4.2. Impairment

In the area of impairment the Group has adopted IAS 39 which is based on the concept of expected losses.

The impairment model is applicable to financial assets that are not measured at fair value through profit or loss, comprising:

  • debt financial instruments comprising credit exposures and securities;
  • lease receivables;
  • off-balance sheet financial and guarantee liabilities.

In accordance with IFRS 9, expected credit losses are not recognized with respect to equity instruments.

Impairment is measured as 12-month or perpetual expected losses on a given asset. The time horizon of an expected loss depends on whether a significant increase in credit risk occurred since the moment of initial recognition. Therefore, financial assets are allocated to 3 stages.


Annual report

Stage 1 (assets whose credit risk has not increased materially since initial recognition) 12-month expected credit losses
Stage 2 (material increase in credit losses) Lifetime expected credit losses
Stage 3 (loans at risk of impairment, including purchased or originated credit impaired assets (POCI)

Impairment allowances for expected credit losses is determined under the portfolio or individual approach.

In the portfolio approach, the impairment loss is determined as the product of the parameters of credit risk: the probability of default on a liability (PD), the loss given default (LGD) and the value of the exposure at default (EAD). In the case of exposures classified into Stage 1, the Bank applies a maximum 12-month horizon for estimating the expected loss. In the case of exposures classified into Stages 2 or 3, the expected loss is estimated up to the date of maturity or renewal of the exposure.

The expected loss, both throughout the period of exposure and over 12 months, is the sum of losses expected in the individual periods, discounted using the effective interest rate.

Under the individual approach, the expected credit losses are specified individually for each credit exposure – as the difference between the gross value of the credit exposure and the present value of expected future cash flows, established based on possible scenarios regarding contract performance and credit exposure management, weighted by the probability of their realization.

The methodology and assumptions used for recognizing and measuring impairment of financial assets are regularly reviewed to reduce the differences between the estimated and actual level of losses.

Detailed information on the methodology for calculating impairment allowances for excepted credit losses has been included in Note 28.

The Group has separated the portfolio of financial assets with low credit risk by classifying credit exposures for which the average long-term default rate does not exceed the probability of default specified by the rating agency for the worst class investment rating. This portfolio includes, in particular, credit exposures to banks, governments, local government entities and housing cooperatives and communities.

Impact assessment – impairment

The Group estimated that due to the implementation of IFRS 9 as at 1 January 2018 the total impact of the impairment adjustments on equity (inappropriated profit/loss) was PLN 866 million (after accounting for deferred tax of PLN 699 million).

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