Risk Managhement in Banks of Bangladesh

INTRODUCTION

Speakers at a workshop in Bangladesh Institute of Bank management (BIBM) on May 18, 2017 expressed their grave concern over the increasing trend in classified loans in the country’s banking sector. Yes, their concern is GRAVE regarding those risky issues in the banking sector. However, this risk arisen by the loss of having classified loans is generally known as Credit Risk; one of the seven core risks identified by Bangladesh Bank (BB). The core risks are: Asset Liability Management Risk, Credit Risk, Internal Control and Compliance Risk, Foreign Exchange Risk, Information and Technology Risk, Money Laundering Risk, Environmental Risk. All those seven core risks have many different facets, means their exposure comes with a great vastness and complexities. Most recently, dated 17th May, 2017 as a report by The Financial Express (BD), the computers of the world were affected by Ransomware, a sort computer virus. That virus didn’t set aside hospitals, banks etc. while in action. The risks the banks and other financial institutions are having due to hacking has become the main challenge for them to deal with. It is considered that the primary target of hackers are financial institutions as they gets immediate money by intruding in them.

In Bangladesh, BB provides banks and other FIs with the circulations of prudential regulations that are deemed adequate for the managing risks of FIs to a great extent. Nevertheless, no regulations are perfect against the wrongdoers (e.g., Hackers) as they move faster that regulators do. Criminals, cyber criminals are advance learned people who already know the existing mechanisms of operations of FIs and their IT infrastructure. As a result they become able to commit such crimes without the frowning of FI owners as well as regulators.

In this paper, the author wants to present the importance of risk management for banks. He also wants to describe the risk management functions in the context of Bangladesh. Finally the role of risk management division of banks will be illustrated in this paper.

SCOPE OF RISK MANAGEMENT IN BANKS

Banks face a wide variety of risks, for the time being. Times change but risk exists with a many sorts of facets of risks. When banks did the traditional banking, risks were simple too. But the world doesn’t remain simple with the passage of time. Banking practices has been changed a lot, so as the risks associated with it. In Bangladesh, banks are not very much different than the banks of Europe and America. The exceptions are we don’t have a fully-fledged bond market, gold market and commodity market, so we don’t have the risks associated with them. To tackle with those variety of risks every banks have an independent risk management division. They are the experts in managing risks. Bangladeshi bankers follow the prudential guidelines circulated by the BB. As per the guidelines by BB, Risk Management is done to: