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The types of risks in banks
- 1. TYPES OF RISKS INBANKS BY KARIM FARAG
- 2. TYPES OF RISKS 1.INTEREST RATE RISK 2. CREDIT RISK 3. LIQUIDITY RISK 4. OPERATION RISK 5. COUNTRY RISK 6. CAPITAL ADEQUACY RISK 7. MARKET RISK 8. EXCHANGE RATE RISK
- 3. 1. INTEREST RATERISK •IS THE RISK THAT CHANGES IN MARKET INTEREST RATE WILL AFFECT BANKS NET PROFIT AND MARKET VALUE.
- 4. 2. CREDIT RISK •ISTHE 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 •ISTHE RISK THAT THE BANK HAS INSUFFICIENT FUNDS TO MEET CUSTOMERS' WITHDRAWALS OR NEW LOAN ISSUANCE.
- 6. 4. OPERATION RISK •ISTHE RISK OF REALIZING LOSSES DUE TO EMPLOYEES' CARELESSNESS, THEFT, UNINTENDED DAMAGES, OR USING OUTDATED SYSTEMS OR EQUIPMENT.
- 7. 5. COUNTRY RISK •ISTHE 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 ADEQUACYRISK •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 RATERISK •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 PROCESSIN 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.
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