2. Persistent uncertainty continues to challenge forecasting
Assumptions change daily, prompting banks to stay ahead of the curve.
Participants question precisely how government lending programs will unwind and what kinds of risks their institutions will ultimately realize. The unprecedented steps taken to control the pandemic, the delayed effects on some sectors, and the continuing uncertainty about global economic recovery compound the challenge for banks trying to model the impact on their customers and portfolios.
Banks are assessing balance sheets and risk models with an eye to the future
As the economic impacts of the pandemic become clearer, banks are updating risk models and stress scenarios in an attempt to stay ahead of the curve. However, uncertainty in the operating environment continues to pose challenges. A lack of regulatory harmonization may further complicate benchmarking among peers across countries, though there is hope that this will improve soon.
Uncertainty is challenging traditional credit risk analyses
Some participants stressed the importance of continued due diligence around credit and fraud risk, even where government programs do not require stringent oversight procedures. Several participants are convinced that governments will ultimately take equity stakes in businesses such as airlines, while others are skeptical and seek further clarity on governments’ role.