Greater transparency would significantly aid risk managers in the GCC countries, as would more independent regulators and businesses, according to experts taking part in the DIFC Economic Forum.

Nonetheless, the personalised professional relations that bankers enjoy with their clients in the region means that risk assessment can often be based on solid knowledge of clients’ intent and operation, they added while discussing on the topic - Investing in Emerging Markets and Risk Assessment:  Unbundling the Quagmire.

The moderator was editorial director and chief economist, Economist Intelligence Unit Robin Bew. The keynote speaker was senior vice-president and chief international economic and financial policy analyst, Moody’s Investors Service, Pierre Cailleteau.

Group chief credit officer, Standard Chartered Bank, Robert Scanlon and executive vice-president and head of Group Risk Management, Arab Bank, Georges El Hage took part in the event.

Cailleteau opened the discussion with his perspective on the state of risk assessment, that is, how to judge the risks you face in extremely – and increasingly – complex environments. 

“Risk managers,” he said, “face a very different task from financial accountants.  Risk assessment is probabilistic and imprecise, with levels of confidence as a percentage, say 80 per cent on how events could effect some investment or loan.  In contrast, accountants can employ “precise measurement tools” to balance sheets:  either there is a profit or loss, x amount of debt, etc.  Somehow we must better integrate these two methods.”

In the view of El Hage, it is useful to distinguish what his firm wants to do in the long term versus the short term. 

“If you are committed to a community and know it,” he said, “then you can ask what type of business you want there in the long term.”  Moreover, the existence of “risk in one country or region”, he said, “makes us assess everything more closely, more conservatively.” 

Arab banks, according to El Hage, “are very close to their customers.  We understand their businesses, see what is happening to them everyday, and know what they want to do. We develop a feeling for risk in that way.  It is very personal.”

From the global bankers’ perspective, Scanlon argued that his institution needed to understand the government, the local economy, and the extent to which they could depend on the rule of law. 

“We need more transparency,” he explained, “and governments need to remove themselves from the working of the economy.” 

At the present time, he believed, governments remained very involved.  His group’s standard procedure, he said, is to look at companies as stand-alone entities with independent strategies. “If they are doing badly,” he continued, “then we consult governments about what they intend to do.” 

In particular, he worried about the number of aircrafts being purchased by the airline company of the UAE.  “It will create a horrific economic weight into the future,” he advised.

In conclusion, the panelists agreed on the need for new regulations to enhance transparency and solvency requirements.  The Basel II accord, they noted, could help in this respect, in particular regarding the internationalization of accepted standards, which could be brought to the GCC countries. 

“You can’t anticipate a problem,” Scanlon concluded, “if you don’t look at it.  If you discuss it early, you may be able to do something.  The greatest danger is to miss it.” – TradeArabia News Service