Over the past couple of years, the world has undergone a series of unpredictable events that have had a dramatic impact on the risks defining the business world. While traditionally financial services institutions in the Middle East and Africa (MEA) have been incredibly strong on risk management, the world is changing and creating the need for much quicker and more efficient risk analysis.
Last year, for instance, the top risk on the Allianz risk barometer for companies in MEA was the pandemic. However, this was a risk that had not featured at all on the 2020 risk barometer. Risk is becoming increasingly difficult to predict, yet for financial institutions the ability to foresee and mitigate risks is a necessity.
The challenge for companies in the financial services industry (FSI) is not simply to be able to run risk analyses faster than ever before, it’s to perform calculations in real-time.
At the same time, banks and other FSI companies have realised the data they own is not enough to effectively predict emerging risks. The pandemic is the perfect example of this. The resulting chip crisis alone impacted the financial world significantly. From motor vehicles to electronic devices, many products are in short supply, creating a liquidity crunch for many different industries and placing banks under intense pressure.
And the tumultuous nature of the risk landscape, will continue to escalate. Beyond COVID-19, FSI companies will face a wide range of growing risks from climate-related challenges to new environmental, social and governance matters.
Harnessing data from new sources
But if recent experiences have taught us anything it’s that harnessing data from a wider range of sources can help financial services companies predict risks more quickly and with a far greater degree of accuracy.
During the pandemic, for example, data around emerging risks began to emerge in newspapers and on social media. Incorporating those streams of data into risk models would have empowered FSI companies to adapt to changes in the risk landscape with greater agility.
For this reason, financial institutions across the world are increasingly looking to data and technology to improve risk management. They recognize that with fluctuations in financial markets becoming more intense, the ability to run scenario-based risk simulations is critical to predict, manage and mitigate potential financial and operational risks.
While banks have always run risk simulations for different scenarios, the number of scenarios that are traditionally simulated are no longer enough. Instead, they need to run simulations on ten times the number of scenarios.
The more granular the data the better.
The power of cloud technology
Nedbank in South Africa offers great insight to other financial services institutions looking to innovate using data science. Data is at the core of everything the bank does, drawing on Power BI for increased insights and agility.
The ability of Power BI to connect easily to a vast majority of sources has been a major benefit that provides Nedbank with the flexibility required to incorporate BI into the bank’s pre-existing business processes.
One of the original Power BI reports created at Nedbank is related to the Project Management Office. The Office has a full data warehouse supporting operational, strategic, and predictive analytics with the ability to predict risk of project failure.
This project management report helps Nedbank to monitor projects, predict risk, and keep track of spending. At the end of the day, it allows the bank to be as agile as possible in a fast-paced, data-driven world.
Tools such as Power BI are driven by the cloud, which is making it possible for businesses to transform the way they approach risk management. In fact, cloud technology, such as Microsoft Azure, provides FSI companies with a powerful proposition, leveraging scalable compute and analytics to power modelling, insight and regulatory reporting.
DenizBank in Turkey is another great example of how companies can take advantage of the power and speed of the cloud while still maintaining strict data security and privacy.
Together with Intertech and Microsoft, DenizBank launched a Data Warehouse project that provides data science departments with a flexible, cost-effective and scalable ecosystem – it’s a model that sets a precedent for Turkey and most other markets in the region.
Essentially, the project provides a wide range of modelling capabilities, from reporting to real-time, online large data solutions.
This is a challenging time to operate within the financial services space. Businesses will face an increasing number of unprecedented risks and they must be able to respond ahead of time or face considerable consequences. The good news, however, is that this is also an exciting time to be a player in the financial services space. While the tumultuous risk landscape presents new trials, it also presents new opportunities. With the right technology in place, the future is promising.