risk management in banking 1. risk? risk uncertainty loss

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Risk Management in Banking

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Risk?

RiskUncertainty

Loss

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Finacial Statements of a Bank

• 1. Balace Sheet

• 2. Statement of Income

• 3. Cash Flow Statement

• 4.Retained Rearnings Statement

• (as of 31.12.2014)

• ( for the year ending 31.12.2014)

• ( for the year ending 31.12.2014)

• ( for the year ending 31.12.2014)

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Balance Sheet of a Bank

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Interest Earning AssetsInterest Bearing Liabilities

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Share Holders Equity

• 1. Share Capital• 2. Retained Earnings• 3. Revaluation Surplus• 4. Emission Premium• 5. Legal Reserves• 6. Net Income for the year

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Income Statement

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NonInterestIncome

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B/S & I/S Relationship

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Balance Sheet Income StatementAssets Liabilities

Loans

Treasury Bills

Interest Income

Interest Expences

Net Interest Income

Deposits

BorrowingsInterest Earning Assests

Interest Bearing

Liabilities

Non-Interest Earning Assests

Non-Interest Bearing

Liabilities

Share HoldShare ers’ Equity

Total Assets Total Liabilities+SHEQ=

Share Holders Equity

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Sources of Banking Risks

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On Balance Sheet Risks

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OffBalance SheetRisks

Major Off Balance Sheet Risks of Turkish Banks

• Letter of Guarantees (Teminat Mektupları)• Letter of Credits (Akreditifler)• Guarantees Given for Foreign

Transactions (Harici Garantiler)• Cross Currency Swaps (Opsiyonlar-

Currency Opsiyonları)• Forward Transactions (Forward İşlemler)• Interest Rate Swaps (Faiz Swapları)

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CAMELS O

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1.1 unexpected withdrawal of deposits before maturity date1.2 unexpected non renewal of deposits at maturity date2.1 unexpected non payment of loan principle or interest amounts at due dates2.2 unexpected early payment of loans before maturity date3. Unexpected indemnification of Contingent Liabilities & Commitments like Letter of Gurantes or Letter of Credits

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Market Risks

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Interest Risks

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Position Risks in Banks

Operations Risks

Internal FraudExternal FraudPractices: - Employment - Client - Products - Business

Damage to AssetsBusiness DisruptionSystem Failures

ExecutionDelivery

ProcessManagement

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Operating Risks for non financial institutions

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BANKING RISKS BECOMING COMPLEX