Sonali Bank Limited and its Subsidiaries IndePendent Auditors' RePort and Audited Consolidated and Separate Flnancial Statements For the Year ended 31 DecemberZ0t9 ACI,IABIN trFgH<,EE.E. @ furtefldArcMlanlt Aztz Halim lftair ChoudhurY ACNABIN Chartered Accountants Chartered Accountants Phulbari House, House 25, BDBL Bhaban (Level-13), Bazar C/ A, Road 01, Sector 09, 12 Kawran Uttara Model Town Dhaka-1215, Bangladesh. -Dhaka-1230, Bangladesh. Tel.: +88-02-41020030 Tel.: +88-02-55080235 Fax:+88-02-41020036 Fax: +88-02-55080235 A member firm of A member firm of G bakertitly PKr ,1, INTEFINATIONAL Aziz Hdim lGair Choudhury ACNABIN Chartered Accountants Chartered Accoutrtants Phulbari House, House 25, BDBL Bhaban (Level-13), Road 01, Sector 09, 12 lGwran Bazar C/A, Uttara Model Town Dhaka-1215, Bangladesh. Dhaka-1230, Bangladesh. Tel.: +88-02-41020030 Tel.: +88-02-55080235 Fax:+88-02-41020036 Fax: +88-02-55080236 Independent Auditors' Report To the Shareholders ofSonali Bank Llmited Report on the Audit of the Consolldated and Separate Fimncid Statements Opinion We have audited the consolidated financial statements ofSonali Bank Limited and its subsidiaries (the "GroupJ as well as the separate financial statements of Sonali Bank Limited (the 'BankJ, which comprise the consolidated and separate balance sheets as at 31 December 2019 and the consolidated and separate profit and loss accounts, consolidated and separate statements of changes in equity and consolidated and separate cash flows statement for the year then ended, and notes to the consolidated and separate financial statements, including a summary of significant accounting policies and other explanatory information. In our opinion, the accompanying consolidated financial statements of the Group and separate financial statements of the Bank give a true and fair view ofthe consolidated financial position ofthe Group and t}te separate financial position of the Bank as at 31 December 2019, and of its consolidated and separate financial performance and its consolidated and separate cash flows for the year then ended in accordance with International Financial Reporting Standards (lFRSsJ as explained in note 2, Basls for Oplnlon We conducted our audit in accordance with International Standards on Auditing (lSAs). Our responsibilities under those standards are further described in the Auditors' Responsibilities for tle Audit of the Consolidated and Separate Financial Statements section of our reporL We are independent of the Group and tlre Bank in accordance with the International Ethics Standards Board for Accountants' Code of Ethics for Professional Accountants (IESBA Code), Bangladesh Securities and Exchange Commission (BSECJ and Bangladesh Banh and we have fulfilled our other ethical responsibilities in accordance with the IESBA Code and the Institute of Chartered Accountants of Bangladesh flCAB) Bye Laws. We believe that tlre audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key Audlt MatteE Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of t}le consolidated atid separate financial statemens of the current period. These matters were addressed in the context of our audit of the consolidated and separate financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. For each matter below our description of how our audit addressed the matter is provided in that context, We have fulfilled the responsibilities described in the auditors' responsibilities for the audit of the financial statements section ofour report, including in relation to these matters. Accordingly, our audit included the performance of procedures desigaed to respond to our assessment of the risks of material misstatements of the linancial statements. These results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on accompanying financial statements. Pj<F Coreauy ACI{ABIN MtrE.]Ex{.IEa--tf{ rrer,5ffif @ 6aiadfiMtMa 1) Measurcment of provlslon for loans and advances See notes # 7.00 and 7.09 to the consolidated and separate financial statements The key audit matter How the matter was addressed ln our audlt The process for estimating the provision We tested the design and operating effectiveness of for loans, advances and Ieases porffolio key controls focusing on the following: associated with credit risk is iudgmental, significant and complex, While estimating Credit appraisal, loan disbursement such provision certain judgmental factors procedures, monitoring and provisioning need to be considered including: process; . Future business performance of the Identification of loss events, including early borrower; warning and default warning indicators; o Key assumptions relating to further and business performance of the borrower; Reviewed quarterly Classification of Loans o Market value ofthe collateral; (CL). Ability to repossess collateral; and . Recovery rates. Our substantive procedures in relation. to the provision for loans and advances porffolio Furtlermore, these provisions are comprised the following: processed manually that deals with voluminous data extracted from the IT Reviewed the adequacy of the general and system of the Bank and following the specific provisions in line with related instructions of Bangladesh Bank issued Bangladesh Bank guidelines; time to time, Assessed the methodologies on which the provision recalculated Due to high level of iudgment involved amounts are based, and using some manual process in the provisions and tested the completeness estimating the provision for loans and and accuracy of the underlying advances, we considered this to be a key information; audit matter. Evaluated the appropriateness and At year end the Group and the Bank presentation of disclosures against reported total gross loans and advances relevant accounting standards and of BDT 553,128 million (2018: BDT Bangladesh Bank guidelines; and 466319 million) and provision as required by Bangladesh Bank for loans Finally, we compared the amount of and advances of BDT 58,373 million provision requirement as determined by (2018: BDT 49,269 million). Bangladesh Bank inspection team to the actual amount of provision maintained. 2) Valuadon of reasury blll and reasury bond See notes #6 and 17.01 to the consolidated and separate fi nancial statements The key audit matter How the matter was addressed ln our audit The classification and measurement of T- We assessed the processes and controls put in Bill and T-Bond require judgment and place by the Bank to identifu and confirm the complex estimates. existence oftreasury bills and bonds. In the absence of a quoted price in an We obtained an understanding evaluated the active market, the fair value of T-Bills and design and tested the operating effectiveness of the T-Bonds is determined using complex key controls over the treasury bills and bonds valuation techniques which may take into valuation processes, including controls over market data inputs into valuation models, mo!d- "j,, Jl,l,'Jiij gouernanc", u"luation adiustments. Kr> :::i'lffii:",'1"" "nd PKr 2 o EEEE ACNABIN aEr{.rHt ttQ{trtlr o GarlsdkMMtb -r< pricing models which require an elevated level ofjudgment We tested a sample of the valuation models and the inputs used in those models, using a variety of techniques, including comparing inputs to available -r market data. Finally, we assessed the appropriateness and presentation of disclosures against rele\rant accounting standards and Bangladesh Bank guidelines. 3) Impairment assessment of unquoted lnvesEnents See note #6.02 to the consolidated and separate financial statements The key audlt matter How the matter was addressed ln our audlt In the absence of a quoted price in an We have assessed the processes and controls put in active market, the fair value of unquoted place by the Bank to ensure all maior investrnent shares and bonds, especially any decisions are undeftaken through a proper due impairment is calculated using valuation diligence process. We tested a sample of techniques which may take into investments valuation as at 31 December 2019 and Consideration direct or indirect compared our results to the recorded value. unobservable market data and hence requires an elevated level ofjudgmenL Finally, we assessed the appropriateness and presentationofdisclosures againstrelevant Due to high Ievel of iudgment and accounting standards and Bangladesh Bank assumption involved in evaluating the guidelines. impairment assessment of unquoted shares, we considered this to be a key audit matter, 4) Meas-urement of deferred tax assets See note #9.08.01 to the consolidated and separate financial statements The key audlt matter How the matter was addrcssed ln our audit The Group and Bank have recognized We obtained an undeNtanding of the Group and deferred tax assets for deductible Bank's key controls over the recogaitjon and tempoHry difference that it believes are measurement of deferred tax assets (DTA) and the recoverable. assumptions used in estimating the Group's future taxable income, The recoverability of recognized deferred tax assets is in part dependent on the We also assessed the completeness and accuracy of banks ability to generate future taxable the data used for the estimations of future taxable profits sufficient to utilize deductible income. temporary differences. We involved tax specialists