BUS101: Risk Management Case Study of Commonwealth Bank of Australia

This case study examines the risk management strategies of the Commonwealth Bank of Australia (CBA). It begins with an introduction to risk management in international business and provides an overview of CBA's background, organizational structure, and environmental factors influencing its decisions. The analysis delves into the various risks CBA faces, including policy, strategic, foreign exchange, and legal risks, along with the bank's approach to mitigating them. The study highlights CBA's business practices, such as the establishment of a Risk and Compliance Committee, and the use of financial instruments to manage market risks. The conclusion summarizes the importance of risk identification, strategic integration, and the development of a risk-aware organizational culture within CBA. The document also references relevant literature to support the analysis.

2020
Risk Management
Case Study of Commonwealth Bank of Australia
Student Details

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Table of Contents
Introduction................................................................................................................................2
Organisation Background...........................................................................................................2
Organisational Structure of CBA...............................................................................................2
Environmental Factors influencing business decisions..............................................................3
Risks faced by the organisation..................................................................................................4
Business Practices adopted by CBA..........................................................................................5
Conclusion..................................................................................................................................5
References..................................................................................................................................7

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Introduction
Risk management is an important aspect of international business. The organisations
operating within the international market requires that they focus on analysing the business
environment and identify and analyse the risk so that the impact of the risk on the operations
can be mitigated and the organisation's profitability can be ensured (Hussain & Al‐Ajmi ,
2012). The analysis is focused on analysing the banking sector with the focus on the
Commonwealth Bank of Australia and identifying the risk faced by the organisation and the
steps taken by the organisation to mitigate such risks.
Organisation Background
The Commonwealth Bank of Australia (CBA) is a multinational bank operating its
business over Asia, US, UK and New Zealand. The bank provides the services to the
individuals, small and medium-sized enterprises, along with the corporate and general
banking options and fund management. The bank is among the leading banks within the
Australian banking sector and focuses on customer satisfaction along with the organisational
efficiency within the working. The mission and vision of the bank are to focus on innovation
and to follow the principles of ethical and good banking and maintain a good customer
experience within the industry (CBA, 2020).
Organisational Structure of CBA
The organisation’s efficiency can be maintained effectively through developing an
effective organisational structure comprising of the main elements such as the proper chain of
command, defined span of control, departmentalisation and accountability as well as
responsibilities of activities within the organisation (Ullah, 2016). The organisation is
required to design its organisational structure as per the business nature and requirements
within the industry (Schaltegger, Hansen, & Lüdeke, 2015). The commonwealth bank deals
in various business aspects including retail banking, corporate services, fund management
and insurance segment. Therefore, accordingly, the bank has established and set up
departments that focus on the specific activities related to a particular field of interest and
bases on the functionality and division within the organisation.
The management has also decentralised the power within the heads of the various
departments so that they can focus upon the development of their respective departments and
can take required actions. The bank has effectively established a matrix-based chain of

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command so that the decisions and actions can effectively be transferred or communicated at
every level within the organisation (BALA, 2018). Also, the organisational structure at CBA
has resulted in achieving the position of the most sustainable organisation in Australia, also in
Davos, Switzerland the bank has been named most sustainable business for three consecutive
years (CBA, 2018).
The functional departments at CBA include the Retail Banking Services, that is
focused on meeting the needs and requirements of the small business customers as well as the
personal banking needs of the individuals within the society. Premium Financial Services at
CBA is involved in providing wealth management services to the business clients having
complex financial issues as well as the requirement of customized services. The investment
and insurance service department deal in insurance as well as the investment services
provided by the bank to its clients. The management at CBA has established a department of
Institutional and Business services to provide services to the middle and corporate level
business customers. The different functional departments at the organisation help in the
effective management of the organisation and retaining its position within the industry (CBA,
2020).
Environmental Factors influencing business decisions
The CBA operates in multiple nations across the world therefore, the political status
of the nation can impact the profitability or the working of the bank within the nation. The
importance of the banking sector in political stability, level of corruption, legal frameworks
or the interest of the political party in power towards the promotion of the banking sector,
such policies or situations are required to be analysed (Baker, 2013). The economic stability
of the nation is also required to be analysed to identify the environmental issues, the major
issues in the economic environment are the inflation rate, foreign exchange rate, the
economic stability of the nation (Guzman, Ocampo, & Stiglitz, 2018). CBA can focus upon
the nation’s economic stability, with the development of the economic status of the nations,
CBA can focus upon its business expansion in the nations.
The social or the demographic factors of the nation are also important to identify the
impact on the banking sector and the profitability of CBA. As with the increasing trend in
start-ups in various nations, the finance requirement will also increase (Shahriar, Schwarz, &
Newman, 2016), CBA can effectively utilise the opportunity for its business development.
Also, with the increase in young customers, it is required that the bank focuses more on the

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innovation and technological factors so that they can provide effective services to the
customers within the industry (Akturan & Tezcan, 2012). The technological advancements
within the industry require that CBA also focuses on implementing such changes so that the
bank can compete within the industry. The major concern within the industry is the data
protection and the cybersecurity so that the customers can be provided with a safe and secure
banking experience (Zerlang, 2017).
The nations legal rules and regulation related to the banking industry and the banking
norms are the factors that also influence the working of the CBA in a particular nation. The
national central bank or the regulatory authority response towards the development of the
private banks influences the profitability of CBA within the nation. The environmental
factors of the nation are required to be analysed so that the overall efficiency of the bank can
be ensured. As discussed, the political, legal, social, technological and economic factors
influence the way the organisation operates its business (Sammut‐Bonnici & Galea, 2015).
Risks faced by the organisation
CBA is effectively dealing with the policy as well as strategic issues within the
organisation has a leading brand image as well diversified credit ratio within the industry as
its strength but still, the decision making or the risk management is the issue the organisation
is dealing with. The risk manager at CBA admits that the Bank is going through lack of
compliance policy, which binds the leaders or the employees to perform a specific action
allotted to them or to think towards the organisational development, which also represents
that CBA has a blurred or undefined line of responsibility within the industry (Frost, 2018).
The bank also faces the risk of the foreign exchange rates within the industry, as with
any change in the rates the bank’s transaction gets influenced due to the change in the value
of the underlying asset. Therefore, the management and the department leaders are required
to focus on the risk within the industry and take necessary steps so that such risk can be
avoided while working. The risk of changes in rates of foreign exchange influences the
decision-making process, as the bank accordingly provides the services to the international
customers and predict the changes within the international market while investing in
opportunities in the global market (Mancini, Ranaldo, & Wrampelmeyer, 2013).
The commonwealth bank of Australia deals from the national boundaries of Australia,
therefore it faces legal risk from the government, as Australia is a part of UN, therefore in
order to implement the UN Security Council orders and policies, it imposes restrictions on

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international financial transactions, under such conditions, CBA is required to terminate its
relations with its international customers, and results in loss to the image or the market
reputation within the industry and also bring an end with the relation with the customer
within the industry (CBA, 2018).
Business Practices adopted by CBA
The management and the board at CBA have effectively analysed and integrated the
risk management as the important part of the organisation’s operational; activities and has
developed an organisational culture that focuses on identifying the risk within the business
environment and accordingly taking decisions so that the necessary decisions can be taken
and effective and profitable decisions can be taken so that the strategic goals and the
profitability can be achieved. Also, the organisation is investing in the risk management
systems and innovation within the working, so that the risk can be analysed and the
management can effectively deal with it (CBA, 2019).
The bank has established a committee termed as Risk and Compliance Committee to
analyse the risk within the business environment and to take necessary steps to avoid the risk
and to ensure that the operational activities are being operated smoothly. The major
responsibilities of the group involve identifying and predicting the potential risk within the
industry, developing frameworks and approach towards risk management, monitoring the
organisation's performance towards the risk management and establishing a risk management
culture within the organisation so that the strategies developed should involve the aspect of
the risk management and the organisational profitability and efficiency within the industry
can be ensured (Willcocksa & Reynolds, 2014).
CBA effectively utilises the foreign exchange products such as Swaps, FX Forwards
and other options available to ensure that the changes in the foreign rate do not impact the
business decisions and the profitability of the organisation. The organisation effectively
utilises the market instruments to mitigate the risk and to ensure business profitability.
Conclusion
Commonwealth Bank of Australia operates in the global market, therefore it gets
exposed to various market risks, such as the changes in the political interest or the technology
adaption. The organisation is required to effectively focus on the issues within the business
environment so that the risk can be identified and strategies can be developed to mitigate the
impact of the risk on the organisation’s profitability. The CBA has established a risk

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management committee that is focused on risk identification and developing strategies within
the organisation. Also, the management focuses on integrating the risk management within
the organisational culture so that the decisions taken should be focused on the organisation’s
development.

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References
Akturan, U., & Tezcan, N. (2012). Mobile banking adoption of the youth market: Perceptions
and intentions. Journal of Marketing Intelligence & Planning, 444-459.
doi:10.1108/02634501211231928
Baker, A. (2013). The New Political Economy of the Macroprudential Ideational Shift.
Routledge journal of Political economy, 112-139.
doi:10.1080/13563467.2012.662952
BALA. (2018, August 12). Commonwealth Bank Australia Organizational Structure.
Retrieved from BohatAla: https://bohatala.com/commonwealth-bank-australia-
organizational-structure/
CBA. (2018, January 23). CBA Is Australia'S Most Sustainable Company On G100 Index.
Retrieved from CBA: https://www.commbank.com.au/guidance/newsroom/cba-g100-
most-sustainable-company-in-australia-2018-201801.html
CBA. (2018, December). Risk Associated with the Global Market Products. Retrieved from
Commonwealth Bank of Australia:
https://www.commbank.com.au/content/dam/commbank-assets/about-us/2019-03/
Risks-Associated-with-Global-Markets-Products-COBS-14.3A.5.pdf
CBA. (2019). Risk Report. Retrieved from CBA:
https://www.commbank.com.au/content/dam/commbank-assets/about-us/2019-08/
CBA-2019-Annual-Report-Risk-management.pdf
CBA. (2020). Our Company. Retrieved from CBA: https://www.commbank.com.au/about-
us/our-company.html
Frost, J. (2018, May 30). CBA risk overhaul will take up to five years. Retrieved from
Fianancial Review: https://www.afr.com/companies/financial-services/cba-risk-
overhaul-will-take-up-to-five-years-20180530-h10qrt
Guzman, M., Ocampo, J. A., & Stiglitz, J. E. (2018). Real exchange rate policies for
economic development. Journal of World Development, 51-62.
doi:10.1016/j.worlddev.2018.05.017

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