Risk Management Competency Development in Banks: An Integrated Approach, by Eric H.Y. Koh.

• Author: Siddiqi, Lutfey

Risk Management Competency Development in Banks: An Integrated Approach, by Eric H.Y. Koh. Singapore: Palgrave Macmillan, 2019. Pp. 84.

How can a bank improve its risk management competency in a comprehensive and sustainable fashion?

In Risk Management Competency Development in Banks: An Integrated Approach, Eric H.Y. Koh embarks on a clearly charted research journey not from the technical domain of financial risk management (with its traditional silos of credit, market and operational risk), but from more general, industry-agnostic concepts of management theory. This should resonate with executives beyond those involved in specialized risk management functions.

The author draws on three inter-related concepts--core competency, dynamic competency and learning organization--to formulate three value judgements. First, a firm that encourages employees to go beyond their current roles in a non-siloed manner is better than one that does not. Second, a firm that monitors and acts on feedback from changes in the external environment is better than one that does not. And third, a firm that creates a climate of proactive learning and deliberate reflection is better than one that does not.

Koh begins by translating the signature characteristics of these three concepts into twenty-three indicators that are recognizable in the operating context of banks. The mapping and labelling exercise, first informed by a detailed literature review, was refined using input from ten Chief Risk Officers (CROs) before the indicators were rephrased as survey questions. These questions were then put to 135 risk management professionals at multiple banks in Malaysia, with their responses recorded on a five-point scale.

The results? On average, a foreign-controlled bank scored higher on the five-point scale than a local bank. Three indicators in particular contributed to this difference: first, how sensitive the banks were to international developments; second, how motivated they were to acquire and build new competencies; and third, how institutionalized or standardized their processes were.

It is well documented that global liquidity conditions and balance sheet adjustments of internationally active banks can have a material impact on local credit conditions in emerging economies (see, for example, Avdjiev, McCauley, and Shin 2015). The feedback loop between global and local factors can create endogenous risk--something that may go undetected without an international...