Risk is essential to all financial activity, insofar as the results are determined by the appearance of scenarios foreseen or not by its administrators.
This means that banking institutions are constantly faced with various types of risk, which vary depending on the type of activities they carry out and influence all the decisions of the organization.
Three types of bank risks can be identified
Business Risks
Inherent or Own Risk of the Activity:
- Volume Risk Margin Risk
Strategic Risks
Exercise:
Absence or irrelevance of decisions concerning:
- To market analysis Definition and implementation of commercial strategies Marketing management or monitoring
That affect the Bank's exposure to Commercial Risk.
Financial risks
Financial risk refers to the probability of occurrence of an event that has a positive economic impact (Gain), negative (Loss) or opportunity cost (Stop making an expected income) for an entity.
- Market Risk Credit Risk Operational Risk
Fundamental Financial Risks
CONCEPT
Generally, risk can be defined as the effect of uncertainty on the organization's objectives; effect that can be:
- NEGATIVE POSITIVE DEVIATION OF THE POSITIVE OBJECTIVES
Risk is the possibility, large or small, that damage or adverse events may occur from a particular threat. It is the combination of probability and impact, including the perception of its importance.
Risk Matrix
The Matrix is based on the Risk Analysis method with a risk graph, using the formula Risk = Probability of Threat x Magnitude of Damage.
The Probability of Threat and the Magnitude of Damage can take the following values and conditions, respectively:
1 = Insignificant (including None)
2 = Low
3 = Medium
4 = High
The Risk, which is the product of the Threat Probability by Magnitude of Damage multiplication, is grouped into three ranges, and for its best visualization, different colors are applied.
Low Risk = 1 - 6 (green)
Medium Risk = 8 - 9 (yellow)
High Risk = 12 - 16 (red)
Concept: Risk is an event that has not yet occurred, but if it occurs it could result in an adverse effect on:
Pure Risk
It is the one that occurs in the entity and in which there is the possibility of winning or losing, but never of winning.
Speculative Risk
It is that risk in which there is the possibility of winning or losing.
Inherent risk
It is the own risk of each company according to its activity
Incorporated Risk
That risk that is not typical of the activity, such as the product of unresponsible behavior of a collaborator, who assumes other risks in order to achieve something that he believes is good for him and / or the company.
Risk is an event that has not yet occurred, but if it occurs it could result in an adverse effect on:
- The success of a project The execution of a project The funding of the project Delay in the project implementation schedule.
All activity carries a risk, since the activity exempt from it represents total immobility.
But even so, if we all stayed at home without doing anything and all productive and service activities stopped, the risk would still exist, there is no doubt that minor but they would exist, zero risk does not exist.
The risks can be:
- Accept Mitigate Transfer Avoid
THE RISK> POTENTIAL LOSS
Therefore, we must understand risk as the probability that a hazard (imminent cause of loss), existing in a given activity during a defined period, causes an incident with consequences that can be estimated.
We can also understand risk as the potential for losses associated with a productive operation, when conditions defined as standards change in an unplanned way to guarantee the operation of a process or the productive system as a whole.
In summary:
Risk is an unwanted event, which has economic consequences. The risk with the greatest potential for economic impact is that which is not known.
Financial risk refers to the probability of occurrence of an event that has adverse financial consequences for an organization.
The Financial Risk is therefore:
- An event A change in circumstances A consequence OR a combination of these three
That affects the financial objectives of the entity and the execution of its strategies.
Definition:
Within the financial context, risk could be defined as:
The current or potential economic effect or impact (not yet realized) derived from the possible realization of adverse events, which originate from internal or external causes, which may be accidental or deliberate. Events are adverse to an expected outcome.
Three dimensions of financial risk can be drawn from this definition:
1. The risk originates from a cause that may be internal or external and, in turn, these may be accidental or deliberate in nature.
2. Risk is an event that has not yet occurred but could occur, about whose occurrence there is uncertainty.
3. The occurrence of the event would have positive, negative economic impacts (losses) or represent an opportunity cost.
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