Banks in Sri Lanka must look at viable ventures with the changing economic environment. There will be many co-lateral opportunities with the end of the war, Risk Management Associates, India, Managing Partner Prof. Satish Shinde said.
He said Sri Lankan banks are more security oriented, may be because of the conflict in the past and the high cost economy.
But the situation is changing now with inflation coming down and reduced bank rates .
However, he said Sri Lanka should look at new export markets as it has a very small local market unlike India. Dr. Shinde was speaking at the international seminar on the Internal Capital Adequacy Assessment Process and Supervisory organized by the Centre for Banking Studies.
Giving an introduction on risk management in banks, he said banks are high risk players due to the unusually high leverage and hence they are highly regulated all over the world.
Bank is a risk not only for itself, but also for all others in the market .
Risk is a chance of unfavourable deviation from the expected because when the banks give loans to somebody they might not re-pay those loans.
Also risk is less visible and less tangible unlike income or returns. Hence it is not easy to capture, measure and manage risk. On the other hand the biggest risk to a bank is not taking any risk.
Prof. Shinde said the underpricing risk and trying to attract more risky businesses by American Banks was one reason for the recession.
This should not be done and at the same time over-pricing risk and driving business away also should not be done, Shinde said.
Elaborating on measurement of risk he said that modern statistical tools and techniques help in measuring risks through various models which help in minimizing error of judgement, if not elimination of error. However, models may fail when intangible factors are predominant.