The Twin Shock: COVID-19 Pandemic and The Oil Price War and Implications for the Banking Sector


June 24, 2020

By KPMG Nigeria / Header Image Credit: KPMG Nigeria


COVID-19 is in the first place, a pandemic with potential serious implications for people’s health.

It is an unprecedented challenge for our modern societies and health systems.

The consequences of the pandemic for our global economy and financial sector are unpredictable.

Economists are convinced that we are heading for a significant economic downturn; however, responses from Governments and Supervisors have been prompt and different measures have already been taken to sustain the economy, the banking sector and, ultimately, the people.

At KPMG, we have analysed the current situation and pointed out some specific topics that the banking sector should be considering and addressing while taking the necessary measures to cope with this “new normal”.

This document is intended to provide additional insights into the key areas of impact for the banking sector and offer suggestions on measures that can be taken to manage it. 

The Twin Shocks 

Nigeria is currently faced with Twin Shocks… with multifaceted impact

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  • There is a difference between oil supply shocks and oil demand shocks
  • The Covid-19 related oil demand shocks will be addressed once the pandemic bottoms out
  • However, the effect of the oil price war will depend on the scenarios that play out between Saudi Arabia & Russia


Impact of the Twin Shocks on the Banking Sector

Key Highlights 

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Impact of the Twin Shocks: Strategy, Business & Operating Model

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Key wholesale client segments (Oil & Gas, Manufacturing and Trade) with >40% of the lending portfolio will be affected

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SMEs, the Middle Class & Bottom of the Pyramid are the most vulnerable groups within the retail customer segment

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Overview of key impacts on banks: Digital Banking

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Impact of the Twin Shocks: Risks

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Impact of Twin Shocks: Audit, Financial Reporting and Tax

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The Twin Shocks have widespread impact on the banking sector’s financial performance and balance sheet

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Potential Countermeasures & Response Actions

Banks’ “new normal” topics 

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Illustrative checklist to navigate the Twin Shocks                                                                


  • Have you identified and classified your clients? Do you know the more risky clients?
  • Do you know the immediate needs of your clients? How much are the exposures and provisions?
  • Is it possible to offer them new products or do they need to be restructured?


  • Do you know where your key suppliers are located? Do they have contingency plans in place to ensure the continuation of supply?
  • Do you have key outsourced services? Are they sufficient? Do they have contingency plans?

Physical Logistics

  • Do you have clear instructions for your employees in teleworking, clear rotation schedules for employees in the central services? Have you established extra hours policies?
  • Have you created clear instructions for the branches? Do you have defined branches safety instructions?


  • Have you reviewed your contracts with key customers and suppliers to understand your potential liability in the crisis events, and how best to manage your legal risks?
  • How will you respond if suppliers invoke force majeure clauses?

Customer Loyalty & Demand

  • How will you set expectations with customers? How can you recover the experience in the future?
  • How well do you know your customers? Are you likely to lose customers to competitors/alternatives?
  • How will a decline in consumer demand impact your long-term growth plans?

Commercial Plans

  • How will your change plans and programs be impacted? Will project deadlines and investments need to be delayed? What impact does this have on your strategy and business model?

Technology and Infrastructure

  • Has your channels infrastructure capacity planning been sufficient in the face of this situation?
  • To what extent have you been able to leverage collaboration tools to facilitate remote work?
  • Do you have the required security infrastructure to secure remote working operations?
  • How useful have your disaster recovery and business continuity plans been? What can be improved?
  • Have your 3rd party IT suppliers been impacted? Will this impact your SLAs and system support?
  • Does your workplace/communications technology allow you to reduce travel and enable remote working?


  • What policies are in place to protect and support employees and is it timely communicated?
  • What scenario planning is the company doing around a global pandemic?
  • Are the board and management aligned on the scope of the crisis and what should be done? Is the board periodically appraised of how management is responding to the crisis?
  • Have you established crisis reporting processes?
  • Have you assessed the effectiveness of your internal and financial controls?
  • Adhering with travel bans, how will this impact your board governance, meetings and the way you run your institution?

Workforce Availability

  • How will you deal with the impact on your workforce? How can you ensure the safety of your employees while trying to maintain business as usual activities? Have you assessed the cyber security and health and safety risks associated with employees working from home?

Awareness & Communications

  • Do you have a communications plan?
  • Have you communicated with the relevant customers, employees and suppliers?


  • How much of your products and services are accessible on digital channels and enabled digitally end-to-end?
  • Are customers frustrated when using your channels?
  • How nimble have you been in responding to customer needs during this pandemic through the strategic reuse of existing API assets?
  • How have you been able to harness the plethora of insights that come with the increased use of digital channels to obtain a competitive advantage?
  • Have you considered your cloud strategy?
  • How much of your operations do you think can be automated through the deployment of bots?


  • Have you reviewed and revised cash flow, working capital management and demand predictions?
  • Have you performed simulations of the liquidity regulatory indicators?
  • Have you reviewed your contingency plans and have you updated it with the new market restrictions?

Financial Stability

  • How will your financial stability be impacted from further stock market declines and restricted funding?
  • Will the completion of your financial statements be delayed? Is this likely to cause a delay to your audit opinions and therefore market communications?
  • Have you analysed stimulus packages introduced by the Central bank and other development financial institutions?

Government & Public Health requirements

  • Do you have dedicated resource(s) reviewing public health requirements and other related Government announcements and ensuring that you stay informed?
  • Have you assessed your obligations as an employer, for the health and safety of employees?

Economy Disruption

  • How will you maintain trust with your customers and assure them that Financial Institutions are still safe?
  • Are you prepared for potential massive withdraws?
  • How will a drop in cash inflows affect your cost base and profitability?
  • Are you able to support your clients with new products?
  • Are you able to offer clients the government stimulus? How much?

Borowings & Tradelines

  • Have you evaluated all existing trade lines to identify those that might be threatened?
  • Have you reassessed all borrowings and tradelines covenants and key financial ratios for the bank’s ability to comply?
  • Have you determined the need to proactively engage lenders to renegotiate terms or seek forbearance in the short term?


  • How much of your products and services are accessible on digital channels and enabled digitally end-to-end?
  • Are customers frustrated when using your channels?
  • How nimble have you been in responding to customer needs during this pandemic through the strategic reuse of existing API assets?
  • How have you been able to harness the plethora of insights that come with the increased use of digital channels to obtain a competitive advantage?
  • Have you considered your cloud strategy?
  • How much of your operations do you think can be automated through the deployment of bots?


  • Have you assessed the cyber posture of new and existing systems being exposed for remote access?
  • Can the current security incident monitoring mechanism support the Bank in case of increased attack on critical platforms?
  • Have you identified single points of failures (SPOF) in the security architecture and how do you plan to manage any resulting incident?
  • Are you confident that your current cyber security awareness programme sufficiently and effectively covers your employees, third-party and customers?
  • Have you assessed the resilience of your technology infrastructure?

Recommendations for Strategy, Business & Operating Model 

  • Plan for the M&A rebound post COVID-19 e.g. increase list of potential investors/targets, enhance equity story for the transaction, undertake housekeeping to eliminate value leakages e.g. vendor assist/due diligence etc.
  • Identify and redesign key journeys that are likely to be affected and result in poor experiences e.g. card expiry. Furthermore, improve user experience on digital channels while proactively managing customer perception and be seen as community oriented.
  • Partner with the CBN to disburse emergency response credit facilities. For existing loans, extend loan payment period for short term credit facilities by 3-6 months while restructuring terms for longer-term instruments. Furthermore, the Bankers Committee should consider engaging CBN on relaxing the LDR compliance requirements.
  • Improve on bouquet of digital offerings and deploy dedicated help lines to key clients and offer advisory services to clients in key sectors that are affected. Also, engage customers through various communication channels to reinforce messaging that their banking service provider has the capacity to weather the shock.
  • Conduct market segmentation analysis to identify locations where demand for in-branch services is high and can be provided without undue risk to staff and the public. Additionally, conduct a comprehensive review of credit customers, assess level of vulnerability of each category to the impact of the outbreak and develop a scenario-based risk mitigation strategy.
  • Support employees to deliver consistent customer experience by equipping them with adequate remote working facilities. The priority should be on customer facing teams or teams that require infrastructure only available on-premise. In addition, banks should make contingency plans for contract and utility staff. Finally, adequate plans should be made for the Board’s operational effectiveness.
  • Explore cloud strategies best suited to the bank’s risk appetite. Also, there is need to perform a business impact analysis to identify assets that can be moved to the cloud and invest in process automation through the strategic use of bots and APIs.

Recommendations for Risks 

  • Review and re-assess the adequacy of their credit portfolio plan; review credit processes to identify the vulnerabilities exposed by the pandemic and develop ways to mitigate them. Furthermore, engage customers and begin conversations around facility restructuring and forbearance.
  • Update operational risk scenario analysis, planning, policies and procedures in line with recent developments.
  • Assess and quantify the impact of the emerging changes in market variables on the bank’s current position. Additionally, review the effectiveness of market risk stress testing and mitigation mechanisms.
  • Review plans and projections for the year while re-aligning current business targets/budgets with current global realities.
  • Re-assess funding/capital plan in the light of the current economic situation while conducting a review of the effectiveness of liquidity stress testing and contingency funding plans/policies.
  • Prepare profit forecasts based on reasonable scenarios and assumptions in order to estimate the comprehensive financial impact of the pandemic. Also, there is need to develop and implement strategies to preserve the income margin; re-evaluate the viability of capital projects, explore cost optimisation options etc.
  • Assess the adequacy of internal controls under the new working arrangements while intensifying security awareness amongst staff and customers via email, text messages and other mediums, providing tips on safe use of your digital channels.

Recommendations for Audit, Financial Reporting and Tax

  • Retain supporting evidence as FIRS may require banks to show a basis for write-offs or impairment of non-performing loans before they can be allowed as tax deductible expenses for income tax purpose. Also, clearly outline taxable benefits and inform employees on all forms of deduction prior to implementation.
  • Proactively assess the tax impact of COVID-19 on their operations and business continuity while maintaining a stronger oversight on their tax affairs.
  • Consider what information about the outbreak was known, or knowable, to market participants at the reporting date in order to measure the fair value at the measurement date. A critical revision of discount rates may be necessary for the lease liability computations.
  • Where annual reports are yet to be issued, conduct a critical assessment of whether the COVID-19 impacts should be considered in adjusting events. At the minimum, a comprehensive disclosure may be required in the financial statements.
  • Maintain positions between foreign currencies assets and liabilities adequately. The CBN may also provide support in situations where the open positions are (net liability).
  • Receivables for recoveries should be recognised when it is virtually certain that the banks would be compensated for some of the consequences of the COVID outbreak under an insurance contract.
  • A review of managements’ going concern assumptions is critical. Material uncertainties may need to be disclosed in the event that the financial statements are prepared on a going concern basis.

Supervisory Authorities’ Responses

Monetary Measures

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Fiscal Measures

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