Risk Management in Commercial Banks

With the development of economic globalization, commercial banks are facing unprecedented development opportunities and challenges. Although some achievements have been made with the reform of the financial system and the change of the banking system, commercial banks, as a high-risk industry and engaged in the operation of monetary business, still have many problems. In order to realize long-term sustainable development, it is necessary to do a good job of controlling their own potential risks and take practical measures to prevent bank risks. The article analyzes the current stage of risk management of China's commercial banks through the observation of the status quo, puts forward the problems and deficiencies in the risk management of commercial banks, and puts forward the corresponding improvement methods and countermeasures for the risk management of commercial banks.

Introduction to commercial bank risk management

From the birth of commercial banks to the present operating history, its revenue and risk is always a pair of twin brothers *** companion with the existence of commercial banks. Earnings is the goal of commercial banks, but the risk is the price paid by commercial banks for the pursuit of earnings, for the pursuit of higher earnings must bear higher risk, if you do not want to bear the risk, you can only get an average earnings. Therefore, how to better prevent and control the risk in the process of the pursuit of earnings, in the history of the development of commercial banks, has been a commercial bank managers have to spend a lot of energy but have to be taken seriously at all times.

First, the connotation of commercial bank risk

Understanding the connotation of commercial bank risk is the basis for understanding the risk management of commercial banks and establishing a sound risk management system for commercial banks. The current theoretical definition of risk, there are some main views:

(1) risk is the uncertainty of the outcome;

(2) risk is the likelihood of loss, or the possibility of loss;

(3) risk is the deviation of the outcome from the expectation;

(4) risk is the change that leads to loss;

(5) risk is the danger of injury or loss. It can be seen that the theoretical community has not yet reached a consensus on the concept of risk, and there is no uniform definition. The above explanations of risk from different perspectives reveal some of the intrinsic characteristics of risk.

Comprehensive analysis of the above definitions and comparisons, the author will be the definition of risk: risk is the actual results and the expected results deviate from the loss of a kind of uncertainty. Banks belong to the high-risk industry, so its risk can be narrowly understood as the deviation of the actual earnings and target earnings, but also can be broadly understood as the deviation of the operating status quo and development goals. The author believes that the so-called commercial bank risk refers to the possibility of economic loss incurred by commercial banks due to the existence of various uncertainties in their operations. Banks are a business risk industry, any risk in business operation is inevitable. From the point of view of the object of operation, commercial banks are operating monetary funds, rather than a variety of material commodities with value of use, therefore, the commercial banks are facing a variety of risks are directly manifested in the risk of loss of monetary funds. The existence of risk is not terrible, the key is to find ways to control the risk. For banks, the usual risk formula is: business inherent risk - controllable risk = residual risk. Obviously, the stronger the ability to control risk, the greater the amount of risk being controlled, the smaller the residual risk. Therefore, the main task of the bank is to accurately measure the risk, soberly know where the risk is, monitor the risk in a timely manner, and manage the risk effectively.

Second, the problems in the risk management of commercial banks

1, the risk management system is not perfect.

Although the governance structure of commercial banks can be established but not perfect, the operation is not standardized, the property rights system is not perfect, the lack of effective incentives and constraints, these institutional weaknesses make the commercial bank risk control and management capacity is poor. In addition, the implementation of effective risk management required by the legal system and market control mechanisms also need to be further improved.

2, risk management understanding is not in place, risk awareness is weak.

At present, domestic commercial banks do not have the knowledge and understanding of risk management in place. China's commercial banks are generally only concerned about the expansion and development of business volume, the blind development of the risk of business in the existence of insufficient attention to risk awareness is weak. The vast majority of bank employees believe that risk management is the business of the risk control department and has nothing to do with themselves; most business personnel wrongly place the importance and management of risk on the opposite side of their work, believing that controlling risk and reducing business volume are the same thing without closely linking risk and profit; part of the risk management staff lacks understanding of risk management, simply believing that risk control means reducing Some risk managers have a poor understanding of risk management and simply believe that risk control means reducing business volume, taking the wrong and extreme approach of simply reducing business volume to avoid the responsibility of taking risks.

3. Risk management techniques and tools are backward.

Commercial banks credit risk management has used the customer credit rating system and credit asset classification system, and independently developed a small business rating model and other technical tools, but the quantitative . The level is still to be improved. Operational risk management and market risk management technical tools are still blank. The risk measurement of international banks relies on basic data, and internal ratings are relatively complete, while external rating results from intermediaries are also drawn upon to help realize credit decisions. Compared to the international advanced level, commercial banks' risk identification capabilities are relatively weak, both in quantity and quality, compared with the international advanced practices, there is a gap, the main judgmental credit decision-making still dominates.

4. The business risk of the bank expands due to improper operation.

Firstly, due to the competition brought by China's non-bank financial institutions in financing methods and the massive entry of foreign banks into the Chinese market leading to fierce competition in traditional business and declining profits, many commercial banks give up the principle of prudent operation and achieve higher returns through the development of high-risk business, which has increased the risk of operation. Secondly, as the operational risks of banks under the traditional system are entirely borne by the state, some banks mistakenly believe that they can expand without capital, thus emphasizing scale over efficiency, and their operational efficiency cannot be improved in tandem with the expansion of their asset scale, thus making the large-scale existence of businesses that jeopardize the long-term development of banks. In addition, the poor quality of some bank employees, the corruption of leading cadres and the bank's internal supervision and preventive measures are not effective, but also led to the increase in non-performing credit assets, so that the bank's business risk is further increased.

5, the lack of risk management personnel, human resources reserves are not enough.

Risk management is a comprehensive discipline that covers not only management, finance, economics, statistics and other social science knowledge, but also uses systems engineering, physics and other natural science research methods. Therefore, risk management requires high quality of personnel. At present, due to China's commercial banks long-term insufficient attention to risk management, risk management awareness is weak, both in the commercial banking sector or in the higher education population, engaged in the commercial bank risk management personnel quality with the western developed countries commercial banks there is a gap, which has become a constraint on China's commercial banks risk management ability to enhance the important factors.

Three, under the new situation of commercial banks to strengthen the risk control strategy proposal

Commercial banks currently have many problems and deficiencies, how to solve these problems, so that the bank risk minimization, to improve the bank's ability to withstand risk and competitiveness, has been urgent.

1, sound risk management organization system, to achieve all-round, whole process risk management . At present, China's commercial banks should take advantage of the restructuring and listing of the opportunity, according to the changes in equity structure, the establishment of a comprehensive risk management system in line with their own strategic positioning, and gradually formed by the bank's board of directors and its senior managers directly led by the independent risk management department as the center of the internal risk management system closely linked with the various business sectors. The board of directors, as the highest decision-making body for risk management of the whole bank, is responsible for the overall strategic decision-making on risk management and has the ultimate responsibility for the bank's risk management; the independent risk management department implements vertical leadership, specifically implements the comprehensive management of the bank's risks and promotes the construction of the risk management system. At the executive level, it is necessary to change the previous administrative management mode of commercial banks, realize the business process-centered management system, and gradually set up separate risk management positions in business departments to effectively control the source of business risks, and the business supervisors and business managers of each department are responsible for their business risks, so that risk management can be extended horizontally, and management can be carried out vertically to realize the flattening of the management process. At the same time, China's commercial banks should actively learn from the organization mode and operation experience of large international banks, accelerate the construction of corporate governance structure, introduce strategic investors, establish the organizational structure with clear boundaries of rights, responsibilities and interests, and establish the operation mechanism and management system with standardized operation, scientific management, strict internal control and high efficiency, accelerate the institutional reform and transformation of the mechanism, and improve the risk prevention ability and internal control level. The company's management system will be more efficient and more effective.

2. Improve risk management awareness.

Because risk is unavoidable, banks need to face up to the existence of risk, through the effective management of risk, to achieve the purpose of controlling risk. Risk management awareness should be integrated into the entire bank and every employee's heart, that is, every employee of the bank in every business must always keep in mind the risk factors, and will be the risk compared with the awareness of the benefits of the heart, at the same time a clear understanding and understanding of the control of risk and the creation of benefits is equally important. In order to achieve this goal, the company's management at all levels needs to add the concept of risk management to its business philosophy, and at the same time design a scientific incentive and constraint mechanism to extend the effect of benefits to the long term, so as to ensure that the risk management culture is effectively carried out and implemented.

3. Establish a macroeconomic early warning system.

(1) Increase the study of the national macro policy and economic situation, from a strategic height to determine the direction of the focus of the bank's business. Banks in addition to normal business operations and risk management, should serve the decision-making level of the specialized agencies, research the country's fiscal policy, monetary policy, industrial policy and other macro-policies, analyze the macro-economic operation, grasp the policy orientation of the financial regulatory authorities, put forward the key areas of business development of the commercial banks, industries, and try to avoid the policy risk caused by the conflict with the policy of the state or regulatory authorities.

(2) Establish a forward-looking risk management system. The risk management of joint-stock commercial banks should not only focus on the current risks of assets or projects, but also assess the future risks and establish possible countermeasures. In other words, the risk management of joint-stock commercial banks should be forward-looking, which should not only see the immediate risks, but also predict the future risks.

4. Strengthen the construction of risk management culture and enhance the awareness of comprehensive risk management.

Numerous examples show that the establishment of a scientific concept of risk management is more important than identification and risk assessment. In the case of many international financial institutions failing due to improper risk control, the reason is often not due to the lack of risk control mechanisms, but mainly because of the weak risk management awareness of its practitioners. Therefore, it is crucial to establish a scientific risk management concept and create a strong risk culture from top to bottom. Cultivating a risk management culture on the one hand should improve employees' concept of the rule of law, so that compliance with the law and strict implementation of internal control systems become the conscious actions of employees, enhance self-restraint, and strengthen the foundation of risk prevention; on the other hand, through extensive risk education and emphasis on business risk estimation to cultivate the sensitivity and understanding of all personnel to risk, so that each employee recognizes the possible dangers in their own workplaces, is always on the alert, and develops a sense of risk in accordance with the rules and regulations. The company is also committed to providing a safe and secure environment for its employees, so that they can be aware of the dangers that may exist in their workplaces and be vigilant at all times.

5. We need to innovate our products and services according to the needs of the market and the enterprise.

In response to the crisis, enterprises will have new needs, new service tools and new product requirements, which should be an important period for commercial banks to innovate. Historical experience tells us that after every crisis, a large number of innovations emerge, forming a peak period of innovation development. Commercial banks should innovate their business models, products and services in a timely manner according to the new needs of enterprises, improve their service capacity to enterprises, meet the new needs of customers, and expand their customer service capacity at a new level. This is an important measure and positive attitude to cope with the crisis, and an important foundation for future development. However, innovation must be based on the premise of risk control. All innovations, including institutional innovation, system innovation, business innovation, product innovation and process innovation, are based on the premise of effective risk control, and should be sufficiently prompted to risk, effectively establish operation and management risk policies, prudently formulate business risk policies, sort out operation and management processes, and all emerging businesses and emerging products are based on the premise of prior risk demonstration, so that risk The company has been able to keep the risk level in a controlled state.

6. Cultivate professional risk management talents.

Because of the high quality requirements of risk management personnel, China's commercial banks need to form their own risk management organization system in accordance with the requirements of the planned and targeted training of various types of risk management professionals, so as to establish a high-quality professional risk management team. In the selection and training of talents, it can be used to formulate personalized training plans, organize regular training, and screen through the written test, combat and other forms to leave the more outstanding talents. The training program is not only for the middle and lower management, but also need to cover the senior management, especially the management of risk management decision-making authority, so that China's commercial banks from top to bottom of the quality of management personnel to be comprehensively improved, so as to comprehensively improve the identification of China's commercial banks, the ability to resist risk.

In short, commercial banks to enhance risk management ability, improve risk management level, improve the risk management system of commercial banks is not a one-stop thing, is a long-term major far-reaching difficult task. Only by combining the market environment of the bank's development, improving the awareness of risk prevention, and improving its own management mechanism, can commercial banks avoid losses.