Standards and interpretations applied in 2019 and those not binding at the balance sheet date

The International Accounting Standards Board has published the new International Financial Reporting Standard No. 16 (IFRS 16) concerning leases. IFRS 16 applies to reporting periods starting on 1 January 2019 and affects the Group in the area of assets used under lease agreements. The new requirements eliminate the notion of operating lease and thus off-balance sheet recognition of assets used on this basis. All assets used as well as relevant rent payment liabilities are to be recognised in the balance sheet, with the exception of short-term contracts and contracts for low-value assets, where the new standard allows a simplified approach (recognition directly in the cost of the period).

The Group analysed its agreements to establish which are leases, which aren’t. An agreement is a lease or contains a lease if under it the right is conveyed to control the use of an identified asset for a particular irrevocable period in exchange for remuneration. Recognition of agreements on rental of office space (Head Office, branches) as leases have the biggest impact on financial statements. Also agreements were identified on small spaces (bin shelters, ATM space etc.) as well as agreements on minor equipment, which were classified as low value leases.

Transition period

In order to implement the new standard the Group adopted a modified retrospective approach, which assumes not restating comparable data. On the day of first use of the new standard
(1 January 2019) the Group recognised lease liabilities equal to the current value of discounted and as yet unpaid lease payments as well as assets equal to liabilities. The weighted average marginal interest rate used for the calculation of liabilities is 1.445% for contracts denominated in EURO and 2.667% for contracts in PLN. In the case of contracts denominated in EURO, the assets were converted into Polish zlotys at the exchange rate as at the date of the first application of the standard.

Table below illustrates the effect of IFRS 16 implementation

The Group has adopted the following assumptions, based on which lease agreements are carried in financial statements:

• Calculation of liabilities and assets will use net values (VAT is excluded) of future cash flows,
• in case of agreements denominated in currency the liabilities will be carried in the original currency of the contract while assets in Polish zloty converted at the rate from date of signing the contract or an annex to the contract, which is also the day when the leasing starts,
• the right to use the asset will be depreciated according to the lease period,
• the Group uses the option of not recognizing leasing in the case of short-term contracts for space lease,
• the Group also uses the option of not recognizing leasing in the case of leasing assets with a low initial value, such as renting small areas, e.g. for garbage arbors, ramps, ATMs and devices such as coffee machines, water dispensers, audiomarketing and aromatamarketing devices,
• new contracts will be discounted according to the SWAP rate on the day of signing the contract / annex to the contract appropriate for the duration of the contract and applicable for the currency, increased by the margin determined and updated in relation to the risk premium for the financial liabilities incurred by the Group.

Accounting schedules

The financial report shows, both assets under the right of use and liabilities under the lease, in separate items of the explanatory notes to the lines ‚Tangible fixed assets’ and ‚Other liabilities’ respectively. On the start date lease payments contained in the valuation of the lease liability shall comprise following payments for the right to use the underlying asset during the lease period, which remain due on that date:

• fixed lease payments less any and all due lease incentives,
• variable lease payments, which depend on the index or rate, initially valuated with use of this index or this rate in accordance with their value on start date,
• amounts expected to be paid by the lessee under the guaranteed final value,
• the buy option strike price if it can be assumed with sufficient certainty that the lessee will exercise this option,
• monetary penalties for lease termination if the lease terms and conditions stipulated that the lessee may exercise the lease termination option.

A right to use asset comprises:

• amount of initial valuation of the lease liability,
• any and all lease payments paid on the start date or before it, less any and all lease incentives received.

Financial result reflects following items:

• depreciation of right to use,
• interest on lease liabilities,
• VAT on rent invoices reported in cost of rent.

Information on lease liabilities is presented in note 38B and data on rights to use in note 25.

Additional information on rental agreements is presented below