ANALYSIS OF OPERATIONAL RISK MANAGEMENT: A CASE OF LISTED COMMERCIAL BANKS IN GHANA

ABSTRACT

The study sought to assess operational risks management by listed commercial banks in Ghana. The study adopted the descriptive research design approach. Purposive sampling technique was adopted in the selection of one hundred and three (103) respondents for the study. The study used quantitative data from both primary and secondary sources. The primary data was collected by using questionnaire. The study adopted both the descriptive and inferential data analysis. The study found among others that the main operational risks confronting commercial banks in Ghana are people related risks, information technology related risks, and process related risks. These risks positively influence the returns of commercial banks in Ghana. As part of the mechanisms in place to curtail debilitating impacts of operational risk in commercial banks, they have internally developed operational risk management procedures which incorporate the Basel III approaches to operational risk management. These operational risk management policies were deemed effective since the banks allocated appropriate resources to their operational risk management with management ensuring bank-wide operational risk awareness environments which are supported by appropriate and adequate organizational structure and processes to implement strong risk cultures. The study therefore recommended that management develop sensitization policies to sensitize employees and give appropriate training on operational risk management to entrench risk awareness firm-wide. These trainings should not only be regular but should be in tandem with emerging issues of ORM practices and strategic compliance.

TABLE OF CONTENTS

Page

DECLARATION   ii

ABSTRACT  iii

ACKNOWLEDGEMENTS  iv

DEDICATION   v

TABLE OF CONTENTS  vi

LIST OF TABLES  x

LIST OF FIGURES  xi

CHAPTER ONE: INTRODUCTION  

Background to the Study  1

Statement of the Problem   4

Research Objectives  4

Research Questions  5

Significance of the Study  5

Delimitations  6

Organization of the Study  6

CHAPTER TWO: LITERATURE REVIEW   

Introduction  7

Theoretical Framework  7

Enterprise Risk Management (ERM) Theory  10

Definition of Concepts  11

Risk  11

Operational Risk  12

Types of Operational Risk  14

People Risk  14

Internal Operations  15

External Events  15

IT System Risks  16

Categories of Operational Risks in Commercial Banks  17

Operational Risk Management in the Banking Industry  20

Risk Identification and Analysis  21

Risk Assessment23

Risk Measurement23

Risk Monitoring  23

Controlling Risks  24

Empirical Review   24

Conceptual Framework  38

Conclusion  38

CHAPTER THREE: RESEARCH METHODS 

Introduction  41

Research Design  41

Population of the Study  42

Sample and Sampling Procedure  43

Data Collection  44

Data Collection Instruments  44

Data Collection Procedure  45

Data Analysis  45

CHAPTER FOUR: RESULTS AND DISCUSSION  

Introduction  46

Response Rate  46

Demographic Characteristics of Respondents  46

Operational Risks Confronting Commercial Banks  49

Effectiveness of the Operational Risk Management Policies Adopted by the Selected Commercial Banks  51

Relevance of Operational Risk in the Banking Industry in Ghana  51

The Allocation of Appropriate Resources in Support of Operational Risk Management Policy and Practice by Banks  52

Development of Close Links between Banks’ Strategic Objectives and Management of Operational Risk  53

Existence of Internally Developed Operational Risk Management Procedures or Guidelines?  54

Level of Compliance of Operational Risk Management Practices in the   Banks  56

Operational Risk Management Approach Adopted by the Bank and the Level of Compliance  57

Risk Governance Adopted by the Surveyed Banks Adopted by the Bank and the Level of Compliance  60

Risk Oversight63

Effect of Operational Risk on the Performance of Commercial Banks  66

Effect of Operational Risk and Banks Performance  68

Discussion of Findings  69

CHAPTER FIVE: SUMMARY, CONCLUSIONS AND  

RECOMMENDATIONS 

Introduction  72

Summary of Major Findings  72

Conclusions  74

Recommendations  75

Recommendations for Further Studies  76

REFERENCES  78

APPENDIX A