R&C: What do you consider to be the key issues surrounding the credit risk currently facing banks and other financial institutions (FIs)?

Castellano: The key credit risk issues we are currently seeing in the market concern global growth. While remaining robust, the market is showing increasing signs of uncertainty, which is to some extent an improvement over the overconfident environment we have had to date. However, we hope that liquidity will stay strong as fiscal policies move toward normalisation. We started asking ourselves when tapering and quantitative easing will slow down more consistently, and what effect this may have on the performance of credit. Given the likely speed of this event, diversification is more crucial than ever for managing credit risk, for both banks and insurers. It is also important to bring back the focus on fundamentals, taking a rational, pragmatic approach.

Apr-Jun 2018 Issue