Moody's Corporation · NYSE:MCO
Moody's — Moody's Analytics and RIMAN Webinar (June 2020)
27 slides from Moody's's conference presentation, Jun 19, 2020
Slide 1: Capital Adequacy Challenges for Banks in Nigeria Post COVID-19
Capital Adequacy Challenges for Banks in Nigeria Post COVID-19 June, 2020
Slide 2: Agenda
Agenda 1. Welcome Remarks 2. Capital Related Challenges and Questions Facing Executives of Banks 3. Managing Risk in a Rapidly Changing World – Adjusting internal ratings be adjusted to incorporate the impact of the current situation and future pathways – Forecasting expected credit losses under var
Slide 3: Speakers
Speakers Magnus Nnoka - President of RIMAN and Chief Risk Officer, Coronation Merchant Bank, Nigeria Dr. Gregory Jobome – Executive Director and Chief Risk Officer Access Bank Plc Joseph Ingwat – Relationship Manager, Moody’s Analytics Matteo Baraldi – Risk and Finance, Moody’s Analytics Metin Epozd
Slide 4: Capital Adequacy Challenges for Nigerian Banks Post COVID-19
Capital Adequacy Challenges for Nigerian Banks Post COVID-19
Slide 5: COVID-19: The recovery falters, must take steps now
COVID-19: The recovery falters, must take steps now… COVID-19 Pandemic In the last two years, the banking industry has had its fair share of these macro-economic headwinds, which resulted in declining margins and significant write offs of impaired credits. The banking industry is now faced with the
Slide 6: Banking Sector Implications
Banking Sector Implications Asset Quality Concerns Capital & Liquidity Concerns • Slow down in global/national economic • Weakened capital buffers stemming activities which weakens borrowers’ from NPL pressure repayment ability • Liquidity concerns due to collections • Elevated credit risk from the
Slide 7: COVID-19: An Asset Quality and Capital Concern
COVID-19: An Asset Quality and Capital Concern COVID-19 will negatively impact many firms, through disruptions in manufacturing supply chains, domestic consumption, tourism and exports, posting downside risks to their earnings prospects. This is likely to impact the capacity of such firms to meet co
Slide 8: Expected credit losses harder to predict accurately
Expected credit losses (ECL) harder to predict accurately, and the models can impact the economy adversely if not adapted The ECL guidance expects recognition of credit losses at each reporting date that considers reasonable and supportable information about past events, current conditions and forwa
Slide 9: COVID-19: Credit-Related/Lending Supports
COVID-19: Credit-Related/Lending Supports Interest rate reduction from 9% to 5% on all Financial institutions have been directed to CBN intervention funds. engage international development partners and negotiate concessions to reduce the pains of borrowers of on-lending facilities. N100 billion inte
Slide 10: Covid-19: Transitional Support Mechanisms
Covid-19: Transitional Support Mechanisms Support from standard setters buttresses the forbearances advanced by various governments, including Nigeria – these will create short- term reprieve for borrowers from an ECL perspective, and for banks’ CAR • Recognise that high levels of volatility/uncerta
Slide 11: Scenario Planning Process & Stress Testing to better anticipate ECLs
Covid-19: Scenario Planning Process & Stress Testing to better anticipate ECLs Macroeconomic & Assess current global and local macroeconomic, social and Socio-Political Shocks political events. Develop different (Global & Domestic) scenarios for possible future events/shocks Establish industry outlo
Slide 12: Inherent potential sectoral impacts
Inherent potential sectoral impacts – look at current and anticipated Sample sectors’ respective potential impact, combined effect of: covid-19, FCY exposure, and support: Positive Impact Low Negative Impact Negative Impact Telecommunications Oil & Gas( upstream) IOCs Oil & Gas upstream Manufacturin
Slide 13: Illustrating: stage-managing impact of Covid-19
Illustrating: stage-managing impact of Covid-19 SECTOR CUSTOMER BIG MODERATE LITTLE /SECTOR CUSTOMER HIGH 3 3 ONE NOTCH DOWNGRADE ABOVE AVE 3 ONE NOTCH ONE NOTCH DOWNGRADE DOWNGRADE MODERATE MAINTAIN CURRENT MAINTAIN CURRENT MAINTAIN STAGE STAGE CURRENT STAGE LOW MAINTAIN CURRENT MAINTAIN CURRENT MA
Slide 14: Some Recommendations to sustain and/or enhance CAR
Some Recommendations to sustain and/or enhance CAR Drive revenue Sourcing Tier II Steps to enhance from digital Capital in Foreign asset quality eg Encourage pay banking currency to cushion scenario analysis, robust down on FCY loan platforms; risk analytics around Tier I depletion exposure diversif
Slide 15: Capital Ratios Expected to Fall
Capital Ratios Expected to Fall Significant Downside Risks Capital ratios will fall but remain adequate in base- Some banks’ capital will be susceptible to erosion case scenario from losses. Tangible common equity (TCE) for Moody’s rated Moody’s generally expect banks to deliver pre-provision Nigeri
Slide 16: Bank Executives Face Many Questions
Bank Executives Face Many Questions Regulatory and External Pressures How can we forecast my bank’s ECL and NPL in future quarters and years? What will be the impact of a more pessimistic economic scenario on my bank’s Capital Adequacy Ratio? How do we forecast and protect profitability of the bank
Slide 17: How to Manage Risk in a Rapidly Changing World
How to Manage Risk in a Rapidly Changing World COVID – 19 Fluid with Many Unknowns MEASURING & DRIVERS ECONOMIC IMPACT MANAGING RISK » Epidemiological – progression of » Depends on extent, timing, and » Measurement requires timely the epidemic interaction of drivers assessment of current environment
Slide 18: Understanding the Challenges
Understanding the Challenges Credit measures don’t lend themselves to COVID 19 Traditional Internal Ratings » Rely on fundamental name-level analysis » Cannot be updated as frequent as virus evolution Who needs help? » How do you incorporate past events into your forward looking view » Credit Analys
Slide 19: Navigating Current Environment
Navigating Current Environment Requires Timely and Dynamic Analytics and Data 1 Granular current state assessment of credit 2 Assessment of trajectories that consider: – Epidemiological paths – severity, length of economic shutdown accounting for government reaction (e.g., draconian social distancin
Slide 20: How has COVID-19 impacted industries so far?
How has COVID-19 impacted industries so far? Moody’s EDF credit measure’s role in assessing empirical patterns Industries Most Impacted by COVID-19 Industries with Mild Impact to COVID-19 Average Default Probability* Average Default Probability* *Measured using Moody’s EDF *Measured using Moody’s ED
Slide 21: Granular and Name-Level Pandemic Credit Data and Analytics
Pandemic Credit Data and Analytics Cross-Sectional, Fiscal and Monetary Overlay Models ASSESSING WHAT HAS HAPPENED SO FAR CURRENT INTERNAL RATING Elevated: ASSESSMENT Cross IndustryCOVID-19 Cross-Sectional COVID-19 Overlay OverlayModel Model - default probabilities - expected loss Granular and Name-
Slide 22: Current Internal Rating Assessment
Current Internal Rating Assessment Average ratings anchored off of Dec 31, 2019 using Cross-Sectional COVID-19 Overlay Capital Adequacy Challenges for Banks in Nigeria 22
Slide 23: Rating Projections Applications to Stress Testing
Rating Projections Applications to Stress Testing Applications: Stress Testing, Projected Expected Losses and Capital NOTES Rated firms as of Dec 31, 2019 EDF data as of Dec 31 2019 Economic Scenario Model as of April 21, 2020 Fiscal Scenario Model as of May 1, 2020 Capital Adequacy Challenges for B
Slide 24: Impact of COVID-19 Across Industries
Impact of COVID-19 Across Industries One-year default probabilities along scenarios PD PD Industry PD (Q2/2020 BASELINE) PD (Q2/2020 DOWNSIDE) (Q4/2019) (Q1/2020) UTILITIES, GAS 0.026 0.080 0.097 0.099 AIR TRANSPORTATION 0.032 0.088 0.096 0.097 OIL, GAS & COAL EXPL/PROD 0.027 0.080 0.116 0.123 TRANS
Slide 25: New Analytics and Data to Navigate COVID-19
New Analytics and Data to Navigate COVID-19 Naïve models calibrated to historic dynamics will be misleading Increase in Expected Loss Under COVID-19 Scenario* x OIL REFINING COVID-19 Stress test with overlay model x COVID-19 Stress test with no overlay model HOTELS & Preserving the severity of the C
Slide 26: Managing credit risk in the current environment is a challenge we've never experienced
Managing credit risk in the current environment is a challenge we’ve never experienced. This requires data and analytics which can be updated frequently as the situation evolves. Risk managers need to consider a range of economic paths, inclusive of fiscal stimulus actions. The outputs can be used w
Slide 27: Capital Adequacy Challenges for Banks in Nigeria
© 2020 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All To the extent permitted by law, MOODY’S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liabilit
Moody's — Moody's Analytics and RIMAN Webinar (June 2020) on 6ix