The banking industry faces a new era of volatility and uncertainty in 2025 as credit risk looms large amidst geopolitical tensions and the squeeze of inflation while regulatory change and complexity abound.
This is according to a report from FT Longitude and SAS, which is based on insights shared by 300 senior banking risk management leaders in 25 markets including Singapore, surveyed in October 2024.
A follow up to a similar joint study published in 2021, this latest report shows a rise in banking leaders’ prioritisation of risk management innovation, underscoring the critical role of technology in helping banks overcome adversity and build resilience.
Data from Singapore respondents suggest that investment in risk technology capabilities will grow significantly in the year ahead.
In addition to the burgeoning investment in technology infrastructure and third-party software noted previously, 70% of Singapore banks plan to engage third-party consultancy and advisory services.
Four in every five (80%) of Singapore banks surveyed anticipate increasing risk technology infrastructure investment.
On top of burgeoning investment in risk tech infrastructure, 70% of Singapore banks plan to increase spending on third-party software that helps automate aspects of their risk management processes, 30% of them significantly.
Additionally, 70% of Singapore banks plan to engage third-party consultancy and advisory services.
Risk modelling is a foremost focus for banks as they contend with regulatory change and seek to automate risk processes.
Three in every five (60%) of Singapore banks plan to advance their risk modelling capabilities over the next two years.
Half (50%) of Singapore banks indicated that their approach to risk management is driven primarily by external regulatory requirements rather than internal business goals.
Top factors influencing an organisation’s approach to risk modelling include climate risk (80%), profit and loss forecasting improvement (80%) and the volatile macroeconomic environment (60%).
“With risks impacting financial institutions more interconnected than ever before, firms need a singular, AI-powered platform that allows them to evaluate risks across the balance sheet and perform more holistic stress testing,” said Stu Bradley, SVP for fraud and compliance solutions at SAS.
“Those that replace outdated systems and infrastructure with a more integrated, enterprise-wide approach will see benefits across functions and enable better, more strategic decision-making,” said Bradley.
Thomas Sturge, group editor at FT Longitude, said that their research found that banks took some vital steps forward over the past three years to build resilience.
“But they can’t get caught comfortable. Ongoing turbulence means they must constantly modernise, improve and transform how they detect, manage and mitigate risk,” said Sturge.
“Those that do will be rewarded not just with improved resilience, but also greater customer satisfaction and, ultimately, revenue,” he added.
