- Over 90% of CROs view climate change as the top emerging risk in the next five years
- Credit and cybersecurity risks are top issues garnering CRO attention over the next 12 months
For the first time since the survey’s inception over a decade ago, climate change tops the list of long-term risks for banks, according to the 11th EY and Institute of International Finance (IIF) bank risk management survey, “Resilient banking: capturing opportunities and managing risks over the long term.” The survey of 88 financial institutions across 33 countries provides a window into the changes in risk management seen globally during the past decade, and the major risks anticipated over the next 10 years.
More than nine in ten (91%) of surveyed bank chief risk officers (CROs) view climate change as the top emerging risk over the next five years. Only about half (52%) of CROs said the same in 2019. In the near-term, almost half (49%) of CROs now view climate change as a top risk requiring their urgent attention over the next 12 months. In 2019, only 17% took that view. Beyond climate change, the most important emerging risk according to CRO respondents is the length and depth of the global economic recovery (83%).
Mark Watson, EY Americas Financial Services Organization Board Matters Deputy Leader, says:
“In the past year, we saw climate change rapidly ascend to the top of banks’ long-term risk agendas for the first time. Bank boards and senior management must remain resilient across a broader set of dimensions as the world adapts to a post COVID-19 world, and it’s clear that now includes climate-related risks, as well as other environmental, social and governance matters.”
The survey finds that banks in practice are still maturing in their ability to assess physical and transitional risk exposures: just over half (54%) have a preliminary understanding of their climate change risk exposure and more than a quarter (28%) have a somewhat complete understanding.
In the near-term, banks believe credit risk will be the No. 1 concern over the next 12 months – according to 98% of CROs – amid the global economic recovery from the COVID-19 pandemic. Cybersecurity is perceived to be the second most urgent risk (80%).
Andrés Portilla, Managing Director, Regulatory Affairs at the IIF, says:
“While cybersecurity has long been the leading immediate concern for CROs, the COVID-19 pandemic changed the game. The breadth and depth of the pandemic’s shock to the global economy has brought credit concerns to the forefront for banks over the next 12 months.”
Additional key survey findings include:
- Almost one in three (29%) of banks now believe they can manage down costs of controls over the next three years by using data and technology to improve risk management.
- Seven of the top 10 emerging risks according to CROs relate to technology and data, including the pace and breadth of change from digitization (68%), industry disruption due to new technologies (68%) and obsolescence/legacy systems (62%).
- Based on lessons learned from the COVID-19 pandemic, 93% of CROs expect to see the introduction of new or additional regulatory requirements on operational resilience, and 60% of CROs expect the same on financial resilience.
- CROs expect their banks to further accelerate their digital transformation, including by automating processes (88%), modernizing core technology platforms (66%) and delivering enhanced insights to customers (64%).
For more information, please visit ey.com/bankingrisk
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About the Institute of International Finance (IIF)
The Institute of International Finance (IIF) is the global association of the financial industry, with more than 450 members from more than 70 countries. Its mission is to support the financial industry in the prudent management of risks; to develop sound industry practices; and to advocate for regulatory, financial and economic policies that are in the broad interests of its members and foster global financial stability and sustainable economic growth. IIF members include commercial and investment banks, asset managers, insurance companies, sovereign wealth funds, hedge funds, central banks and development banks. To learn more about IIF, please visit www.iif.com, follow IIF on Twitter, LinkedIn or YouTube, or check out IIF’s podcasts.
About the survey
EY, in conjunction with the IIF, surveyed IIF member firms and other top banks in each region globally (including a small number of material subsidiaries that are top-five banks in their home countries) from November 2020 through January 2021. Participating banks’ CROs or other senior risk executives were interviewed, completed a survey, or both.
In total, 88 IIF member firms across 33 countries participated. Regionally, those banks were headquartered in Asia-Pacific (18%), Europe (24%), Middle East and Africa (13%), Latin America (16%) and North America (29%). Of those, 19% are globally systemically important banks (SIFIs) and 61% have been designated as systemically important domestically. Data relates to the 62 banks that completed the quantitative survey, and the narrative includes insights gleaned from qualitative interviews with some of those and other banks.