Notes to the consolidated financial statements
5.4 Estimation uncertainty
Presented below are the main assumptions concerning the future and other key uncertainties as at the end of the reporting period posing the risk of material adjustment of the carrying amount of assets and liabilities in the next financial year. The actual values recognized by the Group may differ from estimates.
Estimates and assumptions adopted by the Group are reviewed on a current basis. Estimate adjustments are recognized in the period when the estimates have been changed if the adjustments pertain to that period only. If the adjustments affect both the current and future periods, they are recognized both in the period when introduced and in future periods.
Fair value of financial instruments
Financial assets and liabilities carried at fair value in the balance sheet with no identifiable active market are measured using generally applied measurement models based to the maximum extent possible on variables observable in market environment and professional judgment. Relevant measurement methods and input data are verified on a regular basis.
The method of determining the fair value of each financial instrument and their carrying amounts has been presented in Note 37.
Effects of market interest rate changes by + 1 b.p./- 1 b.p. on the fair value of financial instruments recognized in the statement of financial position at fair value have been presented in the table below:
Balance as at | Balance as at | |||
---|---|---|---|---|
31 December 2015 | 31 December 2014 | |||
+1 p.b. | -1 p.b. | +1 p.b. | -1 p.b. | |
PLN’000 | PLN’000 | PLN’000 | PLN’000 | |
Investment assets available for sale | (178) | 178 | (106) | 106 |
Financial assets and liabilities held for trading | (23) | 23 | (5) | 5 |
Hedging derivatives | (14) | 14 | 0 | 0 |
At each balance sheet date, the Group evaluates whether there is any objective indication of impairment of a financial asset / group of financial assets.Impairment of financial assets
The estimated impact of changes in the present value of estimated cash flows on the change in impairment losses for individual items of “Loans and advances granted to customers" has been presented in the table below.
Balance as at | Balance as at | |||
---|---|---|---|---|
31 December 2015 | 31 December 2014 | |||
+10 % scenario | -10 % scenario | +10 % scenario | -10 % scenario | |
PLN’000 | PLN’000 | PLN’000 | PLN’000 | |
Estimated change in allowances | (2 605) | 2 553 | (2 098) | 3 015 |
The fair value of collateral provided for exposures granted is determined using measurement techniques and real estate market analysis. The list of collateral accepted by the Group with the fair value specification (for mortgages) has been presented in Note 47.1 to these consolidated financial statements.Fair value of collateral provided for exposures granted
The Group has adopted the following key principles of measurement for most popular collateral types:
No. | Collateral type | General measurement principles |
---|---|---|
1 | Mortgage on real estate | measurement of real estate performed by a certified appraiser for collateral-related purposes or |
a document confirming the purchase of a real estate, or preliminary sale agreement in case of funding housing for individuals | ||
Revaluation of real estate for mortgages for individuals is carried our once a year through a comparison between the original rea estate value determined by an appraiser or the purchase price and the market value of the real estate with similar parameters obtained from the AMRON interbank system; if such data is not available, it is taken from the National Bank of Poland (www.nbp.pl) or Pont-lnfo Nieruchomości database of real estate prices | ||
2 | Ownership transfer, registered pledge, pledge on movable fixed assets | Measurement of movable assets performed by a certified appraiser for collateral-related purposes or |
an insurance policy if the movables concerned are commonly traded commodities; or | ||
purchase cost if movables concerned are new, purchased on the market and liquid | ||
3 | Ownership transfer, registered pledge, pledge on current movable assets | Purchase price after verification against exchange / market / commision sales prices or |
insurance policy after verification against exchange / market / commision sales prices or | ||
documented exchange / market / commision sale price of an asset | ||
4 | Endorsements and avals | The endorser’s income level must be close to that of the applicant or |
if the endorser does not meet the above requirement, the amount adopted to determine the collateral value is the value of a loan the endorser could be granted by the Bank with its current financial standing or | ||
if the endorser is an entity, collateral is accepted only if the total amount of endorsement granted to a single debtor does not exceed 15% of the endorser’s net assets reduced by capital contributions due but unpaid to joint stock companies and cooperatives. | ||
5 | Transfer of contractual receivables | Net value of goods and services without VAT, including individual contract terms, i.e. payment deadlines, complaint handling, performance bond |
6 | Insurance | in case of life insurance, the sum insured should cover the loan amount, while in case of job insurance, the sum insured regarding one type of incident should be the higher of: the equivalent of six loan installments or PLN 9,000. The coverage and insurer’s indemnity arising from the insurance policy are each time subject to the Bank’s acceptance |
Every year the Group verifies the adopted useful lives of fixed assets and intangible assets based on the current estimates. Detailed information on useful lives of property, plant and equipment and intangible assets has been presented in Note 5.6.10 and 5.6.11.Useful life of property, plant and equipment and intangible assets
Useful life of property, plant and equipment and intangible assets is estimated taking into consideration the following factors:
- the so-far observed average useful lives, reflecting physical wear and tear, intensity of usage, etc.;
- technological obsolescence;
- period of control over the asset, legal and other limitations on period in use;
- co-relation between the useful life of the asset in question and those of other assets;
- other factors that may affect expected average useful life of a given type of non-current assets.
The expected average useful life of a given asset is equal to its period in use defined under terms of the appropriate contract. If, however, the expected useful life of an asset is shorter than its contractual period in use, the asset is depreciated/amortized over its useful life.
The impact of changes in useful lives of the key groups of property, plant and equipment and intangible assets items subject to depreciation/amortization by +/- year on the costs of the Capital Group has been presented below.
Balance as at | Balance as at | |||
---|---|---|---|---|
31 December 2015 | 31 December 2014 | |||
+ 1 year scenario | - 1 year scenario | + 1 year scenario | - 1 year scenario | |
PLN’000 | PLN’000 | PLN’000 | PLN’000 | |
Buildings and structures | (21) | 25 | (21) | 25 |
Plant and equipment | (951) | 1 465 | (965) | 1 438 |
Leasehold improvements | (383) | 569 | (362) | 529 |
Fittings | (277) | 420 | (487) | 686 |
R&D expenses | (258) | 426 | (163) | 269 |
Copyrights, licenses, concessions and software | (1 036) | 1 716 | (1 399) | 2 282 |
The provision for retirement and disability benefits is calculated by an independent actuary in line with an actuarial method as the present value of future liabilities of the Group towards employees based on the number of employees and remuneration as at the date of revaluation. Provisions are calculated in accordance with a number of assumptions concerning discount rates, projected remuneration increases, employee turnover, mortality rate and other factors. All assumptions are reviewed at each year-end.Provision for retirement and disability benefits (determined benefit plans)
Carrying amounts of provisions recognized have been presented in Note 34.
The effects of changes in the discount rate and pay growth rate on the provision for pension and disability benefits are presented in the following table.
Balance as at | Balance as at | |||
---|---|---|---|---|
31 December 2015 | 31 December 2014 | |||
+0.5 % p.p. scenario | -0.5 % p.p. scenario | +0.5 % p.p. scenario | -0.5 % p.p. scenario | |
PLN’000 | PLN’000 | PLN’000 | PLN’000 | |
Discount rate | (58) | 65 | (36) | 40 |
Pay growth rate | 65 | (59) | 40 | (37) |