Banks expect costs for non-financial risks to skyrocket over the next few years

Hayley Kirton
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Look away now, big banks – costs linked to risk could be on the rise (Source: Getty)

The majority of banks are fretting that the amount of cash they are expected to stockpile against risks like cybercrime, compliance failings and IT meltdowns is going to mushroom over the next few years.

Sixty per cent of European banks believe the amount of capital they will be expected to hold to cover such non-financial risks will increase in the near future, while one in 10 is worried the capital requirements will increase by more than 50 per cent.

"Banks and regulators are clearly turning their attention to non-financial risks which can have a huge impact on a bank's bottom line," explained Fiona Fry, head of the financial services regulatory centre of excellence at KPMG, which carried out the research. "Most attention is currently being given to IT and compliance risks, while business and strategic risks are too often overlooked.

"In such a politically volatile environment, European banks need to be braced for change and so strategic and businesses concerns should really come higher up the list of priorities."

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Non-financial risks – which, for KPMG's study, consisted of all risks that are not credit, market, counterparty, interest rate or liquidity linked – currently comprise at least 10 per cent of total losses at nearly half (47 per cent) of the European banks studied, with a handful of lenders saying these risks account for more than half of all their losses.

Recent research from AJ Bell, which was released last week, discovered HSBC, Lloyds Banking Group, Barclays, RBS and Standard Chartered had run up a bill of nearly £100bn between them for bad loans and legal costs since 2011.

All five of these banks are due to report full-year results this week, starting with HSBC on Tuesday morning.

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