Risk-taking is the foundation of banking.
Banks succeed when the risks they take are reasonable, controlled and within their financial capabilities and competence.
Banks are looking to make the most profit. But this desire is limited by the possibility of suffering losses.
Risk of banking activity and means that the actual profit of the bank will be less than planned, expected.
The higher the expected profit, the higher the risk. The relationship between the yield of a bank 's operations and its risk can be expressed in a very simplified way by a straight-line relationship.
There are common reasons for the occurrence of bank risks and trends in their level.
However, in analysing banking risks, it is important to consider:
- the crisis in the transition economy, which is reflected not only by the decline in production, the financial volatility of many organizations, but also by the destruction of a number of economic links;
- instability of political situation;
- the absence or imperfections of some basic legislation, the discrepancy between the legal framework and the actual situation;
- inflation, etc.
Risks faced by commercial banks can be both purely banking risks directly related to the specifics of credit institutions, as well as general risks arising from credit institutions, as well as general risks arising from external factors.
Bank risk is directly credit, interest rate, currency risk, and unbalanced liquidity risk.
Except these types of risks, components of the general financial risk of commercial bank are also external risks to which it is possible to refer branch risks, risks of the region or country, risks of financial stability of borrowers.
These risks are of a general nature, but can have a serious impact on the financial situation of the bank.
Another group of banking risks can be identified, which, although related to the activities of a particular commercial bank, are not exclusively banking.
These can include operational risks, in particular those arising from transactions and transactions.
They are not related to the special activities of credit institutions and may be characteristic of various economic entities.
In some cases, transaction and transaction risks result from legal risk, which is particularly evident in countries with unstable and underdeveloped banking and other legislation.
Frequent changes in the regulatory framework can cause losses on transactions that are potentially profitable at the time of their conclusion.
t is rather difficult to clearly distinguish all risks faced by commercial banks in the course of their operation into banking and general ones.
Often in economic literature the group of bank risks on different types of bank operations is carried out, for example: risk of settlement operations, credit risk, risk of operations with foreign currency, risk of deposit operations, risk of operations of bank with securities.
This classification, for each group, considers the risks arising directly from the nature of certain types of banking transactions, as well as the dependence of these transactions on external risks.
This approach to classification of bank risks is somewhat limited, as in addition to risks in terms of certain types of banking operations, there are complex risks, for example, bank liquidity risk.
Bank risks should always be considered in their interlinkages.