41. Contingent commitments and litigation and claims

The Group enters into transactions which are not recognized in the statement of financial position as assets or liabilities, but which result in contingent liabilities and commitments. Contingent liabilities are characterized as:

• a potential obligation the existence of which will be confirmed upon occurrence or non-occurrence of uncertain future events that are beyond the control of the Group (e.g. litigations),
• a current obligation which arises as a result of past events but is not recognized in the statement of financial position as it is improbable that it will result in an outflow of benefits to settle the obligation or the amount of the obligation cannot be reliably measured (mainly: unused credit lines and guarantees and letters of credit issued).

Financial guarantees are contracts that the Group is required as issuer to make specified payments to reimburse the holder for a loss it to be incurred because a specified debtor fails to make when due under the original or modified terms of a debt instrument.

Financial guarantees are measured at the higher of:

• the amount of the loss allowance, or
• the amount initially recognised less the cumulative amount of income recognised in accordance with the principles of IFRS 15.

Loan commitments are binding commitments to extend credit under certain prespecified terms and conditions.

As of 31 December 2023 the following court cases for payment are pending with involvement of the Group, that are important in view of the value of the object of litigation:

• brought by the association – a claim for payment of damages against the Bank and 3 other legal person for damages incurred in connection with irregularities committed by the defendants, according to the association, when offering the purchase of premises and financing the construction of a condohotel; value of the object of litigation PLN 86 703 762, litigation initiation date – 14 November 2022, in the present factual and legal circumstances the Bank assesses the funds outflow risk as possible,
• brought by the receiver for a joint stock company in liquidation bankruptcy – lawsuit for payment of compensation for a damage incurred as a result of the Bank’s demanding immediate payment of the amounts due in virtue of payment of the price from the credit receivables transfer agreement and conducting debt enforcement collection of the portion of the price remaining for payment by a court enforcement officer, value of the object of litigation PLN 57 450 130, litigation initiation date – 30 April 2015, in the present factual and legal circumstances the Bank assesses the funds outflow risk as possible,
• brought by a natural person – lawsuit for payment by the Bank of an amount charged by virtue of settlement of financial future or forward transactions, value of the object of litigation PLN 38 916 555.18, litigation initiation date
  2 October 2016, on 6 May 2019 the Regional Court in Warsaw issued a sentence ordering the Bank to pay the amount of PLN 3 392 349.18 and as to the remainder the Court dismissed the suit, the sentence is not legally valid, the Bank and the plaintiff appealed against the judgment. On the 16 December 2020 the Court of Appeal in Warsaw quashed the sentence of the Regional Court in its entirety and remitted the case to that Court. In the present factual and legal circumstances the Bank assesses the funds outflow risk in the amount of PLN 35 524 206.00 as possible, (the amount PLN 3 392 349,18 was paid),
• brought by a natural person – lawsuit for invalidation of the loan agreement and legal collateral agreements and payment of undue benefit, damages and compensation; value of the object of litigation PLN 30 469 753.05, litigation initiation date – 22 June 2023, in the present factual and legal circumstances, the Bank assesses the funds outflow risk as possible,
• brought by a legal person – lawsuit for payment of damages for a tort and improper performance of a bank account agreement in connection with the execution of pament instructions from the plaintiff’s bank accounts, value of the object of litigation PLN 14 579 152.50, litigation initiation date – 17 August 2015, in the prezent factual and legal circumstances, the Bank assesses the funds outflow risk as possible.

None of the litigations pending in year 2023 before the court, authority competent for arbitrary proceedings or a body of public administration posed a threat for financial liquidity of the Group.

The Group created provisions for litigations against the Group entities which, according to the legal opinion, are connected with a risk of the funds outflow resulting from the fulfillment of the obligation. The value of the provisions as at 31 December 2023 is PLN 991 million (PLN 587 million as at 31 December 2022).

In addition, as at 31 December 2023 the Group assessed the legal risk of foreign currency mortgage loans in CHF and created a provision related to this risk. Details are presented in Note 46.3.

On 22 November 2023, the Polish Financial Supervision Authority (“KNF”) started administrative proceedings against the Bank that might result in a penalty being imposed on the Bank under Article 176i(1)(4) of the Act on trading in financial instruments. At this stage of the proceedings, the amount of the potential penalty cannot be estimated reliably.

Proceedings of the President of the Office of Competition and Consumer Protection regarding irregularities in the area of complaints

In a letter of 10 November 2023, the President of the Office of Competition and Consumer Protection (‘UOKiK’) initiated proceedings against the Bank regarding the Bank’s use of practices violating the collective interests of consumers, consisting of:

• failure to respond to consumer complaints without undue delay, no later than within 30 days, and in particularly complicated cases – within 60 days,
• failure to indicate in the information provided to the customer filing a complaint the reason for the delay that makes it impossible to consider the complaint and provide a response without undue delay, no later than within 30 days, and the circumstances that must be established in order to consider the case.

In December 2023, the Bank submitted an application to the President of the Office of Competition and Consumer Protection with a request for a commitment decision. The Bank is waiting for the decision of the President of the Office of Competition and Consumer Protection in this matter. At the same time, as at 31 December 2023, the Bank created a provision in the amount of PLN 12 million regarding the implementation of the commitment proposal presented to the President of the Office of Competition and Consumer Protection.

Proceedings of the President of the Office of Competition and Consumer Protection regarding unauthorized transactions

On 23 June 2021, the President of the Office of Competition and Consumer Protection initiated explanatory proceedings to initially determine whether the Bank’s actions taken after consumers reported unauthorized payment transactions may justify the initiation of proceedings regarding practices violating the collective interests of consumers or proceedings regarding to recognize the provisions of the standard contract as prohibited.

On 8 February 2024, the President of the Office of Competition and Consumer Protection initiated proceedings (decision delivered on 13 February 2024) regarding practices violating the collective interests of consumers regarding unauthorized payment transactions. The charges brought are:

• failure to refund the amount of an unauthorized payment transaction to the customer within the D+1 deadline despite the lack of premises for such refusal,
• misleading consumers as to the Bank’s obligations and the distribution of the burden of proving the authorization of a payment transaction.

The proceedings are the result of the explanatory proceedings of the President of the Office of Competition and Consumer Protection initiated in June 2021 and the collection of evidence in the case. After reviewing the materials collected by the President of the Office of Competition and Consumer Protection in this matter and obtaining legal opinions, the Bank will assess the risk of imposing a financial penalty. As at 31 December 2023, the Group did not create a provision for these proceedings.

Moreover, the Group has the ability to obtain financing from National Bank of Poland secured securities.