...CHAPTER I: INTRODUCTION 1. THEME OF THE STUDY Risk management underscores the fact that the survival of an organization depends heavily on its capabilities to anticipate and prepare for the change rather than just waiting for the change and react to it. The objective of risk management is not to prohibit or prevent risk taking activity, but to ensure that the risks are consciously taken with full knowledge, purpose and clear understanding so that it can be measured and mitigated. It also prevents an institution from suffering unacceptable loss causing an institution to suffer or materially damage its competitive position. Functions of risk management should actually be bank specific dictated by the size and quality of balance sheet, complexity of functions, technical/ professional manpower and the status of MIS in place in that bank. 1.2 INTRODUCTION Risk: the meaning of ‘Risk’ as per Webster’s comprehensive dictionary is “a chance of encountering harm or loss, hazard, danger” or “to expose to a chance of injury or loss”. Thus, something that has potential to cause harm or loss to one or more planned objectives is called Risk. The word risk is derived from an Italian word “Risicare” which means “To Dare”. It is an expression of danger of an adverse deviation in the actual result from any expected result. Banks for International Settlement (BIS) has defined it as- “Risk is the threat that an event or action will adversely affect an organization’s ability...
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...CHAPTER I: INTRODUCTION 1. THEME OF THE STUDY Risk management underscores the fact that the survival of an organization depends heavily on its capabilities to anticipate and prepare for the change rather than just waiting for the change and react to it. The objective of risk management is not to prohibit or prevent risk taking activity, but to ensure that the risks are consciously taken with full knowledge, purpose and clear understanding so that it can be measured and mitigated. It also prevents an institution from suffering unacceptable loss causing an institution to suffer or materially damage its competitive position. Functions of risk management should actually be bank specific dictated by the size and quality of balance sheet, complexity of functions, technical/ professional manpower and the status of MIS in place in that bank. 1.2 INTRODUCTION Risk: the meaning of ‘Risk’ as per Webster’s comprehensive dictionary is “a chance of encountering harm or loss, hazard, danger” or “to expose to a chance of injury or loss”. Thus, something that has potential to cause harm or loss to one or more planned objectives is called Risk. The word risk is derived from an Italian word “Risicare” which means “To Dare”. It is an expression of danger of an adverse deviation in the actual result from any expected result. Banks for International Settlement (BIS) has defined it as- “Risk is the threat that an event or action will adversely affect an organization’s ability...
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...Risk Based Capital (Basel II) for Banks in Bangladesh: A straightforward Journey Abu Hena Mohd. Razee Hassan K. M Abdul Wadood Abstract Banks operating in Bangladesh are much enthusiastic for maintaining risk based capital in line with Basel II. Self audit report 2008 on compliance with Basel Core Principles (BCPs) shows, Operational independence of Bangladesh Bank, supervisory tools, existing prudential regulations for core risk management as introduced in banking industry by BB has developed an environment is favorable for implementing Basel II. Bangladesh Bank (BB) has commenced the implementation of Basel II from January 2009 and has provided banks guideline for computing Minimum Capital requirement (MCR) on the basis of Risk Weighted Assets (RWA). The techniques of calculation of RWA will follow Standardized Approach for Credit Risk, Standardized (Rule Based) Approach for Market Risk and Basic Indicator Approach for Operational Risk. In Standardized Approach risk weight of exposures will be differentiated based on external credit assessments and the risk weights will be inversely related to the credit rating of the counter party. Calculation of RWA under Standardized Approach is supported by External Credit Assessment Institute (ECAI). The recognition process of BB will ensure ECAIs eligibility criteria as required by the Basel II document. In addition to computing MCR banks have to calculate adequate capital with the procedure as stated in the section second pillar or...
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...Research Proposal: Finance; (Financial Engineering, Financial Mathematics & Risk Management) By:Syed Asad Raza Naqvi Index Introduction and Background………………………………………………………………………….3 Interested areas for research and further study (Research Proposal)……………….3 Further explanation of the intended research topics………………………………………..4 Securitization…………………………………………………………………………………………………..4 Credit Derivatives…………………………………………………………………………………………….6 Hybrid Products……………………………………………………………………………………………….7 Re-Securitization……………………………………………………………………………………………..8 Contribution of these products towards Financial Crisis…………………………………..8 Improper Risk Management role in Financial Crisis………………………………………….9 Risks………………………………………………………………………………………………………………..10 Market Risk……………………………………………………………………………………………………..11 Credit Risk……………………………………………………………………………………………………….11 Liquidity Risk……………………………………………………………………………………………………11 Interest Rates and the Financial Crisis………………………………………………………………12 Relation between low interest rate and financial crisis…………………………………….12 Role of Rating Agencies……………………………………………………………………………………14 Structure Finance Products and Rating Agencies……………………………………………..14 Regulations Then and Now………………………………………………………………………………15 BASEL II……………………………………………………………………………………………………………16 Enhancements of Basel II…………………………………………………………………………………18 The Resecuritisation Exposure Using IRB Approach………………………………………….18 The Resecuritisation Exposure Using Standardized Approach…………………………...
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...article “Credit Risk Rating at Large U.S. Banks” authors William F. Treacy and Mark S. Care say that risk ratings are the primary summary indicator of risk for banks’ individual credit exposures. They both shape and reflect the nature of credit decisions that banks make daily. The specifics of internal rating system architecture and operation differ substantially across banks. The number of grades and the risk associated with each grade vary across institutions, as do decisions about who assigns ratings and about the manner in which rating assignments are reviewed. In general, in designing rating systems, bank management must weigh numerous considerations, including cost, efficiency of information gathering, consistency of ratings produced, staff incentives, the nature of the bank’s business, and the uses to be made of internal ratings. RATINGS MIGRATION SYSTEM An Internal Ratings Migration Study by Michel Araten, Michael Jacobs Jr., Peeyush Varshney, and Claude R. Pellegrino-- This article discusses issues in evaluating banks’ internal ratings of borrowers. Ratings migration analysis entails the actuarial estimation of transition probabilities for obligor credit risk ratings, with emphasis on estimation of empirical default probabilities. Measurement of changes in borrower credit quality over time is important as obligor risk ratings are a key component of a bank’s credit capital methodology. These analyses permit banks to more accurately assess and price credit risk, as...
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...An internship report on “Credit risk management practices in Sonali Bank Ltd.” Executive Summary Sonali Bank Ltd. is the largest state owned commercial bank in Bangladesh with a total of 1203 branches. Total of 858 branch in rural and 343 branch in urban area. The functions of the bank covered a wide range of banking and functional activities to individual, firms, corporate bodies, Multinational agencies and the rural area. The bank provides more than 21 types of free services on behalf of the government of Bangladesh through its rural and urban branches as part of their commitment to society. Sonali bank Ltd. follows the rules and regulation prescribed by the Bangladesh bank. To manage credit risk, the Bank applies credit limits to its customers and obtains adequate collaterals. Credit risk in the Sonali Bank Ltd.'s portfolio is monitored, reviewed and analyzed by the Credit Risk Management (CRM). Sonali Bank Ltd. has established Asset-Liability Management Committee (ALCO) to determine the maximum risk exposure. Management is aware about guidelines of Bangladesh Bank and implemented new capital accord BASEL-II. Sonali Bank Ltd. constantly monitors, reviews and analyzes its credit portfolio to minimizing potential losses and ensuring efficient credit process. To manage the Non-Performing Loans (NPL), Sonali Bank Ltd. has a comprehensive remedial management policy, which includes a framework of controls to identify weak credits and monitoring of these accounts constantly...
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...SUMMER TRAINING REPORT SUBMITTED TOWARDS THE PARTIAL FULFILLMENT OF POST GRADUATE DEGREE IN INTERNATIONAL BUSINESS CREDIT APPRAISAL AND RISK RATING IN PUNJAB NATIONAL BANK SUBMITTED BY: KRITIKA ARORA MBA-IB (2009-20011) Roll No. : A1802009075 INDUSTRY GUIDE FACULTY GUIDE Mr. ARUN KUMAR NIJHAWAN Mr.AJIT MITTAL SENIOR MANAGER SENIOR FACULTY AMITY INTERNATIONAL BUSINESS SCHOOL, NOIDA AMITY UNIVERSITY – UTTAR PRADESH [pic][pic] CREDIT SECTION, CIRCLE OFFICE: DELHI, 4th FLOOR, RAJENDRA BHAWAN, RAJENDRA PLACE, NEW DELHI TELE; 25744450 Fax: 25731252 ------------------------------------------------------------------------------------------------------------------------------------------------------------ TO WHOM IT MAY CONCERN This is to certify that KRITIKA ARORA, a student of Amity International Business School, Noida, undertook a project on “CREDIT APPRAISAL AND RISK MANAGEMENT” at PUNJAB NATIONAL BANK from 1st May to 30th June. Ms.KRITIKA ARORA has successfully completed the project under the guidance of Mr.ARUN KUMAR NIJHAWAN. She is a sincere and hard-working student with pleasant manners. We wish all success in her future endeavors. Mr. ARUN KUMAR NIJHAWAN Senior Manager Circle Office Delhi Punjab National Bank CERTIFICATE OF ORIGIN This is to certify that...
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...Matriculation No.; 109025160 of the Department of Finance, Faculty of Business Administration, University of Lagos, Akoka, Lagos. __________________________ ______________ DR. LEKAN OBADEMI DATE _______________________ ____________ PROF. W. IYIEGBUNIWE DATE HOD DEPARTMENT OF FINANCE _______________________ ____________ EXTERNAL EXAMINER DATE DEDICATION This project work is dedicated to the Glory of ALMIGHTY ALLAH (SWT) to Him I say as always; ALHAMDULILAHI ROBIL ALAMIN!!! Special dedication also goes to the memory of my late father; Alhaji R.S.A Aboyarin. I pray his soul finds forgiveness and mercy before Allah (Amin. ACKNOWLEDGEMENT CHAPTER ONE 1.0: INTRODUCTION AND BACKGROUND TO THE STUDY Banks are germane to economic development through the financial services they provide. Their intermediation role can be said to be a catalyst for economic growth and development. The efficient and effective performance of the banking industry over time is an index of financial stability in any nation. The extent to which a bank extends credit to the public for productive activities accelerates the pace of a nation’s economic growth and its long-term sustainability. Amongst the various functions of banks, the credit function of banks enhances the ability of investors to exploit desired profitable ventures. Kargi; (2011) referred to Credit creation as the main income generating activity...
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...A Summer Training Report On CREDIT APPRAISAL & CREDIT RISK RATING At Punjab National Bank Submitted in partial fulfillment of the requirements of Master of Business Administration (MBA) Amity University, Gurgaon (Manesar) Under the Guidance of: Submitted By: Name: Mr. A.K. Rastogi Mohit Batra Senior Manager MBA: 3rd Semester A50050213025 Amity Business School Amity University Gurgaon SESSION 2014 – 2015 Preface While searching for a suitable topic for the MBA Dissertation, I Had gone through the various projects & books, ultimately settling On the topic credit appraisal and credit risk rating –A Study With Reference To Punjab national bank The topic inspired me, to go through the various books, articles, Reports etc. to know the process and also understand the real Issues plaguing the industry. All these aspects then resulted in the development of the project Report titled ‘credit appraisal and credit risk rating –A Study with Reference To Punjab national bank.’ It is strongly hoped that this project covers not only the various Requirements of the Project Study but also of the Industry . Acknowledgement I would like to express my profound gratitude to all those who have been instrumental in the preparation of my project report. To start with, I would like to thank the organization Punjab...
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...Internship Report on Credit Rating and Factore of Affecting The Bank rating Executive Summery Credit rating agencies (subsequently denoted CRAs) specialize in analyzing and evaluating the creditworthiness of corporate and sovereign issuers of debt securities. In the new financial architecture, CRAs are expected to become more important in the management of both corporate and sovereign credit risk. The logic underlying the existence of CRAs is to solve the problem of the informative asymmetry between lenders and borrowers regarding the creditworthiness of the latter. Issuers with lower credit ratings pay higher interest rates embodying larger risk premiums than higher rated issuers. Moreover, ratings determine the eligibility of debt and other financial instruments for the portfolios of certain institutional investors due to national regulations that restrict investment in speculative-grade bonds. The banking sector in Bangladesh passed through significant changes in terms of structure and policies. Starting with six nationalized commercial and a few specialized banks after independence, the total number of banks has reached 48 at present including private and foreign commercial banks. The Bangladesh financial sector is under going through a phase of transaction, transformation and convergence. The regulators are more active then ever before to bring the sector up to an international standard. The competitive environment created with the presence of too many banks in...
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...advanced and complex. Banking system in today’s world has evolved over long period of time. There have been lots of ups and downs or we can call financial crisis in this time period. One of the heavily regulated sectors in world economy is banking sector. This report focuses on how a bank performs in advanced economy and moderately advanced economic situation. There is a significant scope for Bangladeshi investment bank to compete in global market. Several studies have shown that investment banks play a major role along with government and in public finance. 1. East West University, Department of Business Administration. This project preparation is for academic and final year submission to project supervisor Quazi Sagota Samina. 1 The Evolution of Banking Banks are just one part of the world of financial institutions, standing alongside investment banks, insurance companies, finance companies, investment managers and other companies that profit from the creation and flow of money. As financial intermediaries, banks stand between depositors who supply capital and borrowers who demand capital. Given how much commerce and individual wealth rests on healthy banks, banks are also among the most heavily regulated businesses in the world. Banks have been around since the first currencies were minted, perhaps even before that, in some form or another. Currency, particularly the use of coins, grew out of taxation. In the early days of ancient empires, a tax of on...
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...RESEARCH DESIGN OBJECTIVES OF THE STUDY ➢ Understanding credit risk management conceptually. ➢ Studying the various private banks practicing credit risk management. ➢ To make a depth study of the method in which the private banks in India go about credit risk management. ➢ Studying the difference between retail credit risk management and corporate credit risk management practiced by private banks. ➢ Understanding the importance of the credit risk management and how useful it is to the private banks and how it benefits them in various ways. PURPOSE OF THE STUDY The main reason to select “CREDIT RISK MANAGEMENT” as a topic is to understand the importance of the Role played by credit risk management department and/or practices when the bank lends money to its borrowers. In this project, I have tried to understand the difference between corporate credit risk management and retail credit risk management. The analysis and interviews with industry personnel has given me a practical and real life exposure to the banking scenario as far as the credit risk management goes, whereby I could correlate between the theory and their practical application. RESEARCH METHODOLOGY DATA COLLECTION The data collection i.e. the raw material input for the project has been collected keeping in mind the objectives of the project and accordingly relevant...
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...4108163163 Management of Business Finance INDIAN INSTITUE OF FINANCE CORPORATE GUIDE: MR. ASHOK SHARMA ASST. MANAGER AGRA BRANCH, AGRA UTTAR PRADESH. ACKNOWLEDGEMENT Expressing gratitude is not just an exercise of formality rather doing so evokes the memories of my association with my mentors and mates. I thank Chairman Prof. J. D. Agarwal and Director Aman Agarwal for allowing me to carry out this project. I wish to express my sincere gratitude to my corporate guide, Mr. Ashok Sharma for guiding me to understand the concepts those were not clear to me. I learnt a lot from his professional sknowledge. SUBODH AGARWAL 4108163163 Management of Business Finance Preface As a part of Management of Business Finance (MBF) programme, a student has to pursue a project duly approved by the Director of the Indian Institute of Finance. I had the privilege of undertaking a project on “Risk Management by INDUSIND BANK LTD.” My project report is divided into seven chapters and they are given as under: Chapter 1 INTRODUCTION Chapter 2 Review of literature Chapter 3 Research Methodology Chapter 4 Analysis Chapter 5 Consist of Findings, Conclusion, Suggestions, Limitations SIGNATURE: Name: SUBODH AGARWAL Enrollment No.: 41O8163163 Management of Business Finance CERTIFICATE This is to certify that “Risk Management by Indusind Bank” was carried out by Mr. Subodh Agarwal (4108163163) as a part of the requirement of Management of Business Finance programme. This project is being...
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...transaction where risk level is very high. In banks and financial institutions risk is considered to be the most important factor of earnings. Therefore they have to balance the Relationship between risk and return. In reality we can say that management of financial institution is nothing but a management of risk managing financial risk systematically and professionally becomes an even more important task. Rising global competition, increasing deregulation, introduction of innovative products and delivery channels have pushed risk management to the forefront of today's financial landscape. Ability to gauge the risks and take appropriate position will be the key to success. It can be said that risk takers will survive, effective risk managers will proper and risk averse are likely to perish. The risk arises due to uncertainties, which in turn arise due to changes taking place in prevailing economic, social and political environment and lack...
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...same competition and hence are compeled to encounter various types of financial and non-financial risks. Risks and uncertainties form an integral part of banking which by nature entails taking risks. There are three main categories of risks; Credit Risk, Market Risk & Operational Risk. Author has discussed U M M A R Y > in detail. Main features of these risks as well as some other categories of risks such as Regulatory Risk and Environmental Risk. Various tools and techniques to manage Credit Risk, Market Risk and Operational Risk and its various component, are also discussed in detail. Another has also mentioned relevant points of Basel’s New Capital Accord’ and role of capital adequacy, Risk Aggregation & Capital Allocation and Risk Based Supervision (RBS), in managing risks in banking sector. effectively controlled and rightly managed. Each transaction that the bank undertakes changes the risk profile of the bank. The extent of calculations that need to be performed to understand the impact of each such risk on the transactions of the bank makes it nearly impossible to continuously update the risk calculations. Hence, providing real time risk information is one of the key challenges of risk management exercise. Till recently all the activities of banks were regulated and hence operational environment was not conducive to risk taking. Better insight, sharp intuition and longer experience were adequate to manage the limited risks...
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