36. Loans and advances to customers

Loans and advances to customers are classified in the individual measurement categories in accordance with the principles for selecting the business model and evaluating the characteristics of contractual cash flows referred to in the note „General accounting policies for financial instruments”.

Loans and advances to customers include:

• amounts due from loans and advances granted,
• factoring receivables
• and finance lease receivables.

The category of loans and advances to customers measured at fair value through profit or loss includes the following products: cash loans, credit cards and revolving loans, whose contractual formula for interest calculation includes a multiplier.

The Group adjusts the gross carrying amount of housing loans measured at amortised cost by recognizing the effect of:

• legal risk related to potential litigation for the portfolio of mortgage loans in convertible currencies and existing legal claims related to loan exposures recognized as at the balance sheet date in the statement of financial position (see „Cost of legal risk of mortgage loans in convertible currencies”)
• the so-called statutory credit holidays, recognized in the second half of 2022.

The statutory credit holidays were introduced by the Act of 14 July 2022 on the crowdfunding of business ventures and on assistance for borrowers (hereinafter: the “Act”), containing a package of assistance for mortgage borrowers. According to the Act, statutory credit holidays apply to mortgage loans granted in Polish zloty and provide the possibility to suspend loan repayment for up to 8 months between 2022 and 2023 – two months in each of Q3 and Q4 of 2022 and one month in each of the four quarters of 2023. The loan repayment suspension can be used by the customer if the agreement was concluded before 1 July 2022 and the loan period ends after 31 December 2022. Credit holidays can only be used for one loan. The repayment schedule of loan instalments is extended by the number of credit holiday months used.

The Group believes that the entitlement of customers to benefit from the suspension of loan repayments is a statutory cash flow modification that occurs on the date the Act has been signed by the President, i.e. 14 July 2022.

The Group adjusted the gross carrying amount of mortgage loans for PLN 3,111 million by deducting interest income. The value of the adjustment was determined as the difference between the present value of the estimated cash flows resulting from the loan agreements, taking into account the suspension of instalment payments, and the present gross carrying amount of the loan portfolio. The loss calculation is based on the assumption that approximately 63% of customers holding a PLN-denominated mortgage loan will choose to benefit from credit holidays (customer participation rate).

By the end of December 2022 285.7 thousand of the Group’s customers applied for a suspension of mortgage repayment, representing 52% of the total number and 67% of the gross carrying amount of total loans eligible for credit holidays. The total number of suspensions applied for as at 31 December 2022 was 1 831 thousand (including suspensions in 2023 amounting to 805.3 thousand), representing 42% of the maximum number of instalments to be suspended for all eligible customers.

As at 31 December 2022, the Group has assessed the adequacy of the level of credit holiday loss in terms of value, using the following assumptions:

• the level of customer participation in credit holidays in 2023 will be similar to that in 2022 – this analysis is based on a breakdown of customers into 4 groups illustrating their level of activity to date, on the basis of which the potential level of activity for 2023 has been determined;
• for the group of customers who applied for credit holidays in 2022 but did not apply for suspensions of principal and interest instalments for 2023 at the end of the year, an interest rate revaluation effect was taken into account, calculated on the basis of the change in base rates between the date of recognition of the loss on credit holidays and 31 December 2022;
• the loss on all principal and interest instalment suspensions effected in 2022 and requested for 2023 was reduced by the effect of prepayments witnessed on the basis of customer behaviour in the second half of 2022 and projected for 2023, prudentially adjusted for uncertainty regarding possible prepayments in 2023;
• on the basis of monthly data on the inflow of new applications in 2022, using an extrapolation function, the trend of applications that may arrive by the end of the programme was established on the basis of which, using interest rates as at 31 December 2022, the potential loss was estimated.

The results of the above analysis confirmed that the credit holiday loss recognised by the Group in the amount of PLN 3,111 million is at an adequate level. An increase in the customer participation rate in the future, and thus the level of costs arising from it, could potentially be driven by factors such as rising unemployment levels, changing customer behaviour and rising market interest rates.

In addition, the Group adjusts the gross carrying amount of residential and consumer loans measured at amortised cost by recognising the impact of potential reimbursements to customers for the expected early repayment of active consumer and mortgage loans in the future.

The recognition of finance lease receivables is described in note „Leases” Section „Leases – lessor”.

The item “Loans and advances to customers” also includes an adjustment relating to fair value hedge accounting for loans representing hedged items (see the note „Hedge accounting and other derivative instruments”).

„Net expected credit losses, „Cost of legal risk of mortgage loans in convertible currencies”

The sensitivity of the loss amount to a +/- 10 pp change in the customer participation rate is presented in the table below:

For more information on credit risk exposures, see note „Credit risk – financial information”.