Operational Risk Management Practices (The Case of Commercial Bank of Ethiopia)
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Date
2016-06
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Addis Ababa University
Abstract
In doing business risk is inevitable and exposure to operational risk is inherent in banking activities, processes and systems. Banks therefore need to manage and keep this risk to an acceptable level. The objective of the study is to critically examine the operational risk management practices of banks in Ethiopia by taking Commercial Bank of Ethiopia (CBE) as a case. Managing Operational risk as an integrated process is a recent phenomenon especially in Ethiopian context and this study aims to examine the extent of operational risk management practices of CBE. The study was made through the combination of theory and empirical work. To achieve the study objectives survey research method was employed involving the use of both standardized questionnaire and personal interviews. Respondents were from various departments of the bank selected on the basis of their responsibilities for operational risk management. Statistical analysis in the form of percentages, means and standard deviations was employed to interpret the study findings. Effective Operational Risk Management should take into account the Risk Management Environment, Internal control and the Risk Culture of the bank. The outcome of the study revealed that the bank has an established framework to manage its operational risks, though some of its components are not always adhered to and need improvement. The bank needs to allocate adequate resources, create awareness and build the capacity of concerned staff, strengthen the risk culture, employ appropriate mechanisms for measurement and reporting of operational risk. As operational risk management practice is evolving, the bank is expected to continuously improve its approaches.
Key words: Risk Management, Operational Risk, Operational Risk Management, Operational Risk management Environment, Internal Control, Risk Culture
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Keywords
Risk Management, Operational Risk, Operational Risk Management, Operational Risk management Environment, Internal Control, Risk Culture