Credit risk is the top concern of the Romanian banking managers, according to Banking Banana Skins 2010 survey of PricewaterhouseCoopers

Credit risk is the most slippery of banana skins for the Romanian bankers, according to the latest 'Banking Banana Skins' survey conducted by the Centre for the Study of Financial Innovation (CSFI) in association with PricewaterhouseCoopers, while on a global level, the bankers fear political interference the most.

The annual poll of banking risk assessed the 30 most serious risks to banks during this period of financial crisis. The poll is based on responses from 450 senior figures from the financial world in 49 countries, who include practising bankers as well as close observers of the financial scene and regulators. In Romania, 13 senior level banking managers participated in the survey.

Global Conclusions of the Banking Banana Skins 2010 survey

On a global level, respondents said that the 'politicisation' of banks as a result of bail-outs and takeovers posed a major threat to their financial health.

'Political interference' has never appeared as a risk in 15 years of 'Banana Skins' surveys. The top risk is closely linked to the No. 3 risk, 'Too much regulation', and the concern that banks will be further damaged by over-reaction to the crisis.

David Lascelles, survey editor, said: 'It is ironic that politics should emerge as a risk when the banks had to be rescued in the first place. But there is clearly a crisis in the relationship between banks and society, and it will take years to rebuild trust. Until it is, banks will operate under a financial handicap.'

Many of the risks identified by the survey – such as the credit risk - stem from concern about the effects of the recession on the banking industry. The bulk of respondents were gloomy about the outlook, fearing a 'double dip' recession with a further wave of bad debts hitting the banks. The mood was particularly dark in the Asia Pacific region where respondents are worried that a new asset bubble may burst, bringing about a collapse of confidence in the credit markets.

The poll also reflects concern about the banks' ability to manage themselves safely. Other risk factors such as the quality of risk management, corporate governance and management incentives, all feature prominently as potential sources of risk.

But some risks are also seen to be easing as the world pulls out of the crisis. A number of financial risks - liquidity, derivatives, credit spreads and equities – are down on the previous poll in 2008. A striking fall is the risk from hedge funds, down from No. 10 to No. 19, as their threat is seen to diminish. 'Financial plumbing' risks are also seen to be low: back office, payments systems etc. All performed well in the crisis. Environmental risk is at an unchanged No. 25 position despite the heat generated by the Copenhagen Summit.

Conclusions of the Banking Banana Skins 2010 survey for Romania

The outlook of banking in Romania seems difficult to predict. Fears were expressed about the weakness of the economy and its impact on banks through rising loan defaults and declining profitability. Another fear is that risk aversion in banks will delay the economic recovery. Some respondents consider that in an extreme situation the banking system will be provided the necessary safety net by government; others fear that this would undermine banking responsibility. The need for better risk management is seen as pressing, while additional regulation, in order for the banking system to be better prepared to cope with the new challenges, would be recommended.

'The Romanian banking sector avoided the initial phase of the financial crisis in late 2008. Credit risk is however now becoming a significant concern for Romanian banks, as the ongoing economic recession leads to a growing number of insolvencies and bankruptcies of local businesses. Banks expect further deterioration of the quality of credit and the provisions for bad loans will predictably keep rising and further more, turn into real losses for the lenders', stated Dan Iancu, Partner, Consultancy Services, PricewaterhouseCoopers Romania.

Banking Banana Skins 2010

(2008 ranking in brackets)

World

1. Political interference (-)
2. Credit risk (2)
3. Too much regulation (8)
4. Macro-economic trends (5)
5. Liquidity (1)
6. Capital availability (-)
7. Derivatives (4)
8. Risk management quality (6)
9. Credit spreads (3)
10. Equities (7)
11. Currencies (13)
12. Corporate governance (16)
13. Commodities (12)
14. Interest rates (9)
15. Fraud (11)
16. Management incentives (17)
17. Emerging markets (18)
18. High dependence on technology (15)
19. Hedge funds (10)
20. Rogue trader (14)
21. Business continuation (23)
22. Retail sales practices (20)
23. Conflicts of interest (21)
24. Back office (19)
25. Environmental risk (25)
26. Payment systems (27)
27. Money laundering (24)
28. Merger mania (28)
29. Too little regulation (29)
30. Competition from new entrants (30)

Romania

1. Credit risk
2. Political interference
3. Currencies
4. Macro-economic trends
5. Risk management quality
6. Equities
7. Fraud
8. Credit spreads
9. Derivatives
10. Business continuation
11. Too much regulation
12. Capital availability
13. Emerging markets
14. Hedge funds
15. Commodities
16. Environmental risk
17. Interest rates
18. Corporate governance
19. Money laundering
20. Retail sales practices
21. Rogue trader
22. High dependence on technology
23. Liquidity
24. Conflicts of interest
25. Back office
26. Management incentives
27. Payment systems
28. Merger mania
29. Competition from new entrants
30. Too little regulation

The CSFI's 'Banana Skins' series provides periodic snapshots of the risk landscape in the financial services sector. As well as the banking series, the CSFI conducts surveys of the risks in insurance and microfinance.

The Centre for the Study of Financial Innovation, founded in 1993, is an independent not-for-profit think tank based in London which researches the future of financial services. It has an affiliate in New York, New York CSFI. The CSFI has been producing regular Banana Skins surveys since 1995. www.csfi.org.uk

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'PricewaterhouseCoopers' and 'PwC' refer to the network of member firms of PricewaterhouseCoopers International Limited (PwCIL). Each member firm is a separate legal entity and does not act as agent of PwCIL or any other member firm. PwCIL does not provide any services to clients. PwCIL is not responsible or liable for the acts or omissions of any of its member firms nor can it control the exercise of their professional judgment or bind them in any way. No member firm is responsible or liable for the acts or omissions of any other member firm nor can it control the exercise of another member firm's professional judgment or bind another member firm or PwCIL in any way.

Tags: banking about their crisis management regulation member services banks pwcil financial romanian concern credit banana skins romania pricewaterhousecoopers survey risks

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