Global Banks Face AI Challenges, Cyber Threats, and Climate Pressures

A report from S&P Global Ratings highlights the challenges global banks face due to AI adoption, digitalization, and cyber threats, potentially widening the performance gap between strong and weak banks. While these risks pressure existing models, they also provide opportunities for innovation and competitive advantage.

As global banking sectors grapple with the rapid advancement of digital technologies, a report by S&P Global Ratings exposes the transformative challenges that banks face. Key among these are the integration of artificial intelligence (AI), escalating cyber threats, and climate change, which together pose significant risks and opportunities for financial institutions worldwide.

The report warns of uneven impacts across the industry, anticipating that divergences in credit performance may widen as some banks struggle to adapt their business models and risk management practices. Evolving factors like AI adoption are forecasted to create competitive advantages for some while pressuring others with the burden of increased capital expenditure and dependency on third-party vendors.

However, banks could witness long-term gains in revenue, efficiency, and brand loyalty through strategic AI utilization. Despite technical risks tied to AI deployment, these technologies promise enhanced risk monitoring and management. Although the report projects a rise in credit losses to USD 655 billion by 2026 before peaking at USD 683 billion in 2027, prudent regulations and strong profitability are expected to help banks navigate these challenges.

(With inputs from agencies.)