Operational risk management by commercial banks: a new challenge calls for an integrated solution.

Awareness of operational risk as a separate risk category has been relatively new in most banks in Tanzania. This has been a result of concentration of research efforts on credit, interest rate, and liquidity risk management while leaving out operational risk management. This study examined how commercial banks in Tanzania manage operational risk. Literature proposes two sets of view banks can choose in managing operational risks, which is an integrated approach or a dispersed approach. An integrated approach takes total risk profile for the entire bank while a dispersed approach to operational risk management leaves each business unit or department to manage the risk. Empirical evidence shows that an integrated approach is gaining widest acceptance and many banks are structuring their organizations toward that end. This study was an exploratory one, covered nine commercial banks operating in the country. Questionnaire was used to collect data while interview was used to collect operational loss data. Questionnaires were administered to different respondents from Internal Audit/Operational risk unit, Operations, Finance, IT departments and branches. The findings show that majority of banks have operational risk management policy with multiple definitions. Further established and concludes that operational risk is influenced by the bank's structure.