‘Banana Skins’ poll identifies top threats to banks
SINGAPORE, 29 April 2014 - Regulation and political interference topped the list of risks among the global banking industry (No.1 and No.2 respectively) – replacing 2012’s leading threat, the macro-economic environment, according to the Banking Banana Skins 2014 survey released today.
The CSFI’s biennial Banking Banana Skins survey, produced in association with PwC, revealed the overwhelming message from respondents: the weight of new regulation is becoming excessive and could dampen economic recovery and growth. The poll is based on responses from more than 650 bankers, banking regulators and close observers of the banking industry in 59 countries.
Political interference was also specified by respondents as causing more costs and constraints to the banking sector. Some of the strongest concerns around political interference come from Europe – where extensive measures have been proposed or adopted at both the EU and national levels to make banks safer.
Global Financial Services Risk Leader, Dominic Nixon, PwC, explained, “While some respondents viewed the growth of regulation as necessary, we need to carefully look at the potential unintended costs and consequences it may produce. Onerous regulation could slow profitability and innovation- during a time when the banks’ contribution to the global economic recovery is most needed.”
However, the survey also shows that anxiety about the outlook for banks has started to decline for the first time in seven years, suggesting that the operating climate for banks is finally turning. In Singapore, however, anxiety levels seem to be on the rise; comparing the Banana Skins index which measures anxiety levels, Singapore’s score of 3.25 for this year’s study is above the global average of 3.12 – a contrast with the last study in 2012 in which Singapore scored 2.37, below the world average of 3.15.
Karen Loon, Singapore Banking & Capital Markets Leader, PwC, commented,
“Singapore’s response was dominated by concerns about the volume of new regulation and the consequences in terms of re-structuring, profitability and demand for additional capital, although a number of respondents recognised that new regulations would make banks safer. The contrast in the 2012 and 2014 anxiety index scores could likely be driven by these increasing pressures on several fronts.”
Globally, the poll shows that concerns expressed in earlier surveys about capital availability, liquidity, credit quality and exotic products in the banking system have begun to ease. Although confidence about the macroeconomic outlook has also strengthened, the survey reveals strong ongoing concern about the stability of the Eurozone, and rising worries about emerging markets, particularly China where the banking system is seen to be under stress. The outlook for the tapering of quantitative easing by central banks is widely seen as crucial to global economic prospects. Singapore seemed less worried about the macroeconomic environment and outlook, however, and views it as a lower risk when compared to global results.
A fast-rising risk in the Banana Skins ranking is technology risk, which has risen from No. 18 to No. 4 in the global ranking, largely on the back of strengthening concern about cybercrime. This is a problem which, as one respondent said: “can only get bigger” and cost banks heavily both financially and reputationally. Technology concerns also centre on back office systems which are seen to be ageing but also a low priority for investment. In Singapore, although technology risk is seen as less of a risk than elsewhere, concerns around risk associated to criminality and cybercrime continue to remain.
A breakdown of global responses shows that all major respondent types (bankers, observers and risk managers) are strongly concerned about regulatory excess and political interference, as well as the state of the global economy. However non-bankers are more worried about institutional risks in banks such as the quality of governance and management; bankers play these risks down.
By region, the responses show concern about regulation and politics to be strongest in Europe and North America. The top concerns in the Asia Pacific region focus more on the macro-economy and the risk of sharp changes in interest rates.
Although there are encouraging signs in this survey, respondents’ concerns around over regulation need to be taken seriously. It would be ironic if new banking rules ended up snuffing out the recovery,” said David Lascelles, the survey’s editor
About the Banking Banana Skins Survey
The CSFI’s “Banana Skins” series provides periodic snapshots of the risk landscape in the financial services sector. As well as the banking series, the CSFI conducts surveys of the risks in insurance and microfinance.
About The Centre for the Study of Financial Innovation (CSFI)
CSFI is an independent not-for-profit think tank based in London which researches the future of financial services. It has an affiliate in New York, New York CSFI. The CSFI has been producing regular Banana Skins surveys since 1995. www.csfi.org.uk