38.Provisions

Accounting policies

Provision for legal claims

It is a provision for disputes with employees, business partners, clients and external institutions (e.g. UOKiK), which is created on obtaining information from the competent person in the Legal Department or another person representing the Group before courts and other adjudicating bodies as part of providing legal assistance with a high probability of a court case being lost (litigation pending has been discussed in detail in the note ‘Legal claims’).

Provisions for legal claims are created in the amount of expected outflow of economic benefits.

Provision for retirement benefits

The provision for retirement and pension benefits resulting from the Labour Code is created individually for each employee on the basis of an actuarial valuation. The basis for calculation of these provisions are internal regulations, and especially the Collective Labour Agreement being in force at the Group.

Provision for loan commitments and guarantees granted

A provision for off-balance sheet loan exposures is recognised in an amount equal to the resulting from them, expected (possible to estimate) loss of economic benefits. When determining a provision for off-balance sheet loan exposures the Group:

  • assesses on individual basis in respect to the individually significant credit exposures on unconditional liabilities with the evidence of individual impairment or those relating to debtors whose other exposures fulfil such evidence, and the individually significant exposures which do not fulfil the evidence of individual impairment, for which determining provisions using the portfolio parameters would not be reasonable,
  • assesses on portfolio basis (for exposures with identified impairment trigger) or a group basis (if an exposure does not fulfil evidence of impairment) - in respect to the remaining off-balance sheet loan exposures.

The provision is determined as the difference between the expected amount of exposure in the statement of financial position, which will arise as a result of an off-balance sheet liabilities granted (from the date at which the assessment is performed till the date of overdue amounts treated as individual impairment trigger) and the present value of the expected future cash flows obtained from the exposure in the statement of financial position arising out of the liability.

When assessing a provision on an individual basis, the expected future cash flows are estimated for each loan exposure separately.

When assessing a provision on a portfolio basis or a group basis, the portfolio parameters are used, estimated using statistical methods, based on historical observation of exposures with the same characteristics.

Other provisions

Other provisions mainly include restructuring provision and provisions for potential claims on sale of impaired loans, which have been described in the note “Information on securitisation of lease portfolio and portfolio sale of receivables”.

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 recognised in the profit and loss account, excluding actuarial gains and losses recognised 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.

Estimates and judgements:

Valuation of the employee benefit provisions is performed using actuarial techniques and assumptions. The calculation of the provision includes all retirement and pension benefits expected to be paid in the future. The provision was created on the basis of a list of persons including all the necessary details of employees, in particular the length of their service, age and gender. The provisions calculated equate to discounted future payments, taking into account staff turnover, and relate to the period ending on the balance sheet date.

Financial information

For the year ended 31 December 2016Provision for legal claimsProvisions for retirement benefitsProvisions for loan commitments and guarantees grantedOther provisions*Total
      
As at 1 January 2016, of which:22.446.082.7100.9252.0
Short term provision22.03.664.0100.9190.5
Long term provision0.442.418.7-61.5
Taking up control over subsidiaries0.30.2--0.5
Increase/reassessment of provision30.93.8238.023.1295.8
Release of provision(22.8)-(255.2)(13.5)(291.5)
Use of provision(6.8)(1.5)-(18.6)(26.9)
Other changes and reclassifications-(2.4)1.1-(1.3)
      
As at 31 December 2016, of which: 24.0 46.1 66.6 91.9 228.6
Short term provision24.07.350.4100.8182.5
Long term provision-38.816.2(8.9)46.1

* The item ‘Other provisions’ comprises, i.a. a restructuring provision of PLN 59.3 million and a provision for potential claims related to sale of receivables in the amount of PLN 2.9 million, provisions for disputes, including litigation related to remuneration of PLN 0.3 million.

   

For the year ended 31 December 2015Provision for legal claimsProvisions for retirement benefitsProvisions for loan commitments and guarantees grantedOther provisions*Total
      
As at 1 January 2015, of which:47.539.8103.8132.7323.8
Short term provision47.23.173.7132.7256.7
Long term provision0.336.730.1-67.1
Acquisition of an entity2.30.1--2.4
Increase/reassessment of provision21.63.5286.23.4314.7
Release of provision(33.5)(1.8)(304.2)(7.7)(347.2)
Use of provision(29.3)--(27.5)(56.8)
Currency translation differences--(0.1)-(0.1)
Other changes and reclassifications13.84.4(3.0)-15.2
      
As at 31 December 2015, of which: 22.4 46.0 82.7 100.9 252.0
Short term provision22.03.664.0100.9190.5
Long term provision0.442.418.7-61.5

* The item ‘Other provisions’ comprises, i.a. restructuring provision of PLN 67.4 million and a provision for potential claims related to the sale of receivables in the amount of PLN 2.1 million, provisions for disputes, including litigation related to remuneration of PLN 0.4 million.

 

Calculation of estimates

The Group performed a reassessment of its estimates as at 31 December 2016, on the basis of calculation conducted by an independent external actuary. The provisions calculated equate to discounted future payments, taking into account staff turnover, and relate to the period ending on the balance sheet date. An important factor affecting the amount of the provision is the adopted financial discount rate which was adopted by the Group at the level of 3.50%. In 2015 the adopted financial discount rate amounted to 2.75%.

The impact of an increase/decrease in the financial discount rate and basic actuarial assumptions by 1 pp. on decrease/increase in the amount of the provision for retirement and pension benefits as at 31 December 2016 and as at 31 December 2015 is presented in the table below:

Estimated change in provision as at 31.12.2016Financial discount ratePlanned base increases
 +1pp scenario-1pp scenario+1pp scenario-1pp scenario
     
Provision for retirement and pension benefits(4)45(3)

Estimated change in provision as at 31.12.2015Financial discount ratePlanned base increases
 +1pp scenario-1pp scenario+1pp scenario-1pp scenario
     
Provision for retirement and pension benefits(5)66(5)