Board Involvement in Risk Management Practices: Evidence from Saudi Arabia Banks

Abstract

This study bridges the gap between theory and practice of risk management in banks incorporated in Saudi Arabia. The main objective of this study is to investigate the risk management process to assess the level of involvement of boards in risk management practices (RMPs). This study surveys representatives from banks to elicit their opinion regarding the characteristics of an efficient risk management process, the four aspects of risk management practices; understanding risk management (URM), risk identification (RI), risk assessment and analysis (RAA) and risk monitoring and control (RMC), as well as the role played by boards in risk management (RM). The results suggest that banks in Saudi Arabia have an efficient risk management process and an adequate understanding of risk management and a system for risk identification. Additionally, there is a high level of board’s involvement in assessing, analyzing, monitoring and controlling risk efficiently, where they are somewhat reasonably efficient in managing risk, hence, URM, RM and RMC are the most influencing factors in RMPs. This study may have practical implications for boards in banks incorporated in Saudi Arabia by explaining the adoption of certain risk management strategies, and helping them understand how risk management behavior can maximize operating performance. In addition, it would help regulators and policy makers to develop a coherent and acceptable set of risk management tools and techniques.