Banking sector risks
Banking risk can be defined as exposure to the uncertainty of outcome. It is applicable to full – service banks like SBI, PNB & Others. Risks in the banking sector
Types of banking sector risks:
- Credit risk
- Market risk
- Operational risk
- Liquidity risk
- Business risk
- Reputational risk
Credit risk:
It usually occurs because of inadequate income or business failure. Credit risk signifies a decline in the credit assets’ values before default that arises from the deterioration in a portfolio or an individual’s credit quality.
Market risk:
Basel Committee on Banking Supervision defines market risk as the risk of losses in on – or off-balance sheet positions that arise from movement in market prices. Market risk is the most prominent for banks present in investment banking. banking sector risks
Operational risk:
Basel Committee on Banking Supervision defines operational risk “as the risk of loss resulting from inadequate or failed internal processes, people & systems or from external events. Operational risk, the risk in all banking transactions. banking sector risks
Liquidity risk:
Liquidity risk is the risk of a bank not being able to have enough cash to carry out its day – to – day operations.
The reputational risk
when banks lose the public’s trust :
It is the risk of damage to a bank’s image & public standing that occurs due to some dubious actions were taken by the bank. banking sector risks
Business Risk:
Business risk is the risk arising from a bank’s long-term business strategy. It deals with a bank not being able to keep up with changing competition dynamics, losing market share over time, & being closed or acquired. types of risk in the banking
