a. Overview of key financial and operational risks faced by the company
Today, banks faced multiple risks inherent to their activity, whether they are financial or operational.
The financial risks that faces Credit Foncier are the credit/counterparty risks and the structural risks:
- The credit risk: is the risk of financial losses that arises when a counterparty is unable to meet its contractual obligations, this can cause a change in credit quality or default by the counterparty.
- The counterparty risk: is when the counterparty to a transaction might default before the settlement of all cash payments.
The structural risk raised by the management of asset and liability are split in three:
- Liquidity risk: is not being able to honor one’s commitments or not
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Insurance risk: Since January 1, 2011, Credit Foncier has benefited from the business insurance programmes subscribed by BPCE, covering all Group entities.
Caisse de retraite risk: Pursuant to Article 116 of the Act of August 21, 2003, the Caisse de Retraite du Credit Foncier, which was set up in 1989, was transformed into a supplementary pension management institution and renamed CRCFF-IGRS. This decision was approved by the decision of the Insurance and Mutual Company regulatory authority (ACAM) on March 11, 2009 and published in the Official Journal of April 3, 2009. Credit Foncier has thus outsourced all its risk pertaining to pensions currently being paid out (3,435 pensions).
c. Risk hedging strategies implemented by the company
- The risk hedging strategy implemented for the credit and counterparty risk raised is: the cessation of international activities and balance sheet deleveraging. The overall decrease in exposures for €3.9bn, mainly results
Peter Life Plan customer and the type of package chosen; to assess the credit risk management in terms of general risk awareness, important factors in the implementation of successful credit risk management, CRM challenges faced by companies, most important potential benefits of a Credit Risk Management strategy, policy being used by St. Peter Life Plan to reduce credit risk, and imposed penalties to improve their credit risk management; to test the significant difference on the assessment of credit risk management when grouped according to profile variables; proposed measures to enhance/improve credit risk
Is that make loans or buy bonds with long maturities are relatively more exposed to credit risk. Foreign exchange risk, is the risk that exchange rate changes can affect the value of an FI’s assets and liabilities denominated in foreign currencies. FIs can reduce risk through domestic-foreign activity. Liquidity risk, is the risk that a sudden and unexpected increase in liability withdrawals may require an FI to liquidate assets in a very short period of time and at low prices. Can be day-to-day withdrawals by liability holders are generally predictable. And are usually large withdrawals by liability holders can create liquidity
Credit risk is the risk that the bank will not be able to repay funds when they ask for them.
A risk is the likelihood of a specific consequence occurring with the potential to cause harm.
Risk is defined as the probability that a company will become insolvent and will not be able to meet its obligations when they become due for payment. The profitability versus
The risks of an individual debt may have a large standard deviation of possibilities. The lender may want to cover his maximum risk. But lenders with portfolios of debt can lower the risk premium to cover just the most probable outcome.
Attributable risk is the amount of risk that occurs because of an exposure. It is how much risk is directly attributed to the exposure.
Systemic Risk is the risk of the collapse of the entire financial system, Kay (2008) defined it as ‘the tendency for the failure of a financial services business to have an impact on many other businesses.’ [ 16 ] The key to solving the problem of systemic risk is by naming and taxing the TBTF firms and this will minimize systemic risk and it will level the playing field for firms who do not have the same guarantee of financial support as TBTF firms do.
Credit risk is the risk of financial loss arising from a customer or counterparty’s failure to meet its contractual obligations. GE faces credit risk in its lending and leasing activities and derivative financial instruments activities.
An automotive business is always in need of liquidity to provide for the needs of working capital of normal day to day operations, research and development, capital expenditure for expansion needs and repayment of debt due by the firm. Liquidity is secured through external funding, cash and cash equivalents and internal generation of cash flows.
A high debt burden increases the danger that goes bankrupt in the event that they settle on a poor business choice. Expanding dangers can build YTL Corporation's obligation interest instalments.
Counterparty risk is the risk that the person or institution who enter a financial contract or who is a counterparty to the related contract. The contract maybe will default on the obligation and also fail to fulfil that side of the contractual agreement. In other words, counterparty risk consider as a type of credit risk. Counterparty risk is the greatest in contracts drawn up directly between two parties and least in contracts when an intermediary acts as counterparty. Counterparty risk usually related to an institution which facing creditworthiness. In this context, the financial system that include banks, broker dealers and non-banking institutions will face counterparty risk. Counterparty risk will be a cumulative loss to the financial system from a counterparty that fails to deliver on its over the counter derivative obligation. For the example, in listed derivatives market, the industry’s or the exchange clearing house was a counterparty
Beside that, credit risk of financial loss owing to counterparty failure to perform its contractual obligations. The credit risk is far more important than market risk. Time and again, lack of diversification of credit risk has been primary
Credit risk indicates a decline in the credit assets’ values before default that arises from the deterioration in a financial institution’s portfolio quality. Credit risk can also represent the volatility the loss in the credit asset’s value and the loss in the current and future earnings from the credit (Perez, 2014). To prepare and accommodate inevitable losses stemming from our business credit card Jeanne D’Arc has budgeted for a loan loss reserve to help protect the financial integrity and assets of the credit union.
According to Van Gestel and Baesens in their book “Credit risk management basic” in order for banks to ensure a good credit risk management and to maximize its profitability it is very important that banks pays particular attention to four practices. Those practices are the selection of a solvable counterparty, limitation is to fix a limit risk exposure regarding the counterparty, diversification spread the credit risk in order to avoid a concentration on credit risk problem this will allow the bank to not bear the risk alone and finally the Credit echanment is