Interim Results part 4 (1-5)

25th Sep 2008 18:28

BANK

POLSKA KASA OPIEKI

SPOLKA AKCYJNA

Interim Consolidated Financial Statements

of Bank Pekao S.A. Group

for the period  from 1st January 2008 to 30th June 2008 

Warsaw. September 2008

TABLE OF CONTENTS 

Consolidated Income Statement

Consolidated Balance Sheet

Consolidated Statement of changes in equity

Consolidated Statement of Cash Flow

Notes to the consolidated financial statements

1.General information

2.Business combinations

3.Group structure

4.Information about the members of the Management Board and the Supervisory Board

5.Going concern

6.Approval of the financial report

7.Accounting Policies

8.Purposes and rules of financial risk management

9.Custodial activities

10.Segment reporting

11.Interest income and expense

12.Fee and commission income and expense

13.Dividend income

14.Result on financial instruments at fair value

15.Realized result on investment securities

16.Other operating income and expense

17.Administrative costs

18.Net provision charges for financial assets and contingent liabilities and commitments

19.Impairment

20.Share of profit (loss) of associates and joint venture entities valued at the equity method

21.Income tax

22.Earnings per share from continuing and discontinued operations

23.Dividend paid

24.Cash due from Central Bank

25.Loans and receivables from banks

26.Financial assets held for trading

27.Derivative financial instruments held for trading

28.Other financial instruments at fair value through profit and loss

29.Loans and receivables from customers

30.Net investments in financial leases

31.Cash flow hedge (macro hedge)

32.Investment securities

33.Assets held for sale and discontinued operations

34.Investments in associates

35.Intangible assets

36.Property plant and equipment

37.Investment property

38.Other assets

39.Assets used to pledge liabilities

40.Amounts due to Central Bank

41.Amounts due to other banks

42.Financial liabilities held for trading

43.Amounts due to customers

44.Debt securities in issue

45.Provisions

46.Other liabilities

47.Employee benefits

48.Operational lease

49.Contingent liabilities

50.Share capital

51.Reserves, prior and current year profit

52.Additional information for the cash flow statement

53.Transactions with related parties

54.Repo and reverse repo transactions

55.Company's Social Benefits Fund ("ZFSS")

56.Subsequent events after balance sheet date

Consolidated Income Statement 

	Notes	I Half 2008			I Half 2007
DDZIAŁASNOSC		Continuing operations	Discontinued operations	Total	Continuing operations	Discontinued operations	Total
Interest income	11	4 025 211	-	4 025 211	2 055 485	-	2 055 485
Interest expense	11	(1 759 956)	(113)	(1 760 069)	(840 205)	(1 479)	(841 684)
Net interest income		2 265 255	(113)	2 265 142	1 215 280	(1 479)	1 213 801
Fee and commission income	12	1 488 027	556	1 488 583	1 212 315	32 036	1 244 351
Fee and commission expense	12	(258 884)	(112)	(258 996)	(133 055)	(2 774)	(135 829)
Net fee and commission income		1 229 143	444	1 229 587	1 079 260	29 262	1 108 522
Dividend income	13	5 240	-	5 240	1 995	66	2 061
Result on financial instruments at fair value	14	(6 816)	(30)	(6 846)	44 427	676	45 103
Result on investment securities	15	80 741	-	80 741	11 162	-	11 162
Foreign exchange result		273 584	-	273 584	137 651	-	137 651
Other operating income	16	130 272	1	130 273	62 848	-	62 848
Other operating expenses	16	(46 571)	(99)	(46 670)	(31 798)	-	(31 798)
Net other operating income		83 701	(98)	83 603	31 050	-	31 050
Gain on sale of discontinued operations	33	-	436 172	436 172	-	-	-
Net provision charges for financial assets and contingent liabilities and commitments	18	(121 814)	-	(121 814)	(92 339)	-	(92 339)
Administrative costs	17	(1 892 992)	(643)	(1 893 635)	(1 232 251)	(8 893)	(1 241 144)
Operating profit		1 916 042	435 732	2 351 774	1 196 235	19 632	1 215 867
Share of profit (loss) of associates and joint venture entities valued at the equity method	20	68 198	-	68 198	78 289	-	78 289
Profit before income tax		1 984 240	435 732	2 419 972	1 274 524	19 632	1 294 156
Income tax expense	21	(362 561)	56	(362 505)	(246 832)	(4 119)	(250 951)
Income tax expense on gain on sale of discontinued operations		-	(83 408)	(83 408)	-	-	-
Net profit		1 621 679	352 380	1 974 059	1 027 692	15 513	1 043 205
1. Attributable to equity holders of the Company		1 614 883	352 380	1 967 263	1 025 733	15 513	1 041 246
2. Attributable to minority interest		6 796	-	6 796	1 959	-	1 959
Earnings per share (in PLN per share)
- basic for the period	22	6.16	1.34	7.50	6.14	0.09	6.23
- diluted for the period	22	6.16	1.34	7.50	6.14	0.09	6.23

Consolidated Balance Sheet  

	Notes	30 June 2008	31 Dec 2007
Assets
Cash and due from Central Bank	24	7 443 356	5 121 210
Debt securities eligible for rediscounting at Central Bank		2 618	1 108
Loans and receivables from banks	25	7 559 698	16 960 034
Financial assets held for trading	26	2 990 764	3 165 113
Derivative financial instruments (held for trading)	27	2 183 171	1 922 958
Other financial instruments at fair value through profit or loss	28	3 873 184	3 777 729
Loans and receivables from customers	29	69 829 432	66 658 037
Net investments in financial leases	30	3 241 221	3 043 768
Hedging instruments	31	24 312	40 672
Investment securities	32	18 651 449	17 620 419
1. Available for sale		17 894 834	17 033 529
2. Held to maturity		756 615	586 890
Assets classified as held for sale	33	145 893	65 068
Investments in associate	34	328 109	388 169
Intangible assets	35	686 685	688 559
Property plant and equipment	36	1 874 353	2 021 052
Investment properties	37	56 964	58 559
Income taxes		519 519	421 486
1. Current tax receivable		6 165	2 493
2. Deferred tax assets	21	513 354	418 993
Other assets	38	1 531 554	2 142 210
Total assets		120 942 282	124 096 151
Liabilities
Amounts due to Central Bank	40	1 360 105	1 485 921
Amounts due to other banks	41	9 618 196	8 456 191
Financial liabilities held for trading	42	239 324	491 382
Derivative financial instruments (held for trading)	27	2 160 165	1 661 282
Amounts due to customers	43	86 687 788	89 944 078
Hedging instruments	31	126 057	28 965
Debt securities in issue	44	3 482 302	3 716 778
Liabilities classified as held for sale	33	-	55 291
Current income tax payable		250 056	53 169
Deferred tax liabilities	21	3 666	324
Provisions	45	357 861	379 828
Other liabilities	46	2 694 088	3 075 647
Total liabilities		106 979 608	109 348 856
Equity
Share capital	50	262 213	261 867
Other capital and reserves	51	11 713 469	12 393 624
Retained earnings and current year profit	51	1 904 049	2 011 297
Total equity attributable to the Company's equity holders		13 879 731	14 666 788
Minority interest		82 943	80 507
Total equity		13 962 674	14 747 295
Total equity and liabilities		120 942 282	124 096 151

 Consolidated Statement of changes in equity

For the period from 1st January 2008 to 30th June 2008 and for the period from 1st January 2007 to 30th June 2007

	Equity attributable to the Company's equity holders										Minority interest	Total equity
	Share Capital	Other reserve capital							Prior and current	Equity attributable to the Company's equity holders
		Total reserves	Share premium	General banking risk fund	Other reserve capital	Revaluation reserves from financial instruments	Exchange differences from translation of foreign entities	other	profit
Equity as at 1st January 2008	261 867	12 393 624	9 063 248	11 237 850	2 083 585	(278 594)	(23 091)	310 626	2 011 297	14 666 788	80 507	14 747 295
Management share options	346	43 393	42 025	-	-	-	-	1 368	-	43 739	-	43 739
Options exercised (share issue)	346	42 025	42 025	-	-	-	-		-	42 371	-	42 371
Revaluation of management share options	-	1 368	-	-	-	-	-	1 368	-	1 368	-	1 368
Valuation of financial instrument	-	(268 580)	-	-	-	(268 580)	-	-	-	(268 580)	-	(268 580)
Revaluation of available -for-sale investments net of deferred tax	-	(211 080)	-	-	-	(211 080)	-	-	-	(211 080)	-	(211 080)
Revaluation of hedging financial instruments net of deferred tax	-	(57 500)	-	-	-	(57 500)	-	-	-	(57 500)	-	(57 500)
Appropriation of retained earnings and current year profit	-	(441 931)	-	-	(476 962)	-	-	35 031	(107 248)	(549 179)	2 432	(546 747)
Dividend paid	-	(1 032 357)	-	-	(1 032 357)	-	-		(1 484 884)	(2 517 241)	(4 364)	(2 521 605)
Appropriation of profit (including corrections of consolidation)	-	590 426	-	-	555 395	-	-	35 031	(589 627)	799	-	799
Current year net profit	-	-	-	-	-	-	-		1 967 263	1 967 263	6 796	1 974 059
Other	-	(13 037)	-	-	-	-	(13 037)	-	-	(13 037)	4	(13 033)
Foreign exchange differences from translation of foreign entities	-	(13 037)	-	-	-	-	(13 037)	-	-	(13 037)	4	(13 033)
Equity as at 30 June 2008	262 213	11 713 469	9 105 273	1 237 850	1 606 623	(547 174)	(36 128)	347 025	1 904 049	13 879 731	82 943	13 962 674

	Equity attributable to the Company's equity holders										Minority interest	Total equity
	Share capital	Other reserve capital							Prior and current	Equity attributable to the Company's equity holders
		Total reserves	Share premium	General banking risk fund	other reserve capital	Revaluation reserves from financial instruments	Exchange differences from translation of foreign entities	Other	Profit
Equity as at 1st January 2007	166 808	7 028 137	1 395 885	1 137 850	4 243 313	(15 141)	(12 190)	278 420	1 680 938	8 875 883	16 744	8 892 627
Management share options	295	33 522	31 623	-	-	-	-	1 899	-	33 817	-	33 817
Options exercised (share issue)	295	31 623	31 623	-	-	-	-	-	-	31 918	-	31 918
Revaluation of management share options	-	1 899	-	-	-	-	-	1 899	-	1 899	-	1 899
Valuation of financial instrument	-	(117 713)	-	-	-	(117 713)	-	-	-	(117 713)	-	(117 713)
Revaluation of available -for-sale investments net of deferred tax	-	(117 713)	-	-	-	(117 713)	-	-	-	(117 713)	-	(117 713)
Appropriation of retained earnings and current year profit	-	286 612	-	100 000	158 756	-	-	27 856	-783 283	(496 671)	(1 348)	(498 019)
Dividend paid	-	-	-	-	-	-	-	-	(1 503 928)	(1 503 928)	(3 307)	(1 507 235)
Appropriation of profit	-	286 612	-	100 000	158 756	-	-	27 856	(320 601)	(33 989)	-	(33 989)
Current year net profit	-	-	-	-	-	-	-	-	1 041 246	1 041 246	1 959	1 043 205
Other	-	(151 044)	-	-	(143 005)	-	(8 039)	-	-	(151 044)	-	(151 044)
Foreign exchange differences from translation of foreign entities	-	(8 039)	-	-	-	-	(8 039)	-	-	(8 039)	-	(8 039)
Other	-	(143 005)	-	-	(143 005)	-	-	-	-	(143 005)	-	(143 005)
Equity as at  30 June 2007	167 103	7 079 514	1 427 508	1 237 850	4 259 064	(132 854)	(20 229)	308 175	897 655	8 144 272	15 396	8 159 668

Consolidated Statement of Cash Flow 

	I Half 2008	I Half 2007
Cash flow from operating activities - indirect method
Net profit (loss)	1 967 263	1 041 246
Adjustments:	(2 317 107)	1 723 860
Depreciation expense	203 191	160 717
Share of profit of associates	(68 198)	(78 289)
Gains (losses) on foreign exchange differences	155 831	100 301
Gains (losses) on investing activities	(79 202)	(21 407)
Impairment provisions	-	-
Interest and dividend	(106 845)	(391 942)
Change in loans and advances from banks	2 706 888	(72 563)
Change in financial assets as held for trading and other financial instruments at fair value through profit or loss	78 894	700 936
Change in derivative financial instruments	(260 213)	(163 935)
Change in loans and advances from customers and debt securities eligible for rediscounting at Central Bank	(3 172 905)	(2 166 593)
Change in net investment in the finance lease	(197 453)	(181 963)
Change in investment securities available for sale	(16 260)	(39 672)
Change in deferred tax assets	(31 348)	(18 016)
Change in other assets	581 170	(277 590)
Change in amounts due to banks	1 036 189	4 037 877
Change in liabilities as held for trading	(252 058)	(81 399)
Change in derivative financial instruments and other financial liabilities at fair value through profit or loss	498 883	172 110
Change in amounts due to customers	(3 256 290)	346 026
Change in debt securities in issue	25 355	-
Change in provisions	(21 967)	(4 457)
Change in other liabilities	(335 804)	(177 566)
Income tax paid	(283 302)	(369 759)
Current tax	478 337	251 044
Net cash flows from operating activities	(349 844)	2 765 106
Cash flows from investing activities
Investing activity inflows	10 869 467	23 190 608
Sale of subsidiaries and associates	-	-
Sale of investment securities	10 617 474	22 747 876
Proceeds from sale of intangible assets and property. plant and equipment	5 560	599
Other investing inflows	246 433	442 133
Investing activity outflows	(12 215 313)	(23 922 220)
Purchase of subsidiaries and associates	(5 182)	-
Purchase of investment securities	(12 052 545)	(23 785 774)
Purchase of intangible assets and property, pant and equipment	(157 586)	(136 446)
Other investing outflows	-	-
Net cash flows used in investing activities	(1 345 846)	(731 612)
Cash flows from financing activities
Financing activity inflows	124 337	31 918
Issue of debt securities	81 762	-
Issue of shares	42 575	31 918
Financing activity outflows	(2 799 948)	(1 503 932)
Redemption of debt securities	(282 707)	(4)
Dividends and other payments to shareholders	(2 517 241)	(1 503 928)
Net cash flows from financing activities	(2 675 611)	(1 472 014)
Total net cash flows	(4 371 301)	561 480
Net change in cash and cash equivalents	(4 371 301)	561 480
Cash and cash equivalents at the beginning of the period	16 258 315	10 633 337
Cash and cash equivalents at the end of the period	11 887 014	11 194 817

Notes to the consolidated financial statements 

General information 

These consolidated financial statements of the Capital Group of Bank Pekao S.A.("the Group") cover the period from 1 January 2008 to 30 June 2008 and include the comparatives data: 

for the balance sheet as at 31 December 2007.

for the profit and loss account for the period from 1 January 2007 to 30 June 2007.

Comparative data for the profit and loss account for the period from 1 January 2007 to 30 June 2007 does not include comparative data relating to an organized part of Bank BPH ("Pekao 285") merged with Bank Pekao S.A. on 29 November 2007 and subsidiaries and associates acquired from Bank BPH S.A. Group.

Financial data relating to HVB Ukraine merged with UniCredit Bank on 30 March 2007 was included in profit and loss account from the date of acquisition.

Bank Pekao S.A. ("the Bank") head quartered in Warsaw, 00-950 Grzybowska Street 53/57 was initially recorded in the Commercial Register on 29 October 1929 maintained by the District Court in Warsaw and has been continuously in operation since that time.

Bank Pekao S.A. is registered in the National Court Registry - Enterprise Registry managed by the Warsaw District Court XII Economic Division of the National Court Registry in Warsaw under the reference number KRS 0000014843.

The Bank's identification number is REGON 000010205.

The Bank and entities within the Group were established for and unlimited timeframe. 

The Bank Pekao Group is a part of the Bank UniCredito Italiano S.p.A Group with its seat in Genoa, Italy.

Shares of the Bank are quoted on the Warsaw Stock Exchange Securities of the Bank traded on a regulated market are classified in banking sector.

Bank Pekao S.A. is a universal commercial bank offering a wide range of banking services to both individual and corporate clients. Its operations are denominated in both PLN and foreign currencies and it actively participates in both domestic and foreign financial markets. Moreover the Group through its subsidiaries provides financial service, leasing, factoring and undertakes other investment activities.

Business combinations

No business combinations occurred in the first half of 2008.

The following business combinations were completed by the Group in 2007:

merger of the organized part of Bank BPH S.A. into the operations of Bank Pekao S.A.

merger of UniCredit Bank Ltd. with Commercial Bank HVB Ukraina.

These transactions have been classified as business combinations under common control and such have been accounted for using the book value accounting method, which is the accounting policy adopted for these types of transactions within the UniCredit Group.

Acquiror recognized the assets and liabilities of acquiree at their carrying values at the transfer date, adjusted only to unify the accounting policy applied by acquiree. As result of such transaction neither goodwill nor any excess of the fair value of the net assets over the cost of the business combination was recognized. In applying the book value accounting method, the comparative figures of the Group for the comparative periods presented has not been restated. 

Merger of the organized part of Bank BPH S.A. into Bank Pekao S.A.

Background of the Transaction 

On 12 November 2006 the Management Board of Bank Pekao passed a resolution on the intention to integrate Bank Pekao with an organized part of Bank BPH, to be completed through a division of Bank BPH, and the simultaneous transfer of selected assets and liabilities in the form of an organized part of the enterprise, hereafter referred to as "Pekao 285", in exchange for shares in Bank Pekao S.A., which will be taken up by the shareholders of Bank BPH S.A.

On 15th November 2006 the Management Boards of Bank Pekao and Bank BPH signed the Division Plan of Bank BPH S.A., in accordance with art. 533 § 1 and art. 534 of the Commercial Code ("KSH"), which resolved that the division of Bank BPH will be carried out under art. 529 § 1 item 4 of the KSH. and will result in a transfer of an organized part of the enterprise to Bank Pekao S.A., hereafter referred to as "Bank BPH Spin-off".

On 31st January 2007 Bank Pekao and Bank BPH filed a joint application with the Banking Supervision Commission "the BSC". The BSC's consent to the Bank BPH Spin-off was granted on 3 October 2007.

Effective date of the Transaction 

The Bank BPH Spin-off transaction became effective on 29 November 2007 when the appropriate District Court registered the issue of 94 763 559 of Bank Pekao ordinary bearer shares of I series.

Accounting for the Transaction

In applying the book value accounting method Bank Pekao recognized the assets and liabilities of Pekao 285 at their carrying values at the transfer date, adjusted only to unify the accounting policy applied by Bank BPH. The carrying value of Pekao 285 total assets at 29 November 2007 amounted to PLN 54 332 601 thousand. As both Bank Pekao and Bank BPH prepare their financial statements under IFRS as adopted by the EU, minor adjustments to unify the accounting policies were recognized ordered at the transfer date. 

In applying the book value accounting method to this transaction neither goodwill nor any excess of the fair value of the net assets over the cost of the business combination. 

The difference between the carrying amount of Pekao 285's net assets transferred, being PLN 5 626 136 thousand, and the nominal value of the shares issued by Bank Pekao, being PLN 94 764 thousand, was recognized in equity by the Group as described below.

The transaction resulted in a 6.63% acquisition of minority interests by UniCredit Group; the acquisition of this minority interest is accounted for separately in equity by Bank Pekao as described below.

The results of operations of Pekao 285 have been consolidated with effect from 29 November 2007. The comparative figures of the Group for the comparative periods presented has not been restated. 

The above accounting policy is consistent with the policy of UniCredit Group applicable to intragroup transactions and, in the opinion of the Management Board of the Bank, results in the most appropriate reflection of the economic substance of the Bank BPH Spin-off transaction, which was carried out as  a consequence of an internal reorganization of the Polish banks within the UniCredit Group. 

Shareholders' equity instruments issued for the transaction

The merger transaction was completed by issuing ordinary shares of Bank Pekao to the shareholders of Bank BPH in exchange for their contribution of the Pekao 285 assets and liabilities to Bank Pekao.

As a result of this transaction Bank Pekao share capital was increased by PLN 94 764 thousand, through an issue 94 763 559 ordinary bearer shares of I series of nominal value of PLN 1,0 per each share. The amount of PLN 5 388 665 thousand, representing the difference between the carrying amount of Pekao 285 net assets transferred and the nominal value of I series shares was recognized in the Group's equity.

The share exchange ratio was determined at 1:3.3, being 1 ordinary share of Bank Pekao issued for every 3.3 shares of Bank BPH held by its shareholders registered as of the reference date of 7 December 2007. A fractional number of shares held was rounded down to the nearest whole number and a supplementary cash payment corresponding to the market value of the fraction being rounded down was paid by Bank Pekao. 

The fair value of series I ordinary share for the purposes of the supplementary cash payments was set at PLN 256.69 per share. This fair value was established based on the average market price quotation for Bank Pekao's shares for the 30 day trading sessions, for which quotations were held, preceding the reference date of 7 December 2007. The average market price was an arithmetic average calculated from average daily prices weighted by traded volumes.

As a result of the fractional ratio payments, Bank Pekao acquired 5,010 series I shares representing 0.0019 % of Bank's share capital. The Bank may not exercise voting rights on these shares. These shares may be sold to an investor selected by the Bank at its discretion.

Costs directly related to the issue of series I shares incurred by the Bank amounted to PLN 336 thousand and were recorded as a decrease in the Group's equity.

Acquisition of minority interest by UCI 

As a result of the Pekao 285 transfer to Bank Pekao, UniCredit Group's ownership share in the equity of Bank Pekao increased from 52,73% before the transfer to 59,36% after the transfer, thus representing  a 6,63% minority interest acquisition by UniCredit Group. This minority interest acquisition was accounted for at the UCI consolidated level at fair value with the excess of fair value over the carrying value of the 6,63% of Bank Pekao recorded through the equity of UCI Group.

As a consequence, Bank Pekao recorded a corresponding transfer reflecting the minority interest acquisition by decreasing "Other reserves" in the amount of PLN 2,247.1 million, representing the difference between the book value of the 6,63% net assets and the market value of the 6,63% Bank Pekao shares on 29 November 2007, and a corresponding increase in "Supplementary capital" of the Bank. 

Assets and Liabilities recognized at acquisition date

The following assets and liabilities were transferred from Bank BPH to Bank Pekao on 29 November 2007:

Item name	Amount as at 29.11.2007
Assets
Cash and amounts due from Central Bank	600 578
Financial assets as held for trading	1 325 239
Receivables due from banks	4 570 078
Receivables due from customers	32 624 062
Other financial assets	12 894 447
Property. plant and equipment	557 794
Intangible assets	55 798
Other assets	1 704 605
Total assets	54 332 601
Liabilities
Amounts due to banks	5 214 236
Amounts due to customers	36 901 050
Debt securities in issue	3 539 124
Provisions	467 189
Financial liabilities as held for trading	898 707
Other liabilities	1 686 159
Total equity	5 626 136
Total equity and liabilities	54 332 601

Merger of UniCredit Bank Ltd. with the Commercial Bank HVB Ukraina S.A

Background of the Transaction

On 30 March 2007 Bank Pekao S.A. acquired 100% shares in Commercial Bank HVB Ukraine. The purchase price amounted to PLN 326,108 thousand and value of acquired net assets PLN 152,450 thousand. (equivalent of UAH 264,303 thousand using average NBP exchange rate).

On 3 September 2007 UniCredit Bank Ltd. and Commercial Bank HVB Ukraina S.A. were merged. Both entities are wholly owned subsidiaries of Bank Pekao.

All formal requirements of the merger process were fulfilled on 4 February 2008 following the registration of the changes to the Statute of UniCredit Bank Ltd. embracing the increase of the share capital by an amount of hryvna 109 834 200 by the National Bank of Ukraine

The new shares of UniCredit Bank Ltd. with the nominal value of 1 hryvna each and the total nominal value of hryvna 109 834 200 have been acquired by Bank Pekao in exchange for 1 098 342 shares of Commercial Bank HVB Ukraina S.A of nominal value of 100 hryvna each, with total nominal value of hryvna 109 834 200.

Assets recognized at acquisition date

Commercial Bank HVB Ukraina S.A assets transferred to UniCredit Bank Ltd. as an effect of the transaction are as follows (PLN '000) as of 3 September 2007: 

No..	Item	Amount
1.	Cash and due from banks	497 158
2.	Due from customers	1 179 545
3.	Financial assets held for trading	17 940
4.	Financial assets available for sale	3 557
5.	Intangible fixed assets	734
6.	Tangible fixed assets	3 252
7.	Other assets	1 750
8.	Due to banks	(808 453)
9.	Due to customers	(669 955)
10.	Liabilities due to debt securities issued	(43 557)
11.	Other liabilities	( 14 801)
12.	Total net assets	167 169

(*) The PLN/UAH rate of 0.5574 per table no. 170/A/NBP/2007 from 3rd September 2007 of National Bank of Poland. 

Group structure

The Group consists of Bank Pekao S.A. and the following subordinated entities:

Name of company	Location	Core activity		% of Shareholder's share capital/ voting power
				30.06.2008		31.12.2007
Entities fully consolidated
UniCredit Bank Ltd.	Luck, Ukraine	Banking		100.00		100.00
Centralny Dom Maklerski Pekao S.A.	Warsaw	Brokerage		100.00		100.00
Pekao Fundusz Kapitałowy Sp. z o.o.	Warsaw	Financial		100.00		100.00
Pekao Leasing Sp. z o.o.	Warsaw	Leasing		100.00		100.00
Pekao Faktoring Sp. Z o.o.	Lublin	Financial		100.00		100.00
Pekao Pioneer Powszechne Towarzystwo Emerytalne S.A.	Warsaw	Financial		65.00		65.00
Pekao Telecentrum Sp. z o.o. (before: Drukbank Sp. z o.o.)	Warsaw	Not operating		100.00		100.00
Name of company	Location	Core activity		% of Shareholder's share capital/ voting power
				30.06.2008		31.12.2007
Entities fully consolidated (con.)
Centrum Kart S.A.	Warsaw	Financial support		100.00		100.00
Pekao Financial Services Sp. z o.o.	Warsaw	Financial services		100.00		100.00
Entities fully consolidated
Pekao Bank Hipoteczny S.A. (before: BPH Bank Hipoteczny S.A. (*))	Warsaw	Banking		100.00		100.00
Pekao Leasing Holding S.A. (before: BPH PBK Leasing S.A.)	Warsaw	Leasing		80.10		80.10
Finanse plc (*)	London	Financial brokerage		100.00		100.00
Indirect subsidiary - subsidiary of UniCredit Bank Ltd
BDK Consulting Sp. z o.o.	Luck, Ukraine	Consulting, hotel and transport services		99.99		99.99
Indirect subsidiaries - subsidiaries of Pekao Leasing Holding S.A. (before BPH PBK Leasing S.A.)
Pekao Leasing i Finanse S.A. (before: BPH Leasing S.A.)	Warsaw	Leasing		80.10		80.10
Pekao Auto Finanse S.A. (before: BPH Auto Finanse S.A.)	Warsaw	Car lease and fleet management		80.10		80.10
Subsidiary entities not consolidated full method
Indirect subsidiaries - subsidiaries of Bank Pekao S.A.
Final Holding Sp. z o. o.	Warsaw	Holding management		100.00		100.00
BPH Real Estate S. A.	Warsaw	Real estate		100.00		100.00
Centrum Usług Księgowych Sp. z o. o.	Cracow	Accountant services		100.00		100.00
Property Sp. z o. o.  (In liquidation)	Warsaw	Real estate		100.00		100.00
Centrum Bankowości Bezpośredniej Sp. z o.o.	Cracow	Call centre		100.00		98.00
Indirect subsidiaries - subsidiaries of Final Holding Sp. z o. o.
PKBL S.A. (In liquidation)	n.a.	Not operating	84.51/84.79		84.51/84.79
Final S.A.	Dąbrowa Górnicza	Metal industry	99.82/99.84		99.82/99.84
Indirect subsidiary - subsidiary of PBK Property Spolka z o.o.
FPB Media Sp. z o. o.	Warsaw	Real estate		100.00		100.00
Indirect subsidiaries - subsidiaries of BPH Real Estate S.A.
Metropolis Sp. z o. o.	Warsaw	Real estate - venture capita		100.00		100.00
Jana Kazimierza Development Sp. z o. o.	Warsaw	Real estate - venture capita		100.00		100.00

The Group of the Bank Pekao S.A. owns the following associated entities:

Name of company	Location	Core activity	% of Shareholder's share capital/ voting power
			30.06.2008	31.12.2007
Central Poland Fund LLC	Wilmington. Delaware, USA	Financial brokerage	53.19	53.19
Xelion. Doradcy Finansowi Sp. z o.o.	Warsaw	Supporting, financial and insurance	50.00	50.00
Pioneer Pekao Investment Management S.A.	Warsaw	Financial brokerage	49.00	49.00
Pirelli Pekao Real Estate Sp. z o.o.	Warsaw	Real estate management	25.00	25.00
Krajowa Izba Rozliczeniowa S.A.	Warsaw	Clearing house	34.44	22.96
Biuro Informacji Kredytowej S.A.	Warsaw	Credit information services	-	30.70
CPF Management	Tortola, British Virgin Islands	Financial brokerage	40.00	40.00
Bankowe Doradztwo Podatkowe Sp. z o. o.	Cracow	Tax advisory	74.00/48.68	74.00/48.68
Polish Banking System S.A.	b.d.	In liquidation	48.90	48.90
PPP Budpress Sp. z o. o.	b.d.	In liquidation	36.20	36.20

(*) Percentage shares in entities which make up the Pekao S.A. Capital Group at the General Shareholder Meeting/General Partner Meeting are the following:

- Final Holding Sp. z o. o. - a subsidiary of Bank Pekao S.A. - holds 0.04 % share in Pekao Bank Hipoteczny S.A. Total share of the Group in Pekao Bank Hipoteczny S.A. (before: BPH Bank Hipoteczny S.A). equity is 100%.

- Final Holding Sp. z o. o. - a subsidiary of Bank Pekao S.A. - holds 0.02 % share in equity of Finanse plc. Total share of the Group in Finanse plc equity is 100%.

As at 30 June 2008:

The Group has over 50% of votes/potential voting rights in the Central Poland Fund LLC. Group does not control the entity due to the provisions in this company's articles of association.

The Group has 50% of votes in Xelion. Doradcy Finansowi Sp. z o.o. entity. Due to the provisions in this company's articles of association this entity is classified by the Group as an associated entity.

The Group has 74% of votes/potential voting rights in the Bankowe Doradztwo Podatkowe Sp. Z o.o. Due to the share possessed by the Group in the voting rights (48.68%) and the provisions in the company's articles of association the entity has been classified by the Group as an associated entity. 

In comparison to information disclosed as at 31 December 2007 the composition of the Group has not been changed.

As at 30 June 2008 the Group did not held any shares in  joint-ventures entities.

Information about the members of the Management Board and the Supervisory Board

Members of the Management Board of Bank Pekao S.A.

	30.06.2008		31.12.2007
1.	Jan Krzysztof Bielecki  President of the Management Board, CEO	1.	Jan Krzysztof Bielecki  President of the Management Board, CEO
2.	Luigi Lovaglio  First Vice President of the Management Board, GM	2.	Luigi Lovaglio  First Vice President of the Management Board, GM
3.	Paolo Iannone Vice President of the Management Board	3.	Przemysław Gdański Vice President of the Management Board
4.	Andrzej Kopyrski Vice President of the Management Board	4.	Paolo Iannone Vice President of the Management Board
5.	Katarzyna Niezgoda Vice President of the Management Board	5.	Christopher Kosmider Vice President of the Management Board
6.	Grzegorz Piwowar Vice President of the Management Board	6.	Katarzyna Niezgoda Vice President of the Management Board
7.	Marian Ważyński Vice President of the Management Board	7.	Grzegorz Piwowar Vice President of the Management Board
		8.	Marian Ważyński Vice President of the Management Board

During the period covered by the financial statements to the date of publication of these financial statements there were changes in the Management Board of the Bank as follows.

On 9th of May 2008, Mr Przemyslaw Gdański, Vice President of the Bank resigned from his position.

On 4th June 2008 the Supervisory Board appointed Mr. Andrzej Kopyrski to the position of Vice President of the Management Board for the current term of office of the Management Board 

On 4th June 2008 Mr. Christopher Kosmider resigned from the position of Vice President and Member of the Management Board of Bank Pekao S.A. 

Members of the Supervisory Board of Bank Pekao S.A.

	30.06.2008		31.12.2007
1.	Jerzy Wożnicki Chairman	1.	Jerzy Wożnicki Chairman
2.	Paolo Fiorentino Deputy Chairman, Secretary	2.	Paolo Fiorentino Deputy Chairman, Secretary
3.	Federico Ghizzoni Deputy Chairman	3.	Federico Ghizzoni Deputy Chairman
4.	Pawel Dangel	4.	Pawel Dangel
5.	Fausto Galmarini	5.	Fausto Galmarini
6.	Oliver Greene	6.	Oliver Greene
7.	Enrico Pavoni	7.	Enrico Pavoni
8.	Leszek Pawłowicz	8.	Leszek Pawłowicz
9.	Krzysztof Pawłowski	9.	Krzysztof Pawłowski

During the 1st half of 2008 to the date of publication these financial statements there were no changes in the composition of the Supervisory Board of the Bank.

Going concern

The financial statements have been prepared on a going concern basis on the assumption that the Group will continue its business operations substantially unchanged in scope during a period not shorter than one year from the balance sheet date. As at the date of signing the financial statements the Management Board of the Bank is not aware of any facts or circumstances that would indicate this basis of preparation to be inappropriate.

Approval of the financial report

These consolidated financial statements were approved by the Supervisory Board of the Bank for issue on 22nd September 2008.

Accounting Policies

 Statement of Compliance

The interim consolidated financial statements of the Bank Group have been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting" as adopted by the European Union and are in compliance with the respective regulations. 

Basis of preparation of consolidated financial statements

The consolidated financial statements include the requirements of all the International Accounting Standards, International Financial Reporting Standards and related Interpretations, except for the Standards and Interpretations mentioned below, which are subject to the approval of the European Union, or have been approved by the European Union but have been or will become effective subsequent to the balance sheet date. 

The Group has not elected to early adopt any new Standards and Interpretations that have been approved by the European Union and which will become effective after the balance sheet date. Moreover, as of the balance sheet date the Group has not completed the assessment of the possible impact of the Standards and Interpretations that will become effective after the balance sheet date, on the Group consolidated financial statements for the period of initial application.

Standards, Interpretations and amendments to published Standards that are not yet effective

The following new Standards and Interpretations are not yet effective and have not been applied in preparing these financial statements: [IAS 8.30(a)]: 

Standard/Interpretation	Nature of impending change in accounting policy	Possible impact on financial statements	Date becomes effective for periods from and after
IFRS 8 Operating Segments	The Standard requires segment disclosure based on the components of the entity that management monitors in making decisions about operating matters. Operating segments are components of an entity about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance.	The Group expects the new Standard may alter the presentation and disclosure of its operating segments in the consolidated financial statements.	1 January 2009
Revised IAS 23 Borrowing Costs	The revised Standard will require the capitalization of borrowing costs that relate to assets that take a substantial period of time to get ready for use or sale.	The Group has not yet completed its analysis of the impact of the revised Standard.	1 January 2009
Revised IAS 1 Presentation of Financial Statements	The revised Standard requires information in financial statements to be aggregated on the basis of shared characteristics and introduces a statement of comprehensive income. Items of income and expense and components of other comprehensive income may be presented either in a single statement of comprehensive income with subtotals, or in two separate statements (a separate income statement followed by a statement of comprehensive income).	The Group is currently evaluating whether to present a single statement of comprehensive income, or two separate statements.	1 January 2009
IFRIC 12 Service Concession Arrangements	The Interpretation provides guidance to private sector entities on certain recognition and measurement issues that arise in accounting for public-to-private service concession arrangements.	IFRIC 12 is not relevant to the Group's operations as none of the Group entities have entered into any service concession arrangements.	1 January 2008 (*)

(*) These interpretations will be in force after UE's approval.

Standard/Interpretation	Nature of impending change in accounting policy	Possible impact on financial statements	Date becomes effective for periods from and after
IFRIC 13 Customer Loyalty Programmes	The Interpretation explains how entities that grant loyalty award credits to customers who buy other goods or services should account for their obligations to provide free or discounted goods or services ('awards') to customers who redeem those award credits. Such entities are required to allocate some of the proceeds of the initial sale to the award credits and recognise these proceeds as revenue only when they have fulfilled their obligations.	The Group does not expect the Interpretation to have any impact on the consolidated financial statements.	1 July 2008
IFRIC 14 IAS 19 - The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their interactions	The interpretation addresses 1) when refunds or reductions in future contributions should be regarded as available in accordance with paragraph 58 of IAS 19; 2) how a MFR might affect the availability of reductions in future contributions; and 3) when a MFR might give rise to a liability. No additional liability need be recognised by the employer under IFRIC 14 unless the contributions that are payable under the minimum funding requirement cannot be returned to the company.	The Group has not yet completed its analysis of the impact of the new Interpretation.	1 January 2008 (*)
IFRS 3 (Revised) Business Combinations	The scope of the revised standard has been broadened (some business combinations excluded from the previous version of the standard have not been excluded from the scope of the revised IFRS 3). A definition of a business has been altered in order to be more precise. The definition of contingent liabilities capable of being recognised in the business combination has been narrowed. Transaction costs are no longer included in the cost of the combination. Rules of recognition of contingent consideration have been modified (to fair value measurement). Non-controlling (minority) interest may be measured at fair value.	The Group has not yet completed its analysis of the impact of the revised standard.	1 July 2009

(*) These interpretations will be in force after UE's approval.

Standard/Interpretation	Nature of impending change in accounting policy	Possible impact on financial statements	Date becomes effective for periods from and after
Amendments to IAS 27 Consolidated and Separate Financial Statements	In relation with the revised IFRS 3 (above), the changes introduced to IAS 27 include the following:  - changed definition of non-controlling (minority) interest; - regulation of recognition and measurement of transactions with non-controlling interest while retaining control; - changed recognition and measurement of loss of control; - new disclosure requirements.	The Group has not yet completed its analysis of the impact of the amendments.	1 July 2009
Amendments to IFRS 2 Share based payments	The amendments introduce guidance on accounting for non-vesting conditions.	The Group has not yet completed its analysis of the impact of the amendments.	1 January 2009
Amendments to IAS 32: Financial Instruments - Presentation and IAS 1: Presentation of Financial Statements - Puttable Financial Instruments and Obligations Arising on Liquidation	The amendments provide an exemption to the principle otherwise applied in IAS 32 for the classification of some puttable financial instruments as equity. The amendments require certain financial instruments that represent a residual interest in the net assets of an entity, which would otherwise be classified as financial liabilities, to be classified as equity, if both the financial instrument and the capital structure of the issuing entity meet certain conditions.	The Group has not yet completed its analysis of the impact of the amendments.	1 January 2009

Standard/Interpretation	Nature of impending change in accounting policy	Possible impact on financial statements	Date becomes effective for periods from and after
Amendments to IFRS 1 and IAS 27: Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate	The amendments to IFRS 1 allows a first-time adopter, at its date of transition to IFRSs in its separate financial statements, to use a deemed cost to account for an investment in a subsidiary, jointly controlled entity or associate. The election of whether or not to use deemed cost, and which measurement to use as deemed cost (either previous GAAP carrying amount or fair value determined in accordance with IAS 39), is made on an investment-by-investment basis. There are also additional disclosure requirements for a first time adopter electing to use a deemed cost. The amendments to IAS 27 remove the definition of "cost method" currently set out in IAS 27, and instead require all dividends from a subsidiary, jointly controlled entity or associate to be recognised as income in the separate financial statements of the investor when the right to receive the dividend is established. The amendments specify also the accounting in the separate financial statements of a newly formed entity that becomes that new parent of another entity in a group under certain conditions.	The Group has not yet completed its analysis of the impact of the amendments.	1 January 2009
Improvements to International Financial Reporting Standards 2008	The Improvements to IFRSs 2008 contains 35 amendments and is divided into two parts: Part I includes 24 amendments to 15 standards that result in accounting changes for presentation, recognition or measurement purposes Part II includes 11 terminology or editorial amendments to 9 standards that the IASB expects to have either no or only minimal effects on accounting.	The Group has not yet completed its analysis of the impact of the amendments.	1 January 2009 1 July 2009 - in case of improvements to IFRS 5 Non-current Assets Held for Sale
Standard/Interpretation	Nature of impending change in accounting policy	Possible impact on financial statements		Date becomes effective for periods from and after
IFRIC 15 Agreements for the Construction of Real Estate	The Interpretation addresses which standards (IAS 11 Construction Contracts or IAS 18 Revenue) are applicable for the agreements for the construction of real estate, and the timing of revenue recognition.	The Group has not yet completed its analysis of the impact of the new Interpretation.		1 January 2009
IFRIC 16 Hedges of a Net Investment in a Foreign Operation	The Interpretation applies to all entities using net investment hedging for investments in foreign operations. This Interpretation clarifies that net investment hedging may be applied only when the net assets of the foreign operation are included in the financial statements of the entity.	The Group has not yet completed its analysis of the impact of the new Interpretation.		1 October 2008

The consolidated financial statements are prepared based on the principle of historical cost with the exception of derivative financial instruments, financial assets available for sale and financial assets at fair value through profit or loss which have been recognized at fair value.

During the reporting period the Group did not introduce any other significant changes in the accounting principles as compared to the accounting principles adopted in prior periods.

The Group adopted the accounting principles, presented below to all reporting periods presented except for the cash flow hedge accounting introduced during the 4th quarter of 2007 and the effects of the transactions representing business combinations under common control for comparative data concerning the items of the profit and loss account. 

The principles have been applied consistently by all the Group entities.

The consolidated financial statements have been prepared in Polish Zloty, and all amounts unless indicated otherwise are stated in PLN thousand.

Consolidation policies

The consolidated financial statements include the financial statements of the Bank and the financial statements of its subsidiaries, prepared as at 30 June 2008. Financial statements of subsidiaries are prepared for the same reporting date as the statements of the parent company.

All balances and transactions between entities in the Group, including unrealized profits resulting from transactions within the Group, have been fully eliminated. Unrealized losses are also eliminated, unless there is permanent impairment, which is adjusted in the consolidated financial statements.

Subsidiaries in liquidation and subsidiaries immaterial to the financial and economic presentation of the Group results have been excluded from the consolidation.

Subsidiaries 

Subsidiaries are entities controlled - directly and indirectly by the Bank. Control is the ability to manage financial and operating policies in order to gain economic profits. Control is usually connected with the possession of a majority of votes in the governing bodies. The subsidiaries are consolidated in the period from the date of the Group's taking control until the date that control ceases. 

On the date of taking control the subsidiaries assets and liabilities are measured in fair value. Any surplus over the cost is recognized as goodwill. If the cost is lower than the fair value of net assets of subsidiaries the difference is recognized in the profit and loss account. 

These principles do not apply to business combinations of entities under the common control. In these cases assets and liabilities are disclosed at their book value. 

Recognizing business combinations of entities under common control using book values

The accounting for business combinations among entities under common control is excluded specifically from the scope of IFRS. As such, following the applicable guidance in IAS 8 "Accounting Policies". Changes in Accounting Estimates and Errors", in the absence of any specific guidance within IFRS the Bank made an accounting policy election to be applied consistently to all business combinations of entities under common control, to recognize such transactions using the book values to account for transfers of businesses occurring between entities within the UCI group, of which the Bank is a member. The elected accounting policy of the Bank is as follows:

The combined entity recognizes the assets, liabilities and equity of the combining enterprises at their existing carrying value adjusted only as a result of aligning the combining enterprises' accounting policies. There is no recognition of any new goodwill or excess of acquirer's interest in the net fair value of acquiree's identifiable assets, liabilities and contingent liabilities over cost.

The difference between the book value amount of the net assets received and the consideration paid if any are recognized in the Bank's equity.

In applying the book value method of accounting comparative periods are not restated.

If the transaction results in the acquisition of minority interests, the acquisition of any minority interest is accounted for separately. 

There is no guidance in IFRS as to how to determine the percentage of minority interests acquired from the perspective of a subsidiary. As such the Bank uses the same basis as the ultimate parent for determining the minority interests acquired.

Associated entities

Associated entities are entities in which the Group has significant influence but are not subsidiaries or joint venture entities. The Group usually determines significant influence by possession of 20% to 50 % of the total number of the voting rights in governing bodies. The financial statements of an associated entity are the basis for the valuation of shares held by the group using the equity method. Balance sheet dates of the associates and of the Group are the same and both entities apply consistent accounting policies.

An investment in an associate entity is presented in the balance sheet at cost plus subsequent changes in the Group's share in the net assets of the entity minus any impairment write-offs. The profit and loss account reflects the share in the results of activities of the associate entity. In case of a change recognized directly in the equity of the associate entity the Group recognizes its share in each change and discloses it (if appropriate) in the statement of changes in equity. Any distributions by an associate are deducted from the carrying value of the investment in associate.

When the share of the Group in the losses of the associate becomes equal to or larger than the share of the Group in such associate entity the Group discontinues recognition of further losses unless it incurred an obligation or made a payment on behalf of the associate.

Unrealized profits and losses on transactions between the Group and its associate entities are eliminated in proportion with the Group's shares in associates. 

Participation in joint ventures

The Group's participation in joint ventures is recognized using the equity method in accordance with the principles described for investments in associated entities.

Accounting estimates and judgments applying accounting polices

Preparing financial statements in accordance with IFRS requires the Management Board of the Bank to make certain estimates and to adopt certain assumptions which affect the amounts presented in the financial statements and in explanatory notes.

The estimates which were made as for each balance sheet date reflect the conditions which existed at those dates (e.g. market prices interest rates foreign exchange rates). While the estimates are based on the best knowledge regarding current conditions and activities which the Group will undertake the actual results may differ from such estimates. 

Principal assumptions/subjective judgments adopted in making estimates by the Group pertain primarily to:

Impairment of financial assets

The assumptions presented herein regarding measurement of impairment of credit and loans are described in this note 7.7. in the part titled "Impairment of financial assets".

Impairment of other non-current assets 

At each balance sheet date the Group reviews its assets for indications of impairment. Where such indications exist the Group makes a formal estimation of the recoverable value. In the event of the carrying value of a given asset being in excess of its recoverable value, its impairment is stated and a write-off is made to adjust its value to the level of recoverable value. Recoverable value is the lower of the following two values: fair value of the given asset or cash generating unit less costs of disposal or the value in use determined for each asset separately. 

If there are indications of impairment of common property i.e. assets which do not generate cash independently from other assets or groups of assets and the recoverable value of the individual asset included among common property cannot be determined the Group determines the recoverable value at the level of the cash generating unit to which the given asset belongs.

Estimation of value-in-use of a non-current asset (or cash generating unit) requires assumptions to be adopted regarding among others future cash flows which the Group may obtain from the given non-current asset (or cash generating unit) any changes of amounts or times of occurrence of these cash flows and other factors such as lack of liquidity. Adoption of  a different measurement assumption could affect the carrying value of some of the investments.

Measurement of derivatives and debentures available for sale that do not have a quoted market price

The fair value of non-optional derivatives and debentures available for sale that do not have  a quoted market price on an active market are measured using valuation models based on discounted cash flows. Options are valued using option valuation models. Variables used for the valuation include where possible data from observable markets. The Group also adopts assumptions regarding the contracting party credit risk if they affect the valuation of instruments. Adoption of a different measurement assumption could affect the carrying value of financial instruments. 

Measurement of management options 

The assumptions adopted regarding measurement of management options are described in the section entitled "Employees benefits" in the Note 47.

Calculation of retirement and sickness pension severance payments provision

The severance payments provision is determined on an individual basis separately for each employee in accordance with the projected unit credit method.

The basis for the calculation of a provision for an employee is the expected amount of retirement or pension severance pay - dependent on:

- the basis of the amount of retirement or pension severance pay and the percentage factor depending on the amount of years of employment in accordance with the GBA,

- the expected increase in the calculation basis until the retirement age.

The amount calculated as above is discounted using an actuarial technique taking into account the probability of the given person's reaching retirement age as an employee of the Group and the financial discount.

The probability of the given person's reaching retirement age includes: possibility of dismissal from work, the risk of complete incapacitation for work and the risk of death.

The financial discount is based on the rate of profitability of securities free from risk(bonds) and denominated in the currency with which employee benefits are paid out.

Valuation of foreign currency 

Functional and presentation currency 

The financial statements of individual Group entities including the Bank's Branch in Paris are presented in their functional currency i.e. in the currency of the primary economic environment in which a given entity operates.

The consolidated financial report is presented in Polish Zloty. The Zloty is the functional currency and the presentation currency of the parent business entity.

The average NBP exchange rate is applied as at the balance sheet date. 

Transactions and balances 

Transactions expressed in foreign currency are translated into the functional currency by applying the exchange rate at the date of the transaction. Exchange rate profits and losses due to settlements of these transactions and to the balance sheet valuation of monetary assets and liabilities expressed in foreign currency are accounted for in the profit and loss account.

Exchange rate differences due to non-monetary items such as equity instruments classified to financial assets designated for fair value valuation through the profit and loss account are accounted for together with changes in the fair value of the profit and loss account.

Exchange rate differences due to non-monetary items such as equity instruments classified to financial assets available for sale are included in the revaluation reserve.

Companies of the Group

On consolidation assets and liabilities of foreign business entities are translated into the Polish currency i.e. to the presentational currency as per the closing exchange rate for the balance sheet date. Revenues and expenses in the profit and loss account are recalculated as per average exchange rates calculated on the basis of the exchange rates of the reporting period except for situations where exchange rates fluctuate significantly such that the average exchange rate is not an acceptable approximation of the exchange rate from the transaction date. In such situations revenue and expenses are translated on the basis of the exchange rate from the date of transaction.

Financial statements of: the Bank's Paris Branch and the Group foreign subsidiaries have been converted from the functional currencies of these entities into PLN using the following exchange rates:

for conversion of the balance sheet items as at 30 June 2008 and 31 December 2007 the following exchange rates published by the National Bank of Poland respectively 30 June 2008 and 31 December 2007 have been applied:

	30.06.2008	31.12.2007
PLN for 1 UAH	0.4662	0.4814
PLN for 1 EUR	3.3542	3.5820

for conversion of profit and loss account items for the period from 1 January 2008 to 30 June 2008 and the period from 1 January 2007 to 30 June 2007 the following arithmetic means of exchange rates published by the National Bank of Poland as at the end of each month of respectively the period from 1 January 2008 to 30 June 2008 and the period from 1 January 2007 to 30 June 2007 have been applied:

	I Half 2008	I Half 2007
PLN for 1 UAH	0.4617	0.5738
PLN for 1 EUR	3.4776	3.8486

The foreign exchange differences from the valuation of foreign entities are accounted for as a separate component of equity.

Goodwill arising on acquisition of the entity operating abroad as well as any adjustments of the balance sheet value of assets and liabilities to fair value arising on acquisition of the entity operating abroad are treated as assets and liabilities of an overseas entity i.e. they are expressed in the functional currency of the overseas entity and translated at the closing exchange rate as described above.

Profit and loss account

Interest income and expense 

The Group recognizes interest income and expense related to financial instruments measured at amortized cost using the effective interest rate method. Also interest income on financial assets available for sale is recognized using the effective interest method. 

The effective interest rate is the rate which exactly discounts the estimated future cash inflows and payments made in the expected period until expiry of the financial instrument and in a shorter period where justified to the net carrying value of the financial asset or liability. The calculation of the effective interest rate includes all commissions paid and received by parties to the agreement points which are an integral part of the effective interest rate transaction costs and all other premiums and discounts. 

Interest income contains interest as well as commissions received or receivables in respect of loans inter-bank deposits and securities held-to-maturity and available for sale taken up in the calculation of the effective interest rate.

On discovery of an impaired financial asset measured at amortized cost and financial assets available for sale interest income continues to be recognized in the profit and loss account but is calculated on the basis of a revised value net of any provision for impairment. For the calculation of interest income on the newly determined fair value that interest rate is used according to which future cash flows were discounted for the purpose of impairment measurement. 

Costs of the reporting period applicable to payables due to interest on customer accounts and to commitments for issuing the Group's securities are accounted for in the profit and loss account using the effective interest rate.

Fee and commissions income and expense

Commissions received or paid in relation to banking operations carried out on customer accounts operations on payment cards as well as brokerage factoring and selling activities are recognized in the profit and loss account at the time the service is rendered while other fees and commissions are recognized on an accrual basis.

The Group distinguishes between two basic types of fees and commissions related to credit operations: 

- origination fees and commissions;

- commitment fees and commissions. 

Origination fees and commissions are included in the effective interest rate calculation and constitute interest income.

Commitment fees and commissions are recognized on a straight line basis throughout the life of the facility they relate to and constitute fee and commission income.

In case of loans and advances without a defined repayment schedule and without a defined interest rate schedule (e.g. overdraft facilities and credit cards) fees and commissions are recognized on an accrual basis throughout the life of the facility using the straight line method and constitute fee and commission income.

Foreign exchange gains(losses) 

The Foreign exchange gains(losses) is calculated taking into account foreign exchange gains and losses both realized and unrealized arising from the daily valuation of assets and liabilities denominated in foreign currencies and recorded under foreign exchange income and cost. The exchange rate used for valuation of a given foreign currency used for valuation is the average exchange rate set by the President of the National Bank of Poland on the balance sheet date. Moreover the trade margins realized on foreign exchange transactions with the Group's clients are reported under Foreign exchange gains (losses). 

Foreign exchange gains (losses) also includes exchange differences resulting from the valuation of net investments in foreign entities on the date of sale of the given investment. Until the date of sale foreign exchange differences arising from valuation of net assets in a foreign entity are recognized under other equity. 

Other operating income and expenses 

Other operating income include mainly gains realized on sale/liquidation of items of fixed assets and assets repossessed for debt amounts of uncollectible debts recovered amounts of received damages, penalties and fines, income on rental of real estate write backs of provisions for court litigations and repossessed assets. Other operating costs comprise primarily the costs of sold or liquidated property, plant and equipment and assets seized for debts; debt collection costs; provisions for receivables under dispute and assets seized for debts and donations.

Valuation of the assets and liabilities, derivatives financial instruments

Financial assets

Financial assets are classified under the following categories:

financial assets valued at fair value through the profit and loss

This category comprises two sub-categories: financial assets held for trading and financial assets designated at initial recognition for fair value valuation through the profit and loss. 

Financial assets held for trading include in particular: debt and equity securities loans and receivables purchased or classified here with the aim of selling in the short term. The classification also includes derivative instruments that are not hedged instruments.

To the financial assets at the moment of initial disclosure as financial assets at fair value through profit or loss the debt securities are classified which were appointed by the Group in the aim of elimination or significant decrease of incoherent valuation and the disclosure between the securities and derivatives economically secured against the interest rate risk of these securities. Otherwise these securities would be classified to the "held for sale" portfolio the valuation effect disclosed in the equity and the derivatives valuation economically secured these securities would be disclosed at profit and loss account. These inconsistency of the general ledger elimination is caused by the disclosure of the debt securities at the financial assets portfolio held for valuation of fair value through profit and loss account. 

held-to-maturity.

These are non-derivative financial assets with fixed or determinable payments and fixed maturity that an entity has the positive intention and ability to hold to maturity other than those that: 

a) the entity designates as at fair value through profit or loss upon initial recognition; 

b) the entity designates as available for sale; and 

c) meet the definition of loans and receivables.

The financial assets of that category are valued at amortized cost using the effective interest rate. Recognition of amortized cost taking into account the effective interest rate is recorded in interest income.

loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market other than: 

those that the entity intends to sell immediately or in the near term which shall be classified as held for trading and those that the entity upon initial recognition designates as at fair value through profit or loss; 

those that the entity upon initial recognition designates as available for sale; or 

those for which the holder may not recover substantially all of its initial investment other than because of credit deterioration which shall be classified as available for sale.

This category contains debt securities bought from the issuer for which there is no active market credits, loans receivables, resulting from reverse repo transactions and other receivables received and granted. Loans and receivables are measured at amortized cost using the effective interest rate and taking into account any impairment.

available for sale

These are financial assets with a non-defined holding period. The portfolio is composed of debt and equity securities as well as loans and receivables not accounted for in other categories. Interest on assets available for sale is calculated using the effective interest rate method and accounted for in the profit and loss account.

Financial assets available for sale are measured at fair value and profits and losses resulting from a change of fair value in relation to amortized cost are charged to the revaluation reserve. The revaluation reserve item is carried to the profit and loss account upon sale of an asset or its impairment. In the event of impairment of the asset previously recognized surpluses from fair value measurement decrease the "Revaluation reserve". If the amount of previously recognized increases is insufficient to cover permanent impairment the difference is charged to the profit and loss account under the heading "Provision write-off's and revaluation".

Dividends due from equity instruments are accounted for in the profit and loss account at the moment of establishing the entity's right to receive payments.

Standardized purchase and sale transactions of financial assets valued at fair value through the profit and loss statement held for trading (with the exclusion of derivative instruments) held to maturity and available for sale are recognized and excluded from the books by the Group on the day of the transaction settlement i.e. the day of the receipt or delivery of the asset.

Changes in the fair value of the asset to be received between the date of the transaction and the date of the settlement are recognized in the same way as assets available for sale.

Loans are recognized at the time of disbursement to the debtor. 

Derivative instruments are recognized or excluded from the books on the date of the transaction.

Impairment of financial assets

For each balance sheet date the Group assesses whether there is objective evidence of impairment of a given financial asset or of a group of such assets. Impairment of a financial asset or of a group of financial assets was incurred only if there is objective evidence for the impairment due to events that followed the initial recording of the specific asset ("the loss event") and when the events affect the expected cash flows regarding these assets and the flows may be estimated in a reliable way.

Objective evidence for impairment of financial assets includes - as per the Group's principles - information on the following loss events:

substantial financial problems of the issuer or debtor;

failure to keep to the contract terms e.g. failing to repay or delay in repayment interest or part of capital;

the Group's granting concessions or privileges to the debtor for economic and legal reasons following financial problems of the debtor which in other circumstances would not be taken into account;

high probability of bankruptcy or of another financial reorganization of the debtor;

disappearance of the active market for the particular financial assets due to financial difficulties,

observable data indicating a measurable decrease in the estimated future cash flows from a group of financial assets since the initial recognition of those assets, although the decrease cannot yet be identified with the individual financial assets in the group including:

adverse changes in the payment status of borrowers in the group or

national or local economic conditions that correlate with defaults on the assets in the group.

The Group classifies credit receivables by size into the individual and group portfolios.

In the individual portfolio each credit exposure is subjected to an impairment test. If there is objective evidence of impairment the carrying amount of the receivable is reduced. If for a given exposure no objective evidence of impairment exists the exposure is included in the credit portfolio subject to group assessment. 

In a group portfolio groups of similar credit risk characteristics are identified which are then assessed collectively for impairment.

If there is any objective evidence of impairment of financial assets classified as loans and receivables or as investments held-to-maturity then the amount of the impairment is the difference between the carrying amount of an asset and the current value of estimated future cash flows (excluding future credit losses that were not incurred) discounted using an original effective interest rate established with the initial recognition of a given financial asset. The carrying amount of the asset is then reduced through use of the allowance account and the amount of loss is recognized in the profit and loss account.

Calculation of the present value of estimated cash flows related to the impaired collateralized financial asset also takes into consideration the cash flows resulting from the liquidation of the collateral reduced by the costs of repossession and disposal. 

Expected future cash flows related to the group of financial assets for impairment on a group basis are estimated on the basis of the historical cash recoveries recorded for assets of similar risk characteristics.

Historical parameters of recoveries are adjusted on the basis of the data coming from current observations so as to take into consideration the influence of current conditions and to exclude factors in the historical period that are not presently valid. 

If in the next period the amount of impairment is lower due to an event taking place after the impairment (e.g. an improvement in the debtor's credit rating) then the reduction of impairment is reversed through an appropriate adjustment of an amount on the allowance account. The amount of the reversal is recognized in the profit and loss account.

Sale and re-purchase agreements

Repo and reverse-repo transactions as well as sell-buy back and buy-sell back transactions are security sale or purchase operations with promise of repurchase or resale at an agreed date and price.

Sales transactions with the repurchase promise granted (repo and sell-buy back) are recorded at the transaction date in payables to other banks or in payables to customers due to deposits. The purchased securities with the resale promise granted (reverse-repo and buy-sell back) are recorded as receivables from banks or as credits and loans granted to customers.

The difference between the selling and buying price is treated as interest expense/income respectively and accounted for over the duration of the contract using the effective interest rate.

Derivative financial instruments and hedge accounting 

The Group conducts operations in derivative financial instruments: currency transactions (spot, forward, currency swap and currency options, CIRS) exchange rate transactions (FRA, IRS, CAP) derivative transactions based on securities prices exchange rates and stocks indices. Companies of the Group do not apply hedge accounting therefore all the above mentioned instruments are classified to the trading portfolio. Derivative financial instruments are initially recorded at fair value as at the transaction date and subsequently valued to fair value. The fair value is established on the basis of quotations of the instruments in active markets as well as on the basis of valuation techniques including the models based on discounted cash flows and options valuation models depending on which of the valuation models is appropriate. Positive valuation of derivative financial instruments is presented in the balance sheet in the item of "Derivative financial instruments" on assets side and on the liabilities side if the fair value is negative. Changes in the financial instruments valuation to fair value are reflected in the profit and loss account.

In case of purchasing a financial instrument which has an embedded derivative component the whole or part of cash flows related to such a financial instrument changes in the way similar to that where the embedded derivative instrument was separately on its own. The embedded derivative instrument is reported separately from the basic contract. This occurs under the following conditions:

the financial instrument is not included in assets for trading or in assets designated for fair value valuation through the profit and loss account whose revaluation results are reflected in financial income or cost of the reporting period, 

the nature of the embedded instrument and the related risks are not closely tied to the nature of the basic contract and to the risks resulting from it,

a separate instrument. whose characteristics correspond to the features of the embedded derivative instrument. would meet the definition of the derivative instrument,

it is possible to reliably establish the fair value of the embedded derivative instrument.

In case of contracts that are not financial instruments with a component of an instrument meeting the above conditions the built-in derivative instrument is classified in accordance with assets or liabilities of derivatives financial instruments with respect to profit and loss account in harmony of derivative financial instruments valuation.

The method of recognition of the changes in the fair value of an instrument depends on whether a derivative instrument is classified as held for trading or is designated as a hedging item under hedge accounting. 

The changes of fair value of the derivative financial instruments held for trading are recognized directly in the profit and loss statement. 

The Group designates under the condition of meeting the IAS 39 criteria some of the derivative instruments as hedging items for the future highly probable cash flows concerning the hedged item. 

At the moment the hedge relationship is established the Group formally designates and documents the hedge relationship as well as the objective of the risk management and strategy of the established hedge relationship. The documentation contains the identification of the hedging instrument the hedged item the character of the risk being hedged and the way of measurement of the hedge effectiveness. 

The changes in the fair value of the derivative financial instruments classified as cash flow hedging instruments are recognized: 

- directly in the item "revaluation reserve" in the part constituting the effective hedge relationship, 

- in the profit and loss account in the part representing in-effective hedge relationship.

The amounts cumulated in the revaluation reserve are transferred to the profit and loss account in the period in which the hedged item is reflected in the profit and loss. 

The Group ceases to apply hedge accounting when the hedging instrument matures or is disposed of. In such cases the accumulated profits or losses related to that hedging item are transferred from the revaluation reserve to the profit and loss account,  provided the hedge relationship was effective and would remain intact until the forecasted hedged transaction occurred. 

If the forecasted hedged transaction is no longer deemed highly probable the cumulative profits or losses relating to changes in valuation of the hedging instruments recognized in the revaluation reserve are transferred to the profit and loss account of the given period. 

Financial Liabilities 

The Group's financial liabilities are classified to the following categories:

financial liabilities at fair value through profit and loss carried at fair value, 

financial liabilities not at fair value through profit and loss are carried at amortized cost using the effective interest rate. 

Financial liabilities not at fair value through profit and loss consist of amounts due to banks and customers loans from other banks own debts securities issued.

Derecognition of financial instruments

A financial instrument is derecognized when the contractual rights to the cash flows expires or the Group transfers all the risk and rewards of a financial instrument.

Most often the Group derecognizes loans in the event of:

discontinuation of execution proceedings, 

death of the borrower,

conclusion of bankruptcy procedures, 

unconditional cancellation of a part of the loan. 

Valuation of other consolidated balance sheet items

Intangible assets

Intangible assets are deemed to include assets which fulfill the following requirements:

they can be separated from an economic entity and sold, transferred, licensed or granted for use for a fee to third parties both separately and together with their accompanying contracts, assets or liabilities, or

arise from contractual titles or other legal titles irrespective of whether those are transferable or separable from the business entity or other rights and obligations.

Goodwill

Goodwill on acquisition of a business entity is initially recognized at cost which is the surplus of the costs of business combination of business entities over the share of the acquiring entity in the net fair value of identifiable assets, liabilities and contingent liabilities. After the initial recognition goodwill is presented at cost less any accumulated impairment losses. 

As at the date of acquisition, the acquired goodwill is allocated to each of the cash generating units which may benefit from the synergies of business combination. Impairment is determined by estimating the recoverable value of the cash generating unit to which the given goodwill pertains. In the event of the recoverable value of the cash generating unit being less than the carrying value an impairment write-off is made. If the goodwill is a part of the cash generating unit and a part of activity of that unit is sold then in measuring the profit or loss on selling such activity goodwill related to the activity sold is included in the carrying value of the sold part of activity. In such circumstances goodwill is measured on the basis of the relative value of the activity sold and the value of the remaining part of the cash generating unit. Impairment test is made once a year. Ascertained impairment during the test is not subjected for the future adjustments. Goodwill on acquisition of subsidiaries is presented among intangible assets and goodwill on acquisition of associates is presented under the heading "Investments in associates".

Other intangible assets

Intangible assets are assets controlled by the Group which do not have a physical form which are identifiable and represent future economic benefits for the Group directly attributable to such assets. 

These are mainly:

computer software licenses,

copyrights,

costs of completed development work.

Intangibles acquired in a separate transaction are recognized at cost. Intangibles acquired in transactions of acquisition of a business entity are recognized at fair value as at the date of acquisition. After initial recognition this category of intangibles is treated using the historic cost model. The useful life of intangible assets is assessed and considered to be limited or indefinite. In the case of amortization being calculated from assets with limited useful life such costs are indicated in the profit and loss account under the heading "General and administrative expenses". An intangible asset with an indefinite useful life is not be amortized.

With the exception of development costs intangible assets generated by the Group on its own resources are not recognized in assets and outlays incurred for their generation are recognized in the profit and loss account for the year in which they were incurred. 

As regards intangible assets with limited useful life the Group makes a judgment as to whether there are indications of their impairment. Where it is found that such indications exist the Group estimates the recoverable value of such intangible assets and impairment is recognized. Useful lives are also subject to review annually and where necessary adjusted starting from the next financial year. 

For intangible assets of an indefinite useful life and investments in tangible assets the Group performs a test for impairment on an annual basis irrespective of whether there are indications of impairment.

Research costs are charged to the profit and loss account at the time they are incurred. Outlays for development of a given project are carried forward to the next period where they will generate probable future economic benefits. After the initial recognition of outlays for development work the historic cost model is applied which requires that assets be recognized at cost less accumulated amortization and accumulated impairment write-offs. All outlays carried forward to the next period are amortized throughout the expected period of profits arising from the project. 

Costs of development work are reviewed for any impairment on an annual basis - if an asset has not yet been commissioned or more often - when during a reporting period indications of impairment appear indicating that their carrying value may not be recoverable. 

Loss or profit due to derecognition of intangible assets are measured as the difference between the net sales income and carrying value of the given asset and are recognized in the profit and loss account upon derecognition of the asset. 

Property, plant and equipment

Fixed assets are controlled fixed assets and include outlays to construct assets. Fixed assets include fixed assets with an expected period of use above one year maintained to serve the Group's needs or to be transferred to other entities based on lease contracts or for other administrative purposes. 

Fixed assets are recorded at historical cost reduced by depreciation/amortization and impairment write-downs. Historical cost is made up of the purchase price/cost of creation and costs directly related to the purchase of assets.

Each component part of property plant and equipment whose purchase price or generation cost is material in comparison with the purchase price or generation cost of the entire item is depreciated separately. The Group separates the initial value of property plant and equipment into its significant parts. 

Costs of modernization of property plant and equipment increase their carrying value or are recognized as a separate item of property plant and equipment only when it is probable that such expenditures will ensue with an inflow of economic benefits to the Group and the cost of such expenses can be reliably measured. 

Service and maintenance costs of tangible assets are charged to the profit and loss account in the reporting period in which they are incurred.

The cost of external financing for the purchase or construction of fixed assets is recognized as a cost in the period in which it is incurred.

Depreciation and amortization charge

The depreciation charge for fixed assets and the amortization charge for intangible assets are applied using the straight line method using defined depreciation rates throughout the period of their useful lives Depreciable amount is the cost of an asset or other amount substituted for cost less its residual value Depreciation rates defined for balance sheet purposes are periodically verified with results of verification effective starting from the year following the year of verification.

Balance sheet amortization depreciation and amortization rates applied to the basic groups of fixed tangible assets, investment properties and intangible assets are as follows:

a/ depreciation rates used for fixed assets

Buildings; cooperative ownership right to an apartment cooperative right to non-residential property	1.5% - 10.0%
Technical equipment and machines	4.5% - 30.0%
Means of transport	12.5% - 30.0%

b/ amortization rates for intangible assets

Software licenses, copyrights	10.0% - 50.0%
Costs of completed development works	33.3%
Other intangible assets	33.0%

c/ depreciation rates for investment properties

Buildings

1.5% - 10.0%

Land, fixed assets under construction and intangible assets in progress are not subject to amortization or depreciation.

Amortization and depreciation charges are recognized as Group General and administrative expenses while any impairment write-off's are included in other operating expense. 

Investment property

Initially investment property assets are recognized at cost including the transaction costs. After the initial entry investment property assets are measured in accordance with requirements of the purchasing price model. 

Investment property assets are derecognized when disposed of or in the case of permanent decommissioning of a property when no further benefits from its sale are expected. Any profits or losses due to derecognition of an investment property are charged to the profit and loss account in the period in which such derecognition occurred.

Non-current assets held for sale

Non-current assets held for sale include assets whose carrying value is to be recovered by way of their resale and not in their continued use. Only those assets are classified as held for sale that are available for immediate sale in their present condition whose sale is highly probable i.e. the decision has been made to fulfill the plan of selling the given asset an active programme has been launched to find a buyer and to complete the selling plan. Also such an asset is offered for sale at a price which is rational in reference to its present fair value and it is expected that the sale will be treated as sale completed within one year from the date of the asset's classification in this category. 

Non-current assets held for sale are recognized at the lower of carrying value and fair value less the costs of selling such assets. For assets classified in this category depreciation is not applied. 

Leases

The Group is a party to lease contracts on the basis of which it grants non-current assets or intangible assets to third parties in exchange for payment over an agreed period of time.

The Group is also a party to lease contracts under which it takes benefits from a third party's non-current assets or intangible assets in exchange of payment over an agreed period of time.

Operating lease

In the case of lease contracts contracted by the Group as a lessor the subject of the lease is presented in the balance sheet due to the fact that there was no transfer of all the risks and rewards incidents deriving from the ownership on lease. 

In the case of lease contracts contracted by the Group as a lessee the subject of the lease is not recognized in the balance sheet. 

The whole amount of operating lease payments is recognized as an income or costs in the profit and loss account using the straight-line method throughout the period of the lease.

Financial lease

Group as a lessor

In the case of lease contracts under which there is a transfer of all risks and rewards relating to ownership of assets under a lease the item that is the subject of the  lease is not recognized in the balance sheet.  A receivable equal to the minimum lease payments is recognized in the balance sheet. Lease payments are allocated between financial income and a reduction in the amount of the balance sheet receivables in order to achieve a fix rate of return on the outstanding balances..

Agreements that do not fulfill the criteria for financial lease agreements are recognized as revenues in the profit and loss account on a straight line basis over the lease period.

Group as a lessee

For lease contracts where essentially all risks and rewards relating to ownership of the lease are transferred the lease is recognized as a fixed asset and a liability is recognized in the amount equal to the present value of minimum lease payments as at the date of commencement of the lease. Lease payments are allocated between the financial costs and a reduction in the balance of the liability in order to attain a fixed rate of interest on the outstanding liability. Financial costs are recognized directly in the profit and loss account. 

Assets under finance lease contract are depreciated in the manner defined for the Group's fixed assets. However if it is uncertain whether the ownership of the subject of the contract has been transferred then fixed assets leased under finance lease contracts are depreciated over the shorter of the expected useful life or the initial period of lease. 

Agreements that do not fulfill the criteria for financial lease agreements are recognized as costs in the profit and loss account on a straight line basis over the lease period 

Prepayments

Prepayments refer to particular expenditure types that will be recognized in the profit and loss proportionally to time elapsed in the future reporting periods. Prepayments are presented in the balance sheet as "Other assets".

Provisions

Provisions are established when the Group has an obligation (legal or constructive) resulting from past events and where it is probable that the fulfilment of such obligation will cause a necessity of transfer of assets representing economic benefits and it is possible to reliably estimate the amount of such liability. In the event that the time value of the money-over-time is significant the amount of provisions is established by discounting forecasted future cash flows to the present value using a rate of discount reflecting current market evaluations of money-over-time and any risk related to the given obligation.

Provisions also includes provisions related to actuarial long-term employee benefits. All provisions are charged to the profit and loss account. 

Employee benefits provisions

The amount of provision for retirement payment is established on the basis of an actuarial valuation performed by an independent actuary at least every two years. 

The provision for restructuring costs is established when general criteria for recognition of provisions are met as well as detailed criteria for the obligation to establish restructuring provisions as per IAS 37.

The amount of employment restructuring provision is established by the Group on the basis of the best available estimates of direct outlays which necessarily result from restructuring and are not connected with the Group's current activities. 

Provisions established are recognized on the liabilities side under the "Provisions" heading and accordingly in the profit and loss account as remuneration costs. 

Deferred income and accrued costs

Deferred income and accrued costs refers mainly to commission income settled on a  straight line basis and other income charged in advance; that will be recognized in profit and loss in the future periods.

Accrued costs include accrued costs resulting from services provided for the Group by contractors which will be settled in future periods and accrued payroll and employee benefits (including annual and Christmas bonuses, other bonuses and awards and utilized holiday leave). 

Deferred income and accrued costs are presented in the balance sheet under "other liabilities". 

Equity of the Capital Group 

Equity is comprised of the capital and funds generated by the companies of the Capital Group in accordance with the binding legal regulations i.e. the appropriate laws Articles of Association. Equity also includes retained profit (loss). The items comprising the equity of subordinated entities other than statutory capital are added to the appropriate positions of the parent entity's equity to the extent in which the Parent entity owns the subsidiaries.

The equity of the Capital Group includes only those parts of the subsidiaries' equity which were created after the date of purchase of shares or stocks by the parent entity.

In particular this applies to the change in equity resulting from profit or loss or from revaluation. 

a)  Statutory capital relates only to the capital of the Bank as the Parent entity and is presented at nominal value specified in the Statute and in the entry in the Enterprises Registry.

b)  Reserve capital is created from appropriations of profits and premiums arising on the issue of shares in accordance with the Statutes of the companies. Moreover the change of the value of the minorities shareholding caused by the increase of the share of the parent company in the share capital of the Bank was reflected as an increase of this item according to the accounting principles applied by Unicredit Group; 

c)  Revaluation reserve includes: the effects of revaluation of financial assets available for sale the effect of the valuation of the cash flow hedging derivatives and the value of deferred tax for items that comprise temporary differences. Revaluation reserve is presented net in the balance sheet.

d)  Other reserve capital utilized in accordance with the purposes defined in the Statute is created from appropriations of profits. Moreover the Other reserve capital was reduced by the value of the minority acquisition with the opposite (increase) entry in the Reserve capital; 

e)  Exchange rate differences include differences arising from recalculation of the result of a foreign branch at the weighted average exchange rate for the balance sheet date in relation to the average NBP exchange rate and from valuation of net assets in foreign entities.

f)  Bonds convertible into equity includes the equity fair value of financial instruments issued as part of transactions settled in equity instruments in accordance with IFRS 2.

g)  General banking risk provision created in the Bank represents accumulated appropriations of net profit after tax in accordance with the terms of the Banking Law of 29 August 1997.

h)  Retained earnings comprises the total retained profits and uncovered losses of the companies consolidated under the full method.

i)  Net profit/loss which constitutes profit/loss presented in the profit and loss statement for the relevant . Net profit is after accounting for income tax.

Minority interest

Minority interest equity is the share in the equity of the subsidiary entity consolidated under the full method and belonging to entities other than those comprising the Capital Group. 

Share-based payments 

The Bank operates employee participation programs under which senior and lower management staff important to realization of the Group's strategy are granted pre-emptive rights to buy shares of the Bank  and shares of a dominant entity of UniCredito Italiano S. p. A. (see Note 47).

Transactions settled in equity instruments of the Bank Pekao S.A.

The cost of transactions settled with employees in equity instruments is measured by reference to the fair value as at the granting date. The fair value is established on the basis of the Black-Scholes model for appraisal of dividend-yielding stock options according to expectations of the Management Board concerning the number of rights to be exercised. The amount of the employee share program is adjusted as at every balance sheet date if expectations of the Management Board change concerning the number of rights to be exercised. No efficiency/results data except those related to the price of shares ("market conditions") are taken into account in the assessment of transactions settled in capital instruments.

The cost of share-based payments is recognized together with the accompanying increase of the value of equity in the period in which effectiveness/performance conditions were fulfilled ending on the date when certain employees acquire full rights to the benefits ("vesting date"). The accumulated cost recognized for transactions settled in equity instruments for each balance sheet date until the vesting date reflects the extent of elapse of the vesting period and the number of rights to shares the rights to which - in the opinion of the Bank's Management Board for that date based on best available estimates of the number of equity instruments - will be eventually vested. 

In the event of modifications of conditions for granting remuneration settled in equities as part of fulfilment of the minimum requirement costs are recognized if such conditions have not changed. Also, costs are recognized resulting from each increase in the value of the transaction resulting from modifications measured for the date of change. 

In the event a right is cancelled it is treated in such way as if the rights were acquired on the date of cancellation and any unrecognized costs resulting from such rights are immediately recognized. In the case however where the cancelled share right is replaced by a new share right the cancelled right and the new right are treated as if they are a modification of the original right. 

The diluting effect of options issued is taken into account when establishing the amount of earnings per share as additional dilution of shares (see Note 22).

Share options and shares  of UniCredito Italiano S. p. A. 

The Pekao Group entities joined the UniCredit-wide long term incentive program. The aim of the program is to offer the selected key employees of the Group the share options and performance shares of UniCredito Italiano S.p.A. 

The fair value of the instruments granted to the Pekao Group employees was established following the Group-wide applied Hull and White model. 

The expenses related to the services granted by the employees in return for the granted rights are recognized in "Wages and salaries" costs. 

In the moment of realization of the instruments the Group will be obliged to pay to UniCredito Italiano the amount equal to the initial fair value of those instruments that actually vested. 

Income tax and other taxes

Income tax 

For purposes of financial reporting, the provision for deferred income tax is established using the balance-sheet liabilities method in reference to all temporary differences as at the balance sheet date between the taxable amount of assets and liabilities, and their carrying value as presented in the financial statements.

The deferred tax provision is recognized in reference to all positive temporary differences:

except for situations where the deferred income tax provision arises from depreciation of goodwill or from the initial recognition of an asset or liability in a transaction other than merger of entities, and at the point of the transaction it has no influence on the gross financial result, nor for the taxable income or deductible loss, and 

in the case of positive temporary differences resulting from investments in subsidiaries or associates and participation in joint ventures - except for situations where the dates of reversal of temporary differences are subject to control and where it is probable that in the foreseeable future the temporary differences will not be reversed. 

The deferred tax asset is recognised on all negative temporary differences and carryforward of unused tax losses and tax credits in an amount that is probable that the taxable income will be available against which above mentioned differences can be utilised:

except for situations where deferred tax assets concerning negative temporary differences originate from initial recognition of an asset or liability in a transaction other than merger, and at the point the transaction it has no influence on the gross financial result, nor for the taxable income or deductible loss, and

in the case of negative temporary differences resulting from investments in subsidiaries or associates and participation in joint ventures, the deferred tax asset is recognized in the balance sheet only in such amount, in which it is probable that the above temporary differences will be reversed and taxable income will be available against which the negative temporary differences can be utilized.

The carrying value of a deferred tax asset is verified for each balance sheet date, and is reduced accordingly to the extent that it is no longer probable that the taxable income will be achieved sufficient for partial or full realization of a deferred income tax asset.

Deferred tax assets and deferred tax provisions are measured at tax rates which are predicted to be in force in the period in which an asset is realized or a provision is dissolved, assuming as the basis the tax rates (and tax regulations) which are legally or actually in place as of the balance sheet date.

The income tax regarding items directly recognized in equity is recognized in equity.

The entities comprising the Group offset deferred tax assets and deferred tax provisions, where they have legal title to effect such offsetting, and the deferred assets and provisions pertain to the same taxpayer. 

Current income tax is assessed at the tax rate in force and is calculated on the basis of the gross profit determined on the basis of relevant accounting regulations, adjusted by non-taxable income and non-deductible expenses. 

Other taxes

Income, costs, and assets are recognized and reduced by the amount of VAT, tax on civil law acts, and other taxes on sales, except where:

the tax on sale, paid upon purchase of goods and services, is not recoverable from the tax authorities; in that case, the sales tax is recognized accordingly as a part of the cost of acquisition of an asset, or as part of a cost item, and

receivables and payables are presented with the amount of sales tax taken into account.

The net amount of sales tax recoverable from or payable to the tax authorities is recognized on the face of the balance sheet as a part of receivables or liabilities.

Other positions

Contingent liabilities and commitments 

The Group enters into transactions which are not recognized in the balance sheet as assets or liabilities upon signing but they cause contingent liabilities and promises. Contingent liabilities are characterized as being: 

a potential obligation whose existence will be confirmed upon occurrence or non-occurrence of uncertain future events that are beyond control of the Group (e.g. disputes in progress);

a current obligation which arises as a result of past events but is not recognized in the balance sheet as it is improbable that it will be necessary to incur expenses to fulfill the obligation or the obligation amount cannot be reliably measured (eg: unused credit lines, guarantees and letters of credit issued).

Cash and cash equivalents

Cash and cash equivalents in the Cash Flow Statement include "Cash, due from Central Bank" (except for the NBP bonds) and amounts current amounts due from banks with maturity up to three months.

Purposes and rules of financial risk management

The risk management policy of the Group has a goal of optimizing the structure of the balance sheet and off-balance sheet positions under the consideration of all risks in relation to income and other risks interest rate, liquidity risk, foreign exchange rate risks) that the Group encounters in conducting its daily activity. Risks are monitored and controlled with reference to profitability and equity coverage and are regularly reported in accordance with rules briefly presented below. 

The Bank's Management Board is responsible for achieving the strategic goals set within the risk management policy.

The Asset and Liability Management Committee controls the capital adequacy of the Group as well as the liquidity risk and the market risk (interest rate and foreign exchange rate risks) related to the external banking supervision limits and to the internal limits of the Group.

The accounting policy for derivative instruments was presented at Note 7.7.

Credit risk

Credit risk is one of the basic risks associated with the activities of the Group. The percentage share of loans in the Group's balance sheet makes it necessary to maintain this risk at a safe level. 

The process of credit risk management is centralized and then managed mainly by units belonging to Risk Management Division located either in the Bank's Head Office or in its local units. Integration of various risks in the Risk Management Division in which apart from credit risk, market and operational risk are allocated, facilitates the effective management of all credit-related risks. The process covers all credit functions - credit analysis, underwriting, monitoring and loan administration, restructuring and vindication. Each function follows the credit policy of the Bank and its guidelines that are reviewed and endorsed annually by the Management Board and the Supervisory Board of the Bank. The integrity and efficiency of the credit functions is achieved through standardized use of various credit methods and methodologies supported by advanced IT tools. These tools are integrated into the ledger system of the Bank. Group Procedures facilitate credit risk mitigation. In particular those related to transaction risk evaluation, establishing collateral, setting authorization limits for granting loans and limiting of exposure to some areas of business activity in line with current client's segmentation scheme in the Bank.

The Group's lending activity is limited by the restrictions of the Banking Law as well as internal limits. These refer in particular to concentration limits for specific sectors of the economy share of large exposures in the loan portfolio of the Group and exposure limits for particular foreign countries, banks, and domestic financial institutions. Entitlement to make credit decisions to limitation of some business fields and internal or external caution standards includes not only credit but also loans and guarantees and derivatives transactions and debt securities as well. Protection of the quality of the Group's loan portfolio is also enhanced by periodic reviews and continuous monitoring of loan repayments and the financial condition of the borrowers.

Concentration of credit risk

The Banking Law establishes maximum limits for banks. According to article 71.1 of the Law the total balance sheet and off-balance sheet exposure of a bank to the risks associated with a single borrower or a group of related borrowers may not exceed 20% of a bank's equity when at least one of those entities is related to the bank or 25% when no relation between those entities and the bank exists. Moreover, article 71.2 of the Law specifies a maximum total exposure limit with entities whose individual exposure exceeds 10% of a bank's equity at a level of 800% of this equity.

As at 30 June 2008 no exposures exceeded the limit set forth by articles 71.1 and 71.2. 

Concentration by entity:

as at 30.06.2008 

Exposure to 10 largest clients of the Group	% of portfolio
Client 1	1.3%
Client 2	1.3%
Client 3	1.2%
Client 4	1.1%
Client 5	1.0%
Client 6	0.8%
Client 7	0.7%
Client 8	0.6%
Client 9	0.6%
Client 10	0.6%
Total	9.2%

In the table above 29% is a credit exposure with the risk of the State Treasury. Other exposures are due to transactions with large corporate clients (71%). None of the exposures mentioned above were classified as non-performing.

Concentration by capital group: 

as at 30.06.2008

Exposure to 5 largest capital groups which are the Group's clients	% of portfolio
Group 1	2.3%
Group 2	1.6%
Group 3	1.6%
Group 4	1.3%
Group 5	1.3%
Total	8.1%

Concentration by industrial sector:

In order to mitigate credit risk associated with industrial sector concentration the Group employs  a system for monitoring the sector structure of its credit exposure. The system involves setting concentration limits for particular sectors monitoring the loan portfolio and gathering appropriate information. The system is based on the lending exposure in particular types of business activity according to the classification applied by the Polish Classification of Economic Activities (Polska Klasyfikacja Dzialalnosci - PKD). Concentration limits are determined on the basis of investment risk quality of the Group's lending exposure current economic trends in particular sectors the Group's equity and the total exposure to particular sectors. A monthly comparison of the Group's exposure to particular sectors with the current limits allows timely identification of the sectors in which the concentration of sector risk may become excessive. If such a situation arises an analysis of the economic situation of that sector is performed considering the current and predicted trends and the quality of the current exposure to that sector. These measures enable the Group to develop policies that reduce sector risk and allow for a timely reaction to a changing environment.

The table below presents the structure of the Group's exposure by industrial sectors.

	% of portfolio
Sector description	30.06.2008	31.12.2007
Construction and real estate management	16.9%	15.4%
Wholesale and retail trade, repair of motor vehicles and motorbikes, articles for personal use and household goods	16.0%	15.3%
Financial services	14.9%	16.9%
Other manufacturing activities and waste management	6.5%	6.6%
Production and supply of utilities (electricity, gas, water)	6.4%	7.2%
Transport, storage and communication	5.9%	6.1%
Rental and other business, IT services, education	5.3%	5.7%
Production of food, beverages and tobacco products	5.1%	5.0%
Production of metals and processed metal products	4.5%	4.2%
Public administration and national defence, guaranteed social insurance	3.9%	3.3%
Production of celluloid pulp, paper and paper products, publishing and printing	2.4%	2.1%
Production of transport equipment	2.2%	2.5%
Other sectors	10.0%	9.7 %
Total	100.0%	100.0%

Exposure to credit risk

The table below presents the Group's exposure to credit risk by terms of past due:

	Loans and advances from banks		Loans and advances from customers
	30.06.2008	31.12.2007	30.06.2008	31.12.2007
Gross carrying amount exposure individually impaired
Past due:
- not past due	738	848	548 778	821 544
- up to 1 month	-	-	9 966	105 997
- between 1 month and 3 months	-	-	221 496	63 999
- between 3 months and 1 year	-	-	142 286	218 603
- between 1 year and 5 years	-	-	920 908	1 101 054
- above 5 years	6 136	6 553	661 299	930 272
Total gross amount	6 874	7 401	2 504 733	3 241 469
Allowance for impairment
- not past due	(732)	(841)	(211 843)	(335 496)
- up to 1 month	-	-	(4 412)	(40 223)
- between 1 month and 3 months	-	-	(152 082)	(49 387)
- between 3 months and 1 year	-	-	(104 064)	(164 584)
- between 1 year and 5 years	-	-	( 790 944)	(897 380)
- above 5 years	(6 136)	6 553	(555 069)	(806 596)
Total allowance	(6 868)	(7 394)	(1 818 414)	(2 293 666)
Net carrying amount individually impaired	6	7	686 319	947 803
Gross carrying amount exposure collectively impaired
- not past due	-	2 024	103 783	146 038
- up to 1 month	-	-	13 660	33 000
- between 1 month and 3 months	6	9 800	31 770	34 062
- between 3 months and 1 year	9 800	-	367 496	284 642
- between 1 year and 5 years	122	-	810 867	1 019 154
- above 5 years	6 823	8 098	704 102	1 002 155
Total gross amount	16 751	19 922	2 031 678	2 519 051
Allowance for impairment
- not past due	-	-	( 54 557)	(67 829)
- up to 1 month	-	-	(7 964)	(15 512)
- between 1 month and 3 months	-	(9 800)	(19 294)	(15 583)
- between 3 months and 1year	(9 800)	-	(247 183)	(180 123)
- between 1 year and 5 years	(94)	-	(666 679)	(876 401)
- above 5 years	(6 726)	(7 716)	(713 393)	(983 751)
Total allowance	(16 620)	(17 516)	(1 709 070)	(2 139 199)
Net carrying amount collectively impaired	131	2 406	322 608	379 852

	Loans and advances from banks		Loans and advances from customers
	30.06.2008	31.12.2007	30.06.2008	31.12.2007
Gross carrying amount but not impaired
- not past due	7 529 344	16 966 446	71 195 722	66 888 922
- up to 30 days	43 912	-	1 025 700	1 474 384
- 30 - 60 days	492	-	206 279	271 938
- 60 - 89 days	596	-	103 986	157 081
Total gross amount	7 574 344	16 966 446	72 531 687	68 792 325
IBNR:
- not past due	(8 515)	(4 385)	(338 698)	(335 032)
- up to 30 days	-	-	(62 762)	(39 102)
- 30 - 60 days	-	-	(43 638)	(21 523)
- 60 - 89 days	-	-	(31 130)	(26 958)
Total IBNR	(8 515)	(4 385)	(476 228)	(422 615)
Net carrying amount exposure with no impairment	7 565 829	16 962 061	72 055 459	68 369 710
Total loans and advances	7 565 966	16 964 474	73 064 386	69 697 365

Collateral

Pekao Group has established specific policies with regard to collateral accepted to secure loans and guarantees. This policy is reflected under internal rules and regulations in the Bank. The Group emphasises the importance of this in relation to the effective implementation of Basel II therein. The most commonly accepted collateral underlying loans and guarantees in Pekao Group is as follows:

Collaterals	Principles of the assessment of collateral value
Mortgage: - Commercial - Residential	Collateral value defined as the fair market value as endorsed by  a real estate expert. Other evidenced sources of evaluation are acceptable e.g. binding purchase offer bidding process documentation etc.
Registered Pledge / Transfer of ownership:
- Inventories	Value is defined as well evidenced sources e.g. amount derived from pledge agreement amount disclosed in last financial statement insurance policy value commodities' indexes value disclosed through foreclosure procedure supported with evidence files e.g. bailiffs'/receiver estimations.
- Machines and Appliances	Value is defined  as expert assessment or current value based upon other sound sources e.g. binding purchase offer list of debtor's fixed assets value evidenced by bailiff or court receiver etc.
- Cars	Value is defined under tables and indexes that are provided by e.g. insurance companies proving the car value referred to its producer age initial price etc. or other sound assessment sources e.g. insurance policy value.
- Other	Value is defined individually for each collateral given. Its assessment shall be derived from sound source that follows above listed guidelines.
Securities and Cash	Value is defined upon individually estimated fair market value. Recovery rate shall be assessed prudently reflecting the securities price volatility.
Collaterals	Principles of the assessment of collateral value
Transfer of Receivables:
- Clients with investment grade (rating) assigned by ECAI or internal rating system of the Bank	Value is defined upon individually assessed claims' amount.
- Other Clients	Value is defined upon individually assessed claims' amount.
Guarantees / Surities (incl. drafts) / Accession to debt:
- Banks and Sovereigns	Up to guaranteed amount.
- Providers with investment grade (rating) assigned by ECAI or internal rating system of the Bank	Up to guaranteed amount.
- Others	Individually assessed fair market value.

Maximum credit exposure

The Group's maximum credit exposure with no collateral and other factors limitating the credit risk:

	30.06.2008	31.12.2007
Cash and due from Central Bank	7 443 356	5 121 210
Loans and receivables from banks and from customers	77 391 748	83 619 179
Financial assets held for trading	2 990 764	3 165 113
Derivative financial instruments (held for trading)	2 183 171	1 922 958
Other financial instruments at fair value through profit or loss	3 873 184	3 777 729
Net investments in financial leases	3 241 221	3 043 768
Hedging instruments	24 312	40 672
Investment securities	18 651 449	17 620 419
Total	115 799 205	118 311 048
Liabilities due for credits	30 367 153	32 358 650
Other contingent liabilities	5 256 307	6 380 879
Total	35 623 460	38 739 529
Total credit exposure	151 422 665	157 050 577

Overall characteristics of internal models used within the rating system

The Group uses internally developed rating models for large/middle corporate and dedicated rating model for SME clients. The rating model for large/middle corporate bases on the quantitative (financial statement) and qualitative (environment/relationships managers information) parts which are combined in statistical model and predicts the probability of default in one-year horizon. The rating model for SME bases on same principles extended with information from its behavioural models. The model for SME comprises of three separate models dedicated for:

full accountancy SME

simplified accountancy SME

private entrepreneurs

The final rating is obtained after applying several rules warning signals and classifications from Group internal monitoring tools. The master scale for both models consists from seventeen rating grades. The performance of rating models is monitored continuously and fine tuned if necessary . The back testing of the models is carried out annually. The rating model classifies customers based on their creditworthiness independently from the nature of the transaction. Hence the model can be characterized as one-dimensional at a point-in-time. For credit risk purposes and those especially related to Group commitments arising on implementation of Basel II rules the Group applies Standard & Poor as the eligible external credit agency. 

 The mapping of internal rating to Standard & Poor master scale is as follows: 

S & P Rating	PD Min	PD Max	PD Mid	PEKAO Min	PEKAO Max	PEKAO Rating
AAA	0.0001%	0.002%	0.001%	0.0001%	0.04%	Pk1
AA+	0.002%	0.006%	0.003%	0.0001%	0.04%	Pk1
AA	0.006%	0.013%	0.010%	0.0001%	0.04%	Pk1
AA-	0.013%	0.024%	0.018%	0.0001%	0.04%	Pk1
A+	0.024%	0.045%	0.033%	0.0001%	0.04%	Pk1
A	0.045%	0.076%	0.060%	(0.04%	0.08%]	Pk2
A-	0.076%	0.120%	0.095%	(0.08%	0.12%]	Pk3
BBB+	0.120%	0.190%	0.151%	(0.12%	0.19%]	Pk4
BBB	0.190%	0.308%	0.240%	(0.19%	0.28%]	Pk5+
BBB-	0.308%	0.507%	0.395%	(0.28%	0.63%]	Pk5/Pk5-
BB+	0.507%	0.834%	0.650%	(0.63%	0.94%]	Pk6+
BB	0.834%	1.383%	1.070%	(0.94%	1.25%]	Pk6
BB-	1.383%	2.311%	1.788%	(1.25%	2.00%]	Pk6-
B+	2.311%	3.861%	2.987%	(2.00%	4.25%]	Pk7+/Pk7
B	3.861%	7.560%	4.990%	(4.25%	7.50%]	Pk7-/Pk8+
B-	7.560%	17.353%	11.454%	(7.50%	11.50%]	Pk8
CCC	17.353%	26.290%	26.290%	(11.50%	20.00%]	Pk8-
D	26.290%	100.000%	100.000%	(20.00%	99.00%]	Pk9

Overall characteristics of monitoring process

Loans for large corporates are continually monitored constantly by business units and designated risk units of the Group. The monitoring process for mid-corporates and SME's is based on an internally developed systemic tool which is a combination of a statistical model and qualitative information from internal and external sources. Business units are extensively involved in this process. The Group applies also a monitoring tool for its retail customers used for monitoring and soft collection purposes.

Overall characteristics of provisioning model

The Group establishes loss allowances in line with International Accountancy Standards.  Impairment of loans is recognized under an individual and collective approach with reference to a certain credit threshold of either customer separately on balance sheet and off balance sheet exposure. The Group establishes allowances for incurred but not reported losses applying a statistical model of expected loss.

Loan Agreements with renegotiated terms

Under the individual approach (applied under IAS 39) renegotiation of terms of the Credit Agreement caused by other than common commercial purposes is perceived as an impairment trigger at which point such a credit agreement is considered impaired. As of June 2008 the Group identified no such agreements, for which this trigger would necessitate a reclassification.

Credit portfolio neither impaired nor past-due

as at 30 June 2008

Gross carrying amount but not impaired	Corporate/SME		Retail
- not past due	49 396 632		21 799 089
- up to 30 days	278 405		747 295
- 30 - 60 days	49 909		156 370
- 60 - 89 days	28 160		75 827
Total gross Mount	49 753 106		22 778 581
IBNR:		coverage ratio		coverage ratio
- not past due	(262 391)	0,53	(76 307)	0,35
- up to 30 days	(19 371)	6,96	(43 391)	5,81
- 30 - 60 days	(8 081)	16,19	(35 557)	22,74
- 60 - 89 days	(4 470)	15,87	(26 661)	35,16
Total IBNR	(294 313)	0,59	(181 916)	0,80
Net carrying amount exposure with no impairment	49 458 793		22 596 665

as at 31 December 2007

Gross carrying amount but not impaired	Corporate/SME		Retail
- not past due	45 142 489		21 746 433
- up to 30 days	565 287		909 097
- 30 - 60 days	143 541		128 397
- 60 - 89 days	91 346		65 735
Total gross Mount	45 942 663		22 849 662
IBNR:		coverage ratio		coverage ratio
- not past due	(266 061)	0.59	(68 971)	0.32
- up to 30 days	(6 684)	1.18	(32 418)	3.57
- 30 - 60 days	(5 163)	3.60	(16 360)	12.74
- 60 - 89 days	(6 245)	6.84	(20 713)	31.51
Total IBNR	(284 153)	0.62	(138 462)	0.61
Net carrying amount exposure with no impairment	45 658 510		22 711 200

Market risk 

In its activities the Group is exposed to market risk i.e. interest rate And foreign exchange movements and equity price risks of securities held by the Group as well as other risks resulting from changes in market conditions.

The main tool applied for market risk measurement is Value at Risk (VaR). As of 30 June 2008 the trading portfolio VaR was PLN 3.78 mln (of which FX risk PLN 0.6 mln and the remainder interest rate risk). As of 31 December 2007 the trading portfolio VaR was PLN 4,30 mln and FX risk PLN 0,02 mln.This represents the loss the Group could incur assuming 99% confidence level one-year historical series and one-day holding period.

This value reflects a level of losses to which the Group is potentially exposed in normal market conditions. In a financial market crisis the potential loss level may exceed the VaR level.

The table below presents the trading portfolio market risk exposure of the Group measured as Value at Risk in the I half of  2008 and 2007.

VaR in ths PLN	30.06.2008	Min Y	Avg Y	Max Y
Foreign exchange risk	597	8	147	1 286
Interest rate risk	3 782	2 393	3 983	7 268
Trading portfolio	3 782	2 393	3 983	7 268

VaR in ths PLN	31.12.2007	Min Y	Avg Y	Max Y
Foreign exchange risk	20	5	153	1 916
Interest rate risk	4 301	1 016	2 408	9 888
Trading portfolio	4 301	1 027	2 424	9 888

Interest rate risk

The table below presents the classification of assets and liabilities according to their exposure to interest rate risk:

1. Assets and financial liabilities exposed to fair value risk related to interest rate

 - Debt securities with fixed interest rate.

 - Loans with fixed interest rate.

 - Client deposits with fixed interest rate.

 - Liabilities due to the issue of securities.

2. Assets and liabilities exposed to Cash flow risk related to interest rate

 - Debt securities with variable interest rate.

 - Loans with variable interest rate.

 - Client deposits with variable interest rate.

3. Assets and financial liabilities not directly exposed to the interest rate risk

 - Equity securities

The Group is exposed to interest rate risk due to transactions in which notional amounts are recognized off-balance and which fair values are recognized as assets or liabilities off the balance sheet. These transactions include derivative transactions. Forward Rate Agreements (FRA) Interest Rate Swaps (IRS) interest rate options (Cap/Floor) currency swaps and foreign currency forward contracts.

In managing the interest rate risk of the banking book the Group aims to maximize the economic value of capital employed and achieving the planned interest result within the accepted limits. The financial position of the Group in relation to changing interest rates is monitored through the interest rate gap (revaluation gap) duration analysis simulation analysis and stress testing. As at 30 June 2008 interest rate increased by 100 bp. assuming perfect elasticity of the Group's administered rates to the market rates changes would result in a change of the net interest income by 2.58% and change of the economic value of equity by 5.04% (As at 31 December 2007 adequately 2.39% and 6.25%).

The table below presents the assets, liabilities and off-balance sheet exposures of the Group classified as at 30 June 2008 by interest rate risk criterion:

	up to1 month inclusive		from 1 month to 3 months inclusive		from 3 months to 1 year inclusive			from 1 year to 5 years inclusive		above 5 years				Non interest bearings assets/liabilities	Total
Balance sheet items	Book value	%	Book value	%	Book value	%		Book value	%	Book value	%			Book value	Book value			%
Assets:	59 483 769	7.05	20 352 325	6.73	13 124 964	7.55		12 493 950	7.86	4 798 047	6.14			10 689 227	120 942 282			6.40
Cash due from Central Bank	3 534 374	5.63	-	0.00	1 688 709	5.91		-	0.00	-	0.00			2 220 273	7 443 356			4.13
Debt securities eligible for rediscounting in the Central Bank	760	6.25	1 858	6.25	-	0.00		-	0.00	-	0.00			-	2 618			6.25
Amounts due from banks	5 046 238	5.32	1 276 561	5.93	761 981	6.00		-	0.00	26 430	6.49			448 488	7 559 698			5.20
Financial assets held for trading	451 050	5.08	892 665	6.36	981 421	6.47		293 855	6.56	358 923	3.62			12 850	2 990 764			5.87
Other financial instruments at fair value through profit or loss	30 376	7.75	2 334 068	6.99	525 939	7.75		419 644	5.68	563 157	4.77			-	3 873 184			6.63
Loans and advances from customers	48 569 982	7.38	14 702 997	6.72	4 424 162	9.02		1 242 218	14.44	233 017	10.48			657 056	69 829 432			7.41
Net investments in financial leases	214 987	9.51	171 915	9.78	882 543	9.35		1 900 240	9.00	71 536	7.76			-	3 241 221			9.14
Securities available for sale	1 340 393	6.47	971 506	7.01	3 856 859	6.69		8 181 092	6.84	3 544 984	6.29			-	17 894 834			6.68
Securities held to maturity	295 609	6.00	755	5.72	3 350	6.88		456 901	6.31	-	0.00			-	756 615			6.19
Other	-	0.00	-	0.00	-	0.00		-	0.00	-	0.00			7 350 560	7 350 560			0.00
Liabilities:	75 163 109	2.69	10 122 642	5.04	8 207 640	4.31		2 236 110	8.58	335 337	5.66			24 877 444	120 942 282			2.59
Amounts due to banks	4 677 863	4.38	1 386 173	5.36	2 226 439	4.45		1 673 346	10.96	0	0.00			1 014 480	10 978 301			5.12
Amounts due to customers	70 193 777	2.55	8 544 469	4.95	4 445 623	2.72		505 816	1.16	117 326	4.07			2 880 777	86 687 788			2.70
Liabilities arising from debt securities issued	291 469	1.35	192 000	6.65	1 535 578	8.80		31 948	1.84	0	0.00			1 431 307	3 482 302			5.13
Other	-	0.00	-	0.00	-	0.00		25 000	6.58	218 011	6.53			19 550 880	19 793 891			0.08
Gap	(15 679 340)		10 229 683		4 917 324			10 257 840		4 462 710				(14 188 217)	-
Off-balance sheet exposures
Assets	34 891 520		41 562 399		78 873 748		34 303 535			8 055 339				-		197 686 541
Liabilities	43 896 762		35 695 209		75 644 484		33 658 225			8 582 831				-		197 477 511
Gap	(9 005 242)		5 867 190		3 229 264			645 310		(527 492)				-			209 030

Total Gap

(24 684 582)

16 096 873

8 146 588

10 903 150

3 935 218

(14 188 217)

209 030

The table below presents the assets, liabilities and off-balance sheet exposures of the Group classified as at 31 December 2007 by interest rate risk criterion:

	up to1 month inclusive		from 1 month to 3 months inclusive		from 3 months to 1 year inclusive		from 1 year to 5 years inclusive		above 5 years		Non interest bearings assets/liabilities	Total
Balance sheet items	Book value	%	Book value	%	Book value	%	Book value	%	Book value	%	Book value	Book value	%
Assets:	63 872 210	6.74	21 848 535	6.26	8 723 445	7.68	13 161 558	7.35	3 872 969	5.45	12 617 434	124 096 151	6.06
Cash due from Central Bank	771 602	4.73	1 688 709	4.28	-	0.00	-	0.00	-	0.00	2 660 899	5 121 210	2.12
Debt securities eligible for rediscounting in the Central Bank	347	5.25	761	5.25	-	0.00	-	0.00	-	0.00	-	1 108	5.25
Amounts due from banks	12 601 436	5.27	1 339 308	5.15	830 174	4.84	-	0.00	-	0.00	2 189 116	16 960 034	4.56
Financial assets held for trading	755 141	5.71	754 361	5.54	297 695	6.19	978 611	5.80	361 874	5.41	17 431	3 165 113	5.67
Other financial instruments at fair value through profit or loss	-	0.00	2 571 746	5.23	13 809	7.70	652 877	6.99	539 297	4.45	-	3 777 729	5.43
Loans and advances from customers	46 401 259	7.24	13 969 028	6.89	4 307 319	9.36	1 781 132	1.06	199 299	6.71	-	66 658 037	7.48
Net investments in financial leases	1 255 346	8,52	133 457	9.22	600 073	8.39	1 051 504	8.04	3 388	8.15	-	3 043 768	8.36
Securities available for sale	1 677 607	4.65	1 391 165	5.39	2 659 198	5.86	8 535 193	6.12	2 769 111	5.55	1 255	17 033 529	5.78
Securities held to maturity	409 472	4.91	-	0.00	15 177	4,35	162 241	4.91	-	0.00	-	586 890	4.90
Other	-	0.00	-	0.00	-	0,00	-	0.00	-	0.00	7 748 733	7 748 733	0.00
Liabilities:	85 063 710	2.28	7 651 572	4.24	7 065 869	4,37	2 606 408	9.40	314 853	5.70	21 393 739	124 096 151	2.29
Amounts due to banks	4 788 531	5.14	1 288 435	5.68	1 930 201	4,06	1 878 947	1.98	55 998	5.75	-	9 942 112	6.30
Amounts due to customers	79 871 496	2.10	5 937 028	3.80	3 627 791	3.45	477 483	2.23	30 280	5.07	-	89 944 078	2.27
Liabilities arising from debt securities issued	361 000	5.97	382 621	5.90	1 460 915	7.02	116 182	0.88	-	0.00	1 396 060	3 716 778	3.97
Other	42 683	2.64	43 488	6.14	46 962	5.17	133 796	6.10	228 575	5.77	19 997 679	20 493 183	0.13
Gap	(21 191 500)		14 196 963		1 657 576		10 555 150		3 558 116		(8 776 305)	-

Off-balance sheet exposures 

Assets	57 148 564		42 565 525		80 496 962		43 374 248			8 505 427				-		232 090 728
Liabilities	58 776 664		44 584 223		80 427 976		40 463 109			7 518 194				-		231 770 166
Gap	(1 628 098)		(2 018 698)		68 986		2 911 139			987 233				-		320 562

Total Gap	(22 819 598)		12 178 265		1 726 562		13 466 289			4 545 349				(8 776 305)		320 562

Currency risk

The objective of currency risk management is to create a currency profile of the balance sheet and off-balance items which will remain within external and internal limits. During the first half of 2008 the Bank maintained a relatively small open FX position therefore its exposure to FX risk was minor.

The Group's exposure to currency risk is measured for internal purposes on a daily basis by means of the Value at Risk (VaR) model as well as the extreme conditions testing analysis that is supplementary to the VaR method.

The table below presents foreign currency exposure by the separate asset, liabilities and off balance-sheet by foreign currency transactions. 

as at 30 June 2008

		PLN	EUR		USD	CHF	Other		Total
Assets:
Cash, due from Central Bank		7 073 579	157 776		93 195	9 757	109 049		7 443 356
Debt securities eligible for rediscounting in The Central Bank		2 618	-		-	-	-		2 618
Loans and advances from banks		5 003 387	1 976 335		188 254	33 155	358 567		7 559 698
Financial assets held for trading		2 748 007	206 746		19 765	-	16 246		2 990 764
Derivative financial instruments		1 922 773	158 030		90 212	493	11 663		2 183 171
Other financial instruments at fair value through profit or loss		2 391 332	342 707		1 139 145	-	-		3 873 184
Loans and advances from customers		53 324 843	7 914 456		2 404 595	5 636 281	549 257		69 829 432
Net investments in financial lease		2 713 035	354 051		3 121	156 178	14 836		3 241 221
Securities available for sale		15 568 448	806 305		1 040 714	-	479 367		17 894 834
Securities held to maturity		598 591	142 929		15 095	-	-		756 615
Investments in associates		328 109	-		-	-	-		328 109
Other		3 623 648	130 414		820 176	209 587	55 455		4 839 280
Total		95 298 370	12 189 749		5 814 272	6 045 451	1 594 440		120 942 282
Liabilities:
Amount due to Central Bank		1 360 105	-		-	-	-		1 360 105
Amounts due to banks		5 835 232	2 234 093		1 086 014	68 719	394 138		9 618 196
Amounts due to customers		71 946 604	9 062 270		4 729 973	122 244	826 697		86 687 788
Derivative financial instruments		1 928 264	101 746		118 521	249	11 385		2 160 165
Liabilities arising from debt securities issued		2 810 547	92 851		286 152	-	292 752		3 482 302
Provisions		339 564	15 245		2 835	119	98		357 861
Other		16 127 983	170 036		424 148	206 527	347 171		17 275 865
Total		100 348 299	11 676 241		6 647 643	397 858	1 872 241		120 942 282
Net exposure		(5 049 929)	513 508		(833 371)	5 647 593	(277 801)		-
Off-balance sheet assets		14 982 556	8 547 959		4 028 971	680 204	592 872		28 832 562
Off-balance sheet liabilities		9 446 017	9 093 024		3 164 408	6 353 376	323 910		28 380 735

as at 31 December 2007

	PLN	EUR	USD	CHF	Other	Total
Assets:
Cash, due from Central Bank	4 429 788	373 976	115 576	7 827	194 043	5 121 210
Debt securities eligible for rediscounting in The Central Bank	1 108	-	-	-	-	1 108
Loans and advances from banks	11 271 697	3 490 828	1 941 091	15 907	240 511	16 960 034
Financial assets held for trading	2 883 239	41 639	106 671	-	133 564	3 165 113
Derivative financial instruments	1 726 865	80 506	108 410	550	6 627	1 922 958
Other financial instruments at fair value through profit or loss	2 394 567	392 457	990 705	-	-	3 777 729
Loans and advances from customers	48 914 541	8 429 442	2 418 835	6 275 799	619 420	66 658 037
Net investments in financial lease	2 500 763	358 209	3 896	161 393	19 507	3 043 768
Securities available for sale	14 613 002	805 427	1 200 615	-	414 485	17 033 529
Securities held to maturity	413 102	156 511	17 277	-	-	586 890
Investments in associates	388 169	-	-	-	-	388 169
Other	3 946 850	404 661	553 938	110 351	421 806	5 437 606
Total	93 483 691	14 533 656	7 457 014	6 571 827	2 049 963	124 096 151
Liabilities
Amounts due to the Central Bank	1 485 921	-	-	-	-	1 485 921
Amounts due to banks	4 329 822	2 438 725	1 438 175	72 554	176 915	8 456 191
Amounts due to customers	72 512 908	9 989 785	6 177 908	143 979	1 119 498	89 944 078
Derivative financial instruments	1 443 043	87 430	124 326	396	6 087	1 661 282
Liabilities arising from debt securities issued	2 982 983	98 667	332 562	-	302 566	3 716 778
Provisions	366 015	9 608	4 169	8	28	379 828
Other	17 365 640	545 887	98 476	26 668	415 402	18 452 073
Total	100 486 332	13 170 102	8 175 616	243 605	2 020 496	124 096 151
Net exposure	(7 002 641)	1 363 554	(718 602)	6 328 222	29 467	-
Off-balance sheet assets	22 636 495	11 488 888	8 966 203	913 064	669 839	44 674 489
Off-balance sheet liabilities	15 592 986	12 581 777	7 952 637	7 283 224	646 314	44 056 938

Liquidity risk

The objective of managing liquidity risk is:

to ensure and maintain the Group's solvency with respect to current and future planned payables taking into account the cost of acquiring liquidity and return on the Group's equity, 

to avoid any crisis situations, 

to outline solutions that would allow the Group to overcome such a situation in case of a crisis. 

The Group invests primarily in treasury securities of the Polish government, financial instruments of countries and financial institutions with the highest ratings, and those with high levels of liquidity. Due to their liquidity characteristics, regularly monitored these financial instruments would assist the Group to overcome crisis situations.

In accordance with to the Banking Supervisory Board recommendations, the Group introduced internal liquidity indices that reflect the ratios of total adjusted maturing assets to total adjusted maturing liabilities. 

In addition, the Group employs procedures to protect against a liquidity risk increase and against  any substantial deterioration of the Group's financial liquidity.

The emergency plan in case of deterioration of financial liquidity of the Group takes into consideration four levels of liquidity risk depending on the amount and duration of cash outflow from the non-banking client accounts. The plan also determines the sources from which the expected cash outflows will be covered and states to what extent the Group's Management is responsible for making necessary decisions in order to restore the required liquidity level. Both the emergency plan and the possibility of obtaining cash from sources specified in this plan are subject to periodic verification.

The liquidity gaps presented below include among others adjustments of core deposits and their maturities which is the main element distinguishing the adjusted from the unadjusted gap.  Changes in 2007 in the liquidity gap in comparison with previous years result  from changes in the methodology of assessing core deposits and deposit base maturities. These changes arose unification of the risk assessment methodology in UniCredit Group.

Both gap versions take into account off-balance cash flows including those of credit lines. Off-balance cash flows are generated by derivatives, granted credit lines, guarantees etc. Granted credit lines are treated as potential cash outflows. However potential cash inflows resulting from maturing loans utilised as part of credit lines are not included which implies a negative liquidity gap character and it is a conservative approach to liquidity risk assessment in the Group.

Moreover, these gaps are static i.e. they do not show an impact of changes in balance (e.g. new deposits) off-balance volumes or non-capital cash flows on the Bank's liquidity profile. 

Pursuant to KNB Resolution No 9 of 13 March 2007 on fixing liquidity norms binding for banks, from January 2008 the Bank started calculating regulatory liquidity norms on a daily basis.

As of 30 June 2008, liquidity norms were within the recommended limits.

The table presents assets and liabilities of the Group as at 30 June 2008 by observed maturity:
Balance sheet items	up to1 month inclusive		from 1 month to 3 months inclusive			from 3 months to 1 year inclusive		from 1 year to 5 years inclusive	above 5 years		Total
Assets	25 488 065		9 807 542			22 795 483		33 920 954	28 930 238		120 942 282
Cash , due from Central Bank	5 754 647		-			-		1 688 709	-		7 443 356
Debt securities eligible for rediscounting in the Central Bank	760		1 858			-		-	-		2 618
Amounts due from banks	5 351 657		946 306			966 913		255 893	38 929		7 559 698
Financial assets held for trading	2 990 764		-			-		-	-		2 990 764
Other financial instruments valued at fair value through profit or loss	-		-			465 669		2 852 585	554 930		3 873 184
Loans and advances from customers	10 527 156		7 401 375			14 759 747		15 202 387	21 938 766		69 829 432
Net investments in financial leases	157 837		186 637			795 206		2 101 541	-		3 241 221
Securities held for sale	33 348		482 606			2 233 645		11 365 622	3 779 613		17 894 834
Securities held to maturity	277 515		-			24 883		454 217	-		756 615
Other	394 380		788 760			3 549 420		-	2 618 000		7 350 560
Liabilities	21 015 438		3 772 833			14 269 979		8 077 457	73 806 575		120 942 282
Amounts due to banks	7 368 459		447 886			2 515 039		431 232	215 685		10 978 301
Amounts due to customers	12 957 656		2 185 478			4 316 953		5 762 825	61 464 876		86 687 788
Liabilities arising from debt securities issued	203 388		167 599			1 227 915		1 883 400	-		3 482 302
Other	485 935		971 870			6 210 072		0	12 126 014		19 793 891
Gap	4 472 627		6 034 709			8 525 504		25 843 497	(44 876 337)		-

Off-balance sheet items

Assets	16 689 386	6 602 802	8 165 094	760 806	379 053	32 597 141
Liabilities	15 302 376	4 257 852	10 312 119	6 382 927	15 532 481	51 787 755
Gap	1 387 010	2 344 950	(2 147 025)	(5 622 121)	(15 153 428)	(19 190 614)
Gap total	5 859 637	8 379 659	6 378 479	20 221 376	(60 029 765)	(19 190 614)

  

The table presents assets and liabilities of the Group as at 31 December 2007 by observed maturity:
Balance sheet items	up to1 month inclusive	from 1 month to 3 months inclusive			from 3 months to 1 year inclusive		from 1 year to 5 years inclusive	above 5 years			Total
Assets	33 135 287	10 158 844			21 141 265		35 894 079	23 766 676			124 096 151
Cash , due from Central Bank	3 434 039	-			-		1 687 171	-			5 121 210
Debt securities eligible for rediscounting in the Central Bank	347	761			-		-	-			1 108
Amounts due from banks	14 314 138	1 338 048			1 010 306		256 312	41 230			16 960 034
Financial assets held for trading	3 165 113	-			-		-	-			3 165 113
Other financial instruments valued at fair value through profit or loss	-	-			12 526		3 272 742	492 461			3 777 729
Loans and advances from customers	11 306 421	7 501 704			13 967 276		17 174 645	16 707 991			66 658 037
Net investments in financial leases	97 351	171 392			747 938		2 027 087	-			3 043 768
Securities held for sale	8 450	316 845			1 667 797		11 283 613	3 756 824			17 033 529
Securities held to maturity	394 381	-			-		192 509	-			586 890
Other	415 047	830 094			3 735 422		-	2 768 170			7 748 733
Liabilities	21 892 452	4 688 392			14 298 586		8 259 848	74 956 873			124 096 151
Amounts due to banks	6 227 786	738 025			2 659 701		92 398	224 202			9 942 112
Amounts due to customers	14 910 038	2 827 514			4 441 340		5 768 513	61 996 673			89 944 078
Liabilities arising from debt securities issued	275 804	165 205			876 832		2 398 937	-			3 716 778
Other	478 824	957 648			6 320 713		-	12 735 998			20 493 183
Gap	11 242 835	5 470 452			6 842 679		27 634 231	(51 190 197)			-

Off-balance sheet items

Assets	28 706 150	10 335 427	7 431 133	825 551	389 390	47 687 651
Liabilities	26 349 583	9 690 961	9 273 788	8 396 159	18 859 440	72 569 931
Gap	2 356 567	644 466	(1 842 655)	(7 570 608)	(18 470 050)	(24 882 280)
Gap total	13 599 402	6 114 918	5 000 024	20 063 623	(69 660 247)	(24 882 280)

The table presents assets and liabilities of the Group as at 30 June 2008 by contractual maturity:
Balance sheet items	up to1 month inclusive		from 1 month to 3 months inclusive				from 3 months to 1 year inclusive			from 1 year to 5 years inclusive		above 5 years			Total
Assets	29 978 707		7 685 234				18 718 170			34 333 021		30 227 150			120 942 282
Cash , due from Central Bank	5 756 185		-				-			1 687 171		-			7 443 356
Debt securities eligible for rediscounting in the Central Bank	760		1 858				-			-		-			2 618
Amounts due from banks	5 351 657		946 306				1 174 964			47 842		38 929			7 559 698
Financial assets held for trading	237 037		702 580				988 774			476 815		585 558			2 990 764
Other financial instruments valued at fair value through profit or loss	-		-				465 669			2 852 585		554 930			3 873 184
Loans and advances from customers	17 769 988		4 576 487				9 485 610			15 347 228		22 650 119			69 829 432
Net investments in financial leases	157 837		186 637				795 206			2 101 541		-			3 241 221
Securities held for sale	33 348		482 606				2 233 645			11 365 622		3 779 613			17 894 834
Securities held to maturity	277 515		-				24 883			454 217		-			756 615
Other	394 380		788 760				3 549 419			-		2 618 001			7 350 560
Liabilities	76 690 311		10 980 191				13 856 350			4 733 522		14 681 908			120 942 282
Amounts due to banks	7 368 459		447 886				2 515 039			431 232		215 685			10 978 301
Amounts due to customers	68 632 529		9 392 836				5 739 983			2 418 890		503 550			86 687 788
Liabilities arising from debt securities issued	203 388		167 599				1 227 915			1 883 400		-			3 482 302
Other	485 935		971 870				4 373 413			-		13 962 673			19 793 891
Gap		(46 711 604)			(3 294 957)		4 861 820			29 599 499				15 545 242			-

Off-balance sheet items

Assets	16 903 591	4 339 196	5 977 321	756 053	379 052	28 355 213
Liabilities	16 505 768	4 338 242	15 210 398	15 187 129	6 685 873	57 927 410
Gap	397 823	954	(9 233 077)	(14 431 076)	(6 306 821)	(29 572 197)
Gap total	(46 313 781)	(3 294 003)	(4 371 257)	15 168 423	9 238 421	(29 572 197)

  

The table presents assets and liabilities of the Group as at 31 December 2007 by contractual maturity:
Balance sheet items	up to1 monthinclusive		from 1 month to 3 months inclusive		from 3 months to 1 year inclusive		from 1 year to 5 years inclusive		above 5 years		Total
Assets	36 818 105		8 215 100		17 198 537		37 310 991		24 553 418		124 096 151
Cash , due from Central Bank	3 434 039		-		-		1 687 171		-		5 121 210
Debt securities eligible for rediscounting in the Central Bank	347		761		-		-		-		1 108
Amounts due from banks	14 314 138		1 338 048		1 242 814		23 804		41 230		16 960 034
Financial assets held for trading	602 452		394 846		321 578		1 324 213		522 024		3 165 113
Other financial instruments valued at fair value through profit or loss	-		-		12 526		3 272 742		492 461		3 777 729
Loans and advances from customers	17 551 900		5 163 114		9 470 462		17 499 852		16 972 709		66 658 037
Net investments in financial leases	97 351		171 392		747 938		2 027 087		-		3 043 768
Securities held for sale	8 450		316 845		1 667 797		11 283 613		3 756 824		17 033 529
Securities held to maturity	394 381		-		-		192 509		-		586 890
Other	415 047		830 094		3 735 422		-		2 768 170		7 748 733
Liabilities	83 103 844		8 505 783		12 393 785		4 706 864		15 385 875		124 096 151
Amounts due to banks	6 227 786		738 025		2 659 701		92 398		224 202		9 942 112
Amounts due to customers	76 121 430		6 644 905		4 547 836		2 215 529		414 378		89 944 078
Liabilities arising from debt securities issued	275 804		165 205		876 832		2 398 937		-		3 716 778
Other	478 824		957 648		4 309 416		-		14 747 295		20 493 183
Gap	(46 285 739)		(290 683)		4 804 752		32 604 127		9 167 543		-

Off-balance sheet items

Assets	28 607 490	9 535 027	6 037 541	809 727	389 389	45 379 174
Liabilities	26 831 199	10 032 788	12 019 718	15 580 786	7 515 784	71 980 275
Gap	1 776 291	(497 761)	(5 982 177)	(14 771 059)	(7 126 395)	(26 601 101)
						)
Gap total	(44 509 448)	(788 444)	(1 177 425)	17 833 068	2 041 148	(26 601 101)

Business Risk

Business risk is defined as adverse, unexpected changes in business volume and/or margins that are not due to credit, market or operational risks.

Earnings at Risk concept is used in business risk calculation, which makes it possible to calculate unexpected negative deviation in the realised financial result from the level assumed in the financial plan. In compliance with the approach assumed by the Group, EaR is assessed in one-year time horizon at 99.97% confidence level. 

Economic capital for business risk is allocated when VaR from business risk is above a half of a forecasted profit for the next year. According to this, Bank, in relation to calculation as of the end of June 2008, does not allocate economic capital to cover this risk.

Real Estate Risk 

Real estate risk results from volatility in the Bank's real estate portfolio market value. It covers the real estate portfolio of the Bank as well as capital holdings in which the Bank has its shares. The risk does not cover real estates acquired through vindication or those constituting provisions.

Real estate risk is calculated in one-year time horizon with VaR under the variance-covariance method and at the assumed confidence level of 99.97%. 

Real estate risk has been assessed from January 2008 in compliance with the Basel II Pillar II ICAAP Procedure. As of the end of June 2008 the risk was PLN 382 929 thousand.

Financial Investment Risk 

Financial investment risk stems from the Bank's banking book equity holdings in companies. 

The main risk factor that impacts financial investment risk is changes in value of equity shares in subsidiaries, associates, other directly dependent companies and indirectly dependent ones, which are not consolidated within the Group.

Financial investment risk is assessed based on Value-at-Risk method in one-year time horizon and at the assumed confidence level of 99.97%. 

Financial investment risk has been assessed from January 2008 in compliance with the Basel II Pillar II ICAAP Procedure. As of the end of June 2008 the risk was PLN 121 759 thousand.

Capital management 

Banks are required to possess equity adequate to the scale of their business activities and adequate to the level of risk taken in the course of their business. The appropriate capital structure should take into consideration the regulatory standards of supervisory authorities and the economic safety of the bank must be assured taking into account the true exposure to the risk. The structure of the Bank equity and manner of creating maintaining and using of its respective components is described in the Statutes of the Bank. 

In Bank Pekao there is a formalized process for capital management and monitoring which was created within the ICAAP procedures. The Finance Division under the Chief Financial Officer is responsible for designing and implementing the capital management process in the Bank,. The Management Board supported by the Asset & Liability and Risk Committee is ultimately responsible for capital management and approves the capital management process.

The capital management strategy defines objectives and general rules of the Bank in relation to capital adequacy management and monitoring such as guidelines on risk coverage sources, preferred structure of risk coverage capital, long-term capital targets, capital limit system, sources of additional capital in contingency situations and governance of capital management.

The capital management process is established to meet - among others - the following objectives:

•   provide sufficient capital and similar resources to cover risk taken in order to protect depositors. 

•  maintain risk capital above minimum levels in order to provide further business expansion, offset changes to capital requirements and secure interests of shareholders. 

• maintain the preferred capital structure in order to keep desirable quality of risk coverage capital. 

• use of the capital absorption for risk-return analysis, risk-adjusted performance measurement, optimization of capital usage by different business activities and in result shareholders' value creation.

The Group's capital adequacy is controlled by the Management Board and the Asset-Liability Committee. Periodic reports on the scale and directions of changes of the capital adequacy ratio together with indication of potential threats are prepared for the Management Board and for the Asset-Liability Committee. The level of basic types of risks is monitored according to the external limits of the banking supervision and the internal limits of the Group. Analyses and evaluation of directions of business development activities are performed from the point of view of accordance with capital requirements. Forecasting and monitoring of capital adequacy ratio is the integral part of the planning and budgeting process.

New Capital Agreement regulations (Basel II) has been applied by Bank since January 1, 2008. These regulations are based on three pillars (minimal capital requirements, process of internal capital adequacy assessment, disclosures). The most important Bank's achievements concerning respective pillars are:

• Pillar I (Resolution No. 1/2007 of the Commission for Banking Supervision)

implementation of the KRM (Kamakura Risk Management) application, which enables to calculate the capital requirement concerning credit risk on the single transaction level

adaptation of the internal processes to compliance with obligatory reporting requirements concerning capital adequacy 

• Pillar II (Resolution No. 4/2007 of the Commission for Banking Supervision)

elaboration and approval of internal rules defining capital management principles 

implementation of solutions enabling internal capital assessment

• Pillar III (Resolution No. 6/2007 of the Commission for Banking Supervision)

elaboration, approval and publication of the information policy principles concerning capital adequacy

disclosure of the information on capital adequacy at the consolidated level as of 31 December 2007 

Regulatory capital requirements 

A basic measure of capital adequacy is the capital adequacy ratio (CAR). The minimum capital adequacy ratio required by law equals to 8% both for the Bank and the Group. Capital management policy at the Bank assumes maintaining of capital adequacy ratio at the level higher than 8 %. June 2008 CAR for the Group amounted to 10.81 %, which is by 2.81 p.p. higher than minimum value. 

Regulatory capital requirements calculation as of 31 December 2007 and 30 June 2008 is based on Resolution No. 1 of the Commission for Banking Supervision of March 13, 2007. December 2007 calculation was performed taking into consideration the specificity of the transition period, which was used by Bank Pekao S.A.; this means - among others - that the operational risk capital requirement was not taken into account in the total capital requirement. 

The standardised approach is used for credit risk capital requirement calculation (in accordance with Annex No. 4 to Resolution No. 1/2007), and financial collateral comprehensive method is used for the credit risk mitigation (in accordance with Annex No. 17 to Resolution No. 1/2007)

The standardised approach is applied for operational risk capital requirement calculation (in accordance with Annex No. 14 to Resolution No. 1/2007)

The table below presents the basic data concerning Group capital adequacy as of 30 June 2008 and 31 December 2007. 

Capital requirement	30.06.2008	31.12.2007
Credit risk	6 748 186	6 737 089
Exceeding large exposure limit	-	-
Market risk	256 499	465 777
Delivery and contractor settlement risk	106 139	66 931
Exceeding exposure concentration limit	-	-
Operational risk	1 063 253	-
Total capital requirement	8 174 077	7 269 797
Capital	30.06.2008	31.12.2007
Tier I capital	11 040 808	11 015 037
Tier II capital	-	-
including deductions from Tier 1  and Tier 2 capital:
- due from capital engagement	258 760	300 464
- due from intangible assets	686 685	688 559
Capital	11 040 808	11 015 037
Capital adequacy ratio (%)	10.81%	12.12%

The June 2008 capital adequacy ratio is lower than in December 2007. The decrease in CAR results mainly from the introduction of the new capital requirement concerning operational risk (without taking into account the operational risk capital requirement, June 2008 capital adequacy ratio would be higher by 1.62 p.p., and therefore would be at a higher level than December 2007). 

The total capital requirement for Pekao S.A. Group as of 30 June 2008 amounted to PLN 8 174 077 thousand from which the capital requirement for credit risk constitutes 83%, for operational risk 13 % and for other risks 4%. 

The credit risk capital requirement covers capital requirements concerning balance sheet exposures of PLN 5 652 977 thousand (83.8%), off-balance sheet exposures of PLN 1 094 406 thousand (16.2%) and counterparty credit risk of PLN 803 thousand. 

The table below presents the credit risk capital requirement structure for exposure classes as of 30 June 2008: 

	Balance sheet exposures		Exposures for granted off - balance sheet liabilities
Exposure class	Capital requirement	Structure	Capital requirement	Structure
- corporates	2 945 393	51%	949 689	86%
- retail	1 564 131	28%	73 380	7%
- collateralised by  real estate	225 828	4%	6 808	1%
- institutions-banks	149 914	3%	2 561	0%
- past due	107 747	2%	349	0%
- other	659 964	12%	61 619	6%
Total	5 652 977	100%	1 094 406	100%

The majority capital is absorbed by exposures to corporates representing 51 % of the total credit risk capital requirement for balance sheet exposures, and 86% for granted off - balance sheet liabilities. Retail exposures are at the second place in respect of the capital absorption. 

Internal capital adequacy assessment 

Since January 2008 the Bank has applied methods designed internally. During the internal capital adequacy assessment the Bank takes into consideration following risk types:

credit risk (including counterparty credit risk, concentration risk, country risk and residual risk),

market risk (including interest rate risk in trading book, exchange rate risk, equity risk,commodity risk and volatility risk),

liquidity risk (including liquidity mismatch risk, liquidity contingency risk, market liquidity risk, operational liquidity risk, funding risk and margin calls liquidity risk),

interest rate risk in banking book,

real estate risk,

operational risk,

financial investments risk

compliance risk,

reputation risk,

strategic risk.

For each risk deemed material, the Bank develops and applies an assessment and measurement methodology.

Two approaches to risk assessment are applied by the Bank:

qualitative, for risks which are hardly measurable or for which capital cannot absorb losses (compliance, liquidity, strategic and reputation risk),

quantitative, for risks that can be measured by economic capital (remaining significant risks).

The target methodologies of risk measurement and its convergence into capital charge, to be applied by the Bank, are Value at Risk based models with assumptions resulting from risk appetite (99.97% confidence level and one year time horizon). These methodologies should be developed according to guidelines provided by UCI Group and complemented by stress-tests or scenario analyses. For the time being the interim methodologies (standard approach plus stress testing) can be applied instead of the target ones until the latter are completely developed and implemented.

In the first step economic capital is calculated separately for each of quantifiable material risks defined by the Bank. In the next step economic capital figures for individual risks are being aggregated into one aggregated economic capital figure including diversification effect. Taking into account diversification effect, total aggregated economic capital is not greater (is equal or smaller) than sum of individual risks economic capital figures.

Credit risk	6 961 150
Market risk	1 224 739
Operational risk	1 180 211
Financial investment risk	121 759
Real estate risk	382 929
Economic capital (excluding diversification effect)	9 870 788
Diversification effect	908 770
Economic capital including  diversification effect	8 962 018
Capital	11 040 808
Economic capital surplus	2 078 790

Economic capital surplus can be used to cover non-measurable risks and serves as additional protection in case not all risks were adequately captured or diversification matrix could not be precisely measured.

Fair value of balance sheet financial instruments

For certain financial instruments for which the market value is available the fair value is established following the market value. 

Market values quoted on active markets are available for all the instruments classified by the Group as instruments at fair value through profit and loss. 

For certain financial instruments, market values are not available and fair values have been estimated on the basis of various valuation methods including estimation of the present value of future cash flows.

There are certain financial instruments which are not recognized at fair value in the financial statements of the Group. Fair value represents the amount for which an asset could be exchanged or a liability settled between knowledgeable willing parties in an arm's length transaction.

In the case of certain groups of financial assets held on the basis of the amount of the payment due including impairment it has been assumed that fair value is equal to book value. This applies in particular to cash and cash equivalents current receivables and liabilities as well as other assets and liabilities.

As no quoted market price is readily available for the customer loans the fair value has been estimated using valuation techniques assuming that on initial recognition fair value is equal to book value. Fair value of non impaired loans is equal to the sum of future expected cash flows discounted to the balance sheet date. The discount rate is the sum of the appropriate market risk free rate, credit spread and sales margin (including fees income) for relevant loan product. The fair value of impaired loans is equal to the sum of expected recoveries discounted to the balance sheet date using the market risk free rate as the credit risk is incorporated into the average expected recoveries.

The fair value of central investment loan is presented on a net basis with the fair value financing and refinancing with the loan from NBP. On a gross basis the fair value adjustment amounts to PLN 293 million for the loan and PLN 277 million for the refinancing (at 31 December 2007 the fair value adjustment amounts to PLN 385 million for the loan and PLN 365 million for the refinancing).

For investment in equity investments that do not have a quoted market price in an active market the fair value cannot be measured reliably. For those investments the carrying book value has been presented as the fair value in the table below. These investments consist of shares in financial sector companies companies taken over by the Bank through bad debt restructuring/conversion and miscellaneous other.

Equity shares in financial sector companies are associated with the performance of various banking and financial services and credit card payment settlements. these include BIK S.A. MTS-CeTO S.A. GPW S.A. Mastercard. These equity investments are long-term investments and at present the Bank is not planning to divest thereof.

As at 30.06.2008	Book value	Fair value	Increase/decrease of fair value over the book value
Assets
Cash, due from Central Bank	7 443 356	7 443 356	-
Loans and advances from banks	7 559 698	7 559 381	(317)
Financial assets held for trading	2 990 764	2 990 764	-
Derivative financial instruments	2 183 171	2 183 171	-
Other financial instruments at fair value through profit or loss	3 873 184	3 873 184	-
Loans and advances from customers *	69 832 050	69 928 967	96 917
Net investments in financial leases	3 241 221	3 241 221	-
Hedging instruments	24 312	24 312	-
Securities available for sale	17 894 834	17 894 834	-
Securities held to maturity	756 615	756 329	(286)
Investments in associates	328 109	328 109	-
Total	116 127 314	116 223 628	96 314

As at 31.12.2007	Book value	Fair value		Increase/decrease of fair value over the book value
Assets
Cash, due from Central Bank	5 121 210	5 121 210		-
Loans and advances from banks	16 960 034	16 962 904		2 870
Financial assets held for trading	3 165 113	3 165 113		-
Derivative financial instruments	1 922 958	1 922 958		-
Other financial instruments at fair value through profit or loss	3 777 729	3 777 729		-
Loans and advances from customers *	66 659 145	66 675 431		16 286
Net investments in financial leases	3 043 768	3 043 768		-
Hedging instruments	40 672	40 672		-
Securities available for sale	17 033 529	17 033 529		-
Securities held to maturity	586 890	592 117		5 227
Investments in associates	388 169	388 169		-
Total	118 699 217	118 723 600		24 383

As no quoted market price is readily available for customer deposits the fair value of  deposits has been estimated using valuation techniques assuming that on initial recognition fair value is equal to book value. The fair value of term deposits is equal to the sum of future expected cash flows discounted to the balance sheet date. The discounting rate is the sum of appropriate market risk free rate and sales margin. In case that the term deposit can be withdrawn before maturity and the fair value is below the notional value it is assumed that the fair value is equal to the notional value. For the current deposits it is assumed that the fair value is equal to the notional value.

In the amount of customers' deposits the adjustment for the fair value as at 30 June 2008 amounted for PLN 27 788 thousand (as at 31 December 2007 amounted for PLN 66 397 thousand) and PLN 3 559 thousand (as at 31 December 2007 amounted for PLN (2 496) thousand) for the banks' deposits. Core deposits were not considered in the fair value of  deposits.

For the other financial liabilities the Group assumes that the carrying amount is similar to fair value

Custodial activities

Custodial services are offered by the Bank on the basis of the decision of the Polish Financial Supervision Authority. The Bank's clients include domestic and foreign financial institutions, banks offering depository and investment services, insurance companies, investment and pension funds, as well as non-financial institutions. The Bank offers services involving settlement of transactions on domestic and foreign markets, client's custody assets, maintaining securities and cash accounts, assets valuation and servicing dividend and interest payments.

As at 30th June 2008 the Bank maintained 4 777 securities accounts (5 180 as at 31st December 2007).

The Bank holds agreements with foreign financial institutions for the provision of custodial services in Poland, lending of securities in order to ensure the liquidity of settlements and providing clearing services for derivatives. During the first half of the year the Bank received mandates from two new clients, being on-line members of the WSE, to provide clearing services. In addition, the Bank entered into co-operation with new custodian banks and foreign investment firms in the area of safekeeping of assets and settlement of transactions. The Bank maintained the leading position in the area of servicing depositary notes programmes, servicing more than 50% of these programmes.

Segment reporting 

Segmentation by industry is the primary segmentation basis in the Group. Segmentation of assets by location is supplementary.

The Group settles transactions between segments as if they were unrelated entities - using current market prices. Funds transfers between Bank's business divisions, providing services to retail and corporate customers, and the treasury unit are based on market prices with reference to the funds currency and maturity.

Industrial sectors

Segment reporting of the Group covers the following areas:

Retail banking - includes retail clients and small and micro companies with annual turnover not exceeding PLN 10 million and consolidated subsidiaries assigned to retail activity.

Corporate banking - includes medium and large companies and consolidated subsidiaries assigned to corporate activity.

Treasury and Investment activities includes activities in the inter-bank market, debt securities and capital investments in companies, which are not a part of other segments and consolidated subsidiaries assigned to this activity.

Information presented below includes data covering continuing and discontinued operations. The result and the balance sheet data information covering discontinued operations are allocated to corporate banking activity.

Information on main segments' results for the first half of 2008:

	Retail activity	Corporate activity		Treasury and Investment activity	Total Group (Continuing operations)	Total Group (Continuing and discontinued operations)
		Continuing operations	Discontinued operations
External interest income	1 532 331	1 424 179	-	1 068 701	4 025 211	4 025 211
External interest expense	588 091	891 026	113	280 839	1 759 956	1 760 069
Net external interest income	944 240	533 153	(113)	787 862	2 265 255	2 265 142
Internal interest income	1 314 872	1 754 864	-	(3 069 736)	-	-
Internal interest expense	776 874	1 395 508	-	(2 172 382)	-	-
Net internal interest income	537 998	359 356	-	(897 354)	-	-
Net interest income	1 482 238	892 509	(113)	(109 492)	2 265 255	2 265 142
Non interest income	1 070 452	485 375	436 488	109 766	1 665 593	2 102 081
Total income	2 552 690	1 377 884	436 375	274	3 930 848	4 367 223
Allocated assets	32 431 860	40 776 558	-	37 199 130	110 407 548	110 407 548
Unallocated assets					10 534 734	10 534 734
Total assets					120 942 282	120 942 282
Allocated liabilities	53 120 678	36 919 582	-	9 888 466	99 928 726	99 928 726
Unallocated liabilities					21 013 556	21 013 556
Total liabilities					120 942 282	120 942 282

Information on main segments' results for the first half of 2007.

(PLN thousand)

	Retail activity	Corporate activity		Treasury and Investment activity	Total Group (Continuing operations)	Total Group (Continuing and discontinued operations)
		Continuing operations	Discontinued operations
External interest income	593 666	758 209	-	703 610	2 055 485	2 055 485
External interest expense	175 345	517 215	1 479	147 645	840 205	841 684
Net external interest income	418 321	240 994	(1 479)	555 965	1 215 280	1 213 801
Internal interest income	632 050	560 314	-	(1 192 364)	-	-
Internal interest expense	267 043	525 433	-	(792 476)	-	-
Net internal interest income	365 007	34 881	-	(399 888)	-	-
Net interest income	783 328	275 875	(1 479)	156 077	1 215 280	1 213 801
Non interest income	1 029 604	220 396	30 004	55 545	1 305 545	1 335 549
Total income	1 812 931	496 272	28 525	211 622	2 520 825	2 549 350
Allocated assets	14 233 157	24 170 364		27 795 588	66 199 108	66 199 108
Unallocated assets					4 992 014	4 992 014
Total assets					71 191 122	71 191 122
Allocated liabilities	29 243 769	23 928 298		7 063 943	60 236 010	60 236 010
Unallocated liabilities					10 955 113	10 955 113
Total liabilities					71 191 123	71 191 123

Segmentation by geographical region

Operating activity of the Group is concentrated in Poland through the network of branches and Group's companies.

In addition to Poland the Group performs some activities in the following countries:

- France - through the branch of Bank Pekao S.A. in Paris.

- Ukraine - through the subsidiary companies of Bank Pekao S.A.

Results generated by activities of the Group performed outside Poland are insignificant in comparison to the result of the whole Group. 

Interest income and expense 

Interest income

	I Half  2008	I Half 2007
Income on placements in other banks	277 298	242 278
Income on other placements on money market	85 973	14 816
Income on loans and advances from customers	2 949 764	1 355 445
Income on investment securities	515 471	365 971
Income on financial assets held for trading	82 501	29 344
Income on financial assets designated at fair value through profit and loss	114 204	47 631
Total	4 025 211	2 055 485

Interest expense

	I Half 2008	I Half 2007
Expense on other banks' deposits	(122 920)	(45 500)
Expense on other deposits on the money market	(141 768)	(59 478)
Expense on customers' deposits	(1 218 510)	(565 303)
Expense on obtained loans	(173 533)	(144 450)
Expense due to the amortization of premium on securities	(22 413)	(25 904)
Expense on debt securities	(80 925)	(1 049)
Total	(1 760 069)	(841 684)

Interest income for the first half of 2008 includes income from impaired financial assets in the amount of PLN 114 326 thousand (for the first half of 2007: PLN: 70 530 thousand).

Total interest income for the first half of 2008, measured at amortized cost using the effective interest rate method, with reference to financial assets which are not valued at fair value through profit and loss, amounted to PLN 2 694 716 thousand (for the first half of 2007: PLN 1 454 254 thousand). Interest expense for the first half of 2008, calculated at amortized cost using the effective interest rate method, with reference to financial liabilities which are not valued at fair value through profit and loss, amounted to PLN 1 440 884 thousand (for the first half of 2007 PLN: 718 248  thousand). 

Fee and commission income and expense

Fee and commission income

	I Half 2008	I Half 2007
Accounts maintenance and payment orders	515 069	310 389
Acquisition services	225 898	403 426
Payment cards	395 493	226 070
Credits and loans granted	141 127	101 455
Securities operations	57 203	123 611
Custody activity	32 152	15 060
Servicing of pension and investment funds	38 659	33 554
Guarantees, letters of credit and similar operations	24 135	12 536
Other	58 847	18 250
Total	1 488 583	1 244 351

Fee and commission expense 

	I Half 2008	I Half 2007
Payment cards	(200 872)	(100 333)
Securities operations	(9 322)	(15 475)
Acquisition services	(13 253)	(5 250)
Custody activity	(2 561)	(1 382)
Accounts maintenance	(2 949)	(1 365)
Bank drafts and transfers	(11 583)	(3 549)
Management of pension funds	(2 030)	(1 642)
Other	(16 426)	(6 833)
Total	(258 996)	(135 829)

Dividend income 

	I Half 2008	I Half 2007
Dividend income from the issuers:
Securities classified as available for sale	4 939	2 009
Subsidiaries	16	-
Associates	285	-
Securities classified as held for trading	-	52
Total	5 240	2 061

Result on financial instruments at fair value

a/ Result on assets and liabilities held for trading

	I Half 2008	I Half 2007
Derivative instruments	32 476	57 550
Equity instruments	(378)	546
Debt instruments	1 712	28 699
Total	33 810	86 795

b/ Result on financial assets and financial liabilities at fair value through profit and loss

	I Half 2008	I Half 2007
Debt instruments	(40 652)	(41 692)
Equity instruments	(4)	-
Total	(40 656)	(41 692)
Total result on financial instruments valued at fair value (a+b)	(6 846)	45 103

Total change in the fair value of financial instruments valued at fair value through profit and loss established using valuation techniques (where no established quotations were published on the active market) in the first half of 2008 was PLN 32 638 thousand (for the first half of 2007: PLN 59 092 thousand respectively).

Realized result on investment securities

		I Half 2008		I Half 2007
Realized profit
Financial assets available for sale		84 014		12 764
Investments held to maturity		109		-
Debt securities in issue		387		-
Total		84 510		12 764
Realized losses
Financial assets available for sale		(631)		(1 602)
Debt securities in issue		(3 138)		-
Total		(3 769)		(1 602)
Net realized profit		80 741		11 162

The change in the fair value of financial assets available for sale recognized in the first half of 2008 directly in equity amounted to PLN 177 222 thousand (decrease of equity) (for the first half of 2007 PLN 134 243 thousand (decrease of equity)).

Profits and losses from financial assets moved in the first half of 2008 from equity to profit and loss account amounted to PLN 83 383 thousand (profit) (for the first half of 2007, PLN 11 162 thousand profit).

Other operating income and expense 

	I Half 2008		I Half 2007
Other operating income
Rent and other revenue	29 592		10 880
Gains on sale of properties and other assets	4 554		15 422
Recovery of prescribed, written-off against provisions and bad debts	9 708		6 883
Credit insurance	8 057		7 838
Revenue from advisory services	-		1 646
Compensation, fees and penalties	2 211		1 750
Recovery of debt collection costs	5 967		2 502
Administrative costs reimbursement	6 633		1 942
Releases of provisions for liabilities	25 355		63
Releases of provisions for other assets	692		3 422
Income from waved liabilities	14 354		-
Other	23 150		10 500
Total	130 273		62 848
Other operating expense	I Half 2008		I Half 2007
Provision charges for litigation and claims	(1 146)		(3 102)
Debt recovery costs	(9 459)		(5 995)
Impairment of intangible and tangible fixed assets and other assets	(3 060)		(833)
Credit insurance	(7 498)		(6 416)
Donations	(2 393)		(2 158)
Losses on disposal and liquidation of properties and other assets	(2 414)		(1 280)
Customer complaints	(2 017)		(878)
Debts written off's	(386)		(463)
Compensations, fees and penalties	(198)		(98)
Other	(18 099)		(10 575)
Total	(46 670)		(31 798)

Administrative costs 

		I Half 2008	I Half 2007
	Payroll and employee benefits	(949 620)	(661 497)
	including:
	Wages and salaries	(804 455)	(545 613)
	Insurance and other charges related to employees	(142 921)	(112 844)
	Pension programs costs due to defined contributions programs	(876)	(1 141)
	Cost of share-based payments	(1 368)	(1 899)
	Other general and administrative expenses	(698 592)	(400 781)
	Amortization and depreciation	(203 191)	(160 797)
	Taxes and charges	(20 922)	(13 894)
	Annual Bank Guarantee Fund fee	(8 150)	(4 175)
	Polish Financial Supervision Authority (PFSA) fee	(13 160)	-
	Total	(1 893 635)	(1 241 144)

Net provision charges for financial assets and contingent liabilities and commitments

		I Half 2008	I Half 2007
	Provision charges
	Loans to clients and receivables from banks	(960 861)	(930 028)
	Financial lease receivables	(21 998)	(12 766)
	Financial assets available for sale	(1)	-
	Investments held to maturity	(26)	(17)
	Investments in associates	-	(4)
	Contingent liabilities and commitments	(113 235)	(108 078)
	Total	(1 096 121)	(1 050 893)
	Provision releases
	Loans to clients and receivables from banks	827 522	833 402
	Financial lease receivables	18 348	8 526
	Financial assets available for sale	352	-
	Investments held to maturity	36	52
	Contingent liabilities and commitments	128 049	116 574
	Total	974 307	958 554
	Net provision changes	(121 814)	(92 339)

Impairment

Impairment

Increase

Decrease

Impairment

Influence on

I Half 2008	at the end of previous period	Impairment charges during period	Foreign exchange differences	Other	Write off of assets from the balance sheet	Release of the provisions	Foreign exchange differences	Other (*)	charges balance at the end of the period	the profit and loss statement
Impairment of the financial assets not valued at the fair value through the profit and loss:
Financial assets available for sale	21 852	1	-	3 812	-	(352)	(7)	-	25 306	(351)
Loans to clients and receivables from banks valued at amortized cost	4 675 368	960 861	9 606	-	(13 507)	(827 522)	(64 891)	(910 005)	3 829 910	133 339
Financial lease receivables	209 408	21 998	-	-	(7 220)	(18 348)	-	(33)	205 805	3 650
Investments held to maturity valued at amortized cost	104	26	-	-		(36)	(7)	-	87	(10)
Impairment of:
Fixed assets	16 649	26	-	9	-	-	(140)	(253)	16 291	26
Investment real estate property	8 773	-	-	-	-	-	(211)	-	8 562	-
Intangible assets	11 331	-	-	-	-	-	-	(119)	11 212	-
Goodwill	-	-	-		-	-	-			-
Other intangible assets	11 331	-	-	-	-	-	-	(119)	11 212	-
Impairment of the investments in associates	4 910	-	-	-	-	-	(239)	-	4 671	-
Other	136 964	3 034	-	16 254	(399)	(692)	(1 384)	(17 184)	136 593	2 342
Total	5 085 359	985 946	9 606	20 075	(21 126)	(846 950)	(66 879)	(927 594)	4 238 437	138 996

(*) The amount of PLN 910 005 thousand represents the credit risk allowance balance related to receivables classified to position "Assets classified as held for sale"

		Impairment		Increase					Decrease					Impairment		Influence on
Year 2007	at the end of previous period		Disposal due from the full method consolidation		Merger of "Pekao 285"	Impairment charges during period	Foreign exchange differences	Other		Write off of assets from the balance sheet	Release of the provisions	Foreign exchange differences	Other		charges balance at the end of the period	the profit and loss statement
Impairment of the financial assets not valued at the fair value through the profit and loss:
Financial assets available for sale	7 591		-		2 788	12 079	-	-		(427)	(80)	(99)	-		21 852	11 999
Loans to clients and receivables from banks valued at amortized cost	3 694 842		58 515		1 050 961	1 787 220	32 320	-		(216 672)	(1 631 713)	(99 852)	(253)		4 675 368	155 507
Financial lease receivables	211 576		39 769		-	29 772	-	-		(47 596)	(24 113)	-	-		209 408	5 659
Investments held to maturity valued at amortized cost	202		-		-	28	-	-		-	(118)	(8)	-		104	(90)
Impairment of:
Fixed assets	3 372		865		12 884	475	-	57		-	-	(153)	(851)		16 649	475
Investment real estate property	8 654		-		-	-	-	350		-	-	-	(231)		8 773
Intangible assets	11 212		-		-	143	-	-		-	-	-	(24)		11 331	143
Goodwill	-		-		-	-	-			-	-	-	-		-	-
Other intangible assets	11 212		-		-	143	-	-		-	-	-	(24)		11 331	143
Impairment of the investments in associates	2 234		-		3 066	4	-	-		-	-	(364)	(30)		4 910	4
Other	136 458		119		16 755	3 617	445	1 916		(1 203)	(20 369)	-	(774)		136 964	(16 752)
Total	4 076 141		99 268		1 086 454	1 833 338	32 765	2 323		(265 898)	(1 676 393)	(100 476)	(2 163)		5 085 359	156 945

Write-downs and write-backs related to impairment of loans, advances and other financial assets and impairment reversals are presented in the profit and loss account under "Net provision charges for financial assets and contingent liabilities and commitments". Write-downs for depreciation of other assets are presented under other operating expenses, reversals of write-downs for depreciation of other assets are presented under other operating income. 

Share of profit (loss) of associates and joint venture entities valued at the equity method

	I Half 2008	I Half 2007
Entity name
Xelion. Doradcy Finansowi Sp. z o. o	(3 472)	(4 245)
Pioneer Pekao Investment Management S.A.	59 801	67 187
Krajowa Izba Rozliczeniowa S.A.	7 078	2 443
Pirelli Pekao Real Estate Sp. z o.o.	4 816	12 056
Central Poland Fund LLC	(25)	(265)
"Anica" System S.A.	-	1 113
Total	68 198	78 289

Income tax

The Group's tax charge for the first half of the year 2008 amounting to PLN 445 913 thousand consists of a tax charge amounting to PLN 362 505 thousand relating to continuing operations and PLN 83 408 thousand relating to discontinued operations. The amount of the tax charge relating to the profit from discontinued operations has not been separately disclosed in the consolidated profit and loss account. The information below presents the tax charge for continuing and discontinued activity.

The reconciliation between tax calculated by applying the current tax rate to accounting profit and the actual tax charge presented in the consolidated profit and loss account.

	I Half 2008	I Half 2007
Accounting gross profit	2 419 972	1 294 156
Tax at applicable tax rate at 19%	459 795	245 890
Tax effect of the permanent differences:	(13 882)	5 061
Non taxable income	(25 211)	(19 505)
Non tax deductible costs	9 911	24 651
Impact of other tax rates applied under a different tax jurisdiction	3 279	1 483
Impact of utilised tax losses	(4 772)	(3 970)
Tax relieves not included in the profit and loss account	-	638
Other	2 911	1 764
The effective tax charge of the accounting profit	445 913	250 951

The applicable tax rate at 19% is the statutory corporate income tax rate in Poland.

  The basic components of the income tax charge presented in the profit and loss account and in the net equity.

	I Half 2008	I Half 2007
Consolidated profit and loss account
Current income tax	(478 337)	(251 044)
Current tax charge	(464 545)	(264 645)
Adjustments related to the tax from previous years	(11 817)	14 579
Other taxes (for example: withholding tax, income tax relating to foreign branches)	(1 975)	(978)
Deferred income tax	32 424	93
Due to the occurrence and reversal of timing differences	32 205	93
The tax charge resulting from partial or entire write off or reversal of prior write-offs of the deferred tax assets connected with the probability of taxable income realisation	219
Tax charge disclosed in the consolidated profit and loss account	(445 913)	(250 951)
Equity
Deferred income tax	63 139	27 619
Due to the occurrence and reversal of timing differences	63 139	27 619
Tax charge disclosed in the consolidated equity	63 139	27 619
Total	(382 774)	(223 332)

Deferred income tax assets/liabilities

	As at 31 December 2007						Change in temporary differences in the year 2008 changes recognized in			Change being the result of change in scope of consolidation and other changes				As at 30 June 2008
	Total deferred tax		profit and loss account		equity		profit and loss account		equity	in profit and loss account	equity			Total deferred tax		profit and loss account		Equity
Deferred tax liability
Income receivable from the securities	93 097		93 097		-		14 608		-	-	-			107 705		107 705		-
Income receivable from loans given	236 131		236 131		-		(18 421)		-	-	-			217 710		217 710		-
Upward revaluation of the financial assets	397 034		397 034		-		6 873		-	-	-			403 907		403 907		-
Accelerated depreciation	119 767		119 767		-		(3 991)		-	- -	-			115 776		115 776		-
Investment relief	25 015		25 015		-		(580)		-	- -	-			24 435		24 435		-
Other	23 528		23 528		-		20 696		-	(321) (321)	-			43 903		43 903		-
Gross deferred tax liability	894 572		894 572		-		19 185		-	(321)	-			913 436		913 436		-
Deferred tax asset
Future costs related to securities	701		701	-			(19)		-	-	-			720		720		-
Future costs related to deposits and loans received	216 664		215 211	1 453			1 790		-	94	1 453			213 327		213 327		-
Unrealized losses on financial instruments	500 413		435 746	64 667			(42 114)		(63 017)	-	-			605 543		477 859		127 684
Income received to be accounted for over time from the loans and current accounts	98 059		98 059	-			908		-	-	-			97 151		97 151		-
Costs due to the loan provisions charges	353 813		349 909	3 904			(38 188)		-	-	3 904			388 097		388 097		-
Personnel costs provisions	84 298		84 032	266			16 595		-	-	266			67 437		67 437		-
Accruals	21 536		21 536	-			1 110		-	-	-			20 426		20 426		-
Uncovered losses from previous years	15 199		15 199	-			9 211		-	-	-			5 988		5 988		-
Other	22 558		22 558	-			(902)		-	(975)	-			24 435		24 435		-
Gross deferred tax assets	1 313 241		1 242 951	70 290			(51 609)		(63 017)	(881)	5 623			1 423 124		1 295 440		127 684
Deferred tax charge	X		X	X			(32 424)		(63 017)	(1 202)	5 623			X		X		-
Net deferred tax assets	418 993		348 703	70 290			X		-	-	-			513 354		382 004		127 684
Net provision for the deferred tax	324		324	-			X		-	-	-			3 666		-		-
	As at 31 December 2006							Change in temporary differences in the year 2007 changes recognized in				As at 30 June 2007
	Total deferred tax	profit and loss account				equity		profit and loss account		equity		Total deferred tax	profit and loss account		equity
Deferred tax liabilities
Income receivable from the securities	300	300				-		(820)		-		1 242	1 242		-
Income receivable from loans given	240 734	240 734				-		17 304		-		225 369	225 369		-
Upward revaluation of the financial assets	117 068	117 068				-		(11 285)		-		130 377	130 377		-
Accelerated depreciation	118 535	118 535				-		2 311		-		116 224	116 224		-
Investment relief	8 120	8 120				-		791		-		7 329	7 329		-
Other	8 385	8 385				-		1 692		-		6 951	6 951		-
Gross deferred tax liabilities	493 142	493 142				-		9 993		-		487 492	487 492		-
Deferred tax assets
Future costs related to securities	24 619	24 619				-		31 332		-		55 951	55 951		-
Future costs related to deposits and loans received	207 730	207 730				-		(9 019)		-		201 330	201 330		-
Unrealized losses on financial instruments	120 431	117 521				2 910		24 736		-		172 886	142 440		30 446
Income received to be accounted for over time from the loans and current accounts	60 928	60 928				-		(2 407)		-		58 521	58 521		-
Costs due to the loan provisions charges	271 380	271 380				-		(33 429)		-		237 951	237 951		-
Personnel costs provisions	60 728	60 728				-		(15 657)		-		45 071	45 071		-
Accruals	11 553	11 553				-		(539)		-		11 014	11 014		-
Uncovered losses from previous years	17 050	17 050				-		(5 566)		-		11 484	11 484		-
Other	23 117	23 117				-		649		-		25 045	25 045		-
Gross deferred tax assets	797 536	794 626				2 910		(9 900)		-		819 253	788 807		30 446
Deferred tax charge	X	X				X		93		-		X	X		X
Net deferred tax assets	304 394	301 484				2 910		X		X		332 111	301 315		30 446
Net provision for the deferred tax	-	-				-		X		X		350	-		-

As at 30 June 2008 and 30 June 2007 there were no temporary differences related to investments in subsidiaries, branches, affiliates, and joint ventures, for which no deferred tax liability was created due to meeting the condition to control the timing of reversal of the differences and existence of high probability that the differences will not reverse in a foreseeable future.

The amount of negative temporary differences, unsettled tax losses, unused tax relieves, in relation to which no deferred tax asset was recognized in the balance sheet, along with the date those differences will elapse is presented in the below table.

Year when timing differences elapse	Amount of differences as at 30.06.2008	Amount of differences as at 30.06.2007
2008	697	8 058
2009	4 330	16 881
2010	-	38 782
2011	2 536	2 356
2012	4 850	7 090
Without time limit	35 023	47 446
Total	47 436	120 613

Earnings per share from continuing and discontinued operations

Basic earnings per share

Basic earnings per share are calculated by dividing net profit attributable to ordinary shareholders of the holding company by the weighted average number of ordinary shares issued during the given period.

Earnings per share

	I Half 2008	I Half 2007
Net profit attributed to ordinary shareholders	1 967 263	1 041 246
Weighted average number of ordinary shares in the period	262 147 533	167 052 213
Earnings per each share (PLN per share)	7.50	6.23

Diluted earnings per share

Diluted earnings per share are calculated based on the respective profit of ordinary shareholders of the holding company by dividing the profit of such shareholders by the average weighted number of ordinary shares listed during a given period adjusted for all potentially diluting ordinary shares.

There are diluting instruments in the Group in the form of convertible bonds. For calculation purposes it is assumed that these will be converted into shares.

	I Half 2008	I Half 2007
Net profit attributed to ordinary shareholders	1 967 263	1 041 246
Weighted average number of ordinary shares in the period	262 147 533	167 052 213
Adjustments to the number of shares for the purpose of calculating the diluted earnings per share	142 321	193 423
Weighted average number of ordinary shares for the purpose of calculation of diluted earnings per share	262 289 854	167 245 636
Diluted earnings per each share (PLN per share)	7.50	6.23

Dividend  paid

Dividends and other distribution to shareholders are recorded directly in equity. A liability for dividends payment is not recognized until the entity has an obligation to pay dividends, which is not until they are approved. 

During the ordinary Shareholders Meeting of Bank Pekao S.A. on 23rd April 2008 a resolution was made to pay out a dividends for the year ended as at 31st December 2007 in the amount of PLN 9.60 per share, what gives a total amount of dividend of PLN 2 517 241 thousand. 

In determining the 2007 dividend amount the Bank took into account the number of shares eligible - after the merger of Bank Pekao S.A. with the separated part of Bank BPH S.A. hereinafter called as "Pekao 285" - for dividend paid out starting from 1 January 2008. As such, the amount of dividend payment was assessed in consideration of the combined results generated in 2007 by both Bank Pekao S.A. and Pekao 285 operating under the structure of Bank BPH until the spin off.

The ex-dividend date was 15th May 2008 and the dividend was paid on 3rd June 2008. All the Bank's shares are ordinary shares.

Cash due from Central Bank

	30.06.2008	31.12.2007
Cash	2 108 617	2 570 892
Current account in the Central Bank	3 614 177	802 474
NBP bonds *	1 686 707	1 687 171
Interest	32 423	59 105
Other funds	1 432	1 568
Total	7 443 356	5 121 210

(*) The NBP bond is a non-quoted debt security with maturity on 1st March 2012 issued in relation to reduction of the obligatory reserve rate. The bond is not included under "cash" in the cash flows statement.

In the course of the day the Bank may use funds in the mandatory reserve account for ongoing payments pursuant to an instruction submitted to the National Bank of Poland. It must however. ensure that the average monthly balance in such accounts comply with the requirements described in the mandatory reserve declaration.

Funds on the mandatory reserve account bear interest in the amount of 0.9 of the rediscount rate for bills of exchange amounts as at 30 June 2008 6.25%. As at 30 June 2008  this interest amounted to 5.62%.

Loans and receivables from banks

		30.06.2008		31.12.2007
Current accounts		2 191 842		4 623 105
Deposits and advances from other banks		2 584 667		7 876 793
Loans and advances		1 832 273		484 388
Unquoted securities		732		13 684
Repo transactions		634 943		2 564 669
Funds in transit		293 588		1 345 259
Interest		53 656		81 431
Total gross		7 591 701		16 989 329
Provision for the impairment of receivables		(32 003)		(29 295)
Total net		7 559 698		16 960 034

The floating interest rate due from banks amounts to PLN 962 836  thousand (as at 31 December 2007: PLN 762 526 thousand) fixed interest rate due from banks amounts to PLN 6 281 621 thousand (as at 31December 2007: PLN 13 461 461 thousand).

As at 30 June 2008	Gross value of not - impaired loans	Gross value of impaired loans	Individual impairment charges	Collective impairment charges*	Total net value
Current account	2 191 842	-	-	-	2 191 842
Deposits in other banks	2 584 667	-	-	-	2 584 667
Loans given	1 809 380	22 893	(6 136)	(25 135)	1 801 002
Unlisted securities	-	732	(732)	-	-
Repo transactions	634  943	-	-	-	634 943
Funds in transit	293 588	-	-	-	293 588
Interest	53 656	-	-	-	53 656
Total	7 568 076	23 625	(6 868)	(25 135)	7 559 698

* Includes the estimated impairment for losses incurred but not reported (IBNR)

As at 31 December 2007	Gross value of not - impaired loans	Gross value of impaired loans	Individual impairment charges	Collective impairment charges*	Total net value
Current account	4 623 105	-	-	-	4 623 105
Deposits in other banks	7 876 793	-	-	-	7 876 793
Loans given	403 805	80 583	-	(28 454)	455 934
Unlisted securities	12 843	841	(841)	-	12 843
Repo transactions	2 564 669	-	-	-	2 564 669
Funds in transit	1 345 259	-	-	-	1 345 259
Interest	81 424	7	-	-	81 431
Total	16 907 898	81 431	(841)	(28 454)	16 960 034

*Includes the estimated impairment for losses incurred but not reported (IBNR)

Fair value of receivables from banks as at 30 June 2008 was equal to PLN 8 166 819 thousand (as at 31 December 2007: PLN 10 300 554 thousand).

Financial assets held for trading 

	30.06.2008	31.12.2007
Debt securities	2 990 764	3 165 113
- issued by the State Treasury	2 236 667	2 385 068
- issued by local governments	4 233	4 503
- issued by non-financial entities	332 418	504 538
- issued by non bank financial entities	136 212	153 061
- issued by other banks	281 234	117 943
Stock and shares in other entities	-	-
Other financial instruments	-	-
Total financial assets held for trading	2 990 764	3 165 113

Financial assets held for trading - breakdown

	30.06.2008	31.12.2007
1. Debt securities
a) with embedded instrument
- quoted	1 579	4 459
- unquoted	-	-
b) other
- quoted	2 217 495	2 263 553
- unquoted	771 690	897 101
2. Stock and shares
- quoted	-	-
- unquoted
3. Other financial instruments
- quoted	-	-
- unquoted	-	-
Total financial assets held for trading	2 990 764	3 165 113

Financial assets held for trading according to residual maturities:

	- up to 1 month		- between 1 and 3 months		- between 3 months and 1 year		- between 1 and 5 years		- above 5 years		undefined maturity	Total
As at 30 June 2008	Book value	Average yield.  (%)	Book value	Average yield.  (%)	Book value	Average yield.  (%)	Book value	Average yield.  (%)	Book value	Average yield.  (%)	Book value	Book value	Average yield.  (%)
Debt securities
- issued by the State Treasury	26 883	6.40	266 334	6.86	881 078	6.63	476 815	6.31	585 557	4.86	-	2 236 667	6.12
- issued by local governments	-	-	-		4 233	14.00	-	-	-	-	-	4 233	14.00
- issued by non-financial entities	88 993	6.34	190 727	6.33	52 698	8.76	-	-	-	-	-	332 418	6.72
- issued by non bank financial entities	90 204	5.55	46 008	6.33	-		-	-	-	-	-	136 212	5.81
- issued by other banks	30 957	6.01	199 511	6.60	50 766	7.31	-	-	-	-	-	281 234	6.66
Shares and stock in other entities
- listed on the stock exchanges	-		-		-		-		-		-	-
- not listed	-		-		-		-		-		-	-
Total	237 037	6.00	702 580	6.61	988 775	6.81	476 815	6.31	585 557	4.86	-	2 990 764	6.24
Including interest	85		307		1 814		9 589		12 937			24 732

  

Financial assets held for trading according to residual maturities:

	- up to 1 month		- between 1 and 3 months		- between 3 months and 1 year		- between 1 and 5 years		- above 5 years		undefined maturity	Total
As at 31 December 2007	Book value	Average yield.  (%)	Book value	Average yield.  (%)	Book value	Average yield.  (%)	Book value	Average yield.  (%)	Book value	Average yield.  (%)	Book value	Book value	Average yield.  (%)
Debt securities
- issued by the State Treasury	111 402	10.99	151 808	5.40	275 621	5.80	1 324 213	5.73	522 024	5.20	-	2 385 068	5.85
- issued by local governments	-		-		4 503	15.00	-		-		-	4 503	15.00
- issued by non-financial entities	286 392	5.26	188 351	5.75	29 795	9.77	-		-		-	504 538	5.71
- issued by non bank financial entities	119 864	5.34	33 197	5.63	-		-		-		-	153 061	5.40
- issued by other banks	84 794	5.11	21 490	7.27	11 659	13.00	-		-		-	117 943	6.28
Shares and stock in other entities
- listed on the stock exchanges	-		-		-		-		-		-	-
- not listed	-		-		-		-		-		-	-
Total	602 452	6.32	394 846	5.69	321 578	6.56	1 324 213	5.73	522 024	5.20	-	3 165 113	5.83
Including interest	2 718		818		1 241		18 468		8 716			31 961

Derivative financial instruments held for trading

Derivatives used by the Group

In its operations the Group uses different financial derivatives for managing the risk involved in the Group's business. The majority of derivatives used by the Group include over-the-counter contracts. Regulated stock exchange contracts (mainly futures) represent a small part of those derivatives.

Derivative foreign exchange transactions include either the obligation or right to purchase or sell foreign and domestic currency assets. Forward operations are based on the exchange rate specified during the transaction for a predefined date in the future. The Group concludes forward transactions to manage its foreign exchange position and to satisfy its customers' demand for hedging future foreign currency payments. These transactions are measured using the discounted cash flow models.

Foreign exchange swaps combine the exchange of specific currencies as of the spot date and a reverse transaction as of the forward date with the exchange rates specified in advance during the conclusion of the contract. In these transactions an exchange of principals takes place. Foreign exchange swap transactions are mostly concluded in the process of managing the Group's currency liquidity. These transactions are measured using the discounted cash flow models. 

Foreign exchange options are contracts where one of the parties the option buyer, purchases from the other party the option issuer at a so-called premium price the right without the obligation to buy or sell at  a specified point in the future or during a specified time range a foreign currency amount specified in the contract at the exchange rate set during the conclusion of the option. Foreign exchange options concluded by the Group are over-the-counter contracts concluded with the Group's customers in order to hedge the risk involved in future foreign currency payments. The Group acts both as option issuer and buyer. These transactions are measured using the Garman-Kohlhagen option measurement models.

Derivatives relating to interest rates enable the Group and its customers to transfer modify or limit the interest rate risk.

Interest rate swaps are contracts where parties swap between themselves interest cash flows calculated on a specified nominal value of the base instrument. In a typical swap contract, fixed rate interest flow will be swapped for a floating rate interest flow. Both flows will be calculated on the basis of the same nominal value of the base instrument with no actual funds being transferred during the swap of the base instrument. These transactions are measured using the discounted cash flow models.

Forward rate agreements involve both parties undertaking to pay interest on a predefined nominal amount for a specified period starting in the future and charged according to the interest rate determined on the day of the agreement. As the basis for settlements the Parties will use the interest rate difference which will be in proportion to the nominal amount of the agreement and difference between the FRA rate (term rate as of the date of the transaction) and the reference rate applicable two business days before the settlement date. These transactions are measured using the discounted cash flow models.

Cross currency IRS involves both parties swapping capital and interest flows in different currencies in  a specified period. Such transactions are used for interest rate and foreign exchange risk management. These transactions are measured using the discounted cash flow models.

Forward transactions on securities are based on prices of securities defined at the conclusion of the transaction for a specified date in the future. The Group uses securities forward transactions to manage its investment portfolio and to satisfy customer demand. These transactions type are measured using the discounted cash flow models.

Interest rate options (cap/floor) are contracts where one of the parties the option buyer, purchases from the other party, the option issuer at a so-called premium price, the right without the obligation to borrow (cap) or lend (floor) at specified points in the future (independently) amounts specified in the contract at the interest rate set during the conclusion of the option. Interest rate options concluded by the Group are over-the-counter contracts used to manage interest rate risk and to satisfy customer demand. These transactions are measured using the Black model.

Stock options, stock market indexes and prices of investment fund units are contracts where one of the Parties, the option buyer, purchases from the other party, the option issuer at a so-called premium price the right without the obligation to buy or sell a specific base instrument (shares, share market indices investment fund units or their baskets) at a price specified during the conclusion of the option. The Group uses such transactions to manage securities risk and to satisfy customer demand. These transactions are measured using the either extended Black-Scholes model or are based on the available price from a dealer quoted on active market to which Bank has immediate access.

Interest rate futures transactions refer to standardized forward contracts purchased on stock markets in order to ensure protection against the interest rate risk involved in the securities portfolio owned.

Futures for stock market indices and shares are contracts listed on the Warsaw Stock Exchange. Contracts for indices refer to transactions based on MIDWIG indices. These contracts are valued at direct quotations from Stock Exchange.

Derivatives embedded in other instruments

The group uses derivatives embedded in complex financial instruments, i.e. such as including both  a derivative and base agreement, which results in part of the cash flows of the combined instrument changing similarly to cash flows of an independent derivative. Derivatives embedded in other instruments cause part or all cash flows resulting from the base agreement to be modified as per  a specific interest rate, price of a security, foreign exchange rate, price index or interest rate index.

Brady bond options are derivatives embedded in balance sheet financial instruments. In this case, embedded financial instruments are closely related to the base contract and thus the embedded derivative does not need to be isolated or recognized and measured separately.

Derivatives are also embedded in deposit agreements. 

The Bank has deposits and certificates of deposits on offer which include embedded derivatives. Such derivatives are not by their nature closely related to their respective deposit agreements. The instrument is isolated and classified in the portfolio to be traded and it is subject to measurement. The measurement of that instrument is recognized in the profit and loss account. Embedded derivatives are also option for shares, markets shares index, interest rates indexes, unit price of investment funds and currency options.

Options for shares, markets shares indices and unit price of investment funds are measured on the basis of the Black-Scholes model or on the basis of an basis available price from a dealer, quoted on active market to which the Bank has immediate access.

Currency options are measured in based on the Garman-Kohlhagen model. 

The Group analyzed the loan agreement portfolio and the ordinary agreement portfolio in order to isolate embedded derivatives and decided that such agreements do not require isolation and separate treatment of embedded instruments.

Risk involved in financial derivatives

Market risk and credit risk are two main categories of derivatives-related risk.

At the beginning, financial derivatives usually have a small market value or no market value at all. This is due to the fact that derivatives require no initial net investment or require only minor net investments as compared with other agreements which react to changes in market conditions in a similar way.

Derivatives gain positive or negative value as a result of change in specific interest rates, prices of securities prices of commodities currency exchange rates price index credit standing or credit index or another market parameter. This results in derivatives becoming more or less advantageous than instruments with similar residual maturity available on the market at the same time.

Credit risk related to derivative contracts is a potential cost of concluding a new contract on the original terms and conditions if the other party to the original contract fails to meet its obligations. In order to assess the potential cost of replacement the Group uses the same method as for credit risk assessment. In order to control its credit risk levels the Group performs assessments of other contract parties using the same methods as for of credit decisions.

Credit risk involved in derivatives is presented in Note 8.

The following tables present nominal amounts of financial derivatives and fair values of such derivatives. Nominal amounts of certain financial instruments are used for comparison with balance sheet instruments but need not necessarily indicate what future cash flow amounts will be or what the current fair value of such instruments is and therefore do not reflect the Group's credit or price risk level.

Derivatives become advantageous (assets) or disadvantageous (liabilities) due to fluctuations of market interest rates, indices or foreign exchange rates as compared with their terms.

Financial derivatives held for trading as at 30 June 2008

Nominal values of base instruments and fair value of financial derivatives held for trading:

	- up to 1 month	- between 1 and 3 months	- between 3 months and 1 year	- 1 - 5 years	above 5 years	Total	Fair value (negative)	Fair value (positive)
Currency transactions
Currency swaps	12 995 457	5 448 573	4 532 724	22 248	-	22 999 002	(90 789)	253 520
Purchase	6 508 963	2 762 346	2 310 013	10 052	-	11 591 374
Sale	6 486 494	2 686 227	2 222 711	12 196	-	11 407 628
Currency forward contracts	7 867 310	2 790 158	6 179 173	986 279	-	17 822 920	(245 581)	196 625
Purchase	3 933 092	1 389 874	3 077 900	476 670	-	8 877 536
Sale	3 934 218	1 400 284	3 101 273	509 609	-	8 945 384
Currency options	1 981 969	4 584 557	13 227 431	2 001 453	-	21 795 410	(150 470)	137 634
Purchase	990 552	2 288 020	6 600 489	1 000 707	-	10 879 768
Sale	991 417	2 296 537	6 626 942	1 000 746	-	10 915 642
Cross Currency IRS	-	834 371	2 224 947	8 509 838	1 702 977	13 272 133	(197 230)	231 074
Purchase	-	416 231	1 218 712	4 230 318	817 604	6 682 865
Sale	-	418 140	1 006 235	4 279 520	885 373	6 589 268
Interest rate transactions
Interest rate swaps (IRS)	10 702 965	6 187 506	25 338 483	57 045 037	14 119 132	113 393 123	(1 244 025)	1 118 398
Purchase	5 981 965	2 641 000	12 193 106	27 864 310	7 640 147	56 320 528
Sale	4 721 000	3 546 506	13 145 377	29 180 727	6 478 985	57 072 595
Forward Rate Agreement (FRA)	-	1 000 000	41 231 309	5 980 000	-	48 211 309	(52 645)	65 807
Purchase	-	500 000	23 444 369	3 980 000	-	27 924 369
Sale	-	500 000	17 786 940	2 000 000	-	20 286 940

  Nominal values of base instruments and fair value of financial derivatives held for trading:

	- up to 1 month	- between 1 and 3 months	- between 3 months and 1 year	- 1 - 5 years	above 5 years	Total		Fair value (negative)	Fair value (positive)
Interest rate transactions
Futures for debt securities	-	348 878	694 338	-	-	1 043 216		-	-
Purchase	-	-	-	-	-	-
Sale	-	348 878	694 338	-	-	1 043 216
Cap/Floor	67 128	27 400	70 000	1 482 888	185 834	1 833 250		(11 901)	11 075
Purchase	12 300	9 500	30 000	733 944	92 917	878 661
Sale	54 828	17 900	40 000	748 944	92 917	954 589
Other transactions
Securities forward contracts	1 680 264	-	-	-	-	1 680 264		(1 168)	1 917
Purchase	733 054	-	-	-	-	733 054
Sale	947 210	-	-	-	-	947 210
Stock options	-	57 272	1 601 085	1 826 627	-	3 484 984		(166 356)	167 121
Purchase	-	28 636	801 041	912 884	-	1 742 561
Sale	-	28 636	800 044	913 743	-	1 742 423
Total	35 295 093	21 278 715	95 099 490	77 854 370	16 007 943	245 535 611		(2 160 165)	2 183 171

  Financial derivatives held for trading as at 31 December 2007

Nominal values of base instruments and fair value of financial derivatives held for trading:

	- up to 1 month	- between 1 and 3 months	- between 3 months and 1 year	- 1 - 5 years	above 5 years	Total	Fair value (negative)	Fair value (positive)
Currency transactions
Currency swaps	21 405 604	11 786 400	3 160 393	55 998	-	36 408 395	(144 755)	240 532
Purchase	10 745 733	5 874 718	1 607 452	27 999	-	18 255 902
Sale	10 659 871	5 911 682	1 552 941	27 999	-	18 152 493
Currency forward contracts	6 857 757	24 354 884	7 542 742	868 847	-	39 624 230	(273 726)	365 217
Purchase	3 444 370	12 236 031	3 757 401	426 127	-	19 863 929
Sale	3 413 387	12 118 853	3 785 341	442 720	-	19 760 301
Currency options	379 067	7 051 703	12 872 460	2 640 048	-	22 943 278	(120 492)	116 990
Purchase	189 544	3 519 186	6 439 298	1 318 350	-	11 466 378
Sale	189 523	3 532 517	6 433 162	1 321 698	-	11 476 900
Cross Currency IRS	-	135 151	2 310 954	5 043 011	1 757 626	9 246 742	(113 670)	213 862
Purchase	-	67 544	1 236 418	2 489 773	861 021	4 654 756
Sale	-	67 607	1 074 536	2 553 238	896 605	4 591 986
Interest rate transactions
Interest rate swaps (IRS)	4 478 666	14 682 340	33 599 862	55 605 512	14 971 615	123 337 995	(702 025)	676 347
Purchase	2 240 203	8 916 709	15 543 246	26 359 521	7 388 194	60 447 873
Sale	2 238 463	5 765 631	18 056 616	29 245 991	7 583 421	62 890 122
Forward Rate Agreement (FRA)	-	4 500 000	40 571 680	17 702 500	-	62 774 180	(52 657)	61 368
Purchase	-	2 500 000	22 867 620	9 740 000	-	35 107 620
Sale	-	2 000 000	17 704 060	7 962 500	-	27 666 560

  Nominal values of base instruments and fair value of financial derivatives held for trading:

	- up to 1 month	- between 1 and 3 months	- between 3 months and 1 year	- 1 - 5 years	above 5 years	Total		Fair value (negative)	Fair value (positive)
Interest rate transactions
Futures for debt securities	-	650 772	-	-	-	650 772		-	-
Purchase	-	401 184	-	-	-	401 184
Sale	-	249 588	-	-	-	249 588
Cap/Floor	4 000	173 342	158 575	998 480	223 286	1 557 683		(17 309)	13 714
Purchase	-	51 882	47 400	509 463	111 643	720 388
Sale	4 000	121 460	111 175	489 017	111 643	837 295
Other transactions
Securities forward contracts	487 092	-	-	-	-	487 092		(1 752)	103
Purchase	292 876	-	-	-	-	292 876
Sale	194 216	-	-	-	-	194 216
Stock options	-	144 074	660 739	2 815 740	-	3 620 553		(234 896)	234 825
Purchase	-	72 037	331 518	1 413 161	-	1 816 716
Sale	-	72 037	329 221	1 402 579	-	1 803 837
Total	33 612 186	63 478 666	100 877 405	85 730 136	16 952 527	300 650 920		(1 661 282)	1 922 958

Other financial instruments at fair value through profit and loss

	30.06.2008	31.12.2007
Debt securities
- issued by non bank financial entities	465 669	538 986
- issued by the State Treasury	3 407 468	3 238 693
Stock and shares in other entities	47	50
Total	3 873 184	3 777 729

Other financial instruments at fair value through profit and loss - breakdown

	30.06.2008	31.12.2007
1. Debt securities
a) with embedded instrument
- quoted	-	-
- unquoted	-	-
b) other
- quoted	3 407 468	3 238 693
- unquoted	465 669	538 986
2. Stock and shares
- quoted	47	50
- unquoted	-	-
3. Other financial instruments
- quoted	-	-
- unquoted	-	-
Total	3 873 184	3 777 729

 Debt securities have been designated by the Group as at fair value through profit and loss among other in order to eliminate or significantly reduce a measurement or recognition inconsistency between debt securities and derivatives economically hedging interest rate risk attributable to debt securities.

Other financial instruments at fair value through profit and loss according to residual maturities:

As at 30 June 2008	- up to 1 month		- between 1 and 3 months		- between 3 months and 1 year		- 1 - 5 years		above 5 years		undefined maturity	Total
	Book value	Average yield.  (%)	Book value	Average yield.  (%)	Book value	Average yield.  (%)	Book value	Average yield.  (%)	Book value	Average yield.  (%)	Book value	Book value	Average yield.  (%)
Debt securities
- issued by non bank financial entities	-	-	-		465 669	3.49	-		-		-	465 669	3.49
- issued by the State Treasury	-	-	-		-		2 852 585	6.07	554 883	5.13	-	3 407 468	5.92
Shares and stock in other entities
- listed on the stock exchanges	-	-	-	-	-	-	-	-	-	-	47	47	-
- not listed	-		-		-
Total	-		-		465 669	3.49	2 852 585	6.07	554 883	5.13	47	3 873 184	5.62
Including interest	-		-		5 258		52 022		8 531			65 811	-

As at 31 December 2007	- up to 1 month		- between 1 and 3 months		- between 3 months and 1 year		- 1 - 5 years		above 5 years		undefined maturity	Total
	Book value	Average yield.  (%)	Book value	Average yield.  (%)	Book value	Average yield.  (%)	Book value	Average yield.  (%)	Book value	Average yield.  (%)	Book value	Book value	Average yield.  (%)
Debt securities
- issued by non bank financial entities	-		-		12 526	4.75	526 460	4.28	-		-	538 986	4.29
- issued by the State Treasury	-		-		-		2 746 282	5.12	492 411	4.83	-	3 238 693	5.07
Shares and stock in other entities
- listed on the stock exchanges	-		-		-						50	50
- not listed	-		-		-
Total	-		-		12 526	4.75	3 272 742	4.98	492 411	4.83	50	3 777 729	4.96
Including interest	-		-		22		49 218		14 459			63 699

Loans and receivables from customers

	30.06.2008	31.12.2007
Loans	69 273 445	68 603 963
Payment cards receivables	716 369	604 290
Purchased receivables	939 697	980 324
Realized guarantees and commitments	37 171	40 366
Unquoted securities	60 082	60 993
Repo transactions	800 845	732 997
Receivables in transit	1 564 353	62 097
Interest	235 377	219 080
Total gross	73 627 339	71 304 110
Impairment provisions	(3 797 907)	(4 646 073)
Total net	69 829 432	66 658 037

30.06.2008	Gross value of not - impaired loans	Gross value of impaired loans	Individual impairment charges	Collective impairment charges*	Total net value	Fair value
Loans given to
State budget entities	1 304 776	1 802	-	(8 144)	1 298 434	1 298 381
non-banking financial entities	3 276 791	18 071	(6 115)	(22 617)	3 266 130	3 266 252
non-financial entities	41 909 718	2 902 640	(1 578 745)	(913 399)	42 320 214	42 357 834
general public	22 675 825	1 302 339	(102 877)	(1 166 010)	22 709 277	22 768 505
Interest	235 377	-	-	-	235 377	235 377
Total	69 402 487	4 224 852	(1 687 737)	(2 110 170)	69 829 432	69 926 349

* Includes the estimated impairment for losses incurred but not reported (IBNR)

Fixed interest rate loans and lending facilities extended to customers as at 30 June 2008 represented 44.16 % of the total loans and advances portfolio or PLN 31 716 964 thousand.

31.12.2007	Gross value of not - impaired loans	Gross value of impaired loans	Individual impairment charges	Collective impairment charges*	Total net value	Fair value
Loans given to
state budget entities	1 793 135	1 801	-	(6 834)	1 788 102	1 787 683
non-banking financial entities	3 381 203	56 313	(42 016)	(29 819)	3 365 681	3 365 717
non-financial entities	37 707 746	4 102 593	(2 030 930)	(1 360 895)	38 418 514	38 454 791
general public	22 746 937	1 295 302	(91 232)	(1 084 347)	22 866 660	22 847 052
Interest	219 080	-	-	-	219 080	219 080
Total	65 848 101	5 456 009	(2 164 178)	(2 481 895)	66 658 037	66 674 323

* Includes the estimated impairment for losses incurred but not reported (IBNR)

Fixed interest rate loans and lending facilities extended to customers as at 31 December 2007 represented 10.62 % of the total loans and advances portfolio or PLN 7 546 862 thousand.

Changes in impairment balances in the reporting periods ended 30 June 2008 are presented in the Note 19. 

Net investments in financial leases 

The Group conducts lease operations through its subsidiaries. Pekao Leasing Sp. z o.o. Pekao Leasing Holding S.A. and Bank UniCredit Ltd. The value of gross lease investments and minimum lease payments were respectively:

30.06.2008	Gross leasing investment	Present value of minimum lease payments
Up to 1 year	1 671 062	1 402 558
Between 1 and 5 years	2 100 791	1 930 482
Above 5 years	128 795	113 986
Total	3 900 648	3 447 026
Unrealized financial revenue	(453 621)
Net leasing investment	3 447 026
Non-guaranteed end value to the lessor	-
Present value of minimum lease payments	3 447 026
Provisions value	(205 805)
Balance sheet value	3 241 221

31.12.2007	Gross leasing investment	Present value of minimum lease payments
Up to 1 year	1 525 563	1 298 708
Between 1 and 5 years	2 129 049	1 887 210
Above 5 years	96 097	67 257
Total	3 750 709	3 253 175
Unrealized financial revenue	(497 534)
Net leasing investment	3 253 175
Non-guaranteed end value to the lessor	-
Present value of minimum lease payments	3 253 175
Provisions value	(209 407)
Balance sheet value	3 043 768

The Group is acting as a lessor in the financial leases embracing mainly means of transport, machines and equipment. 

Cash flow hedge (macro hedge) 

The hedge relationship description 

The Bank through the derivative interest rate swap (IRS) transactions hedges a part of it's interest rate risk exposure arising from the volatility of the cash flows related to the variable interest Polish zloty assets (with the exception of the debt securities classified as held to maturity). 

Hedged items

Cash flows arising from variable rate assets. 

Hedging instruments

A portfolio of IRS transactions (a short position - the Bank receives fixed flow of payments and pays a variable flow). 

As at 30 June 2008 the net fair value of the hedging instruments amounted to PLN -101 745 thousand (as at 31 December 2007 +11 707 thousand). 

Balance sheet disclosure

The effective part of the hedging instruments valuation is recognized in revaluation equity. 

Interest on hedged items and hedging instruments is recognized as interest income. 

	30.06.2008	31.12.2007
Gross revaluation equity (deferral of the p&l recognition of th changes in the fair value of hedging instrument of the effective hedge).	(133 327)	(62 340)
Period in which the cash flows related to the hedged items are expected to occur.	2008.07.01 - 2017.11.20	2008.01.01 - 2017.11.20

Changes in revaluation equity in I half of 2008

Balance at the beginning of the period	(62 340)
Changes in the fair value of hedging instruments	(70 987)
Balance at the end of the period	(133 327)

Investment securities

	30.06.2008	31.12.2007
Securities available for sale	17 920 140	17 055 381
Debt securities	17 886 851	17 035 714
- issued by central banks	560 082	554 092
- issued by other banks	1 202 185	1 273 447
- issued by other financial entities	193 869	230 452
- issued by non financial entities	833 169	620 804
- issued by the State Treasury	14 745 420	13 948 142
- issued by local governments	352 126	408 777
Stock and shares in other entities	33 289	19 667
Other financial instruments	-	-
Securities held to maturity	756 702	586 994
- issued by central banks	277 515	394 381
- issued by other financial entities	15 095	17 277
- issued by the State Treasury	464 092	175 336
Total Gross	18 676 842	17 642 375
Impairment of securities available for sale	(25 306)	(21 852)
Impairment of securities held to maturity	(87)	(104)
Total net	18 651 449	17 620 419

Securities available for sale - breakdown

	30.06.2008	31.12.2007
1. Debt securities
a) with embedded instrument
- quoted	155 253	175 706
- unquoted	-	-
b) other
- quoted	13 776 116	12 905 329
- unquoted	3 947 456	3 950 038
2. Stock and shares
- quoted	270	383
- unquoted	15 739	2 073
3. Other financial instruments
- quoted	-	-
- unquoted	-	-
Total	17 894 834	17 033 529

Securities held to maturity - breakdown

	30.06.2008	31.12.2007
a) with embedded instrument
- book value		-
- fair value	-	-
b) other
- book value	756 615	586 890
- fair value	756 329	592 117
Total	756 615	586 890

Changes in investment securities

	30.06.2008	31.12.2007
Securities available for sale
Balance at the beginning of the period	17 033 529	12 574 657
Decreases due from the full method consolidation	-	131 859
Merger of "Pekao 285"	-	863 736
Increase (purchase)	4 300 416	31 962 094
Decrease (sale and redemption)	(3 081 514)	(28 687 404)
Impairment charges during period	(1)	(12 079)
Changes in the fair value	(249 480)	(261 077)
Exchange rate differences	(212 036)	(351 123)
Other	103 920	812 866
Balance at the end of the period	17 894 834	17 033 529
Securities held to maturity
Balance at the beginning of the period	586 890	425 410
Increase(purchase)	7 752 128	12 426 059
Decrease (sale and redemption)	(7 581 973)	(12 273 171)
Impairment charges during period	(26)	28
Exchange rate differences	(11 173)	(13 673)
Other	10 769	22 237
Balance at the end of the period	756 615	586 890
Total investment securities net	18 651 449	17 620 419

Securities available for sale according to maturities:

As at 30 June 2008	- up to 1 month		- between 1 and 3 months		- between 3 months and 1 year		- 1 - 5 years		above 5 years		undefined maturity	Total
	Book value	Average yield.  (%)	Book value	Average yield.  (%)	Book value	Average yield.  (%)	Book value	Average yield.  (%)	Book value	Average yield.  (%)	Book value	Book value	Average yield.  (%)
Debt securities
- issued by central banks	22 285	5.96	-	-	-	-	537 797	5.73	-	-	-	560 082	5.74
- issued by other banks	-	-	8 707	5.84	9 772	10.81	1 183 706	6.26	-	-	-	1 202 185	6.29
- issued by other financial entities	-	-	-	-	51 644	6.04	142 225	5.92	-	-	-	193 869	5.95
- issued by non financial entities	-	-	7 254	6.76	11 270	12.10	541 502	6.44	265 117	6.21	-	825 143	6.45
- issued by the State Treasury	-	-	448 206	7.25	2 022 694	6.93	8 776 579	6.58	3 497 941	6.31	-	14 745 420	6.58
- issued by local governments	11 063	4.60	18 439	5.23	138 265	6.21	183 812	6.49	547	4.82	-	352 126	6.25
Shares in other entities
- listed	-	-	-	-	-	-	-	-	-	-	270	270
- not listed	-	-	-	-	-	-	-	-	-	-	15 739	15 739
Other financial instruments	-	-	-	-	-	-	-	-	-		-	-
Total	33 348	5.51	482 606	7.14	2 233 645	6.91	11 365 621	6.49	3 763 605	6.31	16 009	17 894 834	6.51
Including interest	567		3 931		14 186		133 120		123 839			275 643

  Securities available for sale according to maturities:

As at 31 December 2007	- up to 1 month		- between 1 and 3 months		- between 3 months and 1 year		- 1 - 5 years		above 5 years		undefined maturity	Total
	Book value	Average yield.  (%)	Book value	Average yield.  (%)	Book value	Average yield.  (%)	Book value	Average yield.  (%)	Book value	Average yield.  (%)	Book value	Book value	Average yield.  (%)
Debt securities
- issued by central banks	5 397	5.61	-	-	-	-	548 695	4.19	-	-	-	554 092	4.20
- issued by other banks	-	-	1 178	13.75	80 109	5.56	1 192 160	5.61	-	-	-	1 273 447	5.62
- issued by other financial entities	-	-	-	-	85 651	5.60	144 801	5.24	-	-	-	230 452	5.37
- issued by non financial entities	-	-	-	-	7 653	6.70	427 485	5.45	181 026	5.50	-	616 164	5.48
- issued by the State Treasury	3 053	4.31	315 667	5.00	1 345 773	5.75	8 710 837	5.98	3 572 811	5.72	-	13 948 141	5.87
- issued by local governments	-		-		148 611	4.92	259 635	5.32	531	4.82	-	408 777	5.17
Shares in other entities
- listed	-	-	-	-	-	-	-	-	-	-	383	383
- not listed	-	-	-	-	-	-	-	-	-	-	2 073	2 073
Other financial instruments	-	-	-	-	-	-	-	-	-
Total	8 450	5.14	316 845	5.04	1 667 797	5.67	11 283 613	5.81	3 754 368	5.71	2 456	17 033 529	5.76
Including interest	147		12 358		22 259		249 444		73 641			357 849

 Securities held to maturity according to maturities:

As at 30 June 2008	- up to 1 month		- between 1 and 3 months		- between 3 months and 1 year		- 1 - 5 years		above 5 years		undefined maturity	Total
	Book value	Average yield.  (%)	Book value	Average yield.  (%)	Book value	Average yield.  (%)	Book value	Average yield.  (%)	Book value	Average yield.  (%)	Book value	Book value	Average yield.  (%)
Debt securities
- issued by central banks	277 515	5.96	-	-	-	-	-	-	-	-	-	277 515	5.96
- issued by non bank financial entities	-		-	-	15 095	3.53	-	-	-	-	-	15 095	3.53
- issued by the State Treasury	-		-	-	9 788	5.18	454 217	6.36	-	-	-	464 005	6.34
Total	277 515	5.96	-		24 883	4.18	454 217	6.36	-		-	756 615	6.14
Including interest	-		-		307		5 162		-			5 469

Securities held to maturity according to maturities:

As at 31December 2007	- up to 1 month		- between 1 and 3 months		- between 3 months and 1 year		- 1 - 5 years		above 5 years		undefined maturity	Total
	Book value	Average yield.  (%)	Book value	Average yield.  (%)	Book value	Average yield.  (%)	Book value	Average yield.  (%)	Book value	Average yield.  (%)	Book value	Book value	Average yield.  (%)
Debt securities
- issued by central banks	394 381	5.61	-	-	-	-	-	-	-	-	-	394 381	5.61
- issued by non bank financial entities	-	-	-	-	-	-	17 277	4.28	-	-	-	17 277	4.28
- issued by the State Treasury	-	-	-	-	-	-	175 232	4.58	-	-	-	175 232	4.58
Total	394 381	5.61	-		-		192 509	4.55	-		-	586 890	5.26
Including interest	-		-		-		7 438		-			7 438

Assets held for sale and discontinued operations

In accordance with IFRS5 "Non-current Assets Held for Sale and Discontinued Operations", the Group classified fixed assets and assets included in the disposal group, which meet the criteria of classification held for sale, in the separate balance sheet item.

As of June 2008 these include a portfolio of receivables, real estates and the other fixed assets. 

The receivables will be sold to a securitisation fund. The portfolio includes corporate and SME loans. The Bank expected that the transaction will be closed by the end of 2008, after obtaining a binding offer from investors.

Real estate held for sale includes property located in Towarowa Street in Warsaw, on which the preliminary purchase contract was executed with Bank BPH S.A. The realization of the sale will occur after meeting all the necessary conditions for the contract. The Bank expected that the transaction will be closed by the end of 2008.

As of December 31 2007, non-current assets held for sale and discontinued operations included  the operations of Centralny Dom Maklerski Pekao S.A. involved in investment banking (CDM MIB). 

This was sold to UniCredit CAIB Polska S.A. in January 2008.

Moreover, certain real properties and the other fixed assets owned by the Group were classified as held for sale.

Non-current assets and corresponding liabilities held for sale are presented below.

	30.06.2008	31.12.2007
Item name	Assets	Assets and liabilities  CDM MIB	Other fixed assets
Financial assets held for trading	-	7 199	-
Loans and receivables from customers	41 869	373	-
Investment securities available for sale	-	723	-
Tangible assets	104 024	463	7 136
Other assets	-	49 174	-
Total assets	145 893	57 932	7 136
Financial liabilities held for trading	-	19	-
Amounts due to customers	-	31 120	-
Other liabilities	-	24 067	-
Provisions	-	85	-
Total liabilities	-	55 291	-

	I Half 2008*/	I Half 2007
Income statement of the part of discontinued operations  CDM MIB
Interest expense	(113)	(1 479)
Fee and commission income	556	32 036
Fee and commission expense	(112)	(2 774)
Dividend income	-	66
Gains (losses) on financial instruments at fair value	(30)	676
Other operating income	1	-
Other operating expense	(99)	-
General and administrative expenses	(643)	(8 893)
Operating profit	(440)	19 632
Gross profit on discontinued operations	(440)	19 632
Income tax	56	(4 119)
Net profit on discontinued operations	(384)	15 513

*/ data to sale day

The disposal of discontinued operations CDM were settled as follows:

	I Half 2008
Profit from sale	443 596
Book value of sold net assets	7 424
Profit from sale before income tax	436 172

There are changes of I half of 2008 of non-current assets held for sale and liabilities pertaining to assets held for sale in the table below.

Assets held for sale		Fixed assets	Assets and liabilities CDM MIB		Due from customers
Opening balance		7 599	57 932		-
Increases, including:		98 624	-		41 869
Transfer from fixed assets		95 015	-		-
Transfer from loans and receivables from customers		-	-		41 869
Foreign exchange		-	-		-
Other		3 609	-		-
Decreases, including:		(2 199)	(57 932)		-
Transfer to fixed assets		-	-		-
Disposals		(1 585)	(57 932)		-
Other		(614)			-
Closing balance		104 024	-		41 869
Liabilities pertaining to assets held for sale and discontinued operations
Opening balance					55 291
Decreases, including:					(55 291)
Disposals					(55 291)
Closing balance					-

The disposals during the first half of 2008 were settled as follows:

Income from sale	Property		Total
Profit from sale		534	534
Book value of sold net assets (including costs of sales)		1 585	1 585
Profit / Loss on sale		(1 051)	(1 051)

Changes in value of the assets classified as held for sale for the 2007 year are presented as follow:

	Property	Shares
Opening balance	8 784	-
Increase:	11 219	7 373
Transfer from Investment properties	3 100	-
Transfer from other balance sheet items	-	1 819
Transfer from Investments in associates	-	5 554
Foreign exchange differences	11	-
Other changes	8 108
Decrease:	(12 404)	(7 373)
Transfer to fixed assets	(58)	-
Disposals	(12 194)	(7 373)
Other changes	(152)	-
Closing balance	7 599	-

Liabilities pertaining to assets held for sale 

Opening balance	-	-
Increase:	55 291	916
Transfer liabilities positions	55 291	916
Disposals	-	(916)
Closing balance	55 291	-

The disposals during 2007 were settled as follows:

		Property	Shares	Total
Income from sale		39 453	23 418	62 871
Book value of sold net assets (including costs of sales)		12 195	6 053	18 248
Profit / Loss on sale		27 258	17 365	44 623

Investments in associates

Summary information about associated entities valued using equity method:

Entity's name	Assets		Liabilities	Revenues	Net profit / (loss)		% share		Book value of shares
30 June  2008
Pirelli Pekao Real Estate Sp.  z o.o	84 625		23 443	19 769	19 262		25.00		15 295
Krajowa Izba Rozliczeniowa S.A.	109 250		23 038	56 115	19 746		34.44		29 691
Pioneer Pekao Investment Management S.A.	443 348		55 527	367 877	122 043		49.00		190 032
Xelion. Doradcy Finansowi Sp. z o.o.	13 285		3 849	12 341	(6 944)		50.00		4 718
Central Poland Fund LLC*	1 725		-	-	(18)		53.19		340
Total									240 076
31 December 2007**
Pirelli Pekao Real Estate Sp.  z o.o. (preliminary date)	133 776	44 451		92 135		52 672		25.00		22 331
Krajowa Izba Rozliczeniowa S.A.	106 021	17 842		92 026		23 619		34.44		30 713
Pioneer Pekao Investment Management S.A.	269 585	22 688		138 252		207 315		49.00		229 959
Xelion. Doradcy Finansowi Sp. z o.o.	10 945	4 565		36 258		(13 140)		50.00		3 190
Central Poland Fund LLC*	1 746	-		-		(25)		53.19		418
Biuro Informacji Kredytowej S.A.	90 781	46 133		69 398		17 339		30.70		13 707
Total										300 318

* data are in USD thousand, book value of shares in PLN thousand

** The data available as of the date of preparation of consolidated financial statements 

The Group has no shares at joint venture entities classified as equity method as at 30 June 2008 and 31 December 2007.

Summary information about associated entities not recognized using equity method:

Entity's name	Assets	Liabilities		Revenues	Net profit / (loss)		% share			Book value of shares
30 June 2008
CPF Management (not operating)	-	-		-	-		40.00			-
Bankowe Doradztwo Podatkowe Sp. z o.o.	325	233		433	42		74.00/48.68			37
Polish Banking System S.A. /in liquidation/	n/d	n/d		n/d	n/d		48.90			-
PPP Budpress Sp. z o.o. / in liquidation /	n/d	n/d		n/d	n/d		36.20			-
Total										37
31 December 2007*
CPF Management (not operating)	-	-		-	-		40.00			-
Bankowe Doradztwo Podatkowe Sp. z o.o.	632	197		910	162		74.00/48.68			37
Polish Banking System S.A. /in liquidation/	n/d	n/d		n/d	n/d		48.90			-
PPP Budpress Sp. z o.o. / in liquidation /	n/d	n/d		n/d	n/d		36.20			-
Total									37

* The data available as of the date of preparation of consolidated financial statements 

Summary information about the non-consolidated subsidiaries 

Entity's name	Assets	Liabilities	Revenues	Net profit / (loss)	% share	Book value of shares
3 0 June 2008
Final Holding Sp. z o.o.	51 485	11	-	(43)	100.00	55 900
BPH Real Estate S.A.	28 431	308	960	(313)	100.00	24 376
Centrum Usług Księgowych Sp. z o.o.	141	26	238	11	100.00	50
PBK Property Sp. z o.o. /in liquidation/	13 883	131	0	36	100.00	6 998
Centrum Bankowości Bezpośredniej Sp. z o.o.	9 656	2 722	15 591	456	100.00	672
PKBL S.A. /in liquidation/	n/d	n/d	n/d	n/d	84.51/84.79	-
Final S.A.	90 582	34 101	58 190	3 919	99.82/99.84	-
FPB Media Sp. z o. o	22 040	17 908	1 066	(24)	100.00	-
Metropolis Sp. z o. o.	18 759	13 224	326	9	100.00	-
Jana Kazimierza Development Sp. z o. o.	124 046	124 009	26 609	(35)	100.00	-
Total						87 996
31 December 2007*
Final Holding Sp. z o.o.	51 533	16	3	200	100.00	55 900
BPH Real Estate S.A.	28 906	469	3 845	2 530	100.00	24 376
Centrum Usług Księgowych Sp. z o.o.	190	70	488	16	100.00	50
PBK Property Sp. z o.o. /in liquidation/	13 859	144	0	488	100.00	6 998
Centrum Bankowości Bezpośredniej Sp. z o.o.	9 375	2 899	29 066	147	98.00	490
PKBL S.A. /in liquidation/	n/d	n/d	n/d	n/d	84.51/84.79	-
Final S.A.	87 284	34 410	127 358	10 660	99.82/99.84	-
FPB Media Sp. z o. o	22 211	18 054	(727)	341	100.00	-
Metropolis Sp. z o. o.	18 818	13 292	193	348	100.00	-
Jana Kazimierza Development Sp. z o. o.	100 124	100 053	26 087	31	100.00	-
Total						87 814

* The data available as of the date of preparation of consolidated financial statements 

Changes in book value of investments in associated and joint-venture entities:

	30.06.2008	31.12.2007
Book value of subsidiaries at the beginning of the reporting period	87 814	50
Merger of "Pekao 285"	-	87 814
Purchase	182	-
Other	-	(50)
Book value of subsidiaries at the reporting date	87 996	87 814
	207 204	207 204
Book value of associated entities at the beginning of the reporting period	300 335	207 204
Share in profit / (loss)	68 198	152 876
Dividends declared	(119 680)	(76 713)
Purchase	5 000	-
Sale	-	(22 598)
Merger of "Pekao 285"	-	37
Share in changes directly recognized in entities equity	-	23 211
Reclassification form " Assets classified as held for sale"	(13 707)	-
Other	(53)	16 338
Book value of associated entities at the reporting date	240 113	300 335

Intangible assets

Intangible assets	30.06.2008	31.12.2007
a)intangible assets, including:	632 125	633 999
- development costs	7 986	14 575
- licenses	416 434	432 304
- other	7 291	4 763
- intangible assets under construction and advances for intangible assets	200 414	182 357
b) goodwill	54 560	54 560
Total	686 685	688 559

Goodwill of PLN 51 675 thousand - represents goodwill which has been transferred to Pekao on integration with Bank BPH S.A. 

This represents goodwill arising on Bank BPH S.A.'s acquisition of Pierwszy Komercyjny Bank S.A. (PKBL) w Lublinie and relates to those branches of the former PKBL which have been transferred to the Bank in effect of the integration of the Banks. 

Goodwill of PLN 2 885 thousand represents goodwill that arose as a result of Pekao Leasing  i Finanse (former BPH Leasing) acquisition by Pekao Leasing Holding (former BPH PBK Leasing S.A.).

30 June 2008	Development cost	Licenses	Other(*)	Total
Gross book value
Opening balance	73 906	1 155 202	217 273	1 446 381
Additions, including:	-	63 404	32 248	95 652
Acquisition	-	4 338	80 393	84 731
Other additions	-	4 292	6 629	10 921
Transfers from investments	-	54 774	(54 774)	-
Disposals, including:	-	(2 663)	(11 994)	(14 657)
Liquidation	-	(2 411)	(1 631)	(4 042)
Other disposals	-	(252)	(10 363)	(10 615)
Closing balance	73 906	1 215 943	237 527	1 527 376

30 June 2008	Development cost	Licenses	Other(*)	Total
Accumulated depreciation
Opening balance	59 331	722 528	19 192	801 051
Amortization	6 589	79 179	1 289	87 057
Liquidation	-	(2 411)	(1 620)	(4 031)
Other changes in value	-	(38)	-	(38)
Closing balance	65 920	799 258	18 861	884 039
Impairment write-offs
Opening balance	-	370	10 961	11 331
Write-down	-	-	-	-
Other changes	-	(119)	-	(119)
Closing balance	-	251	10 961	11 212
Net book value
Opening balance	14 575	432 304	187 120	633 999
Closing balance	7 986	416 434	207 705	632 125

* Other movements include in particular investments 

The Group has no amounts of intangible assets whose deed title is restricted.

31 December 2007	Development cost	Licenses	Other(*)	Total
Gross book value
Opening balance	82 578	1 037 844	146 565	1 266 987
Additions, including:	1 661	145 436	91 435	238 532
Increase due to first-time consolidation	676	12 924	29	13 629
Merger of "Pekao 285"	-	13 644	2 319	15 963
Acquisition	-	7 105	185 865	192 970
Other additions	-	-	15 970	15 970
Transfers from investments	985	111 763	(112 748)	-
Disposals, including:	(10 333)	(28 078)	(20 727)	(59 138)
Liquidation	(10 333)	(26 941)	(624)	(37 898)
Other disposals	-	(1 137)	(20 103)	(21 240)
Closing balance	73 906	1 155 202	217 273	1 446 381
Accumulated depreciation
Opening balance	54 953	577 178	14 760	646 891
Decreases due from full method consolidation	518	11 344	-	11 862
Merger of "Pekao 285"	-	13 353	2 319	15 672
Amortization	14 193	147 915	2 660	164 768
Liquidation	(10 333)	(26 826)	(571)	(37 730)
Other changes in value	-	(436)	24	(412)
Closing balance	59 331	722 528	19 192	801 051
Impairment write-offs
Opening balance	-	251	10 961	11 212
Write-down	-	119	24	143
Other changes	-	-	(24)	(24)
Closing balance	-	370	10 961	11 331
Net book value
Opening balance	27 625	460 415	120 844	608 884
Closing balance	14 575	432 304	187 120	633 999

*  Other movements include in particular investments

The Group has no amounts of intangible assets whose deed title is restricted.

Property plant and equipment

		30.06.2008	31.12.2007
Fixed assets:
a) fixed assets, including:		1 841 310	1 955 943
Land and buildings		1 372 051	1 487 117
Machinery and equipment		375 163	374 262
Means of transport		58 401	60 045
Other fixed assets		35 695	34 519
b) Capital work in progress and prepayments for capital work in progress		33 043	65 109
Total		1 874 353	2 021 052

30 June 2008		Land and buildings	Machinery and equipment		Means of transport		Other tangible fixed assets		Total tangible fixed assets
Opening balance as at 1 January 2008		2 332 257	1 394 664		111 828		399 239		4 237 988
Increases, including:		27 781	66 867		12 789		7 894		115 331
Acquisitions		10 391	5 800		6 619		4 493		27 303
Transfer from tangibles assets under construction		12 029	55 534		59		2 887		70 509
Other		5 361	5 533		6 111		514		17 519
Decreases, including:		(124 810)	(45 719)		(12 017)		(3 887)		(186 433)
Liquidation and sale		(1 909)	(23 311)		(11 350)		(2 653)		(39 223)
Transfer to "Assets classified as held for sale"		(113 770)	(15 672)		-		(4)		(129 446)
Other		(9 131)	(6 736)		(667)		(1 230)		(17 764)
Closing balance		2 235 228	1 415 812		112 600		403 246		4 166 886
Depreciation
Opening balance as at 1 January 2007		842 793	1 011 745		46 858		364 108		2 265 504
Increases, including:		44 797	61 360		9 369		6 494		122 020
Depreciation of the period		44 011	56 687		8 255		5 939		114 892
Other		786	4 673		1 114		555		7 128
Decreases, including:		(26 646)	(40 911)		(6 911)		(3 663)		(78 131)
Liquidation and sale		(1 206)	(23 075)		(6 363)		(2 644)		(33 288)
Transfer to "Assets classified as held for sale"		(21 679)	(12 547)		-		(3)		(34 229)
Other		(3 761)	(5 289)		(548)		(1 016)		(10 614)
Closing balance		860 944	1 032 194		49 316		366 939		2 309 393
Impairment write-downs
Opening balance		2 347	8 657		4 925		612		16 541
Increases:		26	9		-		-		35
Decreases:		(140)	(211)		(42)		-		(393)
Closing balance		2 233	8 455		4 883		612		16 183
Net value
Opening balance		1 487 117	374 262		60 045		34 519		1 955 943
Closing balance		1 372 051	375 163		58 401		35 695		1 841 310

  

31 December 2007		Land and buildings	Machinery and equipment		Means of transport		Other tangible fixed assets		Total tangible fixed assets
Opening balance as at 1 January 2007		1 627 216	1 041 738		43 780		301 159		3 013 893
Increases, including:		735 385	486 692		78 094		114 844		1 415 015
Increase due to first-time consolidation		1 323	15 713		41 152		6 064		64 252
Merger of "Pekao 285"		671 498	276 717		25 558		99 684		1 073 457
Acquisitions		15 548	13 662		2 455		1 192		32 857
Transfer from tangibles assets under construction		40 766	136 903		414		6 299		184 382
Other		6 250	43 697		8 515		1 605		60 067
Decreases, including:		(30 344)	(133 766)		(10 046)		(16 764)		(190 920)
Liquidation and sale		(3 381)	(84 274)		(8 448)		(13 801)		(109 904)
Transfer to "Assets classified as held for sale"		(4 846)	(2 480)		(1 141)		(442)		(8 909)
Other		(22 117)	(47 012)		(457)		(2 521)		(72 107)
Closing balance		2 332 257	1 394 664		111 828		399 239		4 237 988
Depreciation
Opening balance as at 1 January 2007		537 421	789 455		20 692		281 346		1 628 914
Increases, including:		315 809	338 047		33 539		97 934		785 329
Increase due to first-time consolidation		669	10 990		12 151		4 741		28 551
Merger of "Pekao 285"		240 855	208 271		12 426		85 085		546 637
Depreciation of the period		66 279	90 280		8 386		7 958		172 903
Other		8 006	28 506		576		150		37 238
Decreases, including:		(10 437)	(115 757)		(7 373)		(15 172)		(148 739)
Liquidation and sale		(1 961)	(83 530)		(6 649)		(13 566)		(105 706)
Transfer to "Assets classified as held for sale"		(2 182)	(2 143)		(641)		(424)		(5 390)
Other		(6 294)	(30 084)		(83)		(1 182)		(37 643)
Closing balance		842 793	1 011 745		46 858		364 108		2 265 504
Impairment write-downs
Opening balance		2 915	350		-		-		3 265
Increases, including		30	8 713		4 925		612		14 280
Merger of "Pekao 285"		30	8 574		3 668		612		12 884
Decreases:		(598)	(406)		-		-		(1 004)
Closing balance		2 347	8 657		4 925		612		16 541
Net value
Opening balance		1 086 880	251 933		23 088		19 813		1 381 714
Closing balance		1 487 117	374 262		60 045		34 519		1 955 943

As at 30 June 2008 assets under construction amounted to PLN 31 893 thousand (as at 31 December 2007 PLN 60 148 thousand). 

The amount received and recognized in the profit and loss in relation to fixed assets lost in the  I Half of 2008 was PLN 725 thousand (in the I Half of 2007 PLN 565 thousand).

In the I Half of 2008 and in 2007 there were no pledges or restrictions on legal titles to fixed assets.

Agreement Liabilities

As at 30 June 2008 the Group had agreements with its contractors for the future purchase of intangible assets in amount of PLN 72 192 thousand, including PLN 26 408 thousand in the first half 2009 and of property, plant and equipment in amount of PLN 41 154 thousand, including PLN 220 thousand in the first half 2009 (till the 31 December 2007 the Group had agreements with its contractors for the future purchase of intangible assets in amount of PLN 66 209 thousand, including PLN 66 209 thousand in the 2008 and of property, plant and equipment in amount of PLN 12 055 thousand, including PLN 12 055 thousand in the 2008).

Investment property

The Group measures investment property using the historical cost model. 

There are no restrictions related to the right to sell and to transfer the profit attributable to investment property owned by the Group. 

Changes in value of the investment property:

	30.06.2008	31.12.2007
Gross value
Opening balance	99 626	94 126
Increase of balance	4 998	10 467
Acquisitions of real estate	7	145
Activation of subsequent outlays	-	-
Transfer from own real estate	4 991	9 690
Other changes	-	632
Decrease of balance	(5 300)	(4 967)
Transfer to "Assets of disposal group  classified as held for sale"	(1 731)	-
Buy-out	-	-
Other changes	(3 569)	(4 967)
Closing balance	99 324	99 626
Depreciation write-offs
Opening balance	32 294	32 802
Increase of balance	3 304	6 934
Activation of subsequent outlays	-	-
Transfer from own real estate	2 053	3 898
Other changes	-	546
Depreciation	1 251	2 490
Decrease of balance	(1 800 )	(7 442)
Transfer to "Assets of disposal group  classified as held for sale"	(614)	-
Buy-out	-	-
Other changes	(1 186)	(7 442)
Closing balance	33 798	32 294
Depreciation write-offs due to loss of value
Opening balance	8 773	8 654
Increase of balance	-	350
Transfer from own real estate	-	-
Other changes	-	350
Decrease of balance	(211)	(231)
Differences in exchange rates	(211)	(231)
Closing balance	8 562	8 773
Net balance value
Opening balance	58 559	52 670
Closing balance	56 964	58 559

The fair value of investment property as at 30 June 2008 amounted to PLN 71 910 thousand (as at 31 December 2007 amounted to PLN 73 624 thousand). Fair value was made on the assessment off a property surveyor holding a recognized and relevant professional qualification.

The following amounts of income and expenses were recognized in profit and loss in relation to investment property: 

	I Half 2008	I Half 2007
Income on rental of investment property	1 753	2 205
Direct operational expenses (including repair and maintenance) related to investment property bringing rental income	(638)	(402)
Direct operational expenses (including repair and maintenance) related to investment property not bringing rental income	(56)	(6)

Other assets

	30.06.2008	31.12.2007
Prepaid expenses	140 658	147 957
Perpetual usufruct rights	17 492	17 620
Accrued income	96 082	33 154
Assets held to sale	6 603	6 845
Interbank and interbranch settlements	211 132	556 895
Other debtors	1 059 587	1 379 739
Total	1 531 554	2 142 210

Prepaid expenses represent expenditures, which will be amortized against profit and loss account in the future reporting periods.

Assets held for sale are repossessed assets that are presented at the amount of the debt in relation to which they were acquired, less specific provisions of these assets at the amount of differences between the amount of debt lower than the fair value of acquired assets. If the selling price of the asset acquired exceeds the amount of the debt, the surplus is the liability towards the debtor.

The Bank endeavours to sell repossessed real estate properties within 5 years and within 3 years for other repossessed assets. After the expiration of this time the Bank transfer the amount not disposed of assets to the appropriate items under fixed assets usufructed by the Bank.

The table below presents items of assets held for sale.

Item	30.06.2008	31.12.2007
Buildings	-	-
Means of transport	77	135
Other assets	6 526	6 710
Total	6 603	6 845

Assets used to pledge liabilities

As at 30 June 2008 and 31 December 2007 the Group held financial assets used to pledge liabilities. 

30.06.2008
Type of transaction	Pledge instrument	Book value of the pledge instrument	Nominal value of the pledge instrument	Value of the liabilities pledged with the pledge instrument
Repo	bonds	1 412 093	1 452 782	1 425 201
Sell-buy-back	bonds	3 574 174	3 683 948	3 601 978
The Bank Guarantee Fund	bonds, bills	227 593	240 040	-
Lombard and technical loan	bonds, bills	1 991 399	2 024 960	-
Mortgage bonds issue	Mortgage backed receivables, bonds and hedging instruments	1 253 845	1 277 582	699 077

31.12.2007
Type of transaction	Pledge instrument	Book value of the pledge instrument	Nominal value of the pledge instrument	Value of the liabilities pledged with the pledge instrument
Repo	bonds	1 207 152	1 180 533	1 208 252
Sell-buy-back	bonds	2 582 140	2 587 015	2 583 122
The Bank Guarantee Fund	bonds, bills	149 636	155 030	-
Lombard and technical loan	bonds, bills	1 511 860	1 524 970	-
Mortgage bonds issue	Mortgage backed receivables, bonds and hedging instruments	1 167 129	1 192 404	735 090

Amounts due to Central Bank 

	30.06.2008	31.12.2007
Received credits	1 360 105	1 485 921
Total	1 360 105	1 485 921

Amounts due to other banks

	30.06.2008	31.12.2007
Current accounts	2 645 223	1 013 931
Bank deposits and other liabilities	2 329 023	3 371 445
Loans and advances	2 580 853	2 455 779
Due in transit	704 861	495 952
Repo transactions	1 327 228	1 083 127
Interest accrued	31 008	35 957
Total	9 618 196	8 456 191

As at 30 June 2008 the variable interest rate due to other banks amounts to PLN 151 680 thousand (as at 31 December 2007: PLN 715 526 thousand), fixed interest rate due to banks amounts to PLN 8 730 647 thousand (as at 31 December 2007: PLN 7 208 757 thousand).

Financial liabilities held for trading

	30.06.2008	31.12.2007
Short position in securities	239 324	491 382
Total	239 324	491 382

Amounts due to customers

		30.06.2008	31.12.2007
Amounts due to corporate customers		37 224 088	42 256 666
Current accounts and overnight deposits		19 519 924	21 429 021
Time deposits and other liabilities		16 839 425	20 130 001
Due in transit		793 788	636 414
Interest accrued		70 951	61 230
Amounts due to budget entities		6 709 811	8 465 213
Current accounts and overnight deposits		4 613 114	6 260 405
Time deposits and other liabilities		2 087 392	2 187 383
Due in transit		-	6 713
Interest accrued		9 305	10 712
Amounts due to individuals		39 054 332	36 515 030
Current accounts and overnight deposits		18 213 472	18 830 213
Time deposits and other liabilities		20 223 606	17 603 673
Due in transit		494 407	2
Interest accrued		122 847	81 142
Repo transactions		3 699 557	2 707 169
Time transactions		3 691 651	2 703 862
Interest accrued		7 906	3 307
Total		86 687 788	89 944 078

As at 30 June 2008 the variable interest rate amounts due to customers amounts to PLN 45 801 160 thousand (as at 31 December 2007 amounted to PLN 50 077 363 thousand), fixed rate amounts due to customers amounts to PLN 39 387 424 thousand (as at 31 December 2007 PLN 39 067 195 thousand).

Debt securities in issue 

	30.06.2008	31.12.2007
Liabilities due to issue of bonds	674 019	911 367
Liabilities due to issue of certificates of deposit	2 086 782	2 049 588
Liabilities due to issue of mortgage-backed-securities	690 011	727 590
Interest accrued	31 490	28 233
Total	3 482 302	3 716 778

The Group never has defaulted on repayment of principal or interest or redemption of its own securities.

30.06.2008

Type of security	Issue currency	Nominal value	Maturity date	Interest terms
certificates of deposit	EUR	4 884	2009-06-30	Synthetic structure dependent on  DJ EuroStoxx 50
certificates of deposit	EUR	32 150	2008-12-16	dependent on a basket of 3 crude materials (metals)
certificates of deposit	EUR	26 666	2011-03-08	dependent on FTSE, EPRA and FTSE EPRA Euro indices Zero, DJ EuroSTOXX, Nikkei225, S&P500, HSCE
certificates of deposit	EUR	2 267	2011-03-08	Guaranteed interest (2%) + premium interest dependent on indices- FTSE EPRA and FTSE EPEU, DJ EuroSTOXX, Nikkei225, S&P500, HSCEI
certificates of deposit	EUR	3 180	2010-09-27	Interest dependent on: DXAEP, SPGTAQUE, SPGTINFE, DJGTT
certificates of deposit	EUR	21 557	2010-09-27	interest dependent on indices: DXAEP, SPGTAQUE, SPGTINFE, DJGTT
certificates of deposit	EUR	6 323	2010-11-22	interest dependent on indices S&P 500, FTSE 100, Nikkei 225
certificates of deposit	PLN	150 969	2009-01-16	dependent on: equities, basket of 3 indicies: Nikkei 225; HSCEI; TWSE
certificates of deposit	PLN	80 218	2009-06-18	dependent on: equities, basket of 3 indicies: Nikkei 225
certificates of deposit	PLN	34 406	2009-01-16	dependent on: equities, basket of 3 indicies: Nikkei 225
certificates of deposit	PLN	18 032	2009-06-18	dependent on: equities, basket of 3 indicies: Nikkei 225
certificates of deposit	PLN	4 510	2009-06-30	structure dependent on DJ EuroStoxx 50 index
certificates of deposit	PLN	184 149	2009-05-18	structure dependent on Dow Jones Euro Stoxx Select Dividend 30 Index and Dow Jones Euro Stoxx 50 Price Index
certificates of deposit	PLN	143 800	2009-08-03	interest dependent on indices: Dow Jones Euro Stoxx Select Dividend 30 Index and Dow Jones Euro Stoxx 50 Price Index
certificates of deposit	PLN	3 000	2009-05-18	structure dependent on Dow Jones Euro Stoxx Select Dividend 30 Index and Dow Jones Euro Stoxx 50 Price Index
certificates of deposit	PLN	194 152	2008-12-16	dependent on a basket of 3 crude materials (metals)
certificates of deposit	PLN	158 396	2010-06-11	dependent on Dow Jones Euro Stoxx 50, S&P GSCI Gold Index Excess Return, CECE Trade Index EUR, S&P GSCI Agricultural Index ER

Type of security	Issue currency	Nominal value	Maturity date	Interest terms
certificates of deposit	PLN	156 823	2011-03-08	interest dependent on Dow Jones Euro Stoxx Select Dividend 30 Index and Dow Jones Euro Stoxx 50 Price Index
certificates of deposit	PLN	13 346	2011-03-08	guaranteed interest (4%) + bonus interest dependent on indices - FTSE EPRA and FTSE EPRAEPEU, DJ EuroSTOXX, Nikkei225, S&P500, HSCEI
certificates of deposit	PLN	7 900	2008-07-18	Wibor 6M
certificates of deposit	PLN	30 000	2008-10-24	Wibor 3M
certificates of deposit	PLN	9 500	2008-08-22	Wibor 6M
certificates of deposit	PLN	46 584	2010-09-27	interest dependent on: DXAEP, SPGTAQUE, SPGTINFE, DJGTT
certificates of deposit	PLN	176 060	2010-09-27	interest dependent on: DXAEP, SPGTAQUE, SPGTINFE, DJGTT
certificates of deposit	PLN	81 963	2010-11-22	interest dependent on: S&P 500, FTSE 100, Nikkei 225 indices
certificates of deposit	PLN	179 574	2008-11-10	guaranteed interest (7%) + bonus interest dependent on indices DJ EuroStoxx 50
certificates of deposit	PLN	81 548	2008-12-15	interest dependent on DJ EuroStoxx 50
certificates of deposit	USD	50 698	2009-01-16	interest dependent on: equities, a basket of 3 indices: Nikkei 225; HSCEI; TWSE
certificates of deposit	USD	19 070	2009-06-18	interest dependent on: equities, a basket of 3 indices: Nikkei 225; HSCEI; TWSE
certificates of deposit	USD	23 129	2009-01-16	guaranteed interest (3%) + interest dependent on indices: Nikkei 225; HSCEI; TWSE
certificates of deposit	USD	6 167	2009-06-18	guaranteed interest (3%) + interest dependent on indices: Nikkei 225; HSCEI; TWSE
certificates of deposit	USD	718	2009-06-30	interest dependent on DJ EuroStoxx 50
certificates of deposit	USD	48 297	2009-05-18	interest dependent on DJ EuroStoxx 50, DJ EuroStoxx Select Divident 30
certificates of deposit	USD	25 821	2009-08-03	interest dependent on: DJ EuroStoxx 50, DJ EuroStoxx Select Divident 30
certificates of deposit	USD	48 002	2008-12-16	dependent on a basket of 3 crude materials (metals)
certificates of deposit	USD	22 985	2011-03-08	Dependent on: FTSE EPRA and FTSE EPEU, DJ EuroSTOXX, Nikkei225, S&P500, HSCEI
certificates of deposit	USD	4 175	2011-03-08	Interest (guaranteed 4%) + bonus interest dewpendent on - FTSE EPRA and FTSE EPEU, DJ EuroSTOXX, Nikkei225, S&P500, HSCEI
certificates of deposit	USD	6 507	2010-09-27	interest dependent on: DXAEP, SPGTAQUE, SPGTINFE, DJGTT
certificates of deposit	USD	23 038	2010-09-27	interest dependent on: DXAEP, SPGTAQUE, SPGTINFE, DJGTT
certificates of deposit	USD	14 965	2010-11-22	interest dependent on: S&P 500, FTSE 100, Nikkei 225
Bonds	PLN	31 846	2008-11-03	Fixed 5.3 %
Bonds	PLN	19 710	2008-07-09	Fixed 6.53%

Type of security	Issue currency	Nominal value	Maturity date	Interest terms
Bonds	PLN	29 780	2008-07-16	Fixed 6.54%
Bonds	PLN	9 610	2008-07-09	Fixed 6.49%
Bonds	PLN	29 710	2008-07-23	Fixed 6.55%
Bonds	PLN	32 890	2008-07-30	Fixed  6.61%
Bonds	PLN	8 420	2008-08-06	Fixed 6.65%
Bonds	PLN	1 910	2008-08-13	Fixed 6.63%
Bonds	PLN	16 260	2008-08-20	Fixed 6.66%
Bonds	PLN	100 000	2008-09-30	Wibor 3M +0.30%
Bonds	PLN	18 000	2008-07-03	Fixed 6.5%
bonds	PLN	25 000	2008-08-20	Fixed 6.68%
bonds	PLN	27 700	2008-07-10	Fixed 6.51%
bonds	PLN	9 250	2008-07-17	Fixed 6.54%
bonds	PLN	19 580	2008-07-22	Fixed 6.57%
bonds	PLN	7 010	2008-08-04	Fixed 6.59%
bonds	UAH	288 578	2010-01-18	Fixed 10.75%
mortgage-backed securities	PLN	135 033	2010-06-02	Wibor 6M+0.3%
mortgage-backed securities	PLN	255 187	2010-11-21	Wibor 6M+0.25%
mortgage-backed securities	PLN	200 000	2011-03-28	Wibor 6M+0.25%
mortgage-backed securities	PLN	100 000	2012-01-12	Wibor 6M+0.25%

31.12.2007

Type of security	Issue currency	Nominal value	Maturity date	Interest terms
certificates of deposit	EUR	5 215	2009-06-30	Synthetic structure dependent on  DJ EuroStoxx 50
certificates of deposit	EUR	34 799	2008-12-16	dependent on a basket of 3 crude materials (metals)
certificates of deposit	EUR	28 663	2011-03-08	dependent on FTSE, EPRA and FTSE EPRA Euro indices Zero, DJ EuroSTOXX, Nikkei225, S&P500, HSCE
certificates of deposit	EUR	2 421	2011-03-08	Guaranteed interest (2%) + premium interest dependent on indices- FTSE EPRA and FTSE EPEU, DJ EuroSTOXX, Nikkei225, S&P500, HSCEI
certificates of deposit	EUR	3 396	2010-09-27	Interest dependent on: DXAEP, SPGTAQUE, SPGTINFE, DJGTT
certificates of deposit	EUR	23 022	2010-09-27	interest dependent on indices: DXAEP, SPGTAQUE, SPGTINFE, DJGTT
certificates of deposit	EUR	6 842	2010-11-22	interest dependent on indices S&P 500, FTSE 100, Nikkei 225
certificates of deposit	PLN	10 000	2008-03-31	interest dependent on: WIBOR 6M
certificates of deposit	PLN	158 841	2009-01-16	dependent on: equities, basket of 3 indicies: Nikkei 225; HSCEI; TWSE
certificates of deposit	PLN	83 001	2009-06-18	dependent on: equities, basket of 3 indicies: Nikkei 225
certificates of deposit	PLN	35 579	2009-01-16	dependent on: equities, basket of 3 indicies: Nikkei 225

Type of security	Issue currency	Nominal value	Maturity date	Interest terms
certificates of deposit	PLN	19 678	2009-06-18	dependent on: equities, basket of 3 indicies: Nikkei 225
certificates of deposit	PLN	4 510	2009-06-30	structure dependent on DJ EuroStoxx 50 index
certificates of deposit	PLN	184 972	2009-05-18	structure dependent on Dow Jones Euro Stoxx Select Dividend 30 Index and Dow Jones Euro Stoxx 50 Price Index
certificates of deposit	PLN	144 497	2009-08-03	interest dependent on indices: Dow Jones Euro Stoxx Select Dividend 30 Index and Dow Jones Euro Stoxx 50 Price Index
certificates of deposit	PLN	3 000	2009-05-18	structure dependent on Dow Jones Euro Stoxx Select Dividend 30 Index and Dow Jones Euro Stoxx 50 Price Index
certificates of deposit	PLN	197 561	2008-12-16	dependent on a basket of 3 crude materials (metals)
certificates of deposit	PLN	12 000	2008-03-04	interest dependent on: EPEU
certificates of deposit	PLN	158 447	2011-03-08	interest dependent on Dow Jones Euro Stoxx Select Dividend 30 Index and Dow Jones Euro Stoxx 50 Price Index
certificates of deposit	PLN	13 491	2011-03-08	guaranteed interest (4%) + bonus interest dependent on indices - FTSE EPRA and FTSE EPRAEPEU, DJ EuroSTOXX, Nikkei225, S&P500, HSCEI
certificates of deposit	PLN	7 900	2008-07-18	Wibor 6M
certificates of deposit	PLN	13 300	2008-01-28	Wibor 6M
certificates of deposit	PLN	30 000	2008-10-24	Wibor 3M
certificates of deposit	PLN	20 000	2008-03-27	Wibor 3M
certificates of deposit	PLN	9 500	2008-08-22	Wibor 6M
certificates of deposit	PLN	47 244	2010-09-27	interest dependent on: DXAEP, SPGTAQUE, SPGTINFE, DJGTT
certificates of deposit	PLN	178 321	2010-09-27	interest dependent on: DXAEP, SPGTAQUE, SPGTINFE, DJGTT
certificates of deposit	PLN	82 401	2010-11-22	interest dependent on: S&P 500, FTSE 100, Nikkei 225 indices
certificates of deposit	PLN	5 000	2008-01-31	Bonus interest dependent on: WIBOR 6M
certificates of deposit	PLN	182 151	2008-11-10	guaranteed interest (4%) + bonus interest dependent on indices DJ EuroStoxx 50
certificates of deposit	PLN	83 051	2008-12-15	interest dependent on DJ EuroStoxx 50
certificates of deposit	USD	60 802	2009-01-16	interest dependent on: equities, a basket of  3  indices: Nikkei 225; HSCEI; TWSE
certificates of deposit	USD	22 731	2009-06-18	interest dependent on: equities, a basket of 3 indices: Nikkei 225; HSCEI; TWSE
certificates of deposit	USD	27 316	2009-01-16	guaranteed interest (3%) + interest dependent on indices: Nikkei 225; HSCEI; TWSE
certificates of deposit	USD	7 595	2009-06-18	guaranteed interest (3%) + interest dependent on indices: Nikkei 225; HSCEI; TWSE
certificates of deposit	USD	825	2009-06-30	interest dependent on DJ EuroStoxx 50
certificates of deposit	USD	56 278	2009-05-18	interest dependent on DJ EuroStoxx 50, DJ EuroStoxx Select Divident 30
certificates of deposit	USD	29 980	2009-08-03	interest dependent on: DJ EuroStoxx 50, DJ EuroStoxx Select Divident 30
certificates of deposit	USD	56 611	2008-12-16	dependent on a basket of 3 crude materials (metals)

Type of security	Issue currency	Nominal value	Maturity date	Interest terms
certificates of deposit	USD	26 595	2011-03-08	Dependent on: FTSE EPRA and FTSE EPEU, DJ EuroSTOXX, Nikkei225, S&P500, HSCEI
certificates of deposit	USD	4 807	2011-03-08	Interest (guaranteed 4%) + bonus interest dewpendent on - FTSE EPRA and FTSE EPEU, DJ EuroSTOXX, Nikkei225, S&P500, HSCEI
certificates of deposit	USD	7 549	2010-09-27	interest dependent on: DXAEP, SPGTAQUE, SPGTINFE, DJGTT
certificates of deposit	USD	26 683	2010-09-27	interest dependent on: DXAEP, SPGTAQUE, SPGTINFE, DJGTT
certificates of deposit	USD	17 379	2010-11-22	interest dependent on: S&P 500, FTSE 100, Nikkei 225
bonds	PLN	31 846	2008-11-03	Fixed 5.3 %
bonds convertible into shares	PLN	3	2008-12-30
bonds	PLN	28 540	2008-01-07	interpolation WIBOR1M/3M + 25bps
bonds	PLN	35 860	2008-01-14	interpolation WIBOR1M/3M + 25bps
bonds	PLN	32 980	2008-01-21	interpolation  WIBOR1M/3M + 25bps
bonds	PLN	33 000	2008-01-28	interpolation WIBOR1M/3M + 25bps
bonds	PLN	23 070	2008-02-04	interpolation WIBOR1M/3M + 25bps
bonds	PLN	11 740	2008-01-10	WIBOR 1M + 25 bps
bonds	PLN	6 150	2008-01-23	WIBOR 1M + 25 bps
bonds	PLN	100 000	2008-03-31	WIBOR 3M + 40 bps
bonds	PLN	100 000	2008-06-30	WIBOR 3M + 35 bps
bonds	PLN	100 000	2008-09-30	WIBOR 3M + 30 bps
bonds	PLN	16 880	2008-01-08	interpolation  WIBOR1M/3M + 25bps
bonds	PLN	20 000	2008-01-15	interpolation  WIBOR1M/3M + 25bps
bonds	PLN	30 000	2008-01-22	interpolation  WIBOR1M/3M + 25bps
bonds	PLN	32 630	2008-01-29	interpolation  WIBOR1M/3M + 25bps
bonds	PLN	10 450	2008-01-31	interpolation  WIBOR1M/3M + 25bps
bonds	PLN	600	2008-02-08	interpolation  WIBOR1M/3M + 25bps
bonds	UAH	298 457	2010-01-18	For first 2 years -fixed 8.8 %
mortgage-backed securities	PLN	135 000	2012-06-02	Wibor + 0.30%
mortgage-backed securities	PLN	254 250	2010-11-21	Wibor + 0.25%
mortgage-backed securities	PLN	200 000	2011-03-28	Wibor + 0.25%
mortgage-backed securities	PLN	100 000	2012-01-12	Wibor + 0.25%
mortgage-backed securities	PLN	22 000	2008-04-30	Wibor + 0.60%
mortgage-backed securities	PLN	8 000	2008-05-19	Wibor + 0.50%
mortgage-backed securities	PLN	10 000	2008-05-19	Wibor + 0.60%

Debt securities in issue to maturities:

	- up to 1 month		- between 1 and 3 months		- between 3 months and 1 year		- between 1 and 5 years		- above 5 years		undefined maturity	Total
30 June 2008	Book value	Average yield.  (%)	Book value	Average yield.  (%)	Book value	Average yield.  (%)	Book value	Average yield.  (%)	Book value	Average yield.  (%)	Book value	Book value	Average yield.  (%)
- certificates of deposit	7 885	6.04	9 461	6.17	1 195 801	5.02	891 571	6.46	-	-	-	2 104 718	5.64
- mortgage-backed securities	-		-		-		699 077	6.39	-	-	-	699 077	6.39
-bonds	195 503	6.54	158 138	6.81	32 114	5.30	292 752	10.75	-	-	-	678 507	8.36
Total	203 388	6.53	167 599	6.78	1 227 915	5.03	1 883 400	7.10	-	-	-	3 482 302	6.32
Including interest	-		-		18 041		13 449		-		-	31 490

Debt securities in issue to maturities:

	- up to 1 month		- between 1 and 3 months		- between 3 months and 1 year		- between 1 and 5 years		- above 5 years		undefined maturity	Total
31 December 2007	Book value	Average yield.  (%)	Book value	Average yield.  (%)	Book value	Average yield.  (%)	Book value	Average yield.  (%)	Book value	Average yield.  (%)	Book value	Book value	Average yield.  (%)
- certificates of deposit	18 363	5.20	41 707	5.45	604 361	3.92	1 400 511	5.67	-	-	-	2 064 942	5.15
- mortgage-backed securities	-		-		40 348	5.33	695 860	5.76	-	-	-	736 208	5.74
-bonds	257 441	5.27	123 498	5.66	232 123	5.89	302 566	10.51	-	-	-	915 628	7.21
Total	275 804	5.27	165 205	5.61	876 832	4.51	2 398 937	6.31	-	-	-	3 716 778	5.78
Including interest	107		-		13 562		14 564		-		-	28 233

Provisions

I Half 2008	Provisions for litigation and claims	Provisions for retirement benefits	Provisions for undrawn credit facilities and guarantees issued	Other provisions	Total
Balance as at 1 January 2008	57 046	115 266	186 161	21 355	379 828
Provision charges	1 146	3 870	113 235	1 905	120 156
Provision utilization	(6 610)	(17)	-	-	(6 627)
Provision releases	(4 743)	-	(128 049)	-	(132 792)
Foreign exchange differences	(199)	-	1 485	-	1 286
Other changes	(1 766)	(1)	(2 223)	-	(3 990)
Balance as at 30 June 2008	44 874	119 118	170 609	23 260	357 861

2007	Provisions for litigation and claims	Provisions for retirement benefits	Provisions for undrawn credit facilities and guarantees issued	Other provisions	Total
Balance as at 1 January 2007	41 947	65 370	112 668	3 958	223 943
First-time fully consolidated entities opening balance	-	106	-	-	106
Merger of "Pekao 285"	20 287	25 983	52 419	-	98 689
Provision charges	4 951	23 969	240 472	17 544	286 936
Provision utilization	(3 290)	(61)	-	-	(3 351)
Provision releases	(8 310)	(15)	(221 467)	-	(229 792)
Foreign exchange differences	1 733	-	2 069	-	3 802
Other changes	(272)	(86)	-	(147)	(505)
Balance as at 31 December 2007	57 046	115 266	186 161	21 355	379 828

Other liabilities

	30.06.2008	31.12.2007
Deferred income	158 735	174 233
Holiday pay accrual	56 776	55 750
Other accruals	170 101	259 338
Provision for general and administrative expenses	102 378	109 385
Other costs to be paid	16 057	36 544
Other creditors	1 389 555	1 318 711
Liabilities due to settlement of merger with Pekao 285	-	594 765
Interbank and interbranch settlements	800 486	526 921
Total	2 694 088	3 075 647

Employee benefits

Employee share programs

Options to purchase the Bank's shares are granted as a part of the incentive program for senior management essential to the success of the Bank's Capital Group strategy. These were established by resolution of Extraordinary General Meeting of Bank Polska Kasa Opieki S.A on 25th  July 2003.

The program involves a contingent increase of the Bank's share capital by issuing the following shares received in exchange for bonds with pre-emptive rights to take up the Bank's shares.

Type of shares	Number of options	Nominal value of 1 share	The issue price of one share	Establish basis of share issue price
Bearer common shares. F-share	830 000	1 PLN	108.37 PLN	the average of closing prices of the Bank's shares quoted at the Warsaw Stock Exchange in July and August 2003
Bearer common shares. G-share	830 000	1 PLN	123.06 PLN	the average of closing prices of the Bank's shares quoted at the Warsaw Stock Exchange in February and March 2004

After realization of the pre-emptive rights to take up the Bank's shares the shares are recognized in the Bank's equity.

The incentive program will be implemented within the confines of sub program (each divided into two instalments) within the following parameters :

	Program based on F-share issue		Program based on G-share issue
Expiry date	31 December 2010		31 December 2012
Realization price (in PLN)	108.37		123.06
Number of options	415 000	415 000	415 000	415 000
Criteria to rights purchase	1. Executive of individual purposes in confines of the MBO program during the 2003 year. 2. Remaining under contract of employment within Bank's capital group employee as at the date of option rights exercised.		1. Executive of individual purposes in confines of the MBO program during the 2004 year. 2. Remaining under contract of employment within Bank's capital group employee as at the date of option rights exercised.
	3. Realization of assumed ROE for 2004	3. Realization of assumed ROE for 2005	3. Realization of assumed ROE for 2006	3. Realization of assumed ROE for 2007
Fair Value as at 30 June 2008 ( in PLN thousand)	6 462	6 775	7 849	6 905
Assumptions of the fair value model adopted on the day of granted rights:
Dividend rate (%)	4.27		5.12
Volatility index (%)	31.75		31.75
Risk-free interest rate (%)	5.33	5.41	6.66	6.70
Foreseen option validity period (in years)	4.76	5.26	6.18	6.68
Weighted average of stock price (in PLN)	112.50		125.00

The fair value of the pre-emptive rights to take up the Bank's shares granted in period to 30 June 2008, as at 30 June 2008 amounted to 27 991 thousand PLN and it is settled over time during the estimated period in which rights to acquire the Bank's shares are granted to  participating individuals.

Costs of payroll in the first half 2008 year was increased by PLN 828 thousand (in the first half of 2007 - PLN 1 899 thousand).

The fair value of the pre-emptive rights to take up the Bank's shares was recognized as at the day of granting the options (pre-emptive rights to take up the Bank's shares) based on the Black-Scholes model for appraisal of dividend-yielding stock options, according to expectations of the Management Board concerning the number of rights to be exercised. The amount of the employee share program is adjusted as at every balance sheet date if expectations of the Management Board concerning the number of rights to be exercised change. No efficiency/results data except those related to the price of shares ("market conditions") are taken into account in the assessment of transactions settled in capital instruments.

The expected effective term of the pre-emptive rights to take up the Bank's shares is determined on the basis of historic data and does not need to specifically define all possible exercise scenarios.

The expected volatility index reflects the assumption according to historic volatility index.

No other parameters related to the granting of pre-emptive rights to take up the Bank's shares were taken into account in the assessment of the fair value.

The table below presents the number and weighted average exercise prices of shares options for each of the following Group options:

	30.06. 2008		30.06. 2007
	Number of shares	Weighted average exercise price	Number of shares	Weighted average exercise price
Outstanding at the beginning of the period	691 921	123.06	986 762	118.67
Granted during the period	-	-	-	-
Forfeited during the period	-	-	-	-
Exercised during the period	345 972	123.06	294 841	108..37
Expired during the period	-	-	-	-
Outstanding at the end of the period	345 949	123.06	691 921	123..06

The UniCredit Group incentive program 

The Long Term Incentive Program (2007 LTIP) constitutes a key element of the payroll policy of the UniCredit Group, according to which the salaries depend on market conditions and performance. 

Following the best international practice, under the LTIP equity options and performance shares are granted to a selected group of high and top level managers and the most promising employees, in order to: 

Create incentives for realization of the strategic targets of the Group;

Retain the key employees;

Effectively compete in the international employment market.

The actual choice of the participants of the program and the benefits granted is performed upon the following criteria: 

Adherence to the corporate system of values, broad perspectives, strong corporate identity and consequence.

Significance of the position: strategic importance to the business performance and corporate governance of the Group; 

The need with respect of employee retention: retention within the Group of the best employees, particularly searched by the competition; 

Evaluation of the performance and potential - realization of targets. 

The fair value of share options and performance shares of UniCredito Italiano S.p.A. were established following the Hull and White model. 

The fair value of the pre-emptive rights to embrace the shares of the Bank's parent entity granted until 30 June 2008 amounted to PLN 7 971 thousand as at 30 June 2008. It is amortized over the estimated vesting period. 

The first Half of 2008 H/R expense was charged with the amount of PLN 392 thousand with respect to that. 

The table below presents the changes of the number of share options and performance shares of UniCredito Italiano and the average execution prices. 

	Share options			Performance shares
30.06.2008		Number	Avg execution price		Number	Avg execution price
Opening balance		1 100 111	26.79		351 632	-
Granted during the year		-	-		-	-
Redeemed during the year		150 357	26.79		48 059	-
Vested during the year		-	-		-	-
Terminated during the year		-	-		-	-
Existing at closing balance		949 754	26.79		303 573	-
Executable at closing balance (*)		-	-		-	-

(*) The right to performance shares is subject to fulfillment of future conditions 

	Share options		Performance shares
2007	Number	Avg execution price	Number	Avg execution price
Opening balance	-	-	-	-
Granted during the year	1 223 217	26.79	390 981	-
Redemeed during the year	123 106	26.79	39 349	-
Vested during the year	-	-	-	-
Terminated during the year	-	-	-	-
Existing at closing balance	1 100 111	26.79	351 632	-
Executable at closing balance (*)	-	-	-	-

(*) The right to performance shares is subject to fulfillment of future conditions 

Operational lease

Group as a lessor

The Group is an operating lease lessor of buildings being classified as investment properties as well as means of transport, medical equipment, machines and other equipment. 

The amount of future minimum lease payments expected to be received under non-cancelable operating lease can be summarized as follows:

	30.06.2008	31.12.2007
Below 1 year	20 513	18 254
Over 1 to 5 years	18 526	71 800
Over 5 years	1 143	4 027
Total	40 182	94 081

Amount of the minimum operating lease payments classified as income of the first half of 2008 amounted to PLN 22 793 thousand ( income of the first half of 2007 was PLN 7 733  thousand).

Group as a lessee

The Group is an operating lease lessee of buildings.

The amount of future minimum lease payments expected to be paid under non-cancellable operating lease can be summarized as follows:

	30.06.2008	31.12.2007
Below 1 year	89 277	401 810
Over 1 to 5 years	117 053	223 998
Over 5 years	44 782	113 583
Total	251 112	739 391

Operating lease payments recognized as expense of the first half of 2008 amounted to PLN 97 985 thousand (in the first half of 2007 amounted to PLN 60 537 thousand).

The leases typically run for an indefinite period. For agreements concluded for an indefinite period, future minimum lease payments were calculated on the basis of the agreed termination period. The termination period is normally fixed for 3 or 6 months. The leases are denominated in both PLN and foreign currencies. Payments are made in PLN regardless of the currency of the contract. 

Contingent liabilities

Litigation 

As at 30 June 2008 the number of the legal proceedings against the Group amounted to 510 with a total value of PLN 771 887 thousand (as at 31 December 2007 there were 755 court proceedings amounting to PLN 783 783 thousand).

As at 30 June 2008 the reserve for contingent liabilities, which in the opinion of the Bank's internal legal counsel are at risk of funds outflow amount to PLN 44 874 thousand (as at 31 December 2007 PLN 57 046 thousand). 

As at 30 June 2008 with regards to all other significant proceedings in progress against the Group, the risk of cash outflow is believed to be. 

Financial obligations granted

	30.06.2008	31.12.2007
Financial liabilities granted:	31 633 810	34 264 570
- towards financial entities	483 437	1 623 785
- towards non-financial entities	30 195 154	30 369 028
- towards the budget	955 219	2 271 757
Including: granted irrevocable contingent liabilities and commitments	30 692 266	33 294 127

As at 30 June 2008 the Group granted fixed-rate financial commitments in the nominal amount of PLN 13 387 885 thousand (as at 31 December 2007 amounts to PLN 4 440 578 thousand).

	30.06.2008	31.12.2007
Granted fixed-rate financial liabilities in total:	13 387 885	4 440 578
- with maturity date within a year of the balance day	4 987 029	907 364
- with maturity date within more than a year of the balance day	8 400 856	3 533 214
including: granted irrevocable liabilities	13 387 885	4 440 578

Guarantees liabilities granted

	30.06.2008	31.12.2007
1) Liabilities granted towards financial entities:	256 360	292 325
- guarantees	220 536	240 207
- sureties	35 296	29 830
- confirmed export letters of credit	528	22 288
2) Liabilities granted towards non-financial entities:	3 961 421	3 966 028
- guarantees	3 961 414	3 965 981
- confirmed export letters of credit	7	47
3) Liabilities granted towards the budget:	20 318	193 884
- guarantees	20 318	193 884
Total	4 238 099	4 452 237

Sub issue program

As at 30 June 2008 the following securities programs were subject to sub issue:

Issuer name	Type of securities	Remaining amount of submission to which the Group undertook to engage	Contract validity period	Type of submission
Starostwo Powiatowe  Zdunska Wola	municipality's bonds	6 650	22.03.06 - 31.12.15	unconditional
Południowy Koncern Energetyczny S.A.	bonds	34 000	25.09.06 - 25.09.19	Conditional
Raiffeisen Leasing S.A.	bonds	100 000	20.02.06 - 20.02.10	Conditional

As at 31 December 2007 the following securities programs were subject to sub issue:

Issuer name	Type of securities	Remaining amount of submission to which the Group undertook to engage	Contract validity period	Type of submission
Starostwo Powiatowe  Zdunska Wola	municipality's bonds	8 610	22.03.06 - 31.12.15	unconditional
Polska Grupa Energetyczna S.A.	bonds	750 000	30.03.06 - 31.03.08	Conditional
Południowy KoncernEnergetyczny S.A.	bonds	126 500	25.09.06 - 25.09.19	Conditional
Raiffeisen Leasing S.A.	bonds	100 000	20.02.06 - 20.02.10	conditional

Securities issued by the County of Zdunska Wola, Polska Grupa Energetyczna S.A., Poludniowy Koncern Energetyczny S.A., Raiffeisen Leasing S.A. and PKN Orlen S.A. underwritten by the Group are securities with unlimited transferability not listed on stock exchanges and not traded on regulated over-the-counter markets.

Share capital

SHARE CAPITAL (STRUCTURE)
Series/ Issue	Type of shares	Number of shares	Value of series / issue according to nominal value		Manner of capital coverage		Date of registration		Right to dividend (as at)
A	bearer common shares	137 650 000	137 650		paid in full		21.12.1997		1.01.1998
B	bearer common shares	7 690 000	7 690		paid in full		6.10.1998		1.01.1998
C	bearer common shares	10 630 632	10 631		paid in full		12.12.2000		1.01.2000
D	bearer common shares	9 777 571	9 777		paid in full		12.12.2000		1.01.2000
E	bearer common shares	373 644	374		paid in full		29.08.2003		1.01.2003
F	bearer common shares	621 411	621		paid in full		29.08.2003		19.05.2006 16.05.2007
G	bearer common shares	345 972	346		paid in full		29.08.2003		1.01.2008
H	bearer common shares	359 840	360		paid in full		12.08.2004		1.01.2004
I	Bearer common shares	94 763 559	94 764		paid in full		29.11.2007		1.01.2008
Total number of shares		262 212 629
Total share capital in thousand PLN			262 213
Nominal value of one share = 1.00 PLN

	First half 2008 in shares	Shares issued and paid in full	Total
	Balance as at the beginning of the period	261 866 657	261 866 657
	Emission of G shares	345 972	345 972
	Balance as at the end of the period	262 212 629	262 212 629

	2007 in shares	Shares issued and paid in full	Total
	Balance as at the beginning of the period	166 808 257	166 808 257
	Emission of F shares	294 841	294 841
	Emission of I shares	94 763 559	94 763 559
	Balance as at the end of the period	261 866 657	261 866 657

Bank Pekao S.A. has purchased 5 010 of treasury shares series I (The Spin-off Issue Shares) of nominal value of PLN 1 each share which were not allocated to the shareholders of BPH following the BPH S.A. spin-off. The reference price of the I series shares amounted to PLN 256.69. The total value of treasury shares purchased by the Bank at the reference price amounted to PLN 1 286 thousand. Those treasury shares represent 0.0019% of the share capital of Bank Pekao S.A. The Bank is not eligible to execute the voting rights on those shares.

Reserves, prior and current year profit 

	30.06.2008	31.12.2007
Reserves:
Supplementary capital	9 408 215	9 331 159
Share premium	9 105 273	9 063 248
Other	302 942	267 911
Revaluation reserve	(547 174)	(278 594)
Revaluation of the portfolio of financial assets available for sale	(541 534)	(280 929)
Deferred tax	102 355	52 830
Revaluation of the portfolio of financial hedging instruments	(133 327)	(62 340)
Deferred tax	25 332	11 845
General banking risk fund	1 237 850	1 237 850
Other reserve capital	1 614 394	2 098 584
Differences in the rate of exchange	(28 903)	(23 091)
Bonds convertible into shares - equity instrument	29 087	27 715
Total reserves	11 713 469	12 393 624
Prior year profit (loss) attributable to equity holders of the Bank	(63 214)	(144 181)
Profit for the year attributable to equity holders of the Bank	1 967 263	2 155 478
Total other capital, reserves and profit for the period and for the year ended	13 617 518	14 404 921

From 1982 to 1984 and from 1988 to 1996, the Group operated in a hyperinflationary economic environment. IAS 29 (Financial Reporting in Hyperinflationary Economies) requires the adjustment of each component of shareholders equity (except retained earnings and any revaluation reserve) by the index price of commodities and services for the period of hyperinflation. This retrospective application would have resulted in an increase in share capital and other reserves and a decrease in retained earnings in equivalent amounts. This adjustment would not have any effect on the total amount of the Group's equity.

Additional information for the cash flow statement

Cash and cash equivalents

Balance items	30.06.2008	30.06.2007
Cash, due from Central Bank*	5 724 226	3 013 759
Receivables from banks up to 3 month	6 162 788	8 181 058
(…)
Financial resources and equivalents of financial resources presented in the cash flow statements	11 887 014	11 194 817

*The item "Cash, due from Central Bank" does not include the NBP Bond in amount of PLN 1 719 130 thousand (as at 30 June 2007 PLN 1 331 094 thousand)

Limited availability cash and cash equivalents as at 30 June 2008 amounted to PLN 2 998 421 thousand (as at 30 June 2007 PLN 1 810 793 thousand).

  

Transactions with related parties

The consolidated financial statements include the financial statements of the Bank and financial statements of subsidiaries listed in the following table:

	Entity name		Registering body	Percentage participation in the capital
				30.06.2008	31.12.2007
	UniCredit Bank Ltd.		National Bank of Ukraine. National Bank Register. No. 265	100.00	100.00
	Centralny Dom Maklerski Pekao S.A.		District Court for the capital city of Warsaw. XIII Commercial Department of the National Court Registry	100.00	100.00
	Pekao Fundusz Kapitałowy Sp.z o.o.		District Court for the capital city of Warsaw. XII Commercial Department of the National Court Registry	100.00	100.00
	Pekao Leasing Sp. z o.o.		District Court for the capital city of Warsaw. XIII Commercial Department of the National Court Registry	100.00	100.00
	Pekao Faktoring Sp. z o.o.		District Court for the city of Lublin. XI Commercial Department of the National Court Registry	100.00	100.00
	Pekao Pionier Powszechne Towarzystwo Emerytalne S.A.		District Court for the capital city of Warsaw. XIII Commercial Department of the National Court Registry	65.00	65.00
	Pekao Telecentrum Sp. z o.o. (d.Drukbank Sp. z o.o.)		District Court for the capital  city of Warsaw. XII Commercial Department of the National Court Registry	100.00	100.00
	Centrum Kart S.A.		District Court for the capital city of Warsaw. XII Commercial Department of the National Court Registry	100.00	100.00
	Pekao Financial Services Sp. z o.o.		District Court for the capital city of Warsaw. XIII Commercial Department of the National Court Registry	100.00	100.00
Pekao Bank Hipoteczny (d.BPH Bank Hipoteczny S.A.)		District Court for the capital city of Warsaw. XII Commercial Department of the National Court Registry	100.00	100.00
Pekao Leasing Holding SA (d.BPH PBK Leasing S.A.)		District Court for the capital city of Warsaw. XII Commercial Department of the National Court Registry	80.10	80.10
Pekao Leasing i Finanse SA (d.BPH Leasing S.A.)	District Court for the capital city of Warsaw. XII Commercial Department of the National Court Registry	80.10	80.10
Pekao Auto Finanse S.A. (d.BPH Auto Finanse SA)	District Court for the capital city of Warsaw. XII Commercial Department of the National Court Registry	80.10	80.10
Finanse plc	Companies Register for England and Wales	100.00	100.00
		BDK Consulting Sp. z o.o.	Executive Committee of the City Council of Luck. no. 04051327Ю0060469	99.99	99.99

Bank Pekao S.A. is the holding company of the Bank Pekao S.A Capital Group. UniCredito Italiano S.p.A. is the superior holding company.

Information on subsidiaries and related and associated entities is provided in Note 34.

The credit procedure applicable to the Bank's Management and entities related to the Bank

Under the Banking Law, credit transactions with members of the Bank's Management Board and Supervisory Board as well as with the Bank's senior management and entities related thereto are subject to the Bylaws adopted by the Bank's Supervisory Board.

The Bylaws lay down detailed decision-making procedures applicable to transactions with such individuals and entities, including authority levels on which different decisions are allowed and competencies assigned thereto. In particular, concluding a transaction with a member of the Bank's Management Board or Supervisory Board or with an entity capitally and organize related thereto in amounts specified in the Bylaws requires authorization of the Bank's Management Board and Supervisory Board.

Members of the Bank's Management and entities capitally and organizationally related thereto may use lending facilities offered by the Bank on standard terms and conditions applied by the lities.

Credit risk assessment follows methodologies used by the Bank with regard to the customer's segment and type of transaction.

Standard credit procedures are applied to entities as for Bank. In particular, the Bank may not offer such individuals or entities better interest rates for lending facilitated with the Bank and transaction decisions are made exclusively on the Bank's Head Office level.

Transactions with related entities for the first half of 2008:

Entity name	Dues from loans and advances	Securities	Financial derivatives contracts	Other dues from	Dues to loans and advances	Financial derivatives contracts	Other dues to
Group parent company
UniCredito Italiano S.p.A.	284 294	-	-		56 595		945
Entities of UniCredito Italiano Group's excluding entities of Pekao S.A. Group	454 877	-	188 477	22 272	1 793 381	122 570	46
Subsidiaries
Property Sp. z o.o. (in liquidation)	-	-	-	-	3 327	-	-
Final Holding Sp. z o.o.	-	-	-	-	143	-	-
BPH Real Estate S.A.	-	-	-	-	2 185	-	-
Centrum Usług Księgowych Sp. z o.o.	-	-	-	-	60	-	-
Centrum Bankowości Bezpośredniej Sp.z o.o.	-	-	-	-	3 590	-	-
Associates
Pirelli Pekao Real Estate Sp. z o.o. (ex. Pekao Development Sp. z o.o.)	-	-	-	-	63 379	-	-
Xelion. Doradcy Finansowi Sp. z o.o.	-	-	-	-	6 852	-	-
Pioneer Pekao Investment Management S.A.	-	-	-	-	220 167	-	-
Krajowa Izba Rozliczeniowa S.A.	-	-	-	-	1 685	-	-
Bankowe Doradztwo Podatkowe Sp. z o.o.	-	-	-	-	136	-	-
Key managing Staff of the Bank or it's Parent Company	17 742	-	-	-	4 600	-	-
Total	756 913	-	188 477	22 272	2 156 100	122 570	991

Transactions with related entities as at 31.12.2007

Entity name	Dues from loans and advances	Securities	Financial derivatives contracts	Other dues from	Dues to loans and advances	Financial derivatives contracts	Other dues to
Group parent company
UniCredito Italiano S.p.A.	1 589 380	-	23 985	-	592 901	18 541	13 754
Entities of UniCredito Italiano Group's excluding entities of Pekao S.A. Group	2 360 425	-	397 440	283 162	2 081 909	86 316	637 161
Subsidiaries
PBK Property Sp. z o.o.	-	-	-	-	3 112	-	-
Final Holding Sp. z o.o.	-	-	-	-	189	-	-
BPH Real Estate S.A.	-	-	-	-	38	-	-
Centrum Usług Księgowych Sp. z o.o.	-	-	-	-	32	-	-
Associates
Pirelli Pekao Real Estate Sp. z o.o. (ex. Pekao Development Sp. z o.o.)	-	-	-	-	89 157	-	-
Xelion. Doradcy Finansowi Sp. z o.o.	-	-	-	-	3 047	-	-
Pioneer Pekao Investment Management S.A.	-	-	-	-	214 999	-	-
Krajowa Izba Rozliczeniowa S.A.	-	-	-	-	26 162	-	-
Bankowe Doradztwo Podatkowe Sp. z o.o.	-	-	-	-	53	-	-
Key managing Staff of the Bank or it's Parent Company	12 376	-	-	-	10 415	-	-
Total	3 962 181	-	421 425	283 162	3 022 014	101 857	650 915

Income and expenses from transactions with related entities for the first half of 2008:

Interest income Interest expense Fee and commission income Fee and commission expense Other income Other expense Group parent company 7 656 (161) 3 917 (845) 1 192 (7 800) Entities of UniCredit Group's excluding entities of Pekao S.A. Group's 33 444 (66 767) 200 576 (632) 10 903 (39 692) Entities of Pekao S.A. Group's Subsidiaries Centrum Bankowości Bezpośredniej Sp. z o.o. - (39) 1 - 945 (52) Centrum Usług Księgowych Sp. z o.o. - - - - 1 - Metropolis Sp. z o.o. - - - - 23 - Property Sp. z o.o. (in liquidation) - (48) - - - - BPH Real Estate S.A.  - (34) 1 - - - Final Holding Sp. z o.o. - - 1 - - - Associates Pioneer Pekao Investment Management S.A. - (6 258) 393 - 39 - Xelion Doradcy Finansowi Sp. z o. o. 7 (54) 16 (44) 54 - Krajowa Izba Rozliczeniowa S.A. - (560) 4 - - (3 536) Pirelli Pekao Real Estate Sp. z o.o.  - (2 354) 10 - 2 (197) Bankowe Doradztwo Podatkowe Sp. z o.o. - (1) - - 17 - Total entities of Pekao S.A. Group's 7 (9 348) 426 (44) 1 081 (3 785) Key managing Staff of the Bank or it's parent Company 549 (174) 5 - - (2) Total 41 656 (76 450) 204 924 (1 521) 13 176 (51 279)

Income and expenses from transactions with related entities for the first half of 2007:

	Interest income	Interest expense	Fee and commission income	Fee and commission expense	Other income	Other expense
Group parent company	6 043	(6)	215	(686)	16	(7 205)
Entities of UniCredit Group's excluding entities of Pekao S.A. Group's	21 970	(16 935)	346 927	(4 926)	34 304	(3 375)
Entities of Pekao S.A. Group's
Associates
Pioneer Pekao Investment Management S.A.	-	(2 601)	625	-	46	(15)
Xelion Doradcy Finansowi Sp. z o.o.	-	(247)	16	(127)	58	-
Krajowa Izba Rozliczeniowa S.A.	-	(34)	3	-	-	(2 509)
Pirelli Pekao Real Estate Sp. z o.o.	-	(1 644)	26	(5)	3	(579)
Total entities of Pekao S.A. Group's	-	(4 526)	670	(132)	107	(3 103)
Key managing Staff of the Bank or it's parent Company	174	(39)	2	-	-	-
Total	28 187	(21 506)	347 814	(5 744)	34 427	(13 683)

The off-balance sheet exposure related to: financing of related entities as at 30 June 2008 amounted to PLN 1 354 048 thousand (as at 31 December 2007 PLN 1 114 090 thousand); related to guarantees as at 30 June 2008 amounted to PLN 27 267 thousand (as at 31 December 2007 PLN 156 691 thousand); credit cards limits towards related entities as at 30 June 2008 amounted to PLN 10 thousand (as at 31 December 2007 PLN 72 thousand).

Management Board and Supervisory Board Remuneration 

	I Half of 2008	I Half of 2007
Management Board of the Bank
Short-term employee benefits*	8 615	9 918
Other long- term benefits	2 300	3 000
Termination benefits	998	2 898
Share-based payments**	301	957
Total	12 214	16 773
Supervisory Board of the Bank
Short-term employee benefits*	288	260
Total	288	260
Grand total	12 502	17 033

(*) Short term employee benefits comprise of: base salaries, bonuses and other benefits, in particular cost of life insurance polices, health insurance and healthcare, children education costs.

 (**) The value of Share-based payments was established as part of Payroll/Employee Expenses recognized by the Group, according to IFRS 2 during the reporting period, representing the amortization of initial fair value of options (pre-emptive rights to take up the Bank's shares) pertaining to options granted to members of the Management Board of the Bank. Detailed information about the employee share program, including the method of the options fair value estimation are presented in the note 47 "Employee benefits".

Management Board and Supervisory Board Members did not receive any compensation - in any form and they do not have any receivables arising from that title from subsidiaries, jointly controlled companies, and associated entities in I half of 2008 and I half of  2007.

Remuneration of members of the Management Boards and Supervisory Boards of the subsidiary companies 

	I Half of 2008	I Half of 2007
Management Board of the Bank
Short-term employee benefits	9 716	6 029
Benefits regarding termination of job agreement	326	-
Total	10 042	6 029
Supervisory Board of the Bank
Short-term employee benefits	16	31
Total	16	31

Repo and reverse repo transactions

The Group increases it's funds by sales transactions with the repurchase promise granted (repo and sell-buy back) at the same price increased by interest. 

Securities treated as repo and sell-buy back transactions are not excluded from the balance sheet due to the fact that the Group holds all the benefits and the risk deriving from these assets.

	30.06.2008		31.12.2007
	Assets fair value	Balance value liabilities	Assets fair value	Balance value liabilities
Financial assets held for trading
- up to 1 month	1 175 410	1 198 403	1 533 099	1 533 148
Total financial assets held for trading	1 175 410	1 198 403	1 533 099	1 533 148
Financial assets at fair value through profit or loss
- up to 1 month	-	-	633 869	632 553
Total financial assets at fair value through profit or loss	-	-	633 869	632 553
Financial assets available for sale
- up to 1 month	3 810 857	3 828 776	1 616 501	1 619 852
- between 1and 3 months	-	-	5 823	5 821
Total financial assets available for sale	3 810 857	5 027 179	1 622 324	1 625 673
Total	4 986 267	5 027 179	3 789 292	3 791 374

The Group purchase securities with the resale in the future promise granted (reverse-repo and buy-sell back) at the same price increased by interest.  

Securities treated as reverse repo and buy-sell back transactions are not disclosed at the balance sheet due to the fact that the Group do not holds all the advantages of risks and awareness deriving from these assets.

	30.06.2008		31.12.2007
	Net value assets	Fair value of assets used as collateral	Net value assets	Fair value of assets used as collateral
Amounts due from banks
- up to 1 month	638 040	617 055	2 567 132	2 556 340
Loans and receivables from customers
- up to 1 month	801 154	796 180	733 467	732 053
Total	1 439 194	1 413 235	3 300 599	3 288 393

Financial assets treated as reverse repo and buy-sell back are collaterals for the Group which can be sold or put them into collateral by the Group.

Company's Social Benefits Fund ("ZFSS")

The Social Benefits Fund Act of 4 March 1994 with subsequent amendments introduced the requirement to create a Company's Social Benefits Fund by all employers employing over 20 employees. The Bank and Group companies employing at least 20 staff have created the ZFSS Funds and are making periodic charges to the ZFSS Funds in amounts prescribed by the Act. Apart that, the Company contributed to the Fund in kind of fixed assets. The aim of the ZFSS Funds is to finance of social activity in benefit of the employees and subsidize the social premises. 

The liabilities of the ZFSS Funds represent the cumulated value of charges made by the Company towards the ZFSS Funds decreased by the amount of non-returnable expenditures of the ZFSS Funds. 

In the consolidated balance sheet, the Group netted the ZFSS Funds assets against the ZFSS Funds value, due to the fact that the assets of the ZFSS Funds do not represent the assets of the Group. For this reason the amount pertaining to the ZFSS Funds in the consolidated balance sheet as at 30  June 2008 and 31 December 2007 was nil. 

The below table sets forth the categories and book values of assets, fund value and costs related to Social Benefits Funds:

	30.06.2008	31.12.2007
Advances to employees	36 879	43 935
Cash in the current account	28 209	8 395
Assets of ZFSS	65 088	52 330
Value of ZFSS	65 088	52 330
	I Half of 2008	I Half of 2007
Charges made towards the ZFSS	19 782	12 749

Subsequent events after balance sheet date 

Sale of shares in related entity

On 4th August 2008 the Bank sold in favour of the natural person seventy four shares of Bankowe Doradztwo Podatkowe Ltd. with the total par value of PLN 37 370, comprising a 74.00% stake in the Company's share capital and representing the same number of votes at the shareholders meeting (but only 48.65% of total number of votes), for the price of PLN 37 370 which was the equivalent of the net book value on the balance sheet of Bank.

Interim dividend payment for the Bank

On 18th August 2008 the Management Board of Centralny Dom Maklerski Pekao Spółka Akcyjna approved a resolution to pay an interim dividend for the year 2008 in the amount of PLN 187 800 thousand. The dividend payment will take place within a period of one month from the date of publication of the information on the planned dividend payment in Monitor Sądowy i Gospodarczy (being 5th September 2008).

Agreement regarding put and call options of Bank shares

On 2nd September 2008 the Bank has received information that UniCredit S.p.A. and Ministry of the State Treasury ("MST") have signed agreement regarding put and call options of Bank shares held by MST. On the basis of this agreement the MST shall have a Put Option, while UniCredit shall have a Call Option, with respect to the shares held by the MST in Bank and summing up to approximately 3.95% of Bank's share capital.

According to this agreement, in both cases of options the price will be calculated as the volume-weighted average of the official daily quotations of Bank's shares on the Warsaw Stock Exchange S.A. for a period of six months preceding the date of exercise of the option, increased by 3%.

The put option may be exercised by the MST since the date of signing of the agreement to 30th June 2009, whilst the call option may be exercised by UniCredit S.p.A. since 23rd  December 2008 until 23rd December 2009.

The MST shall have the right to terminate the agreement unilaterally until 22nd December 2008.

Upon the signing of the agreement, the Privatization Agreement dated the 23rd June 1999 regarding Bank Polska Kasa Opieki S.A., the Privatization Agreement dated the 22nd October 1998 regarding Bank BPH S.A. and the Agreement regarding Bank Pekao S.A. and Bank BPH S.A. between the MST and UniCredit S.p.A. dated the 19th April 2006 shall be deemed fully completed.

Signatures of all members of the Management Board

22.09.2008		Jan Krzysztof Bielecki		President, CEO
Date		First Name/Family Name		Position/Function		Signature
22.09.2008		Luigi Lovaglio		First Vice President of the Management Board, GM
Date		First Name/Family Name		Position/Function		Signature
22.09.2008		Paolo Iannone		Vice President of the Management Board
Date		First Name/Family Name		Position/Function		Signature
22.09.2008		Andrzej Kopyrski		Vice President of the Management Board
Date		First Name/Family Name		Position/Function		Signature
22.09.2008		Katarzyna Niezgoda		Vice President of the Management Board
Date		First Name/Family Name		Position/Function		Signature
22.09.2008		Grzegorz Piwowar		Vice President of the Management Board
Date		First Name/Family Name		Position/Function		Signature
22.09.2008		Marian Ważynski		Vice President of the Management Board
Date		First Name/Family Name		Position/Function		Signature

ENDIR UVASRWNRKUAR

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