Risk management in e banking

2. RISK MANAGEMENT IN E-
BANKING

3. An Introduction to E-Banking
Electronic banking is one of the truly widespread avatars of E-
commerce the world over. Various authors define E-Banking
differently but the most definition describe the meaning and
features 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

4. AN INTRODUCTION TO RISK
Risk Management is the process of measuring
or assessing the actual or potential dangers of a
particular situation.
Risk management is the process of monitoring
and addressing the potential for loss

5. TYPES OF RISK IN E-BANKING
Operational Risk
Reputational Risk
Credit Risk
Legal Risk

6. OPERATIONAL RISK
The risk of loss resulting from inadequate
or failed internal processes, people and
systems, or from external events. That type
risk is called as operational risk

7. 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.

8. INTERNAL FRAUD
Unauthorized 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.

9. 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.

10. CREDIT RISK
Risk due to an uncertainty in a
counterparty’s ability to meet its obligations
in accordance with agreed upon terms.
That type of risk is called a credit risk

11. CREDIT RISKS INCLUDE:
Loans.
Acceptances.
Interbank transactions.
Trade financing.
Futures.
Swaps.
Equities.
Letters of credit.
Options.

12. 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 .

13. 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.

14. OPERATE UNDER A SOUND
CREDIT GRANTING PROCESS
Criteria should include thorough understanding
of 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.

15. MAINTAIN A CREDIT
ADMINISTRATION, MEASUREMENT
AND MONITORING PROCESS
Have in place a system for ongoing
administration 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 .

16. MAINTAIN A CREDIT
ADMINISTRATION,
MEASUREMENT AND
MONITORING PROCESS
(CONTINUED)
It is System for monitoring overall
composition and quality of the credit
portfolio.
Consider future changes in economic
conditions when assessing individual
credits.

17. ENSURE ADEQUATE CONTROLS
OVER CREDIT RISK
It is System of independent, ongoing
credit review.
Credit granting function is properly
handled and credit exposures are
within limits.
System for managing problem credits.

18. CREDIT RISK CHECKLIST
Stringent credit standards for borrowers
and counterparties.
Strict portfolio risk management.
Constant focus on changes in economic
or other circumstances that can lead to a
decline in the credit standing of a bank’s
counterparties.

19. 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 revenues
and increase in costs. These type of
risk is called as reputational risk

20. 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.

21. 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.

22. LEGAL RISK
legal risk is a risk which
is done in purely the
result of legal problems,
with a specific focus on
counterparty risk. That
type of risk is called as
legal risk

23. CONCLUSION
Banks should develop
appropriate incident response
plans, including communication
strategies, that ensure business
continuity, control r risk and limit
liability associated with
disruptions in their e-banking
services.