Risk Management In Banking Business

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Risk is a natural element of banking business. It is a condition that raises the chance of losses and uncertain potential events which could manipulate the success of the financial institutions. The uncertain future events could include disappointment of a borrower to pay back a credit, variation of foreign trade rates, fraud, non-compliance with laws and principles and other actions due to the failure of the bank (Khan & Ahmed, 2001; Meyer, 2000; Khalid & Amjad, 2012).

As Khalid & Amjad (2012) noted commercial banks are in the risk business. In the process of providing financial services, they assume various kinds of financial risks. The risks contained in the banks’ principal activities are not all born by the bank itself. Banks accept those risks that are uniquely a part of the banks’ array of services. In other words, banks involve in taking calculated risks to generate profits.

One of the major causes of the global financial crisis and banking failures is due to the excessive risk taking and ineffective risk management practices of financial institutions. Exercising an effective risk management procedure is crucial for banking business in particular and to the health of the economy in general. This is because banks are operating in
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In banking business, profits are in part the reward for successful risk taking and effective management of such risk. Failure of practicing effective risk management system is one of the main causes of financial crisis in general and banking failure in particular. The success and survival of commercial banks is mainly dependent on the effectiveness of their risk management practices. Risk management is a continuous process that depends directly on changes in the internal and external environment of banks. These changes in the environment require continuous attention for identification of risk and risk control (Al-Tamimi and Al-Mazrooei,

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