3. 1. INTEREST RATE RISK
•IS THE RISK THAT CHANGES IN MARKET INTEREST RATE WILL
AFFECT BANKS NET PROFIT AND MARKET VALUE.
4. 2. CREDIT RISK
•IS THE RISK THAT THE BORROWER MIGHT FAIL TO PAY BACK THE
REQUIRED INSTALLMENT ON SCHEDULE TO THE BANKS AS STATED
IN THE TERMS OF THE LOAN CONTRACT.
5. 3. LIQUIDITY RISK
•IS THE RISK THAT THE BANK HAS INSUFFICIENT FUNDS TO MEET
CUSTOMERS' WITHDRAWALS OR NEW LOAN ISSUANCE.
6. 4. OPERATION RISK
•IS THE RISK OF REALIZING LOSSES DUE TO EMPLOYEES'
CARELESSNESS, THEFT, UNINTENDED DAMAGES, OR USING
OUTDATED SYSTEMS OR EQUIPMENT.
7. 5. COUNTRY RISK
•IS THE RISK OF REALIZING LOSSES DUE TO NOT CONSIDERING A
FOREIGN COUNTRY’S FACTORS BEFORE OPENING BRANCHES
ABROAD SUCH AS ECONOMIC, POLITICAL, SOCIAL, AND
TECHNOLOGICAL FACTORS.
8. 6. CAPITAL ADEQUACY RISK
•IS THE RISK THAT THE BANK HAS INSUFFICIENT EQUITY CAPITAL
TO ABSORB LOSSES IN ASSETS.
9. 7. MARKET RISK (SYSTEMATIC)
•IS THE RISK THAT CAN’T BE REDUCED BY DIVERSIFYING BANKS’
ASSET CLASSES SUCH AS NATURAL DISASTERS.
10. 8. EXCHANGE RATE RISK
•IS THE RISK THAT THE BANK MIGHT SELL A FOREIGN CURRENCY
FOR LOWER THAN ITS PURCHASED PRICE DUE TO THE
FLUCTUATIONS IN FOREX.
11. RISK MANAGEMENT PROCESS IN BANKS
THE FOLLOWING STAGES SHOULD BE APPLIED TO MANAGE BANK RISKS:
1. IDENTIFY THE TYPES OF RISKS THAT MIGHT AFFECT A BANK’S SURVIVAL IN THE MARKET.
2. CREATE A RISK PROFILE FOR EACH TYPE OF RISK AND ARRANGE THEM INTO A SPECIFIC ORDER BASED ON
THEIR PROBABILITY OF OCCURRENCE AND IMPACT SIZE.
3. APPLY THE RISK MEASUREMENT TOOLS WHICH HELPS THE BANK TO MEASURE THE SIZE OF LOSSES OF EACH
RISK.
4. APPLY THE RISK MANAGEMENT TOOLS WHICH HELP THE BANK TO AVOID SUCH MEASURED RISKS.