The Bank of England’s (BoE) UK Deposit Takers Supervision: 2024 priorities report further emphasises this point as it reflects on how credit risk management practices need to evolve.
“It is imperative that firms are prepared to manage the associated risks proactively and prudently, while supporting their customers.”
Market-wide challenges
The PwC “Risk Reshaped: How are Credit functions evolving?” market survey provides insight into how this credit risk evolution is perceived across the industry.
We examine both Retail and non-Retail perspectives from Tier 1 and Tier 2 Banks and Building Societies with UK presence on customer/credit strategy, and both financial and operational implications of the following three key market-wide challenges.
Adapting to macroeconomic headwinds
With the effects of high inflation and increasing interest rates, many people are adversely affected by the cost of living crisis, requiring additional support from firms.
This section helps understand how firms are responding to the cost of living crisis including customer support, portfolio management and reporting.
Regulatory change and enhancements
Regulatory bodies continue to enhance existing guidelines and introduce new ones from both a conduct and prudential perspective to improve industry stability. This naturally increases the compliance pressures for financial institutions and this section helps understand the key regulations that firms are proactively taking actions on to ensure readiness and compliance.
Business performance and efficiency
With the increased levels of market competition over the past few years, there is a need for firms to be proactive and dynamic in various aspects of their business to continue to achieve business growth objectives.
This section helps understand what transformational initiatives firms are undertaking to improve business performance and efficiency.
There is a consensus amongst participants that of the three key credit risk focus areas, the priority over the past twelve months has been to ‘adapt to macroeconomic headwinds/prevailing market conditions’, followed by focusing on ‘regulatory change and enhancements’, and ‘business performance and efficiency’ of similar importance. This aligns to our expectations for portfolios with greater sensitivity to macro-economics, whereas firms with a more stable / less sensitive portfolio have typically focussed more on improving their operating model and technological capabilities.
PwC have a variety of expertise, toolkits and alliances to help you navigate through the current credit risk climate embracing our “human-led, tech-powered” approach which sits at the heart of our global strategy.
