Resilient portfolio credit risk management

Resilient portfolio credit risk management

Maintaining consistency, comparability and accuracy in times of crisis

Dick Korf

Partner KPMG Financial Services

KPMG Nederland


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Why strong portfolio credit risk management is crucial in time of Corona?

  • We see that consistency and comparability in credit risk metrics are pre-requisites for banks and stakeholders to monitor the effects of the crisis and act accordingly. Leading banks take a holistic approach combining accounting, regulatory and risk perspectives.
  • Overestimating expected losses and as such IFRS9 loan loss provisions ('too much too soon') should be avoided at this point in time which requires banks to review their scenarios, models and assumptions.

Key challenges faced

  • Uncertainty in credit ratings, credit classifications (NPL, DoD, Forborne) and IFRS9 provisioning
  • Extensive and dynamic re-rating required and uncertainty in financial outlook of obligors
  • Need for scenario development while high uncertainty on likeliness of occurrence
  • Support lending into the real economy whilst maintaining high standards

How to respond

  • Adapt current credit and IFRS9 policies to accommodate provided regulatory flexibility for credit classifications by a.o. EBA, ESMA & ECB
  • Revisit (automatic) early warning, rating and limit mechanisms and ensure most actual insights
  • Develop structured, flexible & swift COVID-19 scenario development and review model parameters (PD, LGD, EAD)
  • Update portfolio segmentation and set-up revised risk-based strategies for credit granting, forbearance / restructuring and troubled loan management – specific to COVID-19

How we can help

  • Operational support: we offer operational support to ensure you have the most actual insights to guide the bank through this crisis and weather the storm.
  • Sound methodologies from risk, regulatory and accounting perspective: we have relevant credit, regulatory, modelling and accounting experience and skills to support banks in adjusting credit policies, reviewing portfolio segmentation, rating and limit mechanisms and apply sound IFRS9 methodologies.
  • Impact quantification of different scenarios: we know banks' model landscapes, their current transformation challenges (complexity and regulatory scrutiny) - which enables us to swiftly provide hands-on support in scenario development and impact quantification while bringing relevant market observations to the table.

More Information

For any queries you can contact Jeroen Heijneman.

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