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About this Chairman's Corporate Consolidated Financial Company Financial
Report Foreword Management Report Appendices Governance Statements Statements
Key audit matter
Our audit work and observations
Forward-looking information: Rabobank
includes forecasts of future events and
economic conditions (forward looking
information) in the modelled loan impairments.
In doing so, the Bank prepares three macro-
economic scenarios which include forecasts of
future economic conditions, such as gross
domestic product growth, unemployment rates
and interest rates. Finally, these three
macroeconomic forecasts are probability
weighted in the expected credit losses
calculation. The process of preparing the
macro- economic scenarios and probability
weighting these, require judgment.
Measurement of expected credit losses:
The probability of default (PD) multiplied by
loss given default (LGD) multiplied by exposure
at default (EAD) inputs are used to estimate
expected credit losses. These inputs require
estimates as follows:
PD: The probability of default is an
estimate of the likelihood of default over a
given time horizon;
EAD: The exposure at default is an
estimate of the exposure at a future default
date, taking into account expected changes
in the exposure after reporting date; and
LGD: The loss given default is an estimate
of the loss arising in the case where a
default occurs at a given time. It is based
on the difference between the contractual
cash flows due and those that are expected
to be received, including cash flows
expected from collateral and other credit
enhancements.
Top level adjustments to the model outcome:
Adjustments to the outcome of models due to
unexpected external developments or data
quality issues require judgement.
Measurement of individually assessed credit-
impaired financial asset: For credit-impaired
financial assets that are assessed on an
individual basis, discounted cash flow
calculations are performed for three scenarios.
In such cases, judgement is required for the
estimation of the expected future cash flows and
the weighting of the three scenarios.
Assessment of individually credit- impaired loans
Considering the inherent estimation risk of individually
credit-impaired loans, we selected appropriate samples
and analysed the latest developments at the borrowers
and considered whether the key judgements and
significant estimtates applied in the impairment.
Allowance were acceptable for both the balance per
l January 2018 and 31 December 2018. This included
the following procedures:
Evaluate the feasibility of the forecasted cash
flows (including the use of forward looking
information) for each scenario by comparing
them to historical performance of the customer
and the expected future performance where
applicable;
assessing the external collateral valuator's
credentials and the valuation with an
independent valuation performed by our
valuation experts;
assessing management's analysis of the
probability allocation of each individual scenario
for each credit-impaired loan; and
Recalculate the provision on the individually
credit-impaired loans.
In addition, we selected a risk-based sample of
individual loans from the "performing book" and the so
called "watch list". In doing so amongst others we
selected loans with a large contribution to the loan
impairment charge in 2018 as well as loans that have a
high individual exposures. Based on the above we
assessed the methodology and inputs to be in line with
market and industry practice.
Furthermore, we assessed the adequacy of the
disclosures, including disclosures on estimation
uncertainty and judgements, to assess compliance with
the disclosure requirements included in EU-IFRS.
Coöperatieve Rabobank UA. - EH44X5NCPJUJ-1288894667-935
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