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C:\fakepath\1. introduction to risk managment

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Transcript

  • 1. What does Risk stand for?
    • Uncertainties transforming into adverse outcomes
    • Adverse in relation to planned objective or expectations
  • 2. Risk Management defined:
    • RM involves framing of policies,
    • procedures, and practices involved in
    • identification, analysis, assessment,
    • control and avoidance, minimisation
    • or elimination of unacceptable risks.
  • 3. Risk Management Strategies
    • Risk assumption.
    • Risk Avoidance.
    • Risk Retention.
    • Risk Transfer.
  • 4. Major source of uncertainty
    • Business
    Commodity Prices Labour Costs Interest Rates Currency $ Taxes Consumer Preferences Technology Economic Policies Political Conditions Weather
  • 5. Business : A series of activities running over a time horizon
    • Conventional Banking
    • business business
    • Acquiring materials Selling Deposits
    • Processing Buying Loans
    • Storing Margins
    • Marketing Distribution of
    • Sales profits
    • Revenue
    • Distribution of profits
  • 6. H ow do uncertainties effect businesses?
    • Cash Inflows
    • Sales volume or sale price.
    • Cash Outflows
    • Input costs, raw materials etc.
    • Processing costs, wages, storage,
    • Cost of funds, taxes.
  • 7. Where do uncertainties manifest ultimately?
    • Profit or earnings or a business
    • Net worth or value of a firm
  • 8. Earnings of a bank: Deposits Borrowings interest expenses Loans Investment Interest income earnings
  • 9. Earnings – value of a firm Earnings taxes dividends Reserves & Surplus Balance Sheet
  • 10. Risk Management: Objectives
    • Risk return integration
    • Lower risk management costs
    • Fairly stable earnings
    • Uninterrupted operations
    • Continued growth
    • Safety of Capital funds
    • Regulatory Compliance
    • Competitive advantage
    • Peace of mind
  • 11. Stable Earnings:
    • Consistent Growth.
    • Good Reputation.
    • Marketability.
    • Investor attraction.
    • Listing privilege.
  • 12. Un-interrupted Operations
    • Avoid systemic crisis.
    • Avoid external interventions.
    • Avoid take-over threats.
    • Enhance market share.
  • 13. Safety of capital funds
    • Consider a hypothetical bank with following
    • structure:-
    Assume that bank suffers Rupee 4.5 lakh in loan losses. Which means 4.74% of loan losses equals about 45% of equity wipe out. Cash 5 Loans 95 Total: 100 Equity 10 Deposits 90 Total: 100 Assets (in lakhs rupees) Liabilities (in lakhs rupees)
  • 14. Net worth of a bank
    • Assets - external liabilities = owners equity
    • Small changes
    • in the value of assets/liabilities
    • Large changes
    • In the value of owners equity
  • 15. Why Risk Management?
    • Navigating a ship in a stormy sea.
    • Danger of capsizing.
    • Choppy sea needs to calmed.
  • 16. Management of Financial Risks:
    • Risk Identification
    • Risk Measurement
    • Risk Pricing
    • Risk Monitoring & Control
    • Risk Mitigation
  • 17.
    • Thank You !