image_cc2e3b64-1abc-4e78-8afd-341330678966

	FINANCIAL HIGHLIGHTS	PLN k		EUR k
		31.12.2022	31.12.2021 restated	31.12.2022	31.12.2021 restated
Consolidated financial statements of Santander Bank Polska Group
I	Net interest income	9 652 307	5 962 146	2 058 807	1 302 490
II	Net fee and commission income	2 566 418	2 487 085	547 409	543 328
III	Profit before tax	4 352 947	2 057 828	928 470	449 553
IV	Net profit attributable to owners of the parent entity	2 799 098	1 111 684	597 039	242 858
V	Total net cash flows	16 146 671	4 714 123	3 444 035	1 029 847
VI	Total assets	259 167 215	243 017 264	55 260 712	52 836 732
VII	Deposits from banks	4 031 252	4 400 138	859 560	956 677
VIII	Deposits from customers	196 496 806	185 373 443	41 897 867	40 303 832
IX	Total liabilities	229 051 877	215 803 688	48 839 395	46 919 965
X	Total equity	30 115 338	27 213 576	6 421 318	5 916 767
XI	Non-controlling interests	1 797 255	1 681 896	383 218	365 677
XII	Profit of the period attributable to non-controlling interests	209 677	140 722	44 708	30 742
XIII	Number of shares	102 189 314	102 189 314
XIV	Net book value per share in PLN/EUR	294,70	266,31	62,84	57,90
XV	Capital ratio	19,27%	19,05%*
XVI	Profit per share in PLN/EUR	27,39	10,88	5,84	2,38
XVII	Diluted earnings per share in PLN/EUR	27,39	10,88	5,84	2,38
XVIII	Declared or paid dividend per share in PLN/EUR	2,68**	2,16	0,57	0,47

*The data includes profits included in own funds, taking into account the applicable EBA guidelines

**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 31.12.2022: EUR 1 = PLN 4,6899 and as at 31.12.2021: EUR 1 = PLN 4,5994

· for profit and loss items – as at 31.12.2022 - the rate is calculated as the average of NBP exchange rates prevailing as at the last day of each month in 2022: EUR 1 = 4,6883 PLN ; 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 31.12.2022, FX denominated balance sheet positions were converted into PLN in line with the NBP FX table no. 252/A/NBP/2022 dd. 30.12.2022.

image_1e91441d-37fb-48e0-ad78-64cbaa2882d8

I. Consolidated income statement66

II. Consolidated statement of comprehensive income77

III. Consolidated statement of financial position88

IV. Consolidated statement of changes in equity99

V. Consolidated statement of cash flows1010

VI. Additional notes to consolidated financial statements1111

1. General information about issuer1111

2. Basis of preparation of consolidated financial statements1313

3. Operating segments reporting5151

4. Risk management5555

5. Capital management8383

6. Net interest income8787

7. Net fee and commission income8888

8. Dividend income8888

9. Net trading income and revaluation8989

10. Gains (losses) from other financial securities8989

11. Other operating income8989

12. Impairment allowances for expected credit losses9090

13. Employee costs9090

14. General and administrative expenses9191

15. Other operating expenses9292

16. Corporate income tax9292

17. Earnings per share9393

18. Cash and balances with central banks9393

19. Loans and advances to banks9393

20. Financial assets and liabilities held for trading9595

21. Hedging derivatives9797

22. Loans and advances to customers9797

23. Securitisation of assets105105

24. Investment securities110110

25. Investments in associates112112

26. Intangible assets114114

27. Goodwill115115

28. Property, plant and equipment116116

29. Right of use assets118118

30. Deferred tax assets119119

31. Fixed assets classified as held for sale121121

32. Other assets122122

33. Deposits from banks122122

34. Deposits from customers123123

35. Subordinated liabilities124124

36. Debt securities in issue124124

37. Provisions for financial liabilities and guarantees granted125125

38. Other provisions126126

39. Other liabilities127127

40. Share capital128128

41. Other reserve capital129129

42. Revaluation reserve130130

43. Non - controlling interests131131

44. Hedge accounting132132

45. Sell-buy-back and buy-sell-back transaction139139

46. Offsetting financial assets and financial liabilities140140

47. Fair value141141

48. Legal risk connected with CHF mortgage loans145145

49. Contingent liabilities152152

50. Assets and liabilities pledged as collateral154154

51. Information about leases155155

52. Consolidated statement of cash flows- additional information156156

53. Related parties157157

54. Acquisitions and disposals of investments in subsidiaries and associate161161

55. Employee benefits161161

56. Share based incentive scheme163163

57. Dividend per share163163

58. Events which occurred subsequently to the end of the reporting period164164

I. Consolidated income statement

for the period:		1.01.2022- 31.12.2022	1.01.2021- 31.12.2021* restated
Interest income and similar to interest		12 538 584	6 362 285
Interest income on financial assets measured at amortised cost		9 804 957	5 064 526
Interest income on financial assets measured at fair value through other comprehensive income		1 965 093	955 577
Income similar to interest on financial assets measured at fair value through profit or loss		96 144	17 231
Income similar to interest on finance leases		672 390	324 951
Interest expense		(2 886 277)	(400 139)
Net interest income	Note 6	9 652 307	5 962 146
Fee and commission income		3 173 217	2 972 553
Fee and commission expense		(606 799)	(485 468)
Net fee and commission income	Note 7	2 566 418	2 487 085
Dividend income	Note 8	10 639	112 848
Net trading income and revaluation	Note 9	126 748	267 954
Gains (losses) from other financial securities	Note 10	(23 051)	94 918
Gain/loss on derecognition of financial instruments measured at amortised cost	Note 48	(169 235)	337
Other operating income	Note 11	217 706	216 329
Impairment allowances for expected credit losses	Note 12	(894 685)	(1 124 188)
Cost of legal risk associated with foreign currency mortgage loans	Note 48	(1 739 088)	(1 430 975)
Operating expenses incl.:		(4 697 706)	(3 988 256)
-Staff, operating expenses and management costs	Note 13,14	(3 977 482)	(3 172 130)
-Amortisation of property, plant and equipment and Intangible assets		(381 645)	(411 399)
-Amortisation of right of use assets		(141 940)	(167 571)
-Other operating expenses	Note 15	(196 639)	(237 156)
Share in net profits (loss) of entities accounted for by the equity method		84 049	74 068
Tax on financial institutions		(781 155)	(614 438)
Profit before tax		4 352 947	2 057 828
Corporate income tax	Note 16	(1 344 172)	(805 422)
Consolidated profit for the period		3 008 775	1 252 406
of which:
-attributable to owners of the parent entity		2 799 098	1 111 684
-attributable to non-controlling interests		209 677	140 722
Net earnings per share	Note 17
Basic earnings per share (PLN/share)		27,39	10,88
Diluted earnings per share (PLN/share)		27,39	10,88

*Details in note 2.5.

II. Consolidated statement of comprehensive income

	for the period:	1.01.2022-31.12.2022	1.01.2021-31.12.2021
Consolidated profit for the period		3 008 775	1 252 406
Items that will be reclassified subsequently to profit or loss:		240 999	(2 805 251)
Revaluation and sales of debt financial assets measured at fair value through other comprehensive income gross*	Note 24 and 42	644 459	(3 425 571)
Deferred tax		(122 447)	650 859
Revaluation of cash flow hedging instruments gross	Note 42 and 50	(346 930)	(37 702)
Deferred tax		65 917	7 163
Items that will not be reclassified subsequently to profit or loss:		17 123	426 257
Revaluation of equity financial assets measured at fair value through other comprehensive income gross	Note 24 and 42	21 032	518 751
Deferred and current tax		(3 996)	(98 352)
Provision for retirement benefits – actuarial gains/losses gross	Note 42 and 55	124	7 216
Deferred tax		(37)	(1 358)
Total other comprehensive income, net		258 122	(2 378 994)
TOTAL COMPREHENSIVE INCOME FOR THE PERIOD		3 266 897	(1 126 588)
Total comprehensive income attributable to:
- owners of the parent entity		3 075 280	(1 220 899)
- non-controlling interests		191 617	94 311

* in the reporting period the Bank changed the classification of specific bonds portfolio - details in note 24

III. Consolidated statement of financial position

	as at:	31.12.2022	31.12.2021* restated	1.01.2021* restated
ASSETS
Cash and balances with central banks	Note 18	10 170 022	8 438 275	5 489 303
Loans and advances to banks	Note 19	9 577 499	2 690 252	2 926 522
Financial assets held for trading	Note 20	6 883 616	4 020 117	3 182 769
Hedging derivatives	Note 21	549 177	163 177	7 654
Loans and advances to customers incl.:	Note 22	152 508 692	146 391 345	141 436 291
- measured at amortised cost		137 888 696	133 378 724	129 357 246
- measured at fair value through other comprehensive income		2 628 660	1 729 848	1 556 791
- measured at fair value through profit and loss		239 694	553 830	892 226
- from finance leases		11 751 642	10 728 943	9 630 028
Buy-sell-back transactions		13 824 606	453 372	293 583
Investment securities incl.:	Note 24	55 371 137	71 866 260	66 783 434
- debt securities measured at fair value through other comprehensive income**		39 539 535	70 064 796	65 700 052
- debt securities measured at fair value through profit and loss		64 707	116 977	110 155
- debt investment securities measured at amortised cost**		15 499 348	1 421 272	-
- equity securities measured at fair value through other comprehensive income		204 299	259 788	857 331
- equity securities measured at fair value through profit and loss		63 248	3 427	115 896
Assets pledged as collateral	Note 50	2 318 219	534 437	657 664
Investments in associates	Note 25	921 495	932 740	998 397
Intangible assets	Note 26	740 756	692 802	708 356
Goodwill	Note 27	1 712 056	1 712 056	1 712 056
Property, plant and equipment	Note 28	688 262	732 909	803 429
Right of use assets	Note 29	497 352	517 102	710 657
Current income tax assets		-	216 884	-
Deferred tax assets	Note 30	2 098 733	2 383 710	1 996 552
Fixed assets classified as held for sale	Note 31	5 973	4 817	11 901
Other assets	Note 32	1 299 620	1 267 009	1 030 287
Total assets		259 167 215	243 017 264	228 748 855
LIABILITIES AND EQUITY
Deposits from banks	Note 33	4 031 252	4 400 138	5 373 312
Hedging derivatives	Note 21	1 979 089	1 762 334	1 775 098
Financial liabilities held for trading	Note 20	7 108 826	3 878 081	3 030 340
Deposits from customers	Note 34	196 496 806	185 373 443	171 522 255
Sell-buy-back transactions	Note 45	2 324 926	510 277	653 687
Subordinated liabilities	Note 35	2 807 013	2 750 440	2 754 605
Debt securities in issue	Note 36	9 330 648	12 805 462	11 241 312
Lease liabilities	Note 51	419 965	452 499	624 690
Current income tax liabilities		80 751	-	79 049
Deferred tax liability		281	-	-
Provisions for financial liabilities and guarantees granted	Note 37	61 869	60 811	64 541
Other provisions	Note 38	627 311	499 913	389 661
Other liabilities	Note 39	3 783 140	3 310 290	2 582 315
Total liabilities		229 051 877	215 803 688	200 090 865
Equity
Equity attributable to owners of the parent entity		28 318 083	25 531 680	26 994 750
Share capital	Note 40	1 021 893	1 021 893	1 021 893
Other reserve capital	Note 41	23 858 400	22 178 344	21 296 994
Revaluation reserve	Note 42	(1 131 335)	(1 354 715)	1 839 292
Retained earnings		1 770 027	2 574 474	1 799 404
Profit for the period		2 799 098	1 111 684	1 037 167
Non-controlling interests in equity	Note 43	1 797 255	1 681 896	1 663 240
Total equity		30 115 338	27 213 576	28 657 990
Total liabilities and equity		259 167 215	243 017 264	228 748 855

* details are described in Note 2.5

** in the reporting period the Bank changed the classification of specific bonds portfolio - details in Note 24

IV. Consolidated st atement of changes in equity

Equity attributable to owners of parent entity

Consolidated statement of changes in equity 1.01.2022 - 31.12.2022	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	22 178 344	(1 354 715)	3 686 158	25 531 680	1 681 896	27 213 576
Total comprehensive income	-	-	276 182	2 799 098	3 075 280	191 617	3 266 897
Consolidated profit for the period	-	-	-	2 799 098	2 799 098	209 677	3 008 775
Other comprehensive income	-	-	276 182	-	276 182	(18 060)	258 122
Profit allocation to other reserve capital	-	1 680 056	-	(1 680 056)	-	-	-
Dividend payment	-	-	-	(273 867)	(273 867)	(76 258)	(350 125)
Share-based payment	-	-	-	-	-	-	-
Transfer of revaluation of equity financial assets measured at fair value through other comprehensive income	-	-	(37 792)	37 792	-	-	-
Other changes	-	-	(15 010)	-	(15 010)	-	(15 010)
As at the end of the period	1 021 893	23 858 400	(1 131 335)	4 569 125	28 318 083	1 797 255	30 115 338

.

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)
Dividend payment	-	-	-	-	-	(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

V. Consolidated statement of cash flows

for the period	1.01.2022-31.12.2022	1.01.2021-31.12.2021* restated
Cash flows from operating activities
Profit before tax	4 352 947	2 057 828
Adjustments for:
Share in net profits of entities accounted for by the equity method	(84 049)	(74 068)
Depreciation/amortisation	523 585	578 970
Net gains on investing activities	26 502	(84 139)
Interest accrued excluded from operating activities	(1 322 372)	(666 017)
Dividends	(86 460)	(224 269)
Impairment losses (reversal)	9 585	64 941
Changes in:
Provisions	128 456	106 522
Financial assets / liabilities held for trading	327 586	26 158
Assets pledged as collateral	373 590	123 227
Hedging derivatives	(232 395)	(128 911)
Loans and advances to banks	(3 011 899)	(32 369)
Loans and advances to customers	(15 456 016)	(10 379 954)
Deposits from banks	963 275	(1 618 367)
Deposits from customers	13 403 051	15 506 863
Buy-sell/ Sell-buy-back transactions	1 858 626	(274 182)
Other assets and liabilities	414 484	625 390
Interest received on operating activities	9 998 507	5 391 466
Interest paid on operating activities	(2 642 782)	(85 022)
Paid income tax	(818 322)	(925 151)
Net cash flows from operating activities	8 725 899	9 988 916
Cash flows from investing activities
Inflows	18 876 361	15 787 343
Sale/maturity of investment securities	17 351 882	14 424 187
Sale of intangible assets and property, plant and equipment	54 218	88 314
Dividends received	86 460	224 269
Interest received	1 383 801	1 050 573
Outflows	(5 431 137)	(21 095 319)
Purchase of investment securities	(4 982 096)	(20 670 962)
Purchase of intangible assets and property, plant and equipment	(449 041)	(424 357)
Net cash flows from investing activities	13 445 224	(5 307 976)
Cash flows from financing activities
Inflows	10 976 551	17 810 873
Debt securities in issue	5 426 350	11 363 650
Drawing of loans	5 550 201	6 447 223
Outflows	(17 001 003)	(17 777 690)
Debt securities buy out	(9 088 033)	(9 706 612)
Repayment of loans and advances	(6 866 749)	(7 388 946)
Repayment of lease liabilities	(163 765)	(188 317)
Dividends to shareholders	(350 125)	(296 384)
Interest paid	(532 331)	(197 431)
Net cash flows from financing activities	(6 024 452)	33 183
Total net cash flows	16 146 671	4 714 123
Cash and cash equivalents at the beginning of the accounting period	18 346 368	13 632 245
Cash and cash equivalents at the end of the accounting period**	34 493 039	18 346 368

* details are described in Note 2.5

** details are described in Note 52

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:

	Subsidiaries	Registered office	[%] of votes on AGM at 31.12.2022	[%] of votes on AGM at 31.12.2021
1.	Santander Finanse sp. z o.o.	Poznań	100%	100%
2.	Santander Factoring sp. z o.o.	Warszawa	100% of AGM votes are held by Santander Finanse sp. z o.o.	100% of AGM votes are held by Santander Finanse sp. z o.o.
3.	Santander Leasing S.A.	Poznań	100% of AGM votes are held by Santander Finanse sp. z o.o.	100% of AGM votes are held by Santander Finanse sp. z o.o.
4.	Santander Leasing Poland Securitization 01 ⁸⁾	Dublin	-	subsidiary of Santander Leasing S.A.
5.	Santander Inwestycje sp. z o.o.	Warszawa	100%	100%
6.	Santander F24 S.A.	Poznań	100% of AGM votes are held by Santander Finanse sp. z o.o.	100% of AGM votes are held by Santander Finanse sp. z o.o.
7.	Santander Towarzystwo Funduszy Inwestycyjnych S.A. ¹⁾	Poznań	50%	50%
8.	Santander Consumer Bank S.A.	Wrocław	60%	60%
9.	Santander Consumer Finanse sp. z o.o.²⁾	Warszawa	100% of AGM votes are held by Santander Consumer Bank S.A.	100% of AGM votes are held by Santander Consumer Bank S.A.
10.	PSA Finance Polska sp. z o.o. ³⁾	Warszawa	50% of AGM votes are held by Santander Consumer Bank S.A. and 50% of AGM votes are held by Banque PSA Finance S.A.	50% of AGM votes are held by Santander Consumer Bank S.A. and 50% of AGM votes are held by Banque PSA Finance S.A.
11.	PSA Consumer Finance Polska sp. z o.o. ³⁾	Warszawa	100% of AGM votes are held by PSA Finance Polska sp. z.o.o.	100% of AGM votes are held by PSA Finance Polska sp. z.o.o.
12.	Santander Consumer Multirent sp. z o.o.	Wrocław	100% of AGM votes are held by Santander Consumer Bank S.A.	100% of AGM votes are held by Santander Consumer Bank S.A.
13.	SCM POLAND AUTO 2019-1 DAC ⁴⁾	Dublin	subsidiary of Santander Consumer Multirent S.A.	subsidiary of Santander Consumer Multirent S.A.
14.	Santander Consumer Financial Solutions Sp. z o.o. ⁵⁾	Wrocław	subsidiary of Santander Consumer Multirent S.A.	subsidiary of Santander Consumer Multirent S.A.
15	S.C. Poland Consumer 16-1 sp.z o.o. ⁶⁾	Warszawa	-	subsidiary of Santander Consumer Bank S.A
16.	S.C. Poland Consumer 23-1 DAC. ⁷⁾	Dublin	subsidiary of Santander Consumer Bank S.A.	subsidiary of Santander Consumer Bank S.A.

1. The owners of Santander Towarzystwo Funduszy Inwestycyjnych S.A. (Santander TFI S.A.), i.e. Santander Bank Polska S.A. and Banco Santander S.A., are members of global Santander Group and hold an equal stake of 50% in the company's share capital. In practice, Santander Bank Polska S.A. exercises control over Santander TFI S.A. within the meaning of the International Financial Reporting Standards (IFRS) because it has a real impact on the company’s operations and financial performance as its main business partner and distributor of investment products.

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 16-1 sp. z o.o., was 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 companie is 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 2022, SC Poland Consumer 16-1 Sp. z o.o., a company set up to execute that transaction, was not controlled by the Group as at 31 December 2022.

7. On 17 June 2022, SC Poland 23-1 Designated Activity Company with its registered office in Dublin was incorporated under Irish law. It is a special purpose vehicle established to securitise the retail loan portfolio. The company is controlled by Santander Consumer Bank S.A. and its shareholder is a legal person that is not connected with the Group

8.Due to the final settlement of the securitization transaction, Santander Bank Polska S.A. lost control over Santander Leasing Poland Securitization 01 Designated Activity Company with its registered office in Dublin in 2022, a special purpose vehicle. The entity had no capital ties with Santander Leasing S.A., which controlled it in accordance with the conditions set out in IFRS 10.7. On December 8, 2022, the company was put into liquidation.

Associates:

	Associates	Registered office	[%] of votes on AGM at 31.12.2022	[%] of votes on AGM at 31.12.2021
1.	POLFUND - Fundusz Poręczeń Kredytowych S.A.	Szczecin	50%	50%
2.	Santander - Allianz Towarzystwo Ubezpieczeń S.A. *	Warszawa	49%	49%
3.	Santander - Allianz Towarzystwo Ubezpieczeń na Życie S.A.*	Warszawa	49%	49%

*On 21 May 2022, following the purchase of shares held by Aviva International Holdings Limited by Allianz Group, Santander Aviva insurance companies were renamed Santander Allianz Towarzystwo Ubezpieczeń S.A. and Santander Allianz Towarzystwo Ubezpieczeń na Życie S.A.

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 2022, and 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 21.02.2023.

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 current situation in Ukraine and has determined that it 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 measurement rules:

Item	Balance sheet valuation rules
Held-for-trading financial instruments	Fair value through profit or loss
Loans and advances to customers which meet the contractual cash flows test	Amortized cost
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-trading	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
Right of use assets ( IFRS 16)	Initial measurement 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 2021, except for changes in accounting standards p. 2.4 and changes in accounting policy descibed in p. 2.5.

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
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 Group considered the impact of the standard on the valuation of investments in associates and performance guarantee. The Group assesses this impact on the consolidated financial statements as insignificant.
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	The amendment concern accounting policy disclosures with regard to the scope of such disclosures.	1 January 2023	The amendment will have a significant impact on disclosures and information presented in consolidated financial statements.
Amendments to IAS 1	The amendments affect requirements for the presentation of liabilities. Specifically, they clarify one of the criteria for classifying a liability as non-current.	1 January 2024	The amendment will not have a significant impact on consolidated financial statements.*
Amendments to IFRS 16	Change in the calculation of the lease liability in sale and leaseback transactions.	1 January 2024	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 2022

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 financial asset. For IFRS 16 an illustrative example for lease incentives treatments was changed, not to cause confusion.	1 January 2022	The amendment does 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 does 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 does not have a significant impact on consolidated financial statements.
Amendments to IFRS 3 Business combinations	IFRS 3 "Business Combinations" outlines the accounting when an acquirer obtains control of a business (e.g. an acquisition or merger). Such business combinations are accounted for using the 'acquisition method', which generally requires assets acquired and liabilities assumed to be measured at their fair values at the acquisition date.	1 January 2022	The amendment does not have a significant impact on consolidated financial statements.

2.5 Comparability of previous periods

Change (1): Legal risk related to the mortgage loans portfolio denominated in/ indexed to CHF.

Based on the analysis, due to the applicable legal situation related to mortgage loans portfolio denominated and indexed in foreign currencies, and inability to recover all contractual cash flows risk materialisation, the Group decided to change the accounting policy for their recognition, starting from 1 January 2022.

Prior to the amendment, the legal risk of this portfolio was recognized in accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets. From 1 January 2022, the Group decided to apply IFRS 9 Financial Instruments.

As of 1 January 2022, the Group decided to reduce the gross carrying amount of mortgage loans denominated in/ indexed to foreign currencies in line with IFRS 9 (IFRS 9 paragraph B5.4.6). If there is no gross exposure or if the existing exposure is insufficient to cover loss, the provision is recognised in accordance with IAS 37.

Taking into consideration the significance of portfolio`s legal risk cost and in accordance with paragraph 29 of IAS 1 Presentation of financial statements, the Group decided to present a separate line in the consolidated income statement “Cost of legal risk associated with foreign currency mortgage loans”, which presents the overall impact of the portfolio's legal risk on the income statement.

The change in accounting policy was intended to provide users of financial statements with more useful information on the impact of the legal risk of the portfolio of loans denominated and indexed in foreign currencies on the financial position, financial result and cash flows of the Group.

The change also aligned the approach used in the Group's financial statements with the market practice observed in this respect.

The introduced change in accounting policy did not affect the amount of the Group's net assets in the comparative period, i.e. as of 1 January 2021 and 31 December 2021.

Changes (2): Changes in the presentation of selected items of the income statement and the statement of financial position

To present the financial position and financial performance of the Group in the best possible way, as well as to provide the highest value for the users of the Group's financial statements, the following items were presented separately:

(a) "Income similar to interest on finance leases” in the consolidated income statement and "Loans and advances from finance leases" in the consolidated statement of financial position;

(b) “Gain/loss on derecognition of financial instruments measured at amortised cost" in the consolidated income statement

Consolidated income statement

	for the period: 1.01.2021 - 31.12.2021
	before	adjustment (1)	adjustment (2)	after
Interest income and similar to interest	6 362 584	-	(299)	6 362 285
Interest income on financial assets measured at amortised cost	5 389 776	-	(325 250)	5 064 526
Interest income on financial assets measured at fair value through other comprehensive income	955 577	-	-	955 577
Income similar to interest on financial assets measured at fair value through profit or loss	17 231	-	-	17 231
Income similar to interest on finance leases	-	-	324 951	324 951
Interest expense	(400 139)	-	-	(400 139)
Net interest income	5 962 445	-	(299)	5 962 146
Fee and commission income	2 972 591	-	(38)	2 972 553
Fee and commission expense	(485 468)	-	-	(485 468)
Net fee and commission income	2 487 123	-	(38)	2 487 085
Dividend income	112 848	-	-	112 848
Net trading income and revaluation	267 954	-	-	267 954
Gains (losses) from other financial securities	94 918	-	-	94 918
Gain/loss on derecognition of financial instruments measured at amortised cost	-	-	337	337
Other operating income	284 294	(67 965)	-	216 329
Impairment allowances for expected credit losses	(1 124 188)	-	-	(1 124 188)
Cost of legal risk associated with foreign currency mortgage loans	-	(1 430 975)	-	(1 430 975)
Operating expenses incl.:	(5 487 196)	1 498 940	-	(3 988 256)
-Staff, operating expenses and management costs	(3 172 130)	-	-	(3 172 130)
-Amortisation of property, plant and equipment and Intangible assets	(411 399)	-	-	(411 399)
-Amortisation of right of use asset	(167 571)	-	-	(167 571)
-Other operating expenses	(1 736 096)	1 498 940	-	(237 156)
Share in net profits (loss) of entities accounted for by the equity method	74 068	-	-	74 068
Tax on financial institutions	(614 438)	-	-	(614 438)
Profit before tax	2 057 828	-	-	2 057 828
Corporate income tax	(805 422)	-	-	(805 422)
Consolidated profit for the period	1 252 406	-	-	1 252 406
of which:
-attributable to owners of the parent entity	1 111 684	-	-	1 111 684
-attributable to non-controlling interests	140 722	-	-	140 722
Net earnings per share
Basic earnings per share (PLN/share)	10,88	-	-	10,88
Diluted earnings per share (PLN/share)	10,88	-	-	10,88

1) Adjustment resulting from changes in accounting policy

2) Adjustment resulting from changes in the presentation

Consolidated statement of financial position

	as at: 31.12.2021
	before	adjustment (1)	adjustment (2)	after
Loans and advances to customers incl.:	148 250 421	(1 859 076)	-	146 391 345
- measured at amortised cost	145 966 743	(1 859 076)	(10 728 943)	133 378 724
- from finance leases	-	-	10 728 943	10 728 943
Total assets	244 876 340	(1 859 076)	-	243 017 264
Other provisions	2 358 989	(1 859 076)	-	499 913
Total liabilities	217 662 764	(1 859 076)	-	215 803 688

1) Adjustment resulting from changes in accounting policy

2) Adjustment resulting from changes in the presentation

	as at: 1.01.2021
	before	adjustment (1)	adjustment (2)	after
Loans and advances to customers incl.:	141 998 745	(562 454)	-	141 436 291
- measured at amortised cost	139 549 728	(562 454)	(9 630 028)	129 357 246
- from finance leases	-	-	9 630 028	9 630 028
Total assets	229 311 309	(562 454)	-	228 748 855
Other provisions	952 115	(562 454)	-	389 661
Total liabilities	200 653 319	(562 454)	-	200 090 865

1) Adjustment resulting from changes in accounting policy

2) Adjustment resulting from changes in the presentation

Consolidated statement of cash flows

	for the period: 1.01.2021 - 31.12.2021
	before	adjustment (1)	after
Changes in:
Provisions	1 403 144	(1 296 622)	106 522
Loans and advances to customers	(11 676 576)	1 296 622	(10 379 954)

1) Adjustment resulting from changes in accounting policy

2.6 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

· Estimates of risk arising from mortgage loans in foreign currencies

· Estimates of the impact of payment deferrals under the Crowdfunding Act for business and support to borrowers

· Estimates of the return of increased margin in period till mortgage collateral is registered by court

· Estimates of commission reimbursement for mortgage loans in the event of early repayment

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 whether/when a significant increase in credit risk occurred;

· determination of any forward-looking information 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 rating 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 orginated 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 stage 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.

Changes in the classification resulting from Recommendation R

From January 2022, the Group adjusted the rules of exposure classification to the new guidelines resulting from the KNF recommendation. The main changes in the classification of exposures relate to the situation where:

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

· 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 classification into a stage 2

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 credit 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 the course of the decision process as well as in the 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 stage 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 (annualized) of the probability of default
mortgage loans				3.08%
consumer loans				14.32%
bussines loans				8.10%

The fact that the exposure is supported by the Borrowers' Support Fund is reported as a forborne and a significant increase in credit risk (Stage 2), and in justified cases (previously identified impairment, a delay in repayment over 30 days, subsequent forbearance, no possibility to service the debt according to the current schedule) exposure is classified in Stage 3.

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 case of significant increase of credit risk since initial recognition.

ECL measurement

Another key feature required 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 information 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 Group'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

The scenario was built under assumption that Poland loses about 10% of its natural gas supply, impacting its economy mostly in 1Q23, when the gas consumption is the highest due to seasonal pattern. Scenario was built under the assumption that COVID-19 will not be having a significant impact on the economy in the upcoming years.

In 2Q22 the economy in Poland entered a recession caused by disruptions related to the war in Ukraine, energy and interest rate shock, which according to the baseline scenario, will be prolonged until early 2023, amid worsening global economic growth and worsening situation in European energy markets. Later in 2023 gradual rebound in economic activity is expected. 2023 GDP growth is expected at 0.7%. CPI is to remain elevated, and is expected to be 11.7% in 2023.

The NBP will continue with interest rate increases, bringing the main rate from 1.75% at the end of 2021 to 7.50% in 1Q23. Further on, the NBP will reduce interest rates to 5.25%, but keep them at elevated level due to heightened inflation.

Best case scenario

The upside scenario was built under an assumption that the economy will quickly recover from war-related shock and EU funds will be disbursed without further delays. No new coronavirus waves or lockdowns will appear. EU funds will be unlocked and supply disruptions will disappear.

In 2023 the economy is expected to grow by 2.9% and jump by 6.1% in the following year. Strong growth will fuel the already elevated inflation, averaging 9.5% in 2023. The NBP will continue its tightening cycle. Interest rates are expected to climb to 8.00% at the end of 2023 and then to decline to the level of 6.00% in 1Q25, as inflation will be going down.

Worst case scenario

The downside scenario was built under the assumption that the impact of war in Ukraine and disruptions in energy markets will be longer lasting, coupled with prolonged blockade of EU funds disbursement and forfeit or their larger part.

In this scenario in 2023 the economy is expected to decline by 1.8% and then to rebound by 1.0% in 2024. Despite slower growth, CPI inflation is expected to remain elevated and to average 13.9% in 2023 and 8.2% in 2024.

Deterioration of the economic outlook will force the NBP to decease interest rates , so after applying rate increases bringing the reference rate to 7.25% in 2Q23 rates will go down to 3.50% in 2Q25.

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

Scenario as at 31.12.2022		baseline		best case		worst case
likehood		60%		20%		20%
		2023	average, next 3 years	2023	average, next 3 years	2023	average, next 3 years
GDP	YoT	0,7%	3,4%	2,9%	4,6%	-1,8%	1,8%
WIBOR 3M	average	6,8%	5,8%	9,2%	6,7%	7,8%	4,3%
unemployment rate	% active	3,6%	3,7%	3,0%	2,8%	3,8%	4,9%
CPI	YoY	11,7%	5,9%	15,6%	5,4%	13,9%	4,4%
EURPLN	period-end	4,69	4,62	4,6	4,48	4,81	4,81

Scenario as at 31.12.2021		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

Management ECL adjustments

In the fourth quarter of 2022, in addition to the ECL resulting from the complex calculation model implemented in the system, Santander Bank Polska S.A. Group reviewed management adjustments, updating the risk level with current and expected future events, which resulted in:

· Creation of a management provision for retail mortgage portfolio in the amount of PLN 14 100 k, the risk of which may increase after the cessation of aid measures

· Creation of a management provision for SME portfolio in the amount of PLN 30 000 k, due to additional risk of external sale (its share has increased significantly) not covered by PD model

· Creation of a management provision for corporate portfolio in the amount of PLN 37 000 k, due to estimated impact of rising costs (including energy) on the portfolio's risk profile and additional risk in sectors involved in the sale and production of durable goods for household use

· Creation of a management provision for SME leasing portfolio in the amount of PLN 20 000 k, due to estimated impact of future changes in rating model.

· Other management adjustments due to model and system changes and updating of macroeconomic scenarios were withdrawn.

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					change in ECL level
scenario	31.12.2022				31.12.2021
	individuals	mortgage loans	business	Total	Total
best case	52,4	3,3	25,9	81,6	20,6
wort case	(40,3)	(3,0)	(33,9)	(77,2)	(20,0)

Data for 2021 only for Santander Bank Polska S.A.

Based on the GDP indicator as the main factor determining the condition of the economy, Santander Bank Polska S.A. Group estimates that if the target level of gross domestic production will be reduced by 1% in 2023, this would translate into an increase in expected credit losses in the amount of PLN 31 990 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 a 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 the below table.

	additional expected credit loss (PLN m)
reclassification from stage 1 to stage 2	individual	mortgage	corporate	Total 31.12.2022	Total 31.12.2021
1%	22,1	8,9	5,3	36,3	46,5
5%	114,5	42,0	32,6	189,2	230,9
10%	226,7	67,2	62,2	356,2	427,5

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 36 300 k according to the portfolio as of 31 December 2022 for Santander Bank Polska S.A. Group (in relation to PLN 46 500 k as at 31 December 2021).

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 .

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 debt 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 in accordance with IAS 37. The provisions have been estimated considering the likelihood of unfavourable verdict and amount to be paid, and their impact is presented in 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.

Due to their specific nature, estimates related to legal claims of mortgage loans in foreign currencies are described below.

Estimates of risk arising from mortgage loans in foreign currencies

Due to the revolving legal situation related to mortgage loans portfolio denominated and indexed to foreign currencies, and inability to recover all contractual cash flows risk materialisation, Group estimates impact of legal risk on future cash flows.

Gross book value adjustment resulting from legal risk is estimated based on a number of assumptions, taking into account: a specific time horizon and a number of probabilities such as:

· the probability of possible settlements and

· the probability of submitting claims by borrowers and

the probability in terms of the number of disputeswhich are described in more details in Note 48.

In mid-2022, the Group prepared a settlement scenario which reflects the level of losses for future settlements.

Legal risk is estimated individually for each exposure in the event of litigation and in terms of portfolio in the absence of such.

As explained in the accounting policies, Santander Bank Polska Group accounts for the impact of legal risk as an adjustment to the gross book value of the mortgage loans portfolio. If there is no credit exposure or its value is insufficient, the impact of legal risk is presented as a provision according to IAS 37.

The result on legal risk is presented in a separate position in income statement “Cost of legal risk associated with foreign currency mortgage loans” and “Gain/loss on derecognition of financial instruments measured at amortised cost”.

In 2022, the Group recognized PLN 1 739 088 k as cost of legal risk related to mortgage loans in foreign currencies and PLN 183 256 k as a cost of signed settlements.

The Group will continue to monitor this risk in subsequent reporting periods.

Details presenting the impact of the above-mentioned risk on financial statement, assumptions adopted for their calculation, scenario description and sensitivity analysis are contained in notes 48 and 49, respectively.

Estimates of the impact of payment deferrals under the Crowdfunding Act for business and support to borrowers

On July 14, 2022, the President of the Republic of Poland signed the Act on crowdfunding for business ventures and assistance to borrowers, aimed at support for people repaying mortgage loans in a difficult financial situation in the form of the so-called payment holidays, governing the scope of assistance and borrowers who can benefit from such assistance.

Based on the conditions defined in the act, the size of the portfolio for which payment deferral may occur and assumptions regarding the number of eligible customers who will benefit from deferred installments, the Group made one-off estimate of the impact of the holidays on the Group's financial result at the time of entry into force of the Act and recognized it as a decrease in the carrying amount of the mortgage loan portfolio and a decrease in interest income. The estimate for the so-called credit holidays was updated in Q4 2022.

As at 31 December 2022, the estimated impact was approximately PLN 1,544,439 k and already included all requested deferrals of installments as well as potential requests for deferrals that may still be submitted by customers in 2023.

At the end of December 2022, the number of loans for which installment deferrals were applied for amounted 125,855.

The current level of participation (in terms of volume) for installments possible to be deferred in 2022 was 61.2%. The participation assumption (in terms of volume) for installments possible to be deferred in 2023 is 63.8%. The average level assumed by the Group is 62.5%.

Below is an analysis of the change in the estimate in the event that the number of customers requesting a deferral of all possible installments increases by 5 b.p and 10 b.p,respectively.

	additional estimate for so-called payment holidays (mPLN)
increase in hit ratio		31.12.2022
5b.p		125,5
10b.p		252,0

The final impact on the Group's financial result will depend, inter alia, on the number of clients who will use these support solutions, the number of installments deferred by each of these clients and the moment they start taking advantage of deferral.

Estimates of the return of increased margin in period till mortgage collateral is registered by court

Due to the entry into force on 17 September 2022 of the Act of August 5, 2022 on the amendment to the Mortgage Loan Act and the supervision over mortgage brokers and agents, the Group, after making entry into the land and mortgage register is obliged for additional cost charged to, either reimburse the borrower for these costs or include them towards the repayment of the loan. The Act applies to contracts concluded from the date of its entry into force and to contracts concluded before the date of its entry into force, if the mortgage has not been entered by that date.

In 2022, the Group recognised a liability for reimbursement to individual customers of additional mortgage costs incurred until the mortgage collateral is established in the amount of PLN 37 800 k, which decreased interest income.

Estimates of commission reimbursement for mortgage loans in the event of early repayment

The Group analyzed the introduction of a proportional reduction of the total cost of the loan by a commission in the event of repayment of all or part of the mortgage loan before maturity (for contracts granted from 22.07.2017), taking into account the position of the Office of Competition and Consumer Protection in this respect and the received recommendation from the Polish Financial Supervision Authority, which assumed the reduction of the total cost of the loan by the commission charged for granting the loan, for the period by which the term of the agreement was shortened.

As a result, the Group decided to change the current approach, which assumed no reduction in the cost of the loan in the event of early repayment and recognised a liability for the reimbursement of commission to customers who already repaid the loan in the amount of PLN 40 500 k which decreased interest income.

In addition, the Group estimated the amount of potential returns for the portfolio of outstanding mortgage loans in the amount of PLN 36 600 k. This value includes the expected amount of overpayments in subsequent periods, third-party intermediary cost and the straight-line method of return. It is presented as an adjustment to the mortgage portfolio .

2.7 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, the 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 judgement was classified, as an investment in an associate as the ownership structure does not allow Santander Bank Polska S.A. to control and to jointly-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 of financial assets 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 contain 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 par amount, 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 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 assets 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.

However, contractual terms of these 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 is therefore not measured at amortised cost but 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.

2.8 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.

2.9 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.

Portfolio of mortgage loans denominated/indexed to foreign currencies

Santander Polska S.A. Group reduces the gross carrying amount of mortgage loans denominated/indexed to foreign currencies in accordance with IFRS 9 by the impact of legal risk for potential and existing disputes. In the absence of gross carrying amount or its insufficient value to cover, it records a provision in accordance with IAS 37.

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.

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 recognizes provisions for legal risk in accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets, where the estimated legal risk loss exceeds the gross value of the loan, and for settled loans,

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.

Gain/loss on derecognition of financial instruments measured at amortised cost

In the event of derecognition of an asset measured at amortized cost, Santander Bank Polska S.A. Group in this position presents the difference in value between financial instruments. The value of this item for 2022 relates almost entirely to settlements concluded for the portfolio of mortgage loans in foreign currencies. Upon concluding a settlement with a customer, the Group loses its rights to the foreign currency instrument and a new PLN instrument is created. In addition to settlements for the mortgage portfolio, this item presents significant modifications to other instruments, like individual and corporate loans.

Costs of legal risk of mortgage loans in foreign currencies

This income statement line presents the total impact of the legal risk of mortgage loans denominated/indexed to foreign currencies and concerns mainly changes in the amount of the adjustment for legal risk reducing the gross carrying amount of the exposure and/or changes in the amount of the provision for legal risk, and court judgments.

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, except for 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 telecommunication 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 2022 the following changes were introduced:

· 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.

· review of the items reported in ALM and Centre segment, as a result of which a part of the income, costs and balance sheet volumes was allocated to business segments. The change mainly concerns the allocation of equity, as well as the allocation of operating costs and depreciation.

· distinguishing of a separate line in P&L presentation related to the cost of legal risk associated with foreign currency mortgage loans

· split of the net fee and commission into income and expense

· reclassification of the provision for legal risk associated with the portfolio of foreign currency mortgage loans from the item Other Provisions to the item Receivables from customers (as a reduction of the gross balance sheet value). More details on the above reclassification are provided in the note 2.5.

Comparable data are adjusted accordingly.

In the part regarding Santander Bank Polska, the cost of legal risk connected with the portfolio of FX mortgage were presented in Retail Banking segment. Simultaneously, in the part regarding Santander Consumer Bank, the cost of legal risk connected with the portfolio of FX mortgage loans were presented in the Santander Consumer segment. More details regarding the above provisions are described in the note 48.

In the part regarding Santander Bank Polska, the liability for reimbursement of the mortgage loan fee due to partial and total early loan repayments, and the liability due to the return of additional costs of mortgage loans incurred by individual customers until the mortgage entry were presented in Retail Banking segment. More details are described in the note 2.6.

Contribution to fund under Institutional Protection Scheme (IPS) was divided by business Segments based on customer assets structure. More details regarding the above contribution are described in the note 14.

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

1.01.2022-31.12.2022	Segment Retail Banking *	Segment Business and Corporate Banking	Segment Corporate& Investment Banking	Segment ALM and Centre	Segment Santander Consumer	Total
Net interest income	4 011 980	1 728 890	713 214	1 886 810	1 311 413	9 652 307
incl. internal transactions	(3 123)	(4 211)	7 271	66 731	(66 668)	-
Fee and commission income	1 847 766	625 279	474 229	19 611	206 332	3 173 217
Fee and commission expense	(436 956)	(35 759)	(26 152)	(21 214)	(86 718)	(606 799)
Net fee and commission income	1 410 810	589 520	448 077	(1 603)	119 614	2 566 418
incl. internal transactions	199 575	125 175	(320 122)	(1 632)	(2 996)	-
Net other income	(118 399)	129 579	270 363	(209 520)	80 145	152 168
incl. internal transactions	5 766	105 268	(106 673)	(4 365)	4	-
Dividend income	9 626	-	938	-	75	10 639
Operating costs	(2 569 727)	(609 123)	(417 752)	(61 010)	(516 509)	(4 174 121)
incl. internal transactions	-	-	-	1 423	(1 423)	-
Depreciation/amortisation	(371 391)	(60 381)	(34 332)	-	(57 481)	(523 585)
Impairment losses on loans and advances	(629 068)	(198 721)	(33 780)	453	(33 569)	(894 685)
Cost of legal risk associated with foreign currency mortgage loans	(1 428 333)	-	-	-	(310 755)	(1 739 088)
Share in net profits (loss) of entities accounted for by the equity method	83 260	-	-	789	-	84 049
Tax on financial institutions	-	-	-	(752 334)	(28 821)	(781 155)
Profit before tax	398 758	1 579 764	946 728	863 584	564 112	4 352 947
Corporate income tax						(1 344 172)
Consolidated profit for the period						3 008 775
of which:
attributable to owners of the parent entity						2 799 098
attributable to non-controlling interests						209 677

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

Consolidated statement of financial position by business segments

31.12.2022	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	82 561 386	38 177 505	16 135 457	-	15 634 344	152 508 692
Investments in associates	874 763	-	-	46 732	-	921 495
Other assets	10 232 943	2 228 561	10 465 322	78 127 078	4 683 124	105 737 028
Total assets	93 669 092	40 406 066	26 600 779	78 173 810	20 317 468	259 167 215
Deposits from customers	126 640 137	40 730 094	14 913 094	3 863 549	10 349 932	196 496 806
Other liabilities	1 038 681	805 543	6 323 155	18 560 807	5 826 885	32 555 071
Equity	11 049 206	7 645 977	4 990 826	2 163 680	4 265 649	30 115 338
Total equity and liabilities	138 728 024	49 181 614	26 227 075	24 588 036	20 442 466	259 167 215

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

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	3 123 188	770 510	262 028	619 121	1 187 299	5 962 146
incl. internal transactions	(1 838)	(1 831)	3 824	10 149	(10 304)	-
Fee and commission income	1 758 023	568 604	426 860	1 676	217 390	2 972 553
Fee and commission expense	(345 545)	(30 511)	(20 884)	(2 924)	(85 604)	(485 468)
Net fee and commission income	1 412 478	538 093	405 976	(1 248)	131 786	2 487 085
incl. internal transactions	171 757	117 338	(283 004)	(3 133)	(2 958)	-
Other net income	94 141	67 964	211 125	143 042	63 266	579 538
incl. internal transactions	157	70 024	(66 059)	(3 746)	(376)	-
Dividend income	110 994	-	1 833	-	21	112 848
Operating costs	(2 053 628)	(439 542)	(326 996)	(83 559)	(505 561)	(3 409 286)
incl. internal transactions	-	-	-	2 831	(2 831)	-
Depreciation/amortisation	(424 996)	(66 819)	(32 159)	-	(54 996)	(578 970)
Impairment losses on loans and advances	(559 030)	(231 028)	(127 407)	10 120	(216 843)	(1 124 188)
Cost of legal risk associated with foreign currency mortgage loans	(1 157 849)	-	-	-	(273 126)	(1 430 975)
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	619 134	639 178	394 400	103 915	301 201	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	82 973 450	33 844 593	14 447 348	-	15 125 954	146 391 345
Investments in associates	886 796	-	-	45 944	-	932 740
Other assets	9 295 564	1 981 600	5 028 240	74 415 504	4 972 271	95 693 179
Total assets	93 155 810	35 826 193	19 475 588	74 461 448	20 098 225	243 017 264
Deposits from customers	125 698 755	38 826 413	8 513 493	3 051 554	9 283 228	185 373 443
Other liabilities	610 226	455 806	5 113 381	17 257 731	6 993 101	30 430 245
Equity	11 368 207	6 334 201	3 885 179	1 804 093	3 821 896	27 213 576
Total equity and liabilities	137 677 188	45 616 420	17 512 053	22 113 378	20 098 225	243 017 264

* 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 Responsible Banking and Corporate Culture Committee is the main forum to discuss issues concerning responsible banking, sustainable development, ESG and corporate culture. It sets the direction of strategic activities and monitors the related objectives. As part of the Committee, the ESG Forum has been established to analyse challenges, opportunities and risks related to the EU Sustainable Finance agenda, including ESG risks, plan activities and coordinate their implementation at the Bank, and to submit regular reports to the Responsible Banking and Corporate Culture Committee and the Bank’s Management Board.

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

. image_c91c6890-8468-4344-8cf5-f6bd49f6a0ab

The Bank has dedicated committees which are convened in crisis situations:

Gold Committee, which takes decisions in crisis situations affecting Santander Bank Polska Group: it recommends the Management Board to activate the Recovery Plan, activates liquidity and capital contingency plans, and activates business continuity plans and the communication plan (if not already implemented).

Silver Committee, the main special situations governance body following the activation of the contingency situation, which assesses the impact of that situation and coordinates activities as part of the special situation management, activates action plans (e.g. business continuity plans) and BAU restoration procedures, and draws lessons learned after the special situation is resolved.

Bronze Group, which is responsible for the identification of and prompt response to threats or events that may pose a risk to the normal functioning of the Subsidiary and/or the Group. It identifies new threats in cooperation with the committees which manage risks on a daily basis.

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 regularly reviews processes and procedures for measurement, management and monitoring of the Bank’s credit portfolio risk, adjusting them to the amended laws and regulatory requirements, especially to the KNF recommendations and the EBA guidelines.

Impact of the geopolitical situation (including the conflict in Ukraine) on credit risk measurement

In 2022, 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.

In 2022, the Group focused on the analysis of potential impact of the war in Ukraine and the changing macroeconomic environment on customers’ standing. The analysis of macroeconomic factors covered in particular inflation and interest rates, exchange rates, as well as gas and energy prices. The Group closely monitored risk indicators of individual credit portfolios and analysed the sensitivity of customers’ risk profile to changes in the economic and geopolitical environment. In addition, credit portfolios were stress tested in terms of the impact of individual factors and their combination. The Group reviewed the portfolio of customers doing business in Ukraine, Russia or Belarus and/or cooperating with companies from those countries, and identified customers with high exposure to negative impact of higher energy prices on the company’s standing.

These risks were reflected by modifications of ratings of entities, which directly translated into the level of provisions for expected credit losses and an additional management adjustment (described in the section Management provision of the level of allowances for expected credit losses of these financial statements). This portfolio is monitored on an ongoing basis. Specific strategies were developed with respect to such customers.

As at the date of preparation of the financial statements, the Group also identified deteriorating quality of the cash loan portfolio. The risk of mortgage loan portfolio is mitigated by the state payment deferral programme. However, high interest rates and lower real value of salaries due to high inflation have an increasingly negative impact on that portfolio. The impact of the above factors on the level of impairment losses are reflected by the Bank using scoring models, as well as through an additionally created management adjustment for mortgage loans (described in the section Management provision of the level of allowances for expected credit losses of these financial statements).

The overall quality of the credit portfolio is still assessed as satisfactory.

As part of regular reviews of ECL parameter models, the Group takes into account the latest macroeconomic projections, using its predictive models based on historical observations of relationships between those variables and risk parameters. ECL parameters were last updated in Q4 2022 to account for the impact of the conflict in Ukraine on the current economic situation and macroeconomic projections. The values of macroeconomic indicators included in the calculation of ECLs are presented in section ‘Allowances for expected credit losses in respect of financial assets’.

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 31.12.2022:

31.12.2022
Financial effect of collateral	Gross Amount	Allowance for impairment	Financial effect of collateral
Loans and advances to customers
individuals	28 107 261	(2 358 204)	(17 098)
housing loans	53 175 569	( 645 771)	(641 511)
business	61 207 015	(2 476 385)	(1 134 582)
Total balance sheet	142 489 845	(5 480 360)	(1 793 191)
Total off-balance sheet	34 341 126	(61 869)	(10 471)

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

31.12.2021
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	54 740 892	(799 862)	(482 576)
business	56 155 127	(2 375 653)	(886 530)
Total balance sheet	138 690 144	(5 436 033)	(1 369 116)
Total off-balance sheet	36 541 487	(60 811)	(7 537)

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.

Changes resulting from to the implementation of Recommendation R

The Group adjusted its rules for classification of credit exposures, estimation and recognition of expected credit losses and management of credit risk to the requirements arising from Recommendation R of the Polish Financial Supervision Authority (KNF). In particular:

· The classification of credit exposures was changed as follows:

o where the Bank has on-balance sheet exposures to the borrower which are more than 90 days past due and which exceed 20% of all on-balance sheet exposures to that borrower, all on-balance sheet and off-balance sheet exposures to that borrower are considered non-performing;

o where an exposure is more than 90 days past due but the materiality threshold for past due credit obligations is not met, the exposure is classified to Stage 2;

o POCI exposures are identified based on all customer’s exposures;

o if the Bank has learned about the submission of a request for any restructuring proceedings within the meaning of the Polish Restructuring Law Act, the Bank may classify the case to the non-performing loan portfolio.

In 2021, the Bank recognised a management adjustment of PLN 17,200k to account for the above changes. After they were implemented, the adjustment was derecognised.

· The Bank adjusted its parameter models for the calculation of expected credit losses (ECLs) as well as their validation and monitoring processes:

o Before the ECL parameter models are first used, the implementation process is validated.

o The Audit Committee is notified of any significant changes that are planned to be introduced.

o Backtesting results are reported more frequently.

· The Bank enhanced credit risk management and supervision:

o The Management Board and the Supervisory Board approve the regulations concerning the calculation of ECL allowances and regularly monitor results of that process.

o The member of the Bank’s Management Board in charge of risk management approves the level of ECL allowances.

o The Bank analysed and adjusted a range of internal regulations.

o Collateral for the selected credit exposures is monitored more frequently.

o The definition of a gross carrying amount applied by the Bank includes all interest on a credit exposure accrued in accordance with the loan agreement.

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.

The tables below present the quality of financial assets of Santander Bank Polska Group broken down into risk groups as at 31.12.2022 and in the comparative period. The portfolio consisis of loans and advances to clients and leasing portfolio.

31.12.2022		Loans and advances to individuals		Loans and advances to individuals- mortgage loans		Loans and advances to enterprises and lease receivables
	PD range	Balance sheet exposures gross	Off-balance sheet exposures	Balance sheet exposures gross	Off-balance sheet exposures	Balance sheet exposures gross	Off-balance sheet exposures
Stage 1	from 0,00% to <0,15%	2 209 604	2 619 908	33 906 229	798 710	4 657 638	8 261 975
	from 0,15% to <0,25%	1 308 918	678 789	2 319 464	70	5 566 562	3 012 551
	from 0,25% to <0,50%	1 460 334	63 504	8 515 167	116 796	18 567 622	8 779 277
	from 0,50% to <0,75%	5 124 484	385 904	2 185 049	56 034	11 523 157	6 217 799
	from 0,75% to <2,50%	9 284 214	501 791	2 339 481	37 048	17 151 243	8 195 133
	from 2,50% to <10,0%	4 875 820	156 918	620 587	23 627	4 836 911	1 072 975
	from 10,0% to <45,0%	478 645	17 253	168	-	1 864 057	12 146
	from 45,0% to <100,0%	5 167	33	-	-	9 071	76
	Total Stage 1	24 747 187	4 424 099	49 886 145	1 032 285	64 176 261	35 551 931
Stage 2	from 0,00% to <0,15%	77 747	5 554	490 961	-	73 265	3 978
	from 0,15% to <0,25%	59 112	3 984	74 931	-	116 979	2 785
	from 0,25% to <0,50%	153 003	1 980	345 812	-	363 149	-
	from 0,50% to <0,75%	252 270	3 877	90 102	-	458 069	45 873
	from 0,75% to <2,50%	765 481	20 042	158 996	1 755	1 944 798	147 725
	from 2,50% to <10,0%	653 775	35 550	185 070	7 391	1 412 308	335 737
	from 10,0% to <45,0%	380 558	2 161	5 377	72	912 393	61 037
	from 45,0% to <100,0%	26 198	-	-	-	-	-
	Total Stage 2	1 589 317	73 148	1 352 010	9 219	5 297 043	597 136

	Default period	EAD after credit risk mitigation and credit conversion factor applied
	Default period	Loans and advances to individuals	Loans and advances to individuals- mortgage loans	Loans and advances to enterprises and lease receivables
Stage 3	up to 12 months	1 073 412	431 624	1 215 199
	from 13 to 24 months	509 891	164 668	519 669
	from 25 to 36 months	317 856	87 239	400 179
	from 37 to 48 months	208 546	96 815	373 411
	from 49 to 60 months	113 532	70 331	118 742
	from 61 to 84 months	81 891	93 469	404 213
	above 84 months	24 189	71 616	458 276
POCI	up to 12 months	75 685	57 421	85 358
	from 13 to 24 months	24 575	13 407	38 832
	from 25 to 36 months	12 052	6 340	23 941
	from 37 to 48 months	4 681	7 284	146 277
	from 49 to 60 months	21 415	15 314	49 376
	from 61 to 84 months	17 428	16 555	15 695
	above 84 months	47 144	82 597	65 843

31.12.2021		Loans and advances to individuals		Loans and advances to individuals- mortgage loans		Loans and advances to enterprises and lease receivables
	PD range	Balance sheet exposures gross	Off-balance sheet exposures	Balance sheet exposures gross	Off-balance sheet exposures	Balance sheet exposures gross	Off-balance sheet exposures
Stage 1	from 0,00% to <0,15%	2 325 301	91 638	31 303 885	1 520 873	7 696 294	8 716 960
	from 0,15% to <0,25%	1 083 600	2 114 025	3 694 111	20 222	4 294 716	8 330 063
	from 0,25% to <0,50%	3 742 869	562 675	9 948 349	159 214	14 087 652	12 220 142
	from 0,50% to <0,75%	6 576 249	42 161	2 585 462	1	10 362 823	3 830 061
	from 0,75% to <2,50%	7 171 392	953 935	2 825 483	27 604	15 507 307	5 802 290
	from 2,50% to <10,0%	4 161 056	292 537	690 987	42 728	5 651 661	640 181
	from 10,0% to <45,0%	303 199	19 564	2 735	-	779 419	23 230
	from 45,0% to <100,0%	13 774	42	1 125	-	15 343	1 609
	Total Stage 1	25 377 440	4 076 577	51 052 136	1 770 642	58 395 214	39 564 537
Stage 2	from 0,00% to <0,15%	83 789	3 424	247 577	-	94 612	521
	from 0,15% to <0,25%	52 204	5 701	72 457	-	61 778	3 916
	from 0,25% to <0,50%	167 558	2 350	322 740	-	380 404	120
	from 0,50% to <0,75%	248 540	28 195	85 552	-	443 979	75 864
	from 0,75% to <2,50%	638 773	53 435	125 462	1 840	2 114 607	329 224
	from 2,50% to <10,0%	633 637	69 371	184 905	2 817	1 358 309	250 314
	from 10,0% to <45,0%	204 625	3 741	8 115	3	779 531	10 147
	from 45,0% to <100,0%	5 989	-	-	-	-	-
	Total Stage 2	2 035 115	166 218	1 048 082	4 661	5 246 366	670 107

	Default period	EAD after credit risk mitigation and credit conversion factor applied
	Default period	Loans and advances to individuals	Loans and advances to individuals- mortgage loans	Loans and advances to enterprises and lease receivables
Stage 3	up to 12 months	1 014 115	281 176	861 464
	from 13 to 24 months	714 891	198 772	756 127
	from 25 to 36 months	370 120	128 371	480 634
	from 37 to 48 months	177 226	97 602	187 729
	from 49 to 60 months	87 663	88 042	165 103
	from 61 to 84 months	58 246	94 605	556 266
	above 84 months	15 781	81 785	481 040
POCI	up to 12 months	41 842	30 790	17 344
	from 13 to 24 months	28 665	11 113	18 424
	from 25 to 36 months	10 873	9 590	52 466
	from 37 to 48 months	33 125	21 025	52 354
	from 49 to 60 months	12 238	11 793	13 074
	from 61 to 84 months	16 684	23 557	11 573
	above 84 months	60 908	129 767	74 705

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 31.12.2022 and in the comparative period:

		Loans and advances to customers measured at fair value through OCI
31.12.2022	PD range	Stage 1	Stage 2	Stage 3	Total

	od 0,00 do <0,15%	447 891	-	-	447 891
	od 0,15 do <0,25%	248 454	-	-	248 454
	od 0,25 do <0,50%	708 403	-	-	708 403
	od 0,50 do <0,75%	407 772	-	-	407 772
	od 0,75 do <2,50%	822 880	-	-	822 880
Gross amount		2 635 400	-	-	2 635 400
					-
Impairment		(6 740)	-	-	(6 740)
Net amount		2 628 660	-	-	2 628 660

		Loans and advances to customers measured at fair value through OCI
31.12.2021	PD range	Stage 1	Stage 2	Stage 3	Total

	od 0,00 do <0,15%	457 233	-	-	457 233
	od 0,15 do <0,25%	172 973	-	-	172 973
	od 0,25 do <0,50%	212 609	-	-	212 609
	od 0,50 do <0,75%	290 411	-	-	290 411
	od 0,75 do <2,50%	599 669	-	-	599 669
Gross amount		1 732 895	-	-	1 732 895
					-
Impairment		(3 047)	-	-	(3 047)
Net amount		1 729 848	-	-	1 729 848

The tables below present the quality of financial assets of Santander Bank Polska Group broken down into stages and by ratings as at 31.12.2022 and in the comparative period:

Stage 1
31.12.2022	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	Debt and equity securities held for trading
Credit quality step *
1 (AAA to AA-)	247 909	-	1 308 713	-	127 955	-
2 (A+ to A-)	8 846 774	-	38 228 412	15 499 348	-	227 167
3 (BBB+ to BBB-)	351 459	-	-	-	-	-
4 (BB+ to BB-)	71 219	93 898	-	-	-	-
5 (B+ to B-)	21	-	-	-	-	-
6 (<B-)	-	-	-	-	-	-
no external rating	60 117	722 998	204 299	-	-	17 380
Total Stage 1	9 577 499	816 896	39 741 424	15 499 348	127 955	244 547

** according to Fitch;

**the portfolio includes mainly bonds of local goverments without an external rating, the quality of which does not raise any objections from the

perspective of credit risk;

Stage 2
31.12.2022	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 securities measured at fair value through profit or loss	Financial assets held for trading
Credit quality step *
1 (AAA to AA-)	-	-	-	-	-	-
2 (A+ to A-)	-	-	-	-	-	-
3 (BBB+ to BBB-)	-	-	-	-	-	-
4 (BB+ to BB-)	-	-	-	-	-	-
5 (B+ to B-)	-	-	-	-	-	-
6 (<B-)	-	-	-	-	-	-
no external rating	-	63 324	-	-	-	-
Total Stage 2	-	63 324	-	-	-	-
* according to Fitch

Stage 3
31.12.2022	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 securities measured at fair value through profit or loss			Financial assets held for trading
Credit quality step *
1 (AAA to AA-)	-		-		-		-		-	-
2 (A+ to A-)	-		-		-		-		-	-
3 (BBB+ to BBB-)	-		-		-		-		-	-
4 (BB+ to BB-)	-		-		-		-		-	-
5 (B+ to B-)	-		-		-		-		-	-
6 (<B-)	-		-		-		-		-	-
none	-		143 615		2 410		-		-	-
Total Stage 3	-		143 615		2 410		-		-	-
* according to Fitch

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	Debt and equity securities 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-)	-	-	-	-	-	-
no external rating	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	Debt and equity securities 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-)	-	-	-		-	-
no external rating	-	217 882	3 476		-	-
Total Stage 3	-	217 882	3 476		-	-
* 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 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 31.12.2022, pursuant to art. 71 of the Banking Law Act, the maximum limits for the Group amounted to:

· PLN 6,559,336 k (25% of Group’s own funds).

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).

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 2022.

A list of the 20 largest borrowers (or capital-related group of borrowers) of Santander Bank Polska Group (performing loans) as at 31.12.2022.

Industry code (PKD)	Industry description	Total credit exposure	Balance sheet exposure incl. towards subsidiaries	Committed credit lines, guarantees, treasury limits and capital investments
19	RAFINERY	1 688 807	280 020	1 408 787
64	OTHER FINANCIAL SERVICES	1 456 578	1 447 305	9 273
06	MINING	1 288 807	250 020	1 038 787
61	TELECOMMUNICATION	1 144 387	974 378	170 009
64	OTHER FINANCIAL SERVICES	1 049 733	1 049 733	-
68	REAL ESTATE SERVICES	976 986	933 325	43 661
61	TELECOMMUNICATION	959 007	937 875	21 132
64	OTHER FINANCIAL SERVICES	875 511	665 089	210 422
68	REAL ESTATE SERVICES	773 072	699 024	74 048
61	TELECOMMUNICATION	753 403	489 477	263 926
20	CHEMICAL INDUSTRY	712 830	569 923	142 907
35	POWER INDUSTRY	600 244	309 375	290 869
20	CHEMICAL INDUSTRY	520 472	161 383	359 089
41	CONSTRUCTION	515 189	502 415	12 774
64	OTHER FINANCIAL SERVICES	442 894	411 378	31 516
64	OTHER FINANCIAL SERVICES	421 222	-	421 222
41	CONSTRUCTION	412 827	-	412 827
41	CONSTRUCTION	412 827	-	412 827
35	POWER INDUSTRY	400 000	30 000	370 000
68	REAL ESTATE SERVICES	386 687	306 958	79 729
Total gross exposure		15 791 483	10 017 678	5 773 805

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

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 31.12.2022, the highest concentration level was recorded in the “manufacturing” sector (11% of the Santander Bank Polska Group exposure), “distribution” (11%) and “property” (5%).

Groups of PKD by industries:

	Industry	Gross exposure
	Industry	31.12.2022	31.12.2021
	Manufacturing	17 791 924	17 728 361
	Distribution	17 101 716	16 427 676
	Property	8 433 962	8 510 502
	Energy	4 194 610	4 324 956
	Transportation	4 229 989	3 586 606
	Agriculture	2 917 872	2 790 830
	Construction	2 608 837	2 021 929
	Financial sector	3 483 655	1 664 713
	Other industries	15 211 717	9 592 830
A	Total Business Loans	75 974 282	66 648 403
B	Retail (including mortgage loans)	79 465 434	83 267 333
A+B	Santander Bank Polska Group portfolio	155 439 716	149 915 736
C	Other receivables (commercial bonds)	77 914	49 224
A+B+C	Total Santander Bank Polska Group	155 517 630	149 964 960

Climate related risk

At Santander Bank Polska Group 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 2022 (including Report on Santander Bank Polska Performance)”.

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.

The bank and the Group entities conducted an analysis of the main transformational and physical risks, and thanks to the identification of key risks for our latitude, the risk in the sectors most affected by climate change was evaluated. This allowed for the improvement of the risk assessment process for individual business clients in these aspects. Today, this process is carried out mainly by field experts, while the Bank is starting a project that will introduce these elements to the structured process of customer rating assessment.

At the same time, the Group launched projects aimed at identifying transformational and physical risks in a systemic and quantitative manner at the customer level. By estimating the emissivity of all business entities and retail mortgage products, the Group will be able to assess transformational risks and deliberate actions in key parts of the portfolio. It will also allow for the inclusion of environmental aspects in standard portfolio analysis processes, setting targets and limits at appropriate levels.

ESG risk management as part of the risk management framework

Effective identification of risks and opportunities related to climate change allows Santander Bank Polska S.A. to take measures to ensure reliance to key threats, accelerate growth, improve financial results, and build reputation.

In 2022, the Group also conducted an analysis to identify climate risks and opportunities based on two climate scenarios: temperature rise by 2°C (in accordance with the Paris Agreement) and temperature rise by 4°C, and three time horizons: short-term (2025), mid-term (2030) and long-term (2050). The analysis covered the entire value chain and all markets of Santander Bank Polska S.A. In line with the TCFD approach, two major types of risks were considered: physical risks and transition risks.

The Group analysed the main risks from both categories. Based on the key risks identified for the region, the Bank evaluated risk of sectors in which its customers operate. The Group considered physical and transition risks in 19 sectors in its portfolio in three time horizons. This qualitative analysis included the concept of double materiality: the Group’s impact on climate as well as the impact of climate on the Group’s performance.

Physical risks

The sources of physical risks are among other things extreme weather conditions such as severe storms or floods which may cause infrastructure disruption or damage in many sectors. Due to the nature of its activities, the agri sector is particularly exposed to physical risks, with an increased risk of soil erosion affecting crop quality and yields.

In a medium and long term, there is a physical risk related to deteriorating hydrological conditions in Poland and the risk of drought. Water scarcity and the lack of relevant retention systems may adversely affect the economy, including the energy sector. For example, CHP plants which use river water for cooling purposes may be forced to limit energy production during drought. Fire risk is also identified in the soft commodities sector, resulting in potential losses e.g. in wood production.

Transition risks

The most sensitive sectors in the context of transition to a green economy are the sectors based on coal and other fossil fuels that dominate the Polish energy mix. There are regulatory and legal risks connected with higher costs of CO2 emissions, more stringent data reporting and gathering requirements as well as regulatory changes that may limit the operations of some high-emission businesses.

Regulatory risks also involve law amendments imposing more climate-friendly solutions, which may result in higher operating costs for some companies. For example, in the automotive sector, decreasing costs of electric cars and the expected EU regulations may result in stranded assets in the petrol car supply chain. Market competition may force companies from the Bank’s portfolio to invest in more innovative vehicles.

The Group also identified market risks resulting from the impact of climate change on market variables, including consumer choice, changing interest rates and commodity prices. Reputational risks connected with an increased consumer awareness are important too. All the above risks may affect the Bank’s position, both directly and through its customers.

The same exercise was conducted with respect to climate-related opportunities. The transition to a green economy enables Santander Bank Polska Group to help existing and future customers as well as to support economic transformation by providing relevant financing solutions. The Bank intends to continue to develop new products and services (including advisory services for customers) and earn a reputation of a trusted partner. As part of the analysis, opportunities for Santander Bank Polska Group were identified.

The climate-related opportunities and risks identified by the Group have an impact on financial instruments and are included in the Bank’s main risk management processes. The impact of climate change on the business of the Group has been defined on a high level and further analysis will be made to quantify the influence of those risks and opportunities in more detail.

Responsibility for ESG risk management

The responsibility for managing climate risk and leveraging climate-related opportunities rests with the Management Board and the Supervisory Board. They support risk management strategies by approving key policies, sitting on dedicated committees, participating in reviews and approving risks and reports.

The Bank’s Management Board is responsible for defining long-term action plans and approving the responsible banking strategy, including the climate strategy and its main objectives (in a short, medium and/or long term), and as part of the risk management framework.

When taking decisions, the Management Board considers assessments, information and analyses of the risk management unit. Based on that, it adopts the Risk Appetite Statement, which is then approved by the Supervisory Board. Specific limits are used to set watch limits and define risk management policies. The Management Board member in charge of risk management provides the Supervisory Board members with relevant information about risk to ensure they have a full picture of the Bank’s risk profile and can make informed decisions in this respect.

The Supervisory Board verifies the Bank’s management strategy and ESG risk management strategy, also in terms of the Bank’s long-term interest. When taking decisions, the Supervisory Board also considers assessments, information and analyses of the risk management unit.

There is also the Responsible Banking and Corporate Culture Committee, which provides support to the Bank’s Management Board in the performance of oversight over the responsible banking and sustainability strategy both locally and at the level of Santander Bank Polska Group. The Committee, which is chaired by the President of the Management Board, defines the strategy and annual goals related to ESG and ensures compliance with environmental and social policies of Santander Bank Polska S.A. The Committee is supported by the ESG Forum composed of senior managers representing all Divisions. The Forum analyses challenges, opportunities and risks related to the EU Sustainable Finance agenda (including ESG risks), plans activities and coordinates their implementation at the Bank, and submits regular reports to the Responsible Banking and Corporate Culture Committee and the Bank’s Management Board.

In June 2021, the environmental and social risk analysis procedure was implemented for customers from the Corporate and Investment Banking (SCIB) segment and the Business and Corporate Banking (BCB) segment. It specifies the criteria consistent with best practice and standards applicable in Santander Group and worldwide which have to be met by customers from sensitive sectors (oil and gas, energy production and transmission, mining and metals and soft commodities sectors) in order to establish a relationship with the Bank. The activities in the above sectors have been divided into two categories: prohibited activities and activities subject to additional analysis. Specific regulations set out implementing rules and provide a detailed description of processes for individual segments.

The risk assessment of SCIB customers is performed in accordance with the solutions applied by Santander Group. ESCC (Enviromental Social & Climate Change) risk of customers/ transactions from the sectors defined in the regulations is analysed on a case-by-case basis using dedicated assessment questionnaires. Based on that, the local ESCC risk manager (green analyst) issues an opinion and recommendation, which can be positive, conditionally positive or negative. An analyst and a credit partner include the ESCC risk analysis and recommendation in a credit application for a particular customer.

The assessment of other corporate customers is largely automated and uses an algorithm which enables preselection in terms of environmental and social risks. As part of that process, customers are assigned environmental flags indicating the level of risk based on the characteristics of individual companies (including their business codes). There are four types of flags: an interim one (“To be verified”) and three final ones (“Approved”, “Higher risk”, “Prohibited activity”).

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 at safe level 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 2022 and 2021 are shown in the table below (in PLN k). 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	31.12.2022	31.12.2021	31.12.2022	31.12.2021
Maximum	426	552	595	832
Average	358	440	488	480
as at the end of the period	334	291	494	356
Limit	900	700	800	875

The volatility of the use of interest rate risk limits was lower compared to 2021. There was one violation of the NII sensitivity limit (net interest income) for EUR in 2022. This was due to the abrupt increase in Repo transaction volumes. Finally, the operational limit on the sensitivity of NII in EUR was increased. The main factors affecting the fluctuation of measures in 2022 were the volatility of interest rates and the strategy to reduce the duration of debt securities from the ALCO portfolio. The market of rising interest rates influenced the outflow of a significant volume of current accounts or migration to interest-bearing accounts, which affected the unstable part and indirectly changed the stable part. In addition, the gradual shortening of the duration of debt securities from the ALCO portfolio had a direct impact on changes in the MVE measure (economic value of capital).

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 2022 and 2021 for 1-day position holding period (in PLN k):

Interest rate risk		VAR
1 day holding period		31.12.2022	31.12.2021
Average	5 321		4 395
Maximum	14 622		19 540
Minimum	960		657
as at the end of the period	9 550		2 703
Limit	13 205		9 744

In 2022, VaR limits were exceeded. Excesses were recorded in the total VaR and interest rate risk VaR in the Bank's trading book (for three days in December). The excesses resulted from significant market movements in FX Swap quotes, which in turn were caused by the sector's efforts to secure liquidity at the turn of the year. The observed VaR values in 2022 were higher than in 2021 due to a significant increase in volatility in the financial market caused by economic and geopolitical events (high inflation, increases in interest rate curves and the war in Ukraine). 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 2022 and 2021 (in PLN k).

FX risk	VAR
1 day holding period	31.12.2022	31.12.2021
Average	1 021	614
Maximum	2 346	2 447
Minimum	68	62
as at the end of the period	1 144	538
Limit	3 301	3 045

In 2022, the VaR limit for currency risk was not exceeded.

The tables below present the Group’s key FX positions as at 31 December 2022 and in the comparable period.

31.12.2022	PLN	EUR	CHF	USD	Other	Total
ASSETS
Cash and balances with central banks	8 714 371	852 099	71 968	390 655	140 929	10 170 022
Loans and advances to banks	846 348	8 357 220	14 193	242 190	117 548	9 577 499
Loans and advances to customers	123 188 867	22 738 284	5 205 292	1 352 255	23 994	152 508 692
Investment securities	54 635 806	1 755 829	-	1 297 721	-	57 689 356
Selected assets	187 385 392	33 703 432	5 291 453	3 282 821	282 471	229 945 569
LIABILITIES
Deposits from banks	1 772 840	1 770 254	855	484 521	2 782	4 031 252
Deposits from customers	154 209 339	29 111 062	1 091 075	10 115 955	1 969 375	196 496 806
Subordinated liabilities	1 122 851	1 684 162	-	-	-	2 807 013
Selected liabilities	157 105 030	32 565 478	1 091 930	10 600 476	1 972 157	203 335 071

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	96 900	8 438 275
Loans and advances to banks	339 293	2 055 109	3 730	171 362	120 759	2 690 252
Loans and advances to customers	119 239 131	17 829 536	7 294 554	2 021 054	7 070	146 391 345
Investment securities	67 635 724	1 684 057	-	3 059 453	-	72 379 234
Selected assets	194 896 292	22 017 335	7 363 335	5 397 417	224 729	229 899 106
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

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 2022 and 2021 (in PLN k).

Equity risk	VAR
1 day holding period	31.12.2022	31.12.2021
Average	261	316
Maximum	532	595
Minimum	98	113
as at end of the period	258	364
Limit	2 135	1 969

In 2022, 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) 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).

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).

Some of the agreements based on LIBOR indicators, which are no longer published, remained without annexation. The portfolios of the Bank and its Subsidiaries contain products based on LIBOR rates for EUR, GBP and USD currencies respectively. The largest portfolio to be converted are mortgage contracts on the LIBOR EUR (approximately 1 153 contracts). For products based on the LIBOR EUR interest rate, the Bank decided to use EURIBOR as an alternative rate. In the case of agreements for which annexes could not be signed, the Bank will apply, until the end of the term of the agreement, the last interest rate set at EUR LIBOR published in 2021.

CHF LIBOR was replaced as a result of the implementing regulation of the European Commission. The portfolio of mortgage loans in CHF was the largest portfolio that underwent the transition based on the above-mentioned regulation. A similar approach was used for the EONIA index. The Bank had 19 contracts based on the EONIA rate in its portfolio, for which the indicator was changed to €STR.

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 USD interest rate, the Bank decided to use SOFR as an alternative rate.

For products based on the LIBOR GBP interest rate, the Bank decided to use SONIA as an alternative rate. Currently, due to the inability to annex the agreements, the Bank has 7 mortgage loans based on LIBOR GBP, which are quoted at the last known rate, i.e. as at December 31, 2021.

In 2022, the IBOR Programme primarily focused on the monitoring of progress in the execution of annexes to agreements which had to be amended to account for individual arrangements with customers regarding the discontinued LIBOR and EONIA benchmarks. Additionally, the tasks so far performed as part of the project work were transferred to relevant units to be included in BAU.

In Q4 2022, the Steering Committee extended the scope of the Programme work to include changes reflecting the measures taken by the Polish market participants in relation to the replacement of WIBOR and WIBID.

The purpose of the ongoing reform of Polish benchmarks is to change the methodology for determining the interest rate benchmark that is planned to replace WIBOR. As the Polish benchmarks reform accelerated, on 7 July 2022 the Act on crowdfunding for business and support for borrowers was adopted (Journal of Laws of 2022, item 1488) which in Art. 85 sec. 1 provides the basis for changing the benchmark.

In addition to legislative changes, the National Working Group was formed by the Polish Financial Supervision Authority (KNF) to prepare the Roadmap and the schedule of actions to be taken to ensure the effective implementation of individual elements of the process aimed to replace WIBOR and WIBID. The Roadmap was published by the KNF in its communication of 27 September 2022. According to the Roadmap, the work on the replacement of benchmarks is to be completed at the beginning of 2025.

In early September, the Steering Committee of the National Working Group selected WIRON as a benchmark to replace WIBOR. This indicates that the benchmark reform in Poland will be delivered in line with Article 23c of the Benchmark Regulation. Pursuant to the procedure specified in the above Article regarding the replacement of a benchmark by national law, all contracts and financial instruments must be amended accordingly.

In response to the above, GPW Benchmark announced that in Q4 2022 it would complete the adjustment process, ensure the availability of the benchmark and publish the relevant documentation. As a result of measures taken by GPW Benchmark, market participants should be able to introduce products based on WIRON starting from 2023. Institutions will be able to offer those products in parallel with existing products until WIBOR is discontinued.

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.

In 2023, works related to the WIBOR reform at the Group focus on the introduction of new products based on the new WIRON index, which involves the coordination of activities in many areas. In particular, the Group identifies the area of IT changes as requiring adjustment at the current stage of work.

Work in Santander Bank Polska is coordinated with ongoing preparations both in subsidiaries and at the level of the entire Banco Santander Group.

The tables present break down of assets and liabilities of Santander Bank Polska Group as at 31 December 2022:

31.12.2022	Nominal value
	Assets	Liabilities
Assets and liabilities exposed to PLN WIBOR
Cash and balances at central banks	-	-
Bank loans and credits	-	163
Loans and advances to/deposits from banks	-	1 575 943
Loans and advances to/deposits from customers	75 243 461	9 940 661
Reverse repurchase/repurchase agreements	380 200	240 000
Debt securities/ in issue	19 192 143	2 220 543
Lease receivables/liabilities	3 407 068	-
Total value of assets and liabilities exposed to PLN WIBOR	98 222 872	13 977 310

Trading Derivatives (notional)	291 114 000	279 756 000
Hedging Derivatives (notional)	15 557 000	10 591 000

In connection with the IBOR and WIBOR 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.

Hedge 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.

The Bank did not decide to change the existing hedging relationships with WIBOR. However, due to the expected replacement of the benchmark, the Bank identifies that hedging relationships in which this benchmark is present may be exposed to the risk described above related to the effectiveness of the relationship.

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 2022, the value of the HQLA buffer was PLN 65.1 bn for the Bank and PLN 68.3 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 2022), 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 2022, Santander Bank Polska Group focused on maintaining an optimal financing structure. The increase in the obligatory reserve rate and the increase in market interest rates resulted in tougher competition for customer deposits in the banking sector. As at 31 December 2022, the loan-to-deposit ratio was 78% compared to 80% as at 31 December 2021, the consolidated Liquidity Coverage Ratio was 177%, and 215% as at 31 December 2021.

In 2022 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 2022 and in the comparable period (by nominal value).

31.12.2022	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	26 613 991	27 191 485	14 202 321	13 117 762	16 076 998	32 302 651	58 286 412	62 198 288
Liabilities and equity	141 288 511	30 948 808	18 128 230	8 262 517	9 373 253	1 314 793	4 651 381	1 161 048
including:
- Sell-buy-back transactions	-	2 321 943	-	-	-	-	-	-
- Deposits from banks	1 451 088	212 413	446 985	932 270	250 107	10 718	847 545	21 438
- Deposits from customers	139 837 423	28 401 839	15 153 945	6 934 255	5 273 002	498 091	200 331	14 401
- Debt securities in issue	-	-	2 494 950	355 000	3 767 425	687 305	1 753 695	-
- Subordinated liabilities	-	-	-	-	-	-	1 674 763	1 100 000
- Lease liabilities	-	12 613	32 350	40 992	82 719	118 679	175 047	25 209
Contractual liquidity mismatch/ gap	(114 674 520)	(3 757 323)	(3 925 909)	4 855 245	6 703 745	30 987 858	53 635 031	61 037 340
Cumulative liquidity gap	(114 674 520)	(118 431 843)	(122 357 752)	(117 502 507)	(110 798 762)	(79 810 904)	(26 175 873)	34 861 467
Net derivatives	-	-	-	-	-	( 42 977)	-	-
Gross asset derivatives	-	36 452 294	29 466 643	10 400 935	18 702 881	9 441 447	12 127 523	1 810 158
Gross liabilities derivatives	-	36 598 911	29 271 988	10 599 954	18 227 043	9 464 541	13 039 363	1 930 353
Off balance positions Total	38 157 484	4 509 876	1 004 214	414 385	372 736	159 911	40 150	6 123
-guarantees & letters of credits	9 859 769	-	-	-	-	-	-	-
-credit lines	7 218 463	4 469 240	768 774	206 511	-	-	-	-

* The vast majority of other financial liabilities are within the range of 1 month

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

The tables below show maturity analysis of financial liabilities and receivables for Santander Bank Polska Group as at 31 December 2022 and in the comparable period (the undiscounted cash flow – capital and interests).

31.12.2022	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	26 619 809	28 090 617	15 142 425	17 155 034	21 671 680	41 048 962	74 927 737	103 366 142
Liabilities	141 017 039	31 154 463	17 060 216	9 949 690	9 869 578	1 714 829	5 249 415	1 191 970
including:	-	-	-	-	-	-	-	-
- Repurchase agreement transactions	-	2 326 346	-	-	-	-	-	-
- Liabilities to banks	1 457 423	213 396	442 016	951 076	271 144	46 190	914 240	21 438
- Liabilities to customers	139 559 616	28 596 078	14 007 662	8 462 467	5 540 454	517 319	231 259	22 513
- Own emissions	-	6 953	2 555 855	426 446	3 873 806	842 672	1 853 474	-
- Subordinated liabilities	-	-	22 928	69 409	105 744	202 040	2 103 208	1 139 705
- Lease liabilities	-	11 690	31 755	40 292	78 430	106 608	147 234	8 314
Contractual liquidity gap	(114 397 230)	(3 063 846)	(1 917 791)	7 205 344	11 802 102	39 334 133	69 678 322	102 174 172
Cummulated contractual liquidity gap	(114 397 230)	(117 461 076)	(119 378 867)	(112 173 523)	(100 371 421)	(61 037 288)	8 641 034	110 815 206
Net derivatives	-	74 525	( 477 160)	( 416 055)	( 809 504)	( 605 853)	( 99 861)	( 35 707)
Gross asset derivatives	-	36 556 270	29 205 967	10 406 706	18 320 239	9 668 142	13 012 746	1 975 034
Gross liabilities derivatives	-	36 672 128	29 448 571	10 891 004	18 754 061	10 048 887	13 770 409	2 073 586
Off Balance positions Total	38 157 484	4 509 876	1 004 214	414 385	372 736	159 911	40 150	6 123
-guarantees & letters of credits	9 859 769	-	-	-	-	-	-	-
-credit lines	7 218 463	4 469 240	768 774	206 511	-	-	-	-

* The vast majority of other financial liabilities are within the range of 1 month

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

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 70.75 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 2022”.

In 2022, 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 2022, the total own funds of Santander Bank Polska Group were PLN 161.386 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 11 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 11 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 2022 (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 2022, 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 9.76%;

· total capital ratio of 11.76%;

for Santander Bank Polska Group, those ratios were as follows:

· Tier 1 capital ratio of 9,742%;

· total capital ratio of 11,746%.

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 30 December 2022. As at 31 December 2022, the buffer related to the portfolio of FX mortgage loans for households was 0.016 p.p for the total capital ratio, 0.012 p.p. for the Tier 1 capital ratio and 0.009 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 16 December 2022, Santander Bank Polska S.A. maintains additional own funds of 1 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.

· On 11 February 2022 the Bank received a letter from the Polish Financial Supervision Authority regarding the recommendation to reduce the risk in the Bank's operations by maintaining, both at the individual and consolidated level, the Bank's own funds to cover the additional capital charge in order to absorb potential losses resulting from from the occurrence of stress conditions (P2G recommendation). In accordance with the letter of the Polish Financial Supervision Authority of December 23, 2022 P2G capital charges of 0.26 p.p. apply at the Bank level and 0.23 p.p. at the consolidated level based on supervisory stress tests carried out by the Polish Financial Supervision Authority in 2022.

Components of the minimum capital requirement		31.12.2022	31.12.2021
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 0.016 p.p.	ü 0.029 p.p.
	· Tier 1 capital ratio:	ü 0.012 p.p.	ü 0.022 p.p.
	· for Common Equity Tier 1 capital ratio:	ü 0.009 p.p	ü 0.016 p.p.
The capital buffer for Santander Bank Polska as other systemically important institution		ü 1 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.
The bank's sensitivity to an unfavorable macroeconomic scenario measured using the supervisory stress tests results (P2G)	Santander Bank Polska	ü 0.26 p.p.	ü 0 p.p.
	Santander Bank Polska Capital Group:	ü 0.23 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 2022.

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 2022 and in the comparative period.

		31.12.2022	31.12.2021*
I	Total Capital requirement (Ia+Ib+Ic+Id+Ie), of which:	10 891 923	10 827 530
Ia	- due to credit risk & counterparty credit risk	9 377 747	9 329 001
Ib	- due to market risk	160 598	190 717
Ic	- due to credit valuation ajdustment risk	45 854	29 887
Id	- due to operational risk	1 254 318	1 250 170
Ie	- due to securitisation	53 406	27 755
II	Total own funds*	28 047 881	27 915 162
III	Reductions	1 810 538	2 136 289
IV	Own funds after reductions (II-III)	26 237 342	25 778 873
V	*CAD [IV/(I12.5)]**	19,27%	19,05%
VI	Tier I ratio	17,54%	17,10%

*The data includes profits included in own funds, taking into account the applicable EBA guidelines

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 for the credit risk 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	1.01.2022-31.12.2022	1.01.2021-31.12.2021
Interest income on financial assets measured at amortised cost	9 804 957	5 064 526
Loans and advances to enterprises	3 582 392	1 469 840
Loans and advances to individuals, of which:	5 261 493	3 576 788
Home mortgage loans	1 802 508	1 194 703
Loans and advances to banks	418 730	2 909
Loans and advances to public sector	52 021	5 926
Reverse repo transactions	202 644	6 351
Interest recorded on hedging IRS	55 560	-
Debt securities	232 117	2 712
Interest income on financial assets measured at fair value through other comprehensive income	1 965 093	955 577
Loans and advances to enterprises	136 346	45 769
Loans and advances to public sector	13 821	-
Debt securities	1 814 926	909 808
Income similar to interest - financial assets measured at fair value through profit or loss	96 144	17 231
Loans and advances to enterprises	4 316	849
Loans and advances to individuals	50 382	16 382
Debt securities	41 446	-
Income similar to interest on finance leases	672 390	324 951
Total income	12 538 584	6 037 334

The impact of payment deferrals on the Group’s net interest income in 2022 totalled PLN 1,544,439k.

It was recognised as an adjustment to the gross carrying amount of mortgage loans due to the change of expected cash flows and a decrease in interest income.

Detailed information about payment deferrals is presented in Note 2.6.

Interest expenses	1.01.2022-31.12.2022	1.01.2021-31.12.2021
Interest expenses on financial liabilities measured at amortised cost	(2 886 277)	(400 139)
Liabilities to individuals	(771 316)	(88 594)
Liabilities to enterprises	(908 721)	(48 311)
Repo transactions	(315 001)	(2 364)
Liabilities to public sector	(244 510)	(13 967)
Liabilities to banks	(183 694)	(26 526)
Lease liability	(14 384)	(14 758)
Subordinated liabilities and issue of securities	(448 651)	(162 246)
Interest recorded on hedging IRS	-	(43 373)
Total costs	(2 886 277)	(400 139)
Net interest income	9 652 307	5 962 146

7. Net fee and commission income

Fee and commission income	1.01.2022- 31.12.2022	1.01.2021- 31.12.2021
Electronic and payment services	267 999	248 663
Current accounts and money transfer	422 069	399 322
Asset management fees	200 922	292 456
Foreign exchange commissions	730 413	572 573
Credit commissions incl. factoring commissions and other	459 520	439 428
Insurance commissions	246 404	227 342
Commissions from brokerage activities	130 135	128 779
Credit cards	142 582	143 237
Card fees (debit cards)	399 671	343 778
Off-balance sheet guarantee commissions	113 694	111 482
Finance lease commissions	28 740	23 023
Issue arrangement fees	14 478	22 614
Distribution fees	16 590	19 856
Total	3 173 217	2 972 553
Fee and commission expenses	1.01.2022- 31.12.2022	1.01.2021- 31.12.2021
Electronic and payment services	(74 311)	(59 734)
Distribution fees	(7 971)	(13 070)
Commissions from brokerage activities	(14 722)	(16 499)
Credit cards	(22 706)	(13 179)
Card fees (debit cards)	(116 676)	(90 238)
Credit commissions paid	(82 764)	(96 364)
Insurance commissions	(17 108)	(17 780)
Finance lease commissions	(45 959)	(33 983)
Asset management fees and other costs	(10 447)	(22 784)
Off-balance sheet guarantee commissions	(81 026)	(58 651)
Other	(133 109)	(63 186)
Total	(606 799)	(485 468)
Net fee and commission income	2 566 418	2 487 085

Included above is fee and commission income on credits, credit cards, off-balance sheet guarantees and leases of PLN 744 536 k (31.12.2021: PLN 717 170 k) and fee and commission expenses on credit cards, leases and paid to credit agents of PLN (151 429) k (31.12.2021: PLN (143 526) 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	1.01.2022-31.12.2022	1.01.2021-31.12.2021
Dividends income from investment securities measured at fair value through other comprehensive income	8 662	110 015
Dividends income from investment securities measured at fair value through profit or loss	1 038	1 000
Dividends income from equity financial assets held for trading	939	1 833
Total	10 639	112 848

9. Net trading income and revaluation

Net trading income and revaluation	1.01.2022- 31.12.2022	1.01.2021- 31.12.2021
Derivative instruments	(183 006)	(134 036)
Interbank FX transactions and other FX related income	275 708	368 919
Net gains on sale of equity securities measured at fair value through profit or loss	13 117	29 013
Net gains on sale of debt securities measured at fair value through profit or loss	17 722	(1 661)
Change in fair value of loans and advances mandatorily measured at fair value through profit or loss	3 207	5 719
Total	126 748	267 954

The amounts include CVA and DVA adjustments which in 2022 and 2021 totalled PLN 6 917 k and PLN 8 003k respectively.

10. Gains (losses) from other financial securities

Gains (losses) from other financial securities	1.01.2022-31.12.2022	1.01.2021-31.12.2021
Net gains on sale of debt securities measured at fair value through other comprehensive income	(10 238)	91 751
Net gains on sale of debt securities measured at fair value through profit or loss	-	8
Net gains on sale of equity securities measured at fair value through profit and loss	-	8 148
Change in fair value of financial securities measured at fair value through profit or loss	(2 951)	2 173
Impairment losses on securities	(1 066)	(4 015)
Total profit (losses) on financial instruments	(14 255)	98 065
Change in fair value of hedging instruments	349 229	481 960
Change in fair value of underlying hedged positions*	(358 025)	(485 107)
Total profit (losses) on hedging and hedged instruments	(8 796)	(3 147)
Total	(23 051)	94 918

* details are described in Note 44

11. Other operating income

Other operating income	1.01.2022- 31.12.2022	1.01.2021- 31.12.2021
Income from services rendered	35 405	29 536
Release of provision for legal cases and other assets	55 894	19 070
Recovery of other receivables (expired, cancelled and uncollectable)	79	436
Settlements of leasing agreements	48	5 212
Received compensations, penalties and fines	2 170	1 636
Gains on lease modifications	9 203	21 283
Income from settlement of sale of Aviva shares	-	46 834
Income from claims received from the insurer	42 027	22 599
Other	72 880	69 723
Total	217 706	216 329

12. Impairment allowances for expected credit losses

Impairment allowances for expected credit losses on loans and advances measured at amortised cost	1.01.2022-31.12.2022	1.01.2021-31.12.2021
Charge for loans and advances to banks	(38)	1
Stage 1	(38)	1
Stage 2	-	-
Stage 3	-	-
POCI	-	-
Charge for loans and advances to customers	(946 026)	(1 131 876)
Stage 1	(120 628)	(150 317)
Stage 2	(503 913)	(108 787)
Stage 3	(427 660)	(920 166)
POCI	106 175	47 394
Recoveries of loans previously written off	52 094	3 904
Stage 1	-	-
Stage 2	-	-
Stage 3	52 094	3 904
POCI	-	-
Off-balance sheet credit related facilities	(715)	3 783
Stage 1	4 142	(10 682)
Stage 2	(1 547)	3 693
Stage 3	(3 310)	10 772
POCI	-	-
Total	(894 685)	(1 124 188)

13. Employee costs

Employee costs	1.01.2022-31.12.2022	1.01.2021-31.12.2021
Salaries and bonuses	(1 520 400)	(1 379 741)
Salary related costs	(263 966)	(241 902)
Cost of contributions to Employee Capital Plans	(9 887)	(8 987)
Staff benefits costs	(40 538)	(38 306)
Professional trainings	(12 282)	(9 293)
Retirement fund, holiday provisions and other employee costs	(4 542)	(3 164)
Restructuring provision*	35 815	(12 817)
Total	(1 815 800)	(1 694 210)

*Given that the collective redundancies process lasting from 2021 to 2022 was completed on 31 December 2022, Santander Bank Polska S.A. released the unused portion of the restructuring provision.

14. General and administrative expenses

General and administrative expenses	1.01.2022-31.12.2022	1.01.2021-31.12.2021
Maintenance of premises	(114 943)	(131 439)
Short-term lease costs	(8 116)	(8 671)
Low-value assets lease costs	(1 254)	(2 176)
Costs of variable lease payments not included in the measurement of the lease liability	(702)	(145)
Non-tax deductible VAT	(28 016)	(47 263)
Marketing and representation	(174 583)	(131 325)
IT systems costs	(414 405)	(381 648)
Cost of BFG, KNF and KDPW	(298 720)	(293 748)
Cost of payment to protection system (IPS)*	(445 704)	-
Postal and telecommunication costs	(54 000)	(64 038)
Consulting and advisory fees	(82 422)	(75 349)
Cars, transport expenses, carriage of cash	(63 123)	(53 329)
Other external services	(148 966)	(138 000)
Stationery, cards, cheques etc.	(18 606)	(19 885)
Sundry taxes and charges	(38 856)	(43 445)
Data transmission	(17 790)	(9 538)
KIR, SWIFT settlements	(34 255)	(28 740)
Security costs	(19 616)	(25 650)
Costs of repairs	(5 997)	(11 376)
Cost of payment to the Borrowers Support Fund	(173 565)	-
Other	(18 043)	(12 155)
Total	(2 161 682)	(1 477 920)

*Creation of management unit – System Ochrony Banków Komercyjnych S.A. and BFG adopted a resolution decision for Getin Noble Bank S.A.

On June 9, 2022, the Polish Financial Supervision Authority approved the draft agreement and recognized the commercial bank protection scheme referred to in Article 4.1.9a of the Banking Law Act of 29 August 1997.

Santander Bank Polska S.A. together with 7 other commercial banks (Alior Bank S.A., BNP Paribas Bank Polska S.A., ING Bank Śląski S.A., mBank S.A., Bank Millennium S.A., Bank Polska Kasa Opieki S.A., PKO Bank Polski S.A.) (Member Banks) signed an agreement and created a joint-stock company being the protection scheme managing entity (Managing Entity). The share capital of the Managing Entity (under the name of System Ochrony Banków Komercyjnych S.A.) amounts to PLN 1,000,000. The Bank acquired 12,914 shares of the Managing Entity, of the total par value of PLN 129,140 or ca. 12,9% of its share capital.

The Managing Entity established an aid fund to ensure resources for funding the tasks of the protection scheme. The aid fund was formed of the contributions made by Member Banks being 0,4% of the amount of the guaranteed funds of the given bank covered by the mandatory deposit guarantee scheme, referred to in Article 2.34 of the Act on the Bank Guarantee Fund, the Deposit Guarantee Scheme and Resolution of 10 June 2016 (BGF Act). Given the level of guaranteed funds of the Bank as at the end of Q1 2022, the Bank paid the amount of PLN 407,263,243 to the aid fund. This amount was recognized in the Bank's financial result for the second quarter of 2022.

On September 2022 The Bank Guarantee Fund applied to the SOBK S.A. for making another payment to the assistance fund. General meeting of SOBK S.A. made a unanimous decision to make an additional contribution to the assistance fund. Consequently, Santander Bank Polska S.A. in September 2022, has paid PLN 38,441,065.02 to the assistance fund. This amount was charged to the Bank's financial result for the third quarter of 2022.

On September 30, 2022, the Bank Guarantee Fund started resolution process for Getin Noble Bank S.A., whose operations on October 3, 2022 were transferred to the so-called a bridge bank (Velo Bank), the majority shareholder of which is the BFG. The minority block of shares in the bridge bank was acquired by SOBK S.A using the funds from the assistance fund, as part of the support for the resolution process. SOBK S.A. does not have the right to vote in the governing bodies of the bridge institution, and thus will not affect its management, assuming the role of a passive investor, supporting the stability of this institution.

15. Other operating expenses

Other operating expenses	1.01.2022- 31.12.2022	1.01.2021- 31.12.2021
Charge of provisions for legal cases and other assets	(63 111)	(62 595)
Impairment loss on property, plant, equipment, intangible assets covered by lease agreements and other fixed assets	(12 360)	(60 942)
Gain on sales or liquidation of fixed assets, intangible assets and assets for disposal	(16 264)	(15 768)
Costs of purchased services	(15 044)	(10 673)
Other membership fees	(1 256)	(1 111)
Paid compensations, penalties and fines	(1 064)	(1 853)
Donations paid	(7 533)	(8 410)
Other	(80 007)	(75 804)
Total	(196 639)	(237 156)

16. Corporate income tax

.

Corporate income tax	1.01.2022- 31.12.2022	1.01.2021- 31.12.2021
Current tax charge in the income statement	(1 102 305)	(445 723)
Deferred tax charge in the income statement	(237 010)	(361 827)
Adjustments from previous years for current and deferred tax	(4 857)	2 128
Total tax on gross profit	(1 344 172)	(805 422)
Current tax charge in the retained earnings (equity)	-	(196 772)
Total corporate income tax	(1 344 172)	(1 002 194)

Corporate total tax charge information	1.01.2022- 31.12.2022	1.01.2021- 31.12.2021
Profit before tax	4 352 947	2 057 828
Tax rate	19%	19%
Tax calculated at the tax rate	(827 060)	(390 987)
Non-tax-deductible expenses	(27 880)	(26 438)
Cost of legal risk associated with foreign currency mortgage loans	(269 263)	(254 233)
The fee to the Bank Guarantee Fund	(50 267)	(49 889)
Tax on financial institutions	(148 413)	(116 744)
The Borrowers Support Fund	(32 977)	-
Non-taxable income	12 215	28 060
Non-tax deductible bad debt provisions	(25 854)	(10 778)
Adjustment of prior years tax	(4 856)	2 128
Tax effect of consolidation adjustments	14 336	20 614
Other	15 847	(7 155)
Total tax on gross profit	(1 344 172)	(805 422)
Sales of equity securities measured at fair value through other comprehensive income	-	(196 772)
Total corporate income tax	(1 344 172)	(1 002 194)

.

Deferred tax recognised in other comprehensive income	31.12.2022	31.12.2021
Relating to valuation of debt investments measured at fair value through other comprehensive income	234 879	357 326
Relating to valuation of equity investments measured at fair value through other comprehensive income	(33 473)	(38 342)
Relating to cash flow hedging activity	74 912	8 995
Relating to valuation of defined benefit plans	(3 309)	(3 272)
Total	273 009	324 707

17. Earnings per share

Earnings per share	1.01.2022- 31.12.2022	1.01.2021- 31.12.2021
Profit for the period attributable to ordinary shares	2 799 098	1 111 684
Weighted average number of ordinary shares	102 189 314	102 189 314
Earnings per share (PLN)	27,39	10,88
Profit for the period attributable to ordinary shares	2 799 098	1 111 684
Weighted average number of ordinary shares	102 189 314	102 189 314
Diluted earnings per share (PLN)	27,39	10,88

18. Cash and balances with central banks

Cash and balances with central banks	31.12.2022	31.12.2021
Cash	3 198 679	2 664 945
Current accounts in central banks	6 852 602	5 773 330
Term deposits	118 741	-
Total	10 170 022	8 438 275

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 was 2.0% as at 31.12.2021r.

On 8 February 2022, the Monetary Policy Council decided to further increase the minimum reserve ratio from 2.0% to 3.5%. It applies to minimum reserves held as of 31 March 2022

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	31.12.2022	31.12.2021
Loans and advances	6 290 099	98 232
Current accounts	3 287 543	2 592 126
Gross receivables	9 577 642	2 690 358
Allowance for impairment	(143)	(106)
Total	9 577 499	2 690 252

Fair value of loans and advances to banks is presented in Note 47.

Loans and advances to banks 31.12.2022
Gross carrying amount	Stage 1	Stage 2	Stage 3	POCI	Total
As at the beginning of the period	2 690 358	-	-	-	2 690 358
Transfers					-
Transfer to Stage 1	-	-	-	-	-
Transfer to Stage 2	-	-	-	-	-
Transfer to Stage 3	-	-	-	-	-
New financial assets originated	6 787 579	-	-	-	6 787 579
Changes in existing financial assets	(28 375)	-	-	-	(28 375)
Financial assets derecognised that are not write-offs	(96 297)	-	-	-	(96 297)
Write-offs	-	-	-	-	-
Other movements incl. FX differences	224 377	-	-	-	224 377
As at the end of the period	9 577 642	-	-	-	9 577 642

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

20. Financial assets and liabilities held for trading

	31.12.2022		31.12.2021
Financial assets and liabilities held for trading	Assets	Liabilities	Assets	Liabilities
Trading derivatives	6 639 069	6 913 266	3 658 438	3 492 496
Interest rate operations	4 675 518	4 624 966	2 273 851	2 266 649
Forward	5	-	25	79
Options	204 559	186 995	84 846	40 605
IRS	4 404 162	4 406 825	2 170 085	2 156 214
FRA	66 792	31 146	18 895	69 751
FX operations	1 963 551	2 288 300	1 384 587	1 225 847
CIRS	332 765	425 211	199 083	203 848
Forward	264 172	198 268	158 411	272 319
FX Swap	1 098 471	1 401 172	854 660	557 991
Spot	500	971	3 026	790
Options	267 643	262 678	169 407	190 899
Debt and equity securities	244 547	-	361 679	-
Debt securities	229 290	-	313 350	-
Government securities:	213 206	-	299 046	-
- bonds	213 206	-	299 046	-
Commercial securities:	16 084	-	14 304	-
- bonds	16 084	-	14 304	-
Equity securities:	15 257	-	48 329	-
- listed	15 257	-	48 329	-
Short sale	-	195 560	-	385 585
Total	6 883 616	7 108 826	4 020 117	3 878 081

Financial assets and liabilities held for trading - trading derivatives include the change in the value of counterparty risk in the amount of PLN 1,242 k as at 31.12.2022 and PLN (8,043) k as at 31.12.2021.

The table below presents derivatives’ nominal values.

Derivatives’ nominal values	31.12.2022	31.12.2021
Term derivatives (hedging)	40 987 031	27 276 570
Single-currency interest rate swap (IRS)	11 647 671	5 029 341
Macro cash flow hedge -purchased (IRS)	4 798 700	50 000
Macro cash flow hedge -purchased (CIRS)	10 805 494	9 862 218
Macro cash flow hedge -sold (CIRS)	12 335 879	11 497 988
FX Swap cash flow hedge -purchased (FX)	688 870	414 425
FX Swap cash flow hedge-sold (FX)	710 417	422 598
Term derivatives (trading)	776 623 390	661 823 482
Interest rate operations	508 223 629	370 178 979
-Single-currency interest rate swap	425 890 776	339 859 952
-FRA - purchased amounts	75 832 500	21 691 000
-Options	6 486 353	8 374 127
-Forward- purchased amounts	9 000	243 900
-Forward- sold amounts	5 000	10 000
FX operations	268 399 761	291 644 503
-FX swap – purchased amounts	77 701 127	92 696 875
-FX swap – sold amounts	78 149 123	92 654 613
-Forward- purchased amounts	17 076 145	19 178 299
-Forward- sold amounts	16 855 581	19 078 735
-Non-Deliverable Forward (NDF) - purchased amounts	515 889	620 919
-Non-Deliverable Forward (NDF) - sold amounts	540 017	626 202
-Window Forward – purchased amounts	49 196	129 701
-Window Forward – sold amounts	48 973	129 475
-Cross-currency interest rate swap (CIRS) – purchased amounts	17 194 355	16 148 572
-Cross-currency interest rate swap (CIRS) – sold amounts	17 252 483	16 178 507
-FX options -purchased CALL	10 407 548	8 490 058
-FX options -purchased PUT	11 100 888	8 611 245
-FX options -sold CALL	10 383 420	8 484 775
-FX options -sold PUT	11 125 016	8 616 527
Currency transactions- spot	1 658 961	4 271 117
Spot-purchased	829 371	2 136 775
Spot-sold	829 590	2 134 342
Transactions on equity financial instruments	16 309	48 423
Derivatives contract - purchased	700	101
Derivatives contract - sold	15 609	48 322
Total	819 285 691	693 419 592

In the case of single-currency transactions (IRS, FRA, non-FX options) only purchased amounts are presented.

21. Hedging derivatives

	31.12.2022		31.12.2021
Hedging derivatives	Assets	Liabilities	Assets	Liabilities
Derivatives hedging fair value	487 292	25 508	163 177	29 105
Derivatives hedging cash flow	61 885	1 953 581	-	1 733 229
Total	549 177	1 979 089	163 177	1 762 334

As at 31.12.2022, the line item: hedging derivatives – derivatives hedging cash flows reflects a change in the first-day valuation of forward-starting CIRS transactions of PLN (4,353) k and PLN (5,404) k as at 31.12.2021.

22. Loans and advances to customers

	31.12.2022
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	from finance leases	Total
Loans and advances to enterprises	61 207 015	2 306 972	39 205	-	63 553 192
Loans and advances to individuals, of which:	81 282 830	-	200 489	-	81 483 319
Home mortgage loans*	53 175 569	-	-	-	53 175 569
Finance lease receivables	-	-	-	11 998 301	11 998 301
Loans and advances to public sector	951 570	328 428	-	-	1 279 998
Other receivables	77 914	-	-	-	77 914
Gross receivables	143 519 329	2 635 400	239 694	11 998 301	158 392 724
Allowance for impairment	(5 630 633)	(6 740)	-	(246 659)	(5 884 032)
Total	137 888 696	2 628 660	239 694	11 751 642	152 508 692

* Includes changes in gross book value described in note 48 Legal risk connected with CHF mortgage loans and impact of the payment deferrals – details in note 2.6

	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	from finance leases	Total
Loans and advances to enterprises	56 155 127	1 732 895	49 667	-	57 937 689
Loans and advances to individuals, of which:	82 535 016	-	504 163	-	83 039 179
Home mortgage loans*	54 740 891	-	-	-	54 740 891
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	139 027 045	1 732 895	553 830	10 937 915	152 251 685
Allowance for impairment	(5 648 321)	(3 047)	-	(208 972)	(5 860 340)
Total	133 378 724	1 729 848	553 830	10 728 943	146 391 345

* Includes changes in gross book value described in note 48 Legal risk connected with CHF mortgage loans

Impact of the legal risk of mortgage loans in foreign currency	Gross carrying amount of mortgage loans in foreign currency before adjustment due to legal risk costs	Impact of the legal risk of mortgage loans in foreign currency	Gross carrying amount of mortgage loans in foreign currency after adjustment due to legal risk costs*
31.12.2022
Mortgage loans in foreign currency - adjustment to gross carrying amount	8 393 684	3 136 301	5 257 383
Provision in respect of legal risk connected with foreign currency mortgage loans		420 952
Total		3 557 253
31.12.2021
Mortgage loans in foreign currency - adjustment to gross carrying amount	9 265 163	1 859 075	7 406 088
Provision in respect of legal risk connected with foreign currency mortgage loans		176 059
Total		2 035 134

* Includes changes in gross book value described in note 48 Legal risk connected with CHF mortgage loans

As at 31.12.2022 the fair value adjustment due to hedged risk on individual loans was PLN 17,541 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 2022 was PLN 429,199 k PLN and PLN 583,479 k in 2021.

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 31.12.2022
Gross carrying amount	Stage 1	Stage 2	Stage 3	POCI	Total
As at the beginning of the period	125 037 666	6 769 045	6 598 193	622 141	139 027 045
Transfers
Transfer to Stage 1	6 531 305	(6 525 562)	(5 743)	-	-
Transfer to Stage 2	(10 132 256)	10 551 776	(419 520)	-	-
Transfer to Stage 3	(409 345)	(2 020 499)	2 429 844	-	-
New financial assets originated	33 199 030	-	-	-	33 199 030
Changes in existing financial assets	(1 714 699)	(505 501)	(381 608)	201 370	(2 400 438)
Financial assets derecognised that are not write-offs	(24 358 985)	(1 180 159)	(305 066)	(163 709)	(26 007 919)
Write-offs	-	-	(952 549)	-	(952 549)
FX and others movements	468 454	486 527	(417 154)	116 333	654 160
As at the end of the period	128 621 170	7 575 627	6 546 397	776 135	143 519 329

Movements on allowances for expected credit losses on loans and advances to customers measured at amortised cost for reporting period 1.01.2022 - 31.12.2022	Stage 1	Stage 2	Stage 3	Total
As at the beginning of the period	(665 398)	(561 788)	(4 208 850)	(5 436 036)
Transfers
Transfer to Stage 1	(159 225)	484 976	57 724	383 475
Transfer to Stage 2	226 791	(844 791)	216 984	(401 016)
Transfer to Stage 3	20 711	283 065	(1 079 098)	(775 322)
New financial assets originated	(365 772)	-	-	(365 772)
Changes in credit risk of existing financial assets	122 350	35 667	(330 762)	(172 745)
Changes in models and risk parameters	(19 360)	(117 400)	(1 940)	(138 700)
Financial assets derecognised that are not write-offs	151 980	58 814	191 315	402 109
Write-offs	-	-	994 224	994 224
FX and others movements	46 122	(58 146)	41 444	29 420
As at the end of the period	(641 801)	(719 603)	(4 118 959)	(5 480 363)

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 1.01.2022 - 31.12.2022	23 598	(157 816)	89 890	(44 328)
Movements on allowances for expected credit losses on finance lease receivables measured at amortised cost for reporting period 1.01.2022 - 31.12.2022	(6 919)	(23 297)	(7 475)	(37 691)
Transfers that do not go through profit and loss	(134 993)	(326 083)	366 504	(94 572)
Write-offs	-	-	(892 534)	(892 534)
Impairment allowances for expected credit losses on loans measured at fair value through other comprehensive income	(3 694)	-	-	(3 694)
FX differences	1 380	3 283	15 955	20 618
Total	(120 628)	(503 913)	(427 660)	(1 052 201)

Movements on impairment losses on purchased or originated credit-impaired loans (POCI)	1.01.2022-31.12.2022	1.01.2021-31.12.2021
As at the beginning of the period	(212 292)	(221 470)
Charge/write back of current period	9 766	1 256
Write off/Sale of receivables	37 666	7 659
F/X differences	(627)	(141)
Other	15 215	404
As at the end of the period	(150 272)	(212 292)

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	119 278 850	7 965 354	7 515 900	719 580	135 479 684
Transfers
Transfer to Stage 1	4 828 660	(4 734 525)	(94 135)	-	-
Transfer to Stage 2	(7 057 919)	7 289 550	(231 631)	-	-
Transfer to Stage 3	(479 035)	(1 309 993)	1 789 028	-	-
New financial assets originated	34 832 070	-	-	-	34 832 070
Changes in existing financial assets	(4 626 630)	(701 637)	(660 899)	(135 155)	(6 124 321)
Financial assets derecognised that are not write-offs	(23 417 053)	(585 142)	(321 055)	(64 185)	(24 387 435)
Write-offs	-	-	(1 617 646)	-	(1 617 646)
FX and others movements	1 678 723	(1 154 562)	218 631	101 901	844 693
As at the end of the period	125 037 666	6 769 045	6 598 193	622 141	139 027 045

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	(562 399)	(774 205)	(4 564 751)	(5 901 355)
Transfers
Transfer to Stage 1	(47 299)	452 305	33 885	438 891
Transfer to Stage 2	163 721	(622 489)	114 365	(344 403)
Transfer to Stage 3	19 041	256 148	(1 001 325)	(726 136)
New financial assets originated	(344 025)	-	-	(344 025)
Changes in credit risk of existing financial assets	10 292	84 753	(439 014)	(343 969)
Changes in models and risk parameters	(23 935)	37 703	(25 983)	(12 215)
Financial assets derecognised that are not write-offs	146 201	12 070	158 983	317 254
Write-offs	-	-	1 439 297	1 439 297
FX and others movements	(26 995)	(8 073)	75 693	40 625
As at the end of the period	(665 398)	(561 788)	(4 208 850)	(5 436 036)

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	(102 999)	212 417	355 902	465 320
Movements on allowances for expected credit losses on finance lease receivables measured at amortised cost for reporting period 1.01.2021 - 31.12.2021	(4 176)	(5 396)	(46 442)	(56 014)
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	610	701	14 168	15 479
Total	(150 317)	(108 787)	(920 166)	(1 179 270)

Loans and advances to enterprises 31.12.2022
Gross carrying amount	Stage 1	Stage 2	Stage 3	POCI	Total
As at the beginning of the period	48 271 183	4 466 109	3 198 708	219 126	56 155 126
Transfers
Transfer to Stage 1	2 898 529	(2 856 334)	(42 194)	-	-
Transfer to Stage 2	(4 947 191)	5 069 595	(122 405)	-	-
Transfer to Stage 3	(128 134)	(1 104 636)	1 232 771	-	-
New financial assets originated	14 260 592	-	-	-	14 260 592
Changes in existing financial assets	4 263 220	(345 541)	(222 729)	250 233	3 945 183
Financial assets derecognised that are not write-offs	(13 153 946)	(901 365)	(134 827)	(129 804)	(14 319 942)
Write-offs	-	-	(358 213)	-	(358 213)
FX and others movements	1 492 535	305 821	(346 754)	72 665	1 524 268
As at the end of the period	52 956 788	4 633 649	3 204 357	412 220	61 207 014

Movements on allowances for expected credit losses on loans and advances to enterprises measured at amortised cost for reporting period 1.01.2022 - 31.12.2022	Stage 1	Stage 2	Stage 3	Total
As at the beginning of the period	(187 811)	(269 927)	(1 917 917)	(2 375 655)
Transfers
Transfer to Stage 1	(49 107)	154 378	18 273	123 544
Transfer to Stage 2	88 512	(296 773)	33 500	(174 761)
Transfer to Stage 3	4 333	114 185	(379 175)	(260 657)
New financial assets originated	(50 762)	-	-	(50 762)
Changes in credit risk of existing financial assets	(39 779)	(69 851)	(26 972)	(136 602)
Changes in models and risk parameters	(6 320)	(31 430)	(24 730)	(62 480)
Financial assets derecognised that are not write-offs	30 341	22 690	46 579	99 610
Write-offs	-	-	345 676	345 676
FX and others movements	(2 163)	7 795	10 067	15 699
As at the end of the period	(212 756)	(368 933)	(1 894 699)	(2 476 388)

Movements on impairment losses on purchased or originated credit-impaired loans and advances to enterprises (POCI)	1.01.2022-31.12.2022	1.01.2021-31.12.2021
As at the beginning of the period	(49 445)	(38 544)
Charge/write back of current period	(10 806)	(13 628)
Write off/Sale of receivables	10	2 844
F/X differences	(145)	(10)
Other	(347)	(107)
As at the end of the period	(60 733)	(49 445)

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)

Loans and advances to individuals 31.12.2022
Gross carrying amount	Stage 1	Stage 2	Stage 3	POCI	Total
As at the beginning of the period	76 429 576	2 302 941	3 399 479	403 020	82 535 016
Transfers
Transfer to Stage 1	3 632 776	(3 669 227)	36 451	-	-
Transfer to Stage 2	(5 185 065)	5 482 180	(297 116)	-	-
Transfer to Stage 3	(281 211)	(915 862)	1 197 073	-	-
New financial assets originated	18 938 438	-	-	-	18 938 438
Changes in existing financial assets	(6 672 060)	(157 955)	(159 324)	(48 863)	(7 038 202)
Financial assets derecognised that are not write-offs	(11 205 039)	(278 795)	(170 238)	(33 905)	(11 687 977)
Write-offs	-	-	(594 336)	-	(594 336)
FX and others movements	(1 024 083)	180 706	(70 400)	43 668	(870 109)
As at the end of the period	74 633 332	2 943 988	3 341 589	363 920	81 282 829

Movements on allowances for expected credit losses on loans and advances to individuals measured at amortised cost for reporting period 1.01.2022 - 31.12.2022	Stage 1	Stage 2	Stage 3	Total
As at the beginning of the period	(477 587)	(291 862)	(2 290 930)	(3 060 379)
Transfers
Transfer to Stage 1	(110 119)	330 598	39 451	259 930
Transfer to Stage 2	138 279	(548 018)	183 484	(226 255)
Transfer to Stage 3	16 378	168 880	(699 923)	(514 665)
New financial assets originated	(315 010)	-	-	(315 010)
Changes in credit risk of existing financial assets	162 129	105 518	(303 790)	(36 143)
Changes in models and risk parameters	(13 040)	(85 970)	22 790	(76 220)
Financial assets derecognised that are not write-offs	121 640	36 124	144 736	302 500
Write-offs	-	-	648 548	648 548
FX and others movements	48 286	(65 941)	31 374	13 719
As at the end of the period	(429 044)	(350 671)	(2 224 260)	(3 003 975)

Movements on impairment losses on purchased or originated credit-impaired loans and advances to individuals (POCI)	1.01.2022-31.12.2022	1.01.2021-31.12.2021
As at the beginning of the period	(162 847)	(182 546)
Charge/write back of current period	20 571	14 503
Write off/Sale of receivables	37 657	4 815
FX differences	(482)	(132)
Other	15 562	513
As at the end of the period	(89 539)	(162 847)

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	72 418 881	3 476 939	3 632 252	471 206	79 999 278
Transfers
Transfer to Stage 1	2 458 159	(2 403 289)	(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	(7 095 423)	(219 651)	(240 710)	(98 435)	(7 654 219)
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	1 044 125	(1 206 507)	326 961	68 121	232 700
As at the end of the period	76 429 576	2 302 941	3 399 479	403 020	82 535 016

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)

Finance lease receivables 31.12.2022
Gross carrying amount	Stage 1	Stage 2	Stage 3	POCI	Total
As at the beginning of the period	10 061 124	584 613	289 854	2 324	10 937 915
Transfers
Transfer to Stage 1	993 001	(978 659)	(14 342)	-	-
Transfer to Stage 2	(1 434 376)	1 438 927	(4 551)	-	-
Transfer to Stage 3	(20 717)	(196 069)	216 786	-	-
New financial assets originated	3 676 333	-	-	-	3 676 333
Changes in existing financial assets	(1 732 013)	(163 634)	(115 905)	1 322	(2 010 230)
Financial assets derecognised that are not write-offs	(502 598)	(48 037)	1 215	(47)	(549 467)
Write-offs	-	-	(30 801)	-	(30 801)
FX and others movements	(89 270)	30 742	33 079	-	(25 449)
As at the end of the period	10 951 484	667 883	375 335	3 599	11 998 301

Movements on allowances for expected credit losses on finance lease receivables measured at amortised cost for reporting period 1.01.2022 - 31.12.2022	Stage 1	Stage 2	Stage 3	Total
As at the beginning of the period	(28 739)	(32 425)	(147 808)	(208 972)
Transfers
Transfer to Stage 1	(10 526)	41 514	2 435	33 423
Transfer to Stage 2	16 955	(66 092)	2 098	(47 039)
Transfer to Stage 3	360	15 824	(47 197)	(31 013)
New financial assets originated	(20 195)	(1 898)	(95)	(22 188)
Changes in credit risk of existing financial assets	(1 313)	(10 437)	24 863	13 113
Changes in models and risk parameters	-	-	-	-
Financial assets derecognised that are not write-offs	1 252	1 064	(14 867)	(12 551)
Write-offs	-	-	29 870	29 870
FX and others movements	6 550	(3 271)	(4 581)	(1 302)
As at the end of the period	(35 656)	(55 721)	(155 282)	(246 659)

Movements on impairment losses on purchased or originated credit-impaired on finance lease receivables (POCI)	1.01.2022-31.12.2022	1.01.2021-31.12.2021
As at the beginning of the period	-	(382)
Charge/write back of current period	-	382
Write off/Sale of receivables	-	-
FX differences	-	-
Other	-	-
As at the end of the period	-	-

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)

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 1,720,025k, the mezzanine tranche was PLN 397,756k and the junior tranche amounted to PLN 32,251k.

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.

As at 31 December 2022, the gross carrying amounts of the individual tranches were as follows: senior tranche: PLN 474 115k, mezzanine tranche: PLN 109 639k and junior tranche: PLN 32 511k. In the reporting period, credit losses allocated outside the securitisation structure using the synthetic excess spread mechanism totalled PLN 18 271k. 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
	31.12.2022	31.12.2021	31.12.2022	31.12.2021	31.12.2022	31.12.2021
Balance sheet portfolio, incl:	616 265	1 370 051	611 333	1 364 407	4 930	5 645
tranche senior	474 115	1 086 470	470 321	1 081 955	3 793	4 516
tranche mezzanine	109 639	251 246	108 762	250 202	877	1 044
tranche junior	32 511	32 335	32 250	32 250	260	85
Value losses allocated to Synthetic Excess Spread	18 271	23 406	18 271	23 406	18 271	23 406
Value of available Synthetic Excess Spread allocated to be used	8 337	18 772	8 337	18 772	-	-

On 31 March 2022, Santander Bank Polska S.A. signed a synthetic securitisation agreement with International Finance Corporation) (IFC) with respect to PLN 2 443 520k worth of cash loan portfolio with the option to increase this portfolio amount up to PLN 2 878 788k. The transaction with IFC is the first such transaction concluded by the Bank and entities of its capital Group with this investor.

The transaction has been executed to transfer credit risk to the IFC 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. In the sense of the CRR, this is an SRT transaction. The Bank will allocate the capital released thanks to the IFC guarantee to finance pro-environmental projects with a total value of at least USD 600 million.

The transaction is set to expire by 31 January 2030.

As part of the transaction, the securitised portfolio is divided into three tranches: senior (82.67% of the portfolio), mezzanine (16.5% of the portfolio) and junior, i.e. the first loss tranche (0.83% of the portfolio). As at the guarantee activation date, the senior tranche totaled PLN 2 020 058 k, the mezzanine tranche was PLN 403 181 k and the junior tranche amounted to PLN 20 281 k.

The mezzanine tranche was fully guaranteed by IFC. The senior and the first loss tranches were 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.

As at 31 December 2022, the gross carrying amounts of the individual tranches were as follows: senior tranche: PLN 2 032 923k. mezzanine tranche: PLN 405 749k and junior tranche: PLN 20 410k.

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
	31.12.2022	31.12.2021	31.12.2022	31.12.2021	31.12.2022	31.12.2021
Balance sheet portfolio, incl:	2 459 082	-	2 443 520	-	144 987	-
tranche senior	2 032 923	-	2 020 058	-	119 861	-
tranche mezzanine	405 749	-	403 181	-	23 923	-
tranche junior	20 410	-	20 281	-	1 203	-

Santander Leasing S.A.

Since 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 securethe 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 andcovers the selected portfolio which remains on the Company’s balance sheet.

Until July 2022 the securitised portfolio was divided into three tranches: senior (85%), mezzanine (14.2%) and junior (0.8%). Thesenior 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.

On 31 May 2022 a two-year period of building a portfolio of contracts covered by securitization ended and the depreciation period started. Since then the structure of the transaction is different: senior and mezzanine tranches are systematically depreciated, but the junior tranche remains unchanged. As at 31 December 2022 the senior tranche totalled PLN 1 224 969 thousand, the mezzanine tranche was PLN 204 642 thousand and the junior tranche amounted to PLN 15 332 thousand.

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).

	Transaction value - gross			Transaction value by capital amount			Retained Risk Value
		31.12.2022	31.12.2021		31.12.2022	31.12.2021		31.12.2022	31.12.2021
Balance sheet portfolio, incl:		1 544 178	1 851 940		1 444 943	1 745 167		99 234	106 773
tranche senior		1 309 097	1 574 149		1 224 969	1 483 392		84 127	90 757
tranche mezzanine		218 696	262 975		204 642	247 814		14 054	15 162
tranche junior		16 385	14 816		15 332	13 961		1 053	854
Value losses allocated to Synthetic Excess Spread		919	329		919	329		919	329
Value of available Synthetic Excess Spread allocated to be used		9 747	12 902		9 747	12 902		-	-

On 16 December 2021 Santander Leasing SA made a guarantee agreement with the European Investment Fund (“EIF”). The pertinent guarantee relates to a lease and loan portfolio totalling approx. PLN 2 736 219 k. The transaction is set to expire on 30 November 2030.

The guarantee agreement made by Santander Leasing SA (hereinafter “SL”) conforms to the requirements set out in CRR Regulation (amended by Regulation (EU) 2017/2041) regarding synthetic securitisation, however, it is not an STS transaction. The transaction is a synthetic securitisation which does not involve financing and it covers the selected portfolio of lease and loans which remain on SL’s statement of financial position.

Structure of the transaction is that the securitised portfolio is divided into two tranches: senior (87.5% portfolio) and junior, i.e. the first loss tranche (12.5% portfolio). As at the guarantee activation date, the senior tranche was PLN 2 394 192 k and the junior tranche amounted to PLN 342 027k. The junior tranche was guaranteed by EIF. Both the principal, as well as the interest components of the underlying exposures are covered by EIF guarantee. The Synthetic Excess Spread (SES) was not applied in the transaction.

As at 31 December 2022 the senior tranche totalled PLN 1 524 734 thousand and the junior tranche amounted to PLN 215 453 thousand.

Santander Leasing SA is the originator of the synthetic securitisation process and does not perform any other roles in the synthetic structure in question. No Securitisation Special Purpose Entities (SSPE) participate in the transaction.

The purpose of the synthetic securitisation made by Santander Leasing is to release capital on the level of the Group of Santander Bank Polska. Furthermore, the agreement signed by Santander Leasing transfers part of credit risk arising from exposures included in the lease and loan portfolio secured by the EIF guarantee and optimises the Bank’s Tier 1 capital.

The maximum value of credit losses attributable to the EIF-guaranteed exposures is equal to the current amount of the junior tranche. The guarantee agreement made by Santander Leasing does not give grounds for removing from the balance sheet the receivables from the above contracts in full or in part.

	Transaction value - gross		Transaction value by capital amount		Retained Risk Value
	31.12.2022	31.12.2021	31.12.2022	31.12.2021	31.12.2022	31.12.2021
Balance sheet portfolio, incl:	1 848 303	2 833 915	1 740 187	2 643 328	108 116	190 586
tranche senior	1 619 465	2 479 676	1 524 734	2 312 912	94 730	166 763
tranche junior	228 838	354 239	215 453	330 416	13 386	23 823

Santander Consumer Bank S.A.

In December 2022, the Bank closed the securitisation transaction made in 2019 and entered into a new securitisation transaction in relation to the portfolio of cash loans. The new transaction is similar to the previous one – it is a traditional revolving securitisation with the maximum duration of 10 years. However, SCB expects that the transaction will be closed within two years of the transaction date.

As part of the transaction, SCB transferred the rights to future cash flows of PLN 1,250,000k to SC Poland Consumer 23-1 DAC, an SPV with its registered office in Ireland, and granted a subordinated loan of PLN 25,000k to that SPV. The loan is subordinated to the senior secured bonds. Interest on the loan is paid in a specific order from SPV funds, while the principal will be repaid upon the full redemption of bonds. The loan bears a fixed interest rate.

The SPV bought SCB receivables through the issue of bonds of PLN 1,000,000k bearing an interest rate based on WIBOR and secured by a registered pledge on the SPV’s assets.

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.

As at 31 December 2022, the fair value of assets was as follows: subordinated loan PLN 245,820k , securitised assets PLN 933,220k

	Transaction value		Risk value retained in the Group		Fair Value
	31.12.2022	31.12.2021	31.12.2022	31.12.2021	31.12.2022	31.12.2021
Balance sheet value - Assets	968 596	1 897 863	968 596	1 897 863	933 220	1 846 309
Balance sheet value - Liabilities	1 255 909	2 446 972	1 255 909	2 446 972	1 250 455	2 446 972
Net amount	( 287 313)	(549 109)	( 287 313)	(549 109)	( 317 235)	(600 663)

At the same time, as at 31 December 2022 the Bank recognised the liability of PLN 1 257,899k in respect of cash flows from securitisation under deposits from customers in the statement of financial position.

The fair value of the liability in respect of cash flows from the securitisation measured as at the balance sheet date was PLN 1,250,455k.

	Transaction value - gross		Transaction value by capital amount		Retained Risk Value
	31.12.2022	31.12.2021	31.12.2022	31.12.2021	31.12.2022	31.12.2021
Balance sheet portfolio, incl:	601 312	1 493 650	601 312	1 493 650	20 809	20 809
tranche senior	478 856	1 214 945	478 856	1 214 945	-	-
tranche mezzanine	101 647	257 896	101 647	257 896	-	-
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	4 293	7 307	4 293	7 307	-	n/a

In December 2022, Santander Consumer Bank S.A. entered into a synthetic securitisation transaction in relation to the portfolio of 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 was a synthetic securitisation and consisted of three tranches. On 15 December 2022, the Bank signed an agreement with the European Investment Fund (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. It provides for synthetic excess spread, which is equal to 0.65% 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 in December 2022, while the impact on the Bank’s risk-weighted assets was recognised as at the reporting date of 31 December 2022 (decrease of PLN 772 074k in risk-weighted assets). The guarantee covered the portfolio of instalment loans of PLN 1,146 009k (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 31 October 2031. It does not involve financing and covers the selected portfolio of 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.

	Transaction value - gross		Transaction value by capital amount		Retained Risk Value
	31.12.2022	31.12.2021	31.12.2022	31.12.2021	31.12.2022	31.12.2021
Balance sheet portfolio, incl:	1 047 113	n/a	1 047 113	n/a	13 752	n/a
tranche senior	852 418	n/a	852 418	n/a	-	n/a
tranche mezzanine	180 943	n/a	180 943	n/a	-	n/a
tranche junior	13 752	n/a	13 752	n/a	13 752	n/a
Value losses allocated to Synthetic Excess Spread	-	n/a	-	n/a	-	n/a
Value of available Synthetic Excess Spread allocated to be used	6 806	n/a	6 806	n/a	-	n/a

In 2021 and 2022, Santander Consumer Bank S.A. continued the synthetic securitisation started in 2019 in relation to the 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.

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 (SPV4). In May 2022, an annex was signed. Currently, the transaction meets the criteria of a simple, transparent and standardised securitisation (STS), and SCM acts as the originator in that deal.

Based on the securitised assets, SPV4 issued bonds of PLN 891,000k as at 31 December 2022. 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 SPV4 with a subordinated loan totalling PLN 216,700k as at 31 December 2022. The loan is subordinated to the senior secured bonds. Interest on the loan is paid in a specific order from SPV4 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 2022, SCM disclosed the securitised assets of PLN 1,100,000k 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 2022, it totalled PLN 1,107,700k.

As at December 31, 2022, SCM also had receivables of PLN 7 588 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
	31.12.2022	31.12.2021	31.12.2022	31.12.2021	31.12.2022	31.12.2021
Balance sheet value - Assets	1 100 000	948 742	1 100 000	948 742	1 207 807	978 413
Balance sheet value - Liabilities	1 110 877	956 415	1 110 877	956 415	1 110 877	956 415
Net amount	(10 877)	(7 673)	(10 877)	(7 673)	96 930	21 998

24. Investment securities

Investment securities	31.12.2022	31.12.2021
Debt investment securities measured at fair value through other comprehensive income	39 539 535	70 064 796
Government securities:	34 127 213	49 225 514
- bonds	34 127 213	49 225 514
Central Bank securities:	3 898 145	6 997 960
- bills	3 898 145	6 997 960
Other securities:	1 514 177	13 841 322
-bonds	1 514 177	13 841 322
Debt investment securities measured at fair value through profit and loss	64 707	116 977
Debt investment securities measured at amortised cost	15 499 348	1 421 272
Government securities:	3 156 009	1 421 272
- bonds	3 156 009	1 421 272
Other securities:	12 343 339	-
- bonds	12 343 339	-
Equity investment securities measured at fair value through other comprehensive income	204 299	259 788
- listed	-	64 320
- unlisted	204 299	195 468
Equity investment securities measured at fair value through profit and loss	63 248	3 427
- unlisted	63 248	3 427
Total	55 371 137	71 866 260

Movements on investment securities 1.01.2022 - 31.12.2022	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	70 064 796	116 977	1 421 272	259 788	3 427	71 866 260
Additions	160 794 907	-	1 680 423	129	59 179	162 534 638
Disposals (sale and maturity)	(180 025 781)	(59 179)	-	(29 994)	-	(180 114 954)
Reclassification	(10 521 724)	-	12 380 194	-	-	1 858 470
Fair value adjustment	(1 532 132)*	(6 326)	-	(25 624)	3 264	(1 560 818)
Movements on interest accrued	555 631	-	17 459	-	-	573 090
Impairment losses on securities	(1 066)	-	-	-	-	(1 066)
FX differences	204 904	13 235	-	-	(2 600)	215 539
Other changes	-	-	-	-	(22)	(22)
As at the end of the period	39 539 535	64 707	15 499 348	204 299	63 248	55 371 137

*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.

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.

Change of classification of specific bonds portfolio

In the first quarter of 2022 the Management of the Bank performed a review of its asset and liability management policy.

Considering the following external factors observable in the economy and markets and constituting a material change of a scenario for inflation and interest rates in Poland:

● An unprecedented increase in inflation expectations globally and locally;

● Significant acceleration in interest rate increases with more increases expected;

● Russian invasion in Ukraine resulting in headwinds to economic growth and fuelling global inflationary pressure further;

● Highly increased volatility of the Polish currency and interest rates;

● Polish inflation forecasts adjusted significantly upwards and for a longer period;

the Management identified the necessity to revise the existing strategy and related business model regarding the management of customer deposits.

The Bank’s business model strategy for customer deposits has assumed to-date that any deposit including all current accounts, regardless of its existing price characteristics, may be subject to repricing risk and its price is linked to prevailing market rates depending on market conditions and/or the liquidity position of the Bank. This in turn has had a direct impact on the ALCo business model, which in the past was limited to investments into assets classified as Held To Collect and for Sale (“HTC&S”). The option to sell these assets and reinvest was required for the Bank to be able to manage and protect the net interest margin in case the deposits would need to be remunerated.

The analyses performed by the Management resulted in the following conclusions. The stable part of the current accounts, including retail current accounts and the “Konto Jakie Chcę” (“KJC”) specifically, has been and remains the main source of interest rate risk in the liability side of the balance sheet (long-term fixed rate positions which are modelled by the Bank). As such, in order to manage risk in the balance sheet (to protect the balance sheet i.e. the market/economic value of equity - MVE) a corresponding fixed rate position is required in the asset side of the balance sheet. This can be obtained either by directly investing into fixed rate assets or via derivative hedging (via interest rate swaps). Given the excess liquidity of the Bank historically and specifically since the beginning of 2020 i.e. the start of Covid support programs leading to the excess liquidity across the market, the strategy has been to utilize the excess liquidity to purchase fixed rate assets to the ALCO portfolio. Given that in order to fund COVID support programs the Polish government decided BGK and PFR would issue long term bonds, the Bank decided to acquire them as part of the strategy mentioned above – which was reflected in a dedicated ALCo mandate for these securities valid from April 2020. The evolution of EVE sensitivity showed that the growth in current accounts had been constantly fuelling growth in risk exposure, and despite model recalibration to account for potential

uncertainty regarding the pricing of these deposits the decision to purchase the COVID bonds was directly linked to the management of risk (management of rising EVE sensitivity exposure) resulting from the growth in stable PLN current accounts, including the KJC.

In the light of the increased repricing risk for the deposit base in general, given the change in macroeconomic conditions described above, the Bank decided to cease an element of its significant commercial activity to date, namely to resign from the possibility to remunerate the KJC account going forward. This was confirmed by formal decisions of the Asset and Liability Management Committee (“ALCo”) and the Management Board of the Bank in March 2022.

The direct consequence of the change in strategy for these particular current accounts that will be managed differently going forward is simultaneously triggering a change in the investment strategy of the underlying assets. The protection strategy has to change as the fixed rate assets which hedge the interest rate risk exposure of the KJC portfolio have to be included in a new business model: Held To Collect (“HTC”). Under that strategy, the Bank invests in fixed rate assets which will be held to maturity to offset interest rate risk of this portfolio.

We have identified that the specific portfolio of fixed rate bonds described above should be reclassified to HTC model as the sale option is no longer valid for the purpose of the execution of the revised strategy. The bonds are invested on the basis that the core deposits (specifically KJC current accounts) are stable, therefore do not require reinvestment option. All bonds with required specification have been included in the revised business model.

All the criteria stipulated in IFRS 9 as required to implement a change in the business model have been fulfilled. It is infrequent, stimulated by external factors, considered to have significant impact for the business and visible for external parties. Also the decision about the change of the business model (and consequently the change of classification of financial instruments) has been made under the prescribed governance regime, with ALCo and the Management Board decisions.

Following the provisions of IFRS 9, as the decision on the change of the business model was made in the first quarter of 2022, and the Bank publishes interim financial statements on a quarterly basis, the reclassification has been included in the next interim financial reports, with effective date of implementation as at 1.04.2022.

The impact of the reclassification of specific financial instruments on the financial position of the Bank and its assets structure as at 1.04.2022 is as follows. Debt investment securities measured at fair value through other comprehensive income of PLN 10,521.72m have been reclassified and related fair value adjustment has been reversed, also related deferred tax asset of PLN 353.11m has been released. Debt investment securities measured at amortised cost of PLN 12,380.19m have been recognised. The changes resulted in the net other comprehensive income increase in the amount of PLN 1,505.36m.

Following the change of classification from HTC&S into HTC category in accordance with IFRS 9, the Bank was required to make the accounting entries in order to measure the portfolio of the bonds at the reclassification date as if it had always been measured at amortised cost. The portfolio has been reclassified at fair value and at the reclassification date the cumulative loss previously recognised in other comprehensive income was removed from equity and adjusted against the fair value of the portfolio of bonds. Deferred tax asset related to cumulative loss previously recognised in other comprehensive income was reversed accordingly. There were no significant expected credit losses recognised for respective bonds.

The table below shows the value of gains/losses from changes in the fair value of investment securities that would have been recognized in the revaluation reserve if the investment securities had not been reclassified.

Reclassification of investment securities from measured at fair value through other comprehensive income to measured at amortized cost
Fair value of debt investment securities reclassified as at 31 December 2022	10 306 314
Gain/ loss on change in the fair value of debt investment securities which would have been recognised in other comprehensive income between 1 January and 31 December if the investment securities had not been reclassified (taking into account tax impact)	(174 482)

25. Investments in associates

Balance sheet value of associates	31.12.2022	31.12.2021
Polfund - Fundusz Poręczeń Kredytowych S.A.	46 732	45 944
Santander - Allianz Towarzystwo Ubezpieczeń S.A. and Santander - Allianz Towarzystwo Ubezpieczeń na Życie S.A.	874 763	886 796
Total	921 495	932 740

Movements on investments in associates	1.01.2022-31.12.2022	1.01.2021-31.12.2021
As at the beginning of the period	932 740	998 397
Share of profits/(losses)	84 049	74 068
Dividends	(76 760)	(113 254)
Other	(18 534)	(26 471)
As at the end of the period	921 495	932 740

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
		2022	2021
Santander - Allianz Towarzystwo Ubezpieczeń na Życie S.A.	Poland Warszawa	49,00	49,00	Equity method	insurance activity, life insurance
Santander - Allianz 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 - Allianz Towarzystwo Ubezpieczeń na Życie S.A.		Santander - Allianz Towarzystwo Ubezpieczeń S.A.
	2022*	2021	2022*	2021
Loans and advances to banks	54 983	75 971	17 791	15 169
Financial assets held for trading	119 109	137 800	-	1 112
Investment securities	679 587	590 201	261 977	309 301
Deferred tax assets	11 945	3 140	2 982	3 350
Net life insurance assets where the deposit (investment) risk is incurred by the insuring party	113 062	153 649	-	-
Other settlements	59 348	48 536	42 157	33 616
Prepayments	382 599	362 312	57 161	70 027
Other items	470	678	105	82
Total assets	1 421 103	1 372 287	382 173	432 657
Technical insurance provisions	879 911	869 334	131 347	149 002
Reinsurers’ share in provisions	(7 976)	(6 373)	(6 623)	(16 439)
Estimated recourses and recoveries (negative value)	-	-	(546)	(1 078)
Other liabilities	364 098	321 124	41 217	56 615
Prepayments and accruals	2 828	2 566	5 489	12 147
Special funds	119	91	89	67
Total liabilities	1 238 980	1 186 742	170 973	200 314
Income	320 968	282 050	126 826	119 933
Profit (loss) for the period	126 967	93 526	42 951	53 922
Dividends paid to Santander Bank Polska SA	48 746	64 917	28 015	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.

2021 data are based on audited financial report of companies Santander - Allianz Towarzystwo Ubezpieczeń na Życie S.A. and Santander - Allianz Towarzystwo Ubezpieczeń S.A.

Data published in Annual Report for 2021 were based on estimates of companies. Differences between estimates and real data are irrelevant.

26. Intangible assets

Intangible assets Year 2022	Licences, patents etc.	Other	Expenditure on intangible assets	Total
Value at purchase price - beginning of the period	2 389 039	219 679	289 548	2 898 266
Additions from:
- purchases	-	-	295 168	295 168
- transfers from expenditures	279 044	-	-	279 044
- transfers	440	25	4 374	4 839
Decreases from:
- liquidation	(58 910)	(10)	(5 647)	(64 567)
- transfers from expenditures	-	-	(279 013)	(279 013)
- transfers	-	-	(3 381)	(3 381)
Value at purchase price - end of the period	2 609 613	219 694	301 049	3 130 356
Accumulated depreciation - beginning of the period	(2 049 167)	(156 297)	-	(2 205 464)
Additions/decreases from:
- current year amortization	(209 714)	(20 401)	-	(230 115)
- liquidation, sale	45 974	5	-	45 979
- transfers	-	-	-	-
Write down/Reversal of impairment write down	-	-	-	-
Accumulated depreciation- end of the period	(2 212 907)	(176 693)	-	(2 389 600)
Balance sheet value
Purchase value	2 609 613	219 694	301 049	3 130 356
Accumulated depreciation	(2 212 907)	(176 693)	-	(2 389 600)
As at 31 December 2022	396 706	43 001	301 049	740 756

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
Decreases 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/decreases 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

27. Goodwill

As at 31 December 2022 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 2022 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 2022 was PLN 1,688,516 k (the same as at 31 December 2021).

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 2023-2025.

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 2023–2025 was prepared in line with the strategic and operational plans for 2023–2025 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 2022.

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 11.21% used in the model is equal to the cost of capital assumed for Santander Bank Polska.

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 regulatory capital ratio

An increase in the required capital amount results in a decrease in the amount of capital available for distribution 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 the fulfilment of the minimum criteria laid down in the KNF’s dividend policy. Details in note 5.

As at 31 December 2022, 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 2022, no goodwill impairment was identified.

28. Property, plant and equipment

Property, plant & equipment not subject to operating lease Year 2022	Land and buildings	IT Equipment	Transportation means	Other fixed assets	Fixed assets under construction	Total
Value at purchase price - beginning of the period	514 810	990 217	121 125	212 314	92 955	1 931 421
Additions from:
- purchases	-	-	7 738	-	134 414	142 152
- transfers from expenditures	4 295	109 997	7 279	4 355	-	125 926
- transfers	-	(11)	67	13	1 110	1 179
Decreases from:
- sale, liquidation, donation	(114 311)	(59 325)	(19 184)	(28 628)	(23)	(221 471)
- transfers from expenditures	-	-	-	(2)	(125 485)	(125 487)
- transfers	-	-	-	-	(278)	(278)
Value at purchase price - end of the period	404 794	1 040 878	117 025	188 052	102 693	1 853 442
Accumulated depreciation - beginning of the period	(362 681)	(695 798)	(20 746)	(157 515)	-	(1 236 740)
Additions/disposals from:
- current year amortization	(20 951)	(103 436)	(10 977)	(16 166)	-	(151 530)
- sale, liquidation, donation	91 306	57 046	7 773	26 805	-	182 930
- transfers	-	(97)	(4)	-	-	(101)
Write down/Reversal of impairment write down	(1 071)	-	-	-	-	(1 071)
Accumulated depreciation- end of the period	(293 397)	(742 285)	(23 954)	(146 876)	-	(1 206 512)
Balance sheet value
Purchase value	404 794	1 040 878	117 025	188 052	102 693	1 853 442
Accumulated depreciation	(293 397)	(742 285)	(23 954)	(146 876)	-	(1 206 512)
As at 31 December 2022	111 397	298 593	93 071	41 176	102 693	646 930

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
Decreases 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/decreases 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 subject to operating lease Year 2022	Transportation means	Fixed assets under construction	Total
Value at purchase price - beginning of the period	41 078	1 546	42 624
Additions from:
- purchases		21 471	21 471
- transfers from expenditures	22 919	-	22 919
Decreases from:
- sale, liquidation, donation	(15 913)	-	(15 913)
- transfers from expenditures		(22 920)	(22 920)
- transfers	(2 521)		(2 521)
Value at purchase price - end of the period	45 563	97	45 660
Accumulated depreciation - beginning of the period	(4 396)	-	(4 396)
Additions/decreases from:
- current year amortization	(4 059)	-	(4 059)
- sale, liquidation, donation	3 426	-	3 426
- transfers	691	-	691
Write down/Reversal of impairment write down	10	-	10
Accumulated depreciation- end of the period	(4 328)	-	(4 328)
Balance sheet value
Purchase value	45 563	97	45 660
Accumulated depreciation	(4 328)	-	(4 328)
As at 31 December 2022	41 235	97	41 332

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
Decreases 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/decreases 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

29. Right of use assets

Right of use assets Year 2022	Land and buildings	IT Equipment	Other	Total
Gross value - begining of the period	1 012 947	2 884	9 286	1 025 117
Additions from:
-new lease contracts	36 829	-	629	37 458
-lease modifications and lease period update	110 078	354	723	111 155
-outlays	28			28
Decreases from:
-lease modifications and lease period update	(97 938)	(624)	(748)	(99 310)
Gross value - end of the period	1 061 944	2 614	9 890	1 074 448
Accumulated depreciation - begining of the period	(501 350)	(1 977)	(4 688)	(508 015)
Additions from:
-current year amortization	(135 801)	(648)	(1 432)	(137 881)
Decreases from:
-lease modifications (including settlement) and lease period update	75 400	261	597	76 258
Impairment write down/Reversal of impairment write down *	(7 069)	-	(389)	(7 458)
Accumulated depreciation- end of the period	(568 820)	(2 364)	(5 912)	(577 096)
Balance sheet value
Gross amount	1 061 944	2 614	9 890	1 074 448
Accumulated depreciation	(568 820)	(2 364)	(5 912)	(577 096)
As at 31 December 2022	493 124	250	3 978	497 352

*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 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
Decreases 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)
Decreases from:
-lease modifications (including settlement) and lease period update	52 096	559	282	52 937
Impairment 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.

30. Deferred tax assets

Deferred tax assets	31.12.2022	Changes recognised in other comprehensive income*	Changes recognised in profit or loss	Changes in temporary differences	31.12.2021
Allowance for expected credit losses	968 583	-	20 472	20 472	948 111
Valuation of derivative financial instruments	1 616 560	-	628 964	628 964	987 596
Valuation of cash flow hedging instruments	74 913	65 917	-	65 917	8 996
Other provisions	226 967	-	15 533	15 533	211 434
Deferred income	603 457	-	92 959	92 959	510 498
Differences between carrying and tax value of lease	363 019	-	(68 595)	(68 595)	431 614
Unrealised interest expenses on loans, deposits and securities	284 294	-	196 453	196 453	87 841
Tax loss	106 964	-	49 108	49 108	57 856
Other negative temporary differences	39 565	-	(3 921)	(3 921)	43 486
Total assets of deferred tax	4 284 322	65 917	930 973	996 890	3 287 432

Deferred tax liabilities	31.12.2022	Changes recognised in other comprehensive income*	Changes recognised in profit or loss	Changes in temporary differences	31.12.2021
Valuation of investment securities	201 709	(117 157)	-	(117 157)	318 866
Provisions for retirement allowances	(3 309)	(37)	-	(37)	(3 272)
Valuation of derivative financial instruments	(1 358 765)	-	(634 974)	(634 974)	(723 791)
Unrealised interest income on loans, securities and interbank deposits	(787 738)	-	(549 402)	(549 402)	(238 336)
Prepayments regarding amortization of applied investment relief	(926)	-	94	94	(1 020)
Difference between balance sheet and taxable value of non-financial assets	(8 179)	-	3 489	3 489	(11 668)
Valuation of shares / interests in subsidiaries	(168 129)	-	(27 956)	(27 956)	(140 173)
Other positive temporary differences	(60 252)	-	44 076	44 076	(104 328)
Total liabilities of deferred tax	(2 185 589)	(117 194)	(1 164 673)	(1 281 867)	(903 722)
Deferred tax assets	2 098 733	(51 277)	(233 700)	(284 977)	2 383 710

*The changes recognized in other comprehensive income do not reflect the deferred tax effect in relation to the item recognised in non-controlling interests.

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	8 996	7 164	-	7 164	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	57 856	-	9 370	9 370	48 486
Other negative temporary differences	43 486	-	3 032	3 032	40 454
Total assets of deferred tax	3 287 432	7 164	(245 555)	(238 391)	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	318 866	749 278	-	749 278	(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	(104 328)	-	28 022	28 022	(132 350)
Total liabilities of deferred tax	(903 722)	747 920	(122 371)	625 549	(1 529 271)
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.

.

Movements on deferred tax	31.12.2022	31.12.2021
As at the beginning of the period	2 383 710	1 996 552
Changes recognised in income statement	(237 010)	(372 976)
Changes recognised in other comprehensive income	(51 698)	755 084
Other	3 731	5 050
Balance at the end of the period	2 098 733	2 383 710

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	31.12.2022	31.12.2021
Land and buildings	4 308	4 308
Other fixed assets	1 665	509
Total	5 973	4 817

32. Other assets

Other assets	31.12.2022	31.12.2021
Interbank settlements	9 389	22 036
Sundry debtors	999 232	965 117
Prepayments	230 186	189 698
Repossessed assets	40	48
Settlements of stock exchange transactions	30 749	57 673
Other	30 024	32 437
Total	1 299 620	1 267 009
of which financial assets *	1 039 370	1 044 826

* Financial assets include all items of Other assets, with the exception of Prepayments, Repossessed assets and Other.

As at 31.12.2022, ECL allowance for other assets was PLN 115,106 k (31.12.2021 PLN 103 025 k).

The significant majority of 'Other assets' items are non-past due and unimpaired. The most significant items concern the companies Allianz, 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	31.12.2022	31.12.2021
Term deposits	162 325	123 051
Loans received from banks	1 747 378	2 974 651
Current accounts	2 121 549	1 302 436
Total	4 031 252	4 400 138

As at 31.12.2022 the adjustment of the value of the hedged risk of deposits covered by hedge accounting PLN nil (as at 31.12.2021 – PLN nil).

Fair value of “Deposits from banks” is presented in Note 47.

Movements in loans received from banks	1.01.2022-31.12.2022	1.01.2021-31.12.2021
As at the beginning of the period	2 974 651	2 302 496
Increase (due to:)	4 726 195	6 342 717
- loans received	4 628 908	6 311 623
- interest on loans received	91 472	17 770
- FX differences and other changes	5 815	13 324
Decrease (due to):	(5 953 468)	(5 670 562)
- repayment of loans	(5 863 212)	(5 655 493)
- interest repayment	(90 256)	(15 069)
As at the end of the period	1 747 378	2 974 651

34. Deposits from customers

Deposits from customers	31.12.2022	31.12.2021
Deposits from individuals	107 927 297	106 267 792
Term deposits	34 841 903	14 078 671
Current accounts	72 816 188	91 990 149
Other	269 206	198 972
Deposits from enterprises	79 548 735	71 375 840
Term deposits	20 614 957	9 951 599
Current accounts	54 874 341	58 318 901
Loans received from financial institution	1 316 684	1 403 413
Other	2 742 753	1 701 927
Deposits from public sector	9 020 774	7 729 811
Term deposits	990 676	558 431
Current accounts	8 021 258	7 171 126
Other	8 840	254
Total	196 496 806	185 373 443

As at 31.12.2022 deposits held as collateral totaled PLN 1 491 848k (as at 31.12.2021 - PLN 1 019 306 k).

Fair value of “Deposits from customers” is presented in Note 47.

Movements in loans received from other financial institutions	1.01.2022-31.12.2022	1.01.2021-31.12.2021
As at the beginning of the period	1 403 413	3 013 707
Increase (due to:)	987 846	153 437
- loans received	921 293	135 600
- interest on loans received	66 553	17 837
Decrease (due to):	(1 074 575)	(1 763 731)
- repayment of loans	(1 003 537)	(1 733 453)
- interest repayment	(57 948)	(18 741)
- FX differences and other changes	(13 090)	(11 537)
As at the end of the period	1 316 684	1 403 413

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	1.01.2022-31.12.2022	1.01.2021-31.12.2021
As at the beginning of the period	2 750 440	2 754 605
Additions from:	157 051	69 446
- interest on subordinated loans	123 758	69 446
- FX differences	33 293	-
Disposals from:	(100 478)	(73 611)
- interest repayment	(100 478)	(69 234)
- FX differences	-	(4 377)
As at the end of the period	2 807 013	2 750 440
Short-term	36 716	13 436
Long-term (over 1 year)	2 770 297	2 737 004

Other details on subordinated liabilities are disclosed in Note 5.

36. Debt securities in issue

Debt securities in issue on 31.12.2022

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	750 000	EUR	29.11.2021	29.11.2024	3 518 153
Santander Bank Polska S.A.	Bonds	500 000	EUR	30.03.2022	30.03.2024	2 381 147
Santander Leasing S.A.	Bonds	235 000	PLN	23.06.2022	23.06.2023	235 019
Santander Leasing S.A.	Bonds	100 000	PLN	10.08.2022	10.08.2023	101 551
Santander Factoring Sp. z o.o.	Bonds	150 000	PLN	28.07.2022	27.01.2023	141 053
Santander Consumer Bank S.A.	Bonds	100 000	PLN	01.04.2021	03.04.2023	101 917
Santander Consumer Bank S.A.	Bonds	300 000	PLN	28.10.2022	06.12.2024	301 361
Santander Consumer Multirent sp. z o.o.	Bonds	160 000	PLN	27.05.2021	26.05.2023	161 142
Santander Consumer Multirent sp. z o.o.	Bonds	220 000	PLN	06.12.2021	06.12.2023	220 784
Santander Consumer Multirent sp. z o.o.	Bonds	265 000	PLN	26.10.2022	28.10.2024	268 491
S.C. Poland Consumer 23-1 DAC	Bonds	1 000 000	PLN	01.12.2022	16.11.2032	1 006 625
SCM POLAND AUTO 2019-1 DAC	Bonds	891 000	PLN	20.07.2020	31.07.2028	893 405
Total						9 330 648

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

Movements in debt securities in issue	1.01.2022-31.12.2022	1.01.2021-31.12.2021
As at the beginning of the period	12 805 462	11 241 312
Increase (due to:)	5 882 817	11 447 566
- debt securities in issue	5 426 350	11 363 650
- interest on debt securities in issue	318 667	83 916
- FX differences	137 366	-
- other changes	434	-
Decrease (due to):	(9 357 631)	(9 883 416)
- debt securities repurchase	(9 088 033)	(9 706 612)
- interest repayment	(269 598)	(79 820)
- FX differences	-	(87 766)
- other changes	-	(9 218)
As at the end of the period	9 330 648	12 805 462

37. Provisions for financial liabilities and guarantees granted

Provisions for financial liabilities and guarantees granted	31.12.2022	31.12.2021
Provisions for financial commitments to grant loans and credit lines	43 255	43 872
Provisions for financial guarantees	17 554	16 406
Other provisions	1 060	533
Total	61 869	60 811

Change in provisions for financial liabilities and guarantees granted	31.12.2022
As at the beginning of the period	60 811
Provision charge	129 056
Write back	(128 340)
Other changes	342
As at the end of the period	61 869
Short-term	39 249
Long-term	22 620


Change in provisions for financial liabilities and guarantees granted	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

38. Other provisions

Other provisions	31.12.2022	31.12.2021
Provision for legal risk connected with foreign currency mortgage loans	420 952	176 059
Provisions for reimbursement of costs related to early repayment of consumer	52 233	80 945
Provisions for legal claims and other	132 337	148 601
Provisions for restructuring	21 789	94 308
Total	627 311	499 913

Change in other provisions 1.01.2022 - 31.12.2022	Provision for legal risk connected with foreign currency mortgage loans*	Provisions for reimbursement of costs related to early repayment of consumer loans	Provisions for legal claims and other	Provisions for restructuring**	Total
As at the beginning of the period	176 059	80 945	148 601	94 308	499 913
Provision charge/(relase)	237 298	(10 810)	81 048	(36 847)	270 689
Utilization	(10 702)	(17 902)	(97 312)	(35 672)	(161 588)
Other	18 297	-	-	-	18 297
As at the end of the period	420 952	52 233	132 337	21 789	627 311

*Detailed information are described in Note 48.

**Given that the collective redundancies process lasting from 2021 to 2022 was completed on 31 December 2022, Santander Bank Polska S.A. released the unused portion of the restructuring provision.

Change in other provisions 1.01.2021 - 31.12.2021	Provision for legal risk connected with foreign currency mortgage loans	Provisions for reimbursement of costs related to early repayment of consumer loans	Provisions for legal claims and other	Provisions for restructuring	Total
As at the beginning of the period	40 649	117 722	83 628	147 662	389 661
Provision charge/relase	131 878	-	97 212	19 592	248 682
Utilization	(7 710)	(36 665)	(32 176)	(72 946)	(149 497)
Other	11 242	(112)	(63)	-	11 067
As at the end of the period	176 059	80 945	148 601	94 308	499 913

39. Other liabilities

Other liabilities	31.12.2022	31.12.2021
Settlements of stock exchange transactions	43 417	64 259
Interbank and interbranch settlements	1 116 171	319 716
Employee provisions	446 011	383 915
Sundry creditors	1 236 882	1 588 584
Liabilities from contracts with customers	187 584	194 578
Public law liabilities	150 142	100 489
Accrued liabilities	405 982	452 625
Finance lease related settlements	184 200	177 348
Other	12 751	28 776
Total	3 783 140	3 310 290
of which financial liabilities *	3 432 663	2 986 447

*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 1.01.2022 - 31.12.2022		of which: Provisions for retirement allowances
As at the beginning of the period	383 915	*42 728*
Provision charge	402 546	10 561
Utilization	(298 649)	(23)
Release of provisions	(41 801)	(8 566)
As at the end of the period	446 011	*44 700*
Short-term	401 311	-
Long-term	44 700	44 700
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

Employee related provisions consists of items outlined in Note 55.

40. Share capital

31.12.2022

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. 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.).

41. Other reserve capital

Other reserve capital	31.12.2022	31.12.2021
General banking risk fund	649 810	649 810
Share premium	7 981 974	7 981 974
Other reserves of which:	15 226 616	13 546 560
Reserve capital	14 633 055	13 057 083
Supplementary capital	1 251 006	1 146 922
Adjustment to equity from acquisition/loss of controlling interest in subsidiaries	(657 445)	(657 445)
Total	23 858 400	22 178 344

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 31.12.2022 includes share option scheme charge of PLN 143 949 k and reserve capital as at 31.12.2021 includes share option scheme charge of PLN 143 949 k.

Other movements of other reserve capital are presented in “movements on consolidated equity” for 2022 and 2021.

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 1 056 761 994,64 worth of dividend reserve was set aside from the capital reserve. For details, please see Note 57.

42. Revaluation reserve

Revaluation reserve 1.01.2022 - 31.12.2022	Total gross	Deferred tax adjustment	Total net
Opening 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

Change in valuation of debt securities measured at fair value through other comprehensive income	285 531	(54 251)	231 280
Transfer from revaluation reserve to profit and loss resulting from the sale of debt securities measured at fair value through other comprehensive income	10 238	(1 945)	8 293
Transfer from revaluation reserve to profit and loss due to fair value measurement of securities covered by hedge accounting	354 118	(67 282)	286 836
Change in valuation of equity securities measured at fair value through other comprehensive income	21 033	(3 996)	17 037
Transfer from revaluation reserve to retained earnings profit on sale of equity securities	(46 657)	8 865	(37 792)
Change in valuation of cash flow hedging instruments	(184 937)	35 138	(149 799)
Transfer from revaluation reserve to profit and loss resulting from cash flow hedges	5 195	(987)	4 208
Transfer from profit and loss to revaluation reserve resulting from cash flow hedges	(168 633)	32 040	(136 593)
Change in provision for retirement allowances – actuarial gains/losses gross	(95)	5	(90)

Closing balance, of which:	(1 396 616)	265 281	(1 131 335)
Debt securities measured at fair value through other comprehensive income	(1 202 976)	228 566	(974 410)
Equity securities measured at fair value through other comprehensive income	177 010	(33 709)	143 301
Valuation of cash flow hedging instruments	(386 935)	73 518	(313 417)
Actuarial gains on retirement allowances	16 285	(3 094)	13 191

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

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
		31.12.2022	31.12.2021	31.12.2022	31.12.2021	31.12.2022	31.12.2021
Santander Towarzystwo Funduszy Inwestycyjnych S.A.	Poland Poznań	50,00	50,00	37 861	58 483	47 118	67 739
Santander Consumer Bank S.A.	Poland Wrocław	40,00	40,00	171 816	82 239	1 750 137	1 614 157
Total				209 677	140 722	1 797 255	1 681 896

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
	31.12.2022	31.12.2021	31.12.2022	31.12.2021
Loans and advances to banks	116 775	150 160	331 266	355 737
Loans and advances to customers	-	-	19 525 706	20 663 923
Investments in subsidiaries	-	-	297 241	170 934
Investment securities	-	-	3 243 044	2 933 051
Assets pledged as collateral	-	-	160 847	512 975
Net deferred tax assets	5 204	7 839	587 073	652 173
Other items	38 409	34 816	436 276	695 126
Total assets	160 388	192 815	24 581 453	25 983 919
Deposits from banks	-	-	2 792 467	2 538 643
Deposits from customers	-	-	12 789 803	12 854 030
Sell-buy-back transactions	-	-	166 406	488 829
Debt securities in issue	-	-	2 953 725	4 106 832
Other items	66 152	57 336	1 443 041	2 004 144
Total liabilities	66 152	57 336	20 145 442	21 992 478

Income	206 294	293 300	2 160 462	1 744 088
Net profit (loss) for the period	75 723	116 965	209 377	204 231
Dividends paid to non-controlling shareholers	58 483	57 655	9 605	-
Total net cash flows:	(33 385)	7 582	(274 850)	185 763
- from operating activities	88 316	127 095	(516 960)	1 131 239
- from investing activities	(1 649)	(1 321)	(173 401)	(552 828)
- from financing activities	(120 052)	(118 192)	415 511	(392 648)

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, EUR and USD;

· Loans with a fixed interest rate granted by the Bank in PLN;

To hedge the fair value, Santander Bank Polska S.A. uses Interest Rate Swaps (IRS), Currency Interest Rate Swaps (CIRS) and Overnight Index Swaps (OIS) for which the Bank pays a fixed rate and receives a variable rate. The risk being hedged is a change in the fair value of an instrument or a portfolio that is attributable to changes in market interest rates. These transactions do not hedge against changes in the fair value due to credit risk.

Hedging items are measured at fair value. Hedged items are measured at amortised cost, taking into account a fair value adjustment for the risk being hedged.

Since January 2016, Santander Bank Polska S.A. has used portfolio-based fair value hedge accounting in respect of interest rate risk connected with the portfolio of fixed-rate loans in PLN. To hedge the fair value, the Bank uses IRS transactions for which the Bank pays a fixed rate and receives a variable rate. The purpose of hedging is to eliminate the risk of changes in the fair value of the fixed-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 31.12.2022 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
31.12.2022
Assets representing derivative hedging instruments	-	2 914 117	7 121 855	15 892 305	1 199 688	27 127 965
IRS	-	-	2 922 220	12 000 069	614 000	15 536 289
CIRS	-	-	-	668 143	241 938	910 081
CCIRS	-	2 914 117	4 199 635	3 224 093	343 750	10 681 595
Liabilities arising from derivative hedging instruments	-	3 113 150	7 298 071	16 871 424	1 332 728	28 615 373
IRS	-	-	2 922 220	12 000 069	614 000	15 536 289
CIRS	-	-	-	668 143	241 938	910 081
CCIRS	-	3 113 150	4 375 851	4 203 212	476 790	12 169 003
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

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
31.12.2022
Assets representing derivative hedging instruments
Average fixed interest rate	-	3,8660	6,5588	6,4405	5,8157
Average exchange rate (CHF/PLN)	-	4,7679	4,7679	4,7679	4,7679
Average exchange rate (EUR/PLN)	-	4,6899	4,6899	4,6899	4,6899
Average exchange rate (USD/PLN)	-	4,4018	4,4018	4,4018	4,4018
Liabilities arising from derivative hedging instruments
Average fixed interest rate	-	6,2953	4,9945	4,1762	1,5409
Average exchange rate (CHF/PLN)	-	4,7679	4,7679	4,7679	4,7679
Average exchange rate (EUR/PLN)	-	4,6899	4,6899	4,6899	4,6899
Average exchange rate (USD/PLN)	-	4,4018	4,4018	4,4018	4,4018
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

	31.12.2022		31.12.2021
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	11 422 671	225 000	4 615 934	275 000
Hedging derivatives – assets (carrying amount)	466 714	20 578	151 141	11 902
Hedging derivatives – liabilities (carrying amount)	25 508	-	28 463	642
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

	31.12.2022		31.12.2021
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	11 422 671	225 000	4 615 934	275 000
Liabilities	-	-	-	-
Accumulated amount of fair value hedge adjustments on the hedged item included in profit and loss and in the carrying amount, including:
Assets	(519 057)	(17 541)	(164 938)	(13 433)
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 December 2022, Santander Leasing S.A. did not have any derivatives designated as fair value hedges. In the previous periods, there were the following relationships.

Details of this transactions as at 31.12.2022 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
31.12.2022
Assets representing derivative hedging instruments	-	-	-	-	-	-
CIRS	-	-	-	-	-	-
Liabilities arising from derivative hedging instruments	-	-	-	-	-	-
CIRS	-	-	-	-	-	-
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

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
31.12.2022
Assets representing derivative hedging instruments
Average fixed interest rate	-	-	-	-	-
Average exchange rate (EUR/PLN)	-	-	-	-	-
Liabilities arising from derivative hedging instruments
Average variable interest rate	-	-	-	-	-
Average exchange rate (EUR/PLN)	-	-	-	-	-
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	-	-

	31.12.2022	31.12.2021
Hedging instruments designated as fair value hedges	Hedged item: Received fixed-rate loans
Nominal value of hedging instrument	-	138 406
Hedging derivatives – assets (carrying amount)	-	134
Hedging derivatives – liabilities (carrying amount)	-	-
Line item in the statement of financial position that includes the hedging instrument	-	Hedging derivatives (CIRS)
Hedged risk	-	Interest rate risk
Period over which instruments have impact on the Santander Leasing results	-	up to 2022

	31.12.2022	31.12.2021
Items subject to fair value hedge accounting	Received fixed-rate loans
Carrying amount of the hedged item, including:	-	(138 407)
Assets	-	-
Liabilities	-	138 407
Accumulated amount of fair value hedge adjustments on the hedged item included in profit and loss and in the carrying amount, including:	(201 774)	(694)
Assets	-	-
Liabilities	201 774	694
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 32 years, and with respect to own securities issues in EUR with maturity of 2 years.

The hedging strategies used by Santander Bank Polska Group are designed to hedge 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 a foreign currency and own securities issues in EUR – also from currency risk.

Hedging relationships are established using Interest Rate Swaps (IRS) and Cross Currency Interest Rate Swaps (CCIRS). In order to measure hedge effectiveness, the Bank uses the hypothetical derivative method whereby the hedged item is reflected by a derivative transaction with specific characteristics.

Hedged items are measured at amortised cost, while hedging items are measured at fair value. Provided that the hedging relationships are effective, changes in the fair value of hedging instruments are recognised in equity.

Due to the payment deferrals introduced in 2022, the Bank analysed its PLN mortgage loan portfolio in terms of sufficiency of future cash flows from the portfolio and securities held. Excluding the loans covered by payment deferrals, the mortgage loan portfolio was sufficient to ensure continuation of existing hedging relationships. Based on the conducted analysis, in 2022 the Bank decided to maintain all its PLN hedging relationships.

Taking into account the payment deferrals reflected in hedge accounting, hedging relationships remained effective.

At the same time, the Bank carried out quarterly analyses of sufficiency of the CHF loan portfolio in the context of pending litigations and the potential negative impact of court judgements on the future CHF cash flows. Due to the established ruling practice in this area and the Bank's expectations regarding future litigations, the Bank takes into account the possibility of terminating the existing relationships in future periods.

Details of this transactions of Santander Bank Polska SA as at 31.12.2022 and at comparative period are presented in tables below:

	31.12.2022			31.12.2021
Hedging instruments designed as cash flow hedges	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	Hedged item: Issues in EUR
Nominal value of hedging instrument	4 798 700	6 376 653	5 792 350		50 000	7 490 330	3 473 850
Hedging derivatives – assets (carrying amount)	309	-	50 323		-	-	-
Hedging derivatives – liabilities (carrying amount)	115 882	1 665 037	65 613		2 061	1 570 523	40 135
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)	Hedging derivatives (IRS, CCIRS)
Change in fair value of the hedging instrument used as the basis for recognising hedge ineffectiveness for the period	171 492	(158 298)	(78 711)		2 248	(1 957)	(7 081)
Balance of hedging gains or losses of the reporting period that were recognised in other comprehensive income	171 492	(125 968)	(79 927)		2 248	(12 442)	(7 081)
Value of hedge ineffectiveness recognised in profit or loss	-	(32 330)	1 216		-	10 484	-
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	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	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	up to 2023

	31.12.2022				31.12.2021
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	Issues in EUR
Change in value of the hedged item used as the basis for recognising hedge ineffectiveness for the period	171 492	(125 968)	(79 927)	2 248		(12 442)	(7 081)

Details of this transactions of Santander Consumer Bank SA as at 31.12.2022 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
31.12.2022
Assets representing derivative hedging instruments	-	77 761	473 935	228 823	-	780 519
FXSWAP		77 761	473 935	104 923		656 619
CCIRS	-	-	-	123 900	-	123 900
Liabilities arising from derivative hedging instruments	-	76 286	514 933	286 075	-	877 294
FXSWAP	-	76 286	514 933	119 198	-	710 417
CCIRS	-	-	-	166 877	-	166 877
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

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
31.12.2022
Assets representing derivative hedging instruments
Average fixed interest rate	-	-	-	0,0770	-
Average exchange rate (CHF/PLN)	4,7679	-	-		-
Average exchange rate (EUR/PLN)	4,6899	-	-		-
Liabilities arising from derivative hedging instruments
Average fixed interest rate	-	-	-	(0,0001)	-
Average exchange rate (CHF/PLN)	4,7679	-	-	-	-
Average exchange rate (EUR/PLN)	4,6899	-	-	-	-
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	-	-	-	-

	31.12.2022	31.12.2021
Hedging instruments designed as cash flow hedges	Hedged item: Portfolio of loans denominated in CHF
Nominal value of hedging instrument	877 294	956 406
Hedging derivatives – assets (carrying amount)	11 253	-
Hedging derivatives – liabilities (carrying amount)	107 049	120 510
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	844	(25 045)
Balance of hedging gains or losses of the reporting period that were recognised in other comprehensive income	3 612	(24 312)
Value of hedge ineffectiveness recognised in profit or loss	(2 767)	(733)
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

	31.12.2022	31.12.2021
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	(75 229)	(93 579)

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 and fair value 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 mortgage loans in PLN;

· fixed-rate debt securities in PLN, EUR and USD;

· own securities issues in EUR.

As at 31 December 2022, there were 238 hedging relationships established at Santander Bank Polska S.A. The above-mentioned portfolios are hedged with IRS, CIRS and OIS transactions for PLN, EUR and USD exposures (121 relationships connected with 121 IRS transactions, 8 relationships connected with 8 CIRS transactions and 2 relationships connected with 2 OIS transactions), and CCIRS transactions for EUR and CHF exposures (45 relationships connected with 36 CCIRS transactions).

The interest rate of the foregoing derivatives is based on the following variable rates: 3M or 6M WIBOR (188 derivative transactions), 3M or 6M EURIBOR (18 derivative transactions), 3M SARON (21 derivative transactions) and USD SOFR (2 derivative transactions). The relationships are set to expire gradually by 2032:

36 relationships in 2023, 197 relationships over the following five years, and 5 relationships in total by 2032 (including one relationship in 2032 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 portfolio, CHF LIBOR was 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 continues the existing hedging relationships based on the currently used underlying instruments. In 2022, the Bank maintained all the hedging relationships for the CHF portfolio.

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. At the end of 2022, Santander Leasing S.A. did not have any hedge accounting relationship. The last relationship expired in September 2022.

In the case of Santander Consumer Bank S.A. (SCB), there was one active CCIRS transaction based on 3M LIBOR/ 3M WIBOR as at the end of 2022. The CIRSs that expired in 2022 were not renewed.

In addition, SCB entered into four CHF/PLN FX Swap transactions for a period of up to one year (CHF 54m), two transactions for a period of up to two years (CHF 40m) and one transaction for a period of up to three years (CHF 55m). 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.

	31.12.2022	31.12.2021
	Balance sheet value	Balance sheet value
Liabilities valued at amortised cost (contains sell-buy-back)	2 324 926	510 277
Fair value of securities held as collateral for sell-buy-back/repo transactions	2 318 219	534 437
Buy-sell-back transactions	13 824 606	453 372
Fair value of securities held for buy-sell-back/reverse repo transactions	13 527 180	453 153

Buy-sell-back transactions	31.12.2022	31.12.2021
Buy-sell-back transactions from banks	13 538 405	256 548
Buy-sell-back transactions from customers	286 201	196 824
Total	13 824 606	453 372

Sell-buy-back transactions	31.12.2022	31.12.2021
Sell-buy-back transactions from banks	2 324 926	510 277
Sell-buy-back transactions from customers	-	-
Total	2 324 926	510 277

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 31.12.2022	(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	13 538 405	-	13 538 405	-	13 287 408	250 997	-	13 538 405
Loans and advances to customers
- Reverse sale and repurchase agreements	286 201	-	286 201	-	283 648	2 553	-	286 201
Other financial assets:
- Financial derivatives	13 131 993	10 320 318	2 811 675	1 035 507	2 018 544	(242 376)	4 376 571	7 188 246
TOTAL ASSETS SUBJECT TO OFFSETTING, MASTER NETTING AND SIMILAR ARRANGEMENT	26 956 599	10 320 318	16 636 281	1 035 507	15 589 600	11 174	4 376 571	21 012 852
Liabilities							-
Financial derivatives	14 273 946	10 320 318	3 953 628	1 035 507	3 083 590	(165 469)	4 938 727	8 892 355
Sale and repurchase agreements	2 324 926	-	2 324 926	-	2 290 524	34 402	-	2 324 926
TOTAL lIABILITIES SUBJECT TO OFFSETTING, MASTER NETTING AND SIMILAR ARRANGEMENT	16 598 872	10 320 318	6 278 554	1 035 507	5 374 114	(131 067)	4 938 727	11 217 281

	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

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	31.12.2022		31.12.2021
ASSETS	Book Value	Fair value	Book Value	Fair value
Cash and balances with central banks	10 17 022	10 17 022	8 438 275	8 438 275
Loans and advances to banks	9 577 499	9 577 499	2 690 252	2 690 252
Loans and advances to customers measured at amortised cost	137 888 696	138 751 711	133 378 724	136 175 898
-individuals	25 749 057	26 194 283	25 533 607	25 506 355
-housing loans	52 529 798	52 729 193	53 941 030	56 649 001
-business	58 730 630	58 949 024	53 779 474	53 895 929
Buy-sell-back transactions	13 824 606	13 824 606	453 372	453 372
Debt investment securities measured at amortised cost	15 499 348	13 332 182	1 421 272	1 411 022
LIABILITIES
Deposits from banks	4 031 252	4 031 252	4 400 138	4 400 138
Deposits from customers	196 496 806	196 431 894	185 373 443	185 272 700
Sell-buy-back transactions	2 324 926	2 324 926	510 277	510 277
Subordinated liabilities	2 807 013	2 782 760	2 750 440	2 743 086

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 31.12.2022 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.

Sensitivity analysis of the fair value of the credit cards portfolio and loans and advances to customers measured at fair value through other comprehensive income

The analysis covered the population of credit cards disclosed as ‘Loans and advances to customers measured at fair value through P/L” as well as loans disclosed as “Loans and advances to customers measured at fair value through other comprehensive income’ as at the end of 2022 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
31.12.2022	Loans to customers (underwritting)*	2 628,7	2 620,9	2 613,1	2 636,4	2 644,2
	Credit cards (FV)	200,5	200,9	201,4	200,0	199,6
31.12.2021	Loans to customers (underwritting)*	1 729,8	1 728,2	1 726,5	1 731,5	1 733,2
	Credit cards (FV)	504,2	504,2	502,2	503,7	503,5

*For underwriting loans, the adopted range of the unobservable factor in 2022 was (0.85% - 3.27%), and in 2021 (0.69% - 2.45%).

The fair value of loans to customes (underwritting portfolio) and 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
A and 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 SYSTEM OCHRONY BANKÓW KOMERCYJNYCH S.A.	Estimation of the fair value based on the net assets value of the company	Net asset value of the company
SHARES IN KRAJOWA IZBA ROZLICZENIOWA SA
SHARES IN WAŁBRZYSKA SPECJALNA STREFA EKONOMICZNA „INVEST-PARK” SP Z O.O.

As at 31.12.2022 and in the comparable periods the Group classified its financial instruments to the following fair value levels:

31.12.2022	Level I	Level II	Level III	Total
Financial assets
Financial assets held for trading	244 547	6 627 061	12 008	6 883 616
Hedging derivatives	-	549 177	-	549 177
Loans and advances to customers measured at fair value through other comprehensive income	-	-	2 628 660	2 628 660
Loans and advances to customers measured at fair value through profit and loss	-	-	239 694	239 694
Debt securities measured at fair value through other comprehensive income	35 435 926	4 101 199	2 410	39 539 535
Debt securities measured at fair value through profit and loss	-	-	64 707	64 707
Equity securities measured at fair value through other comprehensive income	-	-	63 248	63 248
Equity securities measured at fair value through other comprehensive income	-	-	204 299	204 299
Total	35 680 473	11 277 437	3 215 026	50 172 936
Financial liabilities
Financial liabilities held for trading	195 560	6 904 911	8 355	7 108 826
Hedging derivatives	-	1 979 089	-	1 979 089
Total	196 560	8 884 000	8 355	9 087 915

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	51 807 273	18 254 048	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	52 233 272	22 071 778	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

* as part of in-depth analyzes carried out in 2022, the Group assessed the validity of the classification of NBP bills and changed the classification of the above-mentioned instruments as level 2 of the fair value hierarchy; data as at December 31, 2021 include the classification of NBP bills changed compared to the financial statements published as at that date (transfer from level I to level II);

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
31.12.2022	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 profit and loss	Financial liabilities held for trading
As at the beginning of the period	3 885	553 830	1 729 848	116 977	3 475	195 468	3 427	2 616
Profit or losses	-
-recognised in income statement	5 517	52 477	-	(6 326)	-	-	3 264	6 131
-recognised in equity (OCI)	-	-	150 167	-	-	8 702	-	-
Purchase/granting	4 969	136 238	1 330 740	-	-	129	59 179	1 139
Sale	-	(24 145)	(430 000)	(59 179)	-	-	-	-
Matured	-	(476 789)	(154 869)	-	-	-	-	-
Transfer	(2 089)	-	-	-	-	-	-	(1 532)
Other	-	(1 917)	2 774	13 235	(1 065)	-	(2 622)	-
As at the end of the period	12 008	239 694	2 628 660	64 707	2 410	204 299	63 248	8 355

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 profit and loss	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)	-	(15)	-
As at the end of the period	3 885	553 830	1 729 848	116 977	3 475	195 468	3 427	2 616

48. Legal risk connected with CHF mortgage loans

As at 31 December 2022, the Group had a portfolio of loans denominated in and indexed to CHF totalling PLN 8,393,684k before adjustment to the gross carrying amount at PLN 3,136,301k reducing contractual cash flows in respect of legal risk.

As at 31 December 2021, the Group had a portfolio loans denominated in and indexed to CHF totalling PLN 9,265,163k before adjustment to the gross carrying amount at PLN 1,859,075k reducing contractual cash flows in respect of legal risk.

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 court rulings on loans indexed to or denominated in foreign currencies:

– rulings unfavourable to banks, which generally fall into two main categories: (1) judgments resulting in the invalidation of the loan agreement owing to the unfairness of the clauses providing for loan indexation and for the application of an exchange rate from the bank’s FX table (prevailing practice); (2) judgments resulting in the conversion of the loan to PLN, meaning that due to the unfairness of the said clauses, 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 a rate relevant for CHF;

– 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. Some courts rule on the elimination of the loan indexation (as a consequence of the removal of unfair indexation clauses from the agreement), resulting in the borrower’s liability being treated as a PLN loan bearing an interest rate based on WIBOR.

– 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 conclusive position of the Supreme Court and the pending preliminary rulings of the Court of Justice of the European Union (CJEU), other types of rulings may also be expected in the ruling practice of common courts, especially first-instance courts, including those pointing to the absolute invalidity of the loan agreement due to unlawfulness of certain contractual provisions. Currently, in the Group’s opinion, such rulings do not have a material impact on the legal risk assessment of court cases related to CHF 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 rulings compared to the prevailing ruling practice based on the concept of nullity of the contract due to the presence of unfair clauses (therefore, they are not reflected in the estimates of provisions for legal risk raised as at 31 December 2022).

The above differences result from several key rulings issued by the CJEU and the Supreme Court, which leave a margin of interpretation.

On 3 October 2019, the CJEU issued a ruling (C-260/18) regarding the consequences of potentially unfair terms in a CHF-indexed loan agreement. The ruling is of key importance to the current ruling practice. The CJEU found that if the indexation clause was held to be unfair and if after the removal of the indexation mechanism the nature of the main subject matter of the agreement was likely to change, the national court might 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 a rate relevant for CHF); 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 a rate relevant for CHF. These rulings were an exception to the previous decisions made by the Supreme Court.

In its judgment of 11 December 2019 issued in the case against Santander Bank Polska S.A. (V CSK 382/18, justification published in April 2020), the Supreme Court decided that invalidation of indexation and continuation of the agreement as a PLN loan with an interest rate based on a rate relevant for CHF 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 owing to unjust enrichment. At the same time, the Supreme Court stated that the previous judgments 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 (III CZP 11/20), the Supreme Court stated that the borrower whose loan agreement is annulled 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, another important development affecting the ruling practice was the CJEU judgment issued on 29 April 2021 (C-19/20), 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. It further 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. The CJEU also 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 (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 – at the request of the First President of the Supreme Court (III CZP 11/21) – a position 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 annulment 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 (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 (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 in 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.

On 8 September 2022, the CJEU issued another ruling on loans indexed to a foreign currency (joined cases C-80/21, C-81/21, C-82/21). The CJEU reiterated that the purpose of Directive 93/13/EEC is not to annul all agreements containing unfair terms, but to restore the balance between the parties. The CJEU also pointed to the importance of the consumer’s intention regarding the possibility to retain or invalidate the agreement containing unfair terms in the context of supplementary national provisions under which the agreement can continue in force (making it clear that the consumer’s intention does not prevail over the court’s objective assessment). In the above ruling, the CJEU did not analyse or assess the nature of the Polish supplementary provisions in terms of their applicability. The CJEU also referred to the limitation period for the consumer’s claims for recovery of sums paid following the annulment of the agreement, stating that it would be unreasonable to assume that this period should begin to run from the date of each payment made by the consumer as the consumer might not be aware of the existence or nature of unfair terms in the agreement. The CJEU did not consider the limitation period for the bank’s claims arising from invalidation of the agreement; however, the position presented above seems reasonable and consistent with the position of the Supreme Court, according to which the limitation period for such claims cannot start earlier than on the date when the consumer gives their expressive consent for annulment of the agreement.

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 are not favourable to the Group.

There are also other issues pending the CJEU judgment 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. The case number is C-520/21. After the first hearing which took place on 12 October 2022, the CJEU decided to ask the Advocate General for an opinion, which is planned to be presented on 16 February 2023. It means that the judgment may be expected in a few months. Furthermore, the District Court for Warsaw–Śródmieście made another request for a preliminary ruling from the CJEU on the settlement of benefits arising from the non-contractual use of the bank’s capital (case C-756/22), which may affect the CJEU ruling practice.

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). The case number is C-28/22. It will be examined after the judgment in case C-520/21 is passed.

In January 2022, new requests for preliminary rulings were submitted to the CJEU by the Regional Court in Kraków (regarding the possibility to exercise the right of retention as part of settlement of an annulled agreement) and by the District Court for Warsaw-Śródmieście (regarding the legal basis for the annulment of a loan agreement and the resulting settlements, limitation of claims as well as the effect of a contractual clause being entered in the register of unfair clauses in the course of an abstract review in relation to individual court proceedings).

The request of the Regional Court in Kraków is registered under C-424/22. It will be examined after a judgment in case C-520/21 is passed.

The CJEU did not respond to the question referred by the Regional Court for Warsaw-Śródmieście regarding the choice of a legal basis for the annulment of a loan agreement, indicating that it falls within the remit of the national court (order of 18 November 2022, C-138/22). Other requests for preliminary rulings submitted by the Regional Court for Warsaw-Śródmieście were registered under C-139/22 (regarding the effect of a contractual clause being entered in the register of unfair clauses in the course of an abstract review in relation to individual court proceedings) and C-140/22 (regarding the limitation of claims in relation to settlements between the parties). The first case is pending examination, and the second case has been suspended until a judgment is passed in case C-520/21.

In addition, in March 2022 the District Court in Warsaw approached the CJEU with a request for a preliminary ruling on the court’s use of a precautionary measure (securing a claim) which consists in suspending the performance of the agreement for the duration of the proceedings. The case has been registered under C-287/22.

Pending the CJEU judgment are also the questions referred for a preliminary ruling by the District Court for Warsaw-Wola in May 2021 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), the importance of the consumer’s will for the court adjudicating on the annulment of the agreement, as well as the possibility for an agreement to continue in force after unfair clauses are removed in accordance with the national law of obligations which may be applied directly or by analogy. The case has been registered under C-6/22. The date of the hearing is to be set.

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 presented a consistent position that would clarify the discrepancies and harmonise the case law with respect to foreign currency loans.

The Supreme Court still does not have a uniform approach to the ruling practice regarding CHF loans. An example of the discrepancies is the Supreme Court’s judgement of 28 September 2022 in case II CSKP 412/22. In its decision, the Supreme Court emphasised that the unfairness of a contractual provision including a reference to the bank’s exchange rate table cannot result in automatic annulment of the entire legal relationship, as both the provisions of the Polish Civil Code regarding consumer protection and Directive 93/13/EEC provide that an agreement should continue in force after unfair terms have been removed. This should be applied as a rule while the annulment of an agreement as an exception. Therefore, if the provisions setting out basic rights and obligations of the parties are retained, there are no grounds to conclude that such an agreement cannot be performed going forward. The Supreme Court pointed out that linking a rate relevant for CHF to a PLN loan (after removing the indexation clause) may raise some doubts from an economic point of view but concluded that there are no legal impediments to such a structure of an agreement.

Although court rulings on the unfairness of contractual provisions including references to the bank’s exchange rate table are largely unfavourable for banks, this issue is not yet resolved. On 24 November 2022, the Court of Competition and Consumer Protection repealed the decision of the President of the Office of Competition and Consumer Protection dated 22 September 2020, imposing a fine on Santander Bank Polska S.A. for using unfair terms in annexes to agreements on loans indexed to CHF regarding the rules for setting exchange rate tables. In its judgment, which is not yet final and non-appealable, the Court of Competition and Consumer Protection confirmed that the practice of setting exchange rate tables (with references to market exchange rates) and calculating and charging spread on that basis is a common market practice which does not violate consumers’ interests.

As there is no uniform ruling practice and – in the Management Board’s opinion – it is not possible to predict decisions of the Supreme Court and CJEU on individual cases, as at the date of these financial statements the Group estimated legal risk associated with the portfolio of loans indexed to and denominated in a foreign currency using a model which considers different possible judgments (in the form of adjustment to the gross carrying amount for active exposures or provisions for inactive exposures), including those which are the subject of the request for the resolution of the entire Civil Chamber of the Supreme Court. This model may also be affected by the CJEU ruling expected to be issued in 2023 regarding the bank’s right to claim reimbursement of the cost of capital from the borrower if the loan agreement is invalidated. The ruling is to be preceded by an opinion issued by the CJEU Advocate General. The potential impact will also depend on whether or not the CJEU ruling will be conclusive or will merely include general guidelines, leaving to the discretion of national courts the assessment and decision-making with respect to specific solutions regarding the application of EU and national law. In the Group’s opinion, the position of the Supreme Court and the practice of national courts will be of key importance here. . The cost of the use of capital is included in the scenarios as one of the possible outcomes and this note presents a sensitivity analysis of how the level of provisions would change if this cost was eliminated. The Group is monitoring court decisions taken with regard to foreign currency loans in terms of changes in the ruling practice.

In view of the 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 arise, resulting in a future cash outflow. Total cumulative impact of legal risk associated with foreign currency mortgage loans is recognised in line with the requirements arising from:

· IFRS 9 Financial Instruments – in the case of active loans and

· IAS 37 Provisions, Contingent Liabilities and Contingent Assets – in the case of loans repaid in full or if the gross carrying amount of an active loan is lower than the value of risk.

The adjustment to the gross carrying amount (in accordance with IFRS 9) and provisions (in accordance with IAS 37) were estimated taking into account a number of assumptions which significantly influence the estimate reflected in the Group’s financial statements.

As at 31 December 2022, there were 12,225 pending lawsuits against the Group over loans indexed to or denominated in CHF, with the disputed amount totalling PLN 3,609,610k. This included two class actions filed under the Class Action Act:

· a class action against Santander Bank Polska S.A. in respect of 559 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, 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 2022, the total cumulative impact of legal risk associated with foreign currency mortgage loans in the Group was estimated at PLN 3,557,253k, including:

· IFRS 9 adjustment to the gross carrying amount at PLN 3,136,301k (including PLN 2,491,692k in the case of Santander Bank Polska S.A. and PLN 644,609k in the case of Santander Consumer Bank S.A.)

· IAS 37 provision at PLN 420,952k (including PLN 318,682k in the case of Santander Bank Polska S.A. and PLN 102,270k in the case of Santander Consumer Bank S.A.).

As at 31 December 2021, the total cumulative impact of legal risk associated with foreign currency mortgage loans in the Group was estimated at PLN 2,035,134k, including:

· IFRS 9 adjustment to the gross carrying amount at PLN 1,859,075k (including PLN 1,469,728k in the case of Santander Bank Polska S.A. and PLN 389,347k in the case of Santander Consumer Bank S.A.)

· IAS 37 provision at PLN 176,059k (including PLN 128,043k in the case of Santander Bank Polska S.A. and PLN 48,016k in the case of Santander Consumer Bank S.A.).

The tables below present the total cost of legal risk connected with mortgage loans recognised in the Group’s income statement and statement of financial position:

Cost of legal risk connected with foreign currency mortgage loans	1.01.2022-31.12.2022	1.01.2021-31.12.2021
Impact of legal risk associated with foreign currency mortgage loans recognised as adjustment to gross carrying amount	(1 283 257)	(1 235 330)
Impact of legal risk associated with foreign currency mortgage loans recognised as provision	(237 298)	(131 878)
Other costs	(218 533)	(63 767)
Total cost of legal risk associated with foreign currency mortgage loans	(1 739 088)	(1 430 975)

As a result of the settlements made (both pre-court and following the lawsuits), PLN 183,255k was taken to the Group’s P&L for 2022 and recognised in the consolidated income statement as “Gain/ loss on derecognition of financial instruments measured at amortised cost”. The above amount is an effect of the conversion of loans into PLN, as a result of which the Group derecognised CHF loans.

	31.12.2022	31.12.2021
Adjustment to gross carrying amount owing to legal risk associated with foreign currency mortgage loans	3 136 301	1 859 075
Provision for legal risk associated with foreign currency mortgage loans	420 952	176 059
Total cumulative impact of legal risk associated with foreign currency mortgage loans	3 557 253	2 035 134

As at 31 December 2022, total adjustment to the gross carrying amount and provisions for legal risk and legal provisions (for legal claims and a collective portion) account for 42.4% of the active gross portfolio of CHF loans (before adjustment to gross carrying amount under IFRS 9).

The change in the above provisions between January and December 2022 is due to factors such as new court cases (up 3,751 compared to December 2021), an update of the number of expected settlements and lawsuits, 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.

In 2022, we also observed more court rulings (most of which, as specified above, declare loan agreements invalid as a result of the unfairness of contractual terms), but the number of cases ended with a final and non-appealable judgment remains relatively low.

The Group used a statistical model to estimate the likelihood of claims being made by borrowers in relation to both active and repaid loans based on the existing lawsuits against the Group and the estimated growth in their number. The model assesses the so-called lifetime risk 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. 22.3% 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. Another important factor influencing the estimates is customers’ interest in the proposed settlements. The Group expects that most of the lawsuits will be filed by mid-2025, and then the number of new claims will drop as the legal environment will become more structured.

For the purpose of calculation of provisions, the Group also estimated how likely it is that a specific number of lawsuits will be filed and what the possible end scenarios are in this respect. The likelihoods differ between indexed and denominated loans. The likelihood of unfavourable ruling for the Group is higher for the former and lower for the latter. The Group also considered the disproportion in rulings issued by first and second instance courts, the relatively low number of final and non-appealable judgments and protracted proceedings in some courts. As at 31 December 2022, 927 final and non-appealable judgments were issued in cases against the Group (including those passed after the CJEU ruling of 3 October 2019), of which 861 were unfavourable to the Group, and 66 were entirely or partially favourable to the Group (compared to 175 judgments as at 31 December 2021, including 148 unfavourable ones and 27 entirely or partially favourable). When assessing these likelihoods, the Group used the support of law firms and conducted thorough analysis of the ruling practice in cases concerning indexed and denominated loans.

As the current ruling practice is not uniform, the Group considers the following scenarios of possible court rulings that might lead to financial losses:

● annulment of the whole loan agreement due to identification of unfair clauses, with no cost of capital to be reimbursed by the borrower;

● annulment of the loan agreement clauses identified as unfair, resulting in the conversion of the loan into PLN and maintenance of an interest rate based on a rate relevant for CHF;

● decisions leading to the settlement by the borrower of the cost of capital obtained:

▪ annulment of 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;

● annulment 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.

These scenarios also vary in terms of likelihood depending on the type of agreement and in terms of the level of losses incurred in case of their materialisation. 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 owing 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.

Settlements

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 has prepared settlement proposals which take into account both the key elements of conversion of home loans indexed to CHF, as proposed by the KNF Chairman, and the conditions defined internally by the Bank. The proposals are being presented to customers. This is reflected in the model which is currently used to calculate legal risk provisions, both in terms of the impact of proposed settlements on customers’ willingness to bring the case to court and with respect to the potential outcomes of court proceedings. By 31 December 2022, the Bank made 2,588 settlements (both pre-court and following the lawsuits), the majority of which were reached in 2022.

In mid-2022, the Group prepared a settlement scenario which reflects the level of losses for future settlements. The scenario is based on acceptance levels and losses for loans in line with the settlement tests described above. The acceptance level of future settlements is affected by factors such as the interest rate of PLN loans, the CHF/PLN conversion rate, the development of the ruling practice and the duration of proceedings. As at the end of 2022, the Group updated the settlement scenario to reflect a growing interest in settlements identified during the tests.

Sensitivity analysis

Due to the high uncertainty around both individual assumptions and their total impact, the Group carried out the following sensitivity analysis of the estimated impact of legal risk by assessing the influence of variability of individual parameters on the level of that risk.

The estimates are prepared in the form of a univariate analysis of provision value sensitivity.

Taking into account the variability of the parameters outlined below, as at 31 December 2022 the impact of legal risk estimated on a collective basis is affected as follows:

Scenario	Change in the collective provision [in PLNm]
Tripling the number of customers filing a lawsuit	2,058
Doubling the number of customers filing a lawsuit	1,029
50% reduction in the number of customers filing a lawsuit	(514)
Relative increase of 5% in likelihood of losing the case	50
Relative decrease of 5% in likelihood of losing the case	(49)
Non-recognition of reimbursement of the cost of principal	115

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 2022 is as follows:

Scenario	Change in the individual provision [in PLNm]
Relative increase of 5% in likelihood of losing the case	115
Relative decrease of 5% in likelihood of losing the case	(113)
Non-recognition of reimbursement of the cost of principal	253

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

49. Contingent liabilities

Significant court proceedings

As at 31.12.2022 the value of all litigation amounts to PLN 5 634 583 k. This amount includes PLN 1 384 887k claimed by the Group, PLN 4 175 352 k in claims against the Group and PLN 74 344k of the Group’s receivables due to bankruptcy or arrangement cases.

As at 31.12.2022 the amount of all court proceedings which had been completed amounted to PLN 254 496 k.

As at 31.12.2022 the provisions for instigated lawsuits recognised in accordance with IAS 37 totalled PLN 274 028k and the adjustment to gross carrying amount under IFRS 9 related to instigated lawsuits totalled PLN 2,149,834k. In 1,403 cases against Santander Bank Polska SA, where the claim value was high (equal or above PLN 500 k), the total value of provisions for legal claims recognised in accordance with IAS 37 and the adjustment to gross carrying amount under IFRS 9 related to legal claims was PLN 656 613 k.

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 provisions for instigated lawsuits recognised in accordance with IAS 37 totalled PLN 168 901k and the adjustment to gross carrying amount under IFRS 9 related to to instigated lawsuits totalled PLN 1,164,602k. In 441 cases against Santander Bank Polska SA, where the claim value was high (equal or above PLN 500 k), the total value of provisions for legal claims recognised in accordance with IAS 37 and the adjustment to gross carrying amount under IFRS 9 related to legal claims was PLN 211 070.

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.

	31.12.2022
Contingent liabilities	Stage 1	Stage 2	Stage 3	Total
Liabilities granted	42 131 632	1 046 623	36 712	43 214 967
- financial	33 468 058	843 410	29 658	34 341 126
- credit lines	29 210 066	790 162	17 860	30 018 088
- credit cards debits	3 427 292	43 599	10 233	3 481 124
- import letters of credit	808 939	9 649	1 565	820 153
- term deposits with future commencement term	21 761	-	-	21 761
- guarantees	8 694 921	213 929	26 860	8 935 710
Provision for off-balance sheet liabilities	(31 347)	(10 716)	(19 806)	(61 869)
Liabilities received				56 315 458
- financial				364 732
- guarantees				55 950 726
Total	42 131 632	1 046 623	36 712	99 530 425

	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

Court proceedings relating to a partial reimbursement of arrangement fees on consumer loans

As at 31.12.2022, Santander Bank Polska Group was sued in 655 cases concerning partial refund of an arrangement fee on consumer loans, including 34 cases against Santander Consumer Bank S.A. and 621 cases against Santander Bank Polska S.A. For these proceedings Santander Bank Polska Group raised provisions in the total amount of PLN 66k 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 50k.

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 Article 49 of the Consumer Credit Act indicates that the arrangement fee should be refunded in the event of early repayment of the loan.

The Bank adheres to the established ruling practice as regards user rights related to early repayment of consumer loans. The issue of transfer of consumer rights to debt purchasing companies is still outstanding.

When assessing legal risk associated with disputes under Article 49 of the Consumer Credit Act, Santander Bank Polska Group raises provisions in this respect, taking into account the above-mentioned interpretation differences.

Proceedings of the Office of Competition and Consumer Protection on the reimbursement of costs in the case of early mortgage repayment

By the decision of September 26, 2022. UOKiK initiated proceedings against the Bank regarding the use of practices violating collective consumer interests. UOKiK accused the bank that in the case of early repayment of a mortgage loan granted under the Act on Mortgage Loans and the supervision over mortgage brokers and agents of 23.03.2017 the Bank did not proportionally reduce the one-off costs of the loan due to the commission for granting and the cost of real estate appraisal.

The Bank addressed the claims made by the Office of Competition and Consumer Protection in its decision. The Bank’s position will depend on the ruling practice, in particular the expected judgments of the Supreme Court in case CZP 144/22 and the CJEU in case 555/21.

In the meantime, starting from 21 October 2022 the Bank started to proportionally reduce costs related to an arrangement fee in the case of an early repayment of a mortgage loan granted under the Polish Act on mortgage loans and supervision over mortgage loan brokers and agents.

Detailed information on the commission reimbursement for mortgage loans in the event of early repayment is described in note 2.6.

50. Assets and liabilities pledged as collateral

Assets pledged as collateral	31.12.2022	31.12.2021
Treasury bonds blocked for REPO transactions	2 318 219	534 437
Total	2 318 219	534 437

The Group holds financial instruments such as:

· debt securities measured at fair value through other comprehensive income worth PLN 2,318,219 k (in 2021 PLN 512,975 k),

· financial assets held for trading of PLN 0 k (in 2021 PLN 21,462 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:

	31.12.2022	31.12.2021
Treasury bonds blocked with BFG	1 108 589	1 021 774
Treasury bonds blocked for loans from banks	184 980	216 281
Deposits in financial institutions as collateralised valuation of transactions	3 086 909	2 261 463
Total	4 380 478	3 499 518

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 0,30% (0.35% in 2021) of funds deposited in all accounts with the bank, being the basis for calculating the obligatory reserve. As at 31.12. 2022, assets allocated to that end totalled PLN 1,108,589 k compared with PLN 1,021,774 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 184,980 k (as at 31.12.2021 - PLN 216,281 k).

In 2022, deposits opened with financial institutions to secure the value of transactions totalled PLN 3,086,909 k (in 2021 – PLN 2,261,463 k).

In 2022, the Group accepted PLN 2,053,897 k worth of deposits securing of derivative transactions (vs. PLN 1,050,921 k in 2021).

Other liabilities accepted as collateral are disclosed in Note 34.

51. Information about leases

Lease related amounts recognized in the income statement	1.01.2022-31.12.2022	1.01.2021-31.12.2021
Amortisation of right of use asset incl.:	(141 940)	(167 571)
- Land and buildings	(135 801)	(158 160)
- IT equipment	(648)	(975)
- Transportation means	(4 059)	(6 949)
- Other	(1 432)	(1 487)
Interest expenses due to lease liabilities	(14 384)	(14 758)
Short-term lease costs	(8 116)	(8 671)
Low-value assets lease costs	(1 254)	(2 176)
Costs of variable lease payments not included in the measurement of the lease liabilities	(702)	(145)
Non-tax deductible VAT	(28 016)	(47 263)
Total	(194 412)	(240 584)

Lease agreements where the Group acts as a lessee

Lease liabilities	31.12.2022	31.12.2021
Lease liabilities (gross)	487 625	493 764
Discount	(67 660)	(41 265)
Lease liabilities (net)	419 965	452 499
Lease liabilities gross by maturity:
Short-term	147 801	147 471
Long-term (over 1 year)	339 824	346 293
Total lease liabilities (gross)	487 625	493 764

Movements in lease liabilities	1.01.2022-31.12.2022	1.01.2021-31.12.2021
As at the beginning of the period	452 499	624 690
Additions from:	145 732	58 652
- adding a new contract	38 697	40 445
- interest on lease liabilities	14 034	14 721
- FX differences	4 973	-
- update of lease term	86 846	3 486
- other changes	1 182	-
Disposals from:	(178 266)	(230 843)
- payment due to lease liabilities	(163 765)	(188 317)
- interest repayment	(14 051)	(14 567)
- FX differences	(366)	(6 224)
- update of lease term	(84)	-
- other changes	-	(21 735)
As at the end of the period	419 965	452 499

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	31.12.2022	31.12.2021
less than 1 year	4 871 655	4 269 364
1-2 years	3 786 930	3 345 390
2-3 years	2 533 321	2 223 861
3-4 years	1 399 638	1 189 619
4-5 years	554 374	529 236
over 5 years	92 248	82 709
Total	13 238 166	11 640 179

Present value of minimum lease payments - maturity	31.12.2022	31.12.2021
less than 1 year	4 554 332	4 111 957
1-2 years	3 454 588	3 153 005
2-3 years	2 252 477	2 059 040
3-4 years	1 209 234	1 076 972
4-5 years	456 206	469 437
over 5 years	71 464	67 504
Total	11 998 301	10 937 915

Reconciliation between the lease receivables and the present value of minimum lease payments	31.12.2022	31.12.2021
Lease gross receivables	13 238 166	11 640 179
Unearned finance income	(1 239 865)	(702 264)
Impairment of lease receivables	(207 362)	(192 728)
Present value of minimum lease payments, net	11 790 939	10 745 187

Operating leases

Future minimum lease fees due to irrecoverable operating lease	31.12.2022	31.12.2021
less than 1 year	20 375	13 811
1-2 years	13 084	14 015
2-3 years	1 571	1 438
3-4 years	188	-
Total	35 218	29 264

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	31.12.2022	31.12.2021
Cash and balances with central banks	10 170 022	8 438 275
Receivables from interbank deposits^*	20 424 872	2 910 133
Debt securities measured at fair value through other comprehensive income^*	3 898 145	6 997 960
Total	34 493 039	18 346 368
The impact of changes in currency exchange rates during the financial year on cash and cash equivalents	49 152	16 435

^* 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 transactions with related parties. 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	31.12.2022	31.12.2021
Assets	214	63
Loans and advances to customers	154	-
Other assets	60	63
Liabilities	56 298	50 783
Deposits from customers	56 243	50 708
Other liabilities	55	75
Income	68 411	58 969
Interest income	10	-
Fee and commission income	68 396	58 969
Other operating income	5	-
Expenses	1 679	65
Interest expense	1 679	65

Transactions with Santander Group	with the parent company		with other entities
Transactions with Santander Group	31.12.2022	31.12.2021	31.12.2022	31.12.2021
Assets	10 301 473	2 205 680	1 749	28 379
Loans and advances to banks, incl:	6 202 306	406 371	1 749	20 773
Current accounts	566 447	406 371	1 749	20 773
Loans and advances	5 635 859	-	-	-
Financial assets held for trading	4 098 301	1 797 764	-	-
Other assets	866	1 545	-	7 606
Liabilities	10 988 611	7 643 555	108 574	254 932
Deposits from banks incl.:	1 288 557	1 879 707	17 142	119 507
Current accounts and advances	595 307	138 571	17 142	119 507
Loans from other banks	693 250	1 741 136	-	-
Financial liabilities held for trading	3 796 232	1 850 935	-	-
Deposits from customers	-	-	70 288	84 647
Lease liabilities	-	-	25	25
Debt securities in issue	5 899 300	3 910 233	-	-
Other liabilities	4 522	2 680	21 119	50 753
Contingent liabilities	3 326 481	5 325 641	5 320	64 355
Granted:	-	-	3 827	32 536
guarantees	-	-	3 827	32 536
Received:	3 326 481	5 325 641	1 493	31 819
guarantees	3 326 481	5 325 641	1 493	31 819
Derivatives’ nominal values	231 138 041	165 965 533	-	-
Cross-currency interest rate swap (CIRS) – purchased	6 346 764	6 941 045	-	-
Cross-currency interest rate swap (CIRS) – sold	6 253 250	6 976 396	-	-
Single-currency interest rate swap (IRS)	119 850 295	74 002 414	-	-
Forward rate agreement (FRA)	22 522 500	2 981 000	-	-
Options interest rate	5 686 116	7 549 446	-	-
FX swap – purchased amounts	23 128 822	24 401 830	-	-
FX swap – sold amounts	23 552 024	24 286 741	-	-
FX options -purchased CALL	5 646 198	4 201 387	-	-
FX options -purchased PUT	5 754 442	4 196 081	-	-
FX options -sold CALL	5 277 238	4 909 590	-	-
FX options -sold PUT	5 886 463	5 041 365	-	-
Spot-purchased	531 156	121 087	-	-
Spot-sold	531 264	120 956	-	-
Forward- purchased	63 919	53 128	-	-
Forward- sold	58 400	53 365	-	-
Window Forward – purchased amounts	24 987	65 190	-	-
Window Forward – sold amounts	24 203	64 512	-	-
Capital derivatives contract - purchased	-	-	-	-

Transactions with Santander Group	with the parent company		with other entities
Transactions with Santander Group	1.01.2022-31.12.2022	1.01.2021-31.12.2021	1.01.2022-31.12.2022	1.01.2021-31.12.2021
Income	1 050 920	365 524	13 051	8 717
Interest income	28 159	(2 825)	6	20
Fee and commission income	14 176	8 633	645	280
Other operating income	317	1 172	12 400	8 417
Net trading income and revaluation	1 008 268	358 544	-	-
Expenses	135 895	67 067	135 248	105 416
Interest expense	81 726	22 354	3 706	13
Fee and commission expense	7 689	7 811	347	697
Net trading income and revaluation	-	-	(3)	246
Operating expenses incl.:	46 480	36 902	131 198	104 460
Staff,Operating expenses and management costs	46 478	36 837	131 198	104 460
Other operating expenses	2	65	-	-

Factoring – risk participation agreements

In H2 2019, Santander Factoring Sp. z o.o. and Banco Santander signed risk participation agreements whereby Santander Factoring would be able to transfer credit risk onto Banco Santander headquartered in Madrid or Banco Santander Branch in Frankfurt. Banco Santander 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, 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 2022, the debt (principal and interest) of Santander Factoring Sp. z o.o. in respect of the loans granted by Banco Santander and its Branch in Frankfurt was PLN 692,043 k (principal and interest) and PLN 1,738,397 k as at 31 December 2021.

As at 31 December 2022, factoring receivables financed with the foregoing loans totalled PLN 691,918 k and PLN 1,195,648 k as at 31 December 2021. 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 2022, the difference between the amount of the loans granted and the value of the factoring receivables financed with those loans was PLN 125 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 March 2023. 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 and its Branch in Frankfurt.

The table below compares the carrying amounts and fair values of liabilities towards Banco Santander and its Branch in Frankfurt as at 31 December 2022 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.

31.12.2022	Carrying amount	Fair value
Loans from Banco Santander, Frankfurt Branch	692 043	692 043
Factoring receivables financed with the loans	691 918	691 918

After the risk was assumed by Banco Santander and its Branch in Frankfurt, the impairment allowance for factoring receivables was decreased by PLN 1,457 k as at 31 December 2022.

As at 31 December 2022, Santander Factoring Sp. z o.o. held the following assets secured by guarantees:

· PLN 383,672 k – assets secured under the Funded Risk Participation Agreement signed with Banco Santander Branch in Frankfurt on 20 September 2019;

· PLN 311,031 k – assets secured under the Funded Risk Participation Agreement signed with Banco Santander on 22 November 2019;

· PLN 230,831 k – assets secured under the Unfunded Risk Participation Agreement signed with Banco Santander on 22 November 2019;

· PLN 1,415,416 – assets secured by guarantees granted by a third party bank;

· PLN 100,829 k – assets secured by funds granted by a third party bank.

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 31.12.2022 and 31.12.2021 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	2022	2021	2022	2021
Fixed renumeration	14 251	11 877	53 663	51 600
Additional benefits (e.g among others, life insurance cover without pension option, medical cover, travel expenses and school fees)	2 404	2 143	1 746	1 800
Variable remuneration paid in 2022 and 2021 *	10 645	6 933	22 179	20 673
Equivalent paid for unused annual leave	-	799	34	313
Additional compensation for termination of the contract and the non-competition clause	-	1 056	-	3 444
Loans and advances made by the Bank to the Members of the Management Board/Key Management and to their relatives	4 799	5 996	19 760	23 580
Deposits from the Management Board/Key management and their relatives	10 197	14 014	16 706	15 577
Provisions for retirement benefits and provision for unused holidays	966	660	6 545	4 981
The number of conditional rights to shares	-	-	-	-

* included part of the award for 2021, 2020, 2019, 2018, 2017 and 2016 which was conditional and deferred in time.

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 key executive positions are paid variable remuneration once a year following the end of the reference period and release of the Bank’s results. Variable remuneration is awarded in accordance with bonus regulations and five-year Incentive Plan VII and is paid in cash and in the Bank’s shares or related financial instruments (phantom stock). The remuneration paid in shares or financial instruments may not be lower than 50% of the total amount of variable remuneration. Payment of min. 40% of the variable remuneration specified above is conditional and deferred for the period of four or five years. During that period, it is paid in arrears in equal annual instalments depending on the employee’s individual performance in the analysed period and the value of shares or related financial instruments.

The total estimated cost of long-term Incentive Plan VII for the Management Board and key executives is PLN 21,285k for 2022. Details are described in note 56.

In 2022, the total remuneration paid to the Supervisory Board Members of Santander Bank Polska totalled PLN 2,088 k (2,077 k in 2021). Mr. John Power received remuneration of PLN 98 k for his membership in Supervisory Boards of Bank’s subsidiaries (90 k in 2021).

54. Acquisitions and disposals of investments in subsidiaries and associate

Registration of SC Poland 23-1 Designated Activity Company

On 17 June 2022, SC Poland 23-1 Designated Activity Company with its registered office in Dublin was incorporated under Irish law.It is a special purpose vehicle established to securitise the retail loan portfolio. The company is controlled by Santander Consumer Bank S.A. and its shareholder is a legal person that is not connected with the Group.

Completion of the securitisation transaction S.C. Poland Consumer 16-1

Due to completion of the securitisation transaction in 2022, SC Poland Consumer 16-1 Sp. z o.o., a company set up to execute that transaction, was not controlled by the Group as at 31 December 2022.

The statement of financial position and the income statement as at the date of the loss of control over S.C. Poland Consumer 16-1 sp. z o.o. are presented below:

as at:	30.11.2022
Loans and advances to banks	53
Loans and advances to customers	1 264 822
Other assets	50
Total assets	1 264 925
Subordinated liabilities	444 374
Debt securities in issue	820 448
Other liabilities	98
Share capital	5
Total liabilities and equity	1 264 925

for the period:	1.01.2022- 30.11.2022
Interest income and similar to interest	97 754
Interest expense	(97 754)
Net interest income	-

As a result of termination of the securitisation transaction, the subordinated liabilities and liabilities in respect of debt securities in issue have been repaid and the loans and advances to customers continue to be recognised in the Group’s consolidated financial statements.

Loss of control over Santander Leasing Poland Securitization 01 Designated Activity Company-

Due to the final settlement of the securitisation transaction, in 2022 Santander Bank Polska S.A. lost control over Santander Leasing Poland Securitization 01 Designated Activity Company with its registered office in Dublin, a special purpose vehicle and a former subsidiary of Santander Leasing S.A. The SPV was incorporated on 30 August 2018 for the sole purpose of traditional securitisation of a lease and credit portfolio. The SPV did not have any capital connections with Santander Leasing S.A., which was its controlling entity in accordance with the conditions laid down in IFRS 10.7.

On December 8, 2022, the company was put into liquidation.

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 2022 are as follows:

· the discount rate for future benefits at the level of 7.33% (3.22% as at 31 December 2021),

· the future salary growth rate at the level of 5.00% (2,0% as at 31 December 2021),

· 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.

	31.12.2022	31.12.2021
As at the beginning of the period	42 728	48 266
Current service cost	1 904	2 246
Past service cost	(1 603)	(1 577)
Interest expense	1 795	1 009
Actuarial (gains) and losses	(124)	(7 216)
Balance at the end of the period	44 700	42 728

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 2022.

Defined benefit plan obligations	1 percent increase	1 percent decrease
Discount rate	(6,94)%	7,44%
Future salary growth rate	7,57%	(7,13)%

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)%

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	31.12.2022	31.12.2021
Provisions for unused holidays	49 159	45 018
Provisions for employee bonuses	339 319	276 439
Provisions for retirement allowances	44 700	42 728
Other staff-related provisions	12 833	19 730
Total	446 011	383 915

Detailed information on employee provisions have been presented in Note 39.

56. Share based incentive scheme

In 2022, Santander Bank Polska S.A. introduced Incentive Programme VII under Resolution no. 30 of the Annual General Meeting. The programme is addressed to the employees of the Bank and its subsidiaries (Group) who significantly contribute to growth in the value of the organisation. Its purpose is to motivate the participants to achieve business and qualitative goals in line with the Group’s long-term strategy by providing an instrument that strengthens the employees’ relationship with the organisation and encourages them to act in its long-term interest.

The programme will obligatorily cover all persons with an identified employee status in Santander Bank Polska Group. The list of other key participants will be determined by the Management Board members and approved by the Bank’s Supervisory Board. Those employees will participate in the programme on a voluntary basis.

The participants were entitled to variable remuneration in the form of the Bank’s shares provided that they meet the terms and conditions stipulated in the Participation Agreement and the Resolution. To that end, Santander Bank Polska S.A. will buy back up to 2,331,000 shares from 1 January 2023 until 31 December 2033.

The programme covers the period of five years (2022–2026). However, as the payment of variable remuneration is deferred, the share buyback and allocation will be completed by 2033.

The amount recognised in staff expenses for 2022 in respect of variable remuneration for 2022 for participants of Incentive Plan VII payable in 2023 and subsequent years (due to deferral) totalled PLN 72,110k.

57. Dividend per share

The Management Board's recommendation on the distribution of profit for 2021 and undistributed profit for 2019.

The Management Board of Santander Bank Polska S.A. informed that on 31 March 2022 it issued a recommendation on the distribution of profit for 2021 and undistributed profit for 2019. The recommendation was approved by the Bank's Supervisory Board.

In line with the decision taken, the Bank's Management Board recommended that the profit of PLN 915,877,566.59 for 2021 be distributed as follows:

PLN 273,867,361.52 to be allocated to dividend for shareholders;
PLN 457,938,783.30 to be allocated to reserve capital;
PLN 184,071,421.77 to be kept undistributed.
the undistributed profit of PLN 1,056,761,994.64 for 2019 be allocated to the Dividend Reserve created by force of resolution no. 6 of the Annual General Meeting of 22 March 2021 on profit distribution and creation of capital reserve.

In addition, the Management Board recommended that the dividend to be paid out of the profit earned in 2021 should include 102,189,314 shares of series A, B, C, D, E, F, G, H, I, J, K, L, M, N and O; the Dividend should represent 29.90% of the net profit earned in 2021; the Dividend per share should be PLN 2.68; the Dividend record date to 25 May 2022 and the Dividend to paid on 1 June 2022.

The Bank's Management Board and Supervisory Board presented this proposal along with the recommendation at the Bank's Annual General Meeting.

The Bank informed that:

1. Pursuant to Article 349 § 1 of the Commercial Companies Code and § 50(4) of the Bank's Statutes, and based on Management Board resolution no. 175/2021 of 1 September 2021 and Supervisory Board resolution no. 122/2021 of 1 September 2021, on 15 October 2021 the Bank paid interim dividend of PLN 220,728,918.24 ("Interim Dividend"). The Interim Dividend included 102,189,314 shares (one hundred two million one hundred eighty-nine thousand and three hundred fourteen) of series A, B, C, D, E, F, G, H, I, J, K, L, M, N and O. The Interim Dividend per share was PLN 2.16 and the record date for the Interim Dividend was 8 October 2021.

2. The Interim Dividend was paid from the Dividend Reserve created by force of resolution of the Annual General Meeting no. 6/2021 of 22 March 2021 from the part of the net profit earned by the Bank in 2020; it did not reduce the Dividend to be paid out to shareholders.

When taking its decision, 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), including that outlined in the KNF's letter of 23 February 2022, of which the Bank informed in its current report no. 5/2022 of 23 February 2022, as well as the position outlined in the letter of 9 March 2020 confirming the Bank's compliance with the criteria for paying a dividend from the profit earned in 2019, of which the Bank informed in its current report no. 4/2020 of 10 March 2020.

Annual General Meeting of Santander Bank Polska S.A. - resolution re. dividend payment.

The Annual General Meeting of the Bank, held on 27 April 2022, adopted a resolution on dividend payment.

It was decided to allocate to dividend for shareholders the amount of PLN

273 867 361,52

from the Bank's net profit for 2021.

102,189,314 (say: one hundred two million, one hundred eighty nine thousand and three hundred fourteen) series A, B, C, D, E, F, G, H, I, J, K, L, M, N and O shares give entitlement to the dividend to be paid out from 2021 profit.

Dividend per one: A, B, C, D, E, F, G, H, I, J, K, L, N and O series share was PLN

2,68

The Dividend record day was 25 May 2022 and the Dividend was paid out on 1 June 2022.

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

Share based incentive scheme

On 12 January 2023, the Extraordinary General Meeting of Santander Bank Polska S.A. adopted a resolution to set up a capital reserve for share buyback in connection with Incentive Plan VII and authorise the Management Board to buy back shares for the purpose of Incentive Plan VII, whose details are presented in Note 56.

Establishment a programme for the issue of bonds.

The Management Board of Santander Bank Polska S.A. advised of its resolution made on 31 January 2023 to establish a programme for the issue of bonds with a nominal value of maximum PLN 5,000,000,000.

The Bank informed about basic parameters of the bonds under the bond issue programme in current report.

Opinion of the Advocate General of the CJEU of February 16, 2023

On 16.02.2023, an opinion of the Advocate General of the CJEU (“Advocate”) was published in the case pending before the CJEU, case no. C-520/21, concerning the settlement of claims arising from non-contractual use of third party capital in the event of cancellation of a credit agreement in Swiss francs (the question was referred to the CJEU by the Warszawa-Śródmieście District Court in the context of compliance with Directive 93/13/EEC (“Directive”) on unfair terms in consumer agreements). The opinion is non-binding and does not definitively resolve these issues, a judgment of the CJEU in this case is expected in 2023.

In the Advocate's view:

- as as regards consumer claims - these are not contrary to the Directive, but the legitimacy of such claims would have to arise from national law (this is for the national court to decide); in the Advocate’s view, the CJEU may also assess such a consumer claim for possible abuse of rights and dismiss it; and

- as regards banks' claims - in the Advocate's view, the Directive precludes banks' claims for so-called remuneration for the use of capital; however, the Advocate does not comment directly on other potential formulas for the time value of money, in particular he does not formulate a clear thesis on how to define the notion of "capital" to be returned.

Due to: (a) the non-binding nature of the Opinion, (b) its theses leaving a wide margin of interpretation, (c) the impossibility of predicting the outcome of the CJEU's final ruling in particular being uncertain whether the CJEU's ruling will provide explicit instructions or only general guidelines leaving national courts to assess and decide on detailed solutions as well as (d) the relevance that in any event the practice of national courts in implementing CJEU rulings will have – the Opinion cannot currently form the basis for a recognition of its consequences for the legal risk of CHF mortgages in these financial statements. At the same time, in the Group’s opinion if the CJEU assumed the theses of the Advocate this could lead to a material negative impact for the Group.

Note 48 of these financial statements “Legal risk connected with mortgage loans” discloses in detail different scenarios adopted as of December 31, 2022 for the estimation of the legal risk, including the scenario that Group will not be able to recover the cost of capital. At the same time, the note includes disclosures about the sensitivity of the estimated legal risk to selected assumptions, in particular includes the disclosure that the elimination of the cost of capital recovery scenario would result in increasing the cost of legal risk recognized as at 31.12.2022 by the amount of PLN 368m. The analysis does not include the impact of the potential payment of the cost of capital to the customer by the Group, as this issue has not been considered in the model.

Moreover, in the Management’s Board opinion, presented non-binding opinion of the Advocate, the subsequent verdict CJEU and the observed future practice of national courts could result in the following trends influencing the estimated level of the risk:

● increased probability of loss of legal dispute,

● increased probability of loss of legal dispute under the scenario of no recovery of cost of capital and decreased probability for scenarios other that cancellation of loan agreement,

● increased probability of entering into legal dispute or into settlement agreement, therefore decreased probability of passive scenario,

As at the date of issue of these consolidated financial statements the Management Board is not able to estimate a potential impact of these factors beyond the sensitivity analysis presented in note 48.

However, in opinion of the Management Board, the information considered as at 31.12.2022 do not indicate a risk of violation of the legally required minimum levels of capital adequacy, nor a threat to the going concern assumption applied for consolidated financial statements.

Signatures of the persons representing the entity

Date	Name	Function	Signature
21.02.2023	Michał Gajewski	President	The original Polish document is signed with a qualified electronic signature
21.02.2023	Andrzej Burliga	Vice-President	The original Polish document is signed with a qualified electronic signature
21.02.2023	Juan de Porras Aguirre	Vice-President	The original Polish document is signed with a qualified electronic signature
21.02.2023	Arkadiusz Przybył	Vice-President	The original Polish document is signed with a qualified electronic signature
21.02.2023	Lech Gałkowski	Member	The original Polish document is signed with a qualified electronic signature
21.02.2023	Maria Elena Lanciego Pérez	Member	The original Polish document is signed with a qualified electronic signature
21.02.2023	Patryk Nowakowski	Member	The original Polish document is signed with a qualified electronic signature
21.02.2023	Maciej Reluga	Member	The original Polish document is signed with a qualified electronic signature
21.02.2023	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
21.02.2023	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 2022

2.5 Comparability of previous periods

2.6 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 ECL adjustments

2.7 Judgements that may significantly affect the amounts recognized in the financial statements

2.8 Basis of consolidation

2.9 The most significant accounting policies

Retail Banking

Business & Corporate Banking

Corporate & Investment Banking

ALM and Centre

Santander Consumer

11. Other operating income

Santander Bank Polska S.A.

Santander Leasing S.A.

Santander Consumer Bank S.A.

Santander Consumer Multirent

37. Provisions for financial liabilities and guarantees granted

52. Consolidated statement of cash flows- additional information

Factoring – risk participation agreements

The Management Board's recommendation on the distribution of profit for 2021 and undistributed profit for 2019.

Annual General Meeting of Santander Bank Polska S.A. - resolution re. dividend payment.

Date

Name

Function

Signature

Signature of a person who is responsible for maintaining the accounting records

Date

Name

Function

Signature