Middle Eastern risk managers striving for independence

Regulators in the Middle East are saying that board members need to have a greater awareness of risk skills. However, there is an ongoing debate about how best to achieve more independence for risk managers including the question of whether or not chief executives or chairmen should be part of the risk committee. Some fear that such involvement presents a conflict of interest. "I don't think so," said Joseph Montalto, EVP Group Chief Risk Officer (CRO) at UAE-based Al Hilal Bank. Although the bank has a policy of not allowing the chairman to sit on the risk committee, the deputy chairman is a member of the audit committee. In addition there is a rotation policy for these committees. "It comes back to personality and having a balanced view between strategy and risk," said Mr Montalto. "When the bank's strategy is presented to the board, it incorporates risk appetite and tolerance."hideThe CRO has significant authority and a veto on certain committees including the credit committee, said Mr Montalto, who also stressed the importance of risk-based training for board members. "Risk appetite and key performance indicators (KPIs) go hand in hand with training. Board members need to be fully aware of what the KPIs are and how they relate to the risks that are being taken. We have recently revamped our HR policy so that all new employees must take the tests set by their departments. Some of the large banks are very complex and you cannot expect a CRO to see all of the risks. Al Hilal Bank is much smaller and there is always a risk opinion in every decision the bank takes," he said. In the Lebanon CROs have to be approved by the Banking Supervisor, said Gerard Rizk, Group Chief Risk Officer at Lebanon-based Blom Bank. The relationship between board members and the CEO is also addressed by the Banking Supervisor. Although it is still possible to have board members that know the CEO, this is starting to change and there are more directors without such ties. There has been change but it will take some time to fully evolve, said Prasant Shakar, Chief Risk Officer at UAE-based National Bank of Fujairah. "We have seen a number of banks where the governance structure has changed and the CROs have more independence. Banks in the west may be ahead of us but I am positive that the change will be ongoing and risk managers will gain more independence." The relationship between board members and risk managers was further discussed by a number of chief executives of Middle East-based corporates, including Yasser Faisal Al Sharif, board member and CEO of Manafea Holding Company in Saudi Arabia. Mr Al Sharif, a former risk manager for over 15 years, stated that a risk-based philosophy is the cornerstone of success in business. "Risk management is our friend. It is where we make money. We buy and sell risk management. Risk management cuts through every formula. Risk management is the basis for everything," he said. However, said Mr Al Sharif, risk managers need to assert themselves within their respective businesses and this is best achieved through language. "Risk and business should speak the same language. It is not easy but there should be agreed terms and acronyms to help. Risk managers often wait for a crisis to speak out. That is not right. There are quantitative risk managers that use jargon. Risk should be the first line of business and to have risk and business against each other is counter-productive. Risk managers should be the fuel to take more risk. They should not be waiting for regulation to give them more support," he said.

Middle Eastern risk managers striving for independence

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