Moody's Corporation · NYSE:MCO
Moody's — West Africa Webinar Series: Navigating Credit Risk and Expected Losses Beyond COVID-19 (June 2020)
19 slides from Moody's's conference presentation, Jun 16, 2020
Slide 1: West Africa Webinar Series: Navigating Credit Risk and Expected Losses Beyond COVID-19
West Africa Webinar Series: Navigating Credit Risk and Expected Losses Beyond COVID-19 June, 2020
Slide 2: West Africa Webinar Series
West Africa Webinar Series Episode 1 Episode 2 Tuesday, 16 June Monday, 29 June 10:00 BST | WAT 10:00 BST | WAT Navigating Credit Risk and Capital Adequacy Expected Losses Beyond Challenges for West COVID-19 African Banks Post COVID- 19
Slide 3: Agenda
Agenda 1. Outlook and challenges for the Banking sector as a result of disruption caused by Covid-19 and low oil prices 2. How are credit risk indicators and expected credit losses trending? 3. Panel Discussion: – What can Financial Institutions do to navigate credit losses post pandemic? – Adapting
Slide 4: Speakers
Speakers » Paul Onigbogi – Head, Credit and Investment Risk Division, Risk Management Department , Central Bank of Nigeria (CBN) » Dr Jude Monye – Executive Director, Heritage Bank » Armen Mirzoyan – Senior Economist, Moody’s Analytics » Metin Epozdemir, CFA – Risk and Finance, Moody’s Analytics » J
Slide 5: Challenging Road Ahead for Nigerian Banks
Challenging Road Ahead for Nigerian Banks Negative Outlook for the Banking System Weakening Economic Conditions Profitability will substantially deteriorate due to Low oil prices and the fallout from the pandemic. Credit strained revenue and rising loan losses. growth will slow but facility drawdown
Slide 6: External Environment Driving Economic Shocks
External Environment Driving Economic Shocks Epidemiological Situation Global Oil Glut 100,000 Daily cases (L) Cumulative cases (L) 400 12 110 Global balance (L) Global demand (R) Cumulative deaths ( R) Global supply (R) 10,000 300 8 105 1,000 100 200 4 100 95 10 100 0 90 1 0 -4 85 21 Mar 9 Apr 28 A
Slide 7: COVID-19 Impact on Corporate Credit in Nigeria
COVID-19 Impact on Corporate Credit in Nigeria Average Probability of Default for Corporate (All Industries) Probability of Default COVID -19 Impact 8.00% 7.00% 6.00% 5.00% 4.00% 3.00% 2.00% 1.00% 0.00% Q2-2017 Q3-2017 Q4-2017 Q1-2018 Q2-2018 Q3-2018 Q4-2018 Q1-2019 Q2-2019 Q3-2019 Q4-2019 Q1-2020 S
Slide 8: Sectoral Differences in Credit Risk
Sectoral Differences in Credit Risk Industries with Most and Mild Impact from COVID-19 9.00% 9.00% FOOD & BEVERAGE 8.00% 8.00% AGRICULTURE PHARMACEUTICALS 7.00% 7.00% INSURANCE - LIFE INSURANCE - PROP/CAS/HEALTH 6.00% 6.00% 5.00% 5.00% AEROSPACE & DEFENSE UTILITIES, GAS 4.00% 4.00% TRANSPORTATION OI
Slide 9: Expected Credit Losses Set to Increase
Expected Credit Losses Set to Increase Forward-looking views on economy and market reaction contribute to spike Probability of Default, % Expected Credit Loss, % 3 9 Baseline pre-pandemic (Feb) Baseline pre-pandemic (Feb) Baseline 8 Baseline S3: Downside S3: Downside S4: Severe downside 7 S4: Severe
Slide 10: Three-Step Approach to Managing ECL / NPLs
Three-Step Approach to Managing ECL / NPLs Holistic view on credit risk measurement and management Relevant data collection and scorecards determine most profitable customers with lowest risk 1.Risk Data fields for assessing risk and establish Profiling long-term data collection Portfolio segmentati
Slide 11: Key to Success: Models to Inform Decisions
Key to Success: Models to Inform Decisions Manage risk, identify opportunities and comply with regulation Business & Application Scorecards Scenario Generation Credit Policies Stress Testing Strategic Planning Regulatory Risk Based Limit Management and Pricing Reverse Stress Testing Reporting Origin
Slide 12: Many Banks' Credit Risk Models Are Vulnerable
Many Banks’ Credit Risk Models Are Vulnerable Many credit measures don’t work in the current environment Internal Ratings » Rely on historical data and name level analysis COVID-19 Macroeconomic » Cannot be updated as frequently as the virus evolution Impact Scenarios » Hard to incorporate past even
Slide 13: What Should Financial Institutions Do?
What Should Financial Institutions Do? Focus on forward-looking capital and liquidity planning Understand Identify Measure Act Scenario analysis Credit monitoring ECL & NPL Management & Optimization ❖ Quantify what COVID-19 ❖ Which part of the book I ❖ Scenario-based forecast of ❖ Planning for vulne
Slide 14: Adapting and Leveraging Existing Models
Adapting and Leveraging Existing Models Overlays and Adjustments to Identify Vulnerabilities and Manage Navigating Credit Risk and Expected Losses beyond COVID-19 14
Slide 15: Heritage Bank Internal
HSBC may write off $11bn in loans as profits tumble
Slide 16: Loss Distribution
Loss Distribution Heritage Bank Internal
Slide 17: Regulatory Views and Guidance on the ECL Policies
Regulatory Views and Guidance on the ECL Policies
Slide 18: West Africa Webinar Series
West Africa Webinar Series Episode 1 Episode 2 Tuesday, 16 June Monday 29 June 10:00 BST | WAT 10:00 BST | WAT Capital Adequacy Navigating Credit Risk and Challenges for West Expected Losses Beyond African Banks Post COVID- COVID-19 19
Slide 19: June 2020
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