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CLIENT STORY

Helping banks to make better decisions based on integrated financial and risk planning

KPMG created a tool that outperforms simplistic business forecasts by providing a holistic view of a bank's financial stance, including projections of profitability, risk exposures, capital and liquidity requirements.

Client

A large bank

Sector

Banking

Project

Helping banks make better decisions

  • Client challenge
  • Benefits to client
  • Approach
  • KPMG insights
Client challenge

At KPMG Luxembourg we work with a lot of banks and so our employees are familiar with the recurring challenges they face. So when some of our employees had the opportunity to pitch their intrapreneurial ideas during an in-house innovation challenge organized in 2017, they created a team and used their knowledge of the challenges banks face to create a solution that would help them with data-driven decision making. Little did they know, this would end up becoming a tool that would be implemented by our clients later on.

The challenge was summed up by the team, saying:

From our daily work with banks, we know that one of their most prevalent challenges is the lack of adequate tools to make comprehensive projections of their financial stance for an efficient and effective decision making. Banks have made great efforts in recent years to comply with tightened risk management provisions, but this is mostly a backward-looking exercise to satisfy reporting requirements. Oftentimes, banks do simplistic forecasts of their balance sheet and P&L, disconnected from its capital and liquidity forecast and disregarding the interconnections that arise between financial results and the risk profile. As a result, they cannot perform effective and efficient cost-benefit analyses, e.g. for internal steering or when it comes to broader decisions such as changing the business strategy or launching new business.

Benefits to client

Out of this client challenge identified, we launched an internal initiative called “AHEAD” which is the vision of an integrated financial and risk planning tool that outperforms simplistic business forecasts by providing a holistic view of an institution's financial stance, including projections of profitability, risk exposures, capital and liquidity requirements.

The ultimate goal is to provide our clients with financial and risk forecasting at their fingertips, allowing them to forecast the impact of changes to their business strategy or the impact of external events. This should provide a strong basis for informed decision making and to justify decisions to the head of departments, the banking group they are embedded in, or the regulator.

Approach

In 2018, the AHEAD concept was promoted to various individual clients. From the very beginning clients have shown interest in the tool.

We worked with clients to create dashboards which are customized to the relevant audiences and provide features such as “zoom-in”, customization of KPIs, time series analyses, simulation, and more.

By combining already existing data with a set of assumptions, our tool projects the future evolvement of the balance sheet, P&L, risk exposures, and capital/liquidity requirements in an integrated manner. The guiding principle of the underlying financial model is to make projections that are as realistic as possible while keeping the amount of required input data manageable.

KPMG insights

Often the professionals in this area experience a siloed view point due to the limits created by the volume of data and the level of time required to perform comprehensive analysis. Greater accuracy, consistency, and speed are only a few of the tremendous benefits to be gained.

Visualizing the data that is already there can provide significant possibilities to obtain insights, both for daily operations and for presentation to the board and towards regulatory authorities. Scenario forecasting provides the bank with opportunities to prepare for the future and to justify decisions in front of stakeholders (internal and external).

A key factor in the projects’ success was the strategic approach we took. While this started as an idea from our employees, we needed to take a client first approach which involved consultation, commitment and active participation from cross functional teams in the banks. An understanding of their priorities and day to day operations were essential to the success of the projects.

Finally, while this tool is a substantial improvement in many respects, it also provides an excellent foundation for a holistic, firm wide business performance and intelligence approach to enable the management to better steer the banks, i.e. to respond and align more effectively and efficiency to the strategy of a bank. It is a great cockpit tool regulators may wish to see in the hands of the senior management as stewards of the banks!

KPMG complies with the auditor independence rules of the AICPA, SEC, PCAOB and DOL. As a result, some services described herein may not be available to our audit clients. KPMG audit clients should check with their respective lead audit partner for more information.