Application of Enterprise Risk Management to Banking Risk
DOI:
https://doi.org/10.47776/mizania.v1i2.245Keywords:
Enterprise Risk Management, Credit Risk, Interest Rate Risk, Liquidity RiskAbstract
Abstract
The implementation of Enterprise Risk Management (ERM) proactively determines the appropriate type and level of risk to achieve the organization's strategic objectives and assists management in understanding and managing all company business risks using an integrated structure and coordinated management. Although risks cannot be completely avoided or eliminated, they can be managed and minimized with an integrated risk management system. The purpose of this study is to prove whether the application of ERM can minimize credit risk, interest rate risk, and liquidity risk in banking companies and whether the internal audit function can strengthen the effect of ERM implementation in minimizing the risks faced by banks. The sample of this research is banks listed on the Indonesia Stock Exchange in 2011-2016. The results of this study indicate that the application of ERM for banks is not proven to have an effect in minimizing credit risk, interest rate risk, and liquidity risk. ERM does not manage risk individually but manages risk collectively so that it can identify company activities that contribute the most to the company's total risk and mitigation is carried out, and ERM is a process designed to manage risk so that it is at optimal risk that does not endanger the banking business, and management tends to take risks to optimize the profits to be obtained and companies tend to dare to take risks if the risk is not at a level that endangers the banking business condition. The internal audit function also has no effect in strengthening the relationship between ERM implementation and credit risk, interest rate risk, and liquidity risk.
References
Daftar Pustaka
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Agista, Gissel Glenda dan Mimba, Ni Putu Sri Harta. 2017. Pengaruh Corporate Governance Structure dan Konsentrasi Kepemilikan pada Pengungkapan Enterprise Risk Management. E-Jurnal akuntansi Universitas Udayana, Vol.20, No.1, Juli 2017
Angbazo, L., 1997. Commercial bank net interest margins, default risk, interest rate risk, and off-balance sheet banking. Journal of Banking & Finance 21, 55–87.
Bainbridge, Stephen M. et al. 2009. “Caremark and Enterprise Risk Management.†1(2004).
Bank Negara Malaysia. (2008). Financial Stability and Payment Systems Report 2008: Risk Assessment of the Financial System. Retrieved from http://www.bnm.gov.my/files/publication/fsps/en/2008/cp01.pdf
Basel Committee on Banking Supervision, 2008. Range of practices and issues in economic capital modeling. Bank for International Settlements, Basel.
Basel Committee on Banking Supervision. (2001). Risk management practices and regulatory capital: Cross-sectorial comparison. Switzerland: Bank for International Settlements.
Bennett, R.L., Unal, H., 2010. The cost effectiveness of the private-sector resolution of failed
bank assets, FDIC Center for Financial Research, Working paper, No. 2009–11.
Berger, A.N., Bouwman, C.H.S., 2008. Financial crises and bank liquidity creation, Working Paper, Case Western Reserve University.
Berger, A.N., Bouwman, C.H.S., 2009. Bank liquidity creation. Review of Financial Studies 22, 3779–3837.
Bryant, J., 1980. A model of reserves, bank runs, and deposit insurance. Journal of Banking & Finance 4, 335–344.
Callahan, Carolyn and Soileau, Jared. 2017. Does Enterprise risk management enhance operating performance? Advances in Accounting Volume 37, June 2017, Pages 122-139.
Chang, She-i, David C. Yen, I-cheng Chang, and Derek Jan. 2014. “Information & Management Internal Control Framework for a Compliant ERP System.†Information & Management 51(2):187–205. Retrieved (http://dx.doi.org/10.1016/j.im.2013.11.002).
Chen, Hsiao-Jung and Lin, Kuan-Ting. 2016. How Do Banks Make The Trade-Offs Among Risks? The Role Of Corporate Governance. Journal of Banking & Finance 72 (2016) S39-S69
Choi, J.J., Elyasiani, E., Kopecky, K.J., 1992. The sensitivity of bank stock returns to market, interest and exchange rate risks. Journal of Banking & Finance 16, 983–1004.
Committee of the Sponsoring Organizations of the Treadway Commission. 2017. Enterprise Risk Management - Integrating with Strategy and Performance (COSO-ERM Report). New York: AICPA.
Diamond, D.W., Dybvig, P.H., 1983. Bank runs, deposit insurance, and liquidity. Journal of Political Economy 91, 401–419.
Diamond, D.W., Rajan, R.G., 2001. Liquidity risk, liquidity creation, and financial fragility: a theory of banking. Journal of Political Economy 109, 287–327.
Eckles, David L., Robert E. Hoyt, dan Steve M. Miller. 2014. “Reprint of: The impact of enterprise risk management on the marginal cost of reducing risk: Evidence from the insurance industry.†Journal of Banking & Finance 49. Elsevier B.V.:409–23. https://doi.org/10.1016/j.jbankfin.2014.10.006.
Ekananda, Mahyus. 2016. Analisis Ekonometrika Data Panel. Jakarta: Mitra Wacana Media.
Erkens, D.H., Hung, M., Matos, P., 2012. Corporate governance in the 2007–2008 financial crisis: evidence from financial Institutions worldwide. Journal of Corporate Finance 18, 389–411.
Flannery, M.J., 1981. Market interest rates and commercial bank profitability: an empirical investigation. Journal of Finance 36, 1085–1101.
Flannery, M.J., James, C.M., 1984. The effects of interest rate changes on the common stock returns of financial institutions. Journal of Finance 39, 1141– 1153.
Fraser, D.R., Madura, J., Weigand, R.A., 2002. Sources of bank interest rate risk. The Financial Review 37, 351–368.
Fokuss. 2008. Enterprise Risk Management’ di KSEI. Diunduh 11 November 2017. www.ksei.co.id
Fonseca, A.R., González, F., 2008. Cross-country determinants of bank income smoothing by managing loan-loss provisions. Journal of Banking & Finance 32, 217–228.
Ghenimi, Ameni., Chaibi, Hasna., and Omri., Mohamed Ali Brahim. 2017. The effects of liquidity risk and credit risk on bank stability: Evidence from the MENA region. Borsa Istanbul Review
Holmstrom, B., Tirole, J., 1998. Public and private supply of liquidity. Journal of Political Economy 106, 1–40.
Hong, Han, Jing-Zhi Huang, and Deming Wu. 2014. “The Information Content of Basel III Liquidity Risk Measures.†Journal of Financial Stability 15:91–111. Retrieved (http://linkinghub.elsevier.com/retrieve/pii/S1572308914000874).
Hoyt, Robert E. and Andre P. Liebenberg. 2011. “The Value of Enterprise Risk Management.†Journal of Risk and Insurance 78(4):795–822.
Imbierowicz, B., Rauch, C., 2014. The relationship between liquidity risk and credit risk in banks. Journal of Banking & Finance 40, 242–256.
Jorion, P. (2009). Financial risk manager handbook. New Jersey: John Wiley & Sons, Inc.
Kashyap, A.K., Rajan, R.G., Stein, J.C., 2002. Banks as liquidity providers: an explanation for the coexistence of lending and deposit-taking. Journal of Finance 57, 33–73.
Kallur, Venkatesh. 2016. “Special issue papers Bank ’ s asset and liability management : A chief risk officer ’ s perspective.†Journal of Risk Management in Financial Institutions 9:313–26
Khan, Muhammad Saifuddin, Harald Scheule, and Eliza Wu. 2017. “Funding Liquidity and Bank Risk Taking.†Journal of Banking and Finance 82:203–16. Retrieved (http://dx.doi.org/10.1016/j.jbankfin.2016.09.005).
Liu, C., Ryan, S.G., 2006. Income smoothing over the business cycle: changes in banks’ coordinated management of provisions for loan losses and loan chargeoffs from the pre-1990 bust to the 1990s boom. The Accounting Review 81, 421–441.
Markellos, Raphael N. and Dimitris Psychoyios. 2017. “Interest Rate Volatility and Risk Management: Evidence from CBOE Treasury Options.†The Quarterly Review of Economics and Finance. Retrieved (http://linkinghub.elsevier.com/retrieve/pii/S1062976916301727).
Marnoko. (2011). Pengaruh Non Performing Loan dan Capital Adequacy Ratio Terhadap Profitabilitas Pada Perusahaan Perbankan yang Terdaftar di Bursa Efek Indonesia. Jurnal Akuntansi Bisnis Dan Publik, 2, 1–25.
Michael and Taillard. 2014. How Banks Calculate Their Loans to Deposits Ratio.
Peraturan Otoritas Jasa Keuangan No. 18 POJK.03/2016
PBI Peraturan PBI No.No.11/25/PBI/2009 tanggal 1 Juli 2009
PricewaterhouseCoopers Indonesia. 2017. Indonesia Banking Survey 2017 Menghadapi kenaikan risiko kredit – Apa langkah bank-bank di Indonesia selanjutnya? Diunduh 14 Desember 2017. https://www.pwc.com
Riyadi, S. 2006. Banking Assets and Liability Management. Edisi Ketiga. Jakarta: Lembaga Penerbit Fakultas Ekonomi Universitas Indonesia.
Sobel, Paul J. and Kurt F. Reding. 2004. “Aligning Corporate Governance with Enterprise Risk Management.†Management Accounting Quarterly 5(2):29–37. Retrieved (http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=12476123&site=ehost-live).
Spuchľáková, Erika, KatarÃna ValaÅ¡ková, and Peter Adamko. 2015. “The Credit Risk and Its Measurement, Hedging and Monitoring.†Procedia Economics and Finance 24(July):675–81.
Retrieved (http://linkinghub.elsevier.com/retrieve/pii/S2212567115006711).
Wahlen, J.M., 1994. The nature of information in commercial bank loan loss disclosures. The Accounting Review 69, 455–478.
Yudistira, Galvan. 2017. LPS sebut sejumlah tantangan bagi perbankan. Diunduh 14 Desember 2017. http://keuangan.kontan.co.id
Abdul-Rahman, Aisyah, Ahmad Azam Sulaiman, and Noor Latifah Hanim Mohd Said. 2016. “Does Financing Structure Affects Bank Liquidity Risk?†Pacific Basin Finance Journal (August 2016):0–1. Retrieved (http://dx.doi.org/10.1016/j.pacfin.2017.04.004).
Agista, Gissel Glenda dan Mimba, Ni Putu Sri Harta. 2017. Pengaruh Corporate Governance Structure dan Konsentrasi Kepemilikan pada Pengungkapan Enterprise Risk Management. E-Jurnal akuntansi Universitas Udayana, Vol.20, No.1, Juli 2017
Angbazo, L., 1997. Commercial bank net interest margins, default risk, interest rate risk, and off-balance sheet banking. Journal of Banking & Finance 21, 55–87.
Bainbridge, Stephen M. et al. 2009. “Caremark and Enterprise Risk Management.†1(2004).
Bank Negara Malaysia. (2008). Financial Stability and Payment Systems Report 2008: Risk Assessment of the Financial System. Retrieved from http://www.bnm.gov.my/files/publication/fsps/en/2008/cp01.pdf
Basel Committee on Banking Supervision, 2008. Range of practices and issues in economic capital modeling. Bank for International Settlements, Basel.
Basel Committee on Banking Supervision. (2001). Risk management practices and regulatory capital: Cross-sectorial comparison. Switzerland: Bank for International Settlements.
Bennett, R.L., Unal, H., 2010. The cost effectiveness of the private-sector resolution of failed
bank assets, FDIC Center for Financial Research, Working paper, No. 2009–11.
Berger, A.N., Bouwman, C.H.S., 2008. Financial crises and bank liquidity creation, Working Paper, Case Western Reserve University.
Berger, A.N., Bouwman, C.H.S., 2009. Bank liquidity creation. Review of Financial Studies 22, 3779–3837.
Bryant, J., 1980. A model of reserves, bank runs, and deposit insurance. Journal of Banking & Finance 4, 335–344.
Callahan, Carolyn and Soileau, Jared. 2017. Does Enterprise risk management enhance operating performance? Advances in Accounting Volume 37, June 2017, Pages 122-139.
Chang, She-i, David C. Yen, I-cheng Chang, and Derek Jan. 2014. “Information & Management Internal Control Framework for a Compliant ERP System.†Information & Management 51(2):187–205. Retrieved (http://dx.doi.org/10.1016/j.im.2013.11.002).
Chen, Hsiao-Jung and Lin, Kuan-Ting. 2016. How Do Banks Make The Trade-Offs Among Risks? The Role Of Corporate Governance. Journal of Banking & Finance 72 (2016) S39-S69
Choi, J.J., Elyasiani, E., Kopecky, K.J., 1992. The sensitivity of bank stock returns to market, interest and exchange rate risks. Journal of Banking & Finance 16, 983–1004.
Committee of the Sponsoring Organizations of the Treadway Commission. 2017. Enterprise Risk Management - Integrating with Strategy and Performance (COSO-ERM Report). New York: AICPA.
Diamond, D.W., Dybvig, P.H., 1983. Bank runs, deposit insurance, and liquidity. Journal of Political Economy 91, 401–419.
Diamond, D.W., Rajan, R.G., 2001. Liquidity risk, liquidity creation, and financial fragility: a theory of banking. Journal of Political Economy 109, 287–327.
Eckles, David L., Robert E. Hoyt, dan Steve M. Miller. 2014. “Reprint of: The impact of enterprise risk management on the marginal cost of reducing risk: Evidence from the insurance industry.†Journal of Banking & Finance 49. Elsevier B.V.:409–23. https://doi.org/10.1016/j.jbankfin.2014.10.006.
Ekananda, Mahyus. 2016. Analisis Ekonometrika Data Panel. Jakarta: Mitra Wacana Media.
Erkens, D.H., Hung, M., Matos, P., 2012. Corporate governance in the 2007–2008 financial crisis: evidence from financial Institutions worldwide. Journal of Corporate Finance 18, 389–411.
Flannery, M.J., 1981. Market interest rates and commercial bank profitability: an empirical investigation. Journal of Finance 36, 1085–1101.
Flannery, M.J., James, C.M., 1984. The effects of interest rate changes on the common stock returns of financial institutions. Journal of Finance 39, 1141– 1153.
Fraser, D.R., Madura, J., Weigand, R.A., 2002. Sources of bank interest rate risk. The Financial Review 37, 351–368.
Fokuss. 2008. Enterprise Risk Management’ di KSEI. Diunduh 11 November 2017. www.ksei.co.id
Fonseca, A.R., González, F., 2008. Cross-country determinants of bank income smoothing by managing loan-loss provisions. Journal of Banking & Finance 32, 217–228.
Ghenimi, Ameni., Chaibi, Hasna., and Omri., Mohamed Ali Brahim. 2017. The effects of liquidity risk and credit risk on bank stability: Evidence from the MENA region. Borsa Istanbul Review
Holmstrom, B., Tirole, J., 1998. Public and private supply of liquidity. Journal of Political Economy 106, 1–40.
Hong, Han, Jing-Zhi Huang, and Deming Wu. 2014. “The Information Content of Basel III Liquidity Risk Measures.†Journal of Financial Stability 15:91–111. Retrieved (http://linkinghub.elsevier.com/retrieve/pii/S1572308914000874).
Hoyt, Robert E. and Andre P. Liebenberg. 2011. “The Value of Enterprise Risk Management.†Journal of Risk and Insurance 78(4):795–822.
Imbierowicz, B., Rauch, C., 2014. The relationship between liquidity risk and credit risk in banks. Journal of Banking & Finance 40, 242–256.
Jorion, P. (2009). Financial risk manager handbook. New Jersey: John Wiley & Sons, Inc.
Kashyap, A.K., Rajan, R.G., Stein, J.C., 2002. Banks as liquidity providers: an explanation for the coexistence of lending and deposit-taking. Journal of Finance 57, 33–73.
Kallur, Venkatesh. 2016. “Special issue papers Bank ’ s asset and liability management : A chief risk officer ’ s perspective.†Journal of Risk Management in Financial Institutions 9:313–26
Khan, Muhammad Saifuddin, Harald Scheule, and Eliza Wu. 2017. “Funding Liquidity and Bank Risk Taking.†Journal of Banking and Finance 82:203–16. Retrieved (http://dx.doi.org/10.1016/j.jbankfin.2016.09.005).
Liu, C., Ryan, S.G., 2006. Income smoothing over the business cycle: changes in banks’ coordinated management of provisions for loan losses and loan chargeoffs from the pre-1990 bust to the 1990s boom. The Accounting Review 81, 421–441.
Markellos, Raphael N. and Dimitris Psychoyios. 2017. “Interest Rate Volatility and Risk Management: Evidence from CBOE Treasury Options.†The Quarterly Review of Economics and Finance. Retrieved (http://linkinghub.elsevier.com/retrieve/pii/S1062976916301727).
Marnoko. (2011). Pengaruh Non Performing Loan dan Capital Adequacy Ratio Terhadap Profitabilitas Pada Perusahaan Perbankan yang Terdaftar di Bursa Efek Indonesia. Jurnal Akuntansi Bisnis Dan Publik, 2, 1–25.
Michael and Taillard. 2014. How Banks Calculate Their Loans to Deposits Ratio.
Peraturan Otoritas Jasa Keuangan No. 18 POJK.03/2016
PBI Peraturan PBI No.No.11/25/PBI/2009 tanggal 1 Juli 2009
PricewaterhouseCoopers Indonesia. 2017. Indonesia Banking Survey 2017 Menghadapi kenaikan risiko kredit – Apa langkah bank-bank di Indonesia selanjutnya? Diunduh 14 Desember 2017. https://www.pwc.com
Riyadi, S. 2006. Banking Assets and Liability Management. Edisi Ketiga. Jakarta: Lembaga Penerbit Fakultas Ekonomi Universitas Indonesia.
Sobel, Paul J. and Kurt F. Reding. 2004. “Aligning Corporate Governance with Enterprise Risk Management.†Management Accounting Quarterly 5(2):29–37. Retrieved (http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=12476123&site=ehost-live).
Spuchľáková, Erika, KatarÃna ValaÅ¡ková, and Peter Adamko. 2015. “The Credit Risk and Its Measurement, Hedging and Monitoring.†Procedia Economics and Finance 24(July):675–81.
Retrieved (http://linkinghub.elsevier.com/retrieve/pii/S2212567115006711).
Wahlen, J.M., 1994. The nature of information in commercial bank loan loss disclosures. The Accounting Review 69, 455–478.
Yudistira, Galvan. 2017. LPS sebut sejumlah tantangan bagi perbankan. Diunduh 14 Desember 2017. http://keuangan.kontan.co.id
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Published
2021-09-23
How to Cite
Hasan, N. N., Rahmadini, F., & Dariyah, D. (2021). Application of Enterprise Risk Management to Banking Risk. MIZANIA: Jurnal Ekonomi Dan Akuntansi, 1(2), 67–84. https://doi.org/10.47776/mizania.v1i2.245
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