The Banking Risk Landscape

Graham du Plessis

Posted: December 5, 2022

Table of Contents

The risk landscape for banks is changing rapidly, with Internal and external risks on the rise. All the while, stakeholders such as customers, regulators, legislators, shareholders, and the broader community expect banks to be free of mistakes, if these are made, a lot of negative noise follows, impacting the bank’s image.

The world is changing, and to say it’s changing rapidly is an understatement. Notwithstanding the rapid advancement of technology, globally we have dealt with the widespread covid pandemic, geo-political conflicts such as that taking place in Ukraine, spiking inflation both domestically and internationally, fake news, right-wing radicalization and not to mention environmental challenges taking place ever frequently.

These factors and more reshape the risk landscape banks are now facing more than ever.

To manage these challenges, Mckinsey & Co has suggested three overarching risk management capabilities to navigate the risk landscape:

Banks will need to determine their ceiling for risk-taking

This involves setting limits on risk-taking in a way that takes the bank’s values, strategy, risk management capabilities, and competitive environment into account, all the while having a dynamic view of what those risk limits are at any given time.

Detect both new potential risks and weaknesses in controls

This involves the ability to anticipate, predict, and observe threats based on diverse internal and external data points, as well as the ability to assess the significance of the risk and the duration of its impact.

Decide on the appropriate approach to risk management

Given how quickly the world can change, banks will need more agile governance processes and approaches to risk mitigation and controls.

How then do banks mitigate risk which will only become more complex and frequent as shown above?

To mitigate these ever-growing complex and frequent risks, banks will be required to deploy highly-skilled, diverse, and agile risk organisations, enabling themselves to develop a strong and dynamic understanding of risk within the organisation and external impacts while being armed with mechanisms to manage them.

Want to know more about the Foundations of Risk Management? WITS Business School’s 8-week online Foundations of Risk Management programme is ideally placed to provide the learner with the core principles of risk management, solve complex problems, and enhance your judgment and decision-making within the Risk Management eco-system.

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