Interview with our Chief Risk Officer

2023 was a turbulent year for the banking industry, the economy and the world in general. Was it a stressful year for risk managers?

“Last year was essentially a real-life stress test for banks. We saw ongoing geopolitical and macroeconomic uncertainty, coupled with turmoil in the banking industry following the collapse of Silicon Valley Bank and Credit Suisse in March. That said, I was happy to see that ABN AMRO, and the European banks in general, showed resilience and were prepared to manage these types of stress. ABN AMRO could demonstrate its strong and diversified liquidity position to the market.

As a bank, we always have to keep our risks in view so that we are not caught off guard if any of the risks materialises. On that note, I’m happy to say that there were no surprises. With our risk appetite setting we have determined for ourselves how much risk we are willing to take. We assess this under different scenarios including stress scenarios and make sure that even in times of stress we meet certain minimum standards.”

How do you look at the bank’s performance in 2023?

“Our financial performance was very strong as we continued to benefit from the normalisation in the interest rate environment. But what also played a role is the improved quality of our loan portfolio, which is very much the result of the strategic choices we have made. Since November 2020, we have been working hard to reduce the risks in our loan portfolio by winding down our CB non-core activities. We now have a strong focus on clients in the Netherlands and Northwest Europe, and this has clearly helped to reduce our exposure to non-performing loans. Despite the challenging economic environment, most of our clients did well last year.”

Last year’s results were also supported by impairment releases. What’s your outlook for 2024?

“Indeed, we reported EUR 158 million in impairment releases as our clients successfully recovered from the volatility caused by the Covid crisis. Also the impact of the war in Ukraine, with heightened inflation and high energy prices, was absorbed relatively well. Impairment releases will not continue and we do expect the situation to gradually normalise this year, which means that we will see a new addition in provisions. Although the Dutch economy has been pretty resilient so far, the impact of higher interest rates and lower investments will still hit certain sectors in 2024. For us, it’s important to monitor these risks and remain in close contact with our clients to help them get their finances back under control, wherever needed.”

Going forward, what are the biggest risks for ABN AMRO?

“Climate risk continues to be one of our key focus areas. The increased frequency and intensity of severe weather conditions, as we witnessed in Europe last year, can imply serious physical risks for our clients, such as flooding or impact of heat and drought. If our clients are impacted, we will be impacted. We use stress testing to assess the potential impact of severe events.

We are also keeping a close eye on climate transition risks. Regulations require clients to reduce their climate (and environmental) footprint. This means clients need to transition and change their production to reduce their carbon footprint, for example. We are working very closely with clients to help mitigate these risks. For example, the bank has a specific offering to provide financing to clients with a mortgage and also for business clients to green their homes or premises. We see the transition as an opportunity and a threat. The transition requires investments and as a bank we are there to finance these investments. At the same time we know that not all clients will be able to make the transition timely and certain assets that we have financed in the past will become stranded assets. We cover for this risk. We include such novel risk in management overlays in our loan impairments.

Another risk that will remain on our radar is cybercrime. Geopolitical tensions are clearly on the rise and increase the likelihood of such attacks. Meanwhile, society has become more susceptible to cyber threats because we are increasingly dependent on digital tools. We therefore continue to invest in our own cybersecurity, monitor threats and educate employees and clients on how they can protect themselves against such things as phishing and malware.”

How do you explain the increase in risk‑weighted assets in 2023?

“The increase in RWAs is a result of our ongoing review of models as we prepare for Basel IV. We are increasingly using a standardised approach, which by default applies higher risk weights than before. We are currently in the final phase of determining which portfolios we can continue to model ourselves and which require a standardised approach.”

You will leave the bank in 2024 after seven years. What do you consider your most important achievement at ABN AMRO?

“I’m grateful for having had the opportunity to work with so many passionate people. We are a great team and I’m proud of what we have achieved. ABN AMRO has made an impressive transformation, we have better view on our risk profile and we are continuously getting better at incorporating sustainability data into our risk management, all of which are crucial for the bank’s future.

I’m also very proud of how we organise diversity and inclusion at ABN AMRO. Last year, I participated in our reverse mentoring programme, in which I was paired with a younger colleague from a different cultural background. I gained many new insights about myself, the way I communicate, celebrate success, and provide feedback. I can’t stress enough how important these initiatives are for the bank’s culture. Regardless of culture, age, gender, education or experience, everyone at ABN AMRO should feel encouraged to share their insights. That’s also where diversity meets good risk management. If we all think along the same lines, we all risk falling into the same hole. Good risk management is about being able to think in different scenarios, not about convincing each other which scenario is most likely.

We have more than 20,000 voices at the bank. We need to listen carefully to dissenting voices, to unlock hidden insights and help us solve the complex problems of today and tomorrow.”