An Introduction to E-BankingElectronic banking is one of the truly widespread avatars of E-commerce the world over. Various authors define E-Bankingdifferently but the most definition describe the meaning andfeatures of E-Banking are as follows:• Banking is a combination of two, Electronic technology and Banking.• Electronic Banking is a process by which a customer performs banking Transactions electronically without visiting a brick-and-mortar institutions.• E-Banking denotes the provision of banking and related service through Extensive use of information technology without direct recourse to the bank by the customer
AN INTRODUCTION TO RISK Risk Management is the process of measuringor assessing the actual or potential dangers of a particular situation.Risk management is the process of monitoring and addressing the potential for loss
TYPES OF RISK IN E-BANKINGOperational RiskReputational Risk Credit Risk Legal Risk
OPERATIONAL RISKThe risk of loss resulting from inadequate or failed internal processes, people andsystems, or from external events. That type risk is called as operational risk
OPERATIONAL RISKS INCLUDE Internal Fraud. External Fraud.Employment Practices and Workplace Safety. Clients, Products and Business Practices. Damage to Physical Assets. Business Disruption and System Failures.Execution, Delivery and Process Management.
INTERNAL FRAUDUnauthorized Activity.Transactions not reported.Transaction type unauthorized.Mismarking of position.Theft and Fraud.Fraud/credit fraud/worthless deposits.Theft/extortion/embezzlement/robbery.Misappropriation of assets.Forgery.Account take-over/impersonation.Bribes/kickbacks.Insider trading.Money laundering.Willful blindness.
OPERATIONAL RISK CHECKLIST Employee training.Close management oversight. Segregation of duties.Employee background checks. Procedures and process. Purchase of insurance. Exiting certain businesses. Capitalization of risks.
CREDIT RISK Risk due to an uncertainty in acounterparty’s ability to meet its obligations in accordance with agreed upon terms. That type of risk is called a credit risk
SOUND PRACTICES FOR MANAGING CREDIT RISK Establish an appropriate credit risk environment.Operate under a sound credit-granting process.Maintain an appropriate credit administration, measurement and monitoring process. Ensure adequate controls over credit risk .
ESTABLISH AN APPROPRIATE CREDIT RISK ENVIRONMENT Board of Directors should review credit risk strategy periodically.Senior management should implement credit risk strategy approved by the Board.
OPERATE UNDER A SOUND CREDIT GRANTING PROCESS Criteria should include thorough understandingof the borrower, purpose/structure of credit and its source of repayment. Establish overall credit limits at the level of individual borrowers/connected counterparties. Have a clearly established process for approving new credits/extension of existing credits. Extension of credit must be made on an arm’s length basis.
MAINTAIN A CREDIT ADMINISTRATION, MEASUREMENT AND MONITORING PROCESS Have in place a system for ongoingadministration of various risk-bearing portfolios. Develop an internal risk rating system for managing credit risk. Have an information system and analytical techniques that enable management to measure credit risk of on/off balance sheet activities .
MAINTAIN A CREDIT ADMINISTRATION, MEASUREMENT AND MONITORING PROCESS (CONTINUED) It is System for monitoring overallcomposition and quality of the credit portfolio.Consider future changes in economicconditions when assessing individual credits.
ENSURE ADEQUATE CONTROLS OVER CREDIT RISKIt is System of independent, ongoing credit review. Credit granting function is properly handled and credit exposures are within limits.System for managing problem credits.
CREDIT RISK CHECKLISTStringent credit standards for borrowers and counterparties. Strict portfolio risk management.Constant focus on changes in economicor other circumstances that can lead to adecline in the credit standing of a bank’s counterparties.
REPUTATIONAL RISK Reputational risk is the potential that negative publicity, whether true or not, will result in loss of customers, severing of corporate affiliations, decrease in revenuesand increase in costs. These type of risk is called as reputational risk
BENEFITS OF EFFECTIVE REPUTATION MANAGEMENT Improving relations with shareholders.Creating a more favorable environment for investment. Recruiting/retaining the best employees. Reducing barriers to development in new markets. Securing premium prices for products. Minimizing threats of litigation.
REPUTATIONAL RISK CHECKLIST Processes for crisis management are planned and documented.External perceptions of the bank are regularly measured. Reputational threats are systematically tracked.Employees are trained to identify and manage reputational risks. Standards on environmental, human rights and labor practices are set publically. Relationships and trust with pressure groups and other potential critics are established.
LEGAL RISK legal risk is a risk whichis done in purely theresult of legal problems,with a specific focus oncounterparty risk. Thattype of risk is called aslegal risk
CONCLUSIONBanks should developappropriate incident responseplans, including communicationstrategies, that ensure businesscontinuity, control r risk and limitliability associated withdisruptions in their e-bankingservices.