SBN HOLDINGS LIMITED Annual Report 2022
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REPORT OF THE INDEPENDENT AUDITOR continued
SBN HOLDINGS LIMITED
Annual report 2022
Key audit matter
Macro-economic inputs and forward looking information
Forward-looking expectations are included in the ECL for BCB
and CHNW loans and advances based on the Group's macro-
economic outlook, using models that correlate these parameters
with macro-economic variables. Where modelled correlations are
not viable or predictive, adjustments are based on judgement to
predict the outcome based on the Group's macro-economic
outlook expectations.
The group's forward-looking economic expectations were
applied in the determination of the ECL at the reporting date.
Application of out-of-model adjustments into the ECL
measurement
Management may identify that due to modelling complexity,
certain aspects of the ECL may not be fully reflected by the
underlying model and forward looking information such as
specific event risks and industry data, have been taken into
account in ECL estimates when required, through the application
of out-of-model adjustments.
Assessment of ECL raised for individual exposures
A lifetime ECL is calculated on stage 3 exposures that are
assessed to be credit impaired due to evidence of default,
significant financial difficulty of the borrower and/or
modification, probability of bankruptcy or financial
reorganisation or disappearance of an active market due to
financial difficulties. This assessment relates primarily to
business lending accounts and incorporates judgement in
determining the foreclosure value of the underlying collateral.
Input assumptions applied to estimate the PD, EAD and
LGD within the ECL measurement
Input assumptions applied to estimate the PD, EAD and LGD as
inputs into the ECL measurement are subject to management
judgement and are determined at an exposure level.
Acquisition of a subsidiary
The Standard Bank Namibia Limited group acquired 100%
shareholding in Spearmint Investments (Pty) Ltd ("Spearmint"),
a property holding company that owns 100% of the total issued
share capital of the property investment entities listed in
Annexure A-Subsidiaries, of the notes to the separate financial
statements (the "property companies"). This acquisition was as
a result of a debt settlement transaction and represents the
recovery of the corresponding credit impaired loans and
advances provided to the counterparty. The effective date of the
transaction was 3 August 2022.
The acquisition of Spearmint was considered to be a matter of
most significance to our current year audit due to the level of
subjective judgement applied by management in valuing the
shares in the subsidiaries recognised in the Standard Bank
Namibia Limited separate financial statements, the magnitude of
the transaction, the complexity of the accounting treatment, and
the resultant value of Properties in possession recognised in the
consolidated financial statements (note 42-Properties in
possession).
How our audit addressed the key audit matter
Evaluation of SICR
We reperformed the calculation of the significant deterioration in
roll rates per product category and compared these rates per
product category to those used by management.
Through inquiry of management and inspection of underlying
documentation we obtained an understanding of and tested
relevant controls relating to the approval of credit facilities,
subsequent monitoring and remediation of exposures, manual
transfer of exposures between the various stages, key system
reconciliations and collateral management.
For a sample of stage 1, 2 and 3 exposures, we evaluated if the
exposures are appropriately classified by recalculating the days
in arrears.
Macro-economic inputs and forward looking information
We evaluated the appropriateness of forward-looking economic
expectations included in the ECL model, by comparing the
forward-looking expectations to independently sourced industry
data.
Application of out-of-model adjustments into the ECL
measurement
For a sample of out-of-model adjustments we evaluated the
reasonableness of the adjustments by assessing the key
assumptions applied, with reference to independent sources of
information.
Assessment of ECL raised for individual exposures
Regarding Stage 3 exposures, we independently recalculated the
ECL based on our assessment of the expected cash flows and
the recoverability of collateral at an individual exposure level.
For collateral held in respect of the sample of stage 3 exposures
referred to above, we inspected legal agreements and other
documentation to assess the existence and legal right to
collateral.
We assessed the collateral valuation techniques applied by
management against the Group's valuation guidelines. Making
use of our valuation methodology, we performed an independent
reasonability test to evaluate the valuation of collateral for a
sample of loans in stage 3..
Input assumptions applied to estimate the PD, EAD and
LGD within the ECL measurement
Making use of our actuarial expertise, we assessed the
assumptions relating to historical default experience, estimated
timing and amount of forecasted cash flows and the value of
collateral applied within the PD, EAD and LGD models with
reference to the requirements of IFRS 9. In addition, our
procedures included assessing the appropriateness of the
statistical models by way of reperformance and validation
procedures.
Key audit matter
Accounting treatment
Management has performed an assessment to determine
whether this was a business combination in terms of IFRS 10-
Consolidated Financial Statements ("IFRS 10") or an asset
acquisition in terms of IFRS 3-Business Combinations
("IFRS 3"). Refer to note 42-Acquisition of subsidiaries, to the
consolidated financial statements for detail. Management
concluded that it was an asset acquisition in terms of IFRS 3.
Valuation of properties in possession arising from the debt
settlement transaction
ECL was raised on the loans receivable from the counterparty to
the extent that loans receivable exceeded the Fair Value loans of
the collateral, as determined by management expert valuators
noted above. The loans receivable and ECL were then
derecognised and the investments in Spearmint's shares
recognised at this value at a subsidiary level.
In the consolidated financial statements, the assets of the
property investment entities are accounted for as Properties in
possession, being the fair value of the properties acquired as set
out above. The Properties in possession is subsequently
measured at the lower of cost or net realisable value, in line with
the current accounting policy.
The fair value of the shares in the property companies at initial
recognition in the separate financial statements at a subsidiary
level was determined in line with the requirements of IFRS 13 -
Fair Value Measurement. Management's expert valuators were
used by the Group to provide guidance on the measurement of
the fair value of shares in the property companies received in
Spearmint. The investment in Spearmint is subsequently
measured at cost in line with the subsidiary accounting policy
described in Annexure D - Detailed accounting policies. The cost
at acquisition date represents the fair value of the underlying
property companies.
ECL was raised on the loans receivable from the counterparty to
the extent that loans receivable exceeded the fair value loans of
the collateral, as determined by management's expert valuators
referred to above. The loans receivable and ECL were then
derecognised and the investments in Spearmint's shares
recognised at this determined value in the subsidiary financial
statements as at 31 December 2022.
In the consolidated financial statements, the properties of the
property investment entities are accounted for as Properties in
possession, being the fair value of the properties acquired as set
out above. The Properties in possession are subsequently
measured at the lower of cost or net realisable value, in line with
IAS 2-Inventories ("IAS 2").
How our audit addressed the key audit matter
Accounting treatment
Making use of our IFRS technical experts, we considered the
asset concentration test and the fact that this is a debt
restructuring transaction in concluding on the accounting
treatment.
Valuation of shares or properties in possession arising from
the debt settlement transaction
We utilised our valuation experts to evaluate the measurement of
the value of the shares received in Spearmint recognised in the
separate financial statements, with reference to the
requirements of IFRS 13, and the value of Properties in
possession recognised in the consolidated financial statements,
with reference to IAS 2.
We assessed the valuation methodology and key valuation
assumptions applied by management's expert valuator and
performed a reasonability test to determine a reasonability test
range of values. We regard any value that falls within range as
indicated by our reasonability test to be indicative of fair value.
We agreed the value of the loans receivable and ECL that were
derecognised to the value of the share investment in Spearmint
recognised.
PricewaterhouseCoopers, Registered Auditors
344 Independence Avenue, Windhoek, Khomas Region, Republic of Namibia
PO Box 1571, Windhoek, Khomas Region, Republic of Namibia
T: +264 (61) 284 1000, F: +264 (61) 284 1001, www.pwc.com/na
Country Senior Partner: Chantell N Husselmann
The Firm's principal place of business is at 344 Independence Avenue, Windhoek, Republic of Namibia, Khomas Region, Republic of Namibia
Partners: Louis van der Riet, Anna EJ Rossouw (Partner in charge: Coast), Gerrit Esterhuyse, Samuel N Ndahangwapo, Hans F Hashagen, Johannes P Nel,
Hannes van den Berg, Willem A Burger
Practice Number 9406, VAT reg no. 00203281-015
PricewaterhouseCoopers, Registered Auditors
344 Independence Avenue, Windhoek, Khomas Region, Republic of Namibia
PO Box 1571, Windhoek, Khomas Region, Republic of Namibia
T: +264 (61) 284 1000, F: +264 (61) 284 1001, www.pwc.com/na
Country Senior Partner: Chantell N Husselmann
The Firm's principal place of business is at 344 Independence Avenue, Windhoek, Republic of Namibia, Khomas Region, Republic of Namibia
Partners: Louis van der Riet, Anna EJ Rossouw (Partner in charge: Coast), Gerrit Esterhuyse, Samuel N Ndahangwapo, Hans F Hashagen, Johannes P Nel,
Hannes van den Berg, Willem A Burger
Practice Number 9406, VAT reg no. 00203281-015
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