EY–IIF: banks face resurgence of traditional risk factors

EY-IIF Survey Highlights Resurgence of Traditional Banking Risks Amid Rising Technological and Geopolitical Challenges

The report also emphasizes the growing significance of cyber threats, digital fraud, and the rapid adoption of artificial intelligence (AI) within the banking sector.

Based on responses from senior executives at 101 banks across 31 countries, the survey reflects an industry redefining its priorities amid increasing geopolitical tensions, divergent regulatory approaches, and expanding technological risks, thereby broadening the agenda for Chief Risk Officers (CROs).

Geopolitical Impact
Geopolitical developments are particularly influential in Europe and the Middle East & North Africa (MENA) region, with 95% and 90% of CROs, respectively, reporting a direct impact on their strategic planning.

Credit Risk Returns to the Forefront
After a period dominated by non-financial risks, credit risk has re-emerged as a top priority, cited by 62% of respondents, driven by rising concerns over non-performing exposures and intensifying competition from non-bank players.

Meanwhile, financial crime has risen sharply, reaching 43% from 23% a year ago. Concerns about digital fraud have surged even more dramatically, rising to 59% from 23% in the previous year.

The rapid growth of private credit—direct lending by non-bank entities outside public markets—adds further complexity to risk assessment. Over a third of CROs report increased complexity in risk analysis, while 26% highlight rising concentrations of credit and counterparty risk.

Cybersecurity Remains the Top Short-Term Risk
Cybersecurity continues to be the most significant short-term risk, with 86% of respondents ranking it as a top threat.

Slow AI Adoption
Although 55% of CROs recognize advanced technologies as a strategic priority, implementation remains limited. 72% report that AI integration in risk management operations is still at an early stage, with progress largely unchanged since 2024.

Currently, banks primarily use AI for fraud detection and financial crime prevention, with 61% actively leveraging AI in these areas. Additionally, 41% use AI for monitoring cyber and operational risks, and 33% for supporting credit risk and market risk models.

The main barrier to broader AI adoption remains data quality and availability, cited by 80% of CROs as a key obstacle to deploying advanced systems.

Need for New Skills
The increasing digitalization of banking operations is driving demand for specialized talent. However, 30% of CROs expect risk management teams to shrink over the next three years, nearly double the 16% recorded in the previous survey.

In 2024, 68% of respondents anticipated increasing risk management headcount, now reduced to 49%.

Digital literacy—including technology, data, AI, and programming skills—is the most critical skill set, with 71% of CROs considering it essential. Additionally, 64% plan role automation, while 55% foresee growth in hybrid human-AI roles. Upskilling is emerging as a key adaptation tool, with 79% of organizations emphasizing data and AI skills development.

Rising Risks from Digital Assets
Banks are increasingly cautious about risks linked to digital assets. Cybersecurity risk reaches 83%, while financial crime concerns stand at 78%. Despite this, strategic adoption remains limited, with 60% of banks lacking a comprehensive approach. Initiatives that do exist focus primarily on managing client exposure to risks (29%) and developing digital asset-related services (16%).

Commentary from EY Greece
Giorgos Poulopoulos, Partner and Head of Financial Services at EY Greece, noted that the CRO role has evolved significantly over the past 15 years, shifting from a purely compliance-oriented function to one that is central to banking strategy.

He emphasized that the resurgence of traditional risks, combined with rising technological and geopolitical challenges, requires a more proactive, flexible, and technologically mature approach to risk management. For Greek banks, he noted, this period represents both a challenge and an opportunity: organizations that invest early in strategy, technology, and human capital will significantly strengthen their resilience and competitiveness.