Credit risk high at combanks -Rohit Bammi

KPMG India's Partner and Head of the Financial Risk Management (FRM) practice, Rohit Bammi said that local banks have the opportunity to enhance their risk management functions.

He was speaking at a forum organised by KPMG in Sri Lanka for Chief Financial Officers and Chief Risk Officers of Banking Institutions, Bammi discussed the increasing importance of banking sector risk management functions in meeting emerging regulatory and compliance requirements as well as in enhancing the Bank's competitive positioning in the marketplace, providing for adequate liquidity and high quality capital. Since Banks essentially hold public deposits and in many instances have a capital structure that is significantly leveraged, it is imperative that significant attention be devoted to managing credit risk, operational risk and market risk exposures, as well as asset liability mismatches, Bammi said.

According to Bammi, Commercial Banks have the largest exposure in credit risk areas. Weak controls and unmonitored lending in several global economies resulted in significant non performing loan portfolios which was a key contributor to the global financial crisis.

The more stable banks which pulled through were those with stronger risk management functions.

Having the right processes in place with adequate controls, risk evaluation and monitoring can minimise non performing loan risk exposure and robust stress testing can allow management to take remedial action well in advance even where such instances are foreseen.

Director for Financial Risk Management at KPMG Kuntal Sur, said that banks also have heavy dependence on information systems and technology to operate their businesses and in the generation of management information which is vital for decision-making. Systems and processes are key considerations in operational risk areas. The third area for consideration is market risk, often to do with economic circumstances such as exchange rate volatility, interest rates movement, reputation risks and related

market exposures.

"I believe most of the larger banks in Sri Lanka have risk management functions in line with the Basel standardised framework and are moving towards the requirements of the advanced approaches of Basel II and in time, Basel III.