Credit risk a top concern for executives
With economies contracting and unemployment rising, credit risk has moved to the top of the agenda around the world, according to Deloitte’s biennial survey of risk management in the financial services industry.
Over half of the senior executives surveyed said credit risk measurement will be either an extremely or very high priority for their institutions over the next two years.
Areas they say are particularly challenging include collateral valuation, commercial credit, commercial real estate, unsecured credit, leveraged lending and middle-market lending.
"Financial institutions are seeing more risk from more sources than ever before," said JH Caldwell, a partner with Deloitte Risk & Financial Advisory, Deloitte & Touche LLP, and principal author of the survey.
"The COVID-19 pandemic has changed the risk management environment and presents an extraordinary set of new challenges for financial institutions — everything risk-related has been pressure-tested and challenged."
With growing concern over climate risk, environment, social and governance risk concerns were named by over a third of respondents as being one of the three risk types — alongside credit and cybersecurity — that will increase the most in importance for their institutions over the next two years.
Yet only 33 percent considered their institutions to be either extremely or very effective at managing this risk, according to the study.
Meanwhile, most institutions also recognize they have more work to do to improve data management, with around 70 percent of those surveyed saying that enhancing the quality, availability and timeliness of risk data will be an extremely or very high priority.
"In China, we have seen that regulations in data management have increasingly intensified over the past two years and will continue to do so in the next few years,” said Henry Cao, a Deloitte China Financial Services Industry Risk Advisory partner.
For annual spending on risk management, 45 percent of those surveyed expected that would increase over the next two years and 50 percent reported that efficiency-focused technology tools will be an extremely or very high priority for their institutions.