41. Provisions

Provision for pensions and other liabilities from defined-benefit post-employment plans

The provision for retirement and disability benefits resulting from the Labour Code is created individually for each employee on the basis of an actuarial valuation. The basis for calculating these provisions are internal regulations, of the Group.

Provision for loan commitments and guarantees granted

The provision for financial liabilities and guarantees is established in accordance with IFRS 9 at the amount of the expected credit losses.

In the portfolio analysis, when determining provisions, portfolio parameters estimated using statistical methods are used, based on historical observations of the exposure with the same characteristics, the parameters which define a marginal probability of evidence of impairment, the average utilization of an off-balance sheet liability and the level of anticipated loss in the event of impairment in subsequent months in the period from the reporting date to the horizon of the calculation of the anticipated loss.

With regard to exposures which are material on an individual basis, and are subject to assessment, the provision is determined on a case by case basis – as the difference between the expected amount of the balance sheet exposure which will arise as a result of an off-balance sheet liability at the date of overdue amounts arising treated as evidence of impairment, and the present value of the expected future cash flows obtained from the exposure.

Other provisions

Other provisions include mainly provisions for potential refunds of commissions and fees to Customers, as well as provisions for potential claims in respect of the sale of dues, which have been described in the note 74 “Information on the package sale of claims”.

Provisions for future payments are measured at reliably estimated, justified amounts necessary to meet the present obligation as at the end of the reporting period. All provisions are recognized in the profit and loss account, excluding actuarial gain and losses recognized in other comprehensive income.

If the effect of the time value of money is material, the amount of the provision is determined by discounting the estimated future cash flows to their present value, using the discount rate before tax which reflects the current market assessments of the time value of money and the potential risk related to a given obligation.

Valuation of the employee benefits provision is performed using actuarial techniques and assumptions. The calculation of the provision includes all retirement and pension benefits which it is expected will be paid in the future. The provision was created on the basis of a list of persons with all necessary employee information, in particular the length of their service, age and gender. The provisions calculated are equal to discounted future payments, taking into account staff turnover.

The item “Other provisions, including provisions for employee disputes” specified in the line “Increases, including increases in existing provisions” a provision was recognized for potential returns to customers of commissions and fees as well as costs of meeting obligations resulting from the provision of free of charge services to customers of PLN 62 million (details of this issue can be found in note 48 “Legal Claims”).

The Group updated its provisions for pensions and other liabilities from defined benefit post-employment plans as at 31 December 2018 using an external independent actuary’s calculations. The calculated provisions are equal to the discounted payments that will be made in the future, taking into account the employment turnover. The 3.00% rate of the financial discount, which the Bank adopted, is an important element affecting the amount of the provision. As at 31 December 2017, the rate of the financial discount was 3.25%.

The amount of the calculated provision was also affected by estimated factors other than the discount rate, which include the weighted average employee mobility ratio of 8.48%, the average remaining years of employment, amounting to 7.89 and the average assumed annual increase in the basis for calculating retirement and disability pay of 2.3% in 2019–2028.

The level of the provision calculated in 2017 was influenced by estimated factors, including the weighted average employee mobility ratio of 8.69%, the average remaining years of employment of 8.33 and the average assumed annual increase in the basis for calculating retirement and disability pay of 2.0% in 2018–2027.

The impact of the increase/decrease in the financial discount rate and the planned increases of 1 p.p. in the provision base on the decrease/increase in the value of the provision for retirement and other defined benefit post-employment plans as at 31 December 2018 and as at 31 December 2017 is presented in the tables below: