Premium Essay

Risks Facing Commercial Banking

In: Business and Management

Submitted By Danahahmed
Words 590
Pages 3
Risks Affecting Commercial Banks:-
Commercial banks considered as one of the main financial intermediaries in the market, therefore the factors that occurred a negative results on the commercial banks has a strongly affect upon the economic condition and securities markets as well, the risks factors that are affecting the commercial banks can be as the following :-

Risks of Interest Rates:-
The risk factor that's the most widespread is interest rate for the commercial banks, but commercial banks are proficient at reducing the risk of interest rates by hedging their loans against any kind of variations in the curve of interest rates in economy.
To clarify the image more better to give a simple example on this, assume that one bank is making a business loans and the borrower is charged by 5%, keep in mind the current interest rate level is at 2%, so 3% is the amount of profit that the bank can achieve just in case that the interest rate level remains the same at 2% during the life-time of the loan, yet if the general interest rate level has increased up to 3% then the profit will be reduced to 2%. Although the interest rates are outside the field of commercial bank's processes, but they are required to avoid it , because it applies a risks upon the commercial banks.

Risks of Default:-
Generally Commercial banks are depending on loans in making money. Default borrower can be defined as people who are taking loans from the bank but they doesn't have the ability to pay the premiums of the loan, so to avoid such an issue the bank goes for analyzing their financial position and their ability to pay, and in case that there is a default this will showed in the margin of default in the portfolio of the bank's loan . When borrower is unable to pay this will make default on loan, and this will cause money losses for the bank, the more number of defaults borrowers…...

Similar Documents

Premium Essay

Commercial Management and Risks

...Commercial Management and Risks Job brief Commercial management is the identification and development of business opportunities and profitable management of a project from inception to completion. A commercial manager has to understand how to make profit and how the profit is reflected in its operations. In a construction site, commercial management deals with outlining the beginning of a project i.e. the negotiations and analyzing of the cost of the whole construction project and the long term profit to be yielded by the project. It is said that every construction is unique, and the unique aspect demands a high level of commercial and technical expertise. As a commercial manager, I will provide a management system that ensures proper documentation. This entails that all the documents of the contract follow a full legal procedure that is the land on which the construction is taking place and is acquired legally. The tender details are all available and the contract details of the contractor and his team are all available and ensure clarity to reduce future conflicts between the client and the contractor as Lowe and Leiringer (2006) argue. System devised Programme The system will also define a well defined target. When referring to target we can consider two cases that is the time the construction will take from inception to completion and the financial target. When dealing with the time target we ensure that the construction program is available to all team members to...

Words: 1247 - Pages: 5

Premium Essay

Banking Industry Risks

...RISKS ASSOCIATED WITH OUR INDUSTRY We are Subject to Extensive Government Regulation That Limits or Restricts Our Activities and Could Adversely Impact Our Operations. The Company and the Bank operate in a highly regulated industry and are subject to examination, supervision and comprehensive regulation by various federal and state agencies. Compliance with these regulations is costly and restricts certain activities, including payment of dividends, mergers and acquisitions, investments, interest rates charged for loans and leases, interest rates paid on deposits, locations of banking offices and various other activities and aspects of the Company’s and Bank’s operations. The Company and the Bank are also subject to capital guidelines established by regulators which require maintenance of adequate capital. Many of these regulations are intended to protect depositors, the public and the FDIC’s DIF rather than shareholders. The Sarbanes-Oxley Act of 2002 and the related rules and regulations issued by the SEC and NASDAQ, as well as numerous other regulations, including the Dodd-Frank Act and related amendments, have increased the scope, complexity and cost of corporate governance, reporting and disclosure practices, including the costs of completing the Company’s external audit and maintaining its internal controls. Government regulation greatly affects the business and financial results of all commercial banks and bank holding companies, and increases the cost to the......

Words: 1002 - Pages: 5

Premium Essay

Risk Management in the Nigerian Banking Sector

...RISK MANAGEMENT THE NIGERIAN BANKING SECTOR FOR ABI ALCHEMY BUSINESS INTELLIGENCE BY OYINDAMOLA OMOSEBI CONSULTANT ALCHEMY BUSINESS INTELLIGENCE 5TH MAY 2012 Table of Content 1.0 Overview of Risk Management 1.1 Principle of Risk Management 1.2 The Risk Management Process 1.2.1 Risk Identification 1.2.2 Risk Assessment/Measurement 1.2.3 Risk Mitigation 1.3 Risk Management Plan 1.3.1 Implementation 1.3.2 Review and Evaluation of Plan 2.0 A Review of Risks in Banking 2.1 Overview of Risk Management Practices in Nigerian Banks 2.1.1 Reputational Risk and Confidence Crisis in the Nigerian Banking Industry 2.1.2 Operational Risk 2.1.3 Credit Risk 2.1.4 Human Resources Risk 2.1.5 Risk Associated with Mergers and Acquisition 2.2 Current Regulatory and the Way Forward 3.0 Summary and Conclusion 1.0 Overview of Risk Management There is risk in every business because of uncertainty about future events and exposure, almost everything we do in the business world involves risk. This is the probability that organization or an individual will be unable to meet some expectations set for itself during a given period or could incur a financial loss because of some known or unknown threats or events outside his immediate control. Therefore, Risk Management is the identification, assessment, and prioritization of these risks followed by coordinated and effective application of resources to minimize, monitor, and control the probability and/or......

Words: 11311 - Pages: 46

Premium Essay

Risk Management in Banking

...CHAPTER I: INTRODUCTION 1. THEME OF THE STUDY Risk management underscores the fact that the survival of an organization depends heavily on its capabilities to anticipate and prepare for the change rather than just waiting for the change and react to it. The objective of risk management is not to prohibit or prevent risk taking activity, but to ensure that the risks are consciously taken with full knowledge, purpose and clear understanding so that it can be measured and mitigated. It also prevents an institution from suffering unacceptable loss causing an institution to suffer or materially damage its competitive position. Functions of risk management should actually be bank specific dictated by the size and quality of balance sheet, complexity of functions, technical/ professional manpower and the status of MIS in place in that bank. 1.2 INTRODUCTION Risk: the meaning of ‘Risk’ as per Webster’s comprehensive dictionary is “a chance of encountering harm or loss, hazard, danger” or “to expose to a chance of injury or loss”. Thus, something that has potential to cause harm or loss to one or more planned objectives is called Risk. The word risk is derived from an Italian word “Risicare” which means “To Dare”. It is an expression of danger of an adverse deviation in the actual result from any expected result. Banks for International Settlement (BIS) has defined it as- “Risk is the threat that an event or action will adversely affect an organization’s......

Words: 9309 - Pages: 38

Premium Essay

Problems Facing Us Banking System

...Problems facing the U.S. Banking sectors There are still a number of problems that face the U.S banking sector. The banking industry is slowly emerging from the financial crises of 2008 that left its reputation battered and tarnished. This has created a much tougher and a more competitive market. There are around 7,200 commercial banks in the United States. I will identify some of the problems as well as suggest some policy recommendations to resolve these issues in order to overcome and help strengthen and growth this sector. Regulatory issues, emerging technology demands and customer service focus are three main areas I have identified as well as will provide suggestions and recommendations for in the paper. The U.S. banking sector continues to face a great deal of uncertainty in regards to regulations. Bank regulations in the United States are highly fragmented when compared to other countries. Most countries only have one bank regulator as opposed to the United States that is regulated at both the federal and state level. Within those federal and state levels there are a number of regulations that were delayed and or are still being defined. This causes a great deal of uncertainty in regards to the costs associated with complying with these new proposed standards and regulations. In addition, it makes in tough for these institutions to predict or implement a long term strategic plan when there is so much uncertainty with policy in the upcoming years. ...

Words: 1476 - Pages: 6

Premium Essay

Challenges Facing Banking Industry in Kenya

... ii ACKNOWLEDGEMENT I wish to thank the almighty God who has sustained me throughout this project I would also wish to thank my supervisor Mr. Geoffrey Kinyua for his valuable patience and assistance in accomplishing this project I would also wish to thank the technical staff of K.C B jogoo road branch for their help and cooperation iii ABSTRACT With reference to K.C.B this research is carried out to investigate the challenges facing the banking industry in Kenya. The specific objectives are; to investigate whether theft cases in banks are a major problem, to establish if ATM card skimming is a problem to the banking industry in Kenya, to determine if high interest rates are affecting the banking industry in Kenya negatively, to find out if mobile money transfer services are becoming a competition to banks in Kenya. The sample design was stratified random sampling so as to obtain data required within the organization. Data collection instrument that was used was the questionnaire since it was most convenient. IV TABLE OF CONTENTS page CHAPTER ONE 1:1 Background of the study……………………………………….1. 1:1:1 History of the......

Words: 4741 - Pages: 19

Premium Essay

Commercial Banking and Finance

...Introduction The aim of this report is to create an awareness of the interest rate which impacts the company. Moreover, the bank recommendations are evaluated whereby interest rate risk is exposed to the bank. There is a recommendation of a rate cut on loans by the bank board along with the growth of loan revenue and thus profit. We have also discussed the strategy to cover any decline in net worth using futures. Our bank, Make Life Easier (MLE) Bank involving the members with their respective ID which are Kok Yee Won (3889479), Lee Choi Yoong (3889459), Ng Mun Yi (3889480) and Sia Cui Lin (3889481). Interest Rates Bank profit is influenced by the changes in interest rates When interest rate rises, bank portfolio managers can expect changes on both asset and liability sides of their balance sheets (Flannery 1980). Bank revenues and costs will adjust to reflect the new level of interest rates at different speeds, depending on each bank’s collection of assets and liabilities (Flannery 1980). The asset side, an increase in interest rates may increase the amount of income a bank may earn on new assts it acquires (Flannery 1980). Assets were liquidated and mature over time with the proceeds of gradually being reinvested at the new higher interest rates (Flannery 1980). Many bank loans were carrying an interest rate that can change before the loan mature such as business loans (Flannery 1980). Whereas in the liability side, the impact of the interest rate changes on......

Words: 3781 - Pages: 16

Premium Essay

Commercial Banking

...increasing consumer spending and reducing costs of capital for producers (1)”. 2. The ultimate goal of any firm including a bank is to maximize shareholder’s wealth. In order to do so many risks must be properly managed to avoid any adversity. Bank management should take extra precautions when dealing with their credit risks. If an obligator defaults on his or her loan the bank will be at a loss. Whether it is a home loan or credit card, banks should charge a higher interest rate to borrowers in order to have solvency. Other ways a bank can reduce and manage its credit risk is to adhere to stricter lending guidelines by only extending loans to those in a better financial situation. Credit insurance and credit derivatives “allow users to manage their exposure to credit risk. Credit derivatives are financial assets like forward contracts, swaps, and options for which the price is driven by the credit risk of economic agents (private investors or governments) (2)”. 3. “Optimum liquidity is achieved by balancing risks and returns. To be more specific, measures of liquidity need to be high enough to meet even unexpected changes in liquidity needs and sources (p.329).” A bank’s concern of having liquidity or the ability to convert an asset without a decrease in the price is important in the banking industry. In order to achieve such liquidity there are several things that can be evaluated such as: • The available assets easily convertible into cash. • The volatility......

Words: 376 - Pages: 2

Premium Essay

Is It Necessary to Combine Investment Banking and Commercial Banking?

...to combine Investment Banking and Commercial Banking? Separation of Retail Banking and Investment Banking was a hot topic with President Obama’s proposal in January 2010 regarding a ban on US Banks on retail banks from using their own funds in investments and limiting to invest their customer’s funds. This news made many to wonder whether the world is going back to replace Glass Steagall Act which was abolished in 1999.(BBC,21January2010) Glass-Steagall Act(GSA)commonly known as Banking Act 1933 made the investment banks and Commercial Banks to function separately in order to refrain Commercial Banks from greater in securities business activities. This Act prohibited Commercial Banks to underwrite securities to public while it prohibited Investment Banks to accept deposits from customers. (Investopedia,2003). Many argue that commercial banks should not involve in securities(stock/bond)market investments as commercial banks divert funds in investment banking. In other words internal transparency of movements of funds not very clear when operating as a ‘Universal Bank’. Prior to 2007-2009 financial crisis Commercial Banks were greedily involved merely because of profits in securitization business where subprime mortgages were involved. During the rise in property market in 2006,banks created and traded in securitized assets, backed by subprime mortgages. Banks became greedy of making more money through SPV(Special Purpose Vehicle)taking high risks. When borrowers......

Words: 673 - Pages: 3

Free Essay

Commercial Banking

...the inner side of the strip, it is printed “Lucent is the first of its kind organic total acne removal strip. Leave it on or 6 hours and you can forget that you ever had acne. Launching in India for the very first time. Tested. Found safe and effective.” Of course, smooth and beautiful skin is revealed on the newspaper, once the strip has been removed. It’s based on the idea of a minimalist poster. There’s very little text across the page, except for the directions, asking the reader to tear the strip off the page – revealing the brand name and the tagline and a virtual depiction of how the strip works. Creative Approaches (The pool): Emotional Advertising (Slice Of Life) Lucent as a brand is a solution to Acne problems. And for many facing acne issues, substantial efforts are siphoned towards the issue every day. The ads would be set in a backgrounds associated with daily lives. The advertisements would follow the format of problem, interaction and solution. 1. Setting is in a school. A boy/girl sitting with a home remedial pack on his/her face and quite fed up with the constant poking from his/her friends. Sub Scene- Another friend who has used Lucent comes and talks about the product. There one can see on screen the way Lucent counters the acne and solves it overnight. We close the ad with the product and tag line “Perfect And You” The endorser here is shown as a student who is smart, happy and confident. 2. Setting is an office canteen. A guy receives a......

Words: 3389 - Pages: 14

Premium Essay

Risk Management in Banking Sector

...Risk management in banking sector Table of content Particulars | Page no. | Executive summary | | Introduction | | Literature review | | Research methodology | | Sampling techniques | | Tools of analysis | | Data analysis & findings | | Conclusions | | Scope for further research | | Reference | | Executive Summary Today, The Indian Economy is in the process of becoming a world class economy. The Indian banking industry is making great advancement in terms of quality, quantity, expansion and diversification and is keeping up with the updated technology, ability, stability and thrust of a financial system, where the commercial banks play a very important role, emphasize the very special need of a strong and effective control system with extra concern for the risk involved in the business. Globalization, Liberalization and Privatization have opened up a new methods of Financial transaction where risk level is very high. In banks and financial institutions risk is considered to be the most important factor of earnings. Therefore they have to balance the Relationship between risk and return. In reality we can say that management of financial institution is nothing but a management of risk managing financial risk systematically and professionally becomes an even more important task. Rising global competition, increasing deregulation, introduction of innovative products and delivery channels have pushed risk management to the......

Words: 26880 - Pages: 108

Premium Essay

Commercial Banking

...EGERTON UNIVERSITY TOWN CAMPUS FACULTY OF COMMERCE DEPARTMENT OF ACCOUNTING, FINANCE & MANAGEMENT SCIENCE NAME: OCHIENG JARED OPONDO REG NO: C12/60275/09 GROUP: A FACULTY: COMMERCE COURSE: BCOM 330; Financial Institutions and markets TASK: TERM PAPER TITLE: COMMERCIAL BANKING IN KENYA PRESENTED TO: MRS. BOSIRE MARY PRESENTED ON: 19TH October 2011 ABSTRACT: This term paper analyses the commercial banking system in Kenya. In particular it focuses on the history of commercial banks from a general perspective then narrows down to Kenya’s context. It looks at the importance of commercial banks in Kenya, the roles/functions of commercial banks. It then focuses on the regulations that govern the commercial banks. Lastly it looks at the contribution of commercial banks to Kenya’s economy. TABLE OF CONTENTS Abstract 2 Table of contents 3 Introduction 4 The history and development of commercial banks 5 Importance of commercial banks 9 Roles of commercial banks 10 Regulations of commercial banks 13 Contribution of commercial banks to Kenya’s economy 14 Emerging trends in banking 17 Summary 18 References 18 INTRODUCTION A commercial bank is a type of financial intermediary and a type of bank. It raises funds by collecting deposits from businesses and consumers via checkable deposits, savings deposits, and time deposits. It makes loans to businesses and consumers. It also buys corporate bonds and government bonds. Its primary liabilities are......

Words: 4777 - Pages: 20

Free Essay

Risk Management in Islamic Banking and Finance

...RISK MANAGEMENT IN ISLAMIC BANKING AND FINANCE:  THE ARAB FINANCE HOUSE EXAMPLE  Bilal A. Fleifel  A Thesis Submitted to the  University of North Carolina Wilmington in Partial Fulfillment  of the Requirements for the Degree of  Master of Business Administration  Cameron School of Business  University of North Carolina Wilmington  2009  Approved By  Advisory Committee  Howard Rasheed  Cetin Ciner  William H. Sackley  Chair  Accepted By  DN: cn=Robert D. Roer, o=UNCW, ou=Dean of the Graduate School & Research, email=roer@uncw. edu, c=US Date: 2010.01.21 15:02:51 -05'00' ________________________  Dean, Graduate School TABLE OF CONTENTS  TABLE OF CONTENTS ..................................................................................................... ii  ABSTRACT........................................................................................................................ vi  ACKNOWLEDGMENTS .................................................................................................. vii  DEDICATION .................................................................................................................. viii  LIST OF TABLES .............................................................................................................. ix  LIST OF FIGURES...............................................................................................................x  GLOSSARY .............................

Words: 34301 - Pages: 138

Premium Essay

Risk Management in Banking Sector

...CHAPTER I: INTRODUCTION 1. THEME OF THE STUDY Risk management underscores the fact that the survival of an organization depends heavily on its capabilities to anticipate and prepare for the change rather than just waiting for the change and react to it. The objective of risk management is not to prohibit or prevent risk taking activity, but to ensure that the risks are consciously taken with full knowledge, purpose and clear understanding so that it can be measured and mitigated. It also prevents an institution from suffering unacceptable loss causing an institution to suffer or materially damage its competitive position. Functions of risk management should actually be bank specific dictated by the size and quality of balance sheet, complexity of functions, technical/ professional manpower and the status of MIS in place in that bank. 1.2 INTRODUCTION Risk: the meaning of ‘Risk’ as per Webster’s comprehensive dictionary is “a chance of encountering harm or loss, hazard, danger” or “to expose to a chance of injury or loss”. Thus, something that has potential to cause harm or loss to one or more planned objectives is called Risk. The word risk is derived from an Italian word “Risicare” which means “To Dare”. It is an expression of danger of an adverse deviation in the actual result from any expected result. Banks for International Settlement (BIS) has defined it as- “Risk is the threat that an event or action will adversely affect an organization’s......

Words: 9309 - Pages: 38

Premium Essay

Commercial Bank Risk Management

...Institutions Center Commercial Bank Risk Management: an Analysis of the Process by Anthony M. Santomero 95-11-C THE WHARTON FINANCIAL INSTITUTIONS CENTER The Wharton Financial Institutions Center provides a multi-disciplinary research approach to the problems and opportunities facing the financial services industry in its search for competitive excellence. The Center's research focuses on the issues related to managing risk at the firm level as well as ways to improve productivity and performance. The Center fosters the development of a community of faculty, visiting scholars and Ph.D. candidates whose research interests complement and support the mission of the Center. The Center works closely with industry executives and practitioners to ensure that its research is informed by the operating realities and competitive demands facing industry participants as they pursue competitive excellence. Copies of the working papers summarized here are available from the Center. If you would like to learn more about the Center or become a member of our research community, please let us know of your interest. Anthony M. Santomero Director The Working Paper Series is made possible by a generous grant from the Alfred P. Sloan Foundation Commercial Bank Risk Management: An Analysis of the Process 1 This Version: February 28, 1997 Abstract: Throughout the past year, on-site visits to financial service firms were conducted to review and evaluate their financial risk......

Words: 16085 - Pages: 65

View details >> | Más detalles | One Piece Episode 868 English Sub