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IFRS9 management information

IFRS9 management information

Ryan Jong, Director

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Ryan is a director within KPMG's Banking Risk team. He jointly leads the risk management component within KPMG's IFRS9 proposition and is currently involved at a number of clients design and implementation of IFRS9 models across retail, wholeseale and treasury portfolios. In addition, Ryan leads the IFRS9 model audits within the UK and acts as an international subject matter expert on IFRS9 for other KPMG member firms.

IFRS9 Analytics

Integrating IFRS9 with sensitivity analysis and management information

For most clients, IFRS9 has been a reality for the last three quarters. Although most firms have invested heavily in developing IFRS9 compliant models, they remain tied to rigid legacy systems not suited for answering the increasing number of questions from regulators and senior management. We are seeing the same questions being asked:

Questions from regulators and senior management

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The industry is looking for solutions that allow multiple scenario runs in shorter periods of time, but the reality is that many organisations spend more time preparing data and modifying code to run these scenarios than actually analysing the results. Some organisations have decided to ‘Throw more people at the problem’ or limit the strategy to ‘move the computation to the cloud’.

We think there is a better way, a smarter way, a cheaper way…

How can KPMG help?

KPMG views efficiency of implementation and calculations as a complement to brute force (i.e. throwing more people or moving calculations into the cloud).

For this reason, we have developed a brand new implementation methodology to calculate ECL using a combination of efficient matrix based and reactive programming. Our implementation methodology dramatically decreases the calculation time needed to run scenarios, permits scenarios to run on local computers and reduces the need to access the cloud.

Using our methodology we have managed to demonstrate dramatic reductions in processing time, something that used to take 8 hours now runs in under a minute.

In addition, the KPMG IFRS9 analysis architecture integrates scenario runs and MI through a user-friendly interface. Faster calculations allow integration between scenarios and MI on a real-time basis, so the impact of parameter changes is immediately displayed on the MI dashboard. Sensitivities to parameters are customisable to the client’s requirements and include, among others:

  • Change in macro-economic forecasts (e.g. quarterly refresh impact)
  • Change in long term values (default rates/migrations)
  • Change in portfolio Quality (changing portfolio snapshot)
  • ECL attribution analysis
  • Univariate/multivariate shift to MEVs (PRA disclosures)
  • Portfolio downgrades
  • Single deal ECL calculation
  • Changes in staging criteria
MI dashboard

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Benefits: fast, flexible and integrated

The KPMG approach aims to integrate ECL calculations with reporting/MI and can be customised to the bank’s existing Data Governance arrangements. KPMG specialists have a deep knowledge of industry models and efficient IFRS9 implementation. Building on our experience, our approach is designed to help banks achieve:

Speed improvements due to the matrix-based structure which is designed to reduce calculation time while keeping instrument level precision;

Scalability with the ability to run on small and large portfolios, with no limit on the number of models to implement; and

Real-time integration between scenarios, calculations and reporting/management information.

KPMG’s approach enables ad-hoc, insightful analysis without the need for technical quantitative knowledge. By recoding production models, we enable MI teams to focus more on analysis and less on data preparation – now banks can simply ‘point and click’ rather than ‘edit and compile’.

Driving value through a strategic view of IFRS9

IFRS9 has a substantial impact on the risk-adjusted return of banks’ portfolios. Strategic business decisions need to be supported by an adequate management information infrastructure.

Banks need the capacity to run multiple scenarios quickly and consider different hypotheses to support management decision-making.

IFRS9 analytics will be fundamental in the future banking world, and our approach has been designed to respond to this growing industry demand. 

Second dashboard