Types of Banking Sector Risks

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Banking sector risks

Banking risk can be defined as exposure to the uncertainty of outcome. It is applicable to full – service banks like SBI, PNB & Others. Risks in the banking sector

Types of  banking sector risks:

  1. Credit risk
  2. Market risk
  3. Operational risk
  4. Liquidity risk
  5. Business risk
  6. Reputational risk

Credit risk:

It usually occurs because of inadequate income or business failure. Credit risk signifies a decline in the credit assets’ values before default that arises from the deterioration in a portfolio or an individual’s credit quality.

Market risk:

Basel Committee on Banking Supervision defines market risk as the risk of losses in on – or off-balance sheet positions that arise from movement in market prices. Market risk is the most prominent for banks present in investment banking. banking sector risks

Operational risk:

Basel Committee on Banking Supervision defines operational risk “as the risk of loss resulting from inadequate or failed internal processes, people & systems or from external events. Operational risk, the risk in all banking transactions. banking sector risks

Liquidity risk:

Liquidity risk is the risk of a bank not being able to have enough cash to carry out its day – to – day operations.

The reputational risk

when banks lose the public’s trust :
It is the risk of damage to a bank’s image & public standing that occurs due to some dubious actions were taken by the bank. banking sector risks

Business Risk:

Business risk is the risk arising from a bank’s long-term business strategy. It deals with a bank not being able to keep up with changing competition dynamics, losing market share over time, & being closed or acquired. types of risk in the banking

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