FINANCIAL HIGHLIGHTS	PLN k		EUR k
		31.12.2023	31.12.2022* restated	31.12.2023	31.12.2022* restated
Separate financial statement
I	Net interest income	11 439 587	8 040 542	2 526 187	1 715 023
II	Net fee and commission income	2 385 799	2 277 921	526 853	485 874
III	Profit before tax	6 396 302	3 598 278	1 412 486	767 502
IV	Profit for the period	4 672 978	2 449 043	1 031 927	522 373
V	Total net cash flows	(791 936)	16 460 847	(174 882)	3 511 048
VI	Total assets	252 401 201	236 448 051	58 049 954	50 416 438
VII	Deposits from banks	2 668 293	2 245 128	613 683	478 716
VIII	Deposits from customers	195 365 937	185 655 260	44 932 368	39 586 187
IX	Total liabilities	222 915 704	211 802 781	51 268 561	45 161 471
X	Total equity	29 485 497	24 645 270	6 781 393	5 254 967
XI	Number of shares	102 189 314	102 189 314
XII	Net book value per share in PLN/EUR	288,54	241,17	66,36	51,42
XIII	Capital ratio	21,24%	22,32%**
XIV	Profit per share in PLN/EUR	45,73	23,97	10,10	5,11
XV	Diluted earnings per share in PLN/EUR	45,73	23,97	10,10	5,11
XVI	Declared or paid dividend per share in PLN/EUR**	23,25***	2,68	5,13	0,57

*Details in Note 2.5

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

**Detailed information are described in Note 55.

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 31.12.2023: EUR 1 = PLN 4,3480 and as at 31.12.2022: EUR 1 = PLN 4,6899

·         for profit and loss items – as at 31.12.2023 - the rate is calculated as the average of NBP exchange rates prevailing as at the last day of each month in 2023: EUR 1 = PLN 4,5284; 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 = PLN 4,6883

As at 31.12.2023, FX denominated balance sheet positions were converted into PLN in line with the NBP FX table no. 251/A/NBP/2023  dd. 29.12.2023

 

I.     Separate income statement66

II.    Separate statement of comprehensive income77

III.  Separate statement of financial position88

IV.  Separate statement of changes in equity99

V.   Separate statement of cash flows1010

VI.  Additional notes to financial statements1111

1.       General information about issuer  1111

2.       Basis of preparation of financial statements  1212

3.       Risk management 3939

4.       Capital management 6767

5.       Net interest income  7171

6.       Net fee and commission income  7272

7.       Dividend income  7272

8.       Net trading income and revaluation  7373

9.       Gains (losses) from other financial securities  7373

10.     Other operating income  7373

11.     Impairment allowances for expected credit losses  7474

12.     Employee costs  7474

13.     General and administrative expenses  7575

14.     Other operating expenses  7575

15.     Corporate income tax  7575

16.     Earnings per share  7676

17.     Cash and balances with central banks  7676

18.     Loans and advances to banks  7777

19.     Financial assets and liabilities held for trading  7878

20.     Hedging derivatives  7979

21.     Loans and advances to customers  8080

22.     Securitisation of assets  8686

23.     Investment securities  8888

24.     Investments in subsidiaries and associates  8989

25.     Intangible assets  9292

26.     Goodwill 9393

27.     Property, plant and equipment 9494

28.     Right of use assets  9595

29.     Deferred tax assets  9696

30.     Fixed assets classified as held for sale  9797

31.     Other assets  9797

32.     Deposits from banks  9898

33.     Deposits from customers  9898

34.     Subordinated liabilities  9999

35.     Debt securities in issue  9999

36.     Provisions for financial liabilities and guarantees granted  100100

37.     Other provisions  101101

38.     Other liabilities  101102

39.     Share capital 102103

40.     Other reserve capital 103104

41.     Revaluation reserve  104105

42.     Hedge accounting  105106

43.     Sale and reverse sale and repurchase agreements  110111

44.     Offsetting financial assets and financial liabilities  111112

45.     Fair value  112113

46.     Legal risk connected with CHF mortgage loans  117118

47.     Contingent liabilities  122123

48.     Assets and liabilities pledged as collateral 124125

49.     Information about leases  125126

50.     Statement of cash flows - additional information  125126

51.     Related parties  126127

52.     Acquisitions and disposals of investments in subsidiaries and associates  129130

53.     Employee benefits  129130

54.     Share based incentive scheme  131132

55.     Dividend per share  132133

56.     Operating segments reporting  134135

57.     Events which occurred subsequently to the end of the reporting period  134135

        

I.                   Separate income statement

for the period		1.01.2023-31.12.2023	1.01.2022-31.12.2022* restated
Interest income and similar to interest		15 604 018	10 189 968
Interest income on financial assets measured at amortised cost		13 240 163	8 151 748
Interest income on financial assets measured at fair value through other comprehensive income		2 300 743	1 962 341
Income similar to interest on financial assets measured at fair value through profit or loss		63 112	75 879
Interest expense		(4 164 431)	(2 149 426)
Net interest income	Note 5	11 439 587	8 040 542
Fee and commission income		2 829 144	2 699 737
Fee and commission expense		(443 345)	(421 816)
Net fee and commission income	Note 6	2 385 799	2 277 921
Dividend income	Note 7	241 567	172 181
Net trading income and revaluation	Note 8	298 573	109 912
Gains (losses) from other financial securities	Note 9	(12 363)	(19 820)
Gain/loss on derecognition of financial instruments measured at amortised cost	Note 46	(316 773)	(169 235)
Other operating income	Note 10	74 836	74 552
Impairment allowances for expected credit losses	Note 11	(945 710)	(798 605)
Cost of legal risk associated with foreign currency mortgage loans	Note 46	(2 081 557)	(1 428 333)
Operating expenses incl.:		(3 936 495)	(3 908 534)
-Staff, operating expenses and management costs	Note 12 and 13	(3 309 013)	(3 378 652)
-Amortisation of property, plant and equipment and Intangible assets		(350 702)	(321 549)
-Amortisation of right of use asset		(126 784)	(125 382)
-Other operating expenses	Note 14	(149 996)	(82 951)
Tax on financial institutions		(751 162)	(752 303)
Profit before tax		6 396 302	3 598 278
Corporate income tax	Note 15	(1 723 324)	(1 149 235)
Profit for the period		4 672 978	2 449 043
Net earnings per share	Note 16
Basic earnings per share (PLN/share)		45,73	23,97
Diluted earnings per share (PLN/share)		45,73	23,97

* details are described in Note 2.5

II.                Separate statement of comprehensive income

	for the period:	1.01.2023-31.12.2023	1.01.2022-31.12.2022* restated
Net profit for the period		4 672 978	2 449 043
Items that will be reclassified subsequently to profit or loss:		2 347 063	(1 363 397)
Revaluation and sales of debt financial assets measured at fair value through other comprehensive income gross	Note 23 and 41	1 832 301	(1 332 664)
Deferred tax		(348 137)	253 206
Revaluation of cash flow hedging instruments gross	Note 41 and 48	1 065 307	(350 542)
Deferred tax		(202 408)	66 603
Items that will not be reclassified subsequently to profit or loss:		46 076	6 139
Revaluation of equity financial assets measured at fair value through other comprehensive income gross	Note 23 and 41	72 166	8 050
Deferred and current tax		(13 712)	(1 529)
Provision for retirement benefits – actuarial gains/losses gross	Note 41 and 54	(15 282)	(472)
Deferred tax		2 904	90
Total other comprehensive income, net		2 393 139	(1 357 258)
TOTAL COMPREHENSIVE INCOME FOR THE PERIOD		7 066 117	1 091 785

* Details in note 2.5

III.             Separate statement of financial position

	as at:	31.12.2023	31.12.2022* restated
ASSETS
Cash and balances with central banks	Note 17	8 275 110	10 135 099
Loans and advances to banks	Note 18	9 048 400	9 709 800
Financial assets held for trading	Note 19	8 941 960	6 879 751
Hedging derivatives	Note 20	1 559 374	537 924
Loans and advances to customers incl.:	Note 21	140 903 101	134 842 828
- measured at amortised cost		138 093 756	132 062 037
- measured at fair value through other comprehensive income		2 798 234	2 628 660
- measured at fair value through profit and loss		11 111	152 131
Reverse sale and repurchase agreements	Note 43	12 676 594	13 824 606
Investment securities incl.:	Note 23	62 952 586	50 086 938
- debt securities measured at fair value through other comprehensive income		44 814 032	46 609 817
- debt securities measured at fair value through profit and loss		-	62 907
- debt investment securities measured at amortised cost		17 866 218	3 156 009
- equity securities measured at fair value through other comprehensive income		272 336	200 170
- equity securities measured at fair value through profit and loss		-	58 035
Assets pledged as collateral	Note 48	271 933	2 157 372
Investments in subsidiaries and associates	Note 24	2 377 407	2 377 407
Intangible assets	Note 25	730 461	625 519
Goodwill	Note 26	1 688 516	1 688 516
Property, plant and equipment	Note 27	472 100	497 686
Right of use asset	Note 28	449 610	437 342
Deferred tax assets	Note 29	986 915	1 718 293
Fixed assets classified as held for sale	Note 30	4 308	4 308
Other assets	Note 31	1 062 826	924 662
Total assets		252 401 201	236 448 051
LIABILITIES AND EQUITY
Deposits from banks	Note 32	2 668 293	2 245 128
Hedging derivatives	Note 20	829 565	1 872 039
Financial liabilities held for trading	Note 19	8 834 034	7 117 867
Deposits from customers	Note 33	195 365 937	185 655 260
Sale and repurchase agreements	Note 43	273 547	2 158 520
Subordinated liabilities	Note 34	2 585 476	2 705 885
Debt securities in issue	Note 35	5 929 056	5 899 300
Lease liabilities	Note 49	484 012	516 881
Current income tax liabilities		1 127 618	85 412
Provisions for financial liabilities and guarantees granted	Note 36	151 294	74 012
Other provisions	Note 37	741 677	463 657
Other liabilities	Note 38	3 925 195	3 008 820
Total liabilities		222 915 704	211 802 781
Equity
Share capital	Note 39	1 021 893	1 021 893
Other reserve capital	Note 40	23 369 548	22 305 509
Revaluation reserve	Note 41	(275 166)	(2 668 305)
Retained earnings		696 244	1 537 130
Profit for the period		4 672 978	2 449 043
Total equity		29 485 497	24 645 270
Total liabilities and equity		252 401 201	236 448 051

* details in note 2.5

IV.            Separate statement of changes in equity

Statement of changes in equity 1.01.2023 - 31.12.2023	Share capital	Own shares	Other reserve capital	Revaluation reserve	Retained earnings and profit for the period	Total
Note	39		40	41
As at the beginning of the period as previously reported	1 021 893	-	22 305 509	(1 018 315)	3 986 173	26 295 260
Reclassification of specific bonds portfolio as at the beginning of the period*	-	-	-	(1 649 990)	-	(1 649 990)
As at the beginning of the period as restated	1 021 893	-	22 305 509	(2 668 305)	3 986 173	24 645 270
Total comprehensive income	-	-	-	2 393 139	4 672 978	7 066 117
Profit for the period	-	-	-	-	4 672 978	4 672 978
Other comprehensive income	-	-	-	2 393 139	-	2 393 139
Inclusion of share based incentive scheme	-	-	198 912	-	-	198 912
Purchase of own shares	-	(48 884)	-	-	-	(48 884)
Settlement of the purchase of own shares under share based incentive scheme	-	48 884	(48 249)	-	-	635
Profit allocation to other reserve capital	-	-	3 289 929	-	(3 289 929)	-
Interim dividend	-	-	(2 375 902)	-	-	(2 375 902)
Other changes	-	-	(651)	-	-	(651)
As at the end of the period	1 021 893	-	23 369 548	(275 166)	5 369 222	29 485 497

* Details in note 2.5

Statement of changes in equity 1.01.2022 - 31.12.2022	Share capital	Own shares	Other reserve capital	Revaluation reserve	Retained earnings and profit for the period	Total
Note	39		40	41
As at the beginning of the period	1 021 893	-	20 790 808	(1 311 047)	3 325 698	23 827 352
Total comprehensive income	-	-	-	(1 357 258)	2 449 043	1 091 785
Profit for the period	-	-	-	-	2 449 043	2 449 043
Other comprehensive income*	-	-	-	(1 357 258)	-	(1 357 258)
Profit allocation to other reserve capital	-	-	1 514 701	-	(1 514 701)	-
Profit allocation to dividends	-	-	-	-	(273 867)	(273 867)
As at the end of the period	1 021 893	-	22 305 509	(2 668 305)	3 986 173	24 645 270

* Details in note 2.5

V.               Separate statement of cash flows

for the period	1.01.2023-31.12.2023	1.01.2022-31.12.2022* restated
Cash flows from operating activities
Profit before tax	6 396 302	3 598 278
Adjustments for:
Depreciation/amortisation	477 486	446 931
Net gains on investing activities	6 769	18 291
Interest accrued excluded from operating activities	(2 011 345)	(1 584 492)
Dividends	(240 269)	(171 242)
Impairment losses (reversal)	4 390	12 158
Changes in:
Provisions	355 302	124 632
Financial assets / liabilities held for trading	(416 804)	338 496
Assets pledged as collateral	(110 353)	21 462
Hedging derivatives	(1 285 031)	(175 256)
Loans and advances to banks	1 644 598	(3 005 112)
Loans and advances to customers	(17 751 486)	(18 141 728)
Deposits from banks	524 521	993 419
Deposits from customers	13 301 911	12 203 847
Buy-sell/ Sell-buy-back transactions	(3 976 188)	2 177 770
Other assets and liabilities	1 269 265	455 901
Interest received on operating activities	12 438 286	7 898 958
Interests paid on operating activities	(4 101 274)	(2 243 194)
Paid income tax	(511 093)	(683 462)
Net cash flows from operating activities	6 014 987	2 285 657
Cash flows from investing activities
Inflows	14 663 141	17 712 343
Sale/maturity of investment securities	12 259 146	16 255 502
Sale of intangible assets and property, plant and equipment	13 048	35 821
Dividends received	240 269	171 242
Interest received	2 150 678	1 249 778
Outflows	(18 883 143)	(3 978 441)
Purchase of investment securities	(18 433 175)	(3 625 654)
Purchase of intangible assets and property, plant and equipment	(449 968)	(352 787)
Net cash flows from investing activities	(4 220 002)	13 733 902
Cash flows from financing activities
Inflows	6 032 802	2 325 350
Debt securities in issue	5 865 760	2 325 350
Drawing of loans	167 042	-
Outflows	(8 619 723)	(1 884 062)
Debt securities buy out	(5 605 700)	(1 219 340)
Repayment of loans and advances	(87 560)	(75 149)
Repayment of lease liabilities	(154 407)	(152 101)
Dividends to shareholders	(2 375 902)	(273 867)
Purchase of own shares	(48 884)	-
Interest paid	(347 270)	(163 605)
Net cash flows from financing activities	(2 586 921)	441 288
Total net cash flows	(791 936)	16 460 847
- including change resulting from FX differences	(964 375)	302 120
Cash and cash equivalents at the beginning of the accounting period	34 490 824	18 029 977
Cash and cash equivalents at the end of the accounting period	33 698 888	34 490 824

* Details in note 2.5

Information regarding liabilities arising from financing activities relating to loans received, subordinated liabilities and the issue of debt securities were presented respectively in notes 32-35.

VI.            Additional notes to 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.

On 7.09.2018, the District Court for Wrocław-Fabryczna in Wrocław, VI Economic Unit of the National Court Register, entered into the register of entrepreneurs changes in the Bank’s statute resulting in, among others, the change of the Bank's name from the Bank Zachodni WBK SA to Santander Bank Polska SA.

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

Santander Bank Polska SA 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.

2.     Basis of preparation of financial statements

2.1. Statement of compliance

These standalone financial statements of Santander Bank Polska S.A. 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 2023, 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 2023, item 120) 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 financial statements have been approved for publication by the Management Board of Santander Bank Polska S.A. on 15.02.2024.

The separate financial statements of Santander Bank Polska SA are published on the same date as the consolidated financial statements of the Santander Bank Polska SA Group and are required by law. 

2.2. Basis of preparation of financial statements

These standalone financial statements have been prepared on the assumption that the Bank 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 Bank's ability to continue as a going concern.

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

These financial statements of Santander Bank Polska S.A. have been prepared in accordance with the International Financial Reporting Standards (IFRS) adopted by the European Union and 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 same accounting principles were applied as in the case of the standalone financial statements for the period ending 31 December 2022, except for changes in accounting standards p. 2.4.

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

.

IFRS	Nature of changes	Effective from	Influence on Santander Bank Polska S.A.
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 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 financial statements.
Amendments to IAS 7/  IFRS 7: Supplier Finance Agreements	Amendments require an entity to disclose qualitative and quantitative information about its supplier finance programs, such as terms and conditions – including, for example, extended payment terms and security or guarantees provided.	1 January 2024	The amendment will not have a significant impact on financial statements.*
Amendments to IAS 21: Lack of Exchangeability	Amendments require disclosure of information that enables users of financial statements to understand the impact of a currency not being exchangeable.	1 January 2025	The amendment will not have a significant impact on 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 2023

IFRS	Nature of changes	Effective from	Influence on Santander Bank Polska S.A.
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 Bank does not identify contracts that meet the definition of an insurance contract under IFRS 17, therefore IFRS 17 does not affect financial statements.
Amendments to IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors	Amendments to IAS 8 include definition of accounting estimates, which should help to distinguish between accounting policies and accounting estimates.	1 January 2023	The amendment does not have a significant impact on 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 does not have a significant impact on 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 does not have a significant impact on financial statements. The Bank conducted an analysis of its accounting policies and some of the disclosures were removed.

2.5. Comparability of previous periods

Change in the classification of the specific bond portfolio – error correction

In Q1 2022, the Bank’s Management Board reviewed the assets and liabilities management policy and changed the classification of the specific bond portfolio.

On 1 April 2022, debt securities measured at fair value through other comprehensive income of PLN 10,521.72m were reclassified and the related fair value adjustment was reversed. Additionally, the related deferred tax asset of PLN 353.11m was derecognised. Debt investment securities measured at amortised cost of PLN 12,380.19m were recognised. The changes resulted in an increase of PLN 1,505.36m in net other comprehensive income.

Detailed information about the reclassification was presented in the condensed consolidated financial statements for H1 2022 and the consolidated financial statements for 2022.

In Q4 2023, the Bank received a letter from the Polish Financial Supervision Authority (KNF) recommending that:

1. when preparing subsequent consolidated and separate financial statements and condensed consolidated and separate financial statements, the Bank should:

·         classify the bond portfolio as financial assets measured at fair value through other comprehensive income;

·         reverse the effects of the reclassification made in 2022; and

2. when preparing the consolidated and separate financial statements for 2023, the Bank should correct the comparative amounts for 2022 to account for the recommendation referred to in point I in accordance with paragraph 42(a) of IAS 8.

The Bank’s Management Board thoroughly analysed the regulatory recommendation and decided to implement it when preparing the financial statements for 2023.  Accordingly, the Bank made a retrospective correction in these separate financial statements and classified again the portfolio of selected bonds as financial assets measured at fair value through other comprehensive income.  The impact of the above correction on the published financial statements as at 31 December 2022 is presented below.

Items in the separate income statement

	for the period:  1.01.2022 - 31.12.2022
	before	adjustment	after
Interest income and similar to income	10 189 968	-	10 189 968
Interest income on financial assets measured at amortised cost	8 305 893	(154 145)	8 151 748
Interest income on financial assets measured at fair value through other comprehensive income	1 808 196	154 145	1 962 341
Income similar to interest on financial assets measured at fair value through profit or loss	75 879	-	75 879

Items in the separate statement of comprehensive income

	for the period: 1.01.2022-31.12.2022
	before	adjustment	after
Net profit for the period	2 449 043	-	2 449 043
Items that will be reclassified subsequently to profit or loss:	286 593	(1 649 990)	(1 363 397)
Revaluation and sales of debt financial assets measured at fair value through other comprehensive income gross	704 361	(2 037 025)	(1 332 664)
Deferred tax	(133 829)	387 035	253 206
Revaluation of cash flow hedging instruments gross	(350 542)	-	(350 542)
Deferred tax	66 603	-	66 603
Items that will not be reclassified subsequently to profit or loss	6 139	-	6 139
Total other comprehensive income, net	292 732	(1 649 990)	(1 357 258)
TOTAL COMPREHENSIVE INCOME FOR THE PERIOD	2 741 775	(1 649 990)	1 091 785

Items in the separate statement of financial position

	as at: 31.12.2022
	before	adjustment	after
Investment securities incl.:	52 123 963	(2 037 025)	50 086 938
- debt securities measured at fair value through other comprehensive income	36 303 503	10 306 314	46 609 817
- debt investment securities measured at amortised cost	15 499 348	(12 343 339)	3 156 009
Deferred tax assets	1 331 258	387 035	1 718 293
Total assets	238 098 041	(1 649 990)	236 448 051
Revaluation reserve	(1 018 315)	(1 649 990)	(2 668 305)
Total equity	26 295 260	(1 649 990)	24 645 270
Total liabilities and equity	238 098 041	(1 649 990)	236 448 051

Items in the separate statement of changes in equity

		for the period: 1.01.2022-31.12.2022
		Revaluation reserve	Total equity		Revaluation reserve	Total equity
		before	before	adjustment	after	after
As at the beginning of the period		(1 311 047)	23 827 352	-	(1 311 047)	23 827 352
Total comprehensive income		292 732	2 741 775	(1 649 990)	(1 357 258)	1 091 785
Other comprehensive income		292 732	292 732	(1 649 990)*	(1 357 258)	(1 357 258)
As at the end of the period		(1 018 315)	26 295 260	(1 649 990)	(2 668 305)	24 645 270

*Item includes revaluation and sales of debt financial assets measured at fair value through other comprehensive income gross in the amount of PLN (2,037,025)k and deferred tax in the mount of PLN 387,035k.

.

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.

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 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 are 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 are 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 are 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 Bank’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., 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. would not otherwise consider, which fulfil below criteria:

(1)     restructuring transactions classified in the Stage 3 category (before restructuring decision),

(2)     transactions restructured in the contingency period that meet the criteria for reclassification to the Stage 3 (quantitative and/or qualitative),

(3)     transactions restructured during the contingency period previously classified as non-performing due to observed customer financial difficulties, have been restructured again or are more than 30 days past due,

(4)     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,

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

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

(7)     transactions where there is a repeated failure to comply with the established payment plan of previous forbearances that has led to successive forbearances of the same exposure (transaction),

(8)     transactions where:

·   inadeguate rerepayment schedules 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

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

(9)     transactions for which the Bank 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 Bank 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.

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 Bank 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 Bank 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.

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.

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				3,18%
consumer loans				13,52%
Bussines loans				7,23%

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. 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. 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 Bank determines the factors which affect individual asset classes to estimate an appropriate evolution of risk parameters. The Bank 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. Bank 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 Bank'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 economy entered 2023 with low momentum, very high inflation and high interest rates. We are expecting the economy to gradually be shaking off the negative effect of shocks suffered in 2022 related to war, and started reviving in the second half of 2023. Inflation is expected to slow the downward trend in 2024 and then to continue decreasing, yet remaining above the official target 2.5% for an extended time. In the baseline scenario, Poland’s GDP growth is expected to accelerate to 3.3% in 2024, and to stabilise near this level (close to the potential rate of growth) in the following years. CPI is to remain elevated, with 7.3% average growth in 2024.

The government responded to rising inflation with more fiscal stimulus (cuts in taxes, new social benefits) and this is one of factors increasing the inflation’s persistence. 2023 was an election year in Poland and this was also likely to favour accommodative fiscal policy.

The scenario assumes that a decline in observed inflation will encourage the central bank to continue gradual monetary policy, that started in 3rd quarter of 2023, bringing the NBP reference rate to 3.75% in 1Q25, from 6.75% at the beginning of 2023.

In 2023 EURPLN was supported by declining risk of energy crisis in Europe, better sentiment in international financial markets, weaker US dollar, and rapid improvement in Polish balance of payments. The scenario assumes a stabilisation of EURPLN exchange rate near 4.50, caused on the one hand by economic growth re-acceleration, on the other hand by decline in interest rates and still high inflation gap between Poland and the euro zone.

High interest rates have undermined demand for loans in 2022 and 2023, especially on the mortgage and consumer market. In general, however, loan growth is expected to gradually regain strength together with rebounding economy. Deposit growth recorded a high momentum, driven by an uptick in banking sectors’ net foreign assets, but is expected to converge towards growth rate of loans.

Best case scenario

The upside scenario was built under an assumption on swift disbursement of EU funds, especially of Recovery Funds, and strong inflow of workers into economy, enabling it to record higher long-term growth rates.

The economy is expected to accelerate to 5.7% in 2024 and 6.2% in 2025. Higher growth will be conducive to higher CPI inflation, averaging 8.5% in 2024 and 6.9% in 2025.

Strong economic growth and elevated CPI rate will encourage the NBP to start a hiking cycle in 3rd quarter of 2024, bringing the reference rate to 7.50% in the 1st quarter of 2025. Monetary easing will appear again in 2026.

The Polish currency is expected to appreciate in the upcoming quarters, yet its pace will be limited by high inflation rate in Poland. EURPLN is expected to go down to 4.42 in 2024 and 4.41 in 2025.

Accelerating economic activity will be positive for the demand for loans in the banking system, which will also be supportive for money creation and rise in deposits.

Worst case scenario

The downside scenario was built under an assumption of weaker inflow of EU funds, translating into lower investment outlays in the economy as well as on weaker inflow of workers from abroad, undermining the long-term growth potential in Poland.

In 2024 the economy is expected to grow by 1.1%, followed by 1.2% in 2025. Slower growth will translate into faster disinflation, with CPI going down from 11.8% in 2023 to 6.8% in 2024 and 3.5% in 2025.

Weaker growth prospects will encourage the NBP to cut interest rates further starting in 1Q24, and bring the NBP reference rate down to 1.50% in 3rd quarter of 2024.

Less optimistic economic performance and low NBP interest rates will be undermining the zloty leading the rate to 4.63 in 2024 and 4.62 in 2025.

Lower economic activity will negatively affect the demand for loans in the banking system, especially in the household sector, as companies could be in need of liquidity loans. Deposits will also be slowing down

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

Scenario as at 31.12.2023			baseline		best case		worst case
likelihood			60%		20%		20%
			2024	average, next 3 years	2024	average, next 3 years	2024	average, next 3 years
GDP		YoY	3,3%	3,3%	5,7%	5,7%	1,1%	1,1%
WIBOR 3M		average	4,5%	4,0%	6,5%	6,1%	2,9%	1,7%
unemployment rate		% active	3,5%	3,3%	3,3%	2,8%	3,7%	3,8%
CPI		YoY	7,3%	3,6%	8,5%	5,1%	6,2%	2,3%
EURPLN		period-end	4,54	4,51	4,42	4,4	4,63	4,61

Scenario as at 31.12.2022			baseline		best case		worst case
likelihood			60%		20%		20%
			2023	average, next 3 years	2023	average, next 3 years	2023	average, next 3 years
GDP		YoY	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

Management ECL adjustments

In the fourth quarter of 2023, in addition to ECL write-offs resulting from the complex calculation model implemented in the system, Santander Bank Polska S.A. reviewed management adjustments updating the risk level with current and expected future events, as a result of which:

·   the management adjustment was maintained at the same level in the amount of PLN 19,600 k on the portfolio of mortgage-secured retail loans, the risk of which may increase after the cessation of assistance activities – payment holidays,

·   management adjustment has been released in the amount of PLN 46,300 k on the corporate performing loan portfolio due to the observed LGD underestimation, in connection with the verification of the impact of changes and the creation of a new management adjustment in its place,

·   management adjustment has been released in the amount of PLN 20,250 k on the corporate Property portfolio due to increased ECB interest rates, where the risk has been reflected directly in the assessment and parameters. Adjustment was released in accordance with its validity period.

·   management adjustment has been released in the amount of PLN 10,690 k on the portfolio of corporate loans due to risk of overestimation in the LGD model of expected recovery from collateral in the form of guarantees of Bank Gospodarstwa Krajowego, control and corrective actions were taken to mitigate the above-mentioned risk and the model parameters were re-estimated,

·   management adjustment has been released in the amount of PLN 15,000 k due to the negative impact of macroeconomic factors and the deterioration of the financial situation of entities managed in the Global Relations Model operating in the sector of production/distribution and sale of household goods, due to the adjustment validity period and the lack of premise for extending the adjustment,

·     management adjustment has been created in the amount of PLN 27,520 k PLN on the corporate portfolio to cover the underestimation of the LGD parameter.

Potential variability of ECL

Significant volatility for the income statement may be reclassifications to Stage 2 from Stage 1. The theoretical reclassification of given percentage of exposures from Stage 1 with the highest risk level to Stage 2 for each type of exposure would result in an increase in write-offs according to below table. The below estimates show expected variability of loss allowances as a result of transfers between Stage 1 and Stage 2, resulting in material changes in the degree to which exposures are covered with allowances in respect of different ECL horizons.

	additional expected credit loss (PLN m)
reclassification from stage 1 to stage 2	individual	mortgage loans	business	Total 31.12.2023	Total 31.12.2022
1%	6,7	7,8	6,0	20,5	16,8
5%	35,3	36,8	25,8	97,9	91,0
10%	67,0	56,0	49,7	172,7	159,9

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 (pessimistic or optimistic) will result in a one-off change in ECL at the level below.

in PLN m		change in ECL level
scenario					31.12.2023	31.12.2022
	individuals	housing loans	business		Total	Total
pessimistic	36,7	2,8	20,9		60,4	72,1
optimistic	(37,2)	(3,1)	(25,3)		(65,6)	(67,9)

Based on the GDP indicator as the main factor determining the condition of the economy, Santander Bank Polska S.A. estimates that if the target level of gross domestic production will be reduced by 1% in 2024, this would translate into an increase in expected credit losses in the amount of PLN 29 637 k. The above analysis was made assuming the preservation of the relationship between macroeconomic factors.

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. 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. 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 Bank 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. uses the income approach for fair value measurement relating to debt financial instruments which do not meet contractual cash flows test.

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. 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. 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. 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. 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. 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. 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 45.

Estimates for legal claims

Santander Bank Polska S.A. 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 37, 46 and 47.

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, Bank 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 disputes

which are described in more details in Note 46.

In mid-2022, the Bank 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 S.A. 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 2023, the Bank recognized PLN 2,081,557 k as cost of legal risk related to mortgage loans in foreign currencies and PLN 324,072 k as a cost of signed settlements.

Detailed information about the portfolio of loans denominated in and indexed to CHF is presented in Note 46. As at 31 December 2023, the Bank also had PLN loans which used to be denominated in or indexed to CHF. Their total gross amount is PLN 262,416k before adjustment to the gross carrying amount at PLN 124,684k reducing contractual cash flows in respect of legal risk. The cost of legal risk connected with that portfolio is calculated using an approach corresponding to the general model described in Note 46.

Santander Bank Polska S.A. 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 46 and 47, respectively.

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

Due to lower than expected quantity of client`s claims, the Bank decided to decrease liability for the reimbursement of commission in the amount who already repaid the loan by PLN 24,200 k. The remaining liability as at 31 December 2023 amounts to PLN 16,300 k.

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. makes various judgements that may significantly affect the amounts recognized in financial statements.

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

The key issue for Santander Bank Polska S.A.'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. 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. 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.’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.

Business Model Assessment

Business models at Santander Bank Polska S.A. 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. 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.2.8 regarding financial asset classification.

2.8. Material accounting policy information

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

Foreign currency

Foreign currency transactions

The Polish zloty (PLN) is the functional currency of Santander Bank Polska S.A.

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. 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. 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. transfers a financial asset, and such operation meets the derecognition criteria.

The Bank excludes financial assets from the statement of financial position, inter alia, if they are invalidated, settled, written off, overdue, materially modified or uncollectible as a result of a final court judgment. The above-mentioned components are excluded from the statement of financial position as a result of the provisions recognised for them for expected credit losses or losses due to legal risk (in the case of cancellations of CHF loans).

Derecognition of financial liabilities

Santander Bank Polska S.A. 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.

Classification of financial assets and financial liabilities

Classification of financial assets

Classification of financial assets which are not equity instruments

Santander Bank Polska S.A. 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. for managing the financial assets and

·       the contractual cash flow characteristics of the financial asset (described in point 2.7).

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.  

Classification of financial assets which are equity instruments

Santander Bank Polska S.A. measures the financial asset that is an equity instrument at fair value through  profit or loss, unless Santander Bank Polska S.A. 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. 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. key management regarding a particular instrument.

The business model refers to how Santander Bank Polska S.A. 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. does not reasonably expect to occur, such as so-called “worst case” or “stress case” scenarios.

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

The qualitative criteria include, m.in, how the risks associated with these assets are managed and the principles of remunerating the persons managing these portfolios.

The quantitative criteria are intended to determine whether the sale of financial assets during the analysed period does not exceed the threshold values set in the internal regulations set in percentage terms. The frequency, value, timing of the sale of assets and reasons for the sale are analysed.

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.:

·       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).

The predominant business model in the Santander Bank Polska S.A.  is a business model that involves holding assets for the purpose of generating contractual cash flows, with the exception of:

·    debt instruments measured at fair value through other comprehensive income held in the ALM segment and loans and advances subject to the underwriting process described below, for which a business model has been established, the purpose of which is achieved both by generating cash flows arising from the agreement, as well as through the sale of financial assets,

·       instruments held for trading, including debt instruments and derivatives, for which hedge accounting is not used – the appropriate business model is a different/residual business model.

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

In the hold-to-maturity model, incidental sales are possible. Such sales are each time analyzed in terms of frequency, value and distribution of sales in earlier periods, reasons for these sales and expectations as to future sales operations.

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. 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

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

Other, residual, model is used for classifying assets held by Santander Bank Polska S.A. 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.

Changing the business model

Santander Bank Polska S.A. reclassifies all affected financial assets when, and only when, it changes its business model for managing financial assets.

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

If Santander Bank Polska S.A. 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.

Classification of financial liabilities

Santander Bank Polska S.A. 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 accumulated 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 accumulated 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.

Embedded derivatives

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. 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. 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. 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. 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. 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. 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. 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. are repaid after satisfaction of claims of all other Santander Bank Polska S.A.’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..  

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 and presented in “Net interest income”, 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 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. 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 Bank Polska S.A. 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. 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. 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. 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. 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.

The occurrence of at least one of these quality criteria results in a significant modification. In the case of quantitative criteria, exceeding the "10% test" also indicates a significant modification.

As a result of a significant modification, the existing financial instrument is derecognized. The new instrument is recognized at fair value.

Minor modification

If neither the qualitative criteria, not the quantitative are met (eg. “10% test” exceeded), the modification is regarded by Santander Bank Polska S.A. as insignificant.

The change in the gross carrying amount is recognized in interest income/expense as a modification gain or loss.