DELOITTE, an audit firm for Fidelity Bank Plc, has expressed concern over the bank’s impairment on loans and advances, which surged by 78.74 per cent to N143.97 billion.
In its ‘independent auditor’s report’ on the bank’s annual and financial statements for the year ended December 31, 2023, Deloitte stated that the loan impairment was a critical audit matter.
It said, “In view of the size of loans and advances portfolio, the audit of loan impairment is considered a key audit matter.
“Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated and separate financial statements of the current period.
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The ICIR reports that following the implementation of the International Financial Reporting Standards (IFRS), a loan is now regarded as impaired on the balance sheet date when there is objective evidence of a loss.
Analysis of Fidelity Bank’s audited financial statements revealed that loans and advances accounted for 51.9 per cent of the bank’s total assets of N6.24 trillion.
As of December 31, 2023, Fidelity Bank’s gross loans and advances rose by 47.36 per cent to N3.24 trillion from N2.196 trillion in 2022.
The N3.24 trillion figures comprise local and foreign-denominated loans, against which total loan impairment was N143.97 billion, increasing by 78.74 per cent compared to N80.55 billion in 2022.
The loan impairment resulted in the bank posting a net loan balance of N3.092 trillion in the review years, relative to N2.116 trillion in the preceding year.
Further analysis of the bank’s 2023 financial performance showed that Fidelity Bank posted a N99.45 billion profit for the year, less than the bank’s loan impairment.
A check by The ICIR reveals that the loan impairment is also higher than the N100.3 billion the bank held as credit risk reserves as of December 31, 2023.
“We focused our testing of the impairment on loans and advances to customers on the key assumptions and inputs made by directors,” Deloitte stated.
According to the audit firm, the basis of the impairment on loans and advances is summarised in the accounting policies to the audited consolidated and separate financial statements.
It also said that the directors had assessed the bank’s loan loss impairment using the expected credit loss model provided in the IFRS 9 Financial Instruments.
“We challenged management’s judgements on loans that were not reported as being impaired in sectors that are currently experiencing difficult economic and market conditions, such as the oil and gas and power sectors,” Deloitte added.
Fidelity Bank concentrated N1.11 trillion in loans to the oil and gas sector, the highest amount it advanced to any industry in 2023, and N241.95 billion to the power sector.
According to the Statutory Audit Committee report signed by its chairman, Frank Onwu, the committee “reviewed the External Auditors Management Report for the year ended 31 December 2023 and is satisfied that management is taking appropriate steps to address the issues raised.”