NATIONAL COMMISSION FOR BANK OF BANKING POLAND SUPERVISION

General Inspectorate of Banking Supervision

Resolution No. 1/2007

of the Commission for Banking Supervision

of March 13, 2007

on

the scope of the capital requirements against particular risks and the detailed principles to be applied in determining those requirements, including but not limited to the scope and conditions of applying statistical methods and the scope of information attached to

an application for authorization to apply them,

principles and conditions of taking account of contracts on debt assignment, subparticipation, credit derivative and contracts other than those on debt

assignment, subparticipation, in calculating the capital requirements,

terms and conditions, scope and manner of making use of the ratings assigned by external credit assessment institutions and the export credit agencies,

manner and specific principles of calculating the solvency ratio of a bank,

the scope and manner of taking account of banks conducting their activities in groups in calculating their capital requirements as well as establishing additional items of bank

balance sheets included in bank regulatory own funds in the capital adequacy account, the amount thereof and the conditions to be used in calculating them

Warsaw, 2007

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From the editors

All effort has been taken to ensure the accuracy of this translation based on the official Polish text. Nevertheless, all translations of this kind may be subject to a certain degree of linguistic discord. Should you have any uncertainties regarding the translation reproduced in this publication, please submit your questions to the editors. The official language of the documents translated herein is Polish. In case of any doubt or misunderstanding, the Polish version should therefore be considered final. National Bank of Poland General Inspectorate of Banking Supervision ul. Świętokrzyska 11/21 00-919 Warsaw Poland e-mail: dz.sekretariat@nbp.pl e-mail: nbpginbzs@nbp.pl

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RESOLUTION NO. 1/2007

of the Commission for Banking Supervision

of March 13, 2007

on

the scope of the capital requirements against particular risks and the detailed principles to be applied in determining those requirements, including but not limited to the scope and conditions of applying statistical methods and the scope of information attached to

an application for authorization to apply them,

principles and conditions of taking account of contracts on debt assignment, subparticipation, credit derivative and contracts other than those on debt

assignment, subparticipation, in calculating the capital requirements,

terms and conditions, scope and manner of making use of the ratings assigned by external credit assessment institutions and the export credit agencies,

manner and specific principles of calculating the solvency ratio of a bank,

the scope and manner of taking account of banks conducting their activities in groups in calculating their capital requirements as well as establishing additional items of bank

balance sheets included in bank regulatory own funds in the capital adequacy account, the amount thereof and the conditions to be used in calculating them

Pursuant to Article 128 para. 6 subparas.. 1, 3, 4, 5 and 7 and Article 141j of the Banking Act of August 29, 1997 (Journal of Laws — Dz.U. — no. 72/2002, item 665, as amended1):

§ 1.1. Unless otherwise provided herein, balance sheet assets and liabilities and off-balance sheet items shall be valued pursuant to the principles specified in the Accounting Act of September 29, 1994 (Journal of Laws — Dz.U. — no. 76/2002 item 694, as amended2), hereinafter referred to as the Accounting Act; for the purposes of this Resolution, the valuation shall in particular take into account a decrease in assets due to the established specific provisions, obtained discounts and premiums, and impairment charges.

2. If the bank applies International Accounting Standards, International Financial Reporting Standards and interpretations related thereto pursuant to Article 2 para. 3 of the Accounting Act, it shall value balance sheet assets and liabilities and off-balance sheet items pursuant to these provisions.

§ 2.1. The bank shall break down all operations to trading and banking books.

2. Operations shall be included in the trading book pursuant to the principles specified in

1 The amendments to the consolidated text of the Act have been published in Journal of Laws [Dz.U.] no.

126/2002 item 1070, no. 141/2002 item 1178, no. 144/2002 item 1208, no. 153/2002 item 1271, no. 169/2002 items 1385 and 1387, no. 241/2002 item 2074, no. 50/2003 item 424, no. 60/2003 item 535, no. 65/2003 item 594, no. 228/2003 item 2260, no. 229/2003 item 2276, no. 64/2004 item 594, no. 68/2004 item 623, no. 91/2004 item 870, no. 96/2004 item 959, no. 121/2004 item 1264, no. 146/2004 item 1546, no. 173/2004 item 1808, no. 83/2005 item 719, no. 85/2005 item 727, no. 167/2005 item 1398, no. 183/2005 item 1538, no. 104/2006 item 708, no. 157/2006 item 1119, no. 190/2006 item 1401, no. 245/2006 item 1775, no. 42/2007 item 272.

2 The amendments to the Act have been published in Journal of Laws [Dz.U.] no. 60/2003 item 535, no. 124/2003 item 1152, no. 139/2003 item 1324, no. 229/2003 item 2276, no. 96/2004 item 959, no. 145/2004 item 1535, no. 146/2004 item 1546, no. 213/2004 item 2155, no. 184/2005 item 1539, no. 267/2005 item 2252, no. 157/2006 item 1119, no. 208/2006 item 1540.

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Annex 3 hereto.

3. The banking book shall consist of operations not included in the trading book, in particular granting loans, making placements and receiving deposits, performed under bank business or for the purposes of liquidity management.

§ 3.1. The scale of bank's trading business shall be calculated as of a given day as a ratio of total nominal amounts from operations concluded on the day concerned, included in the trading book, to the balance-sheet total plus nominal amounts of off-balance sheet operations outstanding by the day-end (i.e. operations where contractual settlement term has not expired and unsettled operations, where the settlement term expired).

2. The scale of bank's trading business shall be considered significant from the first day of the month following the day, when at least one of the following conditions is fulfilled:

1) the arithmetic mean of daily sums of nominal amounts of operations concluded on every of the 250 working days immediately preceding the day of calculation, included in the trading book, exceeded the PLN equivalent of Euro 15,000,000, calculated according to the average exchange rate announced by the National Bank of Poland, hereinafter referred to as the “NBP”, in force on a given day;

2) out of the 250 working days immediately preceding the day of calculation there are four such days, on which the sum of nominal amounts of operations included in the trading book concluded on each and every of those days exceeded the PLN equivalent of Euro 20,000,000, calculated according to the NBP average exchange rate, in force on a given day;

3) the arithmetic mean of the scale of trading-book business calculated for the 250 working days immediately preceding the day of calculation exceeded 0.05;

4) out of the 250 working days immediately preceding the day of calculation there are four such days, on which the scale of trading-book operations exceeded 0.06.

3. The scale of bank's trading-book business may cease to be considered significant from the day on which the bank finds that within the preceding 250 working days neither of the requirements specified in section 2 has been fulfilled.

4. The bank shall, as frequently as necessary to examine the requirements specified in section 2, calculate the scale of trading-book business, evidence these calculations and record the trading book in the form of a list of operations concluded on the day for which the calculations are made, according to the formula specified in Annex 3 hereto.

§ 4.1. The bank with a significant scale of trading-book business shall calculate on a daily basis total daily market performance (profit or loss) including:

1) daily market performance on operations included in the trading book, construed as the change in valuation of these operations according to the fair value for a given day, including operations concluded on this day and settled on the same day;

2) daily market performance on exchange rate movements and commodity prices for operations included in the banking book, construed as the change in valuation of these operations on a given day resulting from exchange rate movements and commodity prices, including operations concluded on this day and settled on the same day.

2. The daily market performance:

1) takes into account costs of financing of operations, construed as calculated or estimated costs of acquisition of bank’s liabilities,

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2) may take into account real or potential income from investments of amounts gained from the operations.

3. For the purpose of establishing the daily market performance and the loss referred to in § 5 (1) subpara. 1 (b), the bank may use a system of bank's internal transfer prices specified and accepted by the bank management board.

4. Where there is no reliable information on prices forming the basis for valuation of the operations according to fair value, the bank shall estimate the operations using estimation techniques.

§ 5.1. Additional balance sheet items of the bank, referred to in Article 128 (6) subpara. 1 of the Banking Act of August 29, 1997 (Journal of Laws — Dz.U. — no. 72/2002, item 665, as amended1), hereinafter referred to as “Banking Act”, hereinafter referred to as “short-term capital”, shall be specified as:

1) a total of: a) the market profit referred to in § 4 (1) — accrued until the reporting day, less

known charges, including dividends, to the extent it was not included in the regulatory capital or distributed otherwise,

b) the loss (among negative resources) on all operations included in the banking book, accrued until the reporting day, exclusive of the losses on exchange rate movements and commodity prices, to the extent it was not included in the regulatory capital or covered otherwise,

c) liabilities for subordinated loans received, meeting the requirements listed in section 2,

d) the value of capital of subsidiaries — for the purposes specified in § 11, where the value of capital of the subsidiary is negative and does not decrease bank’s regulatory capital,

where the total is positive, in the amount not exceeding the capital requirements referred to in § 6 (1) subparas. 2 and 3, and 4 up to the amount of capital requirements specified in § 8 subpara. 1 (a) of Annex 12 hereto, or

2) zero — where the total referred to in subpara. 1 is not positive. 2. A liability for a subordinated loan received, included in the short-term capital, shall meet the following requirements:

1) the loan is not included in the regulatory capital; 2) the initial loan repayment is at least 2 years; 3) the funds from the loan are paid in full; 4) the loan agreement prevents repayment of the loan prior to the contractual term

without the consent of the Commission for Banking Supervision, under circumstances other than liquidation or bankruptcy of the bank;

5) the loan agreement prevents repayment of the principal or interest if this would breach the standard referred to in Article 128 (1) subpara. 2 (a) of the Banking Act, hereinafter referred to as “capital adequacy standard”;

6) the amount of subordinated loans received, included in the short-term capital, does not exceed 150% of the amount by which the core capital exceeds the higher of the following amounts:

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a) half of the capital requirements against credit risk, b) the difference between the capital requirements against credit risk and the

supplementary capital.

3. Where the bank includes a liability for the subordinated loan received in the short-term capital, it shall advise the Commission for Banking Supervision of the anticipated decrease in the amount of bank’s regulatory capital and short-term capital to less than 120% of the overall capital requirement.

4. Short-term capital may be used to determination compliance with the capital adequacy standard only by the banks, whose scale of trading-book business is significant.

§ 6.1. Capital requirements shall include:

1) total capital requirement against credit risk — calculated according to Annex 4 hereto, 2) total capital requirement against market risk, including:

a) total capital requirement against foreign exchange risk — calculated according to Annex 6 hereto,

b) total capital requirement for commodities risk — calculated according to Annex 7 hereto,

c) total capital requirement equity risk— calculated according to Annex 8 hereto, d) total capital requirement against specific risk of debt instruments — calculated

according to Annex 9 hereto,

e) total capital requirement against general risk of interest rates — calculated according to Annex 10 hereto,

3) total capital requirement against settlement/ delivery and counterparty risk — calculated according to Annex 11 hereto,

4) total capital requirement against exceeding the exposure concentration limit and the large exposure limit — calculated according to Annex 12 hereto,

5) total capital requirement against exceeding the capital concentration threshold — calculated according to Annex 13 hereto,

6) total capital requirement against operational risk — calculated according to Annex 14 hereto.

2. To calculate the capital requirement referred to in § 6 (1) subpara. 1:

1) the bank shall take into account credit ratings, depending on the method adopted, as applicable:

a) in the case of the standardised method — according to Annex 15 hereto, b) in the case of the Internal Ratings Based (IRB) method — according to Annex 5

hereto;

2) the bank may take into account: a) offsetting of off-balance sheet transactions — according to Annex 16 hereto, b) credit risk mitigation techniques — according to Annex 17 hereto, c) assets securitization — according to Annex 18 hereto,

3. The total of capital requirements against specific types of risks referred to in Article 128 (1)

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subpara. 2 of the Banking Act, hereinafter referred to as the “overall capital requirement”, shall consist of:

1) capital requirements referred to in section 1 — for banks with significant scale of trading-book business,

2) capital requirements referred to in section 1 subpara. 1, subpara. 2 (a) and (b), and subparas. 4-6 — for banks without a significant scale of trading-book business.

§ 7. The capital requirements against market risk shall be calculated on the basis of underlying positions in base instruments, specifying types and scale of risk of specific operations concluded and outstanding until the end of the reporting day, determined pursuant to the general rules specified in § 1 — 16 of Annex 2 hereto and having regard to the detailed principles specified in Annexes 6-10 hereto.

§ 8.1. After the approval referred to in Article 128 (3) and Article 128d (1) and (8) of the Banking Act is received, to calculate the capital requirements, referred to in:

1) § 6 (1) subpara. 1 — the bank may use the IRB described in Annex 5 hereto; 2) § 6 (1) subpara. 2 — the bank may use the Value at Risk (VaR) method described in

Annex 19 hereto,

3) § 6 (1) subpara. 2 (a) — the bank may use the mixed method described in § 17 of Annex 6 hereto.

4) § 6 (1) subpara. 6 — the bank may use the Advanced Measurement Approach (AMA) described in § 34 — 68 of Annex 14 hereto;

5) § 6 (1) subpara. 6 — the bank may use the alternative indexes for the standard method in relation to operational risk, described in § 27 — 31 of Annex 14 hereto.

2. To the application for the approval to use a method, referred to in section 1, subpara. 1, the bank shall attach the following:

1) information concerning: a) bank's characteristics and where the bank is part of a group, this group's

characteristics,

b) selected method of internal ratings and its scope of application and, in case referred to in § 12 of Annex 5 hereto, the scope of application of the standardised method to certain exposures, together with justification,

c) the plan of the IRB roll-out in the case referred to in § 1 (2) of Annex 5 hereto, d) bank's compliance with the requirements referred to in § 2 (3) subparas. 2 and 3 of

Annex 5 hereto,

e) bank's compliance with the requirement referred to in § 2 (3) subpara. 4 of Annex 5 hereto ,if the bank intends to use its own estimates of loss given defaults (LGDs) and conversion factors ,

f) structure of the systems used to gather and process data for the Internal Rating Based Approach (IRB) and risk measurement and reporting at the bank, as well as solutions implemented by the bank to manage databases,

g) assumptions and structure of the rating systems referred to in § 124 of Annex 5 hereto, taking into account in particular compliance with the requirements specified in Annex 5 hereto, including the list of the rating systems used,

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h) system and procedures of credit risk monitoring and control, referred to in § 256 — 261 of Annex 5 hereto and additionally in § 248 of Annex 5 hereto, where the bank intends to calculate risk-weighted capital exposure amounts according to the Internal Models Method (IMM),

i) characteristics and results of the validation process of internal estimates in the bank, referred to in § 242 — 246 of Annex 5 hereto and additionally IMM approval and evidencing system where the bank intends to calculate risk-weighted capital exposure amounts according to IMM referred to in § 249 — 255 of Annex 5 hereto,

j) influence of IRB on capital requirements broken down into business units and exposure classes,

k) self assessment by the bank of compliance with the criteria to use IRB referred to in Annex 5 hereto;

2) a list of internal documents of the bank concerning the information referred to in subpara. 1 (d) — (i) and copies thereof on an electronic medium.

3. The bank may obtain the approval referred to in section 1 subparas. 2 and 3 as long as for a given method, as at the day the application for the approval to use the VaR method is made, the number of days established on the basis the back-testing referred to in § 14 of Annex 19 hereto — out of the 250 working days immediately preceding the day of calculation on which the daily market loss from underlying positions covered by the VaR method exceeded VaR for a given day — does not exceed 10.

4. To the application for approval to use methods referred to in section 1, subparas. 2 and 3, the bank shall attach the following:

1) information concerning: a) bank's characteristics and where the bank is part of a group, this group's

characteristics, as well as the method and its scope of application to calculate the capital requirements,

b) risk management procedures according to § 3 of Annex 19 hereto, c) the VaR method taking into account the provisions of § 5 — 13 of Annex 19 hereto

and the manner how the VaR model used in this method complies with the requirements referred to in § 7 of Annex 19 hereto,

d) detailed criteria of isolation of underlying positions covered by the VaR model referred to in § 17 subpara. 1 of Annex 6 hereto, together with justification,

e) internal control procedures to verify compliance with the capital adequacy standard,

f) specification and verification of the VaR model assumptions, g) sources and methods to update data used in the VaR model, h) approach to estimation of parameters of the VaR method, including data weighing

scheme,

i) assumptions and principles used to validate the VaR model, referred to in § 14 — 18 of Annex 19 hereto, including detailed principles to establish real daily losses and revaluation losses,

j) specific situation of the bank as regards the risk assumed, taking into account the

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requirements specified in § 7 of Annex 19 hereto,

k) use of the VaR model to calculate the capital requirements for one year preceding the date of application, including the analysis of compliance with the capital adequacy standard,

l) self assessment by the bank of compliance with the requirements to use the VaR method referred to in Part 1 of Annex 19 hereto;

2) a list of internal documents of the bank concerning the information referred to in subpara. 1 (b) — (i) and copies thereof on an electronic medium.

5. To the application for the approval to use the method referred to in section 1, subpara. 4, the bank shall attach the following:

1) information concerning: a) bank's characteristics and where the bank is part of a group, this group's

characteristics,

b) scope of application of the method to calculate the capital requirement against the operational risk and the plan of gradual implementation of the AMA where the bank intends to apply the provisions of § 68 of Annex 14 hereto,

c) structure and assumptions of the internal measurement system taking into account qualitative standards referred to in § 36 — 41 of Annex 14 hereto and quantitative standards referred to in § 42 — 60 of Annex 14 hereto, as well as the norms for operational risk management specified in the Resolution of the Commission for Banking Supervision no. 4/2007 of March 13, 2007 on the detailed principles of functioning of the risk management system and internal control system and detailed terms and conditions of assessing by banks of internal capital and reviewing of the process of assessing and holding the internal capital (NBP Official Journal — Dz. Urz. — No. 3 item 6),

d) sources, management and methods to update the data used, in particular structures of the systems used to gather and process data for the AMA and evaluation, and risk reporting at the bank, as well as solutions implemented by the bank to manage databases,

e) internal process to approve the operational risk measurement system, f) using insurance and mechanisms to transfer operational risk, according to § 61 —

65 of Annex 14 hereto,

g) the principles of capital requirement allocation among specific entities of the group and means to take into account diversification effects, where the banks operate in groups and intend to apply the AMA according to § 66 and 67 of Annex 14 hereto,

h) self assessment by the bank of compliance with the qualitative and quantitative methods referred to in subpara. (c);

2) a list of internal documents of the bank concerning the information referred to in subpara. 1 (c) — (g) and copies thereof on an electronic medium.

7. The bank applying the method referred to in section 1 subpara. 1 should cease to comply with the requirements of application of this method specified in Annex 5 hereto, shall present to the Commission for Banking Supervision a schedule to restore compliance with these requirements or prove that the effects of non-compliance are insignificant.

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8. If the number of days established on the basis of back-testing, referred to in § 14 of Annex 19 hereto — out of the 250 consecutive working days immediately preceding the day of calculation on which the daily market loss from underlying positions covered by the VaR method exceeded the VaR for a given day - has exceeded 10 or the actual state of the data in relation to the data specified in section 4 subpara. 1 has changed, the bank shall undertake steps necessary to improve the performance of the VaR model.

§ 9.1. Where the capital adequacy standard is exceeded on any day, the bank shall promptly submit a notice to the Commission for Banking Supervision, prepared according to the template specified in Annex 20 hereto.

2. The bank implementing a recovery program or taking over another domestic bank that is in danger of bankruptcy or liquidation due to poor economic standing, shall fulfil the obligation referred to in section 1, by submitting to the NBP data referred to in Resolution 23/2003 of the Management Board of the National Bank of Poland of July 25, 2003 on the procedure and detailed principles of submitting data by banks to the National Bank of Poland, necessary to establish the monetary policy, to assess the monetary situation of the state, and to evaluate the financial standing of banks and the banking sector risk (NBP Official Journal [Dz. Urz.] no. 16/2003 item 26, as amended3).

§ 10. The capital adequacy ratio of the bank shall be calculated as a percentage value, subject to § 15 (1) and (2), as a fraction multiplied by 100, where:

1) the numerator is the value of regulatory capital increased, subject to the provisions of § 5 (4), by short-term capital;

2) the denominator is the overall capital requirement multiplied by 12.5. § 11.1. The bank required to draw up the consolidated financial statements, notwithstanding its obligation to comply with the capital adequacy standard on a stand-alone basis, shall additionally comply with the capital adequacy standard on a consolidated group basis, taking into account bank's operation in a group in the way described in section 2.

2. For the purpose of taking into account bank's operation in a group, the bank shall include the following in the calculation of the capital adequacy standard on a consolidated group basis:

1) bank’s consolidated regulatory capital — construed as regulatory capital calculated with proper use of principles determined for the banks subject to the consolidated supervision in Resolution no. 2/2007 of the Commission for Banking Supervision of March 13, 2007 on other deductions from a bank's core capital, amount thereof, scope and conditions of performing such deduction from the core capital of a bank, other balance sheet items included in the supplementary capital, the amount and scope thereof, and the conditions of including them in a bank’s supplementary capital, deductions from a bank's supplementary capital, the amount and scope thereof and conditions of performing such deductions from a banks supplementary capital, the scope and manner of taking account of banks operating in groups in calculating the capital base (NBP Official Journal — Dz. Urz. — no. 3/2007 item 4);

2) consolidated short-term capital — construed as additional balance sheet items, referred to in Article 128 (6) subpara. 1 of the Banking Act, determined on the basis of the bank’s consolidated financial statements, with proper use of principles specified in § 5

3 Amendments to the text of the Resolution have been published in NBP Official Journal — Dz. Urz. — no.

1/2004 item 1, no. 5/2004 item 11, no. 20/2004 item 38, no. 9/2005 item 16, no. 10/2006 item 10, no. 12/2006 item 15.

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herein;

3) consolidated capital requirements — construed as capital requirements calculated with proper use of principles specified herein, excluding the influence of undertakings consolidated using the equity method, where:

a) the consolidated trading book covers operations accounted by the bank and undertakings included in the consolidated financial statements in their respective trading books (pursuant to their original classification performed by those undertakings), and where the undertakings do not distinguish between the trading book and the banking book, the appropriate classification of operations shall be performed by the bank drawing up the consolidated financial statements, according to the principles applied to its own operations,

b) the other operations form the consolidated banking book, c) consolidated excess of the exposure concentration limit and the large exposure

limit shall be construed as excess of the exposure concentration limit and the large exposure limit calculated on the basis of the bank's consolidated financial statements with relevant use of the principles determined for the banks subject to the consolidated supervision in Resolution no. 3/2007 of the Commission for Banking Supervision of March 13, 2007 on the detailed principles and conditions for the inclusion of exposures in determining compliance with the exposure limits and large exposure limits, specification of exposures exempt from provisions related to the exposure concentration limits and large exposure limits, and the mandatory conditions thereof, specification of the exposures where the authorisation of the Commission for Banking Supervision is required for the exemption from provisions related to the exposure concentration limits and large exposure limits and the scope and manner for the inclusion of banks’ activities in groups for calculating the exposure limit (NBP Official Journal — Dz. Urz. — no. 3/2007 item 5), hereinafter referred to as the “Resolution on exposure concentration limits and large exposures limits”,

d) consolidated excess of the capital concentration threshold — construed as excess of the capital concentration threshold calculated accordingly, pursuant to the principles specified in Annex 13 hereto, adopting the consolidated regulatory capital calculated pursuant to the method specified in subpara. 1 as the basis for calculation of the threshold.

§ 12. The bank shall, to the extent necessary to implement the provisions of the Resolution, prepare in writing an internal procedure, approved by the management board of the bank, covering detailed principles of isolating the trading book and the banking book, determining underlying positions, calculating the market performance, calculating loss from operations included in the banking book, applying estimation techniques, classifying exposures into specific exposure classes to calculate the capital adequacy requirement for credit risk, attributing credit risk weights to exposures, calculating the capital adequacy account, and applying the capital adequacy standard on a consolidated basis.

§ 13.1. For the purpose of the observation period referred to in § 197 (1) of Annex 5 hereto, a bank that does not hold approval to use its own estimates of loss given defaults (LGDs) and conversion factors, may apply, at the time of IRB implementation, the data covering at least three years, save that such period shall increase every year by one year, until it reaches at least five years.

2. For the purpose of the observation period referred to in § 203 (1) of Annex 5 hereto, the

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bank may apply, at the time of IRB implementation, the data covering at least three years, save that such period shall increase every year by one year, until it reaches at least five years.

3. For the purpose of the observation period referred to in § 218 of Annex 5 hereto, the bank may apply, at the time of IRB implementation, the data covering at least three years, save that such period shall increase every year by one year, until it reaches at least five years.

4. For the purpose of the observation period referred to in § 227 of Annex 5 hereto, the bank may apply, at the time of IRB implementation, the data covering at least three years, save that such period shall increase every year by one year, until it reaches at least five years.

5. If the application referred to in § 8 (2) is submitted before December 31, 2009, the Commission for Banking Supervision may approve reduction of the three-year application period referred to in § 2 (3) subpara. 3 of Annex 5 hereto to a period no shorter than one year.

6. The approval referred to in section 5 depends on the Commission of Banking Supervision evaluating the extent, to which the IRB system of the bank complies with the minimum requirements specified in Annex 5 hereto, as well as the period, when the system was used by the bank before the date of the application.

7. If the application referred to in § 8 (2) taking into account the approach referred to in § 8 (2) subpara. 1 (e) is submitted before December 31, 2008, the Commission for Banking Supervision may approve reduction of the three-year application period referred to in § 2 (3) subpara. 4 of Annex 5 hereto to a period no shorter than two years.

8. The approval referred to in section 7 depends on the Commission of Banking Supervision evaluating the extent, to which the IRB system of the bank complies with the minimum requirements specified in Annex 5 hereto, as well as the period, when the system was used by the bank.

9. Until December 31, 2010, the exposure-weighted average value of the loss for loss given defaults (LGDs), referred to in Annex 5 hereto, for all retail exposures collateralised by residential property and not covered by central government guarantees shall not be less than 10%.

§ 14.1. Until December 31, 2007, the bank may apply the provisions established in § 1 — 29 of Annex 21 hereto in lieu of the provisions of § 4 — 101 of Annex 4 hereto to calculate the total capital requirement for credit risk of exposures not covered by the IRB referred to in Annex 5.

2. Where the bank applies the approach referred to in section 1:

1) the bank calculates total capital requirements referred to in § 6 (1) subparas. 2-5, appropriately applying the provisions referred to in § 1 — 29 of Annex 21 hereto, in lieu of the provisions of § 4 — 101 of Annex 4 hereto;

2) to calculate the total capital requirement against specific debt instruments risk, referred to in § 6 (1) subpara. 2 (d), the bank shall apply the provisions of § 30 — 31 of Annex 21 hereto, in lieu of provisions of § 4 — 7 of Annex 9 hereto.

3. Where the bank applies the approach referred to in section 1, the bank shall decrease the capital requirement for operational risk by a percentage ratio of the exposure portfolio value, covered by the method referred to in § 1 — 29 of Annex 21 hereto, to the total value of the exposure portfolio of the bank.

4. Where the bank applies the approach referred to in section 1, for the exposures not covered by the IRB, to calculate the total capital requirement for credit risk, the bank shall not apply the provisions concerning:

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1) credit risk mitigation, referred to in Annex 17 hereto; 2) securitization of assets, referred to in Annex 18 hereto.

5. The bank making use of the possibility referred to in section 1 to all exposures shall apply the approach resulting from § 3 (2) of the Resolution concerning exposure limits and large exposure limits to large exposures.

§ 15.1. The bank calculating the amount of risk-weighted exposures according to IRB until December 31, 2009, shall hold its regulatory capital as provided for in § 6 (3), however no less than specified in subparas. 1, 2 or 3, accordingly:

1) 95% of comparable overall capital requirement calculated according to section 3 — from January 1, 2007 to December 31, 2007;

2) 90% of comparable overall capital requirement calculated according to section 3 — from January 1, 2008 to December 31, 2008;

3) 80% of comparable overall capital requirement calculated according to section 3 — from January 1, 2009 to December 31, 2009.

2. The bank using AMA to calculate the capital requirement for operational risk shall, from January 1, 2008 to December 31, 2009, maintain its regulatory capital as provided for in § 6 (3), however no less than specified in subparas. 1 or 2, accordingly:

1) 90% of comparable overall capital requirement calculated according to section 3 — from January 1, 2008 to December 31, 2008;

2) 80% of comparable overall capital requirement calculated according to section 3 — from January 1, 2009 to December 31, 2009.

3. The comparable overall capital requirement shall be the total of the following:

1) comparable total capital requirement against credit risk — calculated according to § 1 — 29 of Annex 21 hereto, § 1 — 3 and 100 — 101 of Annex 4 hereto and § 9 — 11 of Annex 16 hereto;

2) comparable total capital requirement against market risk, including: a) comparable total capital requirement against foreign exchange risk — calculated

according to Annex 6 hereto, excluding the provisions of § 4 of Annex 6 hereto,

b) comparable total capital requirement against commodities risk — calculated according to Annex 7 hereto, excluding the provisions of § 15 of Annex 7 hereto,

c) comparable total capital requirement against equity risk — calculated according to Annex 8 hereto, excluding the provisions of § 12 — 18 of Annex 8 hereto,

d) comparable total capital requirement against specific debt instruments risk — calculated according to Annex 9 hereto, excluding the provisions of § 4 — 14 of Annex 9 hereto, and according to § 30 — 35 of Annex 21 hereto,

e) total capital requirement against general interest rate risk — calculated according to Annex 10 hereto;

3) comparable total capital requirement against settlement, delivery or counterparty credit risk — calculated according to § 36 — 48 of Annex 21 hereto;

4) comparable total capital requirement against exceeding exposure concentration and large exposure limits — calculated according to Annex 12 hereto;

5) total capital requirement against exceeding capital concentration threshold —

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calculated according to Annex 13 hereto.

§ 16. Until December 31, 2007, the bank shall not use:

1) its own estimates of loss given defaults (LGDs) and conversion factors to exposures referred to in § 6 (1) subpara. 1 — 3 of Annex 5 hereto;

2) AMA to measure operational risk as referred to in § 34 — 69 of Annex 14 hereto. § 17. Until December 31, 2012, to measure the amounts of risk-weighted exposures for the purposes specified in § 4 of Annex 4 hereto to exposures to governments and central banks of the Member States, denominated and financed in local currency of a Member State, the same risk weight shall be used as would be attributed to the exposures to the Treasury and the National Bank of Poland, denominated and financed in PLN.

§ 18. The Resolution shall take effect on April 1, 2007.

President of the Commission for Banking Supervision

S. Kluza

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Annex no. 1 to Resolution no. 1/2007 of the Commission for Banking Supervision of March 13, 2007 (item 3)

LIST OF ANNEXES

Annex No. 1 — LIST OF ANNEXES

Annex No. 2 — GENERAL PRINCIPLES OF CALCULATING POSTIONS IN

UNDERLYING INSTRUMENTS

Annex No. 3 — CLASSIFICATION OF THE TRADING BOOK AND A LIST OF

OPERATIONS INCLUDED IN THE TRADING BOOK

Annex No. 4 — CALCULATING CAPITAL REQUIREMENT FOR CREDIT RISK —

GENERAL PRINCIPLES, STANDARDISED APPROACH

Annex No. 5 — USE OF INTERNAL RATINGS BASED APPROACH TO CALCULATE

THE CAPITAL REUQIREMENT FOR CREDIT RISK

Annex No. 6 — CALCULATING THE CAPITAL REQUIREMENT FOR FOREIGN

EXCHANGE RISK

Annex No. 7 — CALCULATING THE CAPITAL REQUIREMENT FOR COMMODITY

PRICE RISK

Annex No. 8 — CALCULATING THE CAPITAL REQUIREMENT FOR EQUITY PRICE

RISK

Annex No. 9 — CALCULATING THE CAPITAL REQUIREMENT FOR SPECIFIC RISK

OF DEBT INSTRUMENT PRICES

Annex No. 10 — CALCULATING THE CAPITAL REQUIREMENT FOR GENERAL

INTEREST RATE RISK

Annex No. 11 — CALCULATING THE CAPITAL REQUIREMENT FOR

SETTLEMENT/DELIVERY AND COUNTERPARTY CREDIT RISK

Annex No. 12 — CALCULATING THE CAPITAL REQUIREMENT FOR EXCEEDING

THE CONCENTRATION OF EXPOSURES LIMIT AND THE LARGE

EXPOSURE LIMIT

Annex No. 13 — CALCULATING THE CAPITAL REQUIREMENT FOR EXCEEDING

FOR EXCEEDING QUALIFIED HOLDINGS

Annex No. 14 — CALCULATING THE CAPITAL REQUIREMENT FOR OPERATIONAL

RISK

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Annex No. 15 — PRINCIPLES CONCERNING THE USE OF CREDIT ASSESSMENTS

ASSIGNED BY EXTERNAL CREDIT ASSESSMENT INSTITUTIONS

AND THE USE OF CREDIT ASSESSMENTS ASSIGNED BY EXPORT

CREDIT AGENCIES

Annex No. 16 — DETERMINATION OF THE ON-BALANCE SHEET EQUIVALENT OF

OFF-BALANCE SHEET TRANSACTIONS IN ORDER TO ACCOUNT

FOR COUNTERPARTY CREDIT RISK

Annex No. 17 — CREDIT RISK MITIGATION

Annex No. 18 — CALCULATING RISK-WEIGHTED EXPOSURE AMOUNTS FOR

ASSET SECURITISATION

Annex No. 19 — VALUE-AT-RISK APPROACH

Annex No. 20 — NOTIFICATION CONCERNING BREACH OF CAPITAL ADEQUACY

STANDARDS

Annex No. 21 — CALCULATION OF COMPARATIVE CAPITAL REQUIREMENT BY

BANKS USING THE OPTION PROVIDED FOR IN § 14, SUBPARA. 1 OF

THE RESOLUTION

Annex No. 22 — PRINCIPLES FOR ASSIGNING SPECIALISED LENDING EXPOSURES

TO RISK CATEGORIES BY BA

17

Annex no. 2 to Resolution no. 1/2007 of the Commission for Banking Supervision of March 13, 2007 (item 3)

GENERAL PRINCIPLES OF CALCULATING POSTIONS

IN UNDERLYING INSTRUMENTS

Part I. Specifying Underlying Positions in Underlying Instruments § 1. Underlying instruments and price parameters are described for the purposes of calculation of total capital requirements against specific market risks referred to in Annexes 6 — 10 to the Resolution.

§ 2.1. Underlying positions in underlying instruments shall be specified for:

1) balance sheet operations — construed as operations resulting in balance sheet assets and liabilities;

2) off-balance-sheet operations — construed as operations resulting in off-balance-sheet commitments, including:

a) off-balance-sheet contingent operations — resulting in:

- off-balance-sheet granted and received contingent liabilities (related to guarantees and financing),

- off-balance-sheet credit derivatives — resulting in off-balance-sheet granted or received commitments to purchase, sell or settle in cash the underlying instrument constituting a reference asset where the specific credit event takes place,

b) off-balance-sheet transactions (derivative transactions) — resulting in off-balance-sheet commitments related to execution of forward operations, in particular forward purchase/sale transactions, swaps, deposits/investments, including:

- off-balance-sheet current transactions — construed as off-balance-sheet transactions to be effected on a contractually specified future date no later than 2 working days after the transaction is concluded (i.e. within 48 hours of the closing of the day on which the transaction is concluded, excluding hours during holidays), with a pre-defined level of the price parameter,

- simple off-balance-sheet forward transactions — construed as off-balance-sheet transactions to be effected on a contractually specified future date no later than 2 working days after the transaction is concluded (i.e. within 48 hours of the closing of the day on which the transaction is concluded, excluding hours during holidays), with a pre-defined level of the price parameter,

- off-balance-sheet option forward transactions (options including warrants) — construed as off-balance-sheet transactions of purchase or sale of the right to purchase or sell a specific number of underlying instruments, which may be effected on a contractually agreed future date or within a contractually agreed period, with a pre-defined level of the price parameter.

2. The list of typical off-balance-sheet derivative transactions is specified in § 31.

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§ 3.1. Subject to Annexes 4 — 14, underlying positions (long, short) in underlying instruments shall be calculated as:

1) balance sheet or off-balance-sheet totals (debit, credit) resulting from balance sheet operation, off-balance-sheet contingent operation or off-balance-sheet current transaction;

2) balance sheet or off-balance-sheet totals (debit, credit) resulting from theoretical balance sheet operations (in particular from balance sheet deposit or investment operations) or from theoretical off-balance-sheet current transactions (in particular off-balance-sheet current purchase or sale transactions), which reflect the off-balance-sheet forward transaction and ensure fulfillment of its purpose while preserving its risk profile (decomposition of the off-balance-sheet forward transaction).

2. The banks calculating the overall comparable capital requirement for the purposes of section 1, shall also comply with the provisions of Annex 21 to the Resolution.

§ 4.1. Options on interest rates, debt instruments, equity, stock indices, commodities or derivative commodity transactions, exchange-traded futures, foreign exchange swaps, and warrants for debt instruments, equity and commodities shall be included in the calculation of underlying positions in the amount of their delta equivalents, equal to nominal amounts of options, multiplied by the corresponding delta, where:

1) the delta of the options shall be construed as the quotient of the change in the options value and any incremental increase in the value of the option’s underlying instrument causing this change;

2) for options traded at the stock exchange, deltas specified by the stock exchange shall be applied;

3) in the case of OTC options, deltas calculated on the basis of internal option pricing models shall be used.

2. In the case referred to in section 1 subpara. 3, the bank shall obtain the approval of the Commission for Banking Supervision to calculate deltas on the basis of internal option pricing models. To the application for the approval, the bank shall attach the following:

1) a description of the option pricing model which constitutes the basis for calculation of the delta; 2) a specification and verification of the option pricing model assumptions;

3) a product specification for the scope of application of the option pricing model;

4) a description of sources and methods of updating data used in the option pricing model;

5) information on the method of estimating parameters of the option pricing model;

6) a description of internal procedures concerning risk management and posting option transactions;

7) an assessment of sensitivity of the deltas to the changes in the value of option’s underlying instrument.

3. To obtain the approval referred to in section 2, the bank shall fulfill the following requirements:

1) the option pricing model ensures the compliance with the market prices of options;

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2) theoretical assumptions for the option pricing model are fulfilled or the bank proves that non-compliance does not have significant influence on the value of the deltas calculated;

3) the mechanism to provide data for the purposes of the model is independent of the bank’s trading operations and persons or organizational units using the deltas calculated, however this requirement may be deemed fulfilled also if there is current, independent verification of the data entered by persons or organizational units that use the deltas calculated;

4) data updating methods include mechanism to ensure correctness and validity of data used in the model, save that the bank shall have proper procedures in place if the data cannot be updated;

5) the bank shall use all possible data sources; the bank may omit a data source if it decides and proves that the data from this source are clearly less reliable than data from other sources;

6) the bank shall systematically update and evidence the data sources used;

7) when taking into account the typical scope of price volatility of the option’s underlying instrument, the value of the option’s underlying instrument significantly influences the calculated deltas, the bank shall apply adjustments appropriately increasing the value of the delta calculated or otherwise ensure compliance of the specified delta equivalent with the exposure value;

8) estimation of the parameters of the model ensures the best possible use of the data available, however the bank may apply simplify or omit data, as long as it shows that this does not influence significantly the value of the deltas calculated or that omitting data improves the quality of the option pricing model;

9) the relevant risk control unit shall be responsible for the application of the option pricing model, and the internal procedures of risk management shall ensure appropriate control of verification of the valuation model, data, estimation of parameters and application of the model and shall ensure the model functioning independent of trading activity of the bank and persons or organizational units that use the calculated deltas.

§ 5. The bank that enters into option forward transactions shall control and limit risk resulting from the influence of factors other than changes in current price parameters on the value of options and shall make adjustments appropriately increasing the value of calculated delta.

§ 6. To the he bank that enters into option forward transactions solely and exclusively in a way that ensures simultaneous (in every case and immediate) conclusion of an opposite option forward transaction of the same parameters, § 4 shall not apply. (2).

§ 7. Complex operations that involve:

1) entering into an off-balance-sheet transaction (external transaction), the subject matter of which is another off-balance-sheet transaction (internal transaction) — shall be included in the calculation of underlying positions pursuant to the principles specified herein applied to the external transaction, with the nominal value of the internal transaction being assigned to the external transaction;

2) simultaneous conclusion of several operations — shall be broken down into component operations and included separately in the calculation of underlying positions pursuant to the principles specified herein.

§ 8. Operations resulting both in balance sheet assets or liabilities and off-balance-sheet liabilities shall be broken down into balance sheet and off-balance-sheet operations,

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accordingly, and shall be separately included in the calculation of underlying positions pursuant to the principles specified herein.

§ 9. Maturity date of an underlying position shall be construed as a contractually stipulated final date of repayment of all liabilities related to the underlying position, while:

1) the current underlying position shall be construed as an underlying position with the maturity date falling no later than within 2 working days following the day the transaction is entered into (i.e. within 48 hours of the closing of the day on which the transaction is entered into, excluding hours falling on holidays);

2) the forward underlying position shall be construed as an underlying position with the maturity date longer than 2 working days following the day the transaction is entered into (i.e. within 48 hours of the closing of the day on which the transaction is entered into, excluding hours falling on holidays).

§ 10. The bank may include, subject to § 11, underwriting securities (debt and equity) in the calculation of underlying positions in the amount of the commitment of acquisition (purchase), at a predefined price and on a predefined date, of securities (debt or equity) from a new issue, less the amount of performed subscriptions and sub-underwritings received from third parties on contractual basis.

§ 11. The bank may include underwriting securities in the calculation of underlying positions as a product of the amount specified in § 10 and appropriate conversion ratios specified in Table 1.

Table 1

Term Conversion ratios

from signing of the agreement to day zero 0%

on the first working day after day zero 10%

on the second and third working day after day zero 25%

on the fourth working day after day zero 50%

on the fifth working day after day zero 75%

on the sixth and subsequent working days after day zero 100%

Day zero shall mean the day when the bank becomes unconditionally obliged to purchase a known amount of securities for an agreed price.

§ 12. Interest rate futures, forward rate agreements (FRA) and forward commitments to purchase or sell debt instruments shall be decomposed into underlying positions according to the following principles:

1) a long position in interest rate futures generates:

a) a short position corresponding to the cash loan contracted, due on the day of delivery specified in the agreement,

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b) a long position for the assets held, with the maturity date identical to the maturity date of the reference instrument or position, which is the subject matter of a given futures contract;

2) a short position for the off-balance-sheet interest rate futures contract generates:

a) a long position maturing in the day including transaction settlement term and the term of the agreement,

b) a short position due on the transaction settlement day;

3) in the case of interest rate futures and forward interest rate agreements, both the cash loan contracted and the assets to calculate the capital requirement against specific debt instruments risk shall be included in low specific risk position;

4) a position for forward commitment to purchase a debt instrument generates:

a) a short position corresponding to the cash loan contracted, due on the day of instrument delivery,

b) a long position in the debt instrument;

5) in the case of forward commitment to purchase debt instrument, to calculate the capital requirement against specific debt instruments risk, the cash loan contracted shall be included in the low specific risk position, while the debt instrument shall be recorded in the table column, which is appropriate for the instrument concerned.

§ 13. To calculate the capital requirement against the general interest rate risk, swaps shall be decomposed into balance sheet operations — interest rate swap, under which the bank receives a floating interest rate and pays a fixed interest rate, generates:

1) a long position in a floating rate instrument of maturity equivalent to the period until the next interest rate fixing;

2) a short position in a fixed-rate instrument with the same maturity as the swap itself.

§ 14. The principles of including underlying positions of derivative credit instruments are described in § 17 — 26.

§ 15. The underlying positions in underlying instruments shall be expressed in balance sheet value, while current foreign currency underlying positions shall be converted into PLN according to the average exchange rate published by the National Bank of Poland and applicable on the reporting day, pursuant to the procedure established for their valuation, as for the balance sheet day.

§ 16.1. To calculate the capital requirements against the foreign exchange risk, referred to in Annex 6 to the Resolution and the capital requirement against specific and general risk of equity securities price, referred to in Annex 8 to the Resolution, the bank shall exclude the underlying positions for participation units in a collective investment undertaking when calculating the capital requirement against the risk components mentioned as 40% of net positions for each of the units.

2. In the case referred to in section 1, to calculate the capital requirements against the foreign exchange risk and the capital requirement against specific and general risk of equity securities price, the bank shall include separately the amounts equal to 20% of net positions for each of the units.

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Part II. Including Credit Hedges in the Calculation of Underlying Positions in the Trading Book

PROTECTION SELLER § 17. The bank, which as a result of an agreement on a derivative credit instrument assumes credit risk (“protection seller”) shall take into account the nominal value stipulated in the agreement to calculate the capital requirement against market risk, unless otherwise provided herein.

§ 18. The bank referred to in § 17, subject to the cases of total return swaps, shall use the settlement term of the agreement on the derivative credit instrument, instead of the maturity of the commitment, to calculate specific risk of debt instrument prices, while particular transactions are decomposed into underlying positions according to the following principles:

1) a total return swap generates:

a) a long position in the general interest rate risk of the reference obligation,

b) a short position in the general interest rate risk of a government bond with a maturity equivalent to the period until the next interest rate fixing and which is assigned a 0% risk weight under the capital requirement against credit risk on the basis of the standard method,

c) a long position in the specific debt instruments prices risk of the reference obligation;

2) a credit default swap generates:

a) a synthetic long position in the specific debt instruments prices risk of the obligation of the reference entity, unless the derivative is rated externally, meaning credit rating issued by an external credit rating institution and meets the requirements specified in Annex 9 to the Resolution, for a qualifying debt item, in which case a long position in the specific debt instrument prices risk of this derivative is recorded,

b) if premium or interest payments are due under the product, these cash flows must be represented as notional positions in government bonds;

3) a single name credit linked note generates:

a) a long position in the general interest rate risk of the reference obligation,

b) a synthetic long position in the specific debt instrument prices risk of the obligation of the reference entity and an additional long position in the specific debt instrument prices risk of a debt instrument,

c) if the credit linked note is externally rated and meets the requirements for a qualifying debt item it does not generate positions referred to in (a) and (b), only a long position in the specific debt instrument prices risk for this instrument;

4) a multiple name credit linked note providing proportional protection, generates:

c) a long position in the specific debt instrument prices risk for this instrument;

b) a long position in the specific debt instrument prices risk for the obligations of each of the reference entities, where the total notional value of the contract is assigned to each position in proportion to the percentage share in the total notional value, which is the exposure to the reference entity, however if it is possible to isolate more than one obligation of the reference entity, the basis to specify the specific debt instrument prices risk is the obligation with the highest risk weighting,

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c) if the multiple name credit linked note is externally rated for credit and meets the requirements for a qualifying debt item it does not generate positions referred to in (a) and (b), only a long position in the specific debt instrument prices risk for this instrument;

5) a first-asset-to-default credit derivative generates long positions in the specific debt instrument prices risk reflecting the notional values of the obligations of each reference entity, however if the amount of the maximum credit event payment is lower than the capital requirement established according to the principle described in the first part of the sentence, the amount of the maximum payment may be used as the capital requirement against the specific risk of this instrument;

5) a second-asset-to-default credit derivative generates long positions in the specific debt instrument prices risk reflecting the notional values of the obligations of each reference entity, excluding the obligation of the entity with the lowest capital requirement against specific debt instrument prices risk, however if the amount of the maximum credit event payment is lower than the capital requirement established according to the principle described in the first part of the sentence, the amount of the maximum payment may be used as the capital requirement against the specific risk of this instrument;

7) if the instrument referred to in subpara. 5 or 6 is externally rated for credit and meets the requirements for a qualifying debt item, the protection seller shall only include the underlying position in the specific debt instrument prices risk corresponding to the credit rating of the derivative.

PROTECTION BUYER § 19. For the bank which transfers credit risk (the “protection buyer”), the positions are determined as the mirror image of the protection seller, with the exception of a credit linked note, which entails no short position in the issuer, while:

1) if at a given moment there is a call option in combination with a step-up, such moment is treated as the maturity of the protection;

2) in the case of nth to default credit derivatives, protection buyers are allowed to off-set specific risk for n-1 of the underlyings (i.e., the n-1 assets with the lowest specific risk charge).

§ 20. The bank which marks to market the derivatives specified in § 4 (1), § 12 and 13, and manages the general interest rate risk on a discounted cash flow basis, subject to § 21, may use sensitivity models to calculate the positions referred to above and may use them for any bond which is amortised over its residual life rather than via one final repayment of principal.

§ 21. The bank may use the sensitivity model after it acquires the approval of the Commission for Banking Supervision, save that:

1) the model should generate positions which have the same sensitivity to interest rate changes as the underlying cash flows;

2) this sensitivity must be assessed with reference to independent movements in sample rates across the yield curve, with at least one sensitivity point in each of the maturity bands set out in table specified in § 6 of Annex 10 to the Resolution;

3) the positions shall be included in the calculation of capital requirements according to the provisions laid down in Annex 10 to the Resolution.

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§ 22. The bank that does not use the models according to the principles specified in § 20 and 21, may treat as fully compensating itself the positions in derivatives that fulfill at least the following requirements:

1) the positions are of the same value and denominated in the same currency;

2) the reference rate (for floating rate positions) or coupon (for fixed rate positions) is closely matched;

3) the next interest fixing date or, for fixed coupon positions, residual maturity corresponds to the following limits:

a) less than one month hence — same day,

b) between one month and one year hence — within seven days,

c) over one year hence — within 30 days.

§ 23. The bank transferring the securities or guaranteed rights relating to title to securities in a repurchase agreement (repo) and the lender of securities in a securities lending shall include these securities in the calculation of its capital requirement, provided that such securities meet the criteria of inclusion in the trading book laid down in Annex 3 to the Resolution.

INCLUDING UNDERLYING POSITIONS RESULTING FROM EXPOSURES HEDGED BY CREDIT DERIVATIVES IN CALCULATION OF THE CAPITAL REQUIREMENT AGAINST THE SPECIFIC DEBT INSTRUMENT PRICES RISK § 24. To calculate the capital requirement against the specific debt instrument prices risk, the underlying position resulting from the underlying exposure hedged by a credit derivative and resulting from the protection shall be omitted if the values of both sides (short position and long position) change alternately and mostly to the same extent, which takes place in the following situations:

1) both positions consist of completely identical instruments;

2) a long cash position is hedged by a total rate of return swap (or vice versa) and there is an exact match between the reference obligation and the underlying exposure (i.e., the cash position), while the maturity of the swap itself may be different from that of the underlying exposure.

§ 25. To calculate the capital requirement against the specific debt instrument prices risk, 20% of the value of the underlying position resulting from the underlying exposure hedged by a credit derivative or resulting from the protection (depending which category generates higher capital requirement) shall be included if the positions change alternately and mostly to the same extent and where:

1) there is an exact match between the reference obligation, the maturity of both the reference obligation, the credit derivative and the currency of the underlying exposure;

2) essential elements of the credit derivative agreement do not influence significantly the difference between the change in prices of the credit derivative and changes in the prices of the reference obligation.

§ 26. To calculate the capital requirement against the specific debt instrument prices risk, the underlying position resulting from the underlying exposure hedged by a credit derivative or resulting from the protection (depending which category generates higher capital requirement) shall be included, if the positions change alternately and mostly to the same extent, which takes place in the following situations:

25

1) the underlying position meets the requirements specified in § 24 subpara. 2 but there is an asset mismatch between the reference obligation and the underlying exposure, save that the following requirements are met:

a) the reference obligation ranks pari passu with or is junior to the underlying obligation,

b) the underlying obligation and reference obligation share the same obligor and have legally enforceable cross default or cross acceleration clauses;

2) the underlying position meets the requirements specified in § 24 subpara. 1 or § 25 but there is a currency or maturity mismatch between the credit protection and the underlying asset (currency mismatches should be included in calculation of the capital requirements against foreign exchange risk pursuant to Annex 6 to the Resolution);

3) the underlying position meets the requirements specified in § 25 but there is an asset mismatch between the cash position and the credit derivative, however the underlying asset is included in the deliverable obligations in the credit derivative agreement.

Part III. Calculating Aggregate Positions § 27. A net position for a given underlying instrument shall be calculated as the absolute value of the difference between the total of long and the total of short balance sheet and off-balance-sheet underlying positions in a given underlying instrument, with the position determined as:

1) long — where the difference is positive;

2) short — where the difference is negative;

3) closed — where the difference equals zero.

§ 28. The overall position shall be calculated as:

1) the total of long or short net positions in particular underlying instruments, whichever is higher;

2) the total of long net positions in particular underlying instruments — where the totals referred to in subpara. 1 are equal.

§ 29. Global net position shall be calculated as the absolute value of the difference between the total of long and the total of short underlying positions in underlying instruments, where the position shall be determined as:

1) long — where the difference is positive;

2) short — where the difference is negative;

3) closed — where the difference equals zero.

§ 30. Global gross position shall be calculated as the total of long and short underlying positions in underlying instruments.

Part IV. Types of Off-Balance-Sheet Derivative Transactions § 31. Typical off-balance-sheet derivative transactions include:

1) interest rate agreements:

a) single-currency interest rate swap,

b) basis-swap,

26

c) forward rate agreement,

d) interest rate futures,

e) purchased interest rate options,

f) similar agreements, other than listed in (a) — (e);

2) foreign exchange and gold agreements:

a) cross-currency interest rate Swap,

b) forward currency agreements,

c) currency futures,

d) purchased currency options,

f) similar agreements, other than listed in (a) — (d);

f) gold agreements similar to those listed in (a) — (e);

3) agreements similar to those listed in subpara. 1 (a) — (e) and in subpara. 2 (a) — (d) related to other underlying assets or indices, including without limitation:

a) financial contracts for differences,

b) options, futures, swaps, forward rate agreements and other derivatives: - relating to securities, currencies, interest rates or yields, or other derivative instruments, financial indices or financial measures which may be settled physically or in cash,

- relating to commodities that must be settled in cash or may be settled in cash at the option of one of the parties (otherwise than by reason of a default or other termination event),

- relating to commodities that can be physically settled provided that they are traded on a regulated market and/or an MTF, referred to in Article 3 subpara. 2 of the law of July 29, 2005 on financial instruments trading (Journal of Laws — Dz. U. — 183/2005, item 1538 as amended. 1), - relating to commodities, that can be physically settled not otherwise mentioned in (c) and not held for commercial purposes, which have the characteristics of other derivative financial instruments, having regard to whether, inter alia, they are cleared and settled through recognized clearing houses or are subject to regular margin calls,

- relating to climatic floatings, freight rates, maximum emission allowances or inflation rates or other official economic statistics that must be settled in cash or may be settled in cash at the option of one of the parties (otherwise than by reason of a default or other termination event), as well as any other derivative contracts relating to assets, rights, obligations, indices and measures not otherwise mentioned in (a) — (d) or subpara. 4, which have the characteristics of other derivative financial instruments, having regard to whether, inter alia, they are traded on a regulated market or an MTF, are cleared and settled through recognized clearing houses or are subject to regular margin calls.

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Annex no. 3 to Resolution no. 1/2007 of the Commission for Banking Supervision of March 13, 2007 (item 3)

CLASSIFICATION OF THE TRADING BOOK AND A LIST OF OPERATIONS INCLUDED IN THE TRADING BOOK

Part I. Criteria of Inclusion in the Trading Book

GENERAL PRINCIPLES § 1. The trading book of the bank consists of:

1) operations performed on bank’s own account for trading purposes, i.e. with the intention of achieving financial benefits in the short term from real or expected differences between market purchase and sale prices, or from other deviations of prices or price parameters, including without limitation interest rates, exchange rates, stock exchange indices;

2) operations performed for the purpose of hedging the risk resulting from operations included in the trading book.

§ 2. The trading book shall consist of, without limitation, the following operations, where they comply with the requirements established in § 1 subparas. 1 and 2:

1) off-balance sheet forward stock exchange and OTC transactions;

2) operations performed under provision of financial intermediation services on the wholesale financial market (on own account and on behalf of the customer), even where underlying positions resulting from those operations are fully compensated by offsetting positions;

3) operations to underwrite issue of securities (debt and equity).

§ 3. In the trading book, the bank may include instruments resulting from the exposure referred to in § 2 (1) (a) of the regulatory capital resolution and treat them as equity or debt instruments accordingly, where:

1) the bank proves that for these instruments it is an active market maker, which shall be construed as frequent contracting for these instruments;

2) the bank has proper control systems and mechanisms in place to regulate trade in these instruments;

3) the exposure for any of these instruments does not exceed 10% of the capital of the entity, the instrument relates to.

§ 4. Forward trading-related repo-style transactions, included by the bank in the banking book, may be included in the trading book for the purposes of capital requirement calculation, if this approach is applied consistently to all trading-related repo-style transactions, where:

1) trading-related repo-style transactions shall mean transactions that meet the criteria of inclusion in the trading book and both legs are in the form of either cash or securities includable in the trading book;

28

2) regardless of where they are booked, all repo-style transactions are subject to a banking book counterparty credit risk charge, pursuant to § 98 of Annex 4 to the Resolution.

§ 5. For the positions included in the trading book, the following requirements shall be met:

1) the principles of classification of the trading book, referred to in § 12 of the Resolution shall specify, in particular, holding horizon for specific operation types in the trading book;

2) the principles and procedures for active management of trading book positions are established and they require:

a) position limits to be set and monitored for their appropriateness,

b) employees to be free to enter into agreements resulting in opening positions and to manage them within the agreed limits and pursuant to an agreed strategy,

c) procedures concerning risk management providing for reports on positions to be transferred to the management board of the bank,

d) positions to be monitored with reference to market information sources and an assessment made of the marketability or hedgeability of the position or its component risks, including without limitation the assessment of, the quality and availability of market inputs to the valuation process, level of market turnover, sizes of positions traded in the market;

3) there should be clearly defined principles and procedures to monitor the position against the bank’s trading strategy including the monitoring of turnover and stale bank’s trading book.

INTERNAL HEDGES § 6.1. The bank may include in the trading book internal hedges, construed as positions that materially or completely offset the component risk element of a banking book position or a set of positions.

2. Positions arising from internal hedges are eligible for trading book capital treatment, provided that they are held with trading intent and that the general criteria on trading intent and prudent valuation specified in § 1 — 5 and § 10 — 13 are met, in particular:

1) internal hedges shall not be primarily intended to avoid or reduce capital requirements;

2) internal hedges shall be properly documented and subject to particular internal approval and audit procedures;

3) internal hedges shall be dealt with at market conditions;

4) the bulk of the market risk that is generated by the internal hedge shall be dynamically managed in the trading book within the authorized limits;

5) internal hedges shall be carefully monitored under appropriate procedures.

3. The treatment referred to in subpara. 2, applies without prejudice to the capital requirements applicable to the banking book leg of the internal hedge.

4. Notwithstanding subparas. 2 and 3, when the bank hedges a banking book credit risk exposure using a credit derivative booked in its trading book (using an internal hedge), the banking book exposure is not deemed to be hedged for the purposes of calculating capital requirements unless the bank purchases from an eligible third party protection provider a hedge resulting from the credit derivative agreement meeting the requirements set out in § 42 (1) of Annex 17 to the Resolution with regard to the banking book exposure. Where such

29

third party protection is purchased and is recognized as a hedge of a banking book exposure for the purposes of calculating capital requirements, neither the internal nor external credit derivative hedge shall be included in the trading book for the purposes of calculating capital requirements.

Part II. Control Systems and Mechanisms

GENERAL PRINCIPLES § 7. The bank shall establish and maintain systems and controls sufficient to provide prudent and reliable valuation estimates.

§ 8. Systems and controls shall include at least the following elements:

1) documented principles and procedures for the process of valuation, which include clearly defined responsibilities of the various areas involved in the determination of the valuation, sources of market information and review of their appropriateness, frequency of independent valuation, timing of day-end closing prices, procedures for adjusting valuations, month end and ad-hoc verification procedures;

2) reporting lines for the department accountable for the valuation process that are clear and independent of the organizational unit responsible for the valuation process.

§ 9. The management board of the bank shall supervise the control systems and mechanisms.

PRUDENT VALUATION METHODS § 10.1. Marking to market is the at least daily valuation of positions at readily available close out prices that are sourced independently, such as: exchange prices, screen prices, or quotes from several independent intermediaries (brokers) with significant experience in a given market.

2. When marking to market, the more prudent side of bid/ offer shall be used unless the bank is a significant market maker in the particular type of financial instrument or commodity in question and it can close out at mid market.

3. Where marking to market is not possible, the banks shall mark to model their positions/ portfolios before applying trading book capital treatment. Marking-to-model is defined as any valuation which has to be benchmarked, extrapolated or otherwise calculated from a market input and meets the requirements specified in subpara. 4.

4. The following requirements shall be complied with when marking-to-model:

1) the management board of the bank shall be aware of the elements of the trading book which are subject to mark to model and shall understand the materiality of the uncertainty this creates in the reporting of the risk/ performance of the business;

2) market inputs used shall be sourced, where possible, in line with market prices, and the appropriateness of the market inputs of the particular position being valued and the parameters of the model shall be assessed on a frequent basis;

3) where available, valuation methodologies which are accepted market practice for particular financial instruments or commodities shall be used;

4) the model shall be developed or approved independently from the organizational unit including the operations and shall be independently tested to validate mathematics, assumptions and software implementation, and where the model is developed by the bank

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itself, it shall be based on appropriate assumptions, which have been assessed and challenged by suitably qualified parties independent of the development process;

5) there shall be model change control procedures in place;

6) a secure copy of the model shall be held and periodically used to check valuations resulting from application of the model;

7) risk management unit or person shall be aware of the weaknesses of the model used and how best to reflect those in adjustments to the valuation output;

8) the model shall be subject to periodic review to determine the accuracy of its performance, in particular by assessing the continued appropriateness of assumptions, analysis of profit and loss versus risk factors, comparison of actual close out values to model outputs.

5. In addition to daily marking to market or marking-to-model, which may be effected by the employees of the bank’s organization unit including the operation, the bank shall perform independent price verification. The independent verification is the process by which market prices or model inputs are at least monthly (or, depending on the nature of the market/ trading activity, more frequently) verified for accuracy and independence. Verification of market prices and model inputs should be performed by a unit independent of the unit including the operations. Where independent pricing sources are not available or pricing sources are subjective, the bank shall use valuation adjustments mechanisms.

GENERAL PRINCIPLES OF VALUATION ADJUSTMENTS OR RESERVES

§ 11. The bank shall establish and maintain procedures for considering valuation adjustments or reserves.

§ 12. Valuation shall be adjusted or a reserve established for: unearned credit spreads, close-out costs, operational risks, early termination, investing and funding costs, future administrative costs and, where relevant, model risk.

SPECIFIC PRINCIPLES FOR LESS LIQUID POSITIONS § 13.1. Less liquid positions may arise from both market events and bank-related situations (e.g. concentrated positions and/or stale positions).

2. To determine whether a valuation reserve for less liquid position is necessary, the bank shall consider the following, without limitation:

1) the amount of time it would take to hedge out the risks of underlying position;

2) the volatility and average of bid/ offer spreads;

3) the availability of market quotes (number and identity of active market makers);

4) the volatility and average of trading volumes;

5) market concentration;

6) the aging of positions;

7) the extent to which valuation relies on marking-to-model;

8) the impact of other than the above mentioned model risks.

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3. When using third party valuations or marking-to-model, the bank shall consider whether to apply a valuation adjustment. The bank shall analyze the need for establishing reserves for less liquid positions and on an ongoing basis review their continued suitability.

4. When valuation adjustments/reserves give rise to material losses of the current financial year, these shall be deducted from the bank’s original regulatory capital according to the regulatory capital resolution.

5. Other than mentioned in subpara. 4, profits/ losses originating from valuation adjustments/ reserves shall be included in the calculation of daily market result for trading book operations to calculate the bank’s short-term capital.

6. Valuation adjustments/ reserves exceeding adjustments or reserves required by the accounting standards the bank complies to, shall be considered pursuant to subpara. 4, if they result in material losses, or pursuant to subpara. 5 in other cases.

Part III. Principles of Inclusion of Positions to the Trading Book § 14. The Bank shall specify principles and procedures for determining which positions to include in the trading book for the purposes of calculating the capital requirements pursuant to the criteria specified in § 1 — 6, save that:

1) the principles and procedures take into account the bank’s risk management capabilities and practices;

2) compliance with these principles and procedures shall be fully documented and subject to periodic internal audit.

§ 15. The principles and procedures referred to in § 14 shall specify at minimum:

1) the activities the bank considers to be trading and as constituting part of the trading book for capital requirement purposes;

2) the extent to which a position can be marked-to-market daily by reference to an active, liquid two-way market;

3) for positions that are marked-to-model daily, the extent to which the bank can:

a) identify all material risks of the position,

b) hedge all material risks of the position with instruments for which an active, liquid two-way market exists,

c) derive reliable estimates for the key assumptions and parameters used in the model;

4) the extent to which the bank can, and is required to, generate valuations for the position that can be validated externally in a consistent manner;

5) the extent to which legal restrictions or other operational requirements would impede the bank’s ability to effect a liquidation or hedge of the position in the short term;

6) the extent to which the bank can, and is required to, actively risk manage the position within its trading operation;

7) the extent to which the bank may transfer risk or positions between the banking and trading books and the criteria for such transfers.

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Part IV. List of Operations Included in the Trading Book § 16. The bank shall record the operations included in the trading book in a list prepared pursuant to the following model:

Operation concluded on .............

included in the trading book

Specification

(by types of operations, underlying instruments)

Trading book (nominal amount of

operations in PLN thousand)

Balance sheet operations:

Total balance sheet operations

Off-balance-sheet operations:

Total off-balance-sheet operations

Total balance sheet and off-balance-sheet operations

Scale of trading operations

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Annex no. 4 to Resolution no. 1/2007.

of the Commission for Banking Supervision

of March 13, 2007

(item 3)

CALCULATING CAPITAL REQUIREMENT

FOR CREDIT RISK

Part I. General Principles

§ 1. The bank without a significant scale of trading business shall calculate the total capital requirement for credit risk in relation to the trading book and the banking book together.

§ 2. The bank with significant scale of trading business shall calculate the total capital requirement for credit risk in relation to the banking book.

§ 3.1. The total capital requirement for credit risk shall be calculated as the total of risk-weighted exposures multiplied by 8%.

2. The exposure shall mean an asset or off-balance sheet liability granted.

§ 4. 1. The total of risk-weighted exposures referred to in § 3 (1), shall be calculated as the balance sheet values and balance sheet equivalents of specific exposure categories multiplied by the percentage risk weights, according to one of the following approaches:

1) attributed to exposures pursuant to § 7 — 99 — in a standardised approach;

2) specified for exposures pursuant to Annex 5 to the Resolution — in the IRB;

3) specified for exposures under the combination of approaches referred to in subparas. 1 and 2.

2. To establish the capital requirements according to the IRB described