12. Changes in the accounting policies applicable from 1 January 2020 and Explanation of the differences between previously published financial statements and these financial statements

The Group decided to present costs relating to premium on debt securities under “Interest income” – “debt securities”. Previously, the premium was presented under “Interest expense” – “debt securities”.

Starting from the financial statements for 2020, the Group presents fees collected from the Bank’s customers to compensate negative interest rates on the Bank’s financial liabilities (customer current accounts) in interest income. Previously, such fees were presented in commission income and interest expense.

The Group decided to reclassify the foreign exchange margin included in exchange rates offered to the Bank’s customers when providing foreign currency purchase/sale services, formerly presented in “Net foreign exchange gains / (losses)”, to “Fee and commission income”. The Group believes that the nature of the foreign exchange margin is similar to other fees and commission collected by the Group for the services provided.

The Group decided to reclassify foreign exchange differences on income and costs accrued on financial assets in foreign currencies (e.g. loans, securities, other receivables) and financial liabilities in foreign currencies from “Interest income” to “Net foreign exchange gains / (losses)”. According to the former approach, such income and costs were recognized in the profit or loss in their contractual currencies, and translated to the base currency during the process of annual closure, or at the time interest was accrued or paid by the customers, using the average exchange rate determined by the National Bank of Poland. At the same time, this meant that during a reporting year, such costs and income were accounted for together with foreign exchange differences. At present, such income and costs are recognized in the profit or loss at the average exchange rates determined by the NBP as at the date of their recognition; the change will allow for the foreign exchange differences component on individual income and cost items to be accounted for in foreign exchange gains (losses).

The line “Settlements in respect of card transactions – receivables in respect of card complaints” (under “Other assets”) had previously been included in full in other financial assets. Within this line, the Group decided to disclose separately amounts due in respect of card-related complaints which, according to the Group, should be classified as other non-financial assets. The decision affected the presentation of allowances for card complaints which were previously presented in “Allowances for expected credit losses”, and due to the Group’s decision, now are presented in “Impairment of non-financial assets”.

In accordance with the Group’s previously applied accounting policy, income and expenses not directly related to banking activities were presented in other operating income or expenses, as appropriate. The Group reviewed its policy and the market practice. The Group believes that income and costs indirectly related to the entity’s operations should be presented, as a rule, in operating income and expenses. Both insurance activities and operating leases are classified as core operating activities of the Group and are an element of its strategy.

Consequently, the Group reclassified net income on insurance activities, which had previously been presented in “Other operating income”, to “Fee and commission income”, as a separate line “offering insurance products”.  Net income on insurance activities comprises premium income, costs of insurance activities, claims and change in technical reserves, and the impact of the reinsurer’s share in the aforementioned items.

Moreover, the Group reclassified net income on operating leases, short-term rental and net income on the provision of fleet management services, which had previously been presented jointly in “Other operating income and “Other operating expenses”, as appropriate, to “Fee and commission income”, as a separate line of “operating leases and fleet management” Such income comprises mainly fees for using leased assets, income on short-term rentals and net income or expense on fleet management services (including service, tyre replacement, provision of replacement vehicles). Income on operating leases and on fleet management was included in fee and commission income, together with the cost of depreciation of property, plant and equipment under operating leases, which had previously been presented in “Operating expenses”.

In order to make the presentation of administrative expenses more consistent with the market practice, the Group combined the line “Administrative expenses” with “Net regulatory charges”.

In order to separate own property, plant and equipment from property, plant and equipment made available to the Group’s customers under operating leases, the Group decided to present such assets in a separate line “Property, plant and equipment under operating leases”.

Previously, the Group presented the reinsurer’s share in technical reserves and reinsurance receivables in “Other assets”, and accrued reinsurance commission and reinsurance liabilities in “Other liabilities”. Currently, they are presented, respectively, in “Receivables in respect of insurance activities” and “Liabilities in respect of insurance activities”, in order to better reflect the insurance activities conducted by the Group.

The Group presents as a separate line “Reverse repo and repo transactions” which formerly were presented depending on whether transactions involved interbank market customers or other customers in, respectively: “Amounts due from banks”, “Loans and advances to customers”, Amounts due to banks”, “Amounts due to customers”. As at 31 December 2019, the Group did not recognize any repo transactions.

The Group decided to recognize the impact of potential refunds of costs to customers on expected early repayment of open consumer and mortgage loans as a decrease in the gross carrying amount of loans. This approach is similar to the one applied by the Group to recognize the impact of the legal risk of mortgage loans.

Until 2019 (inclusive), loans and advances received by the Group were presented in “Amounts due to banks” and “Amounts due to customers”. In order to make their presentation consistent with the presentation of interest on loans and advances received and in connection with the fact that the said loans and advances are included in financing activities in the statement of cash flows, the Group decided to create a separate item in liabilities.

The Group reclassified holiday pay provisions from “Other liabilities” to “Provisions”, because the Group believes that they meet the definition of provisions are similar in nature to other provisions and are based on estimates, similarly to other employee provisions presented in provisions, i.e. : provisions for pensions and other post-employment defined benefit obligations.