Operational Risk Management in Corporate and Banking Sector of Pakistan

Abstract

This paper is to examine the current status of operational risk management in Pakistan concerning corporate and banking sector and explore the reasons for the adoption or lack of adoption of integrated approach to operational risk management. It identifies the imperatives for implementation of comprehensive risk management solutions leading to enterprise risk management (ERM).The mode of research is qualitative. The paper shows that effective risk management can enhance organizational performance but appropriate infrastructure is not available in companies. This paper highlights the fact that knowledge of risk management in corporate sectors of Pakistan is insufficient and sample companies hesitate to respond thinking that it may reflect inefficiencies and in banking sectors the concept of operational risk management can be seen up to some extent.

Analysis of Impacts of Operational Risk Management Practices on Banks’ Financial Performance: Study of Selected Commercial Banks in Nigeria

“…Effective operational risk management will lead to lower capital charge, improved decision making, improved customer and staff satisfaction and improved regulatory compliance (Accenture, 2015). Effective management of operational risks will also assist in reducing operational losses, reduce compliance and audit costs, prompt identification of illegal activities and reduce exposure to future risks (Habib, Masood, Hassan, Mubin & Baig, 2014). Effective operational risk management will also help banks to identify all the risks that they are exposed to, including those that they do not have the expertise or experience to manage, thereby helping them to put frameworks in place to reduce such risks and the associated impact if it crystallizes which in turn makes them less vulnerable to systemic problems (Barbu, Olteanu & Radu, 2008).…”

“…The Nigerian Banking industry is also not exempted as it still battles with weak risk management practices resulting from lack of elemental control which is ordinarily within their internal sphere of influence (CBN, 2014). The importance of operational risk management cannot be overemphasized as it will help to promptly identify prohibited activities, reduce future risk exposure and ultimately lead to a decrease in operational losses (Habib, Masood, Hassan, Mubin & Baig, 2014). This study therefore analysed the impact of operational risk management practices on the financial performance of commercial banks in Nigeria.…”

Securing Tomorrow: An Operational Risk Capital Cushion Perspective

“…Narrowing down further, the literature regarding operational risk management pertinent to Pakistan, an emerging economy, is scares and in proximity to none. Very few studies were available such as (Habib, et. al.…”

Moderating Role of Risk Management between Risk Exposure and Bank Performance: Application of GMM Model

“…The Bank of Ghana [BoG] press release (Bank of Ghana, 2019) opined that the purpose of the revocation of the seven banks in Ghana was due to some weaknesses identified by the central banks of Ghana for the collapse of these banks: these are poor corporate governance, poor risk of management, non-performing loans, undercapitalization, and regulatory lapses. As per Habib, Masood, Hassan, Mubin, and Baig (Habib et al, 2014), the importance of operational risk management cannot be overemphasized as it will serve to immediately recognize restricted activities, lessen future risk exposure, and eventually lead to a decline in operational losses. The Basel Committee on Bank Supervision (2006) acknowledges that operational risk affects the financial sector stability and performance adversely.…”

“…Since inadequate management of operational risk would impact negatively the bank's performance and eventually erode the bank's net worth (Muriithi & Waweru, 2017). According to Habib et al (Habib et al, 2014), effective operational risk management lessens operational losses; decreases compliance costs, identifies illegal activities, and moderates the bank's exposure to risks. Additionally, effective operational risk management will help the bank to identify all the risks the bank is exposed to and fashion out frameworks to reduce the impact on the bank's performance (Barbu et al, 2008).…”