Assessing the Operational Risk Management in Banks Based on Basel II Acord Methodology

As every other business, there are a variety of risks in the banking industry, including operational risks. The Central Bank of the Islamic Republic of Iran, as the Basel Committee, has required computing and managing the operational risk for banks and financial institutions. Accordingly, the goal of this study is to evaluate the operational risk management in banks based on the Basel II accord methodology. This study is of case study type. That is to achieve the research purpose, the Bank Hekmat Iranian (merged with Bank Sepah) was chosen as a young bank in Iran. Due to access to the bank's financial statements, no sampling was used and all audited statements of this bank over 2011 to 2016 were selected as the statistical population of the study. Then, the operational risk of this bank was calculated using two "Basic Indicator" and "Standardized" approaches based on the Basel II accord methodology. Also, the Central Bank of the Islamic Republic of Iran directive were used to identify different groups of bank activity in Standardized method. Descriptive statistics were used for data analysis. The results represent an ascending slope in operational risk in this bank over the research period. Due to the impact of the volume and the extent of banks' operations on the operating risk, this result could be due to an increase in the scope and volume of the operations in the bank during these years, which has directly affected the operational risk. This paper, while providing a relatively comprehensive and coherent literature about the operational risk, also provides details for calculating of this risk in banks. These details are based on the bank’s audited financial statements and can be used as a pattern to calculate operational risk in other banks.