Global investment and advisory firm, PriceWaterhouseCoopers (PWC), has reviewed the impact of Covid-19 on the Nigerian banking industry, offering useful insight on strategic steps to be taken by Deposit Money Banks (DMBs) in response to the challenges posed by the pandemic.
Specifically, PWC in its latest report advises lenders to set up an Incident Management Team to coordinate responses.
The firm also said lenders should establish a cross-functional steering committee, led by a C-suite member and ensure senior representation from business divisions plus specialist leadership such as HR, Legal, IT, Operations, Risk, Communications, Finance, Health and Safety, Procurement, Sales, Crisis and Business Continuity.
“Establish and agree process for decision making and agree critical milestones; Determine reasonable worst-case scenarios to inform planning and assumptions; Consider likely trigger points for decision-making; prepare your core Incident Management Team (IMT) to coordinate response and containment efforts; Map critical stakeholders and agree communication strategies for them. Base the immediate response and communications on established facts from reliable, trusted sources,” the report read in part.
According to PWC, lenders should appoint functional workstreams and owners and align activity with response objectives, even as they identify critical decision triggers to manage and contain the outbreak (e.g. travel restrictions; office closing/work from home; meeting restrictions/virtual solutions).
While the uncertainties arising from COVID-19 are substantial and circumstances are sure to change, PWC said it does not expect this to preclude banks from estimating their expected credit losses (ECLs).
“Estimating ECLs is challenging, but that does not mean it is impossible to estimate an impact, based on the reasonable and supportable information that is available.
“A key element in determining ECL is the assessment of whether or not a significant increase in credit risk (SICR) has occurred, and hence whether a lifetime, rather than 12-month, ECL is required,” it stated.
In many cases, and in particular in Q1 2020, it is unlikely that banks will have sufficient timely data to update loan-level probabilities of default which are often a core element of assessing SICR, the firm noted.
To help borrowers cope with the financial consequences of COVID-19, PWC stated that many banks and governments have announced various types of relief programmes that involve payment holidays, ththerefore, interim reporting under IAS 34 and other disclosure considerations are important at this time.
Many governments, central banks and other agencies are developing programmes to provide economic support. Where these interventions are made through the banking system (e.g. by providing funding or guarantees to banks at potentially advantageous rates or terms), a key accounting consideration is whether an element of the transaction is a government grant, according to PWC
The firm further advises lenders to protect their people and plan their workforce, even as it raised several questions:
“Have you identified the critical work which delivers your P&L, the workforce that do this and the capacity of the organisation to move labour to sustain those critical activities?
“Do you have full visibility of your people (geography, nationality, visa, etc.) and the right processes and systems in place to track and move your workforce, where required, as well as the legal/tax implications of doing so?
“Do you have a system in place to monitor changing laws and regulations (e.g. travel restrictions) affecting your workforce?
“Have you completed workforce profiling to understand where work levels are likely to decrease or increase due to impact?”
In the wake of Covid-19, the Central Bank of Nigeria (CBN) maintained the current monetary policy rate in March, but introduced additional measures, including: reducing interest rates on all applicable CBN interventions from nine to five per cent and introducing a one-year moratorium on CBN intervention facilities; Creating a N50 billion ($139 million) targeted credit facility, and liquidity injection of N3.6 trillion (stimulus package in the form of loans) (2.4 per cent of GDP) into the banking system; N100 billion to support the health sector, N2 trillion to the manufacturing sector, and N1.5 trillion to impacted industries in the real sector among others
The economic implications of COVID-19 according to PWC will have a consequent impact on many aspects of accounting and financial reporting. Banks face some of the biggest accounting challenges, and “we hope the information provided here will help you as you navigate the key issues.”
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