With all the changes at hand, we will continue to invest in talent and technology to enable the Bank to grow and achieve its ambition. We are in the business of managing risks, not avoiding them.
Noel
Group Chief Risk Officer
2024 contained its fair share of risk issues. These included geopolitical tensions, increased protectionism, fewer than expected rate cuts, intensified cyber threats, third-party incidents that disrupted banking services, and de-prioritisation of environmental, social and governance (ESG) issues in parts of the world.
At the start of the year, the consensus was for US interest rates to be cut four times, given lower inflation and a rapidly cooling labour market. As it turned out, the US economy was stronger than anticipated and only two rate cuts materialised by the year end. Forecasts swung throughout the year as analysts weighed the speed with which inflation was falling against and the risk of a recession, against more robust economic numbers, and the impact of supply side shocks.
The Chinese economy remained sluggish, hampered by multi-year softness in its real estate sector and weak domestic consumption, despite efforts to stimulate the economy. Producer prices fell, causing balance sheet stresses in the corporate sector. Like mainland China, Hong Kong faced a severe commercial property downturn with defaults by even some industry veterans, as higher interest rates and weak occupancies eroded capital and liquidity buffers.
South-East Asia fared relatively better, benefitting from comparatively resilient domestic consumption, export growth, foreign direct investments that arose from supply chain reconfigurations, upstream investments in the electric vehicle value chain, and technology-related investments such as data centres.
Politically, ruling parties in several democracies lost elections, as voters focused more on domestic and cost-of-living issues. The geopolitical landscape also saw the widening of the Israel-Hamas conflict, the fall of the Assad regime in Syria, and North Korean military involvement in the Russia-Ukraine conflict.
Cyber and technology risk issues also required attention. A faulty software update from a cybersecurity firm caused widespread system disruptions that affected the healthcare, aviation and finance industries, underscoring vulnerabilities of an increasingly digitalised and interconnected world.
These incidents remind us that it is difficult to predict specific risk events with certainty, or to anticipate the timing, speed and magnitude of such events. However, we know that issues are bound to occur, and we must be vigilant in looking out for them and swift in dealing with them. We must be prepared for a wide range of potentially adverse developments, and work on identifying possible inter-connectedness as well as developing mitigation strategies and testing them where possible.
During periods of economic growth and calm in the financial markets, we should not be complacent as cracks can develop suddenly and sharply. The virtues of avoiding over-concentration, setting risk tolerances, developing leading indicators, stress testing the resilience of our businesses and maintaining adequate buffers, must be observed.
Key achievements
Over the past year, the Bank maintained strong asset quality despite challenging macroeconomic conditions. We also diversified our credit portfolio to improve its resilience and ensure sustainable long-term performance. Our non-performing loan ratio is now hovering at around 1%, which is the lowest it has been for many years. Credit costs for 2024 were well contained and we built healthy credit allowances for the future. Liquidity buffers were ample. We also worked on a framework to lower the volatility of foreign currency translation reserves through appropriate hedges, considering the growing business in our overseas subsidiaries. We were awarded the 'Best Risk Management' accolade at the 2024 Singapore Corporate Awards in recognition of our efforts.
Noel receiving the Best Risk Management (Big Cap – Gold) award on behalf of the Bank at the 2024 Singapore Corporate Awards co-organised by The Business Times, Singapore Institute of Directors and Institute of Singapore Chartered Accountants.
With the changing threat landscape, we have embarked on several programmes to strengthen the management of our non-financial risks and to uplift operational resilience in cyber security, third-party management and our IT environment. We continue to maintain the highest-tiered Cyber Trust Mark certification from the Cyber Security Agency of Singapore.
The Bank successfully cut over to the revised Basel III regime for credit and operational risks in mid-2024 and has completed work to adopt the new regime for market risk in January 2025.
We also organised our inaugural Risk Conference that brought together eminent speakers and panellists to cover the future of risk issues.
Looking forward
It is never a dull day in risk management. 2025 will bring additional risk challenges. Regime changes are likely to cause significant policy shifts, with implications for trade, technology transfer and people movement. At the time of writing, we have seen a series of tariffs and other domestic policies which that could lead to a resurgence in inflation and acceleration of supply chain re-configurations. Ongoing uncertainty may dampen investor sentiment and increase market volatility.
Businesses will have to address the dual challenges of restructuring supply chains, while adapting to rapid technological advancements that can rapidly render existing practices obsolete. This highlights the need for a deep understanding of the mega trends in the operating environment and working with our customers to be properly positioned both to mitigate the risks of these mega trends, as well as to participate in business opportunities to thrive in the long run. Improving the business resilience of our customers also improves our resilience.
Digitalisation of financial services has increased the reliance on inter-connected systems, heightening the risk of service disruptions. As part of building our operational resilience capabilities, it is essential to identify vulnerabilities in our operations and establish robust business continuity plans to minimise service disruptions. We must assiduously look out for and avoid potential single points of failure.
With technological advancement, cyber-attack attempts are bound to increase. Threat actors are now able to execute such attacks more quickly and vulnerabilities could be exploited at an unprecedented scale. We continue to invest in new capabilities and strengthen our resilience in the face of these evolving threats.
Rapid advancements in artificial intelligence (AI) will have far-reaching impact on businesses and the labour market. AI enhances productivity and fosters innovation across various sectors. New job categories will be created while some existing roles will become obsolete. As we increasingly look to harness the power of AI in the Bank to enhance productivity, spur innovation and improve customer experiences, we must do so in a fair, ethical, accountable and transparent manner. In this regard, we work to establish a holistic governance framework for the responsible use of AI.
The global decarbonisation effort faces challenges from shifts in climate policy focus. Nevertheless, our commitment to sustainability remains strong, as it is central to achieving long-term growth in our markets. We are proactively enhancing our understanding of nature-related dependencies and financial risks, to improve our environmental risk management framework. By embedding sustainability into our core operations, we aim to navigate the evolving landscape while positively contributing to the economies and communities we serve.
With all the changes at hand, we will continue to invest in talent and technology to enable the Bank to grow and achieve its ambition. We are in the business of managing risks, not avoiding them.