"When Development is a Priority, the Risk is Worth Taking”

 Interview with Ariel Sergio Davidoff

“ARMBUSINESSBANK” CJSC Supervisory Board member, Chair of Audit and Risk Committee

Armenia is a small country where the banking sector is quite competitive, but at the same time rather sensitive to external risks. What do you believe is the formula for maintaining stability of the banking system with considering the influence of the mentioned two factors?

You are right, the banking market is small, but highly competitive.

The risks for such countries as Armenia are rather substantive since it is an importing country with large foreign currency flows and high risk of inflation.

It should be noted that the regulation and control by the Central Bank of Armenia plays a major role in maintaining the stability of the system. The system is guided by international norms established by the Basel Committee.

Today, new Basel standards are being introduced globally, on a step-by-step basis, setting rigid requirements to the banking system and Armenia cannot avoid but to make part of it. On the one hand, this ensures reliability of the banking system since the norms are rigid, and on the other hand, this leads to high interest rates and decrease of efficiency of the banking system. However, as is often said, one should pay for reliability.

In the light of the events taking place in the world over the last year, the Armenian banking system has found itself at a crossroads, this providing additional income and ensuring financial stability of the banks for the period concerned.

For the moment, the Armenian banking system is, perhaps, one of the most stable sectors of economy with the inflow of substantial capital.

It is interesting how well prioritized is the reliability in making decisions on various aspects of life, as well as in coordination of entrepreneurs’ activities?

The question can be viewed from two perspectives.   If the decision-makers are tradition-bound and the priority for them is to have no losses, then reliability is the primary priority. However, when the development is a top concern, one should take the risk.

“Informed risk-taking implies absolute transparency about and objective assessment of the facts, clearly defined responsibilities along the internal chain of command, and this will lead to a more cooperative, resilient and successful organisation” – this is the risk culture to continue to be established in the Bank, according to Mr. Davidoff

The banks nowadays are moving towards digitalization.   ARMBUSINESSBANK, having embarked on a stage of changes, is also implementing the abovementioned process, focusing on innovative technologies and digital products. Could you please share your vision on effective management of operational risks?

Effective management of operational risks starts with the internal structure.

Every division must identify the risks it faces during its operation to neutralize these risks or avoid them through application of proper and effective methods. Everyone's hard work is important for effective management of risks.  

 “It's time for risk managers to rethink traditional risk assessment approach and stop viewing risk management as a monthly, quarterly or even an annual exercise in updating a risk register” – mentioned Mr. Davidoff, stating that the risk managers should focus on adding value to the business by integrating quantitative risk analysis into everyday decision-making processes 

In this context, the coordinated work of IT Department, and especially its cooperation with the departments responsible for professional and safe customer service is of major importance.

In fact, we focus on innovative technologies and digital solutions; to facilitate the business processes and to minimize the operational risks the Bank management attaches high importance to continuous upgrade of existing technologies and introduction of new ones. All this, of course, is carried out with due consideration of all the risks. To make proper conclusions, we try to evaluate the digitalization processes also through the eyes of a customer. 

Is it possible to effectively manage the risks only by means of automation? Won’t there be a need for human intervention?

We will always need people... They will improve the digital environment for our own security. People will continue working just in a different format and carrying out other functions.

“It is necessary to reinforce the "no blame" culture” – this concept, according to Mr. Davidoff can be put into practice through staying actively engaged with colleagues, being approachable, and keeping informed about emerging risks and internal control failures. Moreover encouraging a "no blame" culture and communicating this throughout the company is crucial in promoting an environment where employees feel comfortable discussing risk-related issues.

Part of the Armenian society is conservative in its behavior. How open are people to financial innovations and how would you assess the risk of such innovations?

I think this is typical not only for Armenians. All people are sensitive to changes.

I assume that it is possible today to adapt the digital tools and their functions to the mode of behaviour accepted and usual for people. Using such tools should be possible without studying manuals, they should be intuitive.

The new generation, as I strongly believe, is already fully involved in innovations, and for those who still struggle with it, it is necessary to ensure smooth transition by means of financial education and provision of special consultations, so that they should not be “left out of the game”. It remains a truth that no-one should invest into something before they fully understand the consequences.

The whole world is on the track of digitisation of the financial system, modernization of functionalities and their mechanisms. This will enable to serve clients faster and more effectively, expanding the possibilities of the services rendered and answering clients’ requirements better and without friction, to their advantage.