Non-financial risks gain weight in the analysis of banks and regulators | Companies

ESG risks – environmental, social and corporate governance, in its acronym in English – occupy an increasingly significant place on the agenda of financial institutions both in Spain and in the rest of the world. Its management is increasingly important and has a direct effect on the reputation of banks. The pandemic has also modified the risk management ecosystem of financial institutions. The Covid has emphasized the importance of non-financial risks.

According to the latest Global Risk Management survey, carried out by Deloitte, banks are beginning to highlight the relevance of ESG risks. The survey, which analyzes the responses of 57 risk managers (CROs) of financial institutions worldwide on risk management by banks, indicates that 38% of this typology is one of the three main risks , along with cybersecurity and credit risks. In this way, the ESG risk will be one of the most important ones in the next two years.

Although for 14% of financial institutions they are the main risk. While 47% of financial institutions state that improving their ESG risk management capacity is a priority. .

For Rafael Campo, partner of risk advisory at Deloitte, “ESG risks and, in general, those that are not financial can have a direct impact on reputation and, therefore, transcend the economic sphere. For this reason, financial institutions, which have extensive experience in managing risks related to liquidity, the market or credit, have to adapt their risk management programs to effectively manage non-financial risks and measure them correctly ”.

This survey also highlights the potential of digital technologies to reduce risk management expenses and simultaneously increase efficiency. In this sense, efficiency tools (AI or machine learning) are classified as high priority by 50% of banks for the next two years.

Institutions have a positive perception of their financial risk management, but this vision is reduced to 65% for non-financial risks, in general, and is even lower for specific areas of non-financial risk, such as behavior and culture (55% ), geopolitical risk (42%) and data quality (26%).

The analysis carried out by Deloitte draws attention to the poor measurement that banks make of non-financial risk. Thus, while the vast majority of institutions use stress tests to analyze capital (83%) and to assess financial risks, such as liquidity (92%), the market (81%) and credit (77%), Only 38% of banks report stress tests on non-financial risks, such as weather, although regulators are expanding these analyzes.

Cyber ​​attacks are also gaining prominence as a risk in financial institutions, especially with Covid and the increase in remote work. According to the survey data, 35% of banks point to cybersecurity as one of the three risks that will increase its importance the most during the next two years.

Likewise, 61% of those surveyed consider that their institutions are very effective in managing cybersecurity. Despite this, 87% indicate as a very high priority for the next two years the improvement of the capacity to manage this risk. Regarding talent in this practice, they point out that there has been great competition in the field of cybersecurity, which is why 57% of those surveyed consider attracting qualified talent a challenge.

Deloitte’s analysis maintains that concern about credit risk typically peaks during economic downturns. This fact is evident in the responses of those surveyed, in which 20% of banks point to credit as the risk that will increase the most in importance during the next two years, as a consequence, among other reasons, of Covid. 62% of respondents say that measuring credit risk will be a very high priority for their institutions in 2021 and 2022.

In this sense, many areas of credit risk management are perceived as a challenge between this year and next, including the valuation of guarantees (48%), commercial credit (48%), commercial real estate (43%) , unsecured credit (43%) and leveraged loans (41%).


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