What are the challenges banks face in managing operational risks in Bangladesh?
Managing operational risk is a challenging task for banks in Bangladesh. Operational risk can originate from activities at every level — from the Board of Directors down to the desk officer. The key challenges are:
Policy and Framework Gaps
- The absence of a comprehensive operational risk management policy and framework in many banks.
- Lack of clarity in the categorisation of operational loss events makes it difficult to track and report losses accurately.
- Absence of a standard comprehensive list of Key Risk Indicators (KRIs) for business lines.
Management and Cultural Issues
- Top management’s perception that operational risk management is solely about internal controls, rather than a comprehensive risk discipline.
- Lack of awareness regarding operational risk management at all levels of the bank.
- Absence of a policy on ethical standards for employees — increasing the risk of internal fraud and misconduct.
Structural and Reporting Issues
- Unstructured reporting lines for operational risk management — creating confusion about accountability.
- Banks are generally good at minimising high-frequency, low-severity risk events, but often fail to address low-frequency, high-severity events that can threaten the bank’s existence.
Human Resource Issues
- Lack of skilled and knowledgeable manpower in risk management functions.
- High staff turnover causing loss of institutional knowledge and creating operational gaps.
Technology Issues
- Absence of appropriate technological support for capturing, tracking, and reporting operational risk data.
- Breach of IT security due to malpractice, such as password sharing among staff.
- Introduction of new products without proper assessment of operational risk — increasing exposure without adequate controls.
Third-Party and Data Issues
- Poor service from third-party service providers — vendor misperformance creating operational disruptions.
- Absence of a loss data capture mechanism — making it impossible to measure operational risk accurately or calculate capital requirements under Basel III.
