Risk Management in the Oman Banking Industry - Bank Muscat - Case Study Example

Student Name Tutor Title: Risk management in the Oman Banking Industry. Case Study: Bank Muscat. Institution: Course: Date: Bank Muscat, Case Study: Risk management in the Oman Banking Industry Background Bank Muscat is the major provider of financial services within the Sultanate of Oman. Bank Muscat has assets worth over $15 billion and has largest network within Oman with over 130 bank branches, 386 ATMs, 131 CDMs in addition to 4500 Pos terminals. The worldwide operations include a branch within Riyadh, Saudi Arabia and Kuwait. In addition, the bank has an envoy office within Dubai, UAE. At present, Bank Muscat owns 49 percent of BMI Bank, which is an independent bank within Bahrain. Bank Muscat additionally owns a 43 percent within the Mangal Keshav Group, which is one of the oldest and most stable securities houses within Indian equities market. The bank also has 97 percent within Muscat Capital LLC which is a brokerage and investment banking firm within Saudi Arabia. Bank Muscat has been voted the “Best Bank within Oman” for seven years consecutively. In addition, in 2009, the bank received Hewitt recognition as the Best Employer in Middle East. Within 2004, the bank became the first one within the Middle East to get a full ISO 9000:2000, certification (Oxford Business Group 2010). The major customers of Bank Muscat consist of domestic and international organizations involved within undertakings across all economic sectors like contracting, oil and telecommunication. The bank has invested within state-of-the-art technology in order to offer a variety of value-added personal banking products and services to clients. At present Bank Muscat provides an all-inclusive suite of outstanding e-banking channels, counting Online Banking, 24/7 Call Centre, and the leading system of ATMs and CDMs within the Sultanate. The bank also plays an important function in developing Investment Banking and Treasury within Oman. Bank Muscat has an investment banking department that offers an all-inclusive set of financial services including, corporate finance, product structuring, brokerage and research as well as a collection of treasury products. On the other hand, the department of asset management provides portfolio management, custodial in addition to accounting services. The department also carries out structuring, marketing and management of new funds within different asset categories. Furthermore, Bank Muscat has a private banking department which has a renowned record within banking and wealth management. It is involved in maximizing investment and helping in structuring funds to meet the customers’ expectations (Oxford Business Group 2008). Vision statement "Over one million satisfied customers by 2010 through continuous enhancement of stakeholder value". Quality policy Bank Muscat’s quality policy is to attain and maintain repute for quality within national and also global markets through providing products and services that go beyond the needs of its clients. The bank strives to continue being the first choice bank within all its products and services. Goals of Bank Muscat To establish and maintain a quality management system within the bank, basing on global quality standards To constantly review its products and services, worker’s feedback and its clients to make sure that there is constant progress To provide its customers will high-quality service, innovate products as well as value-added banking and at the same time develop a mutually valuable relationship with its clients To demonstrate vision, professionalism transparency and integrity within its business undertakings To achieve disciplined development and practical profitability whereas operating on a rational financial foundation To create value for its shareholders To encourage, motivate and develop its human resources which is one of its most important asset as well as the foundation of the bank. To work towards the effective implementation of government goals pertinent to Bank Muscat To strive towards and maintain the best position within the banking industry in Oman Risk Management Assets & Liability Management Because of the extreme competition that involves the assets and liabilities and also the rising volatility within the local interest rates and foreign exchange rate, the banks have been pressurized to sustain a high-quality balance among spread, productivity as well as long-standing feasibility. Basically, ineffective Asset and Liability can risk the profitability and reputation of an organization. As a result, Bank Muscat uses its Asset Liability Committee (ALCO) to assess and monitor several risks that the bank is exposed to which include, Liquidity Risk, Interest rate risk as well as Value at risk. The bank also enters into several derivatives such as IRS, FRA for management of these risks. In addition, Bank Muscat makes use of stimulation reports to as an efficient instrument for understanding risk exposure under range of interest rate settings. These reports assist ALCO in understanding the direction of interest rate risk within the bank and make a decision on the suitable strategy and hedging means for management of the risks (Oxford Business Group 2008). Essentially, Bank Muscat believes that an efficient risk management is the foundation for sustained profitable development of banks and hence the bank has strived to create risk management as a field of central competence. The Central Bank of Oman (CBO) has played a big role in risk management of banks in Oman, and Bank Muscat is one of them. Bank Muscat follows the regulatory guidelines provided by CBO, banking supervision and also planned investment has supported the bank in increasing its financial transparency, enhanced risk measurement as well as reporting will all major risk fields of banks and this includes, credit, market, liquidity as well as operational risk (Sherriff 2008). Bank Muscat has put into practice Basel II agreement because the management of the bank acknowledges that risk management in banking has evolved because of initiatives by banks as well as because of the fast evolving economic setting within the world as hence Bank Muscat has always adapted its risk management processed within the latest risk management strategies to provide unprecedented support to the bank which is extremely important within banking industry (Hassan 2007). Risk Framework and Structure Bank Muscat has a Board Risk Committee whose role is to oversee the risk management function and to give proposals to the Board of Directors on the risk-reward strategy, risk appetite in addition to policies and strategy of managing all risks pertinent to Bank Muscat. The Board assesses and endorses the risk management strategy and describes its risk appetite. Generally, the major roles of Board Risk Committee in Bank Muscat include: Formulation of risk policy comprising of credit, market and operation risks with the aim of accomplishing the strategic goals of Bank Muscat Ensuring that Bank Muscat maintains a high quality risk range Overseeing of risk policy implementation to make sure that these policies are in conformity to the pertinent laws and regulations Fostering of transparency as well as integrity within stakeholder reporting allied to risk assets (Bank, Muscat 2011). Risk Officers Committee (ROC) at Bank Muscat Bank Muscat formed the ROC to facilitate knowledge exchange and maintain the track of the most recent development within risk management. On 1st February 2011, Bank Muscat hosted the first conference of ROC consisting of risk officials of banks within Oman. The Risk Officers Committee was established in January 2011 at the proposal of Bank Muscat and is guided by the Central Bank of Oman as a forum for banks within Oman banking industry to gather knowledge, share expertise and also establish common solutions in risk management. The chairman of the ROC is Leen Kumar, DGM, an expertise in Risk Management, from Bank Muscat (Bank Muscat 2011). The ROC recognizes that the risk profile of different banks varies because of the differences within clientele bas, risk culture as well as the business strategy but there are common risk matters which face all the banks and therefore the exchange of ideas is of great importance. In addition, because of the environment of the most recent worldwide financial crisis and implementation of advanced risk management strategies under Basel II framework, the meetings of the Risk Officers Committee mainly focus on discussing the most recent risk management practices in order for the banks to implement them. Basically, Bank Muscat facilitated the formation of Risk Officers Committee which includes all representatives from each and every bank within Oman to facilitate exchange of knowledge and to keep track of the most modern developments within the ever developing sphere of risk management (Bank Muscat 2011). The ROC meets each quarter and matters are chosen from fields ranging from market risk, liquidity risk, and operational risk in addition to business continuity management. Risk management specialists from the Oman banking industry as well as external consultants make presentations and then discussions follow. Risk management topics that have been covered so far include internal risk rating structure for corporate exposures, internal capital adequacy assessment process (ICAAP), collection of operational loss data, capital evaluation for operational risk by using advanced approach, effect of US downgrade and European financial crisis on Omani market, stress testing for banks within GCC, recession loss given default (LGD) structure along with business continuity management. According to Bank Muscat (2011), these deliberations are important and the ROC meetings provide a chance of discussing risk management matters with the regulator, Central bank of Oman, whose representatives are invited during the ROC meetings, within an informal environment. Bibliography Bank, Muscat, 2011, Annual Report, Bank Muscat. Hassan, F., 2007, Oman Banking Sector Report, Global Investment House, Safat. Oxford Business Group, 2008, The Report: Oman 2009, Oxford Business Group, Oxford. Oxford Business Group, 2010, The Report: Oman 2009, Oxford Business Group, Oxford. Sherriff, A., 2008, Gulf Business, Volume 12, Issues 9, Indiana University, Indiana. Zubair, A., 2007, Islamic Banking, IMF Occasional Paper, International Monetary Fund, Washington. Read More