Remodeling of risk management in banking: evidence from the sub-continent and gulf

Abstract

Purpose

The main purpose of this study is to investigate the remodeling of risk management, risk-averse mechanism and the importance of Basel-III framework to cope with the current financial challenges in the regime of post global financial crises of 2008-2011 by evidences in the banking sectors of emerging economies of Bahrain, the UAE and Pakistan.

Design/methodology/approach

To ensure deep understanding in this cross-cultural study, two fold data collection techniques are used; one through distribution of questionnaires to relevant staff members and second through personal interviews of selected risk officials. Respondents are selected on the basis of minimum five years banking experience and relevant professional education of finance or risk management. Multistage sampling technique is used for data collection. To ensure the consistency from respondents, personal interviews were conducted with an interval of six months after receipt of questionnaires. Various statistical and econometric techniques were used to test the study hypotheses and to satisfy the study objectives.

Findings

Based on statistical analysis and personal surveys, research findings concluded that banking sectors of study-countries have deep concern with potential risk challenges and they are in continuous process to improve risk measurement framework in accordance with the latest regulatory obligations. All three types of banks have clear understanding of RM practices and strong relationship is observed between predictors and endogenous variables. Respondent banks of study-countries have deep attentiveness to manage all key risks and they recommend to transform existing regulatory framework including Basel-III reforms to develop a more comprehensive “one-size-fits-all” regulatory framework to cover loopholes of existing financial system.

Research limitations/implications

This study is limited to the findings of remodeling of risk management to cope with the new financial challenges for the banking sector. Empirical investigation is conducted in emerging economies of the sub-continent and gulf and evidences are obtained from the UAE, Bahrain and Pakistan. Following this research model, future research can be extended to enlarge the sample size, by including other regional countries or a comparison between eastern and western countries to make it more useful to understand the risk management strategies, minimize banking default risks and to make this significant economic sector more strengthen.

Practical implications

Respondent countries of this study are fast growing and emerging economies of the sub-continent and gulf. Results of this cross-cultural study are likely to be beneficial for credit analysts, bankers and academic researchers. Findings are also beneficial for local and international business investors while they are taking prudent investment decisions in respective capital markets.

Originality/value

This is the first comparative study to empirically investigate the RM practices and risk-averse mechanism in banking sectors of Bahrain, the UAE and Pakistan. In perspective of study-countries, a critical analysis on risk-averse mechanism and Basel-III regulatory implications is demonstrated in this study.

Citation

Raza Bilal, A., Bt. Abu Talib, N. and Noor Azli Ali Khan, M. (2013), "Remodeling of risk management in banking: evidence from the sub-continent and gulf", Journal of Risk Finance, Vol. 14 No. 5, pp. 468-489. https://doi.org/10.1108/JRF-11-2012-0074