Wednesday August 29, 2012
Mazars: Banks must have strong risk management
By DALJIT DHESI
KUALA LUMPUR: Banks intending to venture overseas or expand their international footprint should, among others, have a strong risk management system in place to expedite growth, according to international professional services company Mazars.
Its partner Jonathan McMahon said understanding the risk associated with new markets was important and therefore risk management systems and practices should be in line with international standards.
“Banks considering to venture and expand overseas as well as those with existing operations abroad should review their risk management capabilities to ensure they are able to manage the risks effectively in different countries.
“To have risk management of high standards, banks need to constantly improve it by benchmarking with other successful banks. They too need to bring in experts with sound knowledge and expertise on this subject (risk management),'' he told StarBiz on the sidelines of a seminar on the future of banking.
McMahon added that besides experts in technical risk management like credit and market risks and operational risk, banks should also have a strong culture embedded when coming to its staff and customers.
Bank staff should know what are the right products that they need to sell to customers in line with their (customers) needs and not to take unnecessary risks, he noted.
Apart from risk management, banks also need to have a good understanding of the regulatory environment when expanding their presence or venture into new markets.
On the challenges in the Malaysian banking landscape, he said as in other markets, the challenge would be to manage risks that would arise from the current economic situation. The Malaysian economy has been quite strong but it is heavily exposed to properties, similar to some other markets, he said, adding that if there were to be a cyclical downturn in properties it would put additional stress on banks' asset portfolio.
To a question on mergers and acquisitions (M&A), McMahon said although consolidation was good generally, there were some underlying risks in the exercise. “Consolidation creates bigger banks and if they were to get into trouble, there will be a stronger case for Government support compared with smaller banks. It is good if it creates greater competition and fewer risks, but if the M&A process eats' up the time of the management within the banks which are too focused on consolidation, then it will affect the day to day running of the bank,” he added.
As for trends in the banking sector, he said one possible scenario would be the withdrawal of European banks in some markets due to capital constraints in view of the sovereign debt crisis and the entry of Asian banks to fill in the gaps left by their European counterparts.
Mazars is an international and independent organisation specialising in audit, accountancy, tax, legal and advisory services.