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With economies contracting and unemployment rising, credit risk has moved to the top of the risk management agenda, according to Deloitte & Touche LLP’s biennial survey on the state of risk management in the financial services industry globally.
Credit risk is the leading concern of chief risk officers at financial institutions, according to a survey by Deloitte, with 20% calling it their No. 1 risk, a “sharp” increase from just 3% in 2018.
Credit risk management is the practice of mitigating losses by understanding which potential clients may come at too high a risk and above an institution’s pre-identified risk tolerance at any given time, according to a statement issued with the report.
The survey gathered the views of CROs or their equivalents at 57 financial services institutions around the world representing a total of $27.2 trillion in aggregate assets.
All institutions in the survey have a chief risk officer in 2020, up from 95% in 2108 and 86% in 2010, data showed.
Cybersecurity was the second most highly rated risk, with 30% of respondents saying cybersecurity was one of the three risks that would increase the most in importance for their institutions over the next two years.
Only 61% of respondents, however, considered their institutions to be extremely or very effective at managing cybersecurity risk, and 87% said that improving their ability to manage cybersecurity risk will be an extremely or very high priority over the next two years.
Some 91% of respondents said that they have a single individual specifically accountable for cyber risk, 89% said they have a single individual for information security, and 87% said they a single individual accountable for compliance. Only 78% said they have a single individual accountable for credit.
Eighty-four percent of the institutions reported having an enterprise-wide, risk management program in place, similar to the percentage in the previous edition of the Global Risk Management Survey, with an additional 11% saying they are currently implementing one. In 2010, only 52% had an ERM program in place.
Among institutions providing insurance services, only 48% of respondents rated their institutions as extremely or very effective in managing geopolitical risk, “an area that will require more focus given the increasing uncertainties in the global political environment,” the report said.
“Financial institutions are seeing more risk from more sources than ever before,” J.H. Caldwell, a partner with Deloitte Risk & Financial Advisory, Deloitte & Touche LLP, and the principal author of the survey, said in the statement.
The 12th edition of Deloitte’s biennial survey was conducted from March to September 2020, the statement said.
Markel Corp.’s recent acquisition of State National Cos. Inc. complements the larger company, analysts said, but Markel will be taking on some credit risks.