...CMI Level 5 Diploma in Management and Leadership Unit 5021 – Operational risk management CARE 4 ME Angela Jackson Content 1. Be able to understand the concept of risk management 2. Be able to understand the identification of risk and risk probability 3. Be able to understand the management of risk response approaches 1.Be able to understand the concept of risk management 1.1 - Discuss the meaning of risk to an organisation Good risk management awareness and practice at all levels is a critical success factor for any organisation. Risk is inherent in everything that an organisation does: treating patients, determining service priorities, project management taking decisions about future strategies or even deciding not to take any action at all. Risk management is the process of identifying, quantifying and managing the risks that an organisation faces. As the outcome of business activities are uncertain, they are said to have some element of risk. These risks include strategic failures, operational failures, financial failures, market disruptions, environmental disasters and regulatory violations. When it is impossible that companies remove all risk from the organisation, it is important that they properly understand and manage the risks that they are willing to accept in the context of the overall corporate strategy. The management of the company is primarily responsible for risk management, but the stakeholders; external auditor and other...
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...Financial Risk: Key Fundamentals and Case Studies Leonard Chumo, CFA, FRM Strathmore University GARP Chapter Meeting 29th July 2011 Agenda 1. Background 2. Credit Risk and the Case of Washington Mutual 3. Operational Risk and the Case of Rogue Brokers in Kenya and Barings 4. Market Risk and the Case of LTCM 5. Liquidity Risk and the Case of Northern Rock 6. Q&A BACKGROUND Main Types of Financial Risk Risk Type Definition Credit Risk The potential that a bank's borrower or counterparty will fail to meet its obligations in accordance with agreed terms. Market Risk The risk that movements in market prices will adversely affect the value of on- or off-balance sheet positions. The risk is attributable to movements in interest rates, foreign exchange (FX) rates, equity prices or prices of commodities. Operational Risk Risk of loss resulting from inadequate or failed internal processes, people and systems, or from external events. The definition includes legal risk, but excludes reputational and strategic risk. Liquidity Risk Liquidity is the ability to fund increases in assets and meet obligations as they become due. It is crucial to the ongoing viability of any organization. Source: Financial Stability Institute CREDIT RISK AND THE CASE OF WASHINGTON MUTUAL Sources of Credit Risk Apart from traditional types of loans, credit risk can also be found in a bank's: Investment portfolio ...
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...Market risk management D 1) Sensitivity analysis for foreign exchange risk Foreign currency risk Foreign exchange risk arises from the movements in exchange rates that adversely affect the revaluation of the Group and the foreign currency positions. Considering that other risk variables remain constant, the foreign currency revaluation sensitivity for the Group and the Bank on their unhedged position. 1% appreciation (-) n 1% depreciation (+) Interpretation of Impact The Group and the Bank measure the foreign exchange sensitivity based on the foreign exchange net open positions (including foreign exchange structural position) under an adverse movement in all foreign currencies against reporting currency (MYR). The result implies that the Group and the Bank may be subject to additional translation (loss)/gain if MYR appreciated/depreciated against other currencies and vice versa. E) Liquidity risk management 1. Liquidity risk management overview -Liquidity management Liquidity is the ability of the Group to fund increases in assets and meet obligations as they come due, without incurring unacceptable losses. Generally, there are two types of liquidity risk which are funding liquidity risk and market liquidity risk. Funding liquidity risk is the risk that the firm will not be able to meet efficiently both expected and unexpected current and future cash flow needs without affecting either daily operations or the financial condition of the firm. Market ...
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...RISK MANAGEMENT AND INTERNATIONAL INVESTMENT REPORT OF MARYLEBONE BANK BFBL606.2 Risk Management and International Finance Tho Cam Vu Student ID: 13486903 Date: 30th May 2014 Word Count: 3,413 Student ID: 13486903 Date: 30th May 2014 Word Count: 3,413 ABSTRACT Marylebone Bank is an UK-based bank and had certain investments within the country and international. Marylebone Bank is currently holdings investments in five FTSE companies in banking industry, also holdings certain assets of cash and equity. The report sets the bank’s capital requirement with the requirement of Basel Accords in order to build up sustainable positive capital frequently to avoid losses, liabilities and liquidity. Firstly, the report analyzes the risk management under current assets of Marylebone by applying the VaR methods, such as Variance – Covariance, Historical Simulation and Extended Historical Simulation, in order to have criticisms under each method on the effectiveness. The reports will continuously measure and manage each category under Basel Accords regulation: Market Risk, Credit Risk and Operational Risk. Furthermore, all five Basel Accords including: Basel 1(1988 BIS Accord), Basel 1 (1996 Amendment), Basel 2, Basel 2.5 and Basel 3 will be taken into account in order to develop the framework in details. Finally, the report concludes with the core concept of capital, the influences of risk management and capital requirement under the banking regulation using example of the most...
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...Basel I The Basel Accords are some of the most influential—and misunderstood—agreements in modern international finance. Drafted in 1988 and 2004, Basel I and II have ushered in a new era of international banking cooperation. Through quantitative and technical benchmarks, both accords have helped harmonize banking supervision, regulation, and capital adequacy standards across the eleven countries of the Basel Group and many other emerging market economies. On the other hand, the very strength of both accords—their quantitative and technical focus—limits the understanding of these agreements within policy circles, causing them to be misinterpreted and misused in many of the world’s political economies. Moreover, even when the Basel accords have been applied accurately and fully, neither agreement has secured long-term stability within a country’s banking sector. Therefore, a full understanding of the rules, intentions, and shortcomings of Basel I and II is essential to assessing their impact on the international financial system. This paper aims to do just that—give a detailed, non-technical assessment of both Basel I and Basel II, and for both developed and emerging markets, show the status, intentions, criticisms, and implications of each accord. Basel I Soon after the creation of the Basel Committee, its eleven member states (known as the G-10) began to discuss a formal standard to ensure the proper capitalization...
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...| | | | | | | | Factors Influencing on Financial Decision A Case of a company operating in Bangladesh Company Name: GPH ispat ltd. Submitted To Mr. Saleh Mohammed Mashehdul Islam Asst. Professor, SOB, AUST. Submitted By Roll # 12-52-02-012 Mahmud Hassan Principle of Finance (MBA 603) Section # B Ahsanullah University of Science and Technology Date of Submission : 3rd Jan, 2013 Chapter-1 Company Information GPH Ispat Limited is one of the leading integrated steel manufacturing companies in Bangladesh engaged in manufacturing of M. S. Billet & M. S. Rod. The Company was incorporated in Bangladesh on 17 May 2006 as a Private company limited by shares under the Companies Act 1994. The principal activities of the Company are manufacturing and trading of iron products and steel materials of all kinds or other metallic or allied materials and marketing thereof. The commercial production of the factory commenced on 21 August 2008. The company subsequently converted into a Public limited Company. Nature of Business The Company is engaged in the manufacturing process of producing...
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...Risk Management Analysis for Air NZ Abstract Recent financial theories argued firms can increase their values through hedging by reducing taxable income, agency cost and the cost of financial distress. This report provides a qualitative and quantitative analysis of corporate risk management for the company Air New Zealand. We uses a time series OLS regression model. The fair value of derivatives is used as dependent variable to measure the extent of financial instrument usage. The result shows that the use of derivatives by Air NZ fails to add value to the company. FINA781 Report Page 1 1. Introduction Air New Zealand Limited is the national airline and flag carrier of New Zealand. Based in Auckland, New Zealand, the airline operates scheduled passenger flights to 56 destinations locally and internationally. Air New Zealand is a member of the Star Alliance global airline alliance, having joined in 1999. Air New Zealand originated in 1940 as Tasman Empire Airways Limited (TEAL), a flying boat company operating trans-Tasman flights between New Zealand and Australia. TEAL became wholly owned by the New Zealand government in 1965, whereupon it was renamed Air New Zealand. The airline was largely privatized in 1989, but returned to majority government ownership in 2001 after a failed tie up with Australian carrier Ansett Australia. As of 2008, Air New Zealand carries 11.7 million passengers annually. Do hedging create firm value has been a popular topic argued through...
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...EBB20603 RISK MANAGEMENT IN ISLAMIC FINANCIAL INSTITUTIONS DR. FEKRI ALI MOHAMMED SHAWTERI (IF70) REPORT CIMB ISLAMIC BANK BERHAD REPORTED BY: Nur Atteya Amanda binti Amirudin 62289214273 Syamimi Fatihah binti Mohd Sobri 62289214372 Nur Aizat binti Mun 62289214006 Norhafiza binti Alalguring 62289214119 Noor Rahimah binti Abdul Rauf 62289214281 TABLE OF CONTENTS NO | TOPIC | PAGES | 1.0 | Introduction | 3 | 2.0 | Bank Profile | 5 | 3.0 | Financial Analysis | 7 | 4.0 | Credit Risk | 14 | 5.0 | Liquidity Risk | 24 | 6.0 | Operational Risk | 27 | 7.0 | Market Risk | 30 | 8.0 | Shariah Risk | 34 | 9.0 | Capital Requirement | 36 | 10.0 | Conclusion | 39 | 11.0 | References | 39 | 1.0 INTRODUCTION CIMB Islamic was officially launched by Malaysia’s Bank Negara Governor Tan Sri Dato' Dr Zeti Akhtar Aziz in June 2003. Since then, CIMB Islamic has won numerous accolades for its innovative Shariah-compliant solutions. It providing the consumer market with an Islamic alternative for deposit accounts and financing. CIMB Islamic offers a range of deposit and investment products to help manage business cash flow and cash reserves more effectively such as Wadiah Current Account-I, Fixed Return Income Account-I, and Special Investment Account-I. The money will only be invested in Shariah-Compliant activities. In the context risk, risk refers to the probability of loss. Risk actually elucidates the probability that an actual return on an investment will be lower...
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...II to Basel III: Changes and Requirements Hesham Hamdy Chief Risk Officer, Arab International Bank Nairobi, 7-8 March 2012 Basel; what is it? • A New Standard for the Measurement of Risks in Banks, and for the Allocation of Capital to cover those risks, published by the Basel Committee of G10 Central Banks. • What Does Basel Committee Do? - Acts as Think-Tank for banking regulators - Issues guidance on best practice for banks - Standards accepted worldwide - Generally incorporated in national banking regulations Basel I • Basel I was the round of deliberations by central banks from around the world, and in 1988, the Basel Committee (BCBS) in Basel, Switzerland, published a set of minimum capital requirements for banks. This was known as the 1988 Basel Accord, and was enforced by law in the Group of Ten (G-10) countries in 1992 . • Basel I primarily focused on credit risk. Assets of banks were classified and grouped in five categories according to credit risk, carrying risk weights of zero (for example home country sovereign debt), ten, twenty, fifty, and up to one hundred percent (this category has, as an example, most corporate debt). Basel I (continued) • Banks with international presence were required to hold capital equal to 8 % of the risk-weighted assets. • Basel I was then widely viewed as outmoded because the world has changed as financial corporations, financial innovation and risk management have developed. Therefore, a more comprehensive set of guidelines...
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...WHAT IS BASEL II? Basel ii is a framework, and the standards it contains have been endorsed by the Central Bank Governors and Heads of Banking Supervision of the Group of Ten countries. It presents the outcome of the Basel Committee on Banking Supervision’s work over recent years to secure international convergence on revisions to supervisory regulations governing the capital adequacy of internationally active banks. Following the publication of the Committee’s first round of proposals for revising the capital adequacy framework in June 1999, an extensive consultative process was set in train in all member countries and the proposals were also circulated to supervisory authorities worldwide. The Committee subsequently released additional proposals for consultation in January 2001 and April 2003 and furthermore conducted three quantitative impact studies related to its proposals. As a result of these efforts, many valuable improvements have been made to the original proposals. The present paper is now a statement of the Committee agreed by all its members. It sets out the details of the agreed Framework for measuring capital adequacy and the minimum standard to be achieved which the national supervisory authorities represented on the Committee will propose for adoption in their respective countries. The Basel Committee on Banking Supervision is a committee of banking supervisory authorities that was established by the central bank governors of the Group of Ten countries in...
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...team to back it up as well. • 2. If you were part of the management team at Petrie’s Electronics, would you approve the project outlined in the scope statement in PE Figure 4-1? What changes, if any, need to be made to the document? I would approve this. It has great information about the project and everyone backing it up. It shows what the purpose of the project is and it would benefit the company. There would be a good return on investment if the project works out. • 3. Identify a preliminary set of tangible and intangible costs you think would occur for this project and the system it describes. What intangible benefits do you anticipate for the system? The cost would include labor supplies and training. The labor would be to make the software. It would not be easy making a new program from nothing. Also the training the employees have to go though would increase the cost. They would need to get paid for the time they put into the training. • 4. What do you consider to be the risks of the project as you currently understand it? Is this a low-, medium-, or high-risk project? Justify your answer. Assuming you were part of Jim’s team, would you have any particular risks? One risk would be managements chance to stop the project. This is a low risk because it is approved and management would not want to lose the money put in so far. Another is failure of the customers appreciating the new program. This is a medium risk because it is not sure how they would resound to it. Most...
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...environment. Lastly, we will discuss some changes that can be made to the current structure to improve those disadvantages and what benefit those changes will help the bank in current financial environment. Back Ground Company Background: Goldman Sachs is an American multinational Investment Bank who generates main revenue from Broker Dealer, Investment Management, Advisory and Investment Banking activities. Founded in 1869, the firm is headquartered in New York and as of 2014, the firm has offices in all major financial centers around the world. As of 2013, Goldman Sachs had 32,000 employees worldwide. In 2007, amid of Financial Crisis, Goldman open the commercial bank franchise headquartered in Salt Lake City, UT for private lending purposes. In 2010, Goldman agreed to the financial aid package from the Fed and to compliance with the regulator, the firm move the Bank’s headquarter from Salt Lake City to New York and become a bank holding entity. Problem Background: After becoming a bank holding entity, Goldman Sachs has to follow the Fed risk guideline which covers Market Risk, Credit Risk and Operational Risk. To be...
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...Basel Committee on Banking Supervision Basel III: The Liquidity Coverage Ratio and liquidity risk monitoring tools January 2013 This publication is available on the BIS website (www.bis.org). © Bank for International Settlements 2013. All rights reserved. Brief excerpts may be reproduced or translated provided the source is cited. ISBN 92-9131- 912-0 (print) ISBN 92-9197- 912-0 (online) Contents Introduction ............................................................................................................................ 1 Part 1: The Liquidity Coverage Ratio ..................................................................................... 4 I. Objective of the LCR and use of HQLA......................................................................... 4 II. Definition of the LCR ..................................................................................................... 6 A. Stock of HQLA ..................................................................................................... 7 1. 2. Operational requirements ........................................................................... 9 3. Diversification of the stock of HQLA.......................................................... 11 4. B. Characteristics of HQLA ............................................................................. 7 Definition of HQLA .................................................................................... 11 Total net cash outflows...
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...improve the regulation, supervision and risk management within the banking sector. The Basel Committee on Banking Supervision published the first version of Basel III in late 2009, giving banks approximately three years to satisfy all requirements. Largely in response to the credit crisis, banks are required to maintain proper leverage ratios and meet certain capital requirements. REASONS FOR FORMULATION OF BASEL III Reducing profitability of small banks and threat of takeover Lack of comprehensive approach to address risks Self-regulation in area of asset securitization Lack of safety Inability to strengthen the stability of financial system Failure to achieve large capital reductions Failure in enhancing the competitive equality amongst banks AIMS & OBJECTIVES OF BASEL III To minimize the probability of recurrence of crises to greater extent. To improve the banking sector's ability to absorb shocks arising from financial and economic stress. To improve risk management and governance. To strengthen banks' transparency and disclosures . To minimize the probability of recurrence of crises to greater extent. STRUCTURE OF BASEL III PILLAR 1- MINIMUM CAPITAL REQUIREMENTS Calculate required capital Required capital based on Market risk Credit risk Operational risk Used to monitor funding concentration PILLAR 2- SUPERVISORY REVIEW PROCESS Bank should have strong internal process Adequacy of capital based on risk evaluation PILLAR 3 – ENHANCED...
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... we will be analysing the project’s major risks that are expected to arise in the future, as well as assessing the likelihood of a successful investment from various aspects, until reaching a final lending decision. In addition, loan portfolio considerations regarding the addition of the new investment will be discussed. 2. Major risks In this part of the report, the 3 major risks involved in the Mozal project are assessed, including political risk, operational risk and market risk. 2.1. Sovereign risk Comparing to other two types of risks, sovereign risk is relatively higher and more important in the Mozal case, with potential expropriation and moral hazard being realistic threats to the project. Mozambique was one of the poorest countries in the world and had only recently emerged from a 17-year civil war that had destroyed most of the country’s infrastructure. The high sovereign risk is reflected in the hurdle rate that amounts to a much higher value than its internal rate of return. Regarding the financing gap of $250m, participation of IFC is essential and could be very beneficial to the project, considering its impact on lending decisions of other commercial banks. However, the board of IFC should not approve the $120 million investment without any justification on protections against political risks. 2.2. Market risk Market risk is the risk that the value of an investment will decrease due to the change in the market risk factors such as foreign exchange rate, interest...
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