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Notes to the consolidated financial statements

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40. Off-balance sheet contingent liabilities

Off-balance sheet contingent liabilities granted

The majority of contingent liabilities are credit lines. Guarantees granted and financial commitments are treated as an exposure bearing credit risk. Assessment of risk resulting from guarantees and financial commitments is a part of the credit risk assessment process related to other credit products held by customers, i.e. all credit products, including guarantees, granted to specified customers are reviewed both for indications of impairment and assessment of impairment losses.

Gross off-balance sheet exposures (credit lines, guarantees) to five key customers in a given year as at 31 December 2016 and 31 December 2015 have been presented below:

As at 31 December 2016 the estimated provision for guarantees and financial commitments amounted to PLN 245 thousand (as at 31 December 2015 it was PLN 406 thousand). Provisions for off-balance sheet liabilities are recognized in balance sheet accounts and presented in Note 34 as “Provisions for off-balance sheet liabilities”.

Off-balance sheet contingent liabilities received

The key item of contingent liabilities received is a guarantee received securing the Group's liabilities under office space lease agreement.

 

Court cases, administrative proceedings and calls for settlement classified as contingent liabilities of the Group

During the 12 months ended 31 December 2016, the Group companies were not parties to any proceedings held before a court or public administration body, whose value would be equal to or higher than 10% percent of the Group’s equity.

 

• Litigation

The total value of claims related to litigation in which the Group companies are defendants, where the probability of losing is estimated by the Group below 50%, was PLN 772 thousand as at 31 December 2016 (PLN 446 thousand as at 31 December 2015).  In absence of indications regarding the losing of the cases, the Group companies did not recognize any provisions for the related liabilities.

 

• Administrative proceedings

1. On 26 August 2016 OCCP President instigated proceedings regarding practices violating collective consumer interests and involving failure to reduce the total cost of prematurely repaid consumer loans named “Pożyczka na Poczcie” by commission costs, which may constitute a breach of Article 49.1 and 49.2 of the Consumer Loan Act of 12 May 2011. 
   As at the date of these consolidated financial statements, the proceedings were pending. Since the proceedings are in a very early stage, the Bank has not recognized a provision for potential related liabilities.
2. On 28 December 2016, OCCP President instigated proceedings regarding a suspicion that the Bank applied practices violating collective consumers’ interests, involving unfair market practices in the form of:

• incorrectly presented information on exemption from monthly user fee included in advertisement materials regarding debit cards issued by the Bank;
• making the fee exemption dependent on settlement of non-cash transactions, although the settlement remains beyond consumer’s control (it may be performed once the Bank has received a relevant settlement from a payment organization; the date of the receipt cannot be determined).

Since the proceedings are in a very early stage, the Bank has not recognized a provision for potential related liabilities.

Apart from the above proceedings, as at the date of the consolidated financial statements, the following investigation procedures were carried out by the OCCP President in relation to the Bank:

1. in order to determine whether a breach has occurred that would necessitate instigation of proceedings regarding ban on practices violating collective consumers’ interests and whether such a violation of consumers’ legal rights has occurred, which would necessitate application of measures determined in separate legal acts with regard to the fee for access to information on bank account agreements terminated or expired for reasons determined in the Banking Law (holder’s death or inactivity for the period of ten years; so-called dormant accounts); 
2. in order to determine whether template consumer segment agreements used by the Bank include illegal provisions regarding changes in banking fees and commissions and amendments to other contractual provisions during the contract term;
3. in order to determine whether template agreements used by the Bank include illegal provisions, and therefore, whether legal consumers’ interests have been violated, in particular with regard to amendment of agreement templates (among others, Fee and Commission Tables) determining banking and other fees during the agreement term.

The purpose of the above investigation is to clarify the problem; therefore, the Bank has not identified any indications to recognize provisions for related liabilities, if any. 

 

•  Calls for settlement

Following the decision of OCCP President no. DAR 15/2006 of 29 December 2016, according to which the interchange fee agreeing practices adopted by banks have been considered as restricting competition on the acquiring services market (the services were related to settlement of consumer liabilities to acceptants arising from cash card payment for goods and services performed in Poland; detailed information is presented in Note 34) becoming binding on 6 October 2015, the involved banks, including the Bank, received a series of calls for settlement regarding the refund of interchange fees from a number of trading entities.

In 2016 the Bank received nine such calls and did not accept the settlement proposals.