"Bilal Masood"1. Renewable Energy Systems Bilal Masood "Bilal Masood"2.
Bilal Owais Irfan
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Transcript of Bilal Owais Irfan
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Risk Management in Banking
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Risk Management is the process of measuring or assessing the actual or potential dangers of a particular situation.
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RISKS FACED BY BANKS
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Risk DimensionsCredit
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Risk Has Two ComponentsUncertainty.Exposure.
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TYPES OF RISK Operational.
Credit.
Reputational
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Operational RiskThe risk of loss resulting from inadequate or failed internal processes, people and systems, or from external events.
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Operational Risks IncludeInternal Fraud.External Fraud.Employment Practices and Workplace Safety.Clients, Products and Business Practices.Damage to Physical Assets.
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Internal FraudUnauthorized Activity.Transactions not reported.Transaction type unauthorized.Mismarking of position.Theft and Fraud.Fraud/credit fraud/worthless deposits.Theft/extortion/embezzlement/robbery.Misappropriation of assets.Forgery.Account take-over/impersonation.Bribes/kickbacks.Insider trading.Money laundering.Willful blindness.
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External FraudTheft and Fraud.Theft/robbery.Forgery.Check kiting.Identity theft.Elder financial abuse.Systems Security.Hacking damage.Theft of information (with monetary loss).
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Employment Practices and Workplace SafetyEmployee Relations.Compensation, benefit, termination issues.Organized labor issues.Safe Environment.General liability (slips and falls).Employee health and safety rules. Workers compensation.Diversity and Discrimination.All discrimination types.Harassment.Equal Employment Opportunity (EEO).
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Clients, Products and Business PracticesSuitability, Disclosure and Forgery.guideline violations.Suitability/disclosure issues.Retail consumer disclosure violations.Breach of privacy.Aggressive sales.Inadequate product offerings.Account churning.Misuse of confidential information.Lender liability.
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Clients, Products and Business Practices (CONTINUED)Improper Business or Market Practices .Antitrust.Improper trade/market practice.Market manipulation.Insider trading (on firms account).Unlicensed activity.Money laundering.
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Clients, Products and Business Practices (CONTINUED)Selection, Sponsorship and Exposure.Failure to investigate client per guidelines.Exceeding client exposure limits.Advisory Activities.Disputes over performance or advisory activities.
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Operational Risk ChecklistEmployee training.Close management oversight.Segregation of duties.Employee background checks.Procedures and process.Purchase of insurance.Exiting certain businesses.Capitalization of risks.
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Credit RiskRisk due to an uncertainty in a counterpartys ability to meet its obligations in accordance with agreed upon terms.
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Credit Risks Include:Loans.Acceptances.Interbank transactions.Trade financing.Equities.Letters of credit.
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Sound Practices for Managing Credit Risk
Establish an appropriate credit risk environment.Operate under a sound credit-granting process.Maintain an appropriate credit administration, measurement and monitoring process.Ensure adequate controls over credit risk.
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Establish an Appropriate Credit Risk EnvironmentBoard of Directors should review credit risk strategy periodically.Senior management should implement credit risk strategy approved by the Board.
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Operate Under a Sound Credit Granting ProcessCriteria should include thorough understanding of the borrower, purpose/structure of credit and its source of repayment.Establish overall credit limits at the level of individual borrowers/connected counterparties.Have a clearly established process for approving new credits/extension of existing credits.
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Maintain a Credit Administration, Measurement and Monitoring Process (CONTINUED)System for monitoring overall composition and quality of the credit portfolio.Consider future changes in economic conditions when assessing individual credits.
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Credit Risk ChecklistStringent credit standards for borrowers and counterparties.Strict portfolio risk management.Constant focus on changes in economic or other circumstances that can lead to a decline in the credit standing of a banks counterparties.
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STANDARDS FOR CREDIT Based on five Cs
CharacterCapitalCapacityCollateralConditions
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Reputational RiskReputational risk is the potential that negative publicity, whether true or not, will result in loss of customers, severing of corporate affiliations, decrease in revenues and increase in costs.
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Improving relations with shareholders.Creating a more favorable environment for investment.Recruiting/retaining the best employees.Reducing barriers to development in new markets.Securing premium prices for products.Minimizing threats of legal actions.
Benefits of Effective Reputation Management