A structured approach towards an integrated behavioral risk management framework for banking institutions: a case study of Indo-Zambia bank

Abstract

Until recently, risk management discourse has paid scant attention to the issue of organizational culture and behavioral finance biases in banking. Yet ethical lapses and systematic weaknesses exposed in the 2007-09 financial crises suggest that future risk policy dialogue is unlikely to ignore behavioral biases’ significance. This paper endeavoured to build an integrated Behavioural Risk Management Framework for Banking Institutions taking a case study of Indo-Zambia bank using a descriptive Research design. Primary data was collected from 250 eligible members of staff that were enrolled in the study. The study used Qualitative content analysis, Factor analysis, cronbach alpha test and descriptive statistics to analyse the data set. The study described the bank’s behavioural biases trends and examined elements that affect the effectiveness of the existent risk framework. The findings underpin the idea that behavioural finance is real and therefore plays both a subconscious and consciously role in the decision making within the banking industry. For establishing an integrated behavioural risk Management framework, the improvement of people's risk sense and the proper mechanism for changing tacit knowledge of risk to explicit understanding will have to be emphasized. The understanding of such behavioural biases along with appropriate financial planning policies can play a powerful role in avoiding major pitfalls. Keywords: Behavioral Finance, Banking Institutions, Enterprise Risk Management, Decision Making