New Zealand Banks’ Risk Management Practices Called Into Question
In a recent review of risk management practices conducted by the Reserve Bank of New Zealand (RBNZ), none of the nine selected banks had undertaken independent, regular, and comprehensive reviews of their Risk Management Framework (RMF). This raises concerns about the effectiveness of these frameworks and their ability to remain fit for purpose in the evolving landscape of banking risks.
Insights Into The Thematic Review
The nine banks, which were not individually named but likely include major players such as ASB, ANZ New Zealand, Bank of New Zealand, and Westpac New Zealand, were all put under the microscope for this thematic review. The aim of the review was to assess how well these banks were managing risk in their respective operations.
Although individual components of the RMF were regularly reviewed, the RBNZ noted that these reviews were not considered collectively. This means that while each piece of the puzzle may have been analysed, the overall picture of risk management may not have been clearly seen or understood.
Concerns Over Risk Management Practices
The RBNZ’s review revealed that not all banks in New Zealand can be deemed satisfactory when it comes to risk management. The central bank pointed out twelve instances where “most entities” engaged in certain risk management practices that were viewed favourably. However, this also means that there are entities that fall short of these practices, raising concerns about their risk management capabilities.
This lacklustre approach to risk management is not just confined to New Zealand. If a major Australian bank’s New Zealand subsidiary is found wanting in their risk management practices, it’s highly likely that similar issues are present in the parent company’s operations back in Australia. After all, risk management policies and practices often trickle down from the parent company to its subsidiaries.
The Need For Improved Risk Management
As the banking industry evolves and faces new challenges and risks, robust risk management practices become more critical than ever. Banks need to ensure they are not just reviewing individual components of their RMF, but also taking a holistic view of their risk management to ensure that it remains effective and fit for purpose.
Given the RBNZ’s findings, it’s clear that there’s room for improvement when it comes to risk management in New Zealand’s banking industry. Banks need to step up and ensure they are following best practices to manage risk effectively, not just for their own benefit but also for the stability of the financial system as a whole.
For more details on the RBNZ’s review, click Here.
