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Asia-Pacific Banks' Digital Opening Raises Cyber Risks, Says Report

MELBOURNE (S&P Global Ratings) Sept. 27, 2022--Asia-Pacific banks have been hacked before, and they will be hacked again. We are incorporating this risk into our ratings on financial institutions. S&P Global Ratings believes the region's ever-more open and interconnected banking systems raise the threat of hacks and data breaches.

This is according to a report we published today, titled, "Asia-Pacific Banks' Digital Opening Raises Cyber Risks."

"Asia-Pacific financial institutions are increasingly on the cloud, sharing client data with a fintech firm, or relying on third-party service providers. With the addition of each new partner into a digital system, hackers get a new point of entry," said S&P Global Ratings credit analyst Nico DeLange.

The pandemic has also conditioned much of Asia-Pacific to work from home, and to get their financial services on the internet. As banking moves online, the scope for cyberattacks rises.

"On top of creating direct monetary losses, data breaches can damage the reputation of a bank and can hit a bank's credit profile. In jurisdictions where the entire industry incurs repeated, serious data breaches, or where regulators are particularly lax, negative ratings momentum could result," said S&P Global Ratings credit analyst Gavin Gunning.

Moreover, a successful attack may pose systemic risks. The highly concentrated markets of Hong Kong, Singapore, and Australia are particularly vulnerable. An incursion that disrupts the operations of one large player in these markets could seriously unsettle the normal business of banks and their customers.

Asia-Pacific banks also often rely on partners for their cloud computing and open banking platforms. This involves a fresh set of risks. Amazon Web Services (AWS), Google Cloud Platform, IBM Cloud, Oracle Cloud, and Microsoft Azure control about 80% of the cloud service market, according to Gartner, a researcher. These five entities have access to key banking data and support core banking services.

Similarly, Asia-Pacific banks' adoption of open banking is an opportunity for hackers. Open banking involves the sharing of sensitive customer data among a wide range of fintech companies and third-party service providers. This allows clients to move seamlessly from one service provider to another. But as more parties handle data, hackers have more ways to infiltrate and steal information.

"To prevent attacks, Asia-Pacific regulators will need a dogged determination to understand and manage risks," said Mr. DeLange. "This points to the need for collaboration, and cross-border information sharing to build cyber resilience across entities to prevent systemic risk."

"While we have not downgraded any Asia-Pacific bank as the result of a cyberattack, the hit to individual institutions could be crippling. This could be particularly true for banks that have not invested enough in their cybersecurity," said Mr. DeLange.

Please join S&P Global Ratings analysts and market practitioners from key financial institutions across the globe for our Asia-Pacific Financial Institutions Virtual Conference on Sept. 28-29, 2022, when they will discuss digitalization, inflation, cyber risk and other factors changing the shape of banking in Asia-Pacific. Please register for the event here:

https://event.on24.com/wcc/r/3914125/46DA6FFF50F6A0F5E1518F2DF92050F0/4073796?partnerref=MR

This report does not constitute a rating action.

AUSTRALIA

S&P Global Ratings Australia Pty Ltd holds Australian financial services license number 337565 under the Corporations Act 2001. S&P Global Ratings' credit ratings and related research are not intended for and must not be distributed to any person in Australia other than a wholesale client (as defined in Chapter 7 of the Corporations Act).

The report is available to subscribers of RatingsDirect at www.capitaliq.com. If you are not a RatingsDirect subscriber, you may purchase a copy of the report by calling (1) 212-438-7280 or sending an e-mail to research_request@spglobal.com. Ratings information can also be found on S&P Global Ratings' public website by using the Ratings search box located in the left column at www.standardandpoors.com. Members of the media may request a copy of this report by contacting the media representative provided.

Primary Credit Analysts:Nico N DeLange, Sydney + 61 2 9255 9887;
nico.delange@spglobal.com
Gavin J Gunning, Melbourne + 61 3 9631 2092;
gavin.gunning@spglobal.com
Media Contact:Richard J Noonan, Melbourne + 61 3 9631 2152;
richard.noonan@spglobal.com

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