Alizz Islamic Bank: managing digital risk
Alizz Islamic Bank’s dynamic approach to digital risk
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WRIT TEN BY
HARRY MENE AR PRODUCED BY
MOHA MMED HASHEM
APRIL 2019
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Venkatesh Kallur, Chief Risk Officer at Alizz Islamic Bank, talks digital risks and opportunities, Islamic finance, and managing change in an evolving world
W
ith over three-and-a-half decades of banking experience across three continents, six countries and in multiple
languages, Venkatesh Kallur, Chief Risk Officer (CRO) at Alizz Islamic Bank has seen the nature of the industry transformed by the rise of digital 04
banking. “I still recall back in the mid-90s in Toronto, when I had to transfer $1,000 from Canada to my parents in India. It used to take about 15 days and I had to follow up with my bank at least half a dozen times,” Kallur remembers. “Today, I sit in my bedroom, open my tablet or smartphone, trigger a transaction and tomorrow morning the money is in an account on the other side of the world.” Kallur has watched the advent of online and mobile banking revolutionise financial exchange on a global scale, but at the same time he has borne witness to the proliferation of new challenges and digital risks. From North American financial institutions like American Express and the Bank of Montreal, Kallur has moved to the world of Islamic banking, arriving at Alizz Islamic Bank in August 2017. “One of my biggest strengths has been my
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ability to adapt to new cultures, new
Islamic finance and the ways in which
languages and new environments,” he
institutions like Alizz Islamic Bank can
explains. “All along I’ve tried to keep an
manage change in an ever-changing
open mind and focused on how best to
world.
collaborate with different people.” This
Founded in 2013, the Alizz Islamic
adaptability has served Kallur well
Bank provides Islamic banking
throughout a career in an industry that
services in the Sultanate of Oman. In
has moved from bricks, mortar and
contrast to traditional banking, Islamic
paper records to mobile banking, data
finance – in accordance with Sharia
analytics and the cloud in a few short
law – prohibits the charging of interest,
decades. We sit down with Kallur to
also forbidding loans to a business or
explore the threats and opportunities
customer operating in violation of
across the changing face of banking,
Sharia law (for example, businesses
the nature of risk management in
selling alcohol). Instead of collecting
CLICK TO WATCH : ‘THE NEW INTERNET BANKING PLATFORM FROM ALIZZ ISLAMIC BANK’ 07
interest, Islamic lenders generate
Islamic bank, there’s the risk of Sharia
revenue from a portion of the custom-
non-compliance. If a product or a
er’s profits while also sharing in any
contract we commit to is not Sharia
losses. “The principal means of Islamic
compliant, then that whole source of
finance are based on trading, and it is
income is quarantined.” In addition to
essential that risk be involved in any
adapting to a new form of banking,
mercantile activity, so banks and
Kallur is constantly working to identify
financial institutions will trade in
and assess the risks that advances in
Sharia-compliant investments with the
digital banking may pose to Alizz.
money deposited by customers,
“With the evolution of technology,
sharing the risks and the profits
CROs are faced with increasingly
between them,” explains Kallur, who
dynamic challenges. Risk management
notes that Islamic Banking therefore
functions will have to reinvent them-
has to be more risk averse. “In an
selves and become enablers and w w w.a l i z z i sl a m ic. com
drivers of digital transformation. How banks navigate the risks and opportunities presented by technological innovations will dictate their ability to thrive,” says Kallur. He continues, noting that emerging digital risks also go hand-in-hand with increased competition: “Broader geopolitical, social and environmental concerns are looming larger, as regulatory fragmentation continues and competition intensifies. Fintechs and major technology companies seek traction in profitable parts of financial services, 08
while banks’ strategic options to deliver 11% to 15% return on investment narrow.” He also notes that cybersecurity – protecting information as well as capital – has become top of mind for banks, due the ‘phenomenally’ increased risk created by increased digitization of operations and records. “In the ‘good old days’ we used to take a big black book, sit down and make various entries. You can’t hack into that. Now, in addition to other operational risks, information and cybersecurity risks have emerged into their own threat category.” In order to maintain security, Alizz utilises the ‘three lines of defence’ model: business units,
“ One of my biggest strengths has been my ability to adapt to new cultures, new languages and new environments” — Venkatesh Kallur CRO, Alizz Islamic Bank
referring to “relationship managers who are managing the risks with their customers”; risk management, Kallur’s purview, which involves harnessing behavioral, predictive and scenariobased analytics; and internal audits, which ensure compliance frameworks and internal controls are appropriate. One emerging technology occupying a great deal of conversational real estate in the banking space is the adoption of cryptocurrencies and blockchain technology. Kallur acknowledges that “cryptocurrencies can help 09
E XE CU T I VE PRO FI LE
Venkatesh Kallur Venkatesh is a Senior Risk Management executive and international banker spanning over three decades of experience from three continents and in several regulatory regimes. Seasoned enterprise risk management executive with strong foothold in Credit, Market, Information Security and Operational Risk along with Enterprise Risk Management & Risk Architecture. Keynote Speaker and a vivid writer on various Risk subject areas in International Risk Forums, a “C-Suite” leadership coach and mentor with accomplished experience across Banking, and Financial Services. Brings to the table a high degree of emotional maturity and business intelligence.
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“ With the evolution of technology, CROs are faced with more dynamic challenges”
movers – need to be protected.” While CROs like Kallur have less than bullish attitudes to emergent technologies like blockchain, he maintains that the adoption of technology to better process data is at the heart of Alizz Bank’s digital transformation strategy. “With respect to banking in the Middle East, whichever bank that you look at in the region has data quality issues. To me, data is information, information is power, and that’s where we should be
— Venkatesh Kallur CRO, Alizz Islamic Bank
focusing.” Since starting at Alizz, Kallur
multinational banks transfer money
Underwriting Strategies through Risk
instead of moving the physical tender”.
Appetite Framework and Target
However, he maintains the skepticism
Market and Risk Acceptance criteria,
of a risk-assessment veteran. “Crypto-
along with required analytics, which
currencies might give a little bit of
provide a 360-degree view of risks at
operational ease, but they come with
enterprise level, as well as mapping the
their own risks. At this point in time, for
skillset, bandwidth and the needs of
example, cryptos are intangible, illiquid
the company through a monthly CRO
and, to a large extent, uninsured. That
dashboard.”
can lead to extortion and manipulation,”
has brought in several enhancements in Policy Framework and Credit
Looking to the future, Kallur says:
Kallur says, “Don’t get me wrong, I
“Information technology, information
understand the potential, but there is
security and digital banking – be it on
more to do before it can be universal-
mobile phones, computers or tablets
ised. It needs to be adoptable, depend-
– all need to be considered.” He agrees
able; regular investors –not just the fast
that the introduction of new technolow w w.a l i z z i sl a m ic. com
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“ To me, data is information, information is power, and that’s where we should be focusing” 12
— Venkatesh Kallur CRO, Alizz Islamic Bank
$1.47bn Approximate revenue
2012
Year founded
300
Approximate number of employees 13
gies to any sector results in a shift in
overlap, single-change processes are
the culture of the organisation, but
interrupted, modified or restarted
maintains that Alizz is more than
and the organisation thus finds itself in
equipped to manage change. “Neither
a continuous process of change, if not
change management nor digitalisation
handled right, thus causing a potential
are new phenomena,” he says.
operational risk.” Kallur concludes by
“However, the variety of technical
noting that, Digital banking is the future.
changes, possibilities and innovations
Risk officers have to be prepared. We
is new, as well as demand for extremely
don’t take blind risks, but calculated
high implementation speed and
ones with a business collaborative
their extensive spillover effects for the
approach (risk vs. reward). That’s the
entire organisation.
nature of my role.”
“This combination has the consequences that various change processes w w w.a l i z z i sl a m ic. com
Alizz Islamic Bank Alizz Tower P.O. Box 753 CBD Area PC 112 Sultanate of Oman T +9 800 722 65 www.alizzislamic.com