C:\fakepath\1. introduction to risk managment

  • Published on
    28-Nov-2014

  • View
    390

  • Download
    6

Embed Size (px)

DESCRIPTION

 

Transcript

  • 1. What does Risk stand for?
    • Uncertainties transforming into adverse outcomes
  • Adverse in relation to planned objective or expectations

2. Risk Management defined:

  • RM involves framing ofpolicies,
  • procedures,andpracticesinvolved in
  • identification, analysis, assessment,
  • control andavoidance, minimisation
  • oreliminationof unacceptable risks.

3. Risk Management Strategies

  • Risk assumption.
  • Risk Avoidance.
  • Risk Retention.
  • Risk Transfer.

4. Major source of uncertainty

  • Business

Commodity Prices LabourCosts InterestRates Currency $ Taxes ConsumerPreferences Technology EconomicPolicies PoliticalConditions Weather 5. Business :A series of activities running over a time horizon

  • Conventional Banking
  • business business
  • Acquiring materials Selling Deposits
  • Processing Buying Loans
  • Storing Margins
  • Marketing Distribution of
  • Sales profits
  • Revenue
  • Distribution of profits

6. H ow do uncertainties effect businesses?

  • Cash Inflows
  • Sales volume or sale price.
  • Cash Outflows
  • Input costs, raw materials etc.
  • Processing costs, wages, storage,
  • Cost of funds, taxes.

7. Where do uncertainties manifest ultimately?

  • Profit or earnings or a business
  • Net worth or value of a firm

8. Earnings of a bank: Deposits Borrowings interest expenses Loans Investment Interest income earnings 9. Earnings value of a firm Earnings taxes dividends Reserves & Surplus Balance Sheet 10. Risk Management: Objectives

  • Risk return integration
  • Lower risk management costs
  • Fairly stable earnings
  • Uninterrupted operations
  • Continued growth
  • Safety of Capital funds
  • Regulatory Compliance
  • Competitive advantage
  • Peace of mind

11. Stable Earnings:

  • Consistent Growth.
  • Good Reputation.
  • Marketability.
  • Investor attraction.
  • Listing privilege.

12. Un-interrupted Operations

  • Avoid systemic crisis.
  • Avoid external interventions.
  • Avoid take-over threats.
  • Enhance market share.

13. Safety of capital funds

  • Consider a hypothetical bank with following
  • structure:-

Assume that bank suffersRupee 4.5 lakh in loan losses. Which means 4.74% of loanlosses equals about 45% ofequity wipe out. Cash5 Loans95 Total:100 Equity10 Deposits90 Total:100 Assets (in lakhs rupees) Liabilities (in lakhs rupees) 14. Net worth of a bank

  • Assets - external liabilities = owners equity
  • Smallchanges
  • in the value of assets/liabilities
  • Large changes
  • In the value of owners equity

15. Why Risk Management?

  • Navigating a ship in a stormy sea.
  • Danger of capsizing.
  • Choppy sea needs to calmed.

16. Management of Financial Risks:

  • Risk Identification
  • Risk Measurement
  • Risk Pricing
  • Risk Monitoring & Control
  • Risk Mitigation

17.

  • Thank You !