Do operational risk and corporate governance affect the banking industry of Pakistan?

Abstract

Purpose – Due to increase in operational risk, banks are facing huge losses. In order to avoid losses, banks need to manage operational risk. This study aims to analyze the impact of operational risk management (ORM) processes, which include identification, assessment, analysis, monitoring and control in the presence of corporate governance (CG) that can also contribute to effective ORM practices. Design/methodology/approach – Operational risk management processes are used to manage operational risk along with CG. Primary data are collected through questionnaire from (167) operational risk managers of commercial banks. Multiple linear regressions has been run to analyze the data. Findings – Results indicate significant impact of CG and operational risk identification (ORI), monitoring and control on ORM practices in commercial banks of Pakistan. Originality/value – The study suggests policy makers to improve the ORM framework by CG. Beside this, in order to lessen operational risk, proper identification, monitoring and control of operational risk could also contribute.

Keywords

• operational risk management
• basel accord
• sbp
• corporate governance