Navigating Financial Turbulence: How Banks Are Investing in Risk Technology
Navigating Financial Turbulence: How Banks Are Investing in Risk Technology
In the wake of upheavals brought on by the coronavirus pandemic, the banking industry is now confronted with unprecedented challenges associated with economic volatility, high-interest rates, and evolving regulatory landscapes. A recent survey conducted by FT Longitude and SAS highlights a significant shift in investment towards risk management technology within the banking sector. An astounding 75% of banks are set to boost their spending on risk technology solutions, a notable increase from just 51% two years prior. This trend signals a proactive approach among financial institutions as they seek to bolster resilience in uncertain times.
Economic Landscape and the Need for Change
The global financial environment has seen the collapse of eight banks since 2023 due to mounting interest rate pressures and liquidity constraints. Geopolitical tensions and persistent inflationary concerns have further complicated the risk landscape. Against this backdrop, banking leaders are recognizing that traditional methods of risk assessment are no longer sufficient. As pointed out by industry experts, decisions regarding liquidity, capital, or credit risk can no longer be made in isolation. Collaborative strategies utilizing integrated risk efficiency are becoming critical for effective decision-making.
Insights from the Recent Survey
In October 2024, FT Longitude conducted a survey with inputs from 300 senior risk executives across 25 countries, revealing the banking sector's growing prioritization of risk technology. The report highlights the following key findings:
- - Investment Growth: Alongside the 75% finding, 64% of respondents indicated plans to increase their spending on third-party software solutions, compared to just 43% in 2021. This trend reflects an urgency to update existing infrastructures to meet modern demands.
- - Focus on Risk Modeling: Approximately 67% of banks plan to advance their risk modeling capacity over the next two years, a rise from 54% previously. Risk modeling has increasingly been viewed as a competitive advantage, with 63% of executives recognizing its importance compared to 47% in 2021.
- - AI Utilization Remains Mixed: While the promise of AI and generative AI technologies is acknowledged, adoption is still uneven across the industry. Only 40% report utilizing AI for risk management functions, with even lower figures for generative AI implementation.
- - Data Management Needs: The explosion of data sources highlights a crucial need for improved data management frameworks. Although 64% of surveyed executives see benefits in consolidating customer data, only 14% plan to do so extensively, suggesting a gap between recognition and action.
- - Asset Liability Management Systems: A significant portion of risk executives expressed dissatisfaction with their asset-liability management capabilities, with nearly 80% indicating plans to enhance their systems significantly.
Challenges and Opportunities
The report underscores a fundamental shift in how banks must operate amidst these pressures. As highlighted by industry leaders, banks that successfully modernize their systems and embrace an integrated approach will not only withstand current challenges but also improve customer satisfaction and unlock new revenue streams.
Risk management has transformed from a compliance obligation to a strategic priority, pushing banks to innovate radically. The survey findings serve as a wake-up call for institutions to recognize the interconnectedness of risks impacting valuations and operations.
The Path Forward
Banks are encouraged to invest in robust, AI-powered platforms capable of risk evaluation across their balance sheets, facilitating holistic decision-making processes. As described by industry insiders, adopting an enterprise-wide risk management solution will streamline operations and foster a competitive edge in turbulent times.
With the banking sector's focus on transforming risk management strategies through preparedness and investment in technology, financial institutions are positioning themselves to not only survive but thrive as they navigate the complexities of an ever-changing economic landscape.
For further insights into the transformative approaches to risk management within the banking sector, download the latest collaborative research report by SAS and FT Longitude at SAS.com/riskreport.
Topics Financial Services & Investing）
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