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.
Gelu Gherghescu, Partner, Financial Services Leader, EY Romania, says: “Both the executive and non-executive managements of banks take into account a wider spectrum of risks, including climate risks. More than 91% of respondents (risk management managers - CROs) believe that climate change is the main emerging risk in a five-year horizon, compared to only 50% in 2019. Even within a 12-month horizon, nearly 50% of respondents see climate change as one of the main risks immediately after credit risk and cybersecurity. In 2019 this percentage was only 17%.”
The second most important emerging risk in the next five years respondents is the length and depth of the global economic recovery (83%).
The survey finds that banks in practice are still maturing in their ability to assess physical and transitional risk exposures. Over half (54%) have a preliminary understanding of their climate change risk exposure and only 28% have a somewhat complete understanding. The remaining 18% felt that they had not understood these risks, but they intend to evaluate them in the future.
In a time horizon of 12 months, 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%).
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.
About EY Romania
EY is one of the world's leading professional services firms with 298,000 employees in more than 700 offices across 150 countries, and revenues of approx. $37.2 billion in the financial year that ended on 30 June 2020. Our network is the most integrated worldwide, and its resources help us provide our clients with services allowing them to take advantage of opportunities anywhere in the world.
With a presence in Romania ever since 1992, EY is the leading company on the market of professional services. Our more than 800 employees in Romania and Moldova provide seamless assurance, tax, legal, strategy and transactions, and consulting services to clients ranging from multinationals to local companies. Our offices are based in Bucharest, Cluj-Napoca, Timisoara, Iasi and Chisinau. In 2014, EY Romania joined the only global competition dedicated to entrepreneurship, EY Entrepreneur Of The Year. The winner of the national award represents Romania at the world final taking place every year in June, at Monte Carlo. The title of World Entrepreneur Of The Year is awarded in the world final. For more information, please visit: www.ey.com
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.