Credit Risk Models in Financial Institutions Essay

Credit Risk Models in Financial Institutions - Essay Example The most critical factor that affects the 3Cs of a bank is 'Credit Risk'. Banking is a domain where 'risk-free' activity is an unknown concept. Particularly in the field of credit appraisal, risk is associated with every decision made by the portfolio analyst. Although it is not possible to wipe out risk altogether, it can be reduced to a manageable level. Stated simply, 'zero-risk' situation is impossible to be achieved in banking. There have been considerable discussions regarding the role of the portfolio analysts and credit officers in banks. It has been noted that in several cases, officers are forced to 'take' a decision rather than 'making' a decision due to the lack of freedom to analyze and make a decision based on the merits of the case. There are two ways of reaching to a decision; subjective and objective. A subjective decision is based on the impression the bank has about the counterparty. Although this method has a substantial role to play in the decision making process, an objective analysis instils a certain degree of integrity, security and refinement. Credit Risk Management is an activity of paramount importance for any bank. Effective risk management increases the stakeholder value by providing for 'value creation', 'value preservation' and 'capital optimization'. Credit Risk Modelling is the first step towards implementing a robust risk mitigation environment. Credit risk models are intended to aid banks in quantifying, aggregating and managing risk across geographical and product lines (BIS, 1999). The pith of the report will cover various aspects of credit risk modelling such as 'techniques to measure risk', 'building an assessment model' and the various prevalent credit risk models being used world wide. In the process the report also throws light on subjects such as banking risks and credit risk parameters. What is Credit Risk Risk taking is a synonymous with credit appraisal. Risk taking is not an activity that takes place by chance; rather it is a deliberate action in the process of financial decision making. Risk is a factor, which, if it takes effect, produces undesirable outcomes for the bank. Bhargava (Bhargava, 2000) presents an insightful pie chart describing the main financial risks that are prevalent in the banking industry. Figure: Pie Chart showing the proportion of Financial Risks (Bhargava, 2000) It can be clearly seen that Credit Risks occupy a major portion of the pie and a bane for most bankers across the world. Risk Management Group of the Basel Committee on Banking Supervision defines credit risk as "potential that a borrower or counterparty of a financial institution will fail to meet the obligations in accordance with the agreed terms" (bcbs54, 2000). In other words, the probability that the receiver of the loan will not pay back in full, within the specified time frame, the complete repayment amount {including any interest and service charge} is called credit risk. Lack of appropriate lending discipline and inadequate system of control generally results in setbacks to banks. Several major banks such as Enron have collapsed due to poor transaction management, incomplete credit information and

Five Point Plan for Crime Reduction Term Paper Example | Topics and Well Written Essays - 2000 words

Five Point Plan for Crime Reduction - Term Paper Example Five Point Plan for Crime Reduction There is need to focus beyond individual intervention, enforcement and suppression. Most of these gangs are youth gangs. In order to respond well to the youth, strength-based approaches should be incorporated. There is a need to increase focus from criminal behaviors. This is just an indication or results of involvement in gangs. The problem of gang involvement should be clearly defined and its causes clearly understood. These causes should then be addressed as matters of priority.Therefore, there is need to reach to the roots of gang formation and involvement. There should be a shift from over-emphasizing reactive solutions like enforcement and suppression which only deals with those who have gotten the attention of the judicial system. Traditional methods of curbing crimes like enforcement and suppression are not sufficient in controlling the existing and emerging criminal activities. Further more, these approaches are harsh and create rebellion. They do not prevent crimes but deal with its aftermaths. Therefore there should be a shift from these traditional to strategic policies. Reduction of crimes should be a shared vision and responsibility. Necessary resources, knowledge and skills should be incorporated in order to see the success of this Five Point crime reduction plan. There should be adequate and continuous support for local communities. The public should be informed and engaged. Their support and co-operation is also very necessary because they are the main victims of such criminal activities.

A study of the financial sector in Saudi Arabia differentiating Essay

A study of the financial sector in Saudi Arabia differentiating between conventional loans & Murabaha financing - Essay Example Further, the section will also discuss about the basic aims and objectives of the paper. The next section of the paper will be of the theoretical perspective in which the actual meaning of the conventional financing and Murabaha financing according to theories will be discussed. In the next chapter, an intensive review of various literary sources will be presented through which different aspects about Murabaha financing and current market scenario of Saudi Arabia will be presented. The next chapter will discuss the methodology being used for the research. Further, in the next section, analysis of the information gathered in the previous section will be presented. The next section of the paper will present several recommendations about the topic on the basis of the research. At last, the paper will conclude in the last section, i.e. conclusion. Table of content Chapter 1: Introduction...................................................................................................... ... 4 1.1 Aims and Objectives of the research.................................................................. 4 1.2 Research Questions ........................................................................................... 6 Chapter 2: Theoretical perspective ....................................................................................... ... ............................................................................................... 14 Chapter 4: Methodology  and Research design.......................................................................18 4.1 Library Research Method for Data Collection ....................................................22 4.2 Case study analysis methods ...............................................................................24 4.3 limitations of the research and research design .................................................. 25 Chapter 5 Findings and analysis.............................................................................................28 5.1 Findings from literature review .......................................................................... 28 5.2 Findings from case study .................................................................................... 35 Chapter 6: Recommendations ........................................................................ ...................... 44 Chapter 7: Conclusion ........................................................................................................... 45 Chapter 8: References ............................................................................................................47 Chapter: 9 Appendix ............................................................................................................. 51 1. Introduction Finance is one of the most important aspects of business activities of each and every country. Simply, finance stands for the allocation as well as management of available resources. It also includes the process of acquisition or investing activities of a firm. Basically finance is considered as blood of the organization which is

Analyze the role of a manager within the functional areas of business Essay

Analyze the role of a manager within the functional areas of business - Essay Example The essay critically analyzes the role of a manager within the functional area of business with regards to the University of Phoenix MBA Overview Module. Managers use the marketing role to identify the type of products and services they can offer their clients. The marketing role also allows managers to advertise their supplies to customers and ensure they meet the needs of their customers(Phoenix, n.d). Through marketing, managers learn how to create a good image for their business. Businesses that have consensus right from upper management to the other managerial positions have high chances of benefiting from the marketing role of a manager. But, managers should also have adequate knowledge about the various tools to use to get an edge over their competitors. Use of the best marketing tools such as SWOT analysis and marketing mix enables the manager convince the customers to purchase the products offered. Managers can use the SWOT analysis to identify the strengths, weaknesses, external opportunities and threats likely to affect the business(Phoenix, n.d). Also, successful managers take advantage of existing market inefficiencies to develop a unique selling point. For managers to be successful in their marketing role, they have to understand the different factors that can affect the success of their marketing campaign. The management role of managers involves coordinating and overseeing the work done by employees. Managers regularly check on the activities done in different departments to ensure they are in line with the goals of the organization. Managers must also have the unique capabilities to use employees effectively in order to achieve business success. They need to take time to interpret basic organizational values to the employees and create an effective work environment(Phoenix, n.d). Also, they must provide the necessary resources and

Expansion of Airport and Health Issues Case Study

Expansion of Airport and Health Issues - Case Study Example Air emissions are generally defined as "The release of pollutants into the atmosphere from stationary sources and vehicles" (Business Dictionary). This indicates that the multi-source context should include air emissions from the expansion of the airport, the existing airport, local industries, homes, and vehicular exhaust. In order to be in the proper context it must also consider other exposure risks of asthma within the communities of concern. The Academy of Allergy, Asthma and Immunology reports these risks to include animal dander, pollen, cigarette smoke, weather changes, scented products, food products, medications and emotional stress to name a few (Topic; January 2007). It is my belief that the airport acted properly by responding to concerns that the citizens put forth. The Federal Aviation Administration order titled Prevention, Control and Abatement of Environmental Pollution at FAA Facilities specifically requires the establishment of policies pertaining to environmental pollution at all of its facilities (1). These concerns are required to be addressed according to the National Environmental Policy Act: Implementing Instructions for Airport Projects at a very early stage and must be prepared to address the concerns of the community to avoid just such a conflict (Chapter 5). It is my belief that the proper multi-source context was established by the airport. That context requires them to include the air emissions of the existing airport to allow them to establish the risk of exposure due to the expansion. However, to consider the exposure risks of the existing airport as part of the exposure risks of the expansion is out of context. In this case it appears that the proper context has not been clearly defined and established between the concerned parties. The citizen groups maintain that their source of asthma is attributed solely to the air emissions as a result of the operations of the airport, and have thus failed to approach to problem in proper context. Clearly the citizen groups will benefit from the expertise of health care and risk professionals for help with their concerns. It is commonly accepted that citizens expect experts and officials to get involved in making decisions that affect communities; they do not think they should be left to the desires of corporate decisions without proper investigation and monitoring by local and national agencies designed to protect them. For this reason it is important that the airport planning staff recruit expert help from both local and national levels. The Framework for Environmental Health Risk Management (FEHRM) indicates that the inclusion of experts in environment, health, risk management, regulatory agencies and related industries allows for collaboration toward an acceptable conclusion for all concerned (17). The FEHRM goes on to report that collaboration of this nature is necessary to engage, interpret and deal with the variety of perspectives that each stakeholder brings to the table (17). The FEHRM clearly states that identification of problems and stakeholder involvement should occur in synchronicity early in the process and continue throughout the stages of developing a risk management assessment (13). The FERHM clearly states recommended guidelines for stakeholder invol

North Korea history Research Paper Example | Topics and Well Written Essays - 1250 words

North Korea history - Research Paper Example â€Å"Secretary of State Hillary Clinton warns North Korea may be put back on terrorist state list† (7th June, 2009www.nydailynews.com). After 64 years still the problem persists though in a different guise. South Korea’s rapid economic development has catapulted the country into one of the most industrialized nations in the modern world while North Korea under communist influence of the former Soviet Union and China hasn’t progressed much. This outcome has produced a number of complex and diverse dilemmas for the countries, their leaders and citizens. Above remarks by Mrs. Clinton, the Secretary of State, refer to North Korea’s persistent efforts at developing nuclear weapons and delivery systems disregarding the calls by the international community not to do so. Tensions between the two nations have been on the rise and right now there is the possibility of even a war if one side takes a rash decision to hit back. Her remarks about putting North Korea ba ck on the list of â€Å"terrorist states† have acquired a new dimension against the backdrop of recent development in the peninsula. In the first place these remarks have such far reaching implications for both the region in particular and the world in general. Assuming a negative response, as usual, from North Korea under its reclusive despotic leader Kim Jong-Il, there would be much less of a chance to get him over to agree to measures that would ultimately reduce tensions in the region. North Korea in fact tested more atomic bombs and missiles just a few days ago.

What would you consider to be distinctive features of US approaches to Essay

What would you consider to be distinctive features of US approaches to HRM, and what extent do you think these would be exportable to the rest of the world - Essay Example al nuisance, more so when the economy is not that encouraging boosting trade ties between stakeholders, different organizations and so on and so forth. The corporate strategy plays a significant role at building a bridge between the company’s inner policies and the undertakings it has with the various stakeholders, who could be from the human resources management settings. (Korzeniowski, 2001) Human resources management in a developing country like India is much different than it is in a developed nation – United States for example. The differences arise in the way works are done as well as the manner in which people are held accountable and answerable for their respective tasks and job natures. Conducting business within USA is also different because it has a distinct culture of its own. Its people speak different languages, adapt to a number of traditions and have family make-ups of a completely distinct proposition. (Enright, 2000) Human resources management in different venues of the world is a difficult yet interesting proposition. What might be hailed as a suitable entity in one location could be judged as a sheer loser in another country or business marketplace for that matter. Thus human resources management takes care of the social and cultural concepts of the place. Thus it is pertinent to note that different business markets of the world have differences in them nonetheless. A developing country has a developing market and the business which is widespread in its environs is something that has just started or remained within the realms of its exploration. On the other hand, a developed business environment – that of the US for instance, sustains growth and the profitability from the business standpoint is a part and parcel thing. Misunderstandings are an understood notion in a society such as of USA where people adhered to an agreed and applied culture but did not actually know the facets of the followed traditions and the cultural history. It was