28. Intangible assets

Goodwill

Goodwill is defined as a surplus of the purchasing price over the fair value of acquired assets, assumed liabilities and contingent liabilities of the acquired subsidiary, associate or a unit under joint control. Goodwill at initial recognition is carried at purchase price reduced by any accumulated impairment losses. Impairment is determined by estimating the recoverable value of the cash generating unit, to which given goodwill pertains.

If the recoverable value of the cash generating unit is lower than the carrying amount an impairment charge is made. Impairment identified in the course of such tests is not reversed.

Goodwill on acquisition of subsidiaries is presented in intangible assets and goodwill on acquisition of associates is presented under the caption ‘Investments in associates’.

Other intangible assets

Intangible assets are assets controlled by the Group which do not have a physical form which are identifiable and represent future economic benefits for the Group directly attributable to such assets.

These assets include:

• computer software licenses,
• copyrights,
• costs of completed development works.

Intangible assets are initially carried at purchase price. Subsequently intangible assets are stated at cost less accumulated amortization and accumulated impairment losses.

Intangible assets with a definite useful life are amortised over their estimated useful life. Intangible assets with indefinite useful life are not amortised.

All intangible assets are reviewed on a periodical basis to verify if any significant impairment triggers occurred, which would require performing a test for impairment and a potential impairment charge.

As far as intangible assets with indefinite useful life and those still not put into service are concerned, impairment test is performed on a yearly basis and additionally when impairment triggers are identified.

The item ‘Goodwill’ contains:

• goodwill recognized upon acquisition of Pekao Investment Management S.A. and indirectly Pekao TFI S.A. by Bank Pekao S.A. It is determined the smallest identifiable cash-generating units (‘CGU’) relating mainly to the Bank’s assets management , to which the goodwill has been allocated in the amount of PLN 692 million,
• goodwill that was transferred to Bank Pekao S.A. on integration with Bank BPH S.A. It represents the goodwill recognized upon acquisition of Pierwszy Komercyjny Bank S.A. in Lublin (‘PKBL’) by Bank BPH S.A. and relates to those branches of the PKBL which were transferred to Bank Pekao S.A. as a result of integration with Bank BPH S.A. It is determined the smallest identifiable cash-generating units (‘CGU’) relating to the Bank’s retail segment, to which the goodwill has been allocated in the amount of PLN 52 million,
• gooodwill recognized upon acquisition of Pekao Leasing i Finanse S.A. (formerly BPH Leasing S.A.) by Pekao Leasing Holding S.A. (formerly BPH PBK Leasing S.A.). It is determined the smallest identifiable cash-generating units (‘CGU’) relating to the Bank’s leasing business segment, to which the goodwill has been allocated in the amount of PLN 3 million,
• goodwill recognized upon acquisition of Spółdzielcza Kasa Oszczędnościowo – Kredytowa im. Mikołaja Kopernika by Bank Pekao S.A. It is determined the smallest identifiable cash-generating units (‘CGU’) relating to the Bank’s retail segment, to which the goodwill has been allocated in the amount of PLN 1 million,
• goodwill resulting from the acquisition of Idea Bank S.A. by Bank Pekao S.A. The smallest identifiable cash-generating units relating to the Bank’s retail segment were determined, to which goodwill was assigned in the amount of PLN 1 million.

In respect to the goodwill, the impairment tests are performed annually, irrespective of whether there is any indication that it may be impaired.

The impairment tests are performed by comparing the carrying amount of the CGU, including the goodwill, with the recoverable amount of the CGU. The recoverable amount is estimated on the basis of value in use of the CGU. The value in use is the present, estimated value of the future cash flows for the period of 5 years, taking into account the residual value of the CGU. The residual value of the CGU is calculated based on an extrapolation of cash flows projections beyond the forecast period using the growth rate presented in the table below. The forecasts of the future cash flows are based on the assumptions included the budget for 2024 and financial plan for 2025-2028. To discount the future cash flows, it is applied the discount rates, which includes the risk-free rate and the risk premium.

The growth rates and discount rates used in the impairment tests for goodwill are as follows.

The impairment tests performed as at 31 December 2023 and as at 31 December 2022 showed the surplus of the recoverable amount over the carrying amount of the CGU, and therefore no CGU impairments were recognized.

Sensitivity analysis

Estimating the recoverable amount is a complex process and requires the use of subjective assumptions. Relatively small changes in key assumptions may have a significant effect on the measurement of the recoverable amount.

The table below presents the surplus of recoverable amounts over the carrying amounts under the current assumptions and the maximum discount rates at which the carrying amounts and recoverable amounts of each CGU are equalized.

In the period from 1 January to 31 December 2023 the Group acquired intangible assets in the amount of PLN 344 million (in 2022 – PLN 346 million).

In the period from 1 January to 31 December 2023 and in 2022 there have been no intangible assets whose title is restricted and pledged as security for liabilities.

Contractual commitments

As at 31 December 2023 the contractual commitments for the acquisition of intangible assets amounted to PLN 121 million, whereas as at 31 December 2022 – PLN 82 million.