Organised by

Indian Institute of Banking & FinanceIndian Institute of Banking & Financein Collaboration with

Indian Banks’ Association (IBA)Indian Banks’ Association (IBA)

Technical Session IRisk Management and HR Issues

Gordian GaetaThe Asian Banker, Singapore

Hyderabad, 28 November 2005Hyderabad, 28 November 2005

7th BANK EDUCATIONISTS’ 7th BANK EDUCATIONISTS’ CONFERENCE – 2005CONFERENCE – 2005

Today’s Agenda

Introduction to The Asian Banker

Human Resources & Risk Management

The Future of Banking HR Requirements

A Call for Action

Introduction to The Asian Banker

7th BANK EDUCATIONISTS’ 7th BANK EDUCATIONISTS’ CONFERENCE – 2005CONFERENCE – 2005

The Asian Banker is in three businesses serving the financial services industry ...

Asian Banker Research

Asian Banker Editorial

Asian Banker Forums

www.theasianbanker.com

… delivering business intelligence to the financial services community

Asian Banker PublicationsAsian Banker JournalAsian Banker InteractiveAsian Banker Reports

Asian Banker ForumsAsian Banker SummitRoundtables & Consultative ForumsIndustry Outlook BriefingsExecutive Programs

Asian Banker Research Excellence in Retail Financial Services Asian Banker 300 Benchmark Exchange Proprietary and Generic Research

Payments and Operations

Backofficeprocessing

Risk Management

Distribution StrategiesRetail Payment initiatives

Corporate Governance

The Asian Banker – Global in Scope, Regional in Coverage

Main Office: Singapore

Rep: LondonRep: San Francisco

New Focus: Middle East

Branch Office: Kuala Lumpur

Branch Office: Shanghai

New Focus: Korea New Focus:

Japan

Branch Office: Hong Kong

Rep: New York

Human Resources & Risk Management

7th BANK EDUCATIONISTS’ 7th BANK EDUCATIONISTS’ CONFERENCE – 2005CONFERENCE – 2005

• In recent years we have come to comprehensively understand the structure of risk – the negative variance on an expected outcome

• While we can understand risk, its predictability remains elusive as with all chaotic systems

• People shape the risk profile of businesses • At the same time humans are the main solution to risk

issues so we separate risk responsibilities and build risk systems …

• … but, often, we fail to instill in our people sense of

accountable responsibility and understanding of the risk reward relationship inherent in all undertakings

Human resources are at the core of risk

Risk – the negative variance on an expected outcome

$ Value of Losses/Outcomes

Frequency/Probability f

Expected Losses Unexpected Losses

Traditional outcomes

Traditional outcomes

SkewedOutcomes

SkewedOutcomes

RISKRISK

EventsEvents

Typical loss distribution

Largely, people cause negative outcomes

Source: CSFB, Global Operations, figures rounded &

Number of operations losses by causality factors

People60%

Process19%

Systems21%

• Inadequate control (8%)

• External error (3%)

• No control (2%)• Late receipt (1%)• Increased

volumes (1%)

• Inadequate control (8%)

• External error (3%)

• No control (2%)• Late receipt (1%)• Increased

volumes (1%)

• Failure/bug (8%)• Inadequate functionality (7%)• Feed late (1%)• Incorrect data (1%)

• Failure/bug (8%)• Inadequate functionality (7%)• Feed late (1%)• Incorrect data (1%)

• Lack of attention (40%)

• Poor communication (10%)

• Inadequate training (7%)

• Unclear roles (3%)

• Lack of attention (40%)

• Poor communication (10%)

• Inadequate training (7%)

• Unclear roles (3%)

Currently, the solution seems to separate risk responsibilities and build risk systems …

0

10

20

30

40

50

60

Chief RiskOfficer

ChiefExecutive

Officer

ChiefFinancial

Officer

ChiefInvestment

Officer

Source: Risk Management Survey 2005, The Asian Banker

Primary responsibility for Risk

In %

0% 5% 10% 15% 20% 25%

Technology

Risk

Brand equity

Channel

M&A

HUMAN RESOURCES

Marketing

Differentiation

Customer acquisition

Cost management

CRM

Bank spending emphases

This

Will

Be a spl

Dept??

… rather than instilling an ‘accountability’ spirit in staff at all levels

• Most staff live in world of insured risks, they act as administrators and if they follow the rules, they remain generally gainfully employed and unaffected by the outcomes

• Too often there is widespread lack, in staff, of risk recognition, a sense of lack of responsibility for failure and by consequence, a will to find new or better ways of discharging their obligations

• Adding layers of specialist management, segregation of roles and systems support may address the ‘tail end’ of the risk distribution but compounds the ‘moral hazard’ problem for staff in daily undertakings

• Current human resource development does not foster individual accountability

• Business specialisation and compartmentalisation of functions, delegation of activities and roles combined with third party involvement is growing

• Fragmentation reduces overall perspective and pushes authority further down the line. Individual ambition and self-actualisation is driving this further??

• Competition, constant change and performance pressures increase the tendency for expediency without regard to risk implications

• With a growing pace of change, we place great reliance on rules, handbooks and manuals but without specific behavioral principles to keep risks in check or to manage behavioral standards

When empowering staff, risk profiles change because behavioral standards deteriorate

Behavioral standards are the complement to competence in true professionalism

Competence

Integrity

ProfessionalismProfessionalism

EthicalStandards

Commercial &Other Laws

Codes of Conduct

Universal, broad-based, compelling

Community, narrow-based,

voluntarySourceSource

Morals &Culture

Codified, contestable, democratic

Fuzzy, elective, organic

SpecificitySpecificity

At business level, there is unanimity on a need for behavioral standards

Business EthicsA system of (behavioral) principles (specific to the industry) that help determine right from wrong, good from bad in daily (business) life or when facing conflicts of interest (in discharging our professional responsibilities)

Essentially, business ethics give guidance in autonomous choices of individuals when facing conflicts of interest or in situations in which an individual has a personal interest sufficient to appear to influence the objective exercise of duty

Yet, violations are widespread and a real life threat …

• 48% of American workers admit to doing something wrong or illegal on the job, among others

• cutting corners (16%)• covering up incidents (14%)• lying to or deceiving customers (9%)

• 56% say they have considered it• Between 25-60% of employees surveyed admit to having seen

unethical behavior • Only 11% of financial services managers who witnessed unethical

behavior reported their concerns• Over US$50 billion losses, fines and damages due to staff misconduct

in high profile cases

The Future of Banking HR Requirements

7th BANK EDUCATIONISTS’ 7th BANK EDUCATIONISTS’ CONFERENCE – 2005CONFERENCE – 2005

• Retail banking will come to be the largest part of banking • Non traditional products and specialized segments will provide

the base for growth.• The shift from manufacturing to distribution will continue• Providing customer solutions will shift emphasis from offering

products to innovation ( focused) at the point of sale and advice• Non-strategic activities of banks will move to third party

suppliers• Largely internal factors will determine success or failure of the

bank mainly through ensuing risk profiles• People will be at the core of any strategy - they will influence the

level of governance and regulation thereby determining the opportunities available

Banking of the future may look quite different than today

Source: Mercer Oliver Wyman, various publications

• As many activities and functions will be outsourced, operational staff of today may have to migrate towards front line jobs

• Traditional staff trained only in selected products will become a liability to the distribution of advice and solutions

• Business skills, marketing and understanding customer needs will pose a different kind of challenge for existing staff

• Assessing and extracting higher customer value requires better analytical and servicing skills tailored to the real needs of the market rather than the product offering of a bank

• Risk appreciation and management skills will need to migrate to the customer interface

Human resources will have to grow with business requirements

A Call for Action

7th BANK EDUCATIONISTS’ 7th BANK EDUCATIONISTS’ CONFERENCE – 2005CONFERENCE – 2005

The dilemma: what we train & develop may not be all of what we need for the future …

Competence and Knowledge

Management Rules and

Regulations

Products

Competence and Knowledge

Management Rules and

Regulations

Products

Responsibility and Accountability

Values

Selling and solution skills

Responsibility and Accountability

Values

Selling and solution skills

What we train ….What we train …. What we need….What we need….

The world of tomorrow calls for a different staff and different development priorities

• Real accountability, regular non-supervisor appraisals and subsequent staff action

• Augmentation of management control through a staff development agenda

• Models and codes for behavioral standards with commensurate corporate culture and disciplines

• Reward systems that engender functional behavior and quality business

• Clear standards for selling practices and customer service• Widespread appreciation for business risks and regulations

to safeguard the bank

Growing competence alone will not win – a different mind set and conduct is necessary

Gordian GaetaThe Asian Banker, Singapore

Thank youThank you