EBI Publications

Financial Infos Issue (20) Risk management is the process by which management identify, assess, monitor, and control risks associated with its activities. The complexity and diversity of financial products have made risk management more challenging to evaluate. In large financial institutions, risk management targets to identify all risks associated with business activities and gathers all required information so that the exposures can be evaluated and measured. Banks’ business involves risk; in fact, banks make their profit by taking risks and managing it. These risks have the potential to wipe out expected returns and may result into losses. Expected losses are those that a bank knows with reasonable certainty will occur (e.g. the expected default rate of loan portfolio). Unexpected losses are those associated with unforeseen events (e.g. losses due to a sudden downturn in economy, falling interest rates, natural disasters). Due to this fact, the need for effective risk management framework in banks cannot be over emphasized. Risk Management