Independent auditor’s report
To the Shareholders of Izola Bank p.l.c.
Report on the audit of the financial statements
Our opinion
In our opinion:
· The financial statements give a true and fair view of the financial position of Izola Bank p.l.c. (the Bank) as at 31 December 2022, and of the Bank’s financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards (‘IFRSs’) as adopted by the EU; and
· The financial statements have been prepared in accordance with the requirements of the Maltese Banking Act (Cap. 371) and the Maltese Companies Act (Cap. 386).
Our opinion is consistent with our additional report to the Audit Committee.
Izola Bank p.l.c.’s financial statements comprise:
· the statement of profit or loss and other comprehensive income for the year ended 31 December 2022;
· the statement of financial position as at 31 December 2022;
· the statement of changes in equity for the year then ended;
· the statement of cash flows for the year then ended; and
· the notes to the financial statements, which include significant accounting policies and other explanatory information.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
We are independent of the Bank in accordance with the International Code of Ethics for Professional Accountants (including International Independence Standards) issued by the International Ethics Standards Board for Accountants (IESBA Code) together with the ethical requirements of the Accountancy Profession (Code of Ethics for Warrant Holders) Directive issued in terms of the Accountancy Profession Act (Cap. 281) that are relevant to our audit of the financial statements in Malta. We have fulfilled our other ethical responsibilities in accordance with these Codes.
To the best of our knowledge and belief, we declare that non-audit services that we have provided to the Bank are in accordance with the applicable law and regulations in Malta and that we have not provided non-audit services that are prohibited under Article 18A of the Accountancy Profession Act (Cap. 281).
The non-audit services that we have provided to the Bank, in the period from 1 January 2022 to 31 December 2022, are disclosed in note 10.1 to the financial statements.
Our audit approach
|
· Overall materiality: €235,000, which represents 1% of net assets. |
· Credit loss allowances in respect of loans and advances to customers and factored receivables |
We tailored the scope of our audit in order to perform sufficient work to enable us to provide an opinion on the financial statements as a whole, taking into account the structure of the Bank, the accounting processes and controls, and the industry in which the Bank operates.
The scope of our audit was influenced by our application of materiality. An audit is designed to obtain reasonable assurance whether the financial statements are free from material misstatement. Misstatements may arise due to fraud or error. They are considered material if individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements.
Based on our professional judgement, we determined certain quantitative thresholds for materiality, including the overall materiality for the financial statements as a whole as set out in the table below. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements, both individually and in aggregate on the financial statements as a whole.
Overall materiality |
€235,000 |
How we determined it |
1% of net assets |
Rationale for the materiality benchmark applied |
We chose net assets as the benchmark because, in our view, the actual return payable to the equity holders of the Bank is heavily dependent on the adequacy of the Balance Sheet capitalisation in view of the regulatory restrictions in respect of dividend distributions. We also considered the fact that the principal users of the Bank’s financial statements are the ultimate parent of the Bank and its bondholders. We chose 1% which is within the range of quantitative materiality thresholds that we consider acceptable. |
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above €23,500 as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons.
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
Key audit matter |
How our audit addressed the Key audit matter |
Credit loss allowances in respect of loans and advances to customers and factored receivables Credit loss allowances in respect of loans and advances to customers and factored receivables represent management’s best estimate of expected credit losses (‘ECLs’) within these portfolios at the balance sheet date. The Bank has two main portfolios: · Loans and advances to customers, comprising secured loans to local corporates as well as local residential mortgages, the latter representing a new product offering initiated by the Bank during the financial year ended 31 December 2022; and · Factored receivables, which comprise the factoring of bills of exchange issued to local debtors and the factoring of invoices payable by Maltese, Belgian, French and Dutch debtors, both factored on a non-recourse basis. The measurement of ECLs in respect of these portfolios, particularly for loans and advances to customers, requires a considerable level of judgement since the determination of ECLs is subject to a high degree of estimation uncertainty. In this respect, it is considered a key area of focus. The development of the models designed to estimate ECLs on financial instruments measured at amortised cost in accordance with the requirements of IFRS 9 requires a considerable level of judgement. The prevailing macroeconomic environment during the financial year ended 31 December 2022, was highly characterised by global supply chain disruptions in the aftermath of the Covid-19 pandemic, the escalation of the military conflict between Russia and Ukraine, together with the ensuing inflationary pressures and the shift in ECB monetary policy resulting in an increasing interest rate environment. In this respect, the level of uncertainty around the calculation of ECLs has been exacerbated, giving rise to heightened subjectivity in the determination of model assumptions used to estimate key model risk parameters and hence necessitating a higher level of expert judgement. In general, the bank calculates ECL by using the following key inputs: probability of default (‘PD’), loss given default (‘LGD’) and exposure at default (‘EAD’). The maximum period considered when measuring ECL is the maximum period over which the bank is exposed to credit risk. Credit loss allowances relating to loans and advances to customers are determined at an instrument level. During the financial year ended 31 December 2022, the bank modified the model used to estimate ECL in respect of corporate exposures, which inherently required a significant level of judgement to be applied by management in the determination of key assumptions and calibration of key model parameters. For non-defaulted (Stages 1 and 2) exposures, the bank uses an ECL model developed by an external vendor in which key risk parameters are estimated at a borrower level. Specifically, PDs are determined by reference to quantitative (financial statement information) model inputs, which are used to generate a borrower-specific credit score. A set of key financial ratios, determined by reference to borrower-specific financial statement inputs, are estimated by the model and benchmarked against equivalent ratios relating to an underlying model dataset comprising obligors which are comparable to the Bank’s corporate borrowers in terms of size and industry in order to determine a borrower-specific credit score. Credit scores are then mapped to a PD by reference to a credit score to PD matrix calibrated on the basis of historical market default data sourced from publicly available information. PDs are adjusted to capture country- and industry-specific credit risk characteristics and assigned to each borrower. PDs are then adjusted using statistical regression techniques to simulate the PD under multiple macroeconomic forecasts (conditional PiT PD). For exposures classified within the newly launched residential mortgage portfolio, PDs are determined by reference to comparable portfolios at peer banks, in view of the lack of internal observable default data given that the portfolio is still in its infancy. Loans and advances to customers are primarily secured by residential and / or commercial real estate, as well as cash pledges and government guarantees under the terms of the Malta Development Bank Covid-19 Guarantee Scheme (‘MDB CGS’). The LGD used for loans and advances to customers secured by real estate is driven by the adjusted loan-to-value (‘LTV’) ratio of the individual facilities which takes into account a market value haircut (that includes costs to sell). No ECL is attributed to exposures (or parts thereof) which are cash secured, whereas losses in respect of exposures secured by the MDB CGS are assumed to be up to 90% covered by the government guarantee. Following the model change implemented during the current financial year, LGDs for unsecured exposures are determined by reference to the carrying amount of tangible assets recognised on the borrower’s balance sheet. Expected recoveries from the sale of such assets are modelled by reference to assumptions in relation to market value haircuts, taking into consideration asset type and the time value of money. The LGD for unsecured exposures, determined through the use of statistical techniques by the external vendor, also takes into consideration a correlation factor between PDs and LGDs, with higher LGDs being assigned to borrowers for whom a higher PD is determined by the model. For defaulted (Stage 3) loans and advances to customers, discounted cash flow models are utilised in order to estimate ECLs. Judgement is required to determine when a default has occurred and then to estimate the expected future cash flows related to that loan which are dependent on parameters or assumptions in respect of the valuation of collateral (including forced sale discounts). The bank is also required to assess multiple scenarios in this respect, which scenarios will have probabilities attached. Credit loss allowances relating to all factored receivables (Stages 1, 2 and 3) are determined through the use of ECL models. For non-defaulted factored bills of exchange, the Bank’s PDs are determined by reference to a statistical model developed by an external vendor. Transition matrices were developed by reference to internal historical delinquency data. A portfolio segmentation approach was determined to categorise exposures sharing similar credit risk characteristics. In this respect, a multi-tier rating scale was developed, representing different states of delinquency, with a common PD being assigned to exposures classified within the same tier. The PD is adjusted by applying a cure rate estimated by reference to internal historical delinquency information. For all factored bills of exchange, the LGD is determined by reference to the estimated value of the underlying asset, being the financed motor vehicle. Specifically, assumptions are made in respect of the expected value of the motor vehicle over its useful life. The LGD also takes into consideration cash collateral pledged by factoring clients to cover potential losses from factored bills of exchange. For all invoice factoring facilities, PDs are sourced from an external vendor. Specifically, a debtor-specific credit score is assigned by the external vendor based on borrower-specific information. PDs are then determined by reference to the debtor-specific credit score. The LGD is in turn modelled by reference to the credit insurance cover purchased from a foreign third party underwriter which provides insurance cover in respect of losses up to 95% of each eligible invoice. The bank’s internal credit risk management framework designed to identify significant increase in credit risk (‘SICR’) or unlikeliness-to-pay (‘UTP’) events in respect of corporate loans and advances to customers is based on credit risk assessments performed at individual borrower level, taking into consideration quantitative and qualitative information. In this respect, staging of loans and advances to customers is determined by reference to internal credit risk gradings. Judgement is required to determine a) whether a SICR has occurred since initial recognition of the instrument; or b) when a default has occurred. The local impact of the global inflationary pressures has been partially mitigated by government measures, specifically the subsidisation of energy prices across the local economy. These economic conditions have increased the level of uncertainty around judgements made in determining the timing of defaults and in respect of staging, particularly in relation to loans and advances to corporate customers. For the purposes of avoiding the cliff edge effect on ECLs upon the discontinuation of government subsidies, the Bank assesses the internal credit risk ratings of all loans and advances to corporate customers on an ongoing basis by reference to qualitative characteristics to enable the identification of SICR or UTP events as early as possible. Factored receivables and exposures classified within the residential mortgage portfolio are not managed on a credit by credit basis due to the high volume of relatively low value and homogeneous exposures. In this respect, the bank’s internal credit risk management framework designed to identify SICR or UTP events in respect of such exposures is primarily based on delinquency. Under IFRS 9, the bank is also required to formulate and incorporate multiple forward-looking economic conditions, reflecting management’s view of potential future economic variables and environments, into the ECL estimates. A number of macroeconomic scenarios based on the selected macroeconomic variables are considered to capture non-linearity across credit portfolios. The complexity attributable to this factor requires management to develop multiple macroeconomic scenarios involving the use of significant judgements. The bank utilises a methodology to generate the economic inputs applied within the ECL models in respect of loans and advances to customers and factored bills of exchange. Given the short-term nature of invoice factoring facilities, the impact of forward-looking information on the estimation of ECL in respect of these exposures is not deemed to be significant. The prevailing macroeconomic conditions in the aftermath of the pandemic, including global supply chain disruptions and the escalation of the military conflict between Russia and Ukraine, which have triggered inflationary pressures and changes in ECB monetary policy resulting in an increasing interest rate environment, together with the government support measures adopted to mitigate inflationary pressures, have significantly impacted macroeconomic factors such as GDP and unemployment, increasing the uncertainty around judgements made in determining the severity and likelihood of macroeconomic forecasts across the different economic scenarios used in ECL models. Overly sensitive ECL modelled outcomes can be observed when current conditions fall outside the range of historical experience. Data used in the impairment calculation is sourced from a number of systems, including systems that are not necessarily used for the preparation of accounting records. This increases risk around completeness and accuracy of certain data used to create assumptions and operate the models. In some cases, data is unavailable and reasonable alternatives have been applied to allow calculations to be performed. Since the estimation of ECLs is subjective in nature and inherently judgemental, the bank’s application of the IFRS 9 impairment requirements is deemed to be an area of focus, especially in the context of the current unprecedented macroeconomic and geopolitical environment, which has significantly increased the level of estimation uncertainty around the calculation of credit loss allowances. We focused on credit loss allowances due to the subjective nature of specific inputs into the calculation and the subjective judgements involved in both timing of recognition of impairment and the estimation of the size of any such impairment. Accordingly, summarising the key areas relevant to the bank’s measurement of ECLs would include: · Allocation of assets to stage 1, 2, or 3 using criteria in accordance with IFRS 9; · Accounting interpretations and modelling assumptions used to build the models that calculate the ECL; · Completeness and accuracy of data used to calculate the ECL; · Inputs and assumptions used to estimate the impact of multiple macroeconomic scenarios; and · Measurements of individually assessed provisions including the assessment of multiple scenarios. Relevant references in the financial statements: · Accounting policies: Note 3.1; · Credit risk management: Note 4.3; · Note on Changes in expected credit losses and other credit impairment charges: Note 9; · Note on Factored receivables: Note 17 · Note on Loans and advances to customers: Note 18; and · Critical accounting estimates and judgements: Note 34.
|
During our audit of the financial statements for the year ended 31 December 2022, we focused on the key drivers of the estimation of ECL. In this respect, we evaluated and tested the appropriateness of management assumptions and key parameters. The revised ECL model used to estimate credit loss allowances in respect of loans and advances to customers represented a significant update to the methodology used by management to estimate ECLs. Accordingly, the underlying assumptions and key judgements around the amended model were reviewed, assessed and tested to evaluate the reasonableness of the modelled ECLs. Discussions with the Audit Committee and management included: · the policies and methodologies used by the bank in respect of the estimation of ECLs on loans and advances to customers and factored receivables; · observations in respect of the key assumptions and judgements applied by management in the revised ECL model used to estimate credit loss allowances in respect of loans and advances to customers, together with the impact of the model change on ECLs; · considerations in respect of the governance framework around the implementation of model changes; · inputs, assumptions and adjustments to ECL, in particular the determination of risk factors and other inputs within the bank’s models, in respect of which we provided updates on the results of our testing procedures; · the application of macroeconomic modelling, including the severity and magnitude of modelled scenarios, particularly in the context of the estimated impact of the prevailing macroeconomic conditions in the aftermath of the pandemic, highly characterised by inflationary pressures and an increasing interest rate environment; and · individually significant loan impairments.
ECL calculation for non-defaulted loans and advances to customers and for all factored receivables We understood and critically assessed the models used for ECL estimation in respect of loans and advances to customers and factored receivables. Since modelling assumptions and parameters are based on historic data, we assessed the impact of the unprecedented circumstances we are currently experiencing on the adequacy of key model parameters, since these are based on historical experience that is not necessarily reflective of the current level of credit risk within the portfolios. The appropriateness of management’s judgements was also independently considered in respect of calculation methodologies, calibration of PDs and LGDs, and selection of macroeconomic variables, especially in view of the revised model utilised to estimate ECLs in respect of loans and advances to customers. Substantive procedures were performed as follows: · Performed an overall assessment of the ECL provision levels by stage to determine if they were reasonable considering the bank’s portfolio, risk profile, credit risk management practices and the macroeconomic environment. · Tested a sample of exposures classified within loans and advances to customers to independently review the borrower’s financial performance and ability to meet loan repayments and assess the appropriateness of the internal credit rating assigned by management, taking into consideration the impact of inflationary pressures and the increasing interest rate environment on the repayment capabilities of the sampled borrowers. · Challenged the criteria used to allocate an asset to stage 1, 2 or 3 in accordance with IFRS 9 and tested assets in stage 1, 2 and 3 to verify that they were allocated to the appropriate stage. · Tested the completeness and accuracy of key model data inputs utilised within the models for the purposes of the year end ECL calculation. · Reviewed and assessed the appropriateness of model assumptions, inputs and formulas used in ECL models. This included assessing the appropriateness of model design, methodology and formulas used, specifically challenging the appropriateness of the methodology to derive PDs. · Tested the segmentation applied in the ECL calculation to determine the PDs in respect of factored bills of exchange and factored invoice facilities. · Reviewed a sample of property collateral valuations utilised to determine LGDs applied by the bank in respect of loans and advances to customers secured by real estate, using our valuation experts. · For loans and advances to customers: o reviewed the appropriateness and reasonableness of the methodology and key assumptions applied by management in the newly implemented ECL model used to determine PDs and LGDs for corporate exposures; o tested the accuracy of model inputs to the calculation of PDs and unsecured LGDs, which principally comprise borrower-specific quantitative financial statement inputs, on a sample basis; o assessed the reasonableness of modelled ECLs by reference to ECL coverage rates determined by peer banks in respect of comparable portfolios; o tested the accuracy of the inputs to the LTV ratio calculation, which is a key input to the LGD determination, and assessed the reasonableness of market value haircuts applied to the LTV ratio; and o performed procedures to assess the potential risks associated with unperfected collateral. · For factored bills of exchange, assessed the reasonableness of the underlying assumptions and the accuracy of the calculations used in the estimation of LGD, specifically the assumptions in relation to the expected value of the underlying assets over the lifetime of the exposure. · For factored invoice facilities, assessed the reasonableness of the assumption in relation to the determination of LGD by reference to the terms of the credit insurance arrangement with a third party underwriter. · Performed a recalculation of the ECL for a sample of exposures across portfolios. · Assessed the reasonableness of macroeconomic scenarios and variables used in the ECL calculation of loans and advances to customers and factored bills of exchange. We assessed whether the severity of the forecasted macroeconomic variables was appropriate in view of the high level of uncertainty surrounding the economic outlook as a result of the prevailing inflationary pressures and increasing interest rate environment. · For a sample of invoice factoring facilities which were past due by more than 90 days as at 31 December 2022, performed procedures to assess the recoverability of such exposures. Our testing of models and model assumptions did not highlight material differences. Based on the evidence obtained, we found that the model assumptions and data used within the models are reasonable. ECL calculation for defaulted loans and advances to customers For defaulted loans and advances to customers, the appropriateness of the methodology and policy used to calculate ECLs was independently assessed. We understood and evaluated the processes for identifying default events within the loan portfolio, as well as the impairment assessment processes. Substantive procedures were performed in respect of identification of defaults as follows: · Assessed critically the criteria used by management for identifying borrowers whose financial performance was particularly impacted by the prevailing macroeconomic environment and for determining whether a UTP/default event had occurred by testing a sample of performing loans, including from within those sectors that we consider to have been significantly impacted by current economic conditions, which had not been identified by management as potentially defaulted, to form our own judgement as to whether management’s judgement was appropriate. Specifically, we challenged whether default events had actually occurred and assessed whether default events had been identified by management in a timely manner. · Assessed the timeliness of the performance and review of the credit file review process. Substantive procedures were performed on defaulted exposures in respect of the estimation of the size of the respective ECL provisions, as follows: · Reviewed the credit files of loans and advances classified within stage 3 to understand the latest developments at the level of the borrower and the basis of measuring the ECL provisions and considered whether key judgements (such as market value haircuts used in the gone concern assessment) were appropriate given the borrowers’ circumstances taking cognisance of the prevailing macroeconomic uncertainties. · Challenged the appropriateness of the bank’s methodology in respect of scenarios applied for the exposures referred to above, particularly in respect of the extent to which the bank considers multiple scenarios in determining the recoverability of stage 3 loans as well as the potential impact of the current economic conditions on the local property market, by forming an independent view of the recoverability of stage 3 loans under different scenarios. · Tested key inputs and reperformed the impairment calculation used to derive expected cash flows under different scenarios. · Assessed the appropriateness of property valuations securing impaired loans through our valuation experts. · Tested the perfection of security in line with the bank’s policy.
In the case of some impairment provisions, we formed a different view from that of management, but in our view the differences were within a reasonable range of outcomes. |
Other information
The directors are responsible for the other information. The other information comprises all of the information presented in the Annual Report and Financial Statements 2022 (but does not include the financial statements and our auditor’s report thereon).
Our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion thereon except as explicitly stated within the Report on other legal and regulatory requirements.
In connection with our audit of the financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated.
If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.
The directors are responsible for the preparation of financial statements that give a true and fair view in accordance with IFRSs as adopted by the EU and the requirements of the Maltese Banking Act (Cap. 371) and the Maltese Companies Act (Cap. 386), and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the Bank’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Bank or to cease operations, or have no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Bank’s financial reporting process.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
As part of an audit in accordance with ISAs, we exercise professional judgement and maintain professional scepticism throughout the audit. We also:
· Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
· Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Bank’s internal control.
· Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors.
· Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Bank’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Bank to cease to continue as a going concern.
· Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, actions taken to eliminate threats or safeguards applied.
From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.
Report on other legal and regulatory requirements
Report on compliance with the requirements of the European Single Electronic Format Regulatory Technical Standard (the “ESEF RTS”), by reference to Capital Markets Rule 5.55.6
We have undertaken a reasonable assurance engagement in accordance with the requirements of Directive 6 issued by the Accountancy Board in terms of the Accountancy Profession Act (Cap. 281) - the Accountancy Profession (European Single Electronic Format) Assurance Directive (“the ESEF Directive 6”) on the Annual Financial Report of Izola Bank p.l.c. for the year ended 31 December 2022, entirely prepared in a single electronic reporting format.
Responsibilities of the directors
The directors are responsible for the preparation of the Annual Financial Report, including the financial statements, by reference to Capital Markets Rule 5.56A, in accordance with the requirements of the ESEF RTS.
Our responsibilities
Our responsibility is to obtain reasonable assurance about whether the Annual Financial Report, including the financial statements, complies in all material respects with the ESEF RTS based on the evidence we have obtained. We conducted our reasonable assurance engagement in accordance with the requirements of ESEF Directive 6.
Our procedures included:
· Obtaining an understanding of the entity's financial reporting process, including the preparation of the Annual Financial Report in XHTML format.
· Examining whether the Annual Financial Report has been prepared in XHTML format.
We believe that the evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Opinion
In our opinion, the Annual Financial Report for the year ended 31 December 2022 has been prepared in XHTML format in all material respects.
Other reporting requirements
The Annual Report and Financial Statements 2022 contains other areas required by legislation or regulation on which we are required to report. The Directors are responsible for these other areas.
The table below sets out these areas presented within the Annual Financial Report, our related responsibilities and reporting, in addition to our responsibilities and reporting reflected in the Other information section of our report. Except as outlined in the table, we have not provided an audit opinion or any form of assurance.
Area of the Annual Report and Financial Statements 2022 and the related Directors’ responsibilities |
Our responsibilities |
Our reporting |
Directors’ report The Maltese Companies Act (Cap. 386) requires the directors to prepare a Directors’ report, which includes the contents required by Article 177 of the Act and the Sixth Schedule to the Act. |
We are required to consider whether the information given in the Directors’ report for the financial year for which the financial statements are prepared is consistent with the financial statements.
We are also required to express an opinion as to whether the Directors’ report has been prepared in accordance with the applicable legal requirements.
In addition, we are required to state whether, in the light of the knowledge and understanding of the Bank and its environment obtained in the course of our audit, we have identified any material misstatements in the Directors’ report, and if so to give an indication of the nature of any such misstatements.
|
In our opinion: · the information given in the Directors’ report for the financial year for which the financial statements are prepared is consistent with the financial statements; and · the Directors’ report has been prepared in accordance with the Maltese Companies Act (Cap. 386).
We have nothing to report to you in respect of the other responsibilities, as explicitly stated within the Other information section.
|
Directors’ Statement of Compliance with the Code of Principles of Good Corporate Governance The Capital Markets Rules issued by the Malta Financial Services Authority require the directors to prepare and include in the Annual Financial Report a Statement of Compliance with the Code of Principles of Good Corporate Governance within Appendix 5.1 to Chapter 5 of the Capital Markets Rules. The Statement’s required minimum contents are determined by reference to Capital Markets Rule 5.97. The Statement provides explanations as to how the Bank has complied with the provisions of the Code, presenting the extent to which the Bank has adopted the Code and the effective measures that the Board has taken to ensure compliance throughout the accounting period with those Principles.
|
We are required to report on the Statement of Compliance by expressing an opinion as to whether, in light of the knowledge and understanding of the Bank and its environment obtained in the course of the audit, we have identified any material misstatements with respect to the information referred to in Capital Markets Rules 5.97.4 and 5.97.5, giving an indication of the nature of any such misstatements.
We are also required to assess whether the Statement of Compliance includes all the other information required to be presented as per Capital Markets Rule 5.97.
We are not required to, and we do not, consider whether the Board’s statements on internal control included in the Statement of Compliance cover all risks and controls, or form an opinion on the effectiveness of the Bank’s corporate governance procedures or its risk and control procedures. |
In our opinion, the Statement of Compliance has been properly prepared in accordance with the requirements of the Capital Markets Rules issued by the Malta Financial Services Authority.
We have nothing to report to you in respect of the other responsibilities, as explicitly stated within the Other information section. |
|
Other matters prescribed by the Maltese Banking Act (Cap. 371) In terms of the requirements of the Maltese Banking Act (Cap. 371), we are also required to report whether: · we have obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purpose of our audit; · proper books of account have been kept by the Bank, so far as appears from our examination of those books; · the Bank’s financial statements are in agreement with the books of account; · in our opinion, and to the best of our knowledge and according to the explanations given to us, the financial statements give the information required by any law which may from time to time be in force in the manner so required.
|
In our opinion: · we have obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purpose of our audit; · proper books of account have been kept by the Bank, so far as appears from our examination of those books; · the Bank’s financial statements are in agreement with the books of account; and · to the best of our knowledge and according to the explanations given to us, the financial statements give the information required by any law in force in the manner so required.
|
|
Other matters on which we are required to report by exception We also have responsibilities under the Maltese Companies Act (Cap. 386) to report to you if, in our opinion, adequate accounting records have not been kept, or returns adequate for our audit have not been received from branches not visited by us.
We also have responsibilities under the Capital Markets Rules to review the statement made by the directors that the business is a going concern together with supporting assumptions or qualifications as necessary. |
We have nothing to report to you in respect of these responsibilities. |
Our report, including the opinions, has been prepared for and only for the Bank’s shareholders as a body in accordance with Article 179 of the Maltese Companies Act (Cap. 386) and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior written consent.
Appointment
We were first appointed as auditors of the Bank on 26 March 2021. Our appointment has been renewed annually by shareholder resolution representing a total period of uninterrupted engagement appointment of 2 years.
PricewaterhouseCoopers
78, Mill Street
Zone 5, Central Business District
Qormi
Malta
Fabio Axisa
Partner
26 April 2023