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Abstract
Operational risk has adverse effect on financial performance and business sustainability of commercial banks. This concern has provoked the need to assess the effective means of dealing with bank operational risk. The study sought to empirically evaluate operational risk management of commercial Banks in Ghana. Using descriptive analysis to examine data sourced from 32 commercial in Ghana, the study found minimal comprehension of operational risk prerequisites, lack of systematic risk identification procedures and minimal risk assessment. The study also found that development of active methods of risk monitoring and control were not pronounced among the commercial banks in Ghana. It is therefore, recommended that the commercial banks should inculcate the culture of risk awareness, proper risk identification mechanisms and widespread risk monitoring and control approaches as these have far-reaching implications for effective implementation of any operational risk management efforts of commercial banks.
JEL classification numbers: G30
Keywords: Operational risk; Commercial banks; descriptive analysis; Ghana
1Introduction
Banks are invariably faced with different types of risks that may have a potential negative effect on their businesses. Risk management in banking operations thrives on four core pillars, which include risk identification, risk measurement and risk assessment, risk monitoring and control (Hameeda et al., 2012). The main objective of relying on these pillars is to minimize negative effects risks can have on the financial result and capital base of a bank. Banks are, therefore, required to form a special organizational unit in charge of risk management. Also, they are required to prescribe procedures for risk identification, measurement and assessment, as well as procedures for risk management.
The risk which a bank is particularly exposed to in its operations are varied and may include liquidity risk, credit risk, market risks, exposure risks, investment risks and risks relating to the country of origin of the entity to which a bank is exposed as well as operational risk, legal risk, reputational risk and strategic risk. Therefore, risk management is crucial concept for any banking business as most financial decisions centre around the corporate cost of holding risk (Adu-Mensah et al., 2015).
It is argued that the future of banking service undoubtedly rests on risk management dynamics. This simply means that only those banks that have efficient risk management system will...