Trust in banks at an all-time low: report
A new global study reveals that consumer trust in banks has never been lower – while banks have concerns about the growing frequency and sophistication of cyber-attacks.
The biennial Banking Banana Skins 2014 survey, conducted by the Centre of the Study of Financial Innovation and sponsored by PwC, noted that regulation and political interference topped the list of risks among the global banking industry (No.1 and No.2 respectively) – replacing 2012’s leading threat, the macro-economic environment.
The survey identifies potential sources of risks to banks, and then ranks them by severity.
The findings are based on responses from more than 650 bankers, regulators and close observers of the banking scene in 59 countries, including South Africa.
Technology risk jumped from 18th in 2012, to 4th in 2014.
The Centre of the Study of Financial Innovation pointed to two themes running through the responses to technology concerns.
The first is the perception that there has been a huge escalation in the frequency and sophistication of cyber-attacks.
The chief risk officer of a bank in Australia said: “the fastest increasing risk revolves around a range of threats categorised as cybercrime coupled with the broadcasting of the
event through social media”.
Allied to this, a growing reliance on old and overly complicated IT systems which are susceptible to security breaches and unpredictable outages that can cause widespread disruption, the survey said.
One respondent from a Japanese bank said: “[It’s] only going to get worse. Ancient
systems stuck together with sticky tape. Long lead time to replace them. Too
expensive to replace them. Management has its head in the sand about the scale of the
problem”.
The report said that a major challenge is that banks are already playing catch up in a technology environment that continues to evolve rapidly.
The top 10 biggest fears for banks in 2014 are:
- Regulation
- Political interference
- Macro-economic environment
- Technology risk
- Profitability
- Pricing of risk
- Credit risk
- Corporate governance
- Criminality
- Capital availability
Social sustainability
Interestingly, social sustainability ranked 25th out of the 28 mentioned concerns.
This risk covers the areas of ethics, reputation, the environment and other value-driven risks that might affect a banking business.
“Its low ranking is, frankly, a puzzle given the pounding that banks have taken from public opinion for many years. The comments we received made clear that public trust in banks has never been lower,” the Centre of the Study of Financial Innovation said.
“Yet the industry’s weaknesses in this area continue to rate well down the list of risks in every region and among every type of respondent surveyed.”
To answer that question, the survey pointed to a further question raised: “How much lower can banks’ reputation go? If customers have not already deserted beleaguered banks, they are probably unlikely to now.”
Social media
The survey included social media for the first time, in 19th place, and the risks associated with the rapid growth of the likes of Facebook, Twitter etc, and their potential to do harm to banks.
“The low ranking it received suggests that these media are not a matter of urgent concern, though the comments made clear that people are giving them a lot of thought,” the survey said.
It said that social networks amplify and accelerate reputational risk in the banking sector, with the added unpredictability about which stories will catch fire.
The study raised the question of how much of a material impact this actually has. Are social media influential as well as being noisy?
The general consensus, the report said, is that in the short run, they are.
In India, the CFO of a global bank said: “Potential for short term damage through episodic occurrences is high but not likely to be sustained as memories have become short”.
The regional CRO of a bank in Singapore added: “because of social media, people’s attention span gets so short that yesterday’s news is not only irrelevant, it is actually forgotten.”
Others argued that claims made through the channel of social media are treated with more scepticism – “not sure how seriously people take the opinions of trolls” – especially as high-profile examples of false accusations emerge.
The survey suggested that another reason this risk ranks low down the list is that social media are also seen as an opportunity for banks for marketing purposes and crisis management.
“I think that when it comes to social media, you’re better in than out”, said Philippa Kelly, manager at the Institute of Chartered Accountants of England and Wales.
“This is a new form of dialogue that is increasingly important to consumers and banks need to be a part of that. There is reputational risk, but also the opportunity for customers to champion you for doing a good job.
“The greater harm is to ignore social media” Kelly said.
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