Deloitte questions €77 million on debt write-off

The corporate audit consultancy Deloitte had doubts about a €77 million debt write-off for three Novobanco clients.

In the cases involved, the auditor has not found sufficient support or justification for taking the decisions to write-off the debt in 2020.
This is according to a special report from the auditor which was made public on Tuesday by parliament.
Throughout 2020, the bank proceeded to write-off a number of debts from creditors which reduced its gross exposure by around €346 million.
According to Deloitte, to undertake these write-offs the bank used impairments that had already existed at the time when the credit write-offs regarding these debtors wouldn’t “create so much of an impact on the results for 2020”.
Nevertheless, the auditor points out that in 2020, before the date of these debt write-offs from Novobanco’s balance, the bank registered impairment losses of €57 million for these debtors which, as a consequence, made a dent on the accounts.
In a nod to creative accounting at the bank, the report which was commissioned by the Resolution Fund in 2021 in relation to losses in 2020, Deloitte describes the internal rules at Novobanco for the credit write-offs.
These rules were revised in October 2019, foreseeing “a number of more detailed criteria than under the previous 2016 rules. The report also raises an eyebrow on another curious point: “According to the bank, the evidence of the approval of this policy corresponds to the minute of a meeting documented in an Excel format file, at which the director in charge was present and which was shared via e-mail with the participants at the meeting”.
Deloitte says that one month later, in November 2019, a preliminary version of the internal rule on these write-offs was shared with other departments, yet it was only in May 2021 that this rule was actually released”, or two years later.
Nevertheless, the bank assures that the procedures included in the regulation in force since October 2019 had “already been divulged”, and insists that despite the write-offs occurring “in cases where it was no longer economically viable to continue to recover those debts, most of the credits that are written-off “continue to be followed internally as ‘enforceable loans’, with efforts made to recover them.
Nevertheless, Deloitte had doubts on partial debt write-offs of €155 million owed by three debtors in its sample, for which “a rational justification to support the partial write-off of €77 million was not given.”
Novobanco posted losses of €1.3Bn in 2020 and asked the Resolution Fund for €500 million to offset the impact of losses on capital ratios required by ECB regulations.