Only 9% of respondents to the global Banana Skins survey believe that banks are well prepared to handle banking risks – PwC

The annual global Banking Banana Skins survey compiled by the Centre for the Study of Financial Innovation (CSFI) in London and sponsored by PricewaterhouseCoopers (PwC), is based on the responses of 443 bankers, regulators and observers across 49 countries around the world, six of which are from South Africa. The survey shows that political risk assumes the number one spot as the greatest risk facing the global banking industry. Previously financial risk was regarded as the greatest risk.
Respondents agreed that the dash by governments to rescue banks from near collapse during the financial crisis led to political interference taking the top spot on a list of 30 serious risks currently facing banks. This is the first time in 15 years that political interference has appeared as a risk in the Banana Skins surveys.

Bankers saw politics influencing their lending decisions while non-bankers believed that political rescues had damaged banks by encouraging reckless attitudes. Regulators expressed their concern that governments would withdraw their support from banks before they had time to rebuild their financial strength, precipitating another collapse.

David Lascelles, survey editor, said, “It is ironic that politics should emerge as a risk when the banks had to be rescued in the first place.  But there is clearly a crisis in the relationship between banks and society, and it will take years to rebuild trust. Until it is, banks will operate under a financial handicap.”

Tom Winterboer, SA Financial Services and Banking Leader at PricewaterhouseCoopers added that the survey reflected, “that the concern is that the global financial crisis has taken the banking industry’s future out of its own hands. Governments’ efforts to rescue banks from disaster may have staved off a collapse of the system, but it has left attitudes towards the banking industry deeply politicised.” A measured response is now required to avoid damaging the banks’ long-term capacity to return public funds and enable them to play their essential role in the wider economy effectively.

Winterboer continues, “This year’s survey is a well-timed warning that the cumulative effect of current regulatory initiatives may have unintended consequences. The need to rebuild trust between banks and regulators is therefore more important than ever.” Many of the risks identified by the survey – notably credit risk at number two – stem from concern about the effects of the global recession on the banking industry. The bulk of respondents were pessimistic about the outlook, fearing a double dip recession with a further wave of bad debts hitting the banks.   

The mood was particularly dark in the Asia Pacific region where respondents are worried that another asset bubble might burst, bringing about a collapse of confidence in the credit markets. The poll also reflects concern about the banks’ ability to manage themselves safely. Banana Skins such as the quality of risk management, corporate governance and management incentives all feature prominently as potential sources of risk. Globally only 9% of respondents believe that banks are well prepared to handle the risks they identified - compared to 24% who thought so in the 2008 survey. However, some risks are also seen to be easing as the world pulls out of the crisis.  

Winterboer concludes, “There is some positive news as the survey shows that the rating of a number of financial risks such as liquidity, derivatives and equities are down on the previous ratings in 2008.”  The risks from hedge funds have taken a significant fall, down from ten to 19 on the list.  Financial plumbing risks such as back office and payments systems performed well in the crisis.

A separate analysis of responses by participants from the emerging economies, of which SA forms part, reflects a different ranking for items on the top ten list. The top three risks are credit risk, credit spreads and macro-economic trends.