Risk Management For L&M Bank

Industry Analysis of Banks in Australia

Discuss about the Risk Management for L&M Bank.

The aim of the report is to focus with the risk management of L&M Bank. It is an Australian Bank. The Bank is about to open a branch in Australia. It is important to take into consideration the various aspects that might prove to be risk factors for an organization.

In the recent time, it has been found that the banks have delivered good financial results. There has been n increase of 4.7% in the tax figures. Growth in the net interest in the business has helped to achieve modest growth in loan (Ellul and Yerramilli 2013). House lending volumes have also showed growth in the regions of New South Wales and Victoria. Therefore, it can be easily assumed that there is a great scope for the banking sector. In case if the L&M Bank opt for opening a new branch in the country, the business strategy can be easily get success (Giovannoni, Quarchioni and Riccaboni 2016).

1. Creates and protects value of the customers who wishes to grab facilities of the services of Bank
2. Based on the best information that are provided by the customers or clients

• Integral part of organizational processes should be cleared to the clients of the bank

1. Tailored in action while dealing with customers
2. When appropriate make the clients a part of decision making (Ellul and Yerramilli 2013)
3. Taking human and cultural factors into consideration is important to operate in a culturally diverse location

• Explicitly addresses uncertainty whenever necessary arises
• Transparent and inclusive of all the business operation as undertaken by the Bank

1. Systematic, structured and timely available to the needs of the customers
2. Dynamic, iterative and responsive to change whenever any kind of situation arises
3. Facilitates continual improvement of the particular organization to fight with the increasing competition in the market

1. a) Legislations applicable to Risk Management:

• Duty of care: It is important for the authority and the management of the Bank to take care of the internal and external stakeholders (Koch and MacDonald 2014). Care should be taken for the clients who come to the Bank. There should be precaution in the parking space as well.
• Privacy and confidentiality: In Banking, Privacy and Confidentiality matters the most. No information should be leaked without the consent of the client (Giovannoni, Quarchioni and Riccaboni 2016).
• Legislation related Bank’s operation: Laws related to transaction of money or confidentiality, are the important factors related to the legislations of Bank’s operation.

1. b) Identification of organizational policies as a guide to risk management:

            The Bank has a strong legal foundation that helps the organization to fight against any legal risk. For the operation risk, the organization has a strong supporting technical infrastructure. To reduce any kind of IT risk, the Bank has a support of IT team. Keeping the information strictly confidential is one of the prime policy that the organization has to keep in guidance for the sake of binding the customer base.  

1. c) Scope of risk management:

• Financial risk: There might take place certain financial risk due to any kind of disregard of the Bank policies, strategies or guidelines. The Bank might run under debt due to huge pressure of loans (Koch and MacDonald 2014).
• People risk: The people who are responsible for the management of the Bank might fail to manage the organization properly. There might not be continuous availability of employees that might result in the failure of dealing with the customers (org. 2016).
• System risk: Any kind of risk can occur in major areas like IT system, Human resource, the insurance or the monitoring process of the complete banking process.
• Technology risk: Technological failure can occur at any point of time that shall result in the failure of the business of the organization (Dionne 2013). The risks also include other range of problems like fraud or information security failure.
• Natural calamities: There have been many instances when businesses are affected due to the natural calamities like earthquake or fire and flood. Risks related to terrorism can also create great trouble for the organization.

It falls under the responsibility of the Bank to undertake certain instances that shall be effective enough to deal with any kind of risk situation. In this respect, it has to be mentioned that communication plays an important role (Cipovová and Belás 2012). In case if the internal and the external stakeholders are communicated properly, the implication of the risk might get reduced by certain folds.

It is important to inform the internal and external stakeholders about any kind of risk. In order to inform them, a proper communication plan needs to be developed. In case of the internal stakeholders that include the employees and the staff of the Bank, informing them would be easier. It is recommended that in case if anything needs to be deciphered, it can be done directly by the means of sending emails to the people (Koch and MacDonald 2014). It is also recommended to call for frequent meetings where any kind of decision can be easily discussed with people.

Principles of Risk Management Process

For informing the external stakeholders, a number of tools can be used for communication. These include Annual Reports or any kind of supplements or issues that are published for the sake of informing the external customers about the policies of the Bank.

SMART objectives can be framed:

Specific	The major goal of the bank is to attract more customers and provide them with the necessary service as required by the agents.
Measurable	The goal can be easily measured by checking the number of clients or customers who have opened their account in the bank. The same can also be observed by evaluating sale of the insurance or other things that are delivered by the Bank.
Achievable	If the needs and the requirements are fulfilled successfully, the objective of the Bank can be easily achievable.
Relevant	The objective is relevant because this happens to the primary objective of the business operation of the Bank.
Timely	With proper initiatives, by the means of proper promotional and marketing techniques, the goals can be easily achievable.

Table: SMART objectives of the Bank

(Source: Kumar and Yadav 2013)

PESTLE analysis of Bank industry:

Political	The political factors include the rate of tariffs, subsidies, currency control, free-trade zone and the administrative policies.
Economic	Low unemployment, strong and stable financial system with open market economy facilitates the operation of the banking sector.
Socio-cultural	Diverse groups of people with high level of education favor the Bank industry as more people are likely to invest their money in various fields.
Technological	There has been remarkable improvement in the technological sphere of business. If the case of Banking sector is considered, many banks have opted for the digital mode of banking. This has provided opportunities to many banks to attract more customers.
Legal	Australia’s banking law is flexible and the opening of new business is simple. This favors the opening of a new branch of an already established bank.
Environmental	Environmental factors like land, soil water favors the growth of human habitation. There is no such threat of environmental pollution due to a banking sector. These situations also favor the banking business.

Table: PESTLE analysis of banking industry

(Source: Chance and Brook 2015)

Among the major risks identified, it can be said that failure related to the operational function can be the most important factor that creates risk for the bank. In the era of digitization, it is important for any organization to operate using the digital platform (Ratnovski 2013). It is also evident that the Bank does not have the proper infrastructure of digital support for the consumers (Ellul and Yerramilli 2013). Therefore, in the market of intense competition, it might happen that the Bank has to lose the battle in the utter competition due to its operational management.

Another risk that the Bank might have to deal with is due to the potential privacy policy. It has to be understood that the clients always seek for privacy when it comes to monetary transaction (Giovannoni, Quarchioni and Riccaboni 2016). In case, if the information of the clients are leaked or mishandled then it might be a major concern of risk for the bank.

The impact of the risk might result in the fact that the Bank loses its customers’ base and the customers opt for other banks that provides better facilities to the customers (Fekadu 2015). In case if the Bank fails to keep the privacy of the potential customers, the impact might be negative for the Bank itself (Cole et al. 2013). The customers might lose their confidence or faith on the Bank and this can create a situation where the image of the organization is completely shattered.

It has been observed that among the different types of risks that might occur in an organization, for the bank the risks related to Privacy and Operational management could be the two most influential risk factors (Bessis and O’Kelly 2015).

The end result might lead to complete chaotic situation where the Bank has to suffer drastically. If it is considered that the risk factor hit a single branch of the Bank, all other branches could also get affected due to the bad image of the Bank (Hull 2012). The organization as a whole might have to suffer as a result of the risk.

Identification of Significant Risks

The most significant of these risks could be the risks related to the privacy of the people who have accounts in the Bank because no single person might ever consider the factor of revealing the private information of a person (Ratnovski 2013). In such case, the person might also file complaint against the Bank and as a result the Bank has to face legal action.

In case if any kind of risk occurs, it is important to communicate with the internal public as early as possible. In case of leaking the information of the client, it can be assumed that the information has been leaked by an internal public only. In such cases, it is important to identify the culprit and take instant legal action against the particular person (Aebi, Sabato and Schmid 2012). The management should always focus on the factor that the information should not get out of the organization. Communicating with the particular client and make an understanding of the situation might prove to be effective for the Bank.

Certain risks occur at any instance and for the same reason implementation of a plan might not be effective. In such situations, it is required to make the committee of people where the people belonging to the higher authority of the particular organization should remain to manage the risk (McNeil, Frey and Embrechts 2015). However, it is expected that the team of management should always remain ready to deal with any kind of risk occurring situation.

The plan that has been made can be stored in the intranet of the organization that might be available for all the members of the organization (Giovannoni, Quarchioni and Riccaboni 2016). In case, if any situation arises, the people of the organization should remain in a ready state to deal with the situation.

Conclusion:

The report has analyzed the various instances that might prove to be the major risk factors for the Bank. It is based on the analysis the potential outcome of the risk has been stated. In addition to this, the treatment of the risk has also been discussed in the report.

Reference List:

Aebi, V., Sabato, G. and Schmid, M., 2012. Risk management, corporate governance, and bank performance in the financial crisis. Journal of Banking & Finance, 36(12), pp.3213-3226.

Bessis, J. and O’Kelly, B., 2015. Risk management in banking. John Wiley & Sons.

Chance, D.M. and Brooks, R., 2015. Introduction to derivatives and risk management. Cengage Learning.

Cipovová, E. and Belás, J., 2012, November. Impacts of selected methods of credit risk management on bank performance. In Proceedings of the 8th European Conference on Management, Leadership and Governance (pp. 465-473).

Cole, S., Giné, X., Tobacman, J., Topalova, P., Townsend, R. and Vickery, J., 2013. Barriers to household risk management: Evidence from India.American Economic Journal: Applied Economics, 5(1), pp.104-135.

Dionne, G., 2013. Risk management: History, definition, and critique. Risk Management and Insurance Review, 16(2), pp.147-166.

Ellul, A. and Yerramilli, V., 2013. Stronger risk controls, lower risk: Evidence from US bank holding companies. The Journal of Finance, 68(5), pp.1757-1803.

Fekadu, M., 2015. An assessment of credit appraisal and credit risk management practices of development finance institutions: The case of Development Bank of Ethiopia. 5(1), pp.104-135

Giovannoni, E., Quarchioni, S. and Riccaboni, A., 2016. The role of roles in risk management change: The case of an Italian bank. European Accounting Review, 25(1), pp.109-129.

Hg.org. 2016. Hg.org/banking Available at: https://www.hg.org/banking.html [Accessed 12 Oct. 2016].

Hull, J., 2012. Risk Management and Financial Institutions,+ Web Site (Vol. 733). John Wiley & Sons.

Koch, T.W. and MacDonald, S.S., 2014. Bank management. Nelson Education.

Kumar, M. and Yadav, G.C., 2013. Liquidity risk management in bank: a conceptual framework. AIMA Journal of Management & Research, 7(2), pp.2-12.

Lam, J., 2014. Enterprise risk management: from incentives to controls. John Wiley & Sons.

McNeil, A.J., Frey, R. and Embrechts, P., 2015. Quantitative risk management: Concepts, techniques and tools. Princeton university press.

Ratnovski, L., 2013. Liquidity and transparency in bank risk management. Journal of Financial Intermediation, 22(3), pp.422-439.