New Zealand’s banking industry is more optimistic than any other country, registering the lowest levels of overall anxiety and the highest levels of preparedness of all countries surveyed, yet remains concerns by the growing technology risk within the sector.
“This optimistic outlook is in part down to the Kiwi ‘can do’ psyche, coupled with the lower levels in complexity of New Zealand’s banking products and continued focus on regulation and risk management,” says Sam Shuttleworth, Banking and Capital Markets Leader, PwC.
According to Banking Banana Skins 2015: Recovery under threat – New Zealand edition, which describes the risk outlook for the banking industry in 2015, the greatest fears for New Zealand banks include:
1 - Technology risk
At the top of the table for the New Zealand industry were risks related to technology, which increased five places from 5th place last year to the greatest fear of all for 2015.
2 - Social media
The risk of social media has risen from 7th placing for Australia and New Zealand in 2014 (the first time this had made the list of top risks), and increased to the second top risk for New Zealand this year.
Shuttleworth says social media has similarly increased in Global rankings, although it is yet to crack the top-ten risks.
“It’s not surprising that for New Zealand banks these technology-related risks have risen to the top, with social media’s power to damage reputations with or without sound evidence coupled with jumps both locally and globally, in the risk of criminality,” Shuttleworth adds.Read more: The State of Global Information Security 2016: The convergence of digital and cybersecurity
“As the industry increasingly embraces technology and moves towards greater digitisation, focus on how to better manage these risks has resulted from concerns about the vulnerability of outdated systems to cyber crime and outages.”
3 - Macro-economic environment
Globally there are ongoing concerns regarding the macro-economic environment, with this the top listed risk for global respondents for 2015 and ranking third for New Zealand respondents (increasing one place from last year).
The findings reveal concern is growing about possible failure of the global economic recovery and the damage this would do to a still fragile banking system.
Shuttleworth says many people fear that the economic recovery will fail and cause severe damage to the banking system which is a worrying prospect.
4 - Conduct practices
Conduct practices (up one place from 2014) remains a top risk because of what is perceived to be banks' failure to achieve sufficient ‘culture change’ in the management of their business practices despite regulatory pressure.
5 - Pricing of risk
A New Zealand-specific concern which was much commented on by respondents was the risk of the build-up of a housing bubble fuelled by quantitative easing and was one of the reasons why the pricing of risk remained as a top-five threat, down three places from 2014.
The lowest scored risks in New Zealand relative to the global averages were related to governance, while several respondents noted marked improvements in boardrooms - regulation risk was also seen as considerably lower than in many other jurisdictions.
“Despite much work by banks and regulators to strengthen risk controls, there is still more to be done to address the scale of risk and its ever changing nature,” Shuttleworth adds.
“Banks are recognising they cannot only be concerned with their own systems and processes but also with related reputational risks arising from third party outsourcing and off-shoring activities.”
For Shuttleworth, the survey shows a “fairly strong global consensus” that the main threats to banking safety come from areas such as criminality, which has shot up the rankings quite dramatically, technology risk, and conduct practices.
“Banks will need to carefully manage risks while ensuring they are forward-looking and focused on positioning themselves for growth in the longer term,” Shuttleworth adds.