Board, executive management need to work in unison

The top brass are to blame for the prevailing risk culture in Bangladesh's banking entities, say experts and suggest a top-down restructuring.

Boards and top managements are an integral part of the existing risk cultures in the banks, they opined, saying "sustained change in the risk culture needs to start at the top".

Their views came during a workshop on risk culture of the banks held at the Bangladesh Institute of Bank Management (BIBM) in the capital recently. Chief Risk Officers and relevant officials from different banks of the country participated in the event on academic exercises on banking.

"Successful change in the risk culture of a bank ultimately requires awareness that the board itself, and the executive management, are an integral part of the existing risk culture," said Sajib Azad, Senior Adviser of BIBM who delivered the keynote presentation at the workshop.

"Sustained change in the risk culture needs to start at the top and may require a reappraisal of approaches consistent with bringing greater diversity of thinking into the boardroom," he added.

The BIBM focus on Risk Culture comes at a time when the banking sector of the country is growingly becoming embroiled with a number of sensitive issues. Rising amounts of non-performing loans (NPLs) and loan forgeries are on top of it all.

In this context, experts observe that there is a strong correlation between addressing the risk culture and mitigating the ballooning of NPLs.

"Addressing the NPL issue actually has a lot to do with changing the risk attitude of the banks," said Dr. Toufic Ahmad Choudhury, Director- General of BIBM.

"Developing an appropriate Risk Culture in a bank requires the involvement of all segments of the bank and, therefore, the whole organization needs to work as a team to deal with the risk issues," Choudhury said.

Asked about the topic, insiders within the banking industry also agreed that the banking sector in the country still has a long way to go in terms of developing strong mechanisms for dealing with risk culture.

"The functions and activities of banking intuitions are such that risk taking is part and parcel of their works. Banks, in the end, deals with risks," President of the Association of Bankers, Bangladesh, Anis A Khan told the FE.

"Therefore, there are scopes for strengthening the prevailing risk- culture framework in the banks of the country," he added.

Experts at the event also observed that the banks must approach the change in risk culture as a distinct but highly embedded aspect of how it runs itself.

"A clear understanding of the current culture and the desired 'target' culture is a must for the banks," Azad said.

"It requires recognition that this is a major change programme and requires discipline and 'sponsorship at the highest levels' to see it through."

Experts at the workshop also identified various components of Risk Culture Framework tools. These include risk competence management of the banks as well as organizational issues like how the environment is structured and what is valued.

In addition, motivational issues including the reason why people manage the risks the way they do as well as relationship issues like how people in the bank interact with others are also cited as components of risk-culture-framework tools.

Explaining the ways and methods of implementing this cultural change, experts were of the view that banks should evaluate their current risk culture through identifying hidden and sub-cultures and using evidence or targeted questionnaire, in-depth discussions or workshops.

"In the next step, banks need to see what the impact of the current culture is and what would improve the risk culture," Azad told the meet, adding that they need to assess both internal and external drivers and also find out "quick wins".

Once the ways of improving the risk culture is identified, banks need to plan and implement the "culture change".

Experts also explained that the last step in implementing cultural change is monitoring and adapting to changes.

"Important questions to be analyzed at this stage is whether the bank is achieving the desired outcomes and whether there is a need to flex or tailor it further," the workshop was told about one of the remedial measures.

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