36. Provisions

The provisions are recognized when the Group has a present obligation (legal or constructive) resulting from the past events, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.

If the effect of the time value of money is material, the amount of a provision is established by discounting forecasted future cash flows to the present value, using the discount rate reflecting current market estimates of the time value of money and the possible risk associated with the obligation.

The provisions include provisions for litigation and claims (in this provision for legal risk regarding foreign currency mortgage loans in CHF and provision for early repayments of consumer loans), provisions relating to long-term employee benefits, in this those measured by an actuary and provisions for restructuring costs. The provision for restructuring costs is recognized when the general recognition criteria for provisions and detailed criteria for recognition of provisions for restructuring cost under IAS 37 ‘Provisions, contingent liabilities and contingent assets’ are met. The amount of employment restructuring provision is calculated by the Group on the basis of the best available estimates of direct outlays resulting from restructuring activities, which are not connected with the Group’s current activities.

The provisions are charged to the income statement, except for actuarial gains and losses from the measurement of the defined benefit plans obligations, which are recognized in other comprehensive income.

Provisions for litigation and claims include court, administrative and other legal proceedings.

Additionally, this item includes a provision for early repayment of consumer and mortgage loans created as a result of the judgment of the Court of Justice of the European Union (hereinafter the ,CJEU,) of 11 September 2019 in Case C-383/18 concerning preliminary questions regarding the consumer’s right to reduce the total cost of loan in the event of early repayment of consumer loan.

Group analyzed the legal risk resulting from the above judgment and in accordance with IAS 37 ‘Provisions, contingent liabilities and contingent assets’, assessed the probability of cash outflow as a refund of commission in connection with early repayment of loans made by borrowers before the abovementioned judgment of the CJEU.

As at 31 December 2023 the provision regarding early repayment of consumer loans made before the judgment of the CJEU (i.e. before 11 September 2019) and mortgage loans amounts to PLN 11 million in total (as at 31 December 2022 PLN 35 million).

Provisions for litigation and claims were estimated in the amount of expected outflow of resources embodying economic benefits.

The balance of the restructuring provision is primarily related to the estimated costs of restructuring the branch network.

Provisions for defined benefits plans consist of provisions for retirement benefits and death-in-service benefits.The present value of such obligations is measured by an independent actuary using the projected unit credit method.

Other provisions include in particular provisions for other employee benefits and provisions for reimbursement customers of funds due to increased margins on mortgage loans before establishing a mortgage, accrued and collected from customers before the entry into force of the Act of 5 August 2022 on the amendment to the Act on Mortgage Loans and on the supervision of mortgage brokers and agents and the act amending the act on personal income tax, the act on corporate income tax and some other acts.