56.1.4. Credit risk related to loans granted

As far as granted loans measured at amortized cost are concerned, the Group assesses the risk of insolvency on the part of the borrowers based on the ratings assigned to the counterparties using an internal scoring model, appropriately restated to account for the probability of default. The expected credit loss is calculated based on the time value of money. For the purposes of determining the calculation horizon for expected credit losses, the potential material credit risk increases related to certain financial assets are analysed beginning from the initial recognition of a given asset.

The factors determining the occurrence of a significant increase in credit risk related to such assets:

• the counterparty’s internal or external rating as at the reporting period end having deteriorated by more than two rating levels compared to its rating upon initial recognition;
• the counterparty’s probability of insolvency projected within one-year horizon as at the reporting period end being at least twice higher than as at the initial recognition date;
• receivables related to a given asset being overdue by more than 30 days.

If a given counterparty’s receivables are overdue by more than 90 days, they are classified as bad debt, i.e. the 100% probability of insolvency is assigned to that counterparty. The loans granted by the Group as at 31 December 2022 and 31 December 2021 were not overdue.

The measurement of loans classified as measured at fair value is carried out using the discounted cash flow method, taking into account credit risk. Loans granted by the Company to a joint venture of Elektrociepłownia Stalowa Wola S.A. are secured by a blank promissory note accompanied by a promissory note agreement.