26. To assess the financial forecasts, competent authorities should at least: a) perform a …

To assess the financial forecasts, competent authorities should at least:

• a) perform a quantitative review of the business plan both on the base case and the stress scenario basis with a view to assessing the envisaged TCB’s ability to achieve the projected results in compliance with the prudential requirements in both scenarios;
• b) review the explanation for the initial viability and sustainability of the business model over the three year time horizon of the business plan;
• c) in respect of the stress scenario, verify in particular that: (i) the economic and business assumptions are severe but plausible; (ii) the identified management measures are adequate;
• d) assess the financial forecasts reflecting the targeted business strategy with respect to the activities, business and product lines based on profit contribution and examine the credibility of the underlying quantitative assumptions (e.g. growth rate, revenue, costs, risks, number of customers, staff costs, macroeconomic assumptions etc.);
• e) identify the key drivers and dependencies of the business performance, including dependencies from the group, such as allocation of businesses, transfer pricing, cost absorptions and potential vulnerabilities;
• f) review the product pricing and structure, and give consideration, for instance, to the reliance on risky or concentrated or volatile sources of income;
• g) understand the various revenue sources (e.g. interest-income-based or fee-income-based), specific revenue drivers, key performance indicators and the level of risk of the related business lines;
• h) where possible and appropriate, determine a relevant peer comparison based on rival product/business lines targeting the same source of profits/customers and base the analysis on supervisory, market and macroeconomic data in possession of competent authorities;
• i) where relevant, consider assessing profitability trends and ratios, having regard to the TCB’s envisaged risk profile, and the relative performance compared to peers. To support this assessment, competent authorities may refer to the most common profitability and risk indicators, reflecting the type and level of risk envisaged by the TCB to generate profits;
• j) where appropriate and proportionate, perform a breakdown of revenues / source of income to understand whether the expected sources are consistent with the overall business strategy (type of business model, size of business);
• k) review the target cost structure (e.g. labour, administrative or IT costs) in absolute terms, and where appropriate and possible, compared to peers;
• l) pay attention to cost concentrations.

1. Vue d’ensemble

1.1 Références

1.2 Exigences identifiées

1.3 Normes associées

2. Exigences identifiées

3. Normes associées

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