Notes to the consolidated financial statements

32. Provisions

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	Provisions for disputes	Provision for retirement and disability benefits	Provisions for termination benefits for members of the Bank’s governing bodies	Provisions for off- balance sheet liabilities	Other provisions	Total
	PLN ‘000	PLN ‘000	PLN ‘000	PLN ‘000	PLN ‘000	PLN ‘000
Balance as at 1 January 2013	2,470	675	166	684	0	3,995
Recognition/revaluation of provisions	338	143	0	4,304	0	4,785
Discounted amount increase	569	0	0	0	0	569
Use of provisions	(57)	(27)	0	0	0	(84)
Derecognition of provisions	(1,949)	(34)	0	(3,863)	0	(5,846)
Balance as at 31 December 2013	1,371	757	166	1,125	0	3,419
including:
Short-term (below 12 months)	1,371	51	166	1,125	0	2,713
Long-term (over 12 months)	0	706	0	0	0	706
Balance as at 31 December 2013	1,371	757	166	1,125	0	3,419

	Provisions for disputes	Provision for retirement and disability benefits	Provisions for termination benefits for members of the Bank’s governing bodies	Provisions for off- balance sheet liabilities	Other provisions	Total
	PLN ‘000	PLN ‘000	PLN ‘000	PLN ‘000	PLN ‘000	PLN ‘000
Balance as at 1 January 2012 (restated)	2,469	908	166	1,284	0	4,827
Recognition/revaluation of provisions	111	0	0	2,506	0	2,617
Discounted amount increase	74	0	0	0	0	74
Use of provisions	(148)	(28)	0	0	0	(176)
Derecognition of provisions	(36)	(205)	0	(3,106)	0	(3,347)
Balance as at 31 December 2012 (restated)	2,470	675	166	684	0	3,995
including:
Short-term (below 12 months)	118	39	166	684	0	1,007
Long-term (over 12 months)	2,352	636	0	0	0	2,988
Balance as at 31 December 2012 (restated)	2,470	675	166	684	0	3,995

Provisions for disputes
Provisions for disputes are recognized for court cases, administrative proceedings and other legal disputes. The Group keeps a detailed record of disputes. Provisions are recognized if the Group is subject to a legal or customary obligation resulting from past events, and if there is a probability that fulfillment of the obligation will result in an outflow of funds. Any future claims are charged to the provisions. The Group has recognized provisions for all estimated losses. As a rule, estimated term of provisions for disputes exceeds one year.

Presented below is a description of the major disputes entered into by the Group.

In 2001, the President of the Office of Competition and Consumer Protection (“OCCP President”) initiated anti-monopoly proceedings against card associations (Visa, Europay) and banks (issuers of Visa and Europay/Eurocard/Mastercard cards) concerning anti-competitive practices in the Polish payment card market, which consisted, allegedly, in common determination of the interchange fee for transactions made with Visa and Europay/Eurocard/Mastercard cards.

On 29 December 2006, OCCP President decided that practices consisting in the banks’ common determination of the interchange fee reduced competition in the market of acquiring services relating to payment of consumers’ liabilities to merchants, arising from payments for goods and services purchased by consumers with the use of payment cards in Poland, and ordered their discontinuation, imposing, at the same time, financial penalties on the banks, including the Bank, equal to PLN 2,895 thousand (participating only in the VISA system) (OCCP President’s decision No. DAR 15/2006). The Bank recognized a provision for the full amount of the aforesaid penalty.
An appeal against the abovementioned decision was filed with the Court of Competition and Consumer Protection (“CCCP”) by the Bank and other parties to the proceedings. As a result, in its judgment of 12 November 2008 CCCP reversed the decision concluding that no anti-competitive practices had been followed by the banks in the aforesaid case. Following an appeal filed by OCCP President, the Court of Appeals reversed the judgment in whole on 22 April 2010 and remanded the case for further proceedings at CCCP.

In its judgment of 21 November 2013, CCCP:

• reversed the decision appealed against in respect of the amount of financial penalties imposed on the banks specified in the judgment, reducing the penalty levied on the Bank to PLN 25,4 thousand (the court questioned the methodology used by OCCP President for determining individual penalties by reference to a base amount being the PLN equivalent of EUR 5 million, and relied on its own methodology based on the revenue of individual banks as at the end of 2005);
• dismissed the appeals in the remaining scope;
• cancelled the costs of the proceedings.

On 3 February 2014, the Bank appealed against the judgment with respect to dismissal of the appeal. On 12 February 2014, OCCP President filed an appeal against the judgment with respect to the penalties and costs of the proceedings. Considering the appeals filed by OCCP President and some banks, the judgment is not final.
Having considered the assessment of the probability that the lower penalty imposed on the Bank would not be changed and having analyzed the position of OCCP President and CCCP on determination of the amount of the penalties levied, along with the scenarios concerning further course of the proceedings, the Bank estimated the provision for the potential financial penalty assuming that the judgment of the Court of Appeals would be favorable for OCCP President, in the amount of PLN 1,044 thousand as at 31 December 2013.

Provisions for retirement and disability benefits

In accordance with IAS 19, retirement and disability benefits are post-employment defined benefit plans. As the Group estimates its provisions for retirement and disability benefits using actuarial methods, it is exposed to the actuarial risk, including mainly the interest rate, longevity and compensation risk.

Risk	Effect on measurement
Interest rate risk	A drop in interest rates on financial instruments which are not exposed to credit risk results in higher present value of provisions for retirement and disability benefits.
Longevity risk	The present value of liabilities under the defined benefit plan is determined by reference to best estimates of program participants’ mortality both during and following the term of service. Any increase in the program participants’ life expectancy results in a rise in the value of provisions for retirement and disability benefits.
Compensation risk	The present value of liabilities under the defined benefit plan is determined by reference to the program participants’ future compensation level. Therefore, any increase in the program participants’ compensation results in a rise in the value of provisions for retirement and disability benefits.

The present value of provisions for retirement and disability benefits and the related current and past service costs have been measured using the projected unit credit method, based on the following actuarial assumptions:

	Balance as at 31 December 2013	Balance as at 31 December 2012 (restated)
	PLN ‘000	PLN ‘000
Discount rates	4.0%	from 4.5% to 5.0%
Anticipated pay growth rate	2.5%	2.5%
Mortality tables used for calculation purposes*	100% PTTZ 2012	100% PTTZ 2011
Inflation rate	2.5%	2.5%
Turnover (p.a.)	from 5.0% to 9.0%	from 5.0% to 8.0%

* it is assumed that mortality of those employed is reduced by 10%


The table below presents amounts recognized in profit or loss and in other comprehensive income with respect to the defined benefit plan.

	period from 1 January 2013  to 31 December 2013	period from 1 January 2012  to 31 December 2012 (restated)
	PLN ‘000	PLN ‘000
Provisions for retirement and disability benefits at the beginning of the reporting period	675	908
Amounts recognized in the consolidated profit or loss, including:
- current service cost	111	87
- past service cost	0	(269)
- net interest expense	32	50
Expense recognized in the consolidated profit or loss	143	(132)
Amounts recognized in consolidated other comprehensive income, including:
- actuarial gains and losses due to changes in demographic assumptions	(145)	(80)
- actuarial gains and losses due to changes in financial assumptions	111	7
Expense items recognized in consolidated other comprehensive income	(34)	(73)
Benefits paid	(27)	(28)
Provisions for retirement and disability benefits at the end of the reporting period	757	675

Off-balance sheet provisions

Guarantees granted and unconditional financial commitments are treated as an exposure bearing credit risk. While calculating provisions for off-balance sheet liabilities, the Bank uses the credit conversion factor (CCF).