41. Intangible assets
Accounting policies
Software – Acquired computer software licences are recognized in the amount of costs incurred on the purchase and preparation of the software for use, taking into consideration accumulated amortization and impairment losses.
Goodwill – Goodwill arising on acquisition of subsidiaries is recognized under “Intangible assets” and goodwill arising on acquisition of associates and joint ventures is recognized under “Investments in associates and joint ventures”. The test for goodwill impairment is carried out at least at the end of each year.
Customer relations and value in force – As a result of a settlement of the transaction, two components of intangible assets that are recognized separately from goodwill, i.e. customer relations and value in force, representing the present value of future profits from concluded insurance contracts, were identified. These components of intangible assets are amortized by declining balance method based on the rate of economic benefits consumption arising from their use.
Other intangible assets – Other intangible assets acquired by the Group are recognized at the cost of purchase or manufacture, less accumulated amortization and impairment losses.
Development costs – The costs of completed development projects are classified as intangible assets in connection with the expected economic benefits to be obtained and meeting specific terms and conditions, i.e. if there is a possibility and intention to complete and use the internally generated intangible asset, there are appropriate technical and financial resources to complete the development and to use the asset and it is possible to reliably measure the expenditure incurred during its development which can be directly attributed to generating the intangible asset.
Capital expenditure – The carrying amount of property, plant and equipment items is increased by additional capital expenditure incurred during their use, provided that they satisfy the criteria for classification to fixed assets.
The Group classifies the effects of in-house development work that can be used for the Group’s operations as intangible assets. It classifies the effects of development work carried out for the Group’s own purposes, which constitutes the stage of development and implementation of a new solution, as intangible assets if it can demonstrate the following:
- the feasibility of completing the intangible asset so that it will be available for use or sale;
- its intention to complete the intangible asset and use or sell it;
- its ability to use or sell the intangible asset;
- the manner in which the intangible asset generates probable future economic benefits, e. its usefulness (in accordance with IAS 36 Impairment of Assets);
- the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset;
- its ability to measure the expenditure attributable to the intangible asset during its development
Right-of-use assets are presented in the same items in which the underlying assets would be presented, if they were owned by the Group.
Related notes
- Useful lives – note “Administrative expenses”;
- Impairment losses – note “Net impairment losses on non-financial assets”
Financial information
| INTANGIBLE ASSETS | Software | Goodwill | Future profit on concluded insurance contracts | Customer relations | Other, including capital expenditure | of which: software | Total |
| 2022 | |||||||
| Gross carrying amount at the beginning of the period | 5 908 | 1 407 | 140 | 158 | 776 | 642 | 8 |
| Purchase | 45 | – | – | – | 492 | 492 | 537 |
| Transfers from capital expenditure | 504 | – | – | – | (504) | (504) | – |
| Scrapping and sale | (18) | – | – | (64) | – | – | (82) |
| Other | – | – | 1 | – | 38 | 41 | 39 |
| Gross carrying amount at the end of the period | 6 439 | 1 407 | 141 | 94 | 802 | 671 | 8 883 |
| Accumulated amortization as at the beginning of the period | (4 203) | – | (118) | (117) | (92) | – | (4 530) |
| Amortization charge for the period | (483) | – | (6) | (7) | (4) | – | (500) |
| Scrapping and sale | 18 | – | – | 34 | – | – | 52 |
| Other | 5 | – | (1) | – | – | – | |
| Accumulated amortization as at the end of the period | (4 663) | – | (125) | (90) | (96) | – | (4 974) |
| Impairment losses as at the beginning of the period | (18) | (354) | – | (9) | (15) | (2) | (396) |
| Recognized during the period | – | – | – | (21) | – | – | (21) |
| Other | – | – | – | 30 | 5 | 2 | 35 |
| Impairment losses as at the end of the period | (18) | (354) | – | – | (10) | – | (382) |
| Carrying amount as at the beginning of the period, net | 1 687 | 1 053 | 22 | 32 | 669 | 640 | 3 463 |
| Carrying amount as at the end of the period, net | 1 758 | 1 053 | 16 | 4 | 696 | 671 | 3 527 |
| INTANGIBLE ASSETS | Software | Goodwill | Future profit on concluded insurance contracts | Customer relations | Other, including capital expenditure | of which: software | Total |
| 2021 | |||||||
| Gross carrying amount at the beginning of the period | 6 137 | 1 437 | 141 | 158 | 569 | 433 | 8 442 |
| Purchase | 44 | – | – | – | 551 | 550 | 595 |
| Transfers from capital expenditure | 387 | – | – | – | (387) | (341) | – |
| Scrapping and sale | (682) | – | – | – | (2) | – | (684) |
| Other | 22 | (30) | (1) | – | 45 | – | 36 |
| Gross carrying amount at the end of the period | 5 908 | 1 407 | 140 | 158 | 776 | 642 | 8 389 |
| Accumulated amortization as at the beginning of the period | (4 440) | – | (110) | (105) | (91) | – | (4 746) |
| Amortization charge for the period | (440) | – | (8) | (12) | (4) | – | (464) |
| Scrapping and sale | 681 | – | – | – | 2 | – | 683 |
| Other | (4) | – | – | – | 1 | – | (3) |
| Accumulated amortizationas at the end of the period | (4 203) | – | (118) | (117) | (92) | – | (4 530) |
| Impairment losses as at the beginning of the period | (18) | (384) | – | – | (13) | – | (415) |
| Recognized during the period | – | – | – | (9) | (2) | (2) | (11) |
| Other | – | 30 | – | – | – | – | 30 |
| Impairment losses as at the end of the period | (18) | (354) | – | (9) | (15) | (2) | (396) |
| Carrying amount as at the beginning of the period, net | 1 679 | 1 053 | 31 | 53 | 465 | 433 | 3 281 |
| Carrying amount as at the end of the period, net | 1 687 | 1 053 | 22 | 32 | 669 | 640 | 3 463 |
From the Bank’s perspective, expenditure incurred on the Integrated Information System (IIS) is a significant item of intangible assets. The total capital expenditure incurred on the IIS in 2006–2022 was PLN 1 392 million (PLN 1 462 million in 2005-2021).
The net carrying amount of the Integrated Information System (IIS) as at 31 December 2022 was PLN 651 million (PLN 629 million as at 31 December 2021). The expected useful life of the system is 24 years. As at 31 December 2022, its remaining useful life is 8 years.
Goodwill
| Net goodwill | 31.12.2022 | 31.12.2021 |
|---|---|---|
| Nordea Bank Polska S.A. | 747 | 747 |
| PKO Życie Towarzystwo Ubezpieczeń S.A. | 91 | 91 |
| Raiffeisen – Leasing Polska SA and its subsidiaries (PKO Leasing SA) | 57 | 57 |
| PKO Towarzystwo Funduszy Inwestycyjnych S.A. | 150 | 150 |
| Assets taken over from CFP sp. z o.o. | 8 | 8 |
| Total | 1 053 | 1 053 |
| GOODWILL | IMPAIRMENT TEST – METHOD |
|---|---|
| NORDEA BANK POLSKA S.A. | The Group performs impairment tests of goodwill on acquisition of Nordea Bank Polska S.A. based on a discounted dividend model, by comparing the carrying amount of cash-generating units (’CGUs”) with their recoverable value. The residual value of a CGU has been calculated by extrapolating the cash flow projections beyond the projection period using the growth rate adopted at a level of 3.5%. Cash flow projections used in the impairment test covered a period of 10 years and are based on the assumptions included in the financial plan of the Group for 2023. A discount rate of 12.50%, taking into account the risk-free rate and risk premium, was used for the discounting of the future cash flows.
At the time of the acquisition, two cash-generating units („CGUs”) were distinguished to which the goodwill arising from the acquisition of Nordea Bank Polska SA was allocated – retail and corporate CGUs, corresponding to the operating segments. The Group recognised an impairment loss on the goodwill attributable to the corporate CGU of PLN 117 million on 30 June 2020. Goodwill of Nordea Bank Polska S.A. of PLN 747 million belongs to the retail segment. As at 31 December 2022, the Group performed an impairment test in respect of goodwill on the acquisition of Nordea Bank Polska S.A. assigned to the retail CGU. The test did not identify impairment. |
| PKO TOWARZYSTWO FUNDUSZY INWESTYCYJNYCH S.A. | The impairment test was carried out on the basis of the three-year financial forecast prepared by the Company based on the discounted dividend method, taking into account the residual value.
No impairment of goodwill was identified. |
| PKO ŻYCIE TOWARZYSTWO UBEZPIECZEŃ S.A. | The impairment test carried out was developed on the basis of the present value of expected future cash flows for the Bank, taking into account the residual value. Future cash flows were estimated on the basis prepared by the Company’s 10 year financial forecast.
No impairment of goodwill was identified. |
| PKO LEASING PRO S.A. | The goodwill arising on the acquisition of the Company was allocated to the whole of PKO Leasing S.A. as the immediate parent company, which acquired the assets of PKO Leasing Pro S.A. in the merger. The impairment test was prepared on the basis of the present value of the expected future cash flows generated by the Company, estimated on the basis of the financial forecast prepared by the Company for five years with the simultaneous fading out of activities thereafter.
No further impairment was identified. |
| RAIFFEISEN – LEASING POLSKA S.A. AND ITS SUBSIDIARIES (PKO LEASING S.A.) | The goodwill that arose on the acquisition of these companies was allocated to the portion of the assets of the PKO Leasing S.A. Group that was separately recorded in the accounts as assets of the Raiffeisen-Leasing Polska S.A. Group that was acquired. The impairment test was carried out on the basis of the five-year financial forecast prepared by the Company based on the discounted dividend method, taking into account the residual value.
No impairment of goodwill was identified. |
In the impairment tests described above, a discount rate of 7.555% (except for Nordea Bank Polska S.A.) was used to discount future cash flows, taking into account the risk-free rate equal to the yield of 10-year treasury bonds as at the date of valuation and a premium for market risk and risk ratio determined for projects of PKO Bank Polski S.A.
The valuation methods and forecast periods were adapted to the specific features of activities related to the assets or companies being valued.