Banking Banana Skins 2012

Banking Banana Skins 2012

The supplement and global report reveal the risks facing the global banking industry, as seen by a wide range of New Zealand and global bankers, banking regulators and close observers of the banking scene around the world.

The November and December 2011 poll of more than 700 respondents across 58 countries – including 22 from New Zealand – found anxiety levels in the financial system are now at an “unprecedented” high.

PwC Financial Services Partner Sam Shuttleworth says “this is unquestionably the bleakest response seen in more than 13 years of Banking Banana Skins and highlights the huge uncertainty over the near-term, but also the certainty that changes will be needed to restore stability and growth in the longer term.”

What are the key findings from a New Zealand perspective?

•The top-five New Zealand concerns identified were credit risk, liquidity, macro-economic risk, political interference and capital availability.
•The New Zealand responses were dominated by concerns about the sovereign debt crisis, particularly in the Eurozone, and its impact on us and the global economy.
•They singled out funding as a key issue should liquidity and access to capital become more difficult.
•In a positive sign, New Zealand banks feel well positioned to deal with any potential liquidity crunch.

Please note the NZ supplement along with the global Banking Banana Skins report and the news release are embargoed until 5am on Tuesday 31 January 2012.

Our spokesperson, PwC Financial Services Partner Sam Shuttleworth is available for any additional comment. Please let me know if you would like me to organise today a face-to-face or phone interview, for you to then hold and use on Tuesday.

Given it’s a long weekend in Auckland, please feel free to contact Sam directly over the weekend if you would like to talk further. His number is 021 976 949.

As always I can be contacted on 021 717 688.

Thank you for your time and consideration.

Kind regards,

Marise

Embargoed NZ Supplement Banking Banana Skins PDF:

Embargoed Banking Banana Skins global report PDF:

Embargoed PwC news release word document:

Embargoed PwC news release text:

Embargoed until 5.00am on Tuesday 31 January 2012

News Release

Threat of recession is the greatest risk to global banks

The fragility of the world economy with the possibility of a return to recession poses the greatest risk to the banking industry, according to a global survey by PwC and the Centre for the Study of Financial Information (CSFI) in Banking Banana Skins 2012. This survey describes the risks currently facing the global banking industry, as seen by a wide range of bankers, banking regulators and close observers of the banking scene around the world.

The November and December 2011 poll of more than 700 respondents across 58 countries – including New Zealand – found anxiety levels in the financial system are now at an “unprecedented” high.

PwC Financial Services Partner Sam Shuttleworth says “this is unquestionably the bleakest response seen in more than 13 years of Banking Banana Skins and highlights the huge uncertainty over the near-term, but also the certainty that changes will be needed to restore stability and growth in the longer term.”

Credit risk, liquidity and the availability of capital rounded out the top risks, with 22 New Zealand respondents mirroring the same top-five concerns as their global counterparts. Yet, interestingly, the fragility of the economy was third on the list of New Zealand concerns, behind credit and liquidity risk. Political interference and capital availability completed the top-five local concerns.

The survey also indicated the level of anxiety in the global banking market is at record highs, with the New Zealand respondents reporting slightly heightened levels of concern. Yet, when asked “How well prepared do you think banks are to handle the risks you have identified”, New Zealand scored better than the global average: this suggests New Zealand banks see themselves as among the better prepared.

“Given our experiences during the global financial crisis, the New Zealand responses were dominated by concern about the sovereign debt crisis, particularly in the eurozone, and its potentially depressing impact on us and the global economy.

“There is a high sense of vulnerability to conditions on international markets, and funding is also singled out should liquidity and access to capital become more difficult. This view was shared by global respondents with the results of the global survey highlighting the impact of the eurozone crisis and the mounting debt problems in many economies is very much front of mind for the global banking industry with flow-on consequences being the availability of liquidity and capital. This certainly paints a gloomy picture of challenging times ahead,” adds Mr Shuttleworth.

In 2010 when the survey was last performed, political interference was the greatest global concern, yet now sits at number five globally and number four in New Zealand.

“Back in 2010, the actions of overseas governments to rescue their banks from financial disarray may have restored the system, but it left the global banking industry deeply politicised. Moving forward to today, political interference is no longer considered such a concern by overseas banks because it’s actually a reality, through providing financial support, stricter regulations and exerting pressure on banks’ business decisions,” says Mr Shuttleworth.

Credit risk was again seen as the second biggest concern globally. Yet, the specific areas of credit concern has switched from real estate, commercial and consumer credit in 2010, to sovereign debt in both the industrialised world and emerging countries in the latest survey. At the top of list is the eurozone, for the scale of the risk and the hesitancy of the political response. The contagion risk of the European sovereign crisis spilling over into a ‘GFC II’ for the banking industry was a concern shared by the survey respondents.

The Banking Banana Skins also reported there is concern about a re-run of the 2008 financial crisis, notably in the eurozone, with the potential for banks’ funding markets seizing up once more. While fears of a liquidity crunch are widespread, many global respondents said they were currently in a good liquidity position.

“In contrasting the results of this survey with our trans-Tasman neighbours, the Australian response was particularly striking for its emphasis on regulatory and political risk. Australian respondents stated regulation and interference were loading costs on banks and stifling the availability of credit,” says Mr Shuttleworth. With the New Zealand banks adopting new regulations such as liquidity measures ahead of Australia, this has contributed to lower concerns in New Zealand over regulation.

“High dependence on technology was also a top five concern, reflecting where the Australian banks are at, with new IT platforms being built and new technology being developed. With technology potentially revolutionising New Zealand’s banking sector, we suspect it’s only a matter of time this perceived risk becomes a higher concern to the New Zealand banks,” concludes Mr Shuttleworth.

-ends-

Notes to the Editors:

Top-10 Banking Banana Skins for 2012

According to the survey, the top-10 ‘Banana Skins’ identified by New Zealand, Australian and global respondents were:
Banking Banana Skins 2012
New Zealand Australia World
1. Credit risk 1. Regulation 1. Macro-economic risk
2. Liquidity 2. Macro-economic risk 2. Credit risk
3. Macro-economic risk 3. Political interference 3. Liquidity
4. Political interference 4. Credit risk 4. Capital availability
5. Capital availability 5. High dep. on technology 5. Political interference
6. Derivatives 6. Liquidity 6. Regulation
7. Regulation 7. Capital availability 7. Profitability
8. Profitability 8. Profitability 8. Derivatives
9. Pricing of risk 9. Pricing of risk 9. Corporate governance
10. Business continuation 10. Derivatives 10. Quality of risk management
About the Banking Banana Skins survey

The survey was carried out in November and December 2011, and received 710 responses from individuals in 58 countries. The questionnaire was in three parts. In the first, respondents were asked to describe, in their own words, their main concerns about the financial system over the next 2-3 years. In the second, they were asked to score a list of potential risks, or Banana Skins, selected by a CSFI/PwC panel. In the third, they were asked to rate the preparedness of financial institutions to handle the risks they identified. Replies were confidential, but respondents could choose to be named.
ends

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