Kofi Ndaikate has spent years at the intersection of global stability and financial health, helping institutions navigate the increasingly volatile waters of international relations. His work leverages cutting-edge technology to distinguish between the noise of the 24-hour news cycle and the genuine shocks that alter a bank’s capital position. In this conversation, we explore the divergence between media narratives and institutional reporting, the specific ways the 2022 invasion of Ukraine reshaped risk management, and how the recent escalations in the Middle East are finally manifesting in bank balance sheets.
How do you explain the persistent gap between the sensationalism of global news headlines and the actual figures we see on bank balance sheets?
It is a fascinating disconnect that recent research highlights through tools like the Geopolitical Pulse Index. While media coverage often spikes and stays elevated due to the sheer drama of international conflict, banks tend to be much more conservative, often using “contextual” boilerplate language in their earnings calls. For instance, despite the heavy headlines surrounding Middle East tensions since 2023, many banks initially treated these events as mere macroeconomic background rather than operational threats. It takes a specific type of catalyst—such as a direct hit to energy prices or a disruption in trade routes—to move a risk from a generic list in a prospectus to a substantive impact on a balance sheet. We see this play out when “substantive” references in earnings calls finally catch up to the “Geopolitical Pulse,” indicating that the risk has moved from the headlines into the actual mechanics of the business.
Looking at the data from the past few years, the invasion of Ukraine triggered a much more immediate and widespread reaction in European banking than other recent conflicts; why was that the case?
The scale of the direct exposure was simply too large to ignore, with 18 different institutions, or roughly 40.9% of those studied, reporting immediate credit risk impacts. We saw banks take very aggressive and concrete actions, such as deconsolidating their Russian branches and setting aside heavy provisions for direct exposures. They also had to absorb significant losses on trade receivables almost immediately after the conflict began in 2022. This was a “substantive” shift where the geopolitical event wasn’t just a scenario; it was a realized loss that required Stage 2 reclassifications and the activation of prudential buffers. It set a high bar for what constitutes a “far-reaching” event, impacting every one of the seven key impact areas identified in risk analysis.
We have seen a dramatic shift in how banks discuss the Middle East since the start of 2026; what specifically changed in the nature of these reports following the recent US-Iran conflict?
The conflict that erupted in February 2026 changed the narrative because it directly throttled global commerce by closing the Strait of Hormuz. This action pushed oil prices back up to the volatile levels we haven’t seen since early 2022, which creates a sensory and emotional shock to the market that “contextual” references cannot cover. We are now seeing substantive references in earnings calls growing at their fastest rate as banks report the rising costs of energy and transport affecting their clients. Unlike the 12-day Israel-Iran war in June 2025, which saw only a minor uptick in concern, the current situation is forcing banks to move beyond forward-looking buffers. They are now quantifying how these increased costs are hitting income statements, marking a shift from theoretical worry to realized operational strain.
With regulatory bodies like the ECB integrating new definitions into stress tests, how is the use of natural language processing changing the way we identify emerging threats like cybersecurity or commodity shocks?
Natural language processing allows us to cut through the “noise” of earnings calls by separating generic risk disclosures from mentions that link geopolitics to concrete results. By analyzing specialist coverage from sources like Oxford Analytica, we can track the Geopolitical Pulse Index in real-time, focusing on cybersecurity and commodity risks that are now central to the ECB’s 2026 stress test definitions. This technology helps us see that while 22.7% of banks reported credit impacts from Middle East tensions, most of that was through buffers rather than direct losses. Having this granular data means we can identify exactly when a risk appetite changes or when a bank begins to prepare for a structural exit from a region. It turns the “gut feeling” of a risk manager into a data-driven strategy that can be defended to investors and regulators alike.
What is your forecast for the impact of geopolitical risk on European bank earnings over the coming quarters?
I expect we will see a significant transition from “contextual” mentions to “substantive” realized losses as the effects of the closed Strait of Hormuz filter through the global supply chain. While no bank has yet announced a total structural exit from the Middle East, the fact that substantive references are outpacing general talk suggests that the era of viewing these conflicts as “background noise” is over. We will likely see more than the current 22.7% of institutions reporting credit impacts as higher energy prices and transport delays begin to stress the repayment headers of corporate borrowers. The coming quarters will be a defining period where we see if the protective buffers built up since 2025 are actually sufficient to absorb the shocks of this new, more frequent cycle of global instability.
