Examine the concept of risk management in banks
Mariam Peyton is a professional Financial Analyst. She holds a Masters degree in Economics. She specialises in financial analysis and forecasting. Her expertise includes studying the financial performance of companies, markets and entire industries looking for trends, insights and information that can help you glean rich insights for use in academic and market research.
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The purpose of this research is to examine how banks use risk management practices and techniques in dealing with the different types of risks they are faced with. What is risk management? Risk management refers to taking an initiative to design, lead, organize, and control the broad range of risks that fall into the organization’s day-to-day and long-term functioning. Important to note is that risk is unavoidable in our everyday quest of our goals and overall success of an organization. This paper identifies the risks faced by the banking industry, how it manages the various risks involved and the techniques adopted by the banking industry for risk management.
What is risk management in a bank? In a bank, risk management refers to the plan or procedure undertaken by the management to prevent and mitigate potential risks that may influence a banks overall performance and finances. It involves recognizing, evaluating, and mitigating risks that a bank is likely to face in its day to day running of operations. The primary purpose of risk management in banks is to reduce the effect of risks on the bank’s operations and financial performance.
What risks do banks take? Banks take a number of risks but the largest of them are credit risk, market risk, operational risk, liquidity risk, technology and information risk, and strategic risk. Banks are exposed to a number of risks therefore they must have a well drafted risk management plan that they follow.
The importance of risk management in banks is that it aids them in identifying and mitigating potential risks likely to affect their financial stability, reputation, and customer loyalty. Risk management has a number of benefits among which include; it helps banks to sustain financial stability, helps them to complying with their governing regulations, helps them to maintain their reputation, helps them to protect their customers from potential risks among so many other to be exhausted in the following sections of this paper
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Examine the concept of risk management in banks Case Study
Key Learning Outcomes
By the end of the case, students should be able to:
- undestand what is meant by risk management
- Understand the various risks that banks face and how they handle them
- Understand how to solve core risks in other organizations
1.0 INTRODUCTION
Risk denotes a situation that involves exposure to danger. Simply put, risk may be defined as the future uncertainty of the predictable and unpredictable outcomes from a certain situation. Businesses and companies regardless of whether they provide services or products are fronting a risk in one way or another as it’s a trend these days in the competitive world. Banks in this case face a greater risk as they are handling people’s money and also their reputation in most cases is at stake. A bank is defined as a financial institution which handle the borrowing and lending money from one individual to another. Besides that, banks are also faced with other duties that are of great importance to the economy. Banks offer a variety of services which in return increases the intensity of exposure to risks. The purpose of this research is to examine how banks use risk management practices and techniques in dealing with different types of risk.
What is risk management in a bank? In a bank, risk management refers to the plan or procedure undertaken by the management to prevent and mitigate potential risks that may influence a banks overall performance and finances. It involves recognizing, evaluating, and mitigating risks that a bank is likely to face in its day to day running of operations. The primary purpose of risk management in banks is to reduce the effect of risks on the bank’s operations and financial performance.
What risks do banks take? Banks take a number of risks but the largest of them are credit risk, market risk, operational risk, liquidity risk, technology and information risk, and strategic risk. Banks are exposed to a number of risks therefore they must have a well drafted risk management plan that they follow.
Credit Risk Management is where the bank evaluates the creditworthiness of their borrowers to manage default risks. The techniques used here include; credit scoring models and credit analysis that help them to evaluate the risks.
Market Risk Management is handling the risk of losses resulting from changes in market conditions, such as interest rates, exchange rates, and commodity prices.
Operational Risk Management involves controlling the risk of losses caused by inadequate internal processes and external events.
The importance of risk management in banks is that it aids them in identifying and mitigating potential risks likely to affect their financial stability, reputation, and customer loyalty.
Risk management has a number of benefits among which include; it helps banks to sustain financial stability, helps them to complying with their governing regulations, helps them to maintain their reputation, helps them to protect their customers from potential risks among so many other to be exhausted in the following sections of this paper.
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