When an organization like a bank fails to come up with ways of mitigating any risk that they face or could possibly face. The impact of risk can have far-reaching effects on an organization that fails to be prepared. Organizations like banks can benefit from considering their risks especially when it is doing well and when there are indications of market growth. It is advisable for risk management to be used as a preventive measure and not a reactive measure. The risk management process is all about identifying exposures to risks, measuring those exposures and making a decision on how to protect the business from the risks (Kidwell et al., 2016).
This risk may not be covered only by risk management practices. For to overcome this liquidity risk use the different methods like derivatives (it is the financial instrument which use to mitigate the risk). Liquidity risk cause collapse of the banks but it can be reduce or eliminate through pledging, cash reserve and mortgages. Research problem (impact of liquidity risk and performance of banking system) is very important to address. In this article author deeply understand and address the problem through practiced implications.
S. (2006). In this chart, it can be seen that banks most probably face these risk when they are operating their business. In the past, the credit risk and market risk were considered a common risks, mainly in the financial institutions. People risk. It is a possibility of loss exposure which will be determined to fail running internal controls, employee’s behavior, culture of HR, and structure of an organization (Jobst, 2007; McConnell, 2008).
This lead to a more profitable way by offsetting declining net interest margins. Threats 1. Intense competition lead the banks to look for strong and new business strategies. 2. The banking system is risky because it is sensitive to unforeseen shocks from financial market instability.
Key Bank Risks There are several bank risks and literature concludes that the risks associated with the provision of banking services differ by the type of service rendered. Different authors like () have grouped these risks in various ways to develop the frameworks for their analyses but the common ones which are considered in this study are credit risk, market risks (which includes liquidity risk, interest rate risk and foreign exchange risk), operational risks which sometimes include legal risk, and more recently, strategic risk. 2.4.1 Credit Risk Greuning and Bratanovic (2009) define credit risk as ‘the chance that a debtor or issuer of a financial instrument— whether an individual, a company, or a country— will not repay principal and
to regulate and make the standards of bank control operations more realistic, increasing the banks financial positions has increased the interest of banks boards of directors and made appropriate financial decisions , banks capital more effective in the control , because of the agreed style of components and elements of financial institutions , everyone has the ability to create a quick idea . criteria for obtaining a safety degree are applied to reduce risk , disadvantages , not to control , bring workers animate experience weak , the presence of tension and conflict because of participating with others , lack of production due to differences vision in teamwork , as for the disadvantages first than , The balance between risk and return leads to an increase in the price of securities and reduces the cost of capital . second , Leads to greater variation in the distribution of incomes and wealth. third , The emergence of continuous economic fluctuations . fourth , Use the exorbitant money to advertise and advertise in order to promote goods and they actually do not express the truth .
Compliance to these laws and regulations will cause extra cost, additional taxes, legal fees or development of new technology for the financial service organizations. Like in case of Green environment where the organizations are striving to lower the carbon emissions (Gupta, 2009). The major issues which have been found as the biggest challenges in the financial service organizations are: • The appetite for risk is again on the rise for the financial institutions • Managing the complexity is one of the biggest challenges which the financial services organizations will face, because during 2011 the turbulent global economy had great impact on the financial sector. • The technology of social media has not been accepted as it should have been by the financial services organization. • There is great amount of room for improving and getting skilled labour in the financial services
These factors may consist of: Job conflicts with personal interests Work overload Work ambiguity Lack of communication & cooperation Gender inequality Constraints of rules & regulations Job requirements & capabilities mismatch Unrealistic deadlines Inadequate authority Job insecurity Unpleasant environment etc. These factors will be applied comparatively in both the private and public sector banks to see which sector banks are more affected by these factors, and in the end suggestions will be given to overcome or at least reduce the effect of these factors in the work
They effectively distribute the credit risk across the market and as a result help the institutions to deal with the risk management objectives and maintain customer relationships. Why is it important: The advent of credit derivatives has led to an effective and increasingly liquid market for transferring the credit risk attaching loan asset separately from its ownership. The main benefit of Credit derivatives is that it has numerous applications and this would have far reaching consequences for the way banks manage credit risk in the future. For instance, there is already an increased focus towards active credit portfolio management, enabling banks to improve returns on both economic as well as regulatory capital through the trading of credit derivatives. Banks are thus able to pass the default risk associated with their assets on to third parties while simultaneously retaining legal title to the assets.
This means the bank may lose funds due to fraudulent activities. Security considerations are paramount, as banks may be subject to external or internal attacks on their systems or products. Operational risk can also arise from customer misuse, and from inadequately designed or implemented electronic banking and electronic money systems. Many of the specific possible manifestations of these risks apply to both electronic banking and electronic money. 2.4.6 Reputation Risks A service provider’s operations could be interrupted due to system breakdowns or financial difficulties, jeopardizing a bank’s ability to deliver products or services therefore resulting in poor service delivery to the customers and this increases its exposure to operational risk.