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F201-PnPB4 Risk MGT Basel II
F201-PnPB4 Risk MGT Basel II
F201-PnPB4 Risk MGT Basel II
What is Risk?
WHAT IS RISK :WHAT IS RISK EVERY ACTION HAS A REACTION IF REACTION IS
FOR OUR BEENFIT; NO WORRY AND NO RISK IF IT IS AGAINST OUR INTEREST
ONLY WE ARE WORRIED AND THAT IS RISK
RISK IS THEREFORE POSSIBILITY OF A NEGATIVE RESULT FOR OUR ACTIONS
COULD BE DUE TO US OR BEYOND OUR CONTROL RISK IS SUPPOSED TO BE
DARE DARING IS TO TAKE STEPS RECOGNISING THE POTENTIAL FOR LOSS
EXTENT OF THIS BEHAVIOUR IS TAKER SPECIFIC MORE RISK IS TAKEN IN VIEW
OF POTENTIAL FOR HIGHER YIELD
DUE TO RISK EITHER , PROFITS AND CAPITAL MAY GROW MULTIFOLD OR
BUSINESS MAY BE WIPED OUT NEVERTHLESS WE CANNOT BE RISK
FREE/AVERSE BANKER LIKE A SHIP IN A PORT UNCERTAINTIES RESULTING IN
ADVERSE OUTCOME, IN RELATION TO PLANNED OBJECTIVE OR EXPECTATIONS
What is Risk.?
FINANCIAL RISKS ARE UNCERTAINTIES RESULTING IN ADVERSE VARIATION
OF PROFITABILITY OR OUTRIGHT LOSSES. UNCERTAINTIES WHICH IMPACT
THE NET CASH FLOW OF BUSINESS UNFAVORABLE IS RISK. ZERO RISK
WOULD IMPLY NO VARIATION IN NET CASH FLOW.
RISK IS RELATED TO AMOUNT OF CAPITAL THAT THE FIRM REQUIRES TO
ACHIEVE A SUFFICIENT LEVEL OF PROTECTION AGAINST ADVERSE
CIRCUMSTANCES. RISK IS USED TO ADJUST THE RETURNS FROM BUSINESS
ACTIVITIES TO DETERMINE WHETHER ACTIVITIES ARE ADDING VALUE TO
BUSINESS. FINALLY RISK IS PROBABILITY THAT REALISED RETURN WOULD
DIFFERENT FROM THE ANTICIPATED / EXPECTED RETURN ON INVESTMENT.
10/31/16
10/31/16
Introduction : Risk
Management
Banks face financial / non-financial
Risks
Credit / Interest Rate / Forex / Liquidity /
Equity Price / Commodity Price / Legal /
Regulatory / Reputational / Operational
Risks etc
Risks are highly independent /
interdependent
Banks are required to:
Identify, measure, monitor and control
risks
Organisational Structure
Comprehensive Risk Measurement Approach
Risk Management Policies approved by Board
Guidelines and parameters used to govern
Strong MIS for reporting / monitoring etc
Well laid out procedures, effective control etc
Separate Risk Management Organisation.
Periodical Review and Evaluation
Credit Risk
Market Risk
Operational Risk
Introduction to BIS
Basel I
Basel II
Second Pillar :
Supervisory Review Process
Achieving Appropriate
Disclosure