Riding the Recession Wave of Change: The challenges for New Banks to operate in economic uncertainty

Recent headlines have delivered sobering news: the United Kingdom dipped into a recession in the final quarter of 2023. Job losses in the banking industry further demonstrate the need to do more with less. The challenge for New Banks who need to remain agile with a low cost-base is to find opportunities to achieve that magic combination.

IFRS 9 impairment calculation and reporting is one example where a costly and complex process can be simplified and delivered more efficiently.

Supervisory guidance stipulates an end-to-end control framework, which includes data retention, a change process, execution controls and reconciliation. However, the specialism required to undertake the process efficiently and knowledgably isn’t necessarily available within a small credit risk team. Greater volatility of macroeconomic parameters in turbulent times requires running this process more frequently, leading to even higher operating costs, placing additional pressure on profit margins.

Deloitte’s cost-effective Credit Risk Ease provides a comprehensive end-to-end tool to conduct sophisticated IFRS9 Expected Credit Loss (ECL) calculations, including Stage Allocation and Scenario analysis, and calculate final impairment figures, without the need for a fully-fledged credit risk measurement function.

Credit Risk Ease streamlines processing and mitigates operational risks, facilitating a seamless and efficient impairment calculation process that empowers the implementation of a more profitable business strategy. There is greater flexibility to implement customised assumptions and model parameters allowing banks to adapt to changing business or regulatory requirements. Credit Risk Ease offers an end-to-end credit measurement function, providing a centralised platform in which you have full visibility of your impairment figures. This reduces the processing time to a couple of hours and eliminates the need for full-scale teams to perform and analyse the results. Consequently, firms can respond to changes in market conditions or the firm’s business strategy more quickly, thereby enhancing business decision-making.

Furthermore, the adoption of such a solution not only enhances risk management capabilities but also fosters regulatory compliance, ensuring adherence to evolving accounting standards and regulatory requirements. The Credit Risk Ease tool equips banks with an in-depth understanding of the account, portfolio and macroeconomic data that drives movement in impairment under various macroeconomic scenarios, different model assumptions or accounting treatments. This flexibility allows banks to set assumptions aligning to the bank’s overall business strategy and risk appetite whilst remaining compliant with regulatory requirements. With its flexibility and ability to adapt to changing business and regulatory requirements, Credit Risk Ease is not just a solution for today's challenges but a strategic investment for the future of risk management and financial stability.