Introduction

Emerging markets can be defined as a nation’s economy that is progressing toward becoming advanced, as shown by some liquidity in local debt and equity markets and the existence of some form of market exchange and regulatory body.

Emerging markets generally do not have the level of market efficiency and strict standards in accounting and securities regulation to be level with advanced economies (such as the United States, Europe and Japan), but emerging markets will typically have a physical financial infrastructure including banks, a stock exchange and a unified currency. 

Key findings

• Overview of the market – Key areas of emerging market territories where banks are active include the Middle East, Brazil, Argentina, Africa and particularly in Asia still too. Banks spoken to for this report commented on the importance of a presence in Dubai and also Hong Kong and Singapore.
• Popularity of risk – Due to recent events in the markets, the risk control departments in general were definitely more important than in the past. Finally staff and their influence have greatly increased as a result of the financial turmoil. This was also highlighted earlier this year in much of the mainstream press. 
• Major risk issues – There are several major risk issues that are effecting banks at the moment across the emerging markets. Across the board, banks mentioned liquidity as a key issue. Also of concern was reputational risk, which was considered of paramount importance in emerging market countries. Banks said that they did not expect these issues to change over the coming year.
• Challenges in emerging markets – Emerging market challenges were considered plentiful. In short, they are people, competition and economic climate. Another issue was attempting to prize people away from other banks and also making sure that once they worked for the company that they stayed there. Recruitment and retention was a major issue that all banks discussed as a major challenge in emerging markets.

Conclusion

Emerging markets have been and continue to be, a topical area for risk departments in major financial institutions. Back in 2003, its importance was recognised when 10 international banks adopted the Equator Principles that dealt with the thorny issue of reputational risk in emerging markets.

The coming year in the emerging markets sector looks to be an interesting one but future initiatives will be minimal as the financial industry treads more carefully in the wake of the crisis.

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Tagged with: 2009, emerging markets, risk, Risk Research Report