14.4. Impact of IFRS 17 on own funds and capital adequacy measures

According to CRR Regulation, prudential consolidation is used for capital adequacy purposes, which unlike consolidation in accordance with IFRS, covers only subsidiaries that meet the definition of an institution, financial institution or any ancillary services enterprise. Therefore, the following insurance companies of the Group are excluded from prudential consolidation: PKO Towarzystwo Ubezpieczeń S.A. and PKO Życie Towarzystwo Ubezpieczeń S.A. The insurance companies are measured using the equity method. In accordance with the above, the Group’s investment in insurance companies was initially recognised at cost after the date of acquisition and its value is subsequently adjusted by the change in the Group’s share of the net assets of the insurance companies, as appropriate. The Group’s profit or loss includes its share of the profit or loss of the Group’s insurance companies (item “Share in profit or loss of associates and joint ventures”) and other comprehensive income includes its share of other comprehensive income of the Group’s insurance companies (item “Share in other comprehensive income of associates and joint ventures”). The impact of intercompany transactions between Group entities is eliminated.

Thus, the implementation of IFRS 17 at the date of the opening balance sheet will affect the value of equity investments recognised (own funds requirements for credit risk), as well as retained earnings and accumulated other comprehensive income from the remeasurement of insurance companies measured using the equity method.

The total impact of the adjustments on the total capital ratio is +0.03 b.p. The presented impact of the adjustments arising from the implementation of IFRS17 on capital adequacy, to the best of our knowledge, is the best estimate at the time of publication of these consolidated financial statements.