Abstract
Risk management is said to be a cornerstone of prudent banking practices. Banking sector in today’s complex economic system has been facing a number of potential risks. The major ones are liquidity risk, credit risk, interest rate risk, investment risk, operational risk, and strategic risk which may threaten a bank’s survival and success. Banks are, therefore, required to follow some prescribed procedures for identification and assessment of risk. Risk management in banking sector of Bangladesh has already shown increasing efficiency in governing banks. In an era of Globalization and Liberalization when remarkable expansion in the banking sector is seen, risk is a vital issue to focus on. Two categories of banks are operating in Bangladesh - Islamic (i.e. profit and loss sharing based) and conventional (i.e. interest or predetermined claim based). This paper aims at examining the risk management practices in both types of the banks in Bangladesh. The study reveals that regarding awareness among the bank personnel, there is a significant variation between the Islamic and conventional banks. Again, with respect to risk identification and understanding, management practices in conventional banks seem better than the Islamic ones. The study also indicates that the conventional banks relay mostly on advanced techniques of risk management. This study contributes in identifying the ways to estimate the efficiency of Risk Management.
Highlights
The banking industry has been facing a number of crises around the world in last few decades
This paper aims at examining the risk management practices in both types of the banks in Bangladesh
Banks that had been doing well suddenly were shocked by large losses because of imbalanced credit exposures, unadjusted interest rate or derivative exposures that were not assumed to hedge by adjusting balance sheet risk
Summary
The banking industry has been facing a number of crises around the world in last few decades. Commercial banks have felt the necessity to upgrade the total risk management systems. This study, exposed the gap of the risk identification, measurement and management practices between these two dimensions banking systems. Besides offering the maximized value to the shareholders, banks concentrate on profit maximization. In doing so, they compromise a variety of financial products in a competitive manner. According to Carey (2001), risk management is the foundation of banking business because it allows the banks to offer services sustainably and at a regular fashion. There are a number of sources of risks for banking business. These are including liquidity risk, default risk, interest rate risk, etc.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have