Bangkok--27 Jul--Asian Banker
Focus on large banks in Europe, North America and Asia-Pacific In a Special Comment, Moody's Investors Service highlights that there is significant room for improvement in the risk governance of many large banks. With a focus on 35 large banks in Europe, North America and Asia-Pacific the report reviews risk governance practices, covering risk committee structure and frequency of meetings, risk committee composition and the existence, reporting line and status of the Chief Risk Officer (CRO).
"Only half of the banks we examined have a dedicated board-level risk committee covering all risks and meetings are not as frequent as we would expect. Moreover, for many banks, the actual independence of the risk committee is not adequate and/or the professional experience and background of the committee members are not fully in line with the role." says Alessandra Mongiardino, a London-based Moody's Vice President -- Senior Credit Officer and main author of the report.
The report also notes that whilst most banks have a dedicated CRO, there is still a minority of institutions where this is not the case. "For those banks that do have a CRO, not all report to the CEO. A joint reporting line of the CRO to the CEO and the board, consistent with best practices, occurs in only three banks" adds Mongiardino.
Moody's believes that strong checks and balances to a financial firm's management, provided by the board, are an important rating consideration. The quality of a financial institution's risk governance is a main input in the overall assessment of a firm's risk management, representing one of the qualitative factors (incorporated in Moody's methodology) with which to assess stand-alone financial strength of banks and other financial institutions.
Moody's expects to see a strengthening of the risk governance of large financial institutions in the near-to-medium term, and will monitor this closely; in particular, the rating agency will look for any loss of momentum once the global financial crisis starts easing. Moody's notes that its analysis is company-specific and considers the appropriateness of the changes in the context of the business model and the risk profile of each bank. The rating agency also observes that weaknesses in risk governance -- if not adequately addressed -- will continue to exert downward pressure on ratings in the current environment, and could constrain upward rating movement after the current financial crisis subsides.
The report -- 'Risk Governance at Large Banks: Current Status and Credit Implications' -- can be found at www.moodys.com
--www.theasianbanker.com (July 27 2009)--