5. IFRS 15 Revenue from contracts with customers

In this step contracts with customers are identified by analysing whether all the following criteria have been met:

1. the parties to the contract have concluded the said contract (in written, oral or other customary form practiced in trading) and are required to perform their duties;
2. the Group is able to identify the rights of each of the parties relating to the goods or services which are to be transferred;
3. the Group is able to identify the terms of payment for the goods or services which are to be transferred;
4. the contract has economic substance (i.e. it may be expected that as a result of the contract risk, time schedule or amount of the future cash flows will change), and
5. it is probable that the Group will receive the consideration to which it is entitled in exchange for the goods or services that will be provided to the Customer. When assessing whether it is probable that the fee will be received, the Group takes into account the Customer’s ability and intention to pay the consideration on time, subject to all discounts.

A performance obligation is a promise (express or implicit) to transfer to the customer goods or services which are identified upon the conclusion of a contract according to the terms of the contract, and according to customary commercial practices. Upon the conclusion of a contract the Group assesses the goods or services promised in the customer contract and identifies each promise to transfer on behalf of the customer as an obligation to perform:

1. goods or services (or bundles of goods or services), which may be isolated, or
2. groups of separate goods or services which are in principle the same and in respect of which the transfer to the customer is of an identical nature.

The goods or services promised to the customer are separate if both the following conditions are met:

1. the customer may obtain benefits from the goods or services directly or by bundling them with other goods or services which are readily available to the customer (i.e. the goods or services may be separate); and
2. the entity’s obligation to transfer the goods or services to the customer may be identified as separate in respect of other obligations specified in the contract (i.e. the goods or services are separate under the same contract).

The Group identifies the customer’s purchase options for additional goods or services (loyalty points) as separate obligations to perform, if they give the customer material rights (material rights that the customer would not have obtained had it not been for the said contract).

In the event that in the process of providing selected services to the customer a third party is engaged, the Group assesses whether it has the role of an agent or of a principal, taking into consideration mainly the possibility of controlling a given service before it is provided to the customer (control principle).

As at the moment of concluding the contract, the Group determines the transaction price of the separate good or separate service subject to each obligation to perform, taking into consideration the terms and conditions of the contract and the commercial practices in force.

The transaction price is the amount of consideration which in accordance with the Group’s expectations will be due in return for transferring the promised goods or services on behalf of the customer, with the exception of amounts collected on behalf of third parties.

When determining the transaction price, the following components are taken into account: variable consideration, time value of money, non-cash consideration and consideration payable to the customer. In respect of variable consideration (such as discounts from payment organizations) the Group estimates the amount of the consideration to which it will be entitled in return for the transfer of the promised services.

The Group allocates a transaction price to each obligation to perform (or to provide a separate good or service) in an amount which reflects the amount of the consideration to which – according to the Group’s expectations – it is entitled in return for the transfer of the promised goods or services to the customer. The Group allocates transaction prices based on the relative fair value model.

The Group recognizes revenue upon the completion (or during the process) of the performance obligation by transferring the promised goods or services to the customer. The goods are considered to be transferred and the service to be performed upon the customer taking control over them.

The Group has applied IFRS 15 from 1 January 2018. The Group analysed the main types of contracts in respect of which it receives consideration recognized in the category of fees and commissions, and other operating income. The analysis covered both contracts with customers relating to banking products, for which the Group obtains fees and commissions which are not part of the effective interest rate, bancassurance contracts, contracts relating to distribution and investment fund management services, bond issue underwriting contracts, contracts with international payment organizations and contracts relating to the Group’s internal operations.

The Group has not identified contracts in respect of which implementation of IFRS 15 could materially impact the financial statements. The Group selected the simplified retrospective approach to the first-time application of IFRS 15.