35.3. Intangible assets
Report Online
2020
| INTANGIBLE ASSETS
2020 |
Software | Goodwill | Future profit on concluded insurance contracts | Customer relationships | Other, including capital expenditure | of which: software | Total | |
| Carrying amount as at the beginning of the period, gross | 5 552 | 1 438 | 141 | 157 | 479 | 346 | 7 767 | |
|
Purchase |
44 | – | – | – | 580 | 580 | 624 | |
|
Transfers from capital expenditure |
537 | – | – | – | (537) | (537) | – | |
|
Other |
4 | (1) | – | 1 | 47 | 44 | 51 | |
| Carrying amount as at the end of the period, gross | 6 137 | 1 437 | 141 | 158 | 569 | 433 | 8 442 | |
| Accumulated amortization as at the beginning of the period | (4 039) | – | (100) | (91) | (85) | – | (4 315) | |
|
Amortization charge for the period |
(409) | – | (10) | (13) | (6) | – | (438) | |
|
Other |
8 | – | – | (1) | – | – | ||
| Accumulated amortization as at the end of the period | (4 440) | – | (110) | (105) | (91) | – | ||
| Impairment allowances as at the beginning of the period | (19) | (238) | – | – | (17) | (10) | ||
|
Recognized during the period |
– | (147) | – | – | (6) | – | ||
|
Other |
1 | 1 | – | – | 10 | 10 | ||
| Impairment allowances as at the end of the period | (18) | (384) | – | – | (13) | – | (415) | |
| Carrying amount as at the beginning of the period, net | 1 494 | 1 200 | 41 | 66 | 377 | 336 | 3 178 | |
| Carrying amount as at the end of the period, net | 1 679 | 1 053 | 31 | 53 | 465 | 433 | 3 281 | |
| INTANGIBLE ASSETS
2019 |
Software | Goodwill | Future profit on concluded insurance contracts | Customer relationships | Other, including capital expenditure | of which: software | Total |
| Carrying amount as at the beginning of the period, gross | 5 206 | 1 438 | 141 | 150 | 410 | 283 | 7 345 |
| Purchase | 31 | – | – | – | 370 | 370 | 401 |
| Transfers from capital expenditure | 305 | – | – | – | (305) | (305) | – |
| Liquidation and sale | (6) | – | – | – | (1) | (1) | (7) |
| Other | 16 | – | – | 7 | 5 | (1) | 28 |
| Carrying amount as at the end of the period, gross | 5 552 | 1 438 | 141 | 157 | 479 | 346 | 7 767 |
| Accumulated amortization as at the beginning of the period | (3 686) | – | (90) | (77) | (76) | – | (3 929) |
| Amortization charge for the period | (358) | – | (10) | (14) | (9) | – | (391) |
| Liquidation and sale | 5 | – | – | – | – | – | 5 |
| Accumulated amortization as at the end of the period | (4 039) | – | (100) | (91) | (85) | – | (4 315) |
| Impairment allowances as at the beginning of the period | (18) | (187) | – | – | (16) | (10) | (221) |
| Recognized during the period | (1) | (51) | – | – | (1) | (1) | (53) |
| Reversed during the period | – | – | – | – | 2 | – | 2 |
| Other | – | – | – | – | (2) | 1- | (2) |
| Impairment allowances as at the end of the period | (19) | (238) | – | – | (17) | (10) | (274) |
| Carrying amount as at the beginning of the period, net | 1 502 | 1 251 | 51 | 73 | 318 | 273 | 3 195 |
| Carrying amount as at the end of the period, net | 1 494 | 1 200 | 41 | 66 | 377 | 336 | 3 178 |
With regard to the Bank, a significant item of intangible assets relates to expenditures on the Integrated Information System (IIS). The total capital expenditure incurred for the IIS system in the years 2004–2020 amounted to PLN 1 525 million.
The net carrying amount of the Integrated Information System (IIS) amounted to PLN 616 million as at 31 December 2020 (PLN 590 million as at 31 December 2019). The expected useful life of the IIS system is 24 years. As at 31 December 2020, the remaining useful life is 10 years.
Goodwill
| Net goodwill | 31.12.2020 | 31.12.2019 |
| Nordea Bank Polska S.A. | 747 | 863 |
| PKO Życie Towarzystwo Ubezpieczeń SA | 91 | 91 |
| PKO Leasing Pro SA | – | 31 |
| Raiffeisen – Leasing Polska SA i jej spółki zależne (PKO Leasing SA) | 57 | 57 |
| PKO Towarzystwo Funduszy Inwestycyjnych SA | 150 | 150 |
| Assets taken over from CFP sp. z o.o. | 8 | 8 |
| Total | 1 053 | 1 200 |
| Goodwill | Impairment test – method |
| Nordea Bank Polska SA | The impairment test is carried out by comparing the carrying amount of the cash-generating units („CGU”) with their recoverable amount. Two CGUs have been distinguished to which the goodwill arising from the acquisition of Nordea Bank Polska SA has been assigned – retail and corporate, overlapping with the operating segments. The residual value of the CGU was calculated by extrapolating the cash flow projections beyond the forecast period using the growth rate assumed at 2.7%. The cash flow forecasts in the impairment test cover a period of 10 years and were based on the assumptions contained in the Bank’s financial plans for 2021, taking into account the impact of COVID-19 and interest rate cuts on the current and forecast macroeconomic situation and the impact of the decision taken by the EGMS in regarding settlements concerning foreign currency housing loans. To discount future cash flows, the Group used a discount rate of 8.13%, taking into account the risk-free rate and the risk premium.
The goodwill of Nordea Bank Polska S.A in the amount of PLN 747 million relates to the retail segment. As at December 31, 2020, the test shows a surplus of value in use over the carrying amount of the retail CGU. The sensitivity analysis from the discount rate point of view shows that this surplus would decrease to zero if it increased to 10.11%. On 30 June 2020, as a result of the impairment test for the goodwill arising from the acquisition of Nordea Bank Polska SA, the Group made a write-off for the corporate CGU in the amount of PLN 117 million. The main factors influencing the write-off were the outbreak of the COVID-19 pandemic and its effects (increased costs of credit risk and expected lower economic activity) and the reduction of interest rates combined with a high level of regulatory burdens (tax on certain financial institutions and costs of fees payable to BFG) which resulted in a significant decrease in the expected profitability of banking activities. |
| PKO Towarzystwo Funduszy Inwestycyjnych SA | The impairment test was carried out on the basis of the two-year financial forecast prepared by the Company based on the discounted dividend method, taking into account the residual value.
No impairment of goodwill was recognized. |
| PKO Życie Towarzystwo Ubezpieczeń SA | The impairment test carried out was developed on the basis of the present value of expected future cash flows for the Bank, taking into account the residual value. Future cash flows were estimated on the basis of the 10-year financial forecast prepared by the Company.No impairment of goodwill was recognized. |
| PKO Leasing Pro SA | The goodwill arising on the acquisition of the Company was allocated to the whole of PKO Leasing S.A. as the immediate parent company, which acquired the assets of PKO Leasing Pro S.A. in the merger. The impairment test was prepared on the basis of the present value of the expected future cash flows generated by the Company, estimated on the basis of the financial forecast prepared by the Company for five years with the simultaneous fading out of activities thereafter.
The valuation model took into account the effect of NBP interest rate decreases introduced by the Monetary Policy Council (MPC) (140 bp in total) and the effect of the pandemic on the financial projections, including in particular the expected increase in the cost of credit risk. The recoverable amount of the cash-generating unit to which this goodwill was related, i.e. customers from the acquired company PKO Leasing Pro S.A., was estimated lower than the carrying amount. As a result of the test, the Group recorded an allowance in the amount of PLN 31 million. |
| Raiffeisen-Leasing Polska S.A. and its subsidiaries (PKO Leasing S.A.) | The goodwill that arose on the acquisition of these companies was allocated to the portion of the assets of the PKO Leasing S.A. Group that was separately recorded in the accounts as assets of the Raiffeisen-Leasing Polska S.A. Group that was acquired. The impairment test was carried out using the discounted dividend method on the basis of the eight-year financial forecast prepared by the company, taking into account the residual value.
No impairment of goodwill was recognized. |
In the impairment tests described above, a discount rate of 7.555% (except for Nordea Bank Polska SA) was used to discount future cash flows, taking into account the risk-free rate equal to the yield of 10-year treasury bonds as at the date of valuation and a premium for market risk and risk ratio determined for projects of PKO Bank Polski S.A.
The measurement methods and forecast periods were adapted to the specificity of the assets or companies measured.
Calculation of estimates
The impact of change in the useful lives of assets being subject to depreciation and classified as land and buildings is presented in the table below:
| CHANGE IN THE USEFUL LIVES OF ASSETS SUBJECT TO DEPRECIATION AND CLASSIFIED AS LAND AND BUILDINGS | 31.12.2020 | 31.12.2019 | ||
| scenario +10 years | scenario -10 years | scenario +10 years | scenario -10 years | |
| Depreciation costs | (33) | 206 | (36) | 245 |