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GRENKE AG: GRENKE informs about exonerating statements and points of criticism of BaFin's special auditor - Seite 5

Findings in GRENKE Bank's Customer Lending Business

The Mazars report lists several deficiencies at the subsidiary GRENKE Bank. These include violations of the Minimum Requirements for Risk Management (MaRisk), which relate to complaints in the customer lending business. Specifically, a number of granted loans were mentioned in which either no or insufficient collateral was provided or the borrower's ability to service the loan was not sufficiently verified.

Essentially, these relate to loans to small and medium-sized enterprises with a volume of around EUR 37 million, which is a very small proportion of the Group's total assets of more than EUR 7 billion. Moreover, the bank had already stopped accepting any further new business since spring 2020 due to the Corona pandemic and has now decided to discontinue this lending business. Mazars classifies the deficiencies as serious. This also applies to the bank's money laundering prevention, which Mazars assesses as not fully compliant with legal rules. However, Mazars has no evidence that GRENKE Bank has systematically and actively promoted money laundering.

GRENKE takes the aforementioned critical points very seriously. Among other things, the company plans to quickly and comprehensively revise the instruments and processes for lending and money laundering prevention and to strengthen GRENKE Bank's Board of Directors.

Calculation of risk provisions

Another finding by Mazars concerns the methodology for calculating risk provisions in accordance with the IFRS 9 accounting standard. Model and documentation weaknesses are identified. With regard to the model, Mazars finds, among other things, that GRENKE has not yet taken into account macroeconomic factors. GRENKE AG continues to use its model-based approaches derived from statistical methods, but has expanded them in line with the standard, without causing significant changes in the estimates of the amount of risk provisions.

Findings on internal control system, internal audit and compliance

The Mazars report also contains findings on missing or ineffective process-dependent controls in the internal control system as well as severe findings on the internal audit and compliance organization. The latter two largely coincide with the criticisms made by BaFin, about which GRENKE had provided detailed information in the letter from the Chairman of the Supervisory Board dated February 8, 2021, and which had led to the resignation of Board of Directors member Mark Kindermann. The Board of Directors has begun to significantly develop the internal control system on the basis of these findings.