Risk management frameworks key to resiliency for banks, survey finds

Modernising and automating risk management frameworks is crucial when it comes to building business resiliency, according to a new survey.

The global risk management survey titled From Crisis to Opportunity: Redefining Risk Management, conducted by analytics company SAS and Longitude, examines how banks are adapting their risk frameworks in response to the disruption of COVID-19.

According to the researchers, COVID-19 stretched risk management infrastructures to the brink, forcing banks to recalibrate their data, models and processes for stress testing, impact assessments, scenario analyses and more.

The survey reveals the 'true north' nature of banks' risk technology capabilities in navigating uncertainty, and states risk management leaders are seizing the competitive edge.

The survey finds that COVID-19 is driving transformation. More influential than regulatory requirements, the top factor influencing banks' approaches to risk modelling is the pandemic.

Most banks plan to modernise, the survey highlights. In the next two years, 54% of banks anticipate modernising their risk modelling capabilities. Further, 52% say the pandemic has accelerated their modernisation plans.

However, risk management automation is lagging. Only about 10% of banks have completely automated most of their risk management activities, and only 6% have fully automated large portions of the risk modelling processes, hindering their ability to forecast trends and improve decision making across the business.

Cloud deployments and analytics are top investment priorities for banks. Asked about planned investments for improving risk modelling over the next 12 months, executives put cloud provision (67%) and data analytics tools (59%) at the top of list.

Using the survey data, Longitude identified a subset of survey respondents, the 20% who had a more mature approach to risk management versus the rest of the sample.

These 'risk management leaders', as they're identified in the report, are defined by having more automated risk modelling and more advanced risk management capabilities via tools like scenario-based risk analytics, integrated balance sheet management and modelling-as-a-service.

The research shows the risk management leaders have attained substantial long-term benefits from their risk technology investments, including the ability to forecast further ahead and complete various stress tests more rapidly.

Compared to their survey sample peers, the leaders also report better performance across several key aspects of their operations. This includes the following:

Greater benefits from automated risk modelling: 73% report their risk modelling processes offer a competitive edge (versus 47% in the overall sample).

More accurate business forecasting: 37% (compared to 14% overall) rate the accuracy of projected balance sheets and P-L forecasts as 'very high'.

The ability to project balance sheets further into the future: 44% (versus 19% of the overall sample) can project balance sheets three or more years ahead.

Greater integration between risk management and business planning: 78% report their bank has already integrated regulatory stress-testing exercises with business planning (compared to 45% overall).

According to the researchers, banks can accelerate their transformation journeys by following five guiding principles of risk management transformation, gleaned from the actions and behaviours of the risk management leaders.

That is: standardise and modernise the risk modelling life cycle, invest in cloud infrastructure and automation, focus on quick wins versus large-scale transformation, integrate risk management with business-planning activities, and recruit the right talent.

SAS senior vice president and head of risk research and quantitative solutions Troy Haines says, "Banks know they must digitise if they hope to survive today's competitive and dubious landscape - and risk management has emerged as more critical than ever.

"A more digitised and automated approach to risk management, as exemplified by the Risk Management Leaders in this study, is not only demonstrated to enhance performance.

"It is the key to the compliancy and resiliency that will help banks withstand today's challenges and endure far beyond."