Global risk outlook: sunny with chance of storms

Globally, risk is increasing on multiple fronts: geopolitically, as a result of climate change and, on the economic front, with rising interest rates and a looming risk of recessions in the northern hemisphere.

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Yet at a more local level, and particularly in Australia, economic conditions look almost benign.

“It's easy to focus on all the negatives but I think it's also important to balance that out with where we actually sit today..” - Kevin Corbally, Chief Risk Officer, ANZ

“It's easy to focus on all the negatives,” concedes ANZ Group Chief Risk Officer Kevin Corbally, “but I think it's also important to balance that out with where we actually sit today.”

Speaking with bluenotes in a podcast, Corbally says it was important to look at the risk spectrum through a range of lenses.

“So, the number of mortgage holders, for example, in Australia who are behind on their repayments … is less than 1 per cent. In fact, probably less than 0.7 per cent. That's 30 per cent lower than what the historical average actually is,” he says.

Meanwhile, despite the economic shock and ongoing health challenge of Covid-19, government and financial system support coupled with sensible risk decisions has meant households and companies have lowered their net debt – debt minus liquid assets – and built up their resilience.

“What essentially customers in general have done is, they've said ‘let's repay some of my higher, more expensive debt. Get that down as quickly as possible.’ And if you look at it … there's a lot of focus on the gross debt balance, the gross debt number in the economy. But actually, if you net it off with all the liquid assets that people have, so that's cash on deposit or shares or whatever the case might be. Actually, the average net debt is zero,” Corbally says.

“So yes, there's a lot of risk factors, but at the same time, there's also some other things that I think are important that balance that…. And the most important thing, I think above anything else, is jobs. We've got really low unemployment rates.”

Corbally says there are considerable complexities in the risk outlook and an organisation’s – and individual’s – risk appetite must reflect the strong current fundamentals, particularly in Australia, against the more fraught, longer term, global outlook.

For example, as the current floods in Australia and Pakistan, intense hurricanes in the US and wildfires in Europe all too graphically demonstrate, climate change is creating more powerful, more unpredictable weather uncertainties and is a long term threat.

Russia’s invasion of Ukraine, looming US mid-term elections and China’s policy settings, particularly regarding ongoing lockdowns in pursuit of zero-Covid, are all mid to long-term issues.

Inflation, as yet uncontrolled despite rising interest rates, is likely to persist well into 2023 which means the rising interest rate cycle has at least 12 to 18 months to run, according to Corbally.

It does make the role of chief risk officer interesting – and challenging: “you've got to make sure that you don't pull a lever too hard in any one direction or too quickly in another direction too as well. You've got to try and find that that balance to navigate through.”

Listen to the podcast for the full discussion of the outlook for risk [link]

Andrew Cornell is Managing Editor of bluenotes

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

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