27. Securities

Accounting policies as of 1 January 2018

As of 1 January 2018 the Group classified debt securities to the following categories:

  • Financial assets at fair value through profit or loss:
    • financial instruments held for trading;
    • financial assets not held for trading, measured at fair value through profit or loss on a mandatory basis;
    • financial assets designated to be measured at fair value through profit or loss at initial recognition.
  • Financial assets measured at fair value through other comprehensive income;
  • Financial assets measured at amortized cost.
Annual report
2018

Securities are classified to the above categories in accordance with the principles for selection of business models and assessment of characteristics following from the cash flow contract referred to in Note 4.

Gains or losses on financial assets measured at fair value through profit or loss are recognized in the income statement. Gains or losses on the measurement of the financial asset at fair value comprise the difference between the fair value of the asset and its value at amortized cost determined as at the measurement date.

The Bank did not apply the measurement at fair value through other comprehensive income option in respect of capital expenditure projects and has measured them at fair value through profit or loss.

Securities measured at fair value through other comprehensive income are measured at fair value. The effects of adjustments to the fair value of those financial assets until their derecognition or reclassification are recognized in other comprehensive income, with the exception of interest income, gains or losses in respect of impairment allowances for expected credit losses and foreign exchange gains or losses recognized in the income statement. The gain or loss recognized in other comprehensive income constitutes the difference between the fair value of a financial asset as at the measurement date and the value of the asset at amortized cost. If a financial asset is derecognized, the accumulated gains or losses previously recognized in other comprehensive income are reclassified from other comprehensive income to profit or loss in the form of a reclassification adjustment.

Upon initial recognition those assets are measured at fair value. The initial value of an asset measured at amortized cost is adjusted by all commissions and fees with an impact on its effective return which constitute an integral part of the effective interest rate on the asset (commissions and fees arising as a result of the Group conducting activities which lead to the origination of the asset).

The present value of this category of assets is determined using the effective interest rate described in Note 9 “Interest income and expenses” used to determine (accrue) interest income generated by the asset in the given period, on a current basis, adjusting it by allowances for expected credit losses.

Accounting policies binding until 31 December 2017

Until 31 December 2017 the Group classified debt securities to the following categories:

  • financial instruments held for trading;
  • financial instruments designated at fair value through profit or loss;
  • investment securities available for sale;
  • investment securities held to maturity.

In 2017 equity investments were classified as available for sale financial instruments or as instruments held for trading. As a rule, instruments held for trading were measured at fair value, and instruments available for sale the fair value of which could not be determined were measured at cost net of impairment.

Financial information

Securities 31.12.2018 01.01.2018 31.12.2017
held for trading 235 431 431
financial instruments designated at fair value through profit or loss upon initial recognition 8 157
available-for-sale investment securities 43 675
investment securities held to maturity 1 812
not held for trading, measured at fair value through profit or loss 2 848 4 690
measured at fair value through other comprehensive income 52 558 47 223
measured at amortized cost 8 473 6 180
Total 64 114 58 524 54 075

As at 31 December 2018, the impairment allowance which did not reduce the fair value of securities measured at fair value through other comprehensive income amounted to PLN 25 million (PLN 20 million as at 1 January 2018).

Securities 
31.12.2018
held for trading not held for trading, measured at fair value through profit or loss measured at fair value through other comprehensive income measured at amortized cost Total
Debt securities 217 1 201 52 558 8 473 62 449
NBP money market bills 2 900 2 900
Treasury bonds (in PLN) 94 1 034 39 970 2 234 43 332
Treasury bonds (in foreign currencies) 4 393 124 521
municipal bonds (in PLN) 16 5 301 4 007 9 324
corporate bonds (in foreign currencies) 37 37
corporate bonds (in PLN) 102 130 3 942 1 764 5 938
corporate bonds (in foreign currencies) 1 52 344 397
Equity securities 18 1 647 1 665
shares in other entities – not listed 269 269
shares in other entities – listed 13 180 193
participation units in investment funds, investment certificates, rights to shares, pre-emptive rights 5 1 198 1 203
Total 235 2 848 52 558 8 473 64 114

The item “Treasury bonds in PLN and in foreign currencies” comprises Polish Treasury bonds. As at 31 December 2018 the item Treasury bonds in foreign currencies included Ukrainian Treasury bonds amounting to PLN 513 million.

In April 2018, PKO Bank Polski SA finalized its negotiations with Bank Gospodarstwa Krajowego relating to the sale of participation units in the 2020 European Fund for Energy, Climate Change and Infrastructure (Marguerite I Fund) and signed a sale’s agreement. The said capital exposure was disclosed as participation units in a collective investment undertaking and classified in available for sale investment securities as at 31 December 2017 and in securities not held for trading, measured at fair value through profit or loss on a mandatory basis, as at 1 January 2018.

Securities
01.01.2018
held for trading not held for trading, measured at fair value through profit or loss measured at fair value through other comprehensive income measured at amortized cost Total
Debt securities 405 2 646 47 223 6 180 56 454
NBP money market bills 4 199 4 199
Treasury bonds (in PLN) 151 1 413 33 502 1 663 36 729
Treasury bonds (in foreign currencies) 138 893 238 149 1 418
municipal bonds (in PLN) 23 106 4 921 2 513 7 563
corporate bonds (in foreign currencies) 77 77
corporate bonds (in PLN) 92 157 3 886 1 730 5 865
corporate bonds (in foreign currencies) 1 477 125 603
Equity securities 26 2 044 2 070
shares in other entities – not listed 239 239
shares in other entities – listed 19 225 244
participation units in a collective investment undertaking, investment fund units, investment certificates, rights to shares, pre-emptive rights 7 1 580 1 587
Total 431 4 690 47 223 6 180 58 524

The item “Treasury bonds in PLN and in foreign currencies” comprises Polish Treasury bonds. As at 1 January 2018 the item Treasury bonds in foreign currencies included Ukrainian Treasury bonds amounting to PLN 384 million.

Securities 
31.12.2017
held for trading financial instruments designated at fair value
through profit or loss upon initial recognition
available-for-sale investment securities investment securities held to maturity Total
Debt securities 405 6 688 43 192 1 812 52 097
NBP money market bills 4 199 4 199
Treasury bonds (in PLN) 151 1 413 33 502 1 663 36 729
Treasury bonds (in foreign currencies) 138 893 238 149 1 418
municipal bonds (in PLN) 23 106 4 928 5 057
corporate bonds (in foreign currencies) 77 77
corporate bonds (in PLN) 92 4 045 4 137
corporate bonds (in foreign currencies) 1 479 480
Equity securities 26 1 469 483 1 978
shares in other entities – not listed 150 150
shares in other entities – listed 19 77 96
investment fund units and participation units in a collective investment undertaking/investment certificates, rights to shares, pre-emptive rights 7 1 469 256 1 732
Total 431 8 157 43 675 1 812 54 075

The item “Treasury bonds in PLN and in foreign currencies” comprises Polish Treasury bonds. As at 31 December 2018 the item Treasury bonds in foreign currencies included Ukrainian Treasury bonds amounting to PLN 384 million.

Information relating to credit risk exposure in respect of securities measured at amortized cost or at fair value through other comprehensive income has been described in Note 29 “Expected credit losses” in 2018 and in Note 30 “Impairment allowances in respect of financial assets (comparative data in accordance with IAS 39)” in 2017.

As at 31 December 2018, securities amounting to PLN 474 million were classified to Stage 3 (PLN 473 million as at 1 January 2018). In the period ended 31 December 2018, PLN 59 million in respect of corporate bonds in PLN were transferred between Stage 1 and Stage 2 and PLN 388 million in respect of communal bonds in PLN.

Securities by maturity
31.12.2018
held for trading not held for trading, measured at fair value
through profit or loss
measured at fair value through other comprehensive income measured at amortized cost Total
with unspecified maturity – equity securities 18 1 647 1 665
up to 1 month 4 4 531 19 4 554
1 to 3 months 443 136 579
3 months to 1 year 30 362 2 972 755 4 119
1 to 5 years 120 682 22 300 4 109 27 211
over 5 years 63 157 22 312 3 454 25 986
Total 235 2 848 52 558 8 473 64 114

Securities by maturity 
31.12.2017
held for trading financial instruments designated at fair value
through profit or loss upon initial recognition
available-for-sale investment securities investment securities held to maturity Total
with unspecified maturity – equity securities 26 1 469 483 1 978
up to 1 month 9 4 203 411 95 4 718
1 to 3 months 4 106 5 53 168
3 months to 1 year 48 1 222 4 323 3 5 596
1 to 5 years 260 1 067 23 026 557 24 910
over 5 years 84 90 15 427 1 104 16 705
Total 431 8 157 43 675 1 812 54 075

Securities 
31.12.2018
measured at fair value through other comprehensive income measured at amortized cost
Gross amount Allowances for expected credit losses Net amount Gross amount Allowances for expected credit losses Net amount
Debt securities 52 568 (10) 52 558 8 499 (26) 8 473
NBP money market bills 2 900 2 900
Treasury bonds (in PLN) 39 970 39 970 2 234 2 234
Treasury bonds (in foreign currencies) 393 393 127 (3) 124
municipal bonds (in PLN) 5 301 5 301 4 013 (6) 4 007
corporate bonds (in PLN) 3 952 (10) 3 942 1 777 (13) 1 764
corporate bonds (in foreign currencies) 52 52 348 (4) 344
Total 52 568 (10) 52 558 8 499 (26) 8 473

Securities
01.01.2018
measured at fair value through other comprehensive income measured at amortized cost
Gross amount Allowances for expected credit losses Gross amount Gross amount Allowances for expected credit losses Net amount
Debt securities 47 238 (15) 47 223 6 194 (14) 6 180
NBP money market bills 4 199 4 199
Treasury bonds (in PLN) 33 502 33 502 1 663 1 663
Treasury bonds (in foreign currencies) 238 238 149 149
municipal bonds (in PLN) 4 921 4 921 2 516 (3) 2 513
corporate bonds (in PLN) 3 901 (15) 3 886 1 741 (11) 1 730
corporate bonds (in foreign currencies) 477 477 125 125
Total 47 238 (15) 47 223 6 194 (14) 6 180

Securities
31.12.2017
available-for-sale investment securities investment securities held to maturity
Gross amount Impairment allowances Net amount Gross amount Impairment allowances Net amount
Debt securities 43 441 (249) 43 192 1 812 1 812
Treasury bonds (in PLN) 33 502 33 502 1 663 1 663
Treasury bonds (in foreign currencies) 238 238 149 149
municipal bonds (in PLN) 4 928 4 928
corporate bonds (in PLN) 4 291 (246) 4 045
corporate bonds (in foreign currencies) 482 (3) 479
Equity securities 560 (77) 483
shares in other entities – not listed 150 150
shares in other entities – listed 154 (77) 77
participation units in investment funds and shares in collective investment undertakings 256 256
Total 44 001 (326) 43 675 1 812 1 812

Financial assets reclassified from categories measured at fair value through profit or loss

As at 31 December 2017, the Group had securities in the carrying amount of PLN 8 157 million in the financial instruments category, which were stated at initial recognition as measured at fair value through profit or loss. Of this, as at 1 January 2018, the Group reclassified securities – NBP bills with a value of PLN 4 199 million to the category of measured at fair value through other comprehensive income because they were classified as “hold to collect and sell” (reclassification required). The average effective interest rate on the NBP bills at the time of reclassification was 1.5348%. Interest income from the discount on the NBP bills recognized in the Group’s profit for 2018 was PLN 20 million.

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