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good morning and welcome I'm treading on Simon a head of financial services for KPMG in the Netherlands and your house today this is the first in a series of webcast for banks on how to navigate the business challenges of covered 19 of course our priority at KPMG and I'm sure for everyone on the call is the health and well-being of people our people our clients people their families and the communities they we all live in at the same time we want to stay in touch with our clients this webinar series is one of our initiatives to support our clients we want to share practical information and steps for you to consider in the short and medium term please let me share some practical information we will run through a number of topics and then return to the Q&A at the end as the presenters are joining us remotely today and this is not our usual way of communication please bear with us during the webcast you can type in questions in the chat box and we will try to address these during Q&A if you have any follow-up questions from today's session you can reach out to anyone of us directly and finally the recording of the webcast will be available on the KPMG website today I'm joined by two of my esteemed colleagues from the Netherlands Len of the freeze and the curve they are experienced partners active and banking and they will also introduce themselves to you once we get to their respective section as you can see from this agenda Leonard will first spend some time discussing how we see most banks organizing their activities in direct response to covered 19 later on in the presentation he will highlight where we expect folks to shift from banks once we return to some level of normality as a society in many conversations our clients indicate that's a way financial reporting performance will be affected by cough at 19 is a key seen for them DIC is one of our senior accountants and active and accounting advisory we will be shaped on insights into this particular topic and I'm also pleased that we are joined today by my colleague Henning Duncan rings who is department at least are catching GCB office in Frankfort and who collaborates with us in the Netherlands at across Europe more broadly on a number of credential and supervisory initiatives we intend to go through the information in today's session in 45 minutes so that we will have sufficient time for the Q&A in the Netherlands we are now in the sixth week of working from home for most people and adhering to social distancing and as you would expect much attention is focused on trying to control this health crisis but more and more attention is starting to shift to the economic consequence especially in countries where unemployment is hit hard for banks the impact of coffered 19 is profound and very complex in nature historically the endemics have been part of the stress scenarios banks are taking into consideration but the current situation is unprecedented remains unpredictable and is fraught with many uncertainties the immediate response to the crisis of banks rightfully has been focused on the well-being of their employees keeping the business running and by actively helping vulnerable client groups applying scalable technology has been and will be a key feature in dealing with these objectives we would have been in an even worse situation should this crisis have emerged only a decade ago nevertheless today's situation is presenting banking institutions with immediate and multifaceted changes challenges think about areas like liquidity management's credit risk management and market risk but also Enterprise Risk Management non-financial risk management and reporting are impacted and as most banks have announced support measures measures for vulnerable client groups naturally the client facing parts of the banks are also under a lot of pressure they are dealing with the operational and compliance challenge to timely provide the right clients with these amended terms or access to government initiated support programs obviously for thank ceiling in multiple countries the complexity quickly increases as the lockdown situation or response to Crawford 19 varies country by country governments Prudential and supervisory authorities have all responded quickly to the crisis by lowering capital requirements extending deadlines or postponing implementation of new regulatory a series of new regulations and by providing guidance on which economic scenarios to use when calculating known loss provisions however as Anning and dick will discuss there are still a lot of uncertainty on how to practically apply some of these guidance and as you will hear from Leonard most banks have focused their resources on a number of themes to respond to the immediate impact of Crawford 19 nevertheless we also see that in last few weeks the focus is starting to shift to the return to business as usual and when and what that new normal normal will look like later on in the presentation we will comment on where we expect banks to focus once we actually get to that stage I will now pass over to our first expert of today handing Duncan think Henning could you please give us an overview of the European regulatory measurements in relation to the key races for banks sure sorry none thank you happy to do it's really my pleasure to join the webcast today well let me start with by saying that there really have been several publications from several authorities on different topics over the last week's to structure my presentation I'm going to map them to the key clusters of activities and banks and share with you our observation on general intent and how banks are implementing things the aim of my presentation is to give you good overview and to point out the key lessons learned so far from our discussions with banks across Europe my aim is not so much to be really comprehensive and walk you through every single publication instead I'm aiming to put things into perspective the cluster flipped empties and back on the continuity liquidity risk management credit risk management and capital management at the end of my presentation I will give you an outlook on further relief actions of regulators and supervisors that we expect are in the pipeline should you have our session online today you will see on the screen the focus areas of banks on the left-hand side and let me go through them one by one first of all many banks have in one way or another set up a PMO or command center for covered 19 brings together different activities to manage implications of the crisis and to ensure business continuity as an example the well-being of people has to be ensured many work from home not only in your organization's and you've just heard but also in KPMG and in some key areas of the banks teams are being separated at the same time the infrastructure has to work properly internally and externally as one of my contacts in Europe has put it we would never have run a test scenario where 50% of our people who work from home and we receive way above average number of client requests this is very very extraordinary nod we'll explain in more detail how the business continuity management works in practice now you might ask what have regulators or supervisors done to support business continuity management well first of all [Music] supervisor acknowledged that the crisis requires proper management attention and absorbs human resources too many simply to minimize other tasks supervisors have postponed some activities to give you an example most prominently the stress test exercise has been moved to 2021 on-site inspections have been delayed and supervisory decisions have been postponed also remediation work has been extended by six months same applies for certain deadlines that the ECB has implemented and last but not least also reporting obligations have been reduced or deadlines extended therefore in a nutshell from the perspective of supervisors and regulators actually they have done quite a bit in order to support banks well one of the questions that I'm receiving from European banks is whether this six months grace period that the ECB mmm offered would be extended simply because deadlines still fall into the current year and the question is is that going to be moved forward into the next year that is an area that remains to be seen so therefore to to close the chapter of the business continuity management we do see quite a bit of activities from supervisors simply to reduce the operational burden and to allow banks to focus on covered 19:00 activities now let us move on to the other key clusters of active of activities and European banks and on the slide you can see the next point we'd like to look at is liquidity risk we you know with regards to liquidity risk actually we do see very different implications of the covered 19 pandemic in different European banks it really matters what the portfolio looks like should banks have a significant corporate lending business well then they are experiencing typically that numerous debtors are drawing their credit facilities this has immediate implications for liquidity management at the same time we do see that retail clients are starting to use payment holidays in the US we are seeing that commercial real estate tenants are not paying rents or other tenants are not paying their rents as required which again has implications for the for payments to loans that banks have issued clearly looking at it from a materiality perspective for now the corporate portfolio implications that is the topic that is of most concern looking at the materiality of how credit facilities are being drawn let me also mention with regard to liquidity risk that the the reporting that we have developed that relies typically on KPIs and K arise that are developed with regards to stress tests and good times for liquidity management these stress tests do typically not represent anymore the expected developments for the next days and weeks therefore we are seeing that European banks are revisiting their liquidity risk management framework to allow for more tailor-made KPIs and kr eyes that are needed in this situation now you may ask or good but what have supervisors done to support banks in liquidity risk well I mean if you look on the right-hand side of the slide there are a couple of measures to note the most important one is the publication from the ECB on the 7th of April the ECB has announced that they are easing their collateral requirements and that banks are allowed to submit less quality of collateral however the tablets with the details are so often this ruling is being implemented by national central banks therefore we are seeing differences across Europe regarding the degree to which this publication and this new policy of the ECB is really helpful in addition apart from that publication on the 7th of April regarding collateral easing measures banks are allowed to operate below the minimum liquidity coverage ratio of 100 however also here should banks you know there is a bit of a side note should banks for below this number they will have to submit restoration plans and it seems to us that the ECB has very free control cause with a number of banks to understand latest developments another measure the ECB has taken is the pandemic emergency purchase program this is aiming at high quality liquid assets and therefore not really the measure that has helped so terribly much in this situation so to summarize liquidity risk is very high on many banks profit 19 agenda depending on the characteristics of the portfolio and drawdown of credit facilities margin calls payment holidays and so on there are immediate managing actions required reporting needs to be adjusted models and parameters are being amended supervisory measures are certainly important they have helped especially the collateral easing measures however the degree of help varies across Europe now after discussing business continuity and liquidity risk management let's move on and take a look at credit risk as Ferdinand has already mentioned clearly credit risk is very high on banks covered 19 agenda and banks are looking into portfolios either what has happened already or what is going to happen due to lock downs factory closures significant macro economic downturn corporate portfolios are starting to suffer from a significant number of downgrades already residential mortgages are starting to show signs of payment holidays however clearly as we all know retail portfolios will most likely be affected later this or next year once unemployment starts to rise we are seeing this in the u.s. unfortunately already taking place however in Europe that is down the down the road again with regards to credit risk regulators and supervisors has published a number of documents I would say most of the documents that you can see on the slides on the right hand side one way or another really related to credit risk mmm they provide guidance particularly regarding government support forbearance payment holidays unlikeliness to pay triggers as well as potential prospect locality of ios9 dig will will go a bit more into the details of the implications for IFRS 9 but me but let me already point out that irrespectively of all the guidance and government and regulators measures the CRR and IFRS 9 still apply I think that is really a key lesson and a key aspect to note credit assessments have to be updated and banks have to look into that rating downgrades irrespective of all measures still happen and significant increase in credit risk it's also likely to occur even though forward-looking information may be used as a mitigant we are very early in the credit cycle so therefore there will be more deterioration down the road and banks will have to look into case-by-case what is a viable and sustainable business case of a debtor and which is not at this very early stage the feedback from banks across Europe that we are getting with regards to q1 provisions is that these provisions tend to be lower than without the guidance granted by regulators and supervisors however banks are also saying that whatever measure banks are taking and which wherever they are implementing forward-looking infamy amending models the auditors need to agree to these interpretation model changes and assume forward-looking information so let me summarize although regulators and supervisors have published a number of documents credit risk assessment still has to be updated and loans may need to be restructured to the benefit of the debtor which means forbearance has to be tested and you know behind the background of all these developments a significant increase in credit risk might occur which would lead to a staged transfer according to IRS 9 therefore we will see they rise in provisions over the remaining year that is pretty certain and as I said the course will walk you through more of the details in that regard however it's not only credit risk that is clearly affected by profit 19 but also market risk market volatility has increased but our spreads have widened therefore banks with trading books are likely to see a significant increase in market risk our lwas and they are also likely to see valued risk outliers the ECB and also the Bank of England they have provided temporary relief for capital requirements in a certain way however that is only applicable for banks with internal models therefore with with regards to market risk for most banks actually not much of a difference to the world without the covered 19 guidance now I hope you're still with me let's move on to the final cluster of activities that I would like to cover today and that is Capital Management this is a very easy aspect from the perspective of reviewing ECB guidance and other authorities guide because undisputedly what has been done are really very significant actions from our perspective pillar two requirements have been reduced we estimate that on average the different measures that the ECB and other authorities have taken lead to a reduction in CET one capital requirements by about five hundred and twenty basis points for banks directly supervised by the ECB and domestically significant Basel 3 will be implemented a year later and there is discussions whether basil 4 should be ostponed as well however one of the key questions that I'm getting from banks across Europe is or good but what are the rating agencies going to do and how are they going to look at all the measures taken by banks so to summarize and let me come to the end of my presentation M the regulators and supervisors have taken significant measures to provide operational capacity to provide liquidity and to provide capital for banks and there is significant response from supervisor however if you look into them one by one and in detail clearly there is differences across Europe and it depends very much on portfolios of the banks therefore we believe the measures for capital they are most significant in credit risk yes they are helpful but CRR and IFRS 9 still apply for market risk it helps banks with internal models and therefore we do believe that particularly the capital measures are the ones of highest impact looking ahead and that's the final paragraph of my the final section of my presentation looking ahead we do expect further guidance from the ECB on the Supervisory variant evaluation program for 2020 and actually we are also expecting more guidance on non-performing loans there are present there are publications of the ECB however what is still outstanding is guidance on the Prudential provisioning calendar and we might see something in that area going forward so that is what I wanted to share with you and I now hand back to 39th thanks very much anything that was very comprehensive thank you for that I would like to hand over to Leonard now who is going to discuss how conferred 19 is impacting on operational resilience at banks thank you very much and good morning to everyone my name is Leonard to fish responsible for banking within the strategy and operations department of KPMG and today I'm going to talk about operational resilience and later on provide you with some post kovat 19 considerations now let me start with operational resilience and let's define operational resilience as the ability to withstand operational shocks and continue to deliver on your core business as KPMG we divided operational resilience into various building blocks these building blocks are protecting the workforce maintain vital services support our customers protect the balance sheet and maintain high standards I would like to touch upon the first three in the next couple of minutes to start with the first building block protecting the workforce most banks have either followed local government measures or have been even more stringent in terms of well-being social distancing and working from home to protect the workforce we have seen banks focus on two areas first of which is compassion banks have considered the impact of kovat 19 on individuals and families the stress of working from home and being cut off from fellow team members can compromise physical and mental well-being they have communicated that personal health is detour priority and have provided clear guidelines on how to stay fit when working from home summer facilitated healthy and safe working conditions by ensuring the basics in terms of chairs network connectivity bandwidth IT support and monitors are taken care of the other key topic is leadership we believe that the leadership you demonstrate now will determine your relationship with your clients and employees after the crisis it is important to be clear transparent and consistent in your communication as a leader you have the key tools to support your people in this crisis namely empathy curiosity resilience and humility for more information on the challenges and possibilities of leadership you can feel the web cast of a native bow our people and change partner let me move on to the second key building block maintaining vital services some of the banks I have spoken to asked how can we ensure continuity of critical activities when society is moving towards a lockdown in my experience to date what to do falls in three areas first of all the execution of business continuity plans to the extent they were appropriate and secondly being creative and quick to respond to maintain critical functions in the present situation we are seen where appropriate and upscaling and deploying of teams to accommodate the steep increase in critical business lines and services such as call centers and increasingly more on the forbearance and non-performing exposure management areas some banks have split their workforce into a and B groups while others base their levels based on levels of criticality some banks have reduced working hours for employees with children at home finally banks should identify and remedy issues preventing efficient and effective remote working such as staff not having the necessary technology access now on a positive note and the handing already mentioned it earlier we could have planned we could how could how could you have planned for an experiment of 50 percent of staff working from home while maintaining 90 percent of your capability so you should also look at what you can do as a bank in this experiment let's move on to the third key building block supporting our customers we have seen banks increase customer support in two main areas the first area is the immediate credit refuse classifications and remediation banks are currently being overwhelmed with credit applications and moratorium requests as many branch offices are closed this requires new ways to communicate with customers in an efficient yet emphatic way also it requires the ability to derive standardized measures to accelerate cases where possible whilst providing support to customers under increased pressure there is a strong need to establish a consistent application meaning a portfolio approach checked by all three lines of defense to ensure a proper audit trail and to mitigate potential future litigation bank should finally be able to deal with the significant data challenges in distinguishing between SMEs that were in trouble before the crisis and healthy SMEs impacted by the crisis now the second key area is in the attention of longer-term strategy in the light of relief programs banks will critically have to evaluate their client strategies on three different levels on the level of products we see for example for which payment holidays were granted it should be clear how this ensures compliance with existing forbearance policies or whether waivers should be requested also how should banks deal with tax payment deferrals for three months or maybe even longer these and other our relevant questions banks should need to address on the product side on a sector level banks should consider the repercussions of decomposition by governments to specific sectors especially affected by the outbreak in the Netherlands for example the guarantee instrument for the flower industry and on a geographical level different countries will respond in different ways with respect to economic relief programs bear in mind how to cater your approach to clients in various geographical markets and keep up to date with the latest measures per country and as Henning already mentioned how to deal with collateral easing measures that differ per country we have an overview of the most important measures per country upon request the fourth building block of operational resilience is protecting the balance sheet this revolves around solutions in credit risk management and actions related to capital and liquidity adding already elaborated on this and my colleague dick will take it further the fifth building block of operational resilience meeting high standards around risk reporting and regulatory obligations have previously been discussed by henning as well so I would like to leave it with that let us now move on to the next agenda item freddy mount back to your place now one of the areas you mentioned was protecting the balance sheet obviously the benefit is affected by the normal provisions we noticed that many banks are struggling with the impact various support measures may have on IRA's 9 and how to apply these guidance that has come out so far dick can you please share some insights you have on this topic yes please said thank you very much good morning everyone as a banking partner in the accounting advisory team i've been indeed quite busy in the past few weeks helping and advising clients in dealing with the accounting implications of velvet 19 as having pointed out there has been quite some activity at the regulatory front as well also as regards to financial reporting and the application of IFRS 9 systemic relevant banks have received letters from the ECB and public statements were made by the ECB and Asthma in joint efforts on the application and interpretation of IFRS 9 also the IASB the standard setter issued guidance all in response to kovat 19 and how this is affecting the financial reporting of banks in the next 10 minutes or so I would like you to take thank you I like to take you through the main financial reporting topics for banks with an emphasis on the accounting for lower loss provisions it is needless to say that Kovach 19 as a shock is clearly exposing banks to unexpected losses this literally means that banks will not have existing provisioning in place under the expected rate loss provisions now in the midst of the crisis banks need to find their way in getting the accounting for loan losses right this will not be an easy task even all the uncertainties we're facing the IFRS 9 expected credit loss model works in a way that an economic shock such as profit 19 would lead to excessive procyclical T let me explain this first of all provisions are now to be taken or expected losses in a world that suddenly foresees economic downturn which will lead to higher provisions this is aggravated by the mechanism what is called staging you may know that under IFRS 9 all loans and advances area expected credit loss provision as from the first day that alone recognized in the balance sheet this provision is based on expected losses for 12 months only I address however prescribes that this 12 months provision should be increased to what is called lifetime expected credit loss as and when there has been a significant increase in credit risk since the initial recognition of the loan this process of increasing the level of provisioning is called staging one can imagine that the current sharp turn downturn in the economy and negative forecasts are likely to trigger this staging for a large number of loans this could lead to substantial additions to provisions especially for loans with a longer duration next to the impact of staging banking also needs to update their macroeconomic forecasts at least with an updated downturn scenario a scenario which will look worse as compared to the precoded 19 scenarios also the relative weighting of scenarios may need updating as it is likely that more emphasis should be given to the downturn scenario adjusted weighted average macroeconomic forecast is therefore also likely to lead to additional provisions so apart from the impact of economic downturn on the credit quality of loans which already in itself will lead to higher provisions banks will need to absorb the additional impact of staging and of worsening economic scenarios last week the largest US banks reported excessive provision increases bear in mind that this was the first time that these banks needed to report expected credit losses under the US CCL approach this approach is similar to IFRS 9 however excludes the impact of staging as all losses are lifetime expected credit losses as mentioned there has been quite some activity from the regulators and the ECB in coming up with guidance on the application of IFRS 9 reason for them to articulate how to approach higher first 9 in the current environment is to prevent for needlessly excessive provisioning with unwanted raw cyclic allottee however just to be clear but having also already articulated is that IFRS now 9 has not been changed it has not been relieved nor relaxed whatsoever regardless what certain media suggests both ESMA and the ECB gave guidance for the application and interpretation and highlighted a number of areas that particularly need attention for example how to deal with the impact of government support and how to perform economic forecasting the IASB on top of debt made a statement saying that banks should not apply their existing ETL methodology to mechanically we see all these statements as a call to the sector to give due consideration to the impact of current extreme market circumstances in applying IFRS 9 as a principle based standards it takes me to my next slide where I've included a number of focus areas the first one is about the existing expected credit loss models one could argue whether existing models are still fit for purpose as these were built and gabbro against a very different economic reality as compared what we currently facing as an example banks may be using the same issue l models for groups of corporate exposures for which in the past there was a high correlation of PD behavior for all sectors combined with on one single group this however may not be the case anymore after may now observe divergence between sector performances if we for example look at the performance of sectors such as the airline industry and the oil and gas sector and compare that to sectors like supermarkets and telecoms it may really lead to the conclusion that existing grouping need to be revisited another area of attention are the stage three provisions ie the provisions against default at exposures first and foremost banks should reassess whether the recovery values calculated precoded 19 are still appropriate asking the question is I believe already knowing the answer the same is also applicable to collateral values especially relevant when foreclosure is planned and what about the PD and staging assessment are these still effective it's the staging mechanism working as it is often a relative PD assessment it is important that the data used is sufficiently accurate and properly reflecting the current credit quality of exposures obviously there may be more elements in the ECL process and the behavior of models which may not be effective anymore we therefore see banks to make both mobile adjustments and build model overlays to cope with all these changes this will not be an easy task but the review is clearly inevitable another topic of attention is the impact of government support measures it is important to assess the impact of government support measures both for economic forecast as well as for individual client and sector exposure this is also an area where the ECB and asked attention for governments have put in based support packages for various sectors and individual companies that have been hit hard they may have provided cash to individual borrowers which obviously may lead to reduction in the risk of the borrower to default or the amount of loss if a default would occur such support measures are therefore relevant to estimating PDS and the exposure set defaults and may serve to reduce the number of exposures suffering and increasing credit risk apart from an analysis at individual exposure level the provision of government support may also contribute positively to overall macroeconomic conditions by improving business confidence and reduced force liquidations obviously this requires an assessment of the nature of the support the generation qualify criteria and of course the availability of funds another area of attention is the impact of payment holidays what we've seen happening is that banks provide concessions on borrowing terms such as payment holidays but also relaxation of covenants or credit extensions we see different schemes across the sector where banks offer for business of interest for delayed amounts and hence incur modification loss whereas other banks continue to accrue interest on a Mazda firt which may not lead to losses banks need to assess what those concession mean for the accounting first of all changes to contractual terms could lead to a so-called substantial modification this will require D recognition of the loan and recognition of a new loan at current fair value which will obviously have P&L impact where the bank rovides only temporary payment relief and the net present value of the loan is not significantly affected the modification is not likely to be considered substantial in that case the load stays on the balance sheet and the fair value impact on P&L may be insignificant and other elements to consider in this regard is whether the extension of payment holidays is an indicator or a significant increase in credit risk or not for that purpose it is key to distinguish between situations where the payment holiday provides relief from short-term liquidity constraints for clients only and that for the rest those clients are in good shape versus situations where clients are not in good shape anymore whether it's indeed a significant increase in credit risk this will then trigger staging an additional provisioning one of the more complex areas of the impairment assessment is the need to incorporate forward-looking information and in particular to consider the impact of multiple forward-looking economic scenarios as mentioned before those scenarios need to be incorporated in the expected credit loss models using economic indicators which the credit risk of loans are most sensitive indicators such as expected changes in future unemployment rates and GDP growth are often used as critical economic parameters for this purpose as of today we are confronted with significant uncertainty about the depth and duration of the crisis this means that forecast economic scenarios may vary significantly one thing is certain though which is that Rico with 19 scenarios needs updating as the world has changed and economic downturn is inevitable the ECB has mentioned that Bank should exercise an informed judgment to update their projections to reflect both the lockdowns and the severe social distancing restrictions imposed on the various economies as well as the government support measures announced and implemented across countries judgment is also required about the potential rebound of the economy to the long term trend interesting to mention is that the ECB would not object to any judgment that this rebound might occur within 2020 even the current level of uncertainty we recommend clients for the Dutch environment who also look into the for CPB scenarios as presented late March coping with it Kovac 19 situation already these scenarios can serve as an anchor for the forecasting process obviously it is key the banks give due consideration to the impact of economic scenarios used and provides sufficient disclosure in their financial statements that takes me to the final point of my presentation which is disclosures to know I first contains comprehensive disclosure requirements in respect of the risks arising from the use of financial instruments such as key judgments made the assumptions applied and changes there in overtime as well as closure of estimation uncertainties the ESMA has stipulated that disclosures should enable users of financial statements who will fail your way to recorded ECL and to understand the assumptions and judgments made in their estimate this includes for example judgment made on how and the extent to which the effect of covert 19 and related support measures has been factored into the assessment of significant increase in credit risk and expected credit loss provisions I think this is especially also relevant for upcoming interim financial statements stats yes q1 in France and half here in Durham financials that takes me to the end of my presentation and I'm happy to hand over the microphone back to fede not I think there was very comprehensive indeed now at the end of my introduction I mentioned that we noticed a shift by banks to start preparing for a return to business as usual in the last few weeks Leonard can you when you look at the what's going on with the larger institutions what do you think will be driving the agenda in a hopefully soon postcode vat19 era thank you all finance let me close by providing a few considerations on themes in banking post Kovac 19 I move to the next slide that would be great yes so this is by no means a complete list so happy to discuss further we distinguish at least the following five key themes the first key theme is refreshing business continuity and transitioning to operational resilience banks will have to recognize and embed the best practices they have developed during the crisis both in terms of performing in the new normal and be resilient in a future crisis examples to do so are investing in home working technologies and connectivity and revisit employee experience design based on the new normal and employment of work our examples advanced the ability to model and predict consumer behavior especially in times of uncertainty and disruption and apply lessons learned during the pandemic to adjust the operating model for example in the IT area the second key theme is a clear focus on balance sheet capital optimization non-performing exposure treatment and potential future extension of payment holidays already discussed by big due to the additional influx of loans the SS side of the bank's balance sheet is currently increasing rapidly giving the expected economic downturn there is a risk of a rising share of non-performing exposures what will the bank balance sheet look like which type of products does a bank want to push in which sectors and geographical areas and how does this influence the banks credit models these are questions banks have to start asking themselves some banks are already starting to we're plans to shift workforce in two recoveries and non-performing exposure management the third topic banks should be doubling down on transformation st coronavirus is forcing banks to change the way they interact with customers the current situation could lead to an acceleration of permanent use of digital channels rapidly speeding up digital transformation processes banks might consider intensifying the reshaping and density of their branch network digital transformation will also spur transformation in other fields if banks invest in vast high-quality innovation they can come out more successful than others the fourth topic banks should place a focus on clients and growth banks need to review the way in which customer needs and behaviors will alter and act accordingly this includes reviewing your product and service portfolio assessing the implications of sustained demand disruption across markets customer segments products and services and giving thought to post crisis commercial arrangements including sale distribution and marketing strategies reflecting changes in customer demand and behaviors banks can re-engineer customer journeys and processes to meet the altered in needs and behaviors impacted by the crisis and also the potential upcoming structural reforms for example let's consider what the present crisis will do to the integration in the post kovat 19 European banking landscape on the one hand the corona crisis has led to a retrenchment within borders in response to the crisis national governments have been in the lead in taking measures to tackle the emerging crisis in their countries with little coordination from the European Union on the other end depending post crisis evaluation of current events may very well lead to the conclusion that in the future more European coordination is necessary like the last crisis this crisis could spur structural reforms that significantly increase European integration impacting the European banking sector and its business opportunities and this brings me to my final point doing this all banks should protect their workforce at this very moment banks are adjusting the way their workforce operates question is which of these measures should they operationalize in a more structural way in the more distant future which capabilities will be required and in which areas of the bank are they needed most these are some considerations on the challenges and opportunities that banks will face after the crisis I will be happy to discuss this further and provide more detail back to you finance Thanks thanks a lot well that concludes our outbound part of the webcast I've seen a lot of questions coming in but perhaps in the order of in order to kind of keep my eye on time I would like to add just lengthen one of our regulatory consulting experts to have one of the questions for each of the presenters so that we can stay within the time frame that we have indicated yo yeah of course thank you very much and so I have a question to you handing and it's related both to risk weights as well as I froze nine so take also feel free to to jump in if necessary so it seems that a lot of banks in Europe are struggling with the procyclical team both in credit risk with respective assets and also in verse 9 and you and also take on i-49 have indicated that credit assessments have to continue so CRR alphas 9 they still apply what would be the key recommendations that you have for for banks to apply right now thanks very much very good question and indeed that is something excuse me that banks are looking at at the moment our recommendations are well first of all you know the portfolio's should be analyzed and specified in a way to identify which are the countries which are the industries that are going to be affected most part by down gradings and by potentially even significant increase in credit risk so really go through the portfolio identify those sectors of the industries countries that are hit most second review the internal guidelines processes and procedures to identify those where automated approaches or current approaches in general should be changed to reflect profit 19 and last but not least also very important manage capacities activate resources and commands with the credit updates and and you know to make sure that the credit assessment is most actual and bear in mind and all these activities that in a couple of months potentially years things that we are doing at the moment will be tested there will be people looking into the mirror looking at decisions taken in these turbulent times and that will be reviewed so therefore it's good to be well prepared to take the right decisions today take the right priorities and document what you are deciding for which reason thank you very much Henning that is very helpful and I also have a miss also neck question has come in that I'd like to relay to dick so you mentioned the reporting for some banks already on that the q1 closing do you have any examples on Dutch banks are how they are coping with was specifically these economic scenarios for their further closing yes indeed banks need to prepare their or F in red for q1 where I forests is the basis starting with and there are also some banks obviously that will prepare condensed interim financial statements under IFRS and obviously there will be press releases so is is fully applicable for q1 response what we've seen so far is that most banks start with their existing scenarios and our building overlays or make adjustments to these scenarios I've seen one Bank who takes the the CPB scenario scenario two which is a more than incidental downturn as being the most likely scenario we do not see banks that assume that so-called free shape scenario which is sharp downturn followed by a sharp u-turn but yes indeed you shape scenarios or extended l-shape scenarios those are being considered but as a starting point existing scenarios are taken and there are topside adjustments made to reflect the current uncertainty most important obviously will be the disclosure on what has been done and also the disclosure on sensitivities which will then result in meaningful financial reports thanks a lot dick and I think that that's very useful and also for Leonard a question related to that's a short-term measures I think you and also having a pension that focusing on business continuity planning is a key area for banks right now but do you also see first steps for banks moving towards operational resilience are there already some first best practices the audience thank you for the question and indeed quite quite relevant yes I think banks are in general quite used to business continuity plan planning already and executing on those what you see is that that operational resilience goes really beyond doing business continuity properly it means identifying people data systems processes and the like and really testing for resilience on those and the key distinction there I think it might might so what you see is that the larger the larger international banks that were you know around the globe subject to also the US and UK regulation they are more used to dealing with operational resilience as well from a regulatory point of view so you have some consultation papers in New York as well it's it's called digital operational resilience so the topic operational resilience is getting more and more traction and yeah it's very much goes beyond business continuity I hope that that clarifies the answer maybe maybe just as a closing remark so you do see that in general larger banks are more responsive to on board this topic as as of now and then our experience has also been that they have been better in moving their workforce to work remotely then than some of the smaller banks up to now so I hope this clarifies the question thanks thanks a lot well it's fair to not have already mentioned in a lot of time I'd like to hand back to fair note thank you thank you for kind of moderating the question well I hope my colleagues and I have been able to provide you with some context or insights that will help you navigate through this crisis thanks have a lot at stake in this crisis instead of being the problem banks are actively trying to be part of the solution this time around handling this crisis in the right way could help restoring public trust in a sector that has long been missing but expectations are high and maybe even unreasonable so the situation could easily result in a reputational damage responding in a way that meets expectations of the general public and also meet the compliance requirements that are there for a reason will be a very big balancing act obviously this requires a lot of your organization and I wish you a lot of success in dealing with these many challenges that are ahead finally I would like to thank the experts for their input and for you attending this call there will be more webcast to come so please keep an eye on our website and social media such as LinkedIn and of course feel free to reach out to all of the experts that were present in the call today or your contact at KPMG thank you very much for joining today please take care and stay safe