Introduction to Bank Risk Management
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Transcript of Introduction to Bank Risk Management
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Overview of Banking Risks
Dr.M.Venkateshwarlu
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Bank Exposure to Risk
In general Banking Risks fall into three categories:
Financial
Operational and
Environmental.
Financial in turn comprises two types:
Traditional Banking Risks include; Balance Sheet andIncome Statement structure, credit and solvency risks Can result in loss for a bank if they are not properly
managed. Treasury Risks Based on Financial Arbitrage, can result
in a profit if they arbitrage is correct or a loss if it isincorrect.
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Risk Management Partnerships
Bank Regulators and Supervisors
Share Holders
Executive Management Audit Committee and Internal Auditors
External Auditors
Customers and Public.
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Risk Based Analysis of Banks
Banking Supervision, which is based on
ongoing analytical review of banks continue to
be one of the key factors in maintaining
stability and confidence in the financial
system.
The methodology used
Off site surveillance
on site supervision process
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A Framework for Risk Analysis
Financial ManagementValue Maximization.
Why Banks are AnalyzedRisks and Return.
Understanding the Environment in whichbanks operate.
Financial System Infrastructure.
Macro economic Environment.
Risk Based Analysis of Banks.
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Balance Sheet Structure
Composition of Balance Sheet:
Bank Assets
Cash and Balances with Central Bank
Financial Assets Held for Trading
Loans and Advances to customers
Tangible Assets.
Investments in Associations and subsidiaries andJoint Ventures.
Other Assets.
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Bank Liabilities
Central Bank Funding
Financial Liabilities held for trading
Repurchase Agreement Obligations.
Financial Liabilities Measured at Amortized Cost. Deposits from Banks and Other Credit Institutions.
Deposits from Customers.
Foreign Borrowings
Equity and other items.
Off Balance Sheet Items
Growth and Changes in Balance Sheet
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Risk Analysis of the Balance Sheet
Structure and Growth
Asset Liability Mismatches
Growth Trends
Total Growth of Bank assets and Capital. Low Earning and Non Performing Assets as a
percentage of total assets.
Growth in Off Balance Sheet items.
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Income Statement Structure
Profitability
Interest Income
Interest Expense
Net Interest Income
Gain or losses on financial assets and liabilities held for trading.
Other Operating Income Exchange Differences
Administrative Costs.
Depreciation
Provisions
Impairment losses.
Analyzing the sources of Banking Income.
Analyzing the quality of earnings.
Analysis of Profitability indicators and ratios.
Assessing Internal performance- internal transfer pricing systems.
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Thank You
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