A GREAT deal more still needs to be done to improve the risk culture of banks despite the pain they have already suffered because of the financial crisis.

A large proportion of bank executives have admitted to not understanding the risks across their organisations, according to the second annual Ernst & Young risk governance survey.

The accounting giant surveyed 48 top executives at 36 global banks and found that only 14 per cent of the respondents felt they had an overall view of the risks across their companies.

Unsurprisingly, the financial crisis has prompted many firms to make the development of a risk-aware culture a top priority for bank executives.

A major barrier to successful enterprise-wide risk management is organisational silos - seeing things from a narrow, departmental scope rather than company-wide.

Decentralisation of resources and decision-making, inadequate forecasting and the lack of transparent reporting are also seen as hindrances.

About three-quarters of the respondents said that creating a risk-aware culture was important.

They also agreed that the discussion of risks must be raised to a strategic level, with much closer collaboration across functions, business units and risk classes.

Some good news was that 86 per cent of the respondents said their banks were implementing a variety of projects to approach risks in a more comprehensive way, although less than a fifth said that it was well-defined.

Greater transparency, faster delivery and better processing of data must be given higher priority in order to improve the information flow and reporting of risk, said the executives.

'There was strong agreement that managing risk effectively requires both top-down oversight and bottom-up involvement from front-line risk takers,' said Mr Bill Schlich, the head of Ernst and Young's global banking and capital markets practice.

And knowing what risks lie ahead is also gaining importance.

Ernst & Young said most respondents felt their organisations did not have a well-defined, rigorous process for forecasting risk.

'In last year's study, identifying emerging risk was reported to be a relatively low priority on the path to better risk management,' said Mr Hank Prybylski, the head of Ernst & Young's global financial services risk management practice.

There is much work to be done, but the good news is that the financial crisis is leading to a more robust risk governance.

This article was first published in The Straits Times on January 1, 2009.