Types

Like any business,the banking sectorfaces many risks.
However, in view of the strategic Commented [PS1]: Possible source:

importance of this sector, it is important that the bank's risks be understood and identified. Since https://www.oliveboard.in/blog/types-of-risks-in-banks/
banks are public money watchers, governments are also interested in preventing bank risks.
What are bank risks?
A bank faces many different types of risks andneedsto be managed very carefully. Banks arise in Commented [PS2]: Possible source:
the risksdue to the occurrence of some expected or unexpected events in the economy or the https://www.oliveboard.in/blog/types-of-risks-in-banks/
financial markets. Risks can also arise from staff oversight or mala fideintentions, which result in Commented [PS3]: Possible source:
a loss in assets of assets such as leading to a bank's intrinsic value https://www.oliveboard.in/blog/types-of-risks-in-banks/
Commented [PS4]: Possible source:
typesof Risks in Banks https://www.oliveboard.in/blog/types-of-risks-in-banks/
Generally speaking, risks in the bankingsector are of two types namely Systematic Risks and Commented [PS5]: Possible source:
https://www.oliveboard.in/blog/types-of-risks-in-banks/
Unsystematic Risks.
Systematic risks: https://www.oliveboard.in/blog/types-of-risks-in-banks/
This risk is genetic inthe entire market or, say apart of the market, andcan affect a large number of Commented [PS7]: Possible source:
assets.
Thisrisk is also known asundiversifiable risk or volatilityand market risk. https://www.oliveboard.in/blog/types-of-risks-in-banks/
Thisrisk affects theentiremarket and not justthestock or industry in particular. https://www.oliveboard.in/blog/types-of-risks-in-banks/
This type of risk cannot be avoided completely and it is completely unpredictable. Commented [PS10]: Possible source:
Examples of this include interest rate changes, inflation, recession and wars.
Unsystematic Risks: https://www.oliveboard.in/blog/types-of-risks-in-banks/
This is a risk that affects a very small number of assets.
Also known as non-military risk, specific risk, miscellaneous risk and residual risk. Commented [PS13]: Possible source:
This type of risk refers to the uncertainty associated with investing in a company or a particular
industry. https://www.oliveboard.in/blog/types-of-risks-in-banks/
Examples include a change in management https://www.oliveboard.in/blog/types-of-risks-in-banks/
, product returns, a regular change that can lead to a decline in Commented [PS16]: Possible source:
company sales, and a new https://www.oliveboard.in/blog/types-of-risks-in-banks/
rival to the market Commented [PS17]: Possible source:
in which you https://www.oliveboard.in/blog/types-of-risks-in-banks/
invest in a company can capture market share. Commented [PS18]: Possible source:
It is possible to avoid https://www.oliveboard.in/blog/types-of-risks-in-banks/
non-systemic risks through diversity. Commented [PS19]: Possible source:
In addition to these broad categories ofrisks there are other major issues as well that banking
industries mainly faces. That are discussed below: https://www.oliveboard.in/blog/types-of-risks-in-banks/
Credit risk: Commented [PS21]: Possible source:

This is a risk in which the borrower is unable to pay interest or principal on its obligations. Commented [PS22]: Possible source:
The Basel Committee on Banking Supervision defines credit risk as the potential that a bank https://www.oliveboard.in/blog/types-of-risks-in-banks/
borrower, or counter-party, will fail to meet its payment obligations regarding the terms agreed Commented [PS23]: Possible source:
with the bank This includes both the uncertainty involved in paying the bank's dues and the timely https://www.oliveboard.in/blog/types-of-risks-in-banks/
dues. Commented [PS24]: Possible sources:

Market Risk: https://gomedici.com/risks-in-the-banking-industry-faced-
by-every-bank?__s=k5yfbnxarkhh5uiay8ov
The Basel Committee on Banking Supervision defines market risk as the risk of losses in on- http://euroasiapub.org/wp-
content/uploads/2016/11/4FMJuly-2370-1.pdf
balanceor off-balance sheet positions that arise from movement in market prices.Market risk is the https://www.powtoon.com/online-
most prominent for banks present in investment banking. presentation/dKfOceQQT9u/untitled-3/
https://www.ijser.org/researchpaper/The-Relationship-
The four components of market risk: between-Macroeconomic-Factors-and-the-Level-of-Non-
Performing-Loans-NPLs-of-Commercial-Banks-in-
Interest Risk: This leads topotential losses due tomovement of interest rates. This risk arises Vietnam.pdf
because, generally, a bank's assets have a much longer maturity than its obligations. In the banking Commented [PS25]: Possible sources:
language, interest rate risk management is also known as asset liability management (ALM). https://www.oliveboard.in/blog/types-of-risks-in-banks/
https://gomedici.com/risks-in-the-banking-industry-faced-
Equity Risk: Thischange in stock prices causes potential lossesas banks have accepted equity by-every-bank?__s=k5yfbnxarkhh5uiay8ov ...
against debt supply.Banks can accept equity asan affiliatefor loans andcan investin other Commented [PS26]: Possible sources: ...
companiesbuying their property as free or cost-free cash.Any negative change in the stock Commented [PS27]: Possible sources: ...
priceleads to either a loss or a reductionin the value of theinvestment. Commented [PS28]: Possible sources: ...
Commodity Risk: This leads topotential losses due to changes in commodity (agricultural, Commented [PS29]: Possible sources: ...
industrial, energy) prices. These price fluctuations occur due to the constant variation in supply Commented [PS30]: Possible source: ...
and demand. Banks can withhold them as part of their investment, and therefore suffer losses. Commented [PS31]: Possible source: ...
Commodity values fluctuate greatly due to changes in supply and demand. Any bank in which
Commented [PS32]: Possible sources: ...
they consider them to be part of the investment is at risk of commodity.
Foreign Exchange Risk: This can lead to potential lossesdue to changes in the value of Commented [PS34]: Possible sources: ...
thebank'sassets or liabilities, resultingin banks exchanging multiple currencies with their clientsor
other stakeholders. Banks conduct foreign exchange transactions for their customers or in their
own bank accounts. Any negative move could reducethe value of the foreign currency anddamage
the bank. Commented [PS37]: Possible sources: ...
Commented [PS38]: Possible source: ...
Liquidity Risk: This can be explained by the risk that a bank cannot finance its day-to-day
operations. Failure to handle this risk can have serious consequences for the bank's reputation as
well as bond prices in the money market and bank prices. Commented [PS40]: Possible source: ...
Operational Risk: The Basel Committee on Banking Supervision defines operational risk asfear of
loss due to inadequate or unsuccessfulinternal processes, people and systems or external events. Commented [PS42]: Possible sources: ...
All banks face operationalrisk in their day-to-day operations,including treasury, credit, investment,
Commented [PS44]: Possible source: ...
information technology, inall their departments.
There are three mainreasons for this risk. Commented [PS46]: Possible sources: ...
Inter-human interference and error Commented [PS47]: Possible sources: ...
Failure of IT / internal software and systems.
Failure of internal process to transmit data and information correctly
Reputational Risk: The risk of fame is a sign of public loss of trust in the bank due to a negative Commented [PS48]: Possible sources:
impression or image that can be created by the bank with evidence of wrongdoing. Reputation https://www.oliveboard.in/blog/types-of-risks-in-banks/
value is often measured in terms of brand value. Advertising plays a vital role in shaping and by-every-bank?__s=k5yfbnxarkhh5uiay8ov
maintaining public perception, which is a key reason for banks to spend millions of content
Commented [PS49]: Possible sources:
marketing. https://www.oliveboard.in/blog/types-of-risks-in-banks/
The perceived risk may be: by-every-bank?__s=k5yfbnxarkhh5uiay8ov
Inabilityof the bank torespectgovernment / regulatory commitmentsby the government Commented [PS50]: Possible sources:
Violations of Code of Conductunder corporate governance https://gomedici.com/risks-in-the-banking-industry-faced-
Mismanagement/ manipulation of user records Commented [PS51]: Possible sources:
Effectivecustomer service / after-sales services https://gomedici.com/risks-in-the-banking-industry-faced-
Commented [PS52]: Possible sources:
Capital adequacy risk: The risk is that the bank Insufficient capital to support its development or https://gomedici.com/risks-in-the-banking-industry-faced-
unable to meet the legally defined capital needs. by-every-bank?__s=k5yfbnxarkhh5uiay8ov
Regulatory risk: The risk of non-compliance with regulatory requirements, regulatory change or Commented [PS53]: Possible sources:
regulators' expectations https://gomedici.com/risks-in-the-banking-industry-faced-

Types

Transféré par

Informations du document

Titre original

Copyright

Formats disponibles

Partager ce document

Partager ou intégrer le document

Options de partage

Avez-vous trouvé ce document utile ?

Ce contenu est-il inapproprié ?

Droits d'auteur :

Formats disponibles

Types

Transféré par

Droits d'auteur :

Formats disponibles

Like any business,the banking sectorfaces many risks.

However, in view of the strategic Commented [PS1]: Possible source:

Credit risk: Commented [PS21]: Possible source:

dues. Commented [PS24]: Possible sources:

Vous aimerez peut-être aussi