
4
d evaluation criteria adopted is
provided in Part A - Accounting Policies, in Part
B - Information on the balance sheet, in Part C -
Information on the income statement and in Part
E - Information on risks and related hedging
policies of the notes to the financial statements.
Valuation of NPL Sector Loans
The Group operates with an operating sector
(“NPL Sector”) dedicated to the acquisition
without recourse, management and collection of
mainly unsecured loans that are difficult to
collect (Stage 3), which contributes 43%
of the reclassified consolidated intermediation
margin equivalent to Euro257.5 million.
This activity is relevant for the audit due to the
related economic effects in the financial
statements, which are significant in amount and
due to the methods of representation and
valuation adopted by the Group, which are
characterized by complexity profiles and by the
use of assumptions and hypotheses inherent in
the specific evaluation methods and models.
These methods and models, in compliance with
IFRS 9, provide for the application of the
amortized cost criteria, which is based on
specific recovery forecasts, where available, or
on estimates of expected cash flows resulting
from the historical experience gained and
articulated by homogeneous clusters, updated
on the basis of judicial or extrajudicial recovery
activities. Further, such estimation processes in
relation to estimated cash flows have been
revised in order to reflect the context of the
current uncertainty regarding macroeconomic
development framework resulting from the
ongoing Covid-19 pandemic.
The disclosures regarding the criteria for the
recognition and valuation of NPL sector
receivables are described, as well as the risks
and uncertainties associated with the use of the
estimates underlying the valuation process are
provided in Part A - Accounting Policies and in
Part E - Information on the risks and related
hedging policies of the notes to the consolidated
financial statements.
Our audit procedures in response to the key
aspect, considering the revisions made to the
estimation processes regarding the expected
cash flows reflecting also the uncertainty
deriving from the ongoing Covid-19 pandemic
included, inter alia:
understanding of the policies, processes and
controls put in place by the Group for the
acquisition, recognition and periodic
valuation of NPL Sector credits, based on the
evolution of the recovery estimate, and the
performance of compliance procedures on
controls considered key among those
identified;
understanding, also through the support of
our risk management experts, of the
methodology used for estimating and / or
identifying the cash flows underlying the
methods and models defined by the Group, as
well as performing compliance and
substantive procedures to verify the
completeness of the databases used and,
through portfolio analysis techniques, of the
consistent application of the methods and
models themselves;
performing on a sample basis substantive
procedures to verify the correctness of the
significant valuation assumptions both as
regards expected cash flows and as regards
the estimated timing for their recovery;
performing comparative analysis procedures
of the loan portfolio of the NPL Sector
through the correlation, for each method of
recovery and valuation, of balance sheet data
with the respective economic effects and with
the related cash flows collected, as well as
analysis and discussion with the company
management on the most significant
deviations.
Finally, we examined the adequacy of the
disclosures provided in the notes to the
consolidated financial statements.