A critical assessment of operational risk management in Nwabiagya and Amansie rural banks

Abstract

The primary objective of the study was to critically assess the operational risk management in Nwabiagya and Amansie Rural Banks. The study was descriptive and explanatory in nature. Structured questionnaire was used in soliciting for primary data from staff of the selected banks. Convenient sampling technique was used in selecting 90 staff in all. Data analysis was conducted using frequencies, percentages, mean, standard deviation, and simple linear regression model. The study concluded that, operational risk management practices had a moderate correlation with the performance of rural banks. Holding all other things constant, an improvement in the effectiveness of the risk mitigation measures, will lead to an increase in the rural banks’ performance by 44.7%, and vice versa. The risk mitigation measures used by the banks were establishing credit standards, deposit collections, staff supervision and training on risk management, adoption of advanced technology, contingency plans, collateral arrangement, security deposits, on-balance-sheet netting, diversifying operations to reduce the impact of any single risk, and risk reporting. It was recommended that, rural banks and even the entire banking industry should invest in advance technologies that could be used to simulate decisions and know the potential outcome, and how that could affect banking operations. For example, there could be software that would determine the level of credit risk based on some well-defined client characteristics.