Profile: Michael Hamar, group chief risk officer, National Australia Bank
Since the 2004 rogue trading incidents, National Australia Bank has embarked on a major risk management journey. Stuart Fagg spoke to the man who led the transformation, group chief risk officer, Michael Hamar, and found risk management is all about saying ‘yes’
Describe your role at NAB
I have overall accountability for all aspects of risk management across the group. This involves working with the regions – Australia, New Zealand and the United Kingdom – as well as with the group executive committee, reporting to the board, working with the regulators and of course leading a team.
How does it fit into the overall
structure at NAB? At the National, risk management is embedded within each of the regions and businesses. I am a member of the group executive committee, which sits across our entire operations, as well as an employee of our corporate centre (head office in the old money), so I spend most of my time in Sydney or Melbourne. The deputy chief risk officer, who reports to me, is responsible for the corporate centre risk functions. These are operational risk and security, traded market risk, non-traded market risk, credit portfolio and models, credit policy and transactional credit and strategic business services, which works with our watch and classified loan portfolios. Each of the regions has a chief risk officer who has a dual-reporting line both to myself and to their regional chief executive officer – so in Australia that would be Ahmed Fahour, in New Zealand Cameron Clyne, in the United Kingdom Lynne Peacock and in nabCapital John Hooper. I also have a general manager responsible for regulatory relations and group compliance reporting to me.
What element of your role do you find most challenging?
One key challenge would be the fact that on a personal level, you’re rarely responsible for delivering good news. You’ve got to have a fairly thick skin, and recognise that even though the bank has a ‘no surprises’ policy, you’re frequently the person who gets the surprises that are identified and escalated as a consequence of that policy. If anything goes wrong, you can bet your bottom dollar that someone will share the news with me and then I will be asked by senior management and the board “How did this happen?”
On a professional level the challenge is completely different. It’s about maintaining an appropriate balance between making sure the business takes appropriate risks – which is what we do, especially in banking – and making sure it doesn’t take foolish risks. I have a saying: risk management is about getting to yes. What I mean by that is that perhaps you can’t say ‘yes’ to the proposition that your colleagues are advancing – but then you have to devise an answer to, well, what can you say yes to? Maybe we won’t lend this business $30 million, but can we lend them $20 million instead? So it’s about developing partnerships with the business and working out where the fine line between acceptable and unacceptable risk levels is – it’s always a balancing act, this job.
How did you begin your career in risk management?
Anyone who’s a banker has started a career in risk management, and that’s how I began too. Specifically, I joined a US bank in Chicago in 1974, and went through a traditional graduate training program. For the next 25 years I worked on the front line, first for Continental Illinois, and then for what eventually became JPMorgan Chase. I had roles in corporate finance and relationship management, without ever having a formal position in risk management.Then in 1999 I was made the chief credit officer for Chase in North Asia, based in Hong Kong. That was my first formal position. In fact someone rang me up when I was in Sydney one day (I had moved from New York to Sydney in 1996), and that person said “We want you to go to Hong Kong to be in charge of risk management”. And I said “No thanks, I’m not keen on living in Hong Kong or on risk management particularly”. And they said to me “You’re not listening very carefully. We want you to go there and take up the job in risk management”. So effectively I was very politely conscripted, and it’s worked out quite well for me in the end. I find this is a very interesting job, because it’s basically an invitation to be involved in every bit of the bank’s business. I can ask anyone who works in the bank a question, and they can’t say “That’s none of your business”, because it’s all my business. So it gives you a terrific overarching perspective on the bank as a whole.
What do you see as the major challenges ahead for risk professionals?
There are many. The rapid development of new markets and new financial instruments; increasing globalisation; regulatory pressure; the need to balance the interests of the consumer with the interests of the organisation; earnings and cost pressures. For example, with respect to increasing globalisation, what we’ve seen here in Australia with the recent arrival of private equity into Australia is the way the market can be changed by a global rather than a local trend. Australian banks aren’t very big in global terms. So what is not a challenge for risk professionals worldwide is a challenge for risk professionals in Australian banks, in that global banks can afford to take on larger amounts of risk than we can, simply because they are larger. This has a profound impact on our ability to compete for certain types of transactions.
What are the ideal skills needed to become chief risk officer?
Firstly, you need to have a hide like a rhinoceros. Secondly, you’ve got to have a sense of humour, because you’re going to be pushed all the time – refer to previous comment about rhinoceroses. Thirdly, a sense of balance, because you have to make those decisions about the fine line.
Fourthly, you have to be strong-minded where necessary. For example, I once made a decision that personally cost someone a significant bonus; because I said “We’re not going to do that”. And when someone sees a large cheque disappearing out of their account they do tend to become emotional. They can even use rude words. So you have to have a certain resilience in your personality.
And lastly, without wishing to sound like Pollyanna, you need integrity. You have to have a commitment to the truth as you see it, and to transparency, and to openness and to honesty. But the lucky thing about this particular set of values is that they are the characteristics of any good businessman. So there’s no cookie-cutter, one-size fits-all approach, but risk officers don’t have to be uniquely wonderful in their own exceptional ways – we just have to have a strong set of standards and a propensity for curiosity.
What would your advice be to someone starting out in risk management?
My advice would be, assuming that the risk manager is in a bank, is to be a banker first, and a risk manager second. Banking is about good business, and risk management is about enabling good business. You can’t do one without the other.
What do you see as the key future trends in risk management in Australia?
The key trends are essentially the same as our key challenges. Our success will be in adapting our risk management practices to meet those challenges, so if anything the key trend will be flexibility and open-mindedness.
How much is implementing Basel II changing the way banks approach risk management?
It’s changing it very significantly, but probably more slowly than people are anticipating. This is because the impact of Basel II is not really about implementing change for change’s sake. It’s about putting into place the policies, procedures and practices that make us a better bank.
So if we’re honest, most of the things that we’re doing for Basel II are things that we probably should have done or should be doing anyway – perhaps then it’s changing the pace at which they’re being done. It’s certainly adding a regulatory dimension where there wasn’t one before, but what it’s really about is understanding the risk that you’re taking in a more disciplined way. And then using that information to run the bank well and do good business, in relation to pricing, portfolios, and all manner of things. Basel II is in a sense a prompt to do all those things we should do anyway. Inevitably it becomes more bureaucratic, some become more rote from time to time, but it’s really just moving the banks in a direction that they should have wanted to go in, and probably would have gone in eventually, anyway.
Michael Hamar is group chief risk officer at National Australia Bank. He is speaking at Risk Management magazine’s Risk Management Conference, 13–14 August in Sydney. For more details contact 1800 772 772 or go to http://www.lexisnexis.com.au/aus/conferences
News