The role of a risk manager

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Due to the recent global economic downturn and the much publicised fall of one of the world’s leading investment banks risk management has become a very high profile topic. As a result Risk Managers are in increased demand. Here we take a look at what it takes to become a Risk Manager.

Taking risk is an integral part of the banking business. No institution can function without assessing risks as its profitability is based on the ability to take and manage these risks. Even though the front office might drive revenue production, all businesses must be approved by risk.

Risk exists and banks must accept risk if they are to thrive and meet an economy’s needs. But they must manage the risks and recognise them as real. Risk matters. Whether or not it is temporarily ignored, it will eventually come out.

Risk management has tended to be most active in international capital markets and derivative activities, where given the complexity of the transaction and products, a requirement exists for resources that are able to develop sophisticated systems for measuring and evaluating risks. They needed to identify the key factors driving market volatility and to quantify the underlying risks in order to manage their positions and product lines.

Taking risk is an integral part of the banking business. No institution can function without assessing risks as its profitability is based on the ability to take and manage these risks.

Areas of risk management

Within banks and other financial institutions, risk is usually divided into three main areas: market, operational and credit risk. In managing risk, banks must decide which risks to take, which to transfer and which to avoid altogether:

  • Market Risk - are easily transferred, often through swaps and other derivative products.
  • Operating Risk - can be reduced through insurance, diversification and internal controls.
  • Credit Risk - credit risk, is fundamentally the business of banking and is the activity which most banks see as their principal competitive advantage. Typically, financial market participants have far less information than banks do about the credit quality of individual borrowers, and the terms and conditions of the borrowing arrangements are often complex and structured case-by-case.

Leading institutions around the world have made substantial progress in measuring risk in recent years. Going forward we anticipate continued focus with Basel 3 / Solvency 3 and the requirement for increased capital adequacy.

Is there demand for qualified risk managers South Africa?

Yes, plenty. A critical concern in developing a basic risk management process involves developing or attracting personnel with the skills necessary to apply risk management tools in meaningful ways.

Risk managers can expect to quickly climb up the corporate ladder to management level as they can become specialists within a certain area.  For those risk managers who want to keep their experience base broad across a range of risk functions, risk is still a growth area and at the forefront of financial services recruitment.

  • Market Risk - are easily transferred, often through swaps and other derivative products.
  • Operating Risk - can be reduced through insurance, diversification and internal controls.
  • Credit Risk - credit risk, is fundamentally the business of banking and is the activity which most banks see as their principal competitive advantage. 

Typically, financial market participants have far less information than banks do about the credit quality of individual borrowers, and the terms and conditions of the borrowing arrangements are often complex and structured case-by-case.

Leading institutions around the world have made substantial progress in measuring risk in recent years. Going forward we anticipate continued focus with Basel 3 / Solvency 3 and the requirement for increased capital adequacy.

Is there demand for qualified risk managers South Africa?

Yes, plenty. A critical concern in developing a basic risk management process involves developing or attracting personnel with the skills necessary to apply risk management tools in meaningful ways.

Career progression

Risk managers can expect to quickly climb up the corporate ladder to management level as they can become specialists within a certain area.  For those risk managers who want to keep their experience base broad across a range of risk functions, risk is still a growth area and at the forefront of financial services recruitment.

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For more career advice please contact:

Lance Maree, Associate Director
lance.maree@robertwalters.com
+27 (0) 11 881 2407

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