Risk culture insights from annual reports: a big six South African banking group study

Abstract

This exploratory study investigated the insufficiently researched topic of risk culture insights from annual reports by addressing the fundamental question: How useful is annual-report-based risk-related information for assessing the risk culture maturity of the big six South African listed banking groups? This is a significant question for banking group (bank) investors, depositors and other commercial stakeholders without direct access to company senior management and internal risk information. This study provides a method to identify inappropriate risk management behaviours and practices that may subject stakeholders to exposures inconsistent with their return objectives and risk tolerances. By undertaking a qualitative document analysis of banks’ integrated and other publically available annual reports, risk-related data were benchmarked against the Financial Stability Board (FSB) framework for assessing risk culture. This study concludes that information presented in annual reports could be only partially linked to the FSB risk culture principles. Thus, annual reports tend not to permit the effective assessment of the banks’ respective risk cultures. I therefore advocate that banks consider the research findings to evaluate and enhance the risk information in their annual reports. Furthermore, voluntary disclosure of information supporting institutional compliance with the FSB risk culture indicators in integrated reports will demonstrate commitment by banks to a sound risk culture. The investigation forms the basis for similar assessments within the financial services environment, and provides a yardstick against which risk-culture-related disclosure can be gauged. Despite its limitations, the study challenges others to add to this paper’s contribution to risk culture research.