75.1. Leases – lessor

The Group acts as a lessor in lease agreements relating to vehicles, buildings, including office space, and machinery and equipment. The Group conducts lease activities through the entities from the PKO Leasing SA Group and KREDOBANK SA.

The Group as a lessor classifies leases as operating or finance leases.

A lease agreement is classified as an operating lease if substantially all risks and benefits from owning the underlying assets are not transferred. In such an instance the Group records lease payments as income on a straight-line basis.

Property, plant and equipment leased under operating leases are recognised in a separate line in the statement of financial position in accordance with the accounting policy applicable to property, plant and equipment (note concerning accounting policies: “Property, plant and equipment”, “Amortization and depreciation”, “Impairment losses”).

Net income from operating leases is presented under “Fee and commission income”, line: “Operating leases and fleet management”. Such income comprises mainly fees for using leased assets, income on short-term rentals and net income or expense on fleet management services (including service, tyre replacement, provision of replacement vehicles). Expenses in respect of operating lease and fleet management comprise: mechanical repairs, tyre repairs, cost of fuel and cost of replacement vehicles. Income on operating leases was included together with the cost of depreciation of property, plant and equipment under operating leases.

A lease agreement is classified as a finance lease if substantially all risks and benefits from owning the underlying assets are transferred. The Group classifies agreements as finance leases where at least one or all of the following conditions have been met:

• the lease transfers ownership of the underlying asset to the lessee by the end of the lease term;
• the lessee has the option to purchase the underlying asset at a price that is expected to be sufficiently lower than the fair value at the date the option becomes exercisable for it to be reasonably certain, at the inception date, that the option will be exercised;
• the lease term is for the major part of the economic life of the underlying asset even if title is not transferred;
• at the inception date, the present value of the lease payments amounts to at least substantially all of the fair value of the underlying asset (in a sublease it is the value of the right-of-use asset arising from the master lease agreement); and
• the underlying asset is of such a specialised nature that only the lessee can use it without major After the lease commencement date, the Group measures the lease liability by:
  • increasing the carrying value to reflect interest on the lease liability;
  • reducing the carrying value to reflect the lease payments made; and
  • remeasuring the carrying value to reflect any reassessment or lease modifications, or to reflect revised fixed lease payments.

Gross investment in the lease is the sum of:

• lease payments receivable by a lessor under a finance lease; and
• any unguaranteed residual value accruing to the

Interest rate implicit in the lease applied by the Group is the rate of interest that causes the present value of the lease payments and the unguaranteed residual value to equal the sum of the fair value of the underlying asset and any initial direct costs of the Group.

Finance lease agreements are recognised as receivables in the amount equal to the current contractual value of the lease payments plus the potential not guaranteed residual value attributed to the lessor, determined as at the date of inception of the lease. Lease payments on finance leases are divided between interest income and a reduction in the balance of receivables in a manner enabling achieving a fixed interest rate on the remaining receivables.

Finance lease agreements are recognised under the heading “Loans and advances to customers”.