Risk Management Practices by Barbadian Banks

Abstract

Gone are the days when the banking industry worldwide was considered impregnable. Though the financial crisis originated in the United States of America in late 2007, through contagion, it affected several countries and financial systems across the globe. Indeed, many banks and other financial institutions failed, companies folded, hundreds of thousands lost their jobs, millions of dollars were provided to banks and other companies in the form of rescue packages and some governments defaulted on payments to creditors. The management of risk by banks and other financial institutions has therefore been brought into sharp focus in the current economic climate.

The primary objective of this paper is therefore to examine the various types of risk faced by banks operating in Barbados. In this regard, we seek to identify the types of risk exposures and to ascertain the nature of the management practices and techniques utilized by the banks to deal with these risk exposures. The paper also seeks to determine how the risk management practices have evolved over time.

Information was obtained via an interview survey of Senior Bank personnel in 2011. The survey covered key aspects of risk management including the importance of risk management practices, risk identification, risk monitoring and nature of risk management practices.

The main findings of the paper are: risk managers perceive risk management as critical to their banks’ performance; the types of risks causing the greatest exposures are credit risk, operational risk, country/sovereign risk, interest rate risk and market risk; there was a high level of success with current risk management practices and these practices have evolved over time in line with the changing economic environment and regulatory updates. Overall, the findings suggest strongly that in light of the current depressed economic climate, banks operating in Barbados are indeed risk-focused or might we say “risk intelligent”.