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Banking Risk Analysis Guide

The document provides an overview of the various risks faced by banks, including financial, operational, and environmental risks. Financial risks include traditional banking risks related to a bank's balance sheet and income statement structure as well as credit, solvency, and treasury risks. Operational risks involve internal and external fraud, employment practices, and issues with products/services. Environmental risks encompass country/political risks and risks associated with macroeconomic policies and financial/legal infrastructure. The document also discusses risk management partnerships for banks and outlines a framework for risk analysis involving financial management, understanding a bank's environment and macroeconomic factors.

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Kushal Jawlia
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287 views11 pages

Banking Risk Analysis Guide

The document provides an overview of the various risks faced by banks, including financial, operational, and environmental risks. Financial risks include traditional banking risks related to a bank's balance sheet and income statement structure as well as credit, solvency, and treasury risks. Operational risks involve internal and external fraud, employment practices, and issues with products/services. Environmental risks encompass country/political risks and risks associated with macroeconomic policies and financial/legal infrastructure. The document also discusses risk management partnerships for banks and outlines a framework for risk analysis involving financial management, understanding a bank's environment and macroeconomic factors.

Uploaded by

Kushal Jawlia
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd

Overview of Banking Risks

[Link]

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 and Income 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 is incorrect.

The Banking Risk Spectrum


Financial Risks Balance Sheet Structure Earnings and Income Statement Structure Operational Risks Internal Fraud External Fraud Environmental Risks Country and Political Risks Macro Economic Policy

Capital Adequacy
Credit Liquidity Market Interest rate Currency risk

Employment Practices and work place safety


Clients Products, and Business Services. Damage to Physical Assets. Business Disruption and System Failures Execution, Delivery, and Process Management

Financial Infrastructure
Legal Infrastructure Banking Crisis and Contagion

Risk Management Partnerships


Bank Regulators and Supervisors Share Holders Executive Management Audit Committee and Internal Auditors External Auditors Customers and Public.

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

A Framework for Risk Analysis


Financial Management Value Maximization. Why Banks are Analyzed Risks and Return. Understanding the Environment in which banks operate. Financial System Infrastructure. Macro economic Environment. Risk Based Analysis of Banks.

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 and Joint Ventures. Other Assets.

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

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.

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.

Thank You

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