Avoidable waste and bad lending are visible in the local banking industry, a risk management specialist said.
Marc Leipoldt, Managing Director, Global Risk Advisory Services Netherlands told this reporter that in his observations of the operations of local banks, he saw waste taking place that could be avoided, coupled with bad lending.
Further tightening of operational risk management systems is also required, he said.
On the issue of cutthroat competition and certain banks being lax in their credit risk management policy so as to win business? Leipoldt said that this is where the regulator has to step in. That is however no easy task for the regulator, he needs to have trained manpower to carry the required supervisory works, he said. And banks are large.
Three core areas of risk management in the financial sector are managing one’s credit, market and operational risks; while the fourth may be the risk emanating from competition!
Leipoldt at present is working as a risk management consultant to one of the local banks, while at the same time talking to other local banks requiring his expertise to strengthen their risk management processes.
He further said that Basel III which is about to be on board soon will be more rule based in its guidelines to central banks’ policing operations of banks after the Great Recession of 2008 caused by bad lending.
It also mandates reporting mechanisms, Leipoldt said.
He further said that Basel III imposes upon banks to keep their management team abreast as to what is happening. “There are some bank boards even in advanced economies who keep everything close to their chests, not even taking their management into confidence,” he said.
“Our bank is feeling the benefits of Leipoldt’s inputs,” a banking source gaining from Leipoldt’s advice said. “His advice has helped us to strengthen our existing risk management system,” the source said. He further said that it was the policy of their bank to keep their staff informed, whether they be big or small, high or low, as to what is happening in their bank and its future strategies.
“Know Your Customer” is key to mitigate oneself from any possibility of credit or operational risk, the banker further said.