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Scenario planning

Scenario planning

A guide for banks to the business implications of COVID-19.

Lennart de Vries

Partner Strategy & Operations Financial Services

KPMG Nederland

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Why scenario planning is crucial in time of Corona?

  • No one can predict with any accuracy how long this period of uncertainty will last – or how significant the impact of COVID 19 will be. As with any significant disruption, robust scenario planning and testing to identify the key issues for your business is critical.
  • And then making the decisive decisions to mitigate and manage these risks is critical to build resilience and agility on your organisation.

Key challenges faced

  • Current uncertainty is unprecedented. It is difficult to develop adequate forecasts let alone assign probabilities to different scenarios.
  • As such, it is hard to predict the impact on liquidity, credit, capital and profitability.
  • Suitability of existing contingency and recovery plans may be challenged if designed on scenarios not suitable for COVID-19.
  • Rapidly changing crisis situation requires great agility. Suitability of existing contingency and recovery plans is challenged as they are designed on scenarios not suitable for COVID-19.
  • The long-term impacts of COVID-19 on ways of working, client expectations and bank's strategies are yet unknown.

How to respond

  • Design multiple scenarios through an agile and structured approach to show how different forces can manipulate the future.
  • Prepare yourself to act across different time horizons: near-term, intermediate-term and more longer term. What will be the "new normal?" Plan accordingly your response.
  • Tap in from knowledge from various sources and centrally generate scenarios for different uses (vital services, customer strategies, capital and liquidity management, IFRS9, etc.)
  • Consider the long term impact of COVID-19 on the bank's (digital) strategy and operating model. For example, will branch banking ever go back to pre-COVID days?

How we can help

  • Scenario development and deployment: We have a strong track record in helping banks to use scenario planning as a tool for various purposes: strategy, business continuity, capital, recovery, liquidity and loan loss provisioning.
  • Scenario integration: Our clients benefit from incorporating internal and external views and ensuring integration into ICLAAP, recovery planning, contingency funding planning, IFRS9 and business continuity planning. A consistent narrative used across your organization improves decision-making.
  • Assessment long-term strategic implications: Through our proven 9 Levers of Value strategy framework, KPMG is able to offer a pragmatic approach to re-assess the bank's ambition, business model and operating model components for a world post-COVID-19 (impact on branch banking, collaboration, value propositions, etc.).

More Information

For further information please contact Lennart de Vries and Jeroen Heijneman.

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