55. Litigation and claims

As at 31 December 2020, 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 12.54 million and included: i) a fine for the practice of Bank Gospodarki Żywnościowej in the amount of PLN 9.65 million; and ii) a fine for the practice of Fortis Bank Polska S.A. (FBP) in the amount of PLN 2.89 million. 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.

On 23 November 2020, the Court of Appeal quashed the judgment of the first instance court and remitted the case for re-examination.

As at 31 December 2020 the Bank received:

• 32 requests for amicable 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 1,028.96 million, including PLN 1,018.05 million where the Bank had joint responsibility with other banks.
• 4 requests for mediation before Arbitration Court at 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 22 September 2020, the Bank received a decision of the President of the Office of Competition and Consumer Protection (UOKiK) No. DZOIK 14/2020, in which the President of UOKiK:

• found certain provisions of the standard contract (the so-called anti-spreading annex) concerning the principles of determining currency exchange rates illegal and prohibited their application;
• obligated the Bank to inform all customers who are parties to the annex about the decision and its consequences and to post information about the decision and its content on its website;
• imposed a fine on the Bank in the amount of PLN 26,626 thousand payable to the Financial Education Fund.

The Bank appealed against the decision within the statutory deadline. The Bank has established a provision for the above penalty in full amount.

More than a year after the judgment of the Court of Justice of the European Union in the case of the CHF indexed mortgage loan (C-260/18), the number of claims related to CHF mortgage loans against banks has been growing steadily. According to the data published by the Polish Bank Association (ZBP), the number of pending court proceedings regarding loan agreements in CHF at the end of 2020 amounted to almost 39 thousand (while 16 thousands at the end of 2019). The result of that was, inter alia, significant increase in the provisions for these proceedings created in 2020 by banks with CHF mortgage loan portfolios. The total amount of these provisions created by listed banks in the first three quarters of 2020 amounted to approximately PLN 1.5 billion. According to the data published by listed banks, available at the time of publication of this Report, the total value of provisions created by banks in the fourth quarter of 2020 alone amounted to PLN 2.4 billion.

The balance sheet value of mortgage and housing loans granted to individual customers in CHF as at 31 December 2020 amounted to PLN 4,82 billion, compared to PLN 4,84 billion at the end of 2019.

As at 31 December 2020, the Bank was the defendant in 644 (461 new cases in 2020, including 156 in the fourth quarter of 2020) pending court proceedings (including validly closed cases, clients brought a total of 668 actions against the Bank), in which the Bank’s customers demanded 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 settlement of the loan due to the invalidity of the loan agreement or revocation of enforceability, as well as the 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 currently pending cases as at 31 December 2020 was PLN 217.82 million, and in legally binding cases PLN 34.96 million.

The following final and non–revisable judgments have been issued in 24 proceedings: in 14 cases the claims against the Bank were dismissed, in 2 cases the proceedings were discontinued; in 1 case the court rejected the claim; in 6 cases despite the dismissal of the claim, the court justified the invalidity of 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 continually creates provisions for pending court proceedings related to denominated or foreign currency loans, taking into account the current state of judgments in cases against the Bank and the emerging line of case law. In the fourth quarter of 2020, the Bank created the provision in the amount of PLN 101.7 million for the risk related to the CHF loan portfolio. Increase in the provision in the fourth quarter of 2020 was due to the increase of the number of new lawsuits and an update of the assumptions and parameters of the model used by the Bank. The total value of provisions for CHF loans risk created in 2020 amounted to PLN 168.2 million. The increase in the provision was caused by the increasing number of new cases related to foreign currency loans or loans denominated in CHF, as well as the observed development of the jurisprudence negatively affecting the Bank. As at 31 December 2020, the total value of provisions created for proceedings relating to loans in CHF was PLN 200.3 million.

The provision is created in accordance with IAS 37 ‘Provisions, contingent liabilities and contingent assets’. Provision for pending cases is calculated on an individual basis, for future cases using the portfolio method. While calculating the provision, the Bank takes into account, inter alia, the number of certificates requested by clients for trial purposes, the estimated probability of clients filing claims, the estimated number of future claims, the number of claims filed, the probability of losing the case, and the Bank’s expected loss in the event of an unfavourable judgment. In estimating the number of future cases, the Bank adopted a 4-year forecast period assuming that less than 10% of borrowers with active CHF loans have filed or will file a lawsuit against the Bank.

The Bank estimates the probability of losing a case based on historical judgments separately for the foreign currency and denominated loan portfolios. Due to the observed volatility in case law, the Bank, when estimating the probability of an unfavourable judgment, takes into account judgments made after the CJEU judgment of 3 October 2019.

In estimating the loss in the event of a judgment declaring the loan invalid, the Bank assumes that the customer is obliged to return the principal paid without taking into account the remuneration for the use of the capital, the Bank is obliged to return the sum of the principal and interest instalments paid by the client using the historical rate and the Bank writes down the loan exposure.

Should the assumed average loss change by +/- 5 percentage points, with all other significant assumptions unchanged, the amount of the provision would change by +/- PLN 9 million.

The average loss assumed in the calculation as at 31 December 2020 increased by 9.3% compared to 31 December 2019.

The Bank conducted a sensitivity analysis of the model used to estimate of the number of lawsuits lost. A change in this estimate would have the following impact on the estimated loss due to legal risk related to CHF loans.

The Bank conducted a sensitivity analysis of the model used to estimate the number of future lawsuits. A change in the number of future lawsuits would have the following impact on the estimated loss due to legal risk related to CHF loans.

Additionally, if 1% of customers with CHF loans filed a lawsuit against the Bank, the loss due to legal risk would increase by approx. PLN 25 million.

When calculating the expected loss on legal risk related to CHF loans, the Bank used simplifications resulting from the short horizon of available historical data and a relatively small number of cases ended with courts’ rulings. The Bank will monitor the number of requests for documents and the changing number of lawsuits, and will update the provision estimate accordingly.

At the same time, the Bank points to the fact that there is a significant discrepancy in both facts (in particular different contractual provisions and scope of information provided to the clients) as well as rulings passed in Poland regarding indexed, denominated and currency loans, which significantly impedes a precise estimation of risk. The Bank monitors the courts’ rulings on an ongoing basis and will adjust the level of provision to the emerging case-law.

On 29 January 2021, the First President of the Supreme Court requested a resolution of the Civil Chamber on the following issues:

1. If it is concluded that a provision in an indexed or denominated loan agreement, which relates to the method of determining the exchange rate of the foreign currency, constitutes an unlawful contractual term and is not binding on the consumer, may it be assumed that that provision is replaced by another method of determining the exchange rate of the foreign currency which results from legal or customary rules?
   If the answer to the above question is negative
2. If it is not possible to establish a foreign currency exchange rate binding on the parties in a loan agreement indexed to such a currency, can the agreement be binding on the parties in its remaining scope?
3. If it is not possible to establish a foreign currency exchange rate in a loan agreement denominated in a foreign currency, can the parties remain bound by the agreement?
   Irrespective of the answers to questions 1 to 3:
4. If a loan agreement is invalid or ineffective, and as a result of such agreement the bank has disbursed to the borrower the whole or part of the amount of the loan and the borrower has made repayments on the loan, do separate claims for wrongful performance arise in favour of each of the parties, or does only one claim arise, equal to the difference in performance, in favour of the party whose total performance was higher?
5. If a loan agreement is invalid or ineffective as a result of the unlawful nature of certain of its terms, does the limitation period for the bank’s claim for repayment of the amount paid under the loan start to run from the moment at which those sums were paid?
6. If, in the case of the invalidity or ineffectiveness of a loan agreement, either party has a claim for repayment of the performance made under such agreement, may that party also claim remuneration for the use of its funds by the other party?

A session of the Civil Chamber of the Supreme Court is scheduled for 25 March 2021. The Bank will analyse the content of the resolution after its publication, in particular its anticipated impact on further case law and the value of the parameters used to determine the value of legal risk provisions. At the moment, the essence of the resolution and its impact on the estimation of provisions cannot be predicted. When determining the value of the provision, the Bank bases on all information available as at the date of signing the Report.

As a consequence of the growing number of lawsuits and the value of provisions created by banks, in December 2020, the Chairman of the Polish Financial Supervision Authority – Jacek Jastrzębski – presented a proposal for a sectoral solution to the CHF loans problem. In simple terms, the Bank would treat a loan in CHF as if it had been granted in PLN and bears interest at the appropriate WIBOR rate plus a margin, which would be historically applied to this type of a loan. Considering the above assumptions, the Bank shall perform an appropriate recalculation. Adopting such an approach would impose a very heavy burden on the sector, although its scale is difficult to estimate precisely at the moment. The costs would depend on a number of variables, such as the date the loan is granted, the exchange rate table of the specific bank, or the fee and commission policy, as well as the detailed assumptions of the proposal, including legal and tax issues or the types of loans to be converted, which are undefined at the time of publication of the present Report.

The proposal was commented by the Management Board of the National Bank of Poland, which stated in its communication of 9 February 2021 that it welcomes banks' initiatives aimed at mitigating the legal risk of foreign-currency housing loans through agreements with borrowers and may consider possible involvement in the process of conversion of residential foreign-currency loans into PLN, on market terms and at market rates, provided that banks meet certain boundary conditions.

At the beginning of 2021 the Bank has joined a working group that is analysing the solution proposed by the Chairman of the PFSA. The preliminary cost estimate of a potential conversion in line with the assumptions of the PFSA Chairman’s proposal, available at the time of publication of the Report, is PLN 0,7 billion, assuming that the currency conversion proposal is addressed only to borrowers with denominated loans, or PLN 1,3 billion assuming that the proposal covers the whole CHF loan portfolio (denominated and foreign currency loans). The potential cost was estimated as the difference between the current balance sheet value of foreign currency or CHF-denominated loans and the balance sheet value of hypothetical PLN loans. At the time of publication of the present Report, the Bank has not decided whether to launch a settlement programme for the Bank’s customers and is at an early stage of analyses. The program criteria and implementation plans are not specified, therefore the Bank does not recognise a provision for the effects of offering settlements.