Risk management and the retail sector: A banking perspective
| Pages | 17-21 |
| Date | 01 January 1999 |
| DOI | https://doi.org/10.1108/eb024992 |
| Published date | 01 January 1999 |
| Author | Tansy Hepton |
| Subject Matter | Accounting & finance |
Journal
of
Financial Regulation
and
Compliance
Volume
7
Number
1
Risk management and the retail sector: A
banking perspective
Tansy Hepton
Received: 2nd
July,
1998
Halifax
plc,
Trinity
Road,
Halifax,
West
Yorkshire,
HX1 2RG; tel:
01422
334873; fax:
01422
333023.
Tansy Hepton is Head of Group Financial
Risk Management at Halifax plc, responsi-
ble for developing group policies on credit
and market risk and for advising the group
asset and liability committee and credit
committee in their decision making.
A Chartered Accountant, she estab-
lished risk management policies and
reporting in the former Leeds Permanent
Building Society and has worked exten-
sively in financial modelling.
ABSTRACT
Within a retail bank, the key risks relate to
customers and the way in which the bank deals
with them, rather than to financial markets.
This paper identifies those key risks, comments
on some implications for
organisational structure
and suggests ways in which these risks can be
managed.
INTRODUCTION
When bank risks arc discussed nowadays,
they usually highlight activity in deriva-
tives.
Prior to the explosion in that market,
the primary risk consideration would prob-
ably have been lending to property compa-
nies or third world debt. Both of these
risks remain relevant, particularly for com-
mercial and investment banks. However,
this paper looks at risk from the viewpoint
of the retail banking sector, one which has
grown particularly as a result of the con-
version of mutual building societies to plc
status.
The primary concern of any plc board
should be to enhance shareholder value.
This means not just achieving current
period returns but also generating consis-
tent and growing future income streams.
Within a retail bank, the primary threats
arc:
— competitive pressure on margins and
fee income
— reduced customer franchise due to high
prices, poor service or poor reputation
— defaults on loans, particularly where
unsecured
— failure to adapt to new products or
distribution channels
— failure to manage interest rate risk,
particularly as it relates to retail
products.
These threats have been identified from a
business perspective rather than specific risk
categories. It becomes essential that business
managers and risk specialists work together
in identifying and managing risks. The
challenge is to measure, monitor and
manage all of the different risks in a cohe-
sive and complete way and, where possible,
to use risk to enhance profitability.
The list above is by no means exhaus-
tive.
Other risks, such as liquidity, business
continuity, operational, legal and regula-
Journa! of Financial Regulation
and Compliance, Vol 7, No. 1,
1999,
pp.
17-21
© Henry Stewart Publications.
1358-1988
Page
17
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