Risk Management In Banks

Risk Management In Banks

Risk Management In Banks

Risk Management in banking comapnies includes risk identification, risk measurement and risk assessment. The objective of risk management in banking companies is to minimize negative consequences of risks that can affect financial result and capital of the bank. Almost every bank of the world is required to form a special risk control department for the purpose of proper risk management. Followings are three major types of risks that actually can affect any bank.

CREDIT RISK

Credit risk is known as the possibility or probability that a bank borrower or counter party will be unsuccessful to meet its monetary obligations in compliance with agreed terms and conditions. The objective of credit risk management is actually to maximize the bank's risk-adjusted profitability by maintaining credit risk exposure within satisfactory parameters. Banks need to manage and control the credit risk that exist in the entire portfolio and banking transactions. Loans are the major and most understandable source of credit risk for banks worldwide; nevertheless, other sources of credit risk also subsist throughout the business activities of the bank.

MARKET RISK

Market risk is also a risk that does effects banks profitability. There are two types of risks that are measured as the market risks for the bank.

1) Interest rate risk

2) Foreign exchange risk.

Due to foreign exchange rate fluctuations banks face foreign exchange risk and almost every product of the bank is interest rate sensitive so interest rate risk is also a very important risk for banks.

LIQUIDITY RISK

Liquidity risk is the probable incapability to pay the banker's liability when it become payable. It occurs when banks are not capable to generate cash to meet fund withdrawal. It forms from the unequal pattern of assets and liabilities. Managing liquidity needs are very important for effectual operations of commercial banks the reason of occurrence and affect of liquidity risk are first and foremost linked to the assets and liabilities.

OPERATIONAL RISK

Operational risk is the risk of the loss resulting failure in internal processes, human assets and system of a bank.

Sources of operational risk:

Some sources are mentioned below

- Wrong /delayed decision

- Poor Internal control

- Weak or poor MIS

- Incompetent Employees

- Lack of Planning

- Less/Poor contingency planning,

POST COMMENT

Hypnotherapy For Weight Management: Finish Your Smoking Habit Hypnotherapy For Weight Management: Stop Smoking! Hypnotherapy For Weight Management:Using Hypnotherapy to Stop Smoking Hypnotherapy For Weight Management: Stop Smoking Hypnosis Dynamics GP Refund Checks Setup and Processing in Receivables Management Module What Is Strategic Management? Can A Debt Management Co Really Help Me To Get Rid Of Debts? Debt Management Firms - What They Can Do And How To Find Reputable Firms What is Change Management So How Do We Define Change Management Successful Asset Management Are you thinking of starting a debt management company ? How Project Management Books Can Improve Your Way of Life Indonesian Human Resource Management