Risk Management Practices Of Banks Research Articles

The Impact of Risk Management on Banks’ Profitability: A South African Perspective

Global research has shown that different risk management practices in banks and companies, in general, may significantly influence their profitability. This research paper investigates the impact of credit risk, liquidity risk and market risk in the banking sector in South Africa. It adds to the literature by improving the existing models and by exploring the impact of the coronavirus on the profitability of the same banks through the lens of risk management. The research used quantitative data collected from the six largest commercial banks in South Africa during the period (2013-2020),before Covid-19. Several panel regression models were developed to incorporate credit, liquidity, and market risks. The results showed that the primary determinant of bank profitability was the management of non-performing loans, implying that other financial risks may already be appropriately managed or diversified away in the South African context. However, banks and regulators should place more importance on evaluating the creditworthiness of their current and prospective customers.

Развитие теории управления рисками в условиях расширения присутствия кредитных организаций в цифровом пространстве

This article discusses the factors of the digital space that affect the economic security and risk status of credit organizations. The evolving nature of digitalization in the banking sector has led to an increase in risks for its structures, in particular, we are talking about unexpected losses and the growth of operational problems. The necessity of risk acceptance and management for banks is outlined, since, unlike other economic entities, bankruptcy of credit organizations can have systemic consequences. The study of the possibilities of applying the existing methodologies of banks’ risk assessment to the changing external environment and digital space has shown the absence of such in the adaptation of organizations’ work. Risk management practices in banks require the identification and classification of digital risks, a strategy to mitigate these identified risks, adapted to the digital space. The concept is considered and an algorithm for identifying bank digital risks according to business processes is presented. Possibilities of applying risk assessment methods depending on the type of risk and business process are analyzed. Based on the research, the author highlights the features of the trans-formation of the bank’s business model under the influence of digital technologies in the format of capacity building in expanding the bank’s operating activities.

Factors Affecting Performance of Financial Institutions: A Case Study of Afghanistan International Bank

This study investigated and focused upon the risk management practices of banks in Afghanistan and their influencesd on banking performance. In recent years, the importance of risk management in banking institutions has grown significantly, particularly following the Global Financial Crisis. The study holds particular significance in the context of Afghanistan, a developing economy where the banking sector plays a vital role in national development. The continuity and success of banks in Afghanistan were intricately tied to effective risk management. This research aims to contribute to the ongoing debate surrounding risk management effectiveness in developing countries, specifically Afghanistan. It explores the relationship between risk management practices and banking performance while assessing the level of risk understanding and management in Afghan banks. The study's findings highlight the importance of risk understanding, risk assessment and analysis, managing credit risk, and managing liquidity risk in improving risk management practices in Afghan banks. These results provide valuable insights into enhancing the effectiveness of risk management in the banking sector.

Role of ICT Risk Management on Insider Fraud Prevention in Commercial Banks in Nairobi County

Purpose: The main objective of the research was to investigate the role of ICT risk management on reduction of insider frauds in the Kenyan banks in Nairobi County. The research explored ICT risks management practices incorporated in the banking industry to mitigate and control insider fraud.
 Methodology: Explorative research design and inferential statistics were used. The unit of analysis was the ICT risk management professionals in all the commercial banks in Nairobi County. 42 commercial banks formed the population of the study. The unit of observation were the ICT security, audit and risk professionals mandated with implementing ICT risk management. The targeted number was at least one respondent from each bank from the three departments identified: internal audit, Information technology, and security managers. In total, the study targeted 42 respondents and a total 29 responses were received which formed 69% of the targeted population. Responses from the distributed questionnaires were analyzed using statical packages for social science (SPSS). The open-ended questions were listed, analysed and reported by descriptive narrative with such statistics as mean and standard deviation. The ANOVA test was used to test the results.
 Findings: The findings revealed that there is a positive but insignificant correlation between ICT risk assessment, ICT awareness, Information security implementation and a significant positive correlation between information security audits and Insider fraud prevention. This study recommends that ICT risk assessment; ICT risk awareness; information security audits; and information security policy are important for preventing insider fraud in commercial banks, but there is need to implement them in conjunction with other stringent measure to increase efficiency
 Unique Contribution to Theory, Practice and Policy: The findings give a theoretical basis for validating the effectiveness of ICT risk management practices in Banks in Nairobi County, this can be adopted by other counties in Kenya. For policy implementation, the study will be important to the central bank of Kenya and any other institution that regulates the banking sector in Kenya in reviewing the current ICT Risk management guidelines. The study shows the adoption of the selected ICT risk management practices by different banks and gives a measure of their effectiveness that ICT Security professionals can use. The study gives the banking sector ICT security professionals a perspective on how ICT risk management can help them improve their ability to curb insider fraud. The study adds to the pool of knowledge for to scholars and academicians.

A Survey of Banks in Ghana's Credit Risk Management Practices

In recent times, banks and other financial institutions that lend money to customers have placed a high priority on credit risk management. To manage credit risk, banks employ customer evaluation systems, loan size restrictions, credit checks, flexible loan repayment plans, and fines Hence, the present study focuses on the credit risk management practices used in banks, to identify the internal control measures used in mitigating credit risk in banks and to examine the challenges faced in implementing credit risk management practices. The Ordinal Logistic Regression(OLR) was used to identify the relationships between the response variables, e.g. management support, credit risk identification, internal control measuers and credit risk management surveys. The independent variables were calculated on an ordered, 5-point Linear scale for the responding participants. In this study, log lit function was chosen, that demonstrated the model appropriateness. One of the main finding is that in banks, credit management risk is reduced when managers implement and adhere to responsible credit risk management procedures, viable client appraisal credit management system, regular credit checks, flexible credit repayment systems to encourage and improve loan repayment, were highly significant with the respondents’ positive initiative amidst credit risk management practices in banks.

Comparative Analysis of Risk Management Practices of Commercial Banks in Afghanistan

The main objective of the study was to compare the risk management practices of public and private banks and rank different types of risks faced by public and private banks in Afghanistan banking sector. The study empirically tested the level of efficient risk management practices in the banking sector of Afghanistan. A representative sample of 110 individuals was used from both public and private banks. The analysis was based on correlation, regression analysis, and t-statistics. The findings suggest that private banks are more efficient than public banks in terms of risk assessment and analysis, risk monitoring, and credit risk management. Furthermore, RAA, RMON, and CRA are the significant determinants of RMPS. Overall, there is no significant difference in the risk management practices of public and private banks. The study found credit risk, country risk, and liquidity risks as the major risks for the banking sector in Afghanistan. Financial statement analysis, audit and physical staff, and value at risk analysis are the three top instruments respectively for the assessment of risk. This study is the first attempt to understand and analyze the risk management practices of the banking sector of Afghanistan, the results of which will assist various stakeholders of the banking industry in their decision-making process.

Application of text mining in identifying the factors of supply chain financing risk management

PurposeThis study aims to clarify the risk management practices of banks as supply chain finance (SCF) service providers.Design/methodology/approachUsing 4,014 evaluation and approval reports, this study constructed five risk management factors and examined their functions with secondary data. Two text-mining techniques (i.e. word sense induction, TF–IDF) were used to equip the classic routine of dictionary-based content analysis.FindingsThis research successfully identified four important risk management factors: relationship-based assessment, asset monitoring, cash flow monitoring and supply chain collaboration. The default-preventing effect of these factors are different and contingent on the type of financing contexts (i.e. preshipment, postshipment).Practical implicationsThe empirical evidences provide practical implications for SCF service providers to manage risk. SCF service providers are suggested to pay more attention to cash flow monitoring when providing postshipment financing services and shift the focus to relationship building and supply chain collaboration when providing preshipment financing services.Originality/valueThe study shows that a large volume of textual materials can provide adequate clues for researches as long as they are mined with suitable analytic techniques and approaches. Based on the results, SCF service providers can identify problems of their operations and directions for improvement. In addition, the risk management vocabulary from the E&A reports can be utilized by SCF service providers to digitize their loan approving process and, further, to facilitate the decision-makings.

Risk and risk management practices

Purpose This study aims to compare types and levels of risk and risk management practices (RMPs) including the recognition, identification, assessment, analysis, monitoring and control of risk in both Islamic and conventional banks. Design/methodology/approach A questionnaire survey was conducted among the Islamic and conventional banks in Qatar, together with an analysis of archival data extracted from the Thomson Reuters Eikon database for the period 2009-2018. Data were analysed using descriptive statistics, ANOVA and regression analysis. Findings Islamic banks encounter unique types and levels of risk that are not encountered by conventional banks. In Islamic banks, risks such as those of operation and Sharia non-compliance are perceived to be higher, while in conventional banks other risks such as those of credit and insolvency are higher; other risks, for example, liquidity risk, are faced by both. RMPs are determined by understanding risk and risk management, risk identification, risk monitoring and control and credit risk analysis, but not by risk assessment and analysis. However, the RMPs of the two types of bank are not significantly different, except in the analysis of credit risk. Research limitations/implications The study contributes to the debate in the literature by developing a better understanding of the dynamism of risk management in Qatari banks, which can be extended to similar contexts in the region. However, the relatively small sample size in only one country limits the possibility of generalizing the findings. The survey methodology is based on the perception of bankers rather than their actual actions and does not provide in-depth analysis for each type of risk, especially credit risk. However, using archival data, in addition to those from the survey, minimises the bias that would result from depending on one source of data. Practical implications The study provides valuable insights into the different types and levels of risk, as well as the RMPs in Islamic and conventional banks, which can help in guiding the future development and regulation of risk management in the banking sector of Qatar and its region. Originality/value The study helps to explain the mixed results of previous studies that compare types and levels of risk and RMPs in Islamic and conventional banks. Using different types of data and analysis, it provides evidence from one of the fastest growing economies in the world. It also addresses the concerns over RMPs in banks since the global financial crisis.

Why remodeling of risk management Practices in banking is required? Evidence from Pakistan

Why remodeling of risk management Practices in banking is required? Evidence from Pakistan

Risk Management and Regulation

The evolution of risk management has resulted from the interplay of financial crises, risk management practices, and regulatory actions. In the 1970s, research lay the intellectual foundations for the risk management practices that were systematically implemented in the 1980s as bond trading revolutionized Wall Street. Quants developed dynamic hedging, Value-at-Risk, and credit risk models based on the insights of financial economics. In parallel, the Basel I framework created a level playing field among banks across countries. Following the 1987 stock market crash, the near failure of Salomon Brothers, and the failure of Drexel Burnham Lambert, in 1996 the Basel Committee on Banking Supervision published the Market Risk Amendment to the Basel I Capital Accord; the amendment went into effect in 1998. It led to a migration of bank risk management practices toward market risk regulations. The framework was further developed in the Basel II Accord, which, however, from the very beginning, was labeled as being procyclical due to the reliance of capital requirements on contemporaneous volatility estimates. Indeed, the failure to measure and manage risk adequately can be viewed as a key contributor to the 2008 global financial crisis. Subsequent innovations in risk management practices have been dominated by regulatory innovations, including capital and liquidity stress testing, macroprudential surcharges, resolution regimes, and countercyclical capital requirements.

A comparative study of Islamic and conventional banks’ risk management practices: empirical evidence from Pakistan

While conventional bank risk management practices is well documented in the literature there is limited research devoted at comparing the risk management practices of Islamic and conventional banks and how the recent financial crisis affected the approach taken in each banking model to manage the risks. In this paper we use self-administered questionnaire to collect data from 150 bank senior managers and risk specialists from Pakistani conventional and Islamic banks to identify the main contributing factors to their risk management practices after the 2007-2008 financial crisis. The study results reveal that risk identification, risk assessment and analysis, credit risk analysis and risk governance are the most efficient and influential variables in explaining the risk management practices of Islamic banks. Whilst understanding risk management, credit risk analysis, and risk governance are the most significant and contributing variables in the risk management practices of conventional banks. Differences are also observed between Islamic and conventional banks in their liquidity risk analysis and risk governance. The results presented in this study are likely to benefit bank managers, investors, regulators, and policymakers as they will serve them as guide when developing, reformulating and overseeing the bank(s) existing risk management practices.

Are Risk Management Disclosures Informative or Tautological? Evidence from the U.S. Banking Sector

AbstractBanks experienced increasing risk levels during the latest financial crisis. Investors’ confidence was shaken by the effectiveness of bank risk management practices, which has opened new challenges for bank management in approaching its risk. Understanding and communicating adopted risk management mechanisms is likely to provide insights and enable diagnosis on firm risk exposure. Conveying data that reduces information asymmetry might be reflected on stock performance. Investigating the impact of risk management disclosures content on stock price change and return volatility, using a sample of U.S. national commercial banks during 2009–2010, shows that informative risk management disclosures seems to be valued by investors. This is reflected on current‐year stock prices and reduces the subsequent‐year return variances.

Risk management and regulation

The evolution of risk management has resulted from the interplay of financial crises, risk management practices, and regulatory actions. In the 1970s, research lay the intellectual foundations for the risk management practices that were systematically implemented in the 1980s as bond trading revolutionized Wall Street. Quants developed dynamic hedging, Value-at-Risk, and credit risk models based on the insights of financial economics. In parallel, the Basel I framework created a level playing field among banks across countries. Following the 1987 stock market crash, the near failure of Salomon Brothers, and the failure of Drexel Burnham Lambert, in 1996 the Basel Committee on Banking Supervision published the Market Risk Amendment to the Basel I Capital Accord; the amendment went into effect in 1998. It led to a migration of bank risk management practices toward market risk regulations. The framework was further developed in the Basel II Accord, which, however, from the very beginning, was labeled as being procyclical due to the reliance of capital requirements on contemporaneous volatility estimates. Indeed, the failure to measure and manage risk adequately can be viewed as a key contributor to the 2008 global financial crisis. Subsequent innovations in risk management practices have been dominated by regulatory innovations, including capital and liquidity stress testing, macroprudential surcharges, resolution regimes, and countercyclical capital requirements.

Risk Management Practices of Banks: Evidence from Sri Lanka

Main objective of this study would be to examine the degree to which banks use risk management practices and techniques in dealing with different types of risk. Sub objective is to test whether there is a significant difference between national and foreign banks in the practice of risk management with regard to six aspects. The sample includes six national banks and the five largest foreign banks. The study found that there is a significant relationship between risk management practices and understanding risk and risk management. Furthermore, it revealed that there is a difference between national and foreign banks with respect to understanding of risk and risk management, practices of risk identification, practices of risk assessment and analysis, risk monitoring and controlling and in the practice of credit risk analysis except for risk management practices. On average foreign banks are faced with less risk than national banks. That could be due to efficient risk management by foreign banks. The highest significant type of risk for both national and foreign banks is Credit Risk.

Risk management practices of conventional and Islamic banks in Bahrain

PurposeThe purpose of this paper is to report empirical evidence regarding the risk management practices of banks operating in Bahrain.Design/methodology/approachA sample of bankers was surveyed through a questionnaire and the results used to examine if the risk management practices are significantly associated with the type of bank (conventional or Islamic) and if those practices are positively affected by understanding risk, risk management, risk identification, risk assessment analysis, risk monitoring and credit risk analysis. Several statistical and econometric methods were used to the test the hypotheses.FindingsBanks in Bahrain are found to have a clear understanding of risk and risk management, and have efficient risk identification, risk assessment analysis, risk monitoring, credit risk analysis and risk management practices. In addition, credit, liquidity and operational risk are found to be the most important risks facing both conventional and Islamic banks. Furthermore, the risk management practices are determined by the extent to which managers understand risk and risk management, efficient risk identification, risk assessment analysis, risk monitoring and credit risk analysis. Islamic banks are found to be significantly different from their conventional counterparts in understanding risk and risk management. The levels of risks faced by Islamic banks are found to be significantly higher than those faced by conventional banks. Similarly, country, liquidity, and operational, residual, and settlement risks are found to be higher in Islamic banks than in conventional banks.Research limitations/implicationsThe results may have been influenced by the current economic global crisis. Although the response rate is very high, there is no evidence of non‐response bias, and there is high internal consistency within the responses. The reliance on survey methodology introduces the possibility that respondents expressed their beliefs and did not necessarily describe their actions.Practical implicationsBankers, depositors, investors and regulators are likely to benefit from the results of the study when taking decisions related to the banking industry.Originality/valueThis is the first published attempt to investigate empirically the risk management practices of banks operating in Bahrain and to compare the practices of conventional and Islamic banks.

Banks, systematic risk, and industrial concentration: theory and evidence

We find evidence in an international cross-section that bank-based financial systems and various measures of vulnerability to real exchange rate fluctuations are highly significant macroeconomic determinants of industrial concentration. We argue that these results can be explained by bank risk-management practices: asymmetric contracts make it impossible for banks to protect themselves against systematic risk (e.g. real exchange rate fluctuations) by diversifying across borrowers; managing the risk requires instead that banks lend to already diversified borrowers, who internalize losses and gains from a shock.

Risk Management, Capital Structure and Lending at Banks

We test how active management of bank credit risk exposure through the loan sales market affects capital structure, lending, profits, and risk. We find that banks that rebalance their CI they also make more risky loans (loans to businesses) as a percentage of total assets than other banks. Holding size, leverage and lending activities constant, banks active in the loan sales market have lower risk and higher profits than other banks. We conclude that increasingly sophisticated risk management practices in banking are likely to improve the availability of bank credit but not to reduce bank risk.