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Czech bankers fear impact of global economic crisis and bank fraud on banking systems

Czech financial sector leaders are concerned about the effects of the economic crisis in the US on the banking systems world-wide including the Czech Republic, particularly as they affect markets such as derivatives, credit and equities. The next major risk facing Czech banks is fraud and lack of quality risk management, found the latest ‘Banking Banana Skins’ survey conducted by the Centre for Study of Financial Innovation (CSFI) in association with PricewaterhouseCoopers.

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The annual poll of banking risk is dominated by concerns over current market conditions, notably the liquidity shortage and the crunch in the credit, derivative and equity markets. The fear that these strains will lead to a global recession is high.

The poll is based on the views of nearly 300 senior figures from the financial world in 38 countries, and ranks 30 risks according to their severity. There were five respondents from the Czech Republic, all senior bankers.

Czech bankers largely shared the same views with their counterparts across the world (six out of top seven risks in the Czech Republic were the same as globally, albeit in a slightly different order). Their concern about fraud, however, was much higher than in most other countries.

Sirshar Qureshi, Partner in Forensic Services at PricewaterhouseCoopers, Czech Republic, commented:

"It is no surprise that fraud is one of the main concerns of Czech bankers. This further supports our latest Global Economic Crime Survey, which reported that 61% companies in the Czech Republic were victims of some form of economic crime in 2 past years with average direct financial loss reaching approximately CZK 34 million.”

The anxiety levels in the financial markets reached its highest point since 1998.

David Lascelles, survey editor, said:

“This is the darkest Banana Skins survey in more than 10 years. The survey says that the crisis has exposed a failure of controls within banks due to many factors including the growing complexity of finance, distorted incentive structures and insufficient regard to risk management.”

Jiří Klumpar, Director in the Advisory Services department at PricewaterhouseCoopers, Czech Republic, commented:

“We have marked a drop in confidence over the quality of bank risk management processes, reversing the trend of previous surveys. Respondents clearly believe the credit crunch provides a wake up call for the industry to reassess the effectiveness of its risk oversight. The majority of Czech respondents also confirmed the increased importance of reassessing the effectiveness of the risks.”

The poll showed that only 24 per cent of respondents thought banks were well prepared for the risks compared to 64 per cent in the previous poll. In the Czech Republic, however, the level of confidence in the banks’ ability to weather the storm was even lower: none of the respondents believed that their own and other institutions were well prepared for the risks; rather, they all gave a mixed answer (none said “poorly” either).

The poll showed variations in the risk outlook as seen by different classes of respondent. Bankers thought market risks posed the strongest threats, notably sharp movements in the credit, derivatives and equity markets. Non-bankers, including regulators, put more weight on weaknesses within the banks themselves, particularly poor risk management and generous bonus systems.



The Centre for the Study of Financial Innovation, founded in 1993, is an independent not-for-profit think tank based in London which researches the future of financial services. It has an affiliate in New York, New York CSFI. The CSFI has been producing regular Banana Skins surveys since 1996.

www.csfi.org.uk