35. Provisions

As at 31 December 2019, there were no proceedings in the court, arbitration tribunal or state administration authorities regarding liabilities or receivables of the Bank, the value of which would exceed 10% of the Bank’s equity.

On 6 October 2015, the Court of Appeals issued a decision regarding calculation of the interchange fee by banks acting in agreement. Thus, the decision of the 1st instance (Regional) Court of 2013 was changed by dismissing the banks’ appeals in whole, while upholding the appeal brought by the Office of Competition and Consumer Protection (UOKiK), which had questioned a considerable reduction in the fines  by the 1st  instance court. This denotes  that the penalty imposed under the first decision   of the President of UOKiK of 29 December 2006 was upheld. It involved a fine levied on 20 banks, including Bank BGŻ S.A. and Fortis Bank Polska S.A., for practices limiting competition by calculating interchange fees on Visa and MasterCard transactions in Poland in agreement.

The total fine levied on Bank BGŻ BNP Paribas (presently BNP Paribas Bank Polska) amounted to PLN 12,544 thousand and included: i) a fine for the practice of Bank Gospodarki Żywnościowej in the amount of PLN 9,650 thousand; and ii) a fine for the practice of Fortis Bank Polska S.A. (FBP) in the amount of PLN 2,895 thousand. The penalty was paid by the Bank on 19 October 2015. The Bank prepared a last resort appeal against the aforesaid court decision and brought it on 25 April 2016. On 25 October 2017, the Supreme Court overruled the judgment of the Court of Appeal and remitted the case. Acquisition of the core business of RBPL did not change the situation of the Bank as RBPL was not a party to this claim.

As at 31 December 2019 the Bank received:

31 requests for settlement from companies (marchands), due to interchange fees paid in relation to the use of payment cards, (three from companies which submitted their requests twice and one from a company which submitted two requests for different payment methods). The total amount of these claims was PLN 1,020.96 million, including PLN 1,010.99 million where the Bank had joint responsibility with other banks.

4 requests for mediation before the PFSA. The requests were sent to the Bank by the same entrepreneurs who had previously submitted requests for a settlement attempt. The total value of claims arising from the above applications amounts to PLN 40.29 million, of which PLN 37.79 million relates to joint liability with other banks.

On October 3, 2019, the Court of Justice of the European Union (CJEU) issued a ruling in which it stated that

1. unfair contractual terms regarding exchange differences cannot be replaced by general provisions of Polish civil law;
2. if, after removing unfair terms, the nature and main subject of these contracts may change to the extent that they would no longer be indexed to a foreign currency while being subject to an interest rate based on the rate applicable to that currency, European Union law shall not prevent annulling these contracts. However, the Tribunal did not examine the issue of abusiveness of index clauses and allowed the national court to supplement gaps in the contract caused by the removal of a provision found abusive by a provision of domestic law of a dispositional nature. It should be emphasised that the CJEU judgment concerns indexed loans, while the Bank’s portfolio does not contain such loans. The Bank and its legal predecessors only concluded denominated loan agreements and currency contracts. Therefore, the judgment of the CJEU does not automatically apply to disputes brought by the Bank’s clients, but it cannot be ruled out that it will affect the jurisprudence line also regarding other loans, as a consequence of which a full assessment of the effects of the CJEU judgment will be possible only after the jurisprudence of Polish courts has developed. Changing th e case-law may have a potentially negative impact on the Bank, but the scale, due to many unknowns, is currently not possible to estimate reliably.

As at 31 December 2019, the Bank was a defendant in 192 court cases (82 new cases in 2019, 26 of which began in the fourth quarter of 2019) (including cases validly completed clients issued 207 claims against the Bank), in which the Bank’s clients demanded to declare the annulment of mortgage loan agreements regarding foreign currency loans denominated in CHF, by determining that the Bank granted a loan in PLN without denomination to foreign currency, or compensation for the abuse of the subjective law by the Bank, including the principles of social coexistence, the fact of misleading the client, discontinuation of enforcement of the decision, as well as repayment of the spread. The Bank is not a party to any collective claim regarding these loans. The total value of claims pursued in the above cases as at December 31, 2019 amounts to PLN 49.37 million and for legally binding proceedings: PLN 30.66 million.

In 15 legally binding cases: 9 claims against the Bank have been dismissed; in 3 cases the proceedings were discontinued; in 1 case the court rejected the claim; in 1 case, despite the dismissal of the claim, the court’s justification annulled the contract, in 1 case only the claim for an insured low contribution was awarded (in the remaining scope the court dismissed the claim).

The Bank, on an ongoing basis, creates provisions for pending court proceedings the subject of which are denominated or foreign currency loans, taking into account the current state of final judgments in cases against the Bank and the emerging line of case law. In the fourth quarter of 2019 the Bank created provision of PLN 29.49 million for the CHF loans proceedings. The value of created provisions for proceedings regarding CHF loans as at 31 December 2019 was PLN 32.1 million. Provision for ongoing court cases is calculated on individual basis, provision for future proceedings is calculated on portfolio basis. For provision calculated on portfolio basis Bank evaluates the number of future court cases related to CHF credits based on number of documents requested from Bank by clients for lawsuit purposes and observed increase in the number of new cases. Bank, while calculating expected loss related to CHF credits legal risk applied an simplified approach due to short horizon of historical data available, and relatively small number of judgements received till date. Bank will, on an ongoing basis monitor increase in the number of documents requested by clients and number of new lawsuits and update evaluation of provision accordingly.

Bank carried out sensitivity analysis of the model used to the estimation of the number of future lawsuits. Change in the number of future lawsuit would have following impact on the amount of the Bank’s loss related to legal risk.

 

Additionally Bank evaluated, that if estimated number of future lawsuits is increased by lawsuits made by additional 1% of clients who have CHF mortgage credits Bank’s loss related to legal risk will increase by ca 7 mln PLN.

Bank carried out sensitivity analysis of the model used to estimation of the number of the unfavourable judgments. Change in this estimation would have following impact on the amount of the Bank’s loss related to legal risk.

 

The Bank underlines there is a significant difference both for facts (especially different clauses of the agreements and scope of the information for the client), and courts’ decisions taken in Poland in cases relating to indexed, denominated and currency loans, which makes precise estimation of the risk even more challenging. The Bank on an ongoing basis analyses decisions taken by courts and will adjust level of provisions according to the emerging case-law.