A risk is defined as the interruptions on the pathway of the achievements towards certain goals and objectives. The risk can exist by both external and internal factors in particular circumstances within an organization. The meaning of risk may vary from one perspective to another perspective. For some, the risk exists in the form of financial means (Interest rates, currency fluctuation, and exchange rates), and merging of competitors to form a more powerful entity. Whereas for others it may mean the sequence of event or circumstances to generate damage the brand image, brand equity or any commercial liability.
A risk is considered as a bridge between the threat and reward for a business. But to control or turn the potential loss corporates need to make effective risk management plans. Risk management may lessen the effects of bigger risks. In the current era of globalization when business, corporations, and businesses are successfully operating cross-borders. There might be higher risk factors, especially for the financial sector.
With the complexity in the banking facilities, changing the operational environment of corporations it has become essential to understand risk management to minimize the impact of the loss. The initial risk that we can evaluate for banks may include the probability of the banks, financial health being reduced due to defective factors. However, as per the parameter representing banks indicates that financial health may also be affected by the net interest margin to a market value of equity. On the other hand, there are many other factors that may poses risk for the banks including repaying of debt or loan by the lenders, disturbance in the operation due to technological factor and value exchange of an asset. Thus there is a long list of banking risks including:
1. Financial Risks: Financial risk may exist as per the business transaction made through or by the bank which may later turn into a potential loss. The risk is further classified into credit and market risks :
- Credit Risks: Credits risk includes the lending of financial debt or loan to a counterparty which they are unable to return. It may cause because of their unwillingness or ineligibility to return the amount as per the agreed terms. It tends to end up with crystallizing the credits of banks. It may cause a bank serious effect by damaging its equity.
- Market Risks: Market risk are caused to a bank with the loss or changes in the market variables. The risks are caused due to the fluctuation of currency exchange rates, interests’ market rates, and commodity prices. Market risk at a larger perspective caused to a bank for their earnings and capital due to variations in the economic market.
2. Non-Financial Risk: Non-financial risk is not directly affecting the credential side of the banks. Rather they are affecting the business growth, efficiency of products and services and marketability of the bank. These risks arise with the lacking of management failures, unavailability of products or services, poor quality services, competition and external factors. For dealing with such risks, the banks are required to operationally and strategically consider these risks. The non-financial risk may include:
- Legal Risks
- Political Risks
- Funding Risks
- Operational Risks
- Strategically Risks
There are many other risks that a bank has to manage on its own or according to law. Risk management in the banking sector is also considered an important topic in business and law fields. Thus students are assigned with multiple assignment or projects to write on such difficult topics. Therefore, to ease up the burden they may hire professional Dissertation Editing Services which will do their job with perfection for you.