rkmoon
New member
Risk defined Banks being financial intermediaries channelise funds through the process of mobilisation and deployment of funds and in this process, they get exposed to different kinds of risks such as liquidity risk, interest rate movement risk, credit risk, foreign exchange risk etc. Risk can be defined as the potential loss from a banking transaction (in the form of a loan, or investment in securities or any other kind of transaction undertaken by the bank for itself or for customers), which a bank can suffer due to variety of reasons.
Why risk management ? The basic objective of risk management is to stake holders' value by maximizing the profit and optimizing the capital funds for ensuring long term solvency of the banking organisation.
Process of credit risk management
The process of risk management, broadly comprise the following functions:
• Risk identification,
• Risk measurement or quantification,
• Risk control or risk mitigation,
• Monitoring and reviewing.
Risk identificationThe risk identification involves the understanding of the nature of various kinds of risk, the circumstances which lead a situation to become a risk situation and causes due to which the risk can arise. In order to have effective identification system in place, it is important that the risks should be categorised in various categories, so that while formulating the risk management strategies, the focus should be on the exact risk factor.
Risk Quantification Risk quantification is an assessment of the degree of the risk which a particular transaction or an activity is exposed to. Though the exact measurement of risk is not possible but the level of risk can be determined with the help of risk rating models, which could be developed or ready made models could be adopted by suitably modifying them according to requirement of the organisation.
Risk control Risk control, risk mitigation and risk aversion is the stage in risk management where the bank or institutions take steps to control the risk with the help of various tools. There are different tools to control different kinds of risks.
Risk MonitoringIn monitoring, the bankers have to fix up the parameters on which the transaction is to be tested to be sure that there is no risk to viable existence of the financed unit or investment of the bank.
Risk pricing
Fixation of price based on the degree of risk, is a fundamental tenet of risk management. Pricing of the risk can be adjusted in such a way that potential loss could be taken care without burdening the capital
:SugarwareZ-299: :SugarwareZ-299: :SugarwareZ-299:
Why risk management ? The basic objective of risk management is to stake holders' value by maximizing the profit and optimizing the capital funds for ensuring long term solvency of the banking organisation.
Process of credit risk management
The process of risk management, broadly comprise the following functions:
• Risk identification,
• Risk measurement or quantification,
• Risk control or risk mitigation,
• Monitoring and reviewing.
Risk identificationThe risk identification involves the understanding of the nature of various kinds of risk, the circumstances which lead a situation to become a risk situation and causes due to which the risk can arise. In order to have effective identification system in place, it is important that the risks should be categorised in various categories, so that while formulating the risk management strategies, the focus should be on the exact risk factor.
Risk Quantification Risk quantification is an assessment of the degree of the risk which a particular transaction or an activity is exposed to. Though the exact measurement of risk is not possible but the level of risk can be determined with the help of risk rating models, which could be developed or ready made models could be adopted by suitably modifying them according to requirement of the organisation.
Risk control Risk control, risk mitigation and risk aversion is the stage in risk management where the bank or institutions take steps to control the risk with the help of various tools. There are different tools to control different kinds of risks.
Risk MonitoringIn monitoring, the bankers have to fix up the parameters on which the transaction is to be tested to be sure that there is no risk to viable existence of the financed unit or investment of the bank.
Risk pricing
Fixation of price based on the degree of risk, is a fundamental tenet of risk management. Pricing of the risk can be adjusted in such a way that potential loss could be taken care without burdening the capital
:SugarwareZ-299: :SugarwareZ-299: :SugarwareZ-299: