Risk management in e banking
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RISK MANAGEMENT IN E-BANKING
An Introduction to E-Banking
Electronic banking is one of the truly widespread avatars of E-commerce the world over. Various authors define E-Banking differently but the most definition describe the meaning and features of E-Banking are as follows:
• Banking is a combination of two, Electronic technology and Banking.
• Electronic Banking is a process by which a customer performs banking Transactions electronically without visiting a brick-and-mortar institutions.
• E-Banking denotes the provision of banking and related service through Extensive use of information technology without direct recourse to the bank by the customer
Risk Management is the process of measuring or assessing the actual or
potential dangers of a particular situation.Risk management is the process of
monitoring and addressing the potential for loss
AN INTRODUCTION TO RISK
Operational RiskReputational Risk
Credit RiskLegal Risk
TYPES OF RISK IN E-BANKING
The risk of loss resulting from inadequate or failed internal
processes, people and systems, or from external events. That type risk
is called as operational risk
OPERATIONAL RISK
Internal Fraud.External Fraud.
Employment Practices and Workplace Safety.
Clients, Products and Business Practices.
Damage to Physical Assets.Business Disruption and System
Failures.Execution, Delivery and Process
Management.
OPERATIONAL RISKS INCLUDE
Unauthorized Activity.
Transactions not reported.
Transaction type unauthorized.
Mismarking of position.Theft and Fraud.
Fraud/credit fraud/worthless deposits.
Theft/extortion/embezzlement/robbery.
Misappropriation of assets.
Forgery.
Account take-over/impersonation.
Bribes/kickbacks.
Insider trading.
Money laundering.
Willful blindness.
INTERNAL FRAUD
Employee training. Close management oversight.
Segregation of duties. Employee background checks.
Procedures and process. Purchase of insurance.
Exiting certain businesses. Capitalization of risks.
OPERATIONAL RISK CHECKLIST
Risk due to an uncertainty in a counterparty’s ability to meet its obligations in accordance with
agreed upon terms. That type of risk is called a credit risk
CREDIT RISK
Loans.Acceptances.
Interbank transactions.Trade financing.
Futures.Swaps.
Equities.Letters of credit.
Options.
CREDIT RISKS INCLUDE:
Establish an appropriate credit risk environment.
Operate under a sound credit-granting process.
Maintain an appropriate credit administration, measurement and
monitoring process.Ensure adequate controls over credit risk.
SOUND PRACTICES FOR MANAGING CREDIT RISK
Board of Directors should review credit risk strategy
periodically.Senior management should
implement credit risk strategy approved by the Board.
ESTABLISH AN APPROPRIATE CREDIT RISK
ENVIRONMENT
Criteria should include thorough understanding of the borrower,
purpose/structure of credit and its source of repayment.
Establish overall credit limits at the level of individual
borrowers/connected counterparties.Have a clearly established process for
approving new credits/extension of existing credits.
Extension of credit must be made on an arm’s length basis.
OPERATE UNDER A SOUND CREDIT GRANTING PROCESS
Have in place a system for ongoing administration of various risk-bearing
portfolios.Develop an internal risk rating
system for managing credit risk.Have an information system and analytical techniques that enable
management to measure credit risk of on/off balance sheet activities.
MAINTAIN A CREDIT ADMINISTRATION, MEASUREMENT
AND MONITORING PROCESS
It is System for monitoring overall composition and
quality of the credit portfolio.Consider future changes in economic conditions when
assessing individual credits.
MAINTAIN A CREDIT ADMINISTRATION,
MEASUREMENT AND MONITORING
PROCESS (CONTINUED)
It is System of independent, ongoing credit review.
Credit granting function is properly handled and credit exposures are within limits.
System for managing problem credits.
ENSURE ADEQUATE CONTROLS OVER CREDIT
RISK
Stringent credit standards for borrowers and counterparties.
Strict portfolio risk management. Constant focus on changes in economic or other circumstances that can lead to a decline in the
credit standing of a bank’s counterparties.
CREDIT RISK CHECKLIST
Reputational risk is the potential that negative publicity,
whether true or not, will result in loss of
customers, severing of corporate affiliations, decrease in revenues and increase in costs. These type of risk is
called as reputational risk
REPUTATIONAL RISK
Improving relations with shareholders.Creating a more favorable environment
for investment.Recruiting/retaining the best employees.
Reducing barriers to development in new markets.
Securing premium prices for products.Minimizing threats of litigation.
BENEFITS OF EFFECTIVE REPUTATION MANAGEMENT
Processes for crisis management are planned and documented.
External perceptions of the bank are regularly measured.
Reputational threats are systematically tracked.Employees are trained to identify and manage
reputational risks.Standards on environmental, human rights and
labor practices are set publically.Relationships and trust with pressure groups
and other potential critics are established.
REPUTATIONAL RISK CHECKLIST
legal risk is a risk which is done in purely the result of legal problems, with a specific focus on counterparty risk. That type of risk is called as legal risk
LEGAL RISK
CONCLUSION
Banks should develop appropriate incident response plans, including communication strategies, that ensure business continuity, control r risk and limit liability associated with disruptions in their e-banking services.
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