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Region set to adopt more ERM initiatives

Harry Pretorius (SUPPLIED)

By Reena Amos Dyes

As the world reels under the impact of the global economic meltdown triggered by the sub-prime crisis, a leading business intelligence and analytic software and services provider said better enterprise risk management (ERM) would have lessened the credit crisis.

It also goes on to say that Middle East corporations are all set to witness a substantial rise in risk management initiatives in 2009.

Harry Pretorius, SAS, Business Development Director, told Emirates business: "If proper enterprise risk management had been in place in financial institutions worldwide the credit crisis would not have been so severe as part of enterprise risk management is looking at capital planning, seeing how risky your portfolios are.

"Enterprise risk management influences all the decisions you make on the portfolios as it makes you aware of the risks."

According to a global research commissioned by SAS, the Middle East is set to witness a substantial rise in risk management initiatives among regional corporations as more organisations focus on aggregating and controlling risks to drive their business development.

Pretorius said: "The spending on risk management in the Middle East is set to grow as the region is yet to adopt legislations like the Basel II. Basel II is the second of the Basel Accords, which are recommendations on banking laws and regulations issued by the Basel Committee on Banking Supervision.

"The purpose of Basel II is to create an international standard that banking regulators can use when creating regulations about how much capital banks need to put aside to guard against the types of financial and operational risks banks face.

"This accord has been adopted by countries like the US, Europe and some North African countries but not the UAE.

"Out here just a few banks are doing risk management, liquidity management on an advanced scale and there is a major need to adopt Enterprise Risk Management instead of the divisional approach, that is being adopted now. In view of the present global credit crunch banks here need to consolidate their enterprise management and it needs to be done fast, with decisions being made faster than ever before."

With the global credit crisis triggering more than $400 billion (Dh1,468bn) in asset write-downs in the financial services industry, ERM programmes and components are in high-demand now more than ever to help institutions in the Middle East aggregate risk and treat it holistically.

Today adopting an ERM system is regarded by the region's largest businesses as protection against damaged reputation and as a valuable tool that offers an integrated approach to efficiently allocate capital and facilitate better loss containment.

The SAS survey revealed that regional firms are recognising the advantages of integrated risk programmes, which have gone beyond offering quantitative benefits. Pretorius said: "While in 2008 the focus of was on compliance, in 2009 due to the credit crunch the focus will be on risk management. For instance we at SAS are getting much more ERM requests than ever before. Forty to 60 per cent of the customer request we are getting from the region are risk management."

According to the study conducted by the Economist Intelligence Unit, more than 70 per cent of the 316 financial services executives who were surveyed believe failures to address risk management issues have largely contributed to the current global credit crisis.

Consequently, 59 per cent of the survey respondents had been prompted to scrutinise their risk management practices in greater detail. Designed to facilitate a more effective risk management framework, SAS' ERM portfolio embeds risk management into everyday processes at all levels of the organisation.

The survey also showed that access to relevant, timely and consistent data have been identified by many executives at financial services firms as the major obstacles that hinder the advancement of risk management practices in their organisations. The respondents have also identified data and company culture as one of the challenges that affects the implementation of comprehensive risk approaches, with almost half of the respondents believing that fostering a culture of risk management is the most widely encountered challenge.