The financial service industry has gone through a significant transformation over the last few decades. The rapid transformation and changing regulatory environments has resulted in a highly complex ecosystem. Stakeholders from different backgrounds who play influential roles in the banking industry bring new complexities. As a result, banking institutions need to adjust risk management procedures to accommodate risks that come with new players. Monitoring and managing these risks guarantee a safe transformation in banking.
1. Credit Risk
Credit risk is a common banking risk that can be expressed in two ways:
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The uncertainty involved in the repayment of banks dues.
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Failure by borrowers to meet payment obligation regarding terms agreed upon with the bank.
Banks suffer heavy losses from credit risk when borrowers fail to pay credit at maturity due to low income, business failure, or unwillingness to pay. Credit risk can be mitigated by correctly monitoring and evaluating default rates.
2. Cybersecurity Risk
With technological advancements in the banking industry comes cybersecurity risk. Hackers have the tactics to penetrate security firewalls and steal personal, as well as financial data. Banking institutions need to invest in top-notch online security programs that are impenetrable. Cyber risk is the most prevalent IT risk in the financial service industry, and the aim is to keep electronic information private, safe, and undamaged. The risks arise from a range of internal and external factors, and it is as much a people problem as it is a technological problem.
3. Market Risk
Bank shares going down due to market movements is a common
