Survey: Risks to global financial markets cause increasing concern for financial institutions
A snapback in risk premia in global financial markets poses greatest concern for financial institutions at present, according to the latest survey of risks to Lithuania’s financial system, conducted by the Bank of Lithuania. To add, cyberattacks and unsustainable real estate market developments have remained among the key risks for financial institutions as well.
‘Over the last two years respondents have indicated the same three major risks to the domestic financial system, however, due to the dynamic domestic and international environment their order of importance changes. Market participants assess a snapback in risk premia as a greatest source of concern because it could lead to increased interest rates, decrease in price of securities and more expensive loans,’ said Tomas Garbaravičius, Member of the Board of the Bank of Lithuania.
As before, banks remained most prudent when assessing cyberattack risk, while insurance undertakings and other financial institutions were less cautious. The survey results suggest that over the recent half-year 3 out of 24 financial institutions were subjected to cyberattacks, but none of them incurred any losses.
According to the surveyed, the importance of unsustainable developments in real estate prices or imbalances in the real estate market has remained unchanged in the last half-year, while possibilities of mitigating this risk were assessed as quite limited. Other financial institutions’ assessment of the potential negative effects of this risk was higher than that of banks and insurance undertakings.
According to the respondents, the importance of risks that are likely to emerge within the Lithuanian market declined, while the significance of external risks increased. When comparing external risks, in the second half of 2018, financial market participants attached greater importance to risks related to the weakening European sovereign debt sustainability and their possible negative impact on Lithuania’s financial system. Risks related to the deceleration in Lithuania’s exports due to the slowdown in main trading partners and imbalances in Scandinavian countries remained important as well.
The Survey is conducted biannually. Banks, insurance undertakings, leasing companies, investment management companies and other financial institutions assess the sources of major risks to Lithuania’s financial system, the probability of adverse events and their potential impact on the domestic financial system over the upcoming 6 months.