7. Interest income and expense
Significant accounting policies
The effective interest rate is the discount rate of estimated future cash inflows and payments made during the expected period until the expiry date of the financial instruments.
Interest income includes interest and commission fees received or due from loans, interbank deposits and securities measured at amortised cost recognized in the calculation of effective interest rate of loans and financial assets measured at fair value through other comprehensive income or through profit or loss and hedging derivatives.
The calculation of the effective interest rate includes all commissions paid and received by parties to the agreement, transaction costs and all other premiums and discounts, comprising an integral part of the effective interest rate.
Gross carrying amount of the financial asset is the basis for interest income calculation except for credit-impaired financial assets (‘in Stage 3’) and purchased or originated credit- impaired financial assets (POCI assets). At the recognition of impairment of financial assets measured at amortized cost or financial assets measured at fair value through other comprehensive income, the interest income is still recognized in profit or loss but is calculated by applying the effective interest rate to the gross carrying amount less the impairment charges.
Interest expense related to liabilities associated with client accounts and debt securities issued are recognized in the profit or loss using the effective interest rate.
The Group splits the remuneration for sale of insurance products linked to loans into separate components, i.e. dividing the remuneration into proportion of fair value of financial instrument and fair value of intermediary service to the sum of those values. The fair values of particular components of the remuneration are determined based on market data to a highest degree.
The particular components of the Group’s remuneration for sale of insurance products linked to loans are recognized in the income statement according to the following principles:
- remuneration from financial instrument – as part of effective interest rate calculation, included in interest income,
- remuneration for intermediary service – upfront at the time when the insurance product in sold, included in fee and commission income.
Additionally the Group estimates the part of the remuneration which will be refunded in the future (eg. due to early termination of insurance contract, early repayment of loan). The estimate of the provision for future refunds is based on the analysis of historical data and expectations in respect to refunds trend in the future.
Financial data
Interest income
| 2021 | ||||
| FINANCIAL ASSETS MEASURED AT AMORTISED COST | FINANCIAL ASSETS DESIGNATED AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME | FINANCIAL ASSETS MEASURED AT FAIR VALUE THROUGH PROFIT OR LOSS | TOTAL | |
| Interest income calculated using the effective interest method | 5,109,180 | 453,072 | – | 5,562 252 |
| Loans and advances (in this receivables from financial leases) | 4,568,183 | 20,076 | – | 4,588 259 |
| Interbank placements | 5,466 | – | – | 5,466 |
| Reverse repo transactions | 9,011 | – | – | 9,011 |
| Debt securities | 526,520 | 432,996 | – | 959,516 |
| Other interest income related to financial assets measured at fair value through profit or loss | – | – | 308,104 | 308,104 |
| Loans and other receivables from customers | – | – | 885 | 885 |
| Hedging derivatives | – | – | 305,632 | 305,632 |
| Debt securities held for trading | – | – | 1,587 | 1,587 |
| Total | 5,109,180 | 453,072 | 308,104 | 5,870 356 |
| 2020 | ||||
| FINANCIAL ASSETS MEASURED AT AMORTISED COST | FINANCIAL ASSETS DESIGNATED AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME | FINANCIAL ASSETS MEASURED AT FAIR VALUE THROUGH PROFIT OR LOSS | TOTAL | |
| Interest income calculated using the effective interest method | 4,983,095 | 627,760 | – | 5,610,855 |
| Loans and advances (in this receivables from financial leases) | 4,561,654 | 33,515 | – | 4,595,169 |
| Interbank placements | 12,702 | – | – | 12,702 |
| Reverse repo transactions | 10,498 | – | – | 10,498 |
| Debt securities | 398,241 | 594,245 | – | 992,486 |
| Other interest income related to financial assets measured at fair value through profit or loss | – | – | 238,504 | 238,504 |
| Loans and other receivables from customers | – | – | 2,127 | 2,127 |
| Hedging derivatives | – | – | 230,423 | 230, 423 |
| Debt securities held for trading | – | – | 5,954 | 5,954 |
| Total | 4,983,095 | 627,760 | 238,504 | 5,849,359 |
Interest expense
| 2021 | 2020 | |
|---|---|---|
| Deposits from customers | -58,793 | -429,000 |
| Interbank deposits | -9,022 | -8,454 |
| Repo transactions | -5,269 | -6,994 |
| Loans and advantages | -22,400 | -35,876 |
| Leasing | -9,181 | -10,461 |
| Debt securities | -104,930 | -156,562 |
| Total | -209,595 | -647,347 |