ING Bank Hipoteczny S.A.

Financial Statements
for the period
from 1 January 2019
to 31 December 2019
ING Bank Hipoteczny S.A.
Financial statements for the period from 1 January 2019 to 31 December 2019 (in PLN thousand)

Table of contents
7.15. Liabilities under issue of covered bonds 49
Financial Statements of ING Bank Hipoteczny S.A.
7.16. Provisions 50
Income statement 3 7.17. Other liabilities 51
Statement of comprehensive income 4
7.18. Share capital 51
Statement of financial position 5
Statement of changes in equity 6 7.19. Accumulated other comprehensive income 51
Cash flow statement 7 7.20. Retained earnings 52
Accounting policy and additional notes 8 OTHER NOTES
7.21. Additional information to the cash flow
1. Bank details 8 statement. 52
2. Significant events that occurred in 2019 10 7.22. Fair value 53
3. Significant events after the end of the reporting 7.23. Factors that may affect financial results in
period 11 consecutive quarters 54
4. Statement of compliance with International 7.24. Off-Balance Sheet items 54
Financial Reporting Standards 12
7.25. Related party transactions 55
5. Significant accounting principles 16
7.26. Transactions with the management staff and
6. Comparability of financial data 38 employees 57
7. Notes to the financial statements 39 7.27. Lease liabilities 59
NOTES TO INCOME STATEMENT 39 7.28. Headcount 59
7.1. Net interest income 39 7.29. Segment reporting 59
7.2. Net commission income 39 RISK AND EQUITY MANAGEMENT 60
7.3. FX result 40 7.30. Risk management goals and rules 60
7.4. General and administrative expenses 40 7.31. Organisation of risk management 61
7.5. Expected loss provision 40 7.32. Credit risk 64
7.6. Income tax 41 7.33. Funding and liquidity risk 74
7.7. Earnings per ordinary share 43 7.34. Market risk 76
NOTES TO STATEMENT OF FINANCIAL POSITION 44 7.35. Model risk management 77
7.8. Amounts due from banks 44 7.36. Operational risk 77
7.9. Debt securities 44 7.37. Compliance Risk 79
7.10. Loans and other receivables to customers 45 7.38. Business risk 79
7.11. Property, plant and equipment 46 7.39. Capital management 79
7.12. Intangible assets 48 7.40. Total capital ratio 80
7.13. Other assets 49 7.41. Capital buffers 83
7.14. Liabilities to banks 49 7.42. Leverage 84

2
ING Bank Hipoteczny S.A.
Financial statements for the period from 1 January 2019 to 31 December 2019 (in PLN thousand)

Income statement

period period
Note from 01.01.2019 from 26.02.2018
to 31.12.2019 to 31.12.2018
Interest income, including: 7.1. 54,184.8 947.4
calculated using the effective interest method 7.1. 54,184.8 947.4
Interest costs 7.1. -29,125.6 0.0
Net interest income 7.1. 25,059.2 947.4
Fee and commission income 7.2. 211.3 0.0
Commission expenses 7.2. -326.9 -3.1
Net commission income 7.2. -115.6 -3.1
FX result 7.3. -36.3 -4.6
Net income on other basic activities -133.7 0.0
Net income on basic activities 24,773.6 939.7
General and administrative expenses 7.4. -23,835.4 -9,888.2
Expected loss provision 7.5. -924.4 0.0
Profit before tax 13.8 -8,948.5
Income Tax 7.6. -202.8 1,569.1
Profit after tax -188.9 -7,379.4

Number of shares 210,000 120,000

Earnings per ordinary share - basic (PLN) 7.7. -0.91 -61.50
Earnings per ordinary share - diluted (PLN) 7.7. -0.91 -61.50

Discontinued operation occurred in ING Bank Hipoteczny SA neither in 2019 nor in the corresponding period from 26 February 2018 to
31 December 2018.

The Income Statement should be read in conjunction with the notes to the financial statements being the integral part thereof.

3
ING Bank Hipoteczny S.A.
Financial statements for the period from 1 January 2019 to 31 December 2019 (in PLN thousand)

Statement of comprehensive income

period period
Note from 01.01.2019 from 26.02.2018
to 31.12.2019 to 31.12.2018
Profit after tax for the period -188.9 -7,379.4
Total other comprehensive income, including: -140.0 -310.1
Items which can be reclassified to income statement 47.8 0.0
Unrealised result on measurement of HTC&S securities 7.19. 47.8 0.0
including deferred tax -11.2 0.0
Items which will not be reclassified to income statement, including: -187.8 -310.1
Actuarial gains/losses 7.19. -187.8 -310.1
including deferred tax 44.1 72.7
Net comprehensive income for the period -328.9 -7,689.5

The Statement of Comprehensive Income should be read in conjunction with the notes to the financial statements being the integral part
thereof.

4
ING Bank Hipoteczny S.A.
Financial statements for the period from 1 January 2019 to 31 December 2019 (in PLN thousand)

Statement of financial position

as at as at
Note
31.12.2019 31.12.2018

Assets
Amounts due from banks 7.8. 7,249.2 111,534.9
Debt securities measured at fair value through other comprehensive income 7.9. 34,823.5 0.0
Debt securities measured at amortized cost 7.9. 229,980.4 0.0
Loans and advances granted to customers 7.10. 3,060,898.9 0.0
Property, plant and equipment 7.11. 988.3 104.1
Intangible assets 7.12. 1,816.7 2,808.5
Current income tax receivables 0.0 11.9
Deferred income tax assets 1,585.1 1,641.8
Other assets 7.13. 1,784.8 86.4
Total assets 3,339,126.8 116,187.7

Liabilities
Liabilities to other banks 7.14. 2,488,153.6 0.0
Liabilities under issue of covered bonds 7.15. 400,359.9 0.0
Provisions 7.16. 585.7 382.9
Tax liabilities 113.1 0.0
Liabilities on account of equity increase 170,000.0 0.0
Other liabilities 7.17. 8,362.3 3,494.3
Total liabilities 3,067,574.7 3,877.2

Equity
Share capital 7.18. 210,000.0 120,000.0
Supplementary capital – share premium 62,191.1 0.0
Accumulated other comprehensive income 7.19. -450.1 -310.1
Retained earnings 7.20. -188.9 -7,379.4
Total equity 271,552.1 112,310.5

Total equity and liabilities 3,339,126.8 116,187.7

Carrying amount 271,552.1 112,310.5

Number of shares 210,000 120,000
Carrying amount per share (PLN) 1,293.10 935.92

The Statement of Financial Position should be read in conjunction with the notes to the financial statements being the integral part thereof.

5
ING Bank Hipoteczny S.A.
Financial statements for the period from 1 January 2019 to 31 December 2019 (in PLN thousand)

Statement of changes in equity

for the period from 01.01.2019 to 31.12.2019

Accumulated other
Note Share capital comprehensive Retained earnings Total equity
income
Opening balance of equity 7.18. 120,000.0 -310.1 -7,379.4 112,310.5
Issue of shares of series B 7.18. 90,000.0 - 69,570.5 159,570.5
Net result for the current period 7.20. - - -188.9 -188.9
Other net comprehensive income,
7.19. - -140.0 - -140.0
including:
Unrealised result on measurement of
HTC&S securities - 47.8 - 47.8

Actuarial gains/losses - -187.8 - -187.8

Closing balance of equity 210,000.0 -450.1 62,002.2 271,552.1

for the period from 26.02.2018 to 31.12.2018

Accumulated other
Note Share capital comprehensive Retained earnings Total equity
income
Opening balance of equity 7.18. - - - -
Issue of shares of series A 7.18. 120,000.0 - - 120,000.0
Net result for the current period 7.20. - - -7,379.4 -7,379.4
Other net comprehensive income,
7.19. - -310.1 - -310.1
including:
Actuarial gains/losses - -310.1 - -310.1
Closing balance of equity 120,000.0 -310.1 -7,379.4 112,310.5

The Statement of Changes in Equity should be read in conjunction with the notes to the financial statements being the integral part thereof.

6
ING Bank Hipoteczny S.A.
Financial statements for the period from 1 January 2019 to 31 December 2019 (in PLN thousand)

Cash flow statement

period period
Note from 01.01.2019 from 26.02.2018
to 31.12.2019 to 31.12.2018
Profit after tax -188.9 -7,379.4
Adjustments, of which: -3,031,675.7 2,015.4
Depreciation and amortisation 7.4., 7.11., 7.12. 1,376.8 188.5
Interest accrued (from the income statement) 7.1. -25,059.2 -947.4
Interest paid -78.9 0.0
Interest received 47,168.4 827.9
Income tax (from the income statement) 7.6. 202.8 -1,569.1
Income tax paid 0.0 -11.9
Change in provisions 7.16., 7.21. 202.8 382.9
Change in loans and other receivables from banks 7.21. -1,433.5 0.0
Change in loans and other receivables from customers 7.10., 7.21. -3,060,898.9 0.0
Change in other assets 7.21. -294.1 -39.7
Change in liabilities to other banks 7.21. 1,598.1 0.0
Change in covered bonds liabilities 7.21 359.9 0.0
Change in other liabilities 7.21 5,180.1 3,184.2
Net cash flow from operating activities -3,031,864.6 -5,364.0
Purchase of property, plant and equipment 7.11. -94.3 -125.3
Purchase of intangible assets 7.12. 0.0 -2,975.8

Purchase of securities measured at fair value through other comprehensive income 7.9. -34,823.5 0.0

Purchase of securities measured at amortized cost 7.9. -229,980.4 0.0

Interest received on debt securities 236.9 0.0
Net cash flow from investing activities -264,661.3 -3,101.1
Change in liabilities on account of equity increase 170,000.0 0.0
Proceeds from the issue of shares 7.18. 159,570.5 120,000.0
Proceeds from the issue of covered bonds 7.15. 400,000.0 0.0
Long-term loans received 2,958,819.1 0.0
Long-term loans repaid -472,263.5 0.0
Interest on long-term loans repaid -24,980.4 0.0
Lease liabilities repaid -339.0 N/A
Net cash flow from financing activities 3,190,806.7 120,000.0
Net increase/decrease in cash and cash equivalents -105,719.2 111,534.9
Opening balance of cash and cash equivalents 111,534.9 0.0
Closing balance of cash and cash equivalents 7.8., 7.21. 5,815.7 111,534.9

The Cash Flow Statement should be read in conjunction with the notes to the financial statements being the integral part thereof.

7
ING Bank Hipoteczny S.A.
Financial statements for the period from 1 January 2019 to 31 December 2019 (in PLN thousand)

1. Bank details

1.1. Key Bank data

ING Bank Hipoteczny Spółka Akcyjna (“Bank”, “Company”) with its registered office in Katowice, ul. Chorzowska 50,
entered to the Register of Entrepreneurs of the National Court Register maintained by the District Court Katowice –
Wschód in Katowice, 8th Commercial Division of the National Court Register under the number KRS 0000723965 on
20 March 2018. The Bank statistical number is REGON 369582281, and the tax identification number is NIP 205-
000-51-99.

1.2. Scope and duration of operations

As at 31 December 2019, ING Bank Hipoteczny S.A. is a joint-stock company holding a permit issued by the Polish
Financial Supervision Authority for running business based on the Mortgage/Covered Bonds and Mortgage Banks
Act of 29 August 1997, the Bank Law Act of 29 August 1997, Commercial Companies and Partnerships Code and
other commonly binding legal regulations, good banking practice principles and the Bank Charter.
The strategic objective of ING Bank Hipoteczny is to acquire and then to increase the share of long-term financing in
the Bank’s balance sheet through the issue of covered bonds and to become one of the main issuers of these debt
instruments on the Polish market.

1.3. Share capital

The share capital of ING Bank Hipoteczny S.A. amounts to PLN 210,000,000.00 and is divided into 210,000.00
ordinary registered shares of nominal value of PLN 1,000 each.

Structure of the share capital

Date of
Date on which Registration
Nominal value of Series nominal
Series Type of share Number of shares a resolution was Issue date in the National
one share (PLN) value (PLN)
passed by AGM Court Register
(KRS)
A ordinary 120,000 1,000.00 120,000,000 not applicable* 26.02.2018 20.03.2018
B ordinary 90,000 1,000.00 90,000,000 03.01.2019 03.01.2019 06.02.2019

* Issue of shares of series A stems from the Deed of Incorporation of 26 February 2018.

The share capital has been fully covered with pecuniary contributions. Each ordinary share entitles its holder to
dividend and one vote during the general meeting.

1.4. Shareholders of ING Bank Hipoteczny S.A.

ING Bank Hipoteczny S.A. is a subsidiary of ING Bank Śląski S.A., which as at 31 December 2019 held 100% share in
the share capital of ING Bank Hipoteczny S.A. The Bank is a part of the capital group called herein the ING Bank Śląski
S.A. Group.

1.5. ING Bank Hipoteczny S.A. Management Board and Supervisory Board composition
On 16 January 2018, the Polish Financial Supervision Authority approved the first Management Board of the Bank.

8
ING Bank Hipoteczny S.A.
Financial statements for the period from 1 January 2019 to 31 December 2019 (in PLN thousand)

On 26 February 2018, in line with the decision of the Polish Financial Supervision Authority, composition of the first
Management Board as well as of the Supervisory Board of ING Bank Hipoteczny S.A was approved with the Deed of
Incorporation of ING Bank Hipoteczny S.A.

As at the end of 2019, the composition of the Management Board of ING Bank Hipoteczny S.A. was as follows:
 Mr Mirosław Boda, President of the Management Board,
 Mr Jacek Frejlich, Vice President of the Management Board,
 Mr Roman Telepko, Vice President of the Management Board.

As at the end of 2019, the Supervisory Board of ING Bank Hipoteczny S.A. worked in the following composition:
 Mr Brunon Bartkiewicz, Chair,
 Mr Marcin Giżycki, Deputy Chair,
 Mr Jacek Michalski, Secretary,
 Ms Bożena Graczyk, Member,
 Mr Patrick Roesink, Member,
 Ms Joanna Erdman, Member,
 Mr Krzysztof Gmur, Member.

In 2019, there were changes neither in the composition of the Management Board nor Supervisory Board of ING
Bank Hipoteczny S.A.

1.6. Auditing firm authorised to audit the financial statements

BDO Spółka z ograniczoną odpowiedzialnością Sp. k. with its registered office in Warsaw is the auditing firm
authorised to audit the financial statements of ING Bank Hipoteczny S.A.

1.7. Approval of financial statements

These annual financial statements of the ING Bank Hipoteczny S.A. for the period from 1 January 2019 to
31 December 2019 were signed by the Bank Management Board on 23 March 2020.
The financial statements of the ING Bank Hipoteczny S.A. for the period from 26 February 2018 to
31 December 2018 was approved by the General Meeting of ING Bank Hipoteczny S.A. on 3 April 2019.

9
ING Bank Hipoteczny S.A.
Financial statements for the period from 1 January 2019 to 31 December 2019 (in PLN thousand)

2. Significant events that occurred in 2019

Polish Financial Supervision Authority’s approval of operations commencement

On 2 January 2019, the Bank obtained information that the Polish Financial Supervision Authority approved
operations commencement. ING Bank Hipoteczny S.A. commenced its operations on 7 January 2019.

Conclusion of the Debt Transfer Framework Agreement

On 17 January 2019, ING Bank Hipoteczny S.A. and ING Bank Śląski S.A. signed the Debt Transfer Framework
Agreement based on which mortgage-backed housing loans debt claims portfolios are bought in order to issue
covered bonds in accordance with the terms and conditions specified, in particular, in the Mortgage Bonds and
Mortgage Banks Act.

Increase in share capital

 On 3 January 2019, the General Meeting of Shareholders passed a resolution to increase the share capital
of ING Bank Hipoteczny S.A. by PLN 90,000,000.00 by way of issuing 90,000 ordinary registered B-shares
of the nominal value of PLN 1,000 each. The share issue price was PLN 1.778 each. The shares have been
fully covered with pecuniary contributions.
 On 11 December 2019, the Meeting of Shareholders passed a resolution to increase the share capital of
ING Bank Hipoteczny S.A. by PLN 170,000,000.00 by way of issuing 170,000 ordinary registered C-shares
of the nominal value of PLN 1,000 each. The issue price of the shares equals their nominal value. The
shares have been fully covered with pecuniary contributions. An entry to the National Court Register (KRS)
was made on 9 January 2020.

General Meeting of ING Bank Hipoteczny S.A.

On 3 April 2019, the General Meeting of ING Bank Hipoteczny S.A. took place. The resolutions that were passed there
concerned:
 approval of the annual financial statements for 2018,
 approval of the Management Report on operations of ING Bank Hipoteczny S.A. in 2018, inclusive of
statements on observance of principles of corporate governance,
 acceptance of the 2018 reports of the Supervisory Board,
 acknowledgement of the fulfilment of duties in 2018 by the Management Board Members and Supervisory
Board Members,
 covering losses from previous years.

Issue of green covered bonds denominated in PLN series 1

On 10 October 2019, ING Bank mortgage S.A. made an inaugural issue of green covered bonds denominated in PLN
of series 1.
ING Bank N.V. and ING Bank Śląski S.A. were the Joint Lead Managers. The demand from local financial institutions
enabled the Bank to place the papers worth PLN 400 million. Interest rate was set at 0.53% over the 6M WIBOR. The

10
ING Bank Hipoteczny S.A.
Financial statements for the period from 1 January 2019 to 31 December 2019 (in PLN thousand)

papers are to mature on 10 October 2024. The funds acquired from the issue will be earmarked for refinancing PLN
mortgage loans of natural persons which are secured with real estates from the group of 15% of the most energy-
efficient buildings in Poland.
The issue was conducted under the Programme of issue of covered bonds by ING Bank Hipoteczny S.A. accepted on
5 September 2019 by Commission de Surveillance du Secteur Financier, with its registered office in Luxembourg.
The papers issued were quoted on the Stock Exchange in Luxemburg (Bourse de Luxembourg) and placed in the
parallel market of the Warsaw Stock Exchange. Further, they may secure the lombard and technical loans and the
repo operations of the National Bank of Poland.
The Moody’s Investors Service confirmed the high quality of the portfolio of mortgage loans securing the issued
securities and assigned rating Aa3 (the so-called Country Ceiling) to the bonds issued.
In 4Q2019, the Bank formed the Green Covered Bonds Committee (GCBC) that is responsible for all green aspects of
covered bonds.

3. Significant events after the end of the reporting period

In the period from 1 January 2020 to the date of signing these financial statements, ING Bank Hipoteczny S.A.
bought another mortgage-backed housing loans debt claims portfolio for the total amount of PLN 562,709,000
under the Debt Transfer Agreement to issue Covered Bonds No. 10 signed on 31 January 2020 with ING Bank Śląski
S.A. Furthermore, ING Bank Hipoteczny S.A. bought another mortgage-backed housing loans debt claims portfolio
for the total amount of PLN 457,957,200 under the Debt Transfer Agreement to issue Covered Bonds No. 11 signed
on 28 February 2020 with ING Bank Śląski S.A.

Moreover, keeping in mind future issues of covered bonds, the Bank continued entering mortgage-backed credit
debt claims to the register of collaterals for covered bonds. As at the end of February 2020, there were 6,764 debt
claims entered in the register of collaterals for covered bonds.

On 9 January 2020, an entry to the Register of Entrepreneurs of the National Court Register (KRS) was made
concerning the increase in the share capital of ING Bank Hipoteczny S.A. by PLN 170,000,000.00 by way of issuing
170,000 ordinary registered C-series shares of the nominal value of PLN 1,000 each, referred to in item 2 Significant
events that occurred in 2019.The issue price of the shares equals their nominal value. The shares have been fully
covered with pecuniary contributions.

On 31 January 2020, the Bank signed an annex to the Loan Agreement concluded with ING Bank Śląski S.A. on
31 January 2019 increasing the maximum amount of exposure up to PLN 4.2 billion.

In connection with the pandemic caused by COVID-19 and the declared epidemic emergency, the Bank is
monitoring developments related to the continuing effects of the coronavirus proliferation on an ongoing basis. At
present, the Bank is not able to foresee the impact of COVID-19 risks and (political, business or private) decisions
related thereto on its financial situation. In the long run, a potential risk of failure to repay the loans is identified,
however, the effect on financial results cannot be estimated at this point in time.

11
ING Bank Hipoteczny S.A.
Financial statements for the period from 1 January 2019 to 31 December 2019 (in PLN thousand)

4. Statement of compliance with International Financial Reporting

Standards
These annual financial statements of ING Bank Hipoteczny S.A. for the period from 1 January 2019 to
31 December 2019 were prepared in compliance with the International Financial Reporting Standards (“IFRS”)
approved by the European Union.
The financial statements take into account the requirements of the standards and interpretations approved by the
EU except for the standards and interpretations mentioned in item 1 below, which either await approval by the EU
or have been already approved by the EU but shall take effect after the balance sheet date.
The statement of financial position as at 31 December 2019 together with comparable data have been prepared
using the same accounting principles for each of the periods, except of the changes stemming from IFRS 16 that
substituted IAS 17 Leases. The changes refer to recognition, measurement, presentation and disclosure of leases
(the changes are shown later herein in 4.1.1 Influence of application of IFRS 16 Leases on the financial statements).

4.1. Changes to accounting standards

In these annual financial statements ING Bank Hipoteczny S.A. took account of the following binding standards and
new interpretations approved by the European Union for annual periods starting on or after 1 January 2019:

Change Influence on the Bank’s statements

IAS 19 Application of the change to the standard has not affected significantly the Bank’s financial
Plan amendment, curtailment or settlement statements.

IAS 28
The Bank holds shares neither in associates nor in joint ventures, and thus, the change to the
Long-term Interests in Associates and Joint
standard had no impact on the financial statements of the Bank.
Ventures

Application of the new standard has an impact on the recognition, presentation, measurement
and disclosure of lease assets and liabilities in the financial statements of the Bank as the lessee.
IFRS 16
Implementation of the new standard had an impact on the balance sheet total of the Bank, but
Leases
had no significant impact on the Bank’s financial results.
More detailed information thereabout was presented herein below. Item no. 5 shows the
description of assumed accounting principles. Significant accounting principles.

IFRS 9
Application of the change to the standard has not affected significantly the Bank’s financial
Prepayment features with negative
statements.
compensation

IFRIC 23
Application of the interpretation has not affected significantly the Bank’s financial statements.
Uncertainty over Income Tax Treatments

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ING Bank Hipoteczny S.A.
Financial statements for the period from 1 January 2019 to 31 December 2019 (in PLN thousand)

The published standards and interpretations which were issued by 31 December 2019 and approved by the
European Union but were not previously applied by the Bank:

Change Influence on the Bank’s statements

References to conceptual assumptions of IFRS The Bank’s analyses show that the implementation of these changes will have no
(the financial year starting on 1 January 2020) significant impact on the financial statements of the Bank.
IAS 1 and IAS 8
The Bank’s analyses show that the implementation of these changes will have no
Definition of Material
significant impact on the financial statements of the Bank.
(the financial year starting on 1 January 2020)
IFRS 9, IAS 39 and IFRS 7
The impact of the changes on the Bank’s financial statements will be confirmed once
Reform of interest rate benchmarks
the reform is fully determined.
(the financial year starting on 1 January 2020)

The published standards and interpretations which were issued by 31 December 2019, but were not approved by
the European Union as at 31 December 2019 and were not previously applied by the Bank:

Change Influence on the Bank’s statements

IFRS 17
The Bank’s analyses show that the implementation of these changes will have no
Insurance Contracts
significant impact on the financial statements of the Bank.
(the financial year starting on 01 January 2021)
IFRS 3
The Bank’s analyses show that the implementation of these changes will have no
Definition of a Business
significant impact on the financial statements of the Bank.
(the financial year starting on 1 January 2020)

As at the date of approving these statements for publication – in consideration of the pending EU process of
implementing the IFRS standards and the activity of the Bank with regard to the accounting principles applied by
the Bank – there is no difference between the IFRS standards which came into force and the IFRS standards
approved by the EU.

4.1.1. Influence of application of IFRS 16 Leases on the financial statements

IFRS 16 Leases was published by the International Accounting Standards Board in January 2016 and was adopted
by the European Union in October 2017. IFRS 16 replaces IAS 17 Leases and it regards recognition, measurement,
presentation and disclosure of leases. Key changes concern the lessee.

The Bank did not decide to implement the standard earlier, and thus it applied the International Financial Reporting
Standard 16 Leases for the first time for the reporting period starting on 1 January 2019. The Bank applied the
retrospective approach to its lease contracts. Thus, the Bank did not convert comparable data.
As at the date of initial application of the standard, the Bank carried out full analysis of contracts in terms of
assessment whether a contract is for lease or includes lease, and decided to recognise lease elements separately
from non-lease ones. The Bank does not apply the standard to lease of intangible assets. The Bank acts as a lessee
in the real estate and car lease contracts.

The new regulation implements uniform principles of recognition of lease contracts for lessee, taking into account
exceptions provided for in the standard. It imposes a requirement to recognise a right-of-use assets item and lease
liability.
On 01 January 2019, the Bank recognised a right-of-use asset in the amount equal to the lease liability, adjusted for
any prepayments or accrued lease payments relating to that lease recognised in the statement of financial
position immediately before the date of initial application.

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ING Bank Hipoteczny S.A.
Financial statements for the period from 1 January 2019 to 31 December 2019 (in PLN thousand)

As at the initial application of the new regulation, the Bank measured the lease liability at present value of
remaining lease payments, discounted by applying the lessee’s incremental borrowing rate on the date of initial
application.

In order to determine the present value of lease payments the Bank applied the lessee’s incremental borrowing
rate to all leases. The Bank determined the interest rate for lease as the sum of the interest rate for swaps and
internal transfer price, taking into account currencies of the lease contracts and maturity dates of the contracts.
The weighted average lessee’s incremental borrowing rate applied to measure the lease liabilities recognised in the
statement of financial position on the date of initial application was 0.33% for EUR, 1.94% for PLN.

Lease period was determined taking into account contractual options to prolong or shorten lease period if it is
probable that such an option would be used. In case of contracts concluded for an indefinite period with an option
to terminate them by any of the parties thereto, the Bank assessed whether there would be any significant costs of
contract termination. Contracts signed for an indefinite period by the Bank are mostly real estate lease contracts. If
there are no significant costs, the lease period was determined as a notice period to which both parties to the
contract are entitled. If the costs of contract termination are significant, the Bank assumed a 4-year period as the
lease period. The assumed period results from the strategy of physical presence in a given location that ensures
flexibility and business efficacy. The Bank availed itself of the simplified approach for short-term leases (inclusive of
leases whose period ends 12 months after the date of initial application of the standard) and for leases of low-value
assets. In this case, the Bank carries systematic lease payments through profit or loss. A contract may be classified
as a short-term one if the contract period is not longer than 12 months. Assets may be classified as low-value
assets if the acquisition price of a new one is not higher than EUR 5,000.

A table herein below shows the impact of implementation of IFRS 16 on the financial statements as at
01 January 2019 (PLN thousands):

as at IFRS 16 as at
31.12.2018 implementation impact 01.01.2019

Assets
Property, plant and equipment, including: 104.1 1,343.3 1,447.4
right-of-use assets, including: 0.0 1,343.3 1,343.3
lease of real estate 0.0 1,242.9 1,242.9
lease of cars 0.0 100.4 100.4
Total assets 116,187.7 1,343.3 117,531.0
Liabilities
Other liabilities, including: 3,494.3 1,343.3 4,837.6
lease liabilities, including: 0.0 1,343.3 1,343.3
lease of real estate 0.0 1,242.9 1,242.9
lease of cars 0.0 100.4 100.4
Total liabilities 3,877.2 1,343.3 5,220.5

Equity 112,310.5 0.0 112,310.5

Total equity and liabilities 116,187.7 1,343.3 117,531.0

14
ING Bank Hipoteczny S.A.
Financial statements for the period from 1 January 2019 to 31 December 2019 (in PLN thousand)

The table below shows reconciliation of the difference between the amounts of future fees being the Bank’s
obligation under operating lease, disclosed under IAS 17 as at 31 December 2018, and lease liabilities as at
1 January 2019, or as at the implementation date of IFRS 16.

as at adjustments of opening as at
31.12.2018 balance sheet 01.01.2019

Future lease liabilities according to IAS 17 1,435.7

adjustments of opening balance sheet in connection with
-92.5
implementation of IFRS 16, including:
(-) discounting effect incident to the use of the lessee’s incremental
-42.5
interest rate of 01 January 2019
(-) exemption for short-term lease agreements - -21.9
(-) other than lease elements of agreements -28.1
Lease liabilities according to IFRS 16 1,343.3

4.2. Going concern

These annual financial statements of the Bank were prepared on a going concern basis, as regards foreseeable
future, that is within at least 12 months from the financial statements publication date. As at the date of signing the
annual financial statements, the Bank Management Board, identify no facts or circumstances that could pose
a threat to the Bank’s operation as a going concern for at least 12 months from the publication date due to
intended or forced discontinuation or significant limitation by the Bank of its current operations.

4.3. Discontinued operations

No material operations were discontinued during 2019 and 2018.

4.4. Financial statements scope and currency

The Bank is neither the parent entity nor the major investor for associates, jointly controlled entities or subsidiaries.
Thus, ING Bank Hipoteczny S.A. does not prepare consolidated financial statements of the Group that would cover
the financial data of such entities.
The parent entity of ING Bank Hipoteczny S.A. is ING Bank Śląski S.A. The latter prepares consolidated financial
statements of the ING Bank Śląski S.A. Group. Whereas ING Bank Śląski S.A. is a part of the capital group that is called
herein as the ING Group. ING Groep N.V. is the ultimate parent of the Group.
These annual financial statements have been developed in Polish Zloty (“PLN”). Unless otherwise specified,
financial data are presented after rounding to one thousand zloty. Therefore, some totals and individual notes can
be inconsistent in mathematical terms.

4.5. Reporting period and comparable data

The annual financial statements of ING Bank Hipoteczny S.A. cover the period from 01 January 2019 to
31 December 2019 and include comparative data.
As the business was started on 26 February 2018, the comparative data cover the period from 26 February 2018 to
31 December 2018
 items from the statement of financial position as at 31 December 2018,

15
ING Bank Hipoteczny S.A.
Financial statements for the period from 1 January 2019 to 31 December 2019 (in PLN thousand)

 items in the income statement, statement of comprehensive income, statement of changes in equity and
cash flow statement for the period from 26 February 2018 to 31 December 2018.
In connection with the implementation of IFRS 16, replacing IAS 17 Leases, as of 1 January 2019,the Bank applied to
its lease contracts a modified retrospective approach adopted at ING Bank Śląski S.A. Group and did not convert its
comparable data.

5. Significant accounting principles

The presented herein below accounting policy of the Bank follows the requirements of IFRS.
The accounting principles and calculation methods applied for the needs of preparation of these financial
statements are consistent with the principles binding in the financial year ending on 31 December 2018.
As the Bank applies to its lease contracts a decision not to convert comparable data in connection with effective
entry of IFRS 16, material principles of accounting within a scope referring to IFRS 16 were presented under 5.7
Leases showing the principles binding as of 1 January 2019.
In the financial statements, the right-of-use assets were presented in the statements of financial position under
“Property, plant and equipment” whereas lease liability was presented under “Other liabilities”. The costs incurred
by the Bank are presented in the income statement under Interest costs (interest on lease liabilities) and General
and administrative expenses (depreciation of the right-of-use and other costs connected with assets taken on
lease).

5.1. Basis for preparation of financial statements

In the annual financial statements, the concept of fair value of financial assets and liabilities measured at fair value
was applied, including derivative instruments and financial assets carried at fair value through other
comprehensive income, excluding those for which the fair value cannot be determined in a reliable manner.
Other items of financial assets are presented at amortized cost less impairment or at cost less impairment.
Property, plant and equipment and intangible assets are recognised at cost less cumulative amortisation and
impairment.
All major items of costs and revenue are recognised by the Bank on the following bases: accrual, matching of
revenues and expenses, recognition and measurement of assets and liabilities, creation of impairment losses.

5.2. Professional judgement

In the process of accounting principles application to the matters discussed herein below, besides the booking
estimates, professional judgment of the management staff was of key significance.

5.2.1. Deferred tax assets

The Bank recognises deferred tax assets, provided that it is probable that tax profit will be earned in future periods
allowing their utilisation. The assumption would prove unjustified should tax results deteriorate in the future.

5.2.2. Classification of financial assets

The Bank classifies financial assets based on assessment of a business model under which assets are held and
based on assessment whether terms and conditions entail only payments of principal and interests thereon.
Detailed information about the assumptions made in this respect are presented under 5.5.1 below.

16
ING Bank Hipoteczny S.A.
Financial statements for the period from 1 January 2019 to 31 December 2019 (in PLN thousand)

5.3. Accounting estimates

The development of financial statements in accordance with IFRS requires from the Bank the use of estimates and
assumptions that affect directly the amounts reported in the financial statements and notes thereto.
Estimations and assumptions applied to the presentation of amounts of assets and liabilities, as well as revenues
and costs are made using historical data available and other factors considered to be relevant in given
circumstances. The assumptions applied for the future and available data sources are the base for making
estimations regarding the carrying amount of assets and liabilities, which cannot be determined explicitly on the
basis of other sources. The estimates reflect the reasons for/ sources of uncertainties as at the balance sheet date.
The actual results may differ from estimates.
Estimates and assumptions are reviewed on a current basis. Adjustments to estimates are recognized in the period
when the estimation was changed provided that the adjustment applies to this period alone. Whereas, should the
adjustments affect both the period when the estimation was changed as well as the following periods, they are
recognised in the period when the estimation was changed and in the following periods.

Below, there are the most significant accounting estimates made by the Bank.

5.3.1. Impairment
The Bank assesses whether there is objective evidence of impairment of financial assets (individual items or groups)
and non-current assets as at balance sheet date.

5.3.1.1. Impairment of financial assets

The Bank applies the requirements of IFRS 9 as regards impairment in order to recognise and measure loss
allowance for expected credit losses attributable to financial assets that are measured:
 at amortized cost, or
 at fair value through other comprehensive income.

Expected loss in the portfolio of individually non-significant exposures is calculated collectively as a probability
weighted average based on a few macroeconomic scenarios of various probability of occurrence. The final level of
provisions on exposures in Stage 2 and Stage 3 results from the total expected losses calculated each year in future
to the remaining maturity, taking into account discounting.
Due to the specifics of its operations, the Bank distinguishes only collective provisions.
In compliance with IFRS 9, a collective provision is made for individually not significant financial assets (provisions
for the portfolio at Stage 3 subject to collective evaluation) if there is evidence of impairment for a single financial
assets item or for a group of financial assets as a result of a single event or multiple events of default. Provisions for
the portfolio at Stage 3 subject to collective evaluation are made for financial assets falling into the risk rating 20,
21, 22. If after the assessment we find that for a given financial assets item there is no evidence of impairment, the
item is included in the group of financial assets with similar credit risk characteristics, which indicate that the debtor
is capable to repay the entire debt under to the contractual terms and conditions. For such groups, collective
provisions are calculated and, in accordance with IFRS 9, they are defined as provisions for non-impaired assets.
Provisions for non-impaired assets are made for financial assets falling into the risk rating 1-19.
Collective provisions are calculated with the collective provisioning method that uses, adjusted to the requirements
of IFRS 9 (and IAS 37), models of risk parameters assessment (PD, LGD, EAD/CCF).

Some examples of impairment evidence and triggers for financial assets, methodology of impairment computation
and the recording rules applied thereto were described later herein.

17
ING Bank Hipoteczny S.A.
Financial statements for the period from 1 January 2019 to 31 December 2019 (in PLN thousand)

5.3.1.2. Impairment of other non-current assets

For non-current assets, valuation is based on estimating the recoverable amount of non-current assets being the
higher of their value in use and net realisable value at the review date.
The value in use of an item of non-current assets (or a cash-generating unit when the recoverable amount of an
assets item forming joint assets cannot be determined) is estimated, among others, through adoption of
estimation assumptions for amounts, times of future cash flows which the Bank may generate from a given assets
item (or a cash-generating unit) and other factors.
To determine the value in use, the estimated future cash flows are discounted to their present value at pre-tax
discount rate, which reflects the current market expectations as regards value of money and the specific risk of
a given assets item. When estimating the fair value less costs of sale, the Bank makes use of relevant market data
available or valuations made by independent appraisers which are based on estimates by and large.

5.3.1.3. Provisions for retirement and pension benefits

The Bank establishes the provisions for retirement and pension benefit in accordance with IAS 19. The provision for
retirement and pension benefit pay awarded as part of the benefits under the Labour Code regulations is calculated
using the actuarial method by an independent actuary as the present value of the future long-term Bank’s
obligations towards their employees considering the headcount and payroll status as at the update date.
The provisions are calculated based on a range of assumptions, relating to both discount rates and projected salary
raises as well as to staff rotation, death risk and others. The assumptions are verified at the end of the financial
year.
The table below shows model sensitivity to the values adopted for individual assumptions.

Provisions for retirement and pension benefits

Lower bracket Base variant Upper bracket

Discount Rate (+1% / base variant / - 1%) 522.4 585.7 660.4

Salary raise (-0.25% / base variant/ +0.25%) 569.0 585.7 603.0

5.3.2. Valuation of incentive schemes

5.3.3.1. Valuation of variable remuneration programme benefits

As at the balance sheet date, the Bank presents in the books the estimated value of benefits to be rendered under
the variable remuneration programme. Benefits will be granted to employees covered with the programme, based
on their performance appraisal for a given year. The programme was launched in 2018.
Value of benefits granted in a form of financial instruments entitling to receive cash is estimated based on book
value of net assets of ING Bank Hipoteczny S.A. per share, adjusted with factors affecting the said assets, other than
the financial result.
The value of the deferred benefit element is adjusted with the reduction factor which accounts for probability of
occurrence of an event requiring adjustment of the value of the granted benefit which the employee is not fully
eligible to as at the balance sheet date. The catalogue of events has been defined in the programme assumptions.

18
ING Bank Hipoteczny S.A.
Financial statements for the period from 1 January 2019 to 31 December 2019 (in PLN thousand)

5.3.3. Amortisation period and method for intangible assets

The amortisation period and method for intangible assets are verified at the end of each financial year. Changes to
the useful life or expected pattern of consumption of the future economic benefits embodied in the intangible asset
are recognised by changing the amortisation period or method, accordingly, and are deemed to be changes in the
estimates. The Bank applies the capitalisation limit established by the ING Bank Śląski S.A. Group for purchase (PLN
440,000) or in-house production (PLN 10 million) of computer software. Expenditure for acquisition of items of
intangible assets below the capitalisation limit are recognised by the Bank directly in expenses when incurred.

5.4. Foreign currency

5.4.1. Functional currency and presentation currency

The items given in presentations of the Bank are priced in the currency of the basic economic environment in which
a given entity operates (“functional currency”).
These financial statements are presented in Polish Zloty, which is the functional currency and the presentation
currency of the Bank.

5.4.2. Transactions in foreign currency

Transactions expressed in foreign currencies are translated at FX rate prevailing at the transaction date. The
financial assets and liabilities, being result of the said transactions and denominated in foreign currencies are
translated at the FX rate prevailing on a given day. The foreign exchange differences resulting from the settlements
of the said transactions and the balance sheet valuation of the financial assets and liabilities denominated in
foreign currency are recognized in the income statement under the FX result.

5.5. Financial assets and liabilities

5.5.1. Classification of financial assets

Financial assets are classified by the Bank to one of the following categories:
 measured at amortized cost,
 measured at fair value through other comprehensive income and measured at fair value through profit or
loss.

Financial assets measured at amortised cost

A financial asset is measured at amortised cost if both of the following conditions are met and it is not designated
to measurement at fair value through profit or loss:
 the financial asset is held within a business model whose objective is to hold financial assets in order to
collect contractual cash flows and
 the contractual terms of the financial asset give rise on specified dates to cash flows that are solely
payments of principal and interest on the principal amount outstanding.

Debt financial assets measured at fair value through other comprehensive income
A debt financial assets item is measured at fair value through other comprehensive income if both of the following
conditions are met and it is not designated to measurement at fair value through profit or loss:

19
ING Bank Hipoteczny S.A.
Financial statements for the period from 1 January 2019 to 31 December 2019 (in PLN thousand)

 the financial asset is held within a business model whose objective is to hold financial assets in order to
collect contractual cash flows or to sell the financial assets item,
 the contractual terms of the financial asset give rise on specified dates to cash flows that are solely
payments of principal and interest on the principal amount outstanding.

Financial assets measured at fair value through profit or loss

All financial assets that do not meet the conditions to be classified as financial assets measured at amortised cost
or debt financial assets measured at fair value through other comprehensive income, are classified to financial
assets measured at fair value through profit or loss.
Moreover, at initial recognition, the Bank may irrevocably designate a given financial assets item to be measured at
fair value through income statement, even though, satisfying the terms and conditions of classification, it can be
measured at amortised cost or at fair value through other comprehensive income. It is a prerequisite to confirm
that the purpose of such a designation is to eliminate or limit significantly any accounting mismatch that would
occur without the said designation.

5.5.2. Recognition
The Bank recognises financial assets or liabilities item in the statement of financial position when it becomes bound
with the stipulations of the instrument-related contract.
Purchase and sale transactions of financial assets measured at amortized cost, measured at fair value through
other comprehensive income and at fair value through profit and loss are recognized, in accordance with
accounting policies applied to all transactions of a certain type, at the settlement date, the date on which the asset
is delivered to an entity or by an entity.
When a financial asset or financial liability is recognized initially, it is measured at its fair value plus, in the case of
a financial asset or financial liability not carried at fair value through profit or loss, transaction costs that are directly
attributable to the acquisition or issue of the financial asset or financial liability.
The purchased mortgage loans related debt claims are recognised as at the transaction date 1based on the Debt
Transfer Contract in order to issue covered bonds (hereinafter referred to as: “Transfer Contracts”).

5.5.3. Business Model Assessment

The Bank assesses goals of the business model per organisational unit of the Bank that manages a given portfolio of
financial assets and is its owner.

There are the following business models of holding financial assets; namely assets are held:
 to receive contractual cash flows,
 to receive contractual cash flows or to sell,
 for other reasons (including, but not limited to, in order to maximise profit on sales).

Business models are set at the level that reflects best the Bank’s approach to management of financial assets items
in order to achieve business goals and to generate cash flows.
During assessment, the Bank verifies all areas of operation of the business unit of the owner of the ring fenced
portfolio of financial assets that may affect decisions about holding the assets in the Bank’s portfolio, including,
especially:
 assumptions of the product offer structure,

1
Transaction Date is a date following the conclusion of a given Transfer Contract being the date, referring to the Portfolio transferred thereunder,
at which the first application for entering of ING Bank Hipoteczny S.A. as a mortgage creditor in the Land and Mortgage Register maintained for
the real property encumbered with the Mortgage securing the Debt from that Portfolio is submitted, or the next consecutive date.

20
ING Bank Hipoteczny S.A.
Financial statements for the period from 1 January 2019 to 31 December 2019 (in PLN thousand)

 organisational structure of the unit,

 assumptions concerning assessment of the yield from the portfolio of assets (for instance, approach to
planning, management information assumptions, or key ratios of assessment),
 approach to remuneration for the key management in relation to the portfolio results and cash flows,
 risk of the assets portfolio and management approach to that risk,
 analysis of transactions of sale from the assets portfolio (frequency, volume and reasons for the decisions
taken),
 analysis of projected future sales.

The Bank allows transactions of sale of financial assets held to get contractual cash flows, due to the following
reasons:
 increase in credit risk,
 closeness to maturity date,
 occasional sale,
 sale of insignificant value,
 in response to regulatory/supervisory requirements,
 during liquidity crisis (stress situations),
 change of the credit limit for a given customer.

The Bank assumes that:

 any sale close to the maturity date is the sale of financial assets:
 if the initial maturity date is longer than 1 year - less than 6 months before the maturity date,
 if the initial maturity date is shorter than 1 year - less than 3 months before the maturity date.
 occasional sale means the sale at the level below 10% of the sales transactions in relation to the average
number of items within a given business model,
 sale of insignificant value means sale at the level lower than a ratio determined based on the quotient of
10% rate and the average maturity term of the portfolio in relation to one of the following values:
 quotient of the carrying amount of the sold position in relation to the carrying amount of the whole
portfolio under a given business model,
 quotient of the realised result in relation to net interest margin of the whole portfolio held under
a given business model.

5.5.4. Cash flows assessment

For the needs of cash flows assessment, the Bank assumes the following definitions:
 principal – is defined as fair value of the financial assets item at initial recognition in the Bank’s books,
 interest – is defined as payment that includes:
 fee for the change in time value of money,
 fee for the credit risk of the principal amount due and payable throughout a stipulated period of time,
 fee for other basic credit-related risks and costs (for instance, liquidity risk and overheads) and
 profit margin.

21
ING Bank Hipoteczny S.A.
Financial statements for the period from 1 January 2019 to 31 December 2019 (in PLN thousand)

Assessment is to find out whether cash flows are effected solely to repay principal and interest due and payable
thereon. The Bank verifies the contractual clauses affecting both the time of cash flows and their amount resulting
from specific financial assets.

Most notably, the following terms and conditions are verified:

 contingencies affecting the amount or timelines of cash flows,
 leverages,
 terms and conditions of early payment or prolongation of financing,
 terms and conditions limiting the right to sue attributable to the cash flows realised,
 terms and conditions modifying the fee for the change in time value of money.
The terms and conditions modifying the change in time value of money are assessed using qualitative or
quantitative analysis.

Should the qualitative appraisal not be enough to confirm the conclusion concerning characteristics of the realised
cash flows, the Bank carries out the quantitative one. Quantitative appraisal is carried out by comparing:
 undiscounted cash flows resulting from the analysed contract with
 undiscounted cash flows from the reference asset that does not have any terms and conditions modifying
the fee for the change in time value of money.

If the analysed cash flows differ significantly from each other, the assessed asset has to be classified for
measurement at fair value through the income statement, because cash flows are not effected solely to repay
principal and interest due and payable thereon.

5.5.5. Classification of financial liabilities

The Bank classifies its financial liabilities into categories measured at amortised cost.

Financial liabilities measured at amortized cost are financial liabilities that are contractual obligations to deliver
cash or other financial asset to another entity not carried at fair value through profit or loss, being a deposit, loan
received or a financial liability recognised as a result of a sale of a financial assets item that cannot be derecognized
from the statement of financial position, due to the issue of covered bonds and other securities.

5.5.6. Derecognition
The Bank derecognizes a financial asset from the Bank’s statement of financial position when, and only when the
contractual rights to the cash flows from the financial asset expire or the Bank transfers the financial asset and the
transfer meets the conditions for derecognition.

The Bank transfers the financial asset if and only if:

 it transfers contractual rights to receive cash flows, or
 it retains the contractual rights to receive cash flows but assumes a contractual obligation to transfer the
cash flows.

22
ING Bank Hipoteczny S.A.
Financial statements for the period from 1 January 2019 to 31 December 2019 (in PLN thousand)

When the Bank retains contractual rights to cash flows, but assumes a contractual obligation to transfer those cash
flows, the Bank treats such a transaction as a transfer of a financial asset only if all three of the following conditions
are met:
 the Bank is not obliged to pay the amount to eventual recipients until it has received the corresponding
amounts that result from the original asset,
 under the transfer contract, the Bank may not sell or pledge the original asset, other than as security for
the obligation to transfer cash flows established in favour of eventual recipients,
 the Bank is obliged to transfer all cash flows received from the original asset without material delay.

On transferring the financial asset, the Bank evaluates the extent to which it retains the risks and rewards of
ownership of the financial asset. Accordingly, where the Bank:
 transfers substantially all the risks and rewards of ownership of the financial asset, it derecognises the
financial asset from the statement of financial position,
 retains substantially all the risks and rewards of ownership of the financial asset, it continues to recognise
the financial asset in the statement of financial position,
 neither transfers nor retains substantially all the risks and rewards of ownership of the financial asset, then
the Bank determines whether it has retained control of the financial asset. If control is retained, the
financial asset continues to be recognised in the Bank’s balance sheet; accordingly, if control is not
retained, the financial asset is derecognised from the statement of financial position up to the amount
resulting from continuing involvement.
The Bank derecognizes a financial liability (or a part thereof) from its statements of financial position when, and
only when the obligation specified in the contract is satisfied, cancelled or expires.
The Bank derecognizes a financial asset or a part thereof from the statement of financial position if the rights
resulting from that asset expire, the Bank waives those rights, sells the receivables, is redeemed or as a result of
a material modification of the terms and conditions of the loan or credit agreement.
The Bank shall reduce the gross carrying amount of a financial asset if there is no reasonable prospect of recovering
the financial asset in whole or in part.
The amounts of receivables written down as loss and recovered thereafter reduce the value of impairment loss in
the income statement

5.5.7. Modification of contractual cash flows

If, after renegotiation of the terms and conditions of a credit facility or loan agreement, cash flows from a given
financial assets item are subject to modification, the Bank assesses whether the modification is major and whether
it leads to derecognition of that financial assets item from the Bank’s statements of financial position.

The Bank assumes that modification of the terms and conditions of an agreement is major in case of:
 a change in debtor with the consent of the Bank, or
 a change in legal form/type of financial instrument, or
 currency conversion of the credit facility unless it was provided for in the contractual terms and conditions
in advance.

If a modification is not major and does not lead to derecognition of the financial assets item from the Bank’s
statements of financial position, the Bank recalculates the gross carrying amount of the financial assets item and
recognises modification gain or loss through P/L.

23
ING Bank Hipoteczny S.A.
Financial statements for the period from 1 January 2019 to 31 December 2019 (in PLN thousand)

5.5.8. Measurement
When a financial asset or financial liability is recognized initially, it is measured at its fair value plus, in the case of
a financial asset or financial liability not carried at fair value through profit or loss, transaction costs that are directly
attributable to the acquisition or issue of the financial asset or financial liability.
Other financial liabilities are measured at amortised cost or the amount of due payment.

5.5.9. Impairment
Assessment of impairment is based on measurement of expected credit losses. Such an approach is applied to debt
financial assets and credit exposure.
At each reporting date, the Bank will assess loss allowance for expected credit losses of the financial asset in the
amount equal to the lifetime expected credit losses if the credit risk on a given financial instrument has increased
significantly since initial recognition. If as at the reporting date the credit risk on a given financial instrument has
not increased significantly since initial recognition, the Bank assesses loss allowance for expected credit losses of
that asset in the amount equal to 12-month expected credit losses.
For accounting and regulatory purposes, the Bank assumes that the past due positions include major financial
assets for which there was a delay in repayment of principal or interest. The days past due are calculated starting
from the due date of the oldest due and payable payment and are specified in the agreement signed with the
client. The Bank defines materiality of the financial asset for retail amounts due in the amount of PLN 500.

The Bank measures expected credit losses taking into account:

 unencumbered and probability weighted amount that is determined by assessing numerous possible
results;
 time value of money; and
 reasonable and supportable information that is available without undue cost or effort as at the reporting
date, referring to past events, current conditions and projections concerning future business conditions.
The Bank classifies balance sheet credit exposures as impaired, and impairment loss was incurred when the
following two conditions are met:
 there is evidence of impairment resulting from one event or more events occurring after initial recognition
of the balance sheet credit exposure in the accounting books,
 the event (or events) causing loss impacts (or impact) the expected future cash flows resulting from the
balance sheet credit exposure or a group of the balance sheet credit exposures that can be reliably
assessed.
Any delay (in the MTG portfolio) in performance of any major credit obligations of the client towards the Bank,
parent entity in excess of 90 days is a default on the client’s part. Definition of default on the client’s part is coherent
with the definition of impairment.

Approach based on 3 stages

The method of estimation of provisions applied by the Bank depends on the change in the level of credit risk of
a given exposure to the risk level determined at the date on which the credit facility was granted. Based on the
change in the credit risk level, exposure is classified to one of three stages differing in the method of calculation of
the expected credit loss:
 Stage 1 – covers exposures working without any recognised significant increase in the credit risk since the
date on which they were granted. Each loan is in Stage 1 at the time it is granted. A provision is calculated
based on a 12-month expected loss.
 Stage 2 – covers exposures working with recognised significant increase in the credit risk since the date on

24
ING Bank Hipoteczny S.A.
Financial statements for the period from 1 January 2019 to 31 December 2019 (in PLN thousand)

which they were granted. The provision is calculated based on lifetime expected credit loss of the
exposure, namely from the reporting date to the remaining maturity.
 Stage 3 – the exposures with identified impairment, namely in default. The provision is calculated based
on the assets’ lifelong expected credit loss for PD = 100%.
The Bank classifies the exposures to Stage 1, 2 or 3 using a cascade approach in the following order:
1. Identification of the impaired exposures and classifying them to Stage 3.
2. Allocation of exposures to Stage 2 based on the criteria of a significant increase in credit risk.
3. Allocation of the remaining exposures to Stage 1.

Definition of a significant increase in credit risk

A significant increase in credit risk, resulting in the classification to Stage 2, is evidenced by the occurrence of at
least one of the following prerequisites, the leading one being the first:
 a significant increase in the PD over the exposure lifetime determined for the reporting date in relation to
the PD ‘lifetime’ as of the date the exposure was granted in the perspective of the period remaining from
the reporting date to the maturity date,
 granting of forbearance to the customer,
 restructuring without identified impairment – risk ratings 17/18/19,
 delay in debt repayment in excess of 30 days,
 the Client has a CHF mortgage loan at another bank.

Rationale for classifying an asset measured at amortised cost to Stage 3

At each balance sheet date, the Bank assesses whether a financial asset or a group of financial assets is impaired. A
financial asset item or a group of financial assets is impaired, if, and only if, there is evidence of impairment as
a result of one or more events that occurred after the initial recognition of the asset item (a ‘loss event’) and that
loss event (or events) has (have) an impact on the expected future cash flows of the financial asset item or a group
of financial assets that can be reliably estimated. The Bank recognises expected credit losses based on reasonable
and supportable information that is available without undue cost or effort as at the reporting date, referring to past
events, current conditions and projections concerning future business conditions.
The Bank defined objective evidence of impairment the occurrence of which has a direct impact on valuation of
future financial cash flows related to the credit receivables.

Objective impairment evidence of retail credit exposure covers the occurrence of at least one of the following
situations:
 the client has discontinued to repay the principal, pay interest or commissions, with the delay of +90 DPD,
provided that the amount of arrears is higher than the materiality threshold defined for a given client
segment or product,
 another forbearance has occurred or there is a delay of +30 DPD; this does not apply, however, to the
exposures which have been classified as performing all the time since the forbearance status was granted
and have not yet been reclassified as non-performing,
 announcement/approval of the consumer bankruptcy - if they assume that the Bank will not be repaid in
full - this situation should refer to all debtors of the specified credit exposure and all exposures of a given
client,
 the credit exposure becomes due and payable as a consequence of the Bank’s having terminated the loan
agreement,

25
ING Bank Hipoteczny S.A.
Financial statements for the period from 1 January 2019 to 31 December 2019 (in PLN thousand)

 the Bank cancels or writes off a significant amount of the client receivables, which leads to reduction in
cash flows from a given financial assets item. For retail credit exposures:
 amortization of the balance of the principal or/and interest in the total amount exceeding PLN 200,
however the debt together with the amortized amount exceed the materiality threshold,
 written-off, and the balance amount increased by the written-off amount plus interest exceed the
materiality threshold,
 the Bank initiates the debt enforcement proceedings,
 the client questions the balance sheet credit exposure in court,
 the client’s whereabouts are unknown so the client is not represented in contacts with the Bank,
 significant financial difficulties of the Client, especially restructuring of the non-performing retail credit
exposure,
 for retail credit exposures – justified suspicion of fraudulent obtainment of a loan.

Should an objective evidence of impairment be identified on the exposure, it is assumed that impairment is also
recognised on other exposures (in MTF portfolio).
Identification of the objective impairment evidence requires downgrading the client to the worst risk rating. For the
credit portfolio of the Bank current monitoring of the timely repayment of the amounts due to the Bank is carried
out based on available tools and reports, which makes it possible to identify any threat of future indications or
objective evidence of impairment before they crystallize.
The entire lending portfolio of retail clients is tested for exposure impairment.
If after the assessment we find that for a given financial assets item there are no reasons for impairment, the item is
included in the group of financial assets with similar credit risk characteristics, which indicate that the debtor is
capable to repay the entire debt under to the contractual terms and conditions. Impairment loss for such groups is
subject to collective assessment based on measurement of expected credit losses. If there is any evidence of
impairment of assets item measured at amortised cost, then the amount of the impairment is the difference
between the carrying amount of an asset and the present value of estimated future cash flows, discounted with the
initial effective interest rate of a given financial instrument item.
In practice, this means that for Stage 3 portfolio (financial assets that individually are insignificant) - the loss is
determined with the collective impairment calculation method using the lifetime expected credit loss of the asset.
When estimating future cash flows, available information on the debtor is taken into account, in particular the
possibility of repayment of the exposure is assessed, and for backed credit exposures, the expected future cash
flows on collateral execution are also used in the estimation, considering the time, costs and impediments of
payment recovery under collateral sale, among other factors.
If the existing evidence of impairment of an assets item or financial assets group measured at the amortised cost
indicate that there will be no expected future cash flows from the abovementioned financial assets, the impairment
loss of assets equals their carrying amount.
As of 31 December 2019, the ING Group got prepared to implementation of the new definition of default (DoD), in
compliance with the supervision requirements specified by the European Banking Authority (EBA) in the Guidelines
on the application of the definition of a default as set out in Article 178 of Regulation (EU) No. 575/2013 and in the
Regulatory Technical Standards (RTS) of 19 October 2017 on uniform materiality thresholds and the local
Regulation of the Minister of Finance, Investment and Development on the materiality level of overdue credit
obligations.
The new definition of default was implemented in February 2020. Systems and applications, reporting rules and
internal regulations were adjusted to the new DoD. The Bank does not expect that the adjustment would have
a material impact on the parameters of the credit portfolio risk.

26
ING Bank Hipoteczny S.A.
Financial statements for the period from 1 January 2019 to 31 December 2019 (in PLN thousand)

Measurement of the expected credit losses

To measure expected credit loss in a collective approach, the Bank uses regulatory models of estimating risk
parameters of PD, LGD and EAD adjusted to the requirements of IFRS 9, built for the needs of the Advanced Internal
Ratings Based Approach (AIRB method). The risk parameter models for the purposes of IFRS 9 maintain the same
structure as the regulatory models, while the method of estimating specific parameter values (PD, LGD, EAD) is
adapted to the requirements of IFRS 9, and in particular includes reasonable and supportable information that is
available without undue cost or effort as at the reporting date, referring to past events, current conditions and
projections concerning future business conditions. Parameters of these models were calibrated in line with the PIT
(point-in-time) approach and forecasted for 30 years. Parameter EAD takes account of schedules of repayments in
accordance with the credit agreements.
Measurement of the expected credit loss (EL) according to IFRS 9 requires forecasting of changes in the risk
parameters PD, LGD and EAD (EL = PD x LGD x EAD) in the period from the reporting date to the maturity date,
namely within the lifetime of exposure. Forecasting is based on functional dependencies, worked out on historical
data, of the changes in risk parameters on the changes in macroeconomic factors. The final level of provisions on
exposures in Stage 2 and Stage 3 results from the total expected losses calculated each year in future to the
remaining maturity, taking into account discounting.
The impairment loss calculated collectively is based on historical loss experience for assets portfolios with similar
credit risk characteristics.
The Bank measures the Lifetime Expected Loss (LEL) on an exposure without recognised impairment as the
discounted total of partial losses over the lifetime of exposure, relating to events of default in each 12-month time
window remaining to the maturity date of the exposure.
The Bank calculates the expected credit loss as a probability weighted average based on a few macroeconomic
scenarios of various probability of occurrence. The expected loss is calculated for each scenario separately and the
probability weighted average results from the weights (probabilities) assigned to each scenario (sum of weights =
100%). Such an approach meets the requirement of the standard that a provision (impairment loss) is an
unencumbered and probability-weighted amount determined based on a range of possible outcomes.
The projection (valuation) of the expected loss is made at each point in time in the future, depending on the
economic conditions expected at a given point. Based on historical data, the Bank has defined the relations
between the observed parameters of expected loss (PD, LGD) and macroeconomic factors as functions based on
which - with the given projections of macroeconomic factors - the expected values of the parameters of expected
loss in a given year in the future are calculated according to the forward looking PiT approach.
For the needs of estimating the expected loss, the Bank determines the level of EAD exposure only for irrevocable
credit obligations by applying CCF conversion factors (percentage of the use of the free part of the credit limit in the
period from the reporting date to the occurrence of a default) from regulatory EAD models (estimated according to
the TTC approach - ‘through the cycle’). EAD decreases over time in line with the repayment schedule of a given
exposure.
For exposures with a specified final repayment date the time to maturity is limited to 30 years.
The LGD parameter, which is a function of the applied credit risk mitigation techniques and which is expressed as
a percentage of EAD, is estimated at the product and exposure level based on parameters from regulatory LGD
models calibrated for the needs of IFRS 9 (estimated according to the TTC approach - ‘through the cycle’).
The level of the LGD parameter used to calculate the amount of impairment loss using the collective approach for
impaired exposures (PD = 100%) depends on how long the credit exposure defaults.

Valuation of expected loss attributable to the risk other than credit one
If the risk of impairment is identified that results from reasons other than credit risk, e.g. due to legal risk related to
a selected portfolio of assets, the Bank makes an additional impairment loss according to the methodology
reflecting the nature of a given risk. Similarly as in the case of a write-off for credit risk, the Bank calculates the

27
ING Bank Hipoteczny S.A.
Financial statements for the period from 1 January 2019 to 31 December 2019 (in PLN thousand)

expected loss as a probability-weighted average of several scenarios (most often three: base, positive and negative)
with different probability of occurrence.

Recognition of a write-down of an expected credit loss on assets measured at amortised cost

The impairment is presented as a decrease in the carrying amount of the assets item through use of an impairment
loss and the amount of the loss (the impairment loss formed) is recognised in the income statement for the period.
If in a consecutive period, the amount of loss due to the impairment decreases as a result of an event that took
place after the impairment (e.g. improved credit capacity assessment of the debtor), the previous impairment loss
is reversed through the income statement by a proper adjustment.

Rationale for classification of a financial asset measured at fair value through other comprehensive income to
Stage 3
At each balance sheet date, the Bank assesses whether there is any objective evidence of impairment of debt
financial assets classified as measured at fair value through other comprehensive income. Confirmation that such
an objective evidence of impairment occurred is a premise for the classification of an asset to Stage 3.
The evidence indicating that a financial asset or a group of financial assets have been impaired may result from one
or more conditions which are presented herein below:
 significant financial problems of the issuer (e.g. material negative equity, losses incurred in the current
year exceeding the equity, termination of credit facility agreement of material value at other bank),
 a breach of contract, including in particular a default or delinquency in in repayment of liabilities due (e.g.
interest or nominal value), interpreted as materialisation of the issuer’s credit risk,
 awarding the issuer with repayment facilities by their creditors, which would not be awarded in different
circumstances,
 high probability of bankruptcy or other financial restructuring of the issuer,
 identification of financial assets impairment in the previous period,
 disappearance of the active market for financial assets that may be due to financial difficulties of the
issuer,
 published analyses and forecasts of rating agencies or other units which confirm a given (high) risk profile
of the financial asset, or
 other tangible data pointing to determinable decrease in estimated future cash flows resulting from
financial assets group which appeared upon their initial recognition in the Bank books. The data referred to
hereinabove may concern unfavourable changes in the payment situation on the part of issuers from
a certain group or unfavourable economic situation of a given country or its part, which translates into the
repayment problems sustained by this group of assets.

Recognition of a write-down of an expected credit loss on debt financial assets measured at fair value through
other comprehensive income
If there is objective evidence that debt financial assets measured at fair value through other comprehensive income
are impaired, the part of the measurement corresponding to the amount of the impairment loss is derecognised
from other comprehensive income and recognised in the income statement, even if the financial asset is not
derecognised from the statement of financial position.
The amount of the cumulative loss that is removed from equity and recognised in the income statement is the
difference between the acquisition cost (net of any principal repayment and amortisation) and current fair value,
less any impairment loss on that financial asset previously recognised in the income statement.

28
ING Bank Hipoteczny S.A.
Financial statements for the period from 1 January 2019 to 31 December 2019 (in PLN thousand)

5.5.10. Gains and losses resulting from later measurement

A gain or loss arising from a change in the fair value of a financial asset or financial liability that is not part of
a hedging relationship is recognized, as follows:
 a gain or loss on a financial asset or financial liability carried at fair value through profit or loss is
recognized in the income statement;
 a gain or loss on a financial assets item carried at fair value through other comprehensive income is
recognized directly in equity through the statement of changes in equity.

Settlement of interest using the effective interest method

Interest income is calculated using the effective interest method. The value is calculated by applying the effective
interest rate to the gross carrying amount of the financial assets item, except of:
 purchased or originated credit-impaired financial assets. For these financial assets items, the Bank applies
credit-adjusted effective interest rate to amortised cost of the financial assets item since initial
recognition;
 financial assets items other than purchased or originated credit-impaired financial assets, which then
became credit-impaired financial assets (Stage 3).

In case of such financial assets items, the Bank applies credit-adjusted effective interest rate to (net) amortised cost
of the financial assets item in later reporting periods.

Non-interest elements
FX gains and losses arising from a change in financial assets item measured at fair value through other
comprehensive income denominated in foreign currency are recognized directly in equity only in case of non-
monetary assets, whereas FX differences generated by monetary assets (for instance, debt securities) are
recognised in the income statement.
At the moment of derecognition of a debt financial asset from the statements of financial position, cumulated
gains and losses recognized previously in equity, are transferred to the income statement.

If any objective evidence exists that a debt financial assets item measured at fair value through other
comprehensive income impaired, the Bank recognises impairment loss as described in an item concerning
impairment of financial assets measured at fair value through other comprehensive income.

Fair value of financial assets and liabilities quoted on an active market (including securities) is determined using
a bid price for a long position and an offer price for a short position. If there is no alternative market for a given
instrument, or in case of securities that are not quoted on an active market, the Bank determines the fair value
using valuation techniques, including but not limited to, using recent arm’s length transactions, discounted cash
flow analysis, option pricing models and other valuation techniques commonly used by market participants. The
fair value of financial assets and liabilities is determined with the use of the prudent valuation approach. This
approach aims at determining the fair value with a high, 90%, confidence level, considering uncertain market
pricing and closing cost.

Market activity is assessed on the basis of frequency and volume of effected transactions as well as access to
information about quoted prices which by and large should be delivered on a continuous basis.
The main market and the most beneficial one at the same time is the market the Bank can access and on which in
normal conditions it would enter into sale/purchase transactions for the item of assets or transfer of a liability.

29
ING Bank Hipoteczny S.A.
Financial statements for the period from 1 January 2019 to 31 December 2019 (in PLN thousand)

Based on the employed fair value methods, financial assets/liabilities are classified as:
 Level I: financial assets/liabilities measured directly on the basis of prices quoted in the active market,
 Level II: financial assets/liabilities measured using the measurement techniques based on assumptions
using data from an active market or market observations,
 Level III: financial assets/liabilities measured using the measurement techniques commonly used by the
market players, the assumptions of which are not based on data from an active market.

The Bank verifies on a monthly basis whether any changes occurred to the quality of the input data used in
individual measurement techniques and determines the reasons and their impact on the fair value calculation for
the financial assets/liabilities item. Each identified case is reviewed individually. Following detailed analyses, the
Bank takes a decision whether its identification entails any changes to the approach for fair value measurement or
not.

In justified circumstances, the Bank decides to modify the fair value methodologies and their effective date
construed as the circumstances change date. Then, they assess the impact of changes on the classification to the
individual categories of the fair value measurement hierarchy. Any amendments to the measurement
methodology and its rationale are subject to detailed disclosures in a separate note to the financial statements.

5.6. Non-financial assets

5.6.1. Property, plant and equipment

5.6.1.1. Own property, plant and equipment

Property, plant and equipment consist of controlled non-current assets and costs to construct such assets. Non-
current assets include property, plant and equipment with an expected period of use above one year, maintained to
be used to serve the Bank’s needs or to be transferred to other entities, based on the lease contract or for
administrative purposes.
Property, plant and equipment are recognised using the model based on the purchase price or manufacturing cost,
namely, after initial recognition they are recognized at historical cost less depreciation/amortization and
impairment.
The historical cost is made up of the purchase price/ manufacturing cost and the costs directly related to the
purchase of assets.
Each component part of the property, plant and equipment item whose purchasing price or manufacturing cost is
material in comparison with the purchase price or manufacturing cost of the entire item, is depreciated separately.
The Bank allocates the initial value of the property, plant and equipment to its significant parts.

5.6.1.2. Subsequent costs

Under the property, plant and equipment item of the balance sheet the Bank recognizes the costs of replacement
of certain elements thereof at the time they are incurred if it is probable that the Bank is likely to earn any asset-
related prospective economic benefits and the purchase price or the manufacturing cost may be measured
reliably. Other costs are recognised in the income statement at the time they are incurred.

5.6.2. Intangible assets

An intangible asset is an identifiable non-monetary asset without physical substance.
Intangible assets are deemed to include assets which fulfil the following requirements:
 they can be separated from an economic entity and sold, transferred, licensed or granted for use for a fee

30
ING Bank Hipoteczny S.A.
Financial statements for the period from 1 January 2019 to 31 December 2019 (in PLN thousand)

to third parties, both separately, and together with their accompanying contracts, assets or liabilities, and
 they arise from contractual titles or other legal titles, irrespective of whether those are transferable or
separable from the business entity or from other rights and obligations.

5.6.2.1. Computer software

Purchased computer software licences are capitalised in the amount of costs incurred for the purchase and
adaptation for use of specific computer software. Costs of computer software development or maintenance are
recognized when incurred.

5.6.2.2. Subsequent costs

Subsequent costs incurred after initial recognition of acquired intangible asset are capitalised when it is probable
that such expenditures will ensure future economic benefits for the Bank. In other cases, costs are recognised in the
income statement as costs when incurred.

5.6.3. Depreciation and amortization charges

The depreciation/amortization charge of property, plant and equipment and intangible assets is applied using the
straight line method, using defined depreciation/amortization rates throughout the period of their useful lives. The
depreciable/amortizable amount is the purchase price or production cost of an asset, less its residual value. The
useful life, amortization/depreciation rates and residual values of property, plant and equipment and intangible
assets are reviewed annually. Conclusions of the review may lead to a change of depreciation/amortization periods
recognized prospectively from the date of application (the effect of this change is in accordance with IAS 8 carried
through profit or loss).
Depreciation and amortization charges of property, plant and equipment are recognized in the income statement.
The depreciation/amortization periods are as follows:
 devices 3 - 7 years
 equipment 5 years
 costs of software development 3 years
 software licenses 3 years

5.6.4. Impairment of other non- financial assets

For each balance sheet date, the Bank assesses the existence of objective evidence indicating impairment of a non-
current assets item. If such evidence exists, the Bank performs an estimation of the recoverable value. If, and only if,
the recoverable amount of an asset is less than its carrying amount, the carrying amount of the asset shall be
reduced to its recoverable amount.

5.6.5. Recognition of impairment loss

If there are conditions of impairment of common property, i.e. the assets which do not generate cash
independently from other assets or groups of assets, and the recoverable amount of the individual asset included
among common property cannot be determined, the Bank determines the recoverable amount at the level of the
cash-generating unit, to which the given asset belongs. An impairment loss is recognized if the book value of the
asset or cash-generating unit exceeds its recoverable amount.

31
ING Bank Hipoteczny S.A.
Financial statements for the period from 1 January 2019 to 31 December 2019 (in PLN thousand)

5.6.6. Reversing impairment loss

An impairment loss of other assets is reversed if, and only if, there has been a change in the estimates used to
determine the asset’s recoverable amount. An impairment loss can be reversed only up to the amount, at which
the book value of impaired asset does not exceed its book value, which decreased by depreciation/amortization
charge, would be established, if no impairment loss had been recognized.

5.7. Lease contracts

The Bank as a Lessee (The policy binding as of 1 January 2019)

The Bank is a party to lease contracts, under which it receives the right to control the use of an identified assets item
in a given period for a fee. The Bank applies the stipulations of IFRS 16 to recognition of all lease contracts, except for
intangible assets lease contracts and with exceptions provided for in the standard and described herein below.
Lease and non-lease elements are identified in contracts by the Bank.
Non-lease payments for contracts are recognised in income statement as expenses, using the straight-line method,
throughout the period of lease. Lease payments are recognised in accordance with the principles described herein
below.
As at the beginning of lease, the Bank recognises right-of-use assets and lease liabilities. Initially, lease liabilities are
measured by the Bank at present value of future lease payments. To determine the discounted value of lease
payments, the Bank applies lease interest rate, and if such a rate is hardly available, the Bank applies the marginal
interest rate. The Bank determines the interest rate for lease as the sum of the interest rate for swaps and internal
transfer price, taking into account currencies of the lease contracts and maturity dates of the contracts. After the
initial lease date, the carrying amount of the liability:
 is increased by accrued lease interest that is recognised in the income statement as interest expenses,
 is decreased by effected lease payments,
 is revised as a result of re-assessment, change in lease or change in generally fixed lease payments.
As at the initial lease date, the Bank recognises right-of-use assets at cost, the basis of which is the amount of the
initial measurement of lease liability. The cost of the right-of-use assets item includes also:
 lease payments made at or prior to commencement of lease, less the received lease incentives,
 initial direct costs incurred by the lessee,
 costs to be incurred by the lessee in order to return the assets item to its initial condition.
The right-of-use is depreciated throughout the lease period and is impaired.
During the term of lease, the right-of-use value is reset as a result of re-measurement of the lease liability.
To identify future lease payments, the lease term has to be determined. Doing it, the Bank takes into account an
irrevocable lease period together with the periods for which the lease may be extended and the periods in which
the lease may be terminated. At the commencement of the lease contract, the Bank assesses whether it can be
reasonably assumed that the Bank will exercise an option to extend the lease, or it will not exercise an option to
terminate the lease. To carry out the assessment, the Bank takes into account all major facts and circumstances
that give economic incentive to exercise or not to exercise the said options. The Bank reviews the lease term in order
to re-assess major events or circumstances that may affect the estimated lease term. Lease is no longer
enforceable when both the lessee and the lessor have the right to terminate the lease without a prior permit of the
other party, which would result in minor penalty at most. For lease contracts concluded for an indefinite period, in
case of which both parties may exercise the option to terminate and in case of which there are potentially high
costs of contract termination, the Bank assesses the lease term.

32
ING Bank Hipoteczny S.A.
Financial statements for the period from 1 January 2019 to 31 December 2019 (in PLN thousand)

The Bank avails itself of exemption for:

 short-term leases - a contract may be classified as a short-term one if the contract term is not longer than
12 months, and there is no option to buy the object of the lease contract;
 leases of low-value objects of lease - assets may be classified as low-value assets if the gross price of
acquisition of a new assets item is not higher than EUR 5,000, and the object of lease contract neither is
nor will be sub-leased.
Lease payments under the abovementioned contracts are recognised by the Bank in the income statement as
expenses throughout the lease term on a systematic basis.

The Bank as a Lessor

The Bank concludes no lease contracts as a lessor.

5.8. Other items of the statement of financial position

5.8.1. Other trade debtors and other receivables

Other trade debtors and other receivables are recognized and carried at original invoice amount less an allowance
for expected credit losses.
The Bank applied a simplified approach to the assessment of a loss allowance for expected credit losses and
recognises the allowance in the amount equal to the receivables lifetime expected credit losses.

If the effect of the time value of money is material, the value of receivable is determined by discounting the
expected future cash flows to the current value, with applying the discount rate that reflects the current market
assessments of time value of money. If the discounting method has been applied, the increase of receivables due to
time lapse is recognized as financial income.
Other trade debtors and other receivables include settlements with off-takers in particular. Budgetary receivables
are recognized as part of other financial assets, except for corporate income tax receivables, which are a separate
item on the statements of financial position.

5.8.2. Liabilities
Other liabilities comprise in particular: payables for the benefit of tax office under VAT, settlements with suppliers
and payables due to received prepayments which will be settled by means of delivering goods, services or non-
current assets. Other liabilities are recognized in the amounts due.

5.8.3. Cash and cash equivalents

Cash and cash equivalents for the purposes of a cash flow statement consists of cash and cash equivalents,
however ING Bank Hipoteczny S.A. does not keep cash but only cash equivalents, namely balances on current
accounts and term deposit accounts held by other banks.

5.9. Equity
Equity comprises of: share capital, supplementary capital from the sale of shares above their nominal value,
retained earnings and cumulated other comprehensive income. The equity is established by the Bank in
accordance with the applicable law and the Charter. All balances of capital are recognized at nominal value.

33
ING Bank Hipoteczny S.A.
Financial statements for the period from 1 January 2019 to 31 December 2019 (in PLN thousand)

5.9.1. Share capital

Share capital is presented at nominal value, in accordance with the charter and entry to the Register of
Entrepreneurs.

5.9.2. Share premium

Share premium is formed from agio obtained from the issue of shares less the attributable direct costs incurred with
that issue.

5.9.3. Retained earnings

Retained earnings are created from profit write-offs and are allocated for purposes specified in the Articles of
Association (the Company’s Charter) or other legal regulations. The retained earnings include the net financial
result. The financial result after tax represents the result before tax from the income statement for the current year
adjusted with the amount owed or due under the corporate income tax.

5.9.4. Accumulated other net comprehensive income

Accumulated other comprehensive income occurs as a result of:
 measurement of financial instruments classified to be measured through other comprehensive income,
 actuarial profits / losses.
Changes in the deferred tax assets and liabilities resulting from recognition of the said measurements are carried
through accumulated other comprehensive income. The accumulated other comprehensive income is not
distributable.

5.10. Prepayments and deferred income

5.10.1. Prepayments
Prepayments comprise particular expenses which will be carried through the income statement as being accrued
over the future reporting periods. Prepayments include primarily provisions for material costs due to services
provided for the Bank by counterparties, as well as subscription, insurance and IT services costs paid in advance to
be settled in the future periods. Prepayments are presented in the statement of financial position in the Other
assets item.

5.11. Employee benefits

5.11.1. Benefits under the Act on employee pension programmes

Expenses incurred due to a programme of certain contributions are recognised as costs in the income statement.

5.11.2. Short term employee benefits

Short-term employee benefits of the Bank (other than termination benefits) comprise of remuneration, bonuses,
paid annual leave and social security contributions.
The Bank recognizes the anticipated, undiscounted value of short-term employee benefits as an expense of an
accounting period when an employee has rendered service (regardless of payment date) in correspondence with
other liabilities from the statements of financial position.
The amount of short-term employee benefits on the unused holidays to which Bank employees are entitled is
calculated as the sum of unused holidays to which particular Bank employees are entitled.

34
ING Bank Hipoteczny S.A.
Financial statements for the period from 1 January 2019 to 31 December 2019 (in PLN thousand)

5.11.3. Long-term employee benefits

5.11.3.1. Benefits under the Labour Code regulations

Provisions for retirement severance pay granted under benefits due to regulations of the Labour Code are
estimated on the basis of the actuarial valuation. The provisions being the result of an actuarial valuation are
recognised and adjusted on an annual basis.
Provisions for long-term employee benefits are recognised in the Provisions item of the statements of financial
position in correspondence with costs of labour in the income statement.
The assumptions of the method used to compute and present actuarial gains and losses are given in the item
concerning estimates on pension and disability provisions.

5.11.3.2. Variable remuneration programme benefits

Variable remuneration programme benefits are granted in two parts:
 one paid in cash (no more than 50%), and
 value of benefits granted in a form of financial instruments entitling to receive cash whose value is
conditional on the book value of net assets of ING Bank Hipoteczny S.A. per share, adjusted with factors
affecting the said assets, other than the financial result.
The programme component paid in cash is recognised following the approach of projected unit rights and is settled
over time throughout the vesting period (i.e., both during the appraisal period understood as the year of work for
which employees obtain benefits and during the deferral period – adequate benefit components). The value of non-
deferred benefit is recognised as liability towards employees in correspondence with the income statement,
whereas value of the deferred benefit is recognised as accruals and deferred payments in correspondence with the
income statement. As regards the benefits granted in the form of financial instruments a one-year retention period
applies; it refers to both the part granted after the assessment year (non-deferred part) and to the deferred part of
the benefit under the same principles as for the cash part (annual, two-year, three-year periods, etc.). During the
holding period, the employee who was granted the benefit shall not exercise the rights from the granted
instruments . The value of non-deferred benefit is recognised as liability towards employees in correspondence
with the income statement, whereas value of the deferred benefit is recognised as accruals and deferred payments
in correspondence with the income statement.

5.12. Provisions
Provisions are liabilities whose amount and due date are not certain. Provisions are established when the Bank is
under current (legal or customarily expected) obligation resulting from past events and when it is probable that
fulfilment of that obligation will call for funds with economic benefits embedded therein and a reliable assessment
of that obligation may be made.
When time value of money is of significance, the provision is determined by way of discounting the projected future
cash flows to current value, at a pre-tax discount rate reflecting the actual market prices regarding time value of
money and the potential risk related to a given liability.

5.13. Income statement

5.13.1. Net interest income

Interest income and expenses on all financial instruments are recognized in the income statement. Interest income
on financial assets measured at amortized cost and measured at fair value through other comprehensive income is

35
ING Bank Hipoteczny S.A.
Financial statements for the period from 1 January 2019 to 31 December 2019 (in PLN thousand)

recognised in income statement at amortized cost using the effective interest rate or credit-adjusted effective
interest rate.
The effective interest method is a method of calculating the amortized cost of a financial assets item or a financial
liability (or group of financial assets or financial liabilities) and of allocating the interest income or interest expense
over the relevant period. The effective interest rate is the rate that discounts estimated future cash payments or
receipts through the expected life of the financial instrument or, when appropriate, a shorter period to the net
carrying amount of the financial asset or financial liability.
When calculating the effective interest rate, an estimate of cash flows is made considering all contractual terms of
the financial instrument but future credit losses are not considered. The calculation includes all fees and
commissions paid or received (external) by the parties to the contract that are an integral part of the effective
interest rate, transaction costs, and all other premiums or discounts.
Potential future credit losses are taken into account only and exclusively in case of financial assets that are credit-
impaired at initial recognition. This is done in order to calculate the credit-adjusted effective interest rate.
Interest income comprises interest and commission (received or due) recognized in the calculation of the effective
interest rate due to: loans with repayment schedule, intrabanking deposits.
The main items of the Bank’s statement of financial position in case of which the effective interest rate method is
applied are loans and advances granted to customers, as well as liabilities due to the issue of covered bonds. The
main transaction costs related to loans and advances granted to customers are the costs of purchasing receivables
attributable to mortgage loans (costs of court entries related to the transfer of a mortgage and costs of extended
inspections included), whereas with regard to liabilities arising from the issue of covered bonds, the costs of court
entries related to the mention of the loan being entered in the register of collaterals of covered bonds may be listed
among the examples of transaction costs settled with the effective interest rate method.
In case impairment is recognized for a financial assets item or group of similar financial assets, interest income is
accrued based on the present value of the receivable (that is the value reduced by impairment loss) with the use of
the interest rate according to which future cash flows were discounted for impairment valuation.

5.13.2. Commission income and costs

Commission income arises from providing financial services by the Bank and comprises, among others, fees for
certificates about credit liabilities owed/repaid, commission for early repayment of mortgage loans, fees for
commissioned real estate inspection in connection with a change in collateral by the client.
Fees and commissions (both income and expenses) directly attributed to the rise of financial assets with repayment
schedule are recognised in the income statement as effective interest rate component and are part of the interest
income.
The Bank includes, for example, commission for amending the credit agreement as to the amount or schedule of
loan repayments as commissions adjusting the effective interest rate;
Other commissions that are interwoven with occurrence of assets without defined schedules are cleared on
a straight line basis throughout the contract.
Other fees and commissions relating to the financial services offered by the Bank are recognised in the income
statement taking into account the five steps principle:
1. identification of an agreement signed with a customer,
2. identification of specific liabilities in the agreement,
3. setting of the transaction price,
4. price allocation to specific contractual liabilities, and
5. recognition of income when specific liabilities are met.

36
ING Bank Hipoteczny S.A.
Financial statements for the period from 1 January 2019 to 31 December 2019 (in PLN thousand)

Based on the carried out analyses, the Bank recognises fees and commission income:
 on a one-off basis, when the service was provided (also for advance payments), that is when the control
over goods or services is transferred;
 over time, if the services are provided over certain period of time;
 at a specific point-in-time when the Bank performs key activities;
 when, from the customer’s point of view, there is an actual benefit.

After an obligation to provide service is met (or in the period when it is being met), the Bank recognises as income
the transaction price assigned thereto.
Commission income that was accrued and is due but was not paid on time is derecognised from the Bank’s financial
result upon the lapse of 90 days.

5.13.3. FX result
FX result includes positive and negative FX differences, both the realised ones as well as the ones that are not
realised, resulting from daily valuation of FX assets and liabilities at the average exchange rate announced by the
National Bank of Poland and applicable as at the end of the reporting period.

5.13.4. Net income on other basic activities

Net income on other basic activities comprises expenses and income not attributed directly to banking activity,
including costs of the created provision for the reimbursement of a part of credit cost resulting from prepayments
of consumer loans.

5.14. Taxes

5.14.1. Income tax

Income tax is recognized as current and deferred tax. Current income tax is recognized in the income statement.
Deferred income tax is recognized in the income statement or equity depending on type of temporary differences.
Current tax is a liability calculated based on taxable income at the binding tax rate at the balance sheet date
including adjustments of prior year tax liability.

5.14.2. Deferred income tax

The Bank creates a provision for deferred tax in respect of a temporary difference caused by different moment of
recognising income as generated and costs as incurred in accordance with the accounting regulations and
corporate income tax provisions. A positive net difference is recognized in liabilities as Deferred tax provisions.
A negative net difference is recognized under Deferred tax assets.
The deferred income tax provision is created by using the balance-sheet method for all positive temporary
differences occurring as at the balance-sheet date between the tax value of assets and liabilities and their carrying
amount disclosed in the financial statements.
Deferred tax assets are recognized for all negative temporary differences as at the balance sheet date between the
tax value of assets and liabilities and their carrying amount disclosed in the financial statements and unused tax
losses.
Deferred tax assets are recognized in such amount in which taxable income is likely to be earned allowing to set off
negative temporary differences, except for the situations when the component of deferred tax assets arises from
the initial recognition of an asset or liability.

37
ING Bank Hipoteczny S.A.
Financial statements for the period from 1 January 2019 to 31 December 2019 (in PLN thousand)

The carrying amount of a deferred tax asset shall be verified for each balance sheet date and reduced if it is no
longer likely to achieve taxable income sufficient for a partial or full realization of the deferred tax component.
Deferred tax assets and deferred tax provisions are estimated with the use of the tax rates which are expected to be
in force when the asset is realized or provision released, assuming the tax rates (and tax provisions) legally or
factually in force as of the balance sheet date.
Income tax for the items directly recognized in equity is recognized in equity.
The Bank offsets deferred tax assets and deferred tax provisions, where it has legal title to effect such offsetting.

5.14.3. Other taxes

Income, costs and assets are recognised less the value added tax, tax on civil law acts, and other sales taxes, except
where the sales tax, paid upon purchase of goods and services, is not recoverable from the tax authorities; in that
case, the sales tax is recognized accordingly as a part of the cost of acquisition of an asset, or as part of a cost item.
The net amount of sales tax recoverable from or payable to the tax authorities is recognized in the statement of
financial position as an item of receivables or liabilities.

6. Comparability of financial data

In the annual financial statement prepared for the period from 1 January 2019 to 31 December 2019 ING Bank
Hipoteczny S.A. did not change the method of presentation of the financial data in relation to the annual financial
statements for the period from 26 February 2018 to 31 December 2018.

38
ING Bank Hipoteczny S.A.
Financial statements for the period from 1 January 2019 to 31 December 2019 (in PLN thousand)

7. Notes to the financial statements

NOTES TO INCOME STATEMENT

7.1. Net interest income

period period
from 01.01.2019 from 26.02.2018
to 31.12.2019 to 31.12.2018
Interest income, including 54,184.8 947.4
Interest income calculated using the effective interest method,
54,184.8 947.4
of which:
interest on loans and other receivables from customers measured at amortised cost 49,909.8 0.0
interest on receivables from banks measured at amortised cost 2,378.8 947.4
interest on securities measured at amortized cost 1,314.8 0.0
interest on securities measured through other comprehensive income 581.4 0.0
Interest expenses, of which: -29,125.6 0.0
interest on liabilities to other banks -26,903.3 0.0
interest on liabilities under issue of covered bonds -2,206.1 0.0
interest on lease liabilities* -16.1 N/A
Net interest income 25,059.2 947.4

*) Starting from 1 January 2019, the Bank implemented the new IFRS 16 Leases. As it is described in item 4.1.1 Influence of application of
IFRS 16 Leases on the financial statements, the Bank applied to its lease contracts a modified retrospective approach and did not convert its
comparable data.

7.2. Net commission income

period period
from 01.01.2019 from 26.02.2018
to 31.12.2019 to 31.12.2018
Commission income 211.3 0.0
commission for early repayment of mortgage loans 224.1 0.0
other -12.7 0.0
Commission expenses -326.9 -3.1
fees and commissions for other financial entities, inclusive of fees and commissions for disclosure
of credit information -287.1 0.0

other -39.8 -3.1

Net commission income -115.6 -3.1

39
ING Bank Hipoteczny S.A.
Financial statements for the period from 1 January 2019 to 31 December 2019 (in PLN thousand)

7.3. FX result

period period
from 01.01.2019 from 26.02.2018
to 31.12.2019 to 31.12.2018
FX result -36.3 -4.6
FX result -36.3 -4.6

7.4. General and administrative expenses

period period
from 01.01.2019 from 26.02.2018
to 31.12.2019 to 31.12.2018
Personnel expenses, including: -10,407.2 -4,542.4
wages and salaries, including: -8,876.7 -3,895.1
variable remuneration programme -1,659.6 -970.3
employee benefits -1,530.5 -647.2
Other general and administrative expenses, including: -13,428.2 -5,345.8
costs of auxiliary activities provided under the Cooperation Agreement* -6,028.8 0.0
depreciation and amortisation -1,376.8 -188.5
consumption of materials and assets other than non-current assets -342.7 -717.7
legal services -531.8 -2,405.2
other advisory and consulting costs -165.0 -344.9
other third-party services -1,389.5 -293.4
costs of news service platforms -201.7 0.0
IT costs -1,526.0 -169.3
representation costs -178.1 -21.5
taxes and charges -883.9 -605.9
Other -803.9 -599.5
General and administrative expenses -23,835.4 -9,888.2

*) A scope of services provided by ING Bank Śląski S.A. for ING Bank Hipoteczny S.A. resulting from the Cooperation agreement is described in
Note 7.25 Transactions with related companies.

7.5. Expected loss provision

Due to the fact that ING Bank Hipoteczny S.A. started its operations in 2019, the Bank did not make any
impairments in previous reporting periods. Thus, the data concerning expected losses for financial assets made in
2019 are equal to data concerning the same and presented in Note 7.10.

40
ING Bank Hipoteczny S.A.
Financial statements for the period from 1 January 2019 to 31 December 2019 (in PLN thousand)

7.6. Income tax

Income tax recognized in the income statement

period period
from 01.01.2019 from 26.02.2018
to 31.12.2019 to 31.12.2018
Current tax -113.1 0.0
Deferred tax, including: -89.6 1,569.1
Recognized and reversed temporary differences -89.6 1,569.1
recognized and reversed negative temporary differences due to: 1,201.7 1,627.3
2018 tax losses -544.2 1,088.4
costs of provision for personnel, tangible and others expenses 779.9 534.2
expenses attributable to accrued but not paid interest 731.7 0.0
loan loss provisioning (LLP) 175.6 0.0
income settled at the effective interest rate 56.6 0.0
other 2.1 4.7
recognized and reversed positive temporary differences due to: -1,291.3 -58.1
income on accrued but not paid interest -1,158.0 -22.7
difference between tax and balance sheet depreciation/amortization -110.5 -35.4
measurement of securities -22.8 0.0
Total tax recognized in the income statement -202.8 1,569.1

Effective tax rate calculation

period period
from 01.01.2019 from 26.02.2018
to 31.12.2019 to 31.12.2018
A. Profit before tax 13.8 -8,948.5
B. 19% profit before tax 2.6 -1,700.2
C. Increases - 19% costs other than tax deductible cost, including: 200.1 131.2
civil law tax 162.8 114.3
other 37.4 16.8
D. Decreases - 19% tax exempt income 0.0 0.0
E. Income tax from income statement [-(B+C-D)] -202.8 1,569.1
Effective tax rate (-E : A)* 1,468.1% 17.5%

*) The effective tax rate deviated from 19% due to the civil law tax of PLN 601,800 paid in 2018 in connection with formation of the company
and bringing cash contributions for the share capital and of PLN 856,700 in 2019 in connection with the increase in the share capital.

41
ING Bank Hipoteczny S.A.
Financial statements for the period from 1 January 2019 to 31 December 2019 (in PLN thousand)

Income tax recognised in the statement of financial position

Income statement
Deferred tax provision 31.12.2018 31.12.2019

Interest accrued on loans and advances extended to customers, accrued interest and
22.7 1,158.0 1,180.7
securities discount
The difference between the carrying amount and tax value of tangible and intangible
assets 35.4 110.5 146.0

Measurement of securities 0.0 22.8 22.8

Gross deferred tax provision 58.1 1,291.3 1,349.5

Income statement
Deferred tax assets 31.12.2018 31.12.2019

2018 tax loss 1,088.4 -544.2 544.2

Payable expenses 534.2 779.9 1,314.1
Interest accrued on liabilities to other banks, accrued interest and discount on
0.0 731.7 731.7
liabilities attributable to the issue of covered bonds
Expected loss provisions 0.0 175.6 175.6
Expenses settled at the effective interest rate 0.0 56.6 56.6
Difference between the depreciation of a right-of-use asset and the cost of financing
0.0 2.1 2.1
the lease (IFRS 16)
Other 4.7 0.0 4.7
Gross deferred tax assets 1,627.3 1,201.7 2,829.0

Income tax recognized in other comprehensive income

period period
from 01.01.2019 from 26.02.2018
to 31.12.2019 to 31.12.2018
Deferred tax, including: 32.8 72.7
Recognized and reversed temporary differences 32.8 72.7
including recognized and reversed temporary differences related to unrealised result from
-11.2 0.0
valuation of securities measured at fair value through other comprehensive income
including recognized and reversed temporary differences attributable to actuarial losses 44.1 72.7
Total income tax recognized in other comprehensive income 32.8 72.7

42
ING Bank Hipoteczny S.A.
Financial statements for the period from 1 January 2019 to 31 December 2019 (in PLN thousand)

7.7. Earnings per ordinary share

Basic earnings per share

The calculation of basic earnings per share of the Bank for 2019 was based on net loss in the amount of -
PLN 188,941.80 and the number of ordinary shares at 31 December 2019 being 210,000.

Diluted earnings per share

In 2019, there were no factors that would dilute the profit per one share. In the described period, ING Bank
Hipoteczny S.A. issued neither bonds convertible to shares nor stock options. The share capital comprises ordinary
shares only (no preference shares). Therefore, the diluted earnings per share are the same as the underlying profit
per share.

43
ING Bank Hipoteczny S.A.
Financial statements for the period from 1 January 2019 to 31 December 2019 (in PLN thousand)

NOTES TO STATEMENT OF FINANCIAL POSITION

7.8. Amounts due from banks

as at as at
31.12.2019 31.12.2018

Current accounts 316.6 0.0

Term deposits in banks 5,499.1 111,534.9
Other 1,433.5 0.0
Total (gross) 7,249.2 111,534.9
Impairment loss 0.0 0.0
Total (net) 7,249.2 111,534.9

Amounts due from banks include, most notably, short-term deposits in PLN at ING Bank Śląski S.A.

The Bank has no impaired amounts due from banks. As the Bank concludes interbank transactions with ING Bank Śląski S.A. exclusively, it is
estimated that the credit risk resulting therefrom is significantly limited and thus the Bank does not establish any expected loss provisions. ING
Bank Hipoteczny S.A. does not identify any FX risk or interest rate risk for the said amounts due.

7.9. Debt securities

Debt securities

as at as at
31.12.2019 31.12.2018

Debt securities measured at fair value through other comprehensive income, of which: 34,823.5 0.0
T-bonds 34,823.5 0.0

Debt securities measured at amortised cost in the investment securities portfolio, including: 229,980.4 0.0

cash bills of the National Bank of Poland 229,980.4 0.0

Total 264,803.9 0.00

44
ING Bank Hipoteczny S.A.
Financial statements for the period from 1 January 2019 to 31 December 2019 (in PLN thousand)

7.10. Loans and other receivables to customers

Loans and other receivables measured at amortised cost

as of 31.12.2019 as of 31.12.2018

expected loss expected loss

gross net gross net
provision provision

Retail Banking (individuals) 3,061,815.8 -917.0 3,060,898.9 0.0 0.0 0.0

Mortgages 3,061,815.8 -917.0 3,060,898.9 0.0 0.0 0.0
Total 3,061,815.8 -917.0 3,060,898.9 0.0 0.0 0.0

Lending portfolio quality

as of 31.12.2019 as of 31.12.2018

expected loss expected loss

gross net gross net
provision provision

assets in Stage 1 3,042,149.4 -423.8 3,041,725.7 0.0 0.0 0.0

assets in Stage 2 19,181.6 -343.9 18,837.7 0.0 0.0 0.0
assets in Stage 3 484.8 -149.3 335.5 0.0 0.0 0.0
Total 3,061,815.8 -917.0 3,060,898.9 0.0 0.0 0.0

Change in expected loss provision/impairment loss

the period from 01.01.2019 to 31.12.2019 the period from 02.26.2018 to 31.12.2018

Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total

Allowance at the beginning of the period 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Movements in the period, including: -423.8 -343.9 -149.3 -917.0 0.0 0.0 0.0 0.0
allowance for loans acquired in the period -457.7 0.0 0.0 -457.7 0.0 0.0 0.0 0.0
transfer to stage 2 30.9 -343.9 0.0 -312.9 0.0 0.0 0.0 0.0
transfer to stage 3 3.0 0.0 -149.3 -146.3 0.0 0.0 0.0 0.0
Allowance at the end of the period -423.8 -343.9 -149.3 -917.0 0.0 0.0 0.0 0.0

45
ING Bank Hipoteczny S.A.
Financial statements for the period from 1 January 2019 to 31 December 2019 (in PLN thousand)

7.11. Property, plant and equipment

as at as at
31.12.2019 31.12.2018

Right-of-use assets* 851.5 N/A

Computer hardware 202.7 108.4
Other property, plant and equipment 16.9 16.9
Total (gross) 1,071.1 125.3
Closing accumulated depreciation/amortisation of the computer hardware -78.6 -20.3

Closing accumulated depreciation/amortisation of other property, plant and equipment -4.2 -0.8

Total (net) 988.3 104.1

*) Starting from 1 January 2019, the Bank implemented the new IFRS 16 Leases. As it is described in item 4.1.1 Influence of application of IFRS 16
Leases on the financial statements, the Bank applied to its lease contracts a modified retrospective approach and did not convert its comparable
data.

the period from 01.01.2019 to 31.12.2019

Movements in property, plant and equipment, exclusive of right-of-use

Other property, plant and
Computer hardware equipment TOTAL

Opening gross value 108.4 16.9 125.3

Additions, including: 94.3 0.0 94.3
purchases 94.3 0.0 94.3
Closing gross value 202.7 16.9 219.6
Opening accumulated depreciation/amortisation 20.3 0.8 21.1
Movements in the period, including: 78.6 4.2 82.8
amortisation charges 78.6 4.2 82.8
Closing accumulated depreciation/amortisation 78.6 4.2 82.8
Closing net value 124.1 12.7 136.8

46
ING Bank Hipoteczny S.A.
Financial statements for the period from 1 January 2019 to 31 December 2019 (in PLN thousand)

the period from 01.01.2019 to 31.12.2019

Movements in right-of-use assets

Right-of-use assets

Real properties Means of transport TOTAL

Opening gross value 1,242.9 100.4 1,343.3

Additions, including: 0.0 63.4 63.3
new contracts 0.0 63.4 63.3
Disposals, including: 231.9 0.0 231.9
decrease in scope and early termination of the contract 231.9 0.0 231.9
Closing gross value 1,011.0 163.8 1,174.8
Opening accumulated depreciation/amortisation 0.0 0.0 0.0
Movements in the period, including: 281.4 41.9 323.3
amortisation charges 281.4 41.9 323.3
Closing accumulated depreciation/amortisation 281.4 41.9 323.3
Closing net value 729.6 121.9 851.5

the period from 02.26.2018 to 31.12.2018

Other property, plant and

Computer hardware equipment TOTAL

Opening gross value 0.0 0.0 0.0

Additions, including: 108.4 16.9 125.3
purchases 108.4 16.9 125.3
Closing gross value 108.4 16.9 125.3
Opening accumulated depreciation/amortisation 0.0 0.0 0.0
Movements in the period, including: 20.3 0.8 21.1
amortisation charges 20.3 0.8 21.1
Closing accumulated depreciation/amortisation 20.3 0.8 21.1
Closing net value 88.1 16.1 104.1

There are no legal constraints on property, plant and equipment as at the end of 2019.

Contractual obligations to purchase property, plant and equipment

In 2019, the Bank had no agreements with counterparties that in the future would result in the increase in the value
of property, plant and equipment.

47
ING Bank Hipoteczny S.A.
Financial statements for the period from 1 January 2019 to 31 December 2019 (in PLN thousand)

7.12. Intangible assets

as at as at
31.12.2019 31.12.2018

Software* 2,975.8 2,975.8

Total (gross) 2,975.8 2,975.8
Closing accumulated depreciation/amortisation of software -1,159.1 -167.3
Total (net) 1,816.7 2,808.5

*) From the Bank’s point of view, in 2019, significant intangible assets were the Register of Collaterals of Covered Bonds software that was
rendered for use in 2018, whose carrying amount as at the end of 2019 was PLN 742,900, and the SAS (CSS) software license, whose carrying
amount as at the end of 2019 was PLN 770,800. Expected economic life of the software is 2 years.
In 2019, the Bank did not incur any expenditure for intangible assets.

the period from 01.01.2019 to 31.12.2019

Software TOTAL

Opening gross value 2,975.8 2,975.8

Additions/disposals 0.0 0.0
Closing gross value 2,975.8 2,975.8
Opening accumulated depreciation/amortisation 167.3 167.3
Movements in the period, including: 991.8 991.8
amortisation charges 991.8 991.8
Closing accumulated depreciation/amortisation 1,159.1 1,159.1
Closing net value 1,816.7 1,816.7

the period from 02.26.2018 to 31.12.2018

Software TOTAL

Opening gross value 0.0 0.0

Additions, including: 2,975.8 2,975.8
purchases 2,975.8 2,975.8
Closing gross value 2,975.8 2,975.8
Opening accumulated depreciation/amortisation 0.0 0.0
Movements in the period, including: 167.3 167.3
amortisation charges 167.3 167.3
Closing accumulated depreciation/amortisation 167.3 167.3
Closing net value 2,808.5 2,808.5

Contractual obligations to purchase intangible assets

In 2019, the Bank had no agreements with counterparties for the acquisition of intangible assets in the future.

48
ING Bank Hipoteczny S.A.
Financial statements for the period from 1 January 2019 to 31 December 2019 (in PLN thousand)

7.13. Other assets

as at as at
31.12.2019 31.12.2018

Prepayments, including: 1,605.8 32.3

prepaid general and administrative expenses 757.9 32.3
Other assets, including: 178.9 54.1
public and legal settlements 173.0 0.0
settlements with customers 1.7 54.1
other 4.2 0.0
Total 1,784.8 86.4

7.14. Liabilities to banks

as at as at
31.12.2019 31.12.2018

Loans received 2,168,644.9 0.0

Liabilities due to refinancing* 319,507.3 0.0
Other liabilities 1.4 0.0
Total 2,488,153.6 0.0

*ING Bank Hipoteczny S.A. provides for ING Bank Śląski S.A. the services of refinancing of the mortgage debts portfolios by way of payment of the
Refinancing Amount determined in accordance with the stipulations of Debt Transfer Framework Agreement to Issue Covered Bonds and
Transfer Agreements, in return for transfer of the said portfolios on ING Bank Hipoteczny S.A.

7.15. Liabilities under issue of covered bonds

as at as at
31.12.2019 31.12.2018

Measured at amortized cost, including: 400,359.9 0.0

on account of issuing covered bonds with a repayment period: 400,359.9 0.0
from one year to five years 400,359.9 0.0
Total 400,359.9 0.0

Issued covered bonds as at 31.12.2019

interest rate +
Nominal Interest as of
ISIN Currency bank margin Issue date Redemption date Rating Quotation market
value 31.12.2019
/ fixed rate
LuxSE,
XS2063297423 PLN 400,000 2.32% 0.53% + WIBOR6M 10.10.2019 10.10.2024 Aa3
parallel market of WSE

Issue of green covered bonds

Specific information on the issue of green covered bonds in 2019 can be found in these financial statements in
chapter 2. Significant events in 2019.

49
ING Bank Hipoteczny S.A.
Financial statements for the period from 1 January 2019 to 31 December 2019 (in PLN thousand)

Register of Collaterals of Covered Bonds

Covered bonds are secured with the Bank’s receivables on account of mortgage loans with the highest priority
established for the Bank. The basis for the issue of mortgage bonds is also a part of the Bank’s funds invested in T-
bonds referred to in note 7.9.
As at 31 December 2019, the value of the outstanding principal of the debt attributable to the mortgage loans
entered in the register of covered bonds and being a collateral for the issue of covered bonds was PLN 631,330.000,
whereas the value of additional collateral in the form of securities issued by the State Treasury was
PLN 10,347.300.

7.16. Provisions

as at as at
31.12.2019 31.12.2018

Provisions, including: 585.7 382.9

referring to valuation of liabilities due to certain post-employment benefits 585.7 382.9
short-term 2.6 59.4
long-term 583.1 323.4
Total 585.7 382.9

Provisions for retirement severance pay are estimated on the basis of actuarial valuation with discount rate, which
at the end of 2019 stood at 2.1% (3.2% at the 2018 yearend). The actuarial valuation-based provision is recognised
and reviewed per annum.

the period from 01.01.2019 to 31.12.2019

Provision for Provision for

TOTAL
retirement benefits pension benefits
Opening balance 367.2 15.6 382.9
regular employment costs 21.9 1.4 23.3
costs of interest 9.9 0.4 10.3
paid benefits -62.6 0.0 -62.6
actuarial gains/losses, of which: 226.6 5.2 231.8
attributable to changes in financial assumptions 123.5 3.4 126.9
other 103.1 1.8 104.9
Closing balance 563.0 22.7 585.7

the period from 26.02.2018 to 31.12.2018

Provision for Provision for

TOTAL
retirement benefits pension benefits

Opening balance 0.0 0.0 0.0

Actuarial gains/losses 367.2 15.6 382.9
Closing balance 367.2 15.6 382.9

50
ING Bank Hipoteczny S.A.
Financial statements for the period from 1 January 2019 to 31 December 2019 (in PLN thousand)

7.17. Other liabilities

as at as at
31.12.2019 31.12.2018

Prepayments, including: 6,653.9 2,515.6

due to employee benefits, of which 2,734.1 715.8
variable remuneration programme 2,175.2 475.4
due to Cooperation Agreement *
1,527.4 0.0
due to IT costs 720.4 21.4
due to legal services 7.0 1,066.1
due to purchase of licenses and software other than non-current assets 0.0 391.9
due to communication costs 13.2 181.6
other 1,651.8 138.9
Other liabilities, including: 1,708.4 978.7
lease liabilities** 857.0 N/A
settlements with employees 393.8 651.2
public and legal settlements 421.3 208.8
settlements with suppliers 19.3 118.6
other 16.9 0.0
Total 8,362.3 3,494.3

*) A scope of services provided by ING Bank Śląski S.A. for ING Bank Hipoteczny S.A. resulting from the Cooperation agreement is described in
Note 7.25 Transactions with related companies.

**) Starting from 1 January 2019, the Bank implemented the new IFRS 16 Leases. As it is described in item 4.1.1 Influence of application of
IFRS 16 Leases on the financial statements, the Bank applied to its lease contracts a modified retrospective approach and did not convert its
comparable data.

7.18. Share capital

The detailed structure of share capital as at 31 December 2019 is presented in section 1.3. Share capital

7.19. Accumulated other comprehensive income

as at as at
31.12.2019 31.12.2018

Actuarial gains / losses, including -497.9 -310.1

deferred tax 116.8 72.7
Measurement of securities measured at fair value through other comprehensive income,
47.8 0.0
including:
deferred tax -11.2 0.0
Total -450.1 -310.1

51
ING Bank Hipoteczny S.A.
Financial statements for the period from 1 January 2019 to 31 December 2019 (in PLN thousand)

7.20. Retained earnings

as at as at
31.12.2019 31.12.2018

Result for the current year -188.9 -7,379.4

Total -188.9 -7,379.4

OTHER NOTES

7.21. Additional information to the cash flow statement.

Cash and cash equivalents

For the purposes of the cash flow statement, cash and cash equivalents include balances of current accounts and
short-term deposits (made over a period up to 3 months) with other banks.

as at as at
31.12.2019 31.12.2018

Current accounts 316.6 0.0

Term deposits in banks 5,499.1 111,534.9
Total 5,815.7 111,534.9

Explanation of the classification of the Bank’s activities into operating, investment and financial activities in
the cash flow statement
Operating activity includes the core activities of the Bank, not classified as investment or financial activities.
Investment activity covers purchase and sale of securities and related interest income, as well as the purchase and
sale of intangible assets and property, plant and equipment.
Financial activity pertains to long-term financial transactions (over one year) with financial entities. The inflows
from financial activity indicate sources of financing of the Bank, including long-term loans and cash loans from
other banks or issue of debt securities (covered bonds). The inflows also include liabilities attributable to
contributions to the increase in share capital. Outflows from financial activity are mainly due to repayment of long-
term liabilities by the Bank (e.g. repayment of received loans including interest, interest on debt securities issued
and repayment of lease liabilities).

Reasons for differences between changes in certain items recognised in statement of financial position and in
cash flow statement
The reasons for differences between changes recognised in statement of financial position and in cash flow
statement have been explained in the table herein below.
Moreover, changes in the individual assets and liabilities were adjusted with interest disclosed in the position
Interest received/ paid.

52
ING Bank Hipoteczny S.A.
Financial statements for the period from 1 January 2019 to 31 December 2019 (in PLN thousand)

Changes
in statement
of
in cash flow
financial difference explanation
statement
position

The difference concerning the change in receivables from banks results in

particular from the decrease of this item in net cash flows from operating
Change in loans and other
104,285.71 -1,433.53 105,719.23 activities by the change in current accounts and short-term deposits with
receivables from banks
a maturity of less than 3 months, which are presented under increase/decrease
in net cash and cash equivalents.

The difference concerning the change in other assets results in particular from
including in net cash flows from operating activities not only the change in
Change in other assets -1,698.36 -294.13 -1,404.23
other assets but also, among others, the change in the current and deferred CIT
related.

The difference concerning the change in other liabilities to other banks results
Change in liabilities to other in particular from the decrease of this item in net cash flows from operating
2,488,153.62 1,598.06 2,486,555.56
banks activities by the change in liabilities due to long-term financing, which were
shown in net cash flows from financing activities.

The difference concerning the change in covered bonds liabilities results in

Change in covered bonds particular from the decrease of this item in net cash flows from operating
400,359.95 359.95 400,000.00
liabilities activities by the change in liabilities on this account, shown in net cash flows
from financing activities (i.e. the nominal value of acquired financing)

The difference concerning the change in other liabilities in net cash flows from
operating activities results in particular from:
1) recognition, in this item of the cash flow statement, actuarial gains/losses,
Change in other liabilities 4,867.95 5,180.09 -312.14 which were recognised in the statement of financial position under the
accumulated other comprehensive income,
2) derecognition, from this item of the cash flow statement, lease related cash
flows that are shown in net cash flows from financing activities

Total

7.22. Fair value

Fair value, which is best reflected by a market price, if available, is the amount for which an asset could be
exchanged, or a liability settled, between knowledgeable, willing parties in a direct transaction, other than forced
sale or liquidation.

The table below presents the balance-sheet figures for financial assets and liabilities per individual measurement
categories (levels).

Financial assets and liabilities carried at fair value in statement of financial position
as of 31.12.2019

Level 1 Level 2 Level 3 TOTAL

Financial assets, including: 34,823.5 0.0 0.0 34,823.5

Debt securities measured at fair value through other comprehensive
34,823.5 0.0 0.0 34,823.5
income, of which:
T-bonds 34,823.5 0.0 0.0 34,823.5

53
ING Bank Hipoteczny S.A.
Financial statements for the period from 1 January 2019 to 31 December 2019 (in PLN thousand)

In the period from 01 January 2019 to 31 December 2019, there were neither financial liabilities nor non-financial
assets measured at fair value at ING Bank Hipoteczny S.A.
In the period from 26 February 2018 to 30 June 2018, there were neither financial assets, financial liabilities nor
non-financial assets measured at fair value at ING Bank Hipoteczny S.A.

Financial assets and liabilities not carried at fair value in statement of financial position
as of 31.12.2019

Carrying Fair value

Method of measurement TOTAL
amount Level 1 Level 2 Level 3

Assets
Amounts due from banks 7,249.2 required payment 0.0 7,249.2 0.0 7,249.2
Securities measured at amortized
229,980.4 regulated market quotations 0.0 229,980.4 0.0 229,980.4
cost

Loans and receivables to customers 3,060,898.9 discounted cash flows 0.0 0.0 3,037,207.5 3,037,207.5

Liabilities

Liabilities to other banks 2,488,153.6 required payment 0.0 2,488,153.6 0.0 2,488,153.6

Liabilities under issue of covered

400,359.9 regulated market quotations 0.0 400,359.9 0.0 400,359.9
bonds

as of 31 December 2018

Carrying Fair value

Method of measurement TOTAL
amount Level 1 Level 2 Level 3

Assets
Amounts due from banks 111,534.9 required payment 0.0 111,534.9 0.0 0.0

7.23. Factors that may affect financial results in consecutive quarters

Factors that may affect financial results in consecutive quarters are described in the Management Board Report on
Operations of ING Bank Hipoteczny S.A. for the period from 1 January 2019 to 31 December 2019.

7.24. Off-Balance Sheet items

as at as at
31.12.2019 31.12.2018

Off-balance sheet liabilities received 333,248.6 94.4

Total off-Balance Sheet items 333,248.6 94.4

*) As at 31.12.2019, the off-balance sheet liabilities received included PLN 330,000,000 of unused revolving credit facility received from ING Bank
Śląski S.A. and PLN 248,600 of unused credit line related to credit cards issued to current account kept for the Bank in ING Bank Śląski S.A. As at
31 December 2018, the amount of off-balance sheet liabilities received consisted exclusively of the amount of unused credit line related to
credit cards issued to the current account kept for the Bank in ING Bank Śląski S.A.

54
ING Bank Hipoteczny S.A.
Financial statements for the period from 1 January 2019 to 31 December 2019 (in PLN thousand)

7.25. Related party transactions

ING Bank Hipoteczny S.A. is a subsidiary of ING Bank Śląski S.A., which as at 31 December 2019 held 100% share in
share capital of ING Bank Hipoteczny S.A. and 100% shares in the total number of votes at the General Meeting of
ING Bank Hipoteczny S.A.

Starting from 2019, ING Bank Hipoteczny S.A. provides for ING Bank Śląski S.A. the services of refinancing of the
mortgage debts portfolios by way of payment of the Refinancing Amount determined in accordance with the
stipulations of Debt Transfer Framework Agreement to Issue Covered Bonds and Transfer Agreements, in return for
transfer of the said portfolios on ING Bank Hipoteczny S.A.
ING Bank Śląski S.A. maintains current accounts, short-term deposit accounts and securities accounts for ING Bank
Hipoteczny S.A. Moreover, ING Bank Hipoteczny S.A. avails itself of the revolving credit facility from ING Bank Śląski
S.A. used for financing of its operations as well as the credit line rendered available to the employees of the
company in connection with using bank cards of ING Bank Śląski S.A.

Since January 2019 ING Bank Śląski S.A. has performed for ING Bank Hipoteczny S.A. activities of basic importance
under Cooperation Agreement signed by and between the two banks. The services are provided in the following
areas: Accounting and Taxes, Controlling, IT, Credit Risk and Models Validation, Market Risk, Liquidity Risk, Operating
Risk, Information (Technology) Risk, Procurement Services, HR Services, Business and Operations, Treasury, Legal
Services, Data Management, Compliance Risk and Audit. Some of the activities are performed as part of
outsourcing, in accordance with the provisions of the Banking Law Act, while all decision-making processes related
to the conducted activity are performed by ING Bank Hipoteczny S.A.

ING Bank Hipoteczny S.A. and ING Bank Śląski S.A. make also transactions resulting from agreements for sub-lease
of premises used for the registered office of the Bank, the office in Warsaw and a backup centre, support
agreements concerning IT and personnel and payroll services.

Furthermore, ING Bank Hipoteczny S.A. makes use of services provided by other related entities, that is SWIFT
operating services provided by ING Belgium N.V., financial and accounting services provided by ING Usługi dla
Biznesu S.A. and IT applications hosting services provided by ING Business Shared Services B.V. sp. z o.o. (branch in
Poland).
The Bank also used the services of group entities of ING Bank N.V and ING Bank Śląski S.A. in the process of issuing
the covered bonds of series 1 referred to in chapter 2. Significant events that occurred in 2019.

All the above mentioned transactions are carried out on an arm’s length basis.

55
ING Bank Hipoteczny S.A.
Financial statements for the period from 1 January 2019 to 31 December 2019 (in PLN thousand)

Income and expenses

presented as per their net value (VAT excluded)

the period from 01.01.2019 to 31.12.2019

ING Usługi ING Business Shared

ING Bank Śląski S.A. ING Bank N.V. ING Belgium N.V.
dla Biznesu S.A. Services B.V. sp. Z o.o.

Income, including: 2,378.8 0.0 0.0 0.0 0.0

interest income 2,378.8 0.0 0.0 0.0 0.0
Expenses, including -33,792.4 -12.2 -15.2 -130.5 -381.7
interest costs -26,946.5 -12.2 0.0 0.0 0.0
commission expenses -39.8 0.0 0.0 0.0 0.0
general and administrative
-6,806.1 0.0 -15.2 -130.5 -381.7
expenses

the period from 26.02.2018 to 31.12.2018

ING Usługi ING Business Shared

ING Bank Śląski S.A. ING Belgium N.V.
dla Biznesu S.A. Services B.V. sp. Z o.o.

Income, including: 944.3 0.0 0.0 0.0

interest income 947.4 0.0 0.0 0.0
commission expenses -3.1 0.0 0.0 0.0
Expenses, including -312.6 -223.4 -111.3 -82.2
general and administrative
-312.6 -223.4 -111.3 -82.2
expenses

Receivables and liabilities

as of 31.12.2019

ING Business Shared

ING Bank Śląski S.A. ING Belgium N.V.
Services B.V. sp. Z o.o.

Receivables 7,978.9 0.0 0.0

amounts due from banks 7,249.2 0.0 0.0
property, plant and equipment 729.6 0.0 0.0
Liabilities 2,660,959.0 0.0 0.0
liabilities to other banks 2,488,153.6 0.0 0.0
liabilities on account of equity increase 170,000.0 0.0 0.0
other liabilities 2,805.4 12.6 48.5
including: accruals 1,767.6 12.6 48.5
Off-balance-sheet operations 333,248.6 0.0 0.0
off-balance sheet liabilities received 333,248.6 0.0 0.0

56
ING Bank Hipoteczny S.A.
Financial statements for the period from 1 January 2019 to 31 December 2019 (in PLN thousand)

as of 31 December 2018

ING Bank Śląski S.A.

Receivables 111,534.9
amounts due from banks 111,534.9
other assets 47.5
Off-balance-sheet operations 94.4
off-balance sheet liabilities received 94.4

7.26. Transactions with the management staff and employees

In-House Social Benefits Fund

The employees may use various forms of social assistance within the framework of the In-House Social Benefits
Funds. The balance of the In-House Social Benefits Fund as at 31 December 2019 was PLN 46,300, whereas as at
31 December 2018 was PLN 17,400.

Remuneration of Management Board Members of ING Bank Hipoteczny S.A.

As at the end of 2019, the composition of the Management Board of ING Bank Hipoteczny S.A. was as follows:
 Mr Mirosław Boda, President of the Management Board,
 Mr Jacek Frejlich, Vice President of the Management Board,
 Mr Roman Telepko, Vice President of the Management Board.

period period
from 01.01.2019 from 26.02.2018
to 31.12.2019 to 31.12.2018
Short-term employee benefits, including: 1,481.1 845.4*
remuneration 1,433.5 836.7*
benefits 47.6 8.7
Total 1,481.1 845.4*

* exclusive of the variable remuneration programme

Short-term employee benefits comprise: base remuneration, mutual fund contributions, medical care and other
benefits awarded by the Supervisory Board.
Emoluments of Members of the ING Bank Hipoteczny S.A. Management Board for 2018 under the Variable
Remuneration Programme have been awarded in accordance with the remuneration system binding at the Bank.
The Bank Management Board Members are entitled to the 2018 bonus; some part of it has been paid out in 2019,
and some part has been deferred for the upcoming years (2021-2026).

57
ING Bank Hipoteczny S.A.
Financial statements for the period from 1 January 2019 to 31 December 2019 (in PLN thousand)

Emoluments of the ING Bank Hipoteczny S.A. Management Board Members for 2019 under the Variable
Remuneration Programme have not yet been awarded. The Bank Supervisory Board will take the final decision on
the bonus amount.
In the period from 01 January 2019 to 31 December 2019, and also from 26 February 2018 to 31 December 2018
no post-employment emoluments were paid to the Management Board Members. The Members of the
Management Board have signed non-competition agreements after they stop holding their function on the Bank’s
Management Board. In the event that a Management Board Member is not reappointed for another term of office or
is recalled from his/ her function, he or she is entitled to severance pay. Information on severance pay for the
Management Board Members is contained in their employment contracts and shall be paid only in case of
termination of the employment contract by the Bank due to other reasons than those giving rise to termination
without notice.

Remuneration of ING Bank Hipoteczny S.A. Supervisory Board Members

As at the end of 2019, the composition of the Supervisory Board of ING Bank Hipoteczny S.A. was as follows:
 Mr Brunon Bartkiewicz, Chair,
 Mr Marcin Giżycki, Deputy Chair,
 Mr Jacek Michalski, Secretary,
 Ms Bożena Graczyk, Member,
 Mr Patrick Roesink, Member,
 Ms Joanna Erdman, Member,
 Mr Krzysztof Gmur, Member.

period period
from 01.01.2019 from 26.02.2018
to 31.12.2019 to 31.12.2018
Short-term employee benefits, including: 120.0 65.7
remuneration 120.0 65.7
Total 120.0 65.7

The Management Board Members and other persons employed by ING Bank Hipoteczny S.A. do not receive any
remuneration or awards for performing functions in the governing bodies of subsidiaries and affiliated entities of
the ING Bank Śląski S.A. Group.

Volume of ING Bank Hipoteczny S.A. shares held by Bank Management Board and Supervisory Board Members
As at 31 December 2019 and as at 31 December 2018, respectively, neither Management Board nor Supervisory
Board Members held shares of ING Bank Hipoteczny S.A.

58
ING Bank Hipoteczny S.A.
Financial statements for the period from 1 January 2019 to 31 December 2019 (in PLN thousand)

7.27. Lease liabilities

as of 31.12.2019

Lease
Lease of cars TOTAL
of office space

Maturity of lease liabilities

up to 1 month 20.8 4.7 25.5
over 1 month and up to 3 months 41.4 7.9 49.3
over 3 months to 1 year 185.3 28.2 213.5
over 1 year and up to 5 years 485.8 82.9 568.7
Total 733.3 123.7 857.0

7.28. Headcount
The headcount at ING Bank Hipoteczny S.A. was 39 FTEs as at 31 December 2019 and 30 FTEs as at
31 December 2018.

7.29. Segment reporting

Due to the specifics of business activity, the Bank did not analyse its business results by segments in the reporting
period ending on 31 December 2018.
The Bank pursues business within the territory of the Republic of Poland.

59
ING Bank Hipoteczny S.A.
Financial statements for the period from 1 January 2019 to 31 December 2019 (in PLN thousand)

RISK AND EQUITY MANAGEMENT

Taking into account the scale and specifics of the Bank’s operations, the Bank discloses selected information
concerning capital adequacy in its financial statements and in the Management Board Report on Operations of the
Bank. The information refers in particular to:
 risk management goals and strategy,
 own funds for the needs of capital adequacy,
 capital requirements,
 capital buffers,
 financial leverage,
 credit risk related adjustments,
 applied credit risk mitigation techniques,
 operational risk, in accordance with the requirements provided for in Recommendation M,
 liquidity risk management system and liquidity position, in accordance with Recommendation P,
 requirements referred to in Article 111a of the Banking Law and in Recommendation H,
 remuneration policy concerning persons whose professional activities are considered to have a material
impact on the risk profile of the Bank (risk takers).
Each time, the Bank assesses adequacy of the disclosed information in terms of providing the market participants
with complex information about the risk profile of the Bank.
The Bank, being a part of the ING Bank Śląski S.A. Group, provides the information also to the parent company in
order to include it in the consolidated data.
Specific information about the scope of disclosed information, method of its verification and publication is
presented in the document called: “Policy of Disclosure of Qualitative and Quantitative Information About Capital
Adequacy and Other Information to be Disclosed at ING Bank Hipoteczny S.A.”

7.30. Risk management goals and rules

Risk management at ING Bank Hipoteczny S.A. serves to ensure effective risk control and limitation within the risk
appetite accepted by the Bank in volatile legal and macroeconomic conditions and considering the pre-set business
targets. The assumed risk level is an important factor of the planning process.

The Bank monitors execution of the strategy, the risk management strategy included, whereas strategic goals are
allocated to specific organisational units or persons. The tasks execution is supervised by the Management Board.

The aim of:

 the credit risk management system is to support effective accomplishment of business goals through
proactive risk management and organic growth-oriented activities, while at the same time keeping
solvency and liquidity at a safe level and keeping provisions at an appropriate level,
 the operational risk management system is to mitigate exposure of the Bank to the non-financial risk
and to minimize consequences of operational risk crystallisation,
 the funding and liquidity risk management system is to keep adequate liquidity to ensure safe and
sound Bank’s operations under normal and stress market conditions,
 the interest rate risk management system is to keep variability of the financial result and revaluated
balance sheet value of equity incident to changes in the interest rates, within the limits that do not pose
any risk for the Bank and are acceptable for the Supervisory Board,

60
ING Bank Hipoteczny S.A.
Financial statements for the period from 1 January 2019 to 31 December 2019 (in PLN thousand)

 the compliance risk management system is to identify the threats to the operation of the organisation
attributable to non-compliance with legal and internal regulations, most notably, as regards bank
products and services, to monitor the incidents that occurred, and also to take auxiliary and remedy
actions.

The aim of the internal control system is to provide support to decision-taking processes to contribute to ensuring
effectiveness and efficiency of the operation of the Bank, reliability of the financial statements and compliance
with legal and internal regulations. Audit is aimed at adding value and improving operational activities of the Bank,
and also providing support to achieve targets of the Bank by ensuring effectiveness of processes operating within
the Bank and by providing advisory services.

All goals of the complex risk management system are presented in detail in the risk management strategy
prepared by the Management Board and approved by the Supervisory Board.

Risk management rules

Risk management at ING Bank Hipoteczny S.A. is based in particular on the following rules:
 risk management process, including the lending process is defined and governed by strategies, policies
and procedures adopted by the Management Board and Supervisory Board of ING Bank Hipoteczny S.A.,
 the Bank manages all identified types of the bank risk and carries out the ICAAP process (Internal Capital
Adequacy Assessment Process), where:
 risk management matches the scale of business and the materiality, scale and complexity of a given
risk and where it is tailored to new risk factors and drivers on an ongoing basis,
 risk management methods, risk measurement models and systems and their assumptions match the
scale and complexity of risk and are periodically verified and validated,
 the organisational structure of risk management guarantees independence of the risk area, including
independence of real estate appraisal and credit decisions taken from business activity,
 risk management process is integrated with the planning and controlling processes and supports
execution of the Bank strategy, while complying with risk management strategy, most notably as regards
risk appetite,
 the risk management process is consistent with the risk management principles of the ING Bank Śląski S.A.
Group, also in respect of use of group risk models, tailored to the specific operations of ING Bank
Hipoteczny S.A. and approved by the competent authorities of ING Bank Hipoteczny S.A.
 stress tests are performed in the Bank based on previously approved scenarios. Stress-tests results are
discussed at the meetings of competent committees (described herein below) and at the meetings of the
Bank Management Board. Reporting of risk sources and factors as well as reporting of risk level
measurement and its costs make it possible to take appropriate preventive and remedy measures.

7.31. Organisation of risk management

The risk management process is supervised by the Bank Supervisory Board which regularly receive information
about the risk profile at ING Bank Hipoteczny S.A. and key actions taken to manage risk.
The Bank Management Board are responsible for risk management, including but not limited to, overseeing and
monitoring of actions undertaken by the Bank in this respect. The Bank Management Board take the most
important decisions affecting risk level of the Bank and resolve on internal regulations concerning risk
management.

61
ING Bank Hipoteczny S.A.
Financial statements for the period from 1 January 2019 to 31 December 2019 (in PLN thousand)

Risk is managed through three independent lines of defence:

1) The first line of defence

The first line of defence is in charge of developing, implementing and executing controls designed to ensure that
general and specific goals of internal control system are achieved. This LoD also performs independent monitoring
of compliance with controls by ongoing verification and/or horizontal testing.
The first line of defence is responsible for acting in compliance with the principles resulting from the approved
policies, regulations, manuals and procedures. The scope of responsibilities of the first line of defence includes,
among others, analysis, control and management of the risks in the processes.
The tasks of the first line of defence are performed by these organisational units that realise and directly support
business goals.

2) The second line of defence

The second line of defence performs the tasks stemming from its function and supports the first line of defence in
order to achieve the goals of the internal control system.
It is responsible for:
 publishing regulations and ensuring internal control system tools and methods,
 monitoring application of internal control system regulations by the first line of defence,
 monitoring of observance of controls within the second line of defence,
 vertical monitoring of the first line of defence as regards observance of controls.
Under control activities, the units from the second line of defence perform their own independent assessment of
the effectiveness of operations of the first line of defence; they do it using tests, reviews and other forms of control.

3) The third line of defence

Internal auditor is the third line of defence and he provides the management with his independent, impartial
statement about adequacy and effectiveness of the risk management system and internal control system in the
first and second lines of defence.
The Policy – Audit Charter of ING Bank Hipoteczny S.A. – regulates the roles, powers, scope and nature of work,
responsibilities of the Internal auditor and the principles of cooperation of the organisational units of the Bank with
that position.

Organisational units responsible for risk management

The following organisational units of ING Bank Hipoteczny S.A. are responsible for risk management:
 Risk Team - dealing most notably with credit, market, liquidity and operational risks,
 Assessment and Credit Decisions Team - dealing most notably with the process of determining the
mortgage lending value of the real estate independently from the sales function,
 Models Validation Position - dealing most notably with the model risk management and validation of risk
models and assessment.

62
ING Bank Hipoteczny S.A.
Financial statements for the period from 1 January 2019 to 31 December 2019 (in PLN thousand)

The risk management process is supported by:

Audit and Risk Committee of the Supervisory Board

The Committee supports the Supervisory Board especially by:
 monitoring of the financial reporting process,
 monitoring of the effectiveness of the internal control, internal audit and risk management systems,
inclusive of their effectiveness as regards financial reporting,
 monitoring of financial audit activities, especially an audit carried out by the auditing firm, taking into
account all the conclusions and findings of the audit supervision commission resulting from the audit
carried out by the auditing firm,
 controlling and monitoring of the certified auditor’s and auditing firm’s independence, including but not
limited to, when the auditing firm provides other services than an audit.
Furthermore, as regards risk, support is provided by way of:
 issuing opinion about the overall, current and future readiness of the Bank to take the risk,
 issuing opinion about the risk management strategy developed by the Management Board as regards the
risk inherent in the Bank’s operations, and about the Management Board’s information concerning
execution of that strategy,
 supervising of the implementation of the risk management strategy in the operations of the Bank by the
higher-rank executive staff,
 verifying whether the prices of liabilities and assets offered to the customers reflect fully the Bank’s
business model and its risk strategy.

Assets and Liabilities Committee

The activities of the ALCO Committee include:
 market and liquidity risk management at ING Bank Hipoteczny S.A.,
 management of the Bank’s balance sheet (assets and liabilities),
 capital and capital adequacy management,
 valuation of financial instruments and calculation of valuation adjustments, considering the factors not
accounted for in the valuation in the Bank’s systems.
 submitting the market risk and liquidity risk policy and valuations of financial instruments to the
Management Board for their final approval,
 reviewing the internal legal acts on a current basis (once a year at the minimum) and adjusting them to
the risk profile of the Bank and/or to the changes in macroeconomic and legal environment.

Credit Policy Committee

The activities of the Committee include:
 specifying credit risk appetite as regards specific risk limits and concentration limits,
 taking decisions on the regulations concerning the implementation of the ING Bank Hipoteczny S.A. Credit
Risk Management Policy,
 specifying and modifying the principles of risk identification, assessment and control,
 taking decisions about acceptance of implementation of the new products entailing credit risk or
modification of the existing ones,
 approving regulations on building, maintaining and using of the risk models, inclusive of:
 principles of the credit risk models management,

63
ING Bank Hipoteczny S.A.
Financial statements for the period from 1 January 2019 to 31 December 2019 (in PLN thousand)

 methodology of building and monitoring of the models,

 definitions of the credit risk models,
 the scope of use of the credit risk models,
 reports showing the results of validation of the credit risk models,
 monitoring of the credit risk level, ensuring compliance with the law, supervisory regulations, and
discussing and approving any other issues related to the credit and settlement risks.

Non-financial Risk Committee

The activities of the Committee include:
 approving of and advising on:
 internal normative documents of the Bank from the non-financial risk area,
 strategy, plans, projects and programmes related to non-financial risk management and control
standards,
 annual control testing plans and results,
 the annual Risk Identification and Assessment Plan and results of Business Impact Analysis as well as
scenario analyses and results of risk identification and assessment for identified unacceptable risks,
 action plans and report on the 2LoD monitoring as part of key control testing,
 non-financial risk dashboards and recommendation to the Bank Management Board concerning
decisions for material non-financial risk issues,
 periodical results of Bank’s organisational framework reviews for compliance with the operational risk
management rules,
 a model for calculation of operational, economic and regulatory risks capital for operational risk,
 supervision of:
 the processes of NFR identification, assessment, monitoring and mitigation,
 the quality assurance process for the non-financial risk management processes,
 monitoring of utilisation of the limits set in the non-financial risk appetite statement (loss limits included),
 assessment of:
 reputational risk reports and conduct risk matters,
 non-financial risks for considerable changes to the Bank’s governance structure and essential
elements of outsourcing processes.

7.32. Credit risk

ING Bank Hipoteczny S.A. manages credit risk as required by the Polish law, regulations of the Polish Financial
Supervision Authority and other competent bodies, and also in compliance with the ING Group standards as far as
admissible under the aforementioned regulations and best practice documents.

Credit risk of the credit exposures portfolio is managed by:

 determining the credit risk management strategy,
 determining the risk appetite,
 determining the credit policy,
 building and developing the tools to support risk measurement and assessment,
 reporting and analysing the quality of the credit portfolio and value and quality of collaterals,

64
ING Bank Hipoteczny S.A.
Financial statements for the period from 1 January 2019 to 31 December 2019 (in PLN thousand)

 specifying the concentration limits and credit risk limits for selected sub-portfolios,
 calculating the adequate level of provisions and capital requirements,
 performing and analysing the stress tests,
 training of staff members participating in the credit process,
 creating of and maintaining an incentive system addressed to the employees and aimed at compliance
with internal credit standards,
 determining, in consultation with business units, the features and parameters of the debt claims
purchased by the Bank.

Management of the credit risk of individual credit exposures, most notably, includes:
 assessing of the client and transaction risk,
 monitoring of a client and a credit transaction,
 determining the mortgage lending value of the real estate and monitoring of the value of collaterals.

To mitigate the credit risk, the Bank uses mortgage collaterals with the obtained mortgage entry in order to classify
the exposure to the real estate mortgage backed exposure classes and to apply the preferential risk weight.

Under the risk management system, the Bank:

 applies formal risk tolerance determination rules and risk management rules,
 applies formal procedures intended to identify, measure or estimate and monitor risk, also accounting for
projected future risk,
 applies formal risk limits and rules of conduct in the event of limit overrun,
 applies the approved management reporting system that allows risk level monitoring,
 has the organisational framework matching the size and profile of risk borne by the Bank,
 has adequately defined credit risk assessment and measurement process, independent from the business
functions, which encompasses:
 efficient process of acquiring adequate information, including forecasts, used to value expected credit
losses,
 assessment policy which ensures that expected credit losses are valued collectively,
 efficient process of model validation which ensures that models return accurate, consistent and
objective forecasts and estimates on an ongoing basis,
 plain formal communication and coordination of the activities of all employees involved in the risk
assessment process and valuation of expected credit losses.

Credit risk management objectives are achieved by way of:

 supporting of business initiatives through implementation of credit risk controls,
 keeping credit losses at the assumed level,
 verifying and assessing the adequacy and developing the applied procedures, models and other elements
of the risk management system on an ongoing basis,
 adapting business to the changing environment,
 keeping adequate capital requirements for credit risk and provisions, and
 ensuring regulatory compliance.

65
ING Bank Hipoteczny S.A.
Financial statements for the period from 1 January 2019 to 31 December 2019 (in PLN thousand)

The Bank manages the credit risk in an integrated way, based on strategic planning, coherent system of policies,
procedures and tools used for risk management, inclusive of the ones used for risk identification, measurement and
control.
Organisational structure of the Bank ensures at the Management Board level that the credit risk control function is
separated from the commercial function that generates the credit risk. The credit risk management is effected in
the Bank under the three lines of defence that are independent in organizational and functional terms.
All organizational units and persons performing tasks within the credit process cooperate closely with one other in
order to improve effectiveness of the risk management and maintain the risk at the level consistent with the
strategy, risk appetite and financial plans of the Bank.

The reporting system that comprises numerous reports, allows effective identification of risk sources and factors,
measurement of the risk level, measurement of the risk costs; it supports business initiatives and allows for effective
credit risk management while maintaining the accepted risk appetite.

The goal of the credit risk reporting is:

 to present indispensable information allowing for assessment of the credit exposure in order to ensure
that portfolio development is in line with the risk management strategy and policy of the Bank,
 to measure and assess the risk level in relation to the assumed risk appetite,
 to identify the impaired exposures, or exposures at risk of impairment, in order to set loss provisions,
 to assess adequacy of provisioning,
 to identify weaknesses of the risk management process in order to start recovery actions.

The scope of reporting includes but is not limited to:

 quality of the credit exposures (for instance, DPDs and migration among specific DPD classes, etc.),
 write-offs (provisions) and risk parameters (PD/LGD/EAD),
 use and observance of the adopted limits,
 effectiveness of the process of monitoring of exposures and suing for debt claims,
 non-recovered amounts (credit losses),
 coverage of exposure with collaterals (especially, with the mortgage ones).

The reports may be prepared on a daily, monthly, quarterly or semi-annual basis.

Limits for credit risk appetite (RAS) are determined on the annual basis in the form of:
 high-level risk limits – approved by the Management Board and/or by the Supervisory Board of the Bank,
 specific limits for credit risk – approved by the Credit Policy Committee (inclusive of concentration limits).
Utilisation of the credit risk limits is checked at least once a month, and the information about the limit utilisation is
conveyed at least to the authority that approved the limit.

Keeping in mind a highly dispersed portfolio of the Bank in terms of exposures of single clients, the Bank identifies
and assesses the concentration risk analysing the structure of portfolio taking into account the risk factors (features
of the exposure) significant from the point of view of the credit risk and based thereon groups of exposures were
ring-fenced as regards exposures whose excessive concentration is not desirable as in stress conditions it may
generate losses higher than the credit risk appetite of the Bank.

66
ING Bank Hipoteczny S.A.
Financial statements for the period from 1 January 2019 to 31 December 2019 (in PLN thousand)

Concentration risk is measured and controlled by determining the level of exposure generating the concentration
risk and by referring that amount to the determined limits resulting from legal regulations and internal limits. In
accordance with statutory recommendations and PFSA’s regulations and recommendations, the Bank determines
and controls internal limits taking into account concentration risk towards:
 specific clients and related groups,
 clients from the same geographic region.

As at the end of 2019, all RAS limits were at acceptable level - none of the high-level or specific credit risk limits was
overrun.

Retail clients loans and advances

The Bank applies impairment losses in accordance with CRR and secondary legislation thereto. The credit portfolio
is of very good quality. As at 31 December 2019, 2 impaired exposures were identified for the amount of
PLN 484,000. Value of collaterals (according to the mortgage lending value) for the said 2 cases was PLN 659,100.

as at
31.12.2019

Principal balance
Stage 1, without identified impairment 3,029,863.0
Stage 2, without identified impairment 19,104.1
Stage 3: with recognised impairment 483.7
Total 3,049,450.8
Expected loss provision
Stage 1, without identified impairment -423.8
Stage 2, without identified impairment -343.9
Stage 3: with recognised impairment -149.3
Total 917.0

Loans and advances for retail clients - without identified impairment – by days past due

as at
31.12.2019
Principal balance, by days past due
up to 30 days 3,049,378.8
from 31 to 60 days 0.0
from 61 to 90 days 72.0
Total 3,049,450.8
up to 30 days 99.998%
from 31 to 60 days 0.0%
from 61 to 90 days 0.002%
Total 100%

67
ING Bank Hipoteczny S.A.
Financial statements for the period from 1 January 2019 to 31 December 2019 (in PLN thousand)

Application of credit risk mitigation techniques

To mitigate the credit risk, the Bank uses mortgage collaterals with the obtained mortgage entry in order to classify
the exposure to the real estate mortgage backed exposure classes and to apply the preferential risk weight.

Established collaterals play the following role:

 financial:
 they are intended to mitigate the losses on credit exposure in case of credit risk materialisation, that
is, when the debtor fails to repay the debt as scheduled in the contract,
 may be taken into account in the process of estimating capital requirements for the credit risk and in
the process of estimating collective provisions for the lending portfolio in relation to impairment of
assets if they fulfil the terms and conditions provided for in bank regulations on provisioning. Recovery
rates assigned to specific categories of collaterals were determined based on relevant LGD model,
 non-financial:
 they improve controlling rights of the Bank as a creditor by limiting the possible use by the security
provider of the assets encumbered in favour of the Bank,
 they strengthen the negotiation position of the Bank as regards the debtor (client), other creditors of
the debtor and security provider.

The Bank uses the technique of credit risk mitigation in a form of funded credit protection related to tangible
collaterals that make it possible to recover debt claims by the Bank should the client default.

Regulations of the Bank concerning collaterals, include:

 indication of the criteria for recognition of collaterals in the process of calculation of the capital
requirement for credit risk,
 specification of general rules to be followed by the Bank when selecting collaterals, taking into account
the level of acceptable credit risk,
 specification of specific rules for individual types of tangible collaterals used for estimation of recovered
amounts (including, but not limited to, as regards determining the value of collaterals, requirements
concerning insurance of the object of tangible collateral).

Furthermore, regulations of the Bank on collaterals take into account especially these aspects of the Regulation of
the European Parliament and of the Council (EU) No. 575/2013 of 26 June 2013 that refer to the application of LGD
approach, legal certainty of collaterals and their monitoring.

Prior to acceptance of exposure for each real estate securing any credit exposure, the mortgage lending value of the
real estate must be determined.

Acceptable forms of valuation of collaterals:

 Value of the real estate securing the Bank’s debt claims is determined in a form of an expert opinion
specifying the mortgage lending value of that real estate,
 Expert opinions about the mortgage lending value of the real estate must be prepared in accordance with
the rules provided for in the Act on Mortgage Banks and Covered Bonds, Recommendation F of the Polish
Financial Supervision Authority (PFSA) and General Terms and Conditions of Determination of the
Mortgage Lending Value of Real Estate approved by PFSA.
Expert opinions of the mortgage lending value of the real estate prepared by an authorised employee of the Bank
are accepted.

68
ING Bank Hipoteczny S.A.
Financial statements for the period from 1 January 2019 to 31 December 2019 (in PLN thousand)

Specific rules of determining the mortgage lending value of the real estate are presented in the General Terms and
Conditions of Determination of the Mortgage Lending Value of Real Estate and in the Manual of Determination of
the Mortgage Lending Value of Real Estate.
Residential real estates securing the loans are subject to the process of monitoring and update of their value. In
accordance with Article 208 of the Regulation of the European Parliament and of the Council No. 575/2013 of
26 June 2013, residential real estate may qualify as eligible collateral on the condition that the value of the
property is monitored on a regular basis, every three years at the minimum.

Quantitative information about credit risk

Credit risk related adjustments
The following tables show detailed quantitative information about credit risk related adjustments, in accordance
with the requirements listed in Article 442 of the Regulation 575/2013 and EBA Guidelines/GL/2016/11:
 EU CR1-A: Credit quality of exposures by exposure class and instrument;
 EU CR1-B: Credit quality of exposures by industry or counterparty type;
 EU CR1-C: Credit quality of exposures by geography – all exposures of ING Bank Hipoteczny S.A. are
domestic ones (Poland), and thus a decision was taken not to make a table showing that information;
 EU CR1-D: Ageing of past-due exposure;
 EU CR1-E: Non-performing and forborne exposures;
 EU CR2-A: Changes in the stock of general and specific credit risk adjustments;
 EU CR3: Application of credit risk mitigation techniques;
 EU CR4: Standardised approach – Credit risk exposure and CRM effects;
 EU CR5: Standardised approach.

Credit quality of exposures by exposure class and instrument

a) b) c) d) e) f) g)
Gross balance sheet amounts Net values
Add-ons
Specific credit General credit resulting from
Exposures other Cumulated
Exposures in risk risk credit risk
than exposures forgiveness (a+b-c-d)
default adjustment adjustment adjustments in
in default a period

Central governments or central

0 266,396.71 0 0 0 0 266,396.71
banks

Institutions 0 7,249.23 0 0 0 0 7,249.23

Retail 0 1,157,667.70 0 0 0 0 1,157,667.70
Secured by a mortgage on
0 1,903,662.90 0 0 0 0 1,903,662.90
immovable property

Exposures in default 484.9 0 0 0 0 0 484.9

Other exposures 0 3,296.70 0 0 0 0 3,296.70

Standardised Approach Total 484.9 3,338,273.2 0.0 0.0 0.0 0.0 3,338,758.1
Total 484.9 3,338,273.2 0.0 0.0 0.0 0.0 3,338,758.1
Including: Loans 484.9 3,071,358.80 0 0 0 0 3,071,843.70

Including: Debt securities 0 264,811.60 0 0 0 0 264,811.60

69
ING Bank Hipoteczny S.A.
Financial statements for the period from 1 January 2019 to 31 December 2019 (in PLN thousand)

Credit quality of exposures by industry or counterparty types

a) b) c) d) e) f) g)

Gross balance sheet amounts Net values

Add-ons
General credit Cumulated
Exposures other Specific credit resulting from
Exposures in risk forgiveness
than exposures risk adjustment credit risk (a +b-c-d)
default adjustment
in default adjustments

Financial and insurance business 0.0 7,249.2 0.0 0.0 0.0 0.0 7,249.2

Public administration and

defence; mandatory social 0.0 264,811.6 0.0 0.0 0.0 0.0 264,811.6
security

Retail clients (individuals) 484.9 3,061,330.6 0.0 0.0 0.0 0.0 3,061,815.5
Other 0.0 4,881.8 0.0 0.0 0.0 0.0 4,881.8
Total 484.9 3,338,273.2 0.0 0.0 0.0 0.0 3,338,758.1

Ageing of past-due exposure

Carrying amount

Non-impaired receivables without significant

Non-impaired receivables, significant credit risk
credit risk increase since initial recognition
increase since initial recognition (Stage 2)/ Impaired receivables
(Stage 1)
(Stage 3)
> 30 days <= > 30 days <=
<= 30 days > 90 days <= 30 days > 90 days
90 days 90 days

Loans and advances 3,169.0 0.0 0.0 1,387.1 69.4 0.0 0.0
Non-financial sector 3,169.0 0.0 0.0 1,387.1 69.4 0.0 0.0
Households 3,169.0 0.0 0.0 1,387.1 69.4 0.0 0.0

Financial assets subject to impairment 3,169.0 0.0 0.0 1,387.1 69.4 0.0 0.0

Loans and advances - by product, collateral and subordination

Other term loans 3,169.0 0.0 0.0 1,387.1 69.4 0.0 0.0
of which: loans secured with real
3,169.0 0.0 0.0 1,387.1 69.4 0.0 0.0
properties

of which: loans for the purchase of

3,169.0 0.0 0.0 1,387.1 69.4 0.0 0.0
residential properties

70
ING Bank Hipoteczny S.A.
Financial statements for the period from 1 January 2019 to 31 December 2019 (in PLN thousand)

Non-performing and forborne exposures

Accumulated impairment, accumulated negative changes in fair value due
Gross balance sheet amount
to credit risk and provisions
Performing
exposures - Non-performing exposures - Accumulated
Performing Non-performing Accumulated impairment, accumulated negative changes
impairment and in fair value due to credit risk and provisions
provisions

It is hardly probable that It is hardly probable that

Past due the debt will be repaid the debt will be repaid
Regular or past including:
> 30 days <= when due, but it is still when due, but it is still not
due <= 30 days impaired
90 days not past due or it is past past due or it is past due <
due < = 90 days = 90 days

Debt instruments 229,981.1 229,981.1 229,981.1 0.0 0.0 0.0 0.0 0.4 0.4 0.0 0.0
Financial sector 229,981.1 229,981.1 229,981.1 0.0 0.0 0.0 0.0 0.4 0.4 0.0 0.0
Monetary financial institutions 229,981.1 229,981.1 229,981.1 0.0 0.0 0.0 0.0 0.4 0.4 0.0 0.0
Central banks 229,981.1 229,981.1 229,981.1 0.0 0.0 0.0 0.0 0.4 0.4 0.0 0.0
Loans and advances 3,069,064.8 3,068,580.0 3,067,073.7 1,506.3 484.8 484.8 484.8 917.0 767.7 149.3 149.3
Financial sector 7,249.2 7,249.2 5,815.7 1,433.5 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Monetary financial institutions 7,249.2 7,249.2 5,815.7 1,433.5 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Other monetary financial institutions 7,249.2 7,249.2 5,815.7 1,433.5 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Banks and branches of credit

7,249.2 7,249.2 5,815.7 1,433.5 0.0 0.0 0.0 0.0 0.0 0.0 0.0
institutions

Non-financial sector 3,061,815.6 3,061,330.8 3,061,258.0 72.8 484.8 484.8 484.8 917.0 767.7 149.3 149.3
Households 3,061,815.6 3,061,330.8 3,061,258.0 72.8 484.8 484.8 484.8 917.0 767.7 149.3 149.3
Private individuals 3,061,815.6 3,061,330.8 3,061,258.0 72.8 484.8 484.8 484.8 917.0 767.7 149.3 149.3
of which: loans secured with
residential properties 3,061,815.6 3,061,330.8 3,061,258.0 72.8 484.8 484.8 484.8 917.0 767.7 149.3 149.3

Accumulated impairment, accumulated negative changes in fair value due

Gross balance sheet amount
to credit risk and provisions

71
ING Bank Hipoteczny S.A.
Financial statements for the period from 1 January 2019 to 31 December 2019 (in PLN thousand)

Performing
exposures - Non-performing exposures - Accumulated
Performing Non-performing Accumulated impairment, accumulated negative changes
impairment and in fair value due to credit risk and provisions
provisions

It is hardly probable that It is hardly probable that

Past due the debt will be repaid the debt will be repaid
Regular or past including:
> 30 days <= when due, but it is still when due, but it is still not
due <= 30 days impaired
90 days not past due or it is past past due or it is past due <
due < = 90 days = 90 days

Exposures measured at cost or amortised

3,299,045.9 3,298,561.1 3,297,054.8 1,506.3 484.8 484.8 484.8 917.4 768.1 149.3 149.3
cost

Debt instruments 34,830.6 34,830.6 34,830.6 0.0 0.0 0.0 0.0 7.0 7.0 0.0 0.0
Government and self-government
institutions’ sector 34,830.6 34,830.6 34,830.6 0.0 0.0 0.0 0.0 7.0 7.0 0.0 0.0

Central government institutions

34,830.6 34,830.6 34,830.6 0.0 0.0 0.0 0.0 7.0 7.0 0.0 0.0

Exposures measured at fair value through

other comprehensive income - subject to 34,830.6 34,830.6 34,830.6 0.0 0.0 0.0 0.0 7.0 7.0 0.0 0.0
impairment

Exposures other than held for trading 3,333,876.4 3,333,391.6 3,331,885.3 1,506.3 484.8 484.8 484.8 924.4 775.1 149.3 149.3

72
ING Bank Hipoteczny S.A.
Financial statements for the period from 1 January 2019 to 31 December 2019 (in PLN thousand)

Changes in the stock of general and specific credit risk adjustments

a) b)
Accumulated specific credit Accumulated general credit risk
risk adjustment adjustment

Opening balance 0.0 0.0

Increases resulting from the amounts written down for credit loss estimates in the period
-924.4 0.0

Closing balance* -924.4 0.0

*) The balance as at 31.12.2019 includes changes in adjustments for 2019. Calculation of RWA takes into account provisions as at 31.12.2018;
ING Bank Hipoteczny S.A. did not carry out any operations in that period.

Application of credit risk mitigation techniques

Division of collaterals and guarantees accepted as collaterals for credits and advances other than held for trading
Loans secured with real properties Other secured loans
Received
Cash and cash financial
Residential Commercial equivalents (issued Other guarantees
debt instruments)
Loans and advances 3,060,898.6 0.0 0.0 0.0 0.0
including: households 3,060,898.6 0.0 0.0 0.0 0.0
including: loans for the purchase of
3,060,898.6 0.0 0.0 0.0 0.0
residential properties

Total 3,060,898.6 0.0 0.0 0.0 0.0

Division of loans and advances not classified as held for trading by product
Carrying amount

Financial sector Non-financial sector

Gross balance Government and
sheet amount Other
monetary self-government
Total Total Households institutions’ sector
financial
institutions
On demand and short term
1,115.4 1,115.4 1,115.4 0.0 0.0 0.0
(current account)
By products
Other term loans 3,067,032.5 6,133.8 6,133.8 3,060,898.6 3,060,898.6 0.0

Loans and advances 3,068,147.8 7,249.2 7,249.2 3,060,898.6 3,060,898.6 0.0

of which: loans secured with real

By collaterals 3,061,815.6 0.0 0.0 3,060,898.6 3,060,898.6 0.0
properties

of which: loans for the purchase of

By purposes 3,061,815.6 3,060,898.6 3,060,898.6
residential properties

By subordination of which: project finance loans 0.0 0.0

73
ING Bank Hipoteczny S.A.
Financial statements for the period from 1 January 2019 to 31 December 2019 (in PLN thousand)

Standardised approach – credit risk exposure and CRM effects

a) b) c) d) e) f)

Exposures prior to application of Exposures after application of the

Risk weighted assets and their
the credit conversion factors and credit conversion factors and
concentration
mitigation of the credit risk mitigation of the credit risk

Concentration
Balance sheet Off-balance Balance sheet Off-balance of risk-
Categories of exposures Risk weighted assets
amount sheet amount amount sheet amount weighted
assets
Central governments or central banks 266,396.7 0.0 266,396.7 0.0 3,962.7 1%

Institutions 7,249.2 0.0 7,249.2 0.0 0.0 0%

Retail 1,157,667.7 0.0 1,157,667.7 0.0 868,250.8 75%

Secured by a mortgage on immovable
1,903,662.9 0.0 1,903,662.9 0.0 667,290.6 35%
property

Exposures in default 484.9 0.0 484.9 0.0 488.2 101%

Other items 3,296.7 0.0 3,296.7 0.0 3,296.7 100%

Total 3,338,758.1 0.0 3,338,758.1 0.0 1,543,289.0 46%

Standardised approach - risk weights

Risk weight Including,
Total without
Categories of exposures 0% 35% 75% 100% 150% 250% rating
Central governments or central banks 264,811.6 0.0 0.0 0.0 0.0 1,585.1 266,396.7 266,396.7

Institutions 7,249.2 0.0 0.0 0.0 0.0 0.0 7,249.2 7,249.2

Retail 0.0 0.0 1,157,667.7 0.0 0.0 0.0 1,157,667.7 1,157,667.7

Secured by a mortgage on immovable

0.0 1,902,785.9 0.0 0.0 877.0 0.0 1,903,662.9 1,903,662.9
property

Exposures in default 0.0 0.0 0.0 478.3 6.6 0.0 484.9 484.9

Other items 0.0 0.0 0.0 3,296.7 0.0 0.0 3,296.7 3,296.7

Total 272,060.8 1,902,785.9 1,157,667.7 3,775.0 883.6 1,585.1 3,338,758.1 3,338,758.1

7.33. Funding and liquidity risk

Funding and liquidity risk is understood by the Bank as the risk of inability to meet, at a reasonable price, cash
liabilities under balance sheet and off-balance sheet items. The Bank maintains liquidity so that its cash liabilities
could be paid at all times from the available funds and inflows from maturing transactions, available funding
sources at market prices or from sale of marketable assets. Liquidity risk is material for the Bank.

Bank Supervisory Board oversees the liquidity risk management by accepting the general risk appetite level and by
analysing Bank liquidity risk reports on a quarterly basis.

The Bank Management Board is responsible for:

 formulating the strategy for funding and liquidity risk, a target liquidity position, its funding methods and
the liquidity risk profile,
 establishing the acceptable level of risk (risk appetite), liquidity risk tolerance and submitting it for the
Supervisory Board approval,

74
ING Bank Hipoteczny S.A.
Financial statements for the period from 1 January 2019 to 31 December 2019 (in PLN thousand)

 approving the liquidity and funding risk management policy and significant amendments thereto; in
particular, the limits tailored to the overall acceptable level of risk approved by the Supervisory Board,
 ensuring allocation of relevant human and IT resources in order to realise the liquidity risk management
process.

Structural liquidity risk is transferred to Treasury and managed there. Treasury is responsible for operational
management of the short-term liquidity.

Assets and Liabilities Committee (ALCO) oversees and monitors the liquidity risk level and the funding structure of
the Bank. ALCO manages the liquidity buffer under relevant limits approved by the Management Board; operational
activities in this respect are delegated to Treasury.

The Bank uses the following liquidity risk measures:

 supervisory liquidity norms of the National Bank of Poland (M3, M4),
 liquidity coverage ratio (LCR),
 net stable funding ratio (NSFR),
 structural liquidity gap,
 survival period in stress situation.

In 2019, the Bank identified no exceeded liquidity risk limits. As at 31 December 2019, the core liquidity measures
were at the following levels:
Risk measure as at 31.12.2019 Supervisory limit
M3 61.3 >1
M4 1.03 >1
LCR 20,581% >100%

From time to time, the Bank makes projections of the main liquidity risk measures, especially each time before
acquiring a mortgage debt claims portfolio.

The term structure of mortgage loans by contract terms is as follows:

 exposures over 10 years represent 54% of retail mortgage loan exposures, with exposures over 15 years
representing 33%,
 exposures up to 2 years represent 9% of mortgage exposures.

As at 31 December 2019, the acquisition of the debt claims portfolio is funded mostly with a loan granted by the
parent company. In October 2019, the Bank carried out the first issue of covered bonds for the amount of PLN 400
million with the original maturity date of 5 years.

75
ING Bank Hipoteczny S.A.
Financial statements for the period from 1 January 2019 to 31 December 2019 (in PLN thousand)

The accumulated real structural liquidity gap as at 31 December 2019 is presented in the chart below:

The gap shows positive values in the period up to one year and negative values over one year. This is due to the fact
that a significant part of the Bank’s assets are long-term mortgage loans, which are financed with liabilities of
shorter maturity terms.
Daily, weekly, monthly and quarterly liquidity risk reports are being developed in the Bank. The weekly, monthly
and quarterly ones are presented at the meetings of the Management Board. The Assets and Liabilities Committee
get relevant information on a monthly basis, whereas the Supervisory Board receive it on a quarterly basis.

7.34. Market risk

Market risk is understood at the Bank broadly and it includes sensitivity of the position of the Bank to the changes in
market parameters and customer behaviour. Sensitivity includes changes in economic results and financial results
presented in relevant reporting, as well as changes in the coverage of regulatory requirements and of the economic
capital. Market rates include interest rates, FX rates and prices of securities. Customer behaviour refers to possible
early repayment, repayments past due or no repayments of mortgage loans in the Bank’s portfolio.
Market risk limits are accepted by the Bank Management Board and are in compliance with the general risk appetite
level accepted by the Bank Supervisory Board. Assets and Liabilities Committee realises the market risk
management strategy and oversees and monitors the market risk level at the Bank.
Market risk is transferred to Treasury where it is managed within the approved limits.

Interest rate risk

Interest rate risk in the banking book is deemed to be a major risk. The Bank uses the following measures of the
interest rate risk:
 sensitivity measure (BPV),
 net interest income at risk (NIIaR),
 economic value of the equity at risk (EVEaR),
 securities portfolio sensitivity measures.

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ING Bank Hipoteczny S.A.
Financial statements for the period from 1 January 2019 to 31 December 2019 (in PLN thousand)

In 2019, the Bank identified no exceeded interest rate risk limits. As at 31 December 2019, the core measures were
at the following levels:
Risk measure as at 31.12.2019
BPV (PLN thousand) 22.5
NIIaR (PLN thousand) 79.8
EVEaR to own funds 1.68%

FX risk
The Bank does not hold significant positions in foreign currencies. As at 31 December 2019, the FX risk is deemed
non-material. The Bank uses the following measures of the FX risk:
 a measure of the position in particular currencies,
 value at FX risk (VaR).

As at 31 December 2019, the Bank held the FX position of EUR 44,000 (a short position). This position resulted from
internal administration and generated VaR of PLN 700.

7.35. Model risk management

In accordance with the model risk definition adopted by the Bank, the model risk is the potential loss that the Bank
may incur as a result of decisions which may have substantially been based on data obtained using models in the
Bank internal processes, due to errors in the development, implementation or application of such models.
The model risk management process at ING Bank Hipoteczny S.A. is compliant with the solutions applied in ING
Group, keeping in mind the scale and profile of the operations of the Bank.
The models used in the Bank were subject to quarterly reviews and assessment of the exposure to model risk, as
well as to model significance reviews. Model validation was carried out as planned, and validation reports were
presented to relevant Committees dedicated to specific models. Cyclical validation reports were presented at the
meetings of the Bank Management Board and Supervisory Board.
In 2019, aggregated model risk was below the tolerance level adopted by the Bank for that risk type.

7.36. Operational risk

ING Bank Hipoteczny S.A. manages its operational risk applying the requirements of legal regulations,
recommendations and resolutions of the Polish Financial Supervision Authority and other regulators.
The operational risk management system was developed applying the proportionality principle, that is, taking into
account the nature, scale and complexity of operations, as well as materiality of processes and operational risk
profile of the Bank. It refers to all areas of the Bank’s operations and is a consistent, fixed practice comprising the
following elements:
 risk identification and assessment,
 risk mitigation,
 control, and
 quality assurance and monitoring.

Operational risk management is supervised at the Bank by the Bank Supervisory Board who use interim
management information to assess effectiveness of operations in this field.

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ING Bank Hipoteczny S.A.
Financial statements for the period from 1 January 2019 to 31 December 2019 (in PLN thousand)

After the Bank Management Board get a consent of the Supervisory Board, they specify the operational risk
management strategy by implementing a coherent set of internal prescriptive documents governing the scope,
principles and duties of the Bank employees in the field of operational risk management.

Measurement of operational risk at ING Bank Hipoteczny S.A. is to specify the scale and profile of the threats related
to operational risk using for that the determined risk measures.

In 2019, the non-financial risk was at an acceptable level. In that period, ING Bank Hipoteczny S.A. did not report
any operational risk losses.

The level of operational risk is reported on a regular, monthly basis under the cyclical management information
with the Non-Financial Risk Dashboard (NFRD) presented at the meetings of the Non-Financial Risk Committee
(NFRC) composed of all Members of the Management Board of ING Bank Hipoteczny.

For the needs of regulatory capital requirement, ING Bank Hipoteczny S.A. uses now the BIA approach for
operational risk.

The limit for expected non-financial risk loss (ELT) projected in Risk Appetite Statement (RAS) for 2019 was nor
exceeded by the end of 2019. Risk identification and assessment was carried out in the Bank for significant
processes. In case of identified gaps, appropriate remedial measures have been planned and are now being
implemented.
In 2019, there were no losses due to operational risk incidents.

The Management Board takes actions when the level of operational risk in ING Bank Hipoteczny S.A. is high or
critical.

Improving our organisational maturity, we perfect solutions and systems to ensure broadly understood security in
ING Bank Hipoteczny S.A.
Operations of ING Bank Hipoteczny S.A include also outsourcing of some activities to third parties.
A major example thereof are activities outsourced to ING Bank Śląski S.A., which is specially monitored in terms of
the quality of provided service and the risks related thereto.
Outsourcing makes it possible to reduce the risk by transferring some banking activities to another institution that
has greater experience and better infrastructure to carry out these operations due to the scale of its own business.
ING Bank Hipoteczny S.A. is responsible for outsourced activities as if they were performed by ING BH itself, and the
decisions about outsourcing and method of outsourcing are taken by ING Bank Hipoteczny S.A.

Now, ING Bank Hipoteczny S.A. is preparing itself to ensure compliance with the new guidelines of the European
Banking Authority (EBA) as regards outsourcing (EBA Draft Guidelines on outsourcing arrangements).

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ING Bank Hipoteczny S.A.
Financial statements for the period from 1 January 2019 to 31 December 2019 (in PLN thousand)

7.37. Compliance Risk

Compliance risk at ING Bank Hipoteczny S.A. is understood as the risk of consequences of non-compliance with legal
regulations, internal regulations and market standards in the processes that are in place in the Bank; it includes, but
is not limited to, especially:
 non-compliance resulting from non-implementation of the requirements of external regulations on
financial institutions in the Bank’s internal regulations; this regards universally applicable laws,
recommendations of the regulators, court orders and decisions binding for the Bank under law, accepted
codes of conduct,
 non-compliance resulting from ineffective controls defined in bank policies and procedures in high-level
compliance risk areas, including within the operations of the Compliance Area,
 other identified non-compliance concerning universally applicable laws on financial institutions.

Should compliance risk materialize, it could lead to: deterioration of reputation or losses attributable to legal
claims, financial penalties or sanctions of any other type imposed by regulators.

Compliance risk management is arranged in such a way to ensure management of that risk on three independent
levels (lines of defence).
The first line of defence units are responsible for ensuring compliance of the performed tasks with legal regulations,
internal regulations and market standards, including, but not limited to, identification and assessment - with the
support of organisational units of the second line of defence - of the compliance risk for its processes, and also for
management of that risk, inclusive of design, implementation and performance of controls.
The role of the Compliance Area, being the leading unit of the second line of defence in the compliance risk area is,
most notably, providing support for the first line of defence in the process of identification and assessment of the
compliance risk (independent analysis / polemics) and approval of their results, control, independent monitoring
and complex reporting of the results of identification, assessment, control and monitoring of the compliance risk,
based on the results of performance of its own activities and information received from other units of the first and
second lines of defence.
Internal auditor (the third line of defence) ensures independent and objective assessment of effectiveness of
internal controls.

As the Bank started its operations in January 2019, any activities taken in order to mitigate the compliance risk in
the Bank were focused mostly on identification and assessment of the risk generated in key processes of the Bank,
inclusive of assessment of adequacy of adopted controls, taking into account changes in business, regulatory and
legal landscape, starting awareness and training programmes, as well as reporting on identification of gaps (also
under current verification activities) and activities taken in conjunction therewith.

7.38. Business risk

The Bank identifies macroeconomic risk as major business risk. Identification of the macroeconomic risk is to secure
the Bank against any adverse change in macroeconomic situation. The Bank monitors the macroeconomic
landscape on a current basis and adjusts its business strategy. Financial projections take into account the changing
market parameters. To determine its sensitiveness to the change in macroeconomic parameters, the Bank uses
stress tests.

7.39. Capital management

The process of capital management is carried out in the Bank based on the implemented Capital Management
Policy at ING Bank Hipoteczny S.A. that was developed on the basis of applicable regulations.

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ING Bank Hipoteczny S.A.
Financial statements for the period from 1 January 2019 to 31 December 2019 (in PLN thousand)

Capital management at ING Bank Hipoteczny S.A. is to make possible and facilitate development of the Bank in
accordance with the accepted strategy and business model, while keeping, on an ongoing basis, its own funds on
the level adequate to the scale and profile of risk inherent in the Bank’s operations, taking into account supervisory
requirements. Furthermore, it makes it possible to manage the capital actively, keeping in mind volume and
dynamics of current and future changes.

The main objective of this process is to have sufficient and effective capitalisation of the Bank to effect its business
strategy and development plans specified in the financial plans, while meeting at the same time all internal and
external capital requirements. It stands for financial flexibility in the present and future landscape in order to adjust
to the changing market and regulatory conditions. To this end, the capital management activities apply any
available capital instruments and transactions both in the baseline scenario as well as in the adverse scenario.

External regulations govern keeping a proper level of capital adequacy. The main capital constraints result from
internal resistance to risk that is assessed, among others, in stress tests, in Supervisory Review and Evaluation
Process (SREP), regulatory minimum levels of capital and leverage ratios and internal risk appetite.

This management includes:

 Pillar 1: minimum capital requirements provided for in the regulations,
 Pillar 2: internal capital, determined with the Bank’s own models, for the risks deemed to be material and
permanently material.

Under capital management, the Bank:

 plans internal capital and capital requirement as well as own funds;
 sets internal limits in order to curtail the generated capital requirements and internal capital;
 monitors potential threats to capital adequacy;
 identifies and assesses materiality of the risk types inherent to its operations;
 takes actions in order to assess and monitor internal capital, capital requirement and own funds;
 allocates internal capital;
 effects dividend policy resulting from a long-term capital objective and preferred capital structure,
 develops contingency capital plans which define the procedure for the risk of capital adequacy
deterioration below the “inadmissible” levels,
 analyses the impact of the macroeconomic factors on capital adequacy in line with the “Stress Testing
Policy at ING Bank Hipoteczny S.A.”

As at 31 December 2019, the total capital ratio of the Bank was 17.03%.

Disclosures concerning Pillar 2: internal capitals were presented in the Management Board Report on Operations of
ING Bank Hipoteczny S.A.

7.40. Total capital ratio

For the needs of capital adequacy, own funds of the Bank consist exclusively of Tier 1 core funds (CET 1) and they
were set in accordance with the Banking Law Act, CRR and related regulations.
At the same time, in line with CRR, the Bank calculates requirements for its own funds for the following risk types:
 for credit risk – using the standardised approach,
 for the CVA risk – using the standardised approach,

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ING Bank Hipoteczny S.A.
Financial statements for the period from 1 January 2019 to 31 December 2019 (in PLN thousand)

 for delivery and settlement risk – using the standardised approach,

 for operational risk – using the basic indicator approach,
 for market risk (FX risk) using the standardised approach.

In January 2019, the Bank obtained the PFSA’s consent to conduct its business. Due to the fact that in 2018, ING
Bank Hipoteczny S.A. did not pursue banking business, and thus it was not subject to the duties arising from the
Regulation (EU) No. 575/2013 of the European Parliament and of the Council of 26 June 2013 and related
regulations concerning inter alia capital adequacy disclosures, the statements shown herein below do not show
comparative data for previous periods.

As at 31 December 2019, the Bank reports zero values for the own funds requirements for the CVA risk, delivery and
settlement risk, and market risk. Having regard to the above, as at the date of this report, the total requirement for
own funds consisted of the credit risk and operational risk requirements.

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ING Bank Hipoteczny S.A.
Financial statements for the period from 1 January 2019 to 31 December 2019 (in PLN thousand)

Total capital ratio

as at
31.12.2019

Own funds 269,700.9

A. Equity capitals from the statements of financial position, including: 271,552.1
Equity capitals recognised under own funds, including: 271,552.1
Share capital 210,000.0
Supplementary capital – share premium 69,570.5
Supplementary capital - result from previous years -7,379.4
Result for the current period -188.9
Accumulated other comprehensive income - securities measured at fair value through other comprehensive
47.8
income
Accumulated other comprehensive income - actuarial gains and losses -497.9
B. Other components (decreases and increases) of own funds, including: -1,851.2
Intangible assets -1,816.7
Accumulated other comprehensive income - value adjustment due to the requirements for prudent valuation* -34.6
Own funds taken into account in total capital ratio calculation (A.I. + B), including: 269,700.9
Tier 1 capital 269,700.9
Risk weighted assets, including: 1,583,319.0
credit risk weighted assets 1,543,289.0
operational risk weighted assets 40,030.0
Total capital requirements 126,665.5

Total capital ratio (TCR) 17.03%

minimum required level 13.5%
excess TCR 55,952.8
Tier 1 ratio (T1) 17.03%
minimum required level 11.5%
excess T1 87,619.2
Common Equity Tier 1 ratio (CET1) 17.03%
minimum required level 10.0%
excess T1 111,368.97

*) Starting from these financial statements, the Bank no longer recognizes AVA in accumulated other comprehensive income, and the said
adjustment has been recognized only as a reporting adjustment for the needs of meeting the requirements arising from the mentioned above
Regulation (EU) of the European Parliament and of the Council.

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ING Bank Hipoteczny S.A.
Financial statements for the period from 1 January 2019 to 31 December 2019 (in PLN thousand)

Below, the Bank presents the risk-weighted assets values (RWA) together with the requirements for own funds and
division into specific classes of exposures:

Gross value of Net value of Risk weighted Requirement for

exposures exposures** assets (RWA) own funds

Exposures to central governments and central banks

266,396.7 266,396.7 3,962.7 317.0

Exposures to institutions 7,249.2 7,249.2 0.0 0.0

Retail exposures* 1,157,667.7 1,157,667.7 868,250.8 69,460.1
Exposures secured by mortgages on immovable properties 1,903,662.9 1,903,662.9 667,290.6 53,383.2
Exposures in default 484.9 484.9 488.2 39.1
Other exposures 3,296.7 3,296.7 3,296.7 263.7
Total 3,338,758.1 3,338,758.1 1,543,289.0 123,463.1

*) They arise from a part of exposures relating to purchased mortgage loan related debt claims that is not fully and completely secured, namely,
that is in the transitional period, that is, until the collateral is established, or it exceeds 80% of mortgage lending value of the real estate.
**) Value of balance sheet exposures and equivalent of the balance sheet liabilities and contingent transactions, taking into account specific
credit risk adjustments and credit conversion factor (CCF).

7.41. Capital buffers

In pursuance of the Macroprudential Supervision Act that transposes the regulations of CRD and in pursuance of the
Regulation of the Minister for Economic Development and Finance of 1 September 2017 concerning system risk
buffer (Journal of Laws of 2017, item 1776) the Bank is obliged to keep the capital ratios that take into account
capital buffers at the following levels:
 total capital ratio (TCR) = 8% + combined buffer requirement,
 Tier 1 ratio (T1) = 6% + combined buffer requirement,
 Common Equity Tier 1 (CET1) = 4.5% + combined buffer requirement,
where the combined buffer requirement is the total of the applicable buffers, namely:
 capital conservation buffer of 2.5%,
 countercyclical capital buffer of 0% for credit exposures within the territory of the Republic of Poland,
 buffer of other systemically-important institution specified in individual decision of the Polish Financial
Supervision Authority. PFSA did not consider ING Bank Hipoteczny S.A. to be the other systemically-
important institution and thus there is no obligation to maintain any capital add-on for that,
 systemic risk buffer of 3%.

At the same time, in line with the regulations resulting from Article 138.1.2a of the Banking Law Act, the Polish
Financial Supervision Authority, performing its supervisory function, may impose on the Bank a requirement to
keep capital add-on in special cases listed in the above mentioned regulations.
The Bank is not under obligation to keep capital add-on.

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ING Bank Hipoteczny S.A.
Financial statements for the period from 1 January 2019 to 31 December 2019 (in PLN thousand)

7.42. Leverage
The process of excessive financial leverage risk management is carried out in the Bank based on the Excessive
Financial Leverage Risk Management Policy at ING Bank Hipoteczny S.A. that implements especially the
requirements resulting from the Regulation of the European Parliament and of the Council (CRR). The Policy
governs excessive financial leverage risk (Leverage Ratio - LR) at ING Bank Hipoteczny S.A.
The excessive financial leverage risk is understood as the risk resulting from an institution’s vulnerability to the
threats attributable to leverage, which may require unintended corrective measures to its business plan, including
distressed selling of assets which might result in losses or in valuation adjustment of its remaining assets.

Leverage Ratio (LR) means a relative size of the Bank’s assets, off-balance sheet obligations and contingent
obligations to pay or to deliver or to provide collateral, including obligations from received funding, made
commitments, derivatives or repurchase agreements, but excluding obligations which can only be enforced during
the liquidation of the Bank, compared to the Bank’s own funds.

The Bank calculates the leverage in accordance with CRR.

Leverage ratio is subject to monitoring on a current basis. The Bank assumes that the ratio higher than 5% is safe
and does not require taking any additional actions.
As at 31 December 2019, the leverage ratio was above the 3% level recommended for the banks by the Basel
Committee and above the internally set limit.

Leverage

as of 31.12.2019

Leverage ratio (LR) 8.1%

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ING Bank Hipoteczny S.A.
Financial statements for the period from 1 January 2019 to 31 December 2019 (in PLN thousand)

SIGNATURES OF MANAGEMENT BOARD MEMBERS OF ING BANK HIPOTECZNY S.A.

23 March 2020 Mirosław Boda

President of the Management Board the original Polish document is signed
with a qualified electronic signature

23 March 2020 Jacek Frejlich

Vice-President of the Management Board the original Polish document is signed
with a qualified electronic signature

23 March 2020 Roman Telepko

Vice-President of the Management Board the original Polish document is signed
with a qualified electronic signature

SIGNATURE OF A PERSON ENTRUSTED WITH KEEPING THE ACCOUNTS

23 March 2020 Agnieszka Kukuczka

Chief Accountant the original Polish document is signed
with a qualified electronic signature

85