What will keep CROs awake at night in 2023?

We are now one month into the new year, so my traditional column on what will keep risk managers busy in 2023 is long overdue. As usual, my observations are inspired by my conversations with various risk professionals – our clients – and by my visits to prominent risk events such as the annual RiskMinds conference, which last took place in November 2022 in Barcelona.

The main risk themes this year are different from those that dominated the risk agenda in 2022, and they reflect our turbulent times. The number one risk on everyone’s mind is geopolitical risk – and the resulting societal risks. Deglobalization and the end of the unipolar world are seen as real trends, and geopolitical instability, fuelled by the Ukraine war, makes our world (and the consequences for the financial system) highly volatile and unpredictable.

However, Ukraine conflict and the resulting sanctions are not yet seen by CROs as a major credit event, but this can change in the course of 2023. The main challenge here is how to map geopolitical risks into industries and sectors and into the corresponding credit and investment portfolios.

The second and perhaps more existential risk for banks is the rising inflation, cost of living and energy crisis. The main question here is: what is the impact of these risks on asset valuation, downgrades in credit and retail customers? Rising inequality, poverty and erosion of the middle class are seen as a threat to the resilience (and even existence) of smaller, retail and emerging market banks.

It must be said, however, that, although rising inflation and interest rates are seen, on one hand, as risks (particularly for credit), on the other hand this new regime is also considered as a kind of ‘return to normality’ and better margins by large banks.

A major risk which is still there from previous years is the cyber risk. This risk is still in the top three worries of CROs of all banks – large and small, investment and retail, digital and incumbent, and I expect that this risk will not disappear any time soon.