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Group risk function
With the divisionalisation of the majority
of the Theta subsidiaries into African
Bank, an opportunity to form a single
group risk management function with
responsibility for risk across all business
units within the group has been created.
Group Risk consists of the following
departments:
Internal audit and forensic
Compliance
Legal
Company secretariat and
corporate governance
Operational risk and Basel II,
Credit
ALCO
Its primary functions and responsibilities
are:
To develop and implement a groupwide
risk policy and procedures that
ensure that the group has a
consistent and acceptable approach
to the management and monitoring
of risk across all business units;
To manage centrally certain risk
functions, ie compliance and
operational risk , that either due to
regulatory or cost efficiency reasons
are not delegated to the business
units;
To act as a facilitator and overall coordinator
of certain risk functions,
eg credit, that are delegated to the
business units for day-to-day
management;
To build and foster a good working
relationship with the regulators to
ensure constructive and open
communication;
To work proactively with Exco and
the businesses/divisions to ensure
that all key risks are identified and
appropriate controls put in place
to manage these risks. This is
particularly important where new
businesses, systems and products
are being introduced.
Risk appetite
Returns higher than the risk-free interest
rate can only be achieved through risk
taking. Furthermore, by virtue of its
nature, a bank is in the business of taking
risk. It is therefore of utmost importance
that a bank, which the public has
entrusted with their funds, defines its
optimal risk level and determines
whether the organisation has the
requisite risk culture, risk management
skills and risk absorption capacity to
support the business strategy.
Defining risk appetite
Risk appetite is defined as the level of
risk that is acceptable for the group to
bear and is dependent on the extent to
which it seeks and tolerates risk as
described by predetermined
performance indicators, operational
parameters and process controls.
The risk absorption capacity is largely
a function of the bank’s capital and
reserves in relation to the business
strategy, cost effective risk mitigation
controls and effective risk transfer
strategies. However, cognisance has to
be taken of the fact that banks have to
take account of reputational risk which
could negatively affect their liquidity
position to such an extent that, despite
sufficient solvency, ie surplus capital, it
could result in a situation that the bank
cannot trade.
Risk culture
The risk culture of an organisation plays
a pivotal role in effective risk
High
Risk
Low
Low
Avoid Mitigate
Transfer
Competency
management. A “Risk control culture”
and “Risk acceptance culture” are at
opposite ends of the risk control
spectrum. A “Control culture” strives to
minimise risk by maintaining an attitude
of low tolerance of risk and viewing risks
in general in a negative light.
Alternatively, a “Risk acceptance culture”
views risk as an inherent part of running
a successful business, ie risks are not
only mitigated but are also investigated
for potential opportunities and therefore
provide a direct linkage between risk
management and maximising
shareholder value. A tolerance zone is
created which allows risk taking within
certain parameters. This culture is
dependent on open communication
where problems or concerns are
identified and reported at an early stage
rather than being suppressed. Problems
and losses are viewed as part of running
the business as long as cost effective
controls are established and maintained
to mitigate risks to an acceptable level
within the set parameters.
The following matrix can be used to
assist with decisions on the treatment
of various risks:
Accept
59
High
African Bank Investments Limited