Scenario analysis, contingency planning key to surviving Brexit

SEVERAL weeks have passed since the Brexit referendum and there is a sense of uncertainty in the UK and European markets as we wait for the negotiations between the UK and the European Union (EU) to get underway. This uncertainty, even though still distant for now, has caused financial institutions in Asia, including those in the Asean region, to sit up and examine their interests in the UK.

For example, in Singapore, there has been several different reactions to the Brexit among the local financial institutions. United Overseas Bank has decided to suspend new loans for the purchase of London properties, citing potential foreign exchange and sovereign risks as reasons, whereas DBS Bank and OCBC Bank announced that they would continue to grant such loans but with heightened care. This shows that even though the risk appetite may differ from one financial institution to another, Brexit is not neutral in terms of risk management and decision-making process.

To understand Brexit's likely effect on financial institutions in Asean, let us look at two potential implications on the financial institutions in the UK and Europe.