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.
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.