Overview of risk management

presentation by Khandakar Joyef

DefinitionRisk Management ProcessManaging Risk Accountability?Risk Management CycleBroad category of Risk faced by FIRisk category for BanksRisk Management CultureCredit Risk at Canadian BanksBusiness scopes in risk functions

Learning agenda:

Business magazine:In the world of finance, risk management refers to the practice ofidentifying potential risks in advance, analyzing them and taking precautionary steps to reduce the risk.

Wikipedia:Identification, assessment, prioritization of risk followed bycoordinated and economical application of resources to minimize,monitor, control of probability/impact of unfortunate events tomaximize realization of opportunities.  

a. Identify & Analyze:Identify possible risks/threat/uncertainties and analyze impact on organizationb. Examine Risk Management Technique:Develop financial models, conduct scenario analysis, benchmark with peersc. Select Risk Management Technique:Select a technique ensuring compliance and business goalsd. Implement TechniqueCommunicate across organization, train staff, have control points ready e. Monitor Results:Monitor results to identify patterns, improvise existing standards, policies to avoid loss

Risk Management Process

Managing risk

Identifies risk/opportunities not being considered Determine risk appetite levels Development of risk management tools/parameters Assists Management to take informed decisions Achieve desired results maximizing earnings Increases shareholder confidence

Accountability: teams view

Risk Management Cycle

Broad category of risk faced by FI

Risk category for Banks

Risk Management Culture

Establish language system to discuss & categorize risk Big Picture view of risk exposure Centralize ownership of process and decentralize decision

making Drive the process from Top and define roles Quantifying risk exposure and cost/benefits of managing risks Embed IT systems to facilitate Risk Management process Embed Risk Management Culture

Risk Management Culture…contd

Establish language system to discuss & categorize risk:- Translate risk acronym in easy language for target audience

Big Picture view of risk exposure:- Value at risk, Cash flow at risk, Stress testing

Centralize ownership of process and decentralize decision making:- Front line officers to use tools and process to lead team and guide clients

Drive the process from Top and define roles: - Everyone of us is responsible, not only Risk Management department

Quantifying risk exposure and cost/benefits of managing risks:- Consistent and rigorous assessment of risk and quantification of benefits

Embed IT systems to facilitate Risk Management process:- IT system to developed as per user needs

Embed Risk Management Culture:- Top Management will espouse culture of responsible risk management through behaviours, systems, program put into place

Credit Risk at Canadian Banks: 2017

Loan book exposure to energy producersUnsecured (credit card) lending, unsecured

lines of credit to consumer

Business scopes in Risk functsion: offered by consulting firms

1. Operational risk:Process reviewsProcess improvementCompliance risk

2. Governance:Corporate governanceBusiness/strategic riskRisk framework implementationTraining & learning tools

3. Basel III advisory:Market riskOperational riskCredit risk

4. Corporate Risk:Enterprise risk assessmentFraud/cyber riskRisk based internal audit