Assessment of operational risk management practices among financial institutions: a case of DFCU Bank Uganda

Abstract

This study aimed at examining operational risk among commercial banks in reference to DFCU Uganda. The study was premised on three objectives: to examine the different operational risk management practices used by DFCU Uganda, to identify challenges faced in the process of operational risk management at DFCU Uganda, and to establish strategies that can be used to improve operational risk management practices at DFCU Uganda. The study employed a cross-sectional and descriptive research with a quantitative study approach which involved collecting numerical data from 85 respondents out of a sample of 185 DFCU staff, using a survey questionnaire. Data were analyzed using the statistical package for social science (SSPS Version 23). On operational risk management practices used by DFCU, the study identified improving areas where operational failures had occurred , analyzing operational failures and shares lessons learnt with all staff to prevent failures in future, creating teams that deal with quality performance issues such as poor customer service, emphasizing learning from operational risk failures, continuously assessing operational risk in any activity before taking key decisions and continuously monitors operational failures in order to improve processes, systems and up skilling of staff. Among the challenges, study identified; high operational risk exposure due to external factors, failure to see the risk management process as iterative, failure to discuss risk-related lessons learned, lack of adequate operational risk awareness and culture among the staff. Therefore, the study recommended that commercial banks develop key risk indicators that can alert leadership to potential issues, that commercial banks combine cybersecurity and operational risk modeling to identify and mitigate risks, and that commercial banks train their employees to anticipate what could go wrong, especially when a bank unit is about to do something new.

Subject Keywords: Operational risk management practices; financial institutions; DFCU Bank Uganda