The Banking Executive Magazine - September 2025 Issue

Rethinking Risk and Strategy capital to maximize long-term growth. Others use the Minimax ap- proach, which emphasizes minimiz- ing maximum potential regret rather than maximizing expected returns. Both approaches highlight the trade- off between risk and reward, but they also underscore a deeper truth: in volatile environments, the chosen framework matters as much as the decision itself. For Arab banks, whose exposure spans diverse sectors and geogra- phies, the selection of risk frame- works should reflect both global best practices and local realities. Re- source allocation decisions— whether in retail banking, corporate lending, or sovereign finance— should be tested against multiple models to ensure resilience. Boards and executive teams must ask whether the frameworks they are ap- plying remain relevant, or whether they need updating in light of shifting market dynamics and geopolitical conditions. THE AMPLIFICATION OF RISK A further complication of today’s en- vironment is the amplification of risks. In stable periods, errors in de- cision-making may carry limited consequences. But when volatility is high and tail risks are elevated, the costs of misjudgment multiply. A poor investment decision, a mis- priced asset, or a delayed policy re- sponse can set off chain reactions that reverberate across entire economies. For Arab banking leaders, this recog- nition must shape every aspect of strategic planning. It implies that tra- ditional risk buffers, such as capital adequacy and liquidity ratios, must be complemented by more dynamic tools. Scenario analysis, stress test- ing, and forward-looking assess- ments are no longer optional; they are essential. Moreover, collabora- tion between banks and central banks in developing shared method- ologies for assessing systemic risks will be vital to preserving regional stability. CONTINUOUS REASSESSMENT THROUGH THE OODA LOOP The military strategist John Boyd’s concept of the OODA loop—ob- serve, orient, decide, act—offers a useful lens for leaders in finance. Each stage must be revisited contin- ually as conditions evolve. Observa- tion requires accurate data; orientation demands proper framing of problems and recognition of exter- nal dynamics; decision entails weighing competing options; and ac- tion involves the disciplined imple- mentation of chosen strategies. Crucially, the loop is iterative. Each action generates new data, requiring renewed observation and further re- finement. In the Arab banking context, adopt- ing such a loop would help institu- tions remain agile without sacrificing strategic coherence. For example, a bank expanding into new digital services should continuously test customer behavior, regulatory re- sponses, and technological reliabil- ity, revisiting its assumptions and recalibrating its strategies accord- ingly. Recommendations for Arab Banking Leaders. Given these realities, what steps should Arab banks and their leaders take? Several recommendations emerge: • Define Clear Strategic Objectives: Institutions must articulate overar- ching goals that balance profitabil- ity with broader responsibilities to national economies and societies. • Acknowledge External Dynamics: Banks must incorporate global and regional shifts—whether deglobal- ization, technological change, or demographic pressures—into their core strategies. • Invest in Advanced Analytics Responsibly: AI and other tools should be em- braced, but always with attention to data quality, ethics, and contex- tual expertise. • Strengthen Risk Frameworks: Boards should test decisions against multiple models, recogniz- ing that outdated frameworks may amplify rather than mitigate risks. • Enhance Stress Testing and Scenario Analysis: Dynamic assessments of potential shocks should be institutionalized at every level of strategic planning. • Adopt Continuous Reassessment: Through iterative frameworks like the OODA loop, banks can ensure agility while maintaining long-term discipline. • Deepen Collaboration with Regulators: Shared methodologies, transparent dialogue, and collective vigilance are indispensable for preserving systemic stability. A THOUGHTFUL CONCLUSION Decision-making has always been central to leadership, but in the cur- rent era, its importance is magnified by complexity, speed, and interde- pendence. For Arab banks, the impli- cations are profound. Institutions must equip themselves with clearer objectives, sharper analytical tools, and stronger risk frameworks, while cultivating a culture of continuous reassessment. Success will depend not only on individual excellence but also on collective wisdom— among banks, regulators, and policy- makers. In embracing these imperatives, Arab banking leaders can ensure that their decisions not only preserve stability but also con- tribute to a more resilient, prosper- ous, and inclusive regional future. the BANKING EXECUTIVE 44 ISSUE 201 SEPTEMBER 2025