Risk Management Guidelines For Commercial Banks

18457 Words Nov 13th, 2010 74 Pages
Risk Management Guidelines for Commercial Banks & DFIs.

Table of Contents
Page No. Introduction
Defining Risk Risk Management Board & Senior Management oversight Risk Management Framework Integration of Risk Business Line Accountability Risk Evaluation / Measurement Independent Review Contingency Planning

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Managing Credit Risk
Components of Credit Risk Management Board & Senior Management oversight Organization Structure Systems and Procedures Credit origination Limit setting Credit Administration Measuring Credit Risk Internal Risk Rating Credit Risk Monitoring & Control Risk Review Delegation of Authority Managing Problem Credits
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c) Risk taking Decisions are in line with the business strategy and objectives set by BOD. d) The expected payoffs compensate for the risks taken e) Risk taking decisions are explicit and clear. f) Sufficient capital as a buffer is available to take risk 1.2.2 The acceptance and management of financial risk is inherent to the business of banking and banks’ roles as financial intermediaries. Risk management as commonly perceived does not mean minimizing risk; rather the goal of risk management is to optimize risk -reward trade -off. Notwithstanding the fact that banks are in the business of taking risk, it should be recognized that an institution need not engage in business in a manner that unnecessarily imposes risk upon it: nor it should absorb risk that can be transferred to other

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participants. Rather it should accept those risks that are uniquely part of the array of bank’s services. 1.2.3 In every financial institution, risk management activities broadly take place simultaneously at following different hierarchy levels. a) Strategic level: It encompasses risk management functions performed by senior management and BOD. For instance definition of risks, ascertaining institutions risk appetite, formulating strategy and policies for managing risks and establish adequate systems and controls to ensure that overall risk
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