Corporate Governance for Banks in Southeast Europe: Policy - IFC

circumstances, these findings should be reported to the
parent bank.
Risk management and risk modeling are of undeniable
importance, yet neither has been the cause of concern
in SEE that they have been in more developed markets.
Nevertheless, greater attention is warranted, even if it
should not be allowed to distract SEE banks from other
problems that merit attention. Principal among these
is the need to become more proficient in the basics of
banking, concentrating on products and services that
customers need, and integrating risk management into
this basic banking business.
SEE countries also face challenges in applying risk
models that were developed to respond to the risk
environment of more sophisticated financial markets
and which require considerable expertise to apply
properly. In some cases, bank executives do not
understand the more sophisticated risk models and
find it difficult to apply them within their context.
This inability to properly apply risk models presents an
additional risk in its own right and suggests that betteradapted
models need to be developed.
Excessive Focus on Technical Aspects
of Risk Management
“Today risk management runs banks, and that
should not be the case. I agree that corporate
governance should provide additional
security, guarantee of transparency or be a
kind of tool, but I think that we first need
to solve the fundamentals. I think there
is much to do in southeast Europe before
looking at more sophisticated corporate
governance. I would go back to the basics:
what are the products people need?”
George Bobvos, Montenegro
“So what I would say is do not mistake
fancy risk measurement capability for a
culture of risk management; they are very
different things.”
Jon Lukomnik, United States
Recommendations:
Risk methodologies: Risk models must be sufficiently flexible to capture a fuller range of potential risks. At
the same time, risk management should not draw excessive attention from building a fundamentally sound
bank. Risk management models must reflect the nature of the business and become an integral part of the
banking business.
Credit culture: Most risks within SEE will be credit-related risks. Although much emphasis is currently on
systems and methodologies, it is important for a bank to have a strong credit culture and for people to
have an instinct for credit. These are very basic items that are more important than sophisticated matrices.
Ultimately, no risk model can substitute for a culture of prudent risk management.
Corporate Governance for Banks in Southeast Europe Policy Brief 39