5. Impact of the COVID-19 pandemic on the Group’s operations

The impact of the COVID-19 pandemic on the operations of the Group and the banking sector and measures adopted by the Group to ensure the safety of its Customers and employees and business process continuity are described in detail in the PKO Bank Polski S.A. Group Directors’ Report for 2020.

The impact of the COVID-19 pandemic on the Group’s financial position and measures adopted for the benefit of the Group’s customers are described below and in selected notes to the financial statements.

• Impact on estimates and assumptions

The COVID-19 pandemic increased the level of uncertainty. Its consequences for the global economy and measures adopted by governments and regulators affect and may affect the Group’s financial results and position, including, among others, on the expected credit losses or goodwill recognized. All adverse effects which could have been reasonably estimated have been recognized in 2020. The Group is monitoring the development on an ongoing basis and takes them into account in the current period.

• Moratoria and public guarantees – modifications and the quality of the loan portfolio

In order to mitigate the economic effects of the spread of the COVID-19 pandemic, the Group introduced a number of corrective measures for retail customers, companies, enterprises, corporate customers and local authority units aimed at mitigating the economic effects of the spread of COVID-19:

• • credit moratoria, including those in line with the guidelines of the European Banking Authority;
  • granting loans and advances covered by public guarantee initiatives in the context of crisis associated with COVID-19.

A detailed description of the moratoria offered to the Bank’s Customers and the public it captures the note is included in the Note “Specific activities in the area of risk management undertaken by the Group in 2020”, and in the “PKO Bank Polski S.A. Group Directors’ Report for 2020”.

Offering borrowers, at their request, the possibility of suspending or postponing the repayment of loan instalments for a maximum of 6 months is the common element of all these measures. Given the fact that these relief measures contributed to the modification of contractual cash flows from contracts with customers, the Group performed an assessment of individual contracts from the perspective of compliance with quantitative and qualitative criteria in order to determine whether a modification was significant (derecognition) or insignificant. The Group has carried out the assessment was conducted in accordance with a policy described in the Note “Description of significant accounting policies”, “Modifications – Changes in contractual cash flows”. The analysis showed that none of the criteria of a significant modification were met. Changes in contractual cash flows as a result of the relief measures offered were insignificant modifications whose impact was recognized by the Group as a decrease in interest income.

Guarantees received by the Group as part of public guarantee initiatives under Annex to the de minimis guarantee line portfolio agreement of 22 June 2018 (as amended) and the portfolio guarantee line agreement of the Liquidity Guarantee Fund of 10 April 2020 concluded with Bank Gospodarstwa Krajowego meet the definition of financial guarantees and are presented in the Note “Contingent liabilities and off-balance sheet commitments received and granted”.

The qualitative and quantitative impact of COVID-19 on the quality of the loan portfolio, including the estimated credit losses, is presented in the Note „Credit risk – financial information”. The impact of COVID-19 on the deterioration of the portfolio of loans measured at fair value through profit or loss was recognized in “Gains/(losses) on financial transactions”, and on the portfolio of loans measured at amortized cost and at fair value through OCI – in “Net expected credit losses”.

• Goodwill and investment in associates and joint ventures – impairment test

Goodwill and investments in associates and joint ventures are subject to the Group annual impairment tests annually and whenever there are indications of a potential impairment during the year.

Given the fact that the COVID-19 pandemic has an adverse effect on the economic environment, the Group conducted an impairment test of goodwill on Nordea Bank Polska S.A. and in connection with taking over control of PKO Leasing Pro S.A. The results of the test are described in detail in the Note „Intangible assets, property, plant and equipment under operating leases”.

The COVID-19 pandemic affected also the results of an impairment test of shares in Bank Pocztowy (for further information, see the Note „Investments in associates and joint ventures”.

• Capital adequacy

The impact of COVID-19 on capital adequacy and the activities of the regulatory bodies – Regulation (EU) 2020/873 of the European Parliament and of the Council amending Regulations (EU) No 575/2013 and (EU) 2019/876 as regards certain adjustments in response to the COVID-19 pandemic (CRR Quick Fix) are described in the Note „Capital adequacy” and in the Report “Capital adequacy and other information subject to disclosure of the Group as of 31 December 2020”.