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• Individual impairment assessment For individually significant loans, we evaluated the reason-
ableness of management’s identification of impairment
• Collective impairment assessment triggers.This was done by applying a risk based target
testing approach in selecting a sample of customer
The individual impairment assessment is performed in
order to determine if there is any objective evidence of facilities for detailed reviews of customer files and account
loan impairment statements to determine whether or not the customers
met with their contractual obligations as well as identify
Where an objective evidence of impairment is identified, other indicators of impairment.
these facilities are assessed based on their recoverable
amounts i.e. present value of expected future cash flows For individually significant loans where impairment triggers
discounted at the original effective interest rate, or the fair were identified, we reviewed management’s impairment
value of the collateral. assessment by comparing the fair value of the collateral to
the total exposure.
Where the recoverable amount is less than the carrying
value of the facilities, management determines impair- Where the fair value of the collateral was insufficient to
ment loss as the difference between the carrying value cover the total exposure, we checked to ensure that spe-
and the recoverable amount. cific impairment was recognized on such loans.
Where the fair value of the collateral sufficiently covered
Management uses external valuers to determine the fair
value of collateral. the total exposure, we reviewed to determine that these
category of facilities were assessed for collective impair-
Allowances against all loans and advances not assessed ment.
individually and those assessed individually for which
recoverable amount was higher than the carrying value are For significant facilities with impairment triggers, we
done on a collective basis. obtained the collateral valuation report supporting the
facilities. We selected samples of the collateral valuation
Impairment allowances on the loans to be assessed col- reports and evaluated the competence, independence
lectively is done using a modelled basis for different port- and objectivity of management’s experts.
folios with common features and allowances are adjusted
accordingly based on the judgement of management. We applied a risk based targeted testing approach in
performing a review of the collateral valuation reports by
Primary data fundamental to the assessment of collective checking the contract agreement between the bank and
impairment is the Probability of Default (PD), the Loss Giv- the customer to assess the bank’s legal rights over the
en Default (LGD) and the exposure at default (EAD); which collateral.
are all obtained using the bank’s historical data, prevailing
economic and credit conditions and loss experiences on For the collective impairment assessment, we evaluat-
how: ed the reasonableness of management’s assumptions
with respect to the inputs into the collective impairment
• Facilities have migrated between risk ratings over the model.
periods (PD);
We assessed the reasonableness of the probability of
• Portion of the loan facilities determined to be irrecov- default (PD) by estimating how loan customers have mi-
erable at the time of default (LGD); and grated from the performing grade to the impaired assets
grade in prior periods and determined an average risk
• Loan amount at the time of default (EAD). rating per grade.

This is considered a key audit matter in both the consoli- We evaluated the reasonableness of the Loss GivenDe-
dated and separate financial statements. fault (LGD) by comparing it with the bank’s historical data
and supporting documents.

Valuation of available for sale investment securities –
N69.6 billion (refer to notes 3.9, 4.1 and 25)
We focused on this area because of the significant We performed detailed evaluation of the validity and rea-
judgements involved in estimating the fair value of these sonableness of the techniques, inputs and the assump-
instruments. tions used by management.

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Annual Report & Accounts 2017