2014 Bank Risk Priorities: The East-West Geographic Divide

As FICO's chief analytics officer, I regularly meet with our banking clients all over the world. Rarely have I seen as stark a difference in regional risk management priorities as I see today when I compare banks in Europe and North America to banks in developing countries throughout Asia.

Europe and North America

As we all know, banks in these two regions were hit hard by the recession that began in 2008. Many banks failed, and most of the surviving banks hunkered down. The risk tolerance at many of these banks was effectively zero. And even as the global economy has recovered, banks in these regions have been cautious in their growth strategies. Most of these banks remain more conservative today than they were in the pre-recession years.

In our most recent surveys of bank risk officers in Europe and North America, we found a remarkable consistency in the banks’ priorities. In fact, the top three priorities were identical among survey respondents in each region:

• Improving risk management systems
• Growing profitability from existing customers
• Improving the customer experience

The scars left by the severe recession have caused many banks to remain focused on improving risk management despite years of significant investments in this area since 2008. And to the extent these banks want to grow, they are focused on existing customers – the known quantity. It’s safe. It’s comfortable. It’s an approach banks take when rapid growth isn’t a high priority.

Asia

During my recent visits to banks in Indonesia, Malaysia, the Philippines, Thailand and Vietnam, I have seen a very different outlook. These countries weren’t impacted by the recession to same extent as banks in Europe and North America. In fact, the recession has created tremendous opportunities for Asian banks, as many western banks that had been operating in Asia sold off Asian assets and focused their resources on the home front.

These Asian financial institutions are focused squarely on growth. They realize this is their time. For many, the overriding priority is building out the infrastructure necessary to scale their operations and take on more customers as quickly as possible, while maintaining the discipline of sound risk management.

What keeps these risk managers and chief risk officers up at night also differs from banks outside this region. While phrases like “deleveraging” and “fragile economic recovery” are top of mind for their European and North American counterparts, Asian banks voice concerns about overleveraging and potential economic slowdown due to unrest and other regional circumstances.

Nothing is forever. In a few years, I’m sure global banking dynamics will be different than they are today. But it is certainly fascinating for me to see the dramatic regional differences in the attitude, approach and priorities of the banks we work with worldwide.