CAIIB - Hazard Administration .


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INORDER TO DEVELOP ACTIVE CREDIT RISK MANAGEMENT, BANK MUST HAVE 1.GOOD CREDIT RATING MODEL AND 2. CONDUCT MIGRATION STUDIES. both of the above are obliged ...
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CAIIB - RISK MANAGEMENT – MODULE B G.R.Rao, Faculty, IIBF

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WHAT IS RISK EVERY ACTION HAS A REACTION IF REACTION IS FOR OUR BEENFIT; NO WORRY AND NO RISK IF IT IS AGAINST OUR INTEREST ONLY WE ARE WORRIED AND THAT IS RISK IS THEREFORE POSSIBILITY OF A NEGATIVE RESULT FOR OUR ACTIONS COULD BE DUE TO US OR BEYOND US

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RISK Contd… RISK IS SUPPOSED TO HAVE BEEN DERIVATIVE OF "RISICARE" WHICH MEANS "TO DARE" DARING IS TO TAKE STEPS Recognizing THE POTENTIAL FOR LOSS EXTENT OF THIS Behavior IS "TAKER" SPECIFIC MORE RISK IS TAKEN IN VIEW OF POTENTIAL FOR HIGHER YIELD

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RISK Contd… DUE TO RISK EITHER , PROFITS AND CAPITAL MAY GROW MULTIFOLD OR BUSINESS MAY BE WIPED OUT NEVERTHLESS WE CANNOT BE RISK FREE/AVERSE BANKER LIKE A SHIP IN A PORT BANKING IS THEREFORE RISK MANAGEMENT

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RISK Contd… RETURN IS THEREFORE RELATED TO RISK RETURNS FROM BUSINESSES ARE TO BE ADJUSTED FOR RISKS FOR COMPARABILITY-THIS IS RAROC

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BANKING BUSINESS IS BROADLY DIVIDED INTO ON BALANCE SHEET AND OFF BALANCE SHEET ACTIVITIES. ON BALANCE SHEET ACTIVITIES ARE BANKING BOOK (DEPOSITS & ADVANCES) AND TRADING BOOK(INVESTMENTS) BANKING BOOK HAS NO MARKET RISK RISKS COMMON TO BOTH BOOKS ARE CREDIT, OPERATIONAL

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RISKS Contd .. Significant RISKS ARE CREDIT RISK MARKET RISK INTEREST RISK LIQUIDITY RISK PRICE RISK OPERATIONAL RISK STRATEGIC RISK REPUTATION RISK

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RFISK MANAGEMENT IDENTIFICATION MEASUREMENT SENSITIVITY VOLATILITY DOWNSIDE POTENTIAL PRICING COVERING COST OF RESORUCES COSTOF OPERATIONS RISK PREMIUM CAPITAL CHARGE MONITORING AND CONTROL MITIGATION TRANSFERING

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BASEL 1 & 2 THREE PILLARS TWO TYPES OF CAPITALS DIFFERENT METHODS OF MEASUREMENT OF RWA

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MARKET RISK HAS A COMPONENT OF CREDIT RISK IN ADDITION TO PRICE, LIQUIDITY AND INTEREST RATE RISKS LIQUIDITY RISK CAN ALSO BE DUE TO MARKETS RISK IN INVESTMENTS IS MEASURED THRO\' BPV, MODIFIED DURATION, VaR AND YIELD AND PRICE VOLATILITIES

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MONITORING & CONTROL AND MITIGATION MONITORING POLICY GUIDELINES FOR VARIOUS ACTIVITIES CAPS FOR TRANSACTION SIZES, STOP LOSS LIMITS, GUIDLEINES ON PORTFOLIO SIZES BOTH TYPE AND INDUSTRY, EXPOUSRE NORMS MITIGATION THROUGH DERIVATIVES

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CREDIT RISK CREDIT SELECTION, PRUDENTIAL LIMITS CREDIT RATING CREDIT PRICING CREDIT MONITORING THROUGH RATING MIGRATION LOAN REVIEW MECHANISM CREDIT DERIVATIVES AND SECURITIES AND SECURITISATION

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OPERATIONAL RISK CAN BE CLASSIFIED BASED ON BOTH SOURCE, IMPACT AND EVENT RISK MITIGATION CAN BE THORUGH AUDIT, VARIOUS REPORTS

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OBJECTIVE QUESTIONS Q. RAROC STANDS FOR A. Hazard ADJUSTED RETURN ON CAPITAL B. Hazard ADJUSTED RETURN ON COST. C. RETURN ADJUSTED RISK ON CREDIT. D NONE OF ABOVE. Q.CREDIT DEFAULT SWAPS ARE A. ONE OF CREDIT DERIVATIVES. B. A KIND OF BANK GUARANTEE C. A KIND OF LINE OF CREDIT. D. STAND BY CREDIT.

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OBJECTIVES Q. THE BETA FACTOR FOR CALCULATING OPERATIONAL RISK UNDER STANDARDIZED APPROACH FOR RETAIL BANKING IS A. 12% B.18% C.15% D. NONE OF ABOVE. Q. Likelihood OF OCCURRENCE =4; POTENTIAL FINANCIAL IMPACT =4; IMPACT OF INTERNAL CONTROL =0%   WHAT IS ESTIMATED LEVEL OF OPERATIONAL RISK? A. 3 B. 2 C. 0 D. 4

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OBJECTIVE QUESTIONS INORDER TO DEVELOP ACTIVE CREDIT RISK MANAGEMENT, BANK MUST HAVE 1.GOOD CREDIT RATING MODEL AND 2. CONDUCT MIGRATION STUDIES both of the above are required Only 1 is required Only 2 is required both are deficient

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An exchange where monetary securities are issued against money streams produced from a pool of benefits is called Credit default swap Securitisation Participation authentication Credit connected notes

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A bank expects fall in cost of a security on the off chance that it offers it in the business sector. What is the name of such hazard? Market hazard Operational danger Asset liquidation hazard Market liquidity hazard

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Credit rating offices fix financing costs on securities and debentures issued by organizations a. genuine b. False c. Can\'t say d. No one but RBI can settle rate

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A 8 year 8% semi yearly security has a BPV of Rs 125.The yield on the security has expanded by 5 premise focuses. What is the benefit or misfortune endured in cost because of increment in yield? Rs 1000 benefit Rs 1000 misfortune Rs 625 benefit Rs 625 misfortune

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A decrease in CRR will bring about the yield bend to Slope upward Slope descending Become compliment Remain unchanaged

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Given the rating movement of 100 an appraised accounts in bank amid a year as under, please answer the quantity of records who endured rating relocation. A++ A+ A B+ B C Default 1 1 75 12 3 5 3 a. 2 b. 23 c. 25 d. 21

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ABC monetary company has loaned Rs 1500 crores, at a normal authoritative rate of 14%. Past experience demonstrates that the likelihood of reimbursement is 0.90 what might be the normal return rate of the company if the recuperation rate of key and intrigue is 0.95 Expt. rate = p * r + q [ (1 + r) R - 1] Where p is likelihood of reimbursement q= 1-p r is authoritative rate and R is recuperation rate

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THANK YOU AND WISHING YOU ALL SUCCESS IN EXAMINATION

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