Regulation Asia and Wolters Kluwer have jointly published a new report presenting a summary of discussions from a recent roundtable with Hong Kong bankers on the evolving risk landscape in the city.
The roundtable was held amid several US banking collapses and the government-orchestrated rescue of Credit Suisse by UBS, so naturally part of the discussion focused on how the Hong Kong banking sector would be impacted by developments overseas.
Concerns over model risk, data sharing challenges and climate risk inconsistencies also featured prominently during the roundtable discussion, though the group of bankers expressed optimism for Hong Kong, given the end of three years of Covid-19 related restrictions in the city.
“People follow where capital flows,” said the Hong Kong chief operating officer at one global bank. “I am confident that Hong Kong will be rebounding back very strongly.”
Hong Kong’s proximity to mainland China is likely to help, the bankers acknowledged, noting that the city is playing a “crucial role” both to serve the needs of international investors, and to help open up the Greater Bay Area to the rest of the world.
From a risk management perspective, the group stressed the need to remain vigilant, given the increasingly complex and volatile financial landscape.
Swati Kothari, regulatory reporting product manager for Wolters Kluwer, said the recent banking failures served as a “wake-up call” for the industry to ensure the right risk management measures and governance structures are in place, interest rate risk is properly addressed, and duration mismatches between assets and liabilities are identified and appropriately managed.
Some roundtable participants suggested that modelling approaches may need to be reviewed, given their inherent uncertainty, and the emergence of macroeconomic data that hasn’t been seen before. “Models can be completely wrong, as we saw with the 2008-2009 crisis,” said one executive. “This is where business intuition and expert judgment comes in. You need to be open to this.”
The participants also discussed the quality and reliability of the data that is fed into models, including in relation to new obligations to assess ESG and climate related risks. “There needs to be some standardisation in the data that banks require from their clients [borrowers],” said one banker.
Commenting on the need for standardised data for climate risk management, an HKMA (Hong Kong Monetary Authority) spokesperson noted that a uniform framework is indeed needed to ease the burden on banks. “Consistency helps enhance transparency, addresses green-washing risk and hence better supports a Paris-aligned transition,” the spokesperson said.
“Standard setting bodies and international forums have been working to promote convergence of standards and frameworks,” the spokesperson added, though acknowledging that the creation of such a framework is challenging at this stage.
Read the full report here.