Decentralization of Risk Department. An Opportunity or Challenges for Organization:-

Decentralization of Risk Department. An Opportunity or Challenges for Organization:-

Credit risk refers to the probability of loss due to a borrower’s failure to make payments on any type of debt. Credit risk management is the practice of mitigating losses by understanding the internal ( Bank PPG,CPG, Policy) and external environment ( NRB Guideline, Business Inspection, etc).

Looking at Context of Nepal, As per NRB Guideline- Every Bank has to open its Province office in every State. As per the guideline, Bank has followed the practice of decentralization and has opened its Province Office in. Beside it, delegation of Authority (Risk department, Operation Department and CAD to Province head has also been given).

As provincial risk system is one of the new practices for many banks, following problem has been observed in provincial risk system.

1.      Controversial Role of Marketing / CAD authority to single person: - Marketing and CAD are two opposite Role given to One Person . Marketing Role says to enhance business loan (Increase figure) and CAD role says to Control Role (Approve Loan by fulfilling all term and Condition).

If we look towards, todays Nepalese Banking practice. Some banks have gone from centrally CAD system ( I.e. Separate file approval is done from Kathmandu/ Central system) , while some branch has gone for decentralization CAD system.

It has been observed todays Banks are giving unnecessary target to various Province / Branch. So to fulfill the target (to do business), figure are been given more importance rather than CAD.

We can take another example also if province head / BM has integrity issue problem also, the credit decision may biased. So, Management should think for this what authority to give to single person (Marketing or CAD or both ).

2.      Attitude / Knowledge / Skill of  Approving Authority in Province System :-

It has been observed after the formation of province Structure, Senior Person who is working on the province as BM has been given promotion to Province Head. Beside it Province head who are already working (Without CAD) are also engaged in marketing. So the attitude/  Knowledge formation of both type of person is towards marketing skill is observed (BM promoted to province head and Existing province head to whom CAD is not given), they both have marketing Skill rather than CAD skill.

As we know Marketers always need Business (Figure), however CAD needs controlling. A person who has been given responsibility of CAD and Marketing has itself opposite relationship. 

As Business has to increase Figure as per the target assign to them, pressurize can be given to Risk to review the file in urgent basis by considering risk / compliance part.

So if Bank want to assign Marketing role / CAD role to single person, Attitude/ Knowledge / Skill towards CAD Skill should be developed (About process and method to review Credit file, Attitude, Skill ) by keeping Head office under Experience Mentor.

3.      Knowledge of Province Head / Business Unit towards Credit / operation department :-

As Nepalese Banking are moving towards Decentralization of Authority. Province Head are been Assigned. Generally it has been seen some Staffs are expertise in Operation and some are expertise in Credit. So Staff who are expertise in Operation department is kept as Province head (CAD of Credit Risk is Assign to them),  it may have direct Impact on  Credit Review Process. (Experience sharing can be taken from those who are working as Province head having operation back-ground).

4.      Layout: - Layout is one of the important factors which is affecting in proper assessment. In Head office separate Department is setup for Risk and there is some distance between Risk Department and Business Department. While Province office is setup in Small area, all departments are closely attached ( i.e Business , CAD, Risk, Operation, etc) are under same roof. Due to which if Business Department needs file on urgent basis, frequent pressure can be given to Risk (Continuous follow from Business to review file on urgent basis). This kind of behavior may impact in proper assessment of fie.

5.      Credit Chain Structure: - Proper Credit Chain Structure should be design for file review. It impacts a lot in Credit Review Process.  For this two Responsibility (CAD and marketing) to be given or not it should be discussed.

Example :-  (In One Bank, CAD was been given to Province head but later Cad authority was been given to head office only). Experience sharing can be done from various banks.

6.      Assign of Business Department  ( Expert Credit Officer in Province office):-

Business Unit should also be set in province head (Expert Credit Relationship officer to correct file).

It has been seen New Staff Hiring, frequent turnover of Staff in branch, change in banking culture creates problem to business/ branch to make and understand credit proposals.  So if Expert Officer are hired in province office, it might be helpful for the branch and staff. This expert Credit Officer can make tough proposal by sitting in province office, review proposal send my branch and even if there is scarcity of manpower they can be alternative sources to make / review credit proposals for branch. Beside it they (Expert Credit officer) can also guide/ provide training can also be given to fresher regarding Credit process.

 If Branch make any credit file at first it should be forwarded to Business Unit, this Unit will review the file once (About further Clarification/ Correction/ What point to include, / What not to include of file/ verify necessary document), and if file is properly reviewed from Business team further Risk function will only to Review file (Regarding Risk Part) and if less mistake is observed ( Process will be  fast and approving authority will not get hassle). 

7.      Mental Fair of RA. ( To whom RA is in Direct Touch)

As RA Job is for controlling and Business Job is to enhance figure, both opposite department are under same roof.

Although line manager of Risk Analyst is formed with Risk Head ( Central Based) but also in province structure, behaviorally it is observed the immediate line manager of risk is Line Manager who is in regular touch.

For example :- If CAD is given to Province Head , after Reviewing file from Risk , file will be forwarded to Province Head ( In behavioral Risk has direct touch with Province head ( Business) , than the  Line Manager of Risk who is sitting in Head Office).

So one kind of fear (Transfer from Job, Convey of Negative information to Business Unit) may always remain in the mind of Risk if strict compliance or assessment is done. Beside it, province head has good relationship with top body / level of Head office, So Head office shall listen voice of Province head (Top Level Staff) more than Risk (Lower Level staff). So top level management should be tactful for this kind of problem.

( For this I want to give example of one lesson written by BP Koirala – Doshi Chasma studied in class 9 Nepali Subject ),it will helps to understand phycology of lower level staff.

8.      How Many file to review in a day from Single file :-

If number of file to be reviewed is set up per day from top approving body, than no one can give informal pressure to Risk. Generally every branch needs every file in urgent basis. So after sending branch file to risk at late hour , they may need file review on same day (Or within hour).  As more the time gets passed ( In evening time) , the mind of Risk gets hang ,eye gets pain as they have to study file and have to see all documentation part closely. But this phycology has not been understood by business or concern authority.

(Note:-File gravity may varies. Sometime corporate file are there which takes time and microfinance file don’t take time. This things to be discussed).

9.      Problem in Knowledge Sharing / Problem Due to Fresher Risk Analyst (RA).

Sometime Risk Analyst may have confusion on some points. In this case, he needs to communicate/ ask query with senior (Risk Head). As many Risk Analyst has been assigned under one risk head and also other function is also assigned to Risk Head. Problem regarding proper communication and knowledge sharing lacks.  (Generally for some Urgent basis file). Also nature of RA also impact in proper communication (Extrovert nature, introvert nature, shy, fear nature)

Beside it fresher RA can get problems in many points of Single CA. So frequent call may also needed to ask with Risk Head and if Risk Head do not show proper behave, busy with other work, proper assessment may get affected as well as delay in process can occurs.

So while Hiring Risk Analyst in Province Office One Experience RA and One Fresher RA should be kept / hired due to which knowledge sharing as well as Personal development can be done.

10.   Problem of Single RA

For Cost Cutting organization wants to keep less staff. But it has been observed if one days also one RA takes leave (Force leave, Illness, Social function), process become late. Although the file can be reviewed from head office too, Head office staff are also busy to review their assigned work. So at list two RA should be assigned in one province office so that process can go fast and RA Can also enjoy holiday.  Beside it Knowledge sharing can be done among staff and if one staff leaves the organization ( if new opportunity is found, there is another backup for organization too).

11.   Attitude of Risk Analyst

       What kind of Attitude One RA should to Business? It is an undefined question. Some RA are easy in nature and some has rude nature .Since if RA behave in easy way, Business thinks RA is easy person and they try to give indirect pressure to forward the Credit File. If attitude of RA is strict one, they complain with Business to change RA ( RA is showing Attitude, he should be kept in Branch so that he will know actual problem face by all). RA should be flexible with Business or not ?,  Since Business team don’t show empathy theory on work. Also in province risk system, RA is almost familiar with all BM/ RO (Direct relationship) , So RA  cannot speak rude or emotionally he becomes weak. For this Business Head should also groom to Branch Manager / RO regarding development of Soft Skill and formulate empathic nature on themselves.

Although above mentioned points are some challenges (Problem) faced however due to provincial risk system, following benefits/ Opportunity are also seems.

1.      Huge Increase in Business and Change In Process Mechanism:-

Due to provincial risk system, Almost business (Loan Figure) seems hugely hiked - Synergy Effect in business growth is Observed in those bank who has adopted this concept.

2.      Fast in Process :-

 Looking at the Credit Review process (Almost file are reviewed in 2-3 hours or in single days). Process problem from Risk is not seen due to Provincial Risk System. 

3. Close Monitoring of Business:-

As Risk department is opened in Province, RA can also observe, view the business site/Unit from his own eye .It helps to credit chain authority to crosscheck the business. But one thing is Business should provide travel facility (Car in province office).  Also Management should also provide clear figure or provide authority (How much figure loan , Risk have to compulsory visit to Business. It may vary Province to province. Example: - 2 Crore above file Risk has to visit Business Site Compulsory).

 Conclusion:-Risk Department is one of the backbones of Business. Since it’s function is to minimized the   risk. Nothing is perfect in management but gradual Improvement is always necessary for organization productivity and effectiveness.  If the proper evaluation of above mention points is done we can improve /create huge opportunity in provincial risk system in better way and positive synergy effect can be given to organization.

 

By :- Krishna Raj Bhatta

Time :- 11.50PM ( May 27,2021) ( In my Covid Positive time)

Place :Dhangadhi