Business pressure from board could prompt excessive risk-taking: Bankers

Published On: November 30, 2018 07:21 AM NPT By: Republica  | @RepublicaNepal

KATHMANDU, Nov 30: Bankers have cautioned that excessive pressure from board of directors (BoD) of a bank or financial institution could compel the management to take unnecessary risks. 

Speaking at a conference on ‘National Risk Management Conference’ organized by National Banking Institute Ltd (NBI) in association with Fintelekt, India, on Thursday, banking executives also opined that risks in the banking system originates from people, process, system and external events.

“When the board gives undue pressure to increase business and returns, the management tends to take higher risks,” Bhuvan Dahal, CEO of Sanima Bank Ltd said. 

The concerns about the excessive pressure from the board from banking executives come at a time when banks are pursuing aggressive business approach following the multifold increase in their paid-up capital.

Most of the banks are found to be making loans at a record high rate even when they have been struggling to find deposits and other sources of funds. The asset and liability management, as it is known in the banking parlance to the mismatch between deposit and loans, is attributed to the pressure to banks to maintain returns to shareholders even after the rise in their capital. Many warn that such approach could spell risks for banks. 

Dahal also said that the risks management committee formed in each institution should be effective to avoid any risks to avoid losses.

“If people in the board are knowledgeable in risks, the committee could become effective,” said Dahal. “For that to happen, we should have professional banker, expert and knowledgable people in the board,” he added. 

Someshwar Seth, CEO of Everest Bank Ltd, said that any risk in banking sector does not come alone. “When a risk comes, it also brings other risks including reputation risk for the institution,” he added. 
For Govinda Gurung, CEO of Civil Bank Ltd, controlling and mitigation of risks in a bank is always a continuous exercise. He said that Nepali banks have been able to avoid huge losses from various risks that they have encountered.

“We have survived real estate bubble. We have faced loan-able fund crisis. We have tackled them all. Our regulators deserve the credit. This has become possible not only because we have small market, but our regulators are efficient,” added Gurung. 

“Due to timely action of regulators, prudent and prompt corrective actions, we have managed those risks. Is it sufficient? No. We have foreseen probable risks. But, we never see what kind of risks we will have to face in the days to come,” he added. 

Pradyuman Pokharel, CEO of Muktinath Bikas Bank Ltd, said that while balance-sheet risks are largely manageable, mitigating operational and reputational risks are becoming a challenge for Nepali BFIs.
Also speaking at the program, Benjamin Frank, Group Head at Wholesale Credit Risk of HDFC Bank, India, also shared insights of credit risk and strategic approach to mitigate such risk.

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