The COVID-19 outbreak has developed rapidly with far-reaching implications, causing widespread concern and economic distress for consumers, businesses and communities across the globe. In response to the economic and social consequences of COVID-19, stimulus packages as well as various regulatory and supervisory measures from the government have been introduced to ease the financial strain of individuals and businesses.
In this information analysis paper, we have highlighted the key financial and regulatory considerations for Singapore banks against the backdrop of these recent developments led by COVID-19. We have also outlined the key focus areas for banks as they chart out a recovery plan to ride out of this crisis.
Impact on banks
As banks face income risk and grapple with deteriorating credit conditions, they must also deal with operational risks associated with disruptions in the workforce and service providers. Banks will also have to maintain sufficient capital to meet prudential requirements (e.g. MAS 637 and MAS 1111) in light of higher risk-weighted assets (RWAs) from the uncertainty and heightened risks. The slow economic outlook may also increase fraud risk arising from pressures or stimulus for internal or external fraud.
Responding to the crisis
Below are some proposed focus areas that banks should address on the way through the crisis, recovery and beyond – from immediate measures focusing on protecting public health and lives and supporting survival of SMEs to mid-term and long-term measures to reshape balance sheets and underlying business model paradigms.
Immediate responses
- Crisis team & communication
- Business continuity and value preservation
- Government and MAS support measures
Short term assessment
- Asset quality and valuation
- Capital and liquidity
- Trigger event and business plan
- Ecosystem & data management
Medium to long-term recovery and value creation
- Digitisation of customer interaction
- (Distressed) M&A transaction
- Review operating model
Key financial and regulatory reporting considerations for banks
We highlighted some areas which we believe are key financial and regulatory reporting considerations for banks in Singapore, taking into account the recent developments and actions taken by local authorities impacting the industry.
- Measuring expected credit losses under FRS 109 / SFRS(I) 9
- Identifying significant increases in credit risk FRS 109 / SFRS(I) 9, and loan grading considerations under MAS 612
- Accounting for modifications and forbearance arising from relief programs
- Accounting for government reliefs (i.e. Job Support Scheme and Wage Credit Scheme) in the Singapore budget announcements
- Impact on prudential ratios, including capital ratio requirements under MAS 637, liquidity coverage ratios under MAS 649 and Net Stable Funding ratios under MAS 652.
- Valuation of financial instruments and accounting considerations under FRS 113 / SFRS(I) 13
As the situation continues to evolve, so too will the consequential accounting and reporting issues. For these reasons, the above is not an exhaustive list of all relevant considerations. While the issues have been grouped under the 6 headings, they will in certain cases be interrelated.
Other key considerations for critical contingency planning
There are eight key areas which banks must consider when charting your critical contingency plans. We understand that this is a difficult time for many individuals and businesses. If you would like more information or to discuss any specific issues you may have, please speak to us.
- Business continuity
- Crisis management
- Legal issues
- Internal audit governance and resource management
- Portfolio modeling and recovery review
- Credit file, capital and liquidity review
- Loan portfolio scenario analysis
- Workforce planning and mobility
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