Good risk governance begins with genuine understanding of these risks, and setting the institution’s risk appetite based on objective assessment of its capability to manage them effectively. To do this, the board and management should fully understand the data and evidence that affect the institution’s risk exposures. They should ensure adequacy of capital to absorb both the foreseeable and unexpected losses.
Down the line, bank personnel also need to know the risks attendant to their operations, be equipped to mitigate, and be wary of the consequences of weak risk management. The CG fundamentals that I have cited are universal and applicable to all financial institutions. Many of our banks are diligently exercising these principles, yet many are also struggling to do so.