Raport.

ALIOR BANK SA Raport okresowy roczny skonsolidowany za 2017 RS

WYBRANE DANE FINANSOWE w tys. z? w tys. EUR 2017 2016 2017 2016 Wynik z tytu?u odsetek 2 841 068 1 946 049 669 321 444 740 Wynik z tytu?u op?at i prowizji 453 024 331 134 106 727 75 676 Wynik handlowy i pozosta?y 418 249 403 515 98 534 92 217 Wynik z odpis?w aktualizuj?cych z tytu?u utraty warto?ci -929 617 -799 887 -219 007 -182 802 Koszty dzia?ania -1 845 535 -1 566 560 -434 786 -358 014 Zysk brutto 736 672 648 363 173 551 148 174 Zysk netto 515 617 575 026 121 473 131 413 Przep?ywy pieni??ne netto -94 877 -492 969 -22 352 -112 661 Nale?no?ci od klient?w 51 266 640 46 247 188 12 291 505 10 453 704 Zobowi?zania wobec klient?w 57 614 493 51 368 701 13 813 444 11 611 370 Kapita? w?asny 6 761 849 6 159 862 1 621 197 1 392 374 Aktywa razem 69 493 780 61 160 491 16 661 579 13 824 704 Wybrane wska?niki Zysk/strata na jedn? akcj? zwyk?? (w z?) 3,99 5,63 0,94 1,29 Wsp??czynnik wyp?acalno?ci 15,21% 13,65% 15,21% 13,65% Tier 1 12,10% 11,29% 12,10% 11,29%

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    1
    Consolidated Financial Statements
    of the of
    Alior Bank Spółka Akcyjna Group
    for the year ended 31 December 2017
    This version of our report is a translation from the original, which was prepared in Polish language. All possible care has been taken to
    ensure that the translation is an accurate representation of the original. However, in all matters of interpretation of infor mation, views or
    opinions , the original language version of our report takes precedence over this translation.


    C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s o f t h e
    A l i o r B a n k SA G r o u p
    f o r t h e y e a r e n d e d 3 1 D e c e m b e r 2 0 1 7
    ( i n P L N ‘ 0 0 0 )
    2
    Selected financial data
    PLN
    01.01.2017 – 31.12.2017 01.01.2016 - 31.12.2016
    %
    (A-B)/B
    A B C
    Net interest income 2 841 068 1 946 049 46.00%
    Net fee and commission income 453 024 331 134 36.8%
    Trading result & other 418 249 403 515 3.7%
    Net impairment allowance and write -downs -929 617 -799 887 16.2%
    General administrative expenses -1 845 535 -1 566 560 17.8%
    Gross profit 736 672 648 363 13.6%
    Net profit 515 617 575 026 -10.3%
    Net cash flow -94 877 -492 969 -80.8%
    Loans and advances to customers 51 266 640 46 247 188 10.9%
    Amounts due to customers 57 614 493 51 368 701 12.2%
    Equity 6 761 849 6 159 862 9.8%
    Total assets 69 493 780 61 160 491 13.6%
    Selected ratios
    Profit per ordinary share (PLN) 3,99 5,63 -29.1%
    Capital adequacy ratio 15.21% 13.65% 11.4%
    Tier 1 12.1% 11.29% 7.2%
    EUR
    01.01.2017 – 31.12.2017 01.01.2016 – 31.12.2016
    %
    (AJB)/B
    A B C
    Net interest income 669 32N 444 74M 50.5B
    Net fee and commission income 106 72T 75 676 41K0%
    Trading result & other 98 534 92 217 6.9%
    Net impairment allowance and write Jdowns J219 00T J182 80O 19.8B
    General administrative expenses J434 78S J358 014 21.4B
    Gross profit 173 55N 148 174 17.1B
    Net profit 121 47P 131 41P J7.6%
    Net cash flow J22 352 J112 66N J80.2B
    Loans and advances to customers 12 291 505 10 453 704 17.6B
    Amounts due to customers 13 813 444 11 611 370 19K0%
    Equity 1 621 19T 1 392 374 16.4B
    Total assets 16 661 579 13 824 704 20.5B
    Selected ratios
    Profit per ordinary share (PLNF 0.94 1.29 J26.9B
    Capital adequacy ratio 15.21% 13.65% 11.4B
    Tier 1 12.1B 11.29% 7.2%
    Selected items of the consolidated financial statements were translated into EUR at the following exchange rates 31.12.2017 31.12.2016
    NBP's average exchange rate as at 31 December of the year 4.1709 4.4240
    NBP's average exchange rates as at the last day of each month 4.2447 4.3757



    C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s o f t h e
    A l i o r B a n k SA G r o u p
    f o r t h e y e a r e n d e d 3 1 D e c e m b e r 2 0 1 7
    ( i n P L N ‘ 0 0 0 )
    3
    Table of Contents
    Consolidated income statement ................................ ................................ ................................ ................................ ................................ .............. 5
    Consolidated statement of comprehensive income ................................ ................................ ................................ ................................ ............ 5
    Consolidated statement of financial position ................................ ................................ ................................ ................................ ........................ 6
    Consolidated statement of changes in equity ................................ ................................ ................................ ................................ ....................... 7
    Consolidated statement of cash flows ................................ ................................ ................................ ................................ ................................ .... 8
    Notes to the consolidated financial statements ................................ ................................ ................................ ................................ .................... 9
    1 Information on the Bank and the Group ................................ ................................ ................................ ................................ ........ 9
    2 Basis of preparation of the consolidated financial statements ................................ ................................ ................................ . 13
    3 Description of the material accounting principles ................................ ................................ ................................ ...................... 14
    4 Changes in accounting principles ................................ ................................ ................................ ................................ .................. 17
    5 Operating segments ................................ ................................ ................................ ................................ ................................ .......... 27
    Notes to consolidated income statement ................................ ................................ ................................ ................................ ............................ 29
    6 Net interest income ................................ ................................ ................................ ................................ ................................ ........... 29
    7 Net fee and commission income ................................ ................................ ................................ ................................ .................... 32
    8 Trading and revaluation result ................................ ................................ ................................ ................................ ........................ 33
    9 Net result realized on other financial instruments ................................ ................................ ................................ ...................... 33
    10 Net other operating income and expense ................................ ................................ ................................ ................................ ... 34
    11 General administrative expenses ................................ ................................ ................................ ................................ .................... 34
    12 Net impairment allowance and write -downs ................................ ................................ ................................ ............................... 36
    13 Banking Tax ................................ ................................ ................................ ................................ ................................ ......................... 36
    14 Income tax ................................ ................................ ................................ ................................ ................................ ........................... 37
    15 Profit per share ................................ ................................ ................................ ................................ ................................ ................... 40
    Additional information to the statement of financial condition ................................ ................................ ................................ ...................... 40
    16 Cash and balances with the Central Bank ................................ ................................ ................................ ................................ .... 40
    17 Available for sale financial assets and investm ent securities held to maturity ................................ ................................ ...... 41
    18 Financial assets and liabilities held for trading ................................ ................................ ................................ ............................. 43
    19 Hedge accounting ................................ ................................ ................................ ................................ ................................ ............. 46
    20 Loans and advances to customers ................................ ................................ ................................ ................................ ................. 48
    21 Amounts due from banks ................................ ................................ ................................ ................................ ................................ 56
    22 Property, plant and equipment and intangible assets ................................ ................................ ................................ ............... 57
    23 Other assets ................................ ................................ ................................ ................................ ................................ ........................ 62
    24 Amounts due to customers ................................ ................................ ................................ ................................ ............................. 62
    25 Amounts due to banks ................................ ................................ ................................ ................................ ................................ ..... 64
    26 Provisions ................................ ................................ ................................ ................................ ................................ ............................. 65
    27 Other liabilities ................................ ................................ ................................ ................................ ................................ .................... 67
    28 Subordinated liabilities ................................ ................................ ................................ ................................ ................................ ...... 68
    29 Equity ................................ ................................ ................................ ................................ ................................ ................................ .... 69
    30 Off -balance sheet items ................................ ................................ ................................ ................................ ................................ ... 71
    31 Assets pledged as collateral ................................ ................................ ................................ ................................ ............................ 72
    32 Additional information to the cash flow statement ................................ ................................ ................................ .................... 73
    33 Fair value hierarchy ................................ ................................ ................................ ................................ ................................ ............ 75
    34 Transactions with related entities ................................ ................................ ................................ ................................ ................... 81
    35 Benefits for the Group’s top executives ................................ ................................ ................................ ................................ ........ 83
    36 Offsetting of financial assets and liabilities ................................ ................................ ................................ ................................ ... 89
    37 Legal claims ................................ ................................ ................................ ................................ ................................ ......................... 91
    Notes concerning risk ................................ ................................ ................................ ................................ ................................ ............................... 92
    38 Credit Risk ................................ ................................ ................................ ................................ ................................ ............................ 93
    39 Interest rate risk ................................ ................................ ................................ ................................ ................................ ................ 107
    40 Foreign exchange risk (FX risk) ................................ ................................ ................................ ................................ ...................... 110


    C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s o f t h e
    A l i o r B a n k SA G r o u p
    f o r t h e y e a r e n d e d 3 1 D e c e m b e r 2 0 1 7
    ( i n P L N ‘ 0 0 0 )
    4
    41 Liquidity risk ................................ ................................ ................................ ................................ ................................ ....................... 114
    42 Operational Risk ................................ ................................ ................................ ................................ ................................ ............... 118
    43 Capital Management ................................ ................................ ................................ ................................ ................................ ....... 119
    Other ................................ ................................ ................................ ................................ ................................ ................................ ............ 122
    44 Acquisition of the demerged business of Bank BPH SA ................................ ................................ ................................ .......... 122
    45 Significant events after the end of the reporting period ................................ ................................ ................................ ......... 126



    C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s o f t h e
    A l i o r B a n k SA G r o u p
    f o r t h e y e a r e n d e d 3 1 D e c e m b e r 2 0 1 7
    ( i n P L N ‘ 0 0 0 )
    5
    Consolidated income statement
    Note number 01.01.2017 – 31.12.2017
    01.01.2016 – 31.12.2016 * restated Interest income 3 601 131 2 643 881
    Interest expense -760 063 -697 832
    Net interest income 6 2 841 068 1 946 049
    Dividend income 31 68
    Fee and commission income 827 876 590 701
    Fee and commission expense -374 852 -259 567
    Net fee and commission income 7 453 024 331 134
    Trading and revaluation result 8 368 956 320 509
    Net gain (realized) on other financial instruments 9 6 908 21 919
    Other operating income 127 083 113 084
    Other operating expenses -84 729 -52 065
    Net other operating income and expenses 10 42 354 61 019
    Profit from acquisition of the demerged business of Bank BPH 0 465 005
    General administrative expenses 11 -1 845 535 -1 566 560
    Net impairment allowance and write -downs 12 -929 617 -799 887
    Bank ing tax 13 -200 517 -130 893
    Gross profit 736 672 648 363
    Income tax 14 -221 055 -73 337
    Net profit 515 617 575 026
    Net profit attributable to equity holders of the parent 515 241 575 227
    Net profit attributable to non -controlling interests 376 -201
    Net profit 515 617 575 026
    Weighted average number of ordinary shares 129 259 754 102 218 667
    Net profit per share (PLN) 15 3.99 5.63
    Diluted profit per ordinary share (PLN) 15 3.91 5.49
    *clarification in Note 4.2
    Consolidated statement of comprehensive income
    Note number 01.01.2017 – 31.12.2017
    01.01.2016 – 31.12.2016* restated
    Net profit 515 617 575 026
    Items that may be reclassified to the income statement after certain conditions are satisfied 86 175 -86 852
    Foreign currency translation differences 616 -22
    Results of the measurement of available for sale financial assets (net) 85 861 -56 068
    Profit/loss on fai r valuation of available for sale financial assets 17 105 625 -69 220
    Deferred tax 14 -19 764 13 152
    Results of the measurement of hedging instruments (net) -302 -30 762
    Gains/losses on hedging instruments 19 -373 -37 978
    Deferred tax 14 71 7 216
    Total comprehensive income, net 601 792 488 174
    - attributable to shareholders of the parent company 601 416 488 375
    - attributable to non -controlling interests 376 -201
    *clarification in Note 4.2


    C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s o f t h e
    A l i o r B a n k SA G r o u p
    f o r t h e y e a r e n d e d 3 1 D e c e m b e r 2 0 1 7
    ( i n P L N ‘ 0 0 0 )
    6
    Consolidated statement of financial position
    ASSETS Note number 31.12.2017 31.12.2016* restated
    Cash and balances with Central Bank 16 965 391 1 082 991
    Financial assets held for trading 18 452 551 419 551
    Available -for-sale financial assets 17 12 072 324 9 374 646
    Investment securities held to maturity 17 1 117 894 1 954
    Derivative hedging instruments 19 87 785 71 684
    Amounts due from banks 21 901 629 1 366 316
    Loans and advances to customers 20 51 266 640 46 247 188
    Assets pledged as collateral 31 408 911 366 984
    Property, plant and equipment 22 475 691 485 796
    Intangible assets 22 548 587 516 444
    Asset held for sale 357 679
    Income tax assets 14 569 580 540 262
    Deferred 569 580 540 262
    Other assets 23 626 440 685 996
    Total assets 69 493 780 61 160 491
    LIABILITIES AND EQUITY Note number 31.12.2017 t 31.12.2016* restated
    Financial liabilities held for trading 18 435 878 298 314
    Amounts due to banks 25 891 645 428 640
    Amounts due to customers 24 57 614 493 51 368 701
    Derivative hedging instruments 19 5 419 6 119
    Provisions 26 90 457 286 815
    Other liabilities 27 1 674 650 1 433 301
    Income tax liabilities 104 413 13 945
    Current 103 927 13 190
    Deferred 14 486 755
    Subordinated loans 28 1 914 976 1 164 794
    Total liabilities 62 731 931 55 000 629
    Share capital 1 292 636 1 292 578
    Supplementary capital 4 820 048 4 185 843
    Revaluation reserve 13 944 -71 615
    Other reserves 183 824 183 957
    Foreign currency translation differences 594 -22
    Accumulated losses -65 760 -7 085
    Current year profit 515 241 575 227
    Non -controlling interests 1 322 979
    Kapitał własny 29 6 761 84V 6 159 86O
    TOTAL LIABILITIES AND EQUITY 69 493 780 61 160 491
    *clarification in Note 4.2



    C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s o f t h e
    A l i o r B a n k SA G r o u p
    f o r t h e y e a r e n d e d 3 1 D e c e m b e r 2 0 1 7
    ( i n P L N ‘ 0 0 0 )
    7
    Consolidated statement of changes in equity
    01.01.2017 - 31.12.2017 Share capital Supplementary capital Other reserves Revaluation reserve
    Exchange differences on revaluation of foreign units
    Retained earnings
    Non - controlling interests Total equity
    01 January 2017 1 292 578 4 185 843 183 957 -71 615 -22 568 142 979 6 159 862
    Transfer of last year's profit 0 633 902 0 0 0 -633 902 0 0
    Comprehensive income 0 0 0 85 559 616 515 241 376 601 792
    net profit 0 0 0 0 0 515 241 376 515 617
    other comprehensive income –valuations 0 0 0 85 559 616 0 0 86 175
    Inc. a vailable -for-sale financial assets 0 0 0 85 861 0 0 0 85 861
    Inc. h edging derivatives 0 0 0 -302 0 0 0 -302
    Inc. currency translation differences 0 0 0 0 616 0 0 616
    Share issue 58 303 0 0 0 0 0 361
    Other changes in equity 0 0 -133 0 0 0 -33 -166
    31 December 2017 1 292 636 4 820 048 183 824 13 944 594 449 481 1 322 6 761 849
    01.01.2016 - 31.12.2016* restated Share capital Supplementary capital Other reserves Revaluation reserve
    Exchange differences on revaluation of foreign operations
    Retained profit
    Non - controlling interests Total equity
    01 January 2016 727 075 2 279 843 184 735 15 215 0 305 991 1 240 3 514 099
    Transfer of last year's profit 0 312 016 0 0 0 -312 016 0 0
    Comprehensive income 0 0 0 -86 830 -22 575 227 -201 488 174
    net profit 0 0 0 0 0 575 227 -201 575 026
    other comprehensive income –valuations 0 0 0 -86 830 -22 0 0 -86 852
    Inc. a vailable -for-sale financial assets 0 0 0 -56 068 0 0 0 -56 068
    Inc. h edging derivatives 0 0 0 -30 762 0 0 0 -30 762
    Inc. currency translation differences 0 0 0 0 -22 0 0 -22
    Share issue 565 503 1 592 870 0 0 0 0 0 2 158 373
    Other changes in equity 0 1 114 -778 0 0 -1 060 -60 -784
    31 December 2016 1 292 578 4 185 843 183 957 -71 615 -22 568 142 979 6 159 862
    *clarification in Note 4.2


    C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s o f t h e
    A l i o r B a n k SA G r o u p
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    8
    Consolidated statement of cash flows
    Note 01.01.2017 -
    31.12.2017
    01.01.2016 –
    31.12.2016
    *restated
    Operating activities
    Profit before tax for the year 736 672 648 363
    Adjustments: 203 457 123 798
    Unrealized foreign exchange gains/losses 798 -7 382
    Dividends 31 68
    Amortization/depreciation of property, plant and equipment and intangible assets 177 040 105 477
    Change in property, plant and equipment and intangible assets impairment write -down 25 721 26 413
    Share -based payments -133 -778
    The gross profit after adjustments but before increase/decrease in operating assets/liabilities 940 129 772 161
    Change in loans and receivables 32.2 -4 532 042 -15 889 848
    Change in available for sale financial assets -2 697 678 -5 121 527
    Change in investment securities held to maturity -1 115 940 -1 954
    Change in financial assets held for trading -33 000 -28 982
    Change in assets pledged as collateral -41 927 261 348
    Change in derivative hedging instruments -16 101 67 894
    Change in assets held for sale 322 209
    Change in other assets 32.4 59 556 -362 786
    Change in deposits 6 145 514 16 860 949
    Change in own issue 489 914 509 442
    Change in financial liabilities held for trading 137 564 -11 866
    Change in hedging liabilities derivative -700 6 119
    Change in other liabilities and other comprehensive income 32.3 438 458 709 892
    Change in provisions -196 358 276 002
    Cash from operating activities before income tax -422 289 -1 952 947
    Income tax paid -153 931 -272 640
    Net cash flow from operating activities -576 220 -2 225 587
    Investing activities
    Outflows: -210 048 -648 550
    Purchase of property, plant and equipment 32.5 -107 849 -319 167
    Purchase of intangible assets 32.6 -102 199 -154 688
    Purchase of demerged business of Bank BPH , net of cash acquired 0 -174 695
    Inflows: 5 980 5 102
    Disposal of property, plant and equipment 5 980 5 102
    Net cash flow from investing activities -204 068 -643 448
    Financing activities
    Outflows: -64 647 -59 189
    Interest expense – subordinated loan -64 647 -59 189
    Inflows: 750 058 2 435 255
    Subordinated liabilities incurred 750 000 276 828
    Inflows from share issue 58 2 158 427
    Net cash flow from financing activities 685 411 2 376 066
    Total net cash flow -94 877 -492 969
    incl. exchange gains/(losses) -72 877 22 147
    Balance sheet change in cash and cash equivalents -94 877 -492 969
    Cash and cash equivalents, opening balance 1 709 243 2 202 212
    Cash and cash equivalents, closing balance 32.1 1 614 366 1 709 243
    Additional disclosures on operating cash flows
    Interests received 2 485 268 2 844 313
    Interests paid -639 859 -984 454
    *clarification in Note 4.2


    C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s o f t h e
    A l i o r B a n k SA G r o u p
    f o r t h e y e a r e n d e d 3 1 D e c e m b e r 2 0 1 7
    ( i n P L N ‘ 0 0 0 )
    9
    Notes to the consolidated financial statements
    1 Information on the Bank and the Group
    1.1 General information, duration, and the scope of business of Alior Bank SA
    Alior Bank Spółka Akcyjna (“Bank”, “parent entity”) is the parent entity in the Group of Alior Bank Spółka Akcyjna
    (“Group”). The Bank with its registered of fice in Warsaw, Poland, ul. Łopuszańska 38D, was entered to the register
    of entrepreneurs maintained by the District Court for the Capital City of of Warsaw, 13th Commercial Division of
    the National Court Register under KRS number: 0000305178. The parent entity was assigned the tax identification
    number NIP: 107 -001 -07 -31 and the statistical number REGON: 141387142.
    Since 14 December 2012 the Bank has been listed on the Warsaw Stock Exchange (ISIN number: PLALIOR00045).
    On 18 April the Polish Financial S upervision Authority (“PFSA”) issued its licence to establish the bank under the
    name of Alior Bank SA, and on 1 September 2008 it issued a licence to the Bank to commence operations. On
    5 September 2008, PFSA granted a licence to the Bank to perform stock broking activities. The duration of
    business of the Bank and of the members of its Group is unrestricted.
    On 4 November 2016, the District Court for the Capital City of Warsaw in Warsaw, 13th Commercial Division of
    the National Court Register, entered in the register of entrepreneurs an increase of the share capital of Al ior Bank
    from PLN 1 292 577 120.00 to PLN 1 292 577 630.00 by way of an issue of 51 ordinary series J bearer shares with
    a nominal value of PLN 10.00 in connection with the demerger of Bank BPH pursuant to Art. 529.1.4 of the Code
    of Commercial Companies. In compliance with Art. 530.2 of the Code of Commer cial Companies, along with the
    registration of the capital increase, the District Court made an entry of the merger of Alior Bank SA with the
    demerged part of Bank BPH SA, covering all assets and liabilities specified in the Demerger Plan, constituting the
    core business of Bank BPH. Thus, the demerger has become effective and the Core Business of Bank BPH has
    formally become part of Alior Bank. The transaction is described in Note 44.
    Alior Bank is a universal deposit and credit bank, providing services to natural and legal persons, and other
    entities that are domestic and foreign persons. The Bank's core business covers maintenance of bank accounts,
    granting loans, issue of bank securities, and purchase and sale of foreign currencies. The Bank is also invol ved in
    stock broking activity, financial advisory, and intermediation services, and provides other financial services.
    Information on the companies in the Group is detailed in Note 1.2 of this chapter. In accordance with the
    provisions of its Articles of A ssociation, Alior Bank has been operating in the territory of the Republic of Poland
    and the European Economic Area. The Bank provides its services primarily to customers from Poland. The
    number of customers in the overall number of the Bank's customers is negligible. As part of its retail banking, in
    2016 a foreign branch of Alior Bank was opened in Romania.
    1.2 Composition of the Group and its scope of business
    Starting from 18 December 2015, Powszechny Zakład Ubezpieczeń SA controlled by the State Treasury, has been
    the parent company of the Bank and the top parent entity of the Group. Details of the Bank's shareholding
    structure are described in Note 29.3
    Composition of the Group of Alior Bank SA as at 31 December 2017 and 31 December 2016.



    C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s o f t h e
    A l i o r B a n k SA G r o u p
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    10
    Company name 31.12.2017 31.12.2016
    Alior Services sp. z o.o. 100% 100%
    Centrum Obrotu Wierzytelnościami sp. z o.o. 100% 100%
    Alior Leasing sp. z o.o. 100% 100%
    - Serwis Ubezpieczeniowy sp. z o.o. 100% 0%
    Meritum Services ICB SA 100% 100%
    NewCommerce Services sp. z o.o. 100% 100%
    Money Makers TFI SA 60.16% 58.84%
    Absource sp. z o.o. 100% 100%
    1.2.1 Operations of the companies in the Group of Alior Bank SA
    As at 31 December 2017, the Group of Alior Bank SA was made up of: Alior Bank S A, as the parent entity, and the
    subsidiary companies in which the Bank holds majority interests. In the reporting period, there was a change to
    the structure of the Group of Alior Bank SA
    On 30 January 2017, Alior Leasing sp. z o.o . acquired 100% of shares in: Serwis Ubezpieczeniowy sp. z o.o. On 1
    March 2017, the District Court for Kraków –Śródmieście in Kraków, 9th Commercial Division, made an entry
    changing the owner of the company in the register of entrepreneurs.
    On 8 June 2017 the Bank acquired additional shares in Money Makers TFI SA.
    The consolidated financial statements include the financial statements of the Bank and the financial statements of
    the companies listed below.
    The Bank reviewed its control in line with IFRS 10 a nd identified its status as the parent entity vis -a-vis the
    following entities. All subsidiary companies are fully consolidated.
    Company name Business description
    Alior Services sp. z o.o.
    - use of sales opportunities of non -financial products and services;
    – expansion and adding to the attractiveness of the offer for Private Banking
    customers to reinforce competitive advantages;
    - search for and attracting external partners to co -operate in the offering of non -
    banking services;
    - supporting customers and external partners in establishing business contacts;
    - debt collection
    Centrum Obrotu Wierzytelnościami sp. z o.o. - trading i n debts acquired from the Bank
    Alior Leasing sp. z o.o.
    - financing of fixed assets with operating, financial leases, and lease loans.
    Meritum Services ICB SA
    - services related to IT and computer technologies and other IT -related activities
    - activities of insurance agents and broker,
    - activities related to risk assessment and estimates of loss suffered,
    - other auxiliary activities to insurance and pension funds



    C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s o f t h e
    A l i o r B a n k SA G r o u p
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    ( i n P L N ‘ 0 0 0 )
    11
    Company name Business description
    NewCommerce Services sp. z o.o.
    - the company has been involved in tasks related to MyWallet (in the Polish market
    an potentially in other markets of the Deutsche Telekom Group) and related to
    sales of non -banking services, in co -operation with business partners, a new
    generation purchas e platform
    Money Makers TFI SA
    - asset management;
    - co-operation of the Bank with its subsidiary Money Makers TFI S.A. covers three
    areas: asset management (management of portfolios of individual/private banking
    customers), insurance offers of investment funds and management of Alior SFIO
    sub -funds,
    - establishment of investment funds or foreign funds and their management,
    including intermediary services in purchase and redemption of participation units,
    representing the funds in relations with third parties
    - and management of collective security portfolios and management of portfolios
    of financial instruments;
    - since 5 January 2017, Money Makers TFI S.A. has been listed on the alternative
    market of the Warsaw Stock Exchange (NewConect).
    Abs ource sp. z o.o.
    - services related to IT and computer technologies;
    - activity related to IT consulting;
    - provision of access services to IT software
    1.2.2 Key financial figures of the Group entities
    Company name Balance sheet total Net profit
    Alior Services sp. z o.o. 13 975 7 322
    Centrum Obrotu Wierzytelnościami sp. z o.o. 37 -41
    Alior Leasing sp. z o.o. 1 231 931 -29 359
    Meritum Services ICB SA 8 326 975
    NewCommerce Services sp. z o.o. 6 459 -439
    Money Makers TFI SA 6 975 945
    Absource sp. z o.o. 31 946 667
    *The data includes the results of Serwis Ubezpieczeniowy sp. z o.o.
    1.3 Information on the composition of the Bank’s Management Board and the Bank’s Supervisory
    Board
    In comparison to the previous reporting period ended on 31 December 2016, the composition of the Bank’s
    Management Board changed. Pursuant to the resoluti ons approved by 9 June, 14 June and 06 July 2017, the
    Bank's Supervisory Board entrusted the following persons with the functions of Deputy Presidents of the
    Mana gement B oard of Alior Bank S.A.
    Additionally, the Supervisory Board entrusted to Mr Michał Jan Chyczewski management of the work of the
    Management Board until approval of his appointment from the Polish Financial Supervision Authority to the
    position of the Presid ent of the Bank's Management Board.



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    Composition of the Bank's Management Board as at 31 December 2017
    First and last name Function Date when the position was assumed
    Michał Jan Chyczewski, acting President of the Management Board 29 June 2017
    Filip Gorczyca Vice President of the Management Board 29 June 2017
    Sylwester Grzebinoga Vice President of the Management Board 01 August 2017
    Urszula Krzyżanowska -Piękoś Vice President of the Management Board 29 June 2017
    Katarzyna Sułkowska Vice President of the Management Board 29 June 2017
    Celina Waleśkiewicz Vice President of the Management Board 29 June 2017
    Composition of the Bank's Management Board as at 31 December 2016
    First and last name Function
    Wojciech Sobieraj President of the Management Board
    Małgorzata Bartler Vice President of the Management Board
    Krzysztof Czuba Vice President of the Management Board
    Joanna Krzyżanowska Vice President of the Management Board
    Witold Skrok Vice President of the Management Board
    Barbara Smalska Vice President of the Management Board
    Katarzyna Sułkowska Vice President of the Management Board
    The composition of the Bank’s Supervisory Board as at 31 December 2017 was as follows:
    First and last name Function
    Tomasz Kulik Chairman of the Supervisory Board
    Małgorzata Iwanicz -Drozdowska Deputy Chairperson of the Supervisory Board
    Dariusz Gątarek Member of the Supervisory Board
    Eligiusz Krześniak Member of the Supervisory Board
    Sławomir Niemierka Member of the Supervisory Board
    Maciej Rapkiewicz Member of the Supervisory Board
    Paweł Szymański Member of the Supervisory Board
    On 21 April 2017, the Bank's Extraordinary Meeting approved resolutions on modifications to the composition of
    the Supervisory Board – a resolution dismissing Mr Stanisław Ryszard Kaczoruk from the Supervisory Board and a
    resolution appointing Mr Roman Pałac to the Supervisory Board.
    On 14 June 2017, Mr Michał Krupiński , Chairman of the Bank's Supervisory Board, filed his resignation from the
    Supervisory Board, including his function as the Chairman of the Supervisory Board, effective on 14 June 2017.
    On 29 June 2017, Mr Roman Pałac, Member of the Supervisory Board, fil ed his resignation from the Bank's
    Supervisory Board, effective on 29 June 2017.
    On 29 June 2017, the Bank's General Meeting appointed Mr Tomasz Kulik to the Supervisory Board and
    appointed Mr Eligiusz Krześniak to the Supervisory Board, effective on 30 June 2017.
    On 5 July 2017, the Supervisory Board elected Mr Eligiusz Krześniak as Chairman of the Supervisory Board of
    Alior Bank.
    On 18 July 2017, Mr Marek Michalski, Member of the Supervisory Board, filed his re signation from the Bank's
    Supervisory Board, effective on 18 July 2017.
    On 29 September 2017 Mr Eligiusz Krześniak, Chairman of the Supervisory Board notified of his resignation from
    the function of Chairman of the Supervisory Board of Alior Bank SA. Mr El igiusz Krześniak remained a Member of
    the Supervisory Board of Alior Bank SA until 31 October 2017, when he filed his resignation from being a
    Member of the Supervisory Board, effective on that day.


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    On 29 September 2017, Mr Tomasz Kulik was elected the new Chairman of the Supervisory Board of Alior Bank
    SA.
    On 31 October 2017, the Bank's Extraordinary General Meeting appointed Mr Artur Kucharski and Mr Mikołaj
    Handschke to the composition of the Bank's Supervisory Board.
    The composition of the Bank's Super visory Board as at 31 December 2016 was as follows:
    First and last name Function
    Michał Krupiński - Chairman of the Supervisory Board
    Małgorzata Iwanicz -Drozdowska - Deputy Chairperson of the Supervisory Board
    Dariusz Gątarek - Member of the Supervisory Board
    Stanisław Ryszard Kaczoruk - Member of the Supervisory Board
    Marek Michalski - Member of the Supervisory Board
    Sławomir Niemierka - Member of the Supervisory Board
    Maciej Rapkiewicz - Member of the Supervisory Board
    Paweł Szymański - Member of the Supervisory Board
    2 Basis of preparation of the consolidated financial statements
    2.1 Coverage and comparable data
    These consolidated financial statements cover the year ended on 31 December 2017 and contain comparable
    data for the year ended on 31 December 2016. The financial statements were made in PLN and all the numbers
    presented herein are in PLN thousand, unless specified otherwise.
    2.2 Compliance statement
    These consolidated financial statements of the Group of Alior Bank Spółka Akcyjna were made in line with the
    International Financial Reporting Standards (IFRS) applied on a continuous basis, as approved by the European
    Union on 31 December 2017.
    2.3 Continued operations
    The consolidated financial statements of the Group were made under a going concern assumption of the Group
    for minimum 12 months after the ba lance sheet date, i.e. after 31 December 2017.
    As of the approval date hereof, the Bank's Management Board did not find any facts or circumstances that would
    indicate to a threat to the continued activity of the Bank's Group over 12 months of the publica tion hereof as a
    result of an intended or enforced discontinuation of material reduction of the existing activity by the Bank's
    Group.
    In 2017 and 2016 the Group had no discontinued operations.
    2.4 Presentation of the financial statements
    In its consolidate d statement of financial position, the Bank discloses assets and liabilities according to the liquidity
    criterion.
    The principles of setting off of financial assets and liabilities are described in Note 36.1. The Bank does not set off
    income and expenses, unless so required by law or permitted by standards or interpretation.


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    2.5 Approval of the consolidated financial statements
    These consolidated financial statements of the Group of Alior Bank Spółka Akcyjna were approved for publication
    by the Bank’s Manageme nt Board on 6 March 2018.
    3 Description of the material accounting principles
    The most important accounting principles, as well as estimates and assumptions applied in the preparation of
    these financial statements are presented in the Notes and below. The principles were applied on a continuous
    basis in all presented years. Below there is a specification of accounting principles and major estimates and
    assumptions for the specific items of the income statement and the statement of financial position.
    Income statement Note number Accounting policies*
    Interest income and expense 6 Y
    Fee and commission income and expense 7 Y
    Trading and revaluation result 8 Y
    Net gain (realized) on other financial instruments 9 Y
    Other operating income and expenses 10 Y
    Profit on acquisition of the demerged part of BPH 44 Y
    General administrative expenses 11 Y
    Net impairment allowance and write -downs 12 Y
    Income tax 14 Y
    * Letter Y means that the specific accounting policy occurs Statement of financial position Note number Accounting policies* Major estimates and assessments*
    Cash and balances with the Central Bank 16 Y
    Financial assets held for trading 18 Y Y
    Available -for-sale financial assets 17 Y Y
    Investment securities held to maturity 17 Y
    Derivative h edging derivatives 19 Y Y
    Amounts due from banks 21 Y
    Loans and advances to customers 20 Y Y
    Assets pledged as collateral 31 Y
    Property, plant and equipment 22 Y
    Intangible assets 22 Y Y
    Income tax asset 14 Y
    Other assets 23 Y
    Financial liabilities held for trading 18 Y Y
    Amounts due to banks 25 Y
    Amounts due to customers 24 Y
    Derivative hedging instruments 19 Y
    Provisions 26 Y
    Other liabilities 27 Y
    Subordinated liabilities 28 Y
    Equity and shareholding structure 29 Y
    * Letter Y means that a specific accounting policy or major estimates and assumption ts exist


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    3.1 Transactions in foreign currencies
    Functional currency and reporting currency
    The consolidated financial statements were made in PLN which is the functional currency of the Bank and its
    subsidiaries. The amounts in these consolidated financial statements are presented in PLN thousand, unless
    specified otherwise.
    Foreign currency d enominated transactions and balances
    Foreign currency denominated transactions are initially recognised in the functional currency at the mean rate of
    the National Bank of Poland prevailing on the transactional date. On the last day of each reporting per iod, the
    Bank translates:
     foreign currency denominated cash assets and liabilities at NBP's mean rate prevailing on the day;
     non -cash items measured according to historic cost in foreign currencies at the exchange rates effective as at
    the date the transa ction was initially recognised.
     non -cash items valued according to the fair value in foreign currency at the exchange rate effective as on the
    date of fair value determination.
    FX gains/losses in transaction translation and carrying value measurement of f oreign currency denominated cash
    assets and liabilities are recognised in the profit and loss account. FX gains/losses on such items as equity
    instruments classified as financial assets available for sale are recognised in the revaluation reserve of financ ial
    assets available for sale.
    The results and balances of foreign operations (including branches) that have a functional currency other than
    PLN, and are measured to PLN as follows:
     assets and liabilities as at the balance sheet date are measured at NBP's mean exchange rate prevailing on
    that day,
     income and expenses are measured at the arithmetic mean of FX rates published by NBP, prevailing as at the
    end of each day
     FX gains/losses on measurement of foreign operations are recognised as a separate eq uity item. This is
    incorporated in the financial result when such foreign operation is disposed of.
    RON 2017 2016
    FX rate prevailing on the last day of period 0.8953 0.9749
    FX rate being an arithmetic mean of FX rates prevailing on the last day of each period 0.9282 0.97 39
    3.2 Business c ombination and consolidation rules
    Subsidiary entities
    Subsidiary companies are entities (including entities that are not commercial companies like civil partnerships or
    special purpose vehicles) controlled by the parent entity which means that the parent entity:
     is exposed to or entitled to variable returns due to its involvement in subsidiaries, and
     is able to control the returns by being entitled to affect business of the subsidiaries.
    Subsidiaries are consolidated as from when the Bank assumes control. Decon solidation takes place when the
    control no longer exists.



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    Consolidation
    The consolidation process of the financial statements of subsidiaries with the full method consists in summing up
    individual items in the statement of financial position, the profit and loss account, and other comprehensive
    income of the parent entity and the subsidiaries in full amounts and making appropriate consolidation
    adjustments and exclusions. The exclusions apply to the carrying value of the interests held by the Bank in
    subsidiaries and equity of the entities at the acquisition date. Complete exclusions apply to:
     mutual receivables and payables and other similar settlements of the consolidated entities,
     income and expenses of economic operations between the consolidated entities,
     profit or loss resulting from economic operations between the consolidated entities, included in the value of
    assets of the consolidated entities, with the exception of losses that indicate impairment,
     dividend accrued or disbursed by subsidi aries to the parent entity and other consolidated entities,
     mutual cash flows in the statement of cash flows.
    The financial statements of subsidiaries are made for the same reporting period as those of the parent entity. In
    order to eliminate any discre pancies in the accounting principles applied by the Bank and its subsidiary entities,
    consolidation adjustments are made. All entities of the Group of Alior Bank SA are consolidated with the full
    method.
    Non -controlling holdings are disclosed separately i n the consolidated profit and loss account, the consolidated
    statement of comprehensive income, the consolidated statement of changes in equity, and the consolidated
    statement of financial position, respectively.
    Acquisition method
    Acquisitions of subsidiaries by the Group are recognised with the acquisition method in compliance with IFRS 3.
    In accordance with the accounting policies approved by the Bank, with reference to IAS 8 item 10, when
    accounting for a combination under comm on control, the accounting principle applied is the predecessor
    accounting method or recognition of the acquired entity at the carrying value of the assets and liabilities disclosed
    in the consolidated financial statements of a higher level entity, includ ing goodwill that is generated as a result of
    such acquisition.
    3.3 Recognition of financial assets and liabilities in books
    The Bank recognises financial assets or liabilities in its statement of financial position, when it becomes a party to a
    contract cov ering such instrument. Standard purchase and sale transactions of financial assets (securities) are
    recognised as at the settlement date.
    At the initial recognition, all financial instruments are measured at fair value.
    The Bank classifies financial asse ts and liabilities at the initial recognition, subject to the purpose, characteristics,
    and intention vis -a-vis the acquired financial instrument.
    Financial assets are classified by the Bank to the following categories: financial assets measured at fair value
    through profit and loss account; financial assets available for sale; loans and receivables and financial assets kept
    until maturity; financial liabilities to the following categories: financial liabilities measured at fair value through
    profit and l oss account and other financial liabilities.



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    3.4 Derecognition of financial assets and liabilities from the statement of financial position
    Financial assets
    The Bank derecognises financial assets from the balance sheet when:
     contractual rights expire to cash flows from such financial assets;
     such financial assets are transferred to another entity.
    When transferring financial assets, the Bank assesses to what extent it retains the risks and benefits related to
    holding such financial assets. In such case:
     if it transfers basically all risks and all benefits related to holding such financial assets, the Bank derecognises
    such financial assets from its statement of financial position;
     if it retains basically all risks and benefits related to holding such fin ancial assets, the Bank continuous to
    recognise such financial assets in its statement of financial position;
     if it neither transfers nor retains basically all risks and benefits related to holding such financial assets, the Bank
    determines if it continue s to control such financial assets; when control is retained, such financial assets
    continue to be recognised in the balance sheet, and when there is no control, such financial assets are
    derecognised from the balance sheet in the amount resulting from the retained exposure.
    If financial assets are proven to be uncollectible, the Bank writes -down the receivables against the established
    impairment allowance. The amounts of such written -off receivables that may be recovered in the future reduce
    the value of the established impai rment allowances in the profit and loss account.
    Financial liabilities
    The Bank derecognises financial liabilities (in whole or in part) from the balance sheet if a contractual duty has
    been discharged or redeemed or has expired.
    4 Changes in accounting principles
    4.1 Change s in accounting standards
    Modifications to the published accounting standards and interpretations that became effective on 1 January 2017
     Amendments to IAS 7 Statement of Cash Flows – initiative concerning disclosures
    They were publishe d by the International Accounting Standards Board on 29 January 2016 and apply to annual
    periods beginning on or after 1 January 2017. The amendments to IAS 7 introduce the requirement to disclose
    changes to liabilities resulting from financing activities in the cash flow statement, including changes that are
    actual cash flows and non -cash changes. In order to comply with the requirement, the standard requires
    reconciliation of opening balances and closing balances of the liabilities disclosed in the stat ement of financial
    position that are classified as financing activity in the cash flow statement.
     Amendments to IAS 12 Recognition of deferred tax on unrealised losses.
    They were published by the International Accounting Standards Board on 19 January 2016 and apply to annual
    periods beginning on or after 1 January 2017. The amendments to IAS 12 provide details of the requirements to
    disclose deferred income tax asset on unrealised losses on debt instruments measured at fair value. The
    amendments provide guidelines as to identification of temporary negative differences. In particular, the standard


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    confirms that a drop of the carrying value of fixed rate debt instruments me asured at fair value, below the cost,
    where the tax base remains at the cost level, results in temporary negative differences, irrespective of the fact if
    the holder of the instrument intends to hold or sell it.
    New standards and interpretations that have been published and approved by EU, but are not yet effective
     IFRS 9 Financial Instruments
    On 24 July 2014, the International Accounting Standards Board (IASB) published a new International Financial
    Reporting Standard – IFRS 9, Financial Instruments, binding for annual periods starting on or after 1 January 2018,
    which will replace the existing International Accounting Standard 39, Financial Instruments: Recognition and
    Measurement. By Regulation no. 2016/2067 of 22 November 2016, the European Commissi on adopted the
    International Financial Reporting Standard 9, Financial Instruments (IFRS 9) in the version published by IASB on 24
    July 2014.
    IFRS 9 introduces new accounting principles regarding financial instruments in the following areas:
     classification and valuation,
     impairment (expected credit losses),
     hedge accounting.
    Implementation status
    Alior Bank completed implementation related to the opening balance as of 1 January 2018.
    The disclosed effect of the application of IFRS 9 as of 1 January 2018 ma y change, in particular due to:
     are expected from the PSFA recommendations regarding the interpretation of the classification and
    measurement of financial instruments and impairment, in particular in relation to the expected amendment to
    Recommendation R o f the Polish Financial Supervision Authority,
     there are discussions in the banking sector in Poland in connection with the letter from the PSFA's Chairman
    dated on 12 of December 2017 regarding the classification of consumer credit products with an interes t
    formula based on a multiplier of more than 1 and the Bank is in the process of determining the type, the
    scope and timing of actions to change the contractual provisions in question in order to meet the contractual
    cash flow test requirements enabling th e classification of these loans to the category of financial assets
    measured at amortized cost.
    Classification and measurement of financial instruments
    Financial assets
    According to IFRS 9, upon initial recognition, financial assets are classified to the following measurement
    categories:
     financial assets measured at amortized cost;
     financial assets measured at fair value through other comprehensive income;
     financial assets measured at fair value through profit or loss.
    Financial assets are classified to on e of the above measurement categories based on: the Bank’s business model
    for financial asset management and contractual cash flows.
    Business model
    The business model is a method for financial assets management. Its assessment depends on the intentions as to
    how the cash flows arising from these financial assets will be realized, i.e. whether they will be realized by
    obtaining cash flows in accordance with contractual terms, whether through the sale of these assets or from both
    sources.
    For the assessment o f the business model is significant why deciision was made about realising the cash flows as a
    result of sales. There Is distinction between the sale of financial assets with a deteriorated credit quality due to


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    credit risk management, the sale of assets f or the purposes of managing financial liquidity risk and financial risk,
    and sales undertaken to generate financial profits. Other factors are also important in identifying the business
    model, in particular the criteria for assessing the financial results of given assets portfolio, eg interest margin,
    changes in fair value, realized sales results.
    Contractual cash flows
    The purpose of the contractual cash flow characteristics assessment of a financial asset is whether the terms of the
    contract realise cash flows according to schedule, which are only repayment of the principal and interest on the
    principal amount still to be repaid (the so -called SPPI criterion - solely payments of principal and interest).
    As the main amount for the purposes of the SPPI test is the fair value of the financial asset at the moment of
    initial recognition.
    As interest on the principal is the payment for the value of money in time, remuneration for credit risk and other
    risks, administrative costs and profit margin.
    Classificat ion principle
    Financial assets whose cash flows only have the characteristics of repayment of the principal and interest on the
    principal are classified in the category of measurement:
     according to amortized cost, if they are maintained in a business model whose purpose is to realize cash flows
    in accordance with contractual terms,
     at fair value through other comprehensive income if they are maintained in a business model whose purpose
    is to realize cash flows in accordance with contractual terms or through sale.
    Financial assets whose cash flows are modified in such a way that they have features other than just repayment of
    the principal and interest on the principal are classified to the category of measurement at fair value through the
    financial result re gardless of the business model. This category also classifies financial assets managed in
    accordance with the business model, which involves the sale of assets to generate financial profits, assessment of
    results based on changes in fair value and sales re sults.
    This category also always includes derivative instruments that are not hedging instruments.
    As at 1 January 2018, i.e. the date of the first application of IFRS 9, Alior Bank maintains a portfolio of financial
    assets resulting from credit cards and used overdraft facilities whose interest rate is based on the formula of a
    specific multiplier of the NBP reference rate. For the purpose of preparing the opening balance as at 1 January
    2018, these financial assets were classified to the category of meas urement at amortized cost due to ongoing
    discussions in the banking sector in Poland in connection with the letter from the Chairman of the Polish Financial
    Supervision Authority dated on 12 December 2017 regarding the classification of consumer credit pr oducts with
    an interest rate formula based on a multiplication factor of more than 1 and the expectations of the Polish
    Financial Supervision Authority in the scope of amending the contractual provisions that result in failure to test the
    contractual cash flows. Taking above into account Alior Bank is in the process of determining the type, scope and
    timing of actions in the field of, changes of doubts from the point of view of the classification according to IFRS 9
    of contractual provisions in order to mee t the requirements of the contractual cash flow test enabling the
    classification of these loans to the category of financial assets measured at amortized cost. This portfolio
    amounted to about PLN 800 M equil 1.54% of total receivables from customers.
    Clas sification
    As at 1 January 2018, Alior Bank reviewed the portfolio of financial assets of the IFRS 9 classification principles.
    The review included:
     identification of business models used by the Bank based on the method of reporting and assessment of
    financial results, the method of remuneration of the management staff,
     assigning individual portfolios of financial assets to relevant business models,
     assessment of contractual cash flow characteristics for particular financial assets.


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     analysis of sales o f financial assets along with the business case for sales and its frequency
     analysis of contractual clauses used by Bank that may affect cash flows.
    In addition, the Bank identified purchased financial assets with impairment due to credit risk. These type s of
    financial assets have been recognized in connection with acquisition demerged business of Bank BPH in 2016
    and Meritum Bank in 2015.
    As a result, loans and advances to customers and debt securities (investment bonds) were included in the
    category of measurement at amortized cost. In accordance with the principles of IAS 39 applied until 31
    December 2017, those items were classified in the categories of loans and receivables and financial assets
    available for sale and held to maturity.
    Debt securities, which until 31 December 2017 are classified as available -for -sale financial assets, were included
    into the category of fair value measurement for other comprehensive income. These items mainly include a
    portfolio of securities that secures financial liqui dity (mainly government bonds, corporate bonds shares that do
    not meet the definition of a capital instrument).
    The category of measurement at fair value through the financial result includes derivative instruments that are not
    hedging instruments in accor dance with hedge accounting principles and commercial securities portfolio
    (Treasury bonds and corporate bonds). Until 31 December 2017, in line with IAS 39, these items were classified as
    financial assets held for trading.
    Financial liabilities
    The applic ation of IFRS 9 does not have a material impact on changing the classification of financial liabilities to
    the category of financial liabilities. Derivatives and financial liabilities due to short sales are valued as at 1 January
    2018 at fair value through profit or loss. Other items of financial liabilities are measured at amortized cost.
    In addition, financial guarantees are valued at the higher of the impairment loss for expected credit losses and the
    amount initially recognized less the accumulated amou nt of income.
    Impairment
    In accordance with IFRS 9, the Bank estimates impairment losses for expected credit losses. for all financial assets
    at amortized cost or at fair value through other comprehensive income.
    IFRS 9 replaces the impairment model introd uced by the provisions of IAS 39 which is based on the “incurred
    loss” concept, and introduces a new model based on the expected credit loss (ECL) concept.
    Loss Identification Period
    Expected losses are estimated at a 12 -month or in a life -time, according to the following rule:
     Bucket 1 - assets for which there was no significant increase of credit risk from the initial recognition => 12
    months
     Bucket 2 - assets for which there was a significant increase of credit risk, however, there are no indications of
    impairment => life -time
     Bucket 3 - assets for which there are premises for impairment => life -time.
    Identification of the credit risk deterioration
    The principles of recognizing impairment triggers remain unchanged versus the principles applied in IAS 3 9. The
    Bank applies the full cross -default principle, ie the identification of the premise on any customer involvement
    results in the classification of the portfolio with indications of impairment of all its exposures.The rules for
    identifying a significan t increase of credit risk from the initial recognition are based on a combination of:
    • qualitative criterias,
    • quantitative criterias.
    The Bank includes for qualitative criteria:
    • occurrence of overdue exceeding 30 days,
    • classification of the client on the list of higher risk ("watch list")


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    • forbearance (ie customer staying in the post -restructuring period probabation).
    The Bank includes for quantitative criteria:
    • increase above defined thresholds, of the cumulative probability of default in the period to maturity determined
    between the date of the engagement and the date of the valuation.
    • materiality thresholds are defined at the level of homogeneous segments, taking into account the credit quality
    of individual populations.
    Identification of c riterias of significant credit risk deterioration is performed at the single exposure level.
    Estimation of expected losses
    The estimated losses expected for exposures designated for Bucket 1 or Bucket 2 are based on:
    • estimated exposure value at the time of default (EAD model)
    • estimated distribution of risk of default within the lifetime of the exposure (life -time PD model)
    • estimated level of loss in case of default of the client (LGD model).
    The estimate horizon covers the period of the next 12 months (or the maturity if shorter) for Bucket 1 and the
    estimated horizon covers the period up to the expected maturity for Bucket 2.
    The EAD model shows the expected distribution of exposure of a given credit exposure in the period to maturity.
    The model for products with repayment schedules is based on contract flows modified by the effect of
    prepayment / underpayment. The model for products without repayment schedules is based on the average
    expected use of the credit limit granted.
    The life -time PD model us ed to estimate credit losses is the same as the model used to assess the occurrence of a
    significant deterioration in credit quality.
    The LGD model illustrates the expected level of loss from the exposure where the customer defaults. It includes all
    possib le recovery paths / scenarios, including the pricing of individual colleteral for each transaction.
    The expected losses in the life -time horizon are estimated taking into account future macroeconomic conditions
    in the multi -scenario option.
    The estimation of expected credit losses for exposures designated in Bucket 3 remains unchanged against the
    principles of IAS 39.
    The process of estimating expected losses
    Estimation of expected credit losses, including the transfer of exposures between buckets, is made in a fully
    automated, dedicated system which on a daily basis, illustrates the status and valuation for each of the exposures.
    The process of accounting enteres of valuation results has been fully automated.
    Validation
    All models used in the estimation of impairment according to IFRS 9 have been subjected to the process of
    independent internal validation, which ended with a positive result.
    Exposures acquired in impairment (POCI)
    The Bank estimates the expected credit losses over the life -time horizon for e xposures purchasef or originated
    credit impaired financial assets, irrespective of current credit quality. The valuation of these exposures is carried
    out using standardized models, including credit risk adjusted effective interest rates (so -called CEIR). The CEIR
    rate is the rate used to measure to the fair value of the exposure at the acquisition date.
    For POCI exposures, a write -off is a cumulative change in expected credit losses between their current estimate
    and the level set at the date of acquisition of the exposure. In the case of a drop in the estimated credit losses,
    the write -down takes the form of a correction increasing the gross value of the exposure (the so -called over -
    write).



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    A l i o r B a n k SA G r o u p
    f o r t h e y e a r e n d e d 3 1 D e c e m b e r 2 0 1 7
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    Hedge accounting
    Pursuant to the provision of IFRS 9 7.2.21, Alior Bank has decided to continue to apply the hedge accounting
    principles under IAS 39. Therefore, in the area of hedge accounting, the accounting policies have not been
    changed.
    Comparative data
    In accordance with IFRS 9, Alior Bank decided to use the exemption of the obligation to restate comparative data
    for previous periods presented in financial statements for periods beginning on 1 January 2018 or later due to the
    first application of IFRS 9. Changes in the carrying amount of assets and fi nancial liabilities resulting from the
    application of IFRS 9 are recognized in equity as at 1 January 2018 as a result of previous years.
    Summary of the impact of the implementation of IFRS 9 on the statement of financial position as at 1 January
    2018 in comparison to the data in IAS 39 as at 31 December 2017 . The table below applies only to the Bank as
    the influence in other companies was not material to this disclosure
    Carrying amount in accordance with IAS 39 as at 31.12.2017
    Estimated impact of implementing IFRS 9 on 01.01.2018 New carrying amount in accordance with IFRS 9 as at 01.01.2018
    ASSETS Classification according to IAS 39 Classification according to IFRS 9
    impact of changing classification and valuation (1)
    impact of impairment (2)
    Total impact (1)+(2)
    Cash and balances with the Central Bank Loans and advances to customers Financial assets measured at amortized cost 965 391 0 0 0 965 391
    Financial assets held for trading Financial assets measured at amortized cost
    Financial assets measured at fair value through profit or loss 452 551 0 0 0 452 551
    Available -for-sale financial assets Available -for-sale financial assets
    Financial assets measured at fair value through other comprehensive income 9 649 751 105 105 9 649 856
    Financial assets measured at amortized cost 2 384 004 4 538 -1 946 2 592 2 386 596
    Financial assets measured at fair value through profit or loss 38 569 0 0 0 38 569
    Investment securities held to maturity Financial assets held to maturity Financial assets measured at amortized cost 1 117 894 0 -1 018 -1 018 1 116 876
    Derivative hedging instruments
    Financial liabilities measured at fair value through other comprehensive income
    Financial liabilities measured at fair value through other comprehensive income
    87 785 0 0 0 87 785
    Amounts due from banks Loans and advances to customers Financial assets measured at amortized cost 901 629 0 -4 -4 901 625
    Loans and advances to customers Loans and advances to customers Financial assets measured at amortized cost 51 266 640 0 -905 284 -905 284 50 361 356
    Assets pledged as collateral Available -for-sale financial assets/ Financial assets held to maturity
    Financial assets measured at amortized cost / Financial assets measured at fair value through other comprehensive income
    408 911 0 0 0 408 911
    Income tax asset 569 580 264 290 833 870
    Other assets 626 440 0 564 564 627 004
    TOTAL ASSETS 68 469 145 4 643 -907 688 -638 755 67 830 390



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    Carrying amount in accordance with IAS 39 as at 31.12.2017
    Estimated impact of implementing IFRS 9 on 01.01.2018 New carrying amount in accordance with IFRS 9 as at 01.01.2018
    lLIABILITIES Classification according to IAS 39 Classification according to IFRS 9
    impact of changing classification and valuation (1)
    impact of impairment (2)
    Total impact (1)+(2)
    Financial liabilities held for trading
    Financial liabilities measured at fair value through profit or loss
    Financial liabilities measured at fair value through profit or loss 435 878 0 0 0 435 878
    Amounts due to banks Financial liabilities measured at amortized cost
    Financial liabilities measured at amortized cost 891 645 0 0 0 891 645
    Amounts due to customers Financial liabilities measured at amortized cost
    Financial liabilities measured at amortized cost 57 614 493 0 0 0 57 614 493
    Derivative hedging instruments
    Financial liabilities measured at fair value through other comprehensive income
    Financial liabilities measured at fair value through other comprehensive income
    5 419 0 0 0 5 419
    Provisions 90 457 0 118 669 118 669 209 126
    Income tax liabilities 104 413 68 576 172 989
    Total liabilities 59 142 305 0 118 669 187 245 59 329 550
    Share capital 1 292 636 0 1 292 636
    Supplementary capital 4 820 048 0 4 820 048
    Revaluation reserve 13 944 10 629 24 573
    Other reserves 183 824 0 183 824
    Foreign currency translation differences 594 0 594
    Accumulated losses 449 481 -836 629 -387 148
    Non -controlling interests 1 322 0 1 322
    Totak equity 6 761 849 -826 000 5 935 849
    TOTAL LIABILITIES AND EQUITY 65 904 154 0 118 669 -638 755 65 265 399
    In respect of loans and advances to customers also due to the implementation of IFRS 9 (without affecting the net
    value):
    - implementation of changes in the definition of the gross carrying amount in range of the interest for impaired
    exposures, which as of 1 January 2018 symmetrically increase the gross exposures value and impairment
    allo wance (in the amount of PLN 193.8 M),
    - transformation of purchased original credit impaired assets ( POCI) in the balance sheet, by adjusting the gross
    value and write -offs in the amount of PLN 629.8 M.
    Impact on capital requirements
    On 12 December 2017, the European Parliament and the EU Council adopted Regulation No. 2017/2395
    amending Regulation (EU) No 575/2013 regarding transitional arrangements to mitigate the impact of the
    introduction of IFRS 9 on own funds and on the treatment of large exposures to entities in the sector publicly
    denominated in the national currency of any Member State. This Regulation entered into force on the day
    following its publication in the Official Journal of the European Union and has been applicable since 1 January
    2018. The European Parliament and the Council (EU) have recognized that the application of IFRS 9 may lead to a
    sudden increase in write -downs for expected credit losses, and hence, the fall in Tier 1 capital.
    The Regulation on the amortization of the impact of IFRS 9 on Tier I predicts primarily the possibility of applying
    appropriate multipliers in subsequent years of the transition period from 2018, which are respectively: 95%, 85%,
    70%, 50%, 25%. when the opening balance as of the date of first application o f IFRS 9 reflects a decrease in Tier 1


    C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s o f t h e
    A l i o r B a n k SA G r o u p
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    24
    Common Equity as a result of increased provisions for expected credit losses, including a write -off for expected
    credit losses over the entire life of financial assets affected by credit risk impairment, compared to w ith closing
    balance.
    Alior Bank SA, after analyzing the requirements of Regulation No. 2017/2395, decided to apply the transitional
    provisions provided for in this Regulation, which means that the full impact of implementing the IFRS will not be
    taken into account for the purpose of assessing the Bank's capital adequacy.
    The Bank settles in addition deferred tax asset arising from the entry into force of IFRS 9 in calculation of capital
    adequacy. In connection with this settlement, a position deducted from Tier 1 capital arises in accordance with art.
    36 par. 1 lit c of the CRR Regulation and negatively affects on effect of the implementation of IFRS 9.
    The table below presents the impact of the application of IFRS 9 for the first time on capital adequacy including
    and without taking into account the transition period:
    Impact of IFRS 9 including the transition period Impact of IFRS 9 without considering the transition period
    Total capital (TIER 1, TIER 2) 7 661 523 6 608 156
    The total capital requirement 4 033 552 3 952 180
    Total capital ratio 15.20% 13.38%
     IFRS 15 Revenue from contracts with customers
    Applies to annual periods beginning on or after 1 January 2018 – until the approval hereof not approved by the
    EU;
    The amendments provided in IFRS 15 will apply to all contracts that generate income. The fundamental principle
    of the new standard is to recognise income at transfer of goods or services to customers, in the amount of the
    transactional price. All goods or services sold in packets that may be identified within the packet, are to be
    recognised separately; additionally, all discounts and rebates off the transactional price, as a rule, should be
    allocated to each element of the packet. When the income is varia ble, then in accordance with the new standard,
    the variable amounts are recognised as income as long as it is highly likely that the income will not be reversed as
    a result of revaluation. Additionally, in compliance with IFRS 15, any costs incurred to ac quire and secure hedging
    of the contract with the customer shall be capitalised and recognised over time throughout the time the benefits
    from the contract are consumed. The Bank assessed all elements of the income recognition model in compliance
    with IFR S 15. As a result, the Bank did not identify material differences in income recognition between the
    requirements of IAS 18 and IFRS 15. Therefore, the implementation of IFRS 15 did not affect the Bank's equity.
     IRFS 16 Leases
    Applies to annual periods b eginning on 1 January 2019. The new standard sets the rules of recognition,
    presentation, and disclosures concerning leases. All lease transactions result in the lessee gaining the right to use
    the asset and a liability to make payments. Thus, IFRS 16 ca ncels lease classification into operational and financial
    lease in compliance with IAS 17 and introduces one model for accounting recognition of leases by the lessee.
    The lessees shall be obliged to recognise: (a) assets and liabilities for all lease tran sactions concluded for over 12
    months, unless this is a low value asset; and (b) depreciation of leased asset separately from interest on the lease
    liability in the income statement.
    The Bank is of the opinion that the application of the new standard will affect recognition, presentation,
    measurement, and disclosure of operational lease assets and the corresponding liabilities in the Bank's financial
    statements as a lessee.



    C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s o f t h e
    A l i o r B a n k SA G r o u p
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    Standards and interpretations that have not been approved by the European Union ye t:
     Other changes(a)
    Amendments to IFRS 10 and IAS 28 concerning sale or contribution of assets by investors to a joint venture or an
    affiliated entity. Amendments to IFRS 4, Insurance contracts with respect to the implementation of IFRS 9 and
    amendments to IFRS 2 Share -based Payments – the Bank is of the opinion that the application of the amended
    standards will have no material impact on the financial statements when initially applied.
    Amendments to IAS 40 and amendments to IFRS 2014 -2016 (IFRS 1, IAS 2 8) will have no impact on the financial
    statements of the Group.
    4.2 Changes to presentation and clarification of differences versus the financial statements published
    earlier
    Restatement of comparative data in connection with settlement of the acquisition of the demerged business of
    Bank BPH SA
    Due to the completion of the process of final settlement of the acquisition of the demerged business of Bank
    BPH, mentioned in note 1.1, the data as of 31 December 2016 was retrospectively restated. In the notes
    presented below, the data restated versus the published version is clearly marked as restated. Non -transformed
    data is not marked as above. Additional information related to the settlement is provided in Note 44.
    ASSETS 31.12.2016 approved adjustment 31.12.206 restated
    Cash and balances with Central Bank 1 082 991 0 1 082 991
    Financial assets held for trading 419 551 0 419 551
    Available -for-sale financial assets 9 357 734 16 912 9 374 646
    Investment securities held to maturity 1 954 0 1 954
    Derivative hedging instruments 71 684 0 71 684
    Amounts due from banks 1 366 316 0 1 366 316
    Loans and advances to customers 46 278 414 -31 226 46 247 188
    Assets pledged as collateral 366 984 0 366 984
    including pledged assets 29 783 0 29 783
    Property, plant and equipment 485 796 0 485 796
    Intangible assets 516 444 0 516 444
    Non -current asset held for sale 679 0 679
    Income tax assets 531 063 9 199 540 262
    Deferred 531 063 9 199 540 262
    Other assets 729 935 -43 939 685 996
    Other assets 61 209 545 -49 054 61 160 491
    LIABILITIES AND EQUITY 31.12.2016 approved adjustment 31.12.206 restated
    Financial liabilities held for trading 298 314 0 298 314
    Amounts due to banks 428 640 0 428 640
    Amounts due to customers 51 368 701 0 51 368 701
    Derivative hedging instruments 6 119 0 6 119
    Provisions 286 815 0 286 815
    Other liabilities 1 439 304 -6 003 1 433 301
    Income tax liabilities 13 945 0 13 945
    Current 13 190 0 13 190
    Deferred 755 0 755
    Subordinated loans 1 164 794 0 1 164 794
    Share capital 1 292 578 0 1 292 578
    Supplementary capital 4 185 843 0 4 185 843


    C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s o f t h e
    A l i o r B a n k SA G r o u p
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    LIABILITIES AND EQUITY 31.12.2016 approved adjustment 31.12.206 restated
    Revaluation reserve -71 615 0 -71 615
    Other reserves 183 957 0 183 957
    Foreign currency translation differences -22 0 -22
    Undistributed result from previous years -7 085 0 -7 085
    Current year profit/loss 618 278 -43 051 575 227
    Non -controlling interests 979 0 979
    TOTAL LIABILITIES AND EQUITY 61 209 545 -49 054 61 160 491
    01.01.2016 – 31.12.2016 approved
    01.01.2016 – 31.12.2016*
    Adjustment restated
    Interest income 2 938 474 0 2 938 474
    Interest expense -992 425 0 -992 425
    Net interest income 1 946 049 0 1 946 049
    Dividend income 68 0 68
    Fee and commission income 590 701 0 590 701
    Fee and commission expense -259 567 0 -259 567
    Net fee and commission income 331 134 0 331 134
    Trading and revaluation result 320 509 0 320 509
    Net gain (realized) on other financial instruments 21 919 0 21 919
    Other operating income 113 084 0 113 084
    Other operating expenses -52 065 0 -82 165
    Net other operating income 61 019 0 61 019
    Profit from acquisition of the demerged business of Bank BPH 508 056 -43 051 465 005
    General administrative expenses -1 566 560 0 -1 566 560
    Net impairment allowance and write -downs -799 887 0 -799 887
    Bank tax -130 893 0 -130 893
    Gross profit 691 414 -43 051 648 363
    Income tax -73 337 0 -73 337
    Net profit 618 077 -43 051 575 026
    Net profit attributable to equity holders of the parent 618 278 -43 051 575 227
    Net profit attributable to non -controlling interests -201 0 -201
    Changes to presentation
    As compared to the consolidated financial statements made as at 31.12.2016, the presentation of interest income
    and expense concerning derivative instruments has been modified in order to reflect better the economic nature
    of such transactions.
    Income statement’s item
    Data from the statements Modification Restated
    01.01.2016 - 31.12.2016 01.01.2016 - 31.12.2016 01.01.2016 - 30.09.2016
    Interest income 2 938 474 -294 593 2 643 881
    Interest income from financial instruments measured at amortized cost including the effective interest rate method 2 486 934 0 2 486 934
    term deposits 1 521 0 1 521
    loans 2 324 403 0 2 324 403
    financial assets available for sale 128 274 0 128 274
    receivables acquired 11 564 0 11 564
    other 21 172 0 21 172
    Other interest income 451 540 -294 593 156 947
    current accounts 18 958 0 18 958
    over night deposits 1 185 0 1 185


    C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s o f t h e
    A l i o r B a n k SA G r o u p
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    Income statement’s item Data from the statements Modification Restated
    derivative hedging instruments 431 397 -294 593 136 804
    Interest expense -992 425 294 593 -697 832
    Interest expense from financial instruments measured at amortized cost including the effective interest rate method -544 770 0 -544 770
    term deposits -400 393 0 -400 393
    repo transactions in securities -13 837 0 -13 837
    cash deposits -3 446 0 -3 446
    own issues -124 139 0 -124 139
    other -2 955 0 -2 955
    Other interest expenses -447 655 294 593 -153 062
    current deposits -48 402 0 -48 402
    derivative hedging instruments -399 253 294 593 -104 660
    Net interest income 1 946 049 0 1 946 049
    5 Operating segments
    Segment description
    Alior Bank SA pursues its business activity within segments offering specific products and services addressed to
    specified customer groups. The split of business segments provides for consistency with the sale management
    model and for providing customers with a comprehensive product offer, covering both traditional banking
    products and more complex investment products.
    Banking operations cover three core business segments:
     retail segment;
     business segment;
     treasury activities;
    The core products for na tural persons are as follows:
     credit products: cash loans, credit cards, current account overdraft facilities, mortgage loans;
     deposit products: term deposits, savings deposits;
     stock broking products and investment funds;
     personal accounts;
     transactional services: cash deposits and withdrawals, transfers;
     currency exchange transactions.
    The core products for business customers are as follows:
     credit products: overdraft limits in current accounts, working capital loans, investment loans, credit cards;
     depos it products: term deposits;
     current and subsidiary accounts;
     transactional services: cash deposits and withdrawals, transfers;
     treasury products: FX exchange transactions (also term FX transactions), derivative instruments;
    The analysis covers the profitability of the retail and business segments. Profitability covers:
     margin income decreased by the funding costs (a rate at which the branch acquires funding from the Treasury
    Department);
     fee and commission income;
     income fr om treasury transactions and FX exchange transactions by customers;
     other operating income and expenses.
    Income of the retail segment cover also income from sales of brokerage products (e.g. income for the
    maintenance of brokerage accounts, brokerage serv ices in securities trading and income from distribution of
    investment fund units).


    C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s o f t h e
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    The income from the business segment also covers income from a car loan portfolio.
    The item Treasury activity covers management effects of the global position – liquidity and FX position, resulting
    from the activity of the Bank's units.
    The profit and loss accounts presented below, split by segment, contain a reconciliation item. The items cover:
     internal interest result accruing on the balance on net impairment allowances;
     commission costs not allocated to any business units (e.g. cash handling costs, ATM use costs, costs of
    domestic and foreign transfers);
     other operational expenses and income, not related directly to the operation of business segments.
    Results and volume s by segments for the year ended on 31 December 2017
    Retail customers Corporate customers Treasury Total corporate segments Reconcilation items Total Group
    External interest income 1 830 336 1 011 814 -1 082 2 841 068 0 2 841 068
    external income 2 173 382 1 289 199 138 550 3 601 131 0 3 601 131
    external expense -343 046 -277 385 -139 632 -760 063 0 -760 063
    Internal interest income -16 042 -263 953 279 995 0 0 0
    internal income 843 894 186 031 2 789 704 3 819 629 0 3 819 629
    internal expense -859 936 -449 984 -2 509 709 -3 819 629 0 -3 819 629
    Net interest income 1 814 294 747 861 278 913 2 841 068 0 2 841 068
    Fee and commission income 355 914 408 185 -969 763 130 64 746 827 876
    Fee and commission expense -213 862 -158 512 -12 179 -384 553 9 701 -374 852
    Net fee and commission income 142 051 249 674 -13 148 378 577 74 447 453 024
    Dividend income 0 0 0 0 31 31
    Trading and revaluation result 4 181 49 819 314 956 368 956 0 368 956
    Net gain (realized) on other financial instruments 117 006 174 518 -284 616 6 908 0 6 908
    Other operating income 171 457 22 886 -60 194 284 -67 201 127 083
    Other operating expenses -53 612 -44 133 1 330 -96 416 11 687 -84 729
    Net other operating income 117 845 -21 247 1 270 97 868 -55 514 42 354
    Total result before impairment losses 2 195 377 1 200 625 297 375 3 693 377 18 964 3 712 341
    Net impairment allowances and write - downs -485 800 -413 500 0 -899 300 -30 317 -929 617
    Total result after impairment losses 1 709 577 787 125 297 375 2 794 077 -11 353 2 782 724
    General administrative expenses -1 506 398 -534 353 -5 301 -2 046 052 0 -2 046 052
    Gross profit 203 179 252 772 292 074 748 025 -11 353 736 672
    Income tax 0 0 0 0 -221 055 -221 055
    Net profit 203 179 252 772 292 074 748 025 -232 408 515 617
    Depreciation -177 040
    Assets 41 235 031 27 643 418 45 751 68 924 200 569 580 69 493 780
    Liabilities 40 221 679 22 392 851 12 989 62 627 518 104 413 62 731 931
    Results and volumes by segments for the year ended on 31 December 2016
    Restated Retail customers Corporate customers Treasury Total corporate segments Reconcilation items Total Group
    External interest income 1 299 671 546 502 93 684 1 939 857 6 192 1 946 049
    external income 1 640 530 895 476 101 242 2 637 248 6 633 2 643 881
    external expense -340 859 -348 974 -7 558 -697 391 -441 -697 832
    Internal interest income -43 001 -12 581 61 793 6 211 -6 211 0


    C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s o f t h e
    A l i o r B a n k SA G r o u p
    f o r t h e y e a r e n d e d 3 1 D e c e m b e r 2 0 1 7
    ( i n P L N ‘ 0 0 0 )
    29
    Restated Retail customers Corporate customers Treasury Total corporate segments Reconcilation items Total Group
    internal income 532 717 256 492 1 259 074 2 048 283 25 2 048 308
    internal expense -575 718 -269 073 -1 197 281 -2 042 072 -6 236 -2 048 308
    Net interest income 1 256 670 533 921 155 477 1 946 068 -19 1 946 049
    Fee and commission income 239 210 290 810 517 530 537 60 164 590 701
    Fee and commission expense -121 213 -57 318 -35 896 -214 427 -45 140 -259 567
    Net fee and commission income 117 997 233 492 -35 379 316 110 15 024 331 134
    Dividend income 0 0 0 0 68 68
    Trading and revaluation result 3 885 53 031 263 593 320 509 0 320 509
    Net gain (realized) on other financial instruments 105 447 133 596 -217 124 21 919 0 21 919
    Other operating income 138 468 17 708 5 362 161 538 -48 454 113 084
    Other operating expenses -13 859 -65 -1 686 -15 610 -36 455 -52 065
    Net other operating income 124 609 17 643 3 676 145 928 -84 909 61 019
    Total result before impairment losses 1 608 608 971 683 170 243 2 750 534 -70 015 2 680 519
    Impairment losses -479 566 -288 937 0 -768 503 -31 384 -799 887
    Total result after impairment losses 1 129 042 682 746 170 243 1 982 031 -101 221 1 880 811
    Profit on occasional purchase 0 0 0 0 465 005 465 005
    General administrative expenses -1 257 686 -435 454 -4 313 -1 697 453 0 -1 697 453
    Gross profit -128 644 247 293 165 930 284 579 363 784 648 363
    Income tax 0 0 0 0 -73 337 -73 337
    Net profit -128 644 247 293 165 930 284 579 290 447 575 026
    Depreciation 0 0 0 0 0 -105 477
    Assets 36 448 385 24 143 732 37 311 60 629 428 531 063 61 160 491
    Liabilities 34 697 531 20 279 764 9 389 54 986 684 13 945 55 000 629
    Income and expenses are generated primarily in Poland. Opened in 2017, the branch in Romania generated a
    gross loss of PLN 30 219 thousand and PLN – 6 166 thousand in 2016.
    Notes to consolidated income statement
    6 Net interest income
    6.1 Accounting principles
    Interest income and expenses cover interest on financial instruments measured at amortised cost and instruments
    measured at fair value with the exception of hedging derivative instruments classified as available for tr ading. Net
    interest also includes fees and commissions directly related to the origination of financial instruments (both
    income, including the portion of fees received from insurance companies for distribution of insurance, and costs,
    including external a nd internal incremental costs) constituting the integral part of the effective interest rate.
    The effective interest rate method consists in accruing the amortised cost of financial assets or financial liabilities
    and allocation of interest income or exp ense. The effective interest rate is the rate to discount estimated future
    cash flows to the net carrying value of financial assets or liabilities. In case of financial assets or a group of similar
    financial assets for which an impairment allowance was rec ognised, interest income accrues on the current value
    of receivables (the value reduced by the impairment allowance), a t the effective interest rate.


    C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s o f t h e
    A l i o r B a n k SA G r o u p
    f o r t h e y e a r e n d e d 3 1 D e c e m b e r 2 0 1 7
    ( i n P L N ‘ 0 0 0 )
    30
    Interest income and expense on derivative instruments, classified as available for trading, is disclosed a s interest
    income and expense along with the effective part of the cash f low hedges. Accrued interest receivable and
    payable is presented in the items of the statement of financial condition to which it refers.
    6.2 Financial data
    01.01.2017 - 31.12.2017 01.01.2016 - 31.12.2016
    Interest income 3 601 131 2 643 881
    Interest income on financial instruments by category at amortized cost taking into account the effective interest rate 3 428 067 2 486 934
    term deposits 1 064 1 521
    loans 3 176 306 2 324 403
    available for sale financial assets 165 562 128 274
    receivables acquired 33 710 11 564
    repo transactions in securities 7 823 4 554
    investment securities held to maturity 9 281 768
    other 34 321 15 850
    Other interest income 173 064 156 947
    current accounts 25 156 18 958
    overnight deposits 1 558 1 185
    derivatives instruments 146 350 136 804
    Interest expense -760 063 -697 832
    Interest expense from financial instruments measured at amortized cost including the effective interest rate method -510 886 -544 770
    term deposits -345 903 -400 393
    own issue -136 979 -124 139
    repo transactions in securities -15 999 -13 837
    cash deposits -3 300 -3 446
    other -8 705 -2 955
    Other interest expense -249 177 -153 062
    current deposits -121 372 -48 402
    derivatives -127 805 -104 660
    Net interest income 2 841 068 1 946 049
    Interest income primarily covers interest on loans, derivative instruments and interest and discount on bonds.
    Interest expense primarily covers interest on term deposits from retail customers and own issue.
    In 2017 and 2016 the amount of interest income on loans with recog nised impairment amounted to PLN 243 769
    thousand and PLN 142 974 thousand.
    6.3 Material estimates and assumptions – recognition of bancassurance income
    The Bank allocates the received remuneration for distribution of insurance products related to the sale of loans –
    in accordance with the economic content of the transaction – as remuneration constituting:
     an integral part of the remuneration received for the offered financial instruments;
     remuneration for agency services;
     remuneration for the provision of additional activities performed during the insurance contract (recognised by
    the Group over a period when the services are provided).


    C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s o f t h e
    A l i o r B a n k SA G r o u p
    f o r t h e y e a r e n d e d 3 1 D e c e m b e r 2 0 1 7
    ( i n P L N ‘ 0 0 0 )
    31
    The economic title of the received remuneration determines the way it is disclosed in the Bank's books.
    The model of “relative fair value” is applied to determine the split of the remuneration related to insurance
    offered in connection with cash and mortgage loans and insurance sold without any relationship to financial
    instruments.
    The “relative fair value” model approved by the Bank consists in estimating the fair value of each element of the
    overall service of loan sale with insurance in order to determine the p roportion of fair value of both services. In
    accordance with such proportion of fair value, remuneration under the joint loan and insurance transaction is
    allocated to each component. Additionally, in order to determine the correct amount of income to be
    recognised over time as interest income, the model provides for the establishment and update of provisions for
    remuneration refund for insurance agency services when the customer resigns from insurance. The provision due
    to the uncertainty related to the customers’ option to resign from the insurance cover at any time during the term
    of the contract is verified periodically by each credit product group. The Bank's remuneration for insurance
    distribution is reduced by uncertain income related to estimated refunds due to the customer s’ resignation from
    insurance.
    The remuneration for sale of insurance products offered to the Bank's customers in combination with credit
    products in line with the periodically updated “loan relative fair value” model is recognis ed after deferral of a part
    of the remuneration to cover the anticipated refunds of remuneration due to the customers resigning or
    withdrawing from insurance contracts.
    Additionally, in its profit and loss account, the recognises income on the sale of in surance distributed jointly with
    the offered car loans and loans with legal protection coverage that are fully accounted for over time at the
    effective interest rate.
    Additionally, the Bank provides customers with the insurance cover under other insurance products than related
    to credit products, including accident insurance, motor, housing, travel insurance and investment products
    (insurance capital funds).
    Income from the distribution of those products are recognised as follows:
     insurance products base d on monthly settlements with insurance companies and customers are recognised in
    the profit and loss account on a monthly basis;
     on sale of insurance not related to sales of banking products, including: Unit Linked and Insurance with
    Capital Fund are rec ognised in full amounts in the profit and loss account when the operation is performed in
    the part related to the completed sale agency service, and in the part concerning remuneration for
    subsequent services is recognised over time with a straight -line me thod . Like in the case of loan -related
    insurance products, the model for unrelated insurance also covers the establishment and updates of provision
    for insurance remuneration refunds should customers resign from insurance.
    6.4 Sensitivity analysis of materia l estimates and assumptions
    In 2017 and 2016 the Bank recognised over time remuneration for insurance offered in connection with cash and
    mortgage loans based on the “relative fair value” model, reflecting the economic content of the transacti on in the
    most appropriate way. Details in Note 6.3.
    An estimated sensitivity analysis of changes of the income recognised by the Bank in 2017 with reference to
    bancassurance is as follows:



    C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s o f t h e
    A l i o r B a n k SA G r o u p
    f o r t h e y e a r e n d e d 3 1 D e c e m b e r 2 0 1 7
    ( i n P L N ‘ 0 0 0 )
    32
    Type of scenario 2017 2016
    increased provision for resignations by 5pp PLN -9.86 M – reduced net interest PLN -15.19 M – reduced net interest
    decreased provision for resignations by 5pp PLN +9.86 M – increased net interest PLN +15.19 M – increased net interest
    increased income recognised all at once by 1pp PLN +1.27 M – increased net fees and commissions PLN +661 thousand – increased net fees and commissions
    decreased income recognised all at once by 1pp PLN -1.27 M – decreased net fees and commissions PLN -661 thousand – decreased net fees and commissions
    7 Net fee and commission income
    7.1 Accounting principles
    Net fee and commission income is recognised basically on the accrual basis when the service is performed. The
    income is generated as a result of financial services offered by the Bank. Fees and commissions that do not
    constitute an integral part of the effective interest rate, including fees for handling bank accounts and credit cards,
    are accounted for with a straight -line method in the profit and loss account and presented as income or costs.
    The other fees an d commissions related to financial services offered by the Bank, such as cash management,
    brokerage services, investment consulting, financial planning, investment banking services, and asset
    management services – if received periodically, are recognised in the profit and loss account when the service is
    performed.
    7.2 Financial data
    01.01.2017 - 31.12.2017 01.01.2016 - 31.12.2016
    Fee and commission income 827 876 590 701
    payment and credit cards service 212 602 114 232
    maintaining bank accounts 133 819 110 947
    brokerage commissions 118 420 74 405
    revenue from bancassurance activity 88 200 75 289
    loans and advances 88 927 63 727
    transfers 63 385 41 601
    cash operations 46 030 27 368
    guarantees, letters of credit, collection, commitments 13 468 14 261
    receivables acquired 13 847 8 970
    for custody services 10 617 3 761
    other commissions 38 561 56 140
    Fee and commission expenses -374 852 -259 567
    costs of card and ATM transactions, including costs of cards issued -154 842 -83 610
    commissions paid to agents -39 846 -35 011
    insurance of bank products -19 398 -25 956
    costs of awards for customers -19 388 -24 191
    commissions for access to ATMs -28 316 -22 336
    commissions paid under contracts for performing specific operations -31 469 -12 112
    brokerage commissions -5 038 -3 699
    for custody services -3 158 -847
    other commissions -73 397 -51 805
    Net fee and commission income 453 024 331 134


    C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s o f t h e
    A l i o r B a n k SA G r o u p
    f o r t h e y e a r e n d e d 3 1 D e c e m b e r 2 0 1 7
    ( i n P L N ‘ 0 0 0 )
    33
    As a result of the merger of Alior Bank SA with the demerged part of Bank BPH SA, the acquired assets included
    custody services which are continued.
    The Bank provides the following custody services:
     safekeeping of customers’ assets,
     transaction settlement and clearing,
     disbursement of benefits under securities.
     reporting of balances of holdings,
     acting as depository.
    8 Trading and revaluation result
    8.1 Accounting principles
    The traiding and revaluation result civers the result on: FX transactions, on interest rate transactions, hedge, and
    other instruments. The result on FX transactions covers the fol lowing: FX exchange, SWAP transactions (FX swap
    and CIRS with capital exchange); FX forward; FX options and on revaluation of FX denominated assets and
    liabilities. The result on interest rate transactions covers: interest rate swap contracts; FRA and int erest rate
    options (CAP/FLOOR). The result does not cover interest income and expenses under IRS and CIRS transactions.
    The result on other financial instruments covers results on commodity derivative instruments (including forward,
    futures), options on st ock indices, index baskets and commodities and results on trading in equity securities.
    8.2 Financial data
    01.01.2017 – 31.12.2017 01.01.2016 – 31.12.2016
    Revaluation result 313 382 -42 265
    Interest rate transacions 24 086 75 266
    The result on other instruments includes the result on trading in debt securities classified as held for trading with interest 21 334 13 568
    Foreign exchange transactions 9 283 274 839
    Ineffective part of hedge accounting 871 -899
    Trading and revaluation result 368 956 320 509
    9 Net result realized on other financial instruments
    9.1 Accounting principles
    The realised result on other financial instruments contains profit and loss on disposal of financial instruments
    classified as available for sale and profit and loss as a result of re demption of the Bank's issues.
    9.2 Financial data
    01.01.2017 – 31.12.2017 01.01.2016 – 31.12.2016
    Available -for-sale financial assets 5 750 20 970
    Own issue 1 403 971
    repurchase income 1 405 1 011
    repurchase losses -2 -40
    Investment certificates -245 -22
    Net gain (realized) on other financial instruments 6 908 21 919



    C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s o f t h e
    A l i o r B a n k SA G r o u p
    f o r t h e y e a r e n d e d 3 1 D e c e m b e r 2 0 1 7
    ( i n P L N ‘ 0 0 0 )
    34
    10 Net other operating income and expense
    10.1 Accounting principles
    The other operating income and expenses include income and expenses not related directly to core business
    activities. The other operating income covers primarily income from managing third party assets, damages
    received, penalties and fines, remuneration under contracts with various counterparties, refunded costs related to
    pursuance of claims. The other operating expenses include primarily costs of incidents related to the operational
    risk, pursuant of claims and third party asset management. Income is recognised in the profit and loss account in
    full amounts. In the case of income for third party asset management, monthly accounting periods are decisive
    for full recognition in the profit and loss account.
    10.2 Financial data
    01.01.2017 – 31.12.2017 01.01.2016 – 31.12.2016
    Other operating income from: 127 083 113 084
    income from contracts with business partners 42 271 21 465
    reimbursement of costs of claim enforcement 25 371 21 440
    management of third party assets 23 507 16 120
    received compensations 6 734 2 266
    reimbursement of fees by customers 23 17 546
    acquisition of receivables 0 9 119
    other 29 177 25 128
    Other operating expenses due to: -84 729 -52 065
    fees and costs of claim enforcement -28 393 -18 501
    paid compensations. settlements. complaints -24 990 -7 344
    paid compensations. fines and penalties -10 829 -3 680
    management of third party assets -2 132 -1 426
    awards given to customers -1 776 -1 689
    other -16 609 -19 425
    Net other operating income and expense 42 354 61 019
    11 General administrative expenses
    11.1 Accounting principles
    Cost type Description
    Employee benefits
    Apart from salaries and social insurance (including premiums for retirement insurance as detailed in the note on “Provisions” ), employee benefits cover the costs of variable components of remuneration for persons in managerial positions with a part being recognised as a payment liability in shares settled in cash in compliance with IFRS 2. Additionally, the Group establi shes a provision for future damages and severance pay due to employees whose employment contracts are terminated for reasons not attributable to employees, as well as periodic recognition of costs falling for the current period, including bon uses and unutilised annual leaves, includi ng all outstanding holiday days.
    Tangible costs This item covers the following: maintenance and rental costs of fixed assets, IT and telecommunications service costs, administrative expenses, promotion and advertising costs, security services and trainin g costs. Lease fees are recognised with a straight -line method as costs in the profit and loss account.
    Amortisation/ Depreciation
    Depreciation/amortisation of fixed assets and intangible assets accrues with a straight -line method at the approved amortisation/depreciation rates over their anticipated economic life. Recognised in the profit and loss account. The amount subject to amo rtisation/depreciation shall be understood as the purchase price or manufacturing cost of the asset, net of its residual value. Every year the useful economic life is updated, depreciation rates and the residual value of depreciated fix ed assets.
    Taxes and charges The following items are included: real estate tax, contributions made to the State Fund for the Rehabilitation of Disabled Persons, municipal and administrative fees, perpetual usufruct fees.


    C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s o f t h e
    A l i o r B a n k SA G r o u p
    f o r t h e y e a r e n d e d 3 1 D e c e m b e r 2 0 1 7
    ( i n P L N ‘ 0 0 0 )
    35
    11.2 Financial data
    01.01.2017 - 31.12.2017 01.01.2016 - 31.12.2016
    Payroll costs -1 015 116 -893 068
    remuneration due to employment contracts -820 505 -543 075
    remuneration surcharges -162 113 -94 503
    retention programs 0 -56 378
    revaluation of managment option plan – part settled in cash -16 689 -12 075
    costs of bonus for senior executives settled in phantom shares -2 759 -14 126
    restructuring provision 0 -167 000
    other -13 050 -5 911
    General and administrative costs -641 852 -560 644
    lease and building maintenance expenses -160 447 -147 391
    costs of Banking Guarantee Fund -56 164 -86 564
    IT costs -156 767 -68 212
    marketing costs -70 359 -57 118
    cost of advisory services -46 226 -45 412
    external services -41 931 -45 493
    provision for restructuring 0 -32 668
    training costs -26 711 -22 772
    costs of telecommunications services -26 230 -19 133
    costs of lease of property, plant and equipment and intangible assets -7 100 -4 373
    other -49 917 -31 508
    Amortization and depreciation -177 040 -105 477
    property, plant and equipment -106 016 -64 895
    intangible assets -71 024 -40 582
    Taxes and fees -11 527 -7 371
    Total general administrative expenses -1 845 535 -1 566 560
    11.3 Operational leases – the Group as a lessee
    The Bank is a party solely to such lease contracts pursuant to which it accepts for use of third party fixed assets for
    a fee over an agreed period, when the entire risk and benefits from the leased assets remain with the lessor.
    The Group leases passeng er cars. All those contracts are operational lease contracts. As at 31 December 2017,
    the Bank had 784 lease contracts for cars.
    Operational lease contracts for cars by payment dates 31.12.2017 31.12.2016
    up to 1 year 9 981 11 191
    1 to 3 years 5 783 13 557
    Over 3 years 0 51
    Total 15 764 24 799
    The Bank is also a lessee of office space.
    Rental costs constitute a material item of general overheads. When renting premises for its branches, the Bank
    signs contracts for minimum 5 years. The contracts contain clauses concerning changes to the rent amount
    subject to inflation in each year – the clau se is available to the lessor.



    C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s o f t h e
    A l i o r B a n k SA G r o u p
    f o r t h e y e a r e n d e d 3 1 D e c e m b e r 2 0 1 7
    ( i n P L N ‘ 0 0 0 )
    36
    Future lease liabilities by payment dates 31.12.2017 31.12.2016
    up to 1 year 155 766 154 786
    1 to 5 years 393 285 205 742
    Above 5 years 6 141 34 790
    Total 555 192 395 318
    12 Net impairment allowance and write -downs
    12.1 Accounting principles
    The result from impairment allowance and write -downs consists of the creation and reversal of impairment losses
    on loans and advances to customers, debt securities, property, plant and equipment and intangible assets as well
    as the creation and reversal of off -balance provisions
    12.2 Financial data
    Note 01.01.2017 -31.12.2017 01.01.2016 – 31.12.2016
    Impairment losses on impaired loans and advances to customers 20 -887 952 -731 407
    retail customers -491 469 -474 863
    corporate customers -396 483 -256 544
    Debt securities – available -for-sale financial assets 17 16 921 -6 975
    IBNR for customers without impairment losses -26 558 -36 408
    retail customers -2 793 -10 417
    corporate customers -23 765 -25 991
    Off-balance provisions -6 307 -2 382
    Property, plant and equipment and intangible assets -25 721 -22 715
    Net impairment allowance and write -downs -929 617 -799 887
    In 2017 Bank sold loans for a total gross amount of PLN 673 289 thousand, the provision recorded for the loans
    portfolio amounted to PLN 5 04 964. thousand and the re sult on sales amounted to PLN 1 212 thousand. The
    impact of sales of receivables on costs of risk in 2017 amounted to PLN 74 715 thousand after adjusting the risk's
    parameters to the level of impairments to the risk profile of the part remaining in the Bank
    In 2016 Bank sold loans for a total gross amount of PLN 506 468 thousand, the provision recorded for the loans
    portfolio amounted to PLN 401 196 thousand and the result on sales amounted to PLN 1 212 thousand. All the
    benefits and risks were transferred to the buyer.
    13 Bank ing Tax
    The Act on Tax from Certain Financial Institutions of 15 January 2016 became effective on 1 February 2016 – the
    Act applies to banks and insurance companies. The tax accrues on the surplus of assets in excess of PLN 4 billion
    as detailed in trial balances as at the end of each month. Banks are entitled to reduce the taxation base by their
    equity, as well as the amounts of Treasury securities and assets acquired from NBP, constituting collateral for the
    refinancing loan granted by NBP. The tax is payable monthly (the mon thly rate is 0.0366%) by the 25th day of the
    month following the month to which it applies and is recognised in the profit and loss account in the period to
    which it applies.


    C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s o f t h e
    A l i o r B a n k SA G r o u p
    f o r t h e y e a r e n d e d 3 1 D e c e m b e r 2 0 1 7
    ( i n P L N ‘ 0 0 0 )
    37
    14 Income tax
    14.1 Accounting principles
    Income tax covers current tax and deferred ta x. Income tax is recognised in the profit and loss account, unless the
    tax is related to:
     transactions recognised in other comprehensive income or directly in equity,
     combination of entities.
    Current tax
    Liabilities (receivables) under current income tax for the current and prior periods are measured at the amount
    expected to be paid to tax authorities (or to refunded from tax authorities at the tax rates (and tax laws) enacted
    or substantively enacted at the end of the reporting period.
    Deferred income tax
    Deferred income tax is calculated as a balance sheet liability based on identification of time differences between
    the tax value and the carrying value of assets and liabilities. The Bank establishes a deferred income tax provision
    with reference to all positive temporary differences with the exception of the following:
     when the deferred income tax provision results from the initial recognition of goodwill or initial recognition of
    an asset or liabili ty coming from a transaction which is not a combination of entities and when the transaction
    is executed, it does not affect the gross financial profit or taxable income (tax loss);
     the parent entity, investor, or partner in a joint venture are able to co ntrol reversal dates of temporary
    differences and it is likely that the temporary differences are not reversed in the foreseeable future.
    With reference to all negative temporary differences, the deferred tax asset is recognised in the amount of
    probable taxable income which will allow for a set -off of negative temporary differences, with the exception of the
    following:
     when the deferred income tax results from the initial recognition of an asset or liability coming from a
    transaction which is not a comb ination of entities and when the transaction is executed, it does not affect the
    gross financial profit or taxable income (tax loss);
     when negative temporary differences result from investments in subsidiaries, branches, affiliated entities, and
    joint vent ures outside the extent when it is probable that they will be reversed in the foreseeable future and
    taxable income will be generated from which such temporary differences can be deducted.
    The carrying value of the deferred income tax asset is verified at the end of each reporting period. The Bank
    reduces its carrying value to the extent it is not probable to generate taxable income sufficient to have it realised
    in full or in part.
    A deferred income tax asset and a deferred income tax provision are mea sured according to the tax rates which
    will be applicable when the asset is realised or provision reversed, assuming the tax rates (and tax laws) legally or
    actually effective as at the end of the reporting period.
    Current and deferred income tax is recog nised directly in other comprehensive income, if it applies to items that
    have been recognised in other comprehensive income in the same or another period.
    A deferred income tax asset and a deferred income tax provision are offset, if a legally enforceabl e right exists to
    set off the current income tax receivables or payables and the deferred income tax relates to the same taxable
    entity and the same taxation authority.



    C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s o f t h e
    A l i o r B a n k SA G r o u p
    f o r t h e y e a r e n d e d 3 1 D e c e m b e r 2 0 1 7
    ( i n P L N ‘ 0 0 0 )
    38
    14.2 Financial data
    14.2.1 Corporate income tax
    01.01.2017 – 31.12.2017 01.01.2016 – 31.12.2016
    Current tax 269 827 235 412
    current year 269 827 235 412
    Deferred tax -48 772 -162 075
    origination and reversal of temporary differences -48 772 -162 075
    Accounting tax recognized in the income statement 221 055 73 337
    14.2.2 Efective tax rate calculation
    01.01.2017 – 31.12.2017 01.01.2016 – 31.12.2016
    Gross profit 736 672 648 363
    Income tax at 19% 139 968 123 189
    Non -tax deductible expenses 72 877 62 807
    Representation costs 570 228
    PFRON (State Fund for Rehabilitation of Persons with Disabilities) 1 350 1 203
    Impairment losses on loans in the part not covered with deferred tax 19 287 26 617
    Prudential fee to Bank Guarantee Fund 10 672 4 977
    The tax financial institutions 38 099 24 870
    Donations 41 26
    Other 2 858 4 886
    Non -taxable revenues -8 656 -98 816
    Release of loan impairment allowances in the part not covered with the deferred tax -6 830 -935
    Profit from the acquisition of demerged business of Bank BPH 0 -88 351
    Other -1 826 -9 530
    Tax deductible expenses not being accounting expenses 0 -6 540
    Costs related to spending on capital increase 0 -6 540
    Recognition of tax loss 2 904 240
    Recognition of assets due to the contribution of receivables to a debt collection company 0 643
    Other 13 962 -8 186
    Accounting tax recognized in the income statement 221 055 73 337
    Effective tax rate 30.01% 11.31%
    14.2.3 Deferred income tax asset and provision
    Deferred tax asset 31.12.2016 restated
    Changes recognised in financial result
    Changes recognised in equity 31.12.2017
    Fees collected in advance 293 825 -8 447 0 285 378
    Interest accrued on deposits 23 581 7 824 0 31 405
    Interest / discount accrued on securities 45 057 3 507 0 48 564
    Negative valuation of securities 21 355 -3 466 -14 793 3 096
    Interest accrued on derivatives instruments 24 622 22 642 0 47 264
    Negative valuation of derivatives instruments 56 621 2 559 605 59 785
    Premium received on option 16 636 8 731 0 25 367
    Provision for deferred expenses 116 662 -52 091 0 64 571
    Impairment allowances on loans 286 313 35 363 0 321 676


    C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s o f t h e
    A l i o r B a n k SA G r o u p
    f o r t h e y e a r e n d e d 3 1 D e c e m b e r 2 0 1 7
    ( i n P L N ‘ 0 0 0 )
    39
    Deferred tax asset 31.12.2016 restated
    Changes recognised in financial result
    Changes recognised in equity 31.12.2017
    Other provisions -51 186 53 814 0 2 628
    Recognition of asset related to contribution to joint -stock partnership 6 339 -6 339 0 0
    Tax loss 2 190 3 179 -84 5 285
    Deferred tax asset 842 015 67 276 -14 272 895 019
    Deferred tax liability 31.12.2016 restated
    Changes recognised in financial result
    Changes recognised in equity 31.12.2017
    Interest accrued on interbank deposits -406 406 0 0
    Interest accrued on loans and advances -79 867 -49 238 0 -129 105
    Interest / discount accrued on securities -15 271 3 297 0 -11 974
    Positive valuation of securities -487 15 -4 256 -4 728
    Interest accrued on derivatives instruments -30 455 -28 162 0 -58 617
    Positive valuation of derivatives instruments -87 400 17 890 -656 -70 166
    Difference between accounting and tax amortization/ depreciation -27 488 -12 758 0 -40 246
    Accured not received income -60 379 50 046 -756 -11 089
    Deferred tax liability -301 753 -18 504 -5 668 -325 925
    Total effect of temporary differences 540 262 48 772 -19 940 569 094
    Deferred tax asset 31.12.2015 Changes recognised in financial result
    Changes recognised in equity
    Changes recognised to goodwill of BPH
    31.12.2016 restated
    Fees collected in advance 144 816 51 391 0 97 618 293 825
    Interest accrued on deposits 26 772 -5 334 0 2 143 23 581
    Interest / discount accrued on securities 29 225 14 838 0 994 45 057
    Negative valuation of securities 5 375 1 306 12 682 1 992 21 355
    Interest accrued on derivatives instruments 23 584 699 0 339 24 622
    Negative valuation of derivatives instruments 682 754 -614 835 -16 582 5 284 56 621
    Premium received on option 12 760 2 986 0 890 16 636
    Provision for deferred expenses 23 158 75 879 -3 010 20 635 116 662
    Impairment allowances on loans 157 816 38 335 0 90 162 286 313
    Other provisions -404 6 780 0 -57 562 -51 186
    Recognised asset as contribution to Obrót wierzytelnościami Alior Polska sp. z o.o. spółka komandytowo -akcyjna 12 297 -5 958 0 0 6 339
    Tax loss 1 188 1 002 0 0 2 190
    Deferred tax asset 1 119 341 -432 911 -6 910 162 495 842 015
    Deferred tax liability 31.12.2015 Changes recognised in financial result
    Changes recognised in equity
    Changes recognised to goodwill of BPH
    31.12.2016 restated
    Interest accrued on interbank deposits -9 -396 0 -1 -406
    Interest accrued on loans and advances -53 420 -15 115 0 -11 332 -79 867
    Interest / discount accrued on securities -9 612 -4 739 0 -920 -15 271
    Positive valuation of securities -856 -8 377 0 -487
    Interest accrued on derivatives instruments -38 177 8 850 0 -1 128 -30 455
    Positive valuation of derivatives instruments -709 057 603 411 22 463 -4 217 -87 400
    Difference between accounting and tax amortization/ depreciation -27 878 6 224 0 -5 834 -27 488
    Deferred tax liability -843 888 594 986 22 840 -75 691 -301 753
    Total effect of temporary differences 275 453 162 075 20 368 82 366 540 262



    C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s o f t h e
    A l i o r B a n k SA G r o u p
    f o r t h e y e a r e n d e d 3 1 D e c e m b e r 2 0 1 7
    ( i n P L N ‘ 0 0 0 )
    40
    15 Profit per share
    15.1 Accounting principles
    In compliance with IAS 33, the Bank calculates diluted profit per share, including shares issued conditionally within
    incentive programmes described in Note 35. The calculations do not include those elements of incentive
    programmes that acted against dilu tion in the reporting periods and which, in the future, may potentially dilute
    profit per share.
    Core profit per share is calculated as the quotient of profit attributable to the Bank's shareholders and the
    weighted average number of ordinary shares in t he year.
    Diluted profit per share is calculated as a ratio of profit attributable to the Bank's shareholders and the weighted
    average number of ordinary shares adjusted by potential ordinary convertible shares. The Bank has one category
    that may result in dilution of potential ordinary shares: share options.
    15.2 Financial data
    01.01.2017 – 31.12.2017
    01.01.2016 – 31.12.2016 restated
    Net profit 515 617 575 026
    Weighted average number of ordinary shares 129 259 754 102 218 667
    Share options (number) - adjusting instrument 2 547 486 2 568 564
    Adjusted weighted average number of shares 131 807 240 104 787 231
    Net earnings per ordinary share (PLN) 3.99 5.63
    Dilluted earnings per one share 3.91 5.49
    Additional information to the statement of financial condition
    16 Cash and balances with the Central Bank
    16.1 Accounting principles
    The item “Cash and balance s with the Central Bank” covers cash at nominal value and cash in the current account
    and deposits with the Central Bank measured at amounts payable inclusive of interest on the funds, if any.
    16.2 Financial data
    31.12.2017 31.12.2016
    Current account with the Central Bank 253 092 16 959
    Term deposit with the central bank 255 010 344 009
    Cash 457 289 722 023
    Cash and balances with the Central Bank 965 391 1 082 991
    During the day the Bank may use funds in the mandatory reserve account for current cash settlements on the
    basis of instructions placed with the National Bank of Poland, however, the Bank has to maintain an average
    monthly balance in the account equivalent to the declared mandatory reserve.
    The mandatory reserve is the PLN part of cash depos ited in bank accounts and obtained from sales of securities
    with the exception of funds received from another domestic bank, credit union, Krajowa Spółdzielcza Kasa
    Oszczędnościowo -Kredytowa, and refundable funds received from BGF. The level of the mandato ry reserve is


    C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s o f t h e
    A l i o r B a n k SA G r o u p
    f o r t h e y e a r e n d e d 3 1 D e c e m b e r 2 0 1 7
    ( i n P L N ‘ 0 0 0 )
    41
    determined by the Monetary Policy Council. Since 31 December 2010, the mandatory reserve rate has been at
    3.5 percent for all kinds of deposits, with the exception of funds obtained under repo and sell -buy -back
    transactions where the mandato ry reserve rate is 0 percent. The entities that calculate the mandatory reserve
    deduct the calculated amount by equivalent of EUR 500 000.
    Funds in the mandatory reserve account earn interest at 0.9 of the reference rate. As at 31 December 2017 and
    2016 th e interest rate was 1.35%.
    17 Available for sale financial assets and investment securities held to maturity
    17.1 Accounting principles
    Available for sale financial assets include financial assets that are not loans and rec eivables, in vestments securities
    held to maturity date , financial assets measured at fair value through profit and loss.
    Instruments classified as available for sale are measured at fair value with the measurement result recognised in
    equity (other comprehensive income). When such instrument i s sold, the cumulated profit/loss is recognised in
    the profit and loss account. Interest accrued at the effective interest rate on assets available for sale is recognised
    in the profit and loss account.
    In the case of objective evidence of impairment of debt assets available for sale, a cumulated impairment
    allowance is eliminate from the revaluation reserve and recognised in the profit and loss account.
    At the end of each reporting period, the Bank assesses if there are objective impairment indications of available
    for sale financial assets , applying the same criteria as used for financial assets measured at amortised cost. If any
    are detected, the Bank determines the impairment allowances to be applied.
    The amount of an impairment allowance is the cumu lated losses that is derecognised from equity and recognised
    in the profit and loss account as a difference between the acquisition price (reduced by any principal repayments
    and amortisation) and the present fair value, reduced by all impairment losses of the asset previously recognised
    in profit and loss account.
    Interest income on available for sale financial assets for which an impairment has been recognised (calculated on
    the reduced present value) is recognised at the effective interest rate.
    If, in a subsequent period, the fair value of a debt instrument classified as available for sale increases and the
    increase may be objectively related to an event occurring after the impairment allowance has been recognised in
    the profit and loss account, the imp airment loss is reversed and recognised in the profit and loss account.
    Impairment losses on investment in equity instruments classified as available for sale are not reversed through
    profit and loss account.
    17.2 Financial data
    Available for sale financial as sets
    Structure by type 31.12.2017 31.12.2016 restated
    Debt instruments 12 030 778 9 339 005
    issued by the State Treasury 9 651 360 6 197 981
    T-bonds 9 651 360 6 197 981
    issued by monetary institutions 2 087 331 2 691 128
    Eurobonds 87 665 91 590
    Money bills 1 999 666 2 599 538
    issued by other financial institutions 91 387 156 746
    Bonds 0 59 880
    Eurobonds 91 387 96 866


    C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s o f t h e
    A l i o r B a n k SA G r o u p
    f o r t h e y e a r e n d e d 3 1 D e c e m b e r 2 0 1 7
    ( i n P L N ‘ 0 0 0 )
    42
    Structure by type 31.12.2017 31.12.2016 restated
    issued by companies 200 700 293 150
    Bonds 200 700 293 150
    Equity instruments 41 546 18 729
    Available for sale financial assets 12 072 324 9 374 646
    By maturity 31.12.2017 31.12.2016 restated
    without set maturity date 41 546 35 641
    ≤ 1M 2 002 613 3 031 043
    > 1M ≤ 3M 0 16 922
    > 3M 10 332 578 434
    > 6M ≤ 1Y 11 195 196 645
    > 1Y ≤ 2Y 1 030 595 1 331 405
    > 2Y ≤ 5Y 4 642 927 3 496 332
    > 5Y ≤ 10Y 2 728 707 688 224
    > 10Y ≤ 20Y 1 604 409 0
    Available for sale financial assets 12 072 324 9 374 646
    Investment securities held to maturity
    31.12.2017 31.12.2016
    Debt instruments 1 117 894 1 954
    issued by the State Treasury 1 117 894 1 954
    T-bonds 1 117 894 1 954
    Investment securities held to maturity date 1 117 894 1 954
    By maturity 31.12.2017 31.12.2016
    > 2Y ≤ 5Y 925 292 1 954
    > 5Y ≤ 10Y 192 602 0
    Investment securities held to maturity date 1 117 894 1 954
    17.3 Material estimates and as sumptions – fair value, impairment allowances
    Impairment allowance for available for sale financial assets 31.12.2017 31.12.2016
    Gross amount Impairment allowance Gross amount Impairment allowance
    Bonds issued by companies 4 526 4 526 94 861 21 447
    Change to impairment allowances 31.12.2017 31.12.2016
    Opening balance 21 447 14 472
    Change to allowances: -16 921 6 975
    Increases 209 6 975
    Decreases -17 130 0
    Impairment allowances at the end of period for available for sale financial assets 4 526 21 447



    C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s o f t h e
    A l i o r B a n k SA G r o u p
    f o r t h e y e a r e n d e d 3 1 D e c e m b e r 2 0 1 7
    ( i n P L N ‘ 0 0 0 )
    43
    17.4 Sensitivity analysis of material estimates and assumptions
    For the purposes of disclosures in accordance with IFRS 7, the Bank estimates changes to measurements of debt
    instruments available for sale assuming a parallel shift of profitability curves by 50pb. To this end, the Bank
    constructs profitability curves on the basis of market data. The Bank analyses the impact on transacti on
    measurement of changes to profitability curves in line with the assumed scenarios:
    Estimated measurement change 31.12.2017 31.12.2016
    scenario scenario scenario scenario +50pb -50pb +50pb -50pb
    AFS -56 640 56 640 -46 452 46 452
    18 Financial assets and liabilities held for trading
    18.1 Accounting principles
    Financial assets measured at fair value through profit or loss cover:
     Financial instruments held for trading – financial assets and liabilities – are classified as held for trading, if they
    have been acquired for the purpose of re -sale in the near term. The category contains derivative financial
    instruments to which the Bank is a party that as of the date when the hedging has been established have been
    designated as the effective hedging instruments in line with IAS 39 and securities;
     financial instruments classified initially as financial assets measured at fair value through profit and loss account
    – financial ass ets and liabilities – may be classified in the category only when:
     the designated financial asset or liability is a joint instrument containing one or more embedded derivative
    instruments that can be recognised separately and such embedded derivative instrument may not
    materially affect cash flows resulting from the basic contract or such separation of the derivative instrument
    is prohibited;
     such classification of assets or liabilities eliminates or materially reduces the inconsistency in measurement
    or recognition (accounting mismatch as a result of a different measurement of assets or liabilities or a
    different recognition of the related profit or loss);
     a group of financial assets or liabilities or both categories are managed and the results are as sessed on the
    basis of fair value in line with the documented risk management principles or the Bank's investment
    strategy.
    As at 31 December 2017 and as at 31 December 2016 the Bank held no financial assets or liabilities classified
    initially as financ ial instruments as measured at fair value through profit and loss account.
    18.2 Financial data
    The Bank classified derivative instruments and securities (shares, bonds) as financial assets and liabilities held for
    trading as at 31 December 2017 and 31 December 2016. Derivative transactions are executed for trading
    purposes and to manage the market risk. The Bank enters into the following types of derivative transactions: FX -
    Forward, FX -Swap, IRS, CIRS, FRA, commodity Futures, commodity Forward, term transaction s in securities. Every
    day the Bank measures derivative instruments applying the discounted cash flows model. The Bank also enters
    into option transactions that are measured with option measurement models.



    C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s o f t h e
    A l i o r B a n k SA G r o u p
    f o r t h e y e a r e n d e d 3 1 D e c e m b e r 2 0 1 7
    ( i n P L N ‘ 0 0 0 )
    44
    Derivative instruments (nominal value) 31.12.2017 31.12.2016
    Interest rate transactions 55 125 803 21 843 663
    SWAP 52 202 357 20 209 412
    Cap Floor O ptions 2 923 446 1 634 251
    Foreign exchange transactions 8 873 916 9 808 111
    FX Swap 3 663 369 3 655 450
    FX forward 1 963 710 2 630 344
    CIRS 617 238 1 351 094
    FX options 2 629 599 2 171 223
    Other options 6 824 348 5 857 380
    Other instruments 585 182 725 823
    Derivative instruments (nominal value) 71 409 249 38 234 977
    Financial assets held for trading 31.12.2017 31.12.2016
    Shares 294 6 312
    Bonds 85 735 294
    Certificates 89 557
    Interest rate transactions 189 794 189 703
    SWAP 187 694 186 532
    Cap Floor Options 2 100 3 171
    Foreign exchange transactions 95 660 174 953
    FX Swap 18 059 32 156
    FX forward 44 851 60 051
    CIRS 15 984 60 669
    FX options 16 766 22 077
    Other options 52 450 28 736
    Other instruments 28 529 18 996
    Financial assets held for trading 452 551 419 551
    By maturity 31.12.2017 31.12.2016
    without set maturity date 22 921 7 163
    ≤ 1W 6 427 8 696
    > 1W ≤ 1M 26 868 33 550
    > 1M ≤ 3M 21 504 44 602
    > 3M ≤ 6M 62 102 22 729
    > 6M ≤ 1Y 29 946 67 523
    > 1Y ≤ 2Y 94 831 52 458
    > 2Y ≤ 5Y 73 287 134 378
    > 5Y ≤ 10Y 114 665 48 452
    Financial assets held for trading 452 551 419 551
    Financial liabilities held for trading 31.12.2017 31.12.2016
    Bonds 58 333 0
    Interest rate transactions 164 276 159 056
    SWAP 162 185 155 885
    Cap Floor Options 2 091 3 171
    Foreign exchange transactions 133 598 92 169
    FX Swap 63 816 22 999
    FX forward 37 675 25 276
    CIRS 16 601 20 948


    C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s o f t h e
    A l i o r B a n k SA G r o u p
    f o r t h e y e a r e n d e d 3 1 D e c e m b e r 2 0 1 7
    ( i n P L N ‘ 0 0 0 )
    45
    Financial liabilities held for trading 31.12.2017 31.12.2016
    FX options 15 506 22 946
    Other options 52 448 28 693
    Other instruments 27 223 18 396
    Financial liabilities held for trading 435 878 298 314
    By maturity 31.12.2017 31.12.2016
    without set maturity date 18 730 0
    ≤ 1W 9 103 4 542
    > 1W ≤ 1M 43 737 30 133
    > 1M ≤ 3M 47 647 36 112
    > 3M ≤ 6M 27 894 25 424
    > 6M ≤ 1Y 29 779 34 911
    > 1Y ≤ 2Y 118 914 54 208
    > 2Y ≤ 5Y 110 142 79 381
    > 5Y ≤ 10Y 29 932 33 603
    Financial liabilities held for trading 435 878 298 314
    18.3 Material estimates and assumption s – BCVA adjustments
    In its measurement of derivative instruments, Alior Bank SA applies adjustments for the counterparty's credit risk.
    The amount of such adjustment is equivalent to a change to the measurement of derivative instruments in the
    case of default of both parties t o the transaction (Bilateral Credit Value Adjustment).
    The adjustment is calculated on the basis of estimates of the following parameters: bilateral likelihood of default,
    PD (Probability of Default), LGD (Loss Given Default), anticipated positive and neg ative exposure under transaction
    (EE and NEE). PD and LGD are estimated with external models applied by the Group on the basis of market
    quotatio ns of the credit risk. The counterparty’s exposure is calculated at the present valuation and its projection
    calculated on the basis anticipate d changes to market conditions. Additionally, credit risk adjustments provide for
    mutual obligations under hedging contracts regulating the relations of the parties.
    The amount of BCVA adjustment to measurement as at 31 De cember 2017 was PLN -7 895 thousand. The overall
    BCVA adjustment amount is composed of the CVA adjustment (reflecting solely the risk of the co unterparty’s
    default) of PLN -8 428 thousand and the DVA adjustment amount (reflecting the risk of the Bank's def ault) of PLN
    533 thousand. The amount of BCVA adjustment as at 31 December 2016 was PLN -12 558 thousand. The overall
    BCVA adjustment amount is composed of the CVA adjustment (reflecting solely the risk of the cou nterparty’s
    default) of PLN -13 001 thousan d and the DVA adjustment amount (reflecting the risk of the Bank's default) of
    PLN 413 thousand.
    18.4 Sensitivity analysis of material estimates and assumptions
    For the purposes of disclosures in accordance with IFRS 7, the Bank estimates changes to measurement s of the
    derivative instruments with a linear risk profile assuming a parallel shift of profitability curves by 50pb. To this end,
    the Bank constructs profitability curves on the basis of market data. The Bank analyses the impact on transaction
    profitabili ty of a change of profitability curves for the portfolio of derivative instruments with a linear risk profile,
    not covered with hedge accounting.



    C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s o f t h e
    A l i o r B a n k SA G r o u p
    f o r t h e y e a r e n d e d 3 1 D e c e m b e r 2 0 1 7
    ( i n P L N ‘ 0 0 0 )
    46
    Estimated measurement change 31.12.2017 31.12.2016
    scenario scenario scenario scenario
    +50pb -50pb +50pb -50pb
    IRS 26 749 -26 749 41 063 -41 063
    CIRS -175 175 -511 511
    other instruments -134 134 -198 198
    Total 26 440 -26 440 40 354 -40 354
    19 Hedge accounting
    19.1 Accounting principles
    Hedge accounting is applied for symmetrical recognition in the profit and loss account of compensating changes
    to the fair value of the hedging instruments and the hedged item.
    For the purposes of hedge accounting, the B ank designates hedging instruments so that changes to their fair
    value or cash flows covered in whole or in part the changes to the fair value or future cash flows of the hedged
    item.
    The Bank applies hedge accounting if all the conditions specified in IA S 39 as listed below are satisfied:
     when the hedge is established, formal documentation is made of the hedging relationship specifying the
    hedging purpose and strategy, the type and identification of the hedged and hedging instrument, the nature
    of the he dged risk and the assessment method of hedging effectiveness;
     high hedging effectiveness is expected – high efficiency in compensating changes to the fair value or cash
    flows, in line with the documented risk management strategy concerning the specific hed ging relationship;
     it is possible to reliably assess the hedging effectiveness – reliable measurement of the fair value or cash flows
    of both the hedged item and the hedging item;
     in the case cash flows, a high likelihood occurs that a hedged transaction occurs that is exposed to the risk of
    changing cash flows affecting the profit and loss account;
     the hedging is assessed on an ongoing basis and its high effectiveness is confirmed in all reporting periods for
    which the hedging has been established.
    Withi n hedge accounting, the Bank applies cash flow hedge accounting.
    Cash flow hedges are hedges securing future cash flows fluctuations which can be attributed to a particular kind
    of risk connected with a given item of assets or liabilities or with a highly probable contemplated transaction,
    affecting the profit and loss account.
    Cash flow hedges are recognised in the books as follows:
    a) a part of profit or loss related to the hedging instrument constituting effective hedge is recognised in other
    comprehens ive income in the lower amount of the following (absolute values):
     cumulated until the profit or loss hedge is established on the hedging instrument;
     cumulated until the establishment of a hedge to fair value changes (present value) of the anticipated fut ure
    cash flows, resulting from the hedger item;
    b) an ineffective part of profit or loss related to the hedging instrument is recognised in the profit and loss
    account.
    The effective part of the hedge is transferred to the profit and loss account in the p eriod or in periods when the
    hedged contemplated transaction affects the profit and loss account.
    The Bank discontinues to apply hedge accounting when at least one of the following events occurs:
     the hedging instrument is sold, expires, is terminated or exercised;
     the above requirements of hedge accounting have not been complied with;
     the Bank cancels the hedge relationship;


    C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s o f t h e
    A l i o r B a n k SA G r o u p
    f o r t h e y e a r e n d e d 3 1 D e c e m b e r 2 0 1 7
    ( i n P L N ‘ 0 0 0 )
    47
     future cash flows are no longer treated as probable.
    In the case any of the above events occurs, the result on the hedging instrumen t when the hedge has been
    effective – continues to be recognised in the revaluation reserve until the contemplated transaction occurs and it
    is recognised in the profit and loss account.
    19.2 Types of hedge strategies
    The Bank applies cash flow hedge accounting. The hedging strategy is aimed at hedging the interest rate risk
    resulting from changing cash flows from assets with variable interest rates using PLN IRS transactions. In the
    established hedging relationships, the hedged items include cash fl ows from PLN loans with variable interest
    rates, while IRS transactions are the hedging transactions under which the Bank receives fixed interest based on
    fixed interest rates and pays interest based on variable interest rates. The hedged items are measur ed at the
    amortised cost, while the hedging items at fair value.
    19.3 Financial data
    Derivative hedging instruments (nominal value) 31.12.2017 31.12.2016
    Interest rate transactions 8 644 200 6 969 200
    SWAP 8 644 200 6 969 200
    Derivative hedging instruments (nominal value) 8 644 200 6 969 200
    Financial assets held for trading – derivative hedging instruments 31.12.2017 31.12.2016
    Level 2 87 785 71 684
    Interest rate transactions 87 785 71 684
    SWAP 87 785 71 684
    Financial assets held for trading – derivative hedging instruments 87 785 71 684
    By maturity 31.12.2017 31.12.2016
    > 1M ≤ 3M 39 186 13 866
    > 3M ≤ 6M 8 279 21 139
    > 6M ≤ 1Y 334 865
    > 1Y ≤ 2Y 30 084 20 462
    > 2Y ≤ 5Y 9 902 15 352
    Financial assets held for trading – derivative hedging instruments 87 785 71 684
    Financial liabilities held for trading – derivative hedging instruments 31.12.2017 31.12.2016
    Level 2 5 419 6 119
    Interest rate transactions 5 419 6 119
    SWAP 5 419 6 119
    Financial liabilities held for trading – derivative hedging instruments 5 419 6 119
    By maturity 31.12.2017 31.12.2016
    > 6M ≤ 1Y 0 39
    > 1Y ≤ 2Y 142 0
    > 2Y ≤ 5Y 2 304 3 705
    > 5Y ≤ 10Y 2 973 2 375
    Financial liabilities held for trading – derivative hedging instruments 5 419 6 119


    C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s o f t h e
    A l i o r B a n k SA G r o u p
    f o r t h e y e a r e n d e d 3 1 D e c e m b e r 2 0 1 7
    ( i n P L N ‘ 0 0 0 )
    48
    Other comprehensive income due to cash flow hedges 31.12.201 7 31.12.2015
    Other gross comprehensive income at the beginning of period -10 769 27 209
    Gains transferred to other comprehensive income in the period -7 442 -52 950
    Amount transferred in the period from comprehensive income to profit and loss account, including: 7 069 14 972
    - interest income 7 069 14 972
    Acumulated other gross comprehensive income at the end of period -11 142 -10 769
    Tax effect 2 117 2 046
    Axumulated other net comprehensive income at the end of period -9 025 -8 723
    Ineffective part of cash flow hedges recognised in the profit and loss account -872 899
    Impact of other gross comprehensive income in the period -373 -37 978
    Deferred tax under cash flow hedges 71 7216
    Impact of other net comprehensive income in the period -302 -30 762
    19.4 Sensitivity analysis of material estimates and assumptions
    For the purposes of disclosures in accordance with IFRS 7, the Bank estimates changes to measurements of the
    derivative instruments with a linear risk profile assuming a parallel shift of profitability curves by 50pb. To this end,
    the Bank constructs profitability curves on the basis of market data. The Bank analyses the impact on t ransaction
    profitability of a change of profitability curves for the portfolio of derivative instruments with a linear risk profile,
    covered with hedge accounting.
    Estimated measurement change 31.12.2017 31.12.2016
    scenario scenario scenario scenario
    +50pb -50pb +50pb -50pb
    IRS -43 415 43 415 -66 108 66 108
    20 Loans and advances to customers
    20.1 Accounting principles
    In that category, the Bank includes financial assets that are not derivative instruments with determined or
    determinable payments, not listed in an active market, other than:
     financial assets that the Bank intends to sell immediately or in a short term and that are classified as held for
    trading or such that at the initial recognition were designated as measured at fair value through profit and loss
    account;
     financial assets d esignated by the entity at initial recognition as available for sale;
     financial assets where the holder may not recover the full initial investment amount for reasons other than
    impairment of loan servicing, that are classified as available for sale.
    On 3 1 December 2017 and 31 December 2016 in that category the Bank held receivables from other banks
    (interbank deposits, security deposits and funds in current accounts) and receivables under loans, purchased
    receivables, and other receivables from customers .
    Loans and receivables are measured by the Bank at amortised cost, with the effective interest rate method,
    reduced by impairment allowances.
    The Bank treats re -negotiations of the contractual terms and conditions of loans as an impairment indication,
    unless such re -negotiation of the contractual terms and conditions has not been forced by the debtor's condition
    and has been carried out subject to normal business principles. Afterwards, the Bank assesses if such impairment


    C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s o f t h e
    A l i o r B a n k SA G r o u p
    f o r t h e y e a r e n d e d 3 1 D e c e m b e r 2 0 1 7
    ( i n P L N ‘ 0 0 0 )
    49
    to the loans should be recognis ed on an individual or group basis. In the case of re -negotiations not forced by
    the debtor's financial condition, if a change occurs to contractual cash flows, a new effective interest rate is
    calculated.
    In this item, the Bank also discloses securitie s repurchase transactions following the economic content of the
    transaction. The assessment covers if the securities purchase/sale transaction is combined with transfer of risks
    and benefits under the security. In the transactions so far entered into by the Bank, basically all risks and benefits
    are retained by the seller of the securities since the risk of change of the present value of net assets is not
    materially changed as a result of such transfer. This means that both reverse repo and buy -sell -bac k transactions,
    as well as repo and sell -buy -back transactions are disclosed in the Bank's balance sheet as: securities placed with
    the securities buyer or deposits received from the securities buyer.
    Securities covered with repo transactions are not excl uded from the statement of financial position and are
    measured in accordance with the principles applicable to each securities portfolio. A difference between the sale
    price and the repurchase price is recognised as interest expense or income respectively .
    20.2 Material estimates and assumption ts – impairment allowances
    As at the end of each reporting period, the Bank assesses whether there is any objective evidence that a financial
    asset or a group of financial assets is impaired. The Bank accepts that a financial assets or a group of financial
    assets is impaired and suc h impairment loss is suffered only when there are objective indications resulting from
    one or more events that have occurred after the initial recognition of such asset (loss generating event) and the
    loss generating asset affects future anticipated cash f lows from such financial asset or a group of financial assets
    that may not be reliably estimated.
    Impairment indications are as follows:
    - concerning the customer:
     a major delay in repayment/unauthorised debit – the premise applies to business customers and individual
    customers; it is recognised by the system when a delay in repayment or unauthorised debit exists for over 90
    days, while the overdue amount meets the materiality criterion (PLN 500 and 1% of the overall exposure
    amount )) in all the customer 's accounts jointly where the customer is the owner/co -owner, or borrower/co -
    borrower;
     proceedings subject to restructuring law – the premise applies to business customers;
     bankruptcy/liquidation – the premise applies to business customers and it is recog nised on the basis of
    information in the system that the enterprise has filed for bankruptcy;
     (consumer bankruptcy – the premise applies to individual customers; it is recognised on the basis of
    information in the system that the debtor has filed for ban kruptcy (consumer bankruptcy):
     undisclosed assets by the customer – the premise applies to business customers and individual customers; it is
    recognised on the basis of information in the system that the debtor has filed an untrue statement on their
    assets ;
     a major deterioration of the internal score/rating – the premise applies to business customers; it is recognised
    by the system when the rating falls by minimum one class and at the same time below the level acceptable by
    the Bank;
     it is a major deterioration of the customer’s economic and financial condition – the premise applies to
    business customers; it is recognised in the system in case of deterioration of the customers’ economic and
    financial condition (in compliance with RMF classification ) by minimum one category to a level “sub -standard”,
    “doubtful”, or “loss” ;
     death – the premise applies to individual customers; it is recognised on the basis of information in the system
    that the customer has died.


    C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s o f t h e
    A l i o r B a n k SA G r o u p
    f o r t h e y e a r e n d e d 3 1 D e c e m b e r 2 0 1 7
    ( i n P L N ‘ 0 0 0 )
    50
     no information on the customer's where abouts – the indicator applies to individual customers;
     job loss – the premise applies to individual customers; it is recognised on the basis of information in the
    system that the customer is not able to repay their debt due to job loss;
     customer's financ ial problems – the premise applies to individual customers; it is recognised on the basis of
    information in the system on the customer's financial problems (on the basis of BIK data).
    - concerning the account:
     commencement of court proceedings – the premis e is recognised on the basis of information in the system
    that court proceedings have been initiated ;
     commencement of enforced collection – the premise is recognised on the basis of information in the system
    that the Bank has initiated enforced collection proceedings;
     effective contract termination – the premise is recognised on the basis of information in the system with the
    date of effective termination, while the materiality criterion of the debt amount is complied with (PLN 500);
     restructuring – the pre mise is recognised on the basis of information in the system – input as a result of the
    customer's problems with timely debt repayment – on changes to the loan service rules in the form of an
    annex to the loan agreement or a settlement with the Bank;
     Expo sure questioned by the debtor in – the premise is recognised on the basis of information in the system
    that the customer questions the exposure by way of court litigation;
     identified fraud – the indicator is recognised on the basis of information in the s ystem about a fraud
    confirmed with a court judgement.
    - concerning exposures to banks:
     delay in repayment over 30 days – the premise is recognised on the basis of information on delays in
    repayment in excess of 30 days;
     material deterioration of the extern al rating of the counterparty bank – the premise is recognised on the basis
    of information in the system that the counterparty bank's rating has fallen from an investment to speculation
    grade;
     material deterioration of the external rating of the country of the counterparty bank – the premise is
    recognised on the basis of information in the system that the country rating of the counterparty bank has
    fallen from an investment to speculation grade;
     material deterioration of the bank's financial condition/bank' s bankruptcy – the premise is recognised on the
    basis of information on the customer's risk assessed in the periodic monitoring of limits at an unacceptable
    level.
    - concerning exposures under bonds:
     no payment under bonds – the premise is recognised on th e basis of information on missing payments under
    bonds at the time specified in the bond issue terms and conditions;
     failure by the issuer to comply with other conditions set forth in the bond issue terms and conditions opening
    an option to demand pre -mature bond redemption.
    If the Bank determines that no objective evidence of impairment exists for an individually assessed financial asset,
    whether material or not, the asset is included in a group of financial assets with similar credit risk characte ristics
    and that group of financial assets is collectively assessed for impairment. The assets assessed individually for
    impairment when the entity recognises an impairment allowance or decides to continue to recognise such
    allowance – are not taken into account in the overall impairment assessment.
    If objective evidence exists that an impairment loss has been suffered, the impairment allowance is a difference
    between the carrying value of the asset and the present value of the estimate d future cash flows (with the
    exception of future credit losses not yet incurred), discounted at the original effective interest rate of the financial


    C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s o f t h e
    A l i o r B a n k SA G r o u p
    f o r t h e y e a r e n d e d 3 1 D e c e m b e r 2 0 1 7
    ( i n P L N ‘ 0 0 0 )
    51
    instrument (the effective interest rate determined at the initial recognition). Interest income is recogn ised with the
    application of an effective interest rate. Impaired exposures are split into those that are measured individually or
    in groups (collectively).
    Individual measurement applies to exposures that may be impaired (calculated at the customer level) in excess of
    the materiality levels subject to the customer segment. Individual measurement is also applied to exposures that
    may be impaired with respect to which the Bank is not able to identify a group of assets with similar credit risk
    features or doe s not have an adequate sample to assess group parameters.
    For the purposes of collective measurement, groups are identified with similar credit risk features that are
    assessed collectively for impairment. Group measurements are based on periods when the affected exposures
    remain at default; they provide for a specific nature of each group in terms of the anticipated recoveries.
    Future cash flows in the group of financial assets for which impairment is measured collectively are estimated on
    the basis of l oss history for assets with similar credit risk features. Adjustments to historic data take into account
    present conditions and non existence of certain factors, if they cease to exist. Estimated changes to future cash
    flows reflect changes to the relate d available data in each period (such as unemployment rate, commodity prices,
    payment status, and other factors that indicate the losses incurred in the group and volumes thereof) and are
    basically compliant therewith. The methodology and assumptions unde rlying estimates of future cash flows are
    regularly reviewed to minimise the discrepancies between the estimated and actual losses.
    If in a subsequent period, the impairment loss is reduced as a result of an event that has occurred after the loss
    has been suffered, the previously recognised impairment allowance is reversed by an adjustment to the balance
    of impairment allowances. The amount of the reversal is recognised through profit and loss.
    In case of any event that may constitute an impairment indic ator, not covered with the above catalogue, a
    possibility exists for an individual change of the account status to default. It is so marked in the case of
    information on the occurrence of other material events, not covered with the above catalogue that may
    constitute an impairment indicator.
    Impairment indicators of on -balance sheet loan exposures (groups of on -balance sheet loan exposures) are
    recorded in the system at the customer or account level. When an impairment indicator is recorded at the
    account l evel, all accounts of the customer are marked as impaired. When an impairment indicator is recorded at
    the customer level, the impairment propagates to all accounts in their portfolio. The propagation applies to all
    accounts where the customers is the owne r/co -owner or borrower/co -borrower.
    20.3 Financial data (gross value, impairment allowances)
    Loans and advances to customers 31.12.2107 31.12.2016 restated
    Gross value Impairment allowance Net value Gross value Impairment allowance Net value
    Retail segment 30 146 687 -1 911 961 28 234 726 27 682 329 -1 792 905 25 889 424
    Consumer loans 18 337 260 -1 795 399 16 541 861 17 906 105 -1 681 074 16 225 031
    Loans for residential real estate 9 631 679 -83 893 9 547 786 8 485 561 -77 929 8 407 632
    Consumer finance loans 2 177 748 -32 669 2 145 079 1 290 663 -33 902 1 256 761
    Corporate segment 24 523 628 -1 491 714 23 031 914 21 626 752 -1 268 988 20 357 764
    Working capital facility 12 812 843 -908 147 11 904 696 11 620 901 -871 824 10 749 077
    Investment loans 8 992 528 -371 922 8 620 606 7 688 410 -201 656 7 486 754
    Other 2 718 257 -211 645 2 506 612 2 317 441 -195 508 2 121 933
    Total 54 670 315 -3 403 675 51 266 640 49 309 081 -3 061 893 46 247 188


    C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s o f t h e
    A l i o r B a n k SA G r o u p
    f o r t h e y e a r e n d e d 3 1 D e c e m b e r 2 0 1 7
    ( i n P L N ‘ 0 0 0 )
    52
    Loans and advances to customers by method of 31.12.2107 31.12.2016 restated
    allowance calculation Gross value Impairment allowance Net value Gross value Impairment allowance Net value
    individualised method, including: 3 033 329 -778 471 2 254 858 2 348 534 -760 544 1 587 990
    with identified impairment 2 348 052 -778 471 1 569 581 1 832 207 -760 544 1 071 663
    without identified impairment 685 277 0 685 277 516 327 0 516 327
    group method 3 694 718 -2 297 232 1 397 486 3 815 101 -1 994 321 1 820 780
    with identified impairment 3 566 585 -2 297 232 1 269 353 2 987 745 -1 994 321 993 424
    without identified impairment 128 133 0 128 133 827 356 0 827 356
    portfolio method (IBNR) 47 942 268 -327 972 47 614 296 43 145 446 -307 028 42 838 418
    Total 54 670 315 -3 403 675 51 266 640 49 309 081 -3 061 893 46 247 188
    Loans and advances to customers – exposure 31.12.2107 31.12.2016 restated
    of the Group to the credit risk Gross value Impairment allowance Net value Gross value Impairment allowance Net value
    with identified impairment, of which: 5 914 637 -3 075 703 2 838 934 4 819 952 -2 754 865 2 065 087
    assessed with individualised method 2 348 052 -778 471 1 569 581 1 832 207 -760 544 1 071 663
    without identified impairment, of which: 48 755 678 -327 972 48 427 706 44 489 129 -307 028 44 182 101
    with recognised individual indication 1 664 804 -8 390 1 656 414 573 720 0 573 720
    not overdue 1 010 890 -4 283 1 006 607 278 712 0 278 712
    overdue 653 914 -4 107 649 807 295 008 0 295 008
    without recognised individual indication/IBNR 47 090 874 -319 582 46 771 292 43 836 419 -307 028 43 529 391
    not overdue 44 204 061 -162 462 44 041 599 41 105 909 -179 700 40 926 209
    overdue 2 886 813 -157 120 2 729 693 2 809 500 -127 328 2 682 172
    Total 54 670 315 -3 403 675 51 266 640 49 309 081 -3 061 893 46 247 188
    Impairment allowances to loans granted to customers – reconciled transfers in 2017
    Value at the beginning of period
    Established in the period Reversed in the period Assets written -off Other Value at the end of period
    Impact on the profit and loss account
    Retail segment 1 792 905 1 760 648 -1 266 386 -409 611 34 405 1 911 961 494 262
    Corporate segment 1 268 988 1 392 487 -972 239 -219 761 22 239 1 491 714 420 248
    Total 3 061 893 3 153 135 -2 238 625 -629 372 56 644 3 403 675 914 510
    Impairment allowances to loans granted to customers – reconciled transfers in 2016
    Value at the beginning of period
    Established in the period Reversed in the period Assets written -off
    Other, of which due to purchase of the demerged part of BPH and SKOKs
    Value at the end of period
    Impact on the pro fit and loss account
    Retail segment 1 086 668 1 290 782 -805 502 -328 775 549 732 1 792 905 485 280
    Corporate segment 851 021 571 841 -289 306 -162 191 297 623 1 268 988 282 535
    Total 1 937 689 1 862 623 -1 094 808 -490 966 847 355 3 061 893 767 815



    C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s o f t h e
    A l i o r B a n k SA G r o u p
    f o r t h e y e a r e n d e d 3 1 D e c e m b e r 2 0 1 7
    ( i n P L N ‘ 0 0 0 )
    53
    By maturity (as at the balance sheet date) 31.12.2017 31.12.2016 restated
    Retail segment 28 234 726 25 889 424
    ≤ 1M 3 202 620 2 914 388
    > 1M ≤ 3M 700 879 633 692
    > 3M ≤ 6M 994 312 853 902
    > 6M ≤ 1Y 1 829 288 1 616 066
    >1Y ≤ 2Y 2 827 282 2 617 666
    >2Y ≤ 5Y 5 928 016 5 712 326
    >5Y ≤ 10Y 5 768 341 5 418 912
    >10Y ≤ 20Y 4 134 633 3 497 105
    >20Y 2 849 355 2 625 367
    Corporate segment 23 031 914 20 357 764
    ≤ 1M 5 751 955 5 530 386
    > 1M ≤ 3M 1 123 031 1 142 171
    > 3M ≤ 6M 1 170 079 1 195 566
    > 6M ≤ 1Y 2 404 304 2 142 248
    >1Y ≤ 2Y 2 644 424 2 179 209
    >2Y ≤ 5Y 5 484 598 4 125 952
    >5Y ≤ 10Y 3 530 189 3 240 173
    >10Y ≤ 20Y 923 334 802 059
    Total 51 266 640 46 247 188
    By currency structure 31.12.2017 31.12.2016
    Retail segment 28 234 726 25 889 424
    PLN 26 682 610 24 336 655
    EUR 1 112 805 1 125 543
    GBP 237 003 201 010
    USD 44 068 41 047
    CHF 158 214 184 298
    Other 26 871
    Corporate segment 23 031 914 20 357 764
    PLN 18 790 325 16 337 395
    EUR 3 986 504 3 756 078
    GBP 71 002 3 778
    USD 132 698 193 329
    CHF 42 390 55 242
    Other 9 034 11 942
    Total 51 266 640 46 247 188



    C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s o f t h e
    A l i o r B a n k SA G r o u p
    f o r t h e y e a r e n d e d 3 1 D e c e m b e r 2 0 1 7
    ( i n P L N ‘ 0 0 0 )
    54
    20.4 Financial lease – the Group as lessor
    In the case of financial lease contracts, the Group as the lessor recognises receivables in amounts equal to the
    present value of contractual lease payments, determined at the beginning of the lease contract. The receivables
    are discl osed as “Loans granted to customers”. Financial lease payments are split into interest income and a
    reduction of receivables so that a fixed interest rate is achieved in the outstanding receivables.
    In the case of operational leases, the initial costs in curred at negotiation of operational lease contracts are added
    to the carrying value of the leased asset and recognised throughout the lease contract on the same basis as
    rental income. Conditional lease fees are recognised as income in the period they are due and payable. Lease
    payments due under contracts that do not meet the requirements of financial lease contracts (operational lease
    contracts) are recognised as income in the profit and loss account throughout the lease term.
    The Group performs leasing operations via its Group company – Alior Leasing sp. z o.o. The company's scope of
    activity is described in Note 1.2.
    The amount of gross lease investments and minimum lease payments due on financial lease contracts as at 31
    December 2017 was as follows:
    The amount of net lease investments and minimum lease fees receivable Net lease investment Present value of minimum lease fees : Unrealised income
    Gross lease receivables:
    up to 1 year 205 854 265 625 59 772
    1 to 5 years 524 226 611 552 87 326
    above 5 years 15 643 17 538 1 895
    Total gross 745 723 894 715 148 993
    Impairment allowances 8 922 0 0
    Net total 736 801 894 715 148 993
    The amount of gross lease investments and minimum lease payments due on financial lease contracts as at 31
    December 2016 was as follows:
    The amount of net lease investments and minimum lease fees receivable Net lease investment Present value of minimum lease fees : Unrealised income
    Gross lease receivables:
    up to 1 year 77 282 66 039 11 243
    1 to 5 years 75 799 67 536 8 262
    above 5 years 157 890 148 396 9 493
    Total gross 310 971 281 972 28 999
    Impairment allowances 409 409 0
    Net total 310 562 281 563 28 999
    As at 31 December 2017 and 31 December 2016 there were no unguaranteed residual amounts due to the
    lessor.
    20.5 Sensitivity analysis of material estimates and assumption s
    The Bank reviews all on -balance sheet loan exposures (groups of on -balance sheet loan exp osures) to identify
    objective impairment indications, relying on the most recent data when the items are revalued. When estimating
    the amount of an impairment loss, estimates of the amounts and realisation dates of future cash flows are made.
    The estimates rely on assumptions relating to multiple factors so the actual results may differ. As a result, future
    impairment allowances may be changed.


    C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s o f t h e
    A l i o r B a n k SA G r o u p
    f o r t h e y e a r e n d e d 3 1 D e c e m b e r 2 0 1 7
    ( i n P L N ‘ 0 0 0 )
    55
    Impaired exposures are split into those that are measured individually or in groups. Exposures with no identifie d
    impairment indications are grouped in homogeneous groups in terms of the risk profile and a provision is
    recognised for such group of exposures to cover incurred, but not reported losses (IBNR). The IBNR value is
    determined on the basis of the PD, LGD pa rameters, and collateral (subject to the anticipated recovery rates).
    Individual measurement applies to exposures that may be impaired (calculated at the customer level) in excess of
    the materiality levels subject to the customer segment (see the table).
    Customer Segment Threshold amount
    2017 2016
    Individual customers: no threshold no threshold
    Corporate customers 1 000 000 500 000
    Individual measurement is also applied to exposures that may be impaired with respect to which the Bank is not
    able to identify a group of assets with similar credit risk features or does not have an adequate sample to assess
    group parameters.
    Individual assessments are based on an an alysis of potential scenarios (corporate customers). Each scenarios and
    each tree branch are assigned the likelihood of occurrence and anticipated recoveries. The assumptions applied
    for individual measurements are described in detail by persons performing analyses. The value o recoveries
    anticipated within individual measurements are compared to the actual recoveries on a quarterly basis.
    Group measurements are based on periods when the affected exposures remain at default; they provide for a
    specific nature of each group in terms of the anticipated recoveries. The existing collateral is taken into account at
    the exposure level.
    Exposures with no identified impairment indications are grouped in homogeneous groups in terms of the risk
    profile and a provision is recognised for such group of exposures to cover incurred, but not reported losses
    (IBNR). IBNR is determined on the basis of the PD, LGD parameters and collateral (subject to the anticipated
    recovery rates).
    The impact of increased/decreased cash flows (including flows from execution of collateral) on impairment of the
    loan portfolio measured by the Bank with the individual method is presented in the table below (PLN M):
    31.12.2017 31.12.2016
    Scenario Scenario
    10% -10% 10% -10%
    The estimated change to the impairment of loans as a result of a changed present value of the estimated cash flows under loans measured by the Group with the individual method -136.25 216.43 -78.52 141,38
    The impact of increased/decreased cash flows (including flows from execution of collateral) on impairment of the
    loan portfolio measured by the Bank with the portfolio method is presented in the table below (PLN M):
    31.12.2017 31.12.2015
    scenario scenario
    10% -10% 10% -10%
    The estimated change to the impairment of loans as a result of a changed present value of the estimated cash flows under loans measured by the Group with the group method -125.10 144.82 -72.79 84.15
    The impact of increased/decreased PD parameter on the IBNR provision is presented in the table below (PLN M):
    The detailed description of impairment allowances is provided in Note 38.



    C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s o f t h e
    A l i o r B a n k SA G r o u p
    f o r t h e y e a r e n d e d 3 1 D e c e m b e r 2 0 1 7
    ( i n P L N ‘ 0 0 0 )
    56
    31.12.2017 31.12.2016
    scenario scenario
    10% -10% 10% -10%
    The estimated change of allowances and provisions for incurred, but not reported losses (IBNR) of loans as a result of changes to PD LIP 29.90 -30.09 17.18 -17.19
    21 Amounts due from banks
    21.1 Accounting principles
    Receivables from banks include financial assets measured at amortised cost with the effective interest rate
    reduced by potential impairment allowances with the exception of cash in transit that is measured at nominal
    value. If no time schedule of future c ash flows may be determined for receivables and therefore, no effective
    interest rate can be identified, the receivables are measured at the amount payable.
    Securities under buy -sell back transactions are recognised as receivables from banks, if a bank i s the counterparty.
    Buy -sell back transactions are measured at amortised cost. A difference between the purchase and re -sale price
    is treated as interest income and accounted for over the term of the contract at the effective interest rate.
    21.2 Financial da ta
    Structure by type 31.12.2017 31.12.2016
    Current accounts 627 645 387 334
    Overnight deposits (O/N) 10 268 0
    Term deposits 11 062 238 918
    Reverse Repo 58 397 583 012
    Deposits as derivative transactions (ISDA) collateral 163 770 145 141
    Other 30 487 11 911
    Amounts due from banks 901 629 1 366 316
    By maturity (as at the balance sheet date) 31.12.2017 31.12.2016
    ≤ 1M 901 128 1 366 316
    > 1M ≤ 3M 501 0
    Amounts due from banks 901 629 1 366 316
    By currency structure 31.12.2017 31.12.2016
    PLN 73 512 602 314
    EUR 355 942 286 143
    GBP 37 193 29 238
    USD 91 347 321 306
    CHF 4 423 8 890
    Other 339 212 118 425
    Amounts due from banks 901 629 1 366 316
    The security deposits granted relate to security transferred to other banks under the settlements related to CSA
    (Credit Support Annex).



    C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s o f t h e
    A l i o r B a n k SA G r o u p
    f o r t h e y e a r e n d e d 3 1 D e c e m b e r 2 0 1 7
    ( i n P L N ‘ 0 0 0 )
    57
    22 Property, plant and equipment and intangible assets
    22.1 Accounting principles
    Property, plant and equipment and investment properties
    Property, plant and equipment cover assets with the anticipated useful life of over one year, complete and use for
    service provision. They are initially measured according to their purchase price or construction cost. Following the
    initial recognition, property, plant and equipment are carried at the purchase cost or constru ction cost, less any
    accumulated depreciation and any cumulated impairment allowances.
    Outlays incurred after the initial recognition of property, plant and equipment are recognised as assets only when
    they increase future economic benefits from the asset. Otherwise, the outlays are recognised in profit and loss as
    expenses when incurred.
    Investment properties include those properties that the Bank treats as a source of economic benefits in terms of
    rental income or increased fair value (or both at the sam e time). Investment properties are initially measured at
    the purchase price or construction cost, including transactional costs. Following the initial recognition of
    investment properties, the Bank applies the measurement method at the purchase price or c onstruction cost, less
    accumulated depreciation and impairment allowances.
    Intangible assets
    Intangible assets with a defined useful economic life, including those manufactured internally, following the initial
    recognition are disclosed at the purchase pri ce or construction cost, less depreciation and impairment allowances.
    As at each balance sheet date, the Bank reviews assets for impairment indications. Should such indications exist,
    the Bank formally assesses the recoverable value. If the carrying valu e of an asset is higher than its recoverable
    value, an impairment is recognised and an impairment allowance is made to the recoverable value.
    Goodwill is a surplus of the purchase cost over the fair value of the acquired identifiable assets, liabilities, and
    contingent liabilities in a business combination transaction. Following the initial recognition, the goodwill is
    recognised at the purchas e cost, less all accumulated impairment allowances. In the case of sale of a subsidiary
    entity, the goodwill recognised at acquisition is included in the financial result settling the sale.
    With reference to goodwill, impairment allowances are determined on the basis of an estimated value of each
    cash generating centre to which the goodwill has been allocated. When the recoverable value of a cash
    generating centre is lower than its carrying value, an impairment allowance is recognised. The impairment
    ident ified in tests is not reversed in subsequent periods. Goodwill is analysed for impairment as at each balance
    sheet date ending each financial year or more frequently – if impairment indications have been identified.
    The other intangible assets are identi fiable assets without tangible form. Initially, they are measured according to
    their purchase price or construction cost. The Bank capitalises:
     expenses incurred in for the purchase of licences for software and development of licences or modules for the
    acquired licence;
     internal manufacturing costs of assets covering all outlays, including costs of employee benefits that may
    directly attributed to the manufacturing and preparation of the asset for use in line with its intended use.
    The cost of an intangi ble asset acquired under a separate transaction covers:
     purchase price, including import duties and non -deductible purchase taxes, reduced by commercial rebates
    and discounts;
     outlays directly related to the preparation of an asset for use in line with its intended use.
    Outlays incurred after the initial recognition of intangible assets are recognised as assets only when they increase
    future economic benefits from an asset. Internal development costs of a licence or an additional module include


    C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s o f t h e
    A l i o r B a n k SA G r o u p
    f o r t h e y e a r e n d e d 3 1 D e c e m b e r 2 0 1 7
    ( i n P L N ‘ 0 0 0 )
    58
    all outl ays which may be directly attributed to creation, production, and adaptation of an asset for the use
    intended by the management.
    Otherwise, they are recognised through profit and loss.
    Depreciation
    Depreciation accrues on all fixed assets with a determined useful life, with a straight -line method over the
    estimated useful life of the asset. The approved depreciation method and useful life are verified at least annually.
    Property, plant and equipme nt and intangible assets begin to be depreciated/amortised from the first day of the
    month following the month when such asset has been brought for use, and it ends not later than:
    1) when the depreciation/amortisation charges equal the initial value of the asset, or
    2) when the asset is to be liquidated, or
    3) when it is sold, or
    4) when it is found missing, or
    5) when as a result of verification, it is found that a residual value of the asset is higher than its carrying value (net)
    subject to th e residual value of the asset anticipated at liquidation – the net amount that the Group expects to
    obtain at the end of use, net of the anticipated sales costs.
    Use of property, plant and equipment and intangible assets
    Item Use period in years
    Property, Plant & Equipment
    Improvements in third party buildings or structures 5–10
    Plant and machinery 1–5
    Equipment 2–10
    Means of transport 2,5–5
    Intangible assets
    Licenses 2–12,5
    Software of IT systems 2–10
    Development Costs 2–12,5
    Copyright and other intangible assets 2–10
    Impairment allowances
    Impairment occurs when the carrying value of an asset is higher than its realisable value. The resultant
    impairment allowance is recognised in profit and loss.
    The realisable value is the higher of: fair value reduced by sales costs and the value in use of the asset.
    The value in use is determined with a discount of the estimated future cash flows for the asset, at the discount
    rate before taxes. For assets that do not generate cash flow s on their own, the Bank determines their realisable
    value at the level of the cash generating unit that owns a specific asset.
    Impairment allowances may be reversed through profit and loss to the level at which the book value of the assets
    is not higher than the book value of the asset, assuming that no impairment allowance has been recognised.
    Impairment allowances relating to goodwill may not be reversed. Otherwise, the allowance may be reversed as
    long as a change has occurred to the estimates used t o determine the realisable value. Impairment allowances
    may be reversed only to the level at which the book value does not exceed the book value which – reduced by
    depreciation – would have been determined if no impairment allowance had been recognised.
    The realisable value is the value in use or fair value reduced by sales costs – whichever is higher when the review
    is made.


    C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s o f t h e
    A l i o r B a n k SA G r o u p
    f o r t h e y e a r e n d e d 3 1 D e c e m b e r 2 0 1 7
    ( i n P L N ‘ 0 0 0 )
    59
    In order to determine the value in use, the estimated future cash flows are discounted to the present value at the
    discount rate b efore taxes that reflects the current expectations on the market as to the value of money and the
    specific risk for such assets.
    22.2 Financial data
    Property, Plant & Equipment
    As at 31.12.2017 Fixed assets under construction Plant and machinery (including IT hardware) Leasehold improvements Owned buildings Other Total
    Value at cost as at 01.01.2017 23 075 376 162 202 203 144 498 97 699 843 637
    Change, due to: 19 112 47 499 11 513 15 634 6 295 100 053
    Purchases in 2017 50 818 27 394 18 699 1 800 9 138 107 849
    Sale in 2017 -74 -2 469 0 0 -3 437 -5 980
    Other changes -31 632 22 574 -7 186 13 834 594 -1 816
    Value at cost as at 31.12.2017 42 187 423 661 213 716 160 132 103 994 943 690
    Cumulated depreciation as at 01.01.2017 0 184 505 106 370 1 626 63 760 356 261
    Depreciation for 2017 0 63 589 28 181 6 529 7 717 106 016
    Other changes 0 -2 485 -4 807 0 -1 706 -8 998
    Cumulated depreciation as at 31.12.2017 0 245 608 129 744 8 155 69 771 453 278
    Impairment allowance as at 01.01.2017 0 1 134 348 0 99 1 581
    Changes in impairment allowances in 2017 4 2 957 8 964 0 2 526 14 451
    Other changes 0 -1 028 -287 0 4 -1 311
    Impairment allowances as at 31.12.2017 4 3 063 9 025 0 2 629 14 721
    Net value as at 01.01.2017 23 075 190 523 95 485 142 872 33 840 485 796
    Net value as at 31.12.2017 42 183 174 990 74 947 151 977 31 594 475 691
    As at 31.12.2016 Fixed assets under construction Plant and machinery (including IT hardware) Leasehold improvements Owned buildings Other Total
    Value at cost as at 01.01.2017 13 112 233 042 176 468 22 775 82 843 528 240
    Change, due to: 9 963 143 120 25 735 121 723 14 856 315 397
    Purchases in 2016 13 009 22 800 11 014 588 1 959 49 370
    Demereged business of BPH 3 379 101 457 17 731 112 541 12 409 247 517
    IFRS3 Fair value measurement 0 15 699 0 4 089 3 372 23 160
    Book transfer in 2016 -6 409 4 434 -2 977 763 1 476 -2 713
    Sale in 2016 -16 -1 255 -33 -45 -4 360 -5 709
    Other changes 0 -15 0 3 787 0 3 772
    Value at cost as at 31.12.2016 23 075 376 162 202 203 144 498 97 699 843 637
    Cumulated depreciation as at 01.01.2016 0 153 217 86 260 42 58 132 297 651
    Depreciation for 2016 0 33 318 23 025 666 7 886 64 895
    Other changes 0 -2 030 -2 915 918 -2 258 -6 285
    Cumulated depreciation as at 31.12.2016 0 184 505 106 370 1 626 63 760 356 261
    Impairment allowance as at 01.01.2016 0 1 121 494 0 19 1 634
    Changes in impairment allowances in 2016 0 188 2 030 0 168 2 386


    C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s o f t h e
    A l i o r B a n k SA G r o u p
    f o r t h e y e a r e n d e d 3 1 D e c e m b e r 2 0 1 7
    ( i n P L N ‘ 0 0 0 )
    60
    As at 31.12.2016 Fixed assets under construction Plant and machinery (including IT hardware) Leasehold improvements Owned buildings Other Total
    Other changes 0 -175 -2 176 0 -88 -2 439
    Impairment allowance as at 31.12.2016 0 1 134 348 0 99 1 581
    Net value as at 01.01.2016 13 112 78 704 89 714 22 733 24 692 228 955
    Net value as at 31.12.2016 23 075 190 523 95 485 142 872 33 840 485 796
    Intangible assets
    As at 31.12.2017 Goodwill Capital exoenditure Software, licences, R&D works Trademark Other Total
    Value at cost as at 01.01.2017 117 262 110 256 472 384 3 667 47 650 751 219
    Changes to intangible assets due to: 2 -19 802 126 308 0 2 517 109 025
    Purchases in 2017 2 61 283 14 673 0 54 76 012
    Book transfer in 2017 0 0 31 150 0 0 31 150
    Capitalized costs of salaries 0 11 204 14 983 0 0 26 187
    Other changes 0 -92 289 96 652 0 2 463 6 826
    Value at the purchase price as at 31.12.2017 117 264 90 454 598 692 3 667 50 167 860 244
    Cumulated depreciation as at 01.01.2017 0 0 200 604 0 6 798 207 402
    Depreciation for 2017 0 0 49 564 0 21 460 71 024
    Other changes 0 0 -2 049 0 2 283 234
    Cumulated depreciation as at 31.12.2017 0 0 248 119 0 30 541 278 660
    Impairment allowance as at 01.01.2017 11 920 17 12 069 3 367 0 27 373
    Changes to allowances in 2017 0 11 269 1 0 0 11 270
    Other changes 0 -3 058 -2 588 0 0 -5 646
    Impairment allowances as at 31.12.2017 11 920 8 228 9 482 3 367 0 32 997
    Net value as at 01.01.2017 105 342 110 239 259 711 300 40 852 516 444
    Net value as at 31.12.2017 105 344 82 226 341 091 300 19 626 548 587
    As at 31.12.2016 Goodwill Capital exoenditure Software, licences, R&D works Trademark Other Total
    Value at cost as at 01.01.2016 107 010 60 270 414 310 3 667 5 589 590 846
    Changes to intangible assets due to: 10 252 49 986 58 074 0 42 061 160 373
    Purchases in 2016 0 49 983 15 870 0 110 65 963
    Demereged business of BPH 0 51 554 93 385 0 0 139 065
    IFRS3 Fair value measurement 0 -49 556 -47 969 0 42 100 -55 425
    Book transfer in 2016 10 252 -30 036 11 523 0 -149 -8 410
    Capitalized costs of salaries 0 28 190 4 395 0 0 32 585
    Other changes 0 -149 -19 130 0 0 -19 279
    Value at the purchase price as at 31.12.2016 117 262 110 256 472 384 3 667 47 650 751 219
    Cumulated depreciation as at 01.01.2016 0 0 189 846 0 3 045 192 891
    Depreciation for 2016 0 0 36 738 0 3 844 40 582
    Other changes 0 0 -25 980 0 -91 -26 071
    Cumulated depreciation as at 31.12.2016 0 0 200 604 0 6 798 207 402


    C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s o f t h e
    A l i o r B a n k SA G r o u p
    f o r t h e y e a r e n d e d 3 1 D e c e m b e r 2 0 1 7
    ( i n P L N ‘ 0 0 0 )
    61
    As at 31.12.2016 Goodwill Capital exoenditure Software, licences, R&D works Trademark Other Total
    Impairment allowance as at 01.01.2016 1 668 1 630 4 242 3 367 0 10 907
    Changes to allowances in 2016 10 252 913 9 071 0 93 20 329
    Other changes 0 -2 526 -1 244 0 -93 -3 863
    Impairment allowances as at 31.12.2016 11 920 17 12 069 3 367 0 27 373
    Net value as at 01.01.2016 105 342 58 640 220 222 300 2 544 387 048
    Net value as at 31.12.2016 105 342 110 239 259 711 300 40 852 516 444
    22.3 Material estimates and assumption s – impairment test for the balance of goodwill
    Impairment test for the balance of goodwill generated at the acquisition of and merger with Meritum Bank S.A.
    As at 31 December 2017, the Bank held mandatory impairment tests of goodwill generated from the acquisition
    of Meritum Bank Polska SA in line with the models developed in accordance with IAS 36.
    Such impairment test is carried out by comparing the carrying value of cash generating units (“CGU”) with their
    realisable value.
    Two CGUs were identified to which the goodwill generated as a result of the acquisition of Meritum Bank Polska
    SA – retail and corporate.
    The realisable value is estimated on the basis of the value in use of CGU. The value in use is the present estimated
    value of future cash flows for 5 years net o residual value of CGU. The res idual value of CGU has been calculated
    with the model of theoretical dividend (Gordon model) by extrapolating the projected cash flows beyond the
    projection period, at the growth rate of 3%. The projected cash flows are based on the assumptions incorporate d
    in the financial plan for the Alior Bank Group for 2017 and the Group’s strategy for subsequent years. The future
    cash flows have been discounted at the rate of 10.1%, including a risk -free rate and a risk premium.
    The impairment test held as at 31 De cember 2017 showed a surplus of the realisable value over the carrying
    value of the CGUs and therefore, no impairment of CGUs was determined.
    22.4 Sensitivity analysis of material estimates and assumptuins
    The impact of the length of the useful life for depreciated assets in the group of land and buildings, affecting
    changes of the profit, is presented in the table below:
    Impact of changes to the length of useful life of assets for depreciation costs
    31.12.2017 31.12.2016
    scenario +5 years scenario -5 years scenario +5 years scenario -5 years
    Plant and machinery -21 776 159 267 -33 838 90 795
    Leasehold improve -ments -13 555 60 300 -17 335 287 151
    -35 331 219 567 -51 173 377 946
    Impact of changes in the growth rate and discount rate on the result of the goodwill impairment test resulting
    from the acquisition of Meritum Bank SA
    The base value of the indicator
    Test's result of impairment if the indicator decreases by 20%
    Test's result of impairment if the indicator increases by 20%%
    discount rate 10.30% No impairment No impairment
    growth rate 3.00% No impairment No impairment



    C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s o f t h e
    A l i o r B a n k SA G r o u p
    f o r t h e y e a r e n d e d 3 1 D e c e m b e r 2 0 1 7
    ( i n P L N ‘ 0 0 0 )
    62
    23 Other assets
    23.1 Accounting principles
    Financial assets in the item are measured at amount payable, covering also potential interest in those assets,
    inclusive of impairment allowances. Non -financial assets are measured in line with the measurement principles
    applicable to specific asset categ ories included in that item.
    23.2 Financial data
    31.12.2017 31.12.2016 restated
    Sundry debtors 588 506 653 852
    Other settlements 205 999 260 178
    Receivables from the sale of receivables 64 979 0
    Receivables related to the sale of services (including insurance) 61 784 84 885
    Guarantee deposits 18 928 12 434
    Settlments of payment cards 142 468 202 007
    Receivables due to settlement of acquisition of the demerged part of BPH 94 348 94 348
    Costs recognised over time 31 218 61 077
    Settlements of rental charges and utilities 1 338 1 803
    Maintenance and support of systems, servicing of plant and equipment 14 105 14 207
    Other deferred costs 15 775 45 067
    Other assets 5 238 0
    VAT settlements 75 013 32 911
    Other assets(gross) 699 975 747 840
    Write -down -73 535 -61 844
    Other assets (net) 626 440 685 996
    including financial assets (gross) 588 506 653 852
    Receivables related to the sales of services and goods cover primarily remuneration from insurance companies for
    insurance handling.
    24 Amounts due to customers
    24.1 Accounting principles
    Liabilities to customers are measured at amortised cost at the effective interest rate. If no time schedule of future
    cash flows may be determined for financial liabilities and therefore, no effective interes t rate can be identified, the
    liability is measured at the amount payable.
    24.2 Financial data
    Structure by type and customer segment 31.12.2017 31.12.2016
    Retail segment 36 530 860 32 035 389
    Current deposits 22 584 687 17 264 837
    Term deposits 12 134 722 13 908 933


    C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s o f t h e
    A l i o r B a n k SA G r o u p
    f o r t h e y e a r e n d e d 3 1 D e c e m b e r 2 0 1 7
    ( i n P L N ‘ 0 0 0 )
    63
    Structure by type and customer segment 31.12.2017 31.12.2016
    Banking securities issued 1 574 189 628 246
    Bonds issued 81 500 0
    Other liabilities 155 762 233 373
    Corporate segment 21 083 633 19 333 312
    Current deposits 9 495 558 8 526 252
    Term deposits 9 740 352 8 379 289
    Banking securities issued 1 454 213 1 910 380
    Bonds issued 148 684 230 046
    Other liabilities 244 826 287 345
    Total amounts due to customers 57 614 493 51 368 701
    By maturity (as at the balance sheet date) 31.12.2017 31.12.2016
    Retail segment 36 530 860 32 035 389
    ≤ 1M 24 966 548 21 811 318
    > 1M ≤ 3M 3 208 322 3 163 975
    > 3M ≤ 1Y 6 697 726 5 878 511
    > 1Y ≤ 5Y 1 651 700 1 017 041
    >5Y 6 564 164 544
    Corporate segment 21 083 633 19 333 312
    ≤ 1M 15 087 554 13 666 701
    > 1M ≤ 3M 3 137 008 1 441 793
    > 3M ≤ 1Y 2 051 232 2 187 734
    > 1Y ≤ 5Y 759 661 2 013 363
    >5Y 48 178 23 721
    Total amounts due to customers 57 614 493 51 368 701
    By currency 31.12.2017 31.12.2016
    Retail segment 36 530 860 32 035 389
    PLN 30 918 837 27 417 980
    EUR 2 367 694 2 324 200
    GBP 597 002 464 471
    USD 2 219 330 1 592 740
    CHF 180 154 104 991
    Other 247 843 131 007
    Corporate segment 21 083 633 19 333 312
    PLN 17 559 332 16 313 817
    EUR 2 558 226 2 011 482
    GBP 74 320 82 434
    USD 562 892 742 870
    CHF 17 489 30 206
    Other 311 374 152 503
    Total amounts due to customers 57 614 493 51 368 701



    C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s o f t h e
    A l i o r B a n k SA G r o u p
    f o r t h e y e a r e n d e d 3 1 D e c e m b e r 2 0 1 7
    ( i n P L N ‘ 0 0 0 )
    64
    In 2017 the Group issued banking securities amounting to PLN 2 035 1 95 thousand; securities purchased before
    maturity amounted to PLN 112 682 thousand.
    In 2016 the Group issued banking securities amounting to PLN 1 106 334 thousand; securities purchased before
    maturity amounted to PLN 148 587 thousand.
    25 Amounts due to banks
    25.1 Accounting principles
    The liabilities due to banks include financial liabilities measured at amortised cost with the effective interest rate. If
    no time schedule of future cash flows may be determined for financial liabilities and therefore, no effective
    interest rate can be i dentified, the liability is measured at the amount payable.
    As at 31 December 2017 and 31 December 2016, the category covered liabilities due to banks, including the
    received subordinated loan and liabilities due to customers, including deposits and issue d bank securities (BPW)
    and sell -buy back transactions.
    25.2 Financial data
    Structure by type 31.12.2017 31.12.2016
    Current deposits 673 32 304
    Overnights 1 949 856
    Term deposits 300 044 0
    Bonds issued 22 766 20 004
    Received loan 266 817 180 954
    Other liabilities 221 860 164 710
    Repo 77 536 29 812
    Total amounts due to banks 891 645 428 640
    By maturity (as at the balance sheet date) 31.12.2017 31.12.2016
    ≤ 1M 300 931 228 043
    > 1M ≤ 3M 301 999 2 089
    > 3M ≤ 1Y 20 849 5 863
    > 1Y ≤ 5Y 137 682 51 817
    >5Y 130 184 140 828
    Total amounts due to banks 891 645 428 640
    By currency 31.12.2017 31.12.2016
    PLN 845 992 351 503
    EUR 45 571 41 548
    USD 65 35 540
    GBP 0 49
    Other 17 0
    Total amounts due to banks 891 645 428 640



    C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s o f t h e
    A l i o r B a n k SA G r o u p
    f o r t h e y e a r e n d e d 3 1 D e c e m b e r 2 0 1 7
    ( i n P L N ‘ 0 0 0 )
    65
    26 Provisions
    26.1 Accounting principles
    Provisions are liabilities with an uncertain payment date or an uncertain amount. The Bank establishes provisions
    when the entity is charged with a (legal or customary) obligation relating to past events, and when it is likely that
    satisfaction of such obligation shall result in a necessity of an outflow of funds containing economic benefits and
    the amount of such obligation may be reliably estimated. If the above conditions are not satisfied, no provision is
    established.
    Provisions for retiremen t and pension benefits
    Provisions for retirement and pension benefits are set up individually for each employee on the basis of actuarial
    valuation made by an independent actuarial company. The provision is determined on the basis of the
    anticipated amou nt of a retirement benefit that the Bank shall pay in line with the remuneration regulations.
    In compliance with IAS 19, the discount rate to calculate the provisions has been set on the basis of market rates
    of return on Treasury bonds in the currency a nd with maturity are congruent with the currency and close to the
    disbursement of such retirement benefit.
    Provisions for disputes
    This is a provision for disputes with employees, counterparties, customers and external institutions (e.g. UOKiK),
    establis hed when information is obtained from a competent person from the Legal Department or another
    person representing the Group before courts and other bodies, providing legal assistance, that the likelihood of
    losing the case is high. Details are specified i n note 37.
    Provisions for disputes are established in the amounts of the anticipated outflows of economic benefits.
    Provisions for granted financial and guarantee obligations
    Provisions for off -balance sheet loan exposures are set up in the amounts equivalent to the resultant anticipated
    loss of economic benefits (that can be estimated). When determining the provisions for off -balance sheet credit
    exposures:
     with respect to l oan exposures that are individually material under unconditional liabilities meeting the
    requirements of an individual impairment or concerning debtors whose other exposures meet such premises,
    and individually material exposures that do not meet the requi rements of an individual impairment for which a
    provision made in line with portfolio parameters would not be justified – the individualised method is applied,
     With reference to other off -balance sheet loan exposures – the portfolio method (if such expos ure meets the
    premises of an individual impairment), or a group method (if the exposure does not meet the impairment
    premises).
    The provision is determined as a difference between the anticipated value of the on -balance sheet exposure that
    will result fro m the granted off -balance sheet exposure (from the date as at which the assessment is made to the
    occurrence date of an overdue debt which is treated as a premise of an individual impairment), and the present
    value of the anticipated future cash flows to b e obtained from the on -balance sheet exposure generated from the
    granted liability.
    When the provision is determined with the individualised method, the anticipated future cash flows are estimated
    for each loan exposure individually.
    When the provision is determined with the portfolio method or group method, portfolio parameters are used
    based of statistical methods on the basis of historic observations of exposures with the same features.
    Restructuring provision
    The restructuring pr ovision is established for disbursement of statutory severance pay for termination of
    employment contracts as a result of group lay -offs and for so -called additional damages resulting from an
    agreement with the trade unions and a provision for restructurin g costs of the branch network and abandonment


    C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s o f t h e
    A l i o r B a n k SA G r o u p
    f o r t h e y e a r e n d e d 3 1 D e c e m b e r 2 0 1 7
    ( i n P L N ‘ 0 0 0 )
    66
    of franchise outlets located too close (the provision covers the costs of damages and expenses related to
    abandoning of the branch and its restoration to the original condition). The restructuring programme wa s
    published and its implementation by the Bank commenced in December 2016.
    26.2 Financial data
    Provisions for disputes Provisions for retirement benefits Provisions for off -balance -sheet liabilities Restructuring provision Total provisions
    As at 01 January 2017 8 700 10 754 17 586 249 775 286 815
    Established provisions 8 254 10 453 41 130 0 59 837
    Reversal of provisions -636 -7 825 -34 823 -28 143 -71 427
    Utilized of provisions -1 337 -44 0 -184 214 -185 595
    Other changes 1 043 0 -216 0 827
    As at 31 December 2017 16 024 13 338 23 677 37 418 90 457
    Provisions for disputes Provisions for retirement benefits Provisions for off -balance -sheet liabilities Restructuring provision Total provisions
    As at 01 January 2016 3 219 2 082 5 512 0 10 813
    Change due to acquisition of the demerged part of BPH 4 439 23 594 9 642 54 714 92 389
    Established provisions 1 321 2 284 18 630 199 668 221 903
    Reversal of provisions -360 -16 437 -16 233 -307 -33 337
    Utilized of provisions -876 0 0 -4 300 -5 176
    Other changes 957 -769 35 0 223
    As at 31 December 2016 8 700 10 754 17 586 249 775 286 815
    Split of the restructuring provision as at 31.12.2017 is presented below (PLN '000):
    31.12.2016 utilisation reversal 31.12.2017
    Severance pay for employees 174 201 154 397 18 989 815
    Reorganisation of the branch network 75 574 29 817 9 154 36 603
    249 775 184 214 28 143 37 418
    26.3 Material estimates and assumption s – actuarial provision
    Provisions for employee benefits are measured with actuari al techniques and assumptions. The calculation covers
    all retirement benefits potentia lly disbursable in the future. The provision has been established on the basis of a
    list of persons with all the required personal data, including seniority, age, and gen der. The accrued provisions are
    equal to the discounted payments to be made in the future subject to staff rotation and apply to the period until
    the end of the reporting period.
    26.4 Sensitivity analysis of material estimates and assumption s
    The Bank updated i ts estimates as at 31 December 2017 on the basis of calculations made by an independe nt
    external actuarial company. The accrued provisions are equal to the discounted payments to be made in the
    future subject to staff rotation and apply to the period until the end of the reporting period. The discount rate of
    3.25% applied by the Bank is a major element affecting the amount of the provision. In 2016 the applied
    discount rate was 3.5%.


    C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s o f t h e
    A l i o r B a n k SA G r o u p
    f o r t h e y e a r e n d e d 3 1 D e c e m b e r 2 0 1 7
    ( i n P L N ‘ 0 0 0 )
    67
    The impact of an increased/decreased discount rate and the fundamental actuarial assumptions by 1 pp on the
    increase/decrease of the retirement provision as at 31 December 2017 and as at 31 December 2016 is presented
    in the tables below
    Estimated change of provision as at 31.12.2017
    Financial discount rate Planned growth of basis
    Scenario +1pp Scenario -1pp Scenario +1pp Scenario -1pp
    Provisions for retirement benefits 14 283 12 097 12 033 14 477
    Estimated change of provision as at 31.12.2016
    Financial discount rate Planned growth of basis
    Scenario +1pp Scenario -1pp Scenario +1pp Scenario -1pp
    Provisions for retirement benefits 11 477 9 586 9 537 11 630
    27 Other liabilities
    27.1 Accounting principles
    The liabilities in this item are measured in the amount payable covering potential interest on the liabilities, while
    provisions for future payments in a reliably estimated amount required to comply with the obligation as at the
    end of the reporting period. Non -financial liabilities are measured in line with the measurement principles
    applicable to specific liability categories included in that item.
    27.2 Financial data
    31.12.2017 31.12.2016 restated *
    Interbank settlements 723 937 592 835
    Taxation, customs duty, social and health insurance payables and other public settlements 36 705 39 139
    Settlements of payment cards 150 699 65 006
    Other settlements, including 171 534 111 188
    Settlements with insurers 16 668 22 755
    Settlements of banking certificates of deposits 91 048 112 858
    Accrued 146 188 150 981
    Income received in advance 79 704 78 286
    Provision for bancassurance resignations 38 679 71 175
    Provision for bonuses 110 523 74 563
    Provision for employee benefits 29 375 32 753
    Provision for bonuses settled in phantom shares 16 885 14 126
    Provision for retention programs 18 118 56 378
    Revaluation of managment option plan – part settled in cash 9 881 12 075
    Other staff provisions 1 663 870
    Other liabilities 49 711 21 068
    Other liabilities 1 674 650 1 433 301
    including financial liabilities 1 046 170 769 029



    C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s o f t h e
    A l i o r B a n k SA G r o u p
    f o r t h e y e a r e n d e d 3 1 D e c e m b e r 2 0 1 7
    ( i n P L N ‘ 0 0 0 )
    68
    28 Subordinated liabilities
    28.1 Accounting principles
    On 23 August 2017, as requested by the Bank's Management Board, the Bank's Supervisory Board agreed to
    open the Second Public Programme of Bond Issue of Alior Bank SA “Second Public Issue Programme” and
    authorised the Management Board to contract financial liabilities by way of issue of unsecured ord inary
    subordinated bearer bonds by the Bank. Additionally, the Bank's Supervisory Board authorised the Management
    Board to determine the final terms and conditions of each bond series issue under the Second Public Issue
    Programme, to allot the bonds to in vestors and to take all other actions that may be required to achieve the
    objectives of the Second Public Issue Programme.
    The Bank's Management Board submitted a motion to the Polish Financial Supervision Authority for approval of
    the prospectus. On 6 No vember 2017, the Polish Financial Supervision Authority approved Annex No. 2 to the
    Prospectus covering the intention of the Bank's Management Board concerning determination of the unit nominal
    value of subordinated bonds to be issued pursuant to the Prosp ectus. In accordance with the Annex, the Bank's
    Management Board will determine the conditions of each subordinated bond issue to be issued pursuant to the
    Prospectus so that the nominal value of such subordinated bonds is PLN 400 000.
    In line with the pr oposal of the Bank's Management Board, the Bank's Supervisory Board also approved
    discontinuation of bond issues under the previous Public Programme of Subordinated Bond Issue of Alior Bank
    SA, approved by Resolution No. 407/2015 of the Bank's Management B oard of 22 December 2015 and accepted
    by Resolution No. 83/2015 of the Bank's Supervisory Board of 28 December 2015, and the closure of the First
    Public Issue Programme.
    28.2 Financial data
    Subordinated liabilities are measured at amortised cost at the effectiv e interest rate.
    Nominal value in the currency (PLN '000)
    Status of liabilities
    Currency Term Specific conditions 31.12.201 7 31.12.201 6
    Liabilities classified as the Bank's own funds 1 169 760
    Subordinated loan 10,000 EUR 12.10.2011 - 12.10.2019
    The loan may be prepaid subject to a written notification 30 days before the planned repayment. 41 892 44 428
    Series F bonds 321,700 PLN 26.09.2014 - 26.09.2024 325 930 325 915
    Series G bonds 192,950 PLN 31.03.2015 - 31.03.2021 195 560 195 551
    Series I bonds 150,000 PLN 06.12.2015 - 06.12.2021 150 594 150 594
    Series II bonds 33,350 PLN 06.12.2015 - 06.12.2021 33 482 33 482
    Series B bonds (Meritum Bank) 67,200 PLN 29.04.2013 - 29.04.2021 67 796 67 706
    Meritum Bank bonds – series C 80,000 PLN 21.10.2014 - 21.10.2022 80 494 80 401
    Series EUR001 bonds 10,000 EUR 04.02.2016 - 04.02.2022 42 738 45 331
    Series P1A bonds 150,000 PLN 27.04.2016 - 16.05.2022 150 006 150 961
    Series P1B bonds 70,000 PLN 29.04.2016 - 16.05.2024 70 427 70 425
    Series K bonds 400,000 PLN 20.10.2017 - 20.10.2025 403 600 0
    Series K1 bonds 200,000 PLN 20.10.2017 - 20.10.2025 201 800 0
    Series P2A bonds 150,000 PLN 14.12.2017 - 29.12.2025 150 657 0
    Subordinated liabilities 1 914 976 1 164 794


    C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s o f t h e
    A l i o r B a n k SA G r o u p
    f o r t h e y e a r e n d e d 3 1 D e c e m b e r 2 0 1 7
    ( i n P L N ‘ 0 0 0 )
    69
    Both the subordinated bonds and the subordinated loan were – as approved by the Polish Financial Supervision
    Authority – classified as the Bank's supplementary capital.
    29 Equity
    29.1 Accounting principles
    Equity is composed of the share capital, the supplementary capital, the revaluation reserves, other reserves
    (including the reserves for employee benefits payable with equity instruments) and profit for the current year and
    retained profit.
    Share capital
    The share capital is disclosed at its nominal value in line with the Articles of Association and the entry to the
    National Court Register.
    Supplementary capital
    The supplementary capital is established from profit allocations, pursuant to resolutions of the General Meeting.
    The supplementary capital also includes the share issue agio, net of the issue costs. The supplementary capital
    may be applied to cover balance sheet losses that may result from the Bank's operations.
    Revaluation reserve
    The reval uation reserve is established as a result of measurement of:
     financial instruments classified as available for sale,
     the effective part of hedge for cash flow hedge accounting programme,
     deferred income tax related to the above items.
    The revaluation reserve is not subject to distribution.
    Other reserves
    The other reserves are established from profit allocations. They may be used for the purposes specified in the
    Bank's Articles of Association or in applicable regulations.
    Current p rofit and retained profit
    Net profit attributable to the parent entity is gross profit in the profit and loss account of the current year adjusted
    with income tax and the profit attributable to non -controlling holdings.
    Non -controlling interests
    Non -controlling interests cover part of equity in a subsidiary entity that may not be attributed to the parent entity
    directly or indirectly.
    Dividend
    A dividend for the year, approved by the General Meeting, not disbursed until the balance sheet date, is disclosed
    as a dividend liability in other liabilities.
    29.2 Financial data
    Equity 31.12.2017 31.12.2016
    Equity 6 760 527 6 158 883
    Share capital 1 292 636 1 292 578
    Supplementary capital 4 820 048 4 185 843
    Other reserves 183 824 183 957
    Retained profit -65 760 -7 085
    Revaluation reserve 13 944 -71 615
    Revaluation reserve from measurement available for sale financial assets 22 969 -62 892


    C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s o f t h e
    A l i o r B a n k SA G r o u p
    f o r t h e y e a r e n d e d 3 1 D e c e m b e r 2 0 1 7
    ( i n P L N ‘ 0 0 0 )
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    Equity 31.12.2017 31.12.2016
    Revaluation reserve from measurement of derivative hedging instruments -9 025 -8 723
    Foreign currency translation differences 594 -22
    Current year profit/loss 515 241 575 227
    Non -controlling interests 1 322 979
    Total equity 6 761 849 6 159 862
    Revaluation reserve 31.12.2017 31.12.2016
    Valuation of available for sale financial assets 22 969 -62 892
    Treasury bonds 27 803 -75 156
    other debt instruments -5 509 -2 489
    equity instruments 5 686 0
    deferred income tax -5 011 14 753
    Valuation of derivative hedging instruments -9 025 -8 723
    IRS -11 142 -10 769
    deferred income tax 2 117 2 046
    Revaluation reserve 13 944 -71 615
    29.3 Shareholders of Alior Bank Spółka Akcyjna
    As at 31 December 2017, the shareholders holding 5% or more of the overall number of votes at the G eneral
    Meeting were as follows:
    Shareholder Number of shares Nominal value of shares [PLN] Percentage in the share capital 4 Number of votes Number of votes in the total number of votes
    31.12.2017
    PZU SA 41 658 850 416 588 500 32.23% 41 658 850 32.23%
    Aviva OFE Aviva BZ WBK 11 562 000 115 620 000 8.94% 11 562 000 8.94%
    Nationale -Nederlanden PTE SA 6 600 000 66 000 000 5.11% 6 600 000 5.11%
    Other shareholders 69 442 774 694 427 740 53.72% 69 442 774 53.72%
    Total 129 263 624 1 292 636 240 100.00% 129 263 624 100.00%
    31.12.2016
    PZU SA 37 773 265 377 732 650 29.22% 37 773 265 29.22%
    Aviva OFE Aviva BZ WBK 9 262 138 92 621 380 7.17% 9 262 138 7.17%
    Other shareholders 82 222 360 822 223 600 63.61% 82 222 360 63.61%
    Total 129 257 763 1 292 577 630 100.00% 129 257 763 100.00%
    29.4 Share capital structure
    Series Type of shares
    Number of shares 31.12.2017
    Number of shares 31.12.2016
    Nominal value of shares Series value at nominal prices (PLN)
    31.12.2017 31.12.2016
    Series A Ordinary 50 000 000 50 000 000 10 500 000 000 500 000 000
    Series B Ordinary 1 250 000 1 250 000 10 12 500 000 12 500 000
    Series C Ordinary 12 332 965 12 332 965 10 123 329 650 123 329 650
    Series D Ordinary 413 480 410 704 10 4 134 800 4 107 040


    C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s o f t h e
    A l i o r B a n k SA G r o u p
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    Series Type of shares
    Number of shares 31.12.2017
    Number of shares 31.12.2016
    Nominal value of shares Series value at nominal prices (PLN)
    Series E Ordinary 2 785 0 10 27 850 0
    Series F Ordinary 300 0 10 3 000 0
    Series G Ordinary 6 358 296 6 358 296 10 63 582 960 63 582 960
    Series H Ordinary 2 355 498 2 355 498 10 23 554 980 23 554 980
    Series I Ordinary 56 550 249 56 550 249 10 565 502 490 565 502 490
    Series J Ordinary 51 51 10 510 510
    Total 129 263 624 129 257 763 1 292 636 240 1 292 577 630
    Within the Managerial Option Programme for 2013, 2014, and 2015, in 2017 the Bank commenced the
    procedure to increase the Bank's share capital by way of a conditional capital increase by issue of new series D, E,
    and F ordinary bearer shares with a total nominal value of PLN 58 610.00.
    On 29 August 2017 KDPW registere d the above ordinary bearer shares with the nominal value of PLN 10 each,
    marked with the code ISIN “ALIOR00045”:
     2 776 (two thousand seven hundred and seventy six) series D shares;
     2 785 (two thousand seven hundred and eight five) series E shares;
     300 (three hundred) series F shares.
    On the same day, the shares were admitted to trading in an ordinary procedure on the main floor of the stock
    exchange. On 28 November 2017 the District Court entered the increase of the share capital by the above
    amount to the register of entrepreneurs.
    Under the Programme referred to above, in December 2017 the Bank commenced another procedure of the
    Bank's share capital increase by issue of new series D and E ordinary bearer shares with a total nominal value of
    PLN 152 170 by way of a conditional capita l increase of the Bank. On 22 December 2017 KDPW decided to
    accept the shares for deposit. On 15 January 2018 KDPW registered the above ordinary bearer shares with the
    nominal value of PLN 10 each, marked with the code ISIN “ALIOR00045”:
     10 905 (ten thousa nd nine hundred and five) series D shares;
     4 312 (four thousand three hundred and twelve) series E shares.
    Other additional information
    30 Off -balance sheet items
    30.1 Accounting principles
    Within its operations, the Bank enters into transactions that at execution are not disclosed in the statement of
    financial position as assets or liabilities, but they generate contingent liabilities. In compliance with IAS 37,
    contingent liabilities are d efined as follows:
     a potential obligation that arises as a result of past events the existence of which is confirmed only at
    occurrence or non -occurrence of uncertain future events that are not fully controlled by the Bank,
     an existing obligation which results from past events, but is not disclosed in the statement of financial position
    since it is not probable that cash or other assets may be issued to satisfy the obligation or the amount of such
    obligation may not be reliably estimated.
    The guarantee values as specified in the table above reflect the maximum potential loss that would be disclosed
    on the balance sheet date if all customers defaulted.



    C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s o f t h e
    A l i o r B a n k SA G r o u p
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    30.2 Financial data
    Off-balance sheet liabilities granted 31.12.2017 31.12.2016
    Off-balance sheet liabilities granted 12 498 037 14 483 652
    Relating to financing 11 253 862 12 979 086
    Guarantees 1 244 175 1 504 566
    Performa nce guarantees 277 904 457 515
    Financial guarantees 966 271 1 047 051
    By maturity - guarantees 31.12.2017 31.12.2016
    ≤ 1W 2 509 14 869
    > 1W ≤ 1M 32 410 217 173
    > 1M ≤ 3M 81 054 93 300
    > 3M ≤ 6M 135 398 60 988
    > 6M ≤ 1Y 305 783 233 649
    > 1Y ≤ 2Y 143 214 365 396
    > 2Y ≤ 5Y 261 531 182 922
    > 5Y ≤ 10Y 268 271 304 378
    > 10Y ≤ 20Y 14 005 31 891
    Off-balance sheet liabilities granted, guarantees 1 244 175 1 504 566
    By maturity – relating to financing 31.12.2017 31.12.2016
    ≤ 1W 3 194 287 2 337 689
    > 1W ≤ 1M 113 029 731 965
    > 1M ≤ 3M 341 114 423 456
    > 3M ≤ 6M 447 740 682 732
    > 6M ≤ 1Y 1 173 020 2 143 218
    > 1Y ≤ 2Y 2 093 611 1 948 494
    > 2Y ≤ 5Y 2 073 028 2 735 338
    > 5Y ≤ 10Y 1 297 487 1 232 111
    > 10Y ≤ 20Y 319 545 534 040
    > 20Y 201 001 210 043
    Off-balance sheet liabilities granted, relating to financing 11 253 862 12 979 086
    31 Assets pledged as collateral
    31.12.2017 31.12.201 6
    Treasury bonds blocked for REPO transactions 77 431 29 783
    Registered pled ge agreement on Treasury bonds 0 118 048
    Deposit as collateral of transactions performed in Alior Trader 723 1 252
    Available -for-sale financial assets for sale securing a loan in the EIB 109 466 0
    Investment securities held to maturity securing a loan in the EIB 221 291 217 901
    Total 408 911 366 984



    C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s o f t h e
    A l i o r B a n k SA G r o u p
    f o r t h e y e a r e n d e d 3 1 D e c e m b e r 2 0 1 7
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    73
    Apart from assets that secure liabilities that are disclosed separately in the statement of financial position when
    the receiving party may sell or exchange the assets for other security, the Bank additionally held the following
    collateral for the liabilities that did not meet the criterion:
    31.12.2017 31.12.2016
    Treasury bonds – Guaranteed Funds Protection Fund 605 719 204 411
    Deposit as collateral of derivative transactions (ISDA) 163 770 145 141
    Total 769 489 349 552
    32 Additional information to the cash flow statement
    32.1 Cash and cash equivalents
    Cash and cash equivalents include cash on hand and cash in the nostro account and the deposit with the
    National Bank of Poland, and receivables from banks in the current account and other funds maturing within 3
    months from acquisition.
    31.12.2017 31.12 .2016
    Cash and balances with the Central Bank 965 391 1 082 991
    Current accounts with other banks 627 645 387 334
    Term accounts with other banks 21 330 238 918
    Total 1 614 366 1 709 243
    32.2 Financial data
    The Bank makes its statement of operating cash flows with an indirect method in which the net profit for the
    reporting period is adjusted by the effects of cashless transactions and accruals concerning future or past inflows
    or payments of cash funds conce rning operating activities.
    Operating activity
    Cash flows from the Bank's operating activities cover primarily lending, deposits, FX exchange transactions, and
    purchase and sale of securities.
    Change of balances of loans and other receivables
    01.01.2017 – 31.12.2017
    01.01.2016 – 31.12.2016 restated
    Change in loans and receivables from customers – balance sheet -5 019 452 -15 340 131
    Change in loans and receivables from banks – balance sheet 464 687 -720 987
    Carrying value change in cash – nostro accounts 240 311 47 890
    Carrying value change in cash – deposits up to 3 months -217 588 123 380
    Change of balance of loans and receivables -4 532 042 -15 889 848



    C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s o f t h e
    A l i o r B a n k SA G r o u p
    f o r t h e y e a r e n d e d 3 1 D e c e m b e r 2 0 1 7
    ( i n P L N ‘ 0 0 0 )
    74
    Change of other receivables
    01.01.2017 – 31.12.2017
    01.01.2016 – 31.12.2016 restated
    Change of other liabilities – balance sheet 241 349 898 027
    Change of the revaluation reserve – balance sheet 65 866 -67 056
    Change of other liabilities – measured at amortised cost – balance sheet 73 369 -287 620
    Change of allowance for deferred income tax in the revaluation reserve 19 693 -19 774
    Provision for acquisition costs of fixed assets -8 493 -10 057
    Provision fo r acquisition costs of intangible assets -12 238 -39 317
    Change of balance due to the purchase of the demerged part of BPH net of cash and cash equivalents 0 174 695
    Other comprehensive income 58 912 60 994
    Change of other receivables 438 458 709 892
    Change in other assets
    01.01.2017 – 31.12.2017
    01.01.2016 – 31.12.2016 restated
    Change in other assets – balance sheet 59 556 -362 786
    Change in other assets 59 556 -362 786
    Investing activities
    The Bank's investing activities cover purchase and sale of fixed assets and intangible assets.
    Purchase of property, plant and equipment
    01.01.2017 – 31.12.2017 01.01.2016 – 31.12.2016
    Change – balance sheet -107 849 -319 167
    Purchase of property, plant and equipment -107 849 -319 167
    Purchase of Intangible assets
    01.01.2017 – 31.12.2017 01.01.2016 – 31.12.2016
    Change – balance sheet -102 199 -154 688
    Purchase of Intangible assets -102 199 -154 688
    The acquisition of demerged business of Bank BPH, net of cash acquired
    01.01.2016 – 31.12.2016
    Price paid for shares in BPH -1 464 933
    Cash and funds with Central Bank 1 043 097
    Current accounts with other banks 73 811
    Term accounts with other banks 173 330
    Total -174 695



    C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s o f t h e
    A l i o r B a n k SA G r o u p
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    33 Fair value hierarchy
    33.1 Accounting principles and estimates and judgements
    The fair value is a price receivable in the sale of an asset or payable for transfer of a liability in an arm’s length
    transaction in the principal (or most advantageous) market as at the measurement date subject to prevailing
    market conditions (exit price ), irrespective of the fact if such price is directly observable or estimated with another
    measurement technique.
    Depending on the classification category of financial assets and liabilities to a specific hierarchy level, various
    methods to measure fair value are applied.
    Level 1: On the basis of prices quoted in the principal (or most advantageous) market
    Financial assets and liabilities with fair value measured directly on the basis of quoted prices (not adjusted) from
    active markets for identical ass ets or liabilities. This category includes financial and equity instruments measured
    at fair value through profit and loss and those available for sale for which there is an active market and for which
    the fair value is determined on the basis of market v alue being the purchase price:
     debt Treasury securities valued at fixing on the Bondspot platform or Bloomberg information services and
    Reuters,
     debt and equity securities traded in a regulated market, including in the portfolio of the Brokerage House,
     derivative instruments that are traded in a regulated market
    Level 2: On the basis of measurement techniques based on assumptions using information coming from the
    principal (or most advantageous) market;
    Financial assets and liabilities whose fair valu e is measured with measurement models where all material input
    data is observable in the market directly (as prices) or indirectly (relying on prices). In that category the Bank
    classifies financial instruments for which no active market exists:
    Measurement method (techniques) Material observable input data
    DERIVATIVE FINANCIAL INSTRUMENTS – CIRS, IRS, FRA, FX, FORWARD, FX SWAP TRANSACTIONS
    The model of discounted future cash flows based on profitability curves.
    Profitability curves are buil t on the basis of market rates, market data of the money market, FRA, IRS, OIS basis swap transaction market.FX instruments are measured using NBP’s fixing rates and market rates of swap points.
    FX OPTIONS, INTEREST RATE OPTIONS FX options and interest rate options are measured with the use of specific valuation models characteristic for a specific option.
    For option instruments additionally market quotations are used for market variability quotations of currency pairs and intere st rates.
    NBP MONEY BILLS Profitability curve method Profitability curves are developed on the basis of money market data.
    COMMODITY FORWARD/SWAP
    Commodity instruments are measured on the basis of future cash flows calculated on the basis of profitability curves characteristic for specific commodities.
    Profitability curves are built on the basis of quoted commodity futures contracts.
    Level 3: Fo r which minimum one factor affecting the price is not observable in the market .
    Financial assets and liabilities with the fair value measured with the measurement models where input data is not
    based on observable market data (non -observable input data).
    Such instruments include options embedded in certificates of deposit issued by the Bank and options in the
    interbank market to hedge positions of the embedded options. The fair value is determined on the basis of


    C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s o f t h e
    A l i o r B a n k SA G r o u p
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    ( i n P L N ‘ 0 0 0 )
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    market prices of those options or an intern al model subject to both observable parameters (e.g. price of the base
    instrument, secondary quotations of options) and non -observable (e.g. variability, correlations between base
    instruments in options based on a basket). Model parameters are determined o n the basis of a statistical analysis.
    At the end of 2017, a negative change in the measurement of option instruments as a result of changes to prices
    of b ase instruments by 1% was PLN 6 000 .
    The group also contains the Bank’s position in commercial debt securities where apart from the parameters
    coming from market quotations are affected by non -observable volume of credit spread. The spread is based on
    the primary market price or at transaction execution. It is updated when reliable market quotations oc cur or
    when prices are obtained from transactions of comparable volume. The spread is also changed on the basis of
    information of a changed credit standing of the security issuer. As at the end of 2017, the sensitivity of changed
    measurement of those ass ets in the case of an increase of the credit spr ead by 1 basis point was PLN 57 000.
    Measurement method (techniques) Material observable input data
    CORPORATE BONDS Profitability curve model and risk margin Profitability curves are developed on the basis of bond market data.
    EXOTIC OPTIONS
    The prices of exotic options embedded in structured products are determined on the basis of market prices or measured with the internal model subject to both observable parameters (e.g. price of the base instrument, secondary quotations of options) and non - observable (e.g. variability, correlations between base instruments).
    The prices of exotic options embedded in structured products are acquired from the market.
    SHARES VISA INC C SERIES PRIVILEGED
    The current market value of listed ordinary shares of Visa Inc. subject to the conversion ratio and discount, considering changing prices of the shares of Visa Inc.
    Market value of the listed ordinary shares of Visa Inc.
    Transfers of instruments betwe en measurement levels as at the end of the reporting period. Transfers are made
    subject to conditions set forth in the international financial reporting standards, for instance quotation availability
    of instruments from an active market, availability of q uotations of pricing factors, or impact of non -observable
    data on the fair value.
    33.1 Financial data
    Below there are carrying values of financial assets and liabilities split into measurement categories (levels).
    Compared to the previous reporting period, there was no change to the classification and measurement
    principles of the hierarchy levels of the fair value.
    31.12.2017 Level 1 Level 2 Level 3 Total
    Financial assets
    Shares 294 0 0 294
    Bonds 85 735 0 0 85 735
    Certificates 89 0 0 89
    SWAP 0 187 694 0 187 694
    Cap Floor Ooptions 0 2 100 0 2 100
    FX Swap 0 18 059 0 18 059
    FX forward 0 44 851 0 44 851
    CIRS 0 15 984 0 15 984
    FX options 0 16 766 0 16 766


    C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s o f t h e
    A l i o r B a n k SA G r o u p
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    ( i n P L N ‘ 0 0 0 )
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    31.12.2017 Level 1 Level 2 Level 3 Total
    Other options 0 730 51 720 52 450
    Other instruments 9 874 18 655 0 28 529
    Financial assets held for trading 95 992 304 839 51 720 452 551
    Money bills 0 1 999 666 0 1 999 666
    Equity instruments 0 0 41 546 41 546
    Treasury bonds 9 651 360 0 0 9 651 360
    Other bonds 179 051 0 200 701 379 752
    Available for sale financial assets 9 830 411 1 999 666 242 247 12 072 324
    Interest rate transactions – SWAP 0 87 785 0 87 785
    Derivative hedging instruments 0 87 785 0 87 785
    31.12.2016 restated Level 1 Level 2 Level 3 Total
    Financial assets
    Shares 6 312 0 0 6 312
    Bonds 294 0 0 294
    Certificates 557 0 0 557
    SWAP 0 186 532 0 186 532
    Cap Floor Ooptions 0 3 171 0 3 171
    FX Swap 0 32 156 0 32 156
    FX forward 0 60 051 0 60 051
    CIRS 0 60 669 0 60 669
    FX options 0 21 129 948 22 077
    Other options 0 0 28 736 28 736
    Other instruments 7 462 11 534 0 18 996
    Financial assets held for trading 14 625 375 242 29 684 419 551
    Money bills 0 2 599 538 0 2 599 538
    Equity instruments 431 0 35 210 35 641
    Treasury bonds 6 197 981 0 0 6 197 981
    Other bonds 188 456 0 353 030 541 486
    Available for sale financial assets 6 386 868 2 599 538 388 240 9 374 646
    Interest rate transactions – SWAP 0 71 684 71 684
    Derivative hedging instruments 0 71 684 0 71 684
    31.12.2017 Level 1 Level 2 Level 3 Total
    Financial liabilities
    Bonds 58 333 0 0 58 333
    SWAP 0 162 185 0 162 185
    Cap Floor Ooptions 0 2 091 0 2 091
    FX Swap 0 63 816 0 63 816
    FX forward 0 37 675 0 37 675
    CIRS 0 16 601 0 16 601
    FX options 0 15 506 0 15 506
    Other options 0 729 51 719 52 448



    C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s o f t h e
    A l i o r B a n k SA G r o u p
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    ( i n P L N ‘ 0 0 0 )
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    31.12.2017 Level 1 Level 2 Level 3 Total
    Other instruments 20 671 6 552 0 27 223
    Financial liabilities held for trading 79 004 305 155 51 719 435 878
    Interest rate swaps - IRS 0 5 419 0 5 419
    Derivative hedging instruments 0 5 419 0 5 419
    31.12.2016 restated Level 1 Level 2 Level 3 Total
    Financial liabilities
    SWAP 0 155 885 0 155 885
    Cap Floor Ooptions 0 3 171 0 3 171
    FX Swap 0 22 999 0 22 999
    FX forward 0 25 276 0 25 276
    CIRS 0 20 948 0 20 948
    FX options 0 21 848 1 098 22 946
    Other options 0 0 28 693 28 693
    Other instruments 12 289 6 107 0 18 396
    Financial liabilities held for trading 12 289 256 234 29 791 298 314
    Interest rate swaps - IRS 0 6 119 0 6 119
    Derivative hedging instruments 0 6 119 0 6 119
    Reconciliation of changes at level 3 of the fair value hierarchy
    Movements of available for sale financial assets 31.12.2017 31.12.2016 restated
    Opening balance 388 240 363 230
    Increases, of which: 25 047 59 121
    Purchases 6 336 42 029
    Change due toacquisition of demerged fo business of BPH 0 16 912
    Revenue recognised in income statement 216 170
    Movements on accrued interest 16 921 0
    Fair value adjustment 1 574 10
    Decreases, of which: -171 040 -34 111
    Sale/redemption -164 046 -20 888
    Other changes recognised in income statement -838 -7 252
    Fair value adjustment -6 156 -5 971
    Available for sale financial assets 242 247 388 240
    Movements of financial assets and liabilities held for trading
    Assets Liabilities
    31.12.2017 31.12.2016 31.12.2017 31.12.2016
    Opening balance 29 684 34 555 25 492 34 555
    Increases, of which: 42 835 20 342 43 148 16 160
    Valuation 19 365 6 190 19 659 6 336
    Concluded transactions 23 470 14 152 23 489 9 824
    Decreases, of which: -20 799 -25 213 -16 921 -25 223
    Valuation -703 -5 377 -693 -5 370
    Settlement/redemption -20 096 -19 836 -16 228 -19 853
    Financial assets and liabilities held for trading 51 720 29 684 51 719 25 492


    C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s o f t h e
    A l i o r B a n k SA G r o u p
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    In 2017 the Bank did not reclassify any financial instruments to level 3 of the fair value hierarchy.
    Fair value measurement for disclosure purposes.
    Below is presented the carrying value and fair value of assets and liabilities that are not disclosed in the statement
    of financial position at fair value.
    31.12.2017 Carrying value
    Fair value
    Level 1 Level 2 Level 3 Total
    Assets
    Cash and balance with Central Bank 965 391 965 391 0 0 965 391
    Amount due from banks 901 629 0 901 629 0 901 629
    Loans and advances to customers 51 266 640 0 0 50 226 263 50 226 263
    Retail segment 28 234 726 0 0 27 253 218 27 253 218
    Consumer loans 16 541 861 0 0 16 145 458 16 145 458
    Loans for residential real estate 9 547 786 0 0 8 942 186 8 942 186
    Consumer finance loans 2 145 079 0 0 2 165 574 2 165 574
    Corporate segment 23 031 914 0 0 22 973 045 22 973 045
    Working capital facility 11 904 696 0 0 12 862 858 12 862 858
    Investment loans 8 620 606 0 0 8 561 212 8 561 212
    Other 2 506 612 0 0 1 548 975 1 548 975
    Asstes pledged as collateral 408 911 408 911 0 0 408 911
    Investment securities held to maturity 1 117 894 1 122 170 0 0 1 122 170
    Other assets 626 440 0 0 626 440 626 440
    Liabilities
    Amounts due to banks 891 645 0 891 645 0 891 645
    Current deposits 673 0 673 0 673
    Overnights 1 949 0 1 949 0 1 949
    Term deposits 300 044 300 044 0 300 044
    Bonds issued 22 766 0 22 766 0 22 766
    Credit received 266 817 0 266 817 0 266 817
    Other liabilities 221 860 0 221 860 0 221 860
    Repo 77 536 0 77 536 0 77 536
    Amounts due to customers 57 614 493 0 0 57 615 283 57 615 283
    Current deposits 32 080 245 0 0 32 080 245 32 080 245
    Term deposits 21 875 074 0 0 21 875 074 21 875 074
    Banking securities issued 3 028 402 0 0 3 029 192 3 029 192
    Bonds issued 230 184 0 0 230 184 230 184
    Other liabilities 400 588 0 0 400 588 400 588
    Other liabilities 1 046 170 0 0 1 046 170 1 046 170
    Subordinated liabilities 1 914 976 0 0 1 914 976 1 914 976
    31.12.2016
    Carrying value
    Fair value
    Level 1 Level 2 Level 3 Total
    Assets
    Cash and balance with Central Bank 1 082 991 1 082 991 0 0 1 082 991
    Amount due from banks 1 366 316 0 1 366 316 0 1 366 316
    Loans and advances to customers 46 247 188 0 0 45 546 620 45 546 620
    Retail segment 25 889 424 0 00 25 378 210 25 378 210
    Consumer loans 16 225 031 0 0 16 258 120 16 258 120
    Loans for residential real estate 8 407 632 0 0 7 874 080 7 874 080
    Consumer finance loans 1 256 761 0 0 1 246 010 1 246 010



    C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s o f t h e
    A l i o r B a n k SA G r o u p
    f o r t h e y e a r e n d e d 3 1 D e c e m b e r 2 0 1 7
    ( i n P L N ‘ 0 0 0 )
    80
    31.12.2016
    Carrying value
    Fair value
    Level 1 Level 2 Level 3 Total
    Corporate segment 20 357 764 0 0 20 168 410 20 168 410
    Working capital facility 10 749 077 0 0 10 682 290 10 682 290
    Investment loans 7 486 754 0 0 7 365 957 7 365 957
    Other 2 121 933 0 0 2 120 163 2 120 163
    Asstes pledged as collateral 366 984 366 984 0 0 366 984
    Investment securities held to maturity 1 954 1 919 0 0 1 919
    Other assets 653 852 0 0 653 852 653 852
    Liabilities
    Amounts due to banks 428 640 0 428 640 0 428 640
    Current deposits 32 304 0 32 304 0 32 304
    Overnights 856 0 856 0 856
    Term deposits 0 0 0 0 0
    Bonds issued 20 004 0 20 004 0 20 004
    Credit received 180 954 0 180 954 0 180 954
    Other liabilities 164 710 0 164 710 0 164 710
    Repo 29 812 0 29 812 0 29 812
    Amounts due to customers 51 368 701 0 0 51 363 662 51 363 662
    Current deposits 25 791 089 0 0 25 791 089 25 791 089
    Term deposits 22 288 222 0 0 22 288 222 22 288 222
    Banking securities issued 2 768 672 0 0 2 763 633 2 763 633
    Other liabilities 520 718 0 0 520 718 520 718
    Other liabilities 769 029 0 0 769 029 769 029
    Subordinated liabilities 1 164 794 0 0 1 164 794 1 164 794
    For many instruments, market values are not available, therefore the fair value is estimated with a number of
    measurement techniques. Measurement of the fair value of financial instruments has been made with a model
    based on estimates of the present value of future cash flows by discounting cash flows at appropriate discount
    rates.
    All model calculations contain certain simplifications and are sensitive to the underlying assumptions. Below there
    is a summary of core methods and assumptions used to estimate the fair value of financial instruments that are
    not measured at fair value.
    Receivables from customers
    In the method applied by the Bank to calculate the fair value of receivables from customers (without overdraft
    facilities), the Bank compares the margins generated on newly granted loans (in the month preceding the
    reporting dat e) with the margin on the total loan portfolio. If the margins on newly granted loans are higher than
    the margins on the portfolio, the loan fair value is lower than its carrying value.
    Due from customers were fully classified to level 3 of the fair valu e hierarchy due to the application of a
    measurement model with material non -observable input data or current margins generated on newly granted
    loans.
    Financial liabilities measured at amortised cost:
    The Bank assumes that the fair value of customer and bank deposits and other financial liabilities maturing within
    1 year is approximately equal to their carrying value. Deposits are accepted on a daily basis and thus their terms
    and conditions are similar to the prevailing market terms and conditions of ide ntical transactions. The maturities
    of those items are short and therefore there is no major difference between the carrying value and fair value.


    C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s o f t h e
    A l i o r B a n k SA G r o u p
    f o r t h e y e a r e n d e d 3 1 D e c e m b e r 2 0 1 7
    ( i n P L N ‘ 0 0 0 )
    81
    For disclosure purposes, the Bank determines the fair value of financial liabilities with residual maturit ies (or
    repricing of the variable rate) in excess of 1 year. That group of liabilities includes the Bank's own issues sand
    subordinated loans. Determining the fair value of that group of liabilities, the Bank determines the present value
    on anticipated pa yments on the basis of present percentage curves and the original spread of the issue.
    The Bank's own issues and subordinated loans have been fully classified as level 3 of fair value hierarchy due to
    the application of a measurement model with material n on -observable input data, including the original spread of
    the issue above the market curve. With reference to issues and subordinated loans with residual maturities (or
    interest rate repricing) under 1 year, the carrying value adequately reflects the fai r value of the instrument.
    For other financial instruments, the Bank assumes that the carrying value is close to fair value. This applies to the
    following items: cash and operations with the Central Bank, assets available for sale, other financial assets, and
    other financial liabilities.
    34 Transactions with related entities
    Powszechny Zakład Ubezpieczeń SA is the parent entity for the Bank. Related entities include: PZU SA and entities
    related to it and entities related to members of the Bank's Management Bo ard and Supervisory Board. Via PZU,
    the Bank is indirectly controlled by the State Treasury.
    The tables below present the type and values of transactions with related entities. Transactions between the Bank
    and its subsidiaries that are its related pa rties have been eliminated as a result of consolidation and are not
    disclosed in this note.
    Nature of transactions with related entities
    All transactions with related entities are performed in line with relevant regulations concerning banking products
    and at market rates.
    Interest rates on loans granted to related entities ranged from 10% to 14%, while interest rates on deposits
    ranged fro m 0 % to 3.70%.
    Parent company 31.12.2017 31.12.2016
    Liabilities
    Amounts due to customers 76 24
    Provisions 6 4
    Total liabilities 82 28
    Subsidiaries of the parent company 31.12.2017 31.12.2016
    Assets
    Financial assets held for trading 1 382 0
    Available -for-sale financial assets 80 274 84 961
    Derivative hedging instruments 483 0
    Amounts due from banks 247 0
    Loans and advances to customers 44 41
    Other assets 38 0
    Total assets 82 468 85 002
    Liabilities
    Financial liabilities held for trading 458 0
    Amounts due to customers 183 763 128 703


    C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s o f t h e
    A l i o r B a n k SA G r o u p
    f o r t h e y e a r e n d e d 3 1 D e c e m b e r 2 0 1 7
    ( i n P L N ‘ 0 0 0 )
    82
    Subsidiaries of the parent company 31.12.2017 31.12.2016
    Provisions 4 3
    Other liabilities 41 0
    Revaluation reserve 1 306 0
    Total liabilities 185 572 128 706
    Parent company 31.12.2017 31.12.2016
    Off-balance sheet liabilities granted to customers 15 000 15 000
    guarantees 15 000 15 000
    Subsidiaries of the parent company 31.12.2017 31.12.201 6
    Off-balance sheet liabilities granted to customers 10 000 9 900
    guarantees 10 000 9 900
    Joint control by persons related to the Group 31.12.2017 31.12.2016
    Assets
    Loans and advances to customers 7 0
    Total assets 7 0
    Liabilities
    Amounts due to customers 24 386 56 176
    Total liabilities 24 386 56 176
    Joint control by persons related to the Group 31.12.2017 31.12.2016
    Off-balance sheet liabilities granted to customers 0 20
    Relating to financing 0 20
    Parent company 01.01.2017 – 31.12.2017 01.01.2016 – 31.12.2016
    Interrest expense -8 0
    Fee and commission income 4 2
    General administrative expenses 0 -3
    Total -4 -1
    Subsidiaries of the parent company 01.01.2017 – 31.12.2017 01.01.2016 – 31.12.2016
    Interest income 1 747 0
    Interest expense -4 792 -2 686
    Fee and commission income 12 241 30
    Fee and commission expense -7 0
    Trading result and revalutaion 115 0
    General administrative expenses 0 -1
    Total 9 304 -2 657



    C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s o f t h e
    A l i o r B a n k SA G r o u p
    f o r t h e y e a r e n d e d 3 1 D e c e m b e r 2 0 1 7
    ( i n P L N ‘ 0 0 0 )
    83
    Joint control by persons related to the Group 01.01.2017 – 31.12.2017 01.01.2016 – 31.12.2016
    Interest expense -623 -1 425
    Fee and commission income 15 10
    Total -608 -1 415
    Transactions with the State Treasury and related entities
    The Polish Financial Supervision Authority in its communication of 6 December 2016, item 5 univocally accepted
    Poland's State Treasury as the parent entity vis -a-vis Alior Bank SA within the meaning of Art. 4.1.8.b and Art.
    4.1.14 of the Banking Act, stat ing that it was able to exert material impact on Alior Bank SA via Powszechny
    Zakład Ubezpieczeń SA.
    Below there are material transactions with the State Treasury and its related entities with the exception of IAS
    24.25.
    State Treasury and related entiti es 31.12.2017 31.12.2016
    Assets
    Financial assets held for trading 85 459 0
    Available -for-sale financial assets 10 022 542 6 586 920
    Investment securities held to maturity 1 339 186 219 855
    Amounts due from banks 293 1 605
    Loans and advances to customers 33 241 47 203
    Total assets 11 480 721 6 855 583
    Liabilities
    Financial liabilities held for trading 58 333 0
    Amounts due to banks 339 798 0
    Amounts due to customers 1 248 970 478 789
    Total liabilities 1 647 101 478 789
    Transactions with the State Treasury and related entities 01.01.2017 – 31.12.2017 01.01.2016 – 31.12.2016
    Interest income 151 142 110 958
    Interest expense -18 101 -5 884
    Costs of tax paid -470 344 -366 306
    Total -337 303 -261 232
    All transactions with the State Treasury and its related entities were concluded at arm’s length.
    35 Benefits for the Group’s top executives
    35.1 Accounting principles
    Short -term employee benefits are those that are accounted for within 12 months of the end of t he annual
    reporting period in which the employees have performed work. Apart from a base salary, short -term employee
    benefits include a non -deferred part of the variable component of cash remuneration and a deferred part of the
    cashed variable remuneratio n granted in phantom shares.


    C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s o f t h e
    A l i o r B a n k SA G r o u p
    f o r t h e y e a r e n d e d 3 1 D e c e m b e r 2 0 1 7
    ( i n P L N ‘ 0 0 0 )
    84
    Long -term employee benefits include cashed phantom shares granted in previous periods and the value of
    issued tranches of deferred subscription warrants in previous periods.
    Principles applicable to the variable components of remuneration of persons in managerial positions at the Bank
    The Bank has a Remuneration Policy covering all employees. The Remuneration Policy of Alior Bank SA was
    approved by Resolution of the Supervisory Board No. 72/2017. With respect to people in m anagerial positions
    who affect the risk profile, the Policy has been determined on the basis of the following regulations:
     Commission Delegated Regulation (EU) No 604/2014 of 4 March 2014 supplementing Directive 2013/36/EU
    of the European Parliament and of the Council with regard to regulatory technical standards with respect to
    qualitative and appropriate quantitative criteri a to identify categories of staff whose professional activities have
    a material impact on an institution's risk profile (Text with EEA relevance);
     Regulation of the Minister of Development and Finance of 06 March 2017 on the risk management and
    internal c ontrol system, the remuneration policy, and a detailed manner of internal capital estimation at banks.
    Each person classified as a Material Risk Taker on the basis of material impact of such person on the Bank's risk
    profile within the meaning of the Dele gated Regulation.
    The remuneration of Material Risk Takers is composed of fixed remuneration and variable remuneration. The
    Bank does not grant unidentified retirement benefits to persons in managerial positions. Material Risk Takers
    agree not to use a n individual hedging strategies or insurance concerning the remuneration and responsibility in
    order to undermine the effects of risk in the remuneration system applicable to them.
    Except the Persons in Control Functions, the total amount of variable rem uneration is based on the assessment of
    performance of the Material Risk Takers and the organisational unit, as well as the Bank's performance in the area
    for which such person is responsible, subject to the performance of the entire Bank.
    Minimum 50% of the variable remuneration granted to the Material Risk Taker is to serve as an incentive for
    special care for the Bank's long -term interests and is therefore composed of financial instruments related to the
    Bank's shares. The remaining part of the variable remuneration is disbursed in cash as cash variable remuneration.
    Minimum 40% of the variable remuneration of the Material Risk Takers for each Assessment Period – and if the
    variable remuneration of such persons for the relevant Assessment Period is exce ptionally high – minimum 60%
    of the variable remuneration is deferred.
    35.2 Financial data
    All transactions with supervising and managing persons are performed in line with the relevant regulations
    concerning banking products and at market rates.
    Supervising, managing persons Supervisory Board Bank's Management Board
    Assets
    Loans and advances to customers 299 0 299
    Total assets 299 0 299
    Liabilities
    Amounts due to customers 7 089 560 6 529
    Total liabilities 7 089 560 6 529
    Supervising, managing persons Supervisory Board Bank's Management Board
    Off-balance sheet liabilities granted to customers 10 0 10
    Relating to financing 10 0 10


    C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s o f t h e
    A l i o r B a n k SA G r o u p
    f o r t h e y e a r e n d e d 3 1 D e c e m b e r 2 0 1 7
    ( i n P L N ‘ 0 0 0 )
    85
    Information on the total remuneration paid or due to the members of the Supervisory Board and Management Board 01.01.2017 - 31.12.2017 01.01.2016 - 31.12.2016
    Bank's Management Board
    short -term employee benefits 23 535 13 879
    long -term benefits 7 238 6 701
    Bank’s Management Board, total 30 773 20 580
    Supervisory Board
    short -term employee benefits 1 024 1 025
    Supervisory Board, total 1 024 1 025
    Post -employment benefits for the Members of the Management Board who stopped performing their functions in 2016 (PLN '000) 2017
    Members of the Management Board who stopped performing their functions in 2016 and earlier 2 166
    Benefits for employment contract termination for the Members of the Management Board who stopped performing their functions in 2016 (PLN '000) ) 201 7
    Members of the Management Board who stopped performing their functions in 2016 and earlier 5 747
    Number of shares held by the members of the Management Board 31.12.2017 31.12.2016
    Katarzyna Sułkowska 28 612 28 612
    Total 28 612 28 612
    With reference to the Management Board, costs of remuneration also includes the cost of cash installments paid
    in this peri od of variable remuneration and tranches in phantom shares issued and paid in 2017.
    With the Management Board members of the 4th term of office (appointed in June and August 2017) contracts of
    employment were concluded for an indefinite period of time providing for the following:
     The contracts may be terminated by either Party subject to a 3 -9-month notice, effective at the end of a
    calendar month.
     If the Bank terminates a contract of employment before the end of the term of office, some Members of the
    Management Board are entitled to compensation in the amount not less than 6 times and not mo re than 12
    times the monthly gross basic remuneration.
     The contracts contain non -competitive clauses, under which the Members of the Management Board, upon
    termination of their employment relationship with the Bank, must not engage in any competitive acti vity for
    12 months following termination of their agreements. As a result, the Members of the Management Board
    are entitled to remuneration totalling an equivalent to their gross remuneration for 12 months.
    The Extraordinary General Meeting of 5 December 2 017 approved a resolution regulating the principles of
    remuneration of members of the Management Board of Alior Bank. At its meeting of 14 December 2017, the
    Supervisory Board approved new principles of remuneration of the Management Board based on manager ial
    contracts, relating to the Act of 9 June 2016 on the remuneration of persons managing certain companies and
    individual contracts for individual Members of the Management Board:
     Management Board Member’s contract for the time of performing functions;
     Termination period:
    1 month in case of performing Management Board Member function for less than 12 months effective at
    the end of calendar month;
    3 months in case of performing Management Board Member function for at least 12 months.


    C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s o f t h e
    A l i o r B a n k SA G r o u p
    f o r t h e y e a r e n d e d 3 1 D e c e m b e r 2 0 1 7
    ( i n P L N ‘ 0 0 0 )
    86
     Severance pay in the a mount of three times monthly salary in case of contract termination by both sides
    or termination by the Company in all cases except for negligence to perform basic Management Board
    duties in case of performing Management Board Member function for at least 12 months.
     Non -compete clause based on which Management Board Member is obliged (assuming he performed
    the function for at least 3 months) not to perform any activities deemed competitive with reference to the
    Company for the period of 6 months since the d ate of contract termination. As a consequence
    Management Board Members are entitled to severance in the amount of six months salary.
    35.3 Management option schame
    Pursuant to Resolution No. 28/2012 of the Extraordinary General Meeting of Shareholders of Alior Bank SA dated
    19 October 2012 regarding the conditional increase of the Bank's s hare capital and issuance of subscription
    warrants and incentive scheme regulations adopted by the resolution of Alior Bank SA Supervisory Board of 27
    March 2013, incentive program for 2013 -15. The plan included members of the Management Board and a group
    of Bank’s managers who were not members of the Management Board .
    The assumptions of Management Option Scheme anticipated that three tranches of subscription warrants (A, B
    and C -series) and the corresponding three tranches of new shares of the Bank (D, E a nd F -series) with a total
    nominal value of up to PLN 33 312 500 would be issued, including:
    - up to 1 110 417 A -series subscription warrants, which shall entitle their holders to acquire up to 1 110 417 D -
    series shares of Alior Bank in a period of five yea rs starting from the first anniversary of the first quotation of the
    Shares on the WSE;
    - up to 1 110 416 B -series subscription warrants which will entitle their holders to take up 1 110 416 E -series
    shares of Alior Bank over a period of 5 years starting from the day of the second anniversary of the first quotation
    of the Shares on the WSE;
    - up to 1 110 417 C -series subscription warrants which will entitle their holders to take up 1 110 417 F -series
    shares of Alior Bank over a period of 5 years starting from the day of the third anniversary of the first quotation of
    the Shares on the WSE.
    Details concerning the warrants finally awarded to the Management Board Members are presented in the table
    below:
    Name Number of A -series warrants allocated Number of B -series warrants allocated Number of C -series warrants allocated
    Sobieraj Wojciech 222 086 222 086 222 086
    Bartler Małgorzata 0 27 656 13 784
    Czuba Krzysztof 88 833 88 833 88 833
    Krzyżanowska Joanna 0 0 30 440
    Skrok Witold 71 066 88 833 88 833
    Smalska Barbara 0 0 30 440
    Sułkowska Katarzyna 88 833 88 833 88 833
    Urszula Krzyżanowska - Piękoś 9 445 18 443 36 000
    Celina Waleśkiewicz 18 321 33 312 20 000
    Total 498 584 567 996 619 249
    In connection with the rights issue, on 27 July 2016 the Supervisory Board passed a technical adjustment to the
    Management Option Scheme aimed at ensuring the economic neutrality of the scheme for the eligible persons.
    The adjustment involves calculating the decrease in the notional value of the Management Option Scheme and
    issuing an appropriate number of phantom shares with parameters similar to warrants to the eligible persons.
    The correction of the program is settled in cash.


    C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s o f t h e
    A l i o r B a n k SA G r o u p
    f o r t h e y e a r e n d e d 3 1 D e c e m b e r 2 0 1 7
    ( i n P L N ‘ 0 0 0 )
    87
    Number of subscription warrants
    The average share price for the completed sub scription warrants
    Number of phantom shares
    The average share price for the completed phantom shares
    At the beginning of the period (01.01.2017) 2 568 564 - 1 389 832 -
    Granted during the period 0 - 0 -
    Forfeited during the period 0 - 0 -
    Completed during the period 21 078 62.85 1 146 879 52.43
    At end of period (31.12.2017) 2 547 486 - 242 953 -
    Possible to be performed at the end of the period 31.12.2017) 2 084 913 - 0 -
    Subscription warrants Phantom shares
    The average fair value of the instruments granted during the period (PLN) 18.40 26.37
    The exercise price of the instrument (for instruments outstanding at the end of the period) (PLN) 64.57 53.19
    The average maturity date of the instrument occurring at the end of the period 10.02.2020 14.06.2020
    35.4 Bo nus system f or senior executives
    The Management Bo ard is covered by the Bonus Sche me from 2016. The objective of the Scheme is to create
    additional incentive stimuli for its participants to effectively perform the duties entrusted to them, in particular,
    managing the Bank and making efforts aimed at the continued stable development of the Bank and its capital
    group, while maintaining appropriate and effective risk management at the Bank, stability of the Bank’s
    management personnel and realization of long -term interests of the shareholders by bringing about a stable
    growth of the stock exc hange valuation of the Bank’s shares, while maintaining an increase in the net assets of the
    Bank and its companies .
    In connection with the changes in the legal and organizational structure of the Bank consisting of an acquisition
    of the demerged business of Bank BPH Spółka Akcyjna with its registered office in Gdańsk comprising the core
    business of Bank BPH excluding operations related to mortgage loans pursuant to art. 529 § 1.4 of the
    Commercial Companies Code on terms specified in the Share Purchase Ag reement, the Supervisory Board
    agreed on 29 June 2016 on the principles for the transaction bonus for the Bank’s Management Board Members
    in order to specially motivate the Bank’s Board Members to actively cooperate in the process of preparing and
    conducti ng the Transaction, to ensure the timely execution of the Transaction in line with the strategic objectives.
    The bonus can be granted and paid once the conditions related to the execution of the Transaction and the
    Operational Merger between the banks hav e been fulfilled. The Bonus was paid out in accordance with the
    provisions of the Variable Salary Component Policy.
    The other members of senior executives, with particular emphasis on those having an Impact on the Risk Profile,
    are covered by an annual bon us. With the exception of persons exercising control functions, the basis for
    determining the total amount of variable remuneration is the assessment of the results of the person having an
    impact on the risk profile and organizational unit and the results of the bank in the area of responsibility of that
    person, taking into account the results of the entire Bank.
    Pursuant to the Policy of variable remuneration components binding at the time of granting remuneration, the
    variables of the Management Board and other Persons having an Impact on the Risk Profile were granted in
    financial instruments in the form of phantom shares.



    C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s o f t h e
    A l i o r B a n k SA G r o u p
    f o r t h e y e a r e n d e d 3 1 D e c e m b e r 2 0 1 7
    ( i n P L N ‘ 0 0 0 )
    88
    The settlement of the phantom shares shall be in cash.
    Number of phantom shares The average share price for the completed phantom sh ares
    At the beginning of the perid (01.01.2017) 23 446 -
    Granted during the period 325 128 -
    Forfeited during the period - -
    Realized during the period 152 189 0.01
    At the end of the period (31.12.2017) 196 385 -
    Exercisable at end of period (31.12.2017) 0 -
    Phantom shares
    The average fair value of the instrument at the end of the period (PLN) 75.52
    The exercise price of the instrument (for instruments outstanding at the end of the period) (PLN) 0.01
    The average maturity date of the instrument occurring at the end of the period 2020 -06-14
    The fair value of phantom shares is equal to the average current share price.
    Deferred tranches are paid in accordance with the Remuneration Policy after confirming that there were no
    events causing their reduction or suspension.
    35.5 Share subscription program as part of the management option schame at Alior Leasing sp. o.o.
    In March 2017, by the decision of the Management Board of Alior Bank SA, the Supervisory Board and the
    Management Bo ard of Alior Leasing Sp. o.o. was launched in the company Alior Leasing sp.o.o. management
    option schame.
    The aim of the program is to ensure the implementation of financial plans for 2017 -21 by maintaining and
    motivating the Company's management. Program participants include selected managers and members of the
    Management Board of Alior Leasing sp z o.o.
    The program is based on share option subscription agreements signed between the Participant, the Company
    and the Bank as well as share option -purchase agreements between the Participant and the Bank. The program
    assumes the transformation of the company into a joint -stock company. The issue of shares under the contracts
    would take place in the event of budget implementation and fulfillment of the conditions set out in the
    agreements in 2022 -25.
    Then, as a result of the purchase and sale's option of shares the Bank would repurchase shares at the price
    resulting from the valuation of the company according to a given methodology.
    2017 Number of options The average share price for the options performed
    At the beginning of the perid (01.01.2017) 0 -
    Granted during the period 2 799 033 -
    Forfeited during the period - -
    Realized during the period 0 n/d
    At the end of the period (31.12.2017) 2 799 033 -
    Exercisable at end of period (31.12.2017) 0 -



    C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s o f t h e
    A l i o r B a n k SA G r o u p
    f o r t h e y e a r e n d e d 3 1 D e c e m b e r 2 0 1 7
    ( i n P L N ‘ 0 0 0 )
    89
    The settlement of purchase / sale options of shares shall be in cash.
    options
    The average fair value of the instrument at the end of the period* (PLN) 12.08
    The exercise price of the instrument (for instruments outstanding at the end of the period) (PLN) 1
    The average maturity date of the instrument occurring at the end of the period 2023 -09-09
    *calculated as the value of program divided by the number of options at the end of the period
    The amount of the plan value was determined based on the fair value model. The fair value of share options has
    been determined based on the Black - Scholes option valuation model. It was assumed that the price of shares
    changes in time in accordance with the Brown's geometric movement process, assuming long -term volatility of
    the Alior Leasing sha re price and the risk -free rate. The volatility estimates were made on the basis of historical
    data on the prices of reference shares of listed leasing companies.
    The condition for the implementation of the option is to realize net profit of the company in the years 2017 -2021
    budgeted and specific retention conditions.
    36 Offsetting of financial assets and liabilities
    36.1 Accounting principles
    The Bank sets off financial assets and liabilities and discloses them in the statement of net financial condition, if it
    is possible to enforce the right to set off the disclosed amounts and an intention to settle them in net amounts or
    the asset and liabi lity may be realised at the same time.
    The Bank enters into set -off agreements – ISDA agreements (International Swaps and Derivatives Association
    Master Agreements) and GMRA agreements (Global Master Repurchase Agreement) that provide for: set -off of
    financial assets and liabilities (close out netting) in the case of a default by any party to the agreement. The
    agreements are of special importance to mitigating the risk related to derivative instruments since they provide
    for netting of both payable (mi tigation of settlement risk) and not yet payable liabilities of the parties (mitigation
    of pre -settlement risk). However, those agreements do not meet the requirements specified in IAS 32 concerning
    recognition of the set -off effects in the statement of f inancial condition since the set -off is subject to the
    occurrence of a specific event in the future (events of default). The exposures under derivative instruments are
    additionally secured with margins placed by the counterparties under CSA (Credit Suppor t Annex).
    36.2 Financial data
    31.12.2017 Total financial assets Derivative instruments Repo transactions
    Assets
    Gross value of recognised financial assets 617 767 540 336 77 431
    Gross value of financial liabilities subject to netting 0 0 0
    Net value of financial assets disclosed in the statement of financial position 617 767 540 336 77 431
    Value of financial instruments that are not subject to netting in the financial statements -531 766 -454 230 -77 536
    Cash collateral received -179 283 -179 283 0
    Amount of financial liabilities that do not satisfy the netting requirements in the financial statements (under signed ISDA agreements) -352 483 -274 947 -77 536
    Net value of financial assets 86 001 86 106 -105



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    31.12.201 7 Total financial liabilities Derivative instruments Repo transactions
    Liabilities
    Gross value of financial liabilities 518 833 441 297 77 536
    Gross value of financial assets subject to netting 0 0 0
    Net value of financial liabilities disclosed in the statement of financial position 518 833 441 297 77 536
    Value of financial instruments that are not subject to netting in the financial statements -516 253 -438 717 -77 536
    Cash collateral received -163 770 -163 770 0
    31.12.2017 Total financial liabilities Derivative instruments Repo transactions
    Amount of financial liabilities that do not satisfy the netting requirements in the financial statements (under signed ISDA agreements) -352 483 -274 947 -77 536
    Net value of financial liabilities 2 580 2 580 0
    Reconciliation of compensated and conditionally compensated items to the statement of financial position line:
    Net value Item from the financial statements Book value from financial statements
    Book value of of items not disclosed in the compensation note
    Financial assets
    Derivatives instruments 87 785 Derivatives h edging derivatives 87 785 0
    Derivatives instruments 452 551 Financial assets held for trading 452 551 0
    Repo transactions 77 431 Assets pledged as collateral 408 911 331 480
    Cash collateral received 163 770 Amounts due from banks 901 629 735 207
    Financial liabilities
    Derivatives instruments 5 419 Derivatives hedging derivatives 5 419 0
    Derivatives instruments 435 878 Financial liabilities held for trading 435 878 0
    Cash collateral received 179 283 Amounts due to banks 891 645 330 823
    31.12.2016 Total financial assets Derivative instruments Repo transactions
    Assets
    Gross value of recognised financial assets 521 018 491 235 29 783
    Gross value of financial liabilities subject to netting 0 0 0
    Net value of financial assets disclosed in the statement of financial position 521 018 491 235 29 783
    Value of financial instruments that are not subject to netting in the financial statements -407 378 -377 566 -29 812
    Cash collateral received -164 332 -164 332 0
    Amount of financial liabilities that do not satisfy the netting requirements in the financial statements (under signed ISDA agreements) -243 046 -213 234 -29 812
    Net value of financial assets 113 640 113 669 -29



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    31.12.2016 Total financial assets Derivative instruments Repo transactions
    Liabilities
    Gross value of financial liabilities 334 245 304 433 29 812
    Gross value of financial assets subject to netting 0 0 0
    Net value of financial liabilities disclosed in the statement of financial position 334 245 304 433 29 812
    Value of financial instruments that are not subject to netting in the financial statements -388 187 -358 375 -29 812
    Cash collateral received -145 141 -145 141 0
    Amount of financial liabilities that do not satisfy the netting requirements in the financial statements (under signed ISDA agreements) -243 046 -213 234 -29 812
    Net value of financial liabilities -53 942 -53 942 0
    Reconciliation of compensated and conditionally compensated items to the statement of financial position line :
    31.12.2016 Net value Item from the financial statements Book value from financial statements
    Book value of of items not disclosed in the compensation note
    Financial assets
    Derivatives instruments 71 684 Derivatives hedging derivatives 71 684 0
    Derivatives instruments 419 551 Financial assets held for trading 419 551 0
    Repo transactions 29 783 Assets pledged as collateral 366 984 337 201
    Cash collateral received 145 141 Amounts due from banks 1 366 316 1 221 175
    Financial liabilities
    Derivatives instruments 6 119 Derivatives hedging derivatives 6 119 0
    Derivatives instruments 298 314 Financial liabilities held for trading 298 314 0
    Cash collateral received 164 332 Amounts due to banks 428 640 264 308
    37 Legal claims
    Value of proceedings concerning the Bank’s liabilities or receivables pending in the 2017 did not exceed 10% of
    the Bank’s equity. According to the Bank, none of the single proceedings pending in 2017 before a court,
    arbitration authority, or public administration authority, and all proceedings joi ntly do not pose any threat to the
    financial liquidity of the Bank.
    In cases where the Bank was sued , the value of the claims as at 31.12.2017 amounted to PLN 220 598 thousand
    and PLN 167 567 thousand as at 31.12.2016. The amount of provision s for disput ed cases was PLN 11 024
    thousand as at the end of 2017 and PLN 8 700 thousand as at the end of 2016.
    In previous years, the Bank offered as an intermediary investment certificates for Fundusz Inwestycje Rolne FIZAN,
    Lasy Polskie FIZAN, Vivante FIZAN and In westycje Selektywny FIZAN. According to the me dia information, there is
    probability of class action lawsuit by certain clients who have purchased the previously mentioned certificates via
    the Bank. In the Bank's opinion, at the date of the financial statements, the risk of negative outcome for the Bank
    and thus significant losses on this account is lower than average at this stage, therefore, as at December 31, 2017,
    the Bank did not create a provision with respect to the above risk. At the same time, a reliable estimate of the
    amount of a possible loss in case of negative outcome is not possible to be reliably estimated at this stage.



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    Notes concerning risk
    Objectives and principles of risk management
    Risk management is one of the major processes in Alior Bank and in the other entities of the Group of Alior Bank
    SA. Risk management is to ensure profitability of business operations, while assuring control of the risk level and
    its maintenance within the accepted risk appetite and limit system in the changing macroeconomic and legal
    environment. The supreme objective of the risk management policy is to ensure early detection and adequate
    management of all kinds of risk inherent to the pursued activity. The Bank has identified the following risk types
    subject to management that are inherent in its business:
    Risk type Note number
    credit risk 38
    Market risk in the trading book, including: interest rate risk in the trading book and the FX risk 39.40
    liquidity risk 41
    operational risk 42
    The objectives of risk management, by applying efforts to maintain risk levels within the approved risk appetite,
    are as follows:
     protection of the shareholders’ equity,
     protection of customers’ deposits,
     support to the Group in pursuing effective activities.
    Risk is managed within the risk management policies and covers risk identification, measurement, monitoring, and
    reporting. The above also applies to control of Treasury operations by determining and verifying the principles of
    executing, organising, and measuring such transactions.
    Within each function, there is a clear segregation of duties and responsibilities and the rules set forth in internal
    regulations. The key role is played by the Financial Risk Department which independently drafts periodic reports
    using the models and risk measures approved by the Bank, and delivers them to the appropriate units.
    The risk management process is supervised by the Bank's Supervisory Board which is kept informed on the risk
    profile in the Bank and the Group and on major activities taken with respect to risk management. The Bank's
    Supervisory Board is supported by the following committees: the Remuneration Committee of the Supervisory
    Board, the Risk Com mittee of the Supervisory Board, and the Audit Committee of the Supervisory Board.
    Information on the nature and level of risk is provided to the Supervisory Board by the Management Board with
    the exception of the results of internal control of the marke t risk management system which are provided by the
    Director of the Internal Audit Department.
    With respect to risk management, the Management Board of Alior Bank SA is responsible for strategic risk
    management, including supervising and monitoring the task s taken by the Bank with respect to risk management.
    It takes major decisions that affect the Bank's risk profile and approves internal regulations of the Bank
    concerning risk management. In risk management, the Management Board is supported by the foll owing internal
    committees:
     Credit Risk Committee (ICAAP)
     Asset and Liability Committee (ALCO)
     Bank’s Credit Committee (KKB)
     Operational Risk Committee (KRO)


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    ALCO performs daily control over management of the market risk, including the liquidity risk. It takes all related
    decisions, unless previously restricted to the sole competences of the Management Board or the Supervisory
    Board.
    The duties of ALCO include, among others:
     ongoing control over management of the market risk related to the trading book and the banking book,
    including decisions in risk management for both books;
     approval of the Bank’s operational limits in money and capital markets;
     ongoing control over liquidity management at the Bank, related to the trading book and the banking book;
     recommending actions related to acquiring funding sources for the Bank and supervising the progress of the
    funding plan;
     decisions of model portfolio management.
    At the Bank, exposure to the risk is formally mitigated with a system of limits, periodically u pdated by resolutions
    of the Supervisory Board or ALCO, covering all risk metrics with the levels thereof monitored and reported by the
    Bank's organisational units independent of business. There are three types of limits at the Bank that differ in terms
    of coverage and functioning: core limits (approved by the Supervisory Board), supplementary limits, additional
    limits. Risk management is focused on potential changes to the economic result; with the Bank's quality
    requirements related to the risk managemen t process (internal control system, new product launch, analysis of
    the legal risk, analysis of the operational risk), non -quantifiable risks are mitigated that are related to treasury
    operations.
    The Bank estimates Value -at-Risk in relation to the market risk, using an analytical module of the treasury system.
    The Bank used the parametric VaR model in compliance with JP Morgan's methodology (RiskMetrics). The
    estimated 99% 1 -day VaR may be re -scaled to other times by multiplying the variability by the roo t of the
    multiple of the 1 -day period (e.g. 10 -Day VaR is calculated by multiplying 1 -day VaR by √10).
    The table below presents a 10 -day VaR for the Bank split into the banking and trading book as at the end of 2017
    and 2016.
    VaR (PLN '000) 31.12.2017 31.12.2016
    Banking book 14 430 11 849
    Trading book 928 1 909
    Total 14 985 12 314
    38 Credit Risk
    38.1 Description of the risk
    Definition of the credit risk
    The credit risk is understood as a risk of loss due to the customer's default to the Group or a risk of decreased
    economic value of the receivables of the Group as a result of the customer's deteriorated potential to service its
    debt.
    Objective of credit risk management
    The objective credit risk management is to reduce losses in the loan portfolio and to minimise the risk of
    occurrence of impaired credit exposures, while maintaining the anticipated profitability level and value of loan
    portfolio.
    Management of the credit risk and its maintenance at a safe level is of fundamental importance for a stable
    operation of the Bank and the Group. The credit risk is controlled with the regulations in force at the Bank, in
    particular lending methodologies an d risk measurement models, adjusted to the customer segments, product,


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    and transaction types, establishing and monitoring of collateral for loans, as well as the processes of monitoring
    and collecting receivables. The Bank takes measures to fully centralis e and optimise the processes within the
    systemic infrastructure, while relying on available external and internal information on customers.
    The credit risk management system is comprehensive and integrated with the Bank's operational processes. The
    core s tages of the credit risk management process include the following:
     identification;
     measurement;
     monitoring;
     reporting and control.
    Such process supports effective supervision over the actual and potential risks and the effective application of risk
    manage ment methods and instruments.
    In its credit risk management system, the Bank identifies internal and external credit risk factors with management
    assigned to the relevant areas of the Bank:
     Customers – verification covers each single customer, groups of r elated customers, as well as identified
    homogeneous customer groups in terms of the quality of their portfolio;
     Products – covers all defined risk types that may be inherent in each product: single instances and entire loan
    portfolios;
     Collateral – verific ation covers proper approval of collateral; its value and duration; correct preparation of
    documentation establishing collateral and updates of its values. In order to mitigate the credit risk, amended
    regulations are effectively implemented concerning col lateral to debt and updated standards are applied in
    the processes of collateral establishment;
     Process and regulations – verification covers the quality and effectiveness of the lending process, loan
    administration, monitoring, collecting and restructurin g, as well as co -operation with external collecting entities
    and compliance with external regulations of banking regulations supporting the processes;
     Systems – monitoring covers systems supporting lending, monitoring, and collecting processes, and their
    effectiveness;
     Distribution channels – verification applies to the effectiveness and loss ratio of the distribution channels
    functioning in the Bank;
     Employees – verification applies to the use of individually assigned credit competences, potential irregula rities
    are detected that may occur in the lending process;
     External conditions – monitoring covers in particular: the level of interest rates, FX rates, money supply,
    unemployment rate, changes in the labour market, economic conditions;
     Correctness of the credit risk management system – verification periodically checks if the assumptions made
    with respect to the Bank’s credit risk management policy are correct.
    Credit risk measurement and assessment
    The level of the credit risk is limited in line with the restrictions set forth in external and internal regulations, rules
    set by the Bank, in particular concerning restrictions for credit exposures to one customer, a group of customers
    related by capital and organisation and economic sectors.
    The Bank analyses the risk, both on an individual and portfolio basis, and it takes actions aimed at:
     minimising the level of the credit risk of a single loan with an assumed profitability level;
     reducing the overall credit risk resulting from holding a specific loan portfolio by the Bank.
    In the mitigation process of the risk level of individual exposures, when approving a loan or another credit
    product the Bank:
     assesses the customer's creditwo rthiness and credit capacity, including for example a detailed analysis of the
    exposure repayment sources;


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     assesses the approved collateral, including verification of its formal legal and economic condition, including for
    example LTV adequacy.
    Additionally , in order to reinforce risk control of individual exposures, the Bank regularly monitors customers by
    taking appropriate actions to mitigate risk, if any increased risk factors are identified.
    In order to mitigate the credit risk level of its portfolio, t he Bank:
    1. sets and controls concentration limits;
    2. monitors early warning signals within the EWS system;
    3. regularly monitors the loan portfolio, controlling all material parameters of the credit risk (e.g. PD, LTV, DTI,
    CoR, LGD, NPL, Coverage);
    4. regularly car ries out stress tests.
    The Bank grants credit products in line with the lending methodologies appropriate for the customer segment
    and product type. The assessment of the customer's creditworthiness preceding credit decisions is performed
    with a system sup porting the credit process, scoring or rating tools; external information (e.g. CBD DZ, CBD BR,
    BIK, BIG bases), and internal bases of the Bank. Credit products are granted in line with the Bank's operational
    procedures, specifying the steps to take in the lending process, the responsible units of the Bank, and the tools
    applied.
    Credit decisions are taken in line with the credit approval system prevailing at the Bank (authority levels are suited
    to the risk level related to each customer and transaction).
    In order to regularly assess the assumed credit risk and to mitigate potential losses on the existing loan exposures,
    during the lending term the Bank monitors the customer's condition by identifying early warning signals and
    periodic individual reviews of loan exposures.
    The Bank pursues a policy of dividing the functions related to customer acquisition and sale of credit products
    from the functions related to the assessment of the credit risk, approving credit decisions, or monitoring of credit
    exposures.
    Credit risk monitoring and reporting
    Regular protection of the quality of the loan portfolio is ensured by:
     ongoing monitoring of timely debt servicing;
     periodic reviews, in particular of the customers’ financial and economic condition and the value of the
    accepted collateral;
    The monitoring of individual customers covers the following areas:
     the customer;
     the score assigned to the debtor;
     the agreement that generated the risk exposure;
     the approved collateral;
     the amounts of impairment allowances and pr ovisions, if any.
    Monitoring of business customers covers in particular:
     the customer and its related entities;
     the sector of its business;
     the score assigned to the debtor;
     verification, if the customer complies with the covenants of the loan agreement th at has generated the loan
    exposure;
     the approved collateral (verification of the existence and value of the collateral);
     market conditions affecting the customer's creditworthiness;
     the amounts of impairment allowances and provisions, if any.
    All credit exposures in the business customer segment are additionally subject to portfolio monitoring as follows:


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     assessment on the basis of a dedicated model of behavioural assessment; and
     the identification process of early warning signals.
    All loan exposures of individual and business customers are subject to monitoring and ongoing classification to
    the appropriate process paths. In order to improve the monitoring and control of the operational risk, adequate
    solutions have been implemented in the Bank's credit systems. Systemic tools have been consolidated to ensure
    the effective use of the monitoring procedures, applicable to all accounts.
    Monitoring of exposures classified as standard and increased risk is applied regularly – such exposur es could
    intensify activities at pre -enforcement or collection proceedings. Accounts are subject to the assessment for a
    possibility to restructure the debt in order to mitigate the Bank's losses due to loan obligations not repaid on
    time.
    The monitoring p rocess ends with recommendations concerning the strategy of further co -operation with the
    customer.
    Monthly and quarterly reports on the credit risk are prepared at Alior Bank. Credit risk reporting covers periodic
    information on exposures of the loan port folio risk. Apart from information on the Bank, the reports also contain
    information on the credit risk level in the Bank's subsidiary companies where a material level of the credit risk has
    been identified (Alior Leasing sp. z o.o.).
    Credit risk managem ent tools
    Credit scoring is a tool supporting credit decisions for individual customers and micro enterprises while credit
    rating is an instrument supporting credit decisions in the segment of SMEs and large enterprises.
    The scoring and rating systems pro vide for:
     credit risk control with an assessment of the customers’ creditworthiness;
     unification of the criteria underlying credit decisions ensuring impartiality and objectivity;
     shortened time of credit decisions and guarantee of more effective assessmen t of loan applications (increased
    productivity and reduced handling costs);
     simplification of the assessment of loan applications due to process automation;
     customer segmentation by risk;
     monitoring and projection of the loan portfolio quality;
     easier asse ssment of the credit policy and faster modifications to decision processes serving to assess loan
    applications of business and individual customers.
    The Bank regularly monitors the correct functioning of the scoring and rating models. The objective of the review
    is to verify if the applied models appropriately differentiate risks and the estimated risk parameters appropriately
    reflect the relevant risk aspects. Additionally, functional controls are applied to verify the correct application of
    models in the credit process.
    The scoring models applied now have been developed internally by the Bank. In order to reinforce the risk
    management process of the models applied in the Bank, there is a team acting as an independent validation unit.
    The application of the scoring model results in:
     value of the decision -taking score of relevant customers/applications;
     scoring class with an assigned theoretical PD;
     scoring recommendation to the loan application in the form of: “Approval” or “Rejection”.
    The model type used to assess individual customers is subject to the type and nature of the requested credit
    product, the credit history, and the history of cooperation with the Bank. The model selected to assess business
    customers is subject to the customer being classi fied in a specific segment on the basis of their sales income.
    Scoring/rating results affect the standard risk costs charged on each transaction.


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    The knowledge of potential hazards related to exposure concentration at the Bank supports correct asset and
    liability management and development of a safe structure of the loan portfolio. In order to prevent adverse
    events resulting from excessive concentration, the Bank mitigates the concentration risk by setting limits and
    applying concentration standards result ing from external regulations and internal concentration standards.
    The Bank has launched:
     identification rules of areas of the concentration risk related to lending activities;
     a process of limit setting and updating;
     a process of limit management with a mode of procedure, if any limit level is exceeded;
     a process to monitor the concentration risk, including reporting;
     control over the concentration risk management process.
    In the process of setting and updating the concentration risk, the Bank takes into account:
     information on the credit risk level of the limited portfolio segments and their impact on compliance with the
    assumptions underlying the risk appetite with respect to the quality of the loan portfolio and the capital
    position of the Bank and the Bank's Gr oup;
     sensitivity of the limited portfolio segments to changes in the macroeconomic environment, reviewed regularly
    in the stress tests held;
     reliable economic and market information concerning each concentration of exposures, in particular
    macroeconomic, sectoral ratios, information on economic trends, subject to projected interest rates, FX rates,
    analysis of political risk, sovereign and financial institutions ratings;
     reliable information on the economic condition of entities, industries, sectors, gener al economic information,
    including the economic and political situation of countries, as well as other information required to assess the
    concentration risk inherent in the Bank;
     interactions between various risk types – credit, market, liquidity, and oper ational risks.
    Application of risk mitigation techniques – collateral
    The Bank establishes collateral in a manner adequate to the credit risk to which the Bank is exposed and flexible
    vis JaJvis customers’ potential. No collateral releases the Bank from it s obligation to verify the customer's
    creditworthiness.
    Loan collateral is to secure that the Bank will have the loan repaid along with interest and expenses due should
    the borrower fail to repay on the contractual dates and any restructuring activities fail to generate the anticipated
    effects.
    In particular, the Bank accepts the following collateral:
     guarantees, re -guarantees, and sureties;
     blocked items;
     registered pledge;
     transfer of title;
     assignment of receivables;
     assignment of loan insurance;
     bill of exchange;
     mortgages;
     powers of attorney to the bank account;
     security deposits (as a specific form of collateral).
    Collateral is verified in the credit process for its effectiveness to secure the Bank, its market value is measured as
    its realisable valu e in a potential enforcement process.
    38.2 Financial data


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    Maximum credit risk exposure
    Items in the statement of financial position 31.12.2017 31.12.2016 restated *
    Cash and balances with the Central Bank 253 092 16 959
    Financial assets held for trading 452 257 413 239
    Bonds 85 735 294
    Certificates 89 557
    Interest rate transactions 189 794 189 703
    Foreign exchange transactions 95 660 174 953
    Other options 52 450 28 736
    Other instruments 28 529 18 996
    Available for sale Financial assets 12 030 778 9 339 005
    Debt instruments 12 030 778 9 339 005
    issued by the State Treasury 9 651 360 6 197 981
    issued by monetary institutions 2 087 331 2 691 128
    issued by other financial institutions 91 387 156 746
    issued by companies 200 700 293 150
    Derivative hedging instruments 87 785 71 684
    Amounts due from banks 901 629 1 366 316
    Loans and advances to customers 51 266 640 46 247 188
    Retail segment 28 234 726 25 889 424
    Consumer loans 16 541 861 16 225 031
    Loans for residential real estate 9 547 786 8 407 632
    Consumer finance loans 2 145 079 1 256 761
    Corporate segment 23 031 914 20 357 764
    Working capital facility 11 904 696 10 749 077
    Investment loans 8 620 606 7 486 754
    Other 2 506 612 2 121 933
    Assets pledged as collateral 408 911 366 984
    Other financial assets 588 367 653 852
    Total 65 989 459 58 475 227
    Off-balance sheet items 31.12.2017 31.12.2016
    Off-balance sheet liabilities granted 12 498 037 14 483 652
    Relating to financing 11 253 862 12 979 086
    Financial guarantees 966 271 1 504 566
    Financial assets not overdue
    Internal rating classes
    The rating system covers, among others, the business customer segment which contains one common rating
    scale of PD composed of 25 classes (Q01 -Q25) that replaced the previous scoring scale for micro enterprises that
    do not have comprehensive accounting systems (classes B1 -B10) and five rating scales for enterprises with ful l
    reporting systems (classes A -J).
    In the individual customer segment, two scoring classes are used: (i) scale M1 – M10 for mortgage loans and (ii)
    scale K1 – K10 for loans other than mortgage loans.


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    Risk class 31.12.2017 31.12.2016
    Overdue receivables and without impairment
    Retail segment
    Mortgage loans, cash loans, credit cards, overdraft in ROR
    (1 – best class, 6 – worst class) 1 506 668 601 987
    2 527 016 603 978
    3 648 291 736 933
    4 734 377 828 111
    5 41 667 47 857
    6 3 458 6 424
    Loans, credit cards, overdraft in ROR – standard process
    (K1 – best class, K10 – worst class) K1 1 466 149 662 345
    K2 1 047 917 641 286
    K3 2 011 931 1 170 940
    K4 1 855 704 1 466 667
    K5 1 902 177 1 570 465
    K6 1 625 734 1 456 033
    K7 768 509 676 328
    K8 144 778 218 700
    K9 16 943 33 041
    K10 1 414 3 206
    Mortgage loans
    (M1 – best class, M10 – worst class) M1 3 970 3 586
    M2 29 638 28 188
    M3 155 952 138 149
    M4 591 155 510 387
    M5 1 530 739 1 287 607
    M6 2 106 103 1 720 101
    M7 1 665 908 1 323 442
    M8 1 097 608 865 187
    M9 443 864 346 980
    M10 98 662 81 616
    No scoring 4 291 879 1 936 772
    Total retail segment 25 318 211 18 966 316
    Corporate segment
    Expiring portfolio covered with obsolete models
    (1 – best class, 6 – worst class) 1 585 1 048
    2 1 416 7 029
    3 2 638 2 573
    4 903 3 474
    5 0 0
    Models for micro enterprises with incomplete accounting systems and Models for entities using books of account, car dealers and developers
    (Q01 – best class, Q25 – worst class)
    Q01 8 095 1 523
    Q02 22 334 1 586
    Q03 54 502 20 843
    Q04 112 595 106 451


    C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s o f t h e
    A l i o r B a n k SA G r o u p
    f o r t h e y e a r e n d e d 3 1 D e c e m b e r 2 0 1 7
    ( i n P L N ‘ 0 0 0 )
    1 0 0
    Risk class 31.12.2017 31.12.2016
    Q05 41 278 214 430
    Q06 1 447 330 408 400
    Q07 399 087 578 427
    Q08 616 210 1 066 920
    Q09 909 229 512 804
    Q10 1 234 705 532 280
    Q11 1 578 907 1 062 500
    Q12 1 654 896 1 743 785
    Q13 2 035 383 1 188 322
    Q14 1 352 479 1 610 199
    Q15 1 208 699 949 263
    Q16 1 378 613 1 008 644
    Q17 1 104 571 707 562
    Q18 812 870 528 414
    Q19 574 450 441 761
    Q20 434 048 251 781
    Q21 273 363 223 015
    Q22 214 772 253 231
    Q23 127 036 58 984
    Q24 117 639 85 787
    Q25 39 680 39 639
    No rating 1 971 681 1 103 854
    Total corporate customers 19 729 994 14 714 528
    Overdue receivables and without impairment 45 048 205 33 680 844
    Not overdue receivables with impairment 987 893 297 084
    Retail segment 68 199 59 977
    Corporate segment 919 694 237 107
    Total receivables from customers not overdue 46 036 098 33 977 928
    Available for sale financial assets
    issued by non -financial institution s 115 194 219 735
    issued by other financial i nstitution s 91 387 96 868
    Available for sale financial assets , not overdue and without impairment 206 581 316 603
    Available for sale financial assets or not overdue with impairment 85 506 73 415
    Total available for sale financial assets , not overdue 292 087 390 018
    Financial assets held for trading
    Derivative instruments
    (Q01 – best class, Q25 – worst class) Q01 15 0
    Q02 0 5 802
    Q03 6 504 29
    Q04 988 8 075
    Q05 480 1 400
    Q06 3 653 8 585
    Q07 714 4 107
    Q08 2 348 24 995
    Q09 9 743 11 283
    Q10 12 234 8 375
    Q11 14 226 13 611
    Q12 15 737 13 858


    C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s o f t h e
    A l i o r B a n k SA G r o u p
    f o r t h e y e a r e n d e d 3 1 D e c e m b e r 2 0 1 7
    ( i n P L N ‘ 0 0 0 )
    1 0 1
    Risk class 31.12.2017 31.12.2016
    Q13 18 223 9 510
    Q14 3 540 23 737
    Q15 8 051 8 860
    Q16 3 873 12 287
    Q17 13 245 8 605
    Q18 4 755 4 416
    Q19 4 433 4 655
    Q20 4 309 3 204
    Q21 6 038 4 320
    Q22 1 257 1 277
    Q23 2 283 516
    Q24 2 078 8 830
    Q25 300 309
    No scoring 5 618 15 451
    Shares 294 6 312
    Bonds 85 735 294
    Certificates 89 557
    Total financial assets held for trading 230 763 213 260
    Due to a different rating model in the demerged part of Bank BPH acquired by Alior Bank SA, the data is
    disclosed separately.
    Risk group average PD 31.12.2016
    Retail segment
    1-3 0.1% 4 648
    4 (4+, 4, 4 -) 0.5% 145 292
    5 (5+, 5, 5 -) 1.3% 736 766
    6 (6+, 6, 6 -) 3.2% 2 497 289
    7 (7+, 7, 7 -) 8.2% 501 771
    8 (8+, 8) above 20% 149 013
    Impaired portfolio (8 -, 9, 10) 4
    No rating 19 029
    Total retail segment 4 053 812
    Corporate segment
    1-3 0.1% 184 068
    4 (4+, 4, 4 -) 0.5% 903 654
    5 (5+, 5, 5 -) 1.3% 1 349 918
    6 (6+, 6, 6 -) 3.2% 695 052
    7 (7+, 7, 7 -) 8.2% 159 273
    8 (8+, 8) above 20% 18 556
    Impaired portfolio (8 -, 9, 10) 96 116
    No rating 63 627


    C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s o f t h e
    A l i o r B a n k SA G r o u p
    f o r t h e y e a r e n d e d 3 1 D e c e m b e r 2 0 1 7
    ( i n P L N ‘ 0 0 0 )
    1 0 2
    Risk group average PD 31.12.2016
    Total corporate segment 3 470 264
    Overdue receivables and without impairment 7 524 076
    Not overdue receivables with impairment 200 186
    Retail segment 47 044
    Corporate segment 153 142
    Total receivables from customers, not overdue 7 724 262
    Fianancial assets held for trading
    1-3 0.1% 1 409
    4 (4+, 4, 4 -) 0.5% 4 418
    5 (5+, 5, 5 -) 1.3% 12 728
    6 (6+, 6, 6 -) 3.2% 6 846
    7 (7+, 7, 7 -) 8.2% 150
    8 (8+, 8) above 20% 1 464
    No rating
    Total fianancial assets held for trading 27 103
    External rating classes
    Portfolio/Rating AAA AA- to AA+ A- to A+ BBB - to BBB+ BB- to BB+ B- to B+ Without rating 31.12.2017
    Amounts due from banks 0 117 650 568 505 6 544 14 585 0 191 693 898 977
    Available for sale, of which: 0 0 11 946 993 0 0 0 91 387 12 038 380
    Debt securities 0 0 11 925 588 0 0 0 91 387 12 016 975
    issued by the Central Bank 0 0 1 999 666 0 0 0 0 1 999 666
    Issued by the State Treasury 0 0 9 838 257 0 0 0 0 9 838 257
    issued by banks 0 0 87 665 0 0 0 0 87 665
    Issued b y other financial i nstitutions 0 0 0 0 0 0 91 387 91 387
    Equity instruments 0 0 21 405 0 0 0 0 21 405
    Issued by other financial institutions 0 0 21 405 0 0 0 0 21 405
    Investment securities held to maturity 0 0 1 117 894 0 0 0 0 1 117 894
    Assets pledged as collateral 0 0 408 188 0 0 0 723 408 911
    Derivative instruments 0 25 202 732 9 019 0 0 10 012 221 788
    Total 0 117 675 14 244 312 15 563 14 585 0 293 815 14 685 950
    Portfolio/Rating AAA AA- to AA+ A- to A+ BBB - to BBB+ BB- to BB+ B- to B+ Without rating 31.12.2016
    Amounts due from banks 0 88 791 1 124 622 84 655 3 394 64 854 1 366 316
    Available for sale, of which: 0 0 8 906 021 0 0 0 78 607 8 984 628
    Debt securities 0 0 8 889 109 0 0 0 59 880 8 922 933
    issued by the Central Bank 0 0 2 599 538 0 0 0 0 2 599 538
    issued by the State Treasury 0 0 6 197 981 0 0 0 0 6 197 981
    issued by banks 0 0 91 590 0 0 0 0 91 590
    Issued by other financial i nstitutions 0 0 0 0 0 0 59 880 0
    Equity instruments 0 0 16 912 0 0 0 0 16 912
    Issued by other financial i nstitutions 0 0 16 912 0 0 0 0 16 912
    Investment securities held to maturity 0 0 1 954 0 0 0 0 1 954


    C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s o f t h e
    A l i o r B a n k SA G r o u p
    f o r t h e y e a r e n d e d 3 1 D e c e m b e r 2 0 1 7
    ( i n P L N ‘ 0 0 0 )
    1 0 3
    Portfolio/Rating AAA AA- to AA+ A- to A+ BBB - to BBB+ BB- to BB+ B- to B+ Without rating 31.12.2016
    Assets pledged as collateral 0 0 365 732 0 0 0 1 252 366 984
    Derivative instruments 0 33 143 001 15 288 0 0 20 866 179 188
    Total 0 88 824 10 541 330 99 943 3 394 0 165 579 10 899 070
    Overdue financial assets
    31.12.2017 up to 1 month 1 to 3 months, 3 months to 1 year 1 to 5 years above 5 years Total
    Receivables, without impairment 2 290 111 749 443 123 031 201 112 15 804 3 379 501
    Retail segment 1 487 219 472 567 8 479 15 142 1 408 1 984 815
    Corporate segment 802 892 276 876 114 552 185 970 14 396 1 394 686
    Impaired receivables 79 582 133 858 674 248 870 703 92 650 1 851 041
    31.12.2017 up to 1 month 1 to 3 months, 3 months to 1 year 1 to 5 years above 5 years Total
    Retail segment 36 012 72 653 316 053 423 481 15 303 863 502
    Corporate segment 43 570 61 205 358 195 447 222 77 347 987 539
    Total receivables 2 369 693 883 301 797 279 1 071 815 108 454 5 230 542
    31.12.2016 up to 1 month 1 to 3 months, 3 months to 1 year 1 to 5 years above 5 years Total
    Receivables, without impairment 2 187 184 537 232 119 213 130 302 3 250 2 977 180
    Retail segment 1 519 443 404 861 12 907 33 458 539 1 971 208
    Corporate segment 667 741 132 370 106 305 96 844 2 711 1 005 972
    Impaired receivables 172 927 137 080 521 604 722 184 14 023 1 567 817
    Retail segment 51 155 81 415 289 363 364 528 4 668 791 129
    Corporate segment 121 772 55 665 232 240 357 656 9 355 776 688
    Total receivables 2 360 111 674 312 640 817 852 486 17 273 4 544 998
    Loans subject to forbearance
    As forbearance the Bank treats actions aimed at modifying contractual terms and conditions as agreed with the
    debtor or issuer, due to their difficult financial condition (restructuring introducing easements that would not have
    been accepted otherwise). The objective of forbearance efforts is to restore the debtor’s or issuer's potential to
    meet their obligations vis -a-vis the Bank and to maximise the effectiveness of irregular loan manag ement –
    obtaining maximum recoveries, while minimising the related costs.
    In the restructuring process of Individual Customers, the Bank applies the following tools:
     extension of the lending period. Extended lending periods result in reduced monthly princ ipal and interest
    instalments and it is possible up to 120 months (for unsecured products), irrespective of the original lending
    period. If within such restructuring, the lending period is extended once to the maximum period, the tool may
    not be used again in the future. When the lending period is extended, certain restrictions are taken into
    account as specified in the product features, e.g. the borrower's age.
     granting a grace period in repayment (of an instalment in full or in part). During the grace per iod in
    repayment of the principal and interest instalments, the borrower is not obliged to make any payments under
    the agreement. The loan repayment period may be extended by the term of a grace period (this is not
    identical to the extension of the lending period). A grace period of a full instalment may be applied by up to 3
    months and a grace period of the principal part of instalment – up to 6 months. The maximum grace period
    may be 6 months within 2 consecutive years (24 months) of the date of the restr ucturing annex;


    C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s o f t h e
    A l i o r B a n k SA G r o u p
    f o r t h e y e a r e n d e d 3 1 D e c e m b e r 2 0 1 7
    ( i n P L N ‘ 0 0 0 )
    1 0 4
     consolidation of several obligations at w Alior Bank, including modifications to limit in LOR
    accounts/unauthorised debit in ROR/KK, into an instalment loan. Such consolidation converts a number of
    obligations under various contracts into o ne obligation. The product resulting from consolidation is repaid in
    monthly instalments on the basis of an agreed repayment schedule. The parameters of the product activated
    as a result are compliant with the features of cash loans/consolidation loans.
    In specific instances, other tools may be used.
    In the restructuring process of business customers no restrictions have been made as to the applied
    forbearance practices. due to the specific nature of the customers, the most frequently applied tools include :
     agreement by modifying the repayment schedule of the overdue exposures (after the repayment date or
    termination). This consists in transfer of the debt from one or more exposures to a non -revolving account with
    potential repayment schedules: settling the entire debt over time or settling a part of the debt over time with
    the remaining part repayable at the end of period;
     an annex reducing the limit in revolving loans. This consists in a systematic reduction of the credit limit (most
    often on a monthly bas is) by an amount specified in the annex;
     An annex modifying the repayment period/instalment amount or grace period for the principal/interest.
    Reporting of the quality of the restructured loan portfolio covers reporting at the levels of individual overdue
    baskets when a restructuring decision has been taken, or at an aggregated level. Calendar months are the core
    reporting periods.
    With respect to the exposures subject to forbearance, the bank applies stricter criteria to identify impairment
    indicators. Apart from a standard catalogue of the indicators, with respect to such exposures, additional criteria
    are applied, defined as the occurrence of one of the following situations at the time the forbearance decision is
    made:
     delay in excess of 30 days;
     other impairment indications;
     assessment by an analyst that hazards exist to timely repayment (in case of individual customers);
     assessment of the cus tomer's economic and financial condition as sub -standard or worse (in case of business
    customers).
    In 2014 the Bank implemented a mechanism of marking the entry and exist in the forbearance status, in
    compliance with “EBA FINAL draft Implementing Technical Standards On Supervisory reporting on forbearance
    and non -performing exposures under article 99(4) of Regulation (EU) No 575/2013”. The modifications did not
    affect the method to identify impairment and the conditions to reverse losses. Having identified impairment
    indicators to exposures subject to forbearance practices, the Bank applies the principle that 3 consecutive timely
    repayments incompliance with the new schedule are accepted as disappearance of impairment indicators.
    The Bank does not different iate its approach to identifying impairment on the type of forbearance granted to
    customers. All types of forbearance are subject to additional stricter criteria of impairment identification.
    Loans to customers subject to forbearance 31.12.2017 31.12.201 6
    Retail segment 139 173 183 788
    without identified impairment 42 547 66 287
    with identified impairment 203 210 293 305
    IBNR -229 -655
    impairment allowances -106 355 -175 149
    assessed as a portfolio -106 355 -175 149
    Corporate segment 484 955 615 948
    without identified impairment 231 164 188 735


    C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s o f t h e
    A l i o r B a n k SA G r o u p
    f o r t h e y e a r e n d e d 3 1 D e c e m b e r 2 0 1 7
    ( i n P L N ‘ 0 0 0 )
    1 0 5
    Loans to customers subject to forbearance 31.12.2017 31.12.201 6
    with identified impairment 442 811 635 651
    IBNR -203 -1 856
    impairment allowances -188 817 -206 582
    assessed individually -141 409 -156 462
    assessed as a portfolio -47 408 -50 120
    Total net receivables 624 128 799 736
    Loans to customers subject to forbearance 31.12.2017 31.12.2016
    with identified impairment 350 849 547 225
    of which: collateral value 204 822 339 707
    without identified impairment 273 279 252 511
    of which: collateral value 206 068 143 256
    not overdue 105 620 109 180
    overdue 167 659 143 331
    Total 624 128 799 736
    Loans granted to customers subject to forbearance by geographical region 31.12.2017 31.12.2016
    dolnośląski 25 915 20 609
    kujawsko -pomorski 36 477 16 068
    lubelski 18 510 25 208
    lubuski 52 510 24 605
    łódzki 40 351 38 465
    małopolski 112 763 135 912
    mazowiecki 156 129 125 188
    opolski 13 149 12 924
    podkarpacki 10 734 14 014
    podlaski 8 109 7 041
    pomorski 30 521 272 732
    śląski 43 813 45 803
    świętokrzyski 5 028 3 836
    warmińsko -mazurski 16 587 10 888
    wielkopolski 48 167 39 828
    zachodniopomorski 5 365 6 615
    Total net receivables 624 128 799 736
    Change of carrying value of loans to customers that are subject to forbearance 31.12.2017 31.12.2016
    Net carrying value at the beginning of period 799 736 356 019
    change due to acquisition of the demerged part of BPH 0 307 878
    Impairment allowances 86 559 -34 609
    Gross carrying value of loans and borrowings derecognised in the period -398 100 -46 103
    Gross carrying value of loans and borrowings newly recognised in the period 196 655 235 434
    Other changes -60 722 -18 883
    Net carrying value at the end of period 624 128 799 736


    C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s o f t h e
    A l i o r B a n k SA G r o u p
    f o r t h e y e a r e n d e d 3 1 D e c e m b e r 2 0 1 7
    ( i n P L N ‘ 0 0 0 )
    1 0 6
    In 2017 and 2016 the amount of interest income on loans subject to forbearance was PLN 3 4 977 thousand and
    PLN 30 114 thousand, respectively.
    Concentration
    Ten largest borrowers Currency 31.12.2017 Currency 31.12.2016
    Company 1 PLN 240 000 EUR,PLN 240 607
    Company 2 PLN 234 010 EUR 145 992
    Company 3 PLN 229 973 EUR 142 639
    Company 4 PLN 223 184 PLN 124 800
    Ten largest borrowers Currency 31.12.2017 Currency 31.12.2016
    Company 5 EUR,PLN 216 398 EUR 121 210
    Company 6 PLN 199 979 PLN 115 853
    Company 7 PLN 145 032 EUR 114 255
    Company 8 EUR 136 358 PLN 106 047
    Company 9 EUR 132 064 PLN 104 703
    Company 10 EUR 124 686 EUR 101 665
    The table below presents the exposures to the business customers of Alior Bank split by sector.
    Section by PKD 2007 Section name 31.12.2017 31.12.2016
    Section A Agriculture, forestry, hunting, and fishery 589 819 464 692
    Section B Mining and quarrying 210 378 224 400
    Section C Manufacturing 6 020 738 6 876 624
    Section D: Electricity, gas, steam and air conditioning supply 1 583 724 2 115 382
    Section E Water supply, sewage and waste management, and remediation 150 679 153 724
    Section F Construction. 5 814 791 5 223 464
    Section G Wholesale and retail trade; repair of motor vehicles and motorcycles 6 162 531 5 931 545
    Section H: Transportation and storage 1 599 849 946 704
    Section I Accommodation and food service activities 1 800 926 1 696 535
    Section J Information and communication 1 251 099 1 059 039
    Section K Financial and insurance activities 3 178 458 1 864 667
    Section L Real estate activities 5 837 599 4 730 084
    Section M Professional, scientific and technical activities 1 058 691 1 058 141
    Section N: Administrative and support service activities 773 832 615 039
    Section O: Public administration and defence; compulsory social security 6 349 1 753
    Section P: Education 124 380 120 375
    Section Q: Human health and social work activities 649 964 619 156
    Section R Arts, entertainment, and recreation 516 044 358 481
    Section S Other service activities 155 190 100 285
    Section U: Activities of extraterritorial organisations and bodies 4 3 349
    Total 37 485 045 34 163 439



    C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s o f t h e
    A l i o r B a n k SA G r o u p
    f o r t h e y e a r e n d e d 3 1 D e c e m b e r 2 0 1 7
    ( i n P L N ‘ 0 0 0 )
    1 0 7
    The above exposures to business customers include:
     loan amount (on - and off -balance sheet exposure, net of interest and charges and without any write -offs)
    reduced by provided security deposits;
     unauthorised current account overdraft;
     treasury limits are reduced by provided security deposits, including debt securities in the Bank's books issued
    by an entity in the relevant section.
    As at the end of 2017, the amount of exposures falling within internal concentration limits was PLN 68 270 945
    thousand, of which PLN 37 485 045 thousand were exposures to business customers and PLN 30 785 900
    thousand to individual customers. As at the end of 2016, the amount of exposures falling within internal
    concentration limits was PLN 61 908 393 thousand, of which PLN 34 163 439 thousand were exposures t o
    business customers and PLN 27 744 954 thousand to individual customers.
    Country 31.12.2017 31.12.2016
    Poland 67 237 207 60 987 815
    United Kingdom 220 924 298 043
    Luxembourg 464 062 228 971
    Cyprus 101 683 118 813
    Sweden 85 564 87 117
    Hungary 59 581 78 068
    Switzerland 23 557 27 013
    Germany 19 387 19 948
    Ireland 20 242 18 806
    The Netherlands 12 293 13 884
    Other countries 26 445 29 915
    TOTAL 68 270 945 61 908 393
    39 Interest rate risk
    39.1 Description of the risk
    Definition of the interest rate risk
    The interest rate risk is defined (including the interest rate risk in the banking book) as a risk of adverse impact of
    market interest rates on the current results or the net present value of the Bank's equity. Du e to its policy to
    mitigate the risks in the trading book, the Bank attaches special importance to specific interest rate risk aspects
    related to the banking book, such as:
     mismatch risk of repricing periods;
     base risk, or the impact of non -parallel change of various reference indices with a similar repricing time on the
    Bank's results;
     risk of profitability curve;
     risk of customers’ options.
    Additionally, with respect to the interest rate risk, the Bank pays special attention to modelling accounts with
    uns pecified maturities and interest rates set by the Bank (e.g. for current deposits), as well as the impact of non -
    interest items in the risk (e.g. equity, fixed assets).



    C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s o f t h e
    A l i o r B a n k SA G r o u p
    f o r t h e y e a r e n d e d 3 1 D e c e m b e r 2 0 1 7
    ( i n P L N ‘ 0 0 0 )
    1 0 8
    Objective of interest rate risk management
    The objective of interest rate risk management is to mitigate potential losses due to changes of market interest
    rates to the acceptable level with an appropriate structure of on - and off -balance sheet items.
    In order to manage the interest rate risk, the Bank differentiates between trading activity covering securities and
    derivative instruments, concluded for commercial purposes, and banking activity covering other securities, own
    issues, loans, deposits, and derivative transactions uses to hedge the risk of the banking book risk.
    Measurement and assessment of the interest rate risk
    Interest rate of the banking portfolio is measured and assessed by limiting the volatility of net interest income (NII)
    and by limiting changes to the economic value of the B ank's equity (EVE). Apart from NII and EVE, in its interest
    rate measurements the Bank applies BPV and VaR and stress tests.
    BPV identifies the estimated change to the measurement of a transaction/position as a result of a shift of the
    profitability curve at the relevant point by 1bp. The BPV value is measured on a daily basis at each point of the
    curve with reference to each cu rrency.
    VaR identifies the potential loss on the existing positions, related to changes of interest rates, while maintaining
    the assumed confidence level position maintenance period. In order to calculate VaR, the Bank applied a
    variance -covariance metho d with the confidence level of 99% The value is determined daily for each area
    responsible for risk assumption and management, individually and jointly.
    Monitoring and repo rting of the interest rate risk
    Regular reports are made at Alior Bank of the follo wing:
     Interest rate risk measurement level,
     utilisation degree of the internal capital allocated to the interest rate risk,
     utilisation degree of internal limits and threshold values for the interest rate risk,
     results of stress tests.
    Reports concer ning the interest rate risk are made on a daily, weekly, monthly, and quarterly basis.
    Tools for interest rate risk management
    The core of interest rate risk management tools at Alior Bank are as follows:
    • internal procedures relating to interest rate risk management;
    • interest rate risk metrics like NII, EVE, VaR, BPV;
    • limits and threshold values for each interest rate risk metric;
     stress tests (including scenario analyses covering, among other, the impact of specified changes to interest
    rates on f uture net interest income and the economic value of equity).
    39.2 Financial data
    Sensitivity metrics
    BPV estimates as at 31 December 2017 and 31 December 2016 are presented in the tables below:
    BPV at the end of 2017 split into tenors:
    Currency Up to 6 month s 6 months to 1 year 1-3 years 3-5 years 5-10 years Total
    PLN 3.4 192.5 195.7 95.1 -90 396.7
    EUR -0.5 -8.1 61.3 90 -4.5 138.2
    USD 1 8.1 -2.2 -0.2 -1 5.6
    CHF -1 0.1 -1 0 0 -1.8
    GBP -4 2 0 0 0 -2
    Other -1 2.1 -1 -0.2 0 -0.3
    Total -1.8 196.7 253 184.7 -96 536.5



    C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s o f t h e
    A l i o r B a n k SA G r o u p
    f o r t h e y e a r e n d e d 3 1 D e c e m b e r 2 0 1 7
    ( i n P L N ‘ 0 0 0 )
    1 0 9
    BPV at the end of 2016 split into tenors:
    Currency Up to 6 months 6 months to 1 year 1-3 years 3-5 years 5-10 years Total
    PLN -19 305.4 605 111.3 -434 568.9
    EUR -16 0.3 -29 -43.7 -35 -123.1
    USD 13 11.1 -13 -0.2 -1 9.9
    CHF -1 -0.3 -2 -0.2 0 -2.7
    GBP 0 2.5 0 0 0 2.8
    Other -2 -5 3 -0.1 0 -3.9
    Total -25 314 565 67 -469 452
    BPV statistics
    01.01.2017 -31.12.2017 01.01.2016 -31.12.2016
    Book Minimal Medium Maximum Minimal Medium Maximum
    Banking book -1 298. 3 -575 138. 8 -2 459 -753. 75 -375
    Trading book -75.6 5.9 70 -49 -11.39 33
    ALCO 419. 6 1 440. 6 2 225. 1 499 969. 52 1 814
    Total 212 872 1 611 -771 204 583
    VaR values in 2017 and 2016 are presented in the table below (99% VaR with a horizon of 10 days).
    01.01.2017 -31.12.2017 01.01.2016 -31.12.2016
    Book Minimal Medium Maximum Minimal Medium Maximum
    Banking book 6 346 18 123 31 068 3 493 10 935 32 883
    Trading book 870 2 208 4 009 588 1 650 5 485
    Total 6 046 19 398 32 043 3 733 11 687 38 120
    Change to the economic value of capital
    Use of the change of economic value of equity with a parallel shift of interest rate curves by +/ - 200bps and non -
    parallel shifts with scenarios of +/ - 100/400bps (in tenors 1M/10Y, between them – linear interpolation of the
    shift) as at the end of December 2017 and 2016 are presented below:
    Scenario (1M/10Y) Change to the economic value of equity 31.12.2017
    Change to the economic value of equity 31.12.2016
    +400 /+ 100 188 906 233 976
    +100 / - 400 67 831 30 853
    +200 /+ 200 102 857 106 191
    -200 / – 200 -84 863 -108 574
    - 100 / – 400 -42 814 -44 898
    - 400 / – 100 -94 591 -107 990
    Net interest volatility
    Net interest volatility over 1 -year horizon with a change of interest rates by 100bps (inactive scenario) as at the
    end of 2017 and as at the end of 2016 was presented after
    31.12.2017 31.12.2016
    NII 6.96% 9.49%



    C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s o f t h e
    A l i o r B a n k SA G r o u p
    f o r t h e y e a r e n d e d 3 1 D e c e m b e r 2 0 1 7
    ( i n P L N ‘ 0 0 0 )
    1 1 0
    Repricing gap
    The repricing gap presents a difference between the present value of assets and liabilities exposed to the interest
    rate risk, subject to repricing within the time interval, and the items are recognised on the transaction date.
    The repricing gap in PLN, EUR and USD as at the end of 2017 is presented below.
    Repricing gap in PLN
    2017 1M 3M 6M 1Y 2Y 5Y >5Y Total
    Periodic gap 38 164 862 -12 742 445 -12 304 074 1 030 872 -2 762 148 -3 889 341 -753 042 6 744 685
    Cumulated gap 38 164 862 25 422 417 13 118 343 14 149 214 11 387 067 7 497 726 6 744 685
    Repricing gap in USD
    2017 1M 3M 6M 1Y 2Y 5Y >5Y Total
    Periodic gap -45 709 205 957 233 420 135 286 60 501 -16 291 -3 865 569 300
    Cumulated gap -45 709 160 248 393 668 528 955 589 456 573 165 569 300
    Repricing gap in EUR
    2017 1M 3M 6M 1Y 2Y 5Y >5Y Total
    Periodic gap 839 042 -479 932 -519 347 50 862 33 404 -75 741 -16 156 -167 869
    Cumulated gap 839 042 359 109 -160 237 -109 375 -75 972 -151 713 -167 869
    40 Foreign exchange risk (FX risk)
    40.1 Description of the risk
    Defin ition of the foreign exchange risk
    The foreign exchange risk is defined as a risk of a loss resulting from changing FX rates. Additionally, the Bank
    identifies the impact of FX rates on its results over a long -time perspective as a result of conversion of future FX -
    denominated income and expenses at potentially disadvantageous FX rates. The risk related to future results may
    be managed within the FX model portfolio.
    The objective of foreign exchange risk management
    The core objective of foreign exchange risk management is to identify those areas of the Bank's business that may
    be exposed to the risk and to take measures to mitigate potential related losses as much as possible. The Bank's
    Management Board identifies the FX risk profile whi ch must be compliant with the Bank's applicable financial plan.
    Foreign exchange risk measurement and assessment
    The foreign exchange risk is measured and assessed by limiting the FX positions opened by the Bank. In order to
    measure the FX risk, the Bank uses VaR and stress tests.
    VaR identifies the potential loss on existing positions, related to changes of FX rates, while maintaining the
    assumed confidence level and the position maintenance period. In order to calculate VaR, the Bank applied a
    variance -covariance method with the confidence level of 99%. The value is determined daily for each area
    responsible for risk assumption and management, individually and jointly.
    Foreign exchange risk monitoring and reporting
    Alior Bank regularly monitors and rep orts:


    C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s o f t h e
    A l i o r B a n k SA G r o u p
    f o r t h e y e a r e n d e d 3 1 D e c e m b e r 2 0 1 7
    ( i n P L N ‘ 0 0 0 )
    1 1 1
     FX risk measure levels,
     utilisation degree of the internal limits and threshold values for the FX risk,
     results of stress tests.
    Reports concerning the FX risk are made on a daily, weekly, monthly, and quarterly basis.
    FX risk limits are set so that the risk remains at a restricted level.
    The Bank may also execute transactions to hedge future FX cash flows with adequate realisation certainty (e.g.
    rental costs, FX currency denominated net interest income). The objective is to mitigate volatility of the results in
    the current financial year by no more than 60%.
    FX risk management tools
    The core foreign exchange risk management tools at Alior Bank are as follows:
     internal procedures relating to FX risk management;
     internal FX risk models and metri cs;
     limits and threshold values for the FX risk;
     limitations to allowable FX transactions;
     stress tests.
    40.2 Financial data
    Sensitivity metrics
    As at the end of December 2017, the maximum loss on the FX portfolio held by the Bank (managed within the
    trading b ook), determined on the basis of VaR over a time horizon of 10 days, could be PLN 157,474.83, with the
    assumed confidence level of 99%.
    31.12.2017 31.12.2016
    Horizon [days] 10 10
    VaR [PLN] 157 474.83 279 628.70
    VaR statistics in the Bank’s FX portfolio in 2017 and 2016
    VaR 31.12.2017 31.12.2016
    Minimum 29.26 21.48
    Medium 309.69 310.62
    Max 1 648.53 4 748.08
    An assumed normal distribution of the values of risk factors in the VaR model may in practice result in
    underestimation of losses in stress scenarios (the phenomenon of “excess kurtosis”). As a result, the Bank
    performs stress tests.
    In order to measure its exposure to the FX risk, the Bank carries out stress tests. Below are presented the results of
    stress tests of changes to FX rates versus PLN by +/ - 20%.
    31.12.2017 31.12.2016
    FX rates + 20% 29 930.08 -1 969.58
    FX rates -20% 15 521.79 1 969.58
    Foreign c urrency position
    The amounts of f oreign currency positions in the Alior Bank Group are presented in the table below:


    C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s o f t h e
    A l i o r B a n k SA G r o u p
    f o r t h e y e a r e n d e d 3 1 D e c e m b e r 2 0 1 7
    ( i n P L N ‘ 0 0 0 )
    1 1 2
    31.12.2017 Balance sheet item Off – balance sheet item Net position
    Foreign currency position Long Short Long Short Long Short
    EUR 4 370 783 -3 615 200 4 841 224 -5 578 618 18 189
    USD 58 657 -2 500 921 3 453 122 -1 040 447 -29 589
    CHF 224 426 -192 012 52 536 -85 856 -906
    GBP 337 222 -628 890 382 798 -90 771 360
    Other currencies 301 809 -491 210 465 151 -286 307 -10 556
    Total 5 292 898 -7 428 233 9 194 832 -7 082 000 18 548 -41 051
    31.12.2016 Balance sheet item Off – balance sheet item Net position
    Foreign currency position Long Short Long Long Short Short
    EUR 6 401 771 -5 247 487 4 611 697 -5 763 740 2 241
    USD 515 816 -2 195 077 2 935 074 -1 262 827 -7 014
    CHF 267 170 -134 993 80 543 -212 648 72
    GBP 311 588 -577 859 372 433 -106 208 -46
    Other currencies 230 337 -354 362 382 330 -265 210 -6 905
    Total 7 726 682 -8 509 778 8 382 077 -7 610 633 2 313 -13 965
    The volume of foreign currency positions (apart from FX rate volatility) is the core factor determining the FX risk
    level to which the Bank and the Group are exposed. All concluded FX transactions, both on - and off -balance
    sheet ones, affect the level of FX positions. The Bank's expos ure to the FX risk is low (with reference to equity, the
    10 -day VaR for the Bank's FX position as at 31 December 2017 was about 0.0023% and as at 31 December 2016
    – 0.0045%, respectively.
    Currency structure
    FX amounts translated into PLN – 31.12.2017
    Assets PLN EUR USD Other
    Cash and balances with Central Bank 661 251 139 371 83 488 81 281
    Financial assets held for trading 405 808 43 457 3 157 129
    Available -for-sale financial assets 11 756 707 279 607 36 010 0
    Investment securities held to maturity 1 117 894 0 0 0
    Derivative hedging instruments 87 785 0 0 0
    Amounts due from banks 73 512 355 942 91 347 380 828
    Loans and advances to customers 45 472 896 5 099 309 176 766 517 669
    Assets pledged as collateral 408 911
    Property, plant and equipment 473 758 0 0 1 933
    Intangible assets 541 492 0 0 7 095
    Investments in subsidiaries 0 0 0 0
    Non -current asset held for sale 357 0 0 0
    Income tax assets 565 141 0 0 4 439
    Deferred 565 141 0 0 4 439
    Other assets 595 786 29 361 612 681
    Assets 62 161 298 5 947 047 391 380 994 055



    C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s o f t h e
    A l i o r B a n k SA G r o u p
    f o r t h e y e a r e n d e d 3 1 D e c e m b e r 2 0 1 7
    ( i n P L N ‘ 0 0 0 )
    1 1 3
    Liabilities and equity PLN EUR USD Other
    Financial liabilities held for trading 409 705 23 127 2 522 524
    Amounts due to banks 845 992 45 571 65 17
    Amounts due to customers 48 478 169 4 925 920 2 782 222 1 428 182
    Derivative hedging instruments 5 419 0 0 0
    Provisions 87 431 2 978 38 10
    Other liabilities 1 473 663 137 816 49 102 14 069
    Income tax liabilities 104 413 0 0 0
    Current 103 927 0 0 0
    Deferred 486 0 0 0
    Subordinated loans 1 830 346 84 630 0 0
    Total liabilities 53 235 138 5 220 042 2 833 949 1 442 802
    Share capital 1 292 636 0 0 0
    Supplementary capital 4 820 048 0 0 0
    Revaluation reserve 5 156 10 421 -305 -1 328
    Other reserves 183 824 0 0 0
    Foreign currency translation differences 0 0 0 594
    Undistributed result from previous years -65 760 0 0 0
    Current year profit/loss 515 241 0 0 0
    Non -controlling interests 1 322 0 0 0
    Equity 6 752 467 10 421 -305 -734
    Total liabilities and equity 59 987 605 5 230 463 2 833 644 1 442 068
    FX amounts translated into PLN – 31.12.2016 restated
    Assets PLN EUR USD Other
    Cash and balances with Central Bank 666 223 200 624 120 644 95 500
    Financial assets held for trading 335 560 80 739 1 974 1 278
    Available -for-sale financial assets 9 038 388 291 005 45 253 0
    Investment securities held to maturity 1 954 0 0 0
    Derivative hedging instruments 71 684 0 0 0
    Amounts due from banks 602 314 286 143 321 306 156 553
    Loans and advances to customers 40 674 050 4 881 621 234 376 457 141
    Assets pledged as collateral 366 984 0 0 0
    Property, plant and equipment 484 809 987 0 0
    Intangible assets 512 302 4 142 0 0
    Non -current asset held for sale 679 0 0 0
    Income tax assets 540 262 0 0 0
    Deferred 540 262 0 0 0
    Other assets 648 691 25 005 981 11 319
    Total a ssets 53 943 900 5 770 266 724 534 721 791
    Liabilities and equity PLN EUR USD Other
    Financial liabilities held for trading 258 037 36 487 2 982 808
    Amounts due to banks 351 503 41 548 35 540 49
    Amounts due to customers 43 731 797 4 335 682 2 335 610 965 612


    C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s o f t h e
    A l i o r B a n k SA G r o u p
    f o r t h e y e a r e n d e d 3 1 D e c e m b e r 2 0 1 7
    ( i n P L N ‘ 0 0 0 )
    1 1 4
    Liabilities and equity PLN EUR USD Other
    Derivative hedging instruments 6 119 0 0 0
    Provisions 285 507 1 238 56 14
    Other liabilities 1 276 500 108 809 29 399 18 593
    Income tax liabilities 13 945 0 0 0
    Current 13 190 0 0 0
    Deferred 755 0 0 0
    Subordinated loans 1 075 034 89 760 0 0
    Total liabilities 46 998 442 4 613 524 2 403 587 985 076
    Share capital 1 292 578 0 0 0
    Supplementary capital 4 185 843 0 0 0
    Revaluation reserve -69 557 2 489 -73 -4 474
    Other reserves 183 957 0 0 0
    Foreign currency translation differences 0 0 0 -22
    Undistributed result from previous years -7 085 0 0 0
    Current year profit/loss 575 227 0 0 0
    Non -controlling interests 979 0 0 0
    Equity 6 161 942 2 489 -73 -4 496
    Total l iabilities and equity 53 160 384 4 616 013 2 403 514 980 580
    41 Liquidity risk
    41.1 Description of risk
    Definition of liquidity risk
    The liquidity risk means a risk of failure by the Bank to meet – subject to comfortable conditions and at adequate
    prices – its payment obligations resulting from the Bank's on - and off -balance sheet items.
    Objective of liquidity risk management
    Thus, the policy of liquidity risk management at the Bank consists in maintaining its own liquid ity positions so that
    payment obligations can be met at any time with the available cash on hand, proceeds from transactions with
    specific maturities or with sales of marketable assets while minimising the costs of liquidity maintenance.
    Within liquidity r isk management, the Bank pursues the following objectives:
     ensuring its ability to pay all its obligations when they fall due;
     maintaining liquid assets at an adequate level – that is a buffer of unencumbered high quality liquid assets in
    the case of a sudden deterioration of the liquidity position;
     determination of the scale of the Bank's exposure to the liquidity risk by setting internal liquidity limits, a
    survival horizon in stress conditions
     and minimising the risk of trespassing on the liquidity l imits defined at the Bank;
     monitoring the Bank's liquidity condition in order to maintain liquidity and activate contingency plans in case
    of emergencies;
     ensuring compliance of the processes functioning at the Bank with regulatory requirements concerning
    liquidity risk management.
    Liquidity risk measurement and assessment
    Among the applied liquidity management metrics, the Bank identifies indicators and related limits to the following
    liquidity types:


    C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s o f t h e
    A l i o r B a n k SA G r o u p
    f o r t h e y e a r e n d e d 3 1 D e c e m b e r 2 0 1 7
    ( i n P L N ‘ 0 0 0 )
    1 1 5
     payment liquidity – ability to fund assets and timely p erform obligations during the Bank's normal business or
    in other foreseeable conditions, without suffering a loss; within payment liquidity management, the Bank
    focuses on analysing intraday and current liquidity (up to 7 days);
     short -term liquidity – abil ity to comply with all financial liabilities falling due within a period of the next 30 days;
     medium -term liquidity – ability to comply with all financial liabilities falling due within a period of 1 to 12
    months;
     long -term liquidity – ability to comply wi th all financial liabilities falling due within a period of over 12 months.
    Monitoring and reporting of the liquidity risk
    Assets and liabilities at Bank are managed by the dedicated ALCO. A liquidity risk strategy, including the
    acceptable risk level, the assumed balance sheet structure and the funding plan, is approved by the Bank's
    Management Board and further validated by the Bank's Supervisory Board. Interbank treasury transactions are
    concluded by the Treasury Department, transactions are settled and booked in the Operations Division and the
    liquidity risk is monitored and measured in the Financial Risk Management Section. The competences related to
    liquidity risk management are segregated in a transparent manner up to the Management Board level which
    ensures complete independence of operation. In 2017, treasury operations and liquidity risk management were
    fully centralised at the level of the Group of Alior Bank S.A.
    Liquidity risk management tools
    Within the liquidity management process, the Bank ap plies the following tools:
     liquidity procedures and policies, including a funding plan for subsequent years of the Bank's operations;
     contingency liquidity plans;
     liquidity limits and early warning indicators identifying adverse trends that may result in an increased liquidity
    risk;
     periodic reports from analyses of categories and factors affecting the current and future liquidity level;
     stress tests for the liquid ity risk,
    41.2 Financial data
    Contractual flows
    Specification of maturity/payment dates of contractual flows of the Bank's assets and liabilities as at 31 December
    2017 (PLN M):
    31.12.201 7 1D 1M 3M 6M 1Y 2Y 5Y 5Y+ Total
    ASSETS 6 589 3 561 2 251 2 842 5 595 8 980 22 353 33 307 85 478
    Cash & Nostro 1 366 0 0 0 0 0 0 0 1 366
    Amounts due from banks 0 332 0 0 0 164 0 0 496
    Loans and advances to customers 0 2 045 1 59 208 1 289 6 480 4 898 14 980
    Securities 5 223 1 184 2 250 2 783 5 387 7 527 15 873 27 227 67 454
    Other assets 0 0 0 0 0 0 0 1 182 1 182
    LIABILITIES AND EQUITY -34 083 -8 202 -6 731 -5 140 -3 876 -1 744 -2 174 -8 263 -70 213
    Amounts due to banks -4 -136 -303 -9 -31 -268 -132 -66 -949
    Amounts due to customers -34 079 -5 594 -6 244 -4 760 -3 151 -258 -195 -65 -54 346
    Own issues 0 -100 -184 -371 -694 -1 218 -1 847 -1 280 -5 694
    Equity 0 0 0 0 0 0 0 -6 762 -6 762
    Other liabilities 0 -2 372 0 0 0 0 0 -90 -2 462
    Balance sheet gap -27 494 -4 641 -4 480 -2 298 1 719 7 236 20 179 25 044 15 265
    Cumulated balance sheet gap -27 494 -32 135 -36 615 -38 913 -37 194 -29 958 -9 779 15 265


    C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s o f t h e
    A l i o r B a n k SA G r o u p
    f o r t h e y e a r e n d e d 3 1 D e c e m b e r 2 0 1 7
    ( i n P L N ‘ 0 0 0 )
    1 1 6
    31.12.201 7 1D 1M 3M 6M 1Y 2Y 5Y 5Y+ Total
    Derivative instruments – inflows 0 5 029 1 593 1 600 701 364 307 43 9 637
    Derivative instruments – outflows 0 -5 048 -1 618 -1 588 -707 -363 -324 -42 -9 690
    Derivative instruments – net 0 -19 -25 12 -6 1 -17 1 -53
    Guarantee and financing lines -11 711 -8 -32 -108 -200 -113 -6 -321 -12 499
    Off-balance sheet gap -11 711 -27 -57 -96 -206 -112 -23 -320 -12 552
    Total gap -39 205 -4 668 -4 537 -2 394 1 513 7 124 20 156 24 724 2 713
    Total cumulated gap -39 205 -43 873 -48 410 -50 804 -49 291 -42 167 -22 011 2 713
    Specification of maturity/payment dates of contractual flows of the Bank's assets and liabilities as at 31 December
    2016 (PLN M):
    31.12.2016 1D 1M 3M 6M 1Y 2Y 5Y 5Y+ Total
    ASSETS 11 582 3 860 1 662 2 804 4 739 7 958 18 107 26 056 76 768
    Cash & Nostro 1 470 0 0 0 0 0 0 0 1 470
    Amounts due from banks 1 503 0 0 0 145 0 0 0 1 648
    Loans and advances to customers 8 609 805 1 643 2 154 4 186 6 376 14 378 22 402 60 553
    Securities 0 3 055 19 650 408 1 582 3 729 901 10 344
    Other assets 0 0 0 0 0 0 0 2753 2 753
    LIABILITIES AND EQUITY -29 558 -7 407 -4 911 -4 179 -3 527 -3 353 -1 550 -7 005 -61 490
    Amounts due to banks -63 0 -1 -2 -16 -182 -92 -118 -474
    Amounts due to customers -29 495 -5 287 -4 771 -4 026 -3 004 -1 870 -219 -7 -48 679
    Own issues 0 -76 -139 -151 -507 -1 301 -1 239 -677 -4 090
    Equity 0 0 0 0 0 0 0 -6 203 -6 203
    Other liabilities 0 -2 044 0 0 0 0 0 0 -2 044
    Balance sheet gap -17 976 -3 547 -3 249 -1 375 1 212 4 605 16 557 19 051 15 278
    Cumulated balance sheet gap -17 976 -21 523 -24 772 -26 147 -24 935 -20 330 -3 773 15 278
    Derivative instruments – inflows 0 5 473 1 894 671 1 215 740 423 63 10 479
    Derivative instruments – outflows 0 -5 474 -1 875 -669 -1 181 -735 -411 -62 -10 407
    Derivative instruments – net 0 -1 19 2 34 5 12 1 72
    Guarantee and financing lines 13 72 7 12 19 119 107 13 8 14 026
    Off-balance sheet gap 13 742 5 31 20 153 113 25 9 14 098
    Total gap -4 233 -3 543 -3 217 -1 354 1 366 4 717 16 582 19 061 29 378
    Total cumulated gap -4 233 -7 773 -10 990 -12 345 -10 979 -6 261 10 320 29 378
    Regulatory liquidity measures and sensitivity measures
    Regulatory liquidity measures 31.12.2017 31.12.2016
    M1 7 891(PLN M ) 5 714 (PLN M )
    M2 2.30 1.95
    M3 5.09 4.20
    M4 1.15 1.14
    LCR 124% 127%
    NSFR 115% 97%


    C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s o f t h e
    A l i o r B a n k SA G r o u p
    f o r t h e y e a r e n d e d 3 1 D e c e m b e r 2 0 1 7
    ( i n P L N ‘ 0 0 0 )
    1 1 7
    Between 31 December 2016 and 31 December 2017, the regulatory liquidity measures were above the regulatory
    limits.
    Name of sensitivity measures 31.12.2017 31.12.2016
    Surplus reserve against liquidity loss (PLN M) 2 454 2 328
    The Bank holds a surplus reserve against a liquidity loss understood as a surplus potential to cover liquidity needs
    for a period stress conditions of 30 days.
    Deposit balance
    As at 31 December 2017 the balance of deposits over a 30 -day horizon was about 95% of the Bank's deposit
    base (apart from the interbank market) and 99.6% for the Bank's own issues
    Concentration
    On a monthly basis, the Bank analyses concentration of its de posit base in order to identify a potential risk of the
    Bank's excessive dependence on funding sources characterised with a low diversification level. In order to
    estimate the concentration level, the Bank identifies the WWK ratio (High Concentration Rati o), calculated as a
    ratio of the funds from the largest depositories to the overall deposit base. As at 31 December 2017, WWK was
    at 2.18% which shows no concentration. As at 31 December 2016, the ratio was at 1.70%.
    WWK statistics for 2017 and 2016 are presented in the tables.
    Minimal Medium Maximum
    31.12.2017 1.55% 2.19% 2.79%
    31.12.2016 1.66% 2.07% 2.35%
    In order to mitigate the concentration risk, the Bank diversifies the structure of its deposit base split by retail,
    business, financial customers, central government, and local government institutions, by monitoring and reporting
    the share of each group i n the overall deposit base on a monthly basis.
    Currency As at 31.12.2017 Currency As at 31.12.2016
    Company 1 EUR, PLN 333 684 Company 1 EUR, PLN, USD 375 748
    Company 2 PLN 295 056 Company 2 EUR, PLN, USD 221 481
    Company 3 PLN 278 036 Company 3 PLN, USD 156 883
    Company 4 PLN 266 347 Company 4 PLN 100 056
    Company 5 PLN 244 195 Company 5 PLN 100 053
    Company 6 EUR, PLN, USD 238 127 Company 6 CZK, EUR, PLN 98 910
    Company 7 EUR, PLN, USD 177 883 Company 7 EUR,PLN,USD 93 721
    Company 8 PLN 171 190 Company 8 PLN 91 909
    Company 9 PLN, USD 144 364 Company 9 EUR, PLN 85 421
    Company 10 CZK, EUR, PLN 143 924 Company 10 PLN 79 992
    In 2017 the Bank’s liquidity condition was at a safe level. The situation was closely monitored and maintained at
    an adequate level by adjusting the level of the deposit base and disbursing financing subject to growth of lending
    and other liquidity needs.



    C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s o f t h e
    A l i o r B a n k SA G r o u p
    f o r t h e y e a r e n d e d 3 1 D e c e m b e r 2 0 1 7
    ( i n P L N ‘ 0 0 0 )
    1 1 8
    42 Operational Risk
    42.1 Description of risk
    Definition of the operational risk
    The operational risk is a risk of a potential loss occurrence due to inappropriateness or failure of internal
    processes, humans, and systems or external events. The operational risk covers the legal risk, but does not include
    the reputatio nal risk and the business risk.
    The objectives of operational risk management
    The objective of operational risk management in the Bank and the Group is to maintain the operational risk at a
    safe and adequate level for the Bank's business, objectives, str ategy and development, as well as acceptable by
    the Bank's Management Board and Supervisory Board.
    Operational risk measurement and assessment
    The Bank has a formalised operational risk management system within which it prevents the occurrence of
    operational events and incidents and mitigates losses should the risk materialise.
    Operational risk management covers identification, measurement, and assessment of the operational risk,
    management activities and risk monitoring and control at all levels – organisational units responsible for
    operational risk management in their respective areas, operational risk Coordinators, Operational Risk
    Managemen t Section, Operational Risk Committee to the Bank's Management Board and Supervisory Board.
    Within its identification of operational risk, the Bank collects data on events and losses in the Bank and its
    subsidiaries. The operational risk is measured and assessed with quantitative metrics (including calculation of the
    internal capital for the operational risk with the AMA model) and qualitative metrics (e.g. self -assessment of the
    operational risk). The AMA model relies on internal and external data on the operational risk, economic
    environment, and internal factors, as well as results of scenario analyses.
    Operational risk measurement and assessment include:
     Key Risk Indicators (KRIs),
     calculation of equity requirement for the operational risk – the Ba nk applies the standard method; since
    01.01.2018 the Bank has been calculating equity requirements for the operational risk in line with the
    advanced method (AMA) for the Bank, while excluding the acquired demerged part of Bank BPH and the
    Brand in Romania for which the standard method applies (TSA),
     internal capital for the operational risk is estimated with the AMA model,
     stress tests,
     scenario analyses,
     self -assessment of the operational risk,
     identification of limit utilisation for the operational risk,
     measurement of actual and potential losses related to identified operational events,
     calculation on internal capital for the Alior Bank Group.
    Monitoring and reporting of operational risk
    The Operational Risk Management Section exercises daily control and monitoring of the operational risk at the
    Bank. The unit is, among others, responsible for:
     development and implementation of appropriate methodologies and instruments of operational risk control;
     monitoring of the internal capital requirement for the operational risk in compliance with the standard method
    (TSA) concerning the acquired demerged part of Bank BPH and the Branch in Romania and in compliance
    with the advanced method (AMA) for the Bank's remaining business;
     consulting of operational risk assessment in projects, products, and procedures (new and modified);


    C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s o f t h e
    A l i o r B a n k SA G r o u p
    f o r t h e y e a r e n d e d 3 1 D e c e m b e r 2 0 1 7
    ( i n P L N ‘ 0 0 0 )
    1 1 9
     monitoring of the utilisati on level of internal limits and appetite for the operational risk and taking
    management actions related to the occurrence of an increased or high level of the operational risk;
     collection of high quality data on operational events and effects;
     monitoring of internal and external events;
     monitoring of the Bank's operational risk level with the use of the following tools: key risk indicators (KRIs), self -
    assessment, and stress tests;
     development of regular reports on the operational risk level at the Bank.
    The duty to monitor and mitigate operational risk in daily work applies to all employees and organisational units
    of the Bank. On an ongoing basis, the Bank's employees control the level of the operational risk in their processes
    and actively mitigate the risk, taking actions to avoid/mitigate operational losses. They are responsible for
    ongoing registration of events and financial operational effects concerning their areas of operation, they define
    and report the values of Key Risk Indicators (KRIs) versus the tolerance level for processes exposes to the
    operational risk and they are involved in the self -assessment process.
    Operational risk management tools
    Operational risk management at Alior Bank is supported with the IT system – OpRisk which, among oth ers,
    registers operational events and losses and records the results of scenario analyses.
    The Bank holds records of operational events and effects that supports effective analysis and monitoring of the
    operational risk. The operational risk and its chang es are monitored with key risk indicators (KRIs) of which
    tolerance levels are identified.
    Internal capital for the operational risk is measured with the AMA method. On the basis of the AMA method, Alior
    Bank has internally developed a statistical model u sed to estimate the operational risk level on the basis of the
    Loss Distribution Approach (LDA) method.
    In June 2017, the Bank filed a request to PFSA for consent to apply the standard method (TSA) with reference to
    the demerged part of Bank BPH acquired i n November 2016 and the Branch in Romania, and the advanced
    method (AMA) for the other part of the Bank's business in order to calculate the equity requirement for the
    operational risk.
    In December 2017 the Bank received PFSA's consent to use the advanced method (AMA) and the standard
    method (TSA) to calculate equity requirements for the operational risk from 1 January 2018 with a duty to keep
    the requirement at a minimum level of 80% of the value calculated with the standard method.
    43 Capital Management
    Definition of the capital adequacy
    The capital adequacy is a process aimed at ensuring that the risk level that the Bank and its Group accept as a
    result of its growing business activity, may be covered with the existing equity considering the determined r isk
    tolerance level and the time horizon. The capital adequacy management process covers in particular compliance
    with the existing regulations of the supervisory and control bodies, and the risk tolerance determined in the
    Group and the capital planning process , including policies concerning sources of capital.
    The objective of capital management in the Bank and the Group is to maintain appropriate levels of equity and
    Tier 1 capital at any time to cover the risks at appropriate levels, in line with the assumed risk appetite.
    Within its risk appetite, the Bank determines the anticipated coverage levels of an potential unexpected loss for
    various risks, with equity and tier 1 capital, as specified in Regulation (EU) No 575/2013 of the European
    Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment
    firms (CRR Regulation), as well as individual risk types identified within the internal capital adequacy assessment


    C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s o f t h e
    A l i o r B a n k SA G r o u p
    f o r t h e y e a r e n d e d 3 1 D e c e m b e r 2 0 1 7
    ( i n P L N ‘ 0 0 0 )
    1 2 0
    process (ICAAP). The potential unexpec ted loss is determined with the regulatory capital with the methodology
    specified in the CRR Regulation and with the internal capital determined with the methods specified below.
    The process of capital management is supervised by the Bank's Supervisory Bo ard, Management Board, Risk
    Committee of the Supervisory Board and the Risk Management and the ICAAP Committee.
    Capital adequacy metrics
    The core tools used in the Bank for capital management are as follows:
     total capital ratio and Tier 1 capital ratio
     analysis of regulatory capital requirement
     internal capital (ICAAP) and a coverage ratio of the internal capital with equity.
    Capital adequacy ratio
    As at 31 December 2017, the capital adequacy ratio and Tier 1 ratio were calculated in accordance with the
    Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential
    requirements for credit institutions and inve stment firms and amending Regulation (EU) No 648/2012 (CRR
    Regulation) and other regulations implementing “national options”, among other, the Banking Act of 29 August
    1997 and the Regulation of the Minister of Development and Finance on higher weight ris k for mortgage -backed
    exposures.
    In order to allocate the consolidated financial result to equity and to calculate the capital adequacy ratio, in 2017
    prudential consolidation was applied – the consolidation covered Alior Bank S.A. and Alior Leasing sp. z o.o. In
    the opinion of the Bank's Management Board, the other subsidiary entities, not subject to prudential
    consolidation, are marginal for the Bank's core activity from the viewpoint of monitoring of credit institutions.
    The prudentially consolidated profit and loss account – presented below – was made in compliance with the
    accounting principles applied by the Bank, with the exception of consolidating solely Alior Bank S.A. and Alior
    Leasing sp. z o.o., as stated above.
    01.01.2017 – 31.12.2017
    Interest income 3 601 328
    Interest expense -760 092
    Net interest income 2 841 236
    Dividend income 31
    Fee and commission income 824 233
    Fee and commission expense -368 417
    Net fee and commission income 455 816
    Trading result and revaluation 368 965
    Net gain (realized) on other financial instruments 6 908
    Other operating income 108 283
    Other operating expenses -84 704
    Net other operating income 23 579
    General administrative expenses -1 840 373
    Net impairment allowance and write -downs -929 617
    Bank tax -200 517
    Gross profit 726 028
    Income tax -219 951
    Net profit 506 077



    C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s o f t h e
    A l i o r B a n k SA G r o u p
    f o r t h e y e a r e n d e d 3 1 D e c e m b e r 2 0 1 7
    ( i n P L N ‘ 0 0 0 )
    1 2 1
    Equity for the purposes of the capital adequacy
    31.12.2017 31.12.2016
    Total own funds for the capital adequacy ratio 7 651 277 6 346 932
    Common equity Tier I capital 6 088 277 5 253 547
    Tier II capital 1 563 000 1 093 385
    Share paid 1 292 636 1 292 578
    Supplementary capital components 4 817 483 4 184 953
    Other capital 184 894 184 894
    Current year's reviewed by auditor 366 348 161 466
    Accumulated losses -63 514 0
    Revaluation reserve – unrealized losses -14 357 -80 043
    Intangible assets at carrying amount -516 122 -482 024
    Revaluation reserve – unrealized gains 42 337 1 867
    Subordinated liabilities 1 563 000 1 093 385
    Additional value adjustments -21 428 -10 144
    Capital requirements 4 024 070 3 720 992
    Total capital requirements for the credit, counterparty risk, adjustment to credit measurement, dilution and deliver of instruments to be settled at a later date 3 535 517 3 238 125
    Total capital requirements for prices of equity securities, prices of debt securities, prices of commodities and FX risk. 4 826 2 687
    Capital requirement relating to the general interest rate risk 46 612 65 760
    Total capital requirements for the operational risk 437 115 414 420
    Tier 1 ratio 12.10% 11,.2 9%
    Total capital adequacy ratio 15.21% 13.65%
    In accordance with PFSA's recommendation for the sector for 2017 and 2016, the Bank has been maintaining
    capital adequacy ratios at minimum 10.25% TIER1 and total adequacy ratio minimum of 13.25% TCR.
    Analysis of regulatory capital requirement
    In the calculation process of its capital adequacy ratio, the Bank analyses the level of regulatory capital
    requirement and the relation of equity to internal capital. The analysis consists in a comparison of actual values
    with the budgeted values and identification of reasons of potential differences (the scale of operations of the Bank
    and the Capi tal Group other than planned in particular the volum e of the loan portfolio or an assets risk profile
    other than planned). The equity of the Capital Group exceeded the total capital requirement throughout 2017.
    Internal capital
    Within the ICAAP process, the Bank identifies and assesses the materiality of all types of risk to which it is exposed
    in connection with its business.
    Material risk types as at 31 December 2017:
     Credit risk – insolvency
     Credit risk – sectoral concentrat ion
     Credit risk – concentration to customers
     Credit risk – currency concentration
     Operational Risk
     Liquidity risk
     Interest rate risk in the banking book


    C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s o f t h e
    A l i o r B a n k SA G r o u p
    f o r t h e y e a r e n d e d 3 1 D e c e m b e r 2 0 1 7
    ( i n P L N ‘ 0 0 0 )
    1 2 2
     Market risk
     Settlement/delivery risk with a deferred settlement date
     Model risk
     Reputational risk
     Business risk
     Capital risk
     Compliance risk
    For each risk identified as material, the Bank allocates the internal capital with the use of the internal risk
    estimation models.
    The internal capital is estimated:
     for the credit risk using the CreditRisk+ method on the basis of the value of the 99.95th quantile of loss
    distribution in the loan portfolio;
     on the basis of the VaR methodology in the banking book for the market risk and the interest rate risk ;
     on the basis of a liquidity gap model for the liqu idity risk assuming a stress scenario;
     on the basis of the AMA model for the operational risk.
    The designated total internal capital is secured with the value of the available capital subject to appropriate
    security buffers.
    CRD IV/ CRR packet
    As at 31 December 2017, the Bank fully complied with the CRR Regulation in the sphere of capital management,
    including the calculations of equity and capital requirements for each type of risks.
    Other
    44 Acquisition of the demerged business of Bank BPH SA
    On 31 March 2016, the Bank signed with the sellers of Bank BPH, namely GE Investments Poland sp. z o.o., DRB
    Holdings B.V. and Selective American Financial Enterprises, Inc. – a Share Sale and Demerger Agreement
    concerning executing the transaction (in agg regate “the Transaction”) comprising:
    - acquisition of shares by the Bank from the Sellers of Bank BPH through an invitation to subscribe for the sale or
    conversion of shares in Bank BPH;
    - the demerger of Bank BPH pursuant to art. 529 § 1.4 of the Comme rcial Companies Code carried out by
    transferring the Core Activities of Bank BPH to Alior Bank (demerger by spin -off) on terms discussed in the
    demerger plan ;
    - issuing new shares of Alior Bank for the shareholders of Bank BPH indicated in the Demerger Pl an (i.e. with the
    exception of Alior Bank, the Sellers of Bank BPH and their related entities).
    The core business of Bank BPH will constitute a business unit comprising all the assets and liabilities of Bank BPH,
    with the exception of the Mortgage Operatio ns of Bank BPH.
    On 4 November 2016. Alior Bank SA acquired all the primary activities of Bank BPH. In the report dated 2 August
    2016, the Bank informed that the price for acquiring the Core Business of Ban k BPH was adjusted to PLN
    1 159 645 000. The Adjust ed Price has been determined in accordance with the Share Purchase and Demerger
    Agreement, based on the book value of tangible assets of the Core Business of Bank BPH as at 30 June 2016.
    As part of the Invitation and Compulsory Redempt ion Bank paid the am ount of 305 298 thousand PLN for
    minority shareholders. The acquisition of the core business of Bank BPH is in line with the development strategy


    C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s o f t h e
    A l i o r B a n k SA G r o u p
    f o r t h e y e a r e n d e d 3 1 D e c e m b e r 2 0 1 7
    ( i n P L N ‘ 0 0 0 )
    12 3
    of Alior Bank which envisages development based on organic growth and acquisitions, in association with
    achiev ing a high rate of return from capital.
    The transaction was settled under the acquisition method in accordance with IFRS 3, Business Combinations, the
    application of which requires, among other things, the recognition and measurement of identifiable assets and
    liabilities acquired, which were measured at fair value as at the date of acquisition and all non -controlling interests
    in the acquiree, and recognition and measurement of goodwill or gain on bargain purchase.
    A detailed description of those transactions is specified in Note 30 to the Financial Statements of Alior Bank SA as
    at 31 December 2016. In Financial Statements dated on 31.12.2016 r. Bank made the initial accounting for this
    business combination in connection with the acquisition of a demerged part of Bank BPH SA and calculated
    bargain purchase amou nted of PLN 508 056 thousand.
    In the valuation period, further adjustments were made to the fair value. Below are presented the mentioned
    adjustments and description of fair value measurement methods:
    ASSETS As at 4.11.2016 Measurement adjustments to fair value and exclusions
    Adjustments identified in the measurement period Identifiable acquired assets measured at fair value
    Cash and balances with Central Bank 1 043 097 0 0 1 043 097
    Financial assets measured at fair value through profit or loss 3 691 205 0 0 3 691 205
    Amounts due from banks 398 537 0 0 398 537
    Loans and advances to customers 8 844 623 364 995 -31 226¹ 9 178 392
    including, loan impairments -782 145 0 0 -782 145
    Available -for-sale financial assets 301 110 0 16 912² 318 022
    Property, plant and equipment 247 517 23 160 0 270 677
    Intangible assets 144 939 -55 425 0 89 514
    Income tax assets 137 394 -63 218 9 199³ 83 375
    Other assets 197 158 0 6 669 4 203 827
    Total assets 15 005 580 269 512 1554 15 276 646
    LIBILITIES As at 4.11.2016 Measurement adjustments to fair value and exclusions
    Adjustments identified in the measurement period Identifiable acquired liabilities measured at fair value
    Amounts due to banks 369 631 0 0 369 631
    Amounts due to customers 12 534 361 0 0 12 534 361
    Debt securities issued 223 813 0 0 223 813
    Provisions 101 326 0 0 101 326
    Financial liabilities measured at fair value through profit and loss 38 249 0 0 38 249
    Other liabilities 136 721 20 100 -6 003 5 150 818
    TOTAL LIABILITIES 13 404 101 20 100 -6 003 13 418 198
    1 The adjustment amount is due to the final determination of the fair value of the debt portfolio of Bank BPH.
    2 The adjustment amount is due to the final determination of the fair value of shares in VISA.
    3 The adjustment amount is due to the determination of a deferred income tax asset concerning the measurement of debt receiva bles and the recognised liability under disadvantageous
    rental contracts (genera ting charges).
    4 The adjustment amount is due to the final determination of the fair value of the deferred VISA payment.
    5 The adjustment amount is due to the final determination of the liability under disadvantageous rental contracts (generating charges ).
    BPH Changes to accounting principles
    Measurement adjustments to fair value and exclusions
    Adjustments identified in the measurement period Identifiable net assets measured at fair value
    Fair value of the net assets 1 601 479 -22 849 249 412 7 557 1 835 599



    C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s o f t h e
    A l i o r B a n k SA G r o u p
    f o r t h e y e a r e n d e d 3 1 D e c e m b e r 2 0 1 7
    ( i n P L N ‘ 0 0 0 )
    1 2 4
    Loans and advances to customers
    The fair value measurement of the loan portfolio was performed based on the following assumptions:
    1. Fair value was calculated separately for the loan portfolio without indications of impairment (performing)
    and with indications of impairment (non -performing). This resulted from different characteristics of cash flows for
    the two portfolios. In the case of performing loans the calculation was based on contractual cash flows adjusted
    for credit risk and early repay ments, where they were material. In the case of non -performing loans the
    calculation was based on expected recoveries.
    2. For products without contractual maturity dates in the portfolio of performing loans (with the exception of
    credit cards of retail cus tomers) it was adopted that fair value is equal to book value. This resulted from the
    assumption concerning possible immediate repayment of these liabilities. This applies to the following products:
    bank overdrafts, credit cards of commercial customers, re newable commercial loans and factoring.
    3. Loans with a repayment schedule (and credit cards of retail customers) were measured using the
    discounted cash flows model.
    a. Contractual cash flows adjusted for credit risk and early repayments were discounted. The discount rate
    comprised: the market rate, liquidity margin used in the system of transfer funds (STF), margin on cost of capital
    and margin on costs of servicing the loan portfolio.
    b. The adjustment for credit risk consisted of multiplying the cash f lows by the value (1 -PD*LGD), where PD is
    the probability of the customer’s default from the cash flow date and LGD is loss given default at the cash flow
    date.
    c. Market interest rates were taken from the yield curve built based on the money market rates (for example,
    WIBOR for PLN) and FRA contracts for the short end of the curve and the IRS rate for the long end of the curve A
    different yield curve was used for each currency (PLN, EUR, USD, CHF, GBP, SEK) that was appropriate to it.
    d. The liquidity marg in has been assigned according to the transfer price system currently binding in Alior
    Bank. The margin depends on the currency and the payment date of a given cash flow. The margin levels binding
    at Alior Bank are higher than those in former BPH and have been considered consistent with those commonly
    used on the market.
    e. The cost of capital has been calculated using the CAPM model and amounted to 8.76%. The margin on
    the cost of capital at discount has been calculated by multiplying the cost of capital b y the proportion of capital in
    total assets / total equity and liabilities of Core BPH (9.62%) and amounted to 0.8423%.
    f. The margin on the cost of servicing the portfolio has been estimated by the business units. Its amount
    depends on the customer segment.
    4. Commercial and retail loans have been modelled separately.
    Customer relationships in the area of deposits
    Customer relationships in the area of deposits were analysed for two main products:
    • current accounts;
    • term deposits and savings acco unts.
    The valuation of customer relationships was performed on the basis of an analysis of core deposits.
    Core deposits represent the hypothetical savings for the Bank arising from the fact that the Bank’s customers
    maintain their cash on low -interest curr ent accounts for a long time, instead of higher -interest term deposits. This
    enables the Bank to limit the higher -interest rate financing from the market and effectively reduce interest
    expense.
    Fair value estimation of customer relationships based on cor e deposits is based on the assumption that their
    value is gradually reduced. Due to difficulties in assessing customer behaviour it was prudently adopted in the
    estimate that the pace of the core deposits withdrawal will be from 1 to 3 years.


    C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s o f t h e
    A l i o r B a n k SA G r o u p
    f o r t h e y e a r e n d e d 3 1 D e c e m b e r 2 0 1 7
    ( i n P L N ‘ 0 0 0 )
    1 2 5
    As a result of acquiring the spun off business of Bank BPH, as at 4 November 2016 customer relationships were
    recognized in an amount of PLN 42.1 million. They are amortized over a period of 2 years. The carrying value of
    customer relations as at 31 December 2016 was PLN 40.3 million.
    IT syste ms
    The IT systems of Bank BPH SA have been divided into four groups, depending on the value in use of those
    systems. In the case of the purchased systems (external systems), the gross value was established as the sum of
    financial outlays incurred on their purchase. In the case of internally developed systems, their gross value
    constituted the sum of capitalized expenditure incurred on their manufacture. The above system values have
    been adjusted for the remaining horizon of their operational use, which has been specified as a percentage
    parameter of the length of the system’s economic life cycle compared with the assumed period of operational
    use. The remaining horizon of the system’s use has been established individually for each system and is a ratio of
    the expected period of the system’s use from the measurement date to the system’s age calculated from the
    implementation period until the measurement date.
    In the case of systems in the course development, a similar model was adop ted as for the purchased and
    internally developed systems.
    Additionally, the fair value of systems in the course of development was adjusted for expenditure incurred on
    functionalities with respect to which development works have not been completed or whic h have not been tested
    and are not ready to be commissioned.
    Property, plant and equipment
    The valuation of property (buildings) of the acquired company has been performed under the income method.
    This approach comprises determining the property’s value o n the assumption that the price that a buyer will pay
    for the property depends on the expected income that can be obtained from the property.
    The valuation of land was carried out under the comparative approach using the comparison in pairs method or
    the average price adjustment method. Under the method of comparison in pairs, property subject to valuation,
    the characteristics of which are known, is compared to similar properties which were traded on the market and
    their transaction prices, transaction ter ms and prices of these properties are known.
    Lease agreement
    IFRS 3 requires the recognition of the identifiable assets, liabilities and contingent liabilities that meet the
    recognition criteria at their fair values at the acquisition date. With regard to onerous contracts and other
    identifiable liabilities of the acquiree, the acquirer uses the present value of amounts due in order to meet its
    obligations, determined using appropriate current interest rates. For purposes of the above calculation, the
    foll owing assumptions:
    - rents defined in the agreements concluded by Bank BPH compared with market values, based also on the
    experience of their own at selected locations,
    - in order to calculate the value of rents to the end of the contract for permanent con tracts assumed duration of
    one year from the date of the legal merger or dates specified in the restructuring plan.
    The calculation of bargain purchase (negative goodwill)
    The calculation of gain on bargain purchase including adjustments identified in the valuation period, as well as the
    final setellments with the Bank BPH Sellers is presented in the table below:



    C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s o f t h e
    A l i o r B a n k SA G r o u p
    f o r t h e y e a r e n d e d 3 1 D e c e m b e r 2 0 1 7
    ( i n P L N ‘ 0 0 0 )
    1 2 6
    Profit at the occasional purchase 31.12.2016 adjustments in the valuation period 30.09.2017
    price paid to BPH shareholders of the GE Group 1 159 645 0 1 159 645
    price paid to other BPH shareholders 305 298 0 305 298
    receivables from BPH due to adjustment of the net assets to the level of TIER 1 of 13.25% 52 194 -31 470* 20 724
    receivables from shareholders in the GE Group due to adjustments to the purchase price 92 762 -19 138 73 624
    fair value of the assets of the acquired entity 1 828 042 7 557 1 835 599
    Profit on occasional purchase 508 056 -43 051 465 005
    According to Demerger Plan and the terms of the agreement of 17 October 2016 concluded between Bank BPH
    and Alior Bank concerning the distribution and co -operation after the demerger (org. Demerger Implementation
    And Post Demerger Cooperation Agreement), t he net assets resulting from the demerger of Bank BPH calculated
    on the basis of risk -weighted assets should provide a CET 1 level equal to 13.25%. According to the initial
    calculation made by AliorBank in the financial statements for 2016, the amount of m ismatch to outstanding level
    of CET 1 is 52 194 thousand PLN.
    The amount of 92 762 thousand PLN was calculated by Alior Bank based on Share Purchase Agreement
    according to algorithm used in the calculation of the initial purchase price (paid on August 24, 2016 ).
    The Bank communicated in the annual report prepared as at 31 December 2016 that the final settlement of the
    purchase price will be subject to further reconciliations between Alior Bank and the Sellers of Bank BPH Core
    Business. It was agreed that t he final settlement of the acquisition and some other claims (including the
    maintenance of the capital adequacy ratio of Bank BPH Core Business at 13.25%), costs and payments related to
    the Transaction will be close d in the total amount of PLN 94 300 thous and. In connection with the above, the
    purchase price and claim for maintaining the capital adequacy ratio of Bank BPH Core Business at 13.25% were
    adjusted as follows:
     adjustment due to establishing that VISA's shares and the right to deferred payment as a result of the
    Transaction are the property of Alior Bank in the amount of PLN 20 508 thousand.
     adjusment of a claim for maintaining the capital adequacy ratio of the Bank BPH Core Business at the level of
    13.25% in the amount of PLN 10 962 thousand.
     adjustment of the purchase price in the amount of PLN 19 138 thousand.
    On 9 January 2018, t he Sellers paid the Bank PLN 94 300 thousand.
    45 Significant events after the end of the reporting period
    On 5 February 2018 Fitch Ratings Ltd agency maintained the rat ing attributed to Alior Bank at the BB level,
    changing the outlook from stable to positive. The change of the Bank's outlook was influenced, among others, by
    improved profitability ratios (in relation to the assumed risk) and a more mature and tested busin ess model.
    The full rating assigned by the Agency is as follows:
    1. Long -term rating of the entity (Long -Term Foreign Currency IDR): BB perspective positive
    2. Short -Term Foreign Currency IDR: B
    3. Long -term national rating (National Long -Term Rating): BBB + (pol), perspective positive
    4. Short -term national rating (National Short -Term Rating): F2 (pol)
    5. Viability Rating (VR): bb
    6. Support Rating: 5
    7. Minimum support rating (Support Rating Floor): 'No Floor'
    Definitions of Fitch ratings are available o n the Agency's website at www.fitchratings.com, where ratings, criteria
    and methodologies are also published.


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WSZYSTKIE KOMUNIKATY SPÓŁKI
Informacje o spółce
Nazwa:Alior Bank SA
ISIN:PLALIOR00045
NIP:1070010731
EKD: 65.12 działalność bankowa
Adres: ul. Łopuszańska 38D 02-232 Warszawa
Telefon:+48 22 5552222
www:www.aliorbank.pl
Kalendarium raportów
2020-04-29Raport za I kwartał
2020-08-06Raport półroczny
2020-11-04Raport za III kwartał
Komentarze o spółce ALIOR BANK
2018-03-27 15:52:12
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