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	FINANCIAL HIGHLIGHTS	PLN k		EUR k
		31.12.2023	*31.12.2022 restated**	31.12.2023	31.12.2022* restated
Consolidated financial statements of Santander Bank Polska Group
I	Net interest income	13 115 899	9 652 307	2 896 365	2 058 807
II	Net fee and commission income	2 717 002	2 566 418	599 992	547 409
III	Profit before tax	6 850 021	4 352 947	1 512 680	928 470
IV	Net profit attributable to owners of the parent entity	4 831 107	2 799 098	1 066 846	597 039
V	Total net cash flows	82 154	16 146 671	18 142	3 444 035
VI	Total assets	276 651 885	257 517 225	63 627 388	54 908 895
VII	Deposits from banks	4 156 453	4 031 252	955 946	859 560
VIII	Deposits from customers	209 277 356	196 496 806	48 131 867	41 897 867
IX	Total liabilities	242 960 867	229 051 877	55 878 764	48 839 395
X	Total equity	33 691 018	28 465 348	7 748 624	6 069 500
XI	Non-controlling interests	1 928 373	1 797 255	443 508	383 218
XII	Profit of the period attributable to non-controlling interests	116 722	209 677	25 776	44 723
XIII	Number of shares	102 189 314	102 189 314
XIV	Net book value per share in PLN/EUR	329,69	278,56	75,83	59,40
XV	Capital ratio	18,56%	19,74%**
XVI	Profit per share in PLN/EUR	47,28	27,39	10,44	5,84
XVII	Diluted earnings per share in PLN/EUR	47,28	27,39	10,44	5,84
XVIII	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 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 31.12.2023: 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.

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I. Consolidated income statement66

II. Consolidated statement of comprehensive income77

III. Consolidated statement of financial position88

IV. Consolidated st atement 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 reporting4141

4. Risk management4545

5. Capital management7575

6. Net interest income7979

7. Net fee and commission income8080

8. Dividend income8181

9. Net trading income and revaluation8181

10. Gains (losses) from other financial securities8181

11. Other operating income8181

12. Impairment allowances for expected credit losses8282

13. Employee costs8282

14. General and administrative expenses8383

15. Other operating expenses8383

16. Corporate income tax8383

17. Earnings per share8484

18. Cash and balances with central banks8484

19. Loans and advances to banks8585

20. Financial assets and liabilities held for trading8685

21. Hedging derivatives8888

22. Loans and advances to customers8888

23. Securitisation of assets9696

24. Investment securities101101

25. Investments in associates102102

26. Intangible assets104104

27. Goodwill105105

28. Property, plant and equipment106106

29. Right of use assets108108

30. Deferred tax assets109109

31. Fixed assets classified as held for sale111111

32. Other assets112112

33. Deposits from banks112112

34. Deposits from customers113113

35. Subordinated liabilities113113

36. Debt securities in issue114114

37. Provisions for financial liabilities and guarantees granted115115

38. Other provisions116116

39. Other liabilities117117

40. Share capital118118

41. Other reserve capital119119

42. Revaluation reserve120120

43. Non - controlling interests121121

44. Hedge accounting122122

45. Sale and reverse sale and repurchase agreements128128

46. Offsetting financial assets and financial liabilities129129

47. Fair value131131

48. Legal risk connected with CHF mortgage loans136136

49. Contingent liabilities141141

50. Assets and liabilities pledged as collateral143143

51. Information about leases144144

52. Consolidated statement of cash flows- additional information145145

53. Related parties146146

54. Acquisitions and disposals of investments in subsidiaries and associate150150

55. Employee benefits150150

56. Share based incentive scheme151151

57. Dividend per share153153

58. Events which occurred subsequently to the end of the reporting period154154

I. Consolidated income statement

for the period:		1.01.2023- 31.12.2023	1.01.2022- 31.12.2022* restated
Interest income and similar to interest		18 409 758	12 538 584
Interest income on financial assets measured at amortised cost		14 925 201	9 650 812
Interest income on financial assets measured at fair value through other comprehensive income		2 472 065	2 119 238
Income similar to interest on financial assets measured at fair value through profit or loss		82 910	96 144
Income similar to interest on finance leases		929 582	672 390
Interest expense		(5 293 859)	(2 886 277)
Net interest income	Note 6	13 115 899	9 652 307
Fee and commission income		3 331 561	3 173 217
Fee and commission expense		(614 559)	(606 799)
Net fee and commission income	Note 7	2 717 002	2 566 418
Dividend income	Note 8	11 471	10 639
Net trading income and revaluation	Note 9	306 619	126 748
Gains (losses) from other financial securities	Note 10	(5 121)	(23 051)
Gain/loss on derecognition of financial instruments measured at amortised cost	Note 48	(322 492)	(169 235)
Other operating income	Note 11	168 901	217 706
Impairment allowances for expected credit losses	Note 12	(1 149 377)	(894 685)
Cost of legal risk associated with foreign currency mortgage loans	Note 48	(2 592 326)	(1 739 088)
Operating expenses incl.:		(4 714 997)	(4 697 706)
-Staff, operating expenses and management costs	Note 13,14	(3 934 824)	(3 977 482)
-Amortisation of property, plant and equipment and Intangible assets		(424 561)	(381 645)
-Amortisation of right of use assets		(144 918)	(141 940)
-Other operating expenses	Note 15	(210 694)	(196 639)
Share in net profits (loss) of entities accounted for by the equity method		96 937	84 049
Tax on financial institutions		(782 495)	(781 155)
Profit before tax		6 850 021	4 352 947
Corporate income tax	Note 16	(1 902 192)	(1 344 172)
Consolidated profit for the period		4 947 829	3 008 775
of which:
-attributable to owners of the parent entity		4 831 107	2 799 098
-attributable to non-controlling interests		116 722	209 677
Net earnings per share	Note 17
Basic earnings per share (PLN/share)		47,28	27,39
Diluted earnings per share (PLN/share)		47,28	27,39

* details in note 2.5

II. Consolidated statement of comprehensive income

	for the period:	1.01.2023-31.12.2023	*1.01.2022-31.12.2022 restated**
Consolidated net profit for the period		4 947 829	3 008 775
Items that will be reclassified subsequently to profit or loss:		2 459 699	(1 408 991)
Revaluation and sales of debt financial assets measured at fair value through other comprehensive income gross	Note 24 and 42	1 953 159	(1 392 566)
Deferred tax		(371 100)	264 588
Revaluation of cash flow hedging instruments gross	Note 42 and 50	1 083 506	(346 930)
Deferred tax		(205 866)	65 917
Items that will not be reclassified subsequently to profit or loss:		46 395	17 123
Revaluation of equity financial assets measured at fair value through other comprehensive income gross	Note 24 and 42	72 822	21 032
Deferred and current tax		(13 836)	(3 996)
Provision for retirement benefits – actuarial gains/losses gross	Note 42 and 55	(15 544)	124
Deferred tax		2 953	(37)
Total other comprehensive income, net		2 506 094	(1 391 868)
TOTAL COMPREHENSIVE INCOME FOR THE PERIOD		7 453 923	1 616 907
Total comprehensive income attributable to:
- owners of the parent entity		7 292 186	1 425 290
- non-controlling interests		161 737	191 617

*details in note 2.5

III. Consolidated statement of financial position

	as at:	31.12.2023	31.12.2022* restated
ASSETS
Cash and balances with central banks	Note 18	8 417 519	10 170 022
Loans and advances to banks	Note 19	9 533 840	9 577 499
Financial assets held for trading	Note 20	8 939 360	6 883 616
Hedging derivatives	Note 21	1 575 056	549 177
Loans and advances to customers incl.:	Note 22	159 520 007	152 508 692
- measured at amortised cost		143 488 004	137 888 696
- measured at fair value through other comprehensive income		2 798 234	2 628 660
- measured at fair value through profit and loss		85 093	239 694
- from finance leases		13 148 676	11 751 642
Reverse sale and repurchase agreements	Note 45	12 676 594	13 824 606
Investment securities incl.:	Note 24	67 523 003	53 334 112
- debt securities measured at fair value through other comprehensive income		47 598 570	49 845 849
- debt securities measured at fair value through profit and loss		2 005	64 707
- debt investment securities measured at amortised cost		19 639 468	3 156 009
- equity securities measured at fair value through other comprehensive income		277 121	204 299
- equity securities measured at fair value through profit and loss		5 839	63 248
Assets pledged as collateral	Note 50	271 933	2 318 219
Investments in associates	Note 25	967 514	921 495
Intangible assets	Note 26	881 857	740 756
Goodwill	Note 27	1 712 056	1 712 056
Property, plant and equipment	Note 28	765 278	688 262
Right of use assets	Note 29	494 296	497 352
Deferred tax assets	Note 30	1 751 189	2 485 768
Fixed assets classified as held for sale	Note 31	6 453	5 973
Other assets	Note 32	1 615 930	1 299 620
Total assets		276 651 885	257 517 225
LIABILITIES AND EQUITY
Deposits from banks	Note 33	4 156 453	4 031 252
Hedging derivatives	Note 21	880 538	1 979 089
Financial liabilities held for trading	Note 20	8 818 493	7 108 826
Deposits from customers	Note 34	209 277 356	196 496 806
Sale and repurchase agreements	Note 45	273 547	2 324 926
Subordinated liabilities	Note 35	2 686 343	2 807 013
Debt securities in issue	Note 36	9 247 159	9 330 648
Lease liabilities	Note 51	365 833	419 965
Current income tax liabilities		1 174 609	80 751
Deferred tax liability		435	281
Provisions for financial liabilities and guarantees granted	Note 37	123 085	61 869
Other provisions	Note 38	967 106	627 311
Other liabilities	Note 39	4 989 910	3 783 140
Total liabilities		242 960 867	229 051 877
Equity
Equity attributable to owners of the parent entity		31 762 645	26 668 093
Share capital	Note 40	1 021 893	1 021 893
Other reserve capital	Note 41	25 097 202	23 858 400
Revaluation reserve	Note 42	(298 688)	(2 781 325)
Retained earnings		1 111 131	1 770 027
Profit for the period		4 831 107	2 799 098
Non-controlling interests	Note 43	1 928 373	1 797 255
Total equity		33 691 018	28 465 348
Total liabilities and equity		276 651 885	257 517 225

* Details in note 2.5

IV. Consolidated statement of changes in equity

Equity attributable to owners of parent entity

Consolidated 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	Non-controlling interests	Total equity
Note	40		41	42			43
As at the beginning of the period as previously reported	1 021 893	-	23 858 400	(1 131 335)	4 569 125	28 318 083	1 797 255	30 115 338
Reclassification of specific bonds portfolio as at the beginning of the period*	-	-	-	(1 649 990)	-	(1 649 990)	-	(1 649 990)
As at the beginning of the period as restated	1 021 893	-	23 858 400	(2 781 325)	4 569 125	26 668 093	1 797 255	28 465 348
Total comprehensive income	-	-	-	2 461 079	4 831 107	7 292 186	161 737	7 453 923
Consolidated profit for the period	-	-	-	-	4 831 107	4 831 107	116 722	4 947 829
Other comprehensive income	-	-	-	2 461 079	-	2 461 079	45 015	2 506 094
Inclusion of share based incentive scheme	-	-	198 912	-	-	198 912	-	198 912
Purchase of own shares	-	(48 884)	-	-	-	(48 884)	-	(48 884)
Settlement of the purchase of own shares under share based incentive scheme	-	48 884	(48 249)	-	-	635	-	635
Profit allocation to other reserve capital	-	-	3 464 692	-	(3 464 692)	-	-	-
Interim dividend	-	-	(2 375 902)	-	-	(2 375 902)	-	(2 375 902)
Profit allocation to dividends	-	-	-	-	-	-	(37 861)	(37 861)
Other changes	-	-	(651)	21 558	6 698	27 605	7 242	34 847
As at the end of the period	1 021 893	-	25 097 202	(298 688)	5 942 238	31 762 645	1 928 373	33 691 018

*details in note 2.5

Equity attributable to owners of parent entity

Consolidated 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	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	-	-	-	(1 373 808)	2 799 098	1 425 290	191 617	1 616 907
Consolidated profit for the period	-	-	-	-	2 799 098	2 799 098	209 677	3 008 775
Other comprehensive income*	-	-	-	(1 373 808)	-	(1 373 808)	(18 060)	(1 391 868)
Profit allocation to other reserve capital	-	-	1 680 056	-	(1 680 056)	-	-	-
Profit allocation to dividends	-	-	-	-	(273 867)	(273 867)	(76 258)	(350 125)
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	(2 781 325)	4 569 125	26 668 093	1 797 255	28 465 348

*details in note 2.5

V. Consolidated 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	6 850 021	4 352 947
Adjustments for:
Share in net profits of entities accounted for by the equity method	(96 937)	(84 049)
Depreciation/amortisation	569 479	523 585
Net gains on investing activities	5 021	26 502
Interest accrued excluded from operating activities	(1 814 295)	(1 322 372)
Dividends	(87 706)	(86 460)
Impairment losses (reversal)	5 573	9 585
Changes in:
Provisions	401 011	128 456
Financial assets / liabilities held for trading	(416 839)	327 586
Assets pledged as collateral	(133 235)	373 590
Hedging derivatives	(1 376 461)	(232 395)
Loans and advances to banks	1 627 108	(3 011 899)
Loans and advances to customers	(21 217 107)	(15 456 016)
Deposits from banks	570 638	963 275
Deposits from customers	17 547 915	13 403 051
Buy-sell/ Sell-buy-back transactions	(4 142 162)	1 858 626
Other assets and liabilities	1 471 356	414 484
Interest received on operating activities	15 001 042	9 998 507
Interest paid on operating activities	(4 848 756)	(2 642 782)
Paid income tax	(665 188)	(818 322)
Net cash flows from operating activities	9 250 478	8 725 899
Cash flows from investing activities
Inflows	16 213 375	18 876 361
Sale/maturity of investment securities	13 837 008	17 351 882
Sale of intangible assets and property, plant and equipment	34 721	54 218
Dividends received	87 706	86 460
Interest received	2 253 940	1 383 801
Outflows	(21 417 015)	(5 431 137)
Purchase of investment securities	(20 782 119)	(4 982 096)
Purchase of intangible assets and property, plant and equipment	(634 896)	(449 041)
Net cash flows from investing activities	(5 203 640)	13 445 224
Cash flows from financing activities
Inflows	10 071 205	10 976 551
Debt securities in issue	6 875 760	5 426 350
Drawing of loans	3 195 445	5 550 201
Outflows	(14 035 889)	(17 001 003)
Debt securities buy out	(6 721 700)	(9 088 033)
Repayment of loans and advances	(3 890 984)	(6 866 749)
Repayment of lease liabilities	(169 580)	(163 765)
Dividends to shareholders	(2 413 763)	(350 125)
Purchase of own shares	(48 884)	-
Interest paid	(790 978)	(532 331)
Net cash flows from financing activities	(3 964 684)	(6 024 452)
Total net cash flows	82 154	16 146 671
- including change resulting from FX differences	(965 909)	301 980
Cash and cash equivalents at the beginning of the accounting period	34 493 039	18 346 368
Cash and cash equivalents at the end of the accounting period	34 575 193	34 493 039

* 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 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 31.12.2023	[%] of votes on AGM at 31.12.2022
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 Inwestycje sp. z o.o.	Warszawa	100%	100%
5.	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.
6.	Santander Towarzystwo Funduszy Inwestycyjnych S.A. ¹⁾	Poznań	50%	50%
7.	Santander Consumer Bank S.A.	Wrocław	60%	60%
8.	Santander Consumer Finanse sp. z o.o.²⁾	Warszawa	-	100% of AGM votes are held by Santander Consumer Bank S.A.
9.	Stellantis Financial Services 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 Stellantis Financial Services 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.
10.	Stellantis Consumer Financial Services Polska Sp. z o.o. ³⁾	Warszawa	100% of AGM votes are held by Financial Services Polska Sp. z o.o .	100% of AGM votes are held by PSA Finance Polska sp. z.o.o.
11.	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.
12.	SCM POLAND AUTO 2019-1 DAC	Dublin	subsidiary of Santander Consumer Multirent S.A.	subsidiary of Santander Consumer Multirent S.A.
13.	Santander Consumer Financial Solutions Sp. z o.o.	Wrocław	subsidiary of Santander Consumer Multirent S.A.	subsidiary of Santander Consumer Multirent S.A.
14.	S.C. Poland Consumer 23-1 DAC. ⁴)	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. Details in Note 2.7

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. The company was liquidated on 22 November 2023

3. According to the Management Board of Santander Bank Polska Group, the investment in Stellantis Financial Services 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). Details in Note 2.7

On 3 April 2023, PSA Finance Polska Sp. z o.o. was renamed Stellantis Financial Services Polska Sp. z o.o., while PSA Consumer Finance Polska Sp. z o.o. operates under the name Stellantis Consumer Financial Services Polska Sp. z o.o.

4. 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

Associates:

	Associates	Registered office	[%] of votes on AGM at 31.12.2023	[%] of votes on AGM at 31.12.2022
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%

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 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 consolidated financial statements have been approved for publication by the Management Board of Santander Bank Polska S.A. on 15.02.2024.

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 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. 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
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.
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 consolidated 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 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 2023

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 - the application of IFRS 17 did not significantly affect the valuation of these investments using the equity method. Apart from contracts in associated entities, the Group does not identify any contracts that meet the definition of an insurance contract under IFRS 17, therefore IFRS 17 does not affect the consolidated financial statements.
Amendments to IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors	Amendments to IAS 8 include definition of accounting estimates, which should help to distinguish between accounting policies and accounting estimates.	1 January 2023	The amendment does 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 does 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 does not have a significant impact on consolidated financial statements. The Group 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

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 consolidated financial statements for 2023. Accordingly, the Bank made a retrospective correction in these consolidated 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 consolidated financial statements as at 31 December 2022 is presented below.

Items in the consolidated income statement

for the period:	1.01.2022 r. -31.12.2022 r.
	before	adjustment	after
Interest income and similar to interest	12 538 584	-	12 538 584
Interest income on financial assets measured at amortised cost	9 804 957	(154 145)	9 650 812
Interest income on financial assets measured at fair value through other comprehensive income	1 965 093	154 145	2 119 238
Income similar to interest on financial assets measured at fair value through profit or loss	96 144		96 144
Income similar to interest on finance leases	672 390		672 390

Items in the consolidated statement of comprehensive income

	for the period: 1.01.2022-31.12.2022
	before	adjustment	after
Consolidated net profit for the period	3 008 775	-	3 008 775
Items that will be reclassified subsequently to profit or loss:	240 999	(1 649 990)	(1 408 991)
Revaluation and sales of debt financial assets measured at fair value through other comprehensive income gross	644 459	(2 037 025)	(1 392 566)
Deferred tax	(122 447)	387 035	264 588
Revaluation of cash flow hedging instruments gross	(346 930)	-	(346 930)
Deferred tax	65 917	-	65 917
Items that will not be reclassified subsequently to profit or loss	17 123	-	17 123
Total other comprehensive income, net	258 122	(1 649 990)	(1 391 868)
TOTAL COMPREHENSIVE INCOME FOR THE PERIOD	3 266 897	(1 649 990)	1 616 907
Total comprehensive income attributable to:
- owners of the parent entity	3 075 280	(1 649 990)	1 425 290
- non-controlling interests	191 617	-	191 617

Items in the consolidated statement of financial position

	as at: 31.12.2022
	before	adjustment	after
Investment securities incl.:	55 371 137	(2 037 025)	53 334 112
- debt securities measured at fair value through other comprehensive income	39 539 535	10 306 314	49 845 849
- debt investment securities measured at amortised cost	15 499 348	(12 343 339)	3 156 009
Deferred tax assets	2 098 733	387 035	2 485 768
Total assets	259 167 215	(1 649 990)	257 517 225
Revaluation reserve	(1 131 335)	(1 649 990)	(2 781 325)
Total equity	30 115 338	(1 649 990)	28 465 348
Total liabilities and equity	259 167 215	(1 649 990)	257 517 225

Items in the consolidated 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	(1 354 715)	27 213 576	-	(1 354 715)	27 213 576
Total comprehensive income	276 182	3 266 897	(1 649 990)	(1 373 808)	1 616 907
Other comprehensive income	276 182	258 122	(1 649 990)*	(1 373 808)	(1 391 868)
As at the end of the period	(1 131 335)	30 115 338	(1 649 990)	(2 781 325)	28 465 348

*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. 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 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 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 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:

· in inadequate repayment 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 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

(9) 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.

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.

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.

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. 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 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	YoT	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	4,40	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	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	4,60	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. Group 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,

· the management adjustment has been released in the amount of PLN 34,900 k for the write-offs planned in the second half of 2023, which require the creation of provision up to 100%, due to the implementation of the assumed write-offs,

· 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 17,000 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 released in the amount of PLN 20,000 k on the portfolio of SME leasing loans in order to cover the expected impact of the change in the rating model, due to the introduction of planned changes,

· management adjustment has been created in the amount of PLN 27,520k 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 These 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	corporate	Total 31.12.2023	Total 31.12.2022
1%	20,2	8,3	7,4	35,8	36,3
5%	102,6	39,3	32,5	174,4	189,2
10%	202,6	61,1	62,7	326,3	356,2

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	mortgage loans	business	Total	Total
best case	39,7	3,6	23,6	66,9	81,6
wort case	(38,8)	(3,1)	(28,5)	(70,4)	(77,2)

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 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. 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.

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 disputes

which 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 2023, the Group recognized PLN 2 592 326 k as cost of legal risk related to mortgage loans in foreign currencies and PLN 329 791 k as a cost of signed settlements.

Detailed information about the portfolio of loans denominated in and indexed to CHF is presented in Note 48. As at 31 December 2023, the Group also had PLN loans which used to be denominated in or indexed to CHF. Their total gross amount is PLN 343,699k before adjustment to the gross carrying amount at PLN 141,284k 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 48.

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 commission reimbursement for mortgage loans in the event of early repayment

Due to lower than expected quantity of client`s claims, the Group 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. 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.

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.

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

The key judgments and assumptions regarding involvement in entities in which it holds half of the voting rights are set out below.

Santander Towarzystwo Funduszy Inwestycyjnych S.A.

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. The co-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 part of the global Santander Group and each hold a 50% stake in the company's share capital. In practice, Santander Bank Polska S.A. exercises control over Santander TFI S.A. within the meaning of International Financial Reporting Standards (IFRS), as it exerts real influence on Santander TFI S.A. as the main business partner and distributor of investment products has a real impact on the Company's operating activities and financial results.

POLFUND - Fundusz Poręczeń Kredytowych S.A

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.

Stellantis Financial Services Polska Sp. z o.o.

According to Santander Bank Polska S.A. Group Management Board, the investment in Stellantis Financial Services 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 Stellantis Financial Services 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 Stellantis Financial Services Polska Sp. z o.o. Taking into account the core business of Stellantis Financial Services 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 Stellantis Financial Services Polska Sp. z o.o. is active, Santander Bank Polska S.A. has decided that Stellantis Financial Services 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 Stellantis Financial Services 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 Stellantis Financial Services 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 Stellantis Financial Services 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”.

Subsidiaries

Santander Bank Polska S.A. Group applies the acquisition method to account for acquisition of subsidiaries.

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.

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.

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.

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.2.8 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. 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.

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. The Group 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. 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.

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. 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 (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. 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.

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. 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).

The predominant business model in the Santander Bank Polska S.A. Group 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. 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

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. 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.

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.

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.

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 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. 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 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 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.

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. Group as insignificant.

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

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.

Details regarding the calculation are described in point 2.6 "Allowances for expected credit losses"

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.

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

Financial instruments in amortized cost

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.

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.

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

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.

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.

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

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

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.

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.

Licenses, patents, concessions and similar assets

Acquired computer software licenses 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.

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.

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.

Other items of the statement of financial position

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 2023 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, 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.

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.

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 2023 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.

· allocation of tax on financial institutions on business segments

· change of allocation criteria of capital and net interest income from capital into business segments.

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 comparable figures in Retail Banking segment.

Contribution to fund under Institutional Protection Scheme (IPS) was divided by business Segments based on customer assets structure and was presented in comparable figures. 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

1.01.2022-31.12.2023	Segment Retail Banking *	Segment Business and Corporate Banking	Segment Corporate& Investment Banking	Segment ALM and Centre	Segment Santander Consumer	Total
Net interest income	7 625 091	2 360 230	892 698	896 573	1 341 307	13 115 899
incl. internal transactions	(1 461)	(6 223)	9 868	109 074	(111 258)	-
Fee and commission income	1 989 000	628 860	507 031	-	206 670	3 331 561
Fee and commission expense	(449 596)	(45 073)	(36 176)	-	(83 714)	(614 559)
Net fee and commission income	1 539 404	583 787	470 855	-	122 956	2 717 002
incl. internal transactions	333 338	186 004	(516 291)	-	(3 051)	-
Net other income	(296 386)	79 206	225 625	84 128	55 334	147 907
incl. internal transactions	13 402	61 066	(70 302)	(4 173)	7	-
Dividend income	10 109	-	1 298	-	64	11 471
Operating costs	(2 556 233)	(584 359)	(465 594)	(55 307)	(484 025)	(4 145 518)
incl. internal transactions	-	-	-	3 336	(3 336)	-
Depreciation/amortisation	(401 897)	(64 598)	(35 507)	-	(67 477)	(569 479)
Impairment losses on loans and advances	(675 353)	(158 470)	(140 160)	(3 019)	(172 375)	(1 149 377)
Cost of legal risk associated with foreign currency mortgage loans	(2 081 557)	-	-	-	(510 769)	(2 592 326)
Share in net profits (loss) of entities accounted for by the equity method	95 449	-	-	1 488	-	96 937
Tax on financial institutions	(429 324)	(182 154)	(139 684)	-	(31 333)	(782 495)
Profit before tax	2 829 303	2 033 642	809 531	923 863	253 682	6 850 021
Corporate income tax						(1 902 192)
Consolidated profit for the period						4 947 829
of which:
attributable to owners of the parent entity						4 831 107
attributable to non-controlling interests						116 722

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

1.01.2023-31.12.2023	Segment Retail Banking *	Segment Business and Corporate Banking	Segment Corporate& Investment Banking	Segment ALM and Centre	Segment Santander Consumer	Total
Fee and commission income	1 989 000	628 860	507 031	-	206 670	3 331 561
Electronic and payment services	188 206	71 211	26 342	-	-	285 759
Current accounts and money transfer	266 953	105 095	17 568	-	1 515	391 131
Asset management fees	235 050	399	602	-	-	236 051
Foreign exchange commissions	330 308	188 308	242 603	-	-	761 219
Credit commissions incl. factoring commissions and other	137 933	145 064	114 293	-	64 882	462 172
Insurance commissions	194 855	12 213	1 348	-	73 337	281 753
Commissions from brokerage activities	100 689	285	38 970	-	-	139 944
Credit cards	90 732	-	-	-	47 671	138 403
Card fees (debit cards)	414 444	18 533	2 242	-	-	435 219
Off-balance sheet guarantee commissions	4 044	83 662	43 450	-	-	131 156
Finance lease commissions	10 512	2 191	239	-	19 265	32 207
Issue arrangement fees	-	1 899	19 374	-	-	21 273
Distribution fees	15 274	-	-	-	-	15 274

Consolidated statement of financial position by business segments

31.12.2023	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	85 091 779	38 132 618	19 132 818	-	17 162 792	159 520 007
Investments in associates	919 294	-	-	48 220	-	967 514
Other assets	8 641 819	1 831 250	11 036 611	88 140 780	6 513 904	116 164 364
Total assets	94 652 892	39 963 868	30 169 429	88 189 000	23 676 696	276 651 885
Deposits from customers	134 495 224	43 603 337	14 368 922	3 121 992	13 687 881	209 277 356
Other liabilities	1 818 866	876 036	7 300 332	18 106 096	5 582 181	33 683 511
Equity	7 148 389	4 623 642	3 028 526	14 483 827	4 406 634	33 691 018
Total equity and liabilities	143 462 479	49 103 015	24 697 780	35 711 915	23 676 696	276 651 885

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

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	3 647 536	1 541 158	582 915	2 569 285	1 311 413	9 652 307
incl. internal transactions	(3 086)	(4 212)	7 233	66 733	(66 668)	-
Fee and commission income	1 847 688	641 872	477 325	-	206 332	3 173 217
Fee and commission expense	(447 506)	(43 264)	(29 311)	-	(86 718)	(606 799)
Net fee and commission income	1 400 182	598 608	448 014	-	119 614	2 566 418
incl. internal transactions	316 138	184 485	(497 627)	-	(2 996)	-
Net other income	(120 439)	131 038	270 554	(209 129)	80 144	152 168
incl. internal transactions	4 816	106 026	(106 481)	(4 365)	4	-
Dividend income	9 625	-	939	-	75	10 639
Operating costs	(2 573 222)	(610 645)	(416 273)	(57 472)	(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	(627 980)	(199 407)	(33 790)	61	(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	(485 282)	(170 484)	(96 568)	-	(28 821)	(781 155)
Profit before tax	(466 044)	1 229 887	721 459	2 303 534	564 111	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)

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
Fee and commission income	1 847 688	641 872	477 325	-	206 332	3 173 217
Electronic and payment services	175 423	69 293	23 562	-	(279)	267 999
Current accounts and money transfer	266 633	128 941	24 744	-	1 751	422 069
Asset management fees	199 821	452	649	-	-	200 922
Foreign exchange commissions	309 728	183 115	237 570	-	-	730 413
Credit commissions incl. factoring commissions and other	139 957	151 605	108 736	-	59 222	459 520
Insurance commissions	156 780	10 090	1 405	-	78 129	246 404
Commissions from brokerage activities	93 791	2 032	34 314	-	(2)	130 135
Credit cards	90 565	-	-	-	52 017	142 582
Card fees (debit cards)	381 658	16 031	1 982	-	-	399 671
Off-balance sheet guarantee commissions	8 094	78 534	29 642	-	(2 576)	113 694
Finance lease commissions	8 648	1 779	243	-	18 070	28 740
Issue arrangement fees	-	-	14 478	-	-	14 478
Distribution fees	16 590	-	-	-	-	16 590

* 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	82 212 188	38 524 736	16 137 424	-	15 634 344	152 508 692
Investments in associates	874 763	-	-	46 732	-	921 495
Other assets	10 210 612	2 255 636	8 080 111	78 857 555	4 683 124	104 087 038
Total assets	93 297 563	40 780 372	24 217 535	78 904 287	20 317 468	257 517 225
Deposits from customers	126 245 713	41 098 731	14 938 881	3 863 549	10 349 932	196 496 806
Other liabilities	1 027 334	810 140	6 321 369	18 569 343	5 826 885	32 555 071
Equity	5 294 919	4 028 975	2 606 734	12 394 069	4 140 651	28 465 348
Total equity and liabilities	132 567 966	45 937 846	23 866 984	34 826 961	20 317 468	257 517 225

* 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.

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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 2023, the Group continued to thoroughly analyse 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 2023, the Group focused on the analysis of potential impact of the geopolitical situation 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 closely monitored the portfolio of customers doing business in Ukraine, Russia, Belarus or Israeli 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 deteriorating quality of the cash loan portfolio is also observed, it remains at an increased level, the improvement of which is expected from 2024 due to the improvement in the quality of newly sold loans. 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 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 2023 to account for the impact of the geopolitical situation 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 and value, a process that includes:

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

· assessment of the legal status of the security for business loans,

· 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 31.12.2023:

31.12.2023
Financial effect of collateral	Gross Amount	Allowance for impairment	Financial effect of collateral
Loans and advances to customers
individuals	29 953 235	(2 301 456)	( 9 396)
housing loans	53 014 143	(601 195)	( 735 737)
business	64 802 496	(2 261 980)	(1 333 152)
Total balance sheet	147 769 874	(5 164 631)	(2 078 285
Total off-balance sheet	41 675 422	(123 085)	(43 769)

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)

Credit risk stress testing

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

Impairment calculation

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Assets have been classified into respective risk grades based on the one-year probability of default arising from current credit rating (business customers) or score (personal customers) used for the purpose of business processes or, if not available, based on the one-year probability of default used for calculation of expected credit losses.

The tables below present the quality of financial assets of Santander Bank Polska Group broken down into risk groups as at 31.12.2023 and in the comparative period. The portfolio consisis of loans and advances to clients and leasing portfolio.

31.12.2023		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%	2 495 584	2 609 449	35 296 301	798 710	6 239 392	8 259 836
	from 0,15% to <0,25%	1 165 681	678 513	1 504 114	70	6 181 256	3 018 705
	from 0,25% to <0,50%	1 580 956	63 665	7 447 713	116 796	20 192 995	8 828 527
	from 0,50% to <0,75%	3 895 229	386 626	1 986 711	56 034	11 311 276	5 935 325
	from 0,75% to <2,50%	12 612 568	499 931	2 053 314	37 048	18 516 398	8 189 153
	from 2,50% to <10,0%	4 544 646	156 112	553 110	23 627	4 744 457	1 035 759
	from 10,0% to <45,0%	443 959	17 327	319	-	2 221 942	10 321
	from 45,0% to <100,0%	6 940	38	-	-	10 549	111
	Total Stage 1	26 745 563	4 411 661	48 841 581	1 032 285	69 418 265	35 277 737
Stage 2	from 0,00% to <0,15%	43 576	2 140	513 720	-	33 931	3 841
	from 0,15% to <0,25%	39 765	1 951	66 665	-	244 102	442
	from 0,25% to <0,50%	61 564	2 819	375 898	-	372 648	-
	from 0,50% to <0,75%	174 905	4 358	83 966	-	732 369	45 873
	from 0,75% to <2,50%	720 081	15 066	198 449	1 755	1 602 264	149 682
	from 2,50% to <10,0%	636 139	26 888	148 452	7 391	1 302 235	332 752
	from 10,0% to <45,0%	224 469	155	5 127	73	973 412	63 264
	from 45,0% to <100,0%	87 266	-	115	-	62 462	-
	Total Stage 2	1 987 765	53 377	1 392 392	9 219	5 323 423	595 854

	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	1 290 376	377 525	1 320 400
	from 13 to 24 months	509 085	222 302	668 876
	from 25 to 36 months	293 707	106 263	333 250
	from 37 to 48 months	186 950	61 573	259 957
	from 49 to 60 months	118 220	72 601	264 164
	from 61 to 84 months	87 848	88 878	123 776
	above 84 months	27 342	76 695	387 568
POCI	up to 12 months	54 136	13 007	78 844
	from 13 to 24 months	46 547	38 899	240 088
	from 25 to 36 months	13 273	16 563	64 252
	from 37 to 48 months	4 465	4 241	24 935
	from 49 to 60 months	2 080	5 409	126 528
	from 61 to 84 months	19 050	14 099	42 867
	above 84 months	47 821	71 340	50 913

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%	50 683	5 554	490 961	-	73 265	3 978
	from 0,15% to <0,25%	38 535	3 984	74 931	-	116 979	2 785
	from 0,25% to <0,50%	99 742	1 980	345 812	-	363 149	-
	from 0,50% to <0,75%	164 453	3 877	90 102	-	458 069	45 873
	from 0,75% to <2,50%	524 995	20 042	158 996	1 755	1 944 798	147 725
	from 2,50% to <10,0%	445 748	35 550	185 070	7 391	1 412 308	335 737
	from 10,0% to <45,0%	248 083	2 161	5 377	72	912 393	61 037
	from 45,0% to <100,0%	17 078	-	-	-	16 083	-
	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

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 31.12.2023 and in the comparative period:

		Loans and advances to customers measured at fair value through OCI
31.12.2023	PD range	Stage 1	Stage 2	Stage 3	Total

	od 0,00 do <0,15%	445 835	-	-	445 835
	od 0,15 do <0,25%	151 691	-	-	151 691
	od 0,25 do <0,50%	878 181	139 881	-	1 018 062
	od 0,50 do <0,75%	346 910	150 493	-	497 403
	od 0,75 do <2,50%	777 218	-	-	777 218
Gross amount		2 599 835	290 374	-	2 890 209

Impairment		(10 551)	(81 464)	-	(91 975)
Net amount		2 589 324	208 910	-	2 798 234

		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

The tables below present the quality of financial assets of Santander Bank Polska Group broken down into stages and by ratings as at 31.12.2023 and in the comparative period:

Stage 1
31.12.2023	Loans and advances to banks	Debt 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	Debt securities held for trading
Credit quality step *
1 (AAA to AA-)	418 664	2 155 447	964 018	2 005	-
2 (A+ to A-)	8 993 366	45 442 729	18 675 450		1 517 534
3 (BBB+ to BBB-)	92 159	-	-	-	-
4 (BB+ to BB-)	2 020	-	-	-	-
5 (B+ to B-)	132	-	-	-	-
6 (<B-)	-	-	-	-	-
no external rating	27 499	-	-	-	1 657
Total Stage 1	9 533 840	47 598 176	19 639 468	2 005	1 519 191

* according to Fitch;

There are no instruments classified to Stage 2 as at 31.12.2023.

Stage 3
31.12.2023	Loans and advances to banks	Debt 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	Debt securities 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	-	394	-	-	-
Total Stage 3	-	394	-	-	-

Stage 1
31.12.2022	Loans and advances to banks	Loans and advances to customers - Debt securities measured at amortised cost	Debt 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-)	247 909	-	1 308 713	-	64 707	-
2 (A+ to A-)	8 846 774	-	48 534 726	3 156 009	-	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	-	-	-	2 123
Total Stage 1	9 577 499	816 896	49 843 439	3 156 009	64 707	229 290
* according to Fitch

Stage 2
31.12.2022	Loans and advances to banks	Loans and advances to customers - Debt securities measured at amortised cost	Debt 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	Debt 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	-	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 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	-	143 615	2 410		-	-
Total Stage 3	-	143 615	2 410		-	-
* 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.

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 31.12.2023, pursuant to art. 71 of the Banking Law Act, the maximum limits for the Group amounted to:

· PLN 6,518,511 k (25% of Group’s own funds).

As at 31.12.2022, pursuant to art. 71 of the Banking Law Act, the maximum limits for the Group amounted to:

· PLN 6,756,529 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 2023.

A list of the 20 largest borrowers (or capital-related group of borrowers) of Santander Bank Polska Group (performing loans) as at 31.12.2023.

Industry code (PKD)	Industry description	Total credit exposure	Balance sheet exposure incl. towards subsidiaries	Committed credit lines, guarantees, treasury limits and capital investments
84	PUBLIC ADMINISTRATION	3 252 671	-	3 252 671
19	RAFINERY	2 149 725	222 615	1 927 110
64	OTHER FINANCIAL SERVICES	2 104 833	-	2 104 833
47	RETAIL SALES	1 558 713	1 357 790	200 923
35	POWER INDUSTRY	1 545 378	270 001	1 275 377
47	RETAIL SALES	1 508 554	771 577	736 977
64	OTHER FINANCIAL SERVICES	1 496 559	1 444 460	52 099
61	TELECOMMUNICATION	1 307 635	420 688	886 947
35	POWER INDUSTRY	1 299 494	257 475	1 042 019
06	MINING	1 264 590	-	1 264 590
64	OTHER FINANCIAL SERVICES	1 254 499	-	1 254 499
64	OTHER FINANCIAL SERVICES	1 196 880	1 196 880	-
64	OTHER FINANCIAL SERVICES	1 093 960	-	1 093 960
64	OTHER FINANCIAL SERVICES	1 064 928	527 888	537 040
35	POWER INDUSTRY	1 027 815	974 020	53 795
64	OTHER FINANCIAL SERVICES	997 676	-	997 676
35	POWER INDUSTRY	960 808	922161	38 647
64	OTHER FINANCIAL SERVICES	850 000	-	850 000
61	TELECOMMUNICATION	849 844	828 346	21 498
64	OTHER FINANCIAL SERVICES	779 051	-	779 051
		27 563 613	9 193 901	18 369 712

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

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 31.12.2023, the highest concentration level was recorded in the “manufacturing” sector (9% of the Santander Bank Polska Group exposure), “trade” (8.7%) and “real estate” (6%).

Breakdown of non-trading business loans and advances by NACE codes:

	NACE sector	Gross exposure
	NACE sector	31.12.2023	31.12.2022
	Agriculture, forestry and fishing	3 820 094	3 486 001
	Mining and quarrying	1 419 015	1 723 852
	Manufacturing	14 910 478	15 078 676
	Electricity, gas, steam and air conditioningsupply	2 990 334	2 735 504
	Water supply	372 536	431 933
	Construction	3 449 603	3 036 977
	Wholesale and retail trade	14 313 937	13 970 330
	Transport and storage	6 098 496	4 506 059
	Accomodation and food service activities	1 968 191	2 066 576
	Information and communication	3 171 499	3 144 499
	Financial and insurance activities	1 355 784	1 148 447
	Real estate activities	9 482 855	9 737 548
	Professional, scientific and technical activities	6 659 463	5 279 937
	Administrative and support service activities	3 328 385	2 858 504
	Public administration and defence, .compulsory social security	3 417	2 318
	Education	339 013	299 064
	Human health services and social work activities	1 656 984	1 615 367
	Arts, entertainment and recreation	433 291	356 571
	Other services	5 088 339	4 073 330
A	Total Business Loans	80 861 714	75 551 493
B	Retail (including mortgage loans)	83 052 466	81 483 319
C	Loans to public sector	1 223 168	1 279 998
A+B+C	Santander Bank Polska SA portfolio	165 137 348	158 314 810
D	Other receivables	74 521	77 914
A+B+C+D	Total Santander Bank Polska SA	165 211 869	158 392 724

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 2023 (including Report on Santander Bank Polska Performance)”. This document also includes quantitative disclosures.

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 for the segment of the largest corporate clients, the most important ESG factors are already included in the rating assessment. At the same time, the Bank is embarking on a project that will introduce these elements into the structured process of business client risk rating assessment.

At the same time, the Group performed the first iterations of analyzes aimed at identification of 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 started 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.

Risks related to social and environmental issues, including climate, are taken into account in the risk management system developed and implemented by the Management Board. This system operates on the basis of three lines of defense, covers all significant types of risk and the interdependencies of individual risks.

In accordance with the recommendations of TCFD, the Bank performs analyzes of physical and transformational risk, including them in the taxonomy of risks typical for the Bank.

In 2023, the Bank carried out an analysis of the portfolio's sensitivity to climate risks, taking into account the sensitivity assessment of the most exposed sectors included in it. The analysis was carried out in three time horizons - short (2030), medium (2040) and long (2050). Unlike the analysis carried out in previous years, it was decided to use climate scenarios defined by a group of central banks and supervisory institutions, which brings together over 130 institutions (including the largest ones, such as the European Central Bank, the Bank of England and the United States Federal Reserve System) determined to act for better understanding and management of climate risks (Network for Greening the Financial System, NGFS).

The development of physical and transformation risks was analyzed in 11 sectors most sensitive to climate risks in which Banco Santander clients are active. 9 of these 11 sectors are significantly represented in Santander Bank Polska S.A.

In accordance with the approach recommended by TCFD, the analysis took into account the main types of risks from both categories: physical risks (RF) and transformation risks (RT). In 2023, the methodology for assessing climate risks was improved (a description of the methodology for analyzing the materiality of risks for sectors is presented in the section on risk management, analysis of the materiality of risks). Risk assessment was on a scale of 1 to 5 (where 1 means very low risk and 5 means very high risk). The analysis was qualitative in nature, but was carried out taking into account the perspective of double materiality, i.e. considering the channels of the Bank's impact on climate change and climate change on the Bank's results. The methodology and scope of this analysis are constantly being developed to increasingly more accurately reflect the impact of climate risks on the Bank's portfolio.

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 agricultural (agro) sector is particularly exposed to physical risks, with an increased risk of soil erosion affecting crop quality and yields.

In the medium and long term, physical risks have been identified related to the deteriorating hydrological situation in Poland and the threat of drought. The lack of appropriate water retention systems and water shortages may have a number of negative effects, affecting other sectors of the economy, including the energy sector. For example, power plants whose cooling systems use water from rivers may have to reduce energy production during periods of drought. There was also a fire hazard in the soft commodities sector, which could potentially cause losses, among others. 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 member of the Management Board supervising ESG risk management is the member managing the Risk Management Division.

In 2023, the ESG Risk Management Office was established within the Risk Management Division, whose responsibility is to ensure the appropriate organization of the ESG Risk management function.

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 i.e. the Risk Committee. This committee is involved in the process of identifying various types of climate risks and opportunities, and based on its guidelines, 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.

The Group does not separate ESG risk as a separate material risk, but indicates its transmission channels into: credit, market and liquidity, compliance, reputation, business and operational risks. At the same time, the analysis of risk transmission channels is constantly being deepened and the perspective of the analyzed impact is now expanded to include market risk in the trading book and liquidity risk. The use of such an approach affects the process of estimating and quantifying significant risks.

A methodology was introduced for assessing the level of climate risks - physical and transition for individual climate and real estate sectors, which allowed for a portfolio analysis of the significance of climate risks for the loan portfolio. The reports in question are already presented to the appropriate committees. The development of this methodology is planned for next year based on more accurate data obtained and their use in assessing the credit risk of customers and transactions.

The process of accepting sustainable financing for all segments of the Bank's operations was formalized, both at the level of transactions and loan products. In 2023, the ESG Panel was established within the Risk Management Division, whose responsibility is to certify sustainable financing in relation to internal and external regulations, thereby contributing to reducing the risk of greenwashing.

The Group started the project of calculating the carbon intensity of loan portfolios in accordance with the PCAF methodology in order to be able to analyze the carbon intensity structure in all sectors and business segments with greater accuracy. As part of this project, a series of 6 training sessions was held for all interested units of the Bank, presenting the topic of emission intensity and the methodology of its calculation in all 3 scopes. The Group is currently working to increase the accuracy of these calculations to continue work on identifying and implementing decarbonization levers.

The Bank has Environmental, Social and Climate Change Risk Management Policy, approved by the Management Board. It specifies the criteria consistent with best practice and standards applicable in Santander Group and worldwide which have to be met by customers from the following 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, such as the environmental and social risk analysis procedure for customers from the Corporate and Investment Banking (SCIB) segment and the Business and Corporate Banking (BCB) segment, 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 (Environmental, Social and Climate Change) risk of customers/ transactions from the sectors defined in the relevant policy is analysed on a case-by-case basis using dedicated assessment questionnaires. Based on that, the local ESG risk 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 process is expanded to include ESCC analyses of new sensitive sectors, including: automotive, food and chemical – in particular production of plastics and agricultural chemistry. In addition, a structured analysis of plans for transition into lower emissions is carried out for customers from high-emission industries such as energy production based on fossil fuels, coal mining, airlines, and steelmaking.

In 2023, the ESG risk assessment process for financed projects was formalized. The analysis used here is consistent with the Equator Principles, i.e. the market standard and common language for assessing environmental and social risk in projects among large financial institutions around the world. This assessment is made in cooperation with the business line and dedicated ESCC analysts. In the first step, it results in determining the project category depending on the potential impact on environmental and social issues, and then conducting an analysis, the detail of which depends on the category assigned. The recommendation resulting from the analysis becomes an element of the loan application. a dedicated position of ESG Risk Director was established, whose main responsibility is to ensure the adequacy of ESG risk assessment by managing the collection and analysis of field data using Business Intelligence tools, as well as initiating, supporting and coordinating ESG tasks. Policies and procedures in force in ESG areas were also analyzed and the missing elements are to be addedd.

As part of the assessment process for other corporate clients, an automatic algorithm was used, enabling pre-selection of environmental and social risk. 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”). The Group is in the process of developing an approach on how to introduce these elements into the structured client risk assessment process.

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 Committee, 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. 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 amounts and tenors not quoted on the market directly 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 and FX 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 and can also make standard currency exchange transactions with the Bank.

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 2023 and 2022 are shown in the table below (in PLN m). It presents the results of scenarios, in which the impact of changes in interest rates on interest income and the economic value of capital would be negative.

	NII Sensitivity		MVE Sensitivity
1 day holding period	31.12.2023	31.12.2022	31.12.2023	31.12.2022
Maximum	(342)	(426)	(722)	(595)
Average	(280)	(358)	(380)	(488)
as at the end of the period	(147)	(334)	(644)	(494)
Limit	(500)	(900)	(925)	(800)

In 2023, the levels of use of the interest rate risk limit for the sensitivity of interest income (NII) were lower, and for MVE (economic value of capital) increased, compared to 2022. No RED exceeses of operational limits were observed. The increase in exposure to MVE was caused by the implementation of the strategy of hedging the sensitivity of interest income, which consequently increased the duration of the banking book portfolio. Implementation of the above hedging strategy was based mainly on concluding cash-flow hedge transactions and expanding the ALCO portfolio with fixed-coupon debt securities.

In 2023, operational limits for the sensitivity of MVE in PLN and Total items were increased.

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 2023 and 2022 for 1-day position holding period (in PLN k):

Interest rate risk		VAR
1 day holding period		31.12.2023	31.12.2022
Average	7 443		5 321
Maximum	14 049		14 622
Minimum	3 258		960
as at the end of the period	6 952		9 550
Limit	13 812		13 205

In 2023, VaR limits were exceeded. The excesses were recorded in the total VaR and VaR of interest rate risk in the Bank's trading book. A total of three excesses occurred in the fourth quarter. The excesses were caused by current operating activities and the activity of the Bank's clients on debt and interest rate instruments, their amount was immaterial and they were closed on the day of their identification in accordance with the assumptions of the risk management processes in the Bank's trading book. The observed average values of the VaR measure in 2023 compared to 2022 were higher, which is due to the increased variability of the observed risk factors continuing in 2023, as well as the natural increase in the scale of the Bank's business activities. In terms of the maximum level of interest rate market risk in the Bank's trading book, there are no significant changes compared to the previous year.

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.

The table below illustrates the risk measures at the end of December 2023 and 2022 (in PLN k).

FX risk	VAR
1 day holding period	31.12.2023	31.12.2022
Average	749	1 021
Maximum	2 411	2 346
Minimum	81	68
as at the end of the period	648	1 144
Limit	3 542	3 301

In 2023, the VaR limit for currency risk was not exceeded.

The tables below present the Group’s key FX positions as at 31 December 2023 and in the comparable period.

31.12.2023	PLN	EUR	CHF	USD	Other	Total
ASSETS
Cash and balances with central banks	6 956 993	977 508	58 997	146 384	277 637	8 417 519
Loans and advances to banks	1 280 971	7 206 043	26 333	793 695	226 798	9 533 840
Loans and advances to customers	132 253 696	23 411 744	2 154 107	1 592 194	108 266	159 520 007
Investment securities	63 386 625	3 223 918	-	1 074 040	-	67 684 583
Selected assets	203 878 285	34 819 213	2 239 437	3 606 313	612 701	245 155 949
LIABILITIES
Deposits from banks	2 489 169	1 645 426	311	19 536	2 011	4 156 453
Deposits from customers	166 002 155	30 893 667	1 000 857	9 500 127	1 880 550	209 277 356
Subordinated liabilities	1 118 250	1 568 093	-	-	-	2 686 343
Selected liabilities	169 609 574	34 107 186	1 001 168	9 519 663	1 882 561	216 120 152

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	52 598 781	1 755 829	-	1 297 721	-	55 652 331
Selected assets	185 348 367	33 703 432	5 291 453	3 282 821	282 471	227 908 544
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

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, significat level of foreign currency deposits, mainly in EUR is observed.

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 2023 and 2022 (in PLN k).

Equity risk	VAR
1 day holding period	31.12.2023	31.12.2022
Average	379	261
Maximum	759	532
Minimum	112	98
as at end of the period	424	258
Limit	1 574	2 135

In 2023, the VaR limit for equity risk was not exceeded.

Interest Rate Benchmark reform

In connection with the Regulation (EU) of 2016 of the European Parliament and of the Council (2016/1011) and the decisions of ICE Benchmark Administration Limited on the gradual phasing out of the calculation and publication of reference indices from the LIBOR family, Santander Bank Polska ran the IBOR Program from 2020 to mid-2023 aimed at preparing the Bank for changes resulting from these decisions.

The IBOR Program focused 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). In the fourth quarter of 2022, the IBOR Program Steering Committee extended the scope of work to include changes resulting from the initiated reform of indicators in Poland.

The reform of indicators in Poland has accelerated since the adoption of the Act of July 7, 2022 on crowdfunding of business ventures and assistance to borrowers (Journal of Laws of 2022, item 1488), which in Art. 85 regulates the procedure for discontinuing the development of the WIBOR indicator or its liquidation. Then, the National Working Group for the reform of benchmarks in Poland was established, which included, among others: introduction of a new indicator whose input data would be only one-day transactions. On September 27, 2022, the Road Map for the process of replacing the WIBID and WIBOR indicators with the WIRON indicator was published. On October 25, 2023, the assumptions of the Road Map were modified to postpone the date of conversion of the historical portfolio of contracts and instruments from WIBOR to WIRON to the end of 2027.

Work at the Bank implementing the assumptions of the National Working Group is carried out as part of the WIBOR Project by a wide group of experts representing all business lines of the Bank, supported by experts from renowned consulting companies, under the supervision of the Steering Committee consisting of members of the Management Board and top-level staff. The Bank is working to introduce products based on the WIRON index to its offer in accordance with the assumptions of the Road Map.

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 2023 and in comparative period:

31.12.2023	Nominal value
Assets and liabilities exposed to PLN WIBOR	Assets	Liabilities
Cash and balances at central banks	-	-
Loans and advances to/deposits from banks	100 000	1 707 791
Loans and advances to/deposits from customers	76 253 292	11 638 718
Reverse repurchase/repurchase agreements	846 300	111 200
Debt securities/ in issue	18 366 000	7 486 000
Lease receivables/liabilities	3 468 440	-
Total value of assets and liabilities exposed to PLN WIBOR	99 034 032	20 943 709

Trading Derivatives (notional)	437 292 000	387 549 000
Hedging Derivatives (notional)	11 383 000	30 102 000

31.12.2022	Nominal value
Assets and liabilities exposed to PLN WIBOR	Assets	Liabilities
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.

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 2023, the value of the HQLA buffer was PLN 78.3 bn for the Bank and PLN 82.9 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;

· 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 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 2023, Santander Bank Polska Group focused on maintaining an optimal financing structure. The decline and subsequent stabilisation of market interest rates and the increase in liquidity surplus resulted in reduced competition for customer deposits in the banking sector. As at 31 December 2023, the loan-to-deposit ratio was 72% compared to 78% as at 31 December 2022, the consolidated Liquidity Coverage Ratio was 218%, and 177% as at 31 December 2022.

In 2023 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 2023 and in the comparable period (by nominal value).

31.12.2023	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	25 853 559	26 241 402	18 302 791	14 403 726	17 779 912	37 804 180	62 841 283	64 293 501
Liabilities	146 588 595	28 296 845	25 946 462	9 755 926	5 496 759	5 839 626	3 407 570	165 547
including:
- Sell-buy-back transactions	-	273 388	-	-	-	-	-	-
- Deposits from banks	2 547 232	317 989	373 215	280 332	239 671	-	329 787	-
- Deposits from customers	144 041 364	27 705 468	25 245 227	7 244 800	3 862 891	454 570	447 174	5 047
- Debt securities in issue	-	-	300 000	2 193 505	1 319 678	4 924 215	373 203	-
- Subordinated liabilities	-	-	-	-	-	434 800	2 217 871	-
- Lease liabilities	-	-	28 020	37 289	74 518	26 041	39 535	160 500
Contractual liquidity mismatch/ gap	(120 735 036)	(2 055 443)	(7 643 670)	4 647 800	12 283 154	31 964 553	59 433 713	64 127 954
Cumulative liquidity gap	(120 735 036)	(122 790 479)	(130 434 149)	(125 786 349)	(113 503 195)	(81 538 642)	(22 104 929)	42 023 025
Net derivatives	-	( 39 544)	144	-	( 12 104)	( 1 380)	-	-
Gross asset derivatives	-	49 599 214	27 566 261	12 162 859	19 351 556	9 434 776	16 601 989	8 469 903
Gross liabilities derivatives	-	49 811 994	27 331 996	12 173 600	19 283 786	9 817 275	17 084 146	8 512 279
Off balance positions Total	48 805 527	6 070 637	1 070 736	491 057	411 334	493 731	423 367	23
-guarantees & letters of credits	15 162 702	-	-	-	-	-	-	-
-credit lines	7 482 642	6 028 728	618 372	185 372	-	-	-	-

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

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	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

The tables below show maturity analysis of financial liabilities and receivables for Santander Bank Polska Group as at 31 December 2023 and in the comparable period (the undiscounted cash flow – capital and interests).

31.12.2023	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	25 859 491	27 065 734	20 170 293	17 651 785	22 821 916	46 019 722	79 120 752	95 921 595
Liabilities	146 820 538	28 628 049	26 417 667	10 334 648	6 003 299	6 358 466	3 700 364	165 619
including:
- Repurchase agreement transactions	-	273 607	-	-	-	-	-	-
- Liabilities to banks	2 547 370	318 701	373 417	280 791	239 671	-	329 787	-
- Liabilities to customers	144 273 167	28 021 217	25 656 525	7 465 300	4 017 453	511 197	481 264	5 119
- Own emissions	-	14 305	326 301	2 480 703	1 573 215	5 228 720	381 915	-
- Subordinated liabilities	-	-	29 714	65 887	89 283	578 804	2 450 182	-
- Lease liabilities	-	220	31 710	41 967	83 677	39 745	57 215	160 500
Contractual liquidity gap	(120 961 047)	(1 562 316)	(6 247 374)	7 317 137	16 818 617	39 661 255	75 420 388	95 755 976
Cummulated contractual liquidity gap	(120 961 047)	(122 523 363)	(128 770 737)	(121 453 600)	(104 634 983)	(64 973 727)	10 446 661	106 202 638
Net derivatives	-	( 84 187)	( 271 635)	( 318 517)	350 248	377 635	757 415	60 432
Gross asset derivatives	-	49 733 151	27 825 283	12 632 545	20 028 924	10 439 209	18 317 289	10 148 472
Gross liabilities derivatives	-	49 933 324	27 564 041	12 647 854	19 939 607	10 770 508	18 717 522	10 166 980
Off Balance positions Total	48 805 527	6 070 637	1 070 736	491 057	411 334	493 731	423 367	23
-guarantees & letters of credits	15 162 702	-	-	-	-	-	-	-
-credit lines	7 482 642	6 028 728	618 372	185 372	-	-	-	-

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

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

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 45.0 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 2023”.

In 2023, 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 2023, the total own funds of Santander Bank Polska Group were PLN 120 310 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 8 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 8 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 2023 (Chapter III, Section 3 “Transitional arrangements for mitigating the impact of the introduction of IFRS 9 on own funds”). {to be removed}

Capital Policy

As at 31 December 2023, 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 9.87%;

· total capital ratio of 11.87%;

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

· Tier 1 capital ratio of 9,880%;

· total capital ratio of 11,883%.

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 21 December 2023. As at 31 December 2023, the buffer related to the portfolio of FX mortgage loans for households was 0.013 p.p for the total capital ratio, 0.010 p.p. for the Tier 1 capital ratio and 0.0079 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 13, 2023 P2G capital charges of 0.37 p.p. apply both at the Bank and the consolidated level based on supervisory stress tests carried out by the Polish Financial Supervision Authority in 2023.

Components of the minimum capital requirement		31.12.2023	31.12.2022
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 0.013 p.p.	ü 0.016 p.p.
	· Tier 1 capital ratio:	ü 0.010 p.p.	ü 0.012 p.p.
	· for Common Equity Tier 1 capital ratio:	ü 0.007 p.p	ü 0.009 p.p
The capital buffer for Santander Bank Polska as other systemically important institution		ü 1 p.p.	ü 1 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 0.37 p.p.	ü 0.26 p.p.
	Santander Bank Polska Capital Group:	ü 0.37 p.p.	ü 0.23 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 2023 and in the comparative period.

		31.12.2023	31.12.2022* restated
I	Total Capital requirement (Ia+Ib+Ic+Id+Ie), of which:	11 240 894	10 952 748
Ia	- due to credit risk & counterparty credit risk	9 583 762	9 438 572
Ib	- due to market risk	155 375	160 598
Ic	- due to credit valuation ajdustment risk	52 630	45 854
Id	- due to operational risk	1 392 796	1 254 318
Ie	- due to securitisation	56 331	53 406
II	Total own funds*	28 815 295	28 846 933
III	Reductions	2 741 252	1 820 818
IV	Own funds after reductions (II-III)	26 074 043	27 026 115
V	*CAD [IV/(I12.5)]**	18,56%	19,74%
VI	Tier I ratio	17,18%	18,02%

*as described in Note 2.5

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. Since 3 December 2021, it is subject to amortization due to the final 5 years of the loan maturity according to Art. 64 CRR.

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. Since 22 May 2022, it is subject to amortization due to the final 5 years of the loan maturity according to Art. 64 CRR.

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. Since 5 April 2023, it is subject to amortization due to the final 5 years of the loan maturity according to Art. 64 CRR. For more information on subordinated liabilities, see note 35.

6. Net interest income

Interest income and income similar to interest	1.01.2023-31.12.2023	*1.01.2022-31.12.2022 restated**
Interest income on financial assets measured at amortised cost	14 925 201	9 650 812
Loans and advances to enterprises	4 913 564	3 582 392
Loans and advances to individuals, of which:	8 077 851	5 261 493
Home mortgage loans	4 094 335	1 802 508
Loans and advances to banks	815 574	418 730
Loans and advances to public sector	87 356	52 021
Reverse repo transactions	605 690	202 644
Debt securities	443 136	77 972
Interest recorded on hedging IRS	(17 970)	55 560
Interest income on financial assets measured at fair value through other comprehensive income	2 472 065	2 119 238
Loans and advances to enterprises	224 159	136 346
Loans and advances to public sector	24 846	13 821
Debt securities	2 223 060	1 969 071
Income similar to interest - financial assets measured at fair value through profit or loss	82 910	96 144
Loans and advances to enterprises	1 420	4 316
Loans and advances to individuals	27 001	50 382
Debt securities	54 489	41 446
Income similar to interest on finance leases	929 582	672 390
Total income	18 409 758	12 538 584

The impact of payment deferrals on the Group’s net interest income in 2023 totalled PLN 49,298k (31.12.2022: 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.

Interest expenses	1.01.2023-31.12.2023	1.01.2022-31.12.2022
Interest expenses on financial liabilities measured at amortised cost	(5 293 859)	(2 886 277)
Liabilities to individuals	(2 167 759)	(771 316)
Liabilities to enterprises	(1 695 634)	(908 721)
Repo transactions	(230 261)	(315 001)
Liabilities to public sector	(369 161)	(244 510)
Liabilities to banks	(208 181)	(183 694)
Lease liability	(18 602)	(14 384)
Subordinated liabilities and issue of securities	(604 261)	(448 651)
Total costs	(5 293 859)	(2 886 277)
Net interest income	13 115 899	9 652 307

7. Net fee and commission income

Fee and commission income	1.01.2023- 31.12.2023	1.01.2022- 31.12.2022
Electronic and payment services	285 759	267 999
Current accounts and money transfer	391 131	422 069
Asset management fees	236 051	200 922
Foreign exchange commissions	761 219	730 413
Credit commissions incl. factoring commissions and other	462 172	459 520
Insurance commissions	281 753	246 404
Commissions from brokerage activities	139 944	130 135
Credit cards	138 403	142 582
Card fees (debit cards)	435 219	399 671
Off-balance sheet guarantee commissions	131 156	113 694
Finance lease commissions	32 207	28 740
Issue arrangement fees	21 273	14 478
Distribution fees	15 274	16 590
Total	3 331 561	3 173 217
Fee and commission expenses	1.01.2023- 31.12.2023	1.01.2022- 31.12.2022
Electronic and payment services	(82 827)	(74 311)
Distribution fees	(9 180)	(7 971)
Commissions from brokerage activities	(13 666)	(14 722)
Credit cards	(21 503)	(22 706)
Card fees (debit cards)	(119 362)	(116 676)
Credit commissions paid	(73 308)	(82 764)
Insurance commissions	(14 089)	(17 108)
Finance lease commissions	(48 209)	(45 959)
Asset management fees and other costs	(4 849)	(10 447)
Off-balance sheet guarantee commissions	(75 467)	(81 026)
Other	(152 099)	(133 109)
Total	(614 559)	(606 799)
Net fee and commission income	2 717 002	2 566 418

Included above is fee and commission income on credits, credit cards, off-balance sheet guarantees and leases of PLN 763 938 k (31.12.2022: PLN 744 536 k) and fee and commission expenses on credit cards, leases and paid to credit agents of PLN (143 020) k (31.12.2022: PLN (151 429) 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	1.01.2023-31.12.2023	1.01.2022-31.12.2022
Dividends income from investment securities measured at fair value through other comprehensive income	9 693	8 662
Dividends income from investment securities measured at fair value through profit or loss	480	1 038
Dividends income from equity financial assets held for trading	1 298	939
Total	11 471	10 639

9. Net trading income and revaluation

Net trading income and revaluation	1.01.2023- 31.12.2023	1.01.2022- 31.12.2022
Derivative instruments	(9 726)	(183 006)
Interbank FX transactions and other FX related income	231 166	275 708
Net gains on sale of equity securities measured at fair value through profit or loss	24 004	13 117
Net gains on sale of debt securities measured at fair value through profit or loss	50 440	17 722
Change in fair value of loans and advances mandatorily measured at fair value through profit or loss	10 735	3 207
Total	306 619	126 748

The amounts include CVA and DVA adjustments which in 2023 and 2022 totalled PLN (6 800) k and PLN 6 917k respectively.

10. Gains (losses) from other financial securities

Gains (losses) from other financial securities	1.01.2023-31.12.2023	1.01.2022-31.12.2022
Net gains on sale of debt securities measured at fair value through other comprehensive income	5 842	(10 238)
Net gains on sale of equity securities measured at fair value through profit and loss	2 887	-
Change in fair value of financial securities measured at fair value through profit or loss	13 084	(2 951)
Impairment losses on securities	(2 016)	(1 066)
Total profit (losses) on financial instruments	19 797	(14 255)
Change in fair value of hedging instruments	(419 312)	349 229
Change in fair value of underlying hedged positions*	394 394	(358 025)
Total profit (losses) on hedging and hedged instruments	(24 918)	(8 796)
Total	(5 121)	(23 051)

* details in note 44

11. Other operating income

Other operating income	1.01.2023-31.12.2023	1.01.2022-31.12.2022
Income from services rendered	38 390	35 405
Release of provision for legal cases and other assets	31 050	55 894
Recovery of other receivables (expired, cancelled and uncollectable)	194	79
Received compensations, penalties and fines	6 782	2 170
Gains on lease modifications	9 168	9 203
Settlements of leasing agreements /Income from claims received from the insurer	11 870	42 075
Other	71 447	72 880
Total	168 901	217 706

12. Impairment allowances for expected credit losses

Impairment allowances for expected credit losses on loans and advances measured at amortised cost	1.01.2023-31.12.2023	1.01.2022-31.12.2022
Charge for loans and advances to banks	(259)	(38)
Stage 1	(259)	(38)
Stage 2	-	-
Stage 3	-	-
POCI	-	-
Charge for loans and advances to customers	(1 124 593)	(946 026)
Stage 1	(153 481)	(120 628)
Stage 2	(573 916)	(503 913)
Stage 3	(468 711)	(427 660)
POCI	71 515	106 175
Recoveries of loans previously written off	38 869	52 094
Stage 1	-	-
Stage 2	-	-
Stage 3	38 869	52 094
POCI	-	-
Off-balance sheet credit related facilities	(63 394)	(715)
Stage 1	(9 385)	4 142
Stage 2	(37 617)	(1 547)
Stage 3	(16 392)	(3 310)
POCI	-	-
Total	(1 149 377)	(894 685)

13. Employee costs

Employee costs	1.01.2023-31.12.2023	1.01.2022-31.12.2022
Salaries and bonuses	(1 889 786)	(1 520 400)
Salary related costs	(316 485)	(263 966)
Cost of contributions to Employee Capital Plans	(14 199)	(9 887)
Staff benefits costs	(51 114)	(40 538)
Professional trainings	(14 630)	(12 282)
Retirement fund, holiday provisions and other employee costs	(8 169)	(4 542)
Restructuring provision*	10 088	35 815
Total	(2 284 295)	(1 815 800)

*Given that the collective redundancies process was completed, Santander Bank Polska S.A. released the unused portion of the restructuring provision.

14. General and administrative expenses

General and administrative expenses	1.01.2023-31.12.2023	1.01.2022-31.12.2022
Maintenance of premises	(131 444)	(114 943)
Short-term lease costs	(9 019)	(8 116)
Low-value assets lease costs	(1 312)	(1 254)
Costs of variable lease payments not included in the measurement of the lease liability	(362)	(702)
Non-tax deductible VAT	(34 562)	(28 016)
Marketing and representation	(196 232)	(174 583)
IT systems costs	(500 894)	(414 405)
Cost of BFG, KNF and KDPW	(211 380)	(298 720)
Cost of payment to protection system (IPS)	(275)	(445 704)
Postal and telecommunication costs	(56 015)	(54 000)
Consulting and advisory fees	(73 191)	(82 422)
Cars, transport expenses, carriage of cash	(59 477)	(63 123)
Other external services	(201 659)	(148 966)
Stationery, cards, cheques etc.	(20 417)	(18 606)
Sundry taxes and charges	(41 945)	(38 856)
Data transmission	(29 907)	(17 790)
KIR, SWIFT settlements	(33 104)	(34 255)
Security costs	(15 749)	(19 616)
Costs of repairs	(5 158)	(5 997)
Cost of payment to the Borrowers Support Fund	-	(173 565)
Other	(28 427)	(18 043)
Total	(1 650 529)	(2 161 682)

15. Other operating expenses

Other operating expenses	1.01.2023-31.12.2023	1.01.2022-31.12.2022
Charge of provisions for legal cases and other assets	(63 447)	(63 111)
Impairment loss on property, plant, equipment, intangible assets covered by lease agreements and other fixed assets	(5 430)	(12 360)
Gain on sales or liquidation of fixed assets, intangible assets and assets for disposal	(8 835)	(16 264)
Costs of purchased services	(13 640)	(15 044)
Other membership fees	(1 498)	(1 256)
Paid compensations, penalties and fines	(426)	(1 064)
Donations paid	(8 750)	(7 533)
Other	(108 668)	(80 007)
Total	(210 694)	(196 639)

16. Corporate income tax

.

Corporate income tax	1.01.2023- 31.12.2023	1.01.2022- 31.12.2022
Current tax charge in the income statement	(1 778 293)	(1 102 305)
Deferred tax charge in the income statement	(143 146)	(237 010)
Adjustments from previous years for current and deferred tax	19 247	(4 857)
Total tax on gross profit	(1 902 192)	(1 344 172)

Corporate total tax charge information	1.01.2023- 31.12.2023	1.01.2022- 31.12.2022
Profit before tax	6 850 021	4 352 947
Tax rate	19%	19%
Tax calculated at the tax rate	(1 301 504)	(827 060)
Non-tax-deductible expenses	(39 620)	(27 880)
Cost of legal risk associated with foreign currency mortgage loans	(391 465)	(269 263)
The fee to the Bank Guarantee Fund	(33 170)	(50 267)
Tax on financial institutions	(148 606)	(148 413)
The Borrowers Support Fund	-	(32 977)
Non-taxable income	12 499	12 215
Non-tax deductible bad debt provisions	(29 115)	(25 854)
Adjustment of prior years tax	19 247	(4 856)
Tax effect of consolidation adjustments	14 479	14 336
Other	(4 937)	15 847
Total tax on gross profit	(1 902 192)	(1 344 172)

Deferred tax recognised in other comprehensive income	31.12.2023	*31.12.2022 restated**
Relating to valuation of debt investments measured at fair value through other comprehensive income	250 814	621 914
Relating to valuation of equity investments measured at fair value through other comprehensive income	(47 309)	(33 473)
Relating to cash flow hedging activity	(130 954)	74 912
Relating to valuation of defined benefit plans	(356)	(3 309)
Total	72 195	660 044

* details in note 2.5

17. Earnings per share

Earnings per share	1.01.2023- 31.12.2023	1.01.2022- 31.12.2022
Profit for the period attributable to ordinary shares	4 831 107	2 799 098
Weighted average number of ordinary shares	102 189 314	102 189 314
Earnings per share (PLN)	47,28	27,39
Profit for the period attributable to ordinary shares	4 831 107	2 799 098
Weighted average number of ordinary shares	102 189 314	102 189 314
Diluted earnings per share (PLN)	47,28	27,39

18. Cash and balances with central banks

Cash and balances with central banks	31.12.2023	31.12.2022
Cash	2 609 876	3 198 679
Current accounts in central banks	5 612 059	6 852 602
Term deposits	195 584	118 741
Total	8 417 519	10 170 022

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 3.5% as at 31.12.2023 and 31.12.2022.

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	31.12.2023	31.12.2022
Loans and advances	6 298 372	6 290 099
Current accounts	3 235 871	3 287 543
Gross receivables	9 534 243	9 577 642
Allowance for impairment	(403)	(143)
Total	9 533 840	9 577 499

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

Loans and advances to banks 31.12.2023
Gross carrying amount	Stage 1	Stage 2	Stage 3	POCI	Total
As at the beginning of the period	9 577 642	-	-	-	9 577 642
Transfers
Transfer to Stage 1	-	-	-	-	-
Transfer to Stage 2	-	-	-	-	-
Transfer to Stage 3	-	-	-	-	-
New financial assets originated	6 983 423	-	-	-	6 983 423
Changes in existing financial assets	(72 918)	-	-	-	(72 918)
Financial assets derecognised that are not write-offs	(6 923 386)	-	-	-	(6 923 386)
Write-offs	-	-	-	-	-
Other movements incl. FX differences	(30 518)	-	-	-	(30 518)
As at the end of the period	9 534 243	-	-	-	9 534 243

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

20. Financial assets and liabilities held for trading

	31.12.2023		31.12.2022
Financial assets and liabilities held for trading	Assets	Liabilities	Assets	Liabilities
Trading derivatives	7 391 237	7 994 372	6 639 069	6 913 266
Interest rate operations	4 041 517	4 310 003	4 675 518	4 624 966
Forward	43	363	5	-
Options	115 647	115 690	204 559	186 995
IRS	3 783 636	4 068 301	4 404 162	4 406 825
FRA	142 191	125 649	66 792	31 146
FX operations	3 349 720	3 684 369	1 963 551	2 288 300
CIRS	690 771	941 591	332 765	425 211
Forward	550 727	710 052	264 172	198 268
FX Swap	1 878 869	1 822 326	1 098 471	1 401 172
Spot	6 792	5 257	500	971
Options	222 561	205 143	267 643	262 678
Debt and equity securities	1 548 123	-	244 547	-
Debt securities	1 519 191	-	229 290	-
Government securities:	1 508 969	-	213 206	-
- bonds	1 508 969	-	213 206	-
Commercial securities:	10 222	-	16 084	-
- bonds	10 222	-	16 084	-
Equity securities:	28 932	-	15 257	-
- listed	28 932	-	15 257	-
Short sale	-	824 121	-	195 560
Total	8 939 360	8 818 493	6 883 616	7 108 826

Financial assets and liabilities held for trading - trading derivatives include the change in the value of counterparty risk in the amount of PLN (1,923) k as at 31.12.2023 and PLN 1,242 k as at 31.12.2022.

The table below presents derivatives’ nominal values.

Derivatives’ nominal values	31.12.2023	31.12.2022
Term derivatives (hedging)	57 294 126	40 987 031
Single-currency interest rate swap (IRS)	9 832 583	11 647 671
Macro cash flow hedge -purchased (IRS)	40 114 600	4 798 700
Macro cash flow hedge -purchased (CIRS)	2 785 938	10 805 494
Macro cash flow hedge -sold (CIRS)	3 465 206	12 335 879
FX Swap cash flow hedge -purchased (FX)	557 277	688 870
FX Swap cash flow hedge-sold (FX)	538 522	710 417
Term derivatives (trading)	1 026 949 438	776 623 390
Interest rate operations	705 387 071	508 223 629
-Single-currency interest rate swap	528 136 454	425 890 776
-FRA - purchased amounts	170 872 880	75 832 500
-Options	6 158 437	6 486 353
-Forward- purchased amounts	200 000	9 000
-Forward- sold amounts	19 300	5 000
FX operations	321 562 367	268 399 761
-FX swap – purchased amounts	90 825 766	77 701 127
-FX swap – sold amounts	90 783 176	78 149 123
-Forward- purchased amounts	21 211 519	17 076 145
-Forward- sold amounts	21 314 841	16 855 581
-Non-Deliverable Forward (NDF) - purchased amounts	86 960	515 889
-Non-Deliverable Forward (NDF) - sold amounts	104 761	540 017
-Window Forward – purchased amounts	4 622	49 196
-Window Forward – sold amounts	4 620	48 973
-Cross-currency interest rate swap (CIRS) – purchased amounts	35 295 518	17 194 355
-Cross-currency interest rate swap (CIRS) – sold amounts	35 535 294	17 252 483
-FX options -purchased CALL	6 252 857	10 407 548
-FX options -purchased PUT	6 944 788	11 100 888
-FX options -sold CALL	6 235 056	10 383 420
-FX options -sold PUT	6 962 589	11 125 016
Currency transactions- spot	7 321 740	1 658 961
Spot-purchased	3 661 864	829 371
Spot-sold	3 659 876	829 590
Transactions on equity financial instruments	26 363	16 309
Derivatives contract - purchased	231	700
Derivatives contract - sold	26 132	15 609
Total	1 091 591 667	819 285 691

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

21. Hedging derivatives

	31.12.2023		31.12.2022
Hedging derivatives	Assets	Liabilities	Assets	Liabilities
Derivatives hedging fair value	228 401	157 437	487 292	25 508
Derivatives hedging cash flow	1 346 655	723 101	61 885	1 953 581
Total	1 575 056	880 538	549 177	1 979 089

As at 31.12.2023, the line item: hedging derivatives – derivatives hedging cash flows reflects a change in the first-day valuation of forward-starting CIRS transactions of PLN (444) k and PLN (4,353) k as at 31.12.2022.

22. Loans and advances to customers

	31.12.2023
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	64 802 496	2 640 475	5	-	67 442 976
Loans and advances to individuals, of which:	82 967 378	-	85 088	-	83 052 466
Home mortgage loans*	53 014 143	-	-	-	53 014 143
Finance lease receivables	-	-	-	13 418 738	13 418 738
Loans and advances to public sector	973 434	249 734	-	-	1 223 168
Other receivables	74 521	-	-	-	74 521
Gross receivables	148 817 829	2 890 209	85 093	13 418 738	165 211 869
Allowance for impairment	(5 329 825)	(91 975)	-	(270 062)	(5 691 862)
Total	143 488 004	2 798 234	85 093	13 148 676	159 520 007

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

	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

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*
31.12.2023
Mortgage loans in foreign currency - adjustment to gross carrying amount	6 411 703	4 226 970**	2 184 733
Provision in respect of legal risk connected with foreign currency mortgage loans		803 385
Total		5 030 355
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

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

**of which the amount of PLN 4,085,686 k refers to loans denominated in and indexed to CHF, and the amount of PLN 141,284 k to loans in PLN subject to debt enforcement

As at 31.12.2023 the fair value adjustment due to hedged risk on individual loans was PLN 4,563 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 2023 was PLN 469,535 k PLN and PLN 429,199 k in 2022.

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 31.12.2023
Gross carrying amount	Stage 1	Stage 2	Stage 3	POCI	Total
As at the beginning of the period	128 621 170	7 575 627	6 546 397	776 135	143 519 329
Transfers
Transfer to Stage 1	5 756 825	(5 819 182)	62 357	-	-
Transfer to Stage 2	(10 118 157)	10 324 705	(206 548)	-	-
Transfer to Stage 3	(592 070)	(2 291 276)	2 883 346	-	-
New financial assets originated	26 888 923	-	-	-	27 070 936
Changes in existing financial assets	1 629 718	(1 267 018)	(1 214 538)	182 013	(1 000 429)
Financial assets derecognised that are not write-offs	(16 049 878)	(537 309)	(524 356)	(148 591)	(17 111 543)
Write-offs	-	-	(1 327 336)	-	(1 327 336)
FX and others movements	(2 433 302)	120 155	(17 248)	(2 733)	(2 333 128)
As at the end of the period	133 703 229	8 105 702	6 202 074	806 824	148 817 829

Movements on allowances for expected credit losses on loans and advances to customers measured at amortised cost for reporting period 1.01.2023 - 31.12.2023	Stage 1	Stage 2	Stage 3	Total
As at the beginning of the period	(641 801)	(719 603)	(4 118 959)	(5 480 363)
Transfers
Transfer to Stage 1	(773 582)	701 820	(84 484)	(156 246)
Transfer to Stage 2	362 507	(511 621)	(3 260)	(152 374)
Transfer to Stage 3	20 928	466 442	(429 802)	57 568
New financial assets originated	(367 447)	-	-	(367 447)
Changes in credit risk of existing financial assets	493 993	(554 802)	(754 353)	(815 162)
Changes in models and risk parameters	41 030	(126 390)	-	(85 360)
Financial assets derecognised that are not write-offs	114 709	62 222	365 537	542 468
Write-offs	-	-	1 233 804	1 233 804
FX and others movements	109 324	(46 362)	(4 481)	58 481
As at the end of the period	(640 339)	(728 294)	(3 795 998)	(5 164 631)

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 1.01.2023 - 31.12.2023	1 463	(8 690)	322 958	315 731
Movements on allowances for expected credit losses on finance lease receivables measured at amortised cost for reporting period 1.01.2023 - 31.12.2023	(3 759)	6 370	(26 014)	(23 403)
Transfers that do not go through profit and loss	(133 045)	(495 208)	483 613	(144 640)
Write-offs	-	-	(1 233 416)	(1 233 416)
Impairment allowances for expected credit losses on loans measured at fair value through other comprehensive income	(14 622)	(72 060)	-	(86 682)
FX differences	(3 518)	(4 328)	(15 852)	(23 698)
Total	(153 481)	(573 916)	(468 711)	(1 196 108)

Movements on impairment losses on purchased or originated credit-impaired loans (POCI)	1.01.2023-31.12.2023	1.01.2022-31.12.2022
As at the beginning of the period	(150 272)	(212 292)
Charge/write back of current period	(1 461)	9 766
Write off/Sale of receivables	3 181	37 666
F/X differences	510	(627)
Other	(17 152)	15 215
As at the end of the period	(165 194)	(150 272)

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 (underwriting)	(3 694)	-	-	(3 694)
FX differences	1 380	3 283	15 955	20 618
Total	(120 628)	(503 913)	(427 660)	(1 052 201)

Loans and advances to enterprises 31.12.2023
Gross carrying amount	Stage 1	Stage 2	Stage 3	POCI	Total
As at the beginning of the period	52 956 789	4 633 649	3 204 357	412 220	61 207 015
Transfers
Transfer to Stage 1	2 708 759	(2 664 898)	(43 861)	-	-
Transfer to Stage 2	(5 160 423)	5 227 235	(66 812)	-	-
Transfer to Stage 3	(126 421)	(993 013)	1 119 434	-	-
New financial assets originated	9 109 529	-	-	-	9 109 529
Changes in existing financial assets	6 268 074	(1 145 921)	(1 044 767)	85 069	4 162 455
Financial assets derecognised that are not write-offs	(6 697 822)	(255 147)	(88 826)	(57 735)	(7 099 530)
Write-offs	-	-	(483 958)	-	(483 958)
FX and others movements	(1 979 245)	(83 130)	(30 640)	-	(2 093 015)
As at the end of the period	57 079 240	4 718 775	2 564 927	439 554	64 802 496

Movements on allowances for expected credit losses on loans and advances to enterprises measured at amortised cost for reporting period 1.01.2023 - 31.12.2023	Stage 1	Stage 2	Stage 3	Total
As at the beginning of the period	(212 756)	(368 933)	(1 894 699)	(2 476 388)
Transfers
Transfer to Stage 1	(314 779)	321 831	19 313	26 365
Transfer to Stage 2	115 846	(173 660)	30 656	(27 158)
Transfer to Stage 3	5 022	133 825	(147 240)	(8 393)
New financial assets originated	(83 556)	-	-	(83 556)
Changes in credit risk of existing financial assets	211 566	(186 429)	(217 048)	(191 911)
Changes in models and risk parameters	12 360	(101 620)	-	(89 260)
Financial assets derecognised that are not write-offs	24 316	23 781	35 743	83 840
Write-offs	-	-	483 877	483 877
FX and others movements	16 553	7 967	(3 916)	20 604
As at the end of the period	(225 428)	(343 238)	(1 693 314)	(2 261 980)

Movements on impairment losses on purchased or originated credit-impaired loans and advances to enterprises (POCI)	1.01.2023-31.12.2023	1.01.2022-31.12.2022
As at the beginning of the period	(60 733)	(49 445)
Charge/write back of current period	(7 192)	(10 806)
Write off/Sale of receivables	838	10
F/X differences	409	(145)
Other	937	(347)
As at the end of the period	(65 741)	(60 733)

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)

Loans and advances to individuals 31.12.2023
Gross carrying amount	Stage 1	Stage 2	Stage 3	POCI	Total
As at the beginning of the period	74 633 333	2 943 988	3 341 589	363 920	81 282 830
Transfers
Transfer to Stage 1	2 975 122	(3 081 343)	106 221	-	-
Transfer to Stage 2	(4 943 402)	5 083 134	(139 732)	-	-
Transfer to Stage 3	(465 628)	(1 297 772)	1 763 400	-	-
New financial assets originated	17 673 066	-	-	-	17 673 066
Changes in existing financial assets	(4 644 362)	(193 199)	(173 031)	96 678	(4 913 914)
Financial assets derecognised that are not write-offs	(9 190 057)	(277 948)	(435 383)	(90 908)	(9 994 296)
Write-offs	-	-	(843 378)	-	(843 378)
FX and others movements	(450 928)	203 297	13 434	(2 733)	(236 930)
As at the end of the period	75 587 144	3 380 157	3 633 120	366 957	82 967 378

Movements on allowances for expected credit losses on loans and advances to individuals measured at amortised cost for reporting period 1.01.2023 - 31.12.2023	Stage 1	Stage 2	Stage 3	Total
As at the beginning of the period	(429 044)	(350 671)	(2 224 260)	(3 003 975)
Transfers
Transfer to Stage 1	(458 802)	379 990	(103 797)	(182 609)
Transfer to Stage 2	246 661	(337 961)	(33 915)	(125 215)
Transfer to Stage 3	15 906	332 617	(282 563)	65 960
New financial assets originated	(283 891)	-	-	(283 891)
Changes in credit risk of existing financial assets	282 427	(368 373)	(537 305)	(623 251)
Changes in models and risk parameters	28 670	(24 770)	-	3 900
Financial assets derecognised that are not write-offs	90 394	38 441	329 794	458 629
Write-offs	-	-	749 927	749 927
FX and others movements	92 771	(54 329)	(568)	37 874
As at the end of the period	(414 908)	(385 056)	(2 102 687)	(2 902 651)

Movements on impairment losses on purchased or originated credit-impaired loans and advances to individuals (POCI)	1.01.2023-31.12.2023	1.01.2022-31.12.2022
As at the beginning of the period	(89 539)	(162 847)
Charge/write back of current period	5 731	20 571
Write off/Sale of receivables	2 344	37 657
FX differences	102	(482)
Other	(18 089)	15 562
As at the end of the period	(99 451)	(89 539)

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)

Finance lease receivables 31.12.2023
Gross carrying amount	Stage 1	Stage 2	Stage 3	POCI	Total
As at the beginning of the period	10 951 484	667 883	375 335	3 599	11 998 301
Transfers
Transfer to Stage 1	1 014 528	(996 274)	(18 254)	-	-
Transfer to Stage 2	(1 411 466)	1 417 651	(6 185)	-	-
Transfer to Stage 3	(2 538)	(221 162)	223 700	-	-
New financial assets originated	4 881 582	-	-	-	4 881 582
Changes in existing financial assets	(2 416 687)	(204 605)	(141 879)	(130)	(2 763 301)
Financial assets derecognised that are not write-offs	(581 343)	(55 530)	(3 607)	(329)	(640 809)
Write-offs	-	-	(22 226)	-	(22 226)
FX and others movements	(96 535)	(3 315)	65 041	-	(34 809)
As at the end of the period	12 339 025	604 648	471 925	3 140	13 418 738

Movements on allowances for expected credit losses on finance lease receivables measured at amortised cost for reporting period 1.01.2023 - 31.12.2023	Stage 1	Stage 2	Stage 3	Total
As at the beginning of the period	(35 656)	(55 721)	(155 282)	(246 659)
Transfers
Transfer to Stage 1	(18 445)	59 220	12 094	52 869
Transfer to Stage 2	21 412	(82 559)	2 125	(59 022)
Transfer to Stage 3	408	23 575	(49 374)	(25 391)
New financial assets originated	(18 073)	(13 136)	(48)	(31 257)
Changes in credit risk of existing financial assets	7 907	17 340	(3 907)	21 340
Changes in models and risk parameters	-	-	-	-
Financial assets derecognised that are not write-offs	1 657	2 518	(6 585)	(2 410)
Write-offs	-	-	21 552	21 552
FX and others movements	1 376	(589)	(1 871)	(1 084)
As at the end of the period	(39 414)	(49 352)	(181 296)	(270 062)

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)

23. Securitisation of assets

Santander Bank Polska S.A.

On 7 December 2018, Santander Bank Polska S.A. signed a synthetic securitisation agreement with the European Investment Fund (EIF) with respect to PLN 2,150,031k worth of cash loan portfolio. The purpose of the transaction is to release capital to finance projects supporting the development of SME, corporate and public sector customers. The agreement was activated on 28 August 2019 after the Bank had satisfied the contractual conditions precedent. The cash loan portfolio of PLN 2,150,031k (principal amount only) was secured by a guarantee. The transaction is set to expire by 10 September 2031.

The transaction has been executed to transfer credit risk to the EIF and optimise the Bank’s Tier 1 capital. It is a synthetic securitisation which does not involve financing and covers the selected portfolio of cash loans which remain on the Bank’s balance sheet. The entire securitised portfolio is risk weighted in accordance with the standardised approach.

As part of the transaction, the securitised portfolio is divided into three tranches: senior (80%), mezzanine (18.5%) and junior, i.e. the first loss tranche (1.5%). As at the guarantee activation date, the senior tranche totalled PLN 1,720,025.0k, the mezzanine tranche was PLN 397,755.8k and the junior tranche amounted to PLN 32,250.5k.

The senior and mezzanine tranches are fully guaranteed by the EIF. In addition, the mezzanine tranche is secured by a counter-guarantee from the European Investment Bank (EIB). The first loss tranche was retained by the Bank and deducted from the Common Equity Tier 1 items in accordance with Article 36(1)(k) of the CRR. Deduction from the Common Equity Tier 1 means the application of the “full deduction approach”, as stipulated in Article 245(1)(b) of the CRR.

According to the terms of the transaction, losses up to the junior tranche amount are covered by the Bank, and only after this level is exceeded can they be covered from the guarantee issued by the EIF. To ensure stability of the portfolio structure, the transaction provides for a synthetic excess spread mechanism that makes it possible to allocate losses up to 1.45% of the portfolio per year outside the securitisation.

As at 31 December 2023, the gross carrying amounts of the individual tranches were as follows: senior tranche:

PLN 199 848k, mezzanine tranche: PLN 46 215k and junior tranche: PLN 32 293k. In the reporting period, credit losses allocated outside the securitisation structure using the synthetic excess spread mechanism totalled PLN 10 357k. 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
	31.12.2023	31.12.2022	31.12.2023	31.12.2022	31.12.2023	31.12.2022
Balance sheet portfolio, incl:	278 355	616 264	275 534	611 334	32 250	32 250
tranche senior	199 848	474 115	197 591	470 321	-	-
tranche mezzanine	46 215	109 639	45 693	108 762	-	-
tranche junior	32 293	32 511	32 250	32 250	32 250	32 250
Value losses allocated to Synthetic Excess Spread	10 357	18 271	10 357	18 271	-	-
Value of available Synthetic Excess Spread allocated to be used	5 565	8 337	5 565	8 337	-	-

On 31 March 2022, Santander Bank Polska S.A. signed a synthetic securitisation agreement with International Finance Corporation) (IFC) with respect to PLN 2 443 519.5k worth of cash loan portfolio with the option to increase this portfolio amount up to PLN 2 878 787.9k. 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.

As part of and in line with the terms of this transaction, on 22 September 2023, the Bank concluded with IFC an additional Upsize Agreement, which allowed to increase the volume of the securitized cash loan portfolio to PLN 2,874,182.5k, which resulted in additional capital release in the amount of approximately PLN 200 million. It is worth emphasizing that, in accordance with the signed documentation, the released capital will be allocated for further financing, which is in line with the direction of ESG activities of the Bank and the World Bank (of which IFC is a part). Specifically, the Bank will allocate the equivalent of USD 100 million as part of the financing of retail loans and SMEs to customers of Ukrainian origin who on a daily basis live and work in Poland. This is the first initiative of this type in Poland that has been successfully implemented.

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 2 020 057.6 k, the mezzanine tranche was PLN 403 180.7 k and the junior tranche amounted to PLN 20 281.2 k.

The mezzanine tranche were 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 2023, the gross carrying amounts of the individual tranches were as follows: senior tranche:

PLN 1 521 663k. mezzanine tranche: PLN 303 707k and junior tranche: PLN 24 018k.

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
	31.12.2023	31.12.2022	31.12.2023	31.12.2022	31.12.2023	31.12.2022
Balance sheet portfolio, incl:	1 849 388	2 459 082	1 836 870	2 443 519	1 535 219	2 040 339
tranche senior	1 521 663	2 032 923	1 511 363	2 020 058	1 511 363	2 020 058
tranche mezzanine	303 707	405 749	301 651	403 181	-	-
tranche junior	24 018	20 410	23 856	20 281	23 856	20 281

Santander Leasing S.A.

On19 June 2020, Santander Leasing S.A. signed a guarantee agreement with the European Investment Fund (EIF) to secure the portfolio of leases and loans totalling PLN 2,014,000k. The transaction is set to expire on 31 May 2031. The guarantee agreement meets the synthetic securitisation criteria set out in the CRR (amended by Regulation 2017/2041). The transaction is synthetic securitisation which does not involve financing and covers the selected portfolio of lease and loan agreements which remains on the company’s balance sheet. As part of the transaction, the securitised portfolio is divided into three tranches: senior (85%), mezzanine (14.2%) and junior, i.e. the first loss tranche (0.8%). As at the guarantee activation date, the senior tranche totalled PLN 1,700,000k, the mezzanine tranche was PLN 284,000k and the junior tranche amounted to PLN 16,000k. The senior and mezzanine tranches are fully guaranteed by the EIF (in relation to the principal component of the underlying exposures). In addition, the mezzanine tranche is secured by a counter-guarantee from the European Investment Bank (EIB).

To ensure the stability of the portfolio structure, the transaction provides for a synthetic excess spread based on the use-it-or-lose-it mechanism that makes it possible to allocate losses up to 0.7% of the portfolio per year outside the securitisation structure during the first two years after activation of the guarantee. The mechanism is renewed every third quarter.

On 31 May 2022, the replenishment period ended and amortisation started. Since then, the amounts of the individual tranches have been changed: the senior and mezzanine tranches have been reduced and the junior tranche remains the same.

As at 31 December 2023, the gross carrying amounts of the tranches were as follows: senior tranche: PLN 646,801k, mezzanine tranche: PLN 108,054k and junior tranche: PLN 15,332k.

Santander Leasing S.A. is the originator of the synthetic securitisation and does not perform any other roles in this respect. No securitisation special purpose entities (SSPEs) are involved in the transaction.

	Transaction value - gross			Transaction value by capital amount			Retained Risk Value
		31.12.2023	31.12.2022		31.12.2023	31.12.2022		31.12.2023	31.12.2022
Balance sheet portfolio, incl:		816 005	1 544 178		770 187	1 444 943		15 332	15 332
tranche senior		685 279	1 309 097		646 801	1 224 969		-	-
tranche mezzanine		114 482	218 696		108 054	204 642		-	-
tranche junior		16 244	16 385		15 332	15 332		15 332	15 332
Value losses allocated to Synthetic Excess Spread		354	919		354	919		-	-
Value of available Synthetic Excess Spread allocated to be used		3 400	9 747		3 400	9 747		-	-

On 16 December 2021, Santander Leasing S.A. signed a guarantee agreement with the European Investment Fund (EIF) to secure the portfolio of leases and loans totalling PLN 2,736,219k. The transaction is set to expire on 30 November 2030. The guarantee agreement meets the synthetic securitisation criteria set out in the CRR (amended by Regulation 2017/2041), however, it is not a simple, transparent and standardised (STS) securitisation. The transaction is synthetic securitisation which does not involve financing and covers the selected portfolio of lease and loan agreements which will remain on the statement of financial position of Santander Leasing S.A.

As part of the transaction, the securitised portfolio is divided into two tranches: senior (87.5%) and junior, i.e. the first loss tranche (12.5%). As at the guarantee activation date, the senior tranche totalled PLN 2,394,191.7k and the junior tranche amounted to PLN 342,0274k. The junior tranche is guaranteed by the EIF. Both the principal and interest components of the underlying exposures are secured by the EIF guarantee. The transaction does not involve a synthetic excess spread (SES). As at 31 December 2023, the senior tranche was PLN 830,535k and the junior tranche totalled PLN 171,949k.

Santander Leasing S.A. is the originator of the synthetic securitisation and does not perform any other roles in this respect. No securitisation special purpose entities (SSPEs) are involved in the transaction.

	Transaction value - gross		Transaction value by capital amount		Retained Risk Value
	31.12.2023	31.12.2022	31.12.2023	31.12.2022	31.12.2023	31.12.2022
*Balance sheet portfolio, incl:*	1 055 004	1 848 303	1 002 484	1 740 187	830 535	1 524 734
tranche senior	874 046	1 619 465	830 535	1 524 734	830 535	1 524 734
tranche junior	180 958	228 838	171 949	215 453	-	-

On 28 September 2023, Santander Leasing S.A. signed a guarantee agreement with the European Bank for Reconstruction and Development (EBRD) to secure the portfolio of leases and loans totalling approx. EUR 514bn. The transaction is set to expire on 28 February 2032.

The guarantee agreement meets the synthetic securitisation criteria set out in the CRR (amended by Regulation 2017/2041). The transaction is synthetic securitisation which does not involve financing and covers the selected portfolio of lease and loan agreements which remains on the company’s balance sheet.

The securitised portfolio is divided into three tranches: senior, protected and first loss. Losses are first allocated to the first loss tranche. The protected and senior tranches are amortised on a pro rata basis. As at the guarantee activation date, the senior tranche totalled EUR 452,529k (88%), the protected tranche was EUR 55,023k (10.7%) and the first loss tranche amounted to EUR 6,685k (1.30%). The protected tranche is guaranteed by the EBRD. Both the principal and interest components of the underlying exposures are secured by the EBRD guarantee.

The agreement provides for a 12-month replenishment period during which the portfolio can be replenished by the amounts amortised in the previous periods.

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). As at 31 December 2023, the senior tranche was EUR 412,385k, the protected tranche totalled EUR 50,142k and the junior tranche amounted to EUR 6,685k.

	Transaction value - gross		Transaction value by capital amount		Retained Risk Value
	31.12.2023	31.12.2022	31.12.2023	31.12.2022	31.12.2023	31.12.2022
*Balance sheet portfolio, incl:*	2 161 170	-	2 040 136	-	1 822 117	-
tranche senior	1 899 426	-	1 793 050	-	1 793 050	-
tranche protected	230 953	-	218 019	-	-	-
tranche first loss	30 791	-	29 067	-	29 067	-

Santander Consumer Bank S.A.

In December 2022, Santander Consumer Bank S.A. 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, Santander Consumer Bank S.A. expects that the transaction will be closed in two years.

As part of the transaction, Santander Consumer Bank S.A. transferred the rights to future cash flows of PLN 1,250m to a special purpose vehicle (SPV) with its registered office in Ireland and granted a subordinated loan of PLN 250m 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 the receivables of Santander Consumer Bank S.A. through the issue of bonds of PLN 1,000,000k bearing a WIBOR-based interest rate 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 statement of financial position of Santander Consumer Bank S.A.

As at 31 December 2023, the fair value of assets was as follows: subordinated loan: PLN 260,389k; securitised assets: PLN 1,077,639k.

	Transaction value		Risk value retained in the Group		Fair Value
	31.12.2023	31.12.2022	31.12.2023	31.12.2022	31.12.2023	31.12.2022
Balance sheet value - Assets	1 297 820	1 214 417	1 297 820	1 214 417	1 338 028	1 179 040
Balance sheet value - Liabilities	1 252 097	1 255 909	1 252 097	1 255 909	1 261 911	250 455
Net amount	45 724	(41 492)	45 724	(41 492)	76 118	(71 415)

At the same time, as at 31 December 2023 Santander Consumer Bank S.A. recognised the liability of PLN 1,252,097k in respect of cash flows from securitisation in its statement of financial position, under deposits from customers.

The fair value of that liability measured as at the balance sheet date was PLN 1,261,911k.

	Transaction value - gross		Transaction value by capital amount		Retained Risk Value
	31.12.2023	31.12.2022	31.12.2023	31.12.2022	31.12.2023	31.12.2022
Balance sheet portfolio, incl:	226 365	601 312	226 365	601 312	19 503	20 809
tranche senior	170 640	478 856	170 640	478 856	-	-
tranche mezzanine	36 222	101 647	36 222	101 647	-	-
tranche junior	19 503	20 809	19 503	20 809	19 503	20 809
Value losses allocated to Synthetic Excess Spread	-	-	-	-	-	-
Value of available Synthetic Excess Spread allocated to be used	-	4 293	-	4 293	-	-

In December 2022, Santander Consumer Bank S.A. entered into a synthetic securitisation transaction in relation to its instalment loan portfolio. The purpose of the transaction was to obtain a capital relief on the retail loan portfolio, ensuring an additional capacity to finance projects supporting the growth of SMEs. The transaction is a synthetic securitisation consisting of three tranches. On 15 December 2022, Santander Consumer Bank S.A. 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. The transaction structure includes a synthetic excess spread (SES), 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, Santander Consumer Bank S.A. 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 and the impact on the Bank’s risk-weighted assets was recognised as at the reporting date of 31 December 2022 (decrease of PLN 772m in risk-weighted assets). The guarantee covered the instalment loan portfolio of PLN 1,146m (principal amount). The securitised portfolio is risk-weighted in accordance with the standardised approach. The transaction includes a two-year revolving period during which Santander Consumer Bank S.A. 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
	31.12.2023	31.12.2022	31.12.2023	31.12.2022	31.12.2023	31.12.2022
Balance sheet portfolio, incl:	1 146 009	1 047 113	1 146 009	1 047 113	13 752	13 752
tranche senior	933 997	852 418	933 997	852 418	-	-
tranche mezzanine	198 260	180 943	198 260	180 943	-	-
tranche junior	13 752	13 752	13 752	13 752	13 752	13 752
Value losses allocated to Synthetic Excess Spread	-	-	-	-	-	-
Value of available Synthetic Excess Spread allocated to be used	5 274	6 806	5 274	6 806	-	-

In 2021, 2022 and 2023, Santander Consumer Bank S.A. continued the synthetic securitisation started in 2019 in relation to the portfolio of cash and instalment loans originated by the Bank. The purpose of the transaction was to obtain a capital relief on the retail loan portfolio, ensuring an additional capacity to finance projects supporting the growth of SMEs.

Santander Consumer Multirent

In July 2020, Santander Consumer Multirent Sp. z o.o. entered into a securitisation transaction in relation to a portfolio of lease agreements. It is a traditional and revolving securitisation under which the ownership of the securitised exposures was transferred 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 (STS) securitisation, and Santander Consumer Multirent Sp. z o.o. acts as the originator.

Based on the securitised assets, SPV4 issued bonds of PLN 891,000k as at 31 December 2023. The bonds bear an interest rate of 1M WIBOR plus margin. As a result of the securitisation, Santander Consumer Multirent Sp. z o.o. raised funding in exchange for rights to future cash flows from the securitised lease portfolio.

To finance the transaction, the company provided SPV4 with a subordinated loan totalling PLN 216,700k as at 31 December 2023. 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 the statement of financial position of Santander Consumer Multirent Sp. z o.o. Accordingly, as at 31 December 2023, the company disclosed the securitised assets of PLN 1,100,000k under finance lease receivables.

At the same time, it recognised the liability in respect of cash flows from securitisation under other liabilities. As at 31 December 2023, it totalled PLN 1,107,700k.

As at 31 December 2023, Santander Consumer Multirent Sp. z o.o. also had receivables of PLN 7,571k in respect of ongoing settlements with the SPV, which were disclosed under trade and other receivables.

	Transaction value		Risk value retained in the Group		Fair Value
	31.12.2023	31.12.2022	31.12.2023	31.12.2022	31.12.2023	31.12.2022
Balance sheet value - Assets	1 100 000	1 100 000	1 100 000	1 100 000	1 213 571	1 207 807
Balance sheet value - Liabilities	1 110 615	1 110 877	1 110 615	1 110 877	1 110 615	1 110 877
Net amount	(10 615)	(10 877)	(10 615)	(10 877)	102 956	96 930

24. Investment securities

Investment securities	31.12.2023	*31.12.2022 restated**
Debt investment securities measured at fair value through other comprehensive income	47 598 570	49 845 849
Government securities:	27 436 096	34 127 213
- bonds	27 436 096	34 127 213
Central Bank securities:	6 246 368	3 898 145
- bills	6 246 368	3 898 145
Other securities:	13 916 106	11 820 491
-bonds	13 916 106	11 820 491
Debt investment securities measured at fair value through profit and loss	2 005	64 707
Debt investment securities measured at amortised cost	19 639 468	3 156 009
Government securities:	18 675 450	3 156 009
- bonds	18 675 450	3 156 009
Other securities:	964 018	-
- bonds	964 018	-
Equity investment securities measured at fair value through other comprehensive income	277 121	204 299
- unlisted	277 121	204 299
Equity investment securities measured at fair value through profit and loss	5 839	63 248
- unlisted	5 839	63 248
Total	67 523 003	53 334 112

* details in note 2.5

Movements on investment securities 1.01.2023 - 31.12.2023	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* restated	49 845 849	64 707	3 156 009	204 299	63 248	53 334 112
Additions	385 890 892	-	15 938 340	656	-	401 829 888
Disposals (sale and maturity)	(390 222 135)	(67 888)	-	-	(64 121)	(390 354 144)
Fair value adjustment	2 298 283	5 255	-	72 166	7 413	2 383 117
Movements on interest accrued	85 070	-	546 708	-	-	631 778
Impairment losses on securities	(2 016)	-	-	-	-	(2 016)
FX differences	(297 373)	(69)	(1 589)	-	(701)	(299 732)
As at the end of the period	47 598 570	2 005	19 639 468	277 121	5 839	67 523 003

* details in note 2.5

Movements on investment securities 1.01.2022 - 31.12.2022* restated	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)
Fair value adjustment	(1 710 687)	(6 326)	-	(25 624)	3 264	(1 739 373)
Movements on interest accrued	518 776	-	54 314	-	-	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	49 845 849	64 707	3 156 009	204 299	63 248	53 334 112

* details in note 2.5

25. Investments in associates

Balance sheet value of associates	31.12.2023	31.12.2022
Polfund - Fundusz Poręczeń Kredytowych S.A.	48 220	46 732
Santander - Allianz Towarzystwo Ubezpieczeń S.A. and Santander - Allianz Towarzystwo Ubezpieczeń na Życie S.A.	919 294	874 763
Total	967 514	921 495

Movements on investments in associates	1.01.2023-31.12.2023	1.01.2022-31.12.2022
As at the beginning of the period	921 495	932 740
Share of profits/(losses)	96 937	84 049
Dividends	(77 533)	(76 760)
Other	26 615	(18 534)
As at the end of the period	967 514	921 495

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
		2023	2022
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.
	2023*	2022	2023*	2022
Loans and advances to banks	80 957	54 983	40 730	17 791
Financial assets held for trading	840	119 109	-	-
Investment securities	860 145	679 587	258 231	261 977
Deferred tax assets	1 566	11 945	674	2 982
Net life insurance assets where the deposit (investment) risk is incurred by the insuring party	108 205	113 062	-	-
Other settlements	58 231	59 348	36 641	42 157
Prepayments	366 590	382 599	46 930	57 161
Other items	239	470	27	105
Total assets	1 476 773	1 421 103	383 233	382 173
Technical insurance provisions	860 604	879 911	123 369	131 347
Reinsurers’ share in provisions	(6 852)	(7 976)	(3 821)	(6 623)
Estimated recourses and recoveries (negative value)	-	-	-	(546)
Other liabilities	353 102	364 098	44 630	41 217
Prepayments and accruals	911	2 828	3 680	5 489
Special funds	90	119	92	89
Total liabilities	1 207 855	1 238 980	167 950	170 973
Income	337 244	320 968	133 608	126 826
Profit (loss) for the period	152 228	126 967	42 567	42 951
Dividends paid to Santander Bank Polska SA	54 048	48 746	23 485	28 015

* 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.

2022 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 2022 were based on estimates of companies. Differences between estimates and real data are irrelevant.

26. Intangible assets

Intangible assets Year 2023	Licenses, patents etc.	Other	Expenditure on intangible assets	Total
Value at purchase price - beginning of the period	2 609 613	219 694	301 049	3 130 356
Additions from:
- purchases	-	-	427 129	427 129
- transfers from expenditures	363 739	29 296	-	393 035
- transfers	4	-	536	540
Decreases from:
- liquidation	(126 214)	(5)	(3 051)	(129 270)
- transfers from expenditures	-	-	(393 034)	(393 034)
- transfers	-	-	(3 149)	(3 149)
Value at purchase price - end of the period	2 847 142	248 985	329 480	3 425 607
Accumulated depreciation - beginning of the period	(2 212 907)	(176 693)	-	(2 389 600)
Additions/decreases from:
- current year amortization	(252 933)	(16 660)	-	(269 593)
- liquidation, sale	116 761	5	-	116 766
- transfers	-	-	-
Write down/Reversal of impairment write down	(1 323)	-	-	(1 323)
Accumulated depreciation- end of the period	(2 350 402)	(193 348)	-	(2 543 750)
Balance sheet value
Purchase value	2 847 142	248 985	329 480	3 425 607
Accumulated depreciation	(2 350 402)	(193 348)	-	(2 543 750)
As at 31 December 2023	496 740	55 637	329 480	881 857

Intangible assets Year 2022	Licenses, 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

27. Goodwill

As at 31 December 2023 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 Stellantis Financial Services Polska (formerly PSA Finance Polska). Santander Bank Polska discloses non-controlling interests representing 70% of share capital and voting power at the General Meetings of Stellantis Financial Services Polska (formerly PSA Finance Polska) and, indirectly Stellantis Consumer Financial Services (formerly 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 2023 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 2023 was PLN 1,688,516 k (the same as at 31 December 2022).

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 2024-2026.

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 2024–2026 was prepared in line with the strategic and operational plans for 2024–2026 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 2023.

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.

Change of the discount rate by 1 percentage point would not significantly affect the value of discounted cash flows, value in use, and, consequently, the result of the impairment test.

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 2023, no goodwill impairment was identified.

Test for impairment of goodwill arising from the purchase of shares of Stellantis Financial Services Polska (formerly PSA Finance Polska)

The bank conducted a test for impairment of goodwill arising from the final settlement of acquisition of shares of Stellantis Financial Services Polska (formerly PSA Finance Polska) and, indirectly Stellantis Consumer Financial Services (formerly PSA Consumer Finance Polska) 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 2023, no goodwill impairment was identified.

28. Property, plant and equipment

Property, plant & equipment not subject to operating lease Year 2023	Land and buildings	IT Equipment	Transportation means	Other fixed assets	Fixed assets under construction	Total
Value at purchase price - beginning of the period	404 794	1 040 878	117 025	188 052	102 693	1 853 442
Additions from:
- purchases	-	-	19 314	-	198 276	217 590
- transfers from expenditures	3 910	172 466	11 369	9 713	-	197 458
- transfers	1 103	1	39 200	2	17	40 323
Decreases from:
- sale, liquidation, donation	(33 042)	(198 993)	(9 974)	(15 701)	(1 576)	(259 286)
- transfers from expenditures	-	-	-	-	(246 549)	(246 549)
- transfers	-	-	(21 657)	-	(645)	(22 302)
Value at purchase price - end of the period	376 765	1 014 352	155 277	182 066	52 216	1 780 676
Accumulated depreciation - beginning of the period	(293 397)	(742 285)	(23 954)	(146 876)	-	(1 206 512)
Additions/disposals from:
- current year amortization	(18 086)	(110 064)	(11 679)	(15 139)	-	(154 968)
- sale, liquidation, donation	27 202	198 549	2 119	15 034	-	242 904
- transfers	-	(3)	20 394	3	-	20 394
Write down/Reversal of impairment write down	11	-	-	-	-	11
Accumulated depreciation- end of the period	(284 270)	(653 803)	(13 120)	(146 978)	-	(1 098 171)
Balance sheet value
Purchase value	376 765	1 014 352	155 277	182 066	52 216	1 780 676
Accumulated depreciation	(284 270)	(653 803)	(13 120)	(146 978)	-	(1 098 171)
As at 31 December 2023	92 495	360 549	142 157	35 088	52 216	682 505

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/decreases 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 subject to operating lease Year 2023	Transportation means	Fixed assets under construction	Total
Value at purchase price - beginning of the period	45 563	97	45 660
Additions from:
- purchases	-	12 178	12 178
- transfers from expenditures	61 365	-	61 365
Decreases from:
- sale, liquidation, donation	(14 931)	-	(14 931)
- transfers from expenditures	-	(12 275)	(12 275)
- transfers	(3 117)	-	(3 117)
Value at purchase price - end of the period	88 880	-	88 880
Accumulated depreciation - beginning of the period	(4 328)	-	(4 328)
Additions/decreases from:
- current year amortization	(5 485)	-	(5 485)
- sale, liquidation, donation	2 759	-	2 759
- transfers	947	-	947
Write down/Reversal of impairment write down
Accumulated depreciation- end of the period	(6 107)	-	(6 107)
Balance sheet value
Purchase value	88 880	-	88 880
Accumulated depreciation	(6 107)	-	(6 107)
As at 31 December 2023	82 773	-	82 773

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

29. Right of use assets

Right of use assets Year 2023	Land and buildings	IT Equipment	Other	Total
Gross value - begining of the period	1 061 944	2 614	9 890	1 074 448
Additions from:
-new lease contracts	35 110	-	33	35 143
-lease modifications and lease period update	127 118	-	442	127 560
-outlays	-	-	-	-
Decreases from:
-lease modifications and lease period update	(96 114)	(2 614)	(1 746)	(100 474)
Gross value - end of the period	1 128 058	-	8 619	1 136 677
Accumulated depreciation - begining of the period	(568 820)	(2 364)	(5 912)	(577 096)
Additions from:
-current year amortization	(137 948)	(251)	(1 234)	(139 433)
Decreases from:
-lease modifications (including settlement) and lease period update	72 184	2 615	1 594	76 393
Impairment write down/Reversal of impairment write down *	(2 291)	-	46	(2 245)
Accumulated depreciation- end of the period	(636 875)	-	(5 506)	(642 381)
Balance sheet value
Gross amount	1 128 058	-	8 619	1 136 677
Accumulated depreciation	(636 875)	-	(5 506)	(642 381)
As at 31 December 2023	491 183	-	3 113	494 296

*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 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.

30. Deferred tax assets

Deferred tax assets	31.12.2023	Changes recognised in other comprehensive income*	Changes recognised in profit or loss	Changes in temporary differences	31.12.2022* restated
Allowance for expected credit losses	953 922		(14 661)	(14 661)	968 583
Valuation of derivative financial instruments	1 688 290		71 730	71 730	1 616 560
Valuation of cash flow hedging instruments	-	(74 913)	-	(74 913)	74 913
Other provisions	280 626		55 305	55 305	225 321
Deferred income	390 356		(213 101)	(213 101)	603 457
Difference between the accounting value and the tax value of leased assets	569 302		79 041	79 041	490 261
Unrealised interest expenses on loans, deposits and securities	252 600		(31 671)	(31 671)	284 271
Tax loss	46 387		(60 577)	(60 577)	106 964
Other negative temporary differences	7 212		(269)	(269)	7 481
Total assets of deferred tax	4 188 695	(74 913)	(114 203)	(189 116)	4 377 811

Deferred tax liabilities	31.12.2023	Changes recognised in other comprehensive income*	Changes recognised in profit or loss	Changes in temporary differences	31.12.2022 restated**
Valuation of cash flow hedging instruments	(130 954)	(130 954)		(130 954)	-
Valuation of investment securities	203 932	(384 812)	-	(384 812)	588 744
Provisions for retirement allowances	(355)	2 954		2 954	(3 309)
Valuation of derivative financial instruments	(1 564 843)		(205 976)	(205 976)	(1 358 867)
Unrealised interest income on loans, securities and interbank deposits	(592 675)		196 745	196 745	(789 420)
Difference between the accounting value and the tax value of leased assets	(96 470)		(1 470)	(1 470)	(95 000)
Valuation of shares / interests in subsidiaries	(176 873)		(8 744)	(8 744)	(168 129)
Other positive temporary differences	(79 269)		(13 206)	(13 206)	(66 063)
Total liabilities of deferred tax	(2 437 506)	(512 812)	(32 651)	(545 463)	(1 892 043)
Deferred tax assets	1 751 189	(587 725)	(146 854)	(734 579)	2 485 768

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

**Deatail in note 2.5

Deferred tax assets	31.12.2022 restated**	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 hedges instruments	74 913	65 917	-	65 917	8 996
Other provisions	225 321	-	15 212	15 212	210 109
Deferred income	603 457	-	93 005	93 005	510 452
Difference between the accounting value and the tax value of leased assets	490 261	-	(77 164)	(77 164)	567 425
Unrealised interest expenses on loans, deposits and securities	284 271	-	196 452	196 452	87 819
Tax loss	106 964	-	49 108	49 108	57 856
Other negative temporary differences	7 481	-	318	318	7 163
Total assets of deferred tax	4 377 811	65 917	926 367	992 284	3 385 527

Deferred tax liabilities	31.12.2022 restated**	Changes recognised in other comprehensive income*	Changes recognised in profit or loss	Changes in temporary differences	31.12.2021
Valuation of investment securities	588 745	269 879	-	269 879	318 866
Provisions for retirement allowances	(3 309)	(37)	-	(37)	(3 272)
Valuation of derivative financial instruments	(1 358 867)	-	(635 047)	(635 047)	(723 820)
Unrealised interest income on loans, securities and interbank deposits	(789 420)	-	(550 260)	(550 260)	(239 160)
Difference between the accounting value and the tax value of leased assets	(95 000)	-	15 337	15 337	(110 336)
Valuation of shares / interests in subsidiaries	(168 129)	-	(27 956)	(27 956)	(140 173)
Other positive temporary differences	(66 063)	-	37 856	37 856	(103 919)
Total liabilities of deferred tax	(1 892 043)	269 842	(1 160 070)	(890 228)	(1 001 814)
Deferred tax assets	2 485 768	335 759	(233 703)	102 056	2 383 713

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

** Details in note 2.5

.Movements on deferred tax	31.12.2023	31.12.2022* restated
As at the beginning of the period	2 485 768	2 383 710
Changes recognised in income statement	(143 146)	(237 010)
Changes recognised in other comprehensive income	(587 849)	335 337
Other	(3 584)	3 731
Balance at the end of the period	1 751 189	2 485 768

Details in note 2.5

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	31.12.2023	31.12.2022
Land and buildings	4 308	4 308
Other fixed assets	2 145	1 665
Total	6 453	5 973

32. Other assets

Other assets	31.12.2023	31.12.2022
Interbank settlements	-	9 389
Sundry debtors	1 236 471	999 232
Prepayments	269 125	230 186
Repossessed assets	4 554	40
Settlements of stock exchange transactions	62 092	30 749
Other	43 688	30 024
Total	1 615 930	1 299 620
of which financial assets *	1 298 563	1 039 370

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

As at 31.12.2023, ECL allowance for other assets was PLN 131,435 k (31.12.2022 PLN 115,106 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	31.12.2023	31.12.2022
Term deposits	553 858	162 325
Loans received from banks	1 377 271	1 747 378
Current accounts	2 225 324	2 121 549
Total	4 156 453	4 031 252

As at 31.12.2023 the adjustment of the value of the hedged risk of deposits covered by hedge accounting PLN nil (as at 31.12.2022 – PLN nil).

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

Movements in loans received from banks	1.01.2023-31.12.2023	1.01.2022-31.12.2022
As at the beginning of the period	1 747 378	2 974 651
Increase (due to:)	3 157 516	4 726 195
- loans received	3 059 845	4 628 908
- interest on loans received	97 671	91 472
- FX differences and other changes	-	5 815
Decrease (due to):	(3 527 623)	(5 953 468)
- repayment of loans	(3 392 936)	(5 863 212)
- interest repayment	(100 677)	(90 256)
- FX differences and other changes	(34 010)	-
As at the end of the period	1 377 271	1 747 378

34. Deposits from customers

Deposits from customers	31.12.2023	31.12.2022
Deposits from individuals	115 261 179	107 927 297
Term deposits	41 847 879	34 841 903
Current accounts	73 159 663	72 816 188
Other	253 637	269 206
Deposits from enterprises	85 194 159	79 548 735
Term deposits	21 619 410	20 614 957
Current accounts	59 695 630	54 874 341
Loans received from financial institution	950 381	1 316 684
Other	2 928 738	2 742 753
Deposits from public sector	8 822 018	9 020 774
Term deposits	849 436	990 676
Current accounts	7 836 387	8 021 258
Other	136 195	8 840
Total	209 277 356	196 496 806

As at 31.12.2023 deposits held as collateral totaled PLN 1 894 416k (as at 31.12.2022 - PLN 1 491 848k ).

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

Movements in loans received from other financial institutions	1.01.2023-31.12.2023	1.01.2022-31.12.2022
As at the beginning of the period	1 316 684	1 403 413
Increase (due to:)	218 782	987 846
- loans received	135 600	921 293
- interest on loans received	83 182	66 553
Decrease (due to):	(585 085)	(1 074 575)
- repayment of loans	(498 048)	(1 003 537)
- interest repayment	(86 925)	(57 948)
- FX differences and other changes	(112)	(13 090)
As at the end of the period	950 381	1 316 684

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	1.01.2023-31.12.2023	1.01.2022-31.12.2022
As at the beginning of the period	2 807 013	2 750 440
Additions from:	192 878	157 051
- interest on subordinated loans	192 878	123 758
- FX differences	-	33 293
Disposals from:	(313 548)	(100 478)
- interest repayment	(192 766)	(100 478)
- FX differences	(120 782)	-
As at the end of the period	2 686 343	2 807 013
Short-term	36 829	36 716
Long-term (over 1 year)	2 649 514	2 770 297

Other details on subordinated liabilities are disclosed in note 5.

36. Debt securities in issue

Debt securities in issue on 31.12.2023

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	1 900 000	PLN	30.03.2023	31.03.2025	1 936 502
Santander Bank Polska S.A.	Bonds	3 100 000	PLN	29.11.2023	30.11.2026	3 121 357
Santander Bank Polska S.A.	Bonds	200 000	EUR	22.12.2023	22.12.2025	871 197
Santander Leasing S.A.	Bonds	200 000	PLN	23.06.2023	24.06.2024	199 954
Santander Leasing S.A.	Bonds	200 000	PLN	14.07.2023	15.07.2024	202 198
Santander Leasing S.A.	Bonds	100 000	PLN	19.12.2023	19.12.2024	99 976
Santander Factoring Sp. z o.o.	Bonds	300 000	PLN	16.08.2023	16.02.2024	300 574
Santander Consumer Bank S.A.	Bonds	300 000	PLN	28.10.2022	06.12.2024	301 279
Santander Consumer Multirent sp. z o.o.	Bonds	50 000	PLN	26.05.2023	31.03.2025	50 688
Santander Consumer Multirent sp. z o.o.	Bonds	265 000	PLN	26.10.2022	28.10.2024	267 739
S.C. Poland Consumer 23-1 DAC	Bonds	1 000 000	PLN	01.12.2022	16.11.2032	1 002 511
SCM POLAND AUTO 2019-1 DAC	Bonds	891 000	PLN	20.07.2020	31.07.2028	893 184
Total						9 247 159

The total value of financial liabilities (including liabilities in respect of debt securities in issue) arising from these consolidated financial statements does not differ significantly from the projection of financial liabilities as at the end of the financial year published in relation to the bond purchase offer of 20 November 2023.

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

Movements in debt securities in issue	1.01.2023-31.12.2023	1.01.2022-31.12.2022
As at the beginning of the period	9 330 648	12 805 462
Increase (due to:)	7 284 403	5 882 817
- debt securities in issue	6 875 760	5 426 350
- interest on debt securities in issue	408 643	318 667
- FX differences	-	137 366
- other changes	-	434
Decrease (due to):	(7 367 892)	(9 357 631)
- debt securities repurchase	(6 721 700)	(9 088 033)
- interest repayment	(392 623)	(269 598)
- FX differences	(252 835)	-
- other changes	(734)	-
As at the end of the period	9 247 159	9 330 648

37. Provisions for financial liabilities and guarantees granted

Provisions for financial liabilities and guarantees granted	31.12.2023	31.12.2022
Provisions for financial commitments to grant loans and credit lines	95 027	43 255
Provisions for financial guarantees	27 412	17 554
Other provisions	646	1 060
Total	123 085	61 869

Change in provisions for financial liabilities and guarantees granted	31.12.2023
As at the beginning of the period	61 869
Provision charge	212 973
Write back	(149 580)
Other changes	(2 177)
As at the end of the period	123 085
Short-term	49 534
Long-term	73 551


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

38. Other provisions

Other provisions	31.12.2023	31.12.2022
Provision for legal risk connected with foreign currency mortgage loans	803 385	420 952
Provisions for reimbursement of costs related to early repayment of consumer and mortgage loans	37 453	52 233
Provisions for legal claims and other	123 469	132 337
Provisions for restructuring	2 799	21 789
Total	967 106	627 311

Change in other provisions 1.01.2023 - 31.12.2023	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	420 952	52 233	132 337	21 789	627 311
Provision charge/(relase)	441 850	(4 347)	141 656	(8 988)	570 171
Utilization	(49 092)	(10 433)	(150 524)	(10 002)	(220 051)
Other	(10 325)	-	-	-	(10 325)
As at the end of the period	803 385	37 453	123 469	2 799	967 106

*Detailed information are described in note 48

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

39. Other liabilities

Other liabilities	31.12.2023	31.12.2022
Settlements of stock exchange transactions	62 073	43 417
Interbank and interbranch settlements	1 251 650	1 116 171
Employee provisions	514 628	446 011
Sundry creditors	2 084 753	1 236 882
Liabilities from contracts with customers	203 646	187 584
Public and law settlements	175 252	150 142
Accrued liabilities	511 771	405 982
Finance lease related settlements	157 841	184 200
Other	28 296	12 751
Total	4 989 910	3 783 140
of which financial liabilities *	4 582 716	3 432 663

*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 1.01.2023 - 31.12.2023		of which: Provisions for retirement allowances
As at the beginning of the period	446 011	*44 700*
Provision charge	513 686	19 401
Utilization	(316 413)	(130)
Release of provisions	(56 546)	(417)
Other changes	(72 110)	-
As at the end of the period	514 628	*63 554*
Short-term	451 074	-
Long-term	63 554	63 554
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

Employee related provisions consists of items outlined in note 55.

40. Share capital

31.12.2023

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. 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.).

41. Other reserve capital

Other reserve capital	31.12.2023	31.12.2022
General banking risk fund	649 810	649 810
Share premium	7 981 974	7 981 974
Other reserves of which:	16 465 418	15 226 616
Reserve capital	15 774 435	14 633 055
Supplementary capital	1 348 428	1 251 006
Adjustment to equity from acquisition/loss of controlling interest in subsidiaries	(657 445)	(657 445)
Total	25 097 202	23 858 400

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 31.12.2023 includes among others share option scheme charge of PLN 143 949 k and share base incentive scheme of 150 647 k and reserve capital as at 31.12.2022 includes share option scheme charge of PLN 143 949 k.

Other movements of other reserve capital are presented in “movements on consolidated equity” for 2023 and 2022.

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.

42. Revaluation reserve

Revaluation reserve 1.01.2023 - 31.12.2023	Total gross	Deferred tax adjustment	Total net
Opening balance* restated, of which:	(3 433 641)	652 316	(2 781 325)
Debt securities measured at fair value through other comprehensive income	(3 240 001)	615 601	(2 624 400)
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

Change in valuation of debt securities measured at fair value through other comprehensive income	2 319 082	(440 626)	1 878 456
Transfer from revaluation reserve to profit and loss resulting from the sale of debt securities measured at fair value through other comprehensive income	(5 842)	1 110	(4 732)
Transfer from revaluation reserve to profit and loss due to fair value measurement of securities covered by hedge accounting	(381 822)	72 546	(309 276)
Change in valuation of equity securities measured at fair value through other comprehensive income	72 822	(13 836)	58 986
Change in valuation of cash flow hedging instruments	393 507	(74 766)	318 741
Transfer from revaluation reserve to profit and loss resulting from cash flow hedges	(181)	34	(147)
Transfer from profit and loss to revaluation reserve resulting from cash flow hedges	682 900	(129 751)	553 149
Change in provision for retirement allowances – actuarial gains/losses gross	(15 482)	2 942	(12 540)

Closing balance, of which:	(368 657)	69 969	(298 688)
Debt securities measured at fair value through other comprehensive income	(1 308 583)	248 631	(1 059 952)
Equity securities measured at fair value through other comprehensive income	249 832	(47 545)	202 287
Valuation of cash flow hedging instruments	689 291	(130 965)	558 326
Actuarial gains on retirement allowances	803	(152)	651

* details in note 2.5

Revaluation reserve 1.01.2022 - 31.12.2022* restated	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	(1 751 494)	332 784	(1 418 710)
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:	(3 433 641)	652 316	(2 781 325)
Debt securities measured at fair value through other comprehensive income	(3 240 001)	615 601	(2 624 400)
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

* details in note 2.5

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
		31.12.2023	31.12.2022	31.12.2023	31.12.2022	31.12.2023	31.12.2022
Santander Towarzystwo Funduszy Inwestycyjnych S.A.	Poland Poznań	50,00	50,00	46 574	37 861	55 884	47 118
Santander Consumer Bank S.A.	Poland Wrocław	40,00	40,00	70 148	171 816	1 872 489	1 750 137
Total				116 722	209 677	1 928 373	1 797 255

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
	31.12.2023	31.12.2022	31.12.2023	31.12.2022
Loans and advances to banks	74 940	116 775	657 534	331 266
Loans and advances to customers	-	-	23 549 498	19 525 706
Investments in subsidiaries	-	-	238 077	297 241
Investment securities	19 541	-	4 546 091	3 243 044
Assets pledged as collateral	-	-	-	160 847
Net deferred tax assets	7 323	5 204	569 837	587 073
Other items	55 756	38 409	681 168	436 276
Total assets	157 560	160 388	30 242 205	24 581 453
Deposits from banks	-	-	5 274 922	2 792 467
Deposits from customers	-	-	16 051 583	12 789 803
Sell-buy-back transactions	-	-	-	166 406
Debt securities in issue	-	-	2 515 402	2 953 725
Other items	45 791	66 152	1 758 091	1 443 041
Total liabilities	45 791	66 152	25 599 998	20 145 442

Income	243 017	206 294	2 569 763	2 160 462
Net profit (loss) for the period	93 147	75 723	72 551	209 377
Dividends paid to non-controlling shareholers	37 861	58 483	-	9 605
Total net cash flows:	(41 836)	(33 385)	(63 912)	(274 850)
- from operating activities	57 078	88 316	156 001	(516 960)
- from investing activities	(19 945)	(1 649)	(889 669)	(173 401)
- from financing activities	(78 969)	(120 052)	669 756	415 511

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.

Details of the hedging transactions of Santander Bank Polska SA as at 31.12.2023 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
31.12.2023
Assets representing derivative hedging instruments	1 740 750	2 979 500	13 495 969	29 491 175	4 391 827	52 099 221
IRS	1 673 700	2 979 500	10 933 069	19 929 900	3 860 000	39 376 169
CIRS/OIS	-	-	2 391 400	7 137 787	531 827	10 061 014
CCIRS	67 050	-	171 500	2 423 488	-	2 662 038
Liabilities arising from derivative hedging instruments	1 738 920	2 979 500	13 558 609	30 069 635	4 391 827	52 738 491
IRS	1 673 700	2 979 500	10 933 069	19 929 900	3 860 000	39 376 169
CIRS/OIS	-	-	2 391 400	7 137 787	531 827	10 061 014
CCIRS	65 220	-	234 140	3 001 948	-	3 301 308
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/OIS	-	-	-	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/OIS	-	-	-	668 143	241 938	910 081
CCIRS	-	3 113 150	4 375 851	4 203 212	476 790	12 169 003

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
31.12.2023
Assets representing derivative hedging instruments
Average fixed interest rate	6,9600	6,6314	5,2337	5,1578	5,1424
Average exchange rate (CHF/PLN)	4,6828	4,6828	4,6828	4,6828	4,6828
Average exchange rate (EUR/PLN)	4,3480	4,3480	4,3480	4,3480	4,3480
Average exchange rate (USD/PLN)	3,9350	3,9350	3,9350	3,9350	3,9350
Liabilities arising from derivative hedging instruments
Average fixed interest rate	0,0000	4,4993	3,4781	2,9840	2,3029
Average exchange rate (CHF/PLN)	4,6828	4,6828	4,6828	4,6828	4,6828
Average exchange rate (EUR/PLN)	4,3480	4,3480	4,3480	4,3480	4,3480
Average exchange rate (USD/PLN)	3,9350	3,9350	3,9350	3,9350	3,9350
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

Fair value hedges

Santander Bank Polska Group uses fair value hedge accounting in relation to the following classes of financial instruments:

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

· Fixed-rate securities issued by the Bank in EUR;

· Fixed-rate loans in PLN granted by the Bank.

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 Interest Rate Swaps (IRS) 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.

		31.12.2023			31.12.2022
Hedging instruments designated as fair value hedges	Hedged item: Fixed-coupon bonds		Hedged item: Fixed-rate loan portfolio	Hedged item: Issued bonds	Hedged item: Fixed-coupon bonds	Hedged item: Fixed-rate loan portfolio
Nominal value of hedging instrument	8 737 983		225 000	869 600	11 422 671	225 000
Hedging derivatives – assets (carrying amount)	221 617		6 228	556	466 714	20 578
Hedging derivatives – liabilities (carrying amount)	157 437		-	-	25 508	-
Line item in the statement of financial position that includes the hedging instrument	Hedging derivatives (IRS, CIRS,OIS)		Hedging derivatives (IRS)	Hedging derivatives (CCIRS)	Hedging derivatives (IRS ,CIRS)	Hedging derivatives (IRS)
Hedged risk	Interest rate 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 2033		up to 2024	up to 2024	up to 2029	up to 2024

		31.12.2023				31.12.2022
Items subject to fair value hedge accounting	Fixed-coupon bonds		Fixed-rate loan portfolio	Issued bonds	Fixed-coupon bonds		Fixed-rate loan portfolio
Carrying amount of the hedged item, including:
Assets	8 600 749		220 437	-	11 422 671		225 000
Liabilities	-		-	870 007	-		-
Accumulated amount of fair value hedge adjustments on the hedged item included in profit and loss and in the carrying amount, including:
Assets	41 445		-	-	(519 057)		(17 541)
Liabilities	(178 679)		(4 563)	(407)	-		-
Line item in the statement of financial position that includes the hedged instrument	Investment securities		Loans and advances to customers	Debt securities in issue	Investment securities		Loans and advances to customers

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 30 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 – also from currency risk.

Hedging relationships are established using Interest Rate Swaps (IRS), Currency Interest Rate Swaps (CIRS) and Cross Currency Interest Rate Swaps (CCIRS). 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 positions are measured at amortised cost. Hedging items are measured at fair value. If the hedging relationships are effective, changes in the fair value of hedging instruments are recognised in equity.

In relation to the payment holidays introduced by the Polish government in 2022, the Bank analysed the portfolio of PLN mortgage loans in terms of sufficiency of future cash flows from the portfolio and collateral held. Excluding mortgage loans subject to payment holidays, the mortgage loan portfolio is sufficient to continue the hedging relationships. Based on the results of the analysis, in 2023 the Bank maintained all the hedging relationships in PLN.

Taking into account payment holidays, the hedging relationships kept as part of hedge accounting remained effective.

Furthermore, once a quarter the Bank analysed the sufficiency of the CHF mortgage loan portfolio in the context of pending court proceedings and the potential negative impact of court judgments on the value of future cash flows in CHF. Based on the results of the analyses, in 2023 the Bank terminated six hedging relationships in CHF with the total nominal value of CHF 265m. Adjusted for provisions for legal risk raised in 2023, the CHF mortgage loan portfolio was sufficient to continue the hedging relationships. At the same time, given the ruling practice on CHF mortgage loans and the Bank’s assessment regarding future lawsuits, the Bank considers the possibility to terminate the relationships in the future periods.

At SCB, no FX SWAPs were closed before their maturity dates. The value of the credit portfolio is decreasing but SWAPs are gradually expiring too. The new ones are concluded for shorter tenors and lower amounts.

Details of this transactions of Santander Bank Polska SA as at 31.12.2023 and at comparative period are presented in tables below:

	31.12.2023		31.12.2022
Hedging instruments designed as cash flow hedges	Hedged item: Portfolio of floating interest rate loans in PLN and EUR	Hedged item: Portfolio of floating interest rate loans denominated in EUR and CHF		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	39 604 600	3 301 308		4 798 700	6 376 653	5 792 350
Hedging derivatives - assets (carrying amount)	1 326 620	4 353		309	-	50 322
Hedging derivatives – liabilities (carrying amount)	13 892	658 236		115 881	1 665 036	65 613
Line item in the statement of financial position that includes the hedging instrument	Hedging derivatives (IRS, CIRS)	Hedging derivatives (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	697 843	(22 081)		171 492	(158 298)	(78 711)
Balance of hedging gains or losses of the reporting period that were recognised in other comprehensive income	697 843	(9 860)		171 492	(125 968)	(79 927)
Value of hedge ineffectiveness recognised in profit or loss	-	(12 220)		-	(32 330)	1 216
Line item in the income statement that includes the recognised hedge ineffectiveness	Net trading income and revaluation	Net trading income and revaluation		Net trading income and revaluation	Net trading income and revaluation	Net trading income and revaluation
Hedged risk	Interest rate risk	Interest rate risk and currency risk		Interest rate risk	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 2033	up to 2027		up to 2027	up to 2028	up to 2023

31.12.2023

31.12.2022

Items subject to

cash flow hedge accounting

Portfolio of floating interest rate loans in PLN and EUR

Portfolio of

floating interest rate loans denominated in EUR and CHF

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

697 843

(9 860)

171 492

(125 968)

(79 927)

Details of this transactions of Santander Consumer Bank SA as at 31.12.2023 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
31.12.2023
Assets representing derivative hedging instruments	218 010	93 800	245 450	602 276	-	1 159 536
FXSWAP	94 110	93 800	245 450	92 276	-	525 636
IRS	-	-	-	510 000	-	510 000
CCIRS	123 900	-	-	-	-	123 900
Liabilities arising from derivative hedging instruments	257 554	93 656	257 554	603 656	-	1 212 420
FXSWAP	93 656	93 656	257 554	93 656	-	538 522
IRS	-	-	-	510 000	-	510 000
CCIRS	163 898	-	-	-	-	163 898
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

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
31.12.2023
Assets representing derivative hedging instruments
Average fixed interest rate	5,9350	-	-	5,3228	-
Average exchange rate (CHF/PLN)	4,6828	-	-	-	-
Average exchange rate (EUR/PLN)	4,3480	-	-	-	-
Liabilities arising from derivative hedging instruments
Average fixed interest rate	-	-	-	-	-
Average exchange rate (CHF/PLN)	-	-	-	-	-
Average exchange rate (EUR/PLN)	-	-	-	-	-
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	-	-	-	-

	31.12.2023				31.12.2022
Hedging instruments designed as cash flow hedges	Hedged item: Portfolio of loans denominated in CHF	Hedged item: Portfolio of floating interest rate mortgage loans in PLN	Hedged item: Floating interest rate bonds	Hedged item: Portfolio of floating interest rate loans for subordinated entities	Hedged item: Portfolio of loans denominated in CHF
Nominal value of hedging instrument	702 420	175 000	10 000	325 000	877 294
Hedging derivatives – assets (carrying amount)	14 983	-	699	-	11 253
Hedging derivatives – liabilities (carrying amount)	49 148	534	-	1 292	107 049
Line item in the statement of financial position that includes the hedging instrument	Hedging derivatives (CIRS, FXSWAP)	Hedging derivatives (IRS)	Hedging derivatives (IRS)	Hedging derivatives (IRS)	Hedging derivatives (CIRS, FXSWAP)
Change in fair value of the hedging instrument used as the basis for recognising hedge ineffectiveness for the period	1 895	(69)	(12)	(31)	844
Balance of hedging gains or losses of the reporting period that were recognised in other comprehensive income	16 094	(37)	2 879	(736)	3 612
Value of hedge ineffectiveness recognised in profit or loss	(14 199)	(32)	(2 891)	705	(2 767)
Line item in the income statement that includes the recognised hedge ineffectiveness	Net trading income and revaluation	Net trading income and revaluation	Net trading income and revaluation	Net trading income and revaluation	Net trading income and revaluation
Hedged risk	Currency risk	Interest rate risk	Interest rate risk	Interest rate risk	Currency risk
Period over which instruments have impact on the Bank’s results	up to 2025	up to 2027	up to 2027	up to 2027	up to 2024

31.12.2023

31.12.2022

Items subject to

cash flow hedge accounting

Hedged item:

Portfolio of loans denominated in CHF

Hedged item:

Portfolio of floating interest rate mortgage loans in PLN

Hedged item: Floating interest rate bonds

Hedged item:

Portfolio of floating interest rate loans for subordinated entities

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

61 633

(534)

403

(996)

(75 229)

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;

· variable-rate debt securities in PLN;

· securities issued by the Bank in EUR.

As at 31 December 2023, there were 471 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 (414 relationships connected with 414 IRS transactions, 28 relationships connected with 27 CIRS transactions and 2 relationships connected with with 2 OIS transactions), and CCIRS transactions for EUR and CHF exposures (27 relationships connected with 23 CCIRS transactions).

The interest rate of the foregoing derivatives is based on the following variable rates: 3M or 6M WIBOR (437 derivative transactions), 1M, 3M or 6M EURIBOR (36 derivative transactions), 3M SARON (14 derivative transactions) and USD SOFR (2 derivative transactions). The relationships are set to expire gradually by 2033: 77 relationships in 2024, 324 relationships over the next five years and 70 relationships by 2033 (including 65 relationships in 2033 alone).

Detailed information about derivative and non-derivative financial instruments subject to the interest rate benchmark reform together with the summary of measures taken by the Bank to manage the risk arising from the reform and the accounting impact, including the impact on hedging relationships, is presented in Note 4 “Risk management” and in Note 44 “Hedge accounting” (section on hedging derivatives).

The subsidiaries of Santander Bank Polska S.A. also use hedge accounting that may be affected by the IBOR reform.

As at the end of 2023, Santander Leasing S.A. did not have any relationship as part of hedge accounting.

In the case of Santander Consumer Bank S.A. (SCB), there was one active CIRS transaction based on 3M LIBOR/3M WIBOR as at the end of 2023. CIRS transactions that expired in 2023 have not been renewed.

In addition, SCB entered into four CHF/PLN FX Swap transactions with the tenor of up to two years (CHF 90m). They were also linked to mortgage loans as part of hedge accounting.

45. Sale and reverse sale and repurchase agreements

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.

	31.12.2023	31.12.2022
	Balance sheet value	Balance sheet value
Liabilities valued at amortised cost (contains sale and repurchase agreements)	273 547	2 324 926
Fair value of securities held as collateral for sale and repurchase agreements	271 933	2 318 219
Reverse sale and repurchase agreements	12 676 594	13 824 606
Fair value of securities held for reverse sale and repurchase agreements	13 056 880	13 527 180

Reverse sale and repurchase agreements	31.12.2023	31.12.2022
Reverse sale and repurchase agreements from banks	12 166 858	13 538 405
Reverse sale and repurchase agreements from customers	509 736	286 201
Total	12 676 594	13 824 606

Sale and repurchase agreements	31.12.2023	31.12.2022
Sale and repurchase agreements from banks	108 975	2 324 926
Sale and repurchase agreements from customers	164 572	-
Total	273 547	2 324 926

Securities being the subject of repo and sale and repurchase agreements 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 sale and repurchase agreements transactions remain with the Group, as well as power to dispose them.

The Group also acquires reverse repo and reverse sale and repurchase agreements financial instruments at the same price increased by the pre-determined amount of interest.

Financial instruments covered by reverse repo and reverse sale and repurchase agreements 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 reverse sale and repurchase agreements 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 31.12.2023	(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	12 166 858	-	12 166 858	-	12 003 370	163 488	-	12 166 858
Loans and advances to customers
- Reverse sale and repurchase agreements	509 736	-	509 736	-	499 897	9 839	-	509 736
Other financial assets:
- Financial derivatives	15 521 295	7 024 061	8 497 234	5 468 502	2 628 944	399 788	469 059	8 966 293
TOTAL ASSETS SUBJECT TO OFFSETTING, MASTER NETTING AND SIMILAR ARRANGEMENT	28 197 889	7 024 061	21 173 828	5 468 502	15 132 211	573 115	469 059	21 642 887
Liabilities
Financial derivatives	15 108 602	7 024 061	8 084 541	5 468 502	2 677 772	(61 733)	790 369	8 874 910
Sale and repurchase agreements	273 547	-	273 547	-	273 547	-	-	273 547
TOTAL lIABILITIES SUBJECT TO OFFSETTING, MASTER NETTING AND SIMILAR ARRANGEMENT	15 382 149	7 024 061	8 358 088	5 468 502	2 951 319	(61 733)	790 369	9 148 457

	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

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	31.12.2023		31.12.2022*
ASSETS	Book Value	Fair value	Book Value	Fair value
Cash and balances with central banks	8 417 519	8 417 519	10 17 022	10 17 022
Loans and advances to banks	9 533 840	9 533 840	9 577 499	9 577 499
Loans and advances to customers measured at amortised cost	143 488 004	143 576 065	137 888 696	138 751 711
-individuals	27 651 779	27 725 096	25 749 057	26 194 283
-housing loans	52 412 948	51 636 767	52 529 798	52 729 193
-business	62 540 516	63 331 441	58 730 630	58 949 024
Buy-sell-back transactions	12 676 594	12 676 594	13 824 606	13 824 606
Debt investment securities measured at amortised cost	19 639 468	19 904 443	3 156 009	3 025 868
LIABILITIES
Deposits from banks	4 156 453	4 156 453	4 031 252	4 031 252
Deposits from customers	209 277 356	209 270 589	196 496 806	196 431 894
Sell-buy-back transactions	273 547	273 547	2 324 926	2 324 926
Subordinated liabilities	2 686 343	2 663 921	2 807 013	2 782 760
Debt securities in issue	9 247 159	9 395 402	9 330 648	9 092 037

*data restated, details in note 2.5

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 quotations. Instruments classified in 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 31.12.2023 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 NBP bills and 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.

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
CORPORATE DEBT SECURITIES	Discounted cash flow method	Credit spread
SHARES IN BIURO INFORMACJI KREDYTOWEJ SA	Estimation of the fair value based on the present value of the forecast results of the company	The valuation assumed a payment of 100% of the net result forecasted by the company and the discount estimated at market level.
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	The valuation based on the company's forecasted net financial results and revenues and the median P/E and EV/S multipliers based on the comparative 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	The valuation was based on net assets of the company and the Bank's share in the capital (ca0.048%).
SHARES IN SYSTEM OCHRONY BANKÓW KOMERCYJNYCH S.A.	Estimation of the fair value based on the net assets value of the company	The valuations were based on the companies' net assets and the Bank's share in capital at the level of: -for SOBK ca. 12.9% -for KIR ca. 14.2%. -for WSEZ ca. 0.2%.
SHARES IN KRAJOWA IZBA ROZLICZENIOWA SA
SHARES IN WAŁBRZYSKA SPECJALNA STREFA EKONOMICZNA „INVEST-PARK” SP Z O.O.

Expert valuations of capital instruments are prepared whenever required, but at least once a year. Valuations are prepared by an employee of the Department of Capital Management and Capital Investments (DZKiIK), and then verified by an employee of the Financial Risk Department (DRF) and finally accepted by a specially appointed team of Directors: Department of Capital Management and Capital Investments (DZKiIK), Financial Risk Department (DRF). ) and the Financial Accounting Area (ORF) (or employees designated by them). The valuation methodology for estimating the value of financial instruments from the DZKiIK portfolio using the expert method is included in the document "Investment strategy of Santander Bank Polska S.A. in capital market instruments. This document is subject to periodic reviews, updated at least once a year and approved by the Management Board and the Supervisory Board of the Bank.

Instruments are transferred between levels of the fair value hierarchy based on observability criteria verified at the ends of reporting periods. In the case of risk factors commonly considered observable on the market, the Bank considers information on directly concluded transactions on a given market to be the primary criterion of observability, and information on the number and quality of available price quotations is an auxiliary criterion.

In the period from January 1 to December 31, 2023, the following transfers of financial instruments between levels of the fair value measurement hierarchy were made:

• corporate bonds were transferred from Level 2 to Level 3, for which, due to the lack of available liquid quotations and an alternative observable source of the credit spread level, available model prices using information on prices of comparable financial instruments were used for valuation, constituting an approach equivalent to the discounted flow method, and bootstrapping of the credit spread parameter;

• derivatives were transferred from Level 3 to Level 2, which on the date of conclusion, due to the original maturity date and liquidity, are classified at level 3, and for which, as their period to maturity shortens, the liquidity of observable quotations increases and are transferred to level 2;

The impact of estimated parameters on measurement of financial instruments for which the Bank applies fair value valuation according to Level 3 as at 31 December 2023 and in comparative period is as follows:

						Impact on fair value +/-100 bps
	Fair value as at 31.12.2023	Valuation technique	Unobservable factor	Unobservable factor range	Positive scenario		Negative scenario
Corporate debt securities	11 555 157	Discounted cash flow	Credit spread	(0.48% -0.9%]	253 915		(242 537)
Loans and advances measured at fair value through other comprehensive income	2 798 234	Discounted cash flow	Effective margin	(0.78%-4.58%)	94 606		(88 355)

						Impact on fair value +/-100 bps
	Fair value as at 31.12.2022	Valuation technique	Unobservable factor	Unobservable factor range	Positive scenario		Negative scenario
Loans and advances measured at fair value through other comprehensive income	2 628 660	Discounted cash flow	Effective margin	(0.85%-3.27%)	82 453		(82 453)

As at 31.12.2023 and in the comparable periods the Group classified its financial instruments to the following fair value levels:

31.12.2023	Level I	Level II	Level III	Total
Financial assets
Financial assets held for trading	1 544 308	7 385 554	9 498	8 939 360
Hedging derivatives	-	1 575 056	-	1 575 056
Loans and advances to customers measured at fair value through other comprehensive income	-	-	2 798 234	2 798 234
Loans and advances to customers measured at fair value through profit and loss	-	-	85 093	85 093
Debt securities measured at fair value through other comprehensive income	29 947 021	6 096 392	11 555 157	47 598 570
Debt securities measured at fair value through profit and loss	-	-	2 005	2 005
Equity securities measured at fair value through other comprehensive income	-	-	5 839	5 839
Equity securities measured at fair value through other comprehensive income	-	-	277 121	277 121
Assets pledged as collateral	271 933	-	-	271 933
Total	31 763 262	15 057 002	14 732 947	61 553 211
Financial liabilities
Financial liabilities held for trading	824 121	7 988 428	5 944	8 818 493
Hedging derivatives	-	880 538	-	880 538
Total	824 121	8 868 966	5 944	9 699 031

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	14 407 513	2 410	49 845 849
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
Assets pledged as collateral	2 318 219	-	-	2 318 219
Total	37 998 692	21 583 751	3 215 026	62 797 469
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	195 560	8 884 000	8 355	9 087 915

*restated, as described in Note 2.5

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
31.12.2023	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	12 008	239 694	2 628 660	64 707	2 410	204 299	63 248	8 355
Profit or losses
-recognised in income statement
---net trading income and revaluation	(4 606)	24 416	161 238	-	-	-	-	(1 167)
---gains/losses from other financial securites	-	-	-	4 449	-	-	4 957	-
-recognised in equity (OCI)	-	-	-	-	-	72 822	-	-
Purchase/granting	1 383	19 367	1 760 240	-	-	-	-	393
Sale	-	(8 102)	(282 645)	(67 888)	-	-	(64 122)	-
Matured	-	(189 000)	(1 407 100)	-	-	-	-	-
Transfer	713	-	-	-	11 554 763	-	-	(1 636)
Other	-	(1 282)	(62 159)	737	(2 016)	-	1 757	-
As at the end of the period	9 498	85 093	2 798 234	2 005	11 555 157	277 121	5 840	5 944

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					-	-		6 131
---net trading income and revaluation	5 517	52 477	150 167	-	-	-	-
---gains/losses from other financial securites	-	-	-	(6 326)	-	-	3 264	-
-recognised in equity (OCI)	-	-	-	-	-	8 702	-	-
Purchase/granting	4 695	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

48. Legal risk connected with CHF mortgage loans

As at 31 December 2023, the Group had a portfolio of 30.7k CHF-denominated and CHF-indexed loans of PLN 6,270,419k gross before adjustment to the gross carrying amount at PLN 4,085,686k reducing contractual cash flows in respect of legal risk.

As at 31 December 2022, the Group had a portfolio of 39.9k CHF-denominated and CHF-indexed loans of PLN 8,393,684k gross before adjustment to the gross carrying amount at PLN 3,136,301k reducing contractual cash flows in respect of legal risk.

In the case of both common courts and the Supreme Court, the ruling practice regarding loans indexed to or denominated in foreign currencies is still not unanimous.

The prevailing practice is the annulment of a loan agreement due to unfair clauses concerning loan indexation and application of an exchange rate from the bank’s FX table. Some courts issue judgments as a result of which the loan is converted to PLN: the unfair indexation mechanism is removed and the loan is treated as a PLN loan with an interest rate based on a rate relevant for CHF. Other courts adjudicate partly in favour of banks: only the application of an exchange rate based on the bank’s FX table is deemed to be unfair and is replaced by an objective indexation rate, i.e. an average NBP exchange rate or market exchange rate. Still others decide on the removal of loan indexation, as a consequence of which the loan is treated as a PLN loan with an interest rate based on WIBOR. Judgments are also passed which declare loan agreements void due to unlawful terms. Those judgments are incidental and as such, in the Group’s view, have no significant impact on the assessment of legal risk of court cases regarding mortgage loans denominated in or indexed to CHF.

Lastly, there are still rulings which are entirely favourable to banks, where conversion clauses are not deemed to be unfair and the case against the bank is dismissed.

The foregoing differences in the case-law result from discrepancies in the ruling practice of the Supreme Court and the Court of Justice of the European Union (CJEU), which essentially provide guidance rather than detailed rules on how specific disputes should be adjudicated and claims settled.

Judgments passed by the Supreme Court in cases examined as part of the cassation procedure vary as to the effects of potential unfairness of indexation clauses: from the annulment of a loan agreement (prevailing practice) to its continuation in existence after the removal of unfair terms.

For example, in three judgments passed on 19 September 2023 (file no. II CSKP 1627/22, II CSKP 1110/22, II CSKP 1495/22) the Supreme Court reiterated that an agreement can continue in force if unfair clauses are eliminated, that is if they are replaced by reference to an objective market rate or average NBP rate (the same was stated in the judgment of 28 September 2022 in case no. II CSKP 412/22, and in the dissenting opinion on case no. II CSKP 701/22). Recently, several judgments have been passed in favour of banks, whereby the court refused to examine borrowers’ cassation complaints based on similar grounds as above, that is the continuation of the agreement after elimination of unfair clauses (e.g. case no. I CSK 5082/22 and I CSK 7034/22).

The Supreme Court was expected to present its stance on CHF loans in response to the questions asked by the First President of the Supreme Court in 2021 (file no. III CZP 11/21). However, as the Supreme Court’s composition has been contested, the stance will not be presented until the CJEU responds to the question concerning the procedure for the appointment of judges. The CJEU refused to respond to that question on 9 January 2024. The case has been remanded to the Supreme Court. The date of the hearing is to be set.

In the resolution passed in 2021 (file no. III CZP 6/21), the Supreme Court expressed its opinion on several important matters concerning settlements between the parties in case of annulment of a loan agreement. It stated that the parties must each reimburse to the other any payments made under the agreement in accordance with the two separate claims theory. This way, the balance theory (ex officio mutual set-off of claims) was rejected. 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. As there were conflicting opinions about whether the right of retention can be exercised with respect to claims arising from a loan agreement, questions were submitted to the Supreme Court about the legal nature of a loan agreement. Courts also referred to the CJEU for a preliminary ruling.

In the above resolution, the Supreme Court also pointed out that the limitation of the bank’s claims for return of unjust enrichment may not commence until the agreement is considered permanently ineffective, i.e. until the consumer takes an informed decision as to invalidity of the agreement, after they have been duly informed about the unfairness of contractual provisions and the related effects. This is in line with the opinion issued by the CJEU in respect of the limitation period for the consumer’s claims for reimbursement of instalments 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 Supreme Court has not yet taken a clear position on banks’ claims going beyond reimbursement of the nominal amount of the loan principal. However, it indicated such possibility in one of its judgments in which it stated that the CJEU case-law does not preclude such consequence of the annulment of a loan agreement (file. no. V CSK 382/18).

In its ruling practice, the CJEU generally gives priority to the protection of consumer’s interests violated by unfair contractual terms. At the same time, it reiterates that the main objective of Directive 93/13/EEC on unfair terms in consumer contracts is to restore the balance between the parties, i.e. to restore the legal and factual situation which the consumer would have been in had they signed the agreement without the unfair term, while not undermining the deterrent effect sought by the Directive (deterring sellers or suppliers from including unfair terms in agreements). Therefore, the court should first endeavour to keep the agreement in existence without the unfair term, where possible (i.e. if the main subject of the agreement is not changed). At the same time, the CJEU holds that it is permissible for the unfair term to be replaced by a supplementary provision of national law (even the one that entered into force after the conclusion of the agreement) or a rule which the parties have opted for. Recently, the CJEU has put forward a relatively new idea: that the parties should restore the balance through negotiations within the framework set by the court, this way protecting the consumer from adverse effects of the annulment of an agreement (particularly the need to immediately reimburse the amounts due to the bank). The CJEU takes the view that an agreement should be invalidated only as a last resort and only after the court presents the borrower with consequences of this solution and the borrower agrees to it. However, in order to ensure that the agreement 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 without changing the substance of the contractual obligation. However, the prevailing practice of Polish courts is to invalidate the agreement as a result of elimination of unfair clauses.

The CJEU pointed out on several occasions (e.g. C-6/22, C-349/18 to C-351/18) that settlements between the parties following the annulment of an agreement are governed by national law (provided that the objectives of Directive 93/13/EEC are met). Consequently, the national courts have the exclusive jurisdiction over claims for restitution. That said, losses arising from the annulled agreement should not be equally distributed, i.e. the consumer should not incur a half or more than a half of the related costs.

The District Court for Warsaw–Śródmieście requested a preliminary ruling from the CJEU on claims of the parties for settlement of amounts arising from the non-contractual use of the capital in the case of annulment of an agreement pursuant to Directive 93/13/EEC. One case concerned the borrower’s claims against the bank for the return of profits made using the money paid by the borrower (C-520/21) and the other case concerned the bank’s claims for consideration in respect of the provision of funds under a loan agreement (C-756/22).

The judgment in case C-520/21 was passed on 15 June 2023. In the grounds of the judgment the CJEU stated that “in the context of the annulment in its entirety of a mortgage loan agreement on the ground that it cannot continue in existence after the removal of the unfair

terms, Article 6(1) and Article 7(1) of Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts must be interpreted as:

– not precluding a judicial interpretation of national law according to which the consumer has the right to seek compensation from the credit institution going beyond reimbursement of the monthly instalments paid and the expenses paid in respect of the performance of that agreement together with the payment of default interest at the statutory rate from the date on which notice is served, provided that the objectives of Directive 93/13/EEC and the principle of proportionality are observed and,

– precluding a judicial interpretation of national law according to which the credit institution is entitled to seek compensation from the consumer going beyond reimbursement of the capital paid in respect of the performance of that agreement together with the payment of default interest at the statutory rate from the date on which notice is served.”

In its judgment, the CJEU confirmed that the effects of the annulment of an agreement are governed by the national law subject to the provisions of Directive 93/13 EEC. Consequently, claims for restitution will be assessed by the national court after examining the facts of the case. The grounds of judgment indicate that the bank’s claims going beyond the reimbursement of the loan principal are contrary to the objectives of Directive 93/13/EEC, if they would cause the bank to make a similar profit to the one intended to be earned in the performance of the agreement. The deterrent effect would thus be eliminated. However, several courts have already issued decisions (which are not yet final) stating that banks’ claims for reimbursement of the capital adjusted for changes in the time value of money are admissible and warranted.

At the same time, the CJEU held that the EU law does not preclude the consumer from seeking compensation from the bank beyond reimbursement of the instalments paid. But in its grounds of judgment it asserted that such claims should be assessed in the light of all the facts of the case to ensure that potential benefits derived by the consumer after annulment of the agreement do not go beyond what is necessary to restore the legal and factual situation they would have been in if they had not concluded a defective agreement and that the benefits are not a disproportionate penalty on a seller or supplier (proportionality principle). Furthermore, as any such claims will be assessed in accordance with national laws on unjust enrichment, the decision to uphold them would be questionable as there is no actual enrichment on the part of the bank as a result of the use of funds paid by the borrower (the borrower only reimburses the money provided by the bank under an agreement declared invalid).

On 11 December 2023, the CJEU issued an order in case C-756/22 concerning the bank’s restitution claims, stating that the issue in question had already been resolved in the judgment of 15 June 2023 and a separate judgment in this regard was not necessary.

In its order of 12 January 2024 in case C-488/23, the CJEU maintained its stance presented in the judgment of 15 June 2023 in case C-520/21 and issued interpretation, indicating that the bank cannot seek compensation from the consumer in the form of court-ordered adjustment to the capital paid to the consumer, but only the capital and statutory late payment interest from the date of the demand for payment.

On 7 December 2023, the CJEU passed a judgment in another case brought by the Polish court (C-140/22), in which it stated that the assessment of unfairness of contractual clauses is made by operation of law and the national court should examine disputable provisions ex officio. The CJEU also stressed that the consumer should be able to exercise their rights irrespective of whether they have made a statement before the court that they are aware of the consequences of the invalidity of the agreement and gives their consent to its annulment.

In its judgment of 14 December 2023 in case C-28/22, the TSUE ruled on the limitation period for claims of banks and consumers but did not specifically indicate the start date of that period. It merely concluded that it cannot begin to run as from the date of the final and non-appealable judgment and that the start date for bank’s claims cannot be earlier than that for consumer’s claims. The CJEU also noted that banks may use their right of retention but it should not automatically mean the suspension of the accrual of late payment interest due to consumers.

The CJEU’s rulings do not address all issues concerning the settlement of an invalidated agreement, but at the same time they refer to the issues subject to national law which have already been adjudicated by the Supreme Court. Accordingly, the final assessment of legal risk related to claims of the parties for consideration arising from the non-contractual use of the capital in the case of annulment of the agreement will still largely depend on the ruling practice of national courts with regard to the enforcement of CJEU judgments and on the opinion of the Supreme Court.

As there is no unanimous ruling practice and – in the Management Board’s opinion – it is not possible to predict the Supreme Court’s decisions on individual cases and there are still questions pending preliminary ruling by the CJEU, at the date of these financial statements the Group estimated the 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. The model can also be affected by subsequent CJEU rulings on questions referred by the Polish courts, the stance of the Supreme Court and the ruling practice of national courts. The Group is monitoring court decisions taken with regard to foreign

currency loans in terms of the ruling practice and its possible changes. The model might also be affected by a potential intervention of legislators aimed to restore the balance between the parties following the removal of the unfair clause to protect legal relationships from mass annulment of mortgage loan agreements.

In view of the above, the Group identified the risk that in the case of lawsuits which have already been filed or are predicted to be filed based on applicable models 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. The Group recognises the impact of legal risk associated with foreign currency mortgage loans 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 2023, there were 17,859 pending lawsuits against the Group over loans indexed to or denominated in CHF, with the disputed amount totalling PLN 6,150,398k. This included two class actions filed under the Class Action Act:

● a class action against Santander Bank Polska S.A. in respect of 302 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, 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 2023, the total cumulative impact of legal risk associated with foreign currency mortgage loans in the Group was estimated at PLN 5,030,355k, including:

● IFRS 9 adjustment to the gross carrying amount at PLN 4,226,970k (including PLN 3,414,431k in the case of Santander Bank Polska S.A. and PLN 812,539k in the case of Santander Consumer Bank S.A.)

● IAS 37 provision at PLN 803,385k (including PLN 624,354k in the case of Santander Bank Polska S.A. and PLN 179,031k in the case of Santander Consumer Bank S.A.).

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.).

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, including the cost of settlements discussed in detail in the section below.

Cost of legal risk connected with foreign currency mortgage loans	1.01.2023–30.12.2023	1.01.2022–30.12.2022
Impact of legal risk associated with foreign currency mortgage loans recognised as adjustment to gross carrying amount	(1 651 058)	(1 283 257)
Impact of legal risk associated with foreign currency mortgage loans recognised as provision	(445 016)	(237 298)
Other costs*	(496 252)	(218 533)
Total cost of legal risk associated with foreign currency mortgage loans	(2 592 326)	(1 739 088)
Gain/loss on derecognition of financial instruments measured at amortised cost	(322 492)	(169 235)
including: settlements made	(329 791)	(183 255)
Total cost of legal risk associated with foreign currency mortgage loans and settlements made	(2 922 117)	(1 922 343)

* Other costs include but are not limited to the costs of court proceedings and costs of enforcement of court judgments.

	31.12.2023	31.12.2022
Adjustment to gross carrying amount in respect of legal risk associated with foreign currency mortgage loans	4 226 970	3 136 301
Provision for legal risk associated with foreign currency mortgage loans	803 385	420 952
Total cumulative impact of legal risk associated with foreign currency mortgage loans	5 030 355	3 557 253

As at 31 December 2023, the total adjustment to the gross carrying amount and provisions for legal risk and legal provisions (for legal claims and a collective portion) accounted for 80.2% of the gross value of the active CHF loan portfolio (before adjustment to the gross carrying amount in line with IFRS 9

The increase in the cost of legal risk between January and December 2023 is due to an update of the number of expected settlements and expected lawsuits as well as change in total loss in respect of cases potentially lost by the Group resulting from changes in the expected rulings and the assumed level of the likelihood of claims being resolved in favour of customers. Furthermore, the number of court judgments increased in 2022 and 2023.

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. 29% 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. Customers’ interest in proposed settlements is another important aspect affecting the estimates, as is the practice of Polish courts with regard to the enforcement of CJEU rulings.

The Group expects that most of the lawsuits will be filed by the end of 2024, and then the number of new claims will drop as the legal environment will become more structured.

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.

For the purpose of calculating the costs of legal risk, 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 protracted proceedings in some courts. As at 31 December 2023, 2,591 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 2,487 were unfavourable to the Group, and 104 were entirely or partially favourable to the Group (compared to 927 judgments as at 31 December 2022, including 861 unfavourable ones and 66 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 unanimous, the Group considers the following scenarios of possible court rulings that might lead to financial losses (including one new scenario added in Q2 2023):

● Annulment of the whole loan agreement due to unfair clauses, with only the nominal of the 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

● Conversion of the loan to PLN with an interest rate based on WIBOR

● Rulings leading to the settlement by the borrower of the capital obtained, taking into account its real rather than notional value

● 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.

The Group also considers an additional scenario in which it may incur financial loss on account of additional claims made by the borrower beyond the reimbursement of the nominal amount of the instalments paid.

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 Group 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 2023, the Group made 9,342 settlements (both pre-court and following the legal dispute), of which 6,303 ones were reached in 2023.

In mid-2022, the Group developed a settlement scenario which reflects the level of losses for future settlements. The scenario is based on acceptance levels and losses on loans as part of settlement proposals 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.

Sensitivity analysis

Due to the high uncertainty around both individual assumptions and their total impact, the Bank 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 were 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 2023 the impact of legal risk estimated on a collective basis is affected as follows:

Scenario (PLN m)	Change in the collective provision as at 31.12.2023	Change in the collective provision as at 31.12.2022
Doubling the number of customers filing a lawsuit (applies to active and inactive customers)	991	1,029
50% reduction in the number of customers filing a lawsuit (applies to active and inactive customers)	(496)	(514)
Relative increase of 5% in the likelihood of losing the case	50	50
Relative decrease of 5% in the likelihood of losing the case	(50)	(49)

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 provision for individual legal claims as at 31 December 2023 and in the comparative period is affected as follows:

Scenario (PLN m)	Change in the individual provision as at 31.12.2023	Change in the individual provision as at 31.12.2022
Relative increase of 5% in the likelihood of losing the case	191	115
Relative decrease of 5% in the likelihood of losing the case	(191)	(113)

49. Contingent liabilities

Information about pending court and administrative proceedings

As at 31.12.2023 the value of all litigation amounts to PLN 8 527 814k. This amount includes PLN 1 842 060k claimed by the Group, PLN 6 601 675 k in claims against the Group and PLN 84 079k of the Group’s receivables due to bankruptcy or arrangement cases.

As at 31.12.2023 the amount of all court proceedings which had been completed amounted to PLN 635 408k.

As at 31.12.2023 the provisions for instigated lawsuits recognised in accordance with IAS 37 totalled PLN 712 831k and the adjustment to gross carrying amount under IFRS 9 related to instigated lawsuits totalled PLN 3 289 808k. In 2,873 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 1 258 559k.

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.

Administrative penalty proceedings by the Polish Financial Supervision Authority

On 22 November 2023, the Polish Financial Supervision Authority (KNF) started administrative proceedings against Santander Bank Polska S.A. that might result in a penalty being imposed on the Bank under Article 176i(1)(4) of the Act on trading in financial instruments. At this stage of the proceedings, the amount of the potential penalty cannot be estimated reliably.

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.

	31.12.2023
Contingent liabilities	Stage 1	Stage 2	Stage 3	Total
Liabilities granted	55 762 892	896 708	103 329	56 762 929
- financial	40 889 961	741 093	44 368	41 675 422
- credit lines	36 820 437	671 309	34 327	37 526 073
- credit cards debits	3 402 820	58 539	9 477	3 470 836
- import letters of credit	657 654	11 245	564	669 463
- term deposits with future commencement term	9 050	-	-	9 050
- guarantees	14 911 657	204 034	94 901	15 210 592
Provision for off-balance sheet liabilities	(38 726)	(48 419)	(35 940)	(123 085)
Liabilities received				59 707 409
- financial				504 608
- guarantees				59 202 801
Total	55 762 892	896 708	103 329	116 470 338

	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

50. Assets and liabilities pledged as collateral

Assets pledged as collateral	31.12.2023	31.12.2022
Treasury bonds blocked for REPO transactions	271 933	2 318 219
Total	271 933	2 318 219

The Group holds financial instruments such as:

· debt securities measured at fair value through other comprehensive income of PLN 121,365 k and measured at amoritsed cost of PLN 40,215 k (in 2022: PLN 2,318,219 k),

· financial assets held for trading of PLN 110,353 k (in 2022 PLN 0 k),

which represent collateral for liabilities under buy-sell-back transactions. The liabilities were presented in note 45 Sale and reverse sale and repurchase agreements.

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:

	31.12.2023	31.12.2022
Treasury bonds blocked with BFG	1 139 686	1 108 589
Treasury bonds blocked for loans from banks	123 679	184 980
Deposits in financial institutions as collateralised valuation of transactions	3 130 518	3 086 909
Total	4 393 883	4 380 478

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 0,25% (0.30% in 2022) of funds deposited in all accounts with the bank, being the basis for calculating the obligatory reserve. As at 31.12.2023, assets allocated to that end totalled PLN 1,139,686 k compared with PLN 1,108,589 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 123,679 k (as at 31.12.2022 PLN 184,980 k).

In 2023, deposits opened with financial institutions to secure the value of transactions totalled PLN 3,130,518 k (in 2022 – PLN 3,086,909 k).

In 2023, the Group accepted PLN 2,382,643 k worth of deposits securing of derivative transactions (vs. PLN 2,053,897 k in 2022).

Other liabilities accepted as collateral are disclosed in note 34.

51. Information about leases

Lease related amounts recognized in the income statement	1.01.2023-31.12.2023	1.01.2022-31.12.2022
Amortisation of right of use asset incl.:	(144 918)	(141 940)
- Land and buildings	(137 948)	(135 801)
- IT equipment	(251)	(648)
- Transportation means	(5 485)	(4 059)
- Other	(1 234)	(1 432)
Interest expenses due to lease liabilities	(18 602)	(14 384)
Short-term lease costs	(9 019)	(8 116)
Low-value assets lease costs	(1 312)	(1 254)
Costs of variable lease payments not included in the measurement of the lease liabilities	(362)	(702)
Non-tax deductible VAT	(34 562)	(28 016)
Total	(208 775)	(194 412)

Lease agreements where the Group acts as a lessee

Lease liabilities	31.12.2023	31.12.2022
Lease liabilities (gross)	415 143	487 625
Discount	(49 310)	(67 660)
Lease liabilities (net)	365 833	419 965
Lease liabilities gross by maturity:
Short-term	157 573	147 801
Long-term (over 1 year)	257 570	339 824
Total lease liabilities (gross)	415 143	487 625

.

Movements in lease liabilities	1.01.2023-31.12.2023	1.01.2022-31.12.2022
As at the beginning of the period	419 965	452 499
Additions from:	153 786	145 366
- adding a new contract	37 437	38 697
- interest on lease liabilities	18 117	14 034
- FX differences	-	4 607
- update of lease term	92 586	86 846
- other changes	5 646	1 182
Disposals from:	(207 918)	(177 900)
- payment due to lease liabilities	(169 580)	(163 765)
- interest repayment	(17 987)	(14 051)
- FX differences	(20 146)	-
- update of lease term	(205)	(84)
As at the end of the period	365 833	419 965

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	31.12.2023	31.12.2022
less than 1 year	5 525 770	4 871 655
1-2 years	4 417 032	3 786 930
2-3 years	2 931 005	2 533 321
3-4 years	1 494 001	1 399 638
4-5 years	563 748	554 374
over 5 years	92 357	92 248
Total	15 023 913	13 238 166

.

Present value of minimum lease payments - maturity	31.12.2023	31.12.2022
less than 1 year	5 146 762	4 554 332
1-2 years	3 976 133	3 454 588
2-3 years	2 545 841	2 252 477
3-4 years	1 240 684	1 209 234
4-5 years	442 410	456 206
over 5 years	66 908	71 464
Total	13 418 738	11 998 301

.

Reconciliation between the lease receivables and the present value of minimum lease payments	31.12.2023	31.12.2022
Lease gross receivables	15 023 913	13 238 166
Unearned finance income	(1 605 175)	(1 239 865)
Impairment of lease receivables	(238 612)	(207 362)
Present value of minimum lease payments, net	13 180 126	11 790 939

Operating leases

Future minimum lease fees due to irrecoverable operating lease	31.12.2023	31.12.2022
less than 1 year	29 245	20 375
1-2 years	35 431	13 084
2-3 years	17 256	1 571
3-4 years	2 590	188
4-5 years	1 568	-
over 5 years	-	-
Total	86 090	35 218

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	31.12.2023	31.12.2022
Cash and balances with central banks	8 417 519	10 170 022
Receivables from interbank deposits^*	19 911 306	20 424 872
Debt securities*	6 246 368	3 898 145
Total	34 575 193	34 493 039

^* 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	31.12.2023	31.12.2022
Assets	264	214
Loans and advances to customers	204	154
Other assets	60	60
Liabilities	108 965	56 298
Deposits from customers	108 911	56 243
Other liabilities	54	55
Income	80 969	68 411
Interest income	9	10
Fee and commission income	80 924	68 396
Other operating income	36	5
Expenses	1 920	1 679
Interest expense	1 920	1 679

Transactions with Santander Group	with the parent company		with other entities
Transactions with Santander Group	31.12.2023	31.12.2022	31.12.2023	31.12.2022
Assets	12 840 432	11 475 005	4 004	1 749
Loans and advances to banks, incl:	5 895 136	6 202 306	2 090	1 749
Current accounts	930 559	566 447	2 090	1 749
Loans and advances	4 964 577	5 635 859	-	-
Financial assets held for trading	4 547 294	4 098 301	-	-
Reverse sale and repurchase agreements	2 395 729	1 173 532	-	-
Other assets	2 273	866	1 914	-
Liabilities	5 990 841	10 988 611	193 650	108 574
Deposits from banks incl.:	899 867	1 288 557	17 244	17 142
Current accounts and advances	519 364	595 307	17 244	17 142
Loans from other banks	380 503	693 250	-	-
Financial liabilities held for trading	4 206 059	3 796 232	-	-
Deposits from customers	-	-	106 950	70 288
Lease liabilities	-	-	25	25
Debt securities in issue	871 197	5 899 300	-	-
Other liabilities	13 718	4 522	69 431	21 119
Contingent liabilities	9 029 662	3 326 481	33 604	5 320
Sanctioned:	1 271 084	-	22 835	3 827
financial	-	-	20 000	-
guarantees	1 271 084	-	2 835	3 827
Received:	7 758 578	3 326 481	10 769	1 493
guarantees	7 758 578	3 326 481	10 769	1 493
Derivatives’ nominal values	431 615 381	231 138 041	-	-
Cross-currency interest rate swap (CIRS) – purchased	13 849 657	6 346 764	-	-
Cross-currency interest rate swap (CIRS) – sold	13 632 380	6 253 250	-	-
Single-currency interest rate swap (IRS)	207 713 978	119 850 295	-	-
Forward rate agreement (FRA)	105 698 880	22 522 500	-	-
Options interest rate	5 715 156	5 686 116	-	-
FX swap – purchased amounts	32 742 241	23 128 822	-	-
FX swap – sold amounts	32 944 709	23 552 024	-	-
FX options -purchased CALL	3 887 702	5 646 198	-	-
FX options -purchased PUT	4 074 479	5 754 442	-	-
FX options -sold CALL	2 452 114	5 277 238	-	-
FX options -sold PUT	2 975 070	5 886 463	-	-
Spot-purchased	1 224 058	531 156	-	-
Spot-sold	1 223 140	531 264	-	-
Forward- purchased	1 731 221	63 919	-	-
Forward- sold	1 745 974	58 400	-	-
Window Forward – purchased amounts	2 448	24 987	-	-
Window Forward – sold amounts	2 174	24 203	-	-

Transactions with Santander Group	with the parent company		with other entities
Transactions with Santander Group	1.01.2023-31.12.2023	1.01.2022-31.12.2022	1.01.2023-31.12.2023	1.01.2022-31.12.2022
Income	1 239 344	1 050 920	10 290	13 051
Interest income	311 278	28 159	176	6
Fee and commission income	21 507	14 176	229	645
Other operating income	18	317	9 812	12 400
Net trading income and revaluation	906 541	1 008 268	73	-
Expenses	208 290	135 895	167 628	135 248
Interest expense	115 550	81 726	1 089	3 706
Fee and commission expense	28 008	7 689	235	347
Net trading income and revaluation	-	-	-	(3)
Operating expenses incl.:	64 732	46 480	166 304	131 198
Staff,Operating expenses and management costs	64 678	46 478	166 178	131 198
Other operating expenses	54	2	126	-

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 2023, 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 381,798 k (principal and interest) and PLN 692,043 k as at 31 December 2022.

As at 31 December 2023, factoring receivables financed with the foregoing loans totalled PLN 381,735 k and PLN 691,918 k as at 31 December 2022. 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 2023, the difference between the amount of the loans granted and the value of the factoring receivables financed with those loans was PLN 63 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 2024. 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 2023 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.

31.12.2023	Carrying amount	Fair value
Loans from Banco Santander and Frankfurt Branch	381 798	381 798
Factoring receivables financed with the loans	381 735	381 735

As at 31 December 2023, the Company held:

· PLN 339,108 k – assets secured with loans granted under the Funded Risk Participation Agreement signed with Banco Santander S.A. on 22 November 2019;

· PLN 42,627 k – assets secured with loans granted under the Funded Risk Participation Agreement signed with Banco Santander S.A. Frankfurt Branch on 20 September 2019;

· PLN 1,643,818 k – assets secured with guarantees issued under the Unfunded Risk Participation Agreement signed with Banco Santander S.A. on 22 November 2019;

· PLN 163,898 k – assets secured with loans granted under funded risk participation agreements signed with third party banks;

· PLN 240,268 k – assets secured by guarantees granted by third party banks.

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 31.12.2023 and 31.12.2022 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	1.01.2023-31.12.2023	1.01.2022-31.12.2022	1.01.2023-31.12.2023	1.01.2022-31.12.2022
Short-term employee benefits	18 171	16 665	61 624	55 728
Post-employment benefits	-	-	200	-
Long-term employee benefits	10 170	10 645	19 509	19 008
Paid termination benefits	-	-	1 935	-
Share-based payments*	10 954	8 010	17 656	12 848
Total	39 295	35 320	100 924	87 584

*Share-based payments for key management personnel: the amount of PLN 12,848 k includes PLN 3,256 k paid in the form of shares in 2023. The remaining portion will be paid in subsequent years in accordance with the Remuneration Policy of Santander Bank Polska Group.

	Management Board Members		Key Management Personnel
	31.12.2023	31.12.2022	31.12.2023	31.12.2022
Loans and advances made by the Bank to the Members of the Management Board/Key Management and to their relatives	3 667	4 799	15 245	19 760
Deposits from The Management Board/Key management and their relatives	7 701	10 197	15 317	16 706

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. The remuneration paid in shares 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.

The total estimated cost of long-term Incentive Plan VII for the Management Board and key executives is PLN 28,611 k for 2023 (PLN 21,285 k in 2022). Details are described in note 56.

In 2023, the total remuneration paid to the Supervisory Board Members of Santander Bank Polska totalled PLN 2,187 k (2,088 k in 2022). In 2023, members of the Supervisory Board of Santander Bank Polska S.A. received remuneration from the Bank's related entities in the amount of PLN 97 k (PLN 98 k in 2022).

54. Acquisitions and disposals of investments in subsidiaries and associate

Liquidation of Santander Consumer Finanse Sp. z o.o.

On 23 December 2020, the General Meeting of Santander Consumer Finanse Sp. z o.o. adopted a resolution to dissolve the company and start the liquidation process.

The company was liquidated on 22 November 2023. Its assets and liabilities were settled. The profit on liquidation totalled PLN 1 990k and was presented in note “Other operating income” in line other.

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 2023 are as follows:

· the discount rate for future benefits at the level of 5.58% (7.33% as at 31 December 2022),

· the future salary growth rate at the level of 5.00% (5,0% as at 31 December 2022),

· 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.

	31.12.2023	31.12.2022
As at the beginning of the period	44 700	42 728
Current service cost	2 030	1 904
Past service cost	(2 601)	(1 603)
Interest expense	3 881	1 795
Actuarial (gains) and losses	15 544	(124)
Balance at the end of the period	63 554	44 700

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 2023.

Defined benefit plan obligations	1 percent increase	1 percent decrease
Discount rate	(7,21)%	7,74%
Future salary growth rate	7,75%	(7,28)%

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)%

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	31.12.2023	31.12.2022
Provisions for unused holidays	55 573	49 159
Provisions for employee bonuses	338 722	339 319
Provisions for retirement allowances	63 554	44 700
Other staff-related provisions	56 779	12 833
Total	514 628	446 011

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

56. Share based incentive scheme

In 2022, Santander Bank Polska S.A. (“Bank”, “SAN PL”) established Incentive Plan VII (“Plan”), which is addressed to the employees of the Bank and its subsidiaries who significantly contribute to growth in the value of the organisation. The purpose of the Plan is to motivate the participants to achieve business and qualitative goals in line with the Group’s long-term strategy and to provide an instrument that strengthens the employees’ relationship with the organisation and encourages them to act in its long-term interest.

The Plan obligatorily covers all employees of Santander Bank Polska Group designated as material risk takers (identified employees). The list of other key participants is defined by the Bank’s Management Board and approved by the Supervisory Board. Those employees can participate in the Plan on a voluntary basis.

The participants who satisfy the conditions stipulated in the Participation Agreement and the Resolution confirming the delivery of objectives will be entitled to an award which is variable remuneration in the form of the Bank’s shares classified as an equity-settled share-based payment transaction under IFRS 2 Share-based Payment. To that end, the Bank will buy back up to 2,331,000 shares from 1 January 2023 until 31 December 2033, i.e.:

a) not more than 207,000 shares of SAN PL with the maximum value of PLN 55.3m in 2023;

b) not more than 271,000 shares of SAN PL with the maximum value of PLN 72.4m in 2024;

c) not more than 326,000 shares of SAN PL with the maximum value of PLN 87.0m in 2025;

d) not more than 390,000 shares of SAN PL with the maximum value of PLN 104.1m in 2026;

e) not more than 826,000 shares of SAN PL with the maximum value of PLN 220.5m in 2027;

f) not more than 145,000 shares of SAN PL with the maximum value of PLN 38.7m in 2028;

g) not more than 47,000 shares of SAN PL with the maximum value of PLN 12.5m in 2029;

h) not more than 42,000 shares of SAN PL with the maximum value of PLN 11.2m in 2030;

i) not more than 35,000 shares of SAN PL with the maximum value of PLN 9.3m in 2031;

j) not more than 27,000 shares of SAN PL with the maximum value of PLN 7.2m in 2032;

k) not more than 15,000 shares of SAN PL with the maximum value of PLN 4.0m in 2033.

The Bank’s Management Board will buy back the shares to execute Incentive Plan VII subject to the consent from the Polish Financial Supervision Authority (“KNF”) and based on the authorisation granted by the General Meeting in a separate resolution. If it is not possible to buy back the shares (e.g. due to the lack of the KNF’s consent, illiquidity of the shares on the Warsaw Stock Exchange, share prices going beyond the thresholds defined by the General Meeting, lack of the General Meeting’s authorisation for the Management Board to buy back shares in a given year of Incentive Plan VII or lack of the General Meeting’s decision to create a capital reserve for share buyback in a given year) in the number corresponding to the value of the awards granted, SAN PL will reduce pro-rata the number of shares granted to the participant. The difference between the value of the awards granted and the value of the shares transferred by the Bank to the participants as part of the award will be paid out as a cash equivalent.

Below are the vesting conditions that must be met jointly in a given year:

1) Delivery of at least 50% of the profit after tax (PAT) target of SAN PL for a given year.

2) Delivery of at least 80% of the team business targets for a given year at the level of SAN PL, Division or unit; the performance against the target is calculated as the weighted average of performance against at least three business targets defined as part of the financial plan approved by the Supervisory Board for a given year for SAN PL, Division or unit where the participant works, in particular:

a) PAT (profit after tax) of SAN PL Group (excluding Santander Consumer Bank S.A.);

b) ROTE (return on tangible equity expressed as a percentage calculated in line with SAN PL reporting methodology);

c) NPS (Net Promoter Score calculated in line with SAN PL reporting methodology);

d) RORWA (return on risk weighted assets calculated in line with SAN PL reporting methodology);

e) number of customers;

f) number of digital customers.

3) The participant’s performance rating for a given year at the level not lower than 1.5 on the 1–4 rating scale.

In addition, at the request of the Bank’s Management Board, the Supervisory Board can decide to grant a retention award to a participant, if the following criteria are met:

1) the participant’s average annual individual performance rating is at least 2.0 on the 1–4 rating scale during the period of their participation in Incentive Plan VII;

2) the average annual weighted performance against the Bank’s targets in the years 2022–2026 is at least 80%, taking into account the following weights:

a) 40% for the average annual performance against the PAT target;

b) 40% for the average annual performance against the RORWA target;

c) 20% for the average annual performance against the ESG target.

The maximum number of own shares to be transferred to participants as the retention awards is 451,000.

For the purpose of the Plan, in 2023 Santander Bank Polska S.A. bought back 165,406 shares (of 207,000 shares eligible for buyback) with the value of PLN 48,884,192 (from PLN 55,300,000 worth of capital reserve allocated to the delivery of the Plan for 2022).

The average buyback price per share in 2023 was PLN 294.48.

The Plan 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.

All the above shares were transferred to individual brokerage accounts of the participants. As the number of shares bought back by the Bank was sufficient to pay an award to the participants of Incentive Plan VII for 2022, on 16 March 2023 the Bank’s Management Board adopted a resolution to end the buyback in 2023.

The table below presents information about the number of shares.

Number of shares	2023	2022
Opening balance	65 335*	-
Awarded for the year	142 342	230 741
Executed for the year	(104 990)	(165 406)
Closing balance	102 687	65 335

*the opening balance is the number of shares for 2022 deferred to future periods.

In 2023, the total amount recognised in line with IFRS 2 in the Group’s equity was PLN 198,912k, including PLN 126,802k taken to staff expenses for 2023. The latter comprises expenses incurred in 2023 and part of the costs attributable to subsequent years of the Incentive Plan as the award will be vested in stages. As at 31 December 2023, PLN 48,249k worth of shares were transferred to employees.

57. Dividend per share

Recommendation of the Bank's Management Board regarding 2022 profit distribution and allocation of the undistributed profit earned on selling shares in AVIVA insurance companies.

The Management Board of Santander Bank Polska S.A. hereby announces that on 22 March 2023 it issued a recommendation on distribution of 2022 profit and the profit earned on the sale of shares in AVIVA insurance companies. The recommendation was positively reviewed by the Bank's Supervisory Board.

In line with the above decision, the Bank's Management Board recommends that:

1. the profit of PLN 2,449,042,525.50 earned in 2022 be distributed as follows:

· PLN 72,357,000.00 - to be allocated to the capital reserve;

· PLN 2,376,685,525.50 - to 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 (Dividend Reserve).

2. the amount of PLN 840,886,574.78 representing the profit earned on the sale of shares in AVIVA insurance companies and posted under other comprehensive income be allocated to the Dividend Reserve.

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 16 March 2023, of which the Bank informed in its current report no. 13/2023 of 17 March 2023.

The profit distribution recommended to the Annual General Meeting will not preclude the Management Board's potential decision to distribute profit to the shareholders in the form of interim dividend and to use the Dividend Reserve for that purpose pursuant to the authorisation given to the Management Board in accordance with § 50(4) of the Bank's Statutes.

It will be contingent in particular on the positive opinion of the KNF once the CJEU takes a decision on case C-520/21 as well as economic situation and market conditions.

Re distribution of profit and decision on capital reserve created

On 19.04.2023 the Bank’s Annual General Meeting adopted a resolution on re distribution of profit and decision on capital reserve created on the basis of Resolution no. 6/2021 of the Bank’s Annual General Meeting of March 22,2021

1. The Bank’s Annual General Meeting distributed the Bank’s net profit earned in the accounting year from 1 January 2022 to

31 December 2022 in the amount of PLN 2,449,042,525.50 as follows:

- PLN 72,357,000.00 – to be allocated to the capital reserve;

- PLN 2,376,685,525.50 – to be allocated to the dividend reserve (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 (Resolution no. 6/2021)

2. The Annual General Meeting allocates to the Dividend Reserve the amount of PLN 840,886,574.78, which represents the undistributed profit earned on the sale of shares in AVIVA insurance companies and posted under other comprehensive income

Position of the Polish Financial Supervision Authority with regard to the payment of dividend by Santander Bank Polska S.A. (interim dividend).

The Management Board of Santander Bank Polska S.A. informed that on 25 October 2023 it received a letter from the Polish Financial Supervision Authority (KNF) whereby the KNF stated that having analysed the current business and financial standing of the Bank and the arguments presented by the Bank, the KNF does not report any reservations to the potential payment of dividend (interim dividend) by the Bank in the amount of PLN 2,375,901,550.50 from the profit earned in the period between 1 January 2022 and 31 December 2022.

The basis for the amount calculated by the Bank is the profit earned between 1 January 2022 and 31 December 2022 totalling PLN 2,449,042,525.50 reduced by: PLN 72,357,000 allocated to the reserve capital in line with resolution no. 6 of the General Meeting of

19 April 2023 with regard to the distribution of profit and the decision on the reserve capital created pursuant to resolution no. 6 of the General Meeting of 22 March 2021, and PLN 783,975 so that the quotient of the amount to be paid out as dividend and the number of shares gives the amount expressed in full grosz.

Decision of Santander Bank Polska S.A. Management Board on the payout of an interim dividend.

The Management Board of Santander Bank Polska S.A. informed you that pursuant to Article 349 of the Code of Commercial Companies and § 50(4) of the Bank's Statutes on 16 November 2023 it decided to pay out an interim dividend for the accounting year from 1 January 2023 to 31 December 2023 and to allocate PLN 2 375 901 550,50 to that payment ("Interim Dividend").

The Interim Dividend will be paid out of the capital reserve created for dividend payment, including interim dividends ("Dividend Reserve") by force of resolution no. 6 of the Annual General Meeting of 22 March 2021. Under Resolution no. 6 of 19 April 2023, the Annual General Meeting allocated to the Dividend Reserve the amount of PLN 2,376,685,525.50 from the net profit earned by the Bank in the accounting year from 1 January 2022 to 31 December 2022.

On 16 November 2023, the Bank's Management Board received the Supervisory Board's approval for paying out an interim dividend.

102,189,314 A, B, C, D, E, F, G, H, I, J, K, L, M, N and O shares gave entitlement to the Interim Dividend.

The Interim Dividend per share was: PLN 23,25.

The ex-dividend date for the Interim Dividend was: 22 December 2023.

The date of the Interim Dividend payment is: 29 December 2023.

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

There were no major events subsequent to the end of the interim period.

Signatures of the persons representing the entity

Date	Name	Function	Signature
15.02.2024	Michał Gajewski	President	The original Polish document is signed with a qualified electronic signature
15.02.2024	Andrzej Burliga	Vice-President	The original Polish document is signed with a qualified electronic signature
15.02.2024	Juan de Porras Aguirre	Vice-President	The original Polish document is signed with a qualified electronic signature
15.02.2024	Arkadiusz Przybył	Vice-President	The original Polish document is signed with a qualified electronic signature
15.02.2024	Lech Gałkowski	Member	The original Polish document is signed with a qualified electronic signature
15.02.2024	Artur Głembocki	Member	The original Polish document is signed with a qualified electronic signature
15.02.2024	Patryk Nowakowski	Member	The original Polish document is signed with a qualified electronic signature
15.02.2024	Magdalena Proga-Stępień	Member	The original Polish document is signed with a qualified electronic signature
15.02.2024	Maciej Reluga	Member	The original Polish document is signed with a qualified electronic signature
15.02.2024	Wojciech Skalski	Member	The original Polish document is signed with a qualified electronic signature
15.02.2024	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
15.02.2024	Anna Żmuda	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 2023

2.5 Comparability of previous periods

2.6 Use of estimates

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

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

2.8 Material accounting policy information

Retail Banking

Business & Corporate Banking

Corporate & Investment Banking

ALM and Centre

Santander Consumer

17. Earnings per share

20. Financial assets and liabilities held for trading

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

43. Non - controlling interests

52. Consolidated statement of cash flows- additional information

Factoring – risk participation agreements

Date

Name

Function

Signature

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

Date

Name

Function

Signature