33.1. Hedge accounting – financial information
2022 Annual Report
Types of hedging strategies applied by the Group
As at 31 December 2022 the Group had had active relationships as part of:
- 6 strategies for hedging cash flow volatility;
- 5 strategies for hedging fair value volatility.
In 2022, the Group terminated the hedging relationships:
- as part of the hedging strategy “Hedges against fluctuations in cash flows from variable interest loans in PLN, resulting from interest rate risk, using IRS transactions”, the Group terminated hedging relationships due to the discontinuation of hedge The effect of discontinuing hedge accounting in the above relationships on profit or loss was PLN (-17.8) million;
- as part of the hedging strategy ““Hedges against fluctuations in cash flows from variable interest loans in convertible currencies, resulting from interest rate risk, using IRS transactions”, due to failure to meet the prospective effectiveness The effect of discontinuing hedge accounting in the above relationships on profit or loss was PLN 1.1 million.
- as part of the hedging strategy “Hedging fair value volatility of fixed-interest-rate loans in convertible currencies resulting from interest rate risk, using IRS transactions”, due to failure to meet the prospective effectiveness The effect of discontinuing hedge accounting in the above relationships on profit or loss was PLN 2.6 million.
- as part of the hedging strategy “Hedging fair value volatility of fixed-interest-rate security measured at fair value through other comprehensive income in convertible currencies resulting from interest rate risk, using IRS transactions”, due to failure to meet the prospective effectiveness test.The effect of discontinuing hedge accounting in the above relationships on profit or loss was PLN 3 million.
In 2022, the Group discontinued the following hedging strategies as a result of the expiry of transactions:
- Hedge of net investment in a foreign operation whose functional currency is a foreign currency against foreign currency risk resulting from translation of the operation’s financial results and financial position into PLN in the consolidated financial statements of the PKO Bank Polski S.A. Group using forward or NDF transactions;
- Hedges against fluctuations in cash flows on variable interest PLN loans, resulting from interest rate risk, and hedging against fluctuations in cash flows on financial liabilities in a convertible currency resulting from foreign currency risk, using two CIRS transactions;
- Hedges against fluctuations in cash flows on deposits in PLN, resulting from interest rate risk, using IRS transactions.
No other changes were made to other active hedging strategies in 2022.
In 2021, the Group introduced one strategy for a hedge of net investment in a foreign operation and three hedging strategies constituting a cash flow hedge.
The tables below summarize the types of strategies applied by the Group.
| Type of hedging strategy | CASH FLOW HEDGES (STRATEGIES NO: 1,2,3,4,5,6,7,9,14,15,16) | |
|---|---|---|
| Risk hedged | foreign exchange risk and interest rate risk | interest rate risk |
| Hedging instrument | float – float CIRSs fixed – float CIRSs |
fixed – float IRSs |
| Hedged item |
|
the portfolio of loans in PLN or foreign currencies indexed to a floating interest rate |
| SOURCES OF HEDGE INEFFECTIVENESS |
|
|
| The period in which cash flows are expected to occur and affect the financial results: January 2022 – August 2024 | The period in which cash flows are expected to occur and affect the financial results: January 2023 – December 2032 | |
| Type of hedging strategy | Fair value volatility hedges (strategy No: 8,10,11,12,17,18) |
|---|---|
| Risk hedged | interest rate risk |
| Hedging instrument | fixed – float IRSs |
| Hedged item | interest rate risk component relating to a fixed interest rate loan or security in a foreign currency or in PLN, which corresponds to the market IRS rate interest rate risk component of a portfolio of financial liabilities replicated by a portfolio of fixed-rate instruments measured at amortised cost, corresponding to the market IRS ate |
| SOURCES OF HEDGE INEFFECTIVENESS |
|
| Type of hedging strategy | Hedges of net investments in foreign operations (strategy No: 13) |
|---|---|
| Risk hedged | foreign exchange risk |
| Hedging instrument | Forward or NDF transaction spot price component |
| Hedged item | an amount of the net investment in a foreign operation equal to or lower than the total net carrying amount of the foreign operation’s assets recognized in the consolidated financial statements of the Group |
| SOURCES OF HEDGE INEFFECTIVENESS | none |
| HEDGED ITEM | CARRYING AMOUNT OF THE HEDGED ITEM | ITEM OF THE STATEMENT OF FINANCIAL POSITION | CHANGE IN THE FAIR VALUE OF THE HEDGED ITEM | STRATEGY NO |
| 31.12.2022 | ||||
| Cash flow hedges | ||||
| Loans in CHF | 225 | Loans and advances to customers | 19 | 5 |
| Financial liability in USD | 249 | Amounts due to customers | ||
| Loans in PLN | 74 721 | Loans and advances to customers | 5 969 | 2 |
| Loans in EUR | 1 314 | Loans and advances to customers | 64 | 3; 4 |
| Loans in PLN | 2 101 | Loans and advances to customers | (195) | 9 |
| Financial liability in EUR | 499 | Securities in issue | ||
| Loans in PLN | 4 622 | Loans and advances to customers | (8) | 14 |
| Financial liability in EUR | 999 | Securities in issue | ||
| Fair value hedges | ||||
| Security in EUR | 30 | Securities measured at amortized cost | (6) | 10 |
| Security in EUR | 202 | Securities measured at fair value through other comprehensive income | (8) | 11 |
| Security in USD | 81 | Securities measured at fair value through other comprehensive income | (3) | 11 |
| Loans in EUR | 13 | Loans and advances to customers | (1) | 8 |
| Security in PLN | – | Securities measured at fair value through other comprehensive income | (21) | 12 |
| Portfolio of financial liabilities in PLN | 2 841 | Amounts due to customers | (38) | 17 |
| Portfolio of financial liabilities in EUR | 729 | Amounts due to customers | 20 | 18 |
| Total | 5 792 | |||
| HEDGED ITEM | CARRYING AMOUNT OF THE HEDGED ITEM | ITEM OF THE STATEMENT OF FINANCIAL POSITION | CHANGE IN THE FAIR VALUE OF THE HEDGED ITEM | STRATEGY NO |
| 31.12.2021 | ||||
| Cash flow hedges | ||||
| Loans in CHF | 265 | Loans and advances to customers | 8 | 5 |
| Financial liability in USD | 293 | Amounts due to customers | ||
| Loans in PLN | 92 480 | Loans and advances to customers | 4 454 | 2 |
| Loans in EUR | 663 | Loans and advances to customers | (1) | 3; 4 |
| Loans in PLN | 2 530 | Loans and advances to customers | (250) | 9 |
| Financial liability in EUR | 599 | Securities in issue | ||
| Loans in PLN | 4 883 | Loans and advances to customers | 17 | 14 |
| Financial liability in EUR | 1 053 | Securities in issue | ||
| Loans in PLN | 3 393 | Loans and advances to customers | (186) | 15 |
| Financial liability in USD | 875 | Securities in issue | ||
| Deposits in PLN | 200 | Amounts due to customers | (1) | 16 |
| Fair value hedges | ||||
| Security in EUR | 30 | Securities measured at amortized cost | – | 10 |
| Security in EUR | 202 | Securities measured at fair value through other comprehensive income | (1) | 11 |
| Security in USD | 130 | Securities measured at fair value through other comprehensive income | 1 | 11 |
| Loans in EUR | 15 | Loans and advances to customers | – | 8 |
| Loans in USD | 75 | Loans and advances to customers | – | 8 |
| Security in PLN | – | Securities measured at fair value through other comprehensive income | (25) | 12 |
| Hedge of net investment in foreign operation | ||||
| Net investment in foreign operation whose functional currency is a foreign currency (UAH) | 544 | Net assets of a foreign operation | 5 | 13 |
| Total | 4 021 | |||
|
Hedging derivative 31.12.2022 |
Nominal amount of hedging derivatives | Nominal- weighted average margin / Nominal- weighted average fixed interest rate | Carrying amount (fair value of hedging instruments) | Ineffective portion of cash flow hedges recognized in the income statement / Fair value adjustment to the hedged item | Change in the fair value of hedging instruments since designation | Strategy No | ||
| Assets | Liabilities | |||||||
| Cash flow hedges | ||||||||
| IRS PLN | PLN | 74 721 | 2.5090% | 31 | 6 331 | – | (5 928) | 2; 16 |
| IRS EUR | EUR | 1 314 | 1.6952% | – | 176 | – | (65) | 3; 4 |
| CIRS PLN-CHF | float PLN | 4 622 | 0.4614% | 677 | – | (8) | 671 | 14; 15 |
| float CHF | 1 112 | 0.3555% | ||||||
| CIRS CHF/USD | float CHF | 225 | – | – | 32 | (3) | (21) | 5; 15 |
| fixed USD | 249 | 0.3871% | ||||||
| CIRS CHF/EUR | float CHF | 1 112 | – | – | 797 | 5 | (656) | 14 |
| fixed EUR | 999 | 0.6970% | ||||||
| CIRS PLN/EUR | float PLN | 2 101 | 0.0000% | 181 | – | – | 199 | 9 |
| fixed EUR | 499 | 0.7690% | ||||||
| Fair value hedges | ||||||||
| IRS EUR | EUR | 974 | 1.5789% | 75 | 91 | 25 | (6) | 8; 10; 11; 18 |
| IRS USD | USD | 81 | 1.5128% | 14 | – | (18) | 3 | 8; 11 |
| IRS PLN | PLN | 2 841 | 6.2990% | 64 | 42 | (58) | 30 | 12; 17 |
| Total | 1 042 | 7 469 | (57) | (5 773) | ||||
|
Hedging derivative 31.12.2021 |
Nominal amount of hedging derivatives | Nominal- weighted average margin / Nominal- weighted average fixed interest rate | Carrying amount (fair value of hedging instruments) | Ineffective portion of cash flow hedges recognized in the income statement / Fair value adjustment to the hedged item | Change in the fair value of hedging instruments since designation | Strategy No | ||
| Assets | Liabilities | |||||||
| Cash flow hedges | ||||||||
| IRS PLN | PLN | 92 680 | 2.2587% | 55 | 4 361 | (6) | (4 433) | 2; 16 |
| IRS CHF | CHF | – | – | – | – | (1) | – | 3 |
| IRS EUR | EUR | 663 | 0.0865% | 9 | 2 | – | 3 | 3; 4 |
| CIRS PLN-CHF | float PLN | 8 276 | 0.3093% | 588 | – | 16 | 541 | 14; 15 |
| float CHF | 1 993 | 0.2362% | ||||||
| CIRS CHF/USD | float CHF | 1 083 | – | – | 56 | – | (52) | 5; 15 |
| fixed USD | 1 168 | 1.8581% | ||||||
| CIRS CHF/EUR | float CHF | 1 175 | – | 374 | (10) | (322) | 14 | |
| fixed EUR | 1 053 | 0.6852% | ||||||
| CIRS PLN/EUR | float PLN | 2 530 | 0.0000% | 271 | – | 2 | 255 | 9 |
| fixed EUR | 599 | 0.6879% | ||||||
| Fair value hedges | ||||||||
| IRS EUR | EUR | 247 | (0.2178)% | 7 | 1 | (3) | 1 | 8; 10; 11 |
| IRS USD | USD | 205 | 0.9993% | 2 | 8 | 3 | (1) | 8; 11 |
| IRS PLN | PLN | – | – | – | – | (25) | – | 12 |
| Hedge of net investment in foreign operation | ||||||||
| FWD | PLN | 74 | 1 | 3 | – | (5) | 13 | |
| UAH | 544 | |||||||
| Total | 933 | 4 805 | (24) | (4 013) | ||||
| CARRYING AMOUNT OF HEDGING INSTRUMENTS | 31.12.2022 | 31.12.2021 | ||
| Assets | Liabilities | Assets | Liabilities | |
| Cash flow hedges | 888 | 7 336 | 924 | 4 794 |
| interest rate risk – IRS | 31 | 6 507 | 65 | 4 363 |
| foreign exchange risk and interest rate risk – CIRS | 857 | 829 | 859 | 431 |
| Fair value hedges | 154 | 133 | 8 | 9 |
| interest rate risk – IRS | 154 | 133 | 8 | 9 |
| Hedges of net investments in foreign operations | – | – | 1 | 3 |
| foreign exchange risk – Forward | – | – | 1 | 3 |
| Total | 1 042 | 7 469 | 933 | 4 806 |
Cash flow hedges
| CHANGE IN OTHER COMPREHENSIVE INCOME RELATING TO CASH FLOW HEDGES AND AN INEFFECTIVE PORTION OF CASH FLOW HEDGES | 2022 | 2021 |
|---|---|---|
| Accumulated other comprehensive income at the beginning of the period, net | (3 699) | 355 |
| Impact on other comprehensive income during the period, gross | (1 901) | (5 003) |
| Gains/losses recognized in other comprehensive income during the period | (6 525) | (4 112) |
| Amounts transferred from other comprehensive income to the income statement, of which: | 4 624 | (891) |
| net interest income | 3 588 | (399) |
| net foreign exchange gains/ (losses) | 1 036 | (492) |
| Tax effect | 382 | 949 |
| Accumulated other comprehensive income at the end of the period, net | (5 218) | (3 699) |
| Ineffective portion of cash flow hedges recognized in the income statements, including in: | (5) | 1 |
| Foreign exchange gains/ (losses) | (5) | 8 |
| Gains/(losses) on financial transactions | – | (7) |
Fair value hedges and hedges of net investments in foreign operations
| INTEREST RATE AND FOREIGN EXCHANGE RISK HEDGES | 31.12.2022 | 31.12.2021 |
|---|---|---|
| Fair value measurement of the hedging derivative instrument | 20 | (3) |
| Interest rate risk hedge – fixed – float IRSs | 20 | (1) |
| Foreign exchange risk hedge – forward | – | (2) |
| Fair value adjustment of the hedged instrument attributable to the hedged risk | (51) | (25) |
| Interest rate risk hedge, of which: | (51) | (25) |
| Securities | (30) | (2) |
| Loans and advances to customers | (8) | (1) |
| Fair value adjustment recognized in OCI | (69) | (22) |
| Amounts due to customers | 56 | – |
| Foreign exchange risk hedge – shares in a foreign entity whose functional currency is a foreign currency | – | (4) |
Hedges of net investments in foreign operations
| CHANGE IN OTHER COMPREHENSIVE INCOME RELATING TO HEDGES OF NET INVESTMENTS IN FOREIGN OPERATIONS AND AN INEFFECTIVE PORTION OF CASH FLOW HEDGES | 31.12.2022 | 31.12.2021 |
|---|---|---|
| Accumulated other comprehensive income at the beginning of the period, net | (4) | – |
| Impact on other comprehensive income during the period, gross | 4 | (4) |
| Gains/losses recognized in other comprehensive income during the period | 4 | (4) |
| Accumulated other comprehensive income at the end of the period, net | – | (4) |
| NOMINAL VALUE OF HEDGING INSTRUMENTS BY MATURITY (in original currencies) | up to 1 month | 1 to 3 months | 3 months to 1 year | 1 to 5 years | More than 5 years | Total |
|---|---|---|---|---|---|---|
| 31.12.2022 | ||||||
| Hedge type: Cash flow hedges | ||||||
| Hedged risk: interest rate risk | ||||||
| PLN fixed – float IRSs | – | 1 501 | 29 674 | 42 269 | 1 278 | 74 722 |
| EUR fixed – float IRSs | – | – | 150 | 1 110 | 54 | 1 314 |
| Risk hedged: foreign exchange and interest rate risks | ||||||
| Float CHF/float PLN CIRSs | ||||||
| float CHF | 535 | – | – | 577 | – | 1 112 |
| float PLN | 2 204 | – | – | 2 418 | – | 4 622 |
| CIRS fixed USD/float CHF | ||||||
| fixed USD | – | – | 133 | 116 | – | 249 |
| float CHF | – | – | 120 | 105 | – | 225 |
| Float PLN/fixed EUR CIRSs | ||||||
| float PLN | – | – | – | 2 101 | – | 2 101 |
| fixed EUR | – | – | – | 499 | – | 499 |
| CIRS fixed EUR/float CHF | ||||||
| fixed EUR | 500 | – | – | 500 | – | 1 000 |
| float CHF | 535 | – | – | 577 | – | 1 112 |
| Hedge type: Fair value hedges | ||||||
| Hedged risk: interest rate risk | ||||||
| PLN fixed – float IRSs | – | – | – | – | 2 841 | 2 841 |
| USD fixed – float IRSs | – | – | – | 81 | – | 81 |
| EUR fixed – float IRSs | – | – | 100 | 748 | 126 | 974 |
| NOMINAL VALUE OF HEDGING INSTRUMENTS BY MATURITY (in original currencies) | up to 1 month | 1 to 3 months | 3 months to 1 year | 1 to 5 years | More than 5 years | Total |
|---|---|---|---|---|---|---|
| 31.12.2021 | ||||||
| Hedge type: Cash flow hedges | ||||||
| Hedged risk: interest rate risk | ||||||
| PLN fixed – float IRSs | 1 800 | 1 800 | 21 078 | 60 949 | 7 053 | 92 680 |
| EUR fixed – float IRSs | – | – | 569 | 90 | 4 | 663 |
| Risk hedged: foreign exchange and interest rate risks | ||||||
| Float CHF/float PLN CIRSs | ||||||
| float CHF | – | – | 881 | 1 112 | – | 1 993 |
| float PLN | – | – | 3 654 | 4 622 | – | 8 276 |
| CIRS fixed USD/float CHF | ||||||
| fixed USD | – | – | 919 | 249 | – | 1 168 |
| float CHF | – | – | 858 | 225 | – | 1 083 |
| Float PLN/fixed EUR CIRSs | ||||||
| float PLN | – | – | 428 | 2 101 | – | 2 529 |
| fixed EUR | – | – | 99 | 499 | – | 598 |
| CIRS fixed EUR/float CHF | ||||||
| fixed EUR | 54 | 999 | 1 053 | |||
| float CHF | 63 | 1 112 | 1 175 | |||
| Hedge type: Fair value hedges | ||||||
| Hedged risk: interest rate risk | ||||||
| USD fixed – float IRSs | – | – | – | 205 | – | 205 |
| EUR fixed – float IRSs | – | – | – | 217 | 30 | 247 |
| Hedge type: Hedges of net investments in foreign operations | ||||||
| Hedged risk: foreign exchange risk | ||||||
| Forward PLN/UAH – currency purchase | – | 27 | 46 | – | – | 73 |
| Forward PLN/UAH – sale of currency | – | 186 | 358 | – | – | 544 |