51. Financial assets and liabilities not presented at fair value in the statement of financial position

The Group holds financial assets and liabilities which are not presented at fair value in the statement of financial position.

Where there is no market value of financial instruments available, their fair values have been estimated with the use of various valuation techniques. The fair value of financial instruments was measured using a model based on estimating the present value of future cash flows by discounting them using relevant discount rates.

All model calculations include certain simplifying assumptions and therefore are sensitive to those assumptions. Set out below is a summary of the main methods and assumptions used for estimation of fair values of financial instruments which are not measured at fair value.

For certain categories of financial instruments it has been assumed that their carrying amount equals approximately their fair values, which is due to lack of expected material differences between their carrying amount and their fair value resulting from the features of these groups (such as short term character, high correlation with market parameters, unique character of the instrument). This applies to the following groups of financial instruments:

  • loans and advances to customers: a portion of the housing loans portfolio (‘old’ housing loans portfolio), loans with no specified repayment schedule, loans payable at the moment of valuation,
  • amounts of the Group due to customers: liabilities with no specified payment schedule, other specific products for which no active market exists,
  • deposits and interbank placements with maturity date up to 7 days or with a variable interest rate,
  • loans or advances granted and taken on interbank market at a variable interest rate (change of interest rate maximum on a 3 month basis),
  • cash and balances with the Central Bank and amounts due to the Central Bank,
  • other financial assets and liabilities.

For non-impaired loans and advances to customers, present value of discounted cash flow model was used that includes current interest rate with credit margin risk and real maturities that steam from loan agreements. The current level of margins was calculated based on financial instrument transactions with similar risk level that took place in the last quarter that ended on the balance sheet date. For currency loans, the current loan margin for PLN loans was used and it was adjusted with the cost of currency acquisition in basis-swap transaction. The valuation does not take into consideration proposed system solutions which might result in losses being incurred be the Group on the mortgage loan portfolio denominated in CHF. For impaired loans, it is assumed that fair value equals their carrying value.

The fair value of deposits and other amounts due to customers other than banks, with specified maturities has been calculated using the discounted expected future cash flows and applying current interest rates for given deposit products. The fair value is calculated for each deposit and liability, then the fair values of the entire deposit portfolio are grouped by type of product and customer segment. For demand deposits, it is assumed that for them, the fair value equals their carrying amount.

The fair value of the subordinated debt of the Group has been estimated based on the expected future cash flows discounted using the yield curve.

The fair value of debt securities issued by PKO Bank Polski SA has been estimated based on the expected future cash flows discounted using the current interbank interest rates.

The fair value of debt securities issued by PKO Finance AB has been estimated using Bloomberg data.

The fair value of interbank placements and deposits have been estimated based on the expected future cash flows discounted using the current interbank interest rates.

Finance lease receivables have been estimated based on expected cash flows discounted using internal rate of return for lease transactions of the same kind, concluded by the Group in the period directly preceding the balance sheet date.

 level of fair value hierarchyvaluation method31.12.2016
   carrying amountfair value
Cash and balances with the Central Bankn/avalue at cost to pay13 325.113 325.1
Amounts due from banks2discounted cash flows5 345.45 344.4
Loans and advances to customers   200 606.5 199 125.5
housing loans3discounted cash flows106 121.3102 351.1
corporate loans3discounted cash flows52 914.953 731.5
consumer loans3discounted cash flows23 221.924 700.7
debt securities (corporate)3discounted cash flows2 282.82 209.2
debt securities (municipal)3discounted cash flows2 587.92 587.9
receivables due from repurchase agreements3discounted cash flows1 339.01 339.0
finance lease receivables3discounted cash flows12 138.712 206.1
Investment securities held to maturity3discounted cash flows465.6466.1
Other financial assets3value at cost to pay less impairment allowance2 247.12 247.1
Amounts due to the Central Bank2value at cost to pay4.14.1
Amounts due to banks2discounted cash flows19 208.419 211.1
Amounts due to customers   205 066.4 205 005.3
due to corporate entities3discounted cash flows48 657.148 650.3
due to public entities3discounted cash flows8 408.98 408.9
due to retail clients3discounted cash flows148 000.4147 946.1
Debt securities in issue1, 2market quotations / discounted cash flows14 493.214 752.5
Subordinated debt2discounted cash flows2 539.02 525.8
Other financial liabilities3value at cost to pay3 059.13 059.1

 level of fair value hierarchyvaluation method31.12.2015
   carrying amountfair value
Cash and balances with the Central Bankn/avalue at cost to pay13 743.913 743.9
Amounts due from banks2discounted cash flows4 553.04 553.0
Loans and advances to customers   190 413.7183 613.8
housing3discounted cash flows100 668.693 429.7
corporate3discounted cash flows58 068.558 759.7
consumer3discounted cash flows21 959.821 815.6
debt securities (corporate)3discounted cash flows2 591.92 483.9
debt securities (municipal)3discounted cash flows2 692.72 692.7
receivables due from repurchase agreements3discounted cash flows4 432.24 432.2
Investment securities held to maturity3discounted cash flows210.3213.6
Other financial assets3value at cost to pay less impairment allowance875.2875.2
Amounts due to the Central Bank2value at cost to pay4.24.2
Amounts due to banks2discounted cash flows18 288.818 288.8
Amounts due to customers  195 758.5195 719.0
due to corporate entities3discounted cash flows51 213.751 214.2
due to public entities3discounted cash flows9 134.49 134.4
due to retail clients3discounted cash flows135 410.4135 370.4
Debt securities in issue1, 2market quotations / discounted cash flows9 361.29 637.4
Subordinated debt2discounted cash flows2 499.22 486.2
Other financial liabilities3value at cost to pay2 282.82 282.8