Risk management practices at HSBC Dissertation

Risk management practices at HSBC - Dissertation Example The paper tells that managing risks is integral to the overall strategy of banks but banks fail to manage risks. Several recent incidents and events have led banks to recognize that they are exposed to significant risks apart from the traditional credit and market risks. Scholars identify a positive relationship between risk management practices, understanding risk, risk identification, risk assessment and analysis, risk monitoring and credit risk analysis. While many banks failed, HSBC is one of the leading banks that have been able to sustain the financial recession and still maintain profits. It would be of immense value to the financial sector and particularly to the banks in the emerging economies to investigate into the strategies that HSBC adopted to suit the changing business environment. With the aim to investigate how HSBC manages risks in the interest of all its stakeholders, four objectives were set in Chapter I. All the objectives have been achieved. The study finds that HSBC has a robust strategy in place to manage risks. They take a cautious approach, train their business managers, have diversified portfolios with risk-graded products, focus on emerging markets, educate their clients and maintain adequate internal control procedures. Most importantly, their international strategy helps them sustain the external environment. All their measures start much before the event or the crisis which makes it easier for them to manage the risks. They employ the latest technology and software in all their processes. HSBC manages risks both through risk aggregation and risk decomposition. They consider risk as an opportunity and because they are able to manage risks better, they can deliver shareholder value. All of these factors have made them emerge successfully in turbulent times. The study concluded with recommendations for further areas for research. Table of Contents Chapter I: Introduction 1.1 Background 1 1.2 Rationale for study 3 1.3 Research Aims an d Objectives 5 1.4 Structure of the study 5 1.5 Limitations to the study 6 1.6 Chapter Summary 7 Chapter II: Literature Review 2.1 Chapter Overview 8 2.2 Definition and the concept of risks 8 2.3 Importance of risk management 9 2.4 Types of risks and the theoretical framework applied by banks 11 2.5 Why banks fail to manage risks 21 2.6 Risk management strategies adopted by banks 21 2.7 Mitigation of risks 23 2.8 Chapter Summary 24 Chapter III: Methodology 3.1 Chapter Overview 26 3.2 Introduction 26 3.3 Data and sources 27 3.4 Justification for secondary data 27 3.5 Sample 28 3.6 Theoretical framework for the study 29 3.7 Hypotheses of the study 30 3.8 Data analysis 30 3.9 Reliability and validity 31 3.10 Ethical concerns 31 3.11 Chapter Summary 31 Chapter IV: Findings 4.1 Chapter Overview 32 4.2 Presentation of Results 32 4.2.1 The UK banking sector 32 4.2.2 HSBC – overview 33 4.2.3 HSBC Strategy for risk management 33 4.2.4 Hypotheses 38 4.3 Analysis of Results 43 4.4 Chapt er Summary 49 Chapter V: Conclusion & Recommendations 5.1 Conclusion 50 5.2 Recommendations for further research 53 5.3 Learning outcome 53 References 55 Appendix 59 Tables and Figures Figure 2.1 Risk Architecture 17 Figure 4.1 Enterprise-wise risk management 35 Figure 4.2 Impaired loans to Gross Adnaces 38 Figure 4.3 Industry-wise credit risk 39 Figure 4.4 Credit Risk Profile 41 Chapter I: Introduction 1.1 Background Commercial banking relates to several activities such as providing products and services to the customer, engaging in financial intermediation and in management of risks (Sensarma & Jayadev, 2009). Banks have lately been reporting of difficulties faced by them but the risks taken by the banks have increased (Dedman & Robert-Tissot, 2001). For instance, the Asian financial crisis affected the performance of the region and led to an economic depression that impacted the financial institutions worldwide (Odit, Dookhan & Marilyn, 2011). Following the 2008 financial crisis, the banks reacted immediately to their capital structure concerning