This website uses cookies to ensure you have the best experience. Learn more

Credit Risk Essay

587 words - 3 pages

Credit Risk Management: Credit risk can be defined as risk of failure of customer/counterparty of the bank to meet financial obligations. Another major source of credit risk could be concentration risk, which arises when a bank’s credit portfolio tend to be non-diversified i.e. large single borrower exposure or lending exposure to clients having similar economic factors (single sub-sector, industry, geographic region etc.) that would adversely impact the repayment ability of mass obligor during any possible economic downturn. To ensure the portfolio health, the bank has distributed the overall credit concentration among different segments/industry/trading. For example, branches are primarily responsible for sourcing of potential clients and initiate limit (credit) approval process for review of Credit Risk Management Division (CRMD), this division (CRMD) ensure the quality of credit proposal before limit approval, a separate division ...view middle of the document...

g. wrong valuation of collateral, Capital computation under Pillar –II using the foundation documentation error etc)
 Internal Rating Based (FIRB) approach
 Concentration Risk Herfindahl-Hirschman Index ( HHI) index

Foreign Exchange Risk Management: The Foreign Exchange Risk arises from transaction involvement in any other national currency. Providing major foreign exchange related transactions are carried out on behalf of client thus bank has minimal exposure to the captioned risk. It is mentionable that the bank do not involve in any speculative transactions. The treasury division independently conducts the transactions and back o ce is responsible for verifying the deal and passes necessary accounting entries. As advised by Bangladesh Bank on month end all foreign exchange related transactions are revalued at mark-to-market rate. All Nostro accounts are reconciled on daily basis and outstanding entries beyond 30 days are reviewed by management for settlement. It is mentionable that bank management is looking forward to establish treasury mid o cue to actively perform the reconciliation activities. Similar to credit risk, RMU is in the process of implementation of Value-at-Risk (VAR) to assess the foreign exchange risk more e actively.

Asset Liability Management:The Asset Liability Risk is comprises of Balance Sheet Risk and liquidity risk. The Balance Sheet risk refers to risk of change in earning and/or devaluation of asset due to interest rate movement. The liquidity risk can be defined as the risk or chance of failure to meet up any withdrawal/disbursement request by a counterparty/client. ALCO reviews liquidity requirements of the Bank, maturity of assets and liabilities, deposit and lending pricing strategy and the liquidity contingency plan. The Asset Liability Committee also monitors balance sheet risk. The RMU risk assessment tools in regards to ALM risk management are as follow:

 Equity investment risk Value -at-risk (VaR) on equity position
 Liquidity Coverage Ratio (LCR)
 Liquidity Risk
 Net Stable Funding Ratio (NSFR)
 Stress Testing (Duration and Sensitivity Analysis)”
 Interest Rate Risk Assessment of Interest Rate Risk in Banking Book

Other Papers Like Credit Risk

Credit Risk Analysis in Standard Charter Bank

562 words - 3 pages Best Practice in Risk Management in Banks A Two-day Practical Workshop The Workshop Objective: Bank managers will understand how risks are identified, quantified in terms of their impact on earnings, monitored and managed within banks. Program participants will become better equipped to: • • • Identify and quantify the bank’s vulnerability to credit, market, liquidity, operational, regulatory and reputational risks. Understand and learn best

The Advantages and Disadvantages of Purchasing Commercial Credit Risk Insurance

1254 words - 6 pages The Advantages and Disadvantages of Purchasing Commercial Credit Risk Insurance One of the few tangible assets on the International Manufacturing Company Balance Sheet that is not insured is Accounts Receivable. One method of securing Receivables is by domestic and international credit insurance. A credit insurance policy is designed to protect a company's Accounts Receivable from catastrophic credit losses. Credit insurance may offer a

Effectiveness of Credit Risk Management on the Financial Performance of Philippine Universal Banks

1604 words - 7 pages Effectiveness of Credit Risk Management on the Financial Performance of Philippine Universal Banks Marylet H. Ilagan Master in Business Administration Lyceum of the Philippines University-Batangas Effectiveness of Credit Risk Management on the Financial Performance of Philippine Universal Banks Banks are considered to be in the business to safeguard money and other valuable of

Consumer Credit Scheme and Its Risk Management of Different Commercial Banks in Bangladesh: Implications for Ific Bank Limited Bangladesh

3244 words - 13 pages CONSUMER CREDIT SCHEME AND ITS RISK MANAGEMENT OF DIFFERENT COMMERCIAL BANKS IN BANGLADESH: IMPLICATIONS FOR IFIC BANK LIMITED BANGLADESH 1. INTRODUCTION AND BACKGROUND Credit is the means of investment made by the bank to the entrepreneurs and business community. Alternatively this is the way of channeling fund to the deficit units where various risks and uncertainties are involved. Therefore every decision on credit matter should be taken

Transaction Risk

661 words - 3 pages University of Phoenix Material Week Four Individual Assignment: Financial Transaction Risks Describe the risk exposure(s) in the following financial transactions. Identify which transactions are influenced by interest rates or interest income. (CAUTION: Some can be influenced by both!) Risk Types: Interest rate risk, Credit risk, Technology risk, Foreign exchange rate risk, Country or sovereign risk |Financial Transactions

Cv for My Success

588 words - 3 pages CURRICULUM VITAE Family status Summary Expansive business experience on Emerging markets Strong analytical and educational background Management experience Diverse work and life experience Experience 02/2010 – present Raiffeisen Bank International AG, Austria Credit management corporate, Director  Counterparty credit risk and underwriting management in European emerging markets with special focus on Russia and Ukraine.       12

Informative Speech on Credit Score

1007 words - 5 pages credit score? A. According to the Dictionary of Financial Terms, published by Lightbulb Press Inc., the definition of, “a credit score is a number calculated based on information in your credit report that lenders use to assess the credit risk you pose and the interest rate they will offer you if they agree to lend you money” (Morris 2000). 1. Simply put a credit score is a three (3) digit number

Process Essay

915 words - 4 pages place you in a high-risk category which means, your interest rate will be significantly higher than someone with excellent credit. By implementing steps that allows you to clean up your credit and boost your credit score, will position you to take advantage of receiving lower interest rates and saving money. For example, if you apply for a $25,000, 60 months, new auto loan and your credit score is between 734 and up, you could qualify for a rate

Co-Op Training

5883 words - 24 pages Kingdom of Saudi Arabia Prince Sultan College for Tourism & Business Cooperative Training Report FIN 490 CREDIT RISK Al Rajhi Bank Prepared By: Omar Jameel Ajeeb I.D # 08122 Supervised By: Dr. Rasheed Small In Partial Fulfillment with the Requirements Of Bachelor Degree in Finance 2011 TABLE OF CONTENTS |Description |Page

Credit Appraisal Process

809 words - 4 pages 1.0 Introduction Risk is the element of uncertainty or possibility of loss that prevail in any business transaction in any place, in any mode and at any time. In the financial arena, enterprise risks can be broadly categorized as Credit Risk, Operational Risk, Market Risk and Other Risk. Credit risk is the possibility that a borrower or counter party will fail to meet agreed obligations. Globally, more than 50% of total risk elements in banks

Wellfleet Bank

1535 words - 7 pages risks, such as legal/regulatory risk, credit risk, business risk and operational risk. The legal/regulatory risk is presented by changing international regulatory rules, the bank is required to set aside and manage capital reserves in response to these new regulatory rules. The global economy is becoming more competitive and Wellfleet bank is growing against a risky environment. Companies may default and that present credit risk to the bank

Related Essays

Credit Risk Essay

1037 words - 5 pages Commercial Banking The first category of credit risk models are the ones based on the original framework developed by Merton (1974) using the principles of option pricing (Black and Scholes, 1973). * the default process of a company is driven by the value of the company’s assets and the risk of a firm’s default is therefore explicitly linked to the variability of the firm’s asset value. * The basic intuition behind the Merton model is

Credit Risk Management Essay

4703 words - 19 pages CREDIT RISK MANAGEMENT Banks are in the business of risk management and, hence, are incentivized to develop sophisticated risk management systems. The basic components of risk management system are identifying the risks the bank is exposed to, assessing their magnitude, monitoring them, controlling/mitigating them using a variety of procedures and setting aside capital for potential losses. RBI prescribed risk management framework in terms of

Counterparts Credit Risk Essay

1902 words - 8 pages Counterparty credit risk in portfolio risk management Prominent financial institution failures reminded market participants that over-the-counter derivatives bring counterparty credit risk. Even as these markets move towards settlement through clearing houses, significant volumes of existing and new transactions remain bilaterally settled, especially as non-standard derivatives may not qualify for central clearing. UBS Delta is providing tools

Credit Risk : Merton Model Limitations

627 words - 3 pages Evaluate of the Merton Model for credit risk analysis The KMV-Merton model proposed by Robert Merton(1974)is an application of classic option pricing theory and as a logical extension of the Black-Scholes(1973)option pricing framework.Merton’s approach assess the credit risk of a firm by characterizing the firm’s equity as a call option on the underling value of the firm with a strike price equal to the face value of the firm’s debt and a