Interview with the CRO of the Bank of Tokyo-Mitsubishi UFJ

Written by: Fleming. Team

Hakan Yar


Bank of Tokyo-Mitsubishi UFJ

1. In recent years, would you say that the importance of credit risk has grown? What are the main reasons for this change (or lack thereof)?

Yes, the importance increased a lot. Still the credit risk did not reach the level of standardisation as market risk and very likely a standardisation is not possible.

The crises are still the main driver for this increase. But on the other hand, the increasing regulatory on credit risk and risk management in general does not really mitigate the potential risks. On the contrary, it is increasing the failing of compliance with regulatory rules and endangers the survival of important regional and niche banks for local or specialised industries. These banks will very likely not be able to operate anymore and will be either acquired by other big banks or will merge with other banks. In both ways, the number of system-relevant banks and, with this, the systemic risk, will increase.

2. How have European banks been able to tackle the issues of funding and profit in the current environment?

The trust in the markets is still shaken. Entering new fields for profitable investments for risk-averse investors in particular is getting challenging as there are no more low-risk credit derivatives or similar financial products these investors will believe in. This is the reason why the investment into so-called alternative funds with substantial collaterals behind is rising.

Furthermore, we see a return to “Classical Banking”, charging fees and commissions and reducing cost-free banking accounts due to very low or zero-to-negative interest rates. The demand for classical Industry Funds of plain vanilla company shares and/or investment grade bonds will increase.

Investors, even the risk-affine, want to understand the products they invest in. Fancy financial or structured products with sophisticated price models do not have the trust anymore compared to before the Lehman Crisis. Investors will return more and more to a good Fundamental Analysis and will look into “good” business ideas with a “reasonable” business plan.

The need for specialised niche banks who understand the special needs of its customers will return as well. But exactly these banks are the most threatened by the costs due to the quantitatively higher, but qualitative lesser regulatory requirements.

3. Which alternative funding sources are the banks currently exploring?

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12th Annual Credit Risk Management Forum will be held on June 08-09, 2016 in Vienna, Austria. Click on the link below to know more:

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12th Annual Credit Risk Management Forum

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