Risk Management In

Banking -

Issues and Challenges

 Risk Management

“Risk Management is a discipline at

the core of every financial institution
and encompasses all the activities
that affect its risk profile”
 Types Of Risk
• Credit Risk
• Market Risk
• Liquidity Risk
• Operational Risk
• Solvency Risk
• Interest Rate Risk
 Credit risk
“An obligor is either unwilling to perform on an
obligation or its ability to perform such
obligation is impaired resulting in economic
loss to the bank.”

• Board and senior Management’s Oversight

• Organizational structure
• Systems and procedures for identification,
acceptance, measurement, monitoring and
control risks.
 Managing Market Risk
“It is the risk that the value of on and off-balance sheet
positions of a financial institution will be adversely affected
by movements in market rates or prices such as interest
rates, foreign exchange rates, equity prices, credit spreads
and/or commodity prices resulting in a loss to earnings and
capital.”

• Re-pricing risk
• Basis risk
• Yield curve risk
• Options risk
• Equity price risk
• Foreign Exchange Risk
 Liquidity Risk
“The potential for loss to an institution arising
from either its inability to meet its
obligations or to fund increases in assets as
they fall due without incurring unacceptable
cost or losses.”

• Large off-balance sheet exposures

• Evaluating banks current and future use of
the market
 Operational Risk
“The risk of loss resulting from
inadequate or failed internal
processes, people and system or from
external events.”
 Basel II

• Pillar I: Minimum Capital

Requirement

• Pillar II: Supervisory Reviews

• Pillar III: Market Discipline

 Major Challenges
• Risk Management
• Risk Identification
• No method gives total guarantee
• Universal approach of the Basel II Accord
• Recruitment of the Right candidates
• Under valuation of risks and Monitoring
policies
• Information Content
• Scenario Analysis
• Effective management information system (MIS)
• Fiscal sustainability issues
• Size and concentration of external imbalances
• Multilateral trading system