News Article

Just one of the 50 largest banks in APAC was ready for a pandemic

Just Sumitomo Mitsui Trust Holdings identified a pandemic as a primary risk to their business operations.

A recent study showed that financial firms were inadequately positioned for a threat like the COVID-19 pandemic in APAC, demonstrating the need for businesses to reconsider their risk management regimes.

According to a report on governance and sustainability by accounting organisation CPA Australia, out of the 50 largest banks based on market-cap in the region, only one lender—Japan’s Sumitomo Mitsui Trust Holdings—revealed a pandemic outbreak as a primary risk to their business operations.

“New shocks to the global economy such as COVID-19 will drive management and financial institutions boards to revamp their risk management methods for the new business normal,” said Chng Lay Chew, Singapore Divisional President of CPA Australia. “It is imperative for organisations to rethink how to be prepared for new and possible unknown risks.”

One essential aspect is having the ability to continue investing and practising high-risk management standards, added Chng.

The same study found that the use of analytics for risk management and in internal audit remains at the sector’s nascent stage. Only 15 banks have publicly said they are using analytics to manage risks.

DBS Group in Singapore became the only lender who disclosed that it uses predictive analytics to classify emerging risk areas.

On the contrary, the report noted that most financial firms have already expanded their investments in artificial intelligence, machine learning and blockchain.

But while using data analytics and technology can enhance risk management and help financial institutions make smarter strategic and other decisions, increased security risks are also correlated with this. To address this, financial institutions should consider hiring technology experts when recruiting directors, said Richard Tan, one of the report’s authors.

According to the report, at the board level, directors with technology experience remain uncommon in the industry. Most of the banks surveyed did not appoint directors with expertise in technology, with Australian and Indian banks performing better in this respect.

“Managing a business’ risk requires boards to include a range of skills, experience and viewpoints, and to avoid behavioural traps such as groupthink and confirmation bias. To achieve this, a rigorous nominating process, proper succession planning and board renewal are essential.

“Risk management, including definitioning of primary risks, should not be a checkbox exercise, but should rather be informed by a detailed analysis of various types of risks that may affect the business,” said Mak Yuen Teen, co-author of the study.

“A rigorous appointment process, adequate succession planning, and board renewal are necessary to achieve this,” he added.

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