Role of Risk Governance in Risk Management Framework of Commercials Banks of Pakistan
DOI:
https://doi.org/10.29145/jqm.81.05Keywords:
Risk Management Process, Risk Management Practices, Risk Governance, Pakistan, Commercial BanksAbstract
Risk mitigation has always been a significant concern for commercial banks round the globe. To manage their risks banks, follow standardized set of regulations yet, faced financial crisis of 2007-2009 due to poor risk governance. This paper investigates impact of Risk Governance (RG) on Risk Management Practices (RMPS) controlled by Risk Management Process (RMP) in commercial banks of Pakistan. Out of 34 banks, data is collected from top and middle management of 15 banks through 200 self-administered questionnaires. Data is analyzed using basic descriptive statistics, linear regression and Barron and Kenny Mediation. Empirical outcomes reveal that commercial banks of Pakistan have sound risk management process and well implemented risk management practices where credit risk analysis, operational risk analysis and liquidity risk analysis are the most important aspects. Risk governance has significant impact on risk management process and practices of banks while, risk management process fully mediates the nexus of risk governance and risk management practices. Study outcomes are expected to be useful for strategy formulators, policy makers and regulators for better implementation of policies through all lines of defense and to warrant the adherence to risk governance regulation for more mature risk governance structure.
Downloads
References
Abdul Rahman, R., Noor, S., & Ismail, T. H. (2013). Governance and risk management: empirical evidence from Malaysia and Egypt. International Journal of Finance & Banking Studies IJFBS,2(3),21-33.
Abu Hussain, H. and Al-Ajmi, J., (2012). Risk management practices of conventional and Islamic banks in Bahrain. The Journal of Risk Finance, 13(3), pp.215 – 239.
Ahmed, A., & Ahsan, H. (2011). Contribution of services sector in the economy of Pakistan. Working Papers & Research Reports, 2011.
Al-Malkawi, H. A. N., & Pillai, R. (2018). Analyzing financial performance by integrating conventional governance mechanisms into the GCC Islamic banking framework. Managerial Finance, 44(5), 604-623.
Al-Tamimi, H. & Al-Mazrooei M. (2007). Banks risk management: a comparison study of UAE national and foreign banks, The Journal of Risk Finance, 8 (4), 394-409.
Andries, A. M., & Brown, M. (2017). Credit booms and busts in emerging markets: The role of bank governance and risk management. Economics of Transition, 25(3), 377-437.
Ard, L., & Berg, A. (2010). Bank governance: Lessons from the financial crisis. World Bank Group, Financial Sector Vice Presidency, Crisis Response Note, 13.
Bank for International Settlements, Financial Stability Board (2009). Risk
Lessons from the Global Banking Crisis of 2008, Bank for International Settlements, Basel.
Baron, R. M., & Kenny, D. A. (1986). The moderator–mediator variable distinction in social psychological research: Conceptual, strategic, and statistical considerations. Journal of personality and social psychology, 51(6), 1173.
Basel Committee on Banking Supervision (2010). Principles for enhancing corporate governance, BIS, Basel, Switzerland. Available at: http://www.bis.org/publ/bcbs176.pdf.
Basel Committee on banking supervision (July,2015). Guidelines: Corporate governance principles for banks, Available at: https://www.bis.org/bcbs/publ/d328.htm.
Ben Zeineb, G., & Mensi, S. (2018). Corporate governance, risk and efficiency: evidence from GCC Islamic banks. Managerial Finance, 44(5), 551-569.
Bessis, J., (2011). Risk Management in Banking. 3rd Edition. Hoboken, NJ, USA: Wiley p. 841.
Bryman, A., & Bell, E. (2011). Ethics in business research. Business Research Methods, 7(5), 23-56.
Coulson-Thomas, C., 1993. Transforming the company: bridging the gap between management myth and corporate reality. Kogan Page.
Devellis, R. F. (1991). Applied social research methods series, Vol. 26. Scale development: Theory and applications. Thousand Oaks, CA, US: Sage Publications, Inc.
Eastburn, R. W., & Sharland, A. (2017). Risk Management and Managerial Mindset. The Journal of Risk Finance. 18 (1), 21-47.
Ellul, A. and Yerramilli, V. (2013). Stronger risk controls, lower risk: Evidence from U.S. bank holding companies. Journal of Finance, 68(5), 1757–1803.
Financial Crisis Inquiry Commission (2011). The Financial Crisis Inquiry Report on causes on causes of financial and economic crisis in unites states. FCIC, USA. Available at: https://www.govinfo.gov/content/pkg/GPO-FCIC/pdf/GPO-FCIC.pdf.
Financial stability board (2013) Thematic review on risk governance: Available at: http://www.fsb.org/2013/02/r_130212/.
Freeman, R. E. (1984). Strategic management: A stakeholder approach. Pitman, Boston, Massachusetts, USA.
Grais, W., & Pellegrini, M. (2006). Corporate governance and Shariah compliance in Institutions offering Islamic financial services”, World Bank Policy Research Working Paper 4054. Washington DC: World Bank. New York: World Bank.
Greuning, Hennie van & Bratanovic, Sonja Brajovic. (2009). Analyzing Banking Risk: A Framework for Assessing Corporate Governance and Risk Management. 3rd Edition. The World Bank. Washington, USA.
Haque, F., & Ntim, C. G. (2018). Environmental policy, sustainable development, governance mechanisms and environmental performance. Business Strategy and the Environment, 27(3), pp. 415-435.
Honey, D., Tashfeen, R., Farid, S., & Sadiq, R. (2019). Credit Risk Management: Evidence of Corporate Governance in Banks of Pakistan. Journal of Finance and Accounting Research 1(1), pp.1-18.
Hassan, A., 2009. Risk management practices of Islamic banks of Brunei Darussalam. The Journal of Risk Finance, 10(1), pp. 23-37.
IRGC (International Risk Governance Council). (2015). What is risk governance? Available at: http://www.irgc.org/risk-governance/what-is-risk-governance/.
Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of financial economics, 3(4), 305-360.
Khalid, S., & Amjad, S. (2012). Risk management practices in Islamic banks of Pakistan. The Journal of Risk Finance. 13(2), pp.148-159
Kirkpatrick, G. (2009). The corporate governance lessons from the financial crisis. OECD Journal: Financial Market Trends, 2009(1), 61-87.
KPMG International (2009), Never Again? Risk Management in Banking Beyond the Credit Crisis, KPMG International, Berne.
, M. T., & Zainab, A (2018). Sharia’h practice at Islamic banks in Pakistan. Journal of Islamic Accounting and Business Research, 9(3), pp. 274-289.
Nazir, M. S., Daniel, A., & Nawaz, M. M. (2012). Risk management practices: A comparison of conventional and Islamic banks in Pakistan. American Journal of Scientific Research, 68(68), pp. 114-122.
Nunnally, Jum C. (1978). Psychometric Theory. New York: McGraw-Hill.
Odonkor, T.A., Osei, K.A., Abor, J., Adjasi, C.K. (2011), Bank risk and performance in Ghana. International Journal of Financial Services Management, 5(2), 107-120.
Raza Bilal, A., Bt. Abu Talib, N., & Noor Azli Ali Khan, M. (2013). Remodeling of risk management in banking: evidence from the sub-continent and gulf. The Journal of Risk Finance, 14(5), 468-489.
Rehman, A. A., Benamraoui, A., & Dad, A. M. (2017). A comparative study of Islamic and conventional banks’ risk management practices: empirical evidence from Pakistan. Journal of Banking Regulation, 1-14.
Sabato, G. (2010). Financial crisis: where did risk management fail? International Review of Applied Financial Issues and Economics, 2(2), 315.
Shafique, O., Hussain, N., & Taimoor Hassan, M. (2013). Differences in the risk management practices of Islamic versus conventional financial institutions in Pakistan: An empirical study. The Journal of Risk Finance, 14(2), 179-196.
Shafiq, A. and Nasr, M., (2010). Risk management practices followed by the commercial banks in Pakistan. International Review of Business Research Papers, 6(2), pp.308-325.
State Bank of Pakistan (2015). Prudential regulations for corporate/commercial banks. Banking policy and regulation department. Available at: http://www.sbp.org.pk/ibd/bulletin/2019/Sep.pdf.
State Bank of Pakistan (2017). Financial Statements Analysis of Financial Sector 2013-2017.Statistics department. SBP, Karachi.
State Bank of Pakistan (2018). Financial Statements Analysis of Financial Sector 2014-2018.Statistics department and DWH Department. SBP, Karachi. Available at: https://dnb.sbp.org.pk/departments/stats/FSA-2014-18.pdf.
Stein, V., & Wiedemann, A. (2016). Risk governance: conceptualization, tasks, and research agenda. Journal of Business Economics, 86(8), 813-836.
Stein, V., & Wiedemann, A. (2018). Risk governance: basic rationale and tentative findings from the German banking sector. Current Issues in Corporate Social Responsibility (pp. 97-110). Springer, Cham.
Stulz, R. M. (2015). Risk‐taking and risk management by banks. Journal of Applied Corporate Finance, 27(1), 8-18.
Van Asselt, M., & Renn, O. (2011). Risk governance. Journal of Risk Research, 14(4), 431-449.
Wright, S., Sheedy, E., & Magee, S. (2018). International compliance with new Basel Accord principles for risk governance. Accounting & Finance, 58(1), 279-311.
Young, J. (2010). Corporate governance and risk management: A South African perspective. Corporate ownership an and Control 7(3), 136-14.
Downloads
Published
How to Cite
Issue
Section
License
Copyright (c) 2024 Rubina Bashir, Athambawa Abdul Azeez
This work is licensed under a Creative Commons Attribution 4.0 International License.
JQM follows an open-access publishing policy and full text of all published articles is available free, immediately upon publication of an issue. The journal’s contents are published and distributed under the terms of the Creative Commons Attribution 4.0 International (CC-BY 4.0) license. Thus, the work submitted to the journal implies that it is original, unpublished work of the authors (neither published previously nor accepted/under consideration for publication elsewhere). On acceptance of a manuscript for publication, a corresponding author on the behalf of all co-authors of the manuscript will sign and submit a completed Copyright and Author Consent Form.
