As at and for the year ended 31 December 2010

Transcription

1 Narodowy Bank Polski Independent Registered Auditor s Opinion Registered auditor s report on the financial statements As at and for the year ended 31 December 2010 Contents: Independent Registered Auditor s Opinion prepared by PricewaterhouseCoopers Sp. z o.o. Independent Registered auditor s report on the financial statements prepared by PricewaterhouseCoopers Sp. z o.o.

2 TRANSLATORS EXPLANATORY NOTE The following document is a free translation of the registered auditor s report of the NBP. In Poland statutory accounts must be prepared and presented in accordance with Polish legislation and in accordance with the accounting principles and practices generally used in Poland. The accompanying translated report has not been reclassified or adjusted in any way to conform to accounting principles generally accepted in countries other than Poland, but certain terminology current in Anglo-Saxon countries has been adopted to the extent practicable. In the event of any discrepancy in interpreting the terminology, the Polish language version is binding. Independent Registered Auditor s Opinion To the Monetary Policy Council and the Management Board of Narodowy Bank Polski We have audited the attached financial statements of Narodowy Bank Polski (hereinafter referred to as the NBP,), Warsaw, ul. Świętokrzyska 11/21, which comprise: (a) (b) (c) the balance sheet as at 31 December 2010, showing total assets and total liabilities of PLN 279,340,385 thousand; the income statement for the financial year ended 31 December 2010, showing a profit of PLN 6,529,119 thousand; notes to the financial statements of the NBP. The financial statements of the NBP as at 31 December 2010 have been prepared on the basis of the provisions of the Act on Narodowy Bank Polski (the National Bank of Poland) of 29 August 1997 (Journal of Laws of 2005 No. 1, item 2 with subsequent amendments), hereinafter referred to as the NBP Act ; the Resolution No 16/2003 of the Monetary Policy Council of 16 December 2003 on the accounting principles, format of balance sheet and the profit and loss account of the National Bank of Poland (NBP Official Journal of 2003, No. 22, item 38 with subsequent amendments, hereinafter referred to as the Resolution on accounting policies ); Resolution No 63/2008 of the Management Board of the National Bank of Poland of 11 December 2008 on the manner of performing accounting tasks in the area of accounting at the National Bank of Poland (with subsequent amendments); Resolution No 12/2010 of MPC of 14 December 2010 on the principles for creating and releasing the provisions against the foreign exchange rate risk of the zloty at the National Bank of Poland (NBP Official Journal of 2010, No. 17, item 19); the Resolution No 29/2007 of the Management Board of the National Bank of Poland of 25 October 2007 on the management of fixed assets at the National Bank of Poland, with subsequent amendments. The NBP s Management Board is responsible for preparing the annual financial statements and adopting the annual Report on the Operations of the NBP which comply with the applicable regulations. Our responsibility was to express an opinion on the financial statements based on our audit. We conducted our audit in accordance with: (a) (b) (c) the provisions of Chapter 7 of the Accounting Act of 29 September 1994 (Journal of Laws of 2009, No. 152, item 1223 with subsequent amendments), hereinafter called the Act, national standards of auditing issued by the National Chamber of Registered Auditors, International Standards on Auditing.

3 Independent Registered Auditor s Opinion To the Monetary Policy Council and the Management Board of Narodowy Bank Polski (cont.) Our audit was planned and performed to obtain reasonable assurance that the financial statements were free of material misstatements and omissions. The audit included examining, on a test basis, accounting documents and entries supporting the amounts and disclosures in the financial statements. The audit also included an assessment of the accounting policies applied by the NBP and significant estimates made in the preparation of the financial statements as well as an evaluation of the overall presentation thereof. We believe that our audit provided a reasonable basis for our opinion. In our opinion, in all material respects, the accompanying financial statements: (a) (b) (c) have been prepared based on properly kept books of account, in accordance with the accounting policies binding at NBP as described in the provisions referred to above; comply in form and contents with the relevant laws applicable to NBP; give a fair and clear view of NBP s financial position as at 31 December 2010 and of the results of its operations for the year then ended. Person conducting the audit on behalf of PricewaterhouseCoopers Sp. z o.o., registered audit company No Antoni F. Reczek Chairman of the Board Key Registered Auditor No PricewaterhouseCoopers Sp. z o. o. Warsaw, 24 March 2011

4 TRANSLATORS EXPLANATORY NOTE The following document is a free translation of the registered auditor s report of the NBP. In Poland statutory accounts must be prepared and presented in accordance with Polish legislation and in accordance with the accounting principles and practices generally used in Poland. The accompanying translated report has not been reclassified or adjusted in any way to conform to accounting principles generally accepted in countries other than Poland, but certain terminology current in Anglo-Saxon countries has been adopted to the extent practicable. In the event of any discrepancy in interpreting the terminology, the Polish language version is binding.

5 Independent registered auditor s report on the financial statements to the Monetary Policy Council and the Management Board of the National Bank of Poland This report contains 27 consecutively numbered pages and consists of: Page I. General information about the NBP...3 II..Basis of preparation of the financial statements...4 III. Information on the audit...5 IV. The Bank s financial position and results of operations...6 V. Discussion of financial statement components VI. The independent registered auditor s statement VII. Final information and comments... 27

6 I. General information about the NBP (a) The National Bank of Poland (hereinafter referred to as the NBP ) is the central bank of the Republic of Poland. The NBP operates on the basis of the Constitution of the RP and the Act of 29 August 1997 on the National Bank of Poland (Journal of Laws of 2005, No. 1, item 2 as amended, hereinafter referred to as the NBP Act ). (b) The NBP is a legal entity and in accordance with the NBP Act is not required to be entered in the Register of State-owned Enterprises. The NBP began operating in In accordance with the Corporate Income Tax Act of 15 February 1992 (Journal of Laws of 2000, No. 54, item 654 as amended) the NBP is statutorily exempt from corporate income tax. (c) As at 31 December 2010, the NBP s authorized capital amounted to PLN 1,500,000 thousand. (d) Pursuant to the applicable regulations, the fundamental objective of the NBP s activity is to maintain price stability while supporting the economic policies of the Government at the same time, insofar as it does not put constraints on the pursuit of the fundamental objective of the NBP. In addition, the activities of the NBP comprise: organizing monetary settlements; managing foreign exchange reserves; conducting foreign exchange operations within the limits specified by law; providing banking services to central government; regulating the liquidity of banks and providing them with refinancing facilities; establishing the necessary conditions for the development of the banking system; acting to support the stability of the national financial system; preparing monetary and banking statistics, the balance of payments and the international investment position; performing other tasks as specified by law. (e) The following people were on the Bank s Management Board in the financial year: Marek Belka President of the NBP, since 11 th June 2010; Sławomir Stanisław Skrzypek President of the NBP to 10 th April 2010; Piotr Wiesiołek First Vice President of the NBP; from 10 th April 2010 to 11 th June 2010, acting President of the NBP; Witold Koziński Vice President of the NBP; Zbigniew Hockuba Member of the NBP Management Board; Jakub Skiba Member of the NBP Management Board; Zdzisław Sokal Member of the NBP Management Board; Małgorzata Zaleska Member of the NBP Management Board; Jerzy Stopyra Member of the NBP Management Board to 25 th March 2010; Eugeniusz Gatnar Member of the NBP Management Board since 25 th March 2010; Andrzej Raczko Member of the NBP Management Board since 7 th September

7 II. Basis of preparation of the financial statements The financial statements of the National bank of Poland as at 31 December 2010 have been prepared in accordance with the provisions of the NBP Act; Resolution No. 16/2003 of the Monetary Policy Council (hereinafter referred to as the MPC ) on the accounting principles, format of balance sheet and the profit and loss account of the National Bank of Poland (Official Journal of the NBP of 2003, No. 22, item 38 as amended, hereinafter referred to as Resolution on the Accounting Policies ); Resolution No. 63/2008 of the Management Board of the National Bank of Poland of 11 December 2008 on the manner of performing accounting tasks in the area of accounting at the National Bank of Poland (as amended); Resolution No. 12/2010 of the Monetary Policy Council of 14 December 2010 on the principles for creating and releasing the provision against the foreign exchange rate risk of the Polish zloty at the National Bank of Poland (Official Journal of the NBP of 2010, No. 17, item 19); Resolution No. 29/2007 of the Management Board of the National Bank of Poland of 25 October 2007 on the management of fixed assets at the National Bank of Poland, with subsequent amendments. The accounting policies of the NBP are set out in the Resolution on the accounting policies according to which the matters not covered therein should be resolved taking into account the other regulations of the NBP s bodies, guidelines of the European Central Bank (hereinafter referred to as the ECB ), reports and decisions of the Accounting and Monetary Income Committee, preparatory work for the ECB guidelines, practices in other central banks from the European System of Central Banks and the international accounting standards, in force as at the date of preparation of the financial statements, with a view to ensuring the truth and fairness of the financial statements. 4

8 III. Information on the audit a) PricewaterhouseCoopers Sp. z o.o. was appointed registered auditor to the Bank by Resolution No. 3/DOR/2010 of the Monetary Policy Council of 23 August 2010, on the basis of Article 69, clause 1 of the NBP Act. b) PricewaterhouseCoopers Sp. z o.o. and the key registered auditor conducting the audit are independent of the audited entity within the meaning of Article 56, clauses 2-4 of the Act dated 7 May 2009 on registered auditors and their self-government, registered audit companies and on public supervision (Journal of Laws No. 77, item 649, as amended). c) The audit was a statutory audit of the annual financial statements pursuant to Article 69 of the NBP Act and was carried out on the basis of the contract dated 6 September 2010 ( the Contract ) in the period from 29 November 2010 to 24 March

9 IV. The Bank s financial position and results of operations The observations below are based on the knowledge obtained during the audit of the financial statements. The financial statements do not take account of the effects of inflation. index (from December to December) amounted to 3.1 (3.5 in 2009). The consumer price The following factors had a significant impact on the NBP s financial position and its results of operations in the audited year: Balance sheet as at 31 December 2010 As at the end of the audited year, the assets of the NBP amounted to PLN 279,340,385 thousand (PLN 244,024,478 thousand as at the end of December 2009). Compared with the end of the previous financial year total assets/liabilities increased by PLN 35,315,907 thousand (i.e. 14). An increase of PLN 46,894,642 thousand (i.e. 22) in the balance of claims on nonresidents in foreign currencies was the main driver of the said increase in total assets. These claims amounted to PLN 263,380,105 thousand as at the balance sheet date and represented the most material (i.e. 94) component of assets (89 as at the end of 2009). The increase in total assets as at 31 December 2010 as a result of the increase in the balance of claims on non-residents in foreign currencies was partly offset by the fall in the balance of claims on other domestic monetary financial institutions related to monetary policy operations in the domestic currency of PLN 14,627,195 thousand. The reason for the increase in the balance of claims on non-residents in foreign currencies was mainly an increase of PLN 37,336,629 thousand (i.e. 20) in the balance of debt securities in foreign currencies. This balance amounted to PLN 221,314,500 thousand as at the balance sheet date. Moreover, there was an increase of PLN 6,239,880 thousand (i.e. 51) in the balance of term deposit accounts in foreign currencies. This amounted to PLN 18,384,253 thousand as at the balance sheet date (Note 3). This fall in claims on other domestic monetary financial institutions related to monetary policy operations in domestic currency was due to a fall in the balance of fine-tuning repo operations (deposits in the domestic currency under debt securities reverse repo transactions) as at 31 December 2010 compared with the balance as at 31 December 2009 (Note 4). The other reason for the increase of the assets was the increase of gold and gold receivables. The share of the balance of gold and gold receivables in total assets amounted to 5 as at the balance sheet date (which amounted to 4 as at the end of 2009). As at 31 December 2010, the balance amounted to PLN 13,831,664 thousand and was PLN 3,419,945 thousand (i.e. 33) higher than as at the end of This increase was mainly due to an increase in the market prices of gold (Note 2). The increase in assets was mainly financed by the increase in other liabilities to other domestic monetary financial institutions related to monetary policy operations in domestic currency of PLN 33,166,510 thousand, the increase of liabilities to non-residents in foreign currencies of PLN 5,837,388 thousand and the increase in revaluation accounts of PLN 5,614,384 thousand. This increase was partly compensated by the decrease in liabilities to residents in foreign currencies by PLN 5,919,494 thousand. 6

10 The balance of other liabilities to other domestic monetary financial institutions related to monetary policy operations in domestic currency as at 31 December 2010 increased by PLN 33,166,510 thousand, (i.e. 42) compared with the end of The balance of these liabilities amounted to PLN 111,703,477 thousand as at 31 December 2010 and represented 40 of total liabilities (32 as at the end of 2009). As at the balance sheet date, the balance comprised mainly issued NBP bills in the amount of PLN 74,639,680 thousand (PLN 40,984,420 thousand as at the end of 2009) and current accounts (including mandatory reserve accounts) in the amount of PLN 36,562,970 thousand (PLN 36,223,474 thousand as at 31 December 2009). The balance of banknotes and coins in circulation had a significant share of total liabilities (37 of total liabilities), which represents a fall of 4 pp. compared with this item s share as at the end of As at 31 December 2010, the balance of banknotes and coins in circulation amounted to PLN 103,064,357 thousand and was PLN 2,719,548 thousand (i.e. 3) higher than as at 31 December As at 31 December 2010, the ratio of banknotes and coins in circulation to the value of the issue amounted to 57 and dropped by 1 pp. compared with the end of the previous financial year. As at the balance sheet date, the balance of liabilities to other residents in the domestic currency also decreased by PLN 4,170,345 thousand (i.e. 37) and amounted to PLN 6,961,634 thousand. The balance of liabilities to other residents in the domestic currency mainly comprised the current and auxiliary accounts of the government sector in the amount of PLN 5,909,911 thousand (PLN 7,984,253 thousands at 31 December 2009) and the term deposits of the Ministry of Finance (the balance of funds in the deposit account of the Ministry of Finance amounted to PLN 984,000 thousand compared with PLN 3,000,000 thousand as at the end of 2009) (Note 9). The increase in the balance of liabilities to non-residents in foreign currencies of PLN 5,837,388 thousand (i.e. 72) to PLN 13,982,820 thousand as at the balance sheet date was mostly due to an increase of PLN 6,001,395 thousand (i.e. 78) in the balance of term deposits in foreign currencies under debt securities repo transactions (to PLN 13,735,377 thousand as at 31 December 2010). This increase was partly limited by a fall in the balance of the auxiliary accounts in foreign currencies maintained by the NBP of PLN 211,232 thousand (i.e. 65 Note 12). The revaluation accounts amounted to PLN 19,830,056 thousand as at the balance sheet date and were PLN 5,614,384 thousand (i.e. 39) higher than as at 31 December As at the balance sheet date, 84 of the balance of this position (PLN 16,681,167 thousand) represented foreign exchange differences on assets, liabilities and off-balancesheet instruments in foreign currency (up PLN 5,840,955 thousand compared with the balance as at 31 December 2009). However, there was a decrease of PLN 226,571 thousand (i.e. 13) in price valuation differences on assets and liabilities. As at the balance sheet date, they amounted to PLN 1,530,866 thousand. The revaluation account of gold did not change compared with the balance as at 31 December 2009 (PLN 1,618,023 thousand Note 14). Capital and reserves amounted to PLN 14,309,163 thousand as at the balance sheet date and decreased by PLN 3,582,801 thousand (i.e. 20) compared with the balance as at the end of The fall in the balance related to the release of a provision against the foreign exchange rate risk of the Polish zloty. As at 31 December 2010, the provision in the amount of PLN 3,791,079 thousand was released. This amount was credited to income from financial operations (Note 17). The fall in the balance of capital and reserves was partly offset by the recognition of a transfer to the reserve fund in the amount of PLN 208,278 thousand (5 of the profit for 2009). 7

11 As at the balance sheet date, the balance of liabilities was reduced by accumulated losses of PLN 11,457,912 thousand. According to the applicable regulations the only method for offsetting accumulated losses provided for in the NBP Act is to offset them against the reserve fund (Article 62, clause 3 of the NBP Act). As at 31 December 2010, the balance of the reserve fund amounted to PLN 208,278 thousand. Income statement for the year ended 31 December 2010 In 2010, the NBP recorded a profit for the year in the amount of PLN 6,529,119 thousand (PLN 4,165,554 thousand in 2009). Apart from the profit for 2010, the Total profit/loss presented in the financial statements also includes unappropriated prior years losses of PLN 11,457,912 thousand. The NBP s profit for the year comprised mainly net income/expense on financial operations in the amount of PLN 6,982,657 thousand and the Bank s overheads of PLN 1,085,152 thousand (Note 17). In the audited year, the NBP recorded a fall in net interest, discount and premium income/expense of PLN 2,472,508 thousand (i.e. 83) to PLN 517,233 thousand (Note 16). Interest, discount and premium income amounted to PLN 6,197,387 thousand in the audited year and mainly comprised income from foreign securities in the amount of PLN 5,475,271 thousand and income from NBP cash maintained in bank accounts in the amount of PLN 641,050 thousand. A fall in interest and discount income in 2010 mainly related to income from foreign securities (down PLN 303,581 thousand, i.e. 5 compared with the previous year) and the NBP cash accumulated in bank accounts (down PLN 143,621 thousand, i.e. 18 compared with the previous year) (Note 16). The interest, discount and premium expense amounted to PLN 5,680,154 thousand in 2010, with 82 of the balance relating to securities expense (PLN 4,677,063 thousand). 12 of the balance as at the balance sheet date (PLN 709,679 thousand) related to the costs of banks mandatory reserves, and 1 (PLN 85,066 thousand) related to the costs of the deposits of the Ministry of Finance in the domestic currency (Note 16). The net income/expense on financial operations amounted to PLN 6,982,657 thousand and was PLN 4,661,516 thousand higher than in the previous year. This result was mainly affected by income from financial operations in the amount of PLN 6,772,010 thousand (PLN 18,117,052 thousand in 2009) and income from the release of a provision against foreign exchange rate risk in the amount of PLN 3,791,079 thousand. In 2010, income from financial operations comprised realized foreign exchange gains of PLN 4,480,632 thousand (PLN 15,280,024 thousand in 2009) and realized price valuation gains of PLN 2,291,370 thousand (PLN 2,837,028 thousand in 2009 Note 17). In accordance with Resolution No. 12/2010 of the MPC, the Bank estimated the foreign exchange rate risk of the zloty as at 31 December 2010 and recognized a provision against the foreign exchange rate risk of the zloty in the amount of PLN 12,600,886 thousand. As at 31 December 2009, this provision amounted to PLN 16,391,964 thousand (Note 15). 8

12 The NBP s overheads totaled PLN 1,085,152 thousand compared with PLN 1,235,101 thousand in the previous year, which represents a fall of PLN 149,949 thousand (i.e. 12). Similarly as in the previous year, these costs comprised mainly the costs of the issue of banknotes and coins expense of PLN 308,249 thousand (28 of the balance), the employee salaries including remuneration-related charges in the amount of PLN 411,820 thousand (38 of the balance), and other administrative expenses of PLN 256,692 thousand (24 of the balance). The fall in the NBP s overheads was largely due to a decrease in the issue of banknotes and coins expense of PLN 121,112 thousand (i.e. 28), a fall in other expenses of PLN 9,860 thousand (i.e. 27), a fall in administrative expenses of PLN 9,838 thousand (i.e. 4) and the fall in the employee salaries of PLN 1,876 thousand (Note 18). 9

13 V. Discussion of financial statement components BALANCE SHEET as at 31 December 2010 ASSETS Note Structure Structure Gold and gold receivables 2 13,831,664 10,411,719 3,419, Claims on non-residents in foreign currencies 3 263,380, ,485,463 46,894, Claims on residents in foreign currencies (482) (52) - - Claims on other domestic monetary financial institutions related to monetary policy operations in domestic currency 4-14,627,195 (14,627,195) (100) - 6 Other claims on other domestic monetary financial institutions in domestic currency 5 728,945 1,101,498 (372,553) (34) - - Other assets 6 1,399,222 1,397,672 1, Total assets 279,340, ,024,478 35,315,

14 V. Discussion of financial statement components BALANCE SHEET as at 31 December 2010 (cont.) LIABILITIES Note Structure Structure Banknotes and coins in circulation 7 103,064, ,344,809 2,719, Liabilities to other domestic monetary financial institutions related to monetary policy operations in domestic currency 8 111,703,477 78,536,967 33,166, Other liabilities to other domestic monetary financial institutions in domestic currency 71,135 57,511 13, Liabilities to other residents in domestic currency 9 6,961,634 11,131,979 (4,170,345) (37) 3 5 Liabilities to non-residents in domestic currency ,512 1,335,085 (863,573) (65) - 1 Liabilities to residents in foreign currencies 11 7,480,667 13,400,161 (5,919,494) (44) 3 6 Liabilities to non-residents in foreign currencies 12 13,982,820 8,145,432 5,837, Liabilities to the IMF 13 5,995,356 5,841, , Other liabilities 299, ,422 (4,081) (2) - - Provisions for future liabilities 99, ,545 (12,885) (11) - - Revaluation accounts 14 19,830,056 14,215,672 5,614, Capital and reserves 15 14,309,163 17,891,964 (3,582,801) (20) 5 7 Profit/Loss for the year 6,526,119 4,165,554 2,363, Accumulated losses (11,457,912) (11,457,912) - - (4) (5) Total liabilities and equity 279,340, ,024,478 35,315,

15 V. Discussion of financial statement components (cont.) INCOME STATEMENT for the year ended 31 December 2010 Note Net interest, discount and premium income/expense ,233 2,989,741 (2,472,508) (83) Structure 2009 Structure Interest, discount and premium income 6,197,387 6,675,901 (478,514) (7) Interest, discount and premium expense (5,680,154) (3,686,160) (1,993,994) Net income/expense on financial operations 17 6,982,657 2,321,141 4,661, Income from financial operations 6,772,010 18,117,052 (11,345,042) (63) Expenses arising from financial operations (2,114,851) (980,317) (1,134,534) Unrealized expenses (1,465,581) (563,281) (902,300) Income from release of provisions for risk and reversal of write-downs of assets 3,791, ,791,062 Above Costs of recording provisions for risk and write-downs of assets - (14,252,330) 14,252,330 (100) - 68 Net fee and commission income/expense (65,062) (127,533) 62,471 (49) Fee and commission income 31,192 30, Fee and commission expense (96,254) (157,799) 61,545 (39) 1 1 Income from equities 27,853 12,310 15, Other income 151, ,996 (53,406) (26) 1 - Total net income 7,614,271 5,400,655 2,213, Employee wages and salaries, including remuneration-related charges 18 (411,820) (413,696) 1, Other administrative expenses 18 (256,692) (266,530) 9,838 (4) 3 1 Depreciation expense 18 (81,312) (88,575) 7,263 (8) 1 - Issue of banknotes and coins expense 18 (308,249) (429,361) 121,112 (28) 3 2 Other expenses 18 (27,079) (36,939) 9,860 (27) 1 - Total profit 6,529,119 4,165,554 2,363, Total income 16,971,111 25,040,542 (8,069,431) (32) Total expenses (10,441,992) (20,874,988) 10,432,996 (50) Total profit 6,529,119 4,165,554 2,363,

16 V. Discussion of financial statement components (cont.) Selected ratios and financial indicators of the Bank Total assets/liabilities 279,340, ,024,478 Claims on non-residents in foreign currencies 263,380, ,485,463 Banknotes and coins in circulation 103,064, ,344, Total profit/loss for the year (in ) 6,529,119 4,165,554 Net interest, discount and premium income/expense to total profit/loss 8 72 Net income/expense on financial operations to total profit/loss PLN PLN Mid exchange rates as announced by the National Bank of Poland - EUR USD GBP Average cost of holding of currencies held by the National Bank of Poland - EUR USD GBP

17 V. Discussion of financial statement components (cont.) 1. s in accounting policies in 2010 The changes in the accounting policies in the financial year 2010 were introduced by Resolution No. 14/2009 of the Monetary Policy Council dated 15 December 2009 amending Resolution No. 16/2003 on the accounting principles, format of balance sheet and the profit and loss account of the National Bank of Poland. The following, that influenced the financial statements, were introduced: - the methodology of calculation of PLN equivalent of purchase/sale transactions of one foreign currency for another foreign currency From 1 January 2010, foreign currency purchased/sold for another foreign currency is converted into the domestic currency according to the exchange rate of the quoted currency (up until 31 December 2009, conversion was carried out according to the exchange rate of the currency sold), and the quote currency will be understood as the currency in which the price of a unit of another currency is determined. According to the NBP s estimates, had the exchange rate of the quote currency rather than the exchange rate of the sold currency been used in the NBP in 2009 for converting into the domestic currency the foreign currency sold for another foreign currency, the financial result for this period would have been approximately PLN 69 million lower. - amortization the discount and premium on securities Since 1 January 2010, the discount and premium on all debt securities purchased by the NBP have been amortised according to the internal rate of return (IRR) (up until 31 December 2009, the use of the IRR method was required only for securities bearing no coupon with a maturity of over one year; in other cases the straight line method was used). Had the discount and premium on the debt securities which were in 2009 in the NBP s holding been amortised according to the internal rate of return (IRR) rather than the straight line method, the financial result recorded by the NBP in the period during which they were held would have been approximately PLN 44 million lower. Considering a low value of potential adjustments in financial statements for 2010, the comparative data for 2009 have not been changed. In addition, at 14 December 2010 the MPC adopted a Resolution No. 12/2010 on the principles for creating and releasing the provision against the foreign exchange rate risk of the zloty at the National Bank of Poland, which replaced the Resolution No. 9/2006 of the MPC of 19 December 2006 as amended. This change was aimed to define more precisely the principles for an estimation, creation and release of the provision against the foreign exchange rate risk of the zloty. On the basis of the Resolution the estimated provision is equal amount, that would compensate the potential change the value of foreign exchange reserves resulted from identified foreign exchange risk, reduced by calculated unrealized gains arose due to change of the exchange rate. Additionally, the resolution defined the lower limit of the provision. The calculated provision cannot be lower than inappropriate cumulated prior years losses as a result of change of the foreign exchange rate risk of the zloty. Pursuant to the Resolution No. 12/2010, the provision against the foreign exchange rate risk of the zloty as at 31 December 2010 was estimated at the amount of PLN 12.6 billion. As at 31 December 2009 the provision estimated according to the Resolution No. 12/2010 would have been PLN 15.6 billion. Taking into consideration the fact, that this change concerned the changes in accounting estimates and in accordance with the above mentioned Resolution became effective on 14 December 2010, the comparative data for 2009 have not been changed. 14

18 V. Discussion of financial statement components (cont.) Balance sheet as at 31 December Gold and gold receivables conforming to international standards of purity As at 31 December 2010, the balance of gold and gold receivables amounted to PLN 13,831,664 thousand and was PLN 3,419,945 thousand (i.e. 33) higher than the balance as at the end of the previous financial year. As at 31 December 2010, the holding of gold comprised current accounts in gold with a value of PLN 13,174,478 thousand and the stocks of gold in the NBP s vaults with a value of PLN 657,186 thousand. The stocks of gold in physical units in the vaults comprised 157, ounces and did not change compared with 31 December The stocks of gold deposited with foreign bank increased by ounces compared with the end of However, the said change resulted from the settlement of weight differences of gold bars on liquidating a deposit and the process of replacing gold bars. As at the end of 2010, these stocks comprised 3,151, ounces and were maintained in a current account in the Bank of England. An increase in the balance of 33 was mainly the result of the valuation of the gold. The price of gold in US dollars per ounce as at 31 December 2010 was 28 higher than the price as at 31 December 2009 and amounted to USD 1, The USD/PLN exchange rate increased by 4 from PLN on 31 December 2009 to PLN on 31 December The price of an ounce of gold translated into Polish zloty as at the end of 2010 was 33 higher than the price as at the end of the previous financial year. 3. Claims on non-residents in foreign currencies As at the balance sheet date, the balance of claims on non-residents in foreign currencies amounted to PLN 263,380,105 thousand. Compared with the balance as at 31 December 2009, it increased by PLN 46,894,642 thousand (i.e. 22). This item has the largest share in the structure of the NBP s assets. As at 31 December 2010, this share amounted to 94 of total assets and increased by 5 pp. compared with the end of the previous financial year. As at the balance sheet date, claims on non-residents in foreign currencies comprised the following items: Item Receivables from the International Monetary Fund Balances with foreign institutions, debt securities, loans granted and other foreign assets (a) (b) 7,505,332 7,256, , ,874, ,228,845 46,645, Total 263,380, ,485,463 46,894,

19 V. Discussion of financial statement components (cont.) a) Receivables from the International Monetary Fund ( the IMF ) As at 31 December 2010, the balance of receivables from the International Monetary Fund amounted to PLN 7,505,332 thousand and was PLN 248,714 thousand (i.e. 3) higher than the balance as at 31 December The increase in the balance was mainly due to the exchange rate revaluation as a result of a 3 increase in the SDR exchange rate as at 31 December 2010 compared with the exchange rate as at 31 December 2009 (from as at 31 December 2009 to as at 31 December 2010). The balance of receivables from the International Monetary Fund comprised the following: the Republic of Poland s share in the IMF contributed by the NBP in foreign currencies (SDR within the reserve tranche) in the amount of PLN 1,484,809 thousand, as well as current accounts and term deposit accounts with the IMF totalling PLN 6,020,523 thousand. b) Balances with foreign institutions, debt securities, loans granted and other foreign assets Balances with foreign institutions, debt securities, loans granted and other foreign assets comprised mainly investments made as part of the NBP currency reserves management process. A detailed breakdown of the balance is presented in the table below: Interest-bearing debt securities in foreign currencies 170,128, ,193,153 27,935, Discount debt securities in foreign currencies 51,185,594 41,784,718 9,400, Total debt securities in foreign currencies 221,314, ,977,871 37,336, Current accounts and term deposits in foreign currencies 19,664,083 14,359,935 5,304, Term deposits in foreign currencies under debt securities reverse repo transactions 14,529,073 10,445,971 4,083, Other items 367, ,068 (77,951) (18) Total 255,874, ,228,845 46,645, An increase in the balance of this item of PLN 46,645,928 thousand (i.e. 22) was mainly the result of an increase of PLN 27,935,753 thousand in the balance of interest-bearing debt securities in foreign currencies and an increase of PLN 9,400,876 thousand in the balance of discount debt securities in foreign currencies. Similarly as at the end of the previous year, the portfolio of the foreign currency reserves managed by the NBP comprised mainly debt securities denominated in USD, EUR, GBP and AUD issued by the governments of the USA, the member states of the European Union and Australia, as well as international financial institutions. As at 31 December 2010, the balance of Other items comprised stocks of foreign currency banknotes and coins in the amount of PLN 367,117 thousand. 16

20 V. Discussion of financial statement components (cont.) 4. Claims on other domestic monetary financial institutions related to monetary policy operations in the domestic currency As at the balance sheet date, the NBP did not have any claims on other domestic monetary financial institutions related to monetary policy operations in the domestic currency (in 2009, the balance of this item amounted to PLN 14,627,195 thousand). The fall in the value of the said balance resulted from gradually disappearing demand of commercial banks for instruments providing liquidity (repo), recognized by the NBP as deposits in the domestic currency under debt securities reverse repo transactions. The average level of repo operations amounted to PLN 5,057,428 thousand in 2010 and was PLN 56 lower than in the previous year. 5. Other claims on other domestic monetary financial institutions in the domestic currency As at 31 December 2010, the balance of other claims on other domestic monetary financial institutions in the domestic currency amounted to PLN 728,945 thousand and mainly comprised an amount receivable in respect of a refinancing loan for central investments, including capitalized interest of PLN 491,984 thousand. A fall in the balance of PLN 372,553 thousand (i.e. 34) compared with the balance as at 31 December 2009 was mainly due to the repayment of loan installments in the amount of PLN 121,105 thousand and capitalized interest of PLN 251,443 thousand. 6. Other assets As at 31 December 2010, the balance of other assets amounted to PLN 1,399,222 thousand (PLN 1,397,672 thousand as at 31 December 2009). The said balance comprised the following items: Tangible fixed assets and intangible assets 885, ,086 1,529 - Other financial assets 178, ,032 (1,709) (1) Prepayments and deferred costs 60,231 44,075 16, Off-balance-sheet instruments revaluation differences 2, , Other assets 272, ,993 (16,860) (6) Total 1,399,222 1,397,672 1,550 - The balance of tangible fixed assets and intangible assets in the amount of PLN 885,615 thousand increased by PLN 1,529 thousand compared with 31 December As at 31 December 2010, the balance comprised tangible fixed assets with a net book value of PLN 734,862 thousand (PLN 778,910 thousand as at the end of the previous year) and intangible assets with a net book value of PLN 67,576 thousand (PLN 68,730 thousand as at 31 December 2009), as well as expenditure on tangible fixed assets and intangible assets in the net amount of PLN 83,177 thousand (compared with PLN 36,446 thousand as at the end of the previous year). The wear and tear of the assets, being the ratio of accumulated depreciation/amortization to the gross book values of the assets, was as follows: 17

21 V. Discussion of financial statement components (cont.) 31 December December 2009 Tangible fixed assets Intangible assets The increase of balance of prepayments and deferred costs from PLN 44,075 thousand to PLN 60,231 thousand resulted mainly from an increase in the prepayments and deferred costs relating to NBP bills issued. The decrease of balance of other assets to was mainly the effect of a decrease in the balance of cash to be settled of PLN 60,777 thousand (i.e. 96) compared with the previous year, which resulted from a portion of the fees incurred by the NBP in 2009 for being granted access to the Flexible Credit Line by the IMF being settled (these fees were charged to costs by May 2010). This fall was partly offset by an increase in the balance of regulation of the off-balance-sheet instruments of PLN 48,746 thousand, mainly due to an increase in the volume of FX spot transactions as at 31 December The balance of other financial assets as at 31 December 2010 amounted to PLN 178,323 thousand and comprised of shares in domestic and foreign institutions. 7. Banknotes and coins in circulation The balance of Banknotes and coins in circulation in the amount of PLN 103,064,357 thousand resulted from issuing domestic banknotes and coins less the value of banknotes and coins in hand and in the vaults of the NBP, banknotes and coins deposited in the vaults of other banks and the value of banknotes and coins withdrawn from circulation. The nominal value of the issued domestic banknotes and coins and the stocks of domestic banknotes and coins were as follows: Issuance of domestic banknotes and coins 181,099, ,112, ,959 1 Stocks of domestic banknotes and coins (78,035,298) (79,767,887) 1,732,589 (2) Banknotes and coins in circulation 103,064, ,344,809 2,719,548 3 As at 31 December 2010, the value of this item was PLN 2,719,548 thousand (i.e. 3) higher than as at the end of the previous financial year. The issuance level increased by 1, whereas the stocks of domestic banknotes and coins dropped by PLN 2. The ratio of banknotes and coins in circulations to the value of the issuance of domestic banknotes and coins increased from 56 as at the end of the previous year to 57 as at the end of Liabilities to other domestic monetary financial institutions related to monetary policy operations denominated in the domestic currency As at 31 December 2010, the balance of liabilities to other domestic monetary financial institutions related to monetary policy operations in the domestic currency amounted to PLN 111,703,477 thousand (PLN 78,536,967 thousand as at 31 December 2009). 18

22 V. Discussion of financial statement components (cont.) The balance of liabilities related to monetary policy operations comprised the current accounts of domestic commercial banks (including mandatory reserve accounts) in the amount of PLN 36,562,970 thousand, issued NBP bills in the amount of PLN 74,639,680 thousand and overnight deposit facilities of PLN 500,827 thousand. An increase in the balance of liabilities related to monetary policy operations of PLN 33,166,510 thousand (i.e. 42) compared with the end of the previous year was related to the fact that the banking sector deposited a portion of cash surpluses with the NBP in As a result, the level of liabilities in respect of issued NBP bills increased by PLN 33,655,260 thousand (i.e. 82), and the balance of cash in the current accounts of domestic banks with the NBP increased by PLN 339,496 thousand (i.e. 1). 9. Liabilities to other residents in the domestic currency As at 31 December 2010, the balance of liabilities to other residents in the domestic currency amounted to PLN 6,961,634 thousand and dropped by PLN 4,170,345 thousand (i.e.37) compared with the end of the previous year. These liabilities mainly related to current and auxiliary accounts, as well as term deposits in the domestic currency maintained by the NBP. The fall in the balance as at the balance sheet date was mainly due to a decrease of PLN 3,648,481 thousand in the State Budget s funds maintained in current accounts and a decrease in the balance of funds in the deposit accounts of the Ministry of Finance of PLN 2,016,000 thousand compared with the end of the previous year. This fall was partly offset by an increase in the balance of auxiliary accounts in the domestic currency maintained by the NBP of PLN 1,291,356 thousand (i.e. 75) compared with the previous year, which was mainly due to an increase in the balance of the State Budget s accounts of PLN 1,314,969 thousand, accompanied by a fall in funds in the accounts of the Social Insurance Institution (ZUS) of PLN 20,487 thousand. 10. Liabilities to non-residents in the domestic currency As at the balance sheet date, the balance of liabilities to non-residents in the domestic currency amounted to PLN 471,512 thousand and was PLN 863,573 thousand lower (i.e. 65) than as at 31 December The balance mainly comprised the European Commission s cash. The change in the balance was mainly due to a fall in cash in the current accounts of the European Commission of PLN 855,818 thousand and of the World Bank Group of PLN 7,739 thousand. 11. Liabilities to residents in foreign currencies As at 31 December 2010, the balance of liabilities to residents in foreign currencies amounted to PLN 7,480,667 thousand and dropped by PLN 5,919,494 thousand (i.e. 44) compared with 31 December As at 31 December 2010, the balance of liabilities to residents in foreign currencies mainly comprised current accounts in foreign currencies accumulated in the NBP in the amount of PLN 7,105,218 thousand. They were PLN 5,627,231 thousand (i.e. 44) lower than as at the end of the previous year, mainly as a result of a decrease of PLN 5,969,164 thousand in the balance of cash in the current accounts of the Ministry of Finance. 19

23 V. Discussion of financial statement components (cont.) 12. Liabilities to non-residents in foreign currencies As at the balance sheet date, the balance of liabilities to non-residents in foreign currencies amounted to PLN 13,982,820 thousand and was PLN 5,837,388 thousand (i.e. 72) higher than the balance as at 31 December The said balance mainly comprised term deposits in foreign currencies under securities repo transactions. These liabilities amounted to PLN 13,735,377 thousand as at the balance sheet date and increased by PLN 6,001,395 thousand (i.e. 78) compared with 31 December The remaining portion of the balance comprised auxiliary accounts in foreign currencies maintained by the NBP and other liabilities in foreign currencies. 13. Liabilities to the International Monetary Fund As at 31 December 2010, the balance of liabilities to the International Monetary Fund amounted to PLN 5,995,356 thousand (PLN 5,841,289 thousand as at 31 December 2009) and comprised liabilities in respect of IMF financial resources received within the SDR allocation, including accrued interest of PLN 3,667 thousand. 14. Revaluation accounts As at 31 December 2010, revaluation accounts amounted to PLN 19,830,056 thousand and increased by 5,614,384 thousand (i.e. 39) compared with the end of the previous financial year Foreign exchange revaluation accounts 16,681,167 10,840,212 5,840, Price revaluation accounts 1,530,866 1,757,437 (226,571) (13) Revaluation account 1,618,023 1,618, Total 19,830,056 14,215,672 5,614, According to the accounting policies of the NBP, unrealized foreign exchange differences as at the balance sheet date result from the difference between the mid NBP exchange rate and the average cost of the holding of a given currency or gold as at the end of the financial year. Foreign exchange gains are shown in the balance sheet, whereas foreign exchange losses are charged to the income statement as expenses. Unrealized foreign exchange gains increased by PLN 5,840,955 thousand (i.e. 54) compared with the end of the previous year. This increase was mostly due to the revaluation of the holdings of XAU, AUD and USD. As at the balance sheet date, 57 (PLN 9,495,664 thousand) of the balance of foreign exchange gains related to gold (up PLN 3,419,393 thousand compared with the previous year), 21 (PLN 3,439,425 thousand) related to AUD (up PLN 1,971,160 thousand compared with the previous year), and 17 related to USD (up PLN 1,075,299 thousand compared with the previous year). The other currencies for which unrealized foreign exchange gains were recorded as at 31 December 2010 were NOK, SDR, GBP, CHF, SEK, CZK, JPY, CAD and HUF. Compared with 31 December 2009, as at the balance sheet date there was a fall in unrealized price valuation differences of PLN thousand (i.e. 13). At the balance sheet date, the total balance of price valuation gains on assets and liabilities related to securities in foreign currencies. 20

24 V. Discussion of financial statement components (cont.) 15. Capital and reserves As at 31 December 2010, the balance of capital and reserves amounted to PLN 14,309,163 thousand and decreased by PLN 3,582,801 thousand (i.e. 20) compared with the end of the previous financial year Statutory fund 1,500,000 1,500, Reserve fund 208, ,278 - Provision against the foreign exchange rate risk of the Polish zloty 12,600,886 16,391,964 3,791,079 (23) Total 14,309,164 17,891,964 3,582,901 (20) In accordance with Article 62 of the NBP Act, the reserve fund is created out of 5 of prior year profits (until the level of the statutory fund is achieved) and is used to offset the Bank s losses. In 2010, a transfer representing 5 of the profit generated by the NBP for 2009 amounted to PLN 208,278 thousand. Pursuant to the provisions of Resolution No. 12/2010 of the MPC, the NBP creates a provision against the foreign exchange rate risk of the zloty. The estimated provision may not be lower than the amount of uncovered cumulative loss of previous years incurred from changes of the exchange rate of the zloty. The creation of the provision may not lead to a negative financial result of current year for the NBP. In accordance with the adopted methodology, the NBP estimated the foreign exchange rate risk of the zloty as at 31 December 2010 and updated the amount of provision. The Bank s methodology used for estimating the risk is based on calculating the Value at Risk. It specifies the anticipated loss due to changes in the exchange rate of the zloty against foreign currencies which in ordinary circumstances with an assumed degree of probability should not be exceeded in the adopted time horizon. In the process of estimating of provision, the Value at risk was diminished by unrealized foreign exchange gains. 16. Net interest, discount and premium income/expense In 2010, the NBP earned net interest, discount and premium income of PLN 517,233 thousand. This income was PLN 2,472,508 thousand (i.e. 83) lower than in the previous financial year. The fall in the net interest, discount and premium income was the result of a fall of PLN 478,514 thousand (i.e. 7) in income accompanied by an increase in expense of PLN 1,993,994 thousand (i.e. 54) Income on foreign securities 5,475,271 5,778,852 (303,581) (5) Income from the NBP s cash accumulated in bank accounts 641, ,670 (143,620) (18) Income from loans 58,289 81,164 (22,875) (28) Other income 22,777 31,215 (8,438) (27) Interest, discount and premium income 6,197,387 6,675,901 (478,514) (7) 21