Risk reporting and risk-informed decision making in a South African bank

Abstract

To maintain financial stability, banks have to take risks to achieve their strategic objectives. Hence, senior managers are expected to optimise the risk culture of the bank by having a shared risk understanding, challenging risk information, effectively communicating about risks, challenging the inclusion of risk when decisions are made, based on quality risk-related information and risk management framework. Such a risk culture enables risk management by allowing managers to make risk-informed decisions. Although articles have been published on external public-disclosure-related risk reporting, no academic articles were found that investigated the nexus between internal risk reporting and decision making in banks. The objective of this qualitative interview-based study, therefore, was to explore the perceived contribution of internal risk reporting to risk-informed decision making by senior managers. Risk culture and risk reporting supervisory documents were used to identify study-related themes that were then used to code the interview data. Thematic categories of ‘what’, ‘how’ and ‘contribution’ was identified to explore the contribution of risk reporting to risk-informed decision making. The findings indicate that senior managers had a positive view of the internal risk reporting risk culture, in that they appreciated the value of risk-informed decision making. Common themes that emerged from the interview data is that the report is too voluminous and is not structured in a way to may it simple to use for decision making. The information was also perceived to be backward-looking and thus is not as useful for decision making. Reports must not be too high level or too much detail. A gap was identified for further research on ‘why’ internal risk reporting is critical in decision making. Notwithstanding, the limitations identified in this study there is further opportunity to expand and contribute to the academic body of knowledge on internal risk reporting for risk-informed decision making.