain from a bargain purchase.

The acquirer measures:

· identifiable assets acquired and liabilities assumed - at fair value as at the acquisition date;

· any non-controlling interest – at fair value or pro-rata to their share in the identifiable net assets of the acquiree.

Associates

Associates are those entities in which Santander Bank Polska S.A. Group has significant influence, but are not subsidiaries, neither joint ventures.

They are accounted for in accordance with the equity method in consolidated financial statements.

The consolidated financial statements include Santander Bank Polska S.A. Group’s share of the profits and losses of associates on an equity accounted basis, from the date that significant influence commences until the date that significant influence ceases. When Santander Bank Polska S.A. Group’s share of losses exceeds its interest in an associate, Santander Bank Polska S.A. Group’s carrying amount is reduced to nil and recognition of further losses is discontinued except to the extent that Santander Bank Polska S.A. Group has incurred legal or constructive obligations or made payments on behalf of an associate.

Transactions eliminated on consolidation

Intragroup balances and any unrealised gains and losses or incomes (including dividends) and expenses arising from intragroup transactions, are eliminated in the preparation of consolidated financial statement.

2.8. The most significant accounting policies

With the exception of the changes described in point 2.3, the Santander Bank Polska S.A. Group consistently applied the adopted accounting principles both for the reporting period for which the statement is prepared and for the comparative period.

The accounting policies have been applied consistently by Santander Bank Polska S.A. Group entities.

Foreign currency

Foreign currency transactions

The Polish zloty (PLN) is the functional currency of the units which are members of Santander Bank Polska S.A. Group with the exception of Santander Leasing Securitization 01 for which the functional currency is the EUR.

Transactions in foreign currencies are translated at the foreign exchange rate ruling at the date of the transaction. Resulting from these transactions monetary assets and liabilities denominated in foreign currencies, are translated at the foreign exchange rate ruling at the balance sheet date. Non-monetary assets and liabilities denominated in foreign currencies, which are stated at historical cost, are translated at the foreign exchange rate ruling at the date of the transaction. Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are translated to the reporting currency at the foreign exchange rates ruling at the dates that the fair values were determined. Foreign exchange differences arising on translation are recognised in profit or loss except for differences arising on retranslation of instruments of other entities measured at fair value through other comprehensive income, which are recognised in other comprehensive income.

Financial assets and liabilities

Recognition and derecognition

Initial recognition

Santander Bank Polska S.A. Group recognises a financial asset or a financial liability in its statement of financial position when, and only when, it becomes bound by contractual provisions of the instrument.

A regular way purchase or sale of financial assets is recognised and derecognised, as applicable, at the settlement date.

Derecognition of financial assets

Santander Bank Polska S.A. Group derecognises a financial asset when and only when, if:

· contractual rights to the cash flows from that financial asset have expired, or

· Santander Bank Polska S.A. Group transfers a financial asset, and such operation meets the derecognition criteria specified further in this policy.

Santander Bank Polska S.A. Group transfers a financial asset when and only when, if:

· Santander Bank Polska S.A. Group transfers contractual rights to the cash flows from that financial asset, or

· Santander Bank Polska S.A. Group retains contractual rights to receive the cash flows from that financial asset, but assumes a contractual obligation to pay the cash flows to one or more recipients in an arrangement that meets the conditions specified further in this policy.

When Santander Bank Polska S.A. Group retains the contractual rights to receive the cash flows of a financial asset (the ‘original asset’), but assumes a contractual obligation to pay those cash flows to one or more entities (the ‘eventual recipients’), then Santander Bank Polska S.A. Group treats the transaction as a transfer of a financial asset if, and only if, all of the following three conditions are met:

· Santander Bank Polska S.A. Group has no obligation to pay amounts to the eventual recipients unless it collects equivalent amounts from the original asset,

· Santander Bank Polska S.A. Group is prohibited by the terms of the transfer contract from selling or pledging the original asset other than as security to the eventual recipients for the obligation to pay them cash flows,

· Santander Bank Polska S.A. Group has an obligation to remit any cash flows it collects on behalf of the eventual recipients without material delay. In addition, Santander Bank Polska S.A. Group is not entitled to reinvest such cash flows, except for investments in cash or cash equivalents (as defined in IAS 7 Statement of Cash Flows) during the short settlement period from the collection date to the date of required remittance to the eventual recipients, and interest earned on such investments is passed to the eventual recipients.

When Santander Bank Polska S.A. Group transfers a financial asset, it shall evaluate the extent to which it retains the risks and rewards of ownership of the financial asset. In such a case:

· if Santander Bank Polska S.A. Group transfers substantially all of the risks and rewards of ownership, then it shall derecognise the financial asset and recognise separately as assets or liabilities any rights and obligations created or retained in the transfer;

· if Santander Bank Polska S.A. Group retains substantially all the risks and rewards of ownership, then it shall continue to recognise the financial asset;

· if Santander Bank Polska S.A. Group neither transfers nor retains substantially all the risks and rewards of ownership, then it shall verify if it has retained control of the financial asset. In such a case:

a) if Santander Bank Polska S.A. Group has not retained control, it shall derecognise the financial asset and recognise separately as assets or liabilities any rights and obligations created or retained in the transfer;

b) if Santander Bank Polska S.A. Group has retained control, it shall continue to recognise the financial asset to the extent of its continuing involvement in the financial asset.

The transfer of risks and rewards is evaluated by comparing Santander Bank Polska S.A. Group’s exposure, before and after the transfer, with the variability in the amounts and timing of the net cash flows of the transferred asset. Santander Bank Polska S.A. Group has retained substantially all the risks and rewards of ownership of a financial asset if its exposure to the variability in the present value of the future net cash flows from the financial asset does not change significantly as a result of the transfer. Santander Bank Polska S.A. Group transfers substantially all the risks and rewards of ownership of a financial asset if its exposure to such variability is no longer significant in relation to the total variability in the present value of the future net cash flows associated with the financial asset.

Santander Bank Polska S.A. Group derecognises a part of financial asset (or a part of a group of similar financial assets) when and only when, if the part of the asset to be derecognised fulfills one of the three conditions:

· that part comprises only specifically identified cash flows on a financial asset (or a group of similar financial assets),

· that part comprises only a fully proportionate (pro rata) share of cash flows from that financial asset (or a group of similar financial assets),

· that part comprises only a fully proportionate (pro rata) share of specifically identified cash flows from a financial asset (or a group of similar financial assets).

In all other cases, Santander Bank Polska S.A. Group derecognises a financial asset (or a group of similar financial assets) as a whole.

Derecognition of financial liabilities

Santander Bank Polska S.A. Group shall remove a financial liability (or a part of a financial liability) from its statement of financial position when, and only when, it is extinguished — i.e. when the obligation specified in the contract is discharged or cancelled or expires.

An exchange between Santander Bank Polska S.A. Group and the lender of debt instruments with substantially different terms shall be accounted for as an extinguishment of the original financial liability and the recognition of a new financial liability. Similarly, a substantial modification of the terms of an existing financial liability or a part of it (whether or not attributable to the financial difficulty of the debtor) shall be accounted for as an extinguishment of the original financial liability and the recognition of a new financial liability.

The difference between the carrying amount of a financial liability (or part of a financial liability) extinguished or transferred to another party and the consideration paid, including any non-cash assets transferred or liabilities assumed, shall be recognised in profit or loss.

If Santander Bank Polska S.A. Group repurchases a part of a financial liability, Santander Bank Polska S.A. Group shall allocate the previous carrying amount of the financial liability between the part that continues to be recognised and the part that is derecognised based on the relative fair values of those parts on the date of the repurchase. The difference between:

· the carrying amount allocated to the part derecognised, and

· the consideration paid, including any non-cash assets transferred or liabilities assumed, for the part derecognised, are recognised in profit or loss.

Classification of financial assets and financial liabilities

Classification of financial assets

Classification of financial assets which are not equity instruments

Unless Santander Bank Polska S.A. Group has made a prior decision to measure a financial asset at fair value through profit or loss, the Santander Bank Polska S.A. Group classifies financial asset that are not an equity instrument as subsequently measured at amortised cost or at fair value through other comprehensive income or fair value through profit or loss on the basis of both:

· the business model of Santander Bank Polska S.A. Group for managing the financial assets and

· the contractual cash flow characteristics of the financial asset.

A financial asset is measured at amortised cost if both of the following conditions are fulfilled:

· the financial asset is held in a business model whose purpose is to hold financial assets to collect contractual cash flows, and

· the contractual terms of a financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

A financial asset is measured at fair value through other comprehensive income if both of the following conditions are fulfilled:

· the financial asset is held in a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets, and

· the contractual terms of a financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

If a financial asset is not measured at amortised cost or at fair value through other comprehensive income, it is measured at fair value through profit or loss.

Santander Bank Polska S.A. Group may, at initial recognition, irrevocably designate a financial asset as measured at fair value through profit or loss if doing so eliminates or significantly reduces a measurement or recognition inconsistency (sometimes referred to as an “accounting mismatch”) that would otherwise arise from measuring assets or liabilities or recognising the gains and losses on them on different bases.

Classification of financial assets which are equity instruments

Santander Bank Polska S.A. Group measures the financial asset that is an equity instrument at fair value through profit or loss, unless Santander Bank Polska S.A. Group made an irrevocable election at initial recognition for particular investments in equity instruments to present subsequent changes in fair value in other comprehensive income.

Business models

Business models at Santander Bank Polska S.A. Group are determined at a level that reflects how groups of financial assets are managed together to achieve a particular business objective. The business model does not depend on the intentions of the Santander Bank Polska S.A. Group key management regarding a particular instrument.

The business model refers to how Santander Bank Polska S.A. Group manages its financial assets in order to generate cash flows. That is, the business model determines whether cash flows will result from:

· collecting contractual cash flows

· selling financial assets

· or both.

Consequently, the business model assessment is not performed on the basis of scenarios that Santander Bank Polska S.A. Group does not reasonably expect to occur, such as so-called “worst case” or “stress case” scenarios.

Santander Bank Polska S.A. Group determines the business model on the basis of the assessment of qualitative and quantitative criteria.

Qualitative criteria for the assessment of a business model

The business model for managing financial assets is a matter of fact and not merely an assertion. It is observable through the activities undertaken to achieve the objective of the business model. Santander Bank Polska S.A. Group uses judgement when it assesses its business model for managing financial assets and that assessment is not determined by a single factor or activity. Santander Bank Polska S.A. Group considers all relevant qualitative and quantitative criteria available at the date of business model assessment.

Such relevant evidence includes the following issues:

· policies and business objectives applicable to a given portfolio and their effective delivery. In particular, the assessment covers the management strategy for generating income from contractual interest payments, maintaining a specific profile of portfolio interest rates, managing liquidity gap and generating cash flows from the sale of financial assets;

· method for assessing the profitability of the financial asset portfolio and its reporting and analysis by the key management personnel;

· risks which affect the profitability and effectiveness of a specific business model (and financial assets held within such a business model) as well as method for managing such risks;

· method for remunerating business managers as part of a specific business model, i.e. whether the remuneration payable to the key management personnel depends on changes in the fair value of financial assets or the value of contractual cash flows.

Quantitative criteria for the assessment of a business model

In addition to qualitative criteria, the business model should also be reviewed in terms of quantitative aspects, unless the initial analysis of qualitative criteria clearly implies a residual model managed on the fair-value basis.

The purpose of the analysis of quantitative criteria of business model assessment is to determine if the sale of financial assets during the analysed period exceeds the pre-determined threshold values (in percentage terms) defined in internal regulations.

As part of the analysis of quantitative criteria, Santander Bank Polska S.A. Group reviews the frequency, values and the time of sale of financial assets in the previous reporting periods, reasons for such sale and expectations as to the future sales activity.

In the analysis of the quantitative criteria of the business model assessment, Santander Bank Polska S.A. Group determines that a business model whose objective is to hold assets in order to collect contractual cash flows enables the sale of those assets, without affecting the current business model, in the following cases:

· if the sale is due to the increase in credit risk related to the assets,

· if the sale is infrequent (even if its value is significant),

· if the value of the sale is insignificant (even if the sale is frequent),

· if the assets are sold to improve liquidity in a stress case scenario,

· if the sale is required by third parties (it applies to the assets which have to be sold owing to e.g. the requirements of supervisory authorities, but were originally held to collect contractual cash flows),

· if the sale results from exceeding the concentration limits specified in internal procedures and is a part of the credit risk management policy,

· if the sale is made close to the maturity date of the financial assets and the proceeds from the sale are approximations of the contractual cash flows that Santander Bank Polska S.A. Group would have collected if it had held the assets until their maturity date.

Other forms of the sale of assets as part of the business model whose objective is to hold assets in order to collect contractual cash flows (e.g. frequent sales of significant value) result in the need to change the business model and reclassify the financial assets which were originally allocated to that model.

Business model types

The analysis of qualitative and quantitative criteria makes it possible to identify three basic business models applied in the operations of Santander Bank Polska S.A. Group:

· the business model whose objective is to hold assets in order to collect contractual cash flows (hold to collect),

· the business model whose objective is achieved by both collecting contractual cash flows and selling financial assets (hold to collect and sell),

· the other/ residual business model (the business model whose objective is achieved by selling assets).

Presented below are characteristics of all business models, with an indication of the financial instruments assigned to each.

A business model whose objective is to hold assets in order to collect contractual cash flows

Financial assets that are held within a business model whose objective is to hold assets in order to collect contractual cash flows are managed to realise cash flows by collecting contractual payments over the whole life of the instrument. That is, Santander Bank Polska S.A. Group manages the assets held within the portfolio to collect those particular contractual cash flows (instead of managing the overall return on the portfolio by both holding and selling assets). In determining whether cash flows are going to be realised by collecting the financial assets' contractual cash flows, it is necessary to consider the frequency, value and timing of sales in prior periods, the reasons for those sales and expectations about future sales activity. However, sales in themselves do not determine the business model and therefore cannot be considered in isolation. Instead, information about past sales and expectations about future sales provide evidence related to how Santander Bank Polska S.A. Group’s stated objective for managing the financial assets is achieved and, specifically, how cash flows are realised. Santander Bank Polska S.A. Group each time considers information about past sales within the context of the reasons for those sales and the conditions that existed at that time as compared to current conditions. Although the objective of the business model may be to hold financial assets in order to collect contractual cash flows, Santander Bank Polska S.A. Group needs not hold all of those instruments until maturity. Thus, Santander Bank Polska S.A. Group’s business model can be to hold financial assets to collect contractual cash flows even when sales of financial assets occur or are expected to occur in the future.

A business model whose objective is to hold assets in order to collect contractual cash flows spans the entire spectrum of credit activity, including but not limited to corporate loans, mortgage and consumer loans, credit cards, loans granted and debt instruments (e.g. treasury bonds, corporate bonds), which are not held for liquidity management purposes. Financial assets on account of trading settlements are substantially also recognised under this model. Such assets are recognised in the books of Santander Bank Polska S.A. Group on the basis of an invoice issued payable within maximum one year.

A business model whose objective is achieved by both collecting contractual cash flows and selling financial assets

Santander Bank Polska S.A. Group may hold financial assets in a business model whose objective is achieved both by collecting contractual cash flows and by selling financial assets. In this type of business model, the key management personnel of Santander Bank Polska S.A. Group decided that both collecting contractual cash flows and selling financial assets are integral to achieving the business model’s objective. There are various objectives that may be consistent with this type of business model. For example, the objective of the business model may be to manage everyday liquidity needs, to maintain a particular interest yield profile or to match the duration of the financial assets to the duration of the liabilities that those assets are funding. To achieve such an objective, Santander Bank Polska S.A. Group will both collect contractual cash flows and sell financial assets.

Compared to a business model whose objective is to hold financial assets to collect contractual cash flows, this business model will typically involve greater frequency and value of sales. This is because selling financial assets is integral to achieving the business model's objective instead of being only incidental to it. However, there is no specific frequency or sales value threshold that must be achieved in this business model as collecting contractual cash flows and selling financial assets are both integral to achieving the model's objective.

A business model whose objective is achieved by both collecting contractual cash flows and selling financial assets includes:

· financial assets acquired for the purpose of liquidity management, such as State Treasury bonds or NBP bond and

· loans and advances subject to underwriting, i.e. portion of credit exposures that are planned to be sold before maturity for reasons other than increase in credit risk.

Other/ residual business model

Financial assets are measured at fair value through profit or loss if they are not held within a business model whose objective is to hold assets to collect contractual cash flows or within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets. A business model that results in measurement at fair value through profit or loss is one in which Santander Bank Polska S.A. Group manages the financial assets with the objective of realising cash flows through the sale of the assets. Santander Bank Polska S.A. Group makes decisions based on the assets' fair values and manages the assets to realise those fair values. In this case, Santander Bank Polska S.A. Group’s objective will typically result in active buying and selling. Even though Santander Bank Polska S.A. Group will collect contractual cash flows while it holds the financial assets, the objective of such a business model is not achieved by both collecting contractual cash flows and selling financial assets. This is because the collection of contractual cash flows is not integral to achieving the business model's objective; instead, it is incidental to it.

Other, residual, model is used for classifying assets held by Santander Bank Polska S.A. Group but not covered by the first or second category of the business model. They include assets from the “held for trading” category in the financial statements, such as listed equity instruments, commercial bonds acquired for trading purposes and derivatives (e.g. options, IRS, FRA, CIRS, FX Swap contracts) which are not embedded derivatives.

The business model whose objective is to hold assets in order to collect contractual cash flows is the most frequent business model in Santander Bank Polska S.A. Group except in the case of:

· debt instruments measured at fair value through other comprehensive income that are maintained in the ALM segment and credits and loans covered by underwriting process described above; those instruments are subject to the business model whose objective is achieved by both collecting contractual cash flows and selling financial assets,

· instruments held for trading, including debt instruments and derivative instruments which are not subject to hedge accounting; those instruments are covered by the other/ residual business model.

Changing the business model

Santander Bank Polska S.A. Group reclassifies all affected financial assets when, and only when, it changes its business model for managing financial assets. Such changes are expected to be very infrequent. They are determined by the senior management of Santander Bank Polska S.A. Group as a result of external or internal changes and must be significant to the Santander Bank S.A. Polska Group’s operations and demonstrable to external parties. Accordingly, a change in the business model of Santander Bank Polska S.A. Group will occur only when Santander Bank Polska S.A. Group either begins or ceases to perform an activity that is significant to its operations (for example, when a business line has been acquired, disposed of or terminated).

The objective of the business model of Santander Bank Polska S.A. Group is changed before the reclassification date.

The following are not changes in business model:

· a change in intention related to particular financial assets (even in circumstances of significant changes in market conditions),

· the temporary disappearance of a particular market for financial assets,

· a transfer of financial assets between segments of Santander Bank Polska S.A. Group with different business models.

If Santander Bank Polska S.A. Group reclassifies a financial asset, it applies the reclassification prospectively from the reclassification date.

If Santander Bank Polska S.A. Group reclassifies a financial asset out of the amortised cost measurement category and into the fair value through profit or loss measurement category, its fair value is established at the reclassification date. Any gain or loss arising from a difference between the previous amortised cost of the financial asset and fair value is recognised in profit or loss.

Characteristics of contractual cash flows

Santander Bank Polska S.A. Group classifies financial assets on the basis of the contractual cash flow characteristics of the financial asset if that asset is held within a business model:

· whose objective is to hold assets to collect contractual cash flows or

· whose objective is achieved by both collecting contractual cash flows and selling financial assets unless Santander Bank Polska S.A. Group has designated that financial asset to be measured at fair value through profit or loss.

For this purpose, Santander Bank Polska S.A. Group determines if the contractual cash flows generated by the asset in question are solely payments of principal and interest on the principal amount outstanding.

Principal is the fair value of the financial asset at initial recognition. However, that principal amount may change over the life of the financial asset (for example, if there are repayments of principal).

Interest should include the consideration for:

· the time value of money,

· credit risk associated with the outstanding principal amount,

· other basic lending risks and costs,

· and a profit margin.

The time value of money is the element of interest that provides consideration for only the passage of time. That is, the time value of money element does not provide consideration for other risks or costs associated with holding the financial asset. In order to assess whether the element provides consideration for only the passage of time, Santander Bank Polska S.A. Group applies its own judgement and considers relevant factors such as the currency in which the financial asset is denominated and the period for which the interest rate is set.

Credit risk is defined as the risk that one party to a financial instrument will cause a financial loss for Santander Bank Polska S.A. Group by failing to discharge an obligation. In other words, credit risk refers to the possibility of the Customer’s failure to repay the principal and interest due within the contractual deadline.

Other basic lending risks and costs include for example administration costs related to the analysis of the credit application, assessment of the customer’s repayment capacity, monitoring of the customer’s economic and financial standing, etc.

Financial instruments which do not meet the requirements of contractual cash flow characteristics are valued with fair value through profit and loss, include:

· credit card portfolios whose interest rates are set on the basis of principles applicable in Santander Bank Polska S.A. Group until 1 August 2016;

· instruments providing for participation of Santander Bank Polska S.A. Group in the customer’s profit or loss; and

· other instruments whose contractual cash flows do not meet the definition of interest due to the lack of an economic relationship between the amount of interest accrued and the amount of interest payable to Santander Bank Polska S.A. Group.

Classification of financial liabilities

Santander Bank Polska S.A. Group classifies all financial liabilities as subsequently measured at amortised cost, except for:

· financial liabilities measured at fair value through profit or loss. Such liabilities, including derivatives that are liabilities, shall be subsequently measured at fair value.

· financial liabilities that arise when a transfer of a financial asset does not qualify for derecognition or when the continuing involvement approach applies;

· financial guarantee contracts. After initial recognition , the issuer shall measure contract at the higher of:

(1) amount of the expected credit loss allowance,

(2) initial recognised amount, less respective cumulated income recognised as per IFRS 15;

· commitments to provide a loan at a below-market interest rate. If the liability is not measured at fair value through profit or loss, the issuer shall subsequently measure it at the higher of:

(1) amount of the expected credit loss allowance,

(2) initial recognised amount, less respective cumulated income recognised as per IFRS 15;

· contingent consideration recognised by the acquire under the business combination arrangement governed by IFRS 3. Such contingent consideration shall subsequently be measured at fair value with changes recognised in profit or loss.

Upon initial recognition of the liability, Santander Bank Polska S.A. Group may irrevocably classify such item as the one measured at fair value through profit or loss if such an accounting method provides a better view of the accounts, because:

· it eliminates or largely prevents the accounting mismatch that would arise if assets or liabilities or related profit or loss were recognised under different accounting methods, or

· a group of financial liabilities or financial assets and liabilities is managed and measured at fair value as per the documented strategy for risk management and investments, and information about these items are provided to key management personnel within the Santander Bank Polska S.A. Group (as per the definition specified in IAS 24 Related Party Disclosures).

Embedded derivatives

An embedded derivative is a component of a hybrid contract that also includes a non-derivative host—with the effect that some of the cash flows of the combined instrument vary in a way similar to a stand-alone derivative. An embedded derivative causes some or all of the cash flows that otherwise would be required by the contract to be modified according to a specified interest rate, financial instrument price, commodity price, foreign exchange rate, index of prices or rates, credit rating or credit index, or other variable, provided in the case of a non-financial variable that the variable is not specific to a party to the contract. A derivative that is attached to a financial instrument but is contractually transferable independently of that instrument, or has a different counterparty, is not an embedded derivative, but a separate financial instrument.

For financial assets, that meet the definition of hybrid contracts with an embedded derivative, a derivative that is a component of such a contract is not separated from the host contract which is not a derivative, the entire contract is assessed in terms of the contractual cash flow characteristics.

Measurement of financial assets and financial liabilities

Initial measurement

At initial recognition, Santander Bank Polska S.A. Group measures a financial asset or financial liability at its fair value plus or minus, in the case of a financial asset or financial liability not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition or issue of the financial asset or financial liability.

However, if the fair value of the financial asset or financial liability at initial recognition differs from the transaction price, Santander Bank Polska S.A. Group recognises this instrument on that date as follows:

· when the fair value is evidenced by a quoted price in an active market for an identical asset or liability (i.e. a Level 1 input) or based on a valuation technique that uses only data from observable markets, then Santander Bank Polska S.A. Group recognises the difference between the transaction price and the fair value at initial recognition as a gain or loss.

· in all other cases, at the measurement adjusted to defer the difference between the fair value at initial recognition and the transaction price. After initial recognition, Santander Bank Polska S.A. Group recognises that deferred difference as a gain or loss only to the extent that it arises from a change in a factor (including time) that market participants would take into account when pricing the asset or liability.

At initial recognition, Santander Bank Polska S.A. Group shall measure trade receivables that do not have a significant financing component (determined in accordance with IFRS 15) at their transaction price (as defined in IFRS 15).

Subsequent measurement of financial assets

After initial recognition, Santander Bank Polska S.A. Group recognises a financial asset:

· at amortised cost, or

· fair value through other comprehensive income, or

· at fair value through profit or loss.

Allowances for expected credit losses are not calculated for financial assets measured at fair value through profit or loss.

Subsequent measurement of financial liabilities

After initial recognition, Santander Bank Polska S.A. Group recognises a financial liability:

· at amortised cost, or

· at fair value through profit or loss.

Liabilities measured at amortised costs include: deposits from banks, deposits from customers, liabilities due to repo transactions, loans and advances obtained, issued debt instruments and subordinated liabilities.

Liabilities are recognised as subordinated liabilities which in the event of liquidation or bankruptcy of Santander Bank Polska S.A. Group are repaid after satisfaction of claims of all other Santander Bank Polska S.A. Group’s creditors. Financial liabilities are classified as subordinated liabilities by the decision of the Polish Financial Supervision Authority issued at the request of Santander Bank Polska S.A. Group.

Amortised cost measurement

Financial assets

Effective interest method

Interest revenue is calculated by applying the effective interest rate to the gross carrying amount of financial assets, except for credit-impaired financial assets. At the time a financial asset or a group of similar financial assets is reclassified to stage 3, interest revenue is calculated on the basis of a net value of a financial asset and presented at the interest rate used for the purpose of discounting the future cash flows for the purpose of measurement of impairment.

This does not apply to POCI assets, in the case of which the interest revenue is calculated on the basis of the net carrying amount, applying the effective interest rate adjusted for credit risk over the lifetime of the asset. The credit-adjusted effective interest rate is calculated by taking into account the future cash flows adjusted for the effect of credit risk over the lifetime of the asset.

The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument to the net carrying amount of the financial asset or financial liability. When calculating the effective interest rate, Santander Bank Polska S.A. Group shall estimate cash flows considering all contractual terms of the financial instrument (for example, prepayment, call and similar options) but does not consider future credit losses.

The calculation includes paid and received fees (e.g. arrangement and grant of loan, arrangement of loan tranche, prolongation of loan, renewal of loan restructure fees and fees for annexes which modify payments) transaction costs and all other premiums or discounts.

Costs that can be directly related to the sales of loan products are partially accounted for in interest income using the effective interest method, if there is a possibility of direct allocation to the specific loan agreement, and partly recognised in the fee income, at the moment of realisation, if there is no possibility of direct allocation to the specific loan agreement.

Credit-adjusted effective interest rate is the rate that exactly discounts the estimated future cash payments or receipts through the expected life of the financial asset to the amortised cost of a financial asset that is a purchased or originated credit-impaired financial asset. When calculating the credit-adjusted effective interest rate, Santander Bank Polska S.A. Group estimates the expected cash flows by considering all contractual terms of the financial asset (for example, prepayment, extension, call and similar options) and expected credit losses. The calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs, and all other premiums or discounts. There is a presumption that the cash flows and the expected life of a group of similar financial instruments can be estimated reliably. However, in those rare cases when it is not possible to reliably estimate the cash flows or the remaining life of a financial instrument (or group of financial instruments), Santander Bank Polska S.A. Group uses the contractual cash flows over the full contractual term of the financial instrument (or group of financial instruments).

The gross carrying amount of a financial asset is its amortised cost, before adjusting for any expected credit loss allowances.

Purchased or originated credit-impaired assets (POCI)

Santander Bank Polska S.A Group distinguished the category of purchased or originated credit-risk assets . POCI are assets that are credit-impaired on initial recognition. Financial asset that were classified as POCI at initial recognition should be treated as POCI in all subsequent periods until they are derecognized.

At initial recognition, POCI assets are recognized at their fair value. After initial recognition POCI assets are measured at amortized costs.

Valuation of POCI assets is based on the effective interest rate adjusted for the effect of credit risk .

For POCI assets (purchased or originated credit impaired) expected credit losses are recognised over the lifetime of the asset.

Modification of contractual cash flows

The concept of modification

Changes to the contractual cash flows in respect of the financial asset are regarded by Santander Bank Polska S.A. Group as modification if made in the form of an annex. Changes to the contractual cash flows arising from performance of the contractual obligations are not considered to be a modification.

If the terms of the financial asset agreement change, the Santander Bank Polska S.A. Group assesses whether the cash flows generated by the modified asset differ significantly from cash flows generated by financial asset before modification of the terms of the asset agreement.

Modification criteria

When assessing whether a modification is substantial or minor, Santander Bank Polska S.A. Group takes into account both quantitative and qualitative criteria. Both criteria groups are each time analyzed together.

COVID-19 debt moratorium itself is not a trigger for significant modification and financial instrument derecognition. Deferral or suspension of installments repayments under assistance programs were evaluated according to existing in Group qualitative and quantitative criteria.

Quantitative criteria

To determine the significance of the impact of modifications, the so-called "10% test" is carried out which is based on a comparison of discounted cash flows of the modified financial instrument (using the original effective interest rate) with discounted (also with the original effective interest rate) cash flows of the financial instrument before modification, whose value should correspond to the value of undue capital, increased by the value of undue interest and adjusted for the amount of unsettled commission.

Qualitative criteria

During the qualitative analysis, Santander Bank Polska S.A. Group takes into account the following aspects:

· adding / removing a feature that violates the contractual cash flow test result,

· currency conversion - except for currency conversions resulting from the transfer of the contract for collection,

· change of the main debtor - change of the contractor results in a significant modification of contractual terms and

· consolidation of several exposures into one under an annex.

Substantial modification

Identification of substantial modification resulting in the exclusion of a financial instrument from the statement of financial position is based on qualitative and quantitative criteria described above.

In addition, a substantial modification occurs when the cash flows of the modified financial instrument are "materially different" from the original financial instrument, i.e. when the difference between discounted cash flows of the modified financial instrument (using the original effective interest rate) and the discounted (also with the original effective interest rate), cash flows of the financial instrument before the modification, is higher than 10%.

If the modification of a financial asset results in derecognition of the existing financial asset and recognition of the modified financial asset, the modified asset is considered as a "new" financial asset. The new asset is recognized at fair value and the new effective interest rate applied to the new asset is calculated.

Minor modification

If neither the qualitative criteria, not the quantitative are met, the modification is regarded by Santander Bank Polska S.A. Group as insignificant.

When the contractual cash flows of a financial asset are renegotiated or otherwise modified and the renegotiation or modification does not result in the derecognition of that financial asset in accordance with this policy, Santander Bank Polska S.A. Group recalculates the gross carrying amount of the financial asset and shall recognise a modification gain or loss in profit or loss. The gross carrying amount of the financial asset shall be recalculated as the present value of the renegotiated or modified contractual cash flows that are discounted at the financial asset's original effective interest rate (or credit-adjusted effective interest rate for purchased or originated

credit-impaired financial assets). Any costs or fees incurred adjust the carrying amount of the modified financial asset and are amortised over the remaining term of the modified financial asset. Change in gross carrying amount is amortised into interest income/cost using effective interest rate method.

Write-off

Santander Bank Polska S.A. Group directly reduces the gross carrying amount of a financial asset when the entity has no reasonable expectations of recovering a financial asset in its entirety or a portion thereof. A write-off constitutes a derecognition event. Financial asset can be written off partially or in its entirety.

Santander Bank Polska S.A. Group writes off financial assets if at least one of the following conditions apply:

· Santander Bank Polska S.A. Group has documented the irrecoverability of the debt ;

· there are no reasonable expectations of recovering the financial asset in full or in part;

· the debt is due and payable in its entirety and the value of the credit loss allowance corresponds to the gross value of the exposure, while the expected debt recovery proceeds are nil;

· the asset originated as a result of a crime and the perpetrators have not been identified or

· Santander Bank Polska S.A. Group has received:

· a decision on discontinuation of debt enforcement proceedings due to irrecoverability of the debt (in relation to all obligors), issued by a relevant enforcement authority pursuant to Article 824 § 1 (3) of the Polish Code of Civil Procedure, which is recognised by the creditor (Santander Bank Polska S.A. Group) as corresponding to the facts; or

· a court decision:

- dismissing a bankruptcy petition, if the insolvent debtor's assets are insufficient to cover the cost of the proceedings or suffice to cover this cost only; or

- discontinuing the bankruptcy proceedings or

- closing the bankruptcy proceedings.

Financial assets written off are then recorded off balance sheet.

Impairment

General approach

Santander Bank Polska S.A. Group recognises allowances for expected credit losses on a financial asset in respect of:

· financial assets measured at amortised cost or at fair value through other comprehensive income;

· lease receivables;

· contract assets, i.e. the consideration to which Santander Bank Polska S.A. Group is entitled in exchange for the goods or services transferred to the customer in accordance with IFRS 15 Revenue from Contracts with Customers;

· loan commitments and

· off-balance sheet credit liabilities and financial guarantees.

Santander Bank Polska S.A. Group applies the impairment requirements for the recognition and measurement of a loss allowance for financial assets that are measured at fair value through other comprehensive income. However, the loss allowance is recognised in the profit or loss account and does not reduce the carrying amount of the financial asset in the statement of financial position.

At each reporting date, Santander Bank Polska S.A. Group measures the loss allowance for a financial instrument at an amount equal to the lifetime expected credit losses if the credit risk on that financial instrument has increased significantly since initial recognition.

The objective of the impairment requirements is to recognise lifetime expected credit losses for all financial instruments for which there have been significant increases in credit risk since initial recognition — whether assessed on an individual or collective basis — considering all reasonable and supportable information, including that which is forward-looking.

If, at the reporting date, the credit risk on a financial instrument has not increased significantly since initial recognition, Santander Bank Polska S.A. Group measures the loss allowance for that financial instrument at an amount equal to 12-month expected credit losses.

For loan commitments and financial guarantee contracts, the date that Santander Bank Polska S.A. Group becomes a party to the irrevocable commitment shall be considered to be the date of initial recognition for the purposes of applying the impairment requirements.

If Santander Bank Polska S.A. Group has measured the loss allowance for a financial instrument at an amount equal to lifetime expected credit losses in the previous reporting period, but determined at the current reporting date that the credit risk for that financial instrument has declined, Santander Bank Polska S.A. Group measures the loss allowance at an amount equal to 12-month expected credit losses at the current reporting date.

Santander Bank Polska S.A. Group recognises in profit or loss, as an impairment gain or loss, the amount of expected credit losses that is required to adjust the loss allowance at the reporting date to the amount that is required to be recognised.

Santander Bank Polska S.A. Group charges interest on exposures classified in Stage 3 on the net exposure value .

Simplified approach for trade receivables and contract assets

In the case of trade receivables and contract assets, Santander Bank Polska S.A.Group always measures the loss allowance at an amount equal to lifetime expected credit losses for trade receivables or contract assets that result from transactions that are within the scope of IFRS 15, and that do not contain a significant financing component.

Purchased or originated credit-impaired financial assets (POCI assets)

At the reporting date, Santander Bank Polska S.A. Group recognises only the changes in lifetime expected credit losses as a loss allowance for purchased or originated credit-impaired financial assets.

Interest revenue on POCI assets is calculated on the basis of the net carrying amount, applying the effective interest rate adjusted for credit risk over the lifetime of the asset. The credit-adjusted effective interest rate is calculated by taking into account the future cash flows adjusted for the effect of credit risk over the lifetime of the asset.

At each reporting date, Santander Bank Polska S.A. Group recognises in profit or loss the amount of the change in lifetime expected credit losses as an impairment gain or loss. Santander Bank Polska S.A. Group recognises favourable changes in lifetime expected credit losses as an impairment gain, even if the lifetime expected credit losses are less than the amount of expected credit losses that were included in the estimated cash flows on initial recognition.

Contingent liabilities

Santander Bank Polska S.A. Group creates provisions for impairment risk-bearing irrevocable contingent liabilities (irrevocable credit lines, financial guarantees, letters of credit, etc.). The value of the provision is determined as the difference between the estimated amount of available contingent exposure set using the Credit Conversion Factor (CCF) and the current value of expected future cash flows under this exposure.

Santander Bank Polska S.A. Group raises provisions for off-balance sheet liabilities subject to credit risk, broken down into 3 stages.

Gains and losses

A gain or loss on a financial asset or liability measured at fair value is recognised in profit or loss unless the asset or liability is:

· a part of a hedging relationship,

· an investment into an equity instrument and Santander Bank Polska S.A. Group has decided to present gains and losses on that investment in other comprehensive income,

· a financial liability designated as measured at fair value through profit or loss and Santander Bank Polska S.A. Group is required to present the effects of changes in the liability's credit risk in other comprehensive income; or

· is a financial asset measured at fair value through other comprehensive income and Santander Bank Polska S.A. Group is required to recognise some changes in fair value in other comprehensive income.

Dividends are recognised in profit or loss only if:

· the right of Santander Bank Polska S.A. Group to receive payment of the dividend is established,

· it is probable that the economic benefits associated with the dividend will flow to Santander Bank Polska S.A. Group, and

· the amount of the dividend can be measured reliably.

A gain or loss on a financial asset that is measured at amortised cost and is not part of a hedging relationship is recognised in profit or loss through the amortisation process or in order to recognise impairment gains or losses. A gain or loss on a financial liability that is measured at amortised cost and is not part of a hedging relationship is recognised in profit or loss when the financial liability is derecognised and through the amortisation process.

With regard to the financial assets recognised by Santander Bank Polska S.A. Group at the settlement date, any change in the fair value of the asset to be received during the period between the trade date and the settlement date is not recognised for assets measured at

amortised cost. For assets measured at fair value, however, the change in fair value is recognised in profit or loss or in other comprehensive income. The trade date means the date of initial recognition for the purposes of applying the impairment requirements.

Investments in equity instruments

Investments in equity instruments are measured at fair value through profit or loss unless at their initial recognition Santander Bank Polska S.A. Group makes an irrevocable election to present in other comprehensive income subsequent changes in the fair value of an investment in an equity instrument within the scope of this policy that is neither held for trading nor contingent consideration recognised by an acquirer in a business combination to which IFRS 3 applies.

If Santander Bank Polska S.A. Group has elected to measure equity instruments at fair value through other comprehensive income , dividends from that investment are recognised in profit or loss.

Liabilities designated as measured at fair value through profit or loss

Santander Bank Polska S.A. Group presents a gain or loss on a financial liability that is designated as measured at fair value through profit or loss as follows:

· the amount of change in the fair value of the financial liability that is attributable to changes in the credit risk of that liability is presented in other comprehensive income, and

· the remaining amount of change in the fair value of the liability is presented in profit or loss unless the treatment of the effects of changes in the liability's credit risk described in (a) would create or enlarge an accounting mismatch in the profit or loss of Santander Bank Polska S.A. Group.

If the requirements specified above would create or enlarge an accounting mismatch in the profit or loss of Santander Bank Polska S.A. Group, Santander Bank Polska S.A. Group presents all gains or losses on that liability (including the effects of changes in the credit risk of that liability) in profit or loss.

Santander Bank Polska S.A. Group presents in profit or loss all gains and losses on loan commitments and financial guarantee contracts that are designated as measured at fair value through profit or loss.

Assets measured at fair value through other comprehensive income

A gain or loss on a financial asset measured at fair value through other comprehensive income is recognised in other comprehensive income, except for impairment gains or losses and foreign exchange gains and losses, until the financial asset is derecognized. If the financial asset is derecognised , Santander Bank Polska S.A. Group accounts for the cumulative gain or loss that was previously recognised in other comprehensive income in profit or loss. Interest calculated using the effective interest method is recognised in profit or loss.

Financial instruments held for trading

A financial asset or financial liability is classified by Santander Bank Polska S.A. Group as held for trading if:

· it has been acquired or incurred principally for the purpose of selling or repurchasing in the near term,

· on initial recognition it is a part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of short-term profit-taking; or

· it is a derivative (except for a derivative that is a financial guarantee contract or a designated and effective hedging instrument).

Derivative financial instruments are recognised at fair value without any deduction for transactions costs to be incurred on sale. The best evidence of the fair value of a financial instrument at initial recognition is the transaction price i.e. the fair value of the consideration given or received.

If a hybrid contract contains a host contract that is not an asset within the scope of this IFRS 9, Santander Bank Polska S.A. Group separates the embedded derivative from the host contract and accounts for it as other derivatives if the economic characteristics and risks of the embedded derivative are not closely related to the economic characteristics and risks of the host contract and the host contract is not carried at fair value through profit or loss. Embedded derivatives are measured at fair value with changes recognised in the profit and loss account.

Santander Bank Polska S.A. Group uses derivative financial instruments to hedge its exposure to FX risk and interest rate risk arising from Santander Bank Polska S.A. Group’s operations. The derivatives that do not qualify for hedge accounting are accounted for as instruments held for trading and recognised at fair value.

Hedge accounting

Pursuant to paragraph 7.2.21 of IFRS 9, Santander Bank Polska S.A. Group chose to continue to apply the hedge accounting requirements and hedging relationships arising from IAS 39.

Hedge accounting recognises the offsetting effects on the income statement of changes in the fair values of the hedging instrument and the hedged item. At the inception of the hedge there is formal designation and documentation of the hedging relationship and risk management objective and strategy for undertaking the hedge. The documentation includes identification of the hedging instrument, the hedged item or transaction and the nature of the risk being hedged. The Santander Bank Polska S.A. Group also documents, at inception and on ongoing basis, an assessment of the hedging instrument's effectiveness in offsetting the exposure to changes in the fair value of the hedged item.

The Santander Bank Polska S.A. Group uses derivative financial instruments among others to hedge its exposure to interest rate risks arising from Santander Bank Polska S.A. Group operational, financing and investment activities.

The Santander Bank Polska S.A. Group discontinues hedge accounting when:

· it is determined that a derivative is not, or has ceased to be, highly effective as a hedge;

· the derivative expires, or is sold, terminated, or exercised;

· the hedged item matures or is sold, or repaid,

· the hedging relationship ceases.

Fair value hedge

This is a hedge of the exposure to changes in fair value of a recognised asset or liability or an unrecognised commitment, or an identified portion of such an asset, liability that is attributable to a particular risk and could affect the income statement.

A fair value hedge is accounted for as follows: the gain or loss from remeasuring the hedging instrument at fair value (for a derivative hedging instrument) shall be recognised in profit or loss; and the gain or loss on the hedged item attributable to the hedged risk shall adjust the carrying amount of the hedged item and be recognised in profit or loss. This rule applies if the hedged item is otherwise measured at amortised cost or is a financial asset measured at fair value through other comprehensive income.

Cash flow hedge

This is a hedge of the exposure to variability in cash flows that:

1. is attributable to a particular risk associated with a recognised asset or liability (such as all or some future interest payments on variable rate debt) or a highly probable forecast transaction; and

2. could affect profit and losses.

A cash flow hedge is accounted for as follows: the portion of the gain or loss on the hedging instrument that is determined to be an effective hedge shall be recognised directly in other comprehensive income and the ineffective portion of the gain or loss on the hedging instrument shall be recognised in income statement.

Interest income and expenses on hedged and hedging instruments are recognised as net interest income.

Amounts recognised in ‘Other comprehensive income’ are reclassified to profit or loss during the period of time in which the hedged item affects the income statement.

If the hedging instrument expires or is sold or the hedge accounting relationship is terminated, Santander Bank Polska S.A. Group discontinues hedge accounting. All profits or losses on the hedging instrument pertaining to the effective hedge recognised in other comprehensive income remains an element of equity until the forecast transaction occurs, when it is recognised in income statement.

If the transaction is no longer expected to occur, the cumulative gain or loss relating to the hedging instrument recognised in other comprehensive income is reclassified to profit or loss.

Repurchase and reverse repurchase transactions

The Santander Bank Polska S.A. Group also generates/invests funds by selling/purchasing financial instruments under repurchase/reverse repurchase agreements whereby the instruments must be repurchased/resold at the previously agreed price.

Securities sold subject to repurchase agreements (“repo and sell-buy-back transaction”) are not derecognised from the statement of financial position at the end of the reporting period. The difference between sale and repurchase price is treated as interest cost and accrued over the life of the agreement.

Securities purchased subject to resale agreements (“reverse repo and buy-sell-back transactions”) are not recognised in the statement of financial position at the end of the reporting period. The difference between purchase and resale price is treated as interest income and accrued over the life of the agreement.

The principles described above are also applied by Santander Bank Polska S.A Group to transaction concluded as separate transaction of sale and repurchase of financial instruments but having the economic nature of repurchased and reverse repurchase transactions.

Property, plant and equipment

Owned fixed assets

Property, plant and equipment including those under operating leases, are stated at cost or deemed cost less accumulated depreciation and impairment losses.

Leased assets

Cost model

The Santander Bank Polska S.A Group as a lessee shall measure the right-of-use asset at cost:

a) less any accumulated depreciation and any accumulated impairment losses; and

b) adjusted for any remeasurement of the lease liability

Subsequent expenditure

Santander Bank Polska S.A. Group recognises in the carrying amount of property, plant and equipment the cost of replacing part of such an asset when that cost is incurred if it is probable that the future economic benefits embodied with the item will flow to Santander Bank Polska S.A. Group and the cost of the item can be measured reliably. All other costs are recognised in the income statement as an expense as incurred.

Depreciation

Depreciation is charged to the income statement on a straight-line basis over the estimated economic useful lives of each part of an item of property, plant and equipment.

The estimated economic useful lives are as follows:

· buildings: 22-40 years

· IT equipment: 3-5 years

· transportation means: 3-4 years

· other fixed assets: 3-14 years.

Right-of-use assets are depreciated on a straight basis overt the assets’s useful life.

Depreciation rates are verified annually. On the basis of this verification, depreciation periods might be changed.

Goodwill and Intangible assets

Goodwill

Goodwill as of the acquisition date measured as the excess of the consideration transferred over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities, contingent liabilities less impairment. Goodwill value is tested for impairment annually.

Licences, patents, concessions and similar assets

Acquired computer software licences are recognized on the basis of the costs incurred to acquire and bring to use the specific software.

Expenditures that are directly associated with the production of identifiable and unique software products controlled by Santander Bank Polska S.A. Group, and that will probably generate economic benefits exceeding expenditures beyond one year, are recognised as intangible assets.

Development costs

Santander Bank Polska S.A. Group capitalises direct costs and a justified part of indirect costs related to the design, construction and testing of a chosen alternative for new or improved processes, systems or services.

Santander Bank Polska S.A. Group recognises the development costs as intangible assets based on the future economic benefits and fulfilment of conditions specified in IAS 38, i.e.: Santander Bank Polska S.A. Group:

· has the ability and intention to complete and use the asset that is being generated,

· has the adequate technical and financial measures to complete the works and use the asset that is being generated and

· can reliably measure the amount of expenditure incurred during the development works that can be allocated to the generated intangible asset.

The economic life of development costs is definite. The amortisation rates are adjusted to the length of the economic life. Santander Bank Polska S.A. Group indicates separately the costs from internal development .

Development expenditure comprises all expenditure that is directly attributable to development activities.

Other intangible assets

Other intangible assets that are acquired by Santander Bank Polska S.A. Group are stated at cost less accumulated amortisation and total impairment losses.

Expenditure on intangible assets

Subsequent expenditure on capitalised intangible assets is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure is expensed in the income statement as incurred.

Amortisation

Amortisation is charged to the income statement on a straight-line or degressive method (for intangible assets resulting from business combinations) over the estimated economic useful lives of intangible assets, which for the majority of intangibles equals to three years.

Amortisation rates are verified annually. On the basis of this verification, amortisation periods might be changed.

Leasing

Separating elements of the leasing contract

Lessee

Santander Bank Polska S.A. Group (the lessee) does not separate non-lease components from lease components, and instead accounts for each lease component and any associated non-lease components as a single lease component for each underlying asset class where it is not possible and where the share of non-lease components is not significant compared to total net lease payments.

Lessor

For a contract that contains a lease component and one or more additional lease or non-lease components, Santander Bank Polska S.A. Group (the lessor) allocates the consideration in the contract applying the provisions of the accounting policy in respect of revenue from contracts with customers.

Lease term

Santander Bank Polska S.A. Group determines the lease term as the non-cancellable period of a lease, together with both:

· periods covered by an option to extend the lease if the Santander Bank Polska S.A. Group (the lessee) is reasonably certain to exercise that option; and

· periods covered by an option to terminate the lease if the Santander Bank Polska S.A. Group (the lessee) is reasonably certain not to exercise that option.

The lease term is updated upon the occurrence of either a significant event or a significant change in circumstances.

Santander Bank Polska Group as the lessee

Recognition

At the commencement date, Santander Bank Polska Group (the lessee) recognises a right-of-use asset and a lease liability.

Initial measurement of the right-of-use asset

At the commencement date, Santander Bank Polska Group (the lessee) measures the right-of-use asset at cost.

The cost of the right-of-use asset comprises:

· 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 Santander Bank Polska Group (the lessee); and

· an estimate of costs to be incurred by Santander Bank Polska Group (the lessee) in dismantling and removing the underlying asset, restoring the site on which it is located or restoring the underlying asset to the condition required by the terms and conditions of the lease.

Initial measurement of the lease liability

At the commencement date, Santander Bank Polska Group (the lessee) measures the lease liability at the present value of the lease payments that are not paid at that date. The lease payments are discounted using the interest rate implicit in the lease, if that rate can be readily determined. Otherwise, the Santander Bank Polska S.A. Group (the lessee) uses its incremental borrowing rate.

At the commencement date, the lease payments included in the measurement of the lease liability comprise the following payments for the right to use the underlying asset during the lease term that are not paid at the commencement date:

· net fixed payments (including in-substance fixed payments), less any lease incentives;

· net variable lease payments that depend on an index or a rate;

· net amounts expected to be payable by the lessee under residual value guarantees;

· net exercise price of a purchase option if the lessee is reasonably certain to exercise that option; and

· payments of net penalties for terminating the lease, if the lease term reflects that Santander Bank Polska Group (the lessee) may exercise an option to terminate the lease.

Lease modifications

Santander Bank Polska Group (the lessee) accounts for a lease modification as a separate lease if :

· the modification increases the scope of the lease by adding the right to use one or more underlying assets; and

· the consideration for the lease increases by an amount commensurate with the stand-alone price for the increase in scope and any appropriate adjustments to that stand-alone price to reflect the circumstances of the particular contract.

For a lease modification that is not accounted for as a separate lease, at the effective date of the lease modification Santander Bank Polska Group (the lessee):

· does not allocate the consideration in the modified contract;

· determines the lease term of the modified lease; and

· remeasures the lease liability by discounting the revised lease payments using a revised discount rate.

Recognition exemptions

Santander Bank Polska Group (the lessee) does not apply the recognition and measurement requirements arising from the accounting policy to:

· leases that have a leasing period of no more than 12 months at the start date; and

· leases for which the underlying asset is of low value (i.e. if the net value of a new asset is lower or equal to PLN 20,000).

In the case of short-term leases or leases for which the underlying asset is of low value, the Santander Bank Polska S.A. Group (the lessee) recognises the lease payments associated with those leases as an expense on a straight-line basis over the lease term.

Santander Bank Polska Group as the lessor

Classification of leases

Santander Bank Polska Group (the lessor) classifies each of its leases as either an operating lease or a finance lease.

A lease is classified as a finance lease if it transfers substantially all the risks and rewards incidental to ownership of an underlying asset. A lease is classified as an operating lease if it does not transfer substantially all the risks and rewards incidental to ownership of an underlying asset.

Lease classification is made at the inception date and is reassessed only if there is a lease modification.

Finance lease

Recognition and measurement

At the commencement date, Santander Bank Polska Group (the lessor) recognises assets held under a finance lease in its statement of financial position and presents them as a receivable at an amount equal to the net investment in the lease.

Initial measurement

Santander Bank Polska Group (the lessor) uses the interest rate implicit in the lease to measure the net investment in the lease.

Initial direct costs are included in the initial measurement of the net investment in the lease and reduce the amount of income recognised over the lease term.

Initial measurement of the lease payments included in the net investment in the lease.

At the commencement date, the lease payments included in the measurement of the net investment in the lease comprise the following payments for the right to use the underlying asset during the lease term that are not received at the commencement date:

· net fixed payments less any lease incentives payable;

· net variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date;

· any residual value guarantees provided to the lessor by the lessee, a party related to the lessee or a third party unrelated to the lessor that is financially capable of discharging the obligations under the guarantee;

· net exercise price of a purchase option if the lessee is reasonably certain to exercise that option; and

· payments of penalties for terminating the lease, if the lease term reflects that the lessee may exercise an option to terminate the lease.

Subsequent measurement

Finance income is recognised over the lease term based on a pattern reflecting a constant periodic rate of return on the lessor's net investment in the lease.

Santander Bank Polska Group (the lessor) allocates finance income over the lease term on a systematic and rational basis. The lease payments relating to the period are allocated against the net investment in the lease.

Santander Bank Polska Group (the lessor) applies the derecognition and impairment requirements in IFRS 9 to the net investment in the lease.

Operating lease

Recognition and measurement

Santander Bank Polska Group (the lessor) recognises lease payments from operating leases as income on a straight-line basis.

Santander Bank Polska Group (the lessor) recognises costs, including depreciation, incurred in earning the lease income as an expense.

Santander Bank Polska Group as the lessor, adds initial direct costs incurred in obtaining an operating lease to the carrying amount of the underlying asset and recognises those costs as an expense over the lease term on the same basis as the lease income.

Other items of the statement of financial position

Non-current assets held for sale

On initial date of classification of non-current assets as assets held-for-sale, Santander Bank Polska S.A. Group measures them at the lower of carrying amount and fair value less cost to sell.

Possible reduction of the carrying amount of assets held for sale as at the date of their initial classification as well as subsequent write-downs to the fair value less costs to sell is recognized in the income statement.

Other trade and other receivables

Trade receivables and other receivables payable within 12 months from the origination are measured at the initial recognition at par due to the immaterial effect of discounting. Trade receivables and other receivables payable within 12 months are at the balance sheet day recognised in the amount of the required payment less impairment loss.

Trade payables and other liabilities

Other liabilities payable within 12 months from the initial recognition are measured at par due to the immaterial effect of discounting. Like other liabilities payable within 12 months, trade payables are recognised at the balance sheet day in the amount of the payment due.

Equity

Equity comprises capital and funds created in accordance with applicable law, acts and the Articless of Association. Equity also includes retained earnings and prior year losses carried forward.

Share capital is stated at its nominal value in accordance with the Articles of Association and the entry in the court register.

Supplementary capital is created from profit allocations and share issue premiums.

Reserve capital is created from profit allocations and may be earmarked for covering balance sheet losses or dividend payment.

The result of valuation of management share-based incentive program is included in reserve capital (IFRS 2.53).

The supplementary, reserve, general banking risk fund and share premium are presented jointly under category “Other reserve funds”.

Revaluation reserve is comprised of adjustments relating to the valuation of financial assets measured at fair value through other comprehensive income and adjustments relating to the valuation of effective cash flow hedges taking into account deferred tax and actuarial gains from estimating provision for retirement. The revaluation reserve is not distributable.

Except for own equity, non-controlling interests are also recognised in Santander Bank Polska S.A. Group capital.

On derecognition of all or part of financial assets measured at fair value through other comprehensive income the total effects of periodical change in the fair value reflected in the revaluation reserve are reversed. The value of a given financial asset measured at fair value through other comprehensive income is increased or decreased by the whole amount or an adequate portion of the impairment allowance made previously. The effects of the fair value changes are removed from the revaluation reserve with a corresponding change in the income statement.

The net financial result for the accounting year is the profit disclosed in the income statement of the current year adjusted by the corporate income tax charge.

Custody services

Income from custody services is an element of the fee and commission income. The corresponding customer assets do not form part of Santander Bank Polska S.A. Group’s assets and as such are not disclosed in the consolidated statement of financial position.

Capital payments (Dividends)

Own dividends for a particular year, which have been approved by the General Meeting of Shareholders but not paid at the at the end of the reporting period are recognised as dividend liabilities in “other liabilities” item.

Provisions

A provision is recognised when Santander Bank Polska S.A. Group has a present legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. If the amount is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability.

Santander Bank Polska S.A Group raised provisions for legal risk related to loans indexed/denominated in foreign currencies and for reimbursements of portion of fees related to early repayment of consumer loans. Both provisions are presented as Other provisons.

Income statement

Net interest income

Santander Bank Polska S.A. Group presents the interest income recognised at the effective interest rate and credit-adjusted effective interest rate in separate lines of the income statement: “Interest income from financial assets measured at amortised cost” and “Interest income from assets measured at fair value through other comprehensive income”.

In turn, the interest income from financial assets which do not meet the contractual cash flows test is presented in line “Income similar to interest - financial assets measured at fair value through profit or loss”.

Net fee and commission income

Santander Bank Polska S.A. Group recognizes the fee and commission income that is not accounted for using the effective interest rate in such a manner so as to reflect the transfer of the goods or services promised to a customer in an amount reflecting the consideration to which it will be entitled in return for the goods or services in accordance with the 5 -stage model for recognizing income .

The Group identifies separate obligations to perform the service to which it assigns a transaction price. If the amount of remuneration is variable, the transaction price includes part or all of the variable remuneration to the extent that there is a high probability that there will be no refund of previously recognized revenues. Revenues equal to the transaction price are recognized when the service is performed or when it is performed by providing the customer with the promised good or service.The costs leading to the conclusion of the contract and the costs of performing the contract are activated and then systematically depreciated by the Group taking into account the period of transferring goods or services to the customer.

The significant commission income of the Santander Bank Polska S.A. Group includes:

1. Fee and commission income from loans includes fees charged by Santander Bank Polska Group in respect of reminders, certificates, guarantees, debt collection activities as well as commitment fees. Due to its nature, the majority of such income is taken to profit or loss on a one-off basis, i.e. when a specific operation is performed for a customer. Other income, such as a guarantee fee, is settled over time during the term of an agreement with a customer.

2. Fee and commission income from credit cards includes fees in respect of card issuance, ATM withdrawals, issuance of a new card, generation of a credit card statement or activation of optional credit card-related services. The vast majority of income is recognised at a specific point in time, i.e. when a specific operation is performed for a customer. Fees in respect of additional services related to credit cards are recognised over time.

3. Income from asset management is recognised in accordance with a 5-step model based on the value of assets provided to Santander Bank Polska Group for management. Pursuant to the agreements in place, Santander Bank Polska Group does not receive any upfront fees or additional commissions calculated after the end of the accounting year on the basis of factors beyond the Santander Bank Polska S.A. Group’s control.

Net income on bancassurance

For the selected loan products, where linkage to the insurance product has been identified, the Santander Bank Polska S.A. Group splits realised income into a portion recognised as interest income according to effective interest rate method and a portion recognised as fee income. The Santander Bank Polska S.A. Group qualifies distributed insurance products as linked to loans in particular if the insurance product influences contractual provisions of a loan.

To determine what part of income is an integral part of the credit agreement recognised as interest income using effective interest rate, the Santander Bank Polska S.A. Group separates the fair value of the financial instrument offered and the fair value of the intermediation service of insurance product sold together with such instrument. The portion that represents an element of the amortised cost of the financial instrument and the portion that represents remuneration for the agency services are split in proportion to the fair value of the financial instrument and the fair value of the agency service cost, respectively, relative to the sum of the two values.

The portion of income that is considered an agency fee for sales of an insurance product linked to a loan agreement is recognised by the Santander Bank Polska S.A. Group as fee income when the fee is charged for sales of an insurance product.

The Santander Bank Polska S.A. Group verifies the accuracy of the assumed allocation of different types of income at least annually.

Employee benefits

Short-term employee benefits

The Santander Bank Polska S.A. Group’s short-term employment benefits which include wages, bonuses, holiday pay and social insurance payments are recognised as an expense as incurred.

Long-term employee benefits

The Santander Bank Polska S.A. Group’s obligation in respect of long-term employee benefits is the amount of future benefits that employees have earned in return for their service in the current and prior periods. The accrual for retirement bonus is estimated using actuarial valuation method. The valuation of those provisions is updated at least once a year.

Equity-settled share-based payment transactions

For equity-settled share-based payment transactions, the entity measures the goods or services received, and the corresponding increase in equity, directly, at the fair value of the goods or services received, unless that fair value cannot be estimated reliably. If the Santander Bank Polska S.A. Group cannot estimate reliably the fair value of the goods or services received, the Santander Bank Polska S.A. Group measures their value, and the corresponding increase in equity, indirectly, by reference to the fair value of the equity instruments granted.

Vesting conditions included in the terms of the grant are not taken into account in estimating fair value except where those terms are dependent on market conditions. Non-market vesting conditions are taken into account by adjusting the number of awards included in the measurement of the cost of employee services so that ultimately, the amount recognised in the income statement reflects the number of vested awards.

The expense related to share based payments is credited to shareholder’s equity. Where the share based payment arrangements give rise to the issue of new shares, the proceeds of issue of the shares are credited to share capital (nominal amount) and share premium (if any) when awards are exercised.

Cash-settled share-based payment transactions

For cash-settled share-based payment transactions, the Santander Bank Polska S.A. Group measures the goods or services acquired and the liability incurred at the fair value of the liability. Until the liability is settled, the Santander Bank Polska S.A. Group remeasures the

fair value of the liability at each reporting date and at the date of settlement, with any changes in fair value recognised in profit or loss for the period. The Santander Bank Polska S.A. Group recognises the services received, and a liability to pay for those services, as the employees render the service. The liability is measured, initially and at each reporting date until settled, at the fair value of the share appreciation rights, by applying an option pricing model, taking into account the terms and conditions on which the share appreciation rights were granted, and the extent to which the employees have rendered the service to that date.

Net trading income and revaluation

Net trading income and revaluation include profits and losses resulting from changes in fair value of financial assets and liabilities classified as held for trading that are measured at fair value through profit and loss. Interest cost and income related to the debt instruments are also reflected in the net interest income.

Dividend income

Dividends are taken to the income statement at the moment of acquiring rights to them by shareholders provided that it is probable that the economic benefits will flow to the Santander Bank Polska S.A. Group and the amount of income can be measured reliably.

Gain on disposal of subsidiaries, associates and joint ventures

Gain or loss on the sale of shares in subsidiaries is determined as the difference between the subsidiary’s net asset value adjusted for unwritten-off portion of goodwill and the sale price.

Profit on the sale of interests in associates and joint ventures is the difference between the carrying amount and their sale price.

Gains or loss on other financial instruments

Gains or loss on other financial instruments include:

· gains and losses on disposal of equity instruments and debt instruments classified to the portfolio of financial assets measured at fair value through other comprehensive income; and

· changes in the fair value of hedged and hedging instruments, including ineffective portion of cash flow hedges.

Santander Bank Polska S.A. Group uses fair value hedge accounting and cash flow hedge accounting. Details are presented in Note 44 “Hedge accounting”.

Other operating income and other operating costs

Other operating income and cost include the cost of provisions for legal risk, in particular legal risk related to the portfolio of loans denominated / indexed to CHF, as well as operating cost and income not directly related to the statutory activity of Santander Bank Polska S.A. Group, including i.e. revenues and cost from the sale and liquidation of fixed assets, revenues from the sale of other services, received and paid damages, penalties and fines.

Impairment losses on loans and advances

The line item “Net impairment losses on loans and advances” presents impairment losses on balance sheet and off-balance sheet exposures and the gains/losses on the sale of credit receivables.

The result on loan receivables’ sale is computed at the assets’ derecognition date in the difference between balance sheet amount and remuneration received.

Staff and general and administrative expenses

The “Staff expenses” line item presents the following costs:

· remuneration and social insurance (including pension benefit contributions);

· provisions for unused leaves;

· pension provisions;

· bonus provisions;

· the programme for variable components of remuneration paid to individuals holding managerial positions, a part of which is recognised as an obligation on account of share-based payment in cash, in accordance with IFRS 2 Share-Based Payment; and

· employee training and other salary and non-salary benefits for employees.

The line item “General and administrative expenses” presents the following costs:

· maintenance and lease of fixed assets;

· IT and ICT services;

· administrative activity;

· promotion and advertising;

· property protection;

· short term lease costs and low-value assets lease cost

· charges paid to the Bank Guarantee Fund, the Financial Supervision Authority, the National Depository of Securities;

· taxes and fees (property tax, payments to the National Fund for the Rehabilitation of the Disabled, municipal and administrative fees, perpetual usufruct fees);

· insurance;

· repairs not classified as fixed asset improvements.

Tax on financial institutions

Introduced by an act implemented on 1 February 2016, the tax on financial institutions is calculated on the excess of the entity’s total assets over the PLN 4 billion level; in the case of banks the excess results from the statement of turnover and balances at the end of each month. Banks are permitted to reduce the tax base by e.g. the value of own funds and the value of treasury securities. In addition, banks reduce the tax base by the value of assets purchased from the National Bank of Poland held as collateral for a refinancing credit facility granted by the latter. The tax rate for all tax payers is 0.0366% per month, and the tax is paid monthly by the 25th day of the month following the month it relates to.

Santander Bank Polska S.A. Group reports the tax charge under “Tax on financial institutions”, separately from the income tax charge.

Corporate income tax

Corporate income tax comprises current and deferred tax. Income tax is recognised in income statement except to the extent that it relates to items recognised in equity.

Current tax is the tax payable on the taxable income for the year using tax rates enacted or substantively enacted at the end of the reporting period and any adjustment to tax payable in respect of previous years.

Deferred tax assets and liabilities are provided, using the balance sheet method, on temporary differences between the tax bases of assets and liabilities and their values arising from the statement of financial position. Deferred income tax is determined using tax rates based on legislation enacted or substantively enacted at the end of the reporting period and expected to apply when the deferred tax asset is realised or the deferred tax liability is settled. Deferred tax assets are recognised at realizable amount – it is to the extent that is probable that the Santander Bank Polska S.A. Group generates taxable profit allowing partial or wholly realisation of deferred tax assets. The carrying value of deferred tax assets is verified at the end of each reporting period. The Santander Bank Polska S.A. Group reduces the carrying amount of the deferred tax asset to the realizable value - that is, to the extent that it is probable that taxable income will be sufficient to partially or fully realize the deferred tax asset.

Deferred and current tax assets and liabilities are only offset when they arise in the same tax reporting group and where there is both the legal right and the intention to settle on a net basis or to realise the asset and settle the liability simultaneously.

3. Operating segments reporting

Presentation of information about business segments in Santander Bank Polska Group bases on management information model which is used for preparing of reports for the Management Board, which are used to assess performance of results and allocate resources. Operational activity of Santander Bank Polska Group has been divided into five segments: Retail Banking, Business & Corporate Banking, Corporate & Investment Banking, ALM (Assets and Liabilities Management) and Centre, and Santander Consumer. They were identified based on customers and product types.

Profit before tax is a key measure which Management Board of the Bank uses to assess performance of business segments activity.

Income and costs assigned to a given segment are generated on sale and service of products or services in the segment, according to description presented below. Such income and costs are recognized in the profit and loss account for Santander Bank Polska Group and may be assigned to a given segment either directly or based on reasonable assumptions.

Interest and similar income split by business segments is assessed by Management Board of the Bank on the net basis including costs of internal transfer funds and without split by interests income and costs.

Settlements among business segments relate to rewarding for delivered services and include:

· sale and/or service of customers assigned to a given segment, via sale/service channels operated by another segment;

· sharing of income and costs on transactions in cases where a transaction is processed for a customer assigned to a different segment;

· sharing of income and cost of delivery of common projects.

Income and cost allocations are regulated by agreements between segments, which are based on single rates for specific services or breakdown of total income and/or cost.

Assets and liabilities of a given segment are used for the operational activity and may be assigned to the segment directly or on a reasonable basis.

Santander Bank Polska Group focuses its operating activity on the domestic market.

In 2021 introduced the following changes:

· customer resegmentation between business segments; Once a year, Santander Bank Polska Group carries out the resegmentation / migration of customers between operating segments which results from the fact that customer meets the criteria of assignment for different operating segment than before. This change is intended to provide services at the highest level of quality and tailored to individual needs or the scale of customer operations.

· Transfer of Investments in associates of Santander - Aviva Towarzystwo Ubezpieczeń S.A. and Santander – Aviva Towarzystwo Ubezpieczeń na Życie S.A. and the Share in net profits of entities accounted for by the equity method from Segment ALM and Centre to Segment Retail Banking as an effect of presentation change in reporting to the chief operating decision maker in Santander Bank Polska S.A. Group

Comparable data are adjusted accordingly.

In the part regarding Santander Bank Polska, the provisions for legal risk connected with the portfolio of FX mortgage loans and the provisions for legal risk connected with reimbursement of portion of fees related to early repayment of consumer loans were presented in Retail Banking segment. Simultaneously, in the part regarding Santander Consumer Bank, the provisions for legal risk connected with the portfolio of FX mortgage loans and the provisions for legal risk connected with reimbursement of portion of fees related to early repayment of consumer loans were presented in the Santander Consumer segment. More details regarding the above provisions are described in Note 38.

Additional write-off for expected credit losses in the form of so-called adjustments to values resulting from post model adjustments in the amount of PLN 121,414 thousand was estimated and presented in the results of particular business segments in comparable data for 31 December 2020 while release of described provision in the amount of 121,414 thousand was presented in data for 31 December 2021. The adjustment was also described in notes 2.6 and 12 of these Financial Statements.

The principles of income and cost identification, as well as assets and liabilities for segmental reporting purposes are consistent with the accounting policy applied in Santander Bank Polska Group.

Retail Banking

Retail Banking generates income from the sale of products and services to personal customers and small companies. In the offer for customers of this segment there are a wide range of savings products, consumer and mortgage loans, credit and debit cards, insurance and investment products, clearing services, brokerage house services, GSM phones top-ups, foreign payments and Western Union and private-banking services. For small companies, the segment provides, among others, lending and deposit taking services, cash management services, leasing, factoring, letters of credit and guarantees. Furthermore, the Retail Banking segment generates income through offering asset management services within investment funds and private portfolios.

Business & Corporate Banking

Business & Corporate Banking segment covers products and activities targeted at business entities, local governments and the public sector, including medium companies. In addition to banking services covering lending and deposit activities, the segment provides services in the areas of cash management, leasing, factoring, trade financing and guarantees. It also covers insourcing services provided to retail customers based on mutual agreements with other banks and financial institutions.

Corporate & Investment Banking

In the Corporate & Investment Banking segment, Santander Bank Polska Group derives income from the sale of products and services to the largest international and local corporations, including:

· transactional banking with such products as cash management, deposits, leasing, factoring, letters of credit, guarantees, bilateral lending and trade finance;

· lending, including project finance, syndicated facilities and bond issues;

· FX and interest rate risk management products provided to all the Bank’s customers (segment allocates revenues from this activity to other segments, the allocation level may be subject to changes in consecutive years);

· underwriting and financing of securities issues, financial advice and brokerage services for financial institutions.

Through its presence in the interbank market, segment also generates revenues from interest rate and FX risk positioning activity.

ALM and Centre

The segment covers central operations such as financing of other Group’s segments, including liquidity, interest rate risk and FX risk management. It also includes managing the Bank’s strategic investments and transactions generating income and/or costs that cannot be directly or reasonably assigned to a given segment.

Santander Consumer

This segment includes activities of the Santander Consumer Group. Activities of this segment focus on selling products and services addressed to both individual and business customers. This segment focuses mainly on loans products, i.e. car loans, credit cards, cash loans, installment loans and lease products. In addition, Santander Consumer segment includes term deposits and insurance products (mainly related to loans products).

Consolidated income statement by business segments

1.01.2021-31.12.2021	Segment Retail Banking *	Segment Business and Corporate Banking	Segment Corporate& Investment Banking	Segment ALM and Centre	Segment Santander Consumer	Total
Net interest income	3 109 461	772 539	254 996	638 150	1 187 299	5 962 445
incl. internal transactions	(3 691)	(3 652)	7 497	10 150	(10 304)	-
Net fee and commission income	1 456 970	547 348	381 952	(30 933)	131 786	2 487 123
incl. internal transactions	188 022	121 628	(303 546)	(3 146)	(2 958)	-
Other income	87 351	54 174	218 168	224 207	63 266	647 166
incl. internal transactions	(813)	56 258	(51 349)	(3 720)	(376)	-
Dividend income	-	-	1 833	110 994	21	112 848
Operating costs	(3 180 544)	(438 308)	(282 202)	(228 486)	(778 686)	(4 908 226)
incl. internal transactions	-	-	-	2 831	(2 831)	-
Depreciation/amortisation	(344 479)	(65 837)	(23 521)	(90 137)	(54 996)	(578 970)
Impairment losses on loans and advances	(547 643)	(225 424)	(127 884)	(6 394)	(216 843)	(1 124 188)
Share in net profits (loss) of entities accounted for by the equity method	73 836	-	-	232	-	74 068
Tax on financial institutions	-	-	-	(583 793)	(30 645)	(614 438)
Profit before tax	654 952	644 492	423 342	33 840	301 202	2 057 828
Corporate income tax						(805 422)
Consolidated profit for the period						1 252 406
of which:
attributable to owners of the parent entity						1 111 684
attributable to non-controlling interests						140 722

* Includes individual customers, small companies and Wealth Management (private banking and Santander TFI SA)

Consolidated statement of financial position by business segments

31.12.2021	Segment Retail Banking *	Segment Business and Corporate Banking	Segment Corporate& Investment Banking	Segment ALM and Centre	Segment Santander Consumer	Total
Loans and advances to customers	84 604 164	33 638 827	14 492 128	-	15 515 302	148 250 421
Investments in associates	886 796	-	-	45 944	-	932 740
Other assets	9 219 383	1 934 470	4 970 472	74 596 583	4 972 271	95 693 179
Total assets	94 710 343	35 573 297	19 462 600	74 642 527	20 487 573	244 876 340
Deposits from customers	126 071 524	38 796 117	8 506 831	2 715 742	9 283 229	185 373 443
Other liabilities	1 333 555	453 845	5 112 100	18 007 372	7 382 449	32 289 321
Equity	6 141 628	3 230 653	1 961 664	12 057 735	3 821 896	27 213 576
Total equity and liabilities	133 546 707	42 480 615	15 580 595	32 780 849	20 487 574	244 876 340

* includes individual customers, small companies and Wealth Management (private banking and Santander TFI SA)

Consolidated income statement by business segments

1.01.2020-31.12.2020	Segment Retail Banking *	Segment Business and Corporate Banking	Segment Corporate& Investment Banking	Segment ALM and Centre	Segment Santander Consumer	Total
Net interest income	3 262 742	918 051	307 149	94 928	1 305 279	5 888 149
incl. internal transactions	(2 167)	(2 874)	5 315	10 642	(10 916)	-
Net fee and commission income	1 286 904	441 580	294 427	(31 081)	160 276	2 152 106
incl. internal transactions	165 392	101 152	(262 438)	(268)	(3 838)	-
Other income	37 509	42 650	135 138	301 207	67 696	584 200
incl. internal transactions	4 247	48 977	(49 286)	19 529	(23 467)	-
Dividend income	-	-	194	22 654	35	22 883
Operating costs	(2 223 170)	(424 853)	(241 053)	(322 698)	(682 617)	(3 894 391)
incl. internal transactions	-	-	-	2 313	(2 313)	-
Depreciation/amortisation	(341 717)	(57 614)	(22 290)	(110 048)	(61 926)	(593 595)
Impairment losses on loans and advances	(948 673)	(335 072)	(116 306)	(39 544)	(323 217)	(1 762 812)
Share in net profits (loss) of entities accounted for by the equity method	85 921	-	-	439	-	86 360
Tax on financial institutions	-	-	-	(560 781)	(41 222)	(602 003)
Profit before tax	1 159 516	584 742	357 259	(644 924)	424 304	1 880 897
Corporate income tax						(643 723)
Consolidated profit for the period						1 237 174
of which:
attributable to owners of the parent entity						1 037 167
attributable to non-controlling interests						200 007

* includes individual customers, small companies and Wealth Management (private banking and Santander TFI SA)

Consolidated statement of financial position by business segments

31.12.2020	Segment Retail Banking *	Segment Business and Corporate Banking	Segment Corporate & Investment Banking	Segment ALM and Centre	Segment Santander Consumer	Total
Loans and advances to customers	79 943 150	32 662 656	13 486 099	-	15 906 840	141 998 745
Investments in associates	952 686	-	-	45 711	-	998 397
Other assets	5 836 621	1 052 307	3 467 155	71 482 558	4 475 526	86 314 167
Total assets	86 732 457	33 714 963	16 953 254	71 528 269	20 382 366	229 311 309
Deposits from customers	114 564 280	36 877 378	6 776 275	3 771 434	9 532 888	171 522 255
Other liabilities	632 986	606 003	3 926 625	16 889 133	7 076 317	29 131 064
Equity	5 845 825	3 333 447	1 992 303	13 713 254	3 773 161	28 657 990
Total equity and liabilities	121 043 091	40 816 828	12 695 203	34 373 821	20 382 366	229 311 309

* includes individual customers, small companies and Wealth Management (private banking and Santander TFI SA)

4. Risk management

Santander Bank Polska Group is exposed to a variety of risks in its ordinary business activities. The objective of risk management is to ensure that the Group takes risk in a responsible and controlled manner when maximising the value for shareholders. Risk is a possibility of materialisation of events impacting the achievement of the Group’s strategic goals.

Risk management policies are designed to identify and measure risk, define the most profitable return within the accepted risk level (risk-reward), and to continually set and verify appropriate risk mitigation limits. Santander Bank Polska Group modifies and develops risk management methods on an ongoing basis, taking into consideration changes in the Group’s risk profile, economic environment, regulatory requirements and best market practice.

The Management Board and Supervisory Board set the business direction and actively support the risk management strategies. This is achieved by defining the risk management and risk appetite strategy, as well as approving the key risk management policies, participation of the Management Board Members in the risk management committees, reviewing and signing off on the key risks and risk reports.

The Supervisory Board continuously oversees the risk management system. The Supervisory Board approves the strategy, key risk management policies and risk appetite, and monitors the use of internal limits in relation to the current business strategy and macroeconomic environment. It conducts the reviews of the key risk areas, the identification of threats and the process of defining and monitoring remedial actions. The Supervisory Board assesses if the control activities performed by the Management Board are effective and aligned with the Supervisory Board’s policy. The assessment also includes the risk management system.

The Audit and Compliance Committee supports the Supervisory Board in fulfilment of its oversight obligations. The Committee performs annual reviews of the Group’s financial controls, and receives reports from the independent audit function and the compliance function. The Committee also receives regular quarterly reports on the degree of implementation of post-audit recommendations, and on that basis evaluates the quality of the actions taken. The Committee assesses the effectiveness of internal control system and risk management system. Moreover, the Audit Committee monitors financial audits, in particular inspections carried out by the audit company, controls, monitors and assesses independence of the chartered auditor and audit company, and reports the outcomes of inspections to the Supervisory Board. In addition, the Committee develops the policy and procedure for selecting the audit company and to present to the Supervisory Board the recommendations on election, re-election and recalling of External Auditor and on the External Auditor’s fee.

The Risk Committee supports the Supervisory Board in assessing the effectiveness of the internal control and risk management systems and measures adopted and planned to ensure an effective management of material risks.

Moreover, the Supervisory Board in the Bank is also supported by the Remuneration Committee and the Nominations Committee, however outside the risk management area.

The Management Board is responsible for the effectiveness of risk management. In particular, it introduces the organisational structure aligned with the level and profile of the risk being undertaken, split of the responsibilities providing the separation of the risk measurement and control function from the operational activity, implements and updates the written risk management strategies, and ensures transparency of the activities. The Management Board reviews the financial results of the Group. It established a number of committees which are directly responsible for the development of the risk management methodology and monitoring of risk levels in particular areas.

The Bank’s Management Board also manages the risk through its committees: the Risk Management Committee and the Risk Control Committee.

The Risk Management Committee (RMC) ratifies the key credit decisions (above specific decision-making thresholds), approves annual limits for securities trading and ALM transactions, and signs-off on the risk assessment models plan.

The Risk Control Committee monitors the risk level across different areas of the bank’s operations and supervises the activities of lower-level risk management committees set up by the Management Board. These committees, acting within the respective remits defined by the Management Board, are directly responsible for developing risk management methods and monitoring risk levels in specific areas.

The Risk Control Committee supervises the activities of the below-listed committees operating in the risk management field:

Credit Risk Committee, which approves and supervises the risk management policy and risk measurement methodology as well as monitors credit risk of cpnsolidated credit portfolio or in cases pertaining to more than one business segment;

Credit Policy Forum for Retail Portfolios/ SME Portfolios/ Business and Corporate Loans Portfolios, which are authorised to approve and supervise the the risk measurement policy and methodology, and monitoring credit risk only in relation to their respective business segments.

The Credit Committee takes credit decisions within the assigned lending discretions.

The Provisions Committee which takes decisions on impairment charges in an individual and collective approachfor credit exposures, as well as other financial instruments and assets and on legal risk provisions. Moreover, the Committee monitors credit loss allowances, reviews the adequacy of parameters applied when setting the impairment in an individual and collective approach for Santander Bank Polska Group, excluding Santander Consumer Bank S.A., and takes decisions about debts sales.

The Recovery Committee takes decisions as to the dealing with borrowers in distress, including with respect to the relationship management strategy, approval of the causes of loss analysis and monitoring of the portfolio and effectiveness of recovery processes.

Market and Investment Risk Committee, which approves and supervises the risk management policy and risk measurement methodology as well as monitors market risk in the banking book, market risk in the trading book, structural risk for the balance sheet, liquidity risk and investment risk;

Model Risk Management Committee, which is responsible for model risk management as well as supervises the methodology of models used in Santander Bank Polska S.A. Group;

The Information Management Committee is responsible for the quality and organisation of data related to risk management and other areas of the bank’s operations.

The Operational Risk Management Committee (ORMCo) monitors the level, sets the direction for strategic operational risk actions in Santander Bank Polska Group in the area of business continuity, information security and fraud prevention.

CyberTechRisk Forum is responsible for the evaluation and proposing changes to the IT, cybersecurity and operations strategy as well as for the monitoring of key issues related to IT, cybersecurity and operations. The Committee is also a forum for discussion on operational risk with focus on technological risk, including cyber risk;

Suppliers Panel establishes standards and carries out monitoring regarding providers and services, incl. outsourcing; main forum for discussion on risk resulting from the cooperation with suppliers.

The Assets and Liabilities Management Committee supervises the activity on the bank’s and the Group’s banking book, manages liquidity and interest rate risk in the banking book and is responsible for the funding and balance sheet management, including for the pricing policy.

Liquidity Forum monitors liquidity position of the Bank, with a special focus on the dynamics of deposit and credit volumes, the Bank’s needs for financing and the general market situation.

The Capital Committee is responsible for capital management, in particular the ICAAP.

The Disclosure Committee verifies if the financial information published by Santander Bank Polska Group meets the legal and regulatory requirements.

The Local Marketing and Monitoring Committee approves new products and services to be implemented in the market, taking into account the reputation risk analysis.

The General Compliance Committee is responsible for setting standards with respect to the management of compliance risk and the codes of conduct adopted by the Group.

The Regulatory and Reputational Risk Committee is responsible for monitoring and taking decisions on cases relating to the Group’s compliance with law, regulatory guidelines and market/ industry standards relating to the Group’s operations.

The Anti-Money Laundering and Counter-Terrorism Financing Committee approves the bank’s policy on prevention of money laundering and the financing of terrorism. It approves and monitors the Group’s activities in this area.

The chart below presents the corporate governance in relation to the risk management process.

. ImageAlt1 Risk management is in line with the risk profile resulting from risk. At Santander Bank Polska Group, risk appetite is expressed as quantitative limits and captured in the “Risk Appetite Statement” adopted by the Management Board and approved by the Supervisory Board. Those limits are used to set watch limits and shape risk management policies.

The Group continuously analyses the risks, identifies their sources, creates the relevant risk management mechanisms including among others the measurement, control, mitigation and reporting. The key risks the Group is exposed to include:

· credit risk

· concentration risk

· market risk in the banking book and trading book

· liquidity risk

· operational risk,

· compliance risk.

The key rules, roles and responsibilities of the Group companies are set out in relevant internal policies relating to the management of individual risk types.

Santander Bank Polska Group pays special attention to the consistency of risk management processes across the Group, which ensures adequate control of the risk exposure. The subsidiaries implement risk management policies and procedures reflecting the principles adopted by Santander Bank Polska Group.

Acting under the applicable law, the bank exercises oversight of risk management in Santander Consumer Bank S.A. in line with the same oversight rules as applied to other Santander Bank Polska Group companies. The bank’s representatives on the Supervisory Board of Santander Consumer Bank S.A. are: the Management Board member in charge of the Risk Management Division and the Management Board member in charge of the Retail Banking Division they are responsible for supervision over Santander Consumer Bank S.A. and they ensure, together with the company’s Supervisory Board, that the company operates in line with adopted plans and operational security procedures. The bank monitors the profile and level of Santander Consumer Bank S.A. risk via risk management committees of Santander Bank Polska S.A.

From the point of view of negative impact of those risks on society, environment, employees, human rights and anti-corruption measures, particular importance is attached to operational risk, compliance risk and reputational risk. In addition, the bank has identified social and environmental risks (including climate risks) related to financing customers from sensitive sectors.

Credit risk

Santander Bank Polska Group’s credit activities focus on growing a high quality loan book with a good quality, a good yield and customer satisfaction.

Credit activity includes all products subject to credit risk (credit facilities), originated by the Bank or its leasing and factoring subsidiaries.

Credit risk is defined as the possibility of suffering a loss as a result that a borrower will fail to meet its credit obligation, including interest and fees. Credit risk arises from the impairment of credit assets and contingent liabilities, resulting from worsening of the borrower’s credit quality. Credit risk measurement is based on the estimation of credit risk weighted assets, with the relevant risk weights representing both the probability of default and the potential loss given default of the borrower.

Credit risk in Santander Bank Polska Group arises mainly from lending activities on the retail, SME, business, corporate and interbank markets. This risk is manager as part of the policy approved by the Management Board on the basis of the adopted credit procedures as well as on the basis of discretionary limits allocated to individual credit officers based on their knowledge and experience. The Group’s internal system of credit grading and monitoring allows for an early identification of likely defaults that might impair the loan book. Additionally the Group uses large set of credit risk mitigation tools, both collaterals (financial and non-financial) and specific credit provisions and clauses (covenants).

The Group continues to develop and implement risk based methods of grading loans, allocating capital and measuring returns. Risk valuation models are used for all credit portfolios.

The Group also continues to review processes and procedures of managing and monitoring of credit portfolio risk adjusting them to the revised regulatory requirements, especially to Recommendations of KNF and EBA.

In 2021, the Group focused on implementation of the EBA Guidelines on loan origination and monitoring EBA/GL/2020/06. These guidelines set out standards for credit risk taking, management and monitoring, and require that institutions apply appropriate practices in relation to consumer protection and prevention of money laundering. Alongside this, the bank implemented changes to credit processes in line with KNF Recommendation S on best practice in the management of mortgage-backed credit exposures. While the recommendation covers only mortgage-backed loans, changes also indirectly affected credit processes related to unsecured loans. The operational and management reports were adjusted to include the elements introduced by the recommendation. Also by the end of the year guidelines resulting from, Recommendation R were implemented issued by KNF. They lay out the rules of classifying credit exposure, the assessment and calculation of expected credit losses, as well as credit risk management

In 2021, the Group thoroughly analysed developments in the macroeconomic environment and monitored credit exposures in individual customer segments and sectors in order to promptly and duly align the credit policy parameters where required. The Group continued to focus on dealing with the impact of the Covid-19 pandemic, placing an increased emphasis on risk trends in credit portfolios, particularly in connection with lockdowns affecting many economic activities. Appropriate management reports were maintained in order to identify deteriorated financial position of business customers from the Covid-19 hardest-hit sectors.

In 2021, the Group took further measures as part of the government support programmes for customers in financial distress due to the Covid-19 pandemic (aid granted by the Polish Development Fund (PFR) until August 2021, guarantees issued by BGK, and Shield 4.0). At the same time, it contributed to and adopted the second moratorium developed by the banking sector under the auspices of the Polish Bank Association, which laid down uniform rules for offering tools to aid those customers.

Credit risk management committees

Consolidated credit risk oversight at Santander Bank Polska Group is performed by the Credit Risk Committee (CRC). Its key responsibilities include development and approval of the best sectoral practice, industry analyses, credit policies, individual credit discretion systems and risks grading systems. The CRC also receives advanced credit portfolio analyses and recommends to the Management Board credit risk appetite limits to ensure balanced and safe growth of the credit portfolio.

The Bank also has three committees referred to as Credit Policy Forums, which deal with the key customer segments: retail segment, SME segment and the business/ corporate segment. These committees are responsible for shaping the credit policy and processes within their respective segments. If needed, their decisions may be escalated to the Credit Risk Committee.

In turn, oversight over credit risk models and the risk valuation methodology is the responsibility of the Models Risk Management Committee.

Risk Management Division

The Risk Management Division is responsible for a consolidated credit risk management process, including management and supervision of credit delivery, defining credit policies, providing decision-making tools and credit risk measurement tools, quality assurance of the credit portfolio and provision of reliable management information on the credit portfolio.

Credit Policies

Credit policies refer to particular business segments, loan portfolios and banking products. They contain guidelines for the identification of the areas where specific types of risks manifest themselves, specifying the methods of their measurement and mitigation to the level acceptable to the bank (e.g. “Loan-to-Value” ratios, FX risk in the case of foreign currency loans).

The Group reviews and updates its credit policies on a regular basis, aiming to bring them in line with the Group’s strategy, current macroeconomic situation, legal developments and changes in regulatory requirements.

Credit Decision Making Process

As part of risk management, the credit decision making process is based upon individual credit discretions commensurate with employees’ knowledge and experience in relation to individual business segments. Exposures in excess of PLN 50m are referred to the Credit Committee composed of senior managers. Transactions above stated thresholds (from PLN 48.75m to PLN 195m, depending on the transaction type) are additionally signed off by the Management Board’s Risk Management Committee.

The Group strives to provide credit service of the highest quality while satisfying the borrowers’ expectations and ensuring security of the credit portfolio. To this end, the existing system of credit discretions ensures segregation of the credit risk approval function from the sales function.

Credit Grading

Santander Bank Polska Group develops its credit risk assessment tools, adapting them to the KNF’s guidelines, International Accounting Standards/ International Financial Reporting Standards (IAS/IFRS) and best market practice.

The Group uses credit risk grading models for most credit portfolios, including corporate customers, SMEs, home loans, property loans, cash loans, credit cards and personal overdrafts.

The Group monitors credit grading in accordance with the rules described in the lending manuals. Additionally, for selected models, credit grade is automatically verified based on the number of days past due or an analysis of behavioural factors. Credit grade is also verified at subsequent credit assessments.

Credit Reviews

The Group performs regular reviews to determine the actual quality of the credit portfolio, confirm that adequate credit grading and provisioning processes are in place, verify compliance with the procedures and credit decisions and to objectively assess professionalism in credit management. The reviews are performed by the two specialised units: Credit Review Department and the Control Department, which are independent of the risk-taking units.

Collateral

In the Group’s security model, the Collateral and Credit Agreements Department is the central unit responsible for creation and maintenance of securities. The Security Manual as a procedure describing legal standards for the application of collateral security is managed by the Legal and Compliance Division. The Collateral and Credit Agreements Department is the owner of the security contract templates.

The role of the department is to ensure that security covers are duly established and held effective in line with the lending policy for all business segments. The unit is also responsible for developing standardised internal procedures with respect to perfecting and maintaining validity of collateral as well as ensuring that establishment, monitoring and release of security covers is duly effected.

Furthermore, the Collateral and Credit Agreements Department provides assistance to credit units in credit decision making and development of credit policies with respect to collateral. The unit gathers data on collateral and ensures appropriate management information. The tables below show types of collateral that can be used to secure loans and advances to customers from non-banking sector.

Retail customers

Type of loan/receivables	Type of collateral
Cash loan	bills, guarantees, credit insurance
Credit on liquid assets	guaranty deposit, amounts frozen on account, investment funds
Student loan	sureties
Housing loan	mortgage, credit insurance, transfer of claim
Leasing	bills, guarantees, transfer of rights to bank’s account; court registered pledge on movables; transfer of ownership, mortgage, obligation of the leased asset supplier to buy the asset back (buy-back guarantee)

Business customers

Type of loan/receivables	Type of collateral
Commercial credit	guaranty deposit, registered pledge, bills
Revolving credit	assignment of credit, bills, guarantees, registered pledge
Building credit	mortgage
Investment credit	mortgage, sureties, warranty
Granted and with supplements	guarantees, warranty
Leasing	bills, guarantees, transfer of rights to bank’s account; court registered pledge on movables; transfer of ownership, mortgage, obligation of the leased asset supplier to buy the asset back (buy-back guarantee)

Collateral management process

Before a credit decision is approved, in the situations provided for in internal regulations, the Collateral and Credit Agreements Department assesses the collateral quality, a process that includes:

· verification of the security valuation prepared by external valuers, and assessment of the security value,

· assessment of the legal status of the security,

· assessment of the investment process for the properties,

· seeking legal advises on the proposed securities.

The Collateral and Credit Agreements Department actively participates in credit processes, executing tasks including:

· verification of signed collateral documentation received from law firms, whether complete and compliant with the Bank’s internal procedures (verification carried out before or immediately after disbursement);

· registration and verification of the data in information systems,

· collateral monitoring and reporting,

· reporting on the status of collateral by segments

· releasing of the security.

In managing its receivables, Santander Bank Polska Group carries out the process of collateral execution. Selection of proper action towards execution of specific collateral depends on the type of the collateral (personal or tangible). In principle the Group aims at voluntary proceedings in the course of collateral execution. When there is no evidence of cooperation with a collateral provider, the Group’s rights are fulfilled in compliance with the law and internal regulations in the bankruptcy and enforcement proceedings.

Financial effect of the collateral

The financial effect of the accepted collateral was calculated as a change in the credit loss allowance as a result of exclusion of the cash flow from collateral (non-performing exposures are assessed on an case-by-case basis). For other portfolios (mortgage, SME and corporate loans), this effect was calculated by adjusting the LGD parameter to the level observed for particular clients on unsecured products.

The table below present financial effect of collateral of Santander Bank Polska Group as at 31.12.2021:

31.12.2020
Financial effect of collateral	Gross Amount	Allowance for impairment	Financial effect of collateral
Loans and advances to customers
individuals	27 794 125	(2 260 518)	(10)
housing loans	56 599 967	(799 862)	(482 576)
business	56 155 127	(2 375 653)	(886 530)
Total balance sheet	140 549 219	(5 436 033)	(1 369 116)
Total off-balance sheet	36 541 487	(60 811)	(7 537)

The table below present financial effect of collateral of Santander Bank Polska Group as at 31.12.2020:

31.12.2020
Financial effect of collateral	Gross Amount	Allowance for impairment	Financial effect of collateral
Loans and advances to customers
housing loans	52 758 103	(779 551)	(447 528)
business	55 235 227	(2 690 790)	(1 199 445)
Total balance sheet	107 993 330	(3 470 341)	(1 646 974)
Total off-balance sheet	34 724 982	(64 541)	(5 763)

Credit risk stress testing

Stress testing is a part of the credit risk management process used to evaluate potential effects of specific events or movement of a set of financial and macroeconomic variables or change in risk profile on Santander Bank Polska Group’s condition. Stress tests are composed of assessment of potential changes in credit portfolio quality when faced with adverse conditions. The process also delivers management information about adequacy of agreed limits and internal capital allocation.

Impairment calculation

Santander Bank Polska Group makes impairment allowances in accordance with International Financial Reporting Standard 9 (IFRS 9). IFRS 9 introduced a new approach to the estimation of allowances for credit losses. The approach is based on estimation of the expected credit loss (ECL). ECL allowances reflect an unbiased and probability-weighted amount that is determined by evaluating a range of possible outcomes, the time value of money; and reasonable and supportable information that is available without undue cost or effort at the reporting date about past events, current conditions and forecasts of future economic conditions. ECL allowances are measured at an amount equal to a 12-month ECL or the lifetime ECL, when it is deemed there has been a significant increase in credit risk since initial recognition. Accordingly, the ECL model gives rise to measurement uncertainty, especially in relation to:

· measurement of a 12-month ECL or the lifetime ECL;

· determination of when a significant increase in credit risk occurred;

· determination of any forward-looking events reflected in ECL estimation, and their likelihood.

In accordance with IFRS 9, the recognition of expected credit losses will depend on changes in risk after recognition of the exposure. The standard introduces three main stages for recognising expected credit losses:

· Stage 1 – exposures with no significant increase in risk since initial recognition, i.e. the likelihood of the exposure being downgraded to the impaired portfolio (Stage 3 exposures) has not increased. For such exposures, 12-month expected credit losses will be recognised.

· Stage 2 – exposures with a significant increase in risk since initial recognition, but with no objective evidence of default. For such exposures, lifetime expected credit losses will be recognised.

· Stage 3: exposures for which the risk of default has materialised (indications of impairment have been identified). For such exposures, lifetime expected credit losses will be recognised.

Lifetime expected losses are recognised also for the exposures classified as POCI (purchased or originated credit-impaired). Such an asset is created when an impaired asset is recognized, and the POCI classification is maintained throughout the life of the asset.

In the case of classification into stage 3, the Group applies objective indications of impairment, as defined in accordance with the Basel Committee’s recommendations and Recommendation R from KNF and EBA.

The rules for including past due in the identification of default are in line with the EBA Guidelines on the application of the definition of default and with the Regulation of the Minister of Finance, Investments and Development on the materiality level of past due credit obligations.

The Group estimates ECL using both an individual approach (for individually significant exposures with objectively evidenced impairment [stage 3]) and collective approach (individually insignificant exposures with objectively evidenced impairment, and incurred but not reported losses).

The Group on a regular basis recalibrates its models and updates the forward-looking information used for estimating ECL, taking into account the impact of changes in economic conditions, modifications of the Group’s credit policies and recovery strategies, which is designed to ensure appropriate level of impairment allowances.

The tables below present Santander Bank Polska Group’s exposure to credit risk.

Assets have been classified into respective risk grades based on the one-year probability of default arising from current credit rating (business customers) or score (personal customers) used for the purpose of business processes or, if not available, based on the one-year probability of default used for calculation of expected credit losses. Non-impaired assets (stages 1 and 2) have been divided into five categories (very good, good, average, acceptable, weak).

Limits of individual categories depend on the type of receivables, are presented in the table below:

Risk grades levels	Thresholds defining risk grades based on the probability of default for:
Risk grades levels	individuals	housing loans	business
very good	[0%-1%]	[0%-0.05%]	[0%-0.2%]
good	[1%-2.5%]	[0.05%-0.25%]	[0.2%-0.75%]
average	[2.5%-7.5%]	[0.25%-0.5%]	[0.75%-2%]
acceptable	[7.5%-15%]	[0.5%-2%]	[2%-7.5%]
weak	[15%-100%]	[2%-100%]	[7.5%-100%]

Stage 1		Loans and advances to customers measured at amortised cost				Contingent liabilities - granted
31.12.2021	Risk level according to rating groups	individuals	housing loans	business	Total	Contingent liabilities - granted

	very good	5 844 672	25 354 908	23 084 816	54 284 396	14 591 065
	good	7 332 000	21 617 427	17 300 704	46 250 131	19 955 490
	average	6 640 821	3 300 441	13 639 114	23 580 376	8 079 362
	acceptable	4 402 036	2 275 194	2 890 841	9 568 071	1 839 491
	weak	440 865	1 142 317	1 518 359	3 101 541	112 515
Stage 1 - Gross amount		24 660 394	53 690 287	58 433 834	136 784 515	44 577 923

Other					58 372
Impairment					(694 132)	(35 491)
Net amount					136 148 755	44 542 432

Stage 2		Loans and advances to customers measured at amortised cost				Contingent liabilities - granted
31.12.2021	Risk level according to rating groups	individuals	housing loans	business	Total	Contingent liabilities - granted

	very good	2 465	45 766	289 281	337 512	32 169
	good	21 200	160 633	387 321	569 154	26 637
	average	61 155	147 769	977 407	1 186 331	136 541
	acceptable	212 648	284 102	1 229 949	1 726 699	385 818
	weak	936 017	590 741	2 071 911	3 598 669	311 472
Stage 2 - Gross amount		1 233 485	1 229 011	4 955 869	7 418 365	892 637
Other
Impairment					(594 211)	(9 251)
Net amount					6 824 154	883 386

Stage 3 and POCI		Loans and advances to customers measured at amortised cost				Contingent liabilities - granted
31.12.2021	Risk level according to rating groups	individuals	housing loans	business	Total	Contingent liabilities - granted

	very good	-	-	-	-	-
	good	-	-	-	-	-
	average	5	-	2	7	-
	acceptable	-	-	-	-	-
	weak	2 693 466	968 650	3 265 459	6 927 575	68 532
Stage 3 - Gross amount		2 693 471	968 650	3 265 461	6 927 582	68 532
Stage 3 - Impairment					(4 356 659)	(16 069)
POCI		-	-	-	635 202
Impairment-POCI					(212 291)
Net amount					2 993 834	52 463

Stage 1		Loans and advances to customers measured at amortised cost				Contingent liabilities -granted
31.12.2020	Risk level according to rating groups	individuals	housing loans	business	Total	Contingent liabilities -granted


	very good	9 228 957	24 090 985	1 886 000	35 205 942	18 956 702
	good	11 515 934	20 109 863	18 756 233	50 382 030	14 747 408
	average	7 588 474	3 200 608	21 707 073	32 496 155	6 447 705
	acceptable	625 562	1 814 131	6 147 442	8 587 135	1 086 026
	weak	258 547	716 789	1 058 149	2 033 485	84 611
Stage 1 - Gross amount		29 217 474	49 932 376	49 554 897	128 704 747	41 322 452

Other					26 665
Impairment					(385 313)	(25 609)
Net amount					128 346 099	41 296 843

Stage 2		Loans and advances to customers measured at amortised cost				Contingent liabilities -granted
31.12.2020	Risk level according to rating groups	individuals	housing loans	business	Total	Contingent liabilities -granted

	very good	123 548	46 871	56 554	226 973	3 875
	good	57 817	127 707	24 184	209 708	27 394
	average	295 046	169 316	207 280	671 642	137 435
	acceptable	691 367	399 728	1 475 865	2 566 960	412 741
	weak	697 866	1 075 546	3 209 009	4 982 421	284 591
Stage 2 - Gross amount		1 865 645	1 819 167	4 972 892	8 657 704	866 036
Other
Impairment					(801 265)	(12 146)
Net amount					7 856 439	853 890

Stage 3 and POCI		Loans and advances to customers measured at amortised cost				Contingent liabilities - granted
31.12.2020	Risk level according to rating groups	individuals	housing loans	business	Total	Contingent liabilities - granted

	very good	-	-	-	-	-
	good	-	-	-	-	-
	average	-	276	-	276	-
	acceptable	-	-	-	-	-
	weak	3 293 119	957 911	3 459 380	7 710 410	122 411
Stage 3 - Gross amount		3 293 119	958 187	3 459 380	7 710 686	122 411
Stage 3 - Impairment					(4 666 097)	(26 786)
POCI		-	-	-	725 705
Impairment-POCI					(221 470)	-
Net amount					3 548 824	95 625

The tables below present the quality of ‘Loans and advances to business customers measured at fait value through other comprehensive income’ broken down into stages as at 31.12.2021 and in the comparative period:

		Loans and advances to customers measured at fair value through OCI
31.12.2021	Risk level according to rating groups	Stage 1	Stage 2	Stage 3	Total

	very good	-	-	-	-
	good	1 332 096	-	-	1 332 096
	average	400 799	-	-	400 799
	acceptable	-	-	-	-
	weak	-	-	-	-
Gross amount		1 732 895	-	-	1 732 895
					-
Impairment		(3 047)	-	-	(3 047)
Net amount		1 729 848	-	-	1 729 848

		Loans and advances to customers measured at fair value through OCI
31.12.2020	Risk level according to rating groups	Stage 1	Stage 2	Stage 3	Total

	very good	-	-	-	-
	good	1 208 122	-	-	1 208 122
	average	200 798	-	-	200 798
	acceptable	-	-	-	-
	weak	-	-	199 392	199 392
Gross amount		1 408 920	-	199 392	1 608 312
					-
Impairment		(1 292)	-	(50 229)	(51 521)
Net amount		1 407 628	-	149 163	1 556 791

The tables below present the quality of financial assets of Santander Bank Polska Group broken down into stages and by ratings as at 31.12.2021 and in the comparative period:

Stage 1
31.12.2021	Loans and advances to banks	Loans and advances to customers - Debt securities measured at amortised cost	Debt and equity securities measured at fair value through other comprehensive income	Debt investment securities measured at amortised cost	Debt and equity securities measured at fair value through profit or loss	Financial assets held for trading
Credit quality level *
1 (AAA to AA-)	143 300	-	1 379 157	-	120 404	-
2 (A+ to A-)	2 237 140	-	68 682 163	1 421 272	-	307 684
3 (BBB+ to BBB-)	188 622	-	-	-	-	3 510
4 (BB+ to BB-)	40	-	-	-	-	-
5 (B+ to B-)	16	-	-	-	-	-
6 (<B-)	-	-	-	-	-	-
none	121 134	173 052	259 788	-	-	50 485
Total Stage 1	2 690 252	173 052	70 321 108	1 421 272	120 404	361 679
* according to Fitch

There are no instruments in Stage 2 as at 31 December 2021.

Stage 3
31.12.2021	Loans and advances to banks	Loans and advances to customers - Debt securities measured at amortised cost	Debt and equity securities measured at fair value through other comprehensive income	Debt investment securities measured at amortised cost	Debt and equity securities measured at fair value through profit or loss	Financial assets held for trading
Credit quality level *
1 (AAA to AA-)	-	-	-		-	-
2 (A+ to A-)	-	-	-		-	-
3 (BBB+ to BBB-)	-	-	-		-	-
4 (BB+ to BB-)	-	-	-		-	-
5 (B+ to B-)	-	-	-		-	-
6 (<B-)	-	-	-		-	-
none	-	217 882	3 476		-	-
Total Stage 3	-	217 882	3 476		-	-
* according to Fitch

Stage 1
31.12.2020	Loans and advances to banks	Loans and advances to customers - Debt securities measured at amortised cost	Debt and equity securities measured at fair value through other comprehensive income	Debt and equity securities measured at fair value through profit or loss	Financial assets held for trading
Credit quality level *
1 (AAA to AA-)	131 638	-	850 966	226 051	-
2 (A+ to A-)	2 252 946	-	64 849 086	-	158 166
3 (BBB+ to BBB-)	522 783	-	-	-	2 061
4 (BB+ to BB-)	-	-	-	-	-
5 (B+ to B-)	324	-	-	-	-
6 (<B-)	-	-	-	-	-
none	18 831	41 210	857 331	-	18 571
Total Stage 1	2 926 522	41 210	66 557 383	226 051	178 799
* according to Fitch

Stage 2
31.12.2020	Loans and advances to banks	Loans and advances to customers - Debt securities measured at amortised cost	Debt and equity securities measured at fair value through other comprehensive income	Debt and equity securities measured at fair value through profit or loss	Financial assets held for trading
Credit quality level *
1 (AAA to AA-)	-	-	-	-	-
2 (A+ to A-)	-	-	-	-	-
3 (BBB+ to BBB-)	-	-	-	-	-
4 (BB+ to BB-)	-	-	-	-	-
5 (B+ to B-)	-	-	-	-	-
6 (<B-)	-	-	-	-	-
none	-	6 667	-	-	-
Total Stage 2	-	6 667	-	-	-

* according to Fitch

Stage 3
31.12.2020	Loans and advances to banks	Loans and advances to customers - Debt securities measured at amortised cost	Debt and equity securities measured at fair value through other comprehensive income	Debt and equity securities measured at fair value through profit or loss	Financial assets held for trading
Credit quality level *
1 (AAA to AA-)	-	-	-	-	-
2 (A+ to A-)	-	-	-	-	-
3 (BBB+ to BBB-)	-	-	-	-	-
4 (BB+ to BB-)	-	-	-	-	-
5 (B+ to B-)	-	-	-	-	-
6 (<B-)	-	-	-	-	-
none	-	282 964	7 492	-	-
Total Stage 3	-	282 964	7 492	-	-

* according to Fitch

Loans and advances to banks are assessed using ratings. The assessment method was set out in the Group’s internal regulations. Each institutional client (exposure) is assigned a rating by one of the reputable rating agencies (Fitch, Moody’s, S&P), in accordance with the CRR. Then, a relevant grade is allocated to the client. There are no overdue or impaired loans and advances to banks.

Financial instruments are assessed in accordance with the sovereign rating (treasury bonds, securities issued by the National Bank of Poland [NBP], Bank Gospodarstwa Krajowego [BGK] debt instruments). The sovereign rating is the same as the NBP/BGK rating. All have the same rating as Poland, according to Fitch it is A-.

For all instruments presented above (including also loans and advances to customers measured at fair value through other comprehensive income), there is no overdue or impairment, therefore they are classified to Stage 1. In accordance with its definition- as exposures with no significant increase in risk since initial recognition, i.e. the likelihood of the exposure being downgraded to the impaired portfolio (Stage 3)has not increased. For such exposures, 12-month expected credit losses will be recognized.

The significant majority of exposures at fair value through profit or loss (95% of the credit card portfolio) was rated 'average' or above (good, very good).

Credit exposures with assistance tools due to COVID-19

In connection with the crisis caused by the COVID-19 pandemic, Santander Bank Polska S.A. Group offered its clients a number of assistance tools aimed at temporarily reducing their financial liabilities.

The range of tools included:

1) debt moratoria resulting from the banks' position regarding the unification of the rules for offering aid tools to clients of the banking sector (i.e. non-legislative moratorium within the meaning of the guidelines of the European Banking Authority (EBA)),

2) Anti-Crisis Shield 4.0. (legislative moratoria);

3) financing to stabilize the liquidity situation, under which BGK collaterals were used;

The table below presents data on the assistance tools provided by the Group as part of initiatives aimed at mitigating the negative effects of the COVID-19 epidemic as at 31 December 2021.

Type of assistance tool	Number of clients with granted assistance tools	Gross carrying amount of granted assistance tools (kPLN)
non-legislative moratoria	146 809	16 110 055
legislative moratoria	3 681	250 187
Moratoria	150 490	16 360 242
liquidity BGK	20 670	5 103 184
All assistance tools	171 160	21 463 426

The table below shows the size of the provided assistance tools in the form of statutory and non-statutory moratoria as at 31 December 2021.

				Gross carrying amount
	Granted	Expired	Active		Performing			Non performing
					Of which: exposures with forbearance measures	Of which: Instruments with SICR but not credit-impaired (Stage 2)		Of which: exposures with forbearance measures	Of which: Unlikely to pay that are not past-due or past-due <= 90 days
					Of which: exposures with forbearance measures			Of which: exposures with forbearance measures
Loans and advances subject to moratorium	16 360 242	16 360 240	2	15 151 134	1 225 689	2 407 265	1 209 108	576 487	688 955
of which: Households	7 150 734	7 150 732	2	6 402 190	168 711	483 166	748 544	368 709	420 210
Santander Bank Polska	6 421 603	6 421 603	-	5 826 145	168 533	367 330	595 458	358 109	373 526
Santander Consumer Bank	729 126	729 124	2	576 040	178	115 836	153 086	10 600	46 684
Santander Leasing	5	5	-	5	-	-	-	-	-
Collateralised by residential immovable property	5 368 497	5 368 497	-	5 065 225	123 915	309 739	303 272	224 539	258 512
Santander Bank Polska	5 099 241	5 099 241	-	4 822 221	123 915	275 643	277 020	222 849	240 899
Santander Consumer Bank	269 256	269 256	-	243 004	-	34 096	26 252	1 690	17 613
Consumer loans	1 782 237	1 782 235	2	1 336 965	44 796	173 427	445 272	144 170	161 698
Santander Bank Polska	1 322 362	1 322 362	-	1 003 924	44 618	91 687	318 438	135 260	132 627
Santander Consumer Bank	459 870	459 868	2	333 036	178	81 740	126 834	8 910	29 071
Santander Leasing	5	5	-	5	-	-	-	-	-
of which: Non-financial corporations	9 209 508	9 209 508	-	8 748 944	1 056 977	1 924 099	460 564	207 778	268 745
Santander Bank Polska	7 784 261	7 784 261	-	7 405 030	1 056 977	1 700 619	379 231	207 778	224 343
Santander Consumer Bank	301 169	301 169	-	297 298	-	5 267	3 871	-	659
Santander Leasing	1 124 078	1 124 078	-	1 046 616	-	218 213	77 462	-	43 743
SME loans	2 065 106	2 065 106	-	1 803 814	83 099	256 835	261 292	95 651	119 251
Santander Bank Polska	1 765 638	1 765 638	-	1 518 019	83 099	239 495	247 619	95 651	112 877
Santander Consumer Bank	223 621	223 621	-	219 907	-	5 267	3 714	-	502
Santander Leasing	75 847	75 847	-	65 888		12 073	9 959	-	5 872
Corporate loans	7 144 402	7 144 402	-	6 945 130	973 878	1 667 264	199 272	112 127	149 494
Santander Bank Polska	6 018 623	6 018 623	-	5 887 011	973 878	1 461 124	131 612	112 127	111 466
Santander Consumer Bank	77 548	77 548	-	77 391	-	-	157	-	157
Santander Leasing	1 048 231	1 048 231	-	980 728	-	206 140	67 503	-	37 871

Data for Santander Consumer Bank concern whole SCB Group

			Accumulated impairment, accumulated negative changes in fair value due to credit risk
	Gross carrying amount of granted moratoria	Accumulated impairment		Performing			Non performing
				Of which: exposures with forbearance measures	Of which: Instruments with SICR but not credit-impaired (Stage 2)		Of which: exposures with forbearance measures	Of which: Unlikely to pay that are not past-due or past-due <= 90 days
				Of which: exposures with forbearance measures			Of which: exposures with forbearance measures
Loans and advances subject to moratorium	16 360 242	(857 099)	(233 594)	(85 106)	(160 932)	(623 505)	(257 956)	(292 420)
of which: Households	7 150 734	(485 599)	(86 713)	(9 919)	(46 742)	(398 886)	(167 652)	(185 897)
Santander Bank Polska	6 421 603	(355 133)	(56 641)	(9 918)	(25 545)	(298 492)	(160 931)	(158 749)
Santander Consumer Bank	729 126	(130 466)	(30 072)	(1)	(21 197)	(100 394)	(6 721)	(27 148)
Santander Leasing	5	-	-	-	-	-	-	-
Collateralised by residential immovable property	5 368 497	(122 316)	(19 623)	(3 634)	(12 188)	(102 693)	(73 757)	(86 198)
Santander Bank Polska	5 099 241	(104 151)	(15 886)	(3 634)	(9 161)	(88 265)	(72 976)	(76 866)
Santander Consumer Bank	269 256	(18 165)	(3 737)	-	(3 027)	(14 428)	(781)	(9 332)
Consumer loans	1 782 237	(363 283)	(67 090)	(6 285)	(34 554)	(296 193)	(93 895)	(99 699)
Santander Bank Polska	1 322 362	(250 982)	(40 755)	(6 284)	(16 384)	(210 227)	(87 955)	(81 883)
Santander Consumer Bank	459 870	(112 301)	(26 335)	(1)	(18 170)	(85 966)	(5 940)	(17 816)
Santander Leasing	5	-	-	-	-	-	-	-
of which: Non-financial corporations	9 209 508	(371 500)	(146 881)	(75 187)	(114 190)	(224 619)	(90 304)	(106 523)
Santander Bank Polska	7 784 261	(335 320)	(140 066)	(75 187)	(110 211)	(195 254)	(90 304)	(95 244)
Santander Consumer Bank	301 169	(3 769)	(1 426)	-	(131)	(2 343)	-	(427)
Santander Leasing	1 124 078	(32 411)	(5 389)	-	(3 848)	(27 022)	-	(10 852)
SME loans	2 065 106	(224 220)	(52 743)	(13 181)	(33 688)	(171 477)	(66 723)	(73 067)
Santander Bank Polska	1 765 638	(216 594)	(51 203)	(13 181)	(33 316)	(165 391)	(66 723)	(71 311)
Santander Consumer Bank	223 621	(3 476)	(1 160)	-	(131)	(2 316)	-	(400)
Santander Leasing	75 847	(4 150)	(380)	-	(241)	(3 770)	-	(1 356)
Corporate loans	7 144 402	(147 280)	(94 138)	(62 006)	(80 502)	(53 142)	(23 581)	(33 456)
Santander Bank Polska	6 018 623	(118 726)	(88 863)	(62 006)	(76 895)	(29 863)	(23 581)	(23 933)
Santander Consumer Bank	77 548	(293)	(266)	-	-	(27)	-	(27)
Santander Leasing	1 048 231	(28 261)	(5 009)	-	(3 607)	(23 252)	-	(9 496)

Debt moratoria resulting from COVID-19 do not automatically result in the derecognition of financial instruments. Modifications resulting from the support provided to clients under the statutory and non-statutory programs resulting from COVID-19 were assessed in accordance with the qualitative and quantitative criteria applied by Group.

Credit risk concentration

Santander Bank Polska Group adheres to the standards provided for in the Banking Law with regard to the concentration of risk bearing exposures to a single entity or a group of entities connected in terms of capital or organisation. As at 31.12.2021, pursuant to art. 71 of the Banking Law Act, the maximum limits for the Group amounted to:

· PLN 6,279,286 k (25% of Group’s own funds).

As at 31.12.2020, pursuant to art. 71 of the Banking Law Act, the maximum limits for the Group amounted to:

· PLN 6,775,402 k (25% of Group’s own funds).

The policy pursued by the Group aims at minimising the credit concentration risk, by for example applying more rigorous than regulatory rules in this respect. The effect of this policy is maintenance of high level of diversification of exposures towards individual customers.

The analysis of the Group’s exposures in terms of sector concentrations, proved that the Group does not have any exposures in excess of the limits imposed by the regulator in 2020.

A list of the 20 largest borrowers (or capital-related group of borrowers) of Santander Bank Polska Group (performing loans) as at 31.12.2021.

Industry code (PKD)	Industry description	Total credit exposure	Balance sheet exposure incl. towards subsidiaries	Committed credit lines, guarantees, treasury limits and capital investments
35	POWER INDUSTRY	1 875 000	-	1 875 000
61	TELECOMMUNICATION	1 690 600	1 052 200	638 400
64	OTHER FINANCIAL SERVICES	1 499 580	447 580	1 052 000
61	TELECOMMUNICATION	1 400 340	388 940	1 011 400
06	MINING	1 334 520	1 250 020	84 500
65	REINSURANCE	1 101 640	740 760	360 880
68	REAL ESTATE SERVICES	1 029 780	977 350	52 430
35	POWER INDUSTRY	981 300	175 610	805 690
19	RAFINERY	900 990	-	900 990
68	REAL ESTATE SERVICES	836 450	585 220	251 230
56	OTHER SERVICES	717 400	572 890	144 510
19	RAFINERY	714 320	76 320	638 000
19	RAFINERY	601 210	-	601 210
41	CONSTRUCTION	559 500	-	559 500
41	CONSTRUCTION	558 020	496 530	61 490
64	OTHER FINANCIAL SERVICES	550 000	-	550 000
20	CHEMICAL INDUSTRY	524 170	29 120	495 050
07	MINING	454 920	-	454 920
41	CONSTRUCTION	451 960	378 840	73 120
20	CHEMICAL INDUSTRY	440 430	386 430	54 000
Total gross exposure		18 222 130	7 557 810	10 664 320

A list of the 20 largest borrowers (or capital-related group of borrowers) of Santander Bank Polska Group (performing loans) as at 31.12.2020.

Industry code (PKD)	Industry description	Total credit exposure	Balance sheet exposure incl. towards subsidiaries	Committed credit lines, guarantees, treasury limits and capital investments
35	POWER INDUSTRY	1 875 000	-	1 875 000
61	TELECOMMUNICATION	1 630 420	1 157 140	473 280
64	OTHER FINANCIAL SERVICES	1 500 000	-	1 500 000
06	MINING	1 304 520	20	1 304 500
19	RAFINERY	1 159 970	567 040	592 930
68	REAL ESTATE SERVICES	1 075 060	1 022 450	52 610
65	REINSURANCE	1 050 810	658 560	392 250
35	POWER INDUSTRY	985 000	296 400	688 600
68	REAL ESTATE SERVICES	843 680	501 810	341 870
56	OTHER SERVICES	757 360	567 400	189 960
41	CONSTRUCTION	729 500	-	729 500
35	POWER INDUSTRY	724 320	-	724 320
61	TELECOMMUNICATION	631 620	499 620	132 000
47	RETAIL SALES	625 960	446 100	179 860
41	CONSTRUCTION	583 490	521 790	61 700
64	OTHER FINANCIAL SERVICES	550 000	-	550 000
68	REAL ESTATE SERVICES	501 520	413 060	88 460
64	OTHER FINANCIAL SERVICES	499 900	447 900	52 000
07	MINING	475 640	-	475 640
70	CONSULTING	447 380	403 120	44 260
Total gross exposure		17 951 150	7 502 410	10 448 740

Industry concentration

The credit policy of Santander Bank Polska Group assumes diversification of credit exposures. Risk of particular industry affects value of the exposure limit. In order to ensure adequate portfolio diversification and control the risk of overexposure to a single industry, the Group provides funding to sectors and groups or capital units representing a variety of industries.

As at 31.12.2021, the highest concentration level was recorded in the “manufacturing” sector (11% of the Santander Bank Polska Group exposure), “distribution” (10%) and “property” (7%).

Groups of PKD by industries:

	Industry	Gross exposure
	Industry	31.12.2021	31.12.2020
	Manufacturing	17 728 361	15 788 888
	Distribution	16 427 676	14 710 131
	Property	8 510 502	9 662 269
	Energy	4 324 956	3 899 942
	Transportation	3 586 606	2 776 831
	Agriculture	2 790 830	2 973 004
	Construction	2 021 929	1 686 964
	Financial sector	1 664 713	3 108 555
	Other industries	9 592 830	8 745 148
A	Total Business Loans	66 648 403	63 351 732
B	Retail (including mortgage loans)	85 126 409	82 447 109
A+B	Santander Bank Polska Group portfolio	151 774 812	145 798 841
C	Other receivables (commercial bonds)	49 224	26 665
A+B+C	Total Santander Bank Polska Group	151 824 036	145 825 506

Climate related risk

Climate and environmental protection are key areas under the Responsible Banking Strategy of Santander Bank Polska S.A. One of the pillars of the Strategy is Green Banking, whose overarching goal is to counteract the effects of climate change. As part of its activities, the Bank is committed to:

· offering green products and solutions;

· undertaking educational initiatives addressed to customers, employees and local communities;

· implementing internal initiatives aimed at reducing the bank's environmental footprint.

The Bank supports customers in implementing long-term strategies to transform their businesses to make them more environmentally friendly and sustainable. Santander Bank Polska S.A. actively participates in the green transformation of the Polish energy sector, and in the upcoming years will continue financing the transition from coal-based to renewable energy. As one of Poland’s largest banks, Santander Bank Polska S.A. is aware of its role in the transformation of the Polish economy and the importance of its actions, policies and lending for that process.

At Santander Bank Polska S.A. environmental matters are embedded in decision-making processes. The ESG (environmental, social, governance) guidelines are used for evaluating the assets to be financed by the Bank.

More broadly, issues related to climate goals, climate policy as well as initiatives and actions taken by the Bank and the Group are described in the Management Board Report on Santander Bank Polska Group Performance in 2021 (including Report on Santander Bank Polska Performance) chapter XIV “Statement on Non-Financial Information for 2021”.

The Bank and the Group entities considered the climate-related risks when preparing the financial statements in accordance with International Financial Reporting Standards, and where necessary, the Standards were applied in a manner that takes this into account.

The subject of the considerations was, in particular, the impact of environmental issues on the Bank and the Group's entities in the context of the application of:

- IAS 1: Presentation of Financial Statements

- IAS 12: Income Taxes

- IAS 36: Impairment of Assets

- IFRS 9: Financial Instruments

- IFRS 13: Fair Value

- IAS 37: Provisions, Contingent Liabilities and Contingent Assets

At the same time, based on the conducted analysis, no significant impact of environmental issues on the financial statements as a whole was found.

ESG risk management as part of the risk management framework

Santander Bank Polska S.A. recognises that environmental and climate-related risks may affect the bank's operations in the medium to long term. Risks result from factors related to the physical effects of climate change (caused by one-off events as well as by chronic changes in the environment), as well as from factors embedded in the transition to the growth model characterised by lower emissions with changes in legislation and technology, and in behaviours of business entities. Climate risk is one of the key risks that have been identified as having adverse impact on the Bank’s reputation among its employees, customers, shareholders/ investors, and communities.

Since 2015, ESG governance has been regulated by appropriate policies. The Bank has been consistently introducing ESG risk management procedures in all its business lines, and has identified social and environmental risks (including climate risks) related to financing customers from sensitive sectors. With regard to its largest clients (from the Business and Investment Banking segment), the Bank has conducted an analysis and prepared a roadmap to transforming coal-based power generation services into low-emission energy sources.

The Bank analyses the impact of climate-related opportunities and threats on its business, strategy and financial plans in the short, medium and long term. When taking credit decisions, the Bank is aware that relying solely on historical financial data may lead to misguided conclusions. But if this process is supported by an analysis of non-financial data, this may shed new light on risk perception and capital allocation. In the opinion of Santander Bank Polska S.A. the environmental risk analysis enhances the traditional credit risk analysis, and non-financial data permit a better understanding of the borrower's exposure to environmental and climate change risks.

Better quality of available non-financial data means better quality of risk analysis, which in turn helps lower costs for the Bank and borrowers. In 2022, Santander Bank Polska S.A. is going to implement the Sustainable Finance Identification System for selected customer segments (largest customers, mortgage and leasing customers).

The Group has identified the following climate-related risk factors as having an impact on the Group’s financial instruments and included them in its principal risk management processes.

– Industries exposed to increased transition risks: The Group has identified industries that are subject to increased risk of climate regulation negatively affecting their business model. The Group Credit Committee has set overall lending limitation for these industries.

– Physical risk to real estate: The Group has identified areas in which it operates that are exposed to increased physical risk such as hurricanes or floods. Heightened physical risk is considered in valuing collateral, such as real estate, plant or inventory. Stress Test relating this risk is under preparation, and should be executed Q3 2022.

Responsibility for ESG risk management

The responsibility for planning the activities of Santander Bank Polska S.A. under the Responsible Banking strategy rests with the ESG Forum, which is chaired by the Bank's CEO, and consists of 11 representatives of all divisions of the Bank. The Forum’s role is to analyse challenges, opportunities and risks related to the EU Sustainable Finance agenda, including ESG risks, and to plan activities, and coordinate their implementation at the Bank.

The ESG Forum regularly reports the results of its work to the Bank's Management Board and, twice a year, to the Responsible Banking and Organisational Culture Committee.

The Bank’s Management Board is responsible for supervising and approving the responsible banking strategy and ensuring that ESG criteria are reflected in the Bank’s overall business strategy (in the short-, medium- and/or long term), and in the risk management framework.

At Santander Bank Polska S.A. all members of the Management Board are responsible for ESG risks. The Risk Management Division acts as the second line of defense in ESG risk management.

Market risk

Introduction

Market risk is defined as an adverse earnings impact of changes in interest rates, FX rates, share quotations, stock exchange indices, etc. It arises both in trading and banking activity (FX products, interest rate products, equity linked trackers).

Santander Bank Polska Group is exposed to market risk arising from its activity in money and capital markets and services provided to customers. Additionally, the Group undertakes the market risk related to the active management of balance sheet structure (assets and liabilities management).

The activity and strategies on market risk management are directly supervised by the Market and Investment Risk Committee and are pursued in accordance with the framework set out in the Market Risk Policy and the Structural Risk Policy approved by the Management Board and the Supervisory Board.

Risk management structure and organisation

The key objective of the market risk policy pursued by the Group is to reduce the impact of variable market factors on the Group’s profitability and to grow income within the strictly defined risk limits while ensuring the Group’s liquidity and market value.

The market risk policies of Santander Bank Polska Group establish a number of risk measurement and mitigation parameters in the form of limits and metrics. Risk limits are periodically reviewed to align them with the Group’s strategy.

Interest rate and FX risks linked to the banking business are managed centrally by the Financial Management Division. The Division is also responsible for acquiring funding, managing liquidity and making transactions on behalf of ALCO. This activity is controlled by the measures and limits approved by the Market and Investment Risk Committee, the bank’s Management Board and the Supervisory Board.

The debt securities and the interest rate and FX hedging portfolio is managed by ALCO, which takes all decisions on the portfolio’s value and structure.

The market risk on the trading portfolio is managed by the Corporate and Investment Banking Department, which is also responsible for the activities of Santander Brokerage Poland. The Group’s trading activity is subject to a system of measures and limits, including Value at Risk, stop loss, position limits and sensitivity limits. These limits are approved by the Market and Investment Risk Committee, the bank’s Management Board and the Supervisory Board.

The Financial Risk Department within the Risk Management Division is responsible for ongoing risk measurement, implementation of control procedures and risk monitoring and reporting. The Department is also responsible for shaping the market risk policy, proposing risk measurement methodologies and ensuring consistency of the risk management process across the Group. Owing to the fact that the Department is a part of the Risk Management Division, the risk measurement and monitoring processes are separate from the risk-taking units.

The market risk of equity instruments held by Santander Brokerage Poland (shares, index-linked securities) is managed by Santander Brokerage Poland itself and supervised by the Market and Investment Risk Committee of Santander Bank Polska S.A.

The bank’s Market and Investment Risk Committee, chaired by the Management Board member in charge of the Risk Management Division, is responsible for independent control and monitoring of market risk in the banking and trading books.

Risk identification and measurement

The trading book of Santander Bank Polska Group contains securities and derivatives held by the Corporate and Investment Banking Division for trading purposes. The instruments are marked to market each day, and any changes in their value are reflected in the profit and loss. Market risk in the trading book includes interest rate risk, currency risk and repricing risk.

The interest rate risk in the Group’s banking book is the risk of adverse impact of interest rate changes on the Group’s income and the value of its assets and liabilities. Interest rate risk arises primarily on transactions entered in the bank’s branches and in the business and corporate centres, as well as the transactions made in the wholesale market by the Financial Management Division. Additionally, interest rate risk can be generated by transactions concluded by other units, e.g. through acquisition of municipal/ commercial bonds or the bank’s borrowings from other sources than the interbank market.

Santander Bank Polska Group uses several methods to measure its market risk exposure. The methods employed for the banking portfolio are the MVE and NII sensitivity measures, stress tests and Value at Risk (VaR), while the methods used for the trading portfolio include: VaR and stressed VaR, stop loss, sensitivity measures (PV01) and stress tests. The risk measurement methodology is subject to an independent initial and periodic validation, the results of which are presented for approval to the Market and Investment Risk Committee.

At Santander Bank Polska Group, the VaR in the trading portfolio is determined using a historical method as a difference between the mark-to-market value of positions and the market values based on the most severe movements in market rates from a determined observation window. VaR is calculated separately for interest rate risk, FX risk and the two risks at the same time. VaR is also calculated for the repricing risk of the equity instruments portfolio of Santander Brokerage Poland.

Due to the limitations of the VaR methodology, the Group additionally performs sensitivity measurement (showing how position values change in reaction to price/profitability movements), Stressed VaR measurement and stress tests.

Risk reporting

The responsibility for reporting market risk rests with the Risk Management Division, specifically the Financial Risk Department.

Each day, the Financial Risk Department controls the market risk exposure of the trading book in accordance with the methodology laid down in the Market Risk Policy. It verifies the use of risk limits and reports risk levels to units responsible for risk management in the trading book, to Santander Group and to the Market and Investment Risk Committee.

Once a month, the Financial Risk Department provides information about the risk exposure of the trading book and selected measures to the Market and Investment Risk Committee and prepares the Risk Dashboard (in cooperation with other units of the Risk Management Division), which is presented to the Risk Management Committee.

The results of market risk measurement with regard to the banking book are reported by the Financial Risk Department to persons responsible for operational management of the bank’s balance sheet structure and to persons in charge of structural risk management on a daily basis (information about the ALCO portfolio) or on a monthly basis (interest rate gap, NII and MVE sensitivity measures, stress test results, VaR). This information is also reported each month to the bank’s senior executives (Market and Investment Risk Committee, ALCO). The selected key interest rate risk measures, including risk appetite measures defined for the Group’s banking book, are reported to the bank’s Management Board and Supervisory Board.

Risk prevention and mitigation

The Bank has adopted a conservative approach to risk-taking both in terms of the size of exposures and the types of products. A large portion of the Financial Market Area activity revolves around mitigating the risk related to customer transactions at the retail and corporate level. In addition, flows from customer transactions are generally for non-market amounts and tenors and thus risk capacity is required to manage these mismatches with wholesale transactions.

From the Bank’s perspective, the market risk limits are small and are in place to allow sufficient capacity and time to neutralise interest rate risk and foreign exchange risks, while at the same time allowing the Financial Market Area to hold some of portfolio positions opened to add value to the organisation.

There is a greater emphasis placed on market making over pure mark to market trading and this is reflected in both limit utilisation and budgetary targets of Financial Market Area.

The combination of transactions made by the Financial Market Area and positions transferred from the bank arising from customers’ FX and derivative activity create the overall interest rate and currency risk profiles, which are managed under the policy and operational limits in place. The Financial Market Area subsequently decides either to close these positions or keep them open in line with market view and approved limits. The return earned is a mix of flow management and market making. However, there is no intention to keep aggressive trading positions.

The interest rate and currency risk of the Financial Market Area is managed via the trading book in accordance with the Market Risk Policy approved by the Management Board. Accounting and risk systems help to ensure allocation of each position into appropriate books. The relevant desks are responsible for suitable risk activity (interest rate or currency risk).

To ensure that the trading book positions are marketable, the bank controls the gross value of the positions (separately long and short positions) versus the entire market. This is to check if it is technically possible to close an open position one way, without taking into account other closings. The control is performed by the Financial Risk Department separately for currency positions and interest rate positions. The control results are reported to the Financial Market Area.

As regards market risk in the banking book, all positions that generate repricing risk are transferred for management to the Financial Management Division, responsible for shaping the bank’s balance sheet structure, including by entering into transactions in the interbank market so as to manage the interest rate risk profile according to the approved risk strategy and in compliance with the allocated risk limits.

The bank’s subsidiaries also mitigate their exposure to interest rate risk. If there is a mismatch between the repricing of assets and liabilities, the company enters into appropriate transactions via the standard bank accounts held with the bank or makes derivative transactions with the bank, which from the transaction date manages the risk as part of the global limit of Santander Bank Polska Group.

The interest rate risk in the banking book is managed based on the following limits:

· NII sensitivity limit (the sensitivity of net interest income to a parallel shift of the yield curve by 100 bp);

· MVE sensitivity limit (the sensitivity of the market value of equity to a parallel shift of the yield curve by 100 bp).

The sensitivity measures for 2021 and 2020 are shown in the table below (in PLN m). It presents the results of scenarios, in which the impact of changes in interest rates on interest income and the economic value of capital would be negative.

	NII Sensitivity		MVE Sensitivity
1 day holding period	31.12.2021	31.12.2020	31.12.2021	31.12.2020
Maximum	552	410	832	613
Average	440	334	480	339
as at the end of the period	291	396	356	135
Limit	700	505	875	540

In 2021, the interest rate risk limits, notably the MVE sensitivity limit, were utilised to a larger extent due to dynamic growth in the balance and stable part of the non-interest bearing and non-maturity deposit portfolio resulting from interest rate cuts and inflow of funds as part of state aid schemes connected with the Covid-19 pandemic. The above factors led to the decision to increase the sensitivity limits in July 2021. Since October, the levels of limit utilization have decreased significantly, mainly due to a series of interest rate increases by the Monetary Policy Council and a more realistic modeling of deposits without a maturity date, taking into account the latest history of the massive inflow of funds during the COVID-19 pandemic in the models.

VaR in the banking portfolio is calculated separately as a combined effect of EaR (Earnings-at-Risk) and EVE VaR (value at risk of the economic value of equity).

The key methods of measurement of the interest rate risk in the trading book include the VaR methodology, stop loss, PV01 sensitivity measurement and stress tests.

The VaR is set for open positions of the Financial Market Area using the historical simulations method. Under this method the bank estimates the portfolio value of 520 scenarios generated on the basis of historically observable changes in market parameters. VaR is then estimated as the difference between the current valuation and the valuation of the 99^th percentile of the lowest valuations.

The stop-loss mechanism is used to manage the risk of loss on positions subject to fair value measurement through profit or loss.

Stress tests are used in addition to these measures by providing an estimate of the potential losses in the event of materialisation of the stressed conditions in the market. The assumptions of stress scenarios are based on sensitivity reports and on extreme market rate movement scenarios set using the highest daily and monthly changes in interest rates.

The table below shows risk measures at the end of 2021 and 2020 for 1-day position holding period (in PLN m):

Interest rate risk		VAR
1 day holding period		31.12.2021	31.12.2020
Average	4 395		3 308
Maximum	19 540		25 900
Minimum	657		658
as at the end of the period	2 703		684
Limit	9 744		6 645

In 2021, the VaR limit for interest rate risk was exceeded in October and November, with a slight excess in December. The excesses resulted from the elevated fluctuations in the interest rate market due to several decisions taken by the Monetary Policy Council to increase the reference rate. When the excesses occurred, the Bank limited its open interest rate position, which was directly reflected in the low utilisation of BPV limits. In addition, the Bank’s Market and Investment Risk Committee increased VaR limits for the interest rate risk in the trading book to adapt them to the current market situation. In the first half of the year, the Bank continued handling the pandemic relief programmes of the state development bank BGK and the Polish Development Fund. As a result, in its trading book the Bank had to maintain temporary positions in bonds issued by the above entities. In those periods, the maximum observed VaR levels above the limit were approved by the Supervisory Board.

FX risk is the risk that adverse movements in foreign exchange rates will have an impact on performance (and result in losses). This risk is managed on the basis of the VaR limit for the open currency positions in the Group’s trading portfolio and the portfolio of Santander Brokerage Poland which manages open positions linked to the market maker activity. Stress tests are used in addition to this measure by providing an estimate of the potential losses in the event of materialisation of the stressed conditions in the market. Stress tests use the currency exposure and the scenarios of extreme movements in currency rates based on historical data. Furthermore, the stop-loss mechanism is used for managing the risk of losses on trading positions.

In accordance with its policy, the Group does not maintain open positions on currency options. Transactions made with customers are immediately closed in the interbank market thus limiting the Group’s exposure to the market risk on the currency options portfolio.

Open FX positions of subsidiaries are negligible and are not included in the daily risk estimation. In the case of Santander Consumer Bank S.A., it has a separate banking license and independently manages risk, which management is controlled by the Market and Investment Risk Committee of Santander Bank Polska.

The table below illustrates the risk measures at the end of December 2021 and 2020 (in PLN m).

FX risk	VAR
1 day holding period	31.12.2021	31.12.2020
Average	614	552
Maximum	2 447	1 935
Minimum	62	80
as at the end of the period	538	294
Limit	3 045	2 769

In 2021, the VaR limit for currency risk was not exceeded.

The tables below present the Group’s key FX positions as at 31 December 2021 and in the comparable period.

31.12.2021	PLN	EUR	CHF	USD	Other	Total
ASSETS
Cash and balances with central banks	7 682 144	448 633	65 051	145 548	96 899	8 438 275
Loans and advances to banks	339 293	2 055 109	3 730	171 362	120 758	2 690 252
Loans and advances to customers	119 245 953	17 829 536	9 146 809	2 021 054	7 070	148 250 422
Investment securities	67 635 724	1 684 057	-	3 059 453	-	72 379 234
Selected assets	194 903 114	22 017 335	9 215 590	5 397 417	224 727	231 758 183
LIABILITIES
Deposits from banks	2 912 696	1 337 011	2 044	145 752	2 635	4 400 138
Deposits from customers	152 887 096	22 748 686	738 642	7 277 546	1 721 473	185 373 443
Subordinated liabilities	1 105 054	1 645 386	-	-	-	2 750 440
Selected liabilities	156 904 846	25 731 083	740 686	7 423 298	1 724 108	192 524 021

31.12.2020	PLN	EUR	CHF	USD	Other	Total
ASSETS
Cash and balances with central banks	4 558 891	583 758	67 043	197 415	82 196	5 489 303
Loans and advances to banks	335 280	2 254 910	8 514	184 021	143 797	2 926 522
Loans and advances to customers	111 674 539	19 096 814	9 756 230	1 442 389	28 773	141 998 745
Investment securities	63 615 215	1 653 383	-	2 158 108	-	67 426 706
Selected assets	180 183 925	23 588 865	9 831 787	3 981 933	254 766	217 841 276
LIABILITIES
Deposits from banks	3 437 500	1 505 140	625	428 810	1 237	5 373 312
Deposits from customers	142 718 944	19 336 810	580 336	7 305 705	1 580 460	171 522 255
Subordinated liabilities	1 104 696	1 649 909	-	-	-	2 754 605
Selected liabilities	147 261 140	22 491 859	580 961	7 734 515	1 581 697	179 650 172

The gap in the currency position in CHF results from the surplus of mortgage loans in CHF over deposits in this currency. It is gradually decreasing due to the repayment of the mortgage portfolio. CHF loans are now largely financed using CIRS transactions.. On the liabilities side, there was an increase in foreign currency deposits, mainly in EUR.

The risk attached to the prices of equity instruments listed in active markets is managed by Santander Brokerage Poland, which operates within the Corporate and Investment Banking Division. This risk is generated by own trades of Santander Brokerage Poland concluded in regulated markets (spot market instruments and futures).

It is measured using a Value at Risk model based on the historical analysis method.

The market risk management in Santander Brokerage Poland is supervised by the Market and Investment Risk Committee of Santander Bank Polska S.A. This Committee sets the VaR limit for Santander Brokerage Poland, approves changes in the risk measurement methodology and oversees the risk management process.

The table below presents the risk measures in 2021 and 2020 (in PLN m).

Equity risk	VAR
1 day holding period	31.12.2021	31.12.2020
Average	316	275
Maximum	595	729
Minimum	113	77
as at end of the period	364	240
Limit	1 969	1 846

In 2021, the VaR limit for equity risk was not exceeded.

Interest Rate Benchmark reform

In connection with the entry into force of the regulation of the European Parliament of July 2016 (2016/1011) regarding indices used as benchmarks for financial instruments and financial contracts (BMR Regulation) and the decision to terminate by the end of 2021 LIBOR indices calculation by ICE Benchmark Administration Limited (IBA), Santander Bank Polska launched a development program aimed at preparing the Bank for changes resulting from these decisions (IBOR Program).

In particular, the IBOR Program focuses on changes necessary to introduce new products based on interest rate indices compliant with the BMR Regulation, in particular indices replacing the interim LIBOR (mainly GBP, EUR, CHF and USD). At the same time, work is underway to prepare the Bank to introduce changes to transactions concluded with a maturity date / time after December 31, 2021, i.e. after the date of cessation of the LIBOR calculation.

The portfolios of the Bank and its Subsidiaries contain products based on EONIA and LIBOR rates for CHF, EUR, GBP and USD currencies respectively. The largest portfolio are mortgage contracts based on the LIBOR CHF rate (approximately 32 thousand contracts in SBP and approximately 14 thousand contracts in SCB). The second largest portfolio in terms of the number of contracts are mortgage contracts based on EUR LIBOR (approximately 1600 contracts).

According to the announcement issued by the FCA (Financial Conduct Authority) on 5th March 2021, LIBOR rates for all currencies, excluding LIBOR USD, will either cease to be provided by any administrator or no longer be representative at the end of 2021. In the case of LIBOR USD interest rate, all tenors, excluding 1-week and 2-month tenors, will be published until June 30, 2023.

For products based on the LIBOR CHF rate, the European Commission issued a decision, which was published on 14th October 2021 in the form of the Implementing Regulation. The European Commission has designated an alternative rate SARON as a substitute for the CHF LIBOR reference rate. Thanks to the decision issued by the European Commission, there is no need to individually renegotiate individual contracts with the customers. At the end of December 2021, a communication was sent to customers with products based on CHF LIBOR, informing about the application by the Bank of the Implementing Regulation of the European Commission and presenting a description of this solution. From 1st January 2022, all references to CHF LIBOR in contracts and financial instruments will be automatically replaced with references to the SARON rate. The Spread Adjustment will be applied to minimize the economic impact of introducing the substitute rate due to the difference between the LIBOR CHF and SARON values. The value of this adjustment is equal to the spread published for each relevant maturity and calculated on 5th March 2021 as the historical median of the difference between a given CHF LIBOR rate and the relevant compounded SARON rate over a five-year retrospective period for each given maturity. The replacement will take place automatically from 1st January 2022, and the contracts will be able to be continued without the need for the parties of the contract to intervene. The parties will be able to decide on a bilateral renegotiation of the agreements. In the event that the parties choose to do so, the rate settled in accordance with the Implementing Regulation will not apply.

For products based on the EONIA indicator, the European Commission Implementing Regulation published on 22th October 2021 applies. The Regulation designates the risk-free rate €STR as a substitute rate for the EONIA interest rate. A fixed value of the Spread Adjustment will also be applied between the EONIA and the €STR, in order to minimize the economic impact of introducing the substitute rate due to the difference between the EONIA and the €STR. The Bank's portfolio includes 19 contracts based on the EONIA rate.

For products based on the LIBOR EUR interest rate, the Bank decided to use EURIBOR as an alternative rate. For customers with mortgage loans, the final version of the annex to the contract has been delivered by mid-June 2021, along with the mandatory BMR information package.

For products based on the LIBOR GBP interest rate, the Bank decided to use SONIA as an alternative rate. For the customers with mortgages (9 contracts), the delivery of communication with annexes and the mandatory BMR information package to customers took place in the third quarter of 2021. For contracts without signed annexes, the Bank will apply the last interest rate determined according to the EUR LIBOR rate published in 2021 until the end of the contract term.

For products based on the LIBOR USD interest rate, the Bank decided to use SOFR as an alternative rate. According to the announcement issued by the FCA (Financial Conduct Authority) on 5th March 2021, the LIBOR USD interest rate for all tenors, excluding the 1-week and 2-month tenors, will be published until 30th June 2023. In connection with this announcement, the Bank mainly annexed agreements that are renewable products based on the USD LIBOR interest rate and multilines, for which one of the interest rates used was USD LIBOR.

In the portfolios of the Bank and its Subsidiaries, there are no LIBOR JPY exposures with maturity above year 2021.

The Bank monitors risks with regard to potential changes in WIBOR and EURIBOR rates. In 2020-2021, the Program focused on portfolios based on vanishing LIBOR and EONIA rates. In 2022, the program will be continued, the portfolios based on LIBOR USD, WIBOR, WIBID and EURIBOR will be the priority.

Actions have already been taken in the area of WIBOR and EURIBOR rates. For some products, contract templates containing fall-back clauses have been introduced. For the historical portfolio, exposures and annexed agreements introducing appropriate fallback clauses are monitored. For WIBOR and EURIBOR rates, where contracts were based on regulations or general financing conditions, changes were introduced by updating these documents. This applies to the deposit, lending and treasury areas in all customer segments.

Work under the IBOR Programme is carried out mainly by a wide range of experts representing all business lines of the Bank, supported by experts from renowned consulting companies, under the supervision of the Steering Committee, which consists mainly of members of the Management Board.

Work in Santander Bank Polska S.A. is coordinated with ongoing preparations both in subsidiaries and at the level of the entire Santander Group.

The tables present break down of assets and liabilities of Santander Bank Polska Group as at 31 December 2021:

31.12.2021	Gross Carrying Value		Notional	OF WHICH: Have yet to transition to an alternative benchmark interest rate (SARON) as at 31 December 2021:
	Assets	Liabilities		Assets	Liabilities	Notional
Assets and liabilities exposed to CHF LIBOR
Measured at amortised cost	9 275 285	-		9 275 285	-
Cash and balances at central banks	-	-		-	-
Loans and advances to/deposits from banks	-	-		-	-
Loans and advances to/deposits from customers	9 271 589	-		9 271 589	-
Reverse repurchase/repurchase agreements		-		-	-
Lease receivables/liabilities	3 696	-		3 696	-
Total carrying value of assets and liabilities exposed to CHF LIBOR	9 275 285	-		9 275 285	-

Trading derivatives (notional)			353 608			353 608
Hedging Derivatives (notional)			6 828 294			6 828 294

	Gross Carrying Value		Notional	OF WHICH: Have yet to transition to an alternative benchmark interest rate (SONIA and synthetic LIBOR) as at 31 December 2021:
	Assets	Liabilities		Assets	Liabilities	Notional
Assets and liabilities exposed to GBP LIBOR
Measured at amortised cost	25 293	-		25 293	-
Cash and balances at central banks	-	-		-	-
Loans and advances to/deposits from banks		-		-	-
Loans and advances to/deposits from customers	25 293	-		25 293	-
Reverse repurchase/repurchase agreements		-		-	-
Lease receivables/liabilities	-	-		-	-
Total carrying value of assets and liabilities exposed to GBP LIBOR	25 293	-		25 293	-
Derivatives (notional)			-			-

	Gross Carrying Value		Notional	OF WHICH: Have yet to transition to EURIBOR or last applied interest rate in 2021 as at 31 December 2021:
	Assets	Liabilities		Assets	Liabilities	Notional
Assets and liabilities exposed to EUR LIBOR
Measured at amortised cost	315 346	-		315 346	-
Cash and balances at central banks	-	-		-	-
Loans and advances to/deposits from banks	-	-		-	-
Loans and advances to/deposits from customers	310 818	-		310 818	-
Reverse repurchase/repurchase agreements		-		-	-
Lease receivables/liabilities	4 528	-		4 528	-	-
Total carrying value of assets and liabilities exposed to EUR LIBOR	315 346	-		315 346	-

Derivatives (notional)			-			-

The bank’s portfolio based on LIBOR rates as of 31st December 2021 will be migrated in January 2022. For LIBOR CHF and EONIA rates the migration respectively to SARON and €STR as designated by the Regulation of the European Commission took place starting from 1st and 3rd January 2022. Changes of indices are being made successively from the first interest period beginning in 2022, so they are made in different dates for particular contracts. Similarly, for the LIBOR GBP rate the migration to SONIA or Synthetic LIBOR takes place from the first full interest period beginning in 2022. For the LIBOR EUR rate switch to EURIBOR rate took place in relation to agreements for which clients accepted the new terms in the annexes from the first interest period following the annex signature. For the clients that did not sign the annexes proposed, the Bank will calculate the interests until the end of the agreement based on the last LIBOR EUR value used in 2021 for a particular contract.

In connection with the IBOR Reform, the Group is exposed to the following risks:

Business Risk:

Switching to alternative benchmarks may lead to a risk of abuse or misconduct towards clients, resulting in customer complaints, penalties or reputational damage. Possible risks include: risk of misleading customers, risk of market abuse (including insider dealing and market manipulation), risk of anti-competitive practices, both during and after the transition (e.g. collusion and exchange of information) and risks caused by conflicts of interest. The Group has strong transition management structures in place to ensure risk mitigation.

Price risk:

The transition to alternative benchmarks and the discontinuation of the use of interest rate benchmarks may affect the pricing mechanisms applied by the Group for certain transactions, including the establishment of a Standard Variable Rate applicable to mortgage loans. For some financial instruments, it will be necessary to develop new pricing models.

Risk associated with the interest rate base:

This risk consists of two components:

– if bilateral negotiations with the Group's counterparties are not successful before the IBOR ceases to apply, there is significant uncertainty as to the future interest rate. This situation leads to additional interest rate risk, which was not taken into account at the time of entering into contracts and is not the subject of our interest rate risk management strategy. For example, in some cases, provisions on the use of other indicators in contracts where the IBOR rate is applied, may result in the remaining period maintaining a fixed interest rate at the level of the last IBOR rate The Group works closely with all counterparties to avoid such a situation, but if it occurs, the interest rate risk management policy applied in the Group will be applied as standard and may result in liquidation of the interest rate swaps or the conclusion of new swaps to maintain the combination of variable and fixed interest rates for the debt held.

– interest rate risk may also arise where the transition to alternative benchmarks for non-derivatives and derivatives held to manage the interest rate risk associated with the non-derivative occurs at different times. This risk may also occur if you switch to different rates for back-to-back derivatives at different times. The Group will monitor that the risk management referred to above is carried out in accordance with the applicable risk management principles, updated to allow for a temporary mismatch not exceeding 12 months and to establish an additional basis for interest rate swaps, if required.

Liquidity risk:

The IBOR rates and alternative benchmarks to be adopted by the Group differ significantly. IBOR rates are forward-looking rates set for a specific period (e.g. three months) at the beginning of such a period and take into account the bank spread. Alternative benchmarks are usually risk-free overnight rates published at the end of the day that do not include a credit spread.

The differences referred to above will create additional uncertainty as to the payment of interest at variable interest rates, requiring additional liquidity management. The Group's liquidity risk management policies have been updated to ensure adequate liquid resources in the event of unexpected increases in overnight rates.

Accounting:

If the transition to alternative benchmarks for certain contracts does not allow the application of the exemptions provided for by the Phase 2 amendments, then the effect may be to terminate the hedging relationship and, consequently, increased volatility in the income statement. This may happen if the newly designated hedging relationships are not carried out or if the non-derivative financial instruments are amended or removed from the financial statements.

In the case of loan agreements related to the LIBOR CHF rate, the Bank switched to RFR ratios in accordance with the decision of the European Commission, and in the case of derivatives that hedge this portfolio, the LIBOR CHF rate will change in accordance with the ISDA Protocol standard.

Based on the effectiveness test based on new CHF rates - both for the loan portfolio and for the hedging instrument - the Bank assessed that there is a high probability that the effectiveness requirement of the established hedging relationships will be met in the future.

Therefore, in the case of the strategies hedging the CHF loan portfolio, the Bank decided to continue the established hedging relationships based on the existing instruments.

Risk of legal proceedings:

In the absence of agreement on the implementation of the Interest Rate Benchmark Reform for existing contracts (e.g. due to different interpretations of the applicable provisions on the use of other benchmarks), there is a risk of litigation and protracted disputes with counterparties, which may result in additional costs, e.g. legal costs. The Group works closely with all contractors to avoid such a situation.

Regulatory risk:

Regulatory models and methodologies are currently being updated (e.g. to take account of new market data). There is a risk that full updates, testing and acceptance of models by regulators will not take place on time.

Operational risk:

We are updating our IT systems to fully manage the transition to alternative benchmarks. There is a risk that such updates will not be fully on time, resulting in additional manual procedures involving operational risk.

Liquidity risk

Introduction

Liquidity risk is the risk that the bank fails to meet its contingent and non-contingent obligations towards customers and counterparties as a result of a mismatch of financial cash flows.

The activity and strategies on liquidity risk management are directly supervised by the Market and Investment Risk Committee and are pursued in accordance with the framework set out in the Liquidity Risk Policy approved by the Management Board and the Supervisory Board.

Risk management structure and organisation

The objective of the Liquidity Risk Policy of Santander Bank Polska Group is to:

· ensure the ability to finance assets and satisfy claims, both current and future, in a timely manner and at an economic price;

· manage the maturity mismatch between assets and liabilities, including the intraday mismatch of cash flows; under normal and stress conditions;

· set a scale of the liquidity risk in the form of various internal limits;

· ensure proper organisation of the liquidity management process within the whole Santander Bank Polska Group;

· prepare the organisation for emergence of adverse factors, either external or internal;

· ensure compliance with regulatory requirements, both qualitative and quantitative.

The general principle adopted by Santander Bank Polska Group in its liquidity management process is that all expected outflows occurring within one month in respect of deposits, current account balances, loan drawdowns, guarantee payments and transaction settlements should be at least fully covered by the anticipated inflows or available High Quality Liquid Assets (HQLA) assuming normal or predictable conditions for the Group’s operations. The HQLA category substantially includes: cash on hand, funds held in the nostro account with the NBP (National Bank of Poland) in excess of the minimum reserve requirement and securities which may be sold or pledged under repo transactions or NBP lombard loans. As at 31 December 2021, the value of the HQLA buffer was PLN 72.01 bn for the Bank and PLN 75.00 bn for the Group.

The purpose of this policy is also to ensure an adequate structure of funding in relation to the growing scale of the Group’s business by maintaining structural liquidity ratios at pre-defined levels.

The Group uses a suite of additional watch limits and thresholds with respect to the following:

· loan-to-deposit ratio;

· ratios of reliance on wholesale funding, which are used to assess the concentration of foreign currency funding from the wholesale market;

· concentration of deposit and wholesale funding;

· level of encumbered assets;

· ratios laid down in CRD IV/CRR – LCR and NSFR;

· survival horizon under stressed conditions;

· the HQLA buffer;

· the buffer of assets which might be liquidated over an intraday horizon.

The internal liquidity limits, including the limits established in the Risk Appetite Statement, are set on the basis of both historical values of the selected liquidity ratios as well as their future values which are estimated against a financial plan. The limits also take into account the results of stress tests.

At least once a year, Santander Bank Polska Group carries out the Internal Liquidity Adequacy Assessment Process (ILAAP), which is designed to ensure that the Group can effectively control and manage liquidity risk. In particular, the ILAAP ensures that the Group:

· maintains sufficient capacity to meet its obligations as they fall due;

· reviews the key liquidity risk drivers and ensures that stress testing reflects these drivers and that they are appropriately controlled;

· provides a record of both the liquidity risk management and governance processes;

· carries out assessment of counterbalancing capacity.

The ILAAP results are subject to approval by the Management Board and the Supervisory Board to confirm adequacy of the liquidity level of Santander Bank Polska Group in terms of liquid assets, prudent funding profile and the Group’s liquidity risk management and control mechanisms.

Risk identification and measurement

The responsibility for identification and measurement of liquidity risk rests with the Risk Management Division, specifically the Financial Risk Department.

The role of the Department is to draft liquidity risk management policies, carry out stress tests and to measure and report on risk on an ongoing basis.

Liquidity is measured by means of the modified liquidity gap, which is designed separately for the PLN and currency positions. The reported future contractual cash flows are subject to modifications based on: statistical analyses of the deposit and credit base behaviour and assessment of product/ market liquidity – in the context of evaluation of the possibility to liquidate Treasury securities by selling or pledging them in repo transactions or using liquidity support instruments with NBP, as well as the possibility of transaction rolling in the interbank market.

When measuring liquidity risk, the bank additionally analyses the degree of liquidity outflows arising from potential margin calls due to changes in the value of derivative transactions and collateral needs related to secured financing transactions resulting from the downgrade of the bank’s credit rating, among other things.

Concurrently, liquidity is measured in accordance with KNF Resolution no. 386/2008 on setting liquidity standards for banks (in force as at 31 December 2021), and with the requirements laid down in the CRD IV/ CRR package and in their implementing provisions.

In order to establish a detailed risk profile, the Group conducts stress tests using the eight following scenarios:

· baseline scenario, which assumes non-renewability of wholesale funding;

· idiosyncratic liquidity crisis scenarios (specific to the bank);

· local systemic liquidity crisis scenario;

· global systemic liquidity crisis scenario;

· combined liquidity crisis scenario (idiosyncratic crisis and both local and global systemic crisis);

· deposit outflows in a one-month horizon;

· scenario of accelerated deposit withdrawals via electronic channels.

For each of the above scenarios, the bank estimates the minimum survival horizon. For selected scenarios, the bank sets survival horizon limits which are subsequently included in the liquidity risk appetite.

In addition, the bank performs stress tests for intraday liquidity as well as reverse stress tests.

Risk reporting

The responsibility for reporting liquidity risk rests with the Risk Management Division, specifically the Financial Risk Department.

The results of liquidity risk measurement are reported by the Financial Risk Department on a daily basis to persons in charge of operational management of the bank’s liquidity and to persons responsible for liquidity risk management (information about intraday and current liquidity, including FX funding ratios and LCR) and – on a monthly basis – to senior executives (other liquidity ratios, including regulatory ratios).

Risk prevention and mitigation

The responsibility for supervision over the liquidity risk management process rests with the Assets and Liabilities Committee (ALCO), which also provides advice to the Management Board. ALCO prepares management strategies and recommends to the Management Board appropriate actions with regard to strategic liquidity management, including strategies of funding the bank’s activity. Day-to-day management of liquidity is delegated to the Financial Management Division. The Assets and Liabilities Management Department, which is a part of the Division, is responsible for developing and updating the relevant liquidity management strategies.

The bank has a liquidity contingency plan approved by the Management Board and Supervisory Board to cater for unexpected liquidity problems, whether caused by external or internal factors.

The plan, accompanied by stress tests, includes different types of scenarios and enables the bank to take adequate and effective actions in response to unexpected external or internal liquidity pressure through:

· identification of threats to the bank’s liquidity on the basis of a set of early warning ratios which are subject to ongoing monitoring;

· effective management of liquidity/ funding, using a set of possible remedial actions and the management structure adjusted to the stressed conditions;

· communication with customers, key market counterparties, shareholders and regulators.

In 2021, Santander Bank Polska Group focused on the effective allocation of the liquidity surplus earned on the inflow of customer deposits in connection with state support programmes related to COVID-19. As at 31 December 2021, the loan-to-deposit ratio was 80% compared to 83% as at 31 December 2020, the consolidated Liquidity Coverage Ratio was 215%, and 207% as at 31 December 2020.

In 2021 and in the comparable period, all key regulatory ratios applicable to the bank and Group were maintained at the required levels.

The tables below show the cumulated liquidity gap for Santander Bank Polska S.A. Group as at 31 December 2021 and in the comparable period (by nominal value).

31.12.2021	A'vista	up to 1 month	from 1 to 3 months	from 3 to 6 months	from 6 to 12 months	from 1 to 2 years	from 2 to 5 years	above 5 years
Assets	23 196 074	16 151 313	11 481 410	10 979 981	23 975 490	29 154 191	61 310 276	60 763 755
Liabilities and equity	160 757 692	11 752 711	9 070 134	5 074 839	5 592 794	8 782 879	3 373 543	2 724 904
including:	-	-	-	-	-	-	-	-
- Sell-buy-back transactions	-	244 000	-	44 511	222 553	-	-	-
- Deposits from banks	528 663	683 098	724 968	919 149	1 023 077	64 391	437 697	19 094
- Deposits from customers	160 229 029	10 170 384	5 067 632	3 218 724	2 673 986	1 825 344	1 623 460	844 161
- Debt securities in issue	-	-	3 747 834	850 000	1 394 325	6 621 178	185 387	-
- Subordinated liabilities	-	-	-	-	-	-	1 011 868	1 730 578
- Lease liabilities	-	19 949	29 700	42 455	84 090	112 562	102 653	126 005
Contractual liquidity mismatch/ gap	(137 222 415)	4 404 480	1 915 767	5 912 460	18 398 376	20 190 997	57 938 368	58 038 850
Cumulative liquidity gap	(137 222 415)	(132 817 936)	(130 902 169)	(124 989 709)	(106 591 333)	(86 400 336)	(28 461 968)	29 576 882
Net derivatives	-	-	-	-	-	-	-	-
Gross asset derivatives	-	40 411 652	32 720 567	10 179 777	12 945 720	18 080 398	12 547 466	2 569 712
Gross liabilities derivatives	-	40 535 889	32 389 349	10 077 416	12 654 608	18 005 230	13 033 621	2 931 020
Off balance positions Total	39 533 266	2 971 930	1 032 105	418 837	1 239 945	331 116	51 390	582
-guarantees & letters of credits	8 708 673	-	-	-	-	-	-	-
-credit lines	7 722 455	2 945 243	751 954	196 955	-	-	-	-

* The vast majority of other financial liabilities are within the range of 1 month

31.12.2020	A'vista	up to 1 month	from 1 to 3 months	from 3 to 6 months	from 6 to 12 months	from 1 to 2 years	from 2 to 5 years	above 5 years
Assets	16 123 289	12 589 749	9 660 613	9 109 985	14 599 788	31 548 981	60 297 061	60 598 888
Liabilities and equity	140 904 002	11 394 995	8 984 317	6 188 389	8 620 771	6 327 350	3 788 592	2 334 370
including:	-	-	-	-	-	-	-	-
- Sell-buy-back transactions	-	14 387	-	-	-	-	-	-
- Deposits from banks	386 976	1 015 757	912 337	1 282 671	1 216 461	1 134 272	632 909	-
- Deposits from customers	140 517 026	9 068 255	6 234 543	3 944 718	3 871 826	2 230 378	315 016	47 904
- Debt securities in issue	-	608 261	1 837 437	961 000	1 001 579	2 962 700	1 917 707	-
- Subordinated liabilities	-	-	-	-	2 307 400	-	922 960	2 286 465
- Lease liabilities	-	13 585	35 642	44 969	85 018	152 374	242 537	43 911
Contractual liquidity mismatch/ gap	(124 780 713)	1 194 755	676 296	2 921 595	5 979 017	25 221 631	56 508 469	58 264 519
Cumulative liquidity gap	(124 780 713)	(123 585 958)	(122 909 662)	(119 988 067)	(114 009 049)	(88 787 418)	(32 278 949)	25 985 570
Net derivatives	-	-	-	-	-	-	-	-
Gross asset derivatives	-	38 162 376	17 283 584	8 983 887	8 562 762	6 373 285	9 412 011	6 685 302
Gross liabilities derivatives	-	38 076 776	16 745 798	9 011 885	8 589 824	6 361 714	10 039 287	7 091 227
Off balance positions Total	35 615 827	4 750 671	623 169	240 631	195 658	227 800	69 020	559
-guarantees & letters of credits	6 946 339	-	-	-	-	-	-	-
-credit lines	7 627 005	3 186 590	418 034	88 690	-	-	-	-

* The vast majority of other financial liabilities are within the range of 1 month

The tables below show maturity analysis of financial liabilities and receivables for Santander Bank Polska Group as at 31 December 2021 and in the comparable period (the undiscounted cash flow – capital and interests).

31.12.2021	A'vista	up to 1 month	from 1 to 3 months	from 3 to 6 months	from 6 to 12 months	from 1 to 2 years	from 2 to 5 years	above 5 years
Assets	23 198 725	16 599 526	12 453 008	13 049 477	28 146 214	35 967 497	74 632 093	85 532 788
Liabilities	160 994 403	11 788 946	9 111 792	5 436 586	6 185 078	9 753 468	5 426 132	4 117 140
including:	-	-	-	-	-	-	-	-
- Repurchase agreement transactions	-	244 038	-	44 511	222 553	-	-	-
- Liabilities to banks	527 521	683 014	724 168	918 997	1 022 604	66 321	438 460	19 053
- Liabilities to customers	160 466 882	10 173 264	5 074 729	3 231 123	2 688 370	1 826 356	1 627 846	848 753
- Own emissions	-	-	3 747 834	869 334	1 456 228	6 699 312	245 657	-
- Subordinated liabilities	-	-	13 848	19 274	50 477	104 792	1 307 144	1 816 475
- Lease liabilities	-	20 633	30 048	43 780	87 454	120 728	114 016	147 176
Contractual liquidity gap	(137 456 475)	4 816 458	2 845 707	7 620 210	21 976 816	26 033 715	69 207 596	81 415 648
Cummulated contractual liquidity gap	(137 456 475)	(132 640 017)	(129 794 310)	(122 174 101)	(100 197 285)	(74 163 569)	(4 955 973)	76 459 675
Net derivatives	-	26 151	(53 519)	(62 588)	(60 229)	(89 978)	(35 524)	359
Gross asset derivatives	-	40 454 392	32 745 058	10 302 634	13 227 256	18 546 929	13 287 915	2 680 273
Gross liabilities derivatives	-	40 567 586	32 416 529	10 179 867	12 879 268	18 433 498	13 468 547	3 007 652
Off Balance positions Total	39 533 266	2 971 930	1 032 105	418 837	1 239 945	331 116	51 390	582
-guarantees & letters of credits	8 708 673	-	-	-	-	-	-	-
-credit lines	7 722 455	2 945 243	751 954	196 955	-	-	-	-

* The vast majority of other financial liabilities are within the range of 1 month

31.12.2020	A'vista	up to 1 month	from 1 to 3 months	from 3 to 6 months	from 6 to 12 months	from 1 to 2 years	from 2 to 5 years	above 5 years
Assets	16 124 789	12 914 322	10 203 632	10 040 833	16 443 296	34 563 305	66 956 165	74 199 559
Liabilities	140 922 139	11 424 020	9 023 704	6 224 657	8 689 763	6 398 266	3 998 014	2 455 762
including:
- Repurchase agreement transactions	-	14 387	-	-	-	-	-	-
- Liabilities to banks	386 976	1 017 603	913 566	1 285 669	1 220 171	1 139 739	638 345	-
- Liabilities to customers	140 535 163	9 090 371	6 259 461	3 958 726	3 888 719	2 233 900	315 116	47 904
- Own emissions	-	42 413	988 717	1 722 630	1 334 593	4 432 043	2 757 994	3 971 761
- Subordinated liabilities	-	-	12 435	26 710	54 098	91 977	241 893	2 841 116
- Lease liabilities	-	14 551	37 642	47 572	89 440	159 252	251 759	61 890
Contractual liquidity gap	(124 797 350)	1 490 302	1 179 928	3 816 175	7 753 534	28 165 038	62 958 150	71 743 797
Cummulated contractual liquidity gap	(124 797 350)	(123 307 048)	(122 127 120)	(118 310 945)	(110 557 412)	(82 392 373)	(19 434 223)	52 309 574
Net derivatives	-	14 591	(12 932)	(62 561)	38 728	37 296	688 587	42 978
Gross asset derivatives	-	38 153 153	17 288 672	9 032 980	8 652 207	6 546 161	9 901 584	6 828 727
Gross liabilities derivatives	-	38 060 409	16 742 550	9 047 661	8 649 306	6 482 010	10 376 711	7 194 472
Off Balance positions Total	35 615 827	4 750 671	623 169	240 631	195 658	227 800	69 020	559
-guarantees & letters of credits	6 946 339	-	-	-	-	-	-	-
-credit lines	7 627 005	3 186 590	418 034	88 690	-	-	-	-

* The vast majority of other financial liabilities are within the range of 1 month

In the tables above, the liquidity gap analysis does not take into account the effect of uncertainty related to flows related to CHF-indexed mortgage loans. Due to the risks described in note 48, cash flows may occur in terms, currencies and amounts other than currently included in In the opinion of the bank, however, this should not cause problems related to compliance with the liquidity regulations of the Group.

The Group uses secured instruments to fund its activity to a limited degree only. However, in accordance with the existing contractual provisions, if the Group’s rating is reduced by three notch, the maximum potential additional security on account of those instruments

would be PLN 97 m. At the same time, it should be noted that this potential obligation is not unconditional and its final value would depend on negotiations between the bank and its counterparty concerning the transactions.

5. Capital management

Introduction

It is the policy of Santander Bank Polska Group to maintain a level of capital adequate to the type and scale of operations and the level of risk.

The level of own funds required to ensure safe operations of the bank and Santander Bank Polska Group and capital requirements estimated for unexpected losses is determined in accordance with:

· The so-called CRD IV / CRR package, which consists of 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 (CRR) and 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 IV), which became effective on 1 January 2014 by the decision of the European Parliament and the European Banking Authority (EBA).

· Regulation (EU) 2019/876 of the European Parliament and of the Council of 20 May 2019 amending Regulation (EU) No 575/2013 as regards the leverage ratio, the net stable funding ratio, requirements for own funds and eligible liabilities, counterparty credit risk, market risk, exposures to central counterparties, exposures to collective investment undertakings, large exposures, reporting and disclosure requirements, and Regulation (EU) No 648/2012

· Regulation (EU) 2019/630 of the European Parliament and of the Council of 17 April 2019 amending Regulation (EU) No 575/2013 as regards minimum loss coverage for non-performing exposures.

· 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,

· These requirements include the recommendations of the KNF regarding the use of national options and higher risk weight for exposures secured by real estate mortgages, including: residential real estate, for which the amount of principal or interest installment depends on changes in exchange rates or currencies other than the currencies of revenue achieved by the debtor, where a risk weight of 150% is assigned, and office premises or other commercial real estate located in the Republic of Poland, where a risk weight of 100% is assigned, except for exposures secured on commercial real estates which are used by borrower to conduct his own business and do not generate income by rent or proceeds from their sale where a risk weight of 50% is assigned,

· The Act of 5 August 2015 on macroprudential supervision over the financial system and crisis management in the financial system (“Macroprudential Supervision Act”), implementing CRD IV into the Polish law with regard to, among other things, additional capital buffers to be maintained by banks.

· Recommendations of the KNF regarding an additional capital requirement relating to the portfolio of FX mortgage loans for households.

The Management Board is accountable for capital management, calculation and maintenance processes, including the assessment of capital adequacy in different economic conditions and the evaluation of stress test results and their impact on internal and regulatory capital and capital ratios. Responsibility for the general oversight of internal capital estimation rests with the Supervisory Board.

The Management Board has delegated ongoing capital management to the Capital Committee which conducts a regular assessment of the capital adequacy of the bank and Santander Bank Polska Group, including in extreme conditions, the monitoring of the actual and required capital levels and the initiation of transactions affecting these levels (e.g. by recommending the value of dividends to be paid). The Capital Committee is the first body that defines the capital policy, principles of capital management and principles of capital adequacy assessment. All decisions regarding any increase or decrease in capital are taken ultimately by relevant authorities within the bank in accordance with the applicable law and the bank’s Statutes.

Pursuant to the bank’s information strategy, details about the level of own funds and capital requirements are presented in the separate report entitled “Information on capital adequacy of Santander Bank Polska Group as at 31 December 2021”.

In 2021, the Bank and Santander Bank Polska Group met all regulatory requirements regarding capital management.

On 12 December 2017, the European Parliament and the Council adopted Regulation No 2017/2395 amending Regulation (EU) No 575/2013 as regards transitional arrangements for mitigating the impact of the introduction of IFRS 9 on own funds and for the large exposures treatment of certain public sector exposures denominated in the domestic currency of any Member State. This Regulation entered into force on the next day following its publication in the Official Journal of the European Union and has been applicable since 1 January 2018.

Having analysed Regulation No. 2017/2395, Santander Bank Polska Group has decided to apply the transitional arrangements provided for therein, which means that the full impact of the introduction of IFRS 9 will not be taken into account for the purpose of capital adequacy assessment of Santander Bank Polska Group.

Since June 2020, the Group applied the updated rules for transitional arrangements related to IFRS 9 in accordance with the Regulation of the European Parliament and of the Council (EU) 2020/873 of 24 June 2020. Based on the changes resulting from the above-mentioned Regulation and Art. 473a (7a) since June 2020 the Group uses a derogation in the form of assigning a risk weight equal to 100% to the adjustment value included in own funds.

As at 31 December 2021, the total own funds of Santander Bank Polska Group were PLN 357.224 k higher than the Group’s total own funds which would have otherwise been calculated if the transitional arrangements for mitigating the introduction of IFRS 9 had not been applied.

The Group’s total capital ratio is 22 bps higher than the total capital ratio if no transitional arrangements were applied for mitigating the impact of the introduction of IFRS 9.

The Group’s Tier I ratio is 23 bps higher than the Tier I ratio if no transitional arrangements were applied for mitigating the impact of the introduction of IFRS 9.

Santander Bank Polska Group has disclosed own funds, risk-weighted assets, capital ratios, as well as the leverage ratio, both including and excluding application of transitional solutions stemming from Article 473a of Regulation (EU) No 575/2013.

For details see the Information on capital adequacy of Santander Bank Polska Group as at 31 December 2021 (Chapter III, Section 3 “Transitional arrangements for mitigating the impact of the introduction of IFRS 9 on own funds”).

Capital Policy

As at 31 December 2021, the minimum capital ratios satisfying the provisions of the CRR and the Macroprudential Supervision Act as well as regulatory recommendations regarding additional own funds requirements under Pillar 2 at the level of Santander Bank Polska S.A. were as follows:

· Tier 1 capital ratio of 9.25%;

· total capital ratio of 11.25%;

for Santander Bank Polska Group, those ratios were as follows:

· Tier 1 capital ratio of 9,272%;

· total capital ratio of 11,279%.

To mitigate the risk of credit crunch arising from the Covid-19 pandemic, on 18 March 2020 the Minister of Finance, issued a regulation based on the recommendation of the Financial Stability Committee removing banks’ obligation to keep the systemic risk buffer of 3%. The released funds may be used by banks to support their lending activity and cover potential losses in the upcoming quarters.

The aforementioned capital ratios take into account:

· The minimum capital ratios as required by the CRR: Common Equity Tier 1 ratio at 4.5%, Tier 1 capital ratio at 6.0% and total capital ratio at 8.0%.

· The KNF’s decision of 5 November 2019, under which the previous recommendations issued on 15 October 2018 and 28 November 2018 regarding an additional capital requirement for Santander Bank Polska S.A. relating to the portfolio of FX mortgage loans for households have expired: the decision followed the process of annual identification of banks with material exposure in respect of FX mortgage-backed loans which concluded that Santander Bank Polska S.A. had not reached the materiality threshold in relation to such loans. Accordingly, the KNF did not impose an additional buffer at the bank level to mitigate the risk arising from mortgage loans for individuals.

· The additional capital requirement was set at the level of Santander Bank Polska Group in accordance with the KNF’s decision of 16 November 2021. As at 31 December 2021, the buffer related to the portfolio of FX mortgage loans for households was 0.029 p.p for the total capital ratio, 0.022 p.p. for the Tier 1 capital ratio and 0.016 p.p. for the Common Equity Tier 1 ratio.

· The capital buffer for Santander Bank Polska S.A. as other systemically important institution: according to the letter of 19 December 2017, the KNF identified Santander Bank Polska S.A. as other systemically important institution and imposed on it an additional capital buffer. Pursuant to the KNF’s decision of 14 October 2019, Santander Bank Polska S.A. maintains additional own funds of 0.75 p.p. Santander Bank Polska Group keeps the capital buffer at the same level.

· The capital conservation buffer maintained in accordance with the Macroprudential Supervision Act: following adaptation to the CRR requirements, in 2019 the buffer reached the maximum level of 2.50 p.p.

· The countercyclical buffer implemented by the Macroprudential Supervision Act and amended by the Minister of Finance by a way of regulation: since 1 January 2016, the countercyclical buffer has been set at 0 p.p. for credit exposures in Poland.

In addition, on 11 February 2022 the Bank received a letter from the Polish Financial Supervision Authority regarding the additional capital add-on. More information on this subject is provided in Note 58 ‘Events which occurred subsequently to the end of the reporting period'.

Components of the minimum capital requirement		31.12.2021	31.12.2020
Minimal capital ratios	Common Equity Tier 1 capital ratio	4.5%	4.5%
	Tier 1 capital ratio	6%	6%
	Total capital ratio	8%	8%
Additional capital requirement for Santander Bank Polska relating to the portfolio of FX mortgage loans for households	Santander Bank Polska	no requirement	no requirement
	Santander Bank Polska Capital Group:
	· for total capital ratio:	ü 0.029 p.p.	ü 0.034 p.p.
	· Tier 1 capital ratio:	ü 0.022 p.p.	ü 0.026 p.p.
	· for Common Equity Tier 1 capital ratio:	ü 0.016 p.p	ü 0.019 p.p.
The capital buffer for Santander Bank Polska as other systemically important institution		ü 0.75 p.p.	ü 0.75 p.p.
The capital conservation buffer maintained in accordance with the Macroprudential Supervision Act		ü 2.5 p.p.	ü 2.5 p.p.
The countercyclical buffer (BRS)		ü 0 p.p.	ü 0 p.p.

Regulatory Capital

The capital requirement for Santander Bank Polska Group is determined in accordance with Part 3 of 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 (CRR), as amended, inter alia, by 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, which was the official legal basis as as at the reporting date, i.e. 31 December 2021.

Santander Bank Polska Group uses the standardised approach to calculate the capital requirement for credit risk, market risk and operational risk. According to this approach, the total capital requirement for credit risk is calculated as the sum of risk-weighted exposures multiplied by 8%.

The exposure value for these assets is equal to the carrying amount, while the value of off-balance sheet liabilities corresponds to their balance sheet equivalent. Risk-weighted exposures are calculated by means of applying risk weights to all exposures in accordance with the CRR.

The table below presents the calculation of the capital ratio for Santander Bank Polska Group as at 31 December 2021 and in the comparative period.

		31.12.2021	31.12.2020*
I	Total Capital requirement (Ia+Ib+Ic+Id+Ie), of which:	10 817 526	10 819 372
Ia	- due to credit risk & counterparty credit risk	9 318 997	9 384 034
Ib	- due to market risk	190 717	141 891
Ic	- due to credit valuation ajdustment risk	29 887	32 973
Id	- due to operational risk	1 250 170	1 260 474
Ie	- due to securitisation	27 755	-
II	Total own funds*	27 274 048	29 570 640
III	Reductions	2 156 905	1 960 227
IV	Own funds after reductions (II-III)	25 117 143	27 610 413
V	*CAD [IV/(I12.5)]**	18,58%	20,42%
VI	Tier I ratio	16,63%	18,38%

*The data includes profits included in own funds, taking into account the decisions of the Polish Financial Supervision Authority and the applicable EBA guidelines

** On 20 July 2021, the Bank received an individual recommendation from the KNF with regard to the Bank’s dividend policy in H1 2020. As at 31 March 2021 (the Bank’s quarterly data on own funds) and 31 May 2021 (monthly data on the receivables portfolio), the Bank met all the key dividend policy criteria to be able to pay dividends up to 100% of its net profit earned in the period from 1 January 2020 to 31 December 2020. When applying the additional KNF criteria relating to the Bank’s portfolio of foreign currency mortgage loans for households, the dividend yield at standalone and consolidated level was adjusted by a total of 70 p.p. In consequence, after the application of the additional criteria, the maximum dividend yield may be up to 30% of the profit achieved in 2020. In view of the above KNF recommendations, pursuant to Article 349 of the Commercial Companies Code and § 50(4) of the Bank's Statutes in relation to

resolution no. 6 of the Annual General Meeting of the Bank of 22 March 2021, the Bank’s Management Board adopted a resolution to pay interim dividend of PLN 220,728,918.24 from the reserve capital created from the profit for 2020 (29.89% of the profit). The dividend was PLN 2.16 per share. The date of the interim dividend payment was 15 October 2021.

Internal Capital

Notwithstanding the regulatory methods for measuring capital requirements, Santander Bank Polska S.A. carries out an independent assessment of current and future capital adequacy as part of the internal capital adequacy assessment process (ICAAP). The purpose of the process is to ensure that the level and nature of own funds guarantee the solvency and stability of the bank’s and the Group’s operations.

The capital adequacy assessment is one of the fundamental elements of the bank’s strategy, the process of defining risk appetite and the process of planning.

In the ICAAP the Group uses assessment models based on the statistical loss estimation for measurable risks, such as credit risk, market risk and operational risk, plus its own assessment of capital requirements for other material risks not covered by the model, e.g. reputational risk and compliance risk.

The internal capital is estimated on the basis of risk parameters including the probability of default (PD) by Santander Bank Polska S.A. customers and the loss given default (LGD).

The Group performs an internal assessment of capital requirements, including under stressed conditions, taking into account different macroeconomic scenarios.

Internal capital estimation models are assessed and reviewed annually to adjust them to the scale and profile of the business of Santander Bank Polska S.A. and to take account of any new risks and the management’s judgement.

The review and assessment is the responsibility of the bank’s risk management committees, including: the Capital Committee and the Models and Methodology Panel, which is part of the Risk Management Forum.

Subordinated Liabilities

In 2016, the bank amended the agreement under which subordinated registered bonds were issued on 5 August 2010 and taken up by the European Bank for Reconstruction and Development. Under the new issue conditions, the maturity of the bonds has been extended to 5 August 2025. Pursuant to the KNF’s decision of 18 May 2017, the bank was authorised to allocate EUR 100m of the new issue to Tier 2 capital. Since 5 August 2020, it is subject to amortization due to the final 5 years of the loan maturity according to Art. 64 CRR.

As part of the strategy to increase the Tier 2 capital, on 2 December 2016 Santander Bank Polska issued own bonds of EUR 120m, allocating them to Tier 2 in accordance with the KNF’s decision of 24 February 2017.

On 22 May 2017, the bank issued additional subordinated bonds with a nominal value of EUR 137.1m and by the KNF’s decision of 19 October 2017 was authorised to allocate them to the Tier 2 capital.

On 12 June 2018, Santander Bank Polska S.A. obtained the KNF’s approval for allocating series F subordinated bonds with a total nominal value of PLN 1bn, issued on 5 April 2018, to Tier 2 capital instruments.

For more information on subordinated liabilities, see Note 35.

6. Net interest income

Interest income and income similar to interest	1.01.2021-31.12.2021	1.01.2020-31.12.2020
Interest income on financial assets measured at amortised cost	5 389 776	5 946 776
Loans and advances to enterprises and leasing agreements	1 795 208	2 001 263
Loans and advances to individuals, of which:*	3 576 670	3 859 371
Home mortgage loans	1 190 860	1 349 027
Loans and advances to banks	2 909	12 103
Loans and advances to public sector	5 926	7 917
Reverse repo transactions	6 351	16 334
Interest recorded on hedging IRS	-	49 788
Debt securities	2 712	-
Interest income on financial assets measured at fair value through other comprehensive income	955 577	853 841
Loans and advances to enterprises	45 769	40 498
Debt securities	909 808	813 343
Income similar to interest - financial assets measured at fair value through profit or loss	17 231	56 543
Loans and advances to enterprises	849	1 342
Loans and advances to individuals	16 382	42 377
Debt securities	-	12 824
Total income	6 362 584	6 857 160

Interest expenses	1.01.2021-31.12.2021	1.01.2020-31.12.2020
Interest expenses on financial liabilities measured at amortised cost	(400 139)	(969 011)
Liabilities to individuals	(88 594)	(450 480)
Liabilities to enterprises	(48 311)	(218 073)
Repo transactions	(2 364)	(7 400)
Liabilities to public sector	(13 967)	(20 913)
Liabilities to banks	(26 526)	(54 366)
Lease liability	(14 758)	(18 952)
Subordinated liabilities and issue of securities	(162 246)	(198 827)
Interest recorded on hedging IRS	(43 373)	-
Total costs	(400 139)	(969 011)
Net interest income	5 962 445	5 888 149

* Details on the impact of the CJEU judgment in case C 383/18 on interest income are presented in note 48

7. Net fee and commission income

Fee and commission income	1.01.2021-31.12.2021	1.01.2020-31.12.2020
Electronic and payment services	248 663	223 091
Current accounts and money transfer	399 322	312 649
Asset management fees	292 456	248 099
Foreign exchange commissions	572 573	468 817
Credit commissions incl. factoring commissions and other	439 428	405 219
Insurance commissions	227 342	220 559
Commissions from brokerage activities	128 779	131 390
Credit cards	143 237	148 950
Card fees (debit cards)	343 816	338 476
Off-balance sheet guarantee commissions	111 482	91 981
Finance lease commissions	23 023	22 876
Issue arrangement fees	22 614	10 569
Distribution fees	19 856	16 131
Total	2 972 591	2 638 807
Fee and commission expenses	1.01.2021-31.12.2021	1.01.2020-31.12.2020
Electronic and payment services	(59 734)	(55 140)
Distribution fees	(13 070)	(11 234)
Commissions from brokerage activities	(16 499)	(18 888)
Credit cards	(13 179)	(18 990)
Card fees (debit cards)	(90 238)	(123 926)
Credit commissions paid	(96 364)	(77 093)
Insurance commissions	(17 780)	(17 533)
Finance lease commissions	(33 983)	(29 344)
Asset management fees and other costs	(22 784)	(21 628)
Other	(121 837)	(112 925)
Total	(485 468)	(486 701)
Net fee and commission income	2 487 123	2 152 106

Included above is fee and commission income on credits, credit cards, off-balance sheet guarantees and leases of PLN 717 170 k (31.12.2020: PLN 669 026 k) and fee and commission expenses on credit cards, leases and paid to credit agents of PLN (143 526) k (31.12.2020: PLN (125 427) k) other than fees included in determining the effective interest rate, relating to financial assets and liabilities not carried at air value through profit and loss.

8. Dividend income

Dividend income	1.01.2021-31.12.2021	1.01.2020-31.12.2020
Dividends income from investment securities measured at fair value through other comprehensive income	110 015	21 272
Dividends income from investment securities measured at fair value through profit or loss	1 000	1 417
Dividends income from equity financial assets held for trading	1 833	194
Total	112 848	22 883

9. Net trading income and revaluation

Net trading income and revaluation	1.01.2021-31.12.2021	1.01.2020-31.12.2020
Derivative instruments	(134 036)	(559 432)
Interbank FX transactions and other FX related income	368 919	716 030
Net gains on sale of equity securities measured at fair value through profit or loss	29 013	19 715
Net gains on sale of debt securities measured at fair value through profit or loss	(1 661)	(10 460)
Change in fair value of loans and advances mandatorily measured at fair value through profit or loss	5 719	(15 344)
Total	267 954	150 509

The amounts include CVA and DVA adjustments which in 2021 and 2020 totalled PLN 8 003 k and PLN (5,240)k respectively.

10. Gains (losses) from other financial securities

Gains (losses) from other financial securities	1.01.2021-31.12.2021	1.01.2020-31.12.2020
Net gains on sale of debt securities measured at fair value through other comprehensive income	91 751	228 723
Net gains (losses) on sale of debt securities mandatorily measured at fair value through profit or loss	8	(85)
Net gains on sale of equity securities measured at fair value through profit and loss	8 148	-
Change in fair value of financial securities mandatorily measured at fair value through profit or loss	2 173	33 202
Impairment losses on securities	(4 015)	(8 535)
Total gains (losses) on financial instruments	98 065	253 305
Change in fair value of hedging instruments	481 960	(159 141)
Change in fair value of underlying hedged positions	(485 107)	163 548
Total gains (losses) on hedging and hedged instruments	(3 147)	4 407
Total	94 918	257 712

11. Other operating income

Other operating income	1.01.2021-31.12.2021	1.01.2020-31.12.2020
Income from services rendered	29 536	30 265
Release of provision for legal cases and other assets	65 650	44 018
Release of provisions for legal risk*	21 386	-
Recovery of other receivables (expired, cancelled and uncollectable)	436	431
Settlements of leasing agreements	5 212	3 702
Gain on sales or liquidation of fixed assets, intangible assets and assets for disposal	-	8 290
Received compensations, penalties and fines	1 636	884
Gains on lease modifications	21 283	14 217
Income from settlement of sale of Aviva shares	46 834	-
Other	92 321	74 172
Total	284 294	175 979

* Additional information in Note 38.

12. Impairment allowances for expected credit losses

Impairment allowances for expected credit losses on loans and advances measured at amortised cost	1.01.2021-31.12.2021	1.01.2020-31.12.2020
Charge for loans and advances to banks	1	(11)
Stage 1	1	(11)
Stage 2	-	-
Stage 3	-	-
POCI	-	-
Charge for loans and advances to customers	(1 131 876)	(1 760 707)
Stage 1	(150 317)	(114 099)
Stage 2	(108 787)	(604 538)
Stage 3	(920 166)	(1 069 734)
POCI	47 394	27 664
Recoveries of loans previously written off	3 904	(4 411)
Stage 1	-	-
Stage 2	-	-
Stage 3	3 904	(4 411)
POCI	-	-
Off-balance sheet credit related facilities	3 783	2 317
Stage 1	(10 682)	4 847
Stage 2	3 693	(3 699)
Stage 3	10 772	1 169
POCI	-	-
Total	(1 124 188)	(1 762 812)

As at 31.12.2021 management provision accounting for the risk related to the COVID-19 situation was released in the amount PLN 121,414 k. As at 31.12.2020, the corresponding provision totalled PLN 121,414 k - details are described in Note 2.5.

13. Employee costs

Employee costs	1.01.2021-31.12.2021	1.01.2020-31.12.2020
Salaries and bonuses	(1 379 741)	(1 307 404)
Salary related costs	(241 902)	(228 441)
Cost of contributions to Employee Capital Plans	(8 987)	(9 218)
Staff benefits costs	(38 306)	(46 119)
Professional trainings	(9 293)	(7 107)
Retirement fund, holiday provisions and other employee costs	(3 164)	7 791
Restructuring provision	(12 817)	(153 586)
Total	(1 694 210)	(1 744 084)

14. General and administrative expenses

General and administrative expenses	1.01.2021-31.12.2021	1.01.2020-31.12.2020
Maintenance of premises	(131 439)	(118 592)
Short-term lease costs	(8 671)	(10 075)
Low-value assets lease costs	(2 176)	(2 410)
Costs of variable lease payments not included in the measurement of the lease liability	(145)	(144)
Non-tax deductible VAT	(47 263)	(43 982)
Marketing and representation	(131 325)	(93 921)
IT systems costs	(381 648)	(330 446)
Cost of BFG, KNF and KDPW	(293 748)	(435 899)
Postal and telecommunication costs	(64 038)	(63 795)
Consulting and advisory fees	(75 349)	(82 381)
Cars, transport expenses, carriage of cash	(53 329)	(54 907)
Other external services	(138 000)	(138 029)
Stationery, cards, cheques etc.	(19 885)	(20 414)
Sundry taxes and charges	(43 445)	(43 784)
Data transmission	(9 538)	(10 245)
KIR, SWIFT settlements	(28 740)	(26 015)
Security costs	(25 650)	(25 304)
Costs of repairs	(11 376)	(6 296)
Other	(12 155)	(11 818)
Total	(1 477 920)	(1 518 457)

15. Other operating expenses

Other operating expenses	1.01.2021-31.12.2021	1.01.2020-31.12.2020
Charge of provisions for legal cases and other assets*	(1 005 626)	(322 057)
Charge of provisions for legal risk portfolio*	(549 965)	(201 193)
Impairment loss on property, plant, equipment, intangible assets covered by financial lease agreements and other fixed assets	(60 942)	(42 405)
Gain on sales or liquidation of fixed assets, intangible assets and assets for disposal	(15 768)	-
Costs of purchased services	(10 673)	(6 175)
Other membership fees	(1 111)	(1 192)
Paid compensations, penalties and fines	(1 853)	(2 095)
Donations paid	(8 410)	(8 455)
Other	(81 748)	(48 278)
Total	(1 736 096)	(631 850)

* Additional information in Note 38

16. Corporate income tax

Corporate income tax	1.01.2021-31.12.2021	1.01.2020-31.12.2020
Current tax charge in the income statement	(445 723)	(909 651)
Deferred tax charge in the income statement	(361 827)	263 010
Adjustments from previous years for current and deferred tax	2 128	2 918
Total tax on gross profit	(805 422)	(643 723)
Current tax charge in the retained earnings (equity)	(196 772)	(176)
Total corporate income tax	(1 002 194)	(643 899)

.

Corporate total tax charge information	1.01.2021-31.12.2021	1.01.2020-31.12.2020
Profit before tax	2 057 828	1 880 897
Tax rate	19%	19%
Tax calculated at the tax rate	(390 987)	(357 370)
Non-tax-deductible expenses	(26 438)	(26 827)
Provisions for legal claims regarding fx loans	(254 233)	(70 652)
The fee to the Bank Guarantee Fund	(49 889)	(78 080)
Tax on financial institutions	(116 744)	(114 380)
Non-taxable income	28 060	17 769
Non-tax deductible bad debt provisions	(10 778)	(14 948)
Adjustment of prior years tax	2 128	2 918
Tax effect of consolidation adjustments	20 614	-
Other	(7 155)	(2 153)
Total tax on gross profit	(805 422)	(643 723)
Sales of equity securities measured at fair value through other comprehensive income	(196 772)	(176)
Total corporate income tax	(1 002 194)	(643 899)

.

Deferred tax recognised in other comprehensive income	31.12.2021	31.12.2020
Relating to valuation of debt investments measured at fair value through other comprehensive income	357 326	(293 533)
Relating to valuation of equity investments measured at fair value through other comprehensive income	(38 342)	(136 762)
Relating to cash flow hedging activity	8 995	1 832
Relating to valuation of defined benefit plans	(3 272)	(1 914)
Total	324 707	(430 377)

17. Earnings per share

Earnings per share	1.01.2021-31.12.2021	1.01.2020-31.12.2020
Profit for the period attributable to ordinary shares	1 111 684	1 037 167
Weighted average number of ordinary shares	102 189 314	102 115 148
Earnings per share (PLN)	10,88	10,16
Profit for the period attributable to ordinary shares	1 111 684	1 037 167
Weighted average number of ordinary shares	102 189 314	102 115 148
Weighted average number of potential ordinary shares	-	95 372
Total weighted average number of ordinary and potential shares	102 189 314	102 210 520
Diluted earnings per share (PLN)	10,88	10,15

The weighted average number of ordinary shares contains dilutive instruments in the form of share capital presented in note 40 and the share based incentive scheme included in note 56.

18. Cash and balances with central banks

Cash and balances with central banks	31.12.2021	31.12.2020
Cash	2 664 945	2 761 280
Current accounts in central banks	5 773 330	1 128 023
Term deposits	-	1 600 000
Total	8 438 275	5 489 303

Santander Bank Polska SA and Santander Consumer Bank SA hold an obligatory reserve in a current account in the National Bank of Poland. The figure is calculated at a fixed percentage of minimal statutory reserve of the monthly average balance of the customers’ deposits, which until 29 November 2021 was 0.5%.

According to the decision of the Monetary Policy Council of 6 October 2021. the required reserve ratio has been increased to 2.0% and applies from the required reserve maintained from 30 November 2021, calculated on the basis of data from October 2021.

In accordance with the applicable regulations, the amount of the calculated provision is reduced by the equivalent of EUR 500 k.

19. Loans and advances to banks

Loans and advances to banks	31.12.2021	31.12.2020
Loans and advances	98 232	87 351
Current accounts	2 592 126	2 839 277
Gross receivables	2 690 358	2 926 628
Allowance for impairment	(106)	(106)
Total	2 690 252	2 926 522

Fair value of loans and advances to banks is presented in Note 47.

Loans and advances to banks 31.12.2021
Gross carrying amount	Stage 1	Stage 2	Stage 3	POCI	Total
As at the beginning of the period	2 926 628	-	-	-	2 926 628
Transfers					-
Transfer to Stage 1	-	-	-	-	-
Transfer to Stage 2	-	-	-	-	-
Transfer to Stage 3	-	-	-	-	-
New financial assets originated	128 962	-	-	-	128 962
Changes in existing financial assets	35 836	-	-	-	35 836
Financial assets derecognised that are not write-offs	(278 540)	-	-	-	(278 540)
Write-offs	-	-	-	-	-
Other movements incl. FX differences	(122 528)	-	-	-	(122 528)
As at the end of the period	2 690 358	-	-	-	2 690 358

Loans and advances to banks 31.12.2020
Gross carrying amount	Stage 1	Stage 2	Stage 3	POCI	Total
As at the beginning of the period	3 716 677	-	-	-	3 716 677
Transfers					-
Transfer to Stage 1	-	-	-	-	-
Transfer to Stage 2	-	-	-	-	-
Transfer to Stage 3	-	-	-	-	-
New financial assets originated	3 702 736	-	-	-	3 702 736
Changes in existing financial assets	(8 352)	-	-	-	(8 352)
Financial assets derecognised that are not write-offs	(4 661 077)	-	-	-	(4 661 077)
Write-offs	-	-	-	-	-
Other movements incl. FX differences	176 644	-	-	-	176 644
As at the end of the period	2 926 628	-	-	-	2 926 628

20. Financial assets and liabilities held for trading

	31.12.2021		31.12.2020
Financial assets and liabilities held for trading	Assets	Liabilities	Assets	Liabilities
Trading derivatives	3 658 438	3 492 496	3 003 970	2 963 339
Interest rate operations	2 273 851	2 266 649	1 526 067	1 593 606
Forward	25	79	4	-
Options	84 846	40 605	26 983	25 099
IRS	2 170 085	2 156 214	1 487 455	1 553 747
FRA	18 895	69 751	11 625	14 760
FX operations	1 384 587	1 225 847	1 477 903	1 369 733
CIRS	199 083	203 848	280 036	324 456
Forward	158 411	272 319	249 420	87 337
FX Swap	854 660	557 991	790 605	787 108
Spot	3 026	790	17 544	30 290
Options	169 407	190 899	140 298	140 542
Debt and equity securities	361 679	-	178 799	-
Debt securities	313 350	-	147 405	-
Government securities:	299 046	-	132 109	-
- bonds	299 046	-	132 109	-
Commercial securities:	14 304	-	15 296	-
- bonds	14 304	-	15 296	-
Equity securities:	48 329	-	31 394	-
- listed	48 329	-	31 394	-
Short sale	-	385 585	-	67 001
Total	4 020 117	3 878 081	3 182 769	3 030 340

Financial assets and liabilities held for trading - trading derivatives include the change in the value of counterparty risk in the amount of PLN (8,043) k as at 31.12.2021 and PLN (10,708) k as at 31.12.2020.

The table below presents derivatives’ nominal values.

Derivatives’ nominal values	31.12.2021	31.12.2020
Term derivatives (hedging)	27 276 570	21 345 493
Single-currency interest rate swap (IRS)	5 029 341	5 511 137
Macro cash flow hedge -purchased (IRS)	50 000	50 000
Macro cash flow hedge -purchased (CIRS)	9 862 218	6 783 343
Macro cash flow hedge -sold (CIRS)	11 497 988	8 150 331
FX Swap cash flow hedge -purchased (FX)	414 425	424 272
FX Swap cash flow hedge-sold (FX)	422 598	426 410
Term derivatives (trading)	661 823 482	508 521 772
Interest rate operations	370 178 979	299 528 614
-Single-currency interest rate swap	339 859 952	279 650 203
-FRA - purchased amounts	21 691 000	11 575 000
-Options	8 374 127	8 298 411
-Forward- purchased amounts	243 900	-
-Forward- sold amounts	10 000	5 000
FX operations	291 644 503	208 993 158
-FX swap – purchased amounts	92 696 875	61 814 043
-FX swap – sold amounts	92 654 613	61 801 342
-Forward- purchased amounts	19 178 299	12 683 796
-Forward- sold amounts	19 078 735	12 537 728
-Non-Deliverable Forward (NDF) - purchased amounts	620 919	427 658
-Non-Deliverable Forward (NDF) - sold amounts	626 202	427 657
-Window Forward – purchased amounts	129 701	38 769
-Window Forward – sold amounts	129 475	38 715
-Cross-currency interest rate swap (CIRS) – purchased amounts	16 148 572	14 816 140
-Cross-currency interest rate swap (CIRS) – sold amounts	16 178 507	14 865 516
-FX options -purchased CALL	8 490 058	7 367 741
-FX options -purchased PUT	8 611 245	7 403 156
-FX options -sold CALL	8 484 775	7 367 742
-FX options -sold PUT	8 616 527	7 403 155
Currency transactions- spot	4 271 117	10 085 971
Spot-purchased	2 136 775	5 036 654
Spot-sold	2 134 342	5 049 317
Transactions on equity financial instruments	48 423	30 777
Derivatives contract - purchased	101	39
Derivatives contract - sold	48 322	30 738
Total	693 419 592	539 984 013

In the case of single-currency transactions (IRS, FRA, non-FX options) only purchased amounts are presented.

21. Hedging derivatives

	31.12.2021		31.12.2020
Hedging derivatives	Assets	Liabilities	Assets	Liabilities
Derivatives hedging fair value	163 177	29 105	754	344 311
Derivatives hedging cash flow	-	1 733 229	6 900	1 430 787
Total	163 177	1 762 334	7 654	1 775 098

As at 31.12.2021 in the line item Hedging derivatives - derivatives hedging cash flow include value adjustments day first profit or loss for start forward CIRS transactions in the amount of PLN (5,404) k and PLN (6,456) k as at 31.12.2020.

22. Loans and advances to customers

	31.12.2021
Loans and advances to customers	Measured at amortised cost	Measured at fair value through other comprehensive income	Measured at fair value through profit or loss	Total
Loans and advances to enterprises	56 155 127	1 732 895	49 667	57 937 689
Loans and advances to individuals, of which:	84 394 092	-	504 163	84 898 255
Home mortgage loans	56 599 967	-	-	56 599 967
Finance lease receivables	10 937 915	-	-	10 937 915
Loans and advances to public sector	278 530	-	-	278 530
Other receivables	58 372	-	-	58 372
Gross receivables	151 824 036	1 732 895	553 830	154 110 761
Allowance for impairment	(5 857 293)	(3 047)	-	(5 860 340)
Total	145 966 743	1 729 848	553 830	148 250 421

	31.12.2020
Loans and advances to customers	Measured at amortised cost	Measured at fair value through other comprehensive income	Measured at fair value through profit or loss		Total
Loans and advances to enterprises	55 235 227	1 608 312		66 068	56 909 607
Loans and advances to individuals, of which:	80 561 733	-		826 158	81 387 891
Home mortgage loans	52 758 103	-		-	52 758 103
Finance lease receivables	9 783 366	-		-	9 783 366
Loans and advances to public sector	211 489	-		-	211 489
Other receivables	33 691	-		-	33 691
Gross receivables	145 825 506	1 608 312		892 226	148 326 044
Allowance for impairment	(6 275 778)	(51 521)		-	(6 327 299)
Total	139 549 728	1 556 791		892 226	141 998 745

As at 31.12.2021 the fair value adjustment due to hedged risk on individual loans was PLN 13,433 k.

At Santander Bank Polska Group (except for Santander Consumer Bank S.A.) the gross carrying amount of a financial asset is its amortised cost, before adjusting for any expected credit loss allowances and without accounting for penalty interest accrued on overdue principal whose estimated recoverability is low. If penalty interest on overdue principal was recognised in its full amount, the gross carrying amount of loans and advances to customers and expected credit loss allowances would increase by PLN 684,743 k as at 31 December 2021 and PLN 698,578 k as at 31 December 2020.

Santander Consumer Bank S.A. calculates the gross carrying amount taking into consideration estimated recoverable penalty interest and applying a partial write-off of the gross carrying amount of financial assets in relation to the penalty interest based on the analysis of prospects of recovering any cash flows in this respect.

As at 31 December 2020, the total amount of penalty interest written off and partly recognised on SCB’s off-balance sheet accounts was PLN 336,967 k and as at 31 December 2020 - PLN 338,705 k.

The Santander Bank Polska Group may write-off financial assets that are still subject to enforcement activity. The outstanding contractual amount of such assets written off during the year ended 31 December 2021 was PLN 583,479 k PLN and PLN 410,037 k in 2020.

Lease receivables are presented in Note 51. Fair value of loans and advances to customers is presented in Note 47.

Loans and advances to customers 31.12.2021
Gross carrying amount	Stage 1	Stage 2	Stage 3	POCI	Total
As at the beginning of the period	128 731 409	8 657 704	7 710 688	725 705	145 825 506
Transfers
Transfer to Stage 1	5 528 282	(5 409 498)	(118 784)	-	-
Transfer to Stage 2	(8 060 146)	8 308 907	(248 761)	-	-
Transfer to Stage 3	(511 456)	(1 478 315)	1 989 771	-	-
New financial assets originated	38 527 081	-	-	-	38 527 081
Changes in existing financial assets	(5 122 557)	(852 471)	(704 951)	(128 123)	(6 808 102)
Financial assets derecognised that are not write-offs	(23 908 112)	(620 489)	(326 876)	(64 281)	(24 919 758)
Write-offs	-	-	(1 619 288)	-	(1 619 288)
FX and others movements	1 658 387	(1 187 474)	245 783	101 901	818 597
As at the end of the period	136 842 888	7 418 364	6 927 582	635 202	151 824 036

Movements on allowances for expected credit losses on loans and advances to customers measured at amortised cost for reporting period 1.01.2021 - 31.12.2021	Stage 1	Stage 2	Stage 3	Total
As at the beginning of the period	(586 958)	(801 232)	(4 666 118)	(6 054 308)
Transfers
Transfer to Stage 1	(52 896)	474 919	36 024	458 047
Transfer to Stage 2	173 560	(659 781)	116 985	(369 236)
Transfer to Stage 3	19 550	270 083	(1 035 795)	(746 162)
New financial assets originated	(358 393)	-	-	(358 393)
Changes in credit risk of existing financial assets	15 133	79 102	(464 620)	(370 385)
Changes in models and risk parameters	(23 935)	37 703	(25 983)	(12 215)
Financial assets derecognised that are not write-offs	147 070	13 057	166 204	326 331
Write-offs	-	-	1 442 635	1 442 635
FX and others movements	(27 265)	(8 062)	74 012	38 685
As at the end of the period	(694 134)	(594 211)	(4 356 656)	(5 645 001)

Reconciliation to Note 12: Impairment allowances for expected credit losses measured at amortised cost	Stage 1	Stage 2	Stage 3	Total
Movements on allowances for expected credit losses on loans and advances to customers measured at amortised cost for reporting period 1.01.2021 - 31.12.2021	(107 175)	207 021	309 460	409 306
Transfers that do not go through profit and loss	(41 733)	(316 509)	273 243	(84 999)
Write-offs	(265)	-	(1 567 266)	(1 567 531)
Impairment allowances for expected credit losses on loans measured at fair value through other comprehensive income (underwriting)	(1 754)	-	50 229	48 475
FX differences	611	701	14 168	15 480
Total	(150 316)	(108 787)	(920 166)	(1 179 269)

Movements on impairment losses on purchased or originated credit-impaired loans (POCI)	1.01.2021-31.12.2021	1.01.2020-31.12.2020
As at the beginning of the period	(221 470)	(204 198)
Charge/write back of current period	1 256	(16 829)
Write off/Sale of receivables	7 659	170
F/X differences	(141)	(333)
Other	404	(280)
As at the end of the period	(212 292)	(221 470)

Loans and advances to customers 31.12.2020
Gross carrying amount		Stage 1	Stage 2	Stage 3	POCI	Total
As at the beginning of the period		132 377 036	6 546 105	6 834 386	769 208	146 526 735
Transfers
Transfer to Stage 1		7 586 579	(7 478 514)	(108 065)	-	-
Transfer to Stage 2	(12 064 030)		12 208 630	(144 600)	-	-
Transfer to Stage 3	(234 809)		(1 912 955)	2 147 764	-	-
New financial assets originated	29 301 653		404 267	114 430	-	29 820 350
Changes in existing financial assets	(7 801 695)		(984 704)	(451 998)	(59 595)	(9 297 992)
Financial assets derecognised that are not write-offs	(22 595 859)		(537 049)	(270 998)	(61 721)	(23 465 627)
Write-offs		-	-	(728 619)	-	(728 619)
FX and others movements		2 162 534	411 924	318 388	77 813	2 970 659
As at the end of the period		128 731 409	8 657 704	7 710 688	725 705	145 825 506

Movements on allowances for expected credit losses on loans and advances to customers measured at amortised cost for reporting period 1.01.2020 - 31.12.2020	Stage 1	Stage 2	Stage 3	Total
As at the beginning of the period	(571 410)	(582 508)	(3 886 248)	(5 040 166)
Transfers
Transfer to Stage 1	(154 867)	661 785	40 938	547 856
Transfer to Stage 2	223 862	(1 029 293)	64 847	(740 584)
Transfer to Stage 3	18 353	341 324	(1 154 585)	(794 908)
New financial assets originated	(188 438)	(62 290)	(97 901)	(348 629)
Changes in credit risk of existing financial assets	30 637	(117 542)	(472 973)	(559 878)
Changes in models and risk parameters	(46 980)	(38 125)	(22 653)	(107 758)
Financial assets derecognised that are not write-offs	150 688	27 026	127 498	305 212
Write-offs	-	-	713 395	713 395
FX and others movements	(48 803)	(1 609)	21 564	(28 848)
As at the end of the period	(586 958)	(801 232)	(4 666 118)	(6 054 308)

Reconciliation to Note 12: Impairment allowances for expected credit losses measured at amortised cost	Stage 1	Stage 2	Stage 3	Total
Movements on allowances for expected credit losses on loans and advances to customers measured at amortised cost for reporting period 1.01.2020 - 31.12.2020	(15 549)	(218 725)	(779 869)	(1 014 143)
Transfers that do not go through profit and loss	(100 411)	(390 977)	450 347	(41 041)
Write-offs	(1 177)	-	(716 461)	(717 638)
Impairment allowances for expected credit losses on loans measured at fair value through other comprehensive income (underwriting)	812	-	(50 229)	(49 417)
FX differences	2 226	5 164	26 478	33 868
Total	(114 099)	(604 538)	(1 069 734)	(1 788 371)

Loans and advances to enterprises 31.12.2021
Gross carrying amount	Stage 1	Stage 2	Stage 3	POCI	Total
As at the beginning of the period	46 614 785	4 488 420	3 883 644	248 378	55 235 227
Transfers
Transfer to Stage 1	2 370 501	(2 331 236)	(39 265)	-	-
Transfer to Stage 2	(3 853 432)	3 876 374	(22 942)	-	-
Transfer to Stage 3	(143 460)	(655 521)	798 981	-	-
New financial assets originated	15 585 776	-	-	-	15 585 776
Changes in existing financial assets	2 377 070	(481 986)	(420 190)	(36 720)	1 438 174
Financial assets derecognised that are not write-offs	(15 314 654)	(481 887)	(97 831)	(26 313)	(15 920 685)
Write-offs	-	-	(795 359)	-	(795 359)
FX and others movements	634 597	51 945	(108 330)	33 781	611 993
As at the end of the period	48 271 183	4 466 109	3 198 708	219 126	56 155 126

Movements on allowances for expected credit losses on loans and advances to enterprises measured at amortised cost for reporting period 1.01.2021 - 31.12.2021	Stage 1	Stage 2	Stage 3	Total
As at the beginning of the period	(183 437)	(350 386)	(2 156 967)	(2 690 790)
Transfers
Transfer to Stage 1	(44 941)	154 735	15 930	125 724
Transfer to Stage 2	65 421	(225 722)	8 281	(152 020)
Transfer to Stage 3	5 757	78 659	(289 391)	(204 975)
New financial assets originated	(48 869)	-	-	(48 869)
Changes in credit risk of existing financial assets	(10 584)	23 166	(256 860)	(244 278)
Changes in models and risk parameters	(11 534)	48 592	(19 607)	17 451
Financial assets derecognised that are not write-offs	30 213	3 484	42 603	76 300
Write-offs	-	-	769 109	769 109
FX and others movements	10 163	(2 455)	(31 015)	(23 307)
As at the end of the period	(187 811)	(269 927)	(1 917 917)	(2 375 655)

Movements on impairment losses on purchased or originated credit-impaired loans and advances to enterprises (POCI)	1.01.2021-31.12.2021	1.01.2020-31.12.2020
As at the beginning of the period	(38 544)	(41 075)
Charge/write back of current period	(13 628)	2 854
Write off/Sale of receivables	2 844	-
F/X differences	(10)	(272)
Other	(107)	(51)
As at the end of the period	(49 445)	(38 544)

Loans and advances to enterprises 31.12.2020
Gross carrying amount		Stage 1	Stage 2	Stage 3	POCI	Total
As at the beginning of the period		50 056 781	3 007 869	3 765 774	334 677	57 165 101
Transfers
Transfer to Stage 1	2 821 585		(2 784 324)	(37 261)	-	-
Transfer to Stage 2	(5 838 730)		5 890 927	(52 197)	-	-
Transfer to Stage 3	(86 368)		(919 350)	1 005 718	-	-
New financial assets originated	12 721 273		24 773	3 147	-	12 749 193
Changes in existing financial assets	(352 380)		(645 766)	(259 038)	(65 713)	(1 322 897)
Financial assets derecognised that are not write-offs	(14 974 891)		(413 617)	(84 101)	(36 075)	(15 508 684)
Write-offs	-		-	(261 015)	-	(261 015)
FX and others movements	2 267 515		327 908	(197 383)	15 489	2 413 529
As at the end of the period	46 614 785		4 488 420	3 883 644	248 378	55 235 227

Movements on allowances for expected credit losses on loans and advances to enterprises measured at amortised cost for reporting period 1.01.2020 - 31.12.2020	Stage 1	Stage 2	Stage 3	Total
As at the beginning of the period	(179 783)	(208 414)	(1 817 216)	(2 205 413)
Transfers
Transfer to Stage 1	(60 001)	240 348	9 004	189 351
Transfer to Stage 2	103 410	(461 791)	15 918	(342 463)
Transfer to Stage 3	7 640	144 734	(363 459)	(211 085)
New financial assets originated	(48 184)	(1 971)	(18 625)	(68 780)
Changes in credit risk of existing financial assets	(13 664)	(59 346)	(248 887)	(321 897)
Changes in models and risk parameters	(21 638)	(17 242)	(18 771)	(57 651)
Financial assets derecognised that are not write-offs	53 829	19 972	40 221	114 022
Write-offs	-	-	294 221	294 221
FX and others movements	(25 046)	(6 676)	(49 373)	(81 095)
As at the end of the period	(183 437)	(350 386)	(2 156 967)	(2 690 790)

Loans and advances to individuals 31.12.2021
Gross carrying amount	Stage 1	Stage 2	Stage 3	POCI	Total
As at the beginning of the period	72 945 044	3 497 182	3 645 254	474 253	80 561 733
Transfers
Transfer to Stage 1	2 458 160	(2 403 290)	(54 870)	-	-
Transfer to Stage 2	(3 204 486)	3 413 176	(208 690)	-	-
Transfer to Stage 3	(335 575)	(654 472)	990 047	-	-
New financial assets originated	19 246 294	-	-	-	19 246 294
Changes in existing financial assets	(5 877 488)	(175 188)	(214 176)	(90 746)	(6 357 598)
Financial assets derecognised that are not write-offs	(8 102 399)	(103 255)	(223 224)	(37 872)	(8 466 750)
Write-offs	-	-	(822 287)	-	(822 287)
FX and others movements	1 044 126	(1 206 508)	326 961	68 121	232 700
As at the end of the period	78 173 676	2 367 645	3 439 015	413 756	84 394 092

Movements on allowances for expected credit losses on loans and advances to individuals measured at amortised cost for reporting period 1.01.2021 - 31.12.2021	Stage 1	Stage 2	Stage 3	Total
As at the beginning of the period	(378 963)	(423 819)	(2 407 783)	(3 210 565)
Transfers
Transfer to Stage 1	(2 358)	297 570	17 956	313 168
Transfer to Stage 2	98 300	(396 767)	106 085	(192 382)
Transfer to Stage 3	13 284	177 489	(711 934)	(521 161)
New financial assets originated	(295 156)	-	-	(295 156)
Changes in credit risk of existing financial assets	20 876	61 586	(182 154)	(99 692)
Changes in models and risk parameters	(12 400)	(10 889)	(6 376)	(29 665)
Financial assets derecognised that are not write-offs	115 988	8 586	116 380	240 954
Write-offs	-	-	670 188	670 188
FX and others movements	(37 158)	(5 618)	106 708	63 932
As at the end of the period	(477 587)	(291 862)	(2 290 930)	(3 060 379)

Movements on impairment losses on purchased or originated credit-impaired loans and advances to individuals (POCI)	1.01.2021-31.12.2021	1.01.2020-31.12.2020
As at the beginning of the period	(182 546)	(162 653)
Charge/write back of current period	14 503	(19 602)
Write off/Sale of receivables	4 815	-
FX differences	(132)	(62)
Other	513	(229)
As at the end of the period	(162 847)	(182 546)

Loans and advances to individuals 31.12.2020
Gross carrying amount		Stage 1	Stage 2	Stage 3	POCI	Total
As at the beginning of the period		73 455 322	2 979 061	2 887 387	431 017	79 752 787
Transfers
Transfer to Stage 1	3 971 962		(3 917 405)	(54 557)	-	-
Transfer to Stage 2	(5 074 957)		5 139 779	(64 822)	-	-
Transfer to Stage 3	(130 605)		(877 529)	1 008 134	-	-
New financial assets originated	13 879 875		372 334	110 653	-	14 362 862
Changes in existing financial assets	(5 776 601)		(195 743)	(144 889)	6 458	(6 110 775)
Financial assets derecognised that are not write-offs	(7 277 870)		(93 638)	(177 141)	(25 546)	(7 574 195)
Write-offs	-		-	(436 137)	-	(436 137)
FX and others movements	(102 082)		90 323	516 626	62 324	567 191
As at the end of the period		72 945 044	3 497 182	3 645 254	474 253	80 561 733

Movements on allowances for expected credit losses on loans and advances to individuals measured at amortised cost for reporting period 1.01.2020 - 31.12.2020	Stage 1	Stage 2	Stage 3	Total
As at the beginning of the period	(372 066)	(350 533)	(1 971 794)	(2 694 393)
Transfers
Transfer to Stage 1	(88 066)	394 469	29 843	336 246
Transfer to Stage 2	109 535	(526 805)	43 472	(373 798)
Transfer to Stage 3	10 411	187 531	(766 658)	(568 716)
New financial assets originated	(131 660)	(60 260)	(77 986)	(269 906)
Changes in credit risk of existing financial assets	46 350	(58 931)	(201 279)	(213 860)
Changes in models and risk parameters	(26 122)	(20 434)	(1 701)	(48 257)
Financial assets derecognised that are not write-offs	96 115	6 335	82 017	184 467
Write-offs	-	-	387 707	387 707
FX and others movements	(23 460)	4 809	68 596	49 945
As at the end of the period	(378 963)	(423 819)	(2 407 783)	(3 210 565)

Finance lease receivables 31.12.2021
Gross carrying amount	Stage 1	Stage 2	Stage 3	POCI	Total
As at the beginning of the period	8 926 396	672 107	181 786	3 077	9 783 366
Transfers
Transfer to Stage 1	699 622	(674 973)	(24 649)	-	-
Transfer to Stage 2	(1 002 228)	1 019 358	(17 130)	-	-
Transfer to Stage 3	(32 420)	(168 323)	200 743	-	-
New financial assets originated	3 695 011	-	-	-	3 695 011
Changes in existing financial assets	(1 713 862)	(195 297)	(70 585)	(657)	(1 980 401)
Financial assets derecognised that are not write-offs	(491 059)	(35 346)	(5 821)	(96)	(532 322)
Write-offs	-	-	(1 642)	-	(1 642)
FX and others movements	(20 336)	(32 913)	27 152	-	(26 097)
As at the end of the period	10 061 124	584 613	289 854	2 324	10 937 915

Movements on allowances for expected credit losses on finance lease receivables measured at amortised cost for reporting period 1.01.2021 - 31.12.2021	Stage 1	Stage 2	Stage 3	Total
As at the beginning of the period	(24 562)	(27 029)	(101 365)	(152 956)
Transfers
Transfer to Stage 1	(5 597)	22 613	2 138	19 154
Transfer to Stage 2	9 839	(37 292)	2 620	(24 833)
Transfer to Stage 3	509	13 935	(34 470)	(20 026)
New financial assets originated	(14 368)	-	-	(14 368)
Changes in credit risk of existing financial assets	4 841	(5 651)	(25 606)	(26 416)
Changes in models and risk parameters	-	-	-	-
Financial assets derecognised that are not write-offs	869	987	7 221	9 077
Write-offs	-	-	3 338	3 338
FX and others movements	(270)	12	(1 684)	(1 942)
As at the end of the period	(28 739)	(32 425)	(147 808)	(208 972)

Movements on impairment losses on purchased or originated credit-impaired on finance lease receivables (POCI)	1.01.2021-31.12.2021	1.01.2020-31.12.2020
As at the beginning of the period	(382)	(471)
Charge/write back of current period	382	(81)
Write off/Sale of receivables	-	170
As at the end of the period	-	(382)

Finance lease receivables 31.12.2020
Gross carrying amount	Stage 1	Stage 2	Stage 3	POCI	Total
As at the beginning of the period	8 523 051	559 178	181 224	3 516	9 266 969
Transfers
Transfer to Stage 1	793 031	(776 784)	(16 247)	-	-
Transfer to Stage 2	(1 150 342)	1 177 924	(27 582)	-	-
Transfer to Stage 3	(17 837)	(116 075)	133 912	-	-
New financial assets originated	2 700 505	7 159	630	-	2 708 294
Changes in existing financial assets	(1 576 015)	(143 194)	(48 071)	(339)	(1 767 619)
Financial assets derecognised that are not write-offs	(343 098)	(29 794)	(9 757)	(100)	(382 749)
Write-offs	-	-	(31 467)	-	(31 467)
FX and others movements	(2 899)	(6 307)	(856)	-	(10 062)
As at the end of the period	8 926 396	672 107	181 786	3 077	9 783 366

Movements on allowances for expected credit losses on finance lease receivables measured at amortised cost for reporting period 1.01.2020 - 31.12.2020	Stage 1	Stage 2	Stage 3	Total
As at the beginning of the period	(19 564)	(23 560)	(97 237)	(140 361)
Transfers
Transfer to Stage 1	(6 801)	26 968	2 092	22 259
Transfer to Stage 2	10 917	(40 698)	5 457	(24 324)
Transfer to Stage 3	303	9 059	(24 468)	(15 106)
New financial assets originated	(8 594)	(59)	(1 290)	(9 943)
Changes in credit risk of existing financial assets	(2 049)	734	(22 807)	(24 122)
Changes in models and risk parameters	779	(450)	(2 180)	(1 851)
Financial assets derecognised that are not write-offs	744	719	5 259	6 722
Write-offs	-	-	31 467	31 467
FX and others movements	(297)	258	2 342	2 303
As at the end of the period	(24 562)	(27 029)	(101 365)	(152 956)

23. Securitisation of assets

Santander Bank Polska S.A.

On 7 December 2018, Santander Bank Polska S.A. signed a synthetic securitisation agreement with the European Investment Fund (EIF) with respect to PLN 2,150,031k worth of cash loan portfolio. The purpose of the transaction is to release capital to finance projects supporting the development of SME, corporate and public sector customers. The agreement was activated on 28 August 2019 after the Bank had satisfied the contractual conditions precedent. The cash loan portfolio of PLN 2,150,031k (principal amount only) was secured by a guarantee. The transaction is set to expire by 10 September 2031.

The transaction has been executed to transfer credit risk to the EIF and optimise the Bank’s Tier 1 capital. It is a synthetic securitisation which does not involve financing and covers the selected portfolio of cash loans which remain on the Bank’s balance sheet. The entire securitised portfolio is risk weighted in accordance with the standardised approach.

As part of the transaction, the securitised portfolio is divided into three tranches: senior (80%), mezzanine (18.5%) and junior, i.e. the first loss tranche (1.5%). As at the guarantee activation date, the senior tranche totalled PLN 1,720,025.0k, the mezzanine tranche was PLN 397,755.8k and the junior tranche amounted to PLN 32,250.5k.

The senior and mezzanine tranches are fully guaranteed by the EIF. In addition, the mezzanine tranche is secured by a counter-guarantee from the European Investment Bank (EIB). The first loss tranche was retained by the Bank and deducted from the Common Equity Tier 1 items in accordance with Article 36(1)(k) of the CRR. Deduction from the Common Equity Tier 1 means the application of the “full deduction approach”, as stipulated in Article 245(1)(b) of the CRR.

According to the terms of the transaction, losses up to the junior tranche amount are covered by the Bank, and only after this level is exceeded can they be covered from the guarantee issued by the EIF. To ensure stability of the portfolio structure, the transaction provides for a synthetic excess spread mechanism that makes it possible to allocate losses up to 1.45% of the portfolio per year outside the securitisation structure during the first two years after activation of the guarantee. The mechanism is to be renewed after 12 months.

Likewise, for the first two years after activation of the securitisation, the amortised part of the portfolio may be replenished by other eligible loans.

As at 31 December 2021, the gross carrying amounts of the individual tranches were as follows: senior tranche: PLN 1,086,470.5k, mezzanine tranche: PLN 251,246.3k and junior tranche: PLN 32,335.1k. In the reporting period, credit losses allocated outside the securitisation structure using the synthetic excess spread mechanism totalled PLN 23,406.4k. Since the activation of the transaction, losses have not exceeded the junior tranche amount and the Bank has not received any payments under the guarantee issued by the EIF.

Pursuant to IFRS 9, the contractual terms of the transaction do not satisfy the criteria for not recognising the securitised assets in Santander Bank Polska statement of financial position.

The table below presents the gross carrying amounts of the securitised loans, their principal amount subject to securitisation and the amount of risk retained by the Group.

	Transaction value - gross		Transaction value by capital amount		Retained Risk Value
	31.12.2021	31.12.2020	31.12.2021	31.12.2020	31.12.2021	31.12.2020
Balance sheet portfolio, incl:	1 370 052	1 662 719	1 364 407	1 657 847	37 895	37 123
tranche senior	1 086 470	1 324 179	1 081 955	1 320 282	4 516	3 898
tranche mezzanine	251 246	306 216	250 202	305 315	1 044	901
tranche junior	32 335	32 324	32 250	32 250	32 335	32 324
Value losses allocated to Synthetic Excess Spread	23 406	14 351	23 406	14 351	23 406	14 351
Value of available Synthetic Excess Spread allocated to be used	18 772	26 963	18 772	26 963	-	-

Santander Leasing S.A.

Since 2018, Santander Leasing S.A. (Company) has performed the securitisation agreement with respect to two tranches of EUR 330m and PLN 1,202.5m, respectively. The PLN tranche was amortised starting from May 2020. The liquidity securitisation of that tranche was settled in full in May 2021 and the transaction was closed.

The EUR tranche remained active as at 31 December 2021. The bonds and the loan mature in March 2036.

The transaction is a traditional securitisation consisting in the transfer of ownership of the securitised debt to Santander Leasing Poland Securitization 01 DAC with its registered office in Ireland (SPV).

Based on the purchased assets, the SPV issued bonds of EUR 330m. To mitigate liquidity and credit risk associated with the transaction, Santander Leasing S.A. granted a subordinated loan to the SPV to be paid after repayment of bond debt.

As a result of securitisation of both tranches, Santander Leasing S.A. raised funding in exchange for rights to future cash flows from the securitised portfolio.

The securitisation transaction is one of the sources of funding. It positively affects the capital adequacy ratios, liquidity and diversification of funding.

Pursuant to IFRS 9, the contractual terms of the transaction do not satisfy the criteria for not recognising the securitised assets in Santander Leasing statement of financial position.

	Transaction value - gross		Risk value retained in the Group		Fair Value
	31.12.2021	31.12.2020	31.12.2021	31.12.2020	31.12.2021	31.12.2020
Balance sheet value - Assets	1 886 874	3 149 466	1 886 874	3 149 466	1 884 270	3 157 258
Balance sheet value - Liabilities	2 062 531	3 277 144	2 062 531	3 277 144	2 065 817	3 297 460
Net amount	(175 657)	(127 678)	(175 657)	(127 678)	(181 547)	(140 202)

In June 2020, Santander Leasing S.A. securitised a portfolio of loans and leasing facilities totalling PLN 2,000,000k. As part of the transaction, the Company entered into a guarantee agreement with the EIF to secure the selected portfolio of the above-mentioned facilities. The transaction is set to expire on 31 May 2031.

The transaction made by Santander Leasing S.A. is synthetic securitisation which does not involve financing and covers the selected portfolio which remains on the Company’s balance sheet.

The securitised portfolio is divided into three tranches: senior (85%), mezzanine (14.2%) and junior (0.8%). The senior and mezzanine tranches are fully guaranteed by the EIF.

In addition, the mezzanine tranche is secured by a counter-guarantee from the European Investment Bank (EIB). The first loss tranche (synthetic excess spread) of 0.7% of the portfolio was retained by Santander Leasing S.A. The transaction was executed to transfer credit risk to the EIF and optimise Tier 1 capital.

As at 31 December 2021, the senior tranche totalled PLN 1,483.4m, the mezzanine tranche was PLN 247.8m and the junior tranche amounted to PLN 14m. In the reporting period, there were no credit losses allocated outside the securitisation structure as part of the synthetic excess spread mechanism.

The synthetic securitisation structure set up under the guarantee agreement does not generate any additional exposure to risks typical of traditional securitisation transactions (such as liquidity risk inherent in securitised assets).

Pursuant to IFRS 9, the contractual terms of the transaction do not satisfy the criteria for not recognising the securitised assets in Santander Leasing statement of financial position.

The table below presents the gross carrying amounts of the securitised loans, their principal amount subject to securitisation and the amount of risk retained by the Group.

	Transaction value - gross		Transaction value by capital amount		Retained Risk Value
	31.12.2021	31.12.2020	31.12.2021	31.12.2020	31.12.2021	31.12.2020
Balance sheet portfolio, incl:	1 851 940	2 053 136	1 745 167	1 920 576	106 773	132 560
tranche senior	1 574 149	1 745 166	1 483 392	1 632 489	90 757	112 676
tranche mezzanine	262 975	291 545	247 814	272 722	15 162	18 824
tranche junior	14 816	16 425	13 961	15 365	854	1 060
Value losses allocated to Synthetic Excess Spread	329	26	329	26	329	26
Value of available Synthetic Excess Spread allocated to be used	12 902	14 000	12 902	14 000	-	-

On 16 December 2021, Santander Leasing S.A. signed a guarantee agreement with the European Investment Fund (EIF) to secure the portfolio of leases and loans totalling approx. PLN 2.7bn. The contractual maturity date of the transaction is 30 November 2030.

The guarantee agreement concluded by Santander Leasing S.A. meets the synthetic securitisation criteria set out in the Capital Requirements Regulation (CRR) (amended by Regulation 2017/2041). The transaction is synthetic securitisation which does not involve financing and covers the selected portfolio of lease and loan agreements which remains on the Company’s balance sheet.

As part of the transaction, the securitised portfolio is divided into two tranches: senior (87.5%) and junior, i.e. the first loss tranche (12.5%). As at the guarantee activation date, the senior tranche totalled PLN 2,394,191,718.96 and the junior tranche amounted to PLN 342,027,388.42. The junior tranche is guaranteed by the EIF. Both the principal component and the interest component of the underlying exposures are secured by the EIF guarantee. The transaction does not involve the synthetic excess spread mechanism.

The synthetic securitisation structure set up under the guarantee agreement does not generate any additional exposure to risks typical of traditional securitisation transactions (such as liquidity risk inherent in securitised assets).

31.12.2021	Transaction value - gross	Transaction value by capital amount	Retained Risk Value
Balance sheet portfolio, incl:	2 833 915	2 643 328	190 587
tranche senior	2 479 676	2 312 912	166 763
tranche junior	354 239	330 416	23 824

Santander Consumer Bank S.A.

In July 2019, Santander Consumer Bank S.A. (SCB) restructured the securitisation of the cash loan portfolio. The transaction is a traditional and revolving securitisation under which the ownership of the securitised exposures was transferred to a special purpose vehicle – SC Poland Consumer 16-1 Sp. z o.o with its registered office in Poland (SPV3). The amounts of tranches A and C were revised and their maturities were extended. Tranche B was redeemed. Net contractual cash flows were settled on the date the restructuring documents were signed.

Based on the securitised assets, SPV3 issued bonds of PLN 2,000,000k as at 31 December 2021, secured by a registered pledge on SPV3 assets. The bonds bear an interest rate of 1M WIBOR plus margin. As a result of the securitisation, SCB raised funding in exchange for rights to future cash flows from the securitised credit portfolio. The bonds expire on 16 July 2030, but SCB expects that they will be fully redeemed within three years of the transaction date.

To finance the transaction, SCB provided SPV3 with a subordinated loan totalling PLN 443 281k. As at 31 December 2021, the Bank revised the fair value measurement of this loan at PLN 15,771k. The loan is subordinated to the senior secured bonds. Interest on the loan is paid in a specific order from SPV3 funds, while the principal will be repaid upon the full redemption of bonds. The loan bears a fixed interest rate.

Pursuant to IFRS 9, the contractual terms of both securitisations do not satisfy the criteria for not recognising the securitised assets in the Bank’s statement of financial position. Accordingly, as at 31 December 2021 the Bank disclosed the securitised assets of PLN 1,897,863k under loans and advances to customers.

The fair value of the net securitised assets measured as at 31 December 2021 was PLN 1,846,309k. At the same time, SCB recognises the liability in respect of cash flows from securitisation under deposits from customers. As at 31 December 2021, it totalled PLN 2,446,972k.

	Transaction value		Risk value retained in the Group		Fair Value
	31.12.2021	31.12.2020	31.12.2021	31.12.2020	31.12.2021	31.12.2020
Balance sheet value - Assets	1 897 863	1 938 496	1 897 863	1 938 496	1 846 309	1 840 419
Balance sheet value - Liabilities	2 446 972	2 445 456	2 446 972	2 445 456	2 446 972	2 445 456
Net amount	(549 109)	(506 960)	(549 109)	(506 960)	(600 663)	(605 037)

As at December 31, 2021, the estimated fair value of the liability for securitization flows was 2,431 201 k.

As at 31 December 2021, SCB also had liabilities of PLN 177k in respect of ongoing settlements with SPV, which were disclosed under other liabilities.

The securitisation transaction executed by the Bank in 2015 in relation to the portfolio of instalment loans expired in 2020. The transaction was a traditional securitisation involving the transfer of ownership of the securitised exposures to a special purpose vehicle – SC Poland Consumer 2015-1 Sp. z o.o with its registered office in Poland (SPV2).

	Transaction value - gross		Transaction value by capital amount		Retained Risk Value
	31.12.2021	31.12.2020	31.12.2021	31.12.2020	31.12.2021	31.12.2020
Balance sheet portfolio, incl:	1 493 650	1 734 102	1 493 650	1 734 102	20 809	20 809
tranche senior	1 214 945	1 413 293	1 214 945	1 413 293	-	-
tranche mezzanine	257 896	300 000	257 896	300 000	-	-
tranche junior	20 809	20 809	20 809	20 809	20 809	20 809
Value losses allocated to Synthetic Excess Spread	-	-	-	-	-	-
Value of available Synthetic Excess Spread allocated to be used	7 307	12 502	7 307	12 502	n/a	n/a

In 2019, SCB securitised a portfolio of cash and instalment loans granted by the Bank. The purpose of the transaction was to obtain a capital relief in relation to the portfolio of retail loans, ensuring an additional capacity to finance projects supporting the growth of SME customers. The transaction is a synthetic securitisation and consists of three tranches. On 5 July 2019, the Bank signed an agreement with the EIF under which the EIF issued a financial guarantee to secure 100% of senior and mezzanine tranches (A- and B-class). At the same time, the Bank retained 100% of the C-class first loss tranche, which was deducted from the Common Equity Tier 1 in accordance with Article 36(1)(k) of the CRR. Deduction from the Common Equity Tier 1 means the application of the “full deduction approach,” as stipulated in Article 245(1)(b) of the CRR. In the case of mezzanine tranches, the EIF received a financial counter-guarantee from the European Investment Bank. The transaction meets the criteria stipulated in Article 245(4) and Article 245(1)(b) of the CRR. It provides for synthetic excess spread, which is equal to 1.40% of the performing portfolio and is used in accordance with the “use it or lose it” mechanism. As part of the transaction, the Bank retains randomly selected exposures which account for not less than 5% of the notional amount of the securitised exposures in accordance with Article 405(1)(c) of the CRR. The guarantee was activated on 21 November 2019, while the impact on the Bank’s risk-weighted assets was recognised in December 2019. The guarantee covered the portfolio of cash and instalment loans of PLN 1,734,101k (principal amount). The securitised portfolio is risk weighted in accordance with the standardised approach. The transaction includes a two-year revolving period during which the Bank may replenish the amortised amount of the securitised portfolio with new exposures that meet the criteria specified in the agreement.

The transaction is set to expire on 30 June 2030. It does not involve financing and covers the selected portfolio of cash and instalment loans which remain on the Bank’s balance sheet. It is a part of the Bank’s strategy aimed at optimising Tier 1 capital.

Pursuant to IFRS 9, the contractual terms of the transaction do not satisfy the criteria for not recognising the securitised assets in Santander Bank Polska statement of financial position.

The table below presents the gross carrying amounts of the securitised loans, their principal amount subject to securitisation and the amount of risk retained by the Group.

Santander Consumer Multirent

In July 2020, Santander Consumer Multirent Sp. z o.o. (SCM) securitised a portfolio of lease agreements. The transaction is a traditional and revolving securitisation consisting in the transfer of ownership of the securitised exposures to a special purpose vehicle – SCM POLAND AUTO 2019-1 DAC with its registered office in Ireland (SPV3).

Based on the securitised assets, SPV3 issued bonds of PLN 740,000k as at 31 December 2021. The bonds bear an interest rate of 1M WIBOR plus margin. As a result of the securitisation, SCM raised funding in exchange for rights to future cash flows from the securitised credit portfolio.

To finance the transaction, SCM provided SPV3 with a subordinated loan totalling PLN 215,383k as at 31 December 2021. The loan is subordinated to the senior secured bonds. Interest on the loan is paid in a specific order from SPV3 funds, while the principal will be repaid upon the full redemption of bonds. The loan bears a floating interest rate based on 1M WIBOR.

Pursuant to IFRS 9, the contractual terms of the transaction do not satisfy the criteria for not recognising the securitised assets in SCM’s statement of financial position. Accordingly, as at 31 December 2021 SCM disclosed the securitised assets of PLN 948,742k under finance lease receivables.

At the same time, SCM recognises the liability in respect of cash flows from securitisation under other liabilities. As at 31 December 2021, it totalled PLN 955,383k.

As at December 31, 2021, SCM also had receivables of 6 544 k, in respect of ongoing settlements with SPV, which were disclosed under trade and other receivables.

	Transaction value		Risk value retained in the Group		Fair Value
	31.12.2021	31.12.2020	31.12.2021	31.12.2020	31.12.2021	31.12.2020
Balance sheet value - Assets	948 742	948 742	948 742	948 742	978 413	980 065
Balance sheet value - Liabilities	956 415	955 954	956 415	955 954	956 415	955 954
Net amount	(7 673)	(7 212)	(7 673)	(7 212)	21 996	24 111

24. Investment securities

Investment securities	31.12.2021	31.12.2020
Debt investment securities measured at fair value through other comprehensive income	70 064 796	65 700 052
Government securities:	49 225 514	46 149 191
- bills	-	1 415 983
- bonds	49 225 514	44 733 208
Central Bank securities:	6 997 960	4 999 904
- bills	6 997 960	4 999 904
Other securities:	13 841 322	14 550 957
-bonds	13 841 322	14 550 957
Debt investment securities measured at fair value through profit and loss	116 977	110 155
Debt investment securities measured at amortised cost	1 421 272	-
Government securities:	1 421 272	-
- bonds	1 421 272	-
Equity investment securities measured at fair value through other comprehensive income	259 788	857 331
- listed	64 320	30 594
- unlisted	195 468	826 737
Equity investment securities measured at fair value through profit and loss	3 427	115 896
- unlisted	3 427	115 896
Total	71 866 260	66 783 434

Movements on investment securities 1.01.2021 - 31.12.2021	Debt investment securities measured at fair value through other comprehensive income	Debt investment securities measured at fair value through profit and loss	Debt investment securities measured at amortised cost	Equity investment securities measured at fair value through other comprehensive income	Equity investment securities measured at fair value through profit and loss	Total
As at the beginning of the period	65 700 052	110 155	-	857 331	115 896	66 783 434
Additions	212 852 965	-	1 415 626	428	-	214 269 019
Disposals (sale and maturity)	(204 782 394)	(500)	-	(1 116 722)**	(116 422)	(206 016 038)
Fair value adjustment	(3 885 857)*	(1 768)	-	518 751	3 968	(3 364 906)
Movements on interest accrued	(22 601)	-	5 646	-	-	(16 955)
Impairment losses on securities	(4 015)	-	-	-	-	(4 015)
FX differences	206 646	9 090	-	-	(15)	215 721
As at the end of the period	70 064 796	116 977	1 421 272	259 788	3 427	71 866 260

*The increase in profitability of the debt securities portfolio in connection with commencement of the monetary policy tightening cycle by the National Bank of Poland (interest rate increases) resulted in a decrease in the valuation of those securities.

** It mainly concerns the sale of shares AVIVA TUZ S.A., AVIVA TUO S.A. and PTE Aviva Santander S.A., details in note 47.

Movements on investment securities 1.01.2020 - 31.12.2020	Debt investment securities measured at fair value through other comprehensive income	Debt investment securities measured at fair value through profit and loss	Equity investment securities measured at fair value through other comprehensive income	Equity investment securities measured at fair value through profit and loss	Total
As at the beginning of the period	40 248 937	194 285	884 912	-	41 328 134
Additions	138 478 639	-	-	101 550	138 580 189
Disposals (sale and maturity)	(113 856 649)	(102 550)	(1 000)	-	(113 960 199)
Fair value adjustment	805 545	15 957	(26 581)	17 245	812 166
Movements on interest accrued	(59 450)	-	-	-	(59 450)
Impairment losses on securities	(8 535)	-	-	-	(8 535)
FX differences	91 565	2 463	-	(2 899)	91 129
As at the end of the period	65 700 052	110 155	857 331	115 896	66 783 434

25. Investments in associates

Balance sheet value of associates	31.12.2021	31.12.2020
Polfund - Fundusz Poręczeń Kredytowych S.A.	45 944	45 712
Santander - Aviva Towarzystwo Ubezpieczeń S.A. and Santander - Aviva Towarzystwo Ubezpieczeń na Życie S.A.	886 796	952 685
Total	932 740	998 397

Movements on investments in associates	1.01.2021-31.12.2021	1.01.2020-31.12.2020
As at the beginning of the period	998 397	903 113
Share of profits/(losses)	74 068	86 360
Dividends	(113 254)	-
Other	(26 471)	8 924
As at the end of the period	932 740	998 397

The table below presents information regarding the Group’s share in capital of associate:

Name of associate	Country of incorporation and place of business	The Group’s share in capital / voting power		Valuation method	Scope of business
		2021	2020
Santander - Aviva Towarzystwo Ubezpieczeń na Życie S.A.	Poland Warszawa	49,00	49,00	Equity method	insurance activity, life insurance
Santander - Aviva Towarzystwo Ubezpieczeń S.A.	Poland Warszawa	49,00	49,00	Equity method	insurance activity, property and personal insurance
POLFUND - Fundusz Poręczeń Kredytowych S.A.	Poland Szczecin	50,00	50,00	Equity method	providing lending guarantees, investing and managing funds invested in companies

The table below presents condensed financial information regarding associates which have a significant contribution to the Group:

	Santander - Aviva Towarzystwo Ubezpieczeń na Życie S.A.		Santander - Aviva Towarzystwo Ubezpieczeń S.A.
	2021 *	2020	2021 *	2020
Loans and advances to banks	75 971	32 164	15 169	25 611
Financial assets held for trading	137 800	132 816	1 112	1 183
Investment securities	590 201	681 873	309 301	376 479
Deferred tax assets	3 140	-	3 350	-
Net life insurance assets where the deposit (investment) risk is incurred by the insuring party	153 649	181 932	-	-
Other settlements	48 536	25 113	33 616	36 795
Prepayments	362 312	334 538	70 027	86 243
Other items	678	998	82	135
Total assets	1 372 287	1 389 434	432 657	526 446
Technical insurance provisions	869 334	831 707	149 002	174 752
Reinsurers’ share in provisions	(6 373)	(7 909)	(16 439)	(37 054)
Estimated recourses and recoveries (negative value)	-	-	(1 078)	(1 242)
Other liabilities	321 124	303 627	56 615	74 387
Prepayments and accruals	2 566	1 365	12 147	23 741
Special funds	91	81	67	63
Total liabilities	1 186 742	1 128 871	200 314	234 647

Income	282 050	235 942	119 933	150 751
Profit (loss) for the period	95 427	112 645	55 259	62 704
Dividends paid to Santander Bank Polska SA	64 917	-	48 337	-

* data are based on estimates of companies

Carrying value of the investments in the associates accounted for using the equity method is different from the share of the Group in their net assets by the amount of goodwill initially recognised in the carrying value of the investment.

2020 data are based on audited financial report of companies Santander - Aviva Towarzystwo Ubezpieczeń na Życie S.A. and Santander - Aviva Towarzystwo Ubezpieczeń S.A.

Data published in Annual Report for 2020 were based on estimates of companies. Difference between estimates and real data are irrelevant.

26. Intangible assets

Intangible assets Year 2021	Licences, patents etc.	Other	Expenditure on intangible assets	Total
Value at purchase price - beginning of the period	2 219 644	427 107	234 365	2 881 116
Additions from:
- purchases	-	-	266 112	266 112
- transfers from expenditures	198 871	-	-	198 871
- transfers	82	542	1 393	2 017
Disposals from:
- liquidation	(29 558)	(207 893)	(12 950)	(250 401)
- transfers from expenditures	-	-	(198 871)	(198 871)
- transfers	-	(77)	(501)	(578)
Value at purchase price - end of the period	2 389 039	219 679	289 548	2 898 266
Accumulated depreciation - beginning of the period	(1 850 572)	(322 188)	-	(2 172 760)
Additions/disposals from:
- current year amortization	(222 726)	(34 431)	-	(257 157)
- liquidation, sale	24 145	200 308	-	224 453
- transfers	(14)	14	-	-
Accumulated depreciation- end of the period	(2 049 167)	(156 297)	-	(2 205 464)
Balance sheet value
Purchase value	2 389 039	219 679	289 548	2 898 266
Accumulated depreciation	(2 049 167)	(156 297)	-	(2 205 464)
As at 31 December 2021	339 872	63 382	289 548	692 802

Intangible assets Year 2020	Licences, patents etc.	Other	Expenditure on intangible assets	Total
Value at purchase price - beginning of the period	1 869 149	642 114	280 106	2 791 369
Additions from:
- purchases	-	-	220 553	220 553
- transfers from expenditures	244 370	-	-	244 370
- transfers	215 562	-	962	216 524
Disposals from:
- liquidation	(99 409)	-	(7 979)	(107 388)
- transfers from expenditures	-	-	(244 370)	(244 370)
- transfers	(10 028)	(215 007)	(14 907)	(239 942)
Value at purchase price - end of the period	2 219 644	427 107	234 365	2 881 116
Accumulated depreciation - beginning of the period	(1 550 482)	(468 770)	-	(2 019 252)
Additions/disposals from:
- current year amortization	(194 882)	(59 676)	-	(254 558)
- liquidation, sale	98 118	-	-	98 118
- transfers	(203 326)	206 258	14 129	17 061
Write down/Reversal of impairment write down	-	-	(14 129)	(14 129)
Accumulated depreciation- end of the period	(1 850 572)	(322 188)	-	(2 172 760)
Balance sheet value
Purchase value	2 219 644	427 107	234 365	2 881 116
Accumulated depreciation	(1 850 572)	(322 188)	-	(2 172 760)
As at 31 December 2020	369 072	104 919	234 365	708 356

27. Goodwill

As at 31 December 2021 and in the coresponding period, the goodwill covered in the amount of PLN 1,712,056 k the following items:

· PLN 1,688,516 k - goodwill arising from the merger of Santander Bank Polska and Kredyt Bank on 4 January 2013,

· PLN 23,540 k – goodwill arising from the fact that Santander Bank Polska holds 60% shares of Santander Consumer Bank, which, in turn, has 50% stake in PSA Finance Polska. Santander Bank Polska discloses non-controlling interests representing 70% of share capital and voting power at the General Meetings of PSA Finance Polska and, indirectly, PSA Consumer Finance Polska.

In accordance with IFRS 3 the goodwill was calculated as the surplus of the cost of acquisition over the fair value of assets and liabilities acquired.

Test for impairment of goodwill arising from the merger between Santander Bank Polska and Kredyt Bank

In 2021 and in the comparative period, the Bank conducted tests for impairment of goodwill arising from the merger with Kredyt Bank on 4 January 2013. The carrying amount as at 31 December 2021 was PLN 1,688,516 k (the same as at 31 December 2020).

Recoverable amount based on value in use

The recoverable amount of cash-generating units is the higher of fair value less costs of disposal and value in use. Value in use which is higher than the fair value less costs of disposal is measured on the basis of a discounted cash flow model relevant for banks and other financial institutions. The future expected cash flows generated by business segments of Santander Bank Polska are in line with the 3-year financial projections of the Bank’s management for 2022-2024.

Taking into account the stability of Santander Bank Polska and sustainable financial performance, and comparing the value in use with the carrying amount of the cash-generating unit, no impairment was identified.

Key assumptions for measuring value in use

For the purposes of goodwill impairment testing Bank applies the following allocation of goodwill to historical business segments. The alocation results from the initial recognition as at acquisition date:

	Segment Retail Banking	Segment Business and Corporate Banking	Segment Corporate & Investment Banking	Segment ALM and Centre	Total
Goodwill	764 135	578 808	222 621	122 952	1 688 516

Due to accepted valuation model, assumptions used to determine the value in use for the individual segments are the same.

Financial projection

The financial projection for 2022–2024 was prepared in line with the strategic and operational plans for 2022–2024 as well as macroeconomic and market forecasts. The extrapolation of cash flows beyond the period covered by the financial plan was based on growth rates reflecting the National Bank of Poland's long-term inflation target of 2.5 p.p. as at 31 December 2021.

Pursuant to the financial projection, the Bank will continue to develop its products and services, focusing on the main product lines, services for retail customers, financing for SMEs, savings products and transactional banking services.

Discount rate

The discount rate of 10.13% used in the model is equal to the cost of capital rate assumed for 2021 which had been calculated on the basis of the Capital Assets Pricing Model, taking into account: risk-free rate (1,95%), beta coefficient for Santander Bank Polska S.A. (1.14) and market risk premium (5.37%) taking into account the market factor of 1.25.

Growth rate in the period beyond the financial projections

The extrapolation of cash flows beyond the 3-year period subject to the financial projection (residual value) was based on an annual growth rate of 2.5%, i.e. equal to the inflation target.

Minimum capital ratio imposed by the regulator

An increase in the required capital amount results in a decrease in the amount of capital available for distribution theoretical dividends as part of the test.

Under Polish law, the value of dividends payable by commercial banks in respect of their prior year profits depends on fulfilment of the minimum criteria laid down in the KNF’s dividend policy. As recommended by the KNF, the banks which simultaneously meet the

required total capital ratio (TCR), Tier 1 capital ratio and Common Equity Tier 1 (CET 1) ratio, should be able to pay in dividends up to 50% of their profit.

In addition, in the case of banks which have exposures on account of foreign currency loans to households, the dividend payout ratio should be adjusted depending on the share of:

· currency mortgage loans for households in the entire portfolio of receivables from the non-financial sector; and

· currency mortgage loans dating from 2007 and 2008 in the portfolio of currency mortgage loans to households.

All the above factors have a negative impact on the capital available for distribution and, consequently, on the results of the goodwill impairment test.

The capital ratio required by the KNF for Santander Bank Polska S.A. to pay up to 50% of the profit was 14.28%, taking into account the additional capital buffer in respect of the risk attached to foreign currency mortgage loans to households, the buffer for other systemically important institutions (OSII) and the conservation buffer.

While the increased capital requirements ensure stability and security for Santander Bank Polska S.A. as they strengthen its capital base, they cause a corresponding reduction in dividends payable to shareholders, which in turn affect the cash-generating unit’s value in use.

Detailed informations on the dividend policy are disclosed in note 57.

As at 31 December 2021, no goodwill impairment was identified.

Test for impairment of goodwill arising from the purchase of shares of PSA Finance Polska

The bank conducted a test for impairment of goodwill arising from the final settlement of acquisition of shares of PSA Finance Polska sp. z o.o. and, indirectly, PSA Consumer Finance Polska sp. z o.o. by Santander Consumer Bank S.A. The test results showed an excess of the value of non-controlling interests (70%) and the payment made over the carrying amount of the identified net assets.

The test was prepared using the income approach.

As at 31 December 2021, no goodwill impairment was identified.

28. Property, plant and equipment

Property, plant & equipment not subject to operating lease Year 2021	Land and buildings	IT Equipment	Transportation means	Other fixed assets	Fixed assets under construction	Total
Value at purchase price - beginning of the period	608 045	958 379	142 247	237 594	68 442	2 014 707
Additions from:
- purchases	-	-	10 384	-	135 266	145 650
- transfers from expenditures	12 719	77 156	5 023	12 117	-	107 015
- transfers	-	591	146	49	7	793
Disposals from:
- sale, liquidation, donation	(105 954)	(45 909)	(36 675)	(36 760)	(2 784)	(228 082)
- transfers from expenditures	-	-	-	-	(107 014)	(107 014)
- transfers	-	-	-	(686)	(962)	(1 648)
Value at purchase price - end of the period	514 810	990 217	121 125	212 314	92 955	1 931 421
Accumulated depreciation - beginning of the period	(429 263)	(638 316)	(25 252)	(173 517)	-	(1 266 348)
Additions/disposals from:
- current year amortization	(21 779)	(102 940)	(11 821)	(17 702)	-	(154 242)
- sale, liquidation, donation	83 208	45 388	16 369	33 713	-	178 678
- transfers	(3)	-	(42)	(9)	-	(54)
Write down/Reversal of impairment write down	5 156	70	-	-	-	5 226
Accumulated depreciation- end of the period	(362 681)	(695 798)	(20 746)	(157 515)	-	(1 236 740)
Balance sheet value
Purchase value	514 810	990 217	121 125	212 314	92 955	1 931 421
Accumulated depreciation	(362 681)	(695 798)	(20 746)	(157 515)	-	(1 236 740)
As at 31 December 2021	152 129	294 419	100 379	54 799	92 955	694 681

Property, plant & equipment not subject to operating lease Year 2020	Land and buildings	IT Equipment	Transportation means	Other fixed assets	Fixed assets under construction	Total
Value at purchase price - beginning of the period	683 072	872 898	157 457	248 938	111 382	2 073 747
Additions from:
- purchases	-	-	37 049	-	112 894	149 943
- transfers from expenditures	24 518	99 548	4 430	19 854	-	148 350
- transfers	213	9 509	332	3	4	10 061
Disposals from:
- sale, liquidation, donation	(99 758)	(23 574)	(56 595)	(31 201)	(282)	(211 410)
- transfers from expenditures	-	-	-	-	(148 351)	(148 351)
- transfers	-	(2)	(426)	-	(7 205)	(7 633)
Value at purchase price - end of the period	608 045	958 379	142 247	237 594	68 442	2 014 707
Accumulated depreciation - beginning of the period	(488 446)	(560 602)	(38 629)	(185 078)	-	(1 272 755)
Additions/disposals from:
- current year amortization	(22 731)	(97 043)	(13 308)	(17 623)	-	(150 705)
- sale, liquidation, donation	82 833	22 402	26 708	29 050	-	160 993
- transfers	3	(3 073)	(23)	134	7 088	4 129
Write down/Reversal of impairment write down	(922)	-	-	-	(7 088)	(8 010)
Accumulated depreciation- end of the period	(429 263)	(638 316)	(25 252)	(173 517)	-	(1 266 348)
Balance sheet value
Purchase value	608 045	958 379	142 247	237 594	68 442	2 014 707
Accumulated depreciation	(429 263)	(638 316)	(25 252)	(173 517)	-	(1 266 348)
As at 31 December 2020	178 782	320 063	116 995	64 077	68 442	748 359

Property, plant & equipment subject to operating lease Year 2021	Transportation means	Fixed assets under construction	Total
Value at purchase price - beginning of the period	61 550	107	61 657
Additions from:
- purchases	-	22 979	22 979
- transfers from expenditures	21 138	-	21 138
- transfers	8 510	-	8 510
Disposals from:
- sale, liquidation, donation	(49 175)	(411)	(49 586)
- transfers from expenditures	-	(21 138)	(21 138)
- transfers	(945)	9	(936)
Value at purchase price - end of the period	41 078	1 546	42 624
Accumulated depreciation - beginning of the period	(6 587)	-	(6 587)
Additions/disposals from:
- current year amortization	(6 949)	-	(6 949)
- sale, liquidation, donation	10 177	-	10 177
- transfers	(1 027)	-	(1 027)
Write down/Reversal of impairment write down	(10)	-	(10)
Accumulated depreciation- end of the period	(4 396)	-	(4 396)
Balance sheet value
Purchase value	41 078	1 546	42 624
Accumulated depreciation	(4 396)	-	(4 396)
As at 31 December 2021	36 682	1 546	38 228

Property, plant & equipment subject to operating lease Year 2020	Transportation means	Fixed assets under construction	Total
Value at purchase price - beginning of the period	81 874	-	81 874
Additions from:
- purchases	-	55 542	55 542
- transfers from expenditures	55 434	-	55 434
- transfers	203	-	203
Disposals from:
- sale, liquidation, donation	(63 017)	-	(63 017)
- transfers from expenditures	-	(55 435)	(55 435)
- transfers	(12 944)	-	(12 944)
Value at purchase price - end of the period	61 550	107	61 657
Accumulated depreciation - beginning of the period	(8 788)	-	(8 788)
Additions/disposals from:
- current year amortization	(9 782)	-	(9 782)
- sale, liquidation, donation	9 592	-	9 592
- transfers	2 395	-	2 395
Write down/Reversal of impairment write down	(4)	-	(4)
Accumulated depreciation- end of the period	(6 587)	-	(6 587)
Balance sheet value
Purchase value	61 550	107	61 657
Accumulated depreciation	(6 587)	-	(6 587)
As at 31 December 2020	54 963	107	55 070

29. Right of use assets

Right of use assets Year 2021	Land and buildings	IT Equipment	Other	Total
Gross value - begining of the period	1 061 815	3 184	9 594	1 074 593
Additions from:
-new lease contracts	35 571	-	146	35 717
-lease modifications and lease period update	24 506	279	61	24 846
Disposals from:
-lease modifications and lease period update	(108 945)	(579)	(515)	(110 039)
Gross value - end of the period	1 012 947	2 884	9 286	1 025 117
Accumulated depreciation - begining of the period	(359 000)	(1 561)	(3 375)	(363 936)
Additions from:
-current year amortization	(158 160)	(975)	(1 487)	(160 622)
Disposals from:
-lease modifications (including settlement) and lease period update	52 096	559	282	52 937
Write down/Reversal of impairment write down *	(36 286)	-	(108)	(36 394)
Accumulated depreciation- end of the period	(501 350)	(1 977)	(4 688)	(508 015)
Balance sheet value
Gross amount	1 012 947	2 884	9 286	1 025 117
Accumulated depreciation	(501 350)	(1 977)	(4 688)	(508 015)
As at 31 December 2021	511 597	907	4 598	517 102

*The recognised impairment allowance results from the closure of the bank's branches, and relates to the entire carrying amount of these branches.

Right of use assets Year 2020	Land and buildings	IT Equipment	Other	Total
Gross value - begining of the period	1 044 083	2 166	9 360	1 055 609
Additions from:
-new lease contracts	58 188	1 175	322	59 685
-lease modifications and lease period update	66 919	-	430	67 349
- expenditures	10 643	-	-	10 643
Disposals from:
-lease modifications and lease period update	(118 019)	(157)	(517)	(118 693)
Gross value - end of the period	1 061 814	3 184	9 595	1 074 593
Accumulated depreciation - begining of the period	(213 970)	(939)	(1 908)	(216 817)
Additions from:
-current year amortization	(175 962)	(1 001)	(1 587)	(178 550)
Disposals from:
-lease modifications (including settlement) and lease period update	48 914	379	200	49 493
Write down/Reversal of impairment write down *	(17 982)	-	(80)	(18 062)
Accumulated depreciation- end of the period	(359 000)	(1 561)	(3 375)	(363 936)
Balance sheet value
Gross amount	1 061 814	3 184	9 595	1 074 593
Accumulated depreciation	(359 000)	(1 561)	(3 375)	(363 936)
As at 31 December 2020	702 814	1 623	6 220	710 657

*The recognised impairment allowance results from the closure of the bank's branches, and relates to the entire carrying amount of these branches.

30. Net deferred tax assets

Deferred tax assets	31.12.2021	Changes recognised in other comprehensive income*	Changes recognised in profit or loss	Changes in temporary differences	31.12.2020
Allowance for expected credit losses	948 111	-	(58 780)	(58 780)	1 006 891
Valuation of derivative financial instruments	987 596	-	88 043	88 043	899 553
Valuation of cash flow hedges instruments	345 923	344 091	-	344 091	1 832
Other provisions	211 434	-	46 421	46 421	165 013
Deferred income	510 498	-	(12 269)	(12 269)	522 767
Differences between carrying and tax value of lease	431 614	-	(20 649)	(20 649)	452 263
Unrealised interest expenses on loans, deposits and securities	87 841	-	(300 723)	(300 723)	388 564
Tax loss	57 857	`	9 371	9 371	48 486
Other negative temporary differences	43 484	-	3 030	3 030	40 454
Total assets of deferred tax	3 624 358	344 091	(245 556)	98 535	3 525 823

Deferred tax liabilities	31.12.2021	Changes recognised in other comprehensive income*	Changes recognised in profit or loss	Changes in temporary differences	31.12.2020
Valuation of investment securities	(18 061)	412 351	-	412 351	(430 412)
Provisions for retirement allowances	(3 272)	(1 358)	-	(1 358)	(1 914)
Valuation of derivative financial instruments	(723 791)	-	(148 963)	(148 963)	(574 828)
Unrealised interest income on loans, securities and interbank deposits	(238 336)	-	(8 086)	(8 086)	(230 250)
Prepayments regarding amortization of applied investment relief	(1 020)	-	175	175	(1 195)
Difference between balance sheet and taxable value of non-financial assets	(11 668)	-	6 482	6 482	(18 150)
Valuation of shares / interests in subsidiaries	(140 173)	-	(1)	(1)	(140 172)
Other positive temporary differences	(104 327)	-	28 023	28 023	(132 350)
Total liabilities of deferred tax	(1 240 648)	410 993	(122 370)	288 623	(1 529 271)
Net deferred tax assets	2 383 710	755 084	(367 926)	387 158	1 996 552

*The changes recognized in other comprehensive income do not reflect the deferred tax effect in relation to the item recognised in non-controlling interests.

As at 31.12.2021 the assets in the calculation of deferred tax assets do not include purchased receivables in the amount of gross PLN 78,017 k and provisions for loans that do not become tax expense in the amount of gross PLN 92,908 k.

Deferred tax assets	31.12.2020	Changes recognised in other comprehensive income*	Changes recognised in profit or loss	Changes in temporary differences	31.12.2019
Allowance for expected credit losses	1 006 891	-	89 085	89 085	917 806
Valuation of derivative financial instruments	899 553	-	401 110	401 110	498 443
Valuation of cash flow hedges instruments	1 832	(3 670)	-	(3 670)	5 502
Other provisions	165 013	-	(15 565)	(15 565)	180 578
Deferred income	522 767	-	11 931	11 931	510 836
Differences between carrying and tax value of lease	452 263	-	(65 565)	(65 565)	517 828
Unrealised interest expenses on loans, deposits and securities	388 564	-	120 883	120 883	267 681
Tax loss	48 486	-	48 413	48 413	73
Other negative temporary differences	40 454	-	630	630	39 824
Total assets of deferred tax	3 525 823	(3 670)	590 922	587 252	2 938 571

Deferred tax liabilities	31.12.2020	Changes recognised in other comprehensive income*	Changes recognised in profit or loss	Changes in temporary differences	31.12.2019
Valuation of investment securities	(430 412)	(118 266)	-	(118 266)	(312 146)
Provisions for retirement allowances	(1 914)	366	-	366	(2 280)
Valuation of derivative financial instruments	(574 828)	-	(286 785)	(286 785)	(288 043)
Unrealised interest income on loans, securities and interbank deposits	(230 250)	-	(18 032)	(18 032)	(212 218)
Prepayments regarding amortization of applied investment relief	(1 195)	-	118	118	(1 313)
Difference between balance sheet and taxable value of non-financial assets	(18 150)	-	8 263	8 263	(26 413)
Valuation of shares / interests in subsidiaries	(140 172)	-	-	-	(140 172)
Other positive temporary differences	(132 350)	-	(24 281)	(24 281)	(108 069)
Total liabilities of deferred tax	(1 529 271)	(117 900)	(320 717)	(438 617)	(1 090 654)
Net deferred tax assets	1 996 552	(121 570)	270 205	148 635	1 847 917

*The changes recognized in other comprehensive income do not reflect the deferred tax effect in relation to the item recognised in non-controlling interests.

As at 31.12.2020 the assets in the calculation of deferred tax assets do not include purchased receivables in the amount of gross PLN 81,431 k and provisions for loans that do not become tax expense in the amount of gross PLN 99,341 k.

Movements on net deferred tax	31.12.2021	31.12.2020
As at the beginning of the period	1 996 552	1 847 916
Changes recognised in income statement	(372 976)	263 010
Changes recognised in other comprehensive income	755 084	(121 570)
Other	5 050	7 196
Balance at the end of the period	2 383 710	1 996 552

Temporary differences recognised in other comprehensive income comprise deferred tax on available for sale securities, cash flow hedges and provisions for retirement allowances.

Temporary differences recognised in the income statement comprise deferred tax on the valuation of other financial assets, allowance for impairment of loans and receivables and other assets and liabilities used in the Group’s ongoing operations.

31. Fixed assets classified as held for sale

Fixed assets classified as held for sale	31.12.2021	31.12.2020
Land and buildings	4 308	4 308
Other fixed assets	509	7 593
Total	4 817	11 901

32. Other assets

Other assets	31.12.2021	31.12.2020
Interbank settlements	22 036	1 501
Sundry debtors	965 117	719 869
Prepayments	189 698	185 738
Repossessed assets	48	-
Settlements of stock exchange transactions	57 673	113 522
Other	32 437	9 657
Total	1 267 009	1 030 287
of which financial assets *	1 044 826	834 892

* Financial assets include all items of Other assets, with the exception of Prepayments, Repossessed assets and Other.

As at 31.12.2021, allowance for impairment of other assets are PLN 103 025 k (31.12.2020 PLN 109 526 k).

The significant majority of 'Other assets' items are non-past due and unimpaired. The most significant items concern the companies AVIVA, KDPW, WSE and a number of other entities with a good financial standing and good cooperation history, most of them rated A- (Fitch).

33. Deposits from banks

Deposits from banks	31.12.2021	31.12.2020
Term deposits	123 051	433 629
Loans received from banks	2 974 651	2 302 496
Current accounts	1 302 436	2 637 187
Total	4 400 138	5 373 312

As at 31.12.2021 the adjustment of the value of the hedged risk of deposits covered by hedge accounting PLN nil (as at 31.12.2020 – PLN nil).

Fair value of “Deposits from banks” is presented in Note 47.

Movements in loans received from banks	1.01.2021-31.12.2021	1.01.2020-31.12.2020
As at the beginning of the period	2 302 496	3 213 874
Increase (due to:)	6 342 717	4 403 428
- loans received	6 311 623	4 363 000
- interest on loans received	17 770	40 428
- FX differences and other changes	13 324	-
Decrease (due to):	(5 670 562)	(5 314 806)
- repayment of loans	(5 655 493)	(5 266 987)
- interest repayment	(15 069)	(44 099)
- FX differences and other changes	-	(3 720)
As at the end of the period	2 974 651	2 302 496

34. Deposits from customers

Deposits from customers	31.12.2021	31.12.2020
Deposits from individuals	106 267 792	98 213 401
Term deposits	14 078 671	18 443 221
Current accounts	91 990 149	79 562 177
Other	198 972	208 003
Deposits from enterprises	71 375 840	67 954 371
Term deposits	9 951 599	7 393 581
Current accounts	58 318 901	56 745 875
Loans received from financial institution	1 403 413	3 013 707
Other	1 701 927	801 208
Deposits from public sector	7 729 811	5 354 483
Term deposits	558 431	281 162
Current accounts	7 171 126	5 073 320
Other	254	1
Total	185 373 443	171 522 255

As at 31.12.2021 deposits held as collateral totaled PLN 1 019 306 k (as at 31.12.2020 - PLN 350 008 k).

Fair value of “Deposits from customers” is presented in Note 47.

Movements in loans received from other financial institutions	1.01.2021-31.12.2021	1.01.2020-31.12.2020
As at the beginning of the period	3 013 707	3 536 953
Increase (due to:)	153 437	357 766
- loans received	135 600	212 200
- interest on loans received	17 837	41 315
- FX differences and other changes	-	104 251
Decrease (due to):	(1 763 731)	(881 012)
- repayment of loans	(1 733 453)	(835 578)
- interest repayment	(18 741)	(45 434)
- FX differences and other changes	(11 537)	-
As at the end of the period	1 403 413	3 013 707

The Group did not note any violations of contractual terms related to liabilities in respect of loans received.

35. Subordinated liabilities

Subordinated liabilities	Redemption date	Currency	Nominal value
Issue 1	05.08.2025	EUR	100 000
Issue 2	03.12.2026	EUR	120 000
Issue 3	22.05.2027	EUR	137 100
Issue 4	05.04.2028	PLN	1 000 000
SCF Madrid	18.05.2028	PLN	100 000

Movements in subordinated liabilities	1.01.2021-31.12.2021	1.01.2020-31.12.2020
As at the beginning of the period	2 754 605	2 630 271
Additions from:	69 446	207 281
- interest on subordinated loans	69 446	79 595
- FX differences	-	127 686
Disposals from:	(73 611)	(82 947)
- interest repayment	(69 234)	(82 947)
- FX differences	(4 377)	-
As at the end of the period	2 750 440	2 754 605
Short-term	13 436	13 256
Long-term (over 1 year)	2 737 004	2 741 349

Other details on subordinated liabilities are disclosed in Note 5.

36. Debt securities in issue

Debt securities in issue on 31.12.2021

Name of the entity issuing the securities	Type of securities	Nominal value	Currency	Date of issue	Redemption date	Book Value (In thousands of PLN)
Santander Bank Polska S.A.	Bonds	100 000	EUR	18.12.2020	18.12.2023	459 969
Santander Bank Polska S.A.	Bonds	750 000	EUR	29.11.2021	29.11.2024	3 450 264
Santander Bank Polska S.A.	Certificates of deposits	750 000	PLN	22.12.2021	22.12.2023	750 649
Santander Factoring Sp. z o.o.	Bonds	655 000	PLN	03.08.2021	03.02.2022	654 782
Santander Leasing S.A.	Bonds	1 100 000	PLN	11.03.2021	11.03.2022	1 016 060
Santander Leasing S.A.	Bonds	850 000	PLN	23.06.2021	23.06.2022	849 103
Santander Leasing Poland Securitization 01	Bonds	330 000	EUR	25.03.2020	20.03.2036	1 517 801
Santander Consumer Bank S.A.	Bonds	261 400	PLN	06.10.2017	07.10.2022	262 094
Santander Consumer Bank S.A.	Bonds	60 000	PLN	07.12.2017	07.10.2022	60 159
Santander Consumer Bank S.A.	Bonds	60 000	PLN	29.03.2018	29.03.2022	60 155
Santander Consumer Bank S.A.	Bonds	100 000	PLN	01.04.2021	03.04.2023	100 145
Santander Consumer Multirent sp. z o.o.	Bonds	160 000	PLN	27.05.2021	26.05.2023	160 283
Santander Consumer Multirent sp. z o.o.	Bonds	250 000	PLN	27.09.2021	25.02.2022	250 205
Santander Consumer Multirent sp. z o.o.	Bonds	250 000	PLN	27.09.2021	28.03.2022	250 234
Santander Consumer Multirent sp. z o.o.	Bonds	220 000	PLN	06.12.2021	06.12.2023	220 350
S.C. Poland Consumer 16-1 sp. z o.o.	Bonds	800 000	PLN	25.07.2019	16.07.2030	801 010
S.C. Poland Consumer 16-1 sp. z o.o.	Bonds	1 200 000	PLN	25.07.2019	16.07.2030	1 201 515
SCM POLAND AUTO 2019-1 DAC	Bonds	740 000	PLN	20.07.2020	31.07.2028	740 684
Total						12 805 462

Debt securities in issue on 31.12.2020

Name of the entity issuing the securities	Type of securities	Nominal value	Currency	Date of issue	Redemption date	Book Value (In thousands of PLN)
Santander Bank Polska S.A.	Bonds	500 000	EUR	10.09.2018	20.09.2021	2 310 842
Santander Bank Polska S.A.	Bonds	100 000	EUR	18.12.2020	18.12.2023	461 509
Santander Factoring Sp. z o.o.	Bonds	445 000	PLN	30.07.2020	29.01.2021	445 013
Santander Factoring Sp. z o.o.	Bonds	670 000	PLN	19.11.2020	19.05.2021	669 469
Santander Leasing S.A.	Bonds	440 000	PLN	10.03.2020	10.03.2021	76 690
Santander Leasing S.A.	Bonds	450 000	PLN	22.09.2020	22.06.2021	449 630
Santander Leasing S.A.	Bonds	715 000	PLN	08.12.2020	08.12.2021	714 583
Santander Leasing Poland Securitization 01	Bonds	1 202 500	PLN	24.05.2019	20.02.2035	774 173
Santander Leasing Poland Securitization 01	Bonds	330 000	EUR	25.03.2020	20.03.2036	1 522 884
Santander Consumer Bank S.A.	Bonds	300 000	PLN	04.08.2017	09.08.2021	301 441
Santander Consumer Bank S.A.	Bonds	261 400	PLN	06.10.2017	07.10.2022	261 967
Santander Consumer Bank S.A.	Bonds	60 000	PLN	07.12.2017	07.10.2022	60 129
Santander Consumer Bank S.A.	Bonds	100 000	PLN	02.03.2018	05.03.2021	100 274
Santander Consumer Bank S.A.	Bonds	60 000	PLN	29.03.2018	29.03.2022	60 126
Santander Consumer Bank S.A.	Bonds	156 000	PLN	15.05.2018	14.05.2021	156 150
Santander Consumer Bank S.A.	Bonds	90 000	PLN	17.05.2018	18.05.2021	90 078
Santander Consumer Bank S.A.	Bonds	45 000	PLN	17.05.2018	18.05.2021	45 039
S.C. Poland Consumer 16-1 sp. z o.o.	Bonds	800 000	PLN	25.07.2019	16.07.2030	800 403
S.C. Poland Consumer 16-1 sp. z o.o.	Bonds	1 200 000	PLN	25.07.2019	16.07.2030	1 200 605
SCM POLAND AUTO 2019-1 DAC	Bonds	740 000	PLN	20.07.2020	31.07.2028	740 307
Total						11 241 312

Movements in debt securities in issue	1.01.2021-31.12.2021	1.01.2020-31.12.2020
As at the beginning of the period	11 241 312	10 629 516
Increase (due to:)	11 447 566	6 980 147
- debt securities in issue	11 363 650	6 585 637
- interest on debt securities in issue	83 916	113 675
- FX differences	-	280 835
Decrease (due to):	(9 883 416)	(6 368 351)
- debt securities repurchase	(9 706 612)	(5 185 553)
- debt securities redemption	-	(1 052 917)
- interest repayment	(79 820)	(129 425)
- FX differences	(87 766)	-
- other changes	(9 218)	(456)
As at the end of the period	12 805 462	11 241 312

37. Provisions for off balance sheet credit facilities

Provisions for off balance sheet credit related commitments	31.12.2021	31.12.2020
Provisions for financial commitments to grant loans and credit lines	43 872	45 146
Provisions for financial guarantees	16 406	18 733
Other provisions	533	662
Total	60 811	64 541

Change in provisions for off balance sheet credit related commitments	31.12.2021
As at the beginning of the period	64 541
Provision charge	127 213
Write back	(130 996)
Other changes	53
As at the end of the period	60 811
Short-term	39 064
Long-term	21 747


Change in provisions for off balance sheet credit related commitments	31.12.2020
As at the beginning of the period	66 109
Provision charge	142 088
Write back	(144 405)
Other changes	749
As at the end of the period	64 541
Short-term	48 305
Long-term	16 236

38. Other provisions

Other provisions	31.12.2021	31.12.2020
Provisions for legal claims*	1 344 893	408 485
Provisions for legal risk*	919 788	395 968
Provisions for restructuring**	94 308	147 662
Total	2 358 989	952 115

*As at 31.12.2021, the Group’s provisions inter alia for disputes over contractual clauses in mortgage loan agreements indexed to and denominated in foreign currencies totalled PLN 1 216 809k (PLN 324,920k as at 31.12.2020).

**As at 31.12.2021, the Group’s collective provisions for legal risk totalled PLN 838 843k (PLN 278,247k as at 31.12.2020) inter alia for disputes over contractual clauses in mortgage loan agreements indexed to and denominated in foreign currencies. The above provisions for Santander Bank Polska S.A. was PLN 611 713k and for Santander Consumer Bank S.A. was PLN 227 129k (PLN 191,900k and 86,347k, respectively, as at 31.12.2020).

Change in other provisions on 31.12.2021	Provisions for legal claims	Provisions for legal risk	Provisions for restructuring*	Total
As at the beginning of the period	408 485	395 968	147 662	952 115
Provision charge	1 028 339	582 858	19 592	1 630 789
Utilization	(39 886)	(36 665)	(72 946)	(149 497)
Release of provisions	(52 045)	(22 373)	-	(74 418)
As at the end of the period	1 344 893	919 788	94 308	2 358 989

*The Management Board of Santander Bank Polska intends to carry out the collective redundancies process, started in 2020, by 31 December 2022, while the Management Board of Santander Consumer Bank expects that in 2022 it will finalise the employment restructure that was not fully completed as part of the collective redundancies in 2021.

Change in other provisions on 31.12.2020	Provisions for legal claims	Provisions for legal risk	Provisions for restructuring	Total
As at the beginning of the period	135 659	295 216	14 740	445 615
Provision charge	310 363	201 193	156 686	668 242
Utilization	(937)	(97 861)	(7 725)	(106 523)
Release of provisions	(36 600)	-	(16 039)	(52 639)
Reclassification	-	(2 580)	-	(2 580)
As at the end of the period	408 485	395 968	147 662	952 115

39. Other liabilities

Other liabilities	31.12.2021	31.12.2020
Settlements of stock exchange transactions	64 259	126 778
Interbank and interbranch settlements	319 716	500 973
Employee provisions	383 915	266 220
Sundry creditors	1 588 584	904 997
Liabilities from contracts with customers	194 578	243 738
Public and law settlements	100 489	98 280
Accrued liabilities	452 625	297 787
Finance lease related settlements	177 348	131 781
Other	28 776	11 761
Total	3 310 290	2 582 315
of which financial liabilities *	2 986 447	2 228 536

*Financial liabilities include all items of Other liabilities with the exception of Public and law settlements, Liabilities from contracts with customers and Other.

Change in employee provisions 1.01.2021 - 31.12.2021		of which: Provisions for retirement allowances
As at the beginning of the period	266 220	*48 266*
Provision charge	347 407	1 832
Utilization	(200 731)	(1 394)
Release of provisions	(28 981)	(5 976)
As at the end of the period	383 915	*42 728*
Short-term	341 187	-
Long-term	42 728	42 728

Change in employee provisions 1.01.2020 - 31.12.2020		of which: Provisions for retirement allowances
As at the beginning of the period	368 514	*44 636*
Provision charge	249 117	5 279
Utilization	(238 679)	(7)
Release of provisions	(112 732)	(1 642)
As at the end of the period	266 220	*48 266*
Short-term	217 954	-
Long-term	48 266	48 266

Employee related provisions consists of items outlined in Note 55.

40. Share capital

31.12.2021

Series/issue	Issue	Type of preferences	Limitation of rights to shares	Number of shares	Nominal value of series/ issue in PLN k
A	bearer	none	none	5 120 000	51 200
B	bearer	none	none	724 073	7 241
C	bearer	none	none	22 155 927	221 559
D	bearer	none	none	1 470 589	14 706
E	bearer	none	none	980 393	9 804
F	bearer	none	none	2 500 000	25 000
G	bearer	none	none	40 009 302	400 093
H	bearer	none	none	115 729	1 157
I	bearer	none	none	1 561 618	15 616
J	bearer	none	none	18 907 458	189 075
K	bearer	none	none	305 543	3 055
L	bearer	none	none	5 383 902	53 839
M	bearer	none	none	98 947	990
N	bearer	none	none	2 754 824	27 548
O	bearer	none	none	101 009	1 010
				102 189 314	1 021 893

Nominal value of one share is 10 PLN. All issued shares are fully paid.

The shareholders having minimum 5% of the total number of votes at the Santander Bank Polska General Meeting of Shareholders was Banco Santander with a controlling stake of 67.41% stake and 5.01% Nationale-Nederlanden Otwarty Fundusz Emerytalny funds (managed by Nationale-Nederlanden Powszechne Towarzystwo Emerytalne S.A.).

31.12. 2020

Series/issue	Issue	Type of preferences	Limitation of rights to shares	Number of shares	Nominal value of series/ issue in PLN k
A	bearer	none	none	5 120 000	51 200
B	bearer	none	none	724 073	7 241
C	bearer	none	none	22 155 927	221 559
D	bearer	none	none	1 470 589	14 706
E	bearer	none	none	980 393	9 804
F	bearer	none	none	2 500 000	25 000
G	bearer	none	none	40 009 302	400 093
H	bearer	none	none	115 729	1 157
I	bearer	none	none	1 561 618	15 616
J	bearer	none	none	18 907 458	189 075
K	bearer	none	none	305 543	3 055
L	bearer	none	none	5 383 902	53 839
M	bearer	none	none	98 947	990
N	bearer	none	none	2 754 824	27 548
O	bearer	none	none	101 009	1 010
				102 189 314	1 021 893

Nominal value of one share is 10 PLN. All issued shares are fully paid.

The shareholders having minimum 5% of the total number of votes at the Santander Bank Polska General Meeting of Shareholders was Banco Santander with a controlling stake of 67.41% stake and 5.01% funds managed by Nationale-Nederlanden Powszechne Towarzystwo Emerytalne S.A.: Nationale-Nederlanden Otwarty Fundusz Emerytalny and Nationale-Nederlanden Dobrowolny Fundusz Emerytalny.

On 25 September 2020, the Management Board of Santander Bank Polska informed about registration the amendments to the Statute of Santander Bank Polska resulting in Santander Bank Polska share capital increase related to the issuance O series shares. The share capital of Santander Bank Polska was increased from PLN 1 020 883 050 to PLN 1 021 893 140, i.e. by PLN 1 010 090, it is 101 009 ordinary bearer series O shares with a nominal value of PLN 10 each. The shares in the increased share capital have been paid up in full.

41. Other reserve capital

Other reserve capital	31.12.2021	31.12.2020
General banking risk fund	649 810	649 810
Share premium	7 981 974	7 981 974
Other reserves of which:	13 546 560	12 665 210
Reserve capital	13 057 083	12 219 389
Supplementary capital	1 146 922	1 102 055
Adjustment to equity from acquisition/loss of controlling interest in subsidiaries	(657 445)	(656 234)
Total	22 178 344	21 296 994

Share (issue) premium is created from surplus over the nominal value of shares sold less costs of share issuance and constitutes the Bank’s supplementary capital.

Reserve capital as at 31.12.2021 includes share option scheme charge of PLN 143 949 k and reserve capital as at 31.12.2020 includes share option scheme charge of PLN 143 949 k.

Other movements of other reserve capital are presented in “movements on consolidated equity” for 2021 and 2020.

Statutory reserve (supplementary) capital is created from net profit appropriation in line with the prevailing banking legislation and the Bank’s Statute. The capital is not subject to split and is earmarked for covering balance sheet losses. Allocations from profit for the current year to reserve capital should amount to at least 8% of profit after tax and are made until supplementary capital equals at least one third of the Bank’s share capital. The amount of allocations is adopted by the General Meeting of Shareholders.

The reserve capital is created out of allocations from the after-tax profit, in an amount resolved by the General Shareholders’ Meeting and from other sources.

The reserve capital is earmarked for covering balance sheet losses, should they exceed the supplementary capital, or for other purposes, particularly for dividend pay-outs. Decisions on using the reserve capital are taken by the General Shareholders’ Meeting.

Pursuant to the decision of the Annual General Meeting, PLN 369 205 859,36 worth of dividend reserve was set aside from the capital reserve. For details, please see Note 57.

42. Revaluation reserve

Revaluation reserve 1.01.2021 - 31.12.2021	Total gross	Deferred tax adjustment	Total net
Opening balance, of which:	2 270 826	(431 534)	1 839 292
Debt securities measured at fair value through other comprehensive income	1 551 084	(294 706)	1 256 378
Equity securities measured at fair value through other comprehensive income	720 637	(136 998)	583 639
Valuation of cash flow hedging instruments	(10 583)	2 011	(8 572)
Actuarial gains on retirement allowances	9 688	(1 841)	7 847

Change in valuation of debt securities measured at fair value through other comprehensive income	(3 774 962)	717 243	(3 057 719)
Transfer from revaluation reserve to profit and loss resulting from the sale of debt securities measured at fair value through other comprehensive income	(91 751)	17 433	(74 318)
Transfer from revaluation reserve to profit and loss due to fair value measurement of securities covered by hedge accounting	462 766	(87 926)	374 840
Change in valuation of equity securities measured at fair value through other comprehensive income	518 751	(98 352)	420 399
Transfer from revaluation reserve to retained earnings profit on sale of equity securities	(1 036 754)	196 772	(839 982)
Change in valuation of cash flow hedging instruments	(33 133)	6 296	(26 837)
Transfer from profit and loss to revaluation reserve resulting from cash flow hedges	5 156	(980)	4 176
Change in provision for retirement allowances – actuarial gains/losses gross	6 692	(1 258)	5 434

Closing balance, of which:	(1 672 409)	317 694	(1 354 715)
Debt securities measured at fair value through other comprehensive income	(1 852 863)	352 044	(1 500 819)
Equity securities measured at fair value through other comprehensive income	202 634	(38 578)	164 056
Valuation of cash flow hedging instruments	(38 560)	7 327	(31 233)
Actuarial gains on retirement allowances	16 380	(3 099)	13 281

Revaluation reserve 1.01.2020 - 31.12.2020	Total gross	Deferred tax adjustment	Total net
Opening balance, of which:	1 624 767	(308 706)	1 316 061
Debt securities measured at fair value through other comprehensive income	895 733	(170 189)	725 544
Equity securities measured at fair value through other comprehensive income	747 123	(141 954)	605 169
Valuation of cash flow hedging instruments	(30 156)	5 730	(24 426)
Actuarial gains on retirement allowances	12 067	(2 293)	9 774

Change in valuation of debt securities measured at fair value through other comprehensive income	1 039 213	(197 450)	841 763
Transfer from revaluation reserve to profit and loss resulting from the sale of debt securities measured at fair value through other comprehensive income	(228 723)	43 457	(185 266)
Transfer from revaluation reserve to profit and loss due to fair value measurement of securities covered by hedge accounting	(155 139)	29 476	(125 663)
Change in valuation of equity securities measured at fair value through other comprehensive income	(26 561)	4 780	(21 781)
Transfer from revaluation reserve to retained earnings profit on sale of equity securities	75	176	251
Change in valuation of cash flow hedging instruments	(33 148)	6 298	(26 850)
Transfer from revaluation reserve to profit and loss resulting from cash flow hedges	(5 869)	1 115	(4 754)
Transfer from profit and loss to revaluation reserve resulting from cash flow hedges	58 590	(11 132)	47 458
Change in provision for retirement allowances – actuarial gains/losses gross	(2 379)	452	(1 927)

Closing balance, of which:	2 270 826	(431 534)	1 839 292
Debt securities measured at fair value through other comprehensive income	1 551 084	(294 706)	1 256 378
Equity securities measured at fair value through other comprehensive income	720 637	(136 998)	583 639
Valuation of cash flow hedging instruments	(10 583)	2 011	(8 572)
Actuarial gains on retirement allowances	9 688	(1 841)	7 847

43. Non - controlling interests

Name of the subsidiary	Country of incorporation and place of business	Percentage share of non-controlling interests in share capital / voting rights		Net profit for the period attributable to non-controlling interests		Accumulated non-controlling interests
		31.12.2021	31.12.2020	31.12.2021	31.12.2020	31.12.2021	31.12.2020
Santander Towarzystwo Funduszy Inwestycyjnych S.A.	Poland Poznań	50,00	50,00	58 483	57 655	67 739	66 912
Santander Consumer Bank S.A.	Poland Wrocław	40,00	40,00	82 239	142 352	1 614 157	1 596 328
Total				140 722	200 007	1 681 896	1 663 240

The table below presents condensed financial information regarding each subsidiaries which have a significant non-controlling interests to the Group:

	Santander Towarzystwo Funduszy Inwestycyjnych SA		Santander Consumer Bank Group
	31.12.2021	31.12.2020	31.12.2021	31.12.2020
Loans and advances to banks	150 160	142 578	355 737	319 685
Loans and advances to customers	-	-	20 663 923	21 537 703
Investments in subsidiaries	-	-	170 934	166 175
Investment securities	-	474	2 933 051	2 393 594
Assets pledged as collateral	-	-	512 975	643 272
Net deferred tax assets	7 839	7 006	652 173	665 537
Other items	34 816	39 851	695 126	539 024
Total assets	192 815	189 909	25 983 919	26 264 990
Deposits from banks	-	-	2 538 643	3 180 314
Deposits from customers	-	-	12 854 030	13 030 086
Sell-buy-back transactions	-	-	488 829	639 299
Debt securities in issue	-	-	4 106 832	3 816 518
Other items	57 336	56 085	2 004 144	1 659 531
Total liabilities	57 336	56 085	21 992 478	22 325 748

Income	293 300	248 960	1 744 088	2 045 751
Net profit (loss) for the period	116 965	115 310	204 231	334 117
Dividends paid to non-controlling shareholers	57 655	86 555	-	-
Total net cash flows:	7 582	29 227	185 763	115 364
- from operating activities	127 095	117 731	1 131 239	1 816 396
- from investing activities	(1 321)	87 477	(552 828)	(254 276)
- from financing activities	(118 192)	(175 980)	(392 648)	(1 446 756)

44. Hedge accounting

Santander Bank Polska Group uses hedging strategies within hedge accounting in line with the risk management principles set out in note 4 to the consolidated financial statements.

Fair value hedges

Santander Bank Polska Group uses fair value hedge accounting in relation to the following classes of financial instruments:

· Debt securities with a fixed interest rate in PLN and EUR;

· Loans with a fixed interest rate granted by the Bank in PLN;

· Loans with a fixed interest rate in EUR taken out by Santander Leasing SA.

To hedge the fair value, Santander Bank Polska SA uses Interest Rate Swaps (IRS), for which the Bank pays a fixed interest rate and receives a variable interest rate. The hedged risk is the change in the fair value of an instrument or a portfolio resulting from changes in market interest rates. The transactions do not hedge against fair value changes relating to credit risk.

Hedging items are measured at fair value. Hedged items are measured at amortised cost taking into account fair value adjustments on account of the risk being hedged.

Since January 2016, Santander Bank Polska SA has used portfolio-based hedge accounting for the fair value of interest rate risk with respect to the portfolio of fixed interest rate loans in PLN. The fair value hedges are IRS for which the bank pays a fixed rate and receives a variable rate. The purpose of the hedge is to eliminate the risk of changes in the fair value of the fixed interest rate loans portfolio resulting from movements in market interest rates. Credit margin is excluded from the hedging relationship.

Details of the hedging transactions of Santander Bank Polska SA as at 31.12.2021 and in the comparative period are presented in the tables below:

	Distribution of nominal values of cash flows
Nominal value of hedging instruments	up to 1 month	from 1 month to 3 months	from 3 months to 1 year	from 1 year to 5 years	over 5 years	Total
31.12.2021
Assets representing derivative hedging instruments	569 167	150 000	1 794 167	9 599 523	2 235 180	14 348 037
IRS	-	150 000	1 225 000	2 077 000	983 000	4 435 000
CIRS	-	-	-	505 934	-	505 934
CCIRS	569 167	-	569 167	7 016 589	1 252 180	9 407 103
Liabilities arising from derivative hedging instruments	741 400	150 000	1 966 400	10 440 648	2 606 666	15 905 114
IRS	-	150 000	1 225 000	2 077 000	983 000	4 435 000
CIRS	-	-	-	505 934	-	505 934
CCIRS	741 400	-	741 400	7 857 714	1 623 666	10 964 180
31.12.2020
Assets representing derivative hedging instruments	-	-	434 775	6 989 113	3 911 068	11 334 956
IRS	-	-	335 000	2 713 000	1 722 000	4 770 000
CIRS	-	-	-	230 740	276 888	507 628
CCIRS	-	-	99 775	4 045 373	1 912 180	6 057 328
Liabilities arising from derivative hedging instruments	-	-	441 602	7 857 141	4 319 037	12 617 780
IRS	-	-	335 000	2 713 000	1 722 000	4 770 000
CIRS	-	-	-	230 740	276 888	507 628
CCIRS	-	-	106 602	4 913 401	2 320 149	7 340 152

Pricing parameters for hedging instruments	up to 1 month	from 1 month to 3 months	from 3 months to 1 year	from 1 year to 5 years	over 5 years
31.12.2021
Assets representing derivative hedging instruments
Average fixed interest rate	0,6900	0,2925	0,8094	0,9491	0,9768
Average exchange rate (CHF/PLN)	4,4484	4,4484	4,4484	4,4484	4,4484
Average exchange rate (EUR/PLN)	4,5994	4,5994	4,5994	4,5994	4,5994
Liabilities arising from derivative hedging instruments
Average fixed interest rate	(0,2023)	2,9500	3,8598	1,1008	1,3089
Average exchange rate (CHF/PLN)	4,4484	4,4484	4,4484	4,4484	4,4484
Average exchange rate (EUR/PLN)	4,5994	4,5994	4,5994	4,5994	4,5994
31.12.2020
Assets representing derivative hedging instruments
Average fixed interest rate	-	-	0,2710	0,2593	0,2180
Average exchange rate (CHF/PLN)	4,2641	4,2641	4,2641	4,2641	4,2641
Average exchange rate (EUR/PLN)	4,6148	4,6148	4,6148	4,6148	4,6148
Liabilities arising from derivative hedging instruments
Average fixed interest rate	-	-	2,8904	2,2080	1,1948
Average exchange rate (CHF/PLN)	4,2641	4,2641	4,2641	4,2641	4,2641
Average exchange rate (EUR/PLN)	4,6148	4,6148	4,6148	4,6148	4,6148

	31.12.2021		31.12.2020
Hedging instruments designated as fair value hedges	Hedged item: Fixed-coupon bonds	Hedged item: Fixed-rate loan portfolio	Hedged item: Fixed-coupon bonds	Hedged item: Fixed-rate loan portfolio
Nominal value of hedging instrument	4 615 934	275 000	4 727 628	500 000
Fair value measurement of a hedging instrument due to hedged risk including:	161 451	12 943	(287 996)	(9 637)
Receivables arising from hedging instruments	177 154	13 106	-	-
Liabilities arising from hedging instruments	15 703	163	287 996	9 637
Line item in the statement of financial position that includes the hedging instrument	Hedging derivatives (IRS and CIRS)	Hedging derivatives (IRS)	Hedging derivatives (IRS and CIRS)	Hedging derivatives (IRS)
Hedged risk	Interest rate risk	Interest rate risk	Interest rate risk	Interest rate risk
Period over which instruments have impact on the Bank’s results	up to 2029	up to 2024	up to 2029	up to 2024

	31.12.2021		31.12.2020
Items subject to fair value hedge accounting	Fixed-coupon bonds	Fixed-rate loan portfolio	Fixed-coupon bonds	Fixed-rate loan portfolio
Carrying amount of the hedged item, including:
Assets	4 615 934	275 000	4 727 628	500 000
Liabilities	-	-	-	-
Accumulated amount of fair value hedge adjustments on the hedged item included in the statement of comprehensive income and in the carrying amount, including:
Assets	(164 938)	(13 433)	297 828	9 601
Liabilities	-	-	-	-
Line item in the statement of financial position that includes the hedged instrument	Investment securities	Loans and advances to customers	Investment securities	Loans and advances to customers

As at 31.12.2021, Santander Leasing SA had one derivative instrument - CIRS (Currency Interest Rate Swap), designated to hedge accounting of fair value, which hedges the company against the interest rate.

Details of this transactions as at 31.12.2021 and at comparative period are presented in tables below:

	Distribution of nominal values of cash flows
Nominal value of hedging instruments	up to 1 month	from 1 month to 3 months	from 3 months to 1 year	from 1 year to 5 years	over 5 years	Total
31.12.2021
Assets representing derivative hedging instruments	-	69 203	69 203	-	-	138 406
CIRS	-	69 203	69 203	-	-	138 406
Liabilities arising from derivative hedging instruments	-	69 203	69 203	-	-	138 406
CIRS	-	69 203	69 203	-	-	138 406
31.12.2020
Assets representing derivative hedging instruments	-	69 435	75 204	138 870	-	283 509
CIRS	-	69 435	75 204	138 870	-	283 509
Liabilities arising from derivative hedging instruments	-	69 435	75 204	138 870	-	283 509
CIRS	-	69 435	75 204	138 870	-	283 509

Pricing parameters for hedging instruments	up to 1 month	from 1 month to 3 months	from 3 months to 1 year	from 1 year to 5 years	over 5 years
31.12.2021
Assets representing derivative hedging instruments
Average fixed interest rate	(0,2400)	(0,2400)	(0,2400)	-	-
Average exchange rate (EUR/PLN)	4,5994	4,5994	4,5994	-	-
Liabilities arising from derivative hedging instruments
Average variable interest rate	(0,5930)	(0,5930)	(0,5930)	-	-
Average exchange rate (EUR/PLN)	4,5994	4,5994	4,5994	-	-
31.12.2020
Assets representing derivative hedging instruments
Average fixed interest rate	(0,2420)	(0,2423)	(0,2400)	(0,2400)	-
Average exchange rate (EUR/PLN)	4,6148	4,6148	4,6148	4,6148	-
Liabilities arising from derivative hedging instruments
Average variable interest rate	(0,5820)	(0,5820)	(0,5820)	(0,5820)	-
Average exchange rate (EUR/PLN)	4,6148	4,6148	4,6148	4,6148	-

	31.12.2021	31.12.2020
Hedging instruments designated as fair value hedges	Hedged item: Received fixed-rate loans
Nominal value of hedging instrument	138 406	283 509
Fair value measurement of a hedging instrument due to hedged risk including:	202	896
Receivables arising from hedging instruments	360	1 559
Liabilities arising from hedging instruments	158	663
Line item in the statement of financial position that includes the hedging instrument	Hedging derivatives (CIRS)	Hedging derivatives (CIRS)
Hedged risk	Interest rate risk	Interest rate risk
Period over which instruments have impact on the Santander Leasing results	up to 2022	up to 2022

	31.12.2021	31.12.2020
Items subject to fair value hedge accounting	Received fixed-rate loans
Carrying amount of the hedged item, including:	(138 407)	(283 509)
Assets	-	-
Liabilities	138 407	283 509
Accumulated amount of fair value hedge adjustments on the hedged item included in the statement of comprehensive income and in the carrying amount, including:	(694)	(132)
Assets	-	-
Liabilities	694	132
Line item in the statement of financial position that includes the hedged instrument	Deposits from banks	Deposits from banks

Cash flow hedging

Santander Bank Polska Group uses hedge accounting for future cash flows with respect to variable-rate commercial and mortgage loans in PLN and denominated in EUR and CHF, with maximum maturity of 31 years, and with respect to own securities issues in EUR with maturity of 3 years.

The hedging strategies used by Santander Bank Polska Group are designed to protect the Group’s exposures against the risk of changes in the value of future cash flows resulting from interest rate risk or – in the case of credit portfolios denominated in foreign currency – also from currency fluctuations.

Hedging relationships are created using Interest Rate Swaps (IRS), Cross Currency Interest Rate Swaps (CCIRS) and FX Swap. In order to measure hedge effectiveness the Bank uses the hypothetical derivative approach whereby the hedged credit portfolio is reflected by a derivative transaction with specific characteristics.

Hedged items are measured at amortised cost, while hedging items are measured at fair value. Subject to fulfilment of the criteria for effectiveness of hedging relationships, changes in the fair value of hedging instruments are recognised in OCI.

Details of this transactions of Santander Bank Polska SA as at 31.12.2021 and at comparative period are presented in tables below:

	31.12.2021			31.12.2020
Hedging instruments designed as cash flow hedges / hedges of a net investment in a foreign operation	Hedged item: Portfolio of floating interest rate loans in PLN	Hedged item: Portfolio of floating interest rate loans denominated in EUR and CHF	Hedged item: Issues in EUR	Hedged item: Portfolio of floating interest rate loans in PLN	Hedged item: Portfolio of floating interest rate loans denominated in EUR and CHF
Nominal value of hedging instrument	50 000	7 490 330	3 473 850	50 000	7 340 152
Fair value measurement of a hedging instrument, due to hedged risk including:	2 248	(12 442)	(7 081)	(6 901)	(20 254)
Receivables arising from hedging instruments	9 872	(19 658)	(3 166)	2 884	(22 160)
Liabilities arising from hedging instruments	7 624	(7 216)	3 915	9 785	(1 906)
Line item in the statement of financial position that includes the hedging instrument	Hedging derivatives (IRS, CCIRS)	Hedging derivatives (IRS, CCIRS)	Hedging derivatives (IRS, CCIRS)	Hedging derivatives (IRS, CCIRS)	Hedging derivatives (IRS, CCIRS)
Change in fair value of the hedging instrument used as the basis for recognising hedge ineffectiveness for the period	2 248	(1 957)	(7 081)	(6 901)	(7 190)
Balance of hedging gains or losses of the reporting period that were recognised in other comprehensive income	2 248	(12 442)	(7 081)	(6 901)	(20 253)
Value of hedge ineffectiveness recognised in profit or loss	-	10 484	-	-	13 063
Line item in the income statement that includes the recognised hedge ineffectiveness	Net trading income and revaluation	Net trading income and revaluation	Net trading income and revaluation	Net trading income and revaluation	Net trading income and revaluation
Hedged risk	Interest rate risk	Interest rate risk and currency risk	Interest rate risk and currency risk	Interest rate risk	Interest rate risk and currency risk
Period over which instruments have impact on the Bank’s results	up to 2027	up to 2028	up to 2023	up to 2027	up to 2028

	31.12.2021			31.12.2020
Items subject to cash flow hedge accounting	Portfolio of floating interest rate loans in PLN	Portfolio of floating interest rate loans denominated in EUR and CHF	Issues in EUR	Portfolio of floating interest rate loans in PLN	Portfolio of floating interest rate loans denominated in EUR and CHF
Change in value of the hedged item used as the basis for recognising hedge ineffectiveness for the period	2 248	(12 442)	(7 081)	(6 901)	(20 253)

Details of this transactions of Santander Consumer Bank SA as at 31.12.2021 and at comparative period are presented in tables below:

	Distribution of nominal values of cash flows
Nominal value of hedging instruments	up to 1 month	from 1 month to 3 months	from 3 months to 1 year	from 1 year to 5 years	over 5 years	Total
31.12.2021
Assets representing derivative hedging instruments	-	-	139 790	714 864	-	854 654
FXSWAP	-	-	-	399 539	-	399 539
CCIRS	-	-	139 790	315 325	-	455 115
Liabilities arising from derivative hedging instruments	-	-	266 904	689 502	-	956 406
FXSWAP	-	-	111 210	311 388	-	422 598
CCIRS	-	-	155 694	378 114	-	533 808
31.12.2020
Assets representing derivative hedging instruments	-	-	563 899	579 513	-	1 143 412
FXSWAP			292 999	124 398	-	417 397
CCIRS	-	-	270 900	455 115	-	726 015
Liabilities arising from derivative hedging instruments	-	-	596 974	639 615	-	1 236 589
FXSWAP			298 487	127 923	-	426 410
CCIRS	-	-	298 487	511 692	-	810 179

Pricing parameters for hedging instruments	up to 1 month	from 1 month to 3 months	from 3 months to 1 year	from 1 year to 5 years	over 5 years
31.12.2021
Assets representing derivative hedging instruments
Average fixed interest rate	-	-	0,9650	1,8459	-
Average exchange rate (CHF/PLN)	4,4484	-	-	-	-
Average exchange rate (EUR/PLN)	4,5994	-	-	-	-
Liabilities arising from derivative hedging instruments
Average fixed interest rate	-	-	(0,7704)	(0,7784)	-
Average exchange rate (CHF/PLN)	4,4484	-	-	-	-
Average exchange rate (EUR/PLN)	4,5994	-	-	-	-
31.12.2020
Assets representing derivative hedging instruments
Average fixed interest rate	-	-	0,4250	0,4865	-
Average exchange rate (CHF/PLN)	4,2641	-	-	-	-
Liabilities arising from derivative hedging instruments
Average fixed interest rate	-	-	(0,7744)	(0,7729)	-
Average exchange rate (CHF/PLN)	4,2641	-	-	-	-

	31.12.2021	31.12.2020
Hedging instruments designed as cash flow hedges / hedges of a net investment in a foreign operation	Hedged item: Portfolio of loans denominated in CHF
Nominal value of hedging instrument	956 406	1 236 589
Fair value measurement of a hedging instrument, due to hedged risk including:	(93 579)	(91 039)
Receivables arising from hedging instruments	854 654	1 143 412
Liabilities arising from hedging instruments	948 233	1 234 451
Line item in the statement of financial position that includes the hedging instrument	Hedging derivatives (CCIRS, FXSWAP)	Hedging derivatives (CCIRS, FXSWAP)
Change in fair value of the hedging instrument used as the basis for recognising hedge ineffectiveness for the period	(25 045)	286
Balance of hedging gains or losses of the reporting period that were recognised in other comprehensive income	(24 312)	(526)
Value of hedge ineffectiveness recognised in profit or loss	(733)	812
Line item in the income statement that includes the recognised hedge ineffectiveness	Net trading income and revaluation	Net trading income and revaluation
Hedged risk	Currency risk	Currency risk
Period over which instruments have impact on the Bank’s results	up to 2024	up to 2024

	31.12.2021	31.12.2020
Items subject to cash flow hedge accounting	Hedged item: Portfolio of loans denominated in CHF
Change in value of the hedged item used as the basis for recognising hedge ineffectiveness for the period	(93 579)	(91 039)

Measurement to fair value of the hedging instrument, less deferred tax, is recognised in comprehensive income and accumulated in the Group’s equity during the period and are presented in note 42.

Impact of the IBOR reform

Santander Bank Polska Group uses cash flow hedges that are affected by the IBOR reform.

The items hedged as part of hedge accounting include:

· variable-rate commercial and mortgage loans in PLN, EUR and CHF;

· fixed-rate cash and mortgage loans in PLN;

· fixed-rate debt securities in PLN and EUR;

· own securities issues in EUR.

As at 31 December 2021, there were 160 hedging relationships established at Santander Bank Polska S.A. The above-mentioned portfolios are hedged with IRS and CIRS transactions for PLN and EUR exposures (105 relationships connected with 105 IRS transactions and 6 relationships connected with 6 CIRS transactions), and CCIRS transactions for EUR and CHF exposures (49 relationships connected with 36 CCIRS transactions).

The interest rate of the foregoing derivatives is based on the following variable rates: 3M or 6M WIBOR (108 derivative transactions), 3M or 6M EURIBOR (16 derivative transactions) and 3M CHF LIBOR (23 derivative transactions). The relationships are set to expire gradually by 2029: 45 relationships in 2022, 103 relationships over the next five years and 12 relationships by 2029 (including three relationships in 2029 alone).

In the case of loan agreements referencing CHF LIBOR, the Bank replaced the above benchmark with RFRs in accordance with the decision of the European Commission. In the case of derivatives used to hedge the above-mentioned portfolio, CHF LIBOR will be changed in line with the ISDA Protocol standard.

Based on the effectiveness test conducted for both the loan portfolio and the hedging instruments using new rates for CHF, the Bank concluded that it is highly likely that the requirement for effectiveness of future hedging relationships will be met.

Accordingly, with regard to the hedging strategies for the CHF loan portfolio, the Bank decided to keep the existing hedging relationships based on the currently used underlying instruments.

Detailed information about derivative and non-derivative financial instruments subject to the interest rate benchmark reform together with the summary of measures taken by the Bank to manage the risk arising from the reform and the accounting impact, including the impact on hedging relationships, is presented in Note 4 “Risk management” and in Note 44 “Hedge accounting” (section on hedging derivatives).

The subsidiaries of Santander Bank Polska S.A. also use hedge accounting that may be affected by the IBOR reform. As at the end of 2021, it was the case of one relationship at Santander Leasing S.A. The hedged item is the fixed-rate loan in EUR. The hedging instrument is the IRS transaction which is based on a variable rate, i.e. 1M EURIBOR (interest paid by Santander Leasing S.A.), and a fixed rate (interest received by Santander Leasing S.A.). The relationship expires in September 2022.

In the case of Santander Consumer Bank S.A. (SCB), there were three active CIRS transactions based on 3M LIBOR/3M WIBOR as at the end of 2021. The CIRS that expired in 2021 was not renewed.

In addition, SCB entered into three long-term CHF/PLN FX Swap transactions for the period of up to one year (CHF 20m), two years (CHF 40m) and three years (CHF 25m). They were also linked to mortgage loans as part of hedge accounting.

45. Sell-buy-back and buy-sell-back transaction

Santander Bank Polska Group raises funds by selling financial instruments under agreements to repurchase these instruments at future dates at a predetermined price.

Repo and sell-buy back transactions may cover securities from the Group’s balance sheet portfolio.

	31.12.2021	31.12.2020
	Balance sheet value	Balance sheet value
Liabilities valued at amortised cost (contains sell-buy-back)	510 277	653 687
Fair value of securities held as collateral for sell-buy-back/repo transactions	534 437	657 664
Buy-sell-back transactions	453 372	293 583
Fair value of securities held for buy-sell-back/reverse repo transactions	453 153	293 737

Buy-sell-back transactions	31.12.2021	31.12.2020
Buy-sell-back transactions from banks	256 548	223 803
Buy-sell-back transactions from customers	196 824	69 780
Total	453 372	293 583

Sell-buy-back transactions	31.12.2021	31.12.2020
Sell-buy-back transactions from banks	510 277	642 226
Sell-buy-back transactions from customers	-	11 461
Total	510 277	653 687

Securities being the subject of repo and sell-buy-back transactions constituting the Group’s portfolio are not removed from the balance sheet, because the Group retains all rewards (i.e. interest income on pledged securities) and risks (interest rate risk and the issuer’s credit risk) attaching to these assets.

All of the above-mentioned risks and costs related to the holding of the underlying debt securities in the sell-buy-back transactions remain with the Group, as well as power to dispose them.

The Group also acquires reverse repo and buy-sell-back transactions financial instruments at the same price increased by the pre-determined amount of interest.

Financial instruments covered by reverse repo and buy-sell-back transactions are not recognised in the balance sheet, because the Group does not retain any rewards or risks attaching to these assets.

Financial assets which are subject to reverse repo and buy-sell-back transactions represent a security cover accepted by the Group which the Group may sell or pledge.

Financial instruments held as security for (reverse repo) repurchase agreements may be sold or repledged under standard agreements, under the obligation to return these to the counterparty on maturity date of the transaction.

46. Offsetting financial assets and financial liabilities

The Group enters into master agreements such as ISDA (International Swaps and Derivatives Association Master Agreements) and GMRA (Global Master Repurchase Agreement) providing for the possibility to terminate and settle the transaction with a counterparty in the event of default on the basis of a net amount of mutual receivables and payables.

In addition, under CSA (Credit Support Annex), the counterparty hedges derivative exposures with a deposit margin. The table presents fair value amounts of derivative instruments (both held for trading and designated as hedging instruments under hedge accounting) and cash collateral covered by master agreements providing for the right of set-off under specific circumstances. The value of instruments not subject to set-off are presented separately.

	Gross amounts before offsetting in the statement of financial position	Gross amounts set off in the statement of financial position	Net amount after offsetting in the statement of financial position	Amounts subject to master netting and similar arrangements not set off in the statement of financial position		Net amount of exposure	Amounts not subject to enforceable netting arrangements	Balance sheet total
				Financial instruments	Cash collateral received
Offsetting Financial Assets and Financial Liabilities on 31.12.2021	(a)	(b)	(c) = (a) ‒ (b)	(d)	(e)	(c) ‒ (d) ‒ (e)	(f)	(c) + (f)
Assets
Due from other banks
- Reverse sale and repurchase agreements with other banks	256 548	-	256 548	-	255 384	1 164	-	256 548
Loans and advances to customers
- Reverse sale and repurchase agreements	196 824	-	196 824	-	196 134	690	-	196 824
Other financial assets:
- Financial derivatives	8 392 406	4 922 340	3 470 066	2 249 311	749 809	470 946	351 549	3 821 615
TOTAL ASSETS SUBJECT TO OFFSETTING, MASTER NETTING AND SIMILAR ARRANGEMENT	8 845 778	4 922 340	3 923 438	2 249 311	1 201 327	472 800	351 549	4 274 987
Liabilities							-
Financial derivatives	9 791 214	4 922 340	4 868 874	2 249 311	2 197 654	421 909	385 956	5 254 830
Sale and repurchase agreements	510 277	-	510 277	-	436 830	73 447	-	510 277
TOTAL LIABILITIES SUBJECT TO OFFSETTING, MASTER NETTING AND SIMILAR ARRANGEMENT	10 301 491	4 922 340	5 379 151	2 249 311	2 634 484	495 356	385 956	5 765 107

	Gross amounts before offsetting in the statement of financial position	Gross amounts set off in the statement of financial position	Net amount after offsetting in the statement of financial position	Amounts subject to master netting and similar arrangements not set off in the statement of financial position		Net amount of exposure	Amounts not subject to enforceable netting arrangements	Balance sheet total
				Financial instruments	Cash collateral received
Offsetting Financial Assets and Financial Liabilities on 31.12.2020	(a)	(b)	(c) = (a) ‒ (b)	(d)	(e)	(c) ‒ (d) ‒ (e)	(f)	(c) + (f)
Assets
Due from other banks
- Reverse sale and repurchase agreements with other banks	223 803	-	223 803	-	209 156	14 647	-	223 803
Loans and advances to customers
- Reverse sale and repurchase agreements	69 780	-	69 780	-	63 800	5 980	-	69 780
Other financial assets:
- Financial derivatives	6 162 729	3 782 229	2 380 500	1 557 945	386 071	436 484	631 124	3 011 624
TOTAL ASSETS SUBJECT TO OFFSETTING, MASTER NETTING AND SIMILAR ARRANGEMENT	6 456 312	3 782 229	2 674 083	1 557 945	659 027	457 111	631 124	3 305 207
Liabilities							-
Financial derivatives	8 269 335	3 782 229	4 487 106	1 557 945	2 488 692	440 469	251 331	4 738 437
Sale and repurchase agreements	653 687	-	653 687	-	634 915	18 772	-	653 687
TOTAL LIABILITIES SUBJECT TO OFFSETTING, MASTER NETTING AND SIMILAR ARRANGEMENT	8 923 022	3 782 229	5 140 793	1 557 945	3 123 607	459 241	251 331	5 392 124

47. Fair value

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

Below is a summary of the book values and fair values of the individual groups of assets and liabilities not carried at fair value in the financial statements.

ASSETS	31.12.2021		31.12.2020
ASSETS	Book Value	Fair value	Book Value	Fair value
Cash and balances with central banks	8 438 275	8 438 275	5 489 303	5 489 303
Loans and advances to banks	2 690 252	2 690 252	2 926 522	2 926 522
Loans and advances to customers measured at amortised cost	145 966 743	148 763 917	139 549 728	138 836 783
-individuals	25 533 607	25 506 355	25 372 616	25 382 329
-housing loans	55 800 105	58 508 076	51 978 552	52 147 194
-business	53 779 474	53 895 929	55 235 227	54 343 927
Debt investment securities measured at amortised cost	1 421 272	1 411 022	-	-
LIABILITIES
Deposits from banks	4 400 138	4 400 138	5 373 312	5 373 312
Deposits from customers	185 373 443	185 272 700	171 522 255	171 554 319
Subordinated liabilities	2 750 440	2 743 086	2 754 605	2 736 671

Below is a summary of the key methods and assumptions used in the estimation of fair values of the financial instruments shown in the table above.

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

The Group has financial instruments which in accordance with the IFRS are not carried at fair value in the consolidated financial statements. The fair value of such instruments is measured using the following methods and assumptions.

Loans and advances to banks: The fair value of deposits is measured using discounted cash flows at the current money market interest rates for receivables of similar credit risk, maturity and currency. In the case of demand deposits without a fixed maturity date or with maturity up to 6 months, it is assumed that their fair value is not significantly different than their book value. The process of fair value estimation for these instruments is not affected by the long-term nature of the business with depositors. Loans and advances to banks were classified in their entirety as Level 3 of the fair value hierarchy due to application of a measurement model with significant unobservable inputs.

Loans and advances to customers: Carried at net value after impairment charges. Fair value is calculated as the discounted value of the expected future cash flows in respect of principal and interest payments. It is assumed that loans and advances will be repaid at their contractual maturity date. The estimated fair value of the loans and advances reflects changes in the credit risk from the moment of sanction (margins) and changes in interest rates. Loans and advances to customers were classified in their entirety as Level 3 of the fair value hierarchy due to application of a measurement model with significant unobservable inputs, i.e. current margins achieved on new credit transactions.

Debt investment financial assets measured at amortized cost: fair value estimated based on market quotes. Instruments classified as category I of the fair value hierarchy.

Deposits from banks and deposits from customers: Fair value of the deposits with maturity exceeding 6 months was estimated based on the cash flows discounted by the current market rates for the deposits with similar maturity dates. In the case of demand deposits without a fixed maturity date or with maturity up to 6 months, it is assumed that their fair value is not significantly different than their book value. The process of fair value estimation for these instruments is not affected by the long-term nature of the business with depositors. Deposits from banks and deposits from customers were classified in their entirety as Level 3 of the fair value hierarchy due to application of a measurement model with significant unobservable inputs.

Debt securities in issue and subordinated liabilities: The Group has made an assumption that fair value of those securities is based on discounted cash flows methods incorporating adequate interest rates. Debt securities in issue and subordinated liabilities were classified in their entirety as Level 3 of the fair value hierarchy due to application of a measurement model with significant unobservable inputs.

For Debt securities in issue and other items of liabilities, not carried at fair value in the financial statements, including: lease liabilities and other liabilities - the fair value does not differ significantly from the presented carrying amounts.

Financial assets and liabilities carried at fair value in the statement of financial position

As at 31.12.2021 and in the comparable periods the Group made the following classification of its financial instruments measured at fair value in the statement of financial position:

Level I (active market quotations): debt, equity and derivative financial instruments which at the balance sheet date were measured using the prices quoted in the active market. The Group allocates to this level fixed-rate State Treasury bonds, treasury bills, shares of listed companies and WIG 20 futures.

Level II (the measurement methods based on market-derived parameters): This level includes derivative instruments. Derivative instruments are measured using discounted cash flow models based on the discount curve derived from the inter-bank market.

Level III (measurement methods using material non-market parameters): This level includes equity securities that are not quoted in the active market, measured using the expert valuation model; investment certificates measured at the balance sheet date at the price announced by the mutual fund and debt securities. This level includes also part of credit cards portfolio and loans and advances subject to underwriting, i.e. portion of credit exposures that are planned to be sold before maturity for reasons other than increase in credit risk.

The objective of using a valuation technique is to determine the fair value, i.e., prices, which were obtained by the sale of an asset in an orderly transaction between market participants carried out under current market conditions between market participants at the measurement date.

Sale of shares of AVIVA TUŻ S.A. and AVIVA TUO S.A. and PTE AVIVA Santander S.A.

On 26 March 2021:

1. the Bank executed a share purchase agreement relating to: 4,125 shares in AVIVA Towarzystwo Ubezpieczeń na Życie S.A., representing ca. 10% of the share capital of this company; and 2,968 shares in AVIVA Towarzystwo Ubezpieczeń Ogólnych S.A., representing ca. 10% of the share capital of this company, to ALLIANZ HOLDING EINS GMBH ("Allianz"), for the total purchase price of EUR 243,000,000 (whereby the purchase price may be subject to adjustments as set out in the share purchase agreement);

2. the Bank undertook to executed a share purchase agreement relating to 1,370 shares in AVIVA Powszechne Towarzystwo Emerytalne Aviva Santander S.A., representing ca. 10% of the share capital of this company, to AVIVA Towarzystwo Ubezpieczeń na Życie S.A., for the purchase price of EUR 14,000,000 (whereby the purchase price may be subject to adjustments as set out in the share purchase agreement); and

3. the Bank undertook to execute with Aviva International Holdings Limited, Aviva International Insurance Limited, Santander Aviva Towarzystwo Ubezpieczeń na Życie S.A. and Santander Aviva Towarzystwo Ubezpieczeń S.A. a termination agreement effective as at the completion of the aforementioned transactions involving the agreements concerning the cooperation of the Bank and Aviva International Holdings Limited in Santander Aviva Towarzystwo Ubezpieczeń na Życie S.A. and Santander Aviva Towarzystwo Ubezpieczeń S.A. (including the shareholders agreements relating to Santander Aviva Towarzystwo Ubezpieczeń na Życie S.A. and Santander Aviva Towarzystwo Ubezpieczeń S.A.),

Pursuant to the share purchase agreement, PLN 89m worth of dividends paid to the bank by Aviva Towarzystwo Ubezpieczeń na Życie S.A. and Aviva Towarzystwo Ubezpieczeń Ogólnych S.A. in June 2021 was deducted from the amount to be paid to the bank by Allianz at the time of closing the transaction.

In connection with the receipt of all required approvals of the relevant authorities, including the required decisions of the Polish Financial Supervision Authority and the European Commission, as well as other terms and conditions agreed between the parties to the Transaction concluded on 29 and 30 of November, of the Transaction involving:

1. the sale by the Bank of (i) 4,125 shares in AVIVA Towarzystwo Ubezpieczeń na Życie S.A., representing approximately 10% of the share capital of that company, and (ii) 2,968 shares in AVIVA Towarzystwo Ubezpieczeń Ogólnych S.A., representing approximately 10% of the share capital of that company, to ALLIANZ HOLDING EINS GMBH ("Allianz") for a total sale price of Euro 223 317 482;

2. the sale by the Bank of 1,370 shares in AVIVA Powszechne Towarzystwo Emerytalne Aviva Santander S.A., which constitute approximately 10% of the share capital of that company, to AVIVA Towarzystwo Ubezpieczeń na Życie S.A., for the sale price amounting to Euro 14 184 080.

3. the termination of the agreements (including shareholder agreements) relating to the cooperation between the Bank and Aviva International Holdings Limited within Santander Aviva Towarzystwo Ubezpieczeń na Życie S.A. and Santander Aviva Towarzystwo Ubezpieczeń S.A.;

4. the conclusion of shareholders' agreements by the Bank with Allianz, concerning Santander Aviva Towarzystwo Ubezpieczeń na Życie S.A. and Santander Aviva Towarzystwo Ubezpieczeń S.A., with Allianz holding approximately 51% of the shares in these companies as a result of the Transaction;

5. the conclusion by the Bank of new bancassurance agreements with Santander Aviva Towarzystwo Ubezpieczeń na Życie S.A. and Santander Aviva Towarzystwo Ubezpieczeń S.A.

Sensitivity analysis of the fair value of the credit cards portfolio

The analysis covered the population of credit cards disclosed as ‘Loans and advances to customers measured at fair value through other comprehensive income’ as at the end of 2021 and in the comparable period for interest rate changes.

	Fair value in respective scenarios
in PLN m	baseline	1 p.p. decrease in interest rates	2 p.p. decrease in interest rates	1 p.p. increase in interest rates	2 p.p. increase in interest rates
31.12.2021	504,2	504,2	502,2	503,7	503,5
31.12.2020	826,2	823,9	817,2	821,6	829,4

The fair value of the credit card portfolio was calculated for individual scenarios, taking into account the modified interest rate projections used both for calculating interest and for discounting cash flows.

Level 3: Other valuation techniques.

Financial assets and liabilities whose fair value is determined using valuation models for which input data is not based on observable market data (unobservable input data). In this category, the Group classifies financial instruments, which are valued using internal valuation models:

LEVEL 3	VALUATION METHOD	UNOBSERVABLE INPUT
LOANS AND ADVANCES TO CUSTOMERS: credit cards and underwriting loans and advances	Discounted cash flow method	Effective margin on loans
C-SERIES PREFERENCE SHARES OF VISA INC.	Estimating the fair value based on the current market value of the listed ordinary shares (A-series) of Visa Inc., including a discount which takes into account the limited liquidity of preferential shares	Discount taking into account the limited liquidity of preferential shares.
SHARES IN BIURO INFORMACJI KREDYTOWEJ SA	Estimation of the fair value based on the present value of the forecast results of the company	Forecast results of the company
SHARES IN POLSKI STANDARD PŁATNOŚCI SP. Z O.O.	Estimation of the fair value based on the present value of the forecast results of the company	Forecast results of the company; selection of peer group
SHARES IN SOCIETY FOR WORLDWIDE INTERBANK FINANCIAL TELECOMMUNICATION	Estimation of the fair value based on the net assets value of the company and average FX exchange rate	Net asset value of the company
SHARES IN KRAJOWA IZBA ROZLICZENIOWA SA	Estimation of the fair value based on the net assets value of the company	Net asset value of the company
SHARES IN WAŁBRZYSKA SPECJALNA STREFA EKONOMICZNA „INVEST-PARK” SP Z O.O.		Net asset value of the company

As at 31.12.2021 and in the comparable periods the Group classified its financial instruments to the following fair value levels:

31.12.2021	Level I	Level II	Level III	Total
Financial assets
Financial assets held for trading	361 679	3 654 553	3 885	4 020 117
Hedging derivatives	-	163 177	-	163 177
Loans and advances to customers measured at fair value through other comprehensive income	-	-	1 729 848	1 729 848
Loans and advances to customers measured at fair value through profit and loss	-	-	553 830	553 830
Debt securities measured at fair value through other comprehensive income	58 805 233	11 256 088	3 475	70 064 796
Debt securities measured at fair value through profit and loss	-	-	116 977	116 977
Equity securities measured at fair value through other comprehensive income	-	-	3 427	3 427
Equity securities measured at fair value through other comprehensive income	64 320	-	195 468	259 788
Total	59 231 232	15 073 818	2 606 910	76 911 960
Financial liabilities
Financial liabilities held for trading	385 585	3 489 880	2 616	3 878 081
Hedging derivatives	-	1 762 334	-	1 762 334
Total	385 585	5 252 214	2 616	5 640 415

31.12.2020	Level I	Level II	Level III	Total
Financial assets
Financial assets held for trading	178 799	3 001 906	2 064	3 182 769
Hedging derivatives	-	7 654	-	7 654
Loans and advances to customers measured at fair value through other comprehensive income	-	-	1 556 791	1 556 791
Loans and advances to customers measured at fair value through profit and loss	-	-	892 226	892 226
Debt securities measured at fair value through other comprehensive income	65 501 421	191 139	7 492	65 700 052
Debt securities measured at fair value through profit and loss	-	-	110 155	110 155
Equity securities measured at fair value through other comprehensive income	-	-	115 896	115 896
Equity securities measured at fair value through other comprehensive income	30 594	-	826 737	857 331
Total	65 710 814	3 200 699	3 511 361	72 422 874
Financial liabilities
Financial liabilities held for trading	67 001	2 963 339	-	3 030 340
Hedging derivatives	-	1 775 098	-	1 775 098
Total	67 001	4 738 437	-	4 805 438

The tables below show reconciliation of changes in the balance of financial instruments whose fair value is established by means of the valuation methods using material non-market parameters.

Level III
31.12.2021	Financial assets for trading	Loans and advances to customers measured at fair value through profit and loss	Loans and advances to customers measured at fair value through other comprehensive income	Debt securities measured at fair value through profit and loss	Debt securities measured at fair value through other comprehensive income	Equity securities measured at fair value through other comprehensive income	Equity securities measured at fair value through other comprehensive income	Financial liabilities held for trading
As at the beginning of the period	2 064	892 226	1 556 791	110 155	7 492	826 737	115 896	-
Profit or losses
-recognised in income statement	164	22 104	-	(1 768)	-	-	3 968	1 782
-recognised in equity (OCI)	-	-	45 769	-	-	485 025	-	-
Purchase/granting	2 011	323 272	1 738 526	-	-	428	-	700
Sale	-	(1 978)	(845 276)	(500)	-	(1 116 722)	(116 422)	-
Matured	-	(647 734)	(661 980)	-	-	-	-	-
Transfer	(354)	(15 872)	-	-	-	-	-	134
Other	-	(18 188)	(103 982)	9 090	(4 017)	-	(281)	-
As at the end of the period	3 885	553 830	1 729 848	116 977	3 475	195 468	3 427	2 616

Level III
31.12.2020	Financial assets for trading	Loans and advances to customers measured at fair value through profit and loss	Loans and advances to customers measured at fair value through other comprehensive income	Debt securities measured at fair value through profit and loss	Debt securities measured at fair value through other comprehensive income	Equity securities measured at fair value through other comprehensive income	Equity securities measured at fair value through other comprehensive income
As at the beginning of the period	-	1 196 447	923 811	194 285	16 027	864 916	-
Profit or losses
recognised in income statement	(24)	9 378	-	15 957	-	-	17 245
recognised in equity (OCI)		-	40 498	-	-	(37 254)	-
Purchase/granting	1 379	404 407	1 181 483	-	-	-	-
Sale		(3)	(275 370)	(1 000)	-	(925)	-
Matured		(591 551)	(278 668)	-	-	-	-
Transfer	709	(109 773)	-	(101 550)	-	-	101 550
Other		(16 679)	(34 963)	2 463	(8 535)	-	(2 899)
As at the end of the period	2 064	892 226	1 556 791	110 155	7 492	826 737	115 896

48. Legal risk connected with CHF mortgage loans

As at 31 December 2021, the Group had retail exposures of PLN 9,265,163k (compared to PLN 9,853,480k as at 31 December 2020) in respect of mortgage loans denominated in or indexed to CHF. Due to differences in the legal structure of these two types of loans and the underlying agreement templates, the assessment of legal risk varies.

There are differences in courts’ rulings on CHF loan cases (for loans indexed to and denominated in foreign currency):

– rulings unfavourable to banks, which generally fall into two main categories: (1) judgments resulting in invalidation of the loan agreement due to the unfairness of the contested contractual terms (prevailing practice); (2) judgments resulting in the conversion of the loan to PLN meaning that due to the unfairness of the clause providing for loan indexation and application of an exchange rate from the bank’s FX table the indexation mechanism is to be removed, and the loan concerned is to be treated as a PLN loan with an interest rate based on CHF LIBOR;

– rulings partially favourable to banks where loan indexation itself is deemed to be lawful but application of an exchange rate based on the bank’s FX table is deemed to be unfair and as such it should be replaced by an objective indexation rate, i.e. an average NBP exchange rate. This may result in particular claims being admitted, but only in an amount equal to the FX differences close to the currency spread.

– rulings favourable to banks where conversion clauses are not deemed to be unfair and the case against the bank is dismissed.

In addition, due to the legal uncertainty described below, related to the lack of a comprehensive position of the Supreme Court and the pending preliminary rulings to the Court of Justice of the European Union (CJEU), other types of rulings may also appear in the ruling practice of common courts, especially first-instance courts, including those pointing to the absolute invalidity of the loan agreement due to the inconsistency with the law of certain contractual provisions. Currently, in the Group’s opinion, such decisions do not have a material impact on the legal risk assessment of court cases related to CHF-based mortgage loans – due to their rarity, lack of confirmation in the ruling practice of higher courts, and the lack of well-established differences as to the practical consequences of such decisions compared to the dominant ruling practice based on the concept of nullity of the contract due to the presence of abusive clauses (therefore, they are not reflected in the estimates of provisions for legal risk created as at 31 December 2021).

The above differences result from several key rulings issued by the Court of Justice of the European Union (CJEU) and the Supreme Court, which leave a margin of interpretation.

On 3 October 2019, the CJEU issued a ruling (case file no. C-260/18) which is of key importance to the current case law in relation to the consequences of potentially unfair terms in a CHF-indexed loan agreement. The CJEU found that if the indexation clause is held to be unfair and if after the removal of the indexation mechanism the nature of the main subject matter of the agreement is likely to change, a national court may annul the agreement, having presented to the borrower the consequences of this solution and having obtained their consent. At the same time, according to the CJEU, the national court may decide that the agreement should continue in existence

after the indexation mechanism is removed (whereby the loan at issue would be treated as a PLN loan with an interest rate based on LIBOR); however, such a solution was deemed uncertain. The CJEU precluded the possibility to substitute unfair terms of the agreement with general provisions of the Polish law, but confirmed the possibility of replacing the gaps in the agreement with explicit supplementary provisions or other rules agreed by the parties.

Before the CJEU judgment was issued, the Supreme Court’s stance as to the consequences of rendering the exchange rate calculation clause unfair was that indexed loan agreements are valid and lawful and the loan agreement, once the FX clause is eliminated, retains the features of an agreement on an indexed loan. In 2019, in some cases, the Supreme Court ruled that the indexation clause should be removed, and the agreement may be treated as an agreement on a PLN loan with an interest rate based on LIBOR. These rulings were an exception to the previous decisions made by the Supreme Court.

In its judgement of 11 December 2019 (file no. CSK 382/18) issued in the case against Santander Bank Polska S.A. (whose justification was published in April 2020), the Supreme Court decided that invalidation of indexation and continuation of the agreement as a PLN loan with a LIBOR-based interest rate is not permissible because indexation clauses are the element of the main contractual obligations of the parties, so their unfairness and elimination from the agreement makes the loan agreement invalid. This triggers the need for mutual settlements between the parties due to unjust enrichment. At the same time, the Supreme Court stated that the previous judgements of the CJEU do not preclude the bank from demanding compensation for unjustified (i.e. without an agreement) use of the loan principal as a result of invalidation of the agreement.

In its ruling of 16 February 2021 (file no. III CZP 11/20), the Supreme Court stated that the borrower whose loan agreement is declared invalid may claim reimbursement of the sums paid to the bank irrespective of whether and to what extent they owe the amounts to the bank in respect of unduly received loan proceeds (two separate claims theory). At the same time, the Supreme Court held that there are legal instruments in place, such as set-off and the right of retention, which make it possible to concurrently account for mutual settlements in relation to unjust enrichment following the invalidation of the loan agreement.

In the Group’s opinion, the ruling that will significantly impact the ruling practice is the CJEU judgment issued on 29 April 2021 (file no. C-19/20) in the case against Bank BPH S.A., in which the CJEU indicated that the purpose of Directive 93/13/EEC on unfair terms in consumer contracts was not to annul the credit agreement, but to restore the contractual balance, and noted that when assessing the effects of unfairness of a contract, the court should take into account objective criteria, not only the consumer's situation. In addition, the CJEU stated that in order to ensure that the contract can continue in existence, the court should apply all available measures, including an analysis of the possibility of removing only some of the clauses considered unfair; at the same time, the national court should not change the substance of the contractual obligation. The CJEU confirmed that the court should always inform the consumer of all potential claims that the bank might have due to possible annulment of the contract (the majority of courts do not meet this requirement). At the same time, the CJEU did not respond to questions regarding potential claims of the bank towards the borrower, which may indicate that these claims are outside the CJEU’s remit and their assessment is exclusively subject to the national law.

In its resolution of 7 May 2021 (file ref. no. III CZP 6/21) adopted by a bench of seven judges (and having the force of a legal rule), the Supreme Court stated that the parties may make unjust enrichment claims in the event of annulment of the loan agreement, with the settlement being made in accordance with the two separate claims theory (confirming the position expressed in the ruling of 16 February 2021). The Supreme Court confirmed that banks may pursue their claims towards borrowers as part of the lawsuits filed by customers based on the alleged set-off or retention. The Supreme Court also pointed out that the limitation of the bank's claims for return of unjust enrichment may not commence until the contract is considered permanently ineffective, i.e. until the consumer takes an informed decision as to invalidity of the contract, after they have been duly informed about the unfairness of contractual provisions and the related effects.

Despite the above resolution adopted by the Supreme Court (having the force of a legal rule) there are still doubts as to disputes regarding loans linked to a foreign currency.

Notwithstanding the resolution of 7 May 2021, in 2021 the Supreme Court was expected to take a position at the request of the First President of the Supreme Court – (case no. III CZP 11/21) (in the form of a resolution of the entire Civil Chamber) on the key aspects of the disputes (i.e. the possibility for a loan agreement to continue in existence after removal of the unfair clauses, as well as the consequences of possible invalidation of the entire agreement, including the basic principles of settlements between the borrower and the bank in this regard). The position of the Supreme Court was to clarify the discrepancies and harmonise the case law with respect to foreign currency loans. The Supreme Court met several times, with the last session taking place on 2 September 2021. However, the resolution was not adopted, and the Supreme Court requested a preliminary ruling from the CJEU on the constitutional issues. The date of adopting the resolution is not known.

On 2 September 2021, the CJEU issued another judgment (file ref. no. C-932/19) concerning loans based on a foreign currency (case against a Hungarian bank) in which it confirmed that pursuant to Directive 93/13/ECC the objective is to restore the balance between the parties while preserving the validity of the agreement, and that the situation of one of the parties cannot be regarded by the court as the decisive criterion determining the fate of the agreement. At the same time, the CJEU confirmed that in order to uphold the

agreement it is necessary to refer to the national legislation (supplementary provisions) which will ensure due performance of the agreement even if the borrower objects to it or if such legislation was not effective at the time the agreement was made.

In its judgment of 18 November 2021 on a loan indexed to a foreign currency (file ref. no. C-212/20), the CJEU held that the loan agreement must precisely define the criteria for determination of an exchange rate so that a consumer can evaluate the economic consequences of the agreement. The CJEU also stated that the agreement may continue in existence based on a supplementary provision only if its annulment could expose the consumer to unfavourable consequences. It further upheld its stance previously presented its judgment of 3 October 2019 that gaps in the agreement cannot be filled on the basis of national provisions of a general nature which refer to the principle of equity or established customs. The CJEU reiterated that supplementary provisions or applicable provisions may be used where the parties to the agreement so agree.

Although the CJEU judgments indicate the primacy of the resolution under which the agreement should continue in existence and the balance between the parties should be restored, the majority of court decisions continue to be unfavourable to the Group.

There are also other issues pending the CJEU judgement that are relevant to the ruling practice concerning loans indexed to or denominated in a foreign currency. In August 2021, the District Court for Warsaw–Śródmieście requested a preliminary ruling from the CJEU on the settlement of benefits arising from the non-contractual use of the capital in the case of annulment of the agreement pursuant to Directive 93/13/EEC on unfair terms in consumer contracts. In November 2021, the Regional Court in Warsaw asked the CJEU to give a preliminary ruling on the commencement of the limitation of claims for return of considerations following the annulment of the agreement and the possibility to exercise the right of retention by the entity (where the return of the considerations received from the consumer would only be possible if the consumer offered to return or secured the return of the considerations received from the entity).

Pending the CJEU judgment are also the questions referred for a preliminary ruling by the District Court for Warsaw-Wola concerning the scope of application of Directive 93/13/ECC on unfair terms in consumer contracts (whether it includes the settlement of an invalid agreement) and the importance of the consumer’s will for the court adjudicating on invalidation of the agreement. In October 2020, the District Court for Warsaw-Śródmieście requested a preliminary ruling from the CJEU on: the possibility to apply supplementary provisions of national law to fill the gaps caused by the removal of the unfair terms, the commencement of the limitation of the consumer’s claims for return of considerations resulting from the annulment of the agreement, possibility to remove only a part of the clause considered to be unfair and modify by interpretation the part of the agreement that has not been considered unfair (for the agreement to continue in existence).

It is still difficult to assess the potential impact of the CJUE judgments on rulings of Polish courts in cases regarding foreign currency loans. To date, the Supreme Court has not taken a position to clarify the discrepancies and harmonise the case law with respect to foreign currency loans.

Due to the lack of a uniform ruling practice and in the opinion of the Management Board, it is not possible to predict the shape of the resolution of individual issues by the Supreme Court, at the time of preparing these financial statements, in its model to raise provisions for legal risk associated with the portfolio of loans indexed to and denominated in a foreign currency the Group takes into account different possible judgments, including those which are the subject of the request for the resolution of the entire Civil Chamber of the Supreme Court. The Group is monitoring court decisions taken with regard to foreign currency loans in terms of changes in the ruling practice.

In December 2020, the Chairman of the Polish Financial Supervision Authority (KNF) presented a proposal for voluntary settlements between banks and borrowers under which CHF loans would be retrospectively settled as PLN loans bearing an interest rate based on WIBOR plus margin. The Bank continues the tests of conclusion of such settlements on subsequent groups of customers, while at the same time testing settlement solutions on the Bank's own terms. At this point in time, due to the continued high legal uncertainty and in the changing economic environment resulting from the increase in interest rates, the Bank sees the necessity to continue the tests. The overall result of the ongoing tests and analysis will be an important input to the decision on whether to proceed with settlement on a broader scale. As the final decision to commence the process of entering into settlements might have a large impact on the Group’s financial position, consent from the General Meeting will be required. If the Group decides to do so, it will take into account additional scenarios in the models for calculation of provisions for legal risk and will reflect the estimated impact of settlements on the level of those provisions.

Due to the situation described above, the Group identified the risk that the scheduled cash flows from the portfolio of mortgage loans denominated in and indexed to foreign currencies might not be fully recoverable and/or that a liability might also arise, resulting in a future cash outflow. The Group raises provisions for disputes (individual court cases) and legal risk (on a collective basis) in line with IAS 37 Provisions, Contingent Liabilities and Contingent Assets. The amount of provisions calculated based on the active and repaid portfolio was estimated taking into account a number of assumptions, which significantly influence the estimate reflected in the Group’s financial statements.

As at 31 December 2021, there were 8,474 pending lawsuits against the Group over loans indexed to or denominated in CHF, with the disputed amount totalling PLN 2,091,915k. This included two class actions filed under the Class Action Act:

· a class action against Santander Bank Polska S.A. in respect of 534 CHF-indexed loans, with the disputed amount of PLN 50,983k;

· a class action against Santander Consumer Bank S.A. in respect of 31 CHF-indexed loans, with the disputed amount of PLN 38k.

As at 31 December 2021, the Group raised provisions of PLN 1,216,809k (PLN 324,920k as at 31 December 2020) for legal claims concerning contractual clauses in mortgage loan agreements indexed to or denominated in foreign currencies.

As at 31 December 2021, the Group raised collective provisions for legal risk of PLN 838,843k (PLN 278,247k as at 31 December 2020). Santander Bank Polska S.A. and Santander Consumer Bank S.A. raised provisions of PLN 611,713k and PLN 227,129k, respectively (PLN 191,900k and 86,347k, respectively, as at 31 December 2020).

The total provisions for legal claims and collective provisions account for 22.2% of the active portfolio of CHF loans.

The increase in the above provisions in 2021 is mainly due to new court cases (up 4,285 compared to December 2020) and a change in total loss should the Group lose the case resulting from changes to the assumed level of the likelihood of claims being resolved in favour of customers.

The Group estimated the likelihood of claims being made by borrowers in relation to both active and repaid loans based on the existing claims against the Bank and the estimated growth in their number (using a statistical model for predicting the number of potential court cases). The model assesses risk in the lifetime horizon and is based on a range of behavioural characteristics related to the loan and the customer. The Group assumes that lawsuits have been or will be filed against the Group in relation to approx. 19.7% of loans (active and repaid). These assumptions are highly sensitive to a number of external factors, including but not limited to the ruling practice of Polish courts, the level of publicity around individual rulings, measures taken by the mediating law firms and the cost of proceedings. The Group expects that most of the lawsuits will be filed by mid 2023, and then the number of new claims will drop as the legal environment will become more structured.

For the purpose of determining the level of provisions, the Group also estimated the probabilities of possible court settlement scenarios for both pending court cases and potential claims. These likelihoods differ for indexed and denominated loans, – the Group takes into account the higher risk of losing the dispute for the portfolio of indexed loans, and lower for denominated loans. The Group also took into account disproportions in the ruling practice of courts of first and second instance, the relatively small number of final judgments and the extended waiting time for a dispute to be resolved in some courts. As of 31 December 2021, the Group received 175 final court rulings in cases pending against the Group (bearing in mind the rulings issued after the CJEU judgment of 3 October 2019) – including 148 rulings unfavourable to the Bank, and the remaining 27 rulings in full or partially favourable (as at 31 December 2020 – 49 rulings, including 27 unfavourable and 22 fully or partially favourable). When assessing these likelihoods, the Group used the support of law firms and an in-depth analysis regarding the ruling practice in cases concerning indexed and denominated loans.

As the current case law is not uniform, the Group considers the following scenarios of possible court rulings that might lead to financial losses:

· Invalidation of the whole loan agreement due to identification of unfair clauses, with no cost of capital to be reimbursed by the borrower;

· Invalidation of the loan agreement clauses identified as unfair, resulting in the loan to be converted into PLN, with the CHF LIBOR-based interest rate being maintained;

· Decisions leading to the settlement by the borrower of the cost of capital obtained:

· invalidating the whole loan agreement as it contains unfair clauses, with the cost of capital to be reimbursed by the borrower;

· conversion of the loan to PLN with an interest rate based on WIBOR);

· Invalidation of the loan agreement clauses identified as unfair with respect to the FX differences determination mechanism, resulting in the average NBP rate to be applied.

The likelihoods of these scenarios also vary depending on the type of agreement, and are based on a relatively small sample of rulings. They were estimated with the support of external law firms independent from the Group. Each of these scenarios has an estimated expected loss level based on the available historical data.

In the Group’s opinion, the expected number of cases estimated based on the statistical model is also characterised by uncertainty due to such factors as: the duration of court proceedings (also estimated based on a relatively short time horizon of available statistics, which does not meet the conditions for application of quantitative methods) and the growing costs related to the instigation and continuation of court proceedings.

The Group will continue to monitor and evaluate the adequacy of the above-mentioned provisions in subsequent reporting periods.

Due to the high uncertainty around both individual assumptions and their total impact, the Group carried out the following sensitivity analysis of the estimated provision by estimating the impact of variability of individual parameters on the provision value.

The estimates are based on a univariate analysis of provision value sensitivity.

Taking into account the variability of the parameters outlined below, the impact on the collective provision for legal risk estimated as at 31 December 2021 is as follows:

Scenario	Change in the collective provision
Tripling the number of customers filing a lawsuit	1 676
Doubling the number of customers filing a lawsuit	838
50% reduction in the number of customers filing a lawsuit	(419)
Relative increase of 5% in likelihood of losing the case	40
Relative decrease of 5% in likelihood of losing the case	(40)
Non-recognition of reimbursement of the cost of principal	103

For all the parameters, the variability range in the sensitivity analysis was estimated taking into account the existing market conditions. The adopted variability ranges may change depending on market developments, which may significantly affect the results of the sensitivity analysis.

Taking into account the variability of the parameters outlined below, the impact on the provision for individual legal claims estimated as at 31 December 2021 is as follows:

Scenario	Change in the individual provision
Relative increase of 5% in likelihood of losing the case	62
Relative decrease of 5% in likelihood of losing the case	(62)
Non-recognition of reimbursement of the cost of principal	171

At the same time, the Group estimated the potential impact of the solution that involves voluntary settlements on a larger scale. Assuming that 100% of current borrowers choose to convert their loans as proposed by the KNF Chairman, the Group's cost would be in the order of PLN 4.1bn gross at the consolidated level. This amount is determined independently and in no way affects the provision estimates in the report.

49. Contingent liabilities

Significant court proceedings

As at 31.12.2021 the value of all litigation amounts to PLN 3 721 903 k. This amount includes PLN 1 133 832 k claimed by the Group, PLN 2 533 296 k in claims against the Group and PLN 54,775 k of the Group’s receivables due to bankruptcy or arrangement cases.

As at 31.12.2021 the amount of all court proceedings which had been completed amounted to PLN 659 326 k.

As at 31.12.2021, the value of provisions for legal claims was PLN 923 617 k. In 441 cases against Santander Bank Polska SA, where the claim value was high (at least PLN 500 k), a provisions of PLN 211 070 k was raised.

As at 31.12.2020 the value of all litigation amounts to PLN 2,317,882 k. This amount includes PLN 1,004,690 k claimed by the Group, PLN 1,261,620 k in claims against the Group and PLN 51,572 k of the Group’s receivables due to bankruptcy or arrangement cases.

As at 31.12.2020 the amount of all court proceedings which had been completed amounted to PLN 735,191 k.

As at 31.12.2020, the value of provisions for legal claims was PLN 408,485 k. In 229 cases against Santander Bank Polska SA, where the claim value was high (at least PLN 500 k), a provisions of PLN 70,373 k was raised.

Off-balance sheet liabilities

The value of contingent liabilities and off-balance sheet transactions are presented below. The value of liabilities granted and provision for off-balance sheet liabilities are presented also presented by categories. The values of guarantees and letters of credit as set out in the table below represent the maximum possible loss that would be disclosed as at the balance sheet day if the customers did not meet any of their obligations towards third parties.

	31.12.2021
Contingent liabilities	Stage 1	Stage 2	Stage 3	Total
Liabilities granted	44 542 432	883 386	52 463	45 478 281
- financial	35 785 367	709 686	46 434	36 541 487
- credit lines	30 799 120	639 398	36 399	31 474 917
- credit cards debits	3 671 725	63 935	8 674	3 744 334
- import letters of credit	1 314 522	6 353	1 361	1 322 236
- guarantees	8 792 556	182 951	22 098	8 997 605
Provision for off-balance sheet liabilities	(35 491)	(9 251)	(16 069)	(60 811)
Liabilities received				54 956 051
- financial				26 439
- guarantees				54 929 612
Total	44 542 432	883 386	52 463	100 434 332

	31.12.2020
Contingent liabilities	Stage 1	Stage 2	Stage 3	Total
Liabilities granted	41 296 843	853 890	95 625	42 246 358
- financial	34 006 951	634 428	83 603	34 724 982
- credit lines	28 831 615	494 054	67 902	29 393 571
- credit cards debits	3 960 832	131 695	13 914	4 106 441
- import letters of credit	1 194 014	8 679	1 787	1 204 480
- term deposits with future commencement term	20 490	-	-	20 490
- guarantees	7 315 501	231 608	38 808	7 585 917
Provision for off-balance sheet liabilities	(25 609)	(12 146)	(26 786)	(64 541)
Liabilities received				60 810 347
- financial				153 119
- guarantees				60 657 228
Total	41 296 843	853 890	95 625	103 056 705

Court proceedings relating to a partial reimbursement of arrangement fees on consumer loans

As at 31.12.2021, Santander Bank Polska Group was sued in 866 cases concerning partial refund of an arrangement fee on consumer loans, including 232 cases against Santander Consumer Bank S.A. and 634 cases against Santander Bank Polska S.A. For these proceedings Santander Bank Polska Group raised provisions in the total amount of PLN 109k including provisions raised by Santander Consumer Bank S.A. in the amount of PLN 16k and provisions raised by Santander Bank Polska S.A in the amount of PLN 94k.

On 11.09.2019, the CJEU issued a ruling in case C 383/18, in which it held that pursuant to Directive 2008/48/EC of the European Parliament and of the Council the in the event of early repayment of the loan, consumer is entitled to an equitable reduction in the total cost of the credit, irrespective of whether such costs are linked to the lending period.

On 12.12.2019 The Supreme Court issued a ruling in case III CZP 45/19 in which it held that the interpretation of art. 49 of the Consumer Credit Act indicates that the arrangement fee should be refunded in the event of early repayment of the loan. At the same time, the Supreme Court did not indicate how the fee is related to the period by which the duration of the contract was shortened and what part of the fee is covered by the period of which the duration of the contract was shortened. It is important to settle the interpretation of national law, which will indicate the method and the time horizon of settlements.

When assessing legal risk associated with Article 49 of the Consumer Credit Act, the Santander Bank Polska Group raises provisions for legal risks related to disputes regarding art. 49 of the Consumer Credit Act taking in to account interpretation differences.

50. Assets and liabilities pledged as collateral

Assets pledged as collateral	31.12.2021	31.12.2020
Treasury bonds blocked for REPO transactions	534 437	657 664
Total	534 437	657 664

The Group holds financial instruments such as:

· debt securities measured at fair value through other comprehensive income worth PLN 512,975 k (in 2020 PLN 643,272 k),

· financial assets held for trading of PLN 21,462 k (in 2020 PLN 14,392 k),

which represent collateral for liabilities under buy-sell-back transactions. The liabilities were presented in Note 45 Sell-buy-back and buy-sell-back transaction.

Apart from assets that secure liabilities that are disclosed separately in the statement of financial position when the receiving party may sell or exchange the assets for other security, the Group additionally held the following collateral for liabilities that did not meet the criterion:

	31.12.2021	31.12.2020
Treasury bonds blocked with BFG	1 021 774	1 055 355
Treasury bonds blocked for loans from banks	216 281	561 114
Deposits in financial institutions as collateralised valuation of transactions	2 261 463	3 115 789
Total	3 499 518	4 732 258

Assets securing funds to cover the BGF are debt securities.

In order to calculate the contribution to the deposit protection fund, Santander Bank Polska and Santander Consumer Bank applied 0,35% (0.35% in 2020) of funds deposited in all accounts with the bank, being the basis for calculating the obligatory reserve. As at 31.12. 2021, assets allocated to that end totalled PLN 1,021,774 k compared with PLN 1,055,355 k a year before.

In respect of financing granted in the form of bank loans, collateral is set through debt securities measured at fair value through other comprehensive income blocked in KDPW (Central Securities Depository of Poland) worth PLN 216,281 k (as at 31.12.2020 - PLN 561,114 k).

In 2021, deposits opened with financial institutions to secure the value of transactions totalled PLN 2,261,463 k (in 2020 – PLN 3,115,789 k).

In 2021, the Group accepted PLN 1,050,921 k worth of deposits securing of derivative transactions (vs. PLN 392,775 k in 2020).

Other liabilities accepted as collateral are disclosed in Note 34.

51. Information about leases

Lease related amounts recognized in the income statement	1.01.2021-31.12.2021	1.01.2020-31.12.2020
Amortisation of right of use asset incl.:	(167 571)	(188 332)
- Land and buildings	(158 160)	(175 962)
- IT equipment	(975)	(1 001)
- Transportation means	(6 949)	(9 782)
- Other	(1 487)	(1 587)
Interest expenses due to lease liabilities	(14 758)	(18 952)
Short-term lease costs	(8 671)	(10 075)
Low-value assets lease costs	(2 176)	(2 410)
Costs of variable lease payments not included in the measurement of the lease liabilities	(145)	(144)
Non-tax deductible VAT	(47 263)	(43 982)
Total	(240 584)	(263 895)

Lease agreements where the Group acts as a lessee

Lease liabilities	31.12.2021	31.12.2020
Lease liabilities (gross)	493 764	675 322
Discount	(41 265)	(50 632)
Lease liabilities (net)	452 499	624 690
Lease liabilities gross by maturity:
Short-term	147 471	192 647
Long-term (over 1 year)	346 293	482 675
Total lease liabilities (gross)	493 764	675 322

Movements in lease liabilities	1.01.2021-31.12.2021	1.01.2020-31.12.2020
As at the beginning of the period	624 690	746 632
Additions from:	58 652	114 127
- adding a new contract	40 445	64 503
- interest on lease liabilities	14 721	18 833
- FX differences	-	23 387
- update of lease term	3 486	7 404
Disposals from:	(230 843)	(236 069)
- payment due to lease liabilities	(188 317)	(192 785)
- interest repayment	(14 567)	(18 687)
- FX differences	(6 224)	-
- other changes	(21 735)	(24 597)
As at the end of the period	452 499	624 690

Lease agreements where the Group acts as a lessor

Santander Bank Polska Group conduct leasing activity through leasing companies which specialise in funding vehicles, means of transport for companies and individuals, as well as in the leasing of machinery, equipment and properties.

The items “Loans and advances to customers” and “Loans and advances to banks” contain the following amounts relating to the lease obligations:

Leases gross receivables - maturity	31.12.2021	31.12.2020
less than 1 year	4 269 364	4 007 664
1-2 years	3 345 390	2 936 675
2-3 years	2 223 861	1 935 618
3-4 years	1 189 619	970 409
4-5 years	529 236	406 531
over 5 years	82 709	102 450
Total	11 640 179	10 359 347

Present value of minimum lease payments - maturity	31.12.2021	31.12.2020
less than 1 year	4 111 957	3 886 610
1-2 years	3 153 005	2 781 210
2-3 years	2 059 040	1 796 920
3-4 years	1 076 972	878 458
4-5 years	469 437	356 662
over 5 years	67 504	83 506
Total	10 937 915	9 783 366

Reconciliation between the lease receivables and the present value of minimum lease payments	31.12.2021	31.12.2020
Lease gross receivables	11 640 179	10 359 347
Unearned finance income	(702 264)	(575 981)
Impairment of lease receivables	(192 728)	(135 207)
Present value of minimum lease payments, net	10 745 187	9 648 159

Operating leases

Future minimum lease fees due to irrecoverable operating lease	31.12.2021	31.12.2020
less than 1 year	13 811	11 167
1-2 years	14 015	9 542
2-3 years	1 438	1 514
Total	29 264	22 223

52. Consolidated statement of cash flows- additional information

The table below contains information on cash and cash equivalents in the cash flows statement of Santander Bank Polska Group.

Cash and cash equivalents	31.12.2021	31.12.2020
Cash and balances with central banks	8 438 275	5 489 303
Receivables from interbank deposits^*	2 910 133	3 143 038
Debt securities measured at fair value through other comprehensive income^*	6 997 960	4 999 904
Total	18 346 368	13 632 245
The impact of changes in currency exchange rates during the financial year on cash and cash equivalents	16 435	125 666

^* financial assets with initial maturity below three months

Santander Bank Polska SA and Santander Consumer Bank SA have restricted cash in the form of a mandatory reserve held on account with the Central Bank.

53. Related parties

The tables below present intercompany transactions. They are effected between associates and related entities. Transactions between Santander Bank Polska Group companies and its related entities are banking operations carried out on an arm’s length business as part of their ordinary business and mainly represent loans, bank accounts, deposits, guarantees and leases. Intercompany transactions effected within the Group by the Bank and its subsidiaries have been eliminated from the consolidated financial statements. In the case of internal Group transactions, a documentation is prepared in accordance with requirements of tax regulations for transfer pricing.

Transactions with associates	31.12.2021	31.12.2020
Assets	63	77
Other assets	63	77
Liabilities	50 783	88 102
Deposits from customers	50 708	87 998
Other liabilities	75	104
Income	58 969	45 673
Fee and commission income	58 969	45 673
Expenses	65	1 663
Interest expense	65	545
Fee and commission expense	-	1 118

Transactions with Santander Group	with the parent company		with other entities
Transactions with Santander Group	31.12.2021	31.12.2020	31.12.2021	31.12.2020
Assets	2 205 680	1 874 598	28 379	9 068
Loans and advances to banks, incl:	406 371	766 201	20 773	8 184
Loans and advances	406 371	-	20 773	-
Current accounts	-	766 201	-	8 184
Financial assets held for trading	1 797 764	1 107 257	-	4
Other assets	1 545	1 140	7 606	880
Liabilities	7 643 555	3 542 443	254 932	555 327
Deposits from banks incl.:	1 879 707	1 521 825	119 507	448 183
Current accounts	138 571	490 902	119 507	448 183
Loans from other banks	1 741 136	1 030 923	-	-
Financial liabilities held for trading	1 850 935	1 556 881	-	-
Deposits from customers	-	-	84 647	84 596
Lease liabilities	-	-	25	25
Debt securities in issue	3 910 233	461 509	-	-
Other liabilities	2 680	2 228	50 753	22 523
Income	365 524	2 560	8 717	7 155
Interest income	(2 825)	46	20	4
Fee and commission income	8 633	1 483	280	213
Other operating income	1 172	1 031	8 417	6 938
Net trading income and revaluation	358 544	-	-	-
Expenses	67 067	278 522	105 416	73 585
Interest expense	22 354	26 375	13	83
Fee and commission expense	7 811	7 042	697	138
Net trading income and revaluation	-	209 683	246	547
Operating expenses incl.:	36 902	35 422	104 460	72 817
Staff,Operating expenses and management costs	36 837	35 422	104 460	72 817
Other operating expenses	65	-	-	-
Contingent liabilities	5 325 641	5 120 775	64 355	64 329
Sanctioned:	-	-	32 536	32 505
guarantees	-	-	32 536	32 505
Received:	5 325 641	5 120 775	31 819	31 824
guarantees	5 325 641	5 120 775	31 819	31 824
Derivatives’ nominal values	165 965 533	128 147 610	-	5 000
Cross-currency interest rate swap (CIRS) – purchased	6 941 045	4 721 675	-	-
Cross-currency interest rate swap (CIRS) – sold	6 976 396	4 987 120	-	-
Single-currency interest rate swap (IRS)	74 002 414	54 371 535	-	-
Forward rate agreement (FRA)	2 981 000	3 100 000	-	-
Options interest rate	7 549 446	7 757 651	-	-
FX swap – purchased amounts	24 401 830	18 356 797	-	-
FX swap – sold amounts	24 286 741	18 503 137	-	-
FX options -purchased CALL	4 201 387	3 928 551	-	-
FX options -purchased PUT	4 196 081	3 983 999	-	-
FX options -sold CALL	4 909 590	3 866 848	-	-
FX options -sold PUT	5 041 365	3 846 814	-	-
Spot-purchased	121 087	223 412	-	-
Spot-sold	120 956	222 556	-	-
Forward- purchased	53 128	118 843	-	-
Forward- sold	53 365	119 906	-	5 000
Window Forward – purchased amounts	65 190	19 281	-	-
Window Forward – sold amounts	64 512	19 485	-	-
Capital derivatives contract - purchased	-	-	-	-

Factoring – risk participation agreements

In H2 2019, Santander Factoring Sp. z o.o. and Banco Santander S.A. signed risk participation agreements whereby Santander Factoring Sp. z o.o. would be able to transfer credit risk onto Banco Santander S.A. headquartered in Madrid or Banco Santander S.A. Branch in Frankfurt. Banco Santander S.A. may participate in the risk through Unfunded Risk Participation (whereby it issues a guarantee) or Funded Risk Participation (whereby it provides financing and assumes the insolvency risk for the debtor of Santander Factoring Sp. z o.o.). Assumption of the debtor’s insolvency risk reduces the RWA ratio for the Company’s assets.

Santander Factoring Sp. z o.o. pays an agreed remuneration to Banco Santander S.A., both for the guarantee issued and for the financing provided. In the case of Funded Risk Participation, interest on financing is calculated at the base rate (WIBOR/ EURIBOR) increased by a margin set for the factoring agreement in question. In the case of Unfunded Risk Participation, the remuneration is calculated by multiplying the guaranteed amount (for a given month) and the margin.

As at 31 December 2021, the debt of Santander Factoring Sp. z o.o. in respect of the loans granted by Banco Santander S.A. and its Branch in Frankfurt was PLN 1,738,397 k (principal and interest). As at 31 December 2021, factoring receivables financed with the foregoing loans totalled PLN 1 195 648 k. As the conditions for transferring financial assets have not been met, the receivables covered by the Funded Risk Participation Agreement are still recognised in the statement of financial position.

As at 31 December 2021, the difference between the amount of the loans granted and the value of the factoring receivables financed with those loans was PLN 542 750 k. The difference was attributed to the early repayment of the factoring receivables and a lower-than-projected value of invoices submitted for financing by customers as part of individual tranches.

The tranches are to be repaid in the period from January to April 2022. Repayment of the tranches is conditioned upon the repayment to Santander Factoring Sp. z o.o. of the factoring receivables financed from the funds granted. At the same time, Santander Factoring Sp. z o.o. cannot sell or pledge the factoring receivables financed with the funds provided by Banco Santander S.A. and its Branch in Frankfurt.

The table below compares the carrying amounts and fair values of liabilities towards Banco Santander S.A. and its Branch in Frankfurt as at 31 December 2021 in respect of the loans granted to finance factoring receivables. Given the short maturities of financial assets and financial liabilities and the fact that credit risk is included in the carrying amount of the financial assets it is assumed that their fair value does not differ significantly from their carrying amount.

31.12.2021	Carrying amount	Fair value
Loans from Banco Santander S.A., Frankfurt Branch	1 738 397	1 738 397
Factoring receivables financed with the loans	1 195 648	1 195 648

As at 31.12.2021, Santander Factoring Sp. z o.o. held the following assets secured by guarantees:

· PLN 856,911 k – assets secured under the Funded Risk Participation Agreement signed with Banco Santander S.A. Branch in Frankfurt on 20 September 2019;

· PLN 338,737 k – assets secured under the Funded Risk Participation Agreement signed with Banco Santander S.A. on 22 November 2019;

· PLN 44,853 k – assets secured under the Unfunded Risk Participation Agreement signed with Banco Santander S.A. on 22 November 2019;

· PLN 1,168,464 k – assets secured by guarantees granted by a third party bank;

· PLN 2,010 k – assets secured by guarantees granted by a third party bank.

After the risk was assumed by Banco Santander S.A. and its Branch in Frankfurt, the impairment allowance for factoring receivables was decreased by PLN 1,200 k as at 31 December 2021.

Transactions with Members of Management and Supervisory Boards

Remuneration of Santander Bank Polska Management Board Members, Supervisory Board Members and key management personnel Santander Bank Polska Group’s. Loans and advances granted to the key management personnel.

As at 31.12.2021 and 31.12.2020 members of the Management Board were bound by the non-compete agreements which remain in force after they step down from their function. If a Member of the Management Board is removed from their function or not appointed for another term, he/she is entitled to a once-off severance pay. The severance pay does not apply if the person accepts another function in the Bank.

Loans and advances have been sanctioned on regular terms and conditions.

Transactions with members of Management Board	Management Board Members		Key Management Personnel
and Key Management Personnel	2021	2020	2021	2020
Fixed renumeration	11 877	12 689	51 600	54 817
Additional benefits (e.g among others, life insurance cover without pension option, medical cover, travel expenses and school fees) **	2 143	1 159	1 800	1 439
Variable remuneration paid in 2021 and 2020 *	6 933	8 826	20 673	23 768
Equivalent paid for unused annual leave	799	-	313	92
Additional compensation for termination of the contract and the non-competition clause	1 056	-	3 444	656
Loans and advances made by the Bank to the Members of the Management Board/Key Management and to their relatives	5 996	6 528	23 580	27 088
Deposits from the Management Board/Key management and their relatives	14 014	18 351	15 577	23 134
Provisions for retirement benefits and provision for unused holidays	660	1 157	4 981	5 428
The number of conditional rights to shares	-	-	-	-

* included part of the award for 2020, 2019, 2018, 2017 and 2016 which was conditional and deferred in time.

** In 2021, selected components of remuneration were moved from the "Fixed remuneration" to "Additional benefits" category.

The category of key management personnel includes the persons covered by the principles outlined in the “Santander Bank Polska Group Remuneration Policy” and in the justified cases – by the principles separately specified in the companies.

Santander Bank Polska Group applies the “Santander Bank Polska Group Remuneration Policy”. The Policy has been approved by the bank’s Management Board and Supervisory Board and is reviewed annually or each time significant organisational changes are made.

Persons holding managerial positions are paid variable remuneration once a year following the end of the settlement period and release of the bank’s results. Variable remuneration is awarded in accordance with applicable bonus regulations and paid in cash and in the form of shares or related financial instruments - phantom shares. The latter shall represent min. 50% of the total amount of variable remuneration. Payment of min. 40% of variable remuneration referred to above is conditional and deferred for the period of three years with the possibility of extending the period to 5 years. Variable remuneration is paid in arrears in equal annual instalments depending on individual performance in the period subject to assessment and the value of the shares or related financial instrument.

In 2021, the total remuneration paid to the Supervisory Board Members of Santander Bank Polska totalled PLN 2,077 k (1,542 k in 2020). Mr. John Power received remuneration of PLN 90 k for his membership in Supervisory Boards of Bank’s subsidiaries (99 k in 2020).

54. Acquisitions and disposals of investments in subsidiaries and associate

Start of liquidation of SC Poland Consumer 15-1 Sp. z o.o.

On 18 June 2021, a resolution was adopted at SC Poland Consumer 15-1 Sp. z o.o. to dissolve the company and start the liquidation process. The Group lost control over the company.

55. Employee benefits

Staff benefits include the following categories:

· Short-term benefits (remuneration, social security contributions, paid leaves, profit distributions and bonuses and non-cash benefits, provided free of charge or subsidized). Value of short-term employee benefits are undiscounted,

· Post-employment benefits (retirement benefits and similar payments, life insurance or medical care provided after the term of employment).

Within these categories, the companies of the Santander Bank Polska Group create the following types of provisions:

Provisions for unused holidays

Liabilities related to unused holidays are stated in the expected amount (based on current salaries) without discounting.

Provisions for employee bonuses

Liabilities related to bonuses are stated in the amount of the probable payment without discounting.

Provisions for retirement allowances

Based on internal regulations in respect to remuneration, the employees of the Bank are entitled to defined benefits other than remuneration:

· retirement benefits,

· retirement pension.

The present value of such obligations is measured by an independent actuary using the projected unit credit method.

The amount of the retirement and pension benefits and death-in-service benefits is dependent on length of service and amount of remuneration received by the employee. The expected present value of the benefits is calculated, taking into account the financial discount rate and the probability of an individual get to the retirement age or die while working respectively. The financial discount rate is determined by reference to up-to-date market yields of government bonds. The probability of an individual get to the retirement age or die while working is determined using the multiple decrement model, taking into consideration the following risks: possibility of dismissal from service, risk of total disability to work and risk of death.

These defined benefit plans expose the Group to actuarial risk, such as:

· interest rate risk – the decrease in market yields on government bonds would increase the defined benefit plans obligations,

· remuneration risk – the increase in remuneration of the Bank’s employees would increase the defined benefit plans obligations,

· mobility risk – changes in the staff rotation ratio,

· longevity risk – the increase in life expectancy of the Bank’s employees would increase the defined benefit plans obligations.

The principal actuarial assumptions adopted by an independent actuary as at 31 December 2021 are as follows:

· the discount rate for future benefits at the level of 3.22% (1.55% as at 31 December 2020),

· the future salary growth rate at the level of 2.0% (2,0% as at 31 December 2020),

· the probable number of leaving employees calculated on the basis of historical data concerning personnel rotation in the Group,

· the mortality adopted in accordance with Life Expectancy Tables for men and women, published the Central Statistical Office, adequately adjusted on the basis of historical data of the Bank.

Reconciliation of the present value of defined benefit plans obligations

The following table presents a reconciliation from the opening balances to closing balances for the present value of defined benefit plans obligations.

	31.12.2021	31.12.2020
As at the beginning of the period	48 266	44 636
Current service cost	2 246	1 604
Past service cost	(1 577)	(1 350)
Interest expense	1 009	1 449
Actuarial (gains) and losses	(7 216)	1 927
Balance at the end of the period	42 728	48 266

Sensivity analysis

The following table presents how the impact on the defined benefits obligations would have increased (decreased) as a result of a change in the respective actuarial assumptions by one percentage point as at 31 December 2021.

Defined benefit plan obligations	1 percent increase	1 percent decrease
Discount rate	(7.76)%	8.37%
Future salary growth rate	8.43%	(7.89)%

The following table presents how the impact on the defined benefits obligations would have increased (decreased) as a result of a change in the respective actuarial assumptions by one percentage point as at 31 December 2020.

Defined benefit plan obligations	1 percent increase	1 percent decrease
Discount rate	(8,43)%	9,16%
Future salary growth rate	9,07%	(8,44)%

Other staff-related provisions

These are provisions for the National Fund of Rehabilitation of the Disabled, redundancies, overtime and staff training. These liabilities are stated at the amounts of expected payment without discounting.

The balances of the respective provisions are shown in the table below:

Provisions	31.12.2021	31.12.2020
Provisions for unused holidays	45 018	42 614
Provisions for employee bonuses	276 439	166 387
Provisions for retirement allowances	42 728	48 266
Other staff-related provisions	19 730	8 953
Total	383 915	266 220

Detailed information on employee provisions have been presented in Note 39.

56. Share based incentive scheme

Santander Bank Polska S.A. does not have active share-based payment incentive scheme as at 31 December 2021.

The sixth edition of the incentive scheme terminated as at 20/02/2020. The vesting level is 100% in relation to annual award for 2017 and 2018 and 65.34% of the annual award for 2019. Its realization through issuance of new shares and their allocation to individual accounts of entitled individuals was finalised in Q3 2020.

Three-year Incentive Scheme no. VI was approved on 17.05.2017 by Annual General Meeting of the Shareholders of Santander Bank Polska S.A. which participants are employees of the Santander Bank Polska Group (including Members of the Management Board), however not more than 250 individuals. On 26.06.2017 the Supervisory Board approved the list of entitled individuals (“grant date”).

Vesting condition was considered from two perspectives, separately for every year of operation of the scheme and on a cumulative basis after 3 years.

In every single year annual award not exceeding one third on total award was considered. Shares were vest on a linear pattern between 25% and 100% contingent on profit after tax (PAT) growth and on RORWA ratio growth. The range of the scale required PAT growth between “lower level” set to 80% of assumed level of realization in 2017 and “upper level” of nominal growth at 17,8% in first year and between “lower level” set to 80% of assumed level of realization in 2018 and 2019 and “upper level” of nominal growth at 13,4% in second and third year of duration of scheme. The range of the scale required RORWA ratio growth between “lower level” set to 80% of assumed level of realization in 2017 and “upper level” of nominal growth at 2,24% in first year, between “lower level” set to 80% of assumed level of realization in 2018 and “upper level” of nominal growth at 2,37% in second year and between “lower level” set to 80% of assumed level of realization in 2019 and “upper level” of nominal growth at 2,5% in third year of duration of scheme.

Additionally the qualitative factors were taken into account – participants were entitled to annual award depending on the level of an external customer satisfaction and engagement survey results (an internal customer). The level of customer satisfaction would be met when in the peer group Bank was on second place in first and second year and on the first place in third year of duration of the scheme. The engagement survey results would not be lower than 50% in first year, 60% in second year and 70% in third year of duration of scheme.

Additionally, after 3 years cumulative award was considered. Shares vested on a linear pattern between 25% and 100% contingent on PAT compound annual growth rate in 3 years’ time between 11,7% and 15% and on average value of RORWA ratio in 3 years’ time between 1,9% and 2,38%. If number of shares resulting from cumulative assessment would be higher than sum of annual awards vested to date, additional shares would be allocated to individuals up to the amount resulting from cumulative assessment.

The Black Scholes model has been used to value awards granted at the grant date. The expected volatility of the values of shares is based on an analysis of historical volatility of share prices based on 160 sessions preceding the grant date. The following table details the assumptions used, and the resulting fair value.

Share based payments granted in 2017:

		2017
Number of share based payments		131 262
Share price		350.00 PLN
Exercise price in PLN		10
Vesting period		3 years
Expected volatility of share prices		30.07%
Award life		3 years
Discounted risk free rate		2.12%
Fair value per award		323.36 PLN
Dividend yield		1.71%

The following table summarizes the share based payments changes:

	12 months of 2021	12 months of 2020
	Number of share based payments (options)	Number of share based payments (options)
	Number of share based payments (options)	Number of share based payments (options)
As at the beggining of the period	-	115 219
Granted	-	120
Exercised	-	(101 009)
Forfeited	-	(1 695)
Expired	-	(12 635)
As at the end of the period	-	-
Exercisable at 31 December	-	-

For the share based payments outstanding as at 31 December 2021 and as at 31 December 2020 the average remaining contractual life is 0 year for both periods.

The expenses of sixth edition of equity settled share-based payments scheme recognized in profit and loss account for 12 months of 2021 and 2020 amounts to PLN 0.00 and PLN 1,606 k.

The table below presents information about the number of conditional rights to shares vested in Santander Bank Polska SA Management Board members under the Long-term 6th Incentive Scheme.

No. of awards	2021	2020
As at the beginning of the period	-	25 160
Granted	-	-
Expired	-	(2 900)
Exercised	-	(22 260)
Resignation from the function	-	-
As at the end of the period	-	-

The table below presents information about the number of conditional rights to shares vested in Santander Bank Polska Group Key Management.

No. of awards	2021	2020
As at the beginning of the period	-	38 303
Granted	-	120
Expired	-	(4 743)
Exercised	-	(31 367)
Change due to inclusion in key management personnel	-	3 604
Change due to exclusion from key management personnel	-	(5 917)
Resignation from the function	-	-
As at the end of the period	-	-

57. Dividend per share

The Management Board of Santander Bank Polska S.A. announced that on 17 March 2021 it had decided to change its recommendation presented in the current report of 23 February 2021, i.e. to retain the Bank’s entire net profit of PLN 738,411,718.72 for the accounting year from 1 January 2020 to 31 December 2020 and to allocate 50% of that amount, i.e. PLN 369,205,859.36 to the capital reserve, and leave PLN 369,205,859.36 undistributed.

When taking the decision to change its recommendation of 23 February 2021, the Management Board took into account the current macroeconomic environment as well as the recommendations and current position of the Polish Financial Supervision Authority (KNF).The Management Board also considered the fact that profit distribution falls within the exclusive powers of the Annual General Meeting.

The amended recommendation was approved by the Bank’s Supervisory Board and the Annual General Meeting.

As recommended by the Management Board, the Bank’s Annual General Meeting distributed the Bank’s net profit of PLN 738,411,718.72 for the accounting year from 1 January 2020 to 31 December 2020 as follows:

-PLN 369,205,859.36 was allocated to the capital reserve;

-PLN 369,205,859.36 was allocated to the dividend reserve.

Both of the above-mentioned amounts are presented in the financial statements under "Other reserve capital".

The Annual General Meeting set aside the capital reserve for payment of dividend/ interim dividend (“dividend reserve”) and authorised the Management Board to use this reserve to pay interim dividend pursuant to Article 349(2) of the Commercial Companies Code.

The Annual General Meetings of the following subsidiaries: Santander Consumer Bank S.A., Santander Consumer Multirent sp. z o.o., PSA Finance Polska sp. z o.o., PSA Consumer Finance Polska sp. z o.o., Santander Factoring sp. z o.o., Santander Leasing S.A., Santander Finanse sp. z o.o., Santander Towarzystwo Funduszy Inwestycyjnych S.A. decided to allocate PLN 372,550,854.30 of the net profit for the financial year from 1 January 2020 to 31 December 2020 to the supplementary capital and capital reserve.

Polish Financial Supervision Authority information in respect on dividend policy in the second half of 2021 and the individual stress test add-on used in the dividend policy.

The Management Board of Santander Bank Polska S.A announced that on 2 July 2021 the Bank received a letter from the Polish Financial Supervision Authority regarding the dividend policy of commercial banks for H2 2021, providing for the conditions to be satisfied by banks for dividend payout in the amount of up to 50%, 75% and 100% of net profit respectively adopted by PFSA on June 24, 2021.

In their letter, the PFSA also communicated the individual add-on ST for the Bank. The add-on ST measures the Bank's sensitivity to an adverse macroeconomic scenario. It is defined as the difference between the total capital ratio (TCR) in the baseline scenario and the TCR in the stress scenario as at the end of the forecast period (2021), considering the supervisory adjustments. As a result of analyses made during the stress tests conducted by the PFSA , the individual add-on ST for the Bank was set, considering the supervisory adjustments, at 1.73%. The PFSA stated that the Bank's sensitivity is identical for both the payout from up to 75% and 100% of net profit.

As at 31st March 2021 the Bank meets the criteria to pay a dividend up to 100% of the Bank's net profit for the period from 1st January 2020 to 31st December 2020. After applying additional criteria regarding exposure arising from foreign currency home loans the dividend payout is adjusted by 70 p.p. As a consequence, the maximum dividend payout, after applying additional criteria, can reach up to 30% of profit for 2020.

Individual recommendation of the Polish Financial Supervision Authority regarding the fulfillment of the criteria for the payment of dividends from the net profit generated in 2020.

With reference to the current report of July 2, 2021, the Management Board of Santander Bank Polska S.A. announced that on July 20, 2021, it received an individual recommendation of the Polish Financial Supervision Authority regarding the Bank's dividend policy.

In accordance with the PFSA Recommendation, the Bank, as at 31 March 2021 Bank's quarterly data on own funds and as at 31 May 2021 the Bank's monthly data on the receivables portfolio, in terms of the basic criteria of the dividend policy, met the requirements qualifying for the payment of up to 100% of the dividend from the Bank's profit generated in the period from 1 January 2020 to 31 December 2020.

After applying additional criteria specified by the Polish Financial Supervision Authority in the dividend policy for the portfolio of foreign currency housing loans for households held by the Bank, the dividend rate at the individual and consolidated level was adjusted by a total of 70 p.p. Consequently, the maximum dividend yield after applying additional criteria may amount up to 30% of the profit generated in 2020.

In addition, the Polish Financial Supervision Authority recommended the Bank not to take other actions, in particular those outside the scope of current business and operating activities, which could result in a reduction of the capital base, including possible dividend payments from undistributed profit from previous year i.e. from 2019 and previous years and share buybacks.

Decision of Santander Bank Polska S.A. Management Board on the payout of an interim dividend for the accounting year from 1 January 2021 to 31 December 2021

The Management Board of Santander Bank Polska S.A. informed that pursuant to Article 349 of the Code of Commercial Companies and § 50(4) of the Bank's Statutes on 1 September 2021 it decided to pay out an interim dividend for the accounting year from 1 January 2021 to 31 December 2021 ("Interim Dividend") and to allocate PLN 220,728,918.24 to that payment.

The Interim Dividend has been paid of the capital reserve created for dividend payment, including interim dividends ("Dividend Reserve") by force of resolution no. 6 of the Annual General Meeting of 22 March 2021. Under Resolution no. 6 of 22 March 2021 referred to above, the Annual General Meeting allocated to the Dividend Reserve 50% of the net profit earned by the Bank in the accounting year from 1 January 2020 to 31 December 2020 (i.e. PLN 369,205,859.36).

On 1 September 2021, the Bank's Management Board received the Supervisory Board's approval for paying out an interim dividend.

102,189,314 (one hundred and two million, one hundred eighty nine thousand and three hundred fourteen) A, B, C, D, E, F, G, H, I, J, K, L, M, N and O shares give entitlement to the interim dividend.

The interim dividend per share is: PLN 2.16.

The ex-dividend date for the interim dividend was: 8 October 2021.

The date of the interim dividend payment was: 15 October 2021.

58. Events which occurred subsequently to the end of the reporting period

Pillar 2 (P2G) add-on imposed by the Polish Financial Supervision Authority

The Management Board of Santander Bank Polska S.A. informed that on 11 February 2022 it received a letter from the Polish Financial Supervision Authority with a recommendation on mitigating the risk of the Bank's operations by maintaining, at both non-consolidated and consolidated level, own funds to cover a capital add-on in order to absorb potential losses that may arise from stress conditions; the add-on should be maintained at 0.31 p.p. above the total capital ratio referred to in Article 92 (1)(c) of Resolution no. 575/2013, increased by the additional own funds requirement referred to in Article 138 (2)(2) of the Banking Law Act and the combined buffer requirement referred to in Article 55 (4) of the Macroprudential Supervision Act. The add-on should consist in full of Common Equity Tier 1 capital.

The Bank's total capital add-on recommended to absorb potential losses arising from stress conditions is comprised of: (i) the basic add-on of 0.31 p.p. recommended under Pillar 2 and (ii) a supplementary add-on of 0.00 p.p. recommended under Pillar 2.

Signatures of the persons representing the entity

Date	Name	Function	Signature
22.02.2022	Michał Gajewski	President	The original Polish document is signed with a qualified electronic signature
22.02.2022	Andrzej Burliga	Vice-President	The original Polish document is signed with a qualified electronic signature
22.02.2022	Juan de Porras Aguirre	Vice-President	The original Polish document is signed with a qualified electronic signature
22.02.2022	Arkadiusz Przybył	Vice-President	The original Polish document is signed with a qualified electronic signature
22.02.2022	Lech Gałkowski	Member	The original Polish document is signed with a qualified electronic signature
22.02.2022	Patryk Nowakowski	Member	The original Polish document is signed with a qualified electronic signature
22.02.2022	Carlos Polaino Izquierdo	Member	The original Polish document is signed with a qualified electronic signature
22.02.2022	Maciej Reluga	Member	The original Polish document is signed with a qualified electronic signature
22.02.2022	Dorota Strojkowska	Member	The original Polish document is signed with a qualified electronic signature
Signature of a person who is responsible for maintaining the accounting records
Date	Name	Function	Signature
22.02.2022	Wojciech Skalski	Financial Accounting Area Director	The original Polish document is signed with a qualified electronic signature

2.1. Statement of compliance

2.2. Basis of preparation of financial statements

2.3. New standards and interpretations or changes to existing standards or interpretations which can be applicable to Santander Bank Polska S.A. Group and are not yet effective and have not been early adopted

2.4 Standards and interpretations or changes to existing standards or interpretations which were applied for the first time in the accounting year 2021

2.5 Use of estimates

Key accounting estimates made by Santander Bank Polska S.A. Group

A credit-impaired assets

A significant increases in credit risk

Management provision covering risk resulting from COVID-19 pandemic

2.6. Judgements that may significantly affect the amounts recognized in the financial statements

2.7. Basis of consolidation

2.8. The most significant accounting policies

Santander Bank Polska S.A.

Santander Leasing S.A.

Santander Consumer Bank S.A.

Santander Consumer Multirent

52. Consolidated statement of cash flows- additional information

Factoring – risk participation agreements

Date

Name

Function

Signature

Signature of a person who is responsible for maintaining the accounting records

Date

Name

Function

Signature