To tackle these risks head-on, banks are significantly increasing investments in risk technology. A global risk management survey by FT Longitude and SAS, a leader in data and AI solutions, reveals that 75% of banks plan to boost their risk technology infrastructure spending. This marks a sharp rise from 51% in 2021. Furthermore, 64% of banks intend to enhance their investment in third-party software, up from 43% in 2021.

The banking industry is navigating a storm of financial and regulatory challenges. After overcoming the disruptions caused by the COVID-19 pandemic, banks now face soaring interest rates, liquidity risks, and growing credit concerns. Since 2023, these pressures have led to the collapse of eight banks. Additionally, geopolitical tensions and inflation continue to add uncertainty.

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Banks Embrace Technology to Strengthen Risk Management

As the financial landscape grows more complex, banks recognize that liquidity, capital, and credit risks are deeply interconnected. Carlos Diaz Alvarez, Chief Risk Officer at Santander Portugal, emphasized this point:

“Banks must consider liquidity, capital, and credit risk collectively rather than making decisions in isolation. We need deeper integration and granularity to extract key insights and drive holistic decision-making.”

The latest benchmarking report, Transforming Risk Management, gathers insights from 300 senior risk management leaders across 25 countries. Compared to a similar study in 2021, the new findings highlight a growing emphasis on risk management innovation and the critical role technology plays in building resilience.

Key Findings from the Study

  1. Banks Are Increasing Investment in Risk Technology
    • 75% of banks are investing in risk technology infrastructure (up from 51% in 2021).
    • 64% are boosting spending on third-party risk management software (vs. 43% in 2021).
    • 65% plan to work with third-party risk advisory services, a 15% increase from 2021.
  2. Risk Modeling Gains Priority Amid Regulatory Changes
    • 67% of banks aim to enhance risk modeling over the next two years (vs. 54% in 2021).
    • The percentage of executives who see risk modeling as a competitive advantage has surged to 63%, up from 47% in 2021.
    • In EMEA and among banks with $20 billion to $50 billion in assets, 72% view risk modeling as a key differentiator.
  3. AI Adoption in Risk Management Remains Mixed
    • 40% of banks use AI widely for risk management, but only 17% apply generative AI (GenAI) to these functions.
    • A lack of skilled talent remains the top barrier to AI adoption, cited by 50% of respondents.
    • U.S. banks lead in AI implementation, while APAC banks lag behind.
  4. Data Management and Governance Are Critical Yet Underutilized
    • Executives cite improved risk management (64%), customer experience (55%), and fraud detection (51%) as top benefits of data consolidation.
    • However, only 14% of banks plan significant consolidation of customer data, and just 44% intend to consolidate non-customer data.
  5. Asset Liability Management (ALM) Systems Need Improvement
    • Only 22% of risk executives are highly confident in their ability to manage liquidity risk.
    • 79% are either implementing next-gen ALM solutions (38%) or enhancing ALM functionalities (41%).
    • 77% aim to invest in Integrated Balance Sheet Management (IBSM) to improve interest rate and credit risk assessments.

Stu Bradley, Senior Vice President of Risk, Fraud, and Compliance Solutions at SAS, stressed the importance of modernizing risk systems: “As risks become increasingly interconnected, financial institutions require an AI-powered platform that assesses risks across the balance sheet and supports comprehensive stress testing. Those that replace outdated systems with enterprise-wide solutions will gain a strategic edge.”

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FAQs

1. Why are banks increasing investments in risk technology?

Banks are facing higher risks due to rising interest rates, regulatory changes, and economic uncertainties. Investing in risk technology helps them manage these complexities more effectively, improve decision-making, and strengthen financial resilience.

2. What role does AI play in risk management?

AI enhances risk management by automating processes, improving risk modeling, and detecting fraud more efficiently. However, AI adoption varies across banks, with challenges like a lack of skilled talent slowing widespread implementation.

3. How can banks improve asset liability management (ALM)?

Banks can enhance ALM by integrating next-generation solutions that provide better visibility into liquidity and credit risks. Investing in AI-driven IBSM systems enables more strategic balance sheet management and regulatory compliance.

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