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Human resource, operational risk top areas of banking

Human resource is the most mobile of the four factors of production and under right conditions it improves with age and experience, which no other resource can do. It is, therefore, regarded as the scarcest and the most crucial productive resource that creates the largest and long-lasting advantage for an organization. To achieve its objectives, any bank undergoes one of the most important processes, which is Strategy Formation. The importance of Strategy Formation is such that it is the business of the Chief Executive of the bank and his senior colleagues, backed by strong analytical support. This process covers very important areas and human resource is on the top of the list.

With the passage of time, because of development in Information Technology, things became advanced and complex at an extremely high pace. Such changes did not,of course, remain in isolation. These changes, as a matter of fact, encompassed everything and banks were no exception. Changing environment, complex markets, development of different financial instruments and cut-throat competition compelled the banks to realign their business strategies, on a do-or-die basis. Thus, banks tuned themselves accordingly to meet the market challenges, with the result that their organizational setup, systematically, kept on becoming complex. The morecomplex the organization, the moredifficult it is for humans to manage it.

In Pakistan, two major events had a great impact on the banking industry. One was the nationalization (1974) of banks and second privatization process (1992), when quite anumber of banks were established in the private sector. Dimensions of this impact were enormous but the worst affected asset was none other than the human resources. Staff behavior, quality of service, quality of loans, sense of responsibility among the staff, branch environment (working culture), staff training and grooming etc.were the long-term damages done to the combined workforce. On the other hand,the global developments made the challenges more severe.

Newly established banks in the private sector had market entry-level challenges and human resource was one of the major challenges; especially, at the time of recruitment of staff. Recruitment itself was a sensitive matter for them but high on the scale of sensitivity was to evolve a working culture, for the utmost betterment of the bank. After privatization, one of the nationalized banks adopted a well-thoughtout policy in this regard. They initiated a three-tier process: Firstly, recruiting fresh graduates as Trainee Officers; secondly, fresh graduates from the prime business schools were inducted as Management Trainee Officers; and finally, they inducted senior/mid-level bankers from other banks. This staff-mix further integrated with the existing members of staff. Although, there were some negligible rifts and resistance but at the end of the day, this evolved altogether into a new culture which enabled the banks to grow enormously.

 

As a result of privatization, for some years the banking industry witnessed a very high number of switchovers. Quite a number of workers have been exposed to different working environments/cultures, that may enhance or reduce the staff-turnover, which is yet another barometer to gauge the environment and HR policies of the banks.Just like banks’ field officers deal with external customers, employees are to be dealt as internal customers of the bank by their management. Another equally important issue for the newly appointed, as well as existing employees, is their placement in branches and different segments of the bank. It should be done keeping the profile of the employee in view.

Operational risk

After some disastrous events and financial upheavals worldwide, the area of risk management came into limelight. The topic of operational risk is of utmost importance to the banks, globally. Operational risk is defined, broadly, as the risk of loss due to failures in people, processes, systems or external events. It can also take the shape of many other risks, in particular, regulatory and reputational risks. It can also include other classes of risk; such as fraud, security, privacy protection, legal risks etc.Operational risks affect client satisfaction, reputation of the bank and shareholder value. Moreover, they are not diversifiable and cannot be laid off; meaning that, as long as people, systems and processes remain imperfect, operational risk cannot be fully eliminated

Operational risk has the potential to become a very costly risk for those banks who are not equipped to deal with it.Unfortunately,the general attitude is that the most safety activities are ‘reactive’ and not ‘proactive.’ Many organizations wait for losses to occur before taking steps to prevent a recurrence. Operational risk, nonetheless, is manageable so as to keep losses within some level of risk tolerance.

The writer is a Karachi based freelance columnist and is a banker by profession. He could be reached on Twitter @ReluctantAhsan

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