Risk Management Competency Development in Banks

Risk management weaknesses are key contributors to banks’ financial woes. Despite being a bank’s core competence, good risk management talent is scarce. One way of addressing this scarcity is to run the proposed integrated approach to competency development. This approach pools together three interrelated competency development concepts of core competency, dynamic competencies and the learning organization.

This book aims to build an integrated approach to facilitate continuous competency development for a bank’s risk management function. We also specify three objectives, which emanate from this aim, namely, (1) to translate the concepts into actionable indicators, (2) to identify the indicators whose scores significantly differ across demographic group comparisons and (3) to summarize the indicators into a few themes.

This chapter seeks to address the first objective of operationalizing the three competency development concepts and their conceptual variables into actionable indicators. Section 2.1 traces the evolution of these key competency development concepts. It culminates in three pertinent strategy-related concepts and discusses their respective key themes and conceptual variables. Section 2.2 summarizes the strengths, foci and limitations of each concept. It argues that the concepts are uniquely interrelated and complement one another. This leads to a proposed integrated framework which pools together the three concepts toward addressing the aim of this book. Section 2.3 discusses how we translate the variables into operationalized indicators through literature reviews and experts’ reaffirmation.

This chapter seeks to address the second objective. It seeks to assess whether the importance attached to the indicators significantly differs across the three demographic groups of banks, namely, (1) local- versus foreign-controlled banks, (2) entrepreneur- versus non-entrepreneur-controlled banks and (3) different staff seniority levels. These findings may help guide managers and regulatory authorities to a better understanding of the different emphases which these banks may have. The findings are based on a survey analysis of 135 risk management practitioners. The responses sought are measured on a five-point Likert scale with a score of ‘1’ being effectively ‘not a great deal’ and ‘5’ being ‘to a great extent’. The survey questionnaire was in turn developed based on the operationalized risk management indicators identified in Chap. 2. The questionnaire is shown in Appendix.

This chapter seeks to address the third objective. It examines the feasibility of meaningfully summarizing the 23 operationalized indicators into a few dimensions or factors, each of which comprises indicators which converge on a similar theme. The discussions in Chap. 2 suggest that some indicators are likely to be correlated because they are subtly but yet not totally similar; in fact, they are also subtly different. Hence, the indicators which closely correlate may be summarized into one factor or theme. Summarizing the 23 operationalized indicators into a few themes would in turn provide management an alternative way to facilitate a more manageable, flexible and focused approach to risk management competency development.

The remaining sections are organized as follows. Section 4.1 outlines the analytical technique used, namely, factor analysis. Section 4.2 outlines the process of summarizing the indicators into a few themes. Section 4.3 studies the feasibility of meaningfully interpreting each of these themes and Sect. 4.4 concludes.

This book sets out to propose an integrated approach to risk management competency development to address the problem of talent shortage in this increasingly important bank function. We describe the overall research effort by presenting an overview of the preceding chapters as follows. Chapter 1 argues that staff recruitment and poaching alone would not suffice because we need to properly integrate new staff into the bank. Staff recruitment and poaching are mere short-term knee-jerk reactions which are not sustainable. Such actions increase compensation exponentially and do not really produce sufficient depth and breadth in the talent pool. Hence, banks need a more comprehensive way to develop their risk management competency. One way to do this is through the proposed integrated approach, which pools together three interrelated concepts of core competency, dynamic competency and the learning organization. We also translate the broad problem statement into three specific objectives, each of which is addressed in Chaps. 2, 3 and 4, respectively.

Chapter 2 seeks to address the first objective of operationalizing the concepts into indicators which pertain to the context of a bank’s risk management function. It begins by discussing the key foci of the three interrelated competency concepts. We show that the concepts are not identical because despite having some similarities, there are also subtle differences. Besides, the weaknesses in one concept are addressed by the strengths of at least one other concept. Hence, we propose the pooling together of these concepts to have a more comprehensive approach to competency development.

Chapter 2 also discusses how we translate these three concepts into operationalized indicators through a two-stage process. In the first stage, we review pertinent literature in the banking and risk management contexts. This facilitates the identification of indicators which illustrate the conceptual variables. In the second stage, we reaffirm our findings by interviewing ten leading chief risk officers. The interviews also reveal identification of additional indicators, all of which can be mapped to a conceptual variable. Hence, we compiled a list of 23 indicators which illustrate the conceptual variables for application in the context of a bank’s risk management function.

Next, Chap. 3 addresses the second objective which is to study whether the indicators differ across bank demographic groups. It begins by discussing how we use this questionnaire to survey 135 risk management professionals. The survey seeks to identify the extent to which each of the 23 indicators is practiced in the respondents’ banks. Before analyzing the survey findings, we perform diagnostic tests to ensure that the dataset is ready for use in the pertinent analytical techniques of t-test, discriminant analysis and factor analysis. Chapter 3 examines the indicators whose scores significantly differ between banks of different demographic groups, namely, local- versus foreign-controlled banks, entrepreneur- versus non-entrepreneur-controlled banks and across five differences.

The following Chap. 4 addresses the third and final objective, which is to study whether we can meaningfully summarize the indicators into a few themes. This was done through factor analysis which groups the like indicators into a factor or theme. We find that there is statistical support for this process and, more importantly, the indicators do meaningfully converge into the proposed theme labels.

Finally, this chapter discusses the findings obtained from the analyses as described in the preceding paragraphs. We organize the remainder of this chapter as follows. Section 5.1 recapitulates the aim of this book and the three specific objectives which emanate from this aim. Next, Sect. 5.2 discusses how the insights gained from the findings present conclusions relating to each of the three objectives and, hence, the aim of this book. Section 5.3 reflects on the limitations of this book which in turn sheds light on potential directions for future research and concludes.