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January 31, 2012updated 04 Apr 2017 3:44pm

Possibility of recession poses greatest risk to banking industry, survey

The fragility of the world economy with the possibility of a return to recession poses the greatest risk to the banking industry, according to a global survey by PwC and the Centre for the Study of Financial Information (CSFI) in Banking Banana Skins 2012.

By Abdulhameed Bukhamsin

This survey describes the risks currently facing the global banking industry, as seen by a wide range of bankers, banking regulators and close observers of the banking scene around the world.

The November and December 2011 poll of more than 700 respondents across 58 countries – including New Zealand – found anxiety levels in the financial system are now at an "unprecedented" high.

Credit risk, liquidity and the availability of capital rounded out the top risks, with 22 New Zealand respondents mirroring the same top-five concerns as their global counterparts.

The survey also indicated the level of anxiety in the global banking market is at record highs, with the New Zealand respondents reporting slightly heightened levels of concern.

In 2010 when the survey was last performed, political interference was the greatest global concern, yet now sits at number five globally and number four in New Zealand.

Credit risk was again seen as the second biggest concern globally. Yet, the specific areas of credit concern has switched from real estate, commercial and consumer credit in 2010, to sovereign debt in both the industrialized world and emerging countries in the latest survey.

At the top of list is the eurozone, for the scale of the risk and the hesitancy of the political response. The contagion risk of the European sovereign crisis spilling over into a ‘GFC II’ for the banking industry was a concern shared by the survey respondents.

The Banking Banana Skins also reported there is concern about a re-run of the 2008 financial crisis, notably in the eurozone, with the potential for banks’ funding markets seizing up once more. While fears of a liquidity crunch are widespread, many global respondents said they were currently in a good liquidity position.

PwC Financial Services Partner Sam Shuttleworth said, "This is unquestionably the bleakest response seen in more than 13 years of Banking Banana Skins and highlights the huge uncertainty over the near-term, but also the certainty that changes will be needed to restore stability and growth in the longer term."

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