Subject: Risk Management

2. LITERATURE REVIEW

This particular research has got many primary sources for the determination of the actual scenario related to the status of managing increasing credit risks. These primary sources are from the domains of various books, journals and electronic reading. The readings established that the idea of risk management is very much integral to the management of increasing risk management in banking. According to Douglas (2009), risk management is the means that is applicable for the identification, then assessment and ultimately the prioritization of risks. This further gets followed by the means of coordinating and economically possible application of various resources; for minimizing, monitoring and most effectively and controlling the probability and determining the maintenance process of determined impact over the unfortunate events.

For Ramos (2000), Christoffersen and Allen (2003) the idea of risk management is a contemporary entity that serves for the purpose of designing and thereby maintaining a particular kind of environment where individuals are led to work in groups. The purpose is to accomplish and attain all the predetermined goals and preconceived objectives for financial benefits. Added to this idea, there are some strict follow ups related to risk management. These are concerned about the practice of creating appropriate economic value perceived over a particular firm through the adoption of financial instruments. The process is to manage adequate exposure led over the prevalent credit and market risk. This proceeding is better known as ‘Financial risk management’ (Ardia, 2008 and Nersesian, 2004).

The concept of general risk management has been often considered equal to other types of risks. These types may include risks related to foreign exchange, volatility, Inflation, sector, shape, liquidity, etc. The similarity lies in identifying the source that creates the risk and the measurement of dealing with these sources. Just like financial risks the credit risks too can be both qualitative and quantitative.

For Keith and Hughes, (1988) there are determined specializations related to the structure of risk management, and these specializations are too uses hedge financial instruments for the purpose of managing costly exposures made through the prevalent risk. However there are some added discoveries that show that risks are also responsible for reducing productivity of prevalent knowledge existed in the workers. This further decreases the status of cost effectiveness, prolonged profitability, organizational service, concerned quality checks, deep-rooted reputation, established brand value and above all the total earnings quality (Murphy, 2008). Ii is also important to note that intangible state of risk management paves ways for value added risk management structure and gets identified through the process of identifying the reduction of risks, which again reduces the amount of financial productivity.

The primary readings also clarify the fact that risk management has got the hurdles of allocating resources. This is determined scope for attaining opportunity cost. According to the declarations made by Wunnicke and Wilson (1992), the assessments of all kinds of resources spent over the process of risk management can always be spent in more profitable means. They further added that ideal risk management is the source that can minimize the lot of spending and thereby maximizing the periphery of reducing negative effects over the estimated risks.

The aspects of insurance were dealt well by Dorfman (2007). It is under his speculation that the research is making an attempt to understand the proceedings related to risk management and the dealings related to the insurance. the the readings of Roehrig (2006) focuses over the role of Governance and the process of identifying the risk management strategies for the process of managing all kinds of increasing credit risk created by the outsourcing businesses. Under the influence of recession this is an aspect that is being mostly realised with a slower pace. Marrison’s (2002) overview regarding the fundamentals of risk management adds more to the determining proceedings of dealing with diversified kinds of credit risks. It brings in the understanding of managing different kinds of credit risks in different ways. The primary reading of Kerwer (2005) creates the basis for generalized kinds of rules for the purpose of gaining the standards of managing increasing credit risks on global regulation. It is an international approach and thus brings in a wider understanding of the selected subject.

Added to these primary readings the research has been well supported by some of the articles published online. The major mark has been drawn from the ‘ISO Committee Draft’ regarding the dominance of risk management. Enough speculation has been forwarded initiations made over the ‘Disaster Recovery Journal’. The documents, like ‘Fact sheet’ of Basel Committee on Banking Supervision, and declarations of ‘Nout Wellink’ are all collected online. These electronic sources added more random process of collecting information regarding the increasing credit risks and the means to manage it.

3. METHODOLOGICAL APPROACH

3.1 Qualitative Methodology

The methodology that has been adopted here is with practical speculations. This is the reason that the qualitative methodology has been chosen. In qualitative research the emphasis is given over the varied inquiries. These inquiries crosscut the disciplines and the related subject matters in a very diagnostic way (Denzin and Lincoln, 2005). Qualitative research targets to gather a determined in-depth understanding in relation to the preferences made by human behaviour and all those reasons justify the preferences. It is a process that derives the consequences that results from human behaviour and instincts. It supports the research with reliable reasons that held behind the aspects of selected groups of human behaviours. In a very simple way, qualitative methodology investigates the resources and the results derived from the decision making proceedings for a particular query. This is a very appropriate way of investigation regarding the topic of risk management in reference to the increasing mode of credit risk in banking domain. The research is based on collected samples that are further categorized as derived data and in peculiar into patterns. These data are the primary basis for deciding over the organizing as well as reporting results in reference to the selected research. This paper makes qualitative research a typical kind of foregrounding process for determining the predetermined objectives. In a way the research thus rely on specific four methods, in order to gather necessary information. These methods are;

1. Selected participation of people in the respective fields
2. The observations made on direct persuasion
3. Systematic in-depth interviews of the professionals
4. Result oriented analysis based on the collected data and documents (Marshall and Rossman, 1998)

3.2 Comparison with Quantitative Methodology

The adoption of qualitative methodology is considered to be more justifying in this research than quantitative methodology. Quantitative methodology for any research is basically a systematic scientific investigation that gets persuaded through of quantitative properties and predetermined phenomena along with their relationships. The predetermined objective of a selected quantitative research is therefore very much concerned about the development and employment of some mathematical models. This methodology also gets assisted by theories and derived hypotheses. The whole methodology inclines to abide natural phenomena. The process of quantitative methodology is to provide fundamental connection between the practical or empirical observations and to establish them on mathematical expressions. As in this research the results and the derivations are all based on interviews and questionnaires, the qualitative methodology suited it most. There is no rigid or mathematical declaration, and thus it is very much qualitative in nature.

3.3 Two Qualitative Approaches

To make the research more effective the qualitative approach has been made applicable in two categories. The first is a kind of focus over the groups and the professionally identified key informant interviews. It is here that the interviews were conducted regarding the principles and strategies; that are usually used to manage financial risk. The interviews also tried to find out the diversified means for dealing with different types of risks. The sources are also managed to find out the process for identifying the risks. The analysis over the critical risks and normal risks are also investigated. The effectiveness of risk management strategies are basically enquired through the interviews with the professional risk managers from banking sectors.

The second qualitative approach has been initiated through the questionnaire proceedings made among the customers who are involved in the credit terms of banks. These questionnaires are structured to find out the sense of security among the customers and the related risk involved in the credit terms. The questionnaires also try to find out the reasons that compel the customers to get into the aspects of credit risk. The effort is also made to find up the backup strategies related to the status of bankruptcy. The customers are also meant to answer about the banking proceedings of repayments that are delayed after bankruptcy. The approach makes an attempt to determine the understandings of the customers related to the risk management proceedings adopted by the banks in terms of diversified kinds of risks.

3.4 Sources for data

The sources that are adopted and followed to get the data through qualitative methodology are from various means. The research has got two basic kinds of analytical sources. There are the primary sources and the secondary sources. The primary resources are basically assisted by various seminars attended on risk management. The secondary sources are supported by interviews and the questionnaires. The professional interviews from bank managers, provided enough information to the research. The initiations led by the questionnaires from the bank customers made the research more authentic. The interviews and the questionnaires are the building bridges from the theoretical declarations and the empirical derivatives.

Added to the interviews and the questionnaires the participation of financial journals made the research more strong and result oriented. These journals along with various reference books on risk management paved way for a better structured research paper. The primary readings and the information from many experts based on financial risk management are the basic sources of this particular research.

3.5 Queries to the Target Interpreters

There were two kinds of sources who were interrogated regarding the position of managing the increasing credit risks. As noted in Appendix 1, the questions that were placed for the interviewees were related to various types of principles and strategies used for managing financial risk. These interviewees were also asked about the means through which they identify and deal with the diversified kinds of credit risks. They were also asked about the situation that undergoes within the corporate range of bearing with increasing status of credit risks.

The questions for the customers of the banks are processed under questionnaires. The questions as has been placed are declared in Appendix 2. The bank customers were interrogated regarding their mental status and the sense of security regarding the phase of being into the risks. Questions were also forwarded regarding the options that they must have planned for a situation when the bank goes bankrupt. They are also asked about the confidence over the bank while dealing with diversified kinds of risks.

4. FINDINGS AND ANALYSIS

4.1 Risk Management

The possibilities of risks has got the possibility of coming from uncertainty led by the following instances.

• financial markets,
• project failures,
• legal liabilities,
• credit risk,
• accidents,
• natural causes and
• disasters
• deliberate attacks from an adversary

There are various types of risk management standards determined by ISO standards. These standards are further developed by diversified sources; that also includes the process of the ‘PMI’, known as Project Management Institute, ‘NIST’, i.e., National Institute of Science and Technology and actuarial societies. The following diagram gives a quick look regarding the status of US market in regards to the rise and fall of dollar in exports and imports dome from Jan 1994 to Jan 2009.

4.2 Theoretical approaches

The concept of financial risk management is theoretically a kind of practice for creating an appropriate economic value in a particular firm. The proceedings are made applicable by means of using financial instruments for the purpose of managing the exposure to increasing status of risk. This is particularly recognised in terms of increasing credit risk along with the derivative market risk. The financial risk management also deals with the Foreign exchange, Volatility, Shape, Sector, Inflation risks, Liquidity, etc. There are many theoretically established general risk management and financial risk management that needs appropriate process of identifying its sources. The theoretical means also assists in measuring the credit risks and related plans to deal with them (Charles 2004). Financial risk management is very much qualitative as well as quantitative in nature. In this research the qualitative proceedings are more preferred than the quantitative methodological approaches. In specialized form of risk management, the proceedings of financial risk management focuses over the timings and the process related to hedge using as a kind of financial instrument for managing the costly exposures of increasing credit risk. As this gets referred to the banking sector on global aspects, the Basel Accords are very popular and are adopted by means of internationally accepted and active banks for the purpose of tracking, then the activities related to reporting and lastly the act of exposing operational, increasing credit as well as market risks.

There are some theoretical approaches that are made applicable in reference to the application of finance theory. These applications of financial theory or the financial economics are very much prescribed to a firm for the persuasion of a project in terms of a situation when there is an increase in the capability of the shareholder value. As per the finance theory, the roles of the firm managers are never meant for the creation of the value for the respective shareholders. These shareholders are also recognised as investors. According to James Lam, (2003), these are made by the proceedings related to the maintenance of projects that the selected shareholders can manage by and for themselves within the preconceived at cost. As this gets applied to the process of financial risk management, the implications are of the strategies structured by the firm managers should never get under the hedge risks; as the investors are with the independence to hedge for their own investments within the same cost. This notion has been captured under the strategical process of hedging all kinds of irrelevant proposition. These propositions as gets referred in perfect market, there is the instance when the firm is not in a position to create value by means of hedging a particular risk. This is relevant when the price determined under the risk, within the firm is considerably the same as the determined price that gets outside the firm. As this implementation gets into practice, the position of the financial markets is hardly in a state under the influence of being under perfect markets. This application suggests that the roles of the firm managers develop in terms of responsibilities and there are scopes for many opportunities. The investigations led by Van, et.al (2004), these means are for the purpose of creating value for shareholders by means of using the accepted financial risk management. The basic motive and the proceeding lead to the determination and identification of risks that are cheaper. The cheap risks are directly related to the firm and its responsibilities of managing with it rather than the shareholders. As a matter of fact the market risks that are consequently declares unique risks for a particular firm are considered to be best candidates as the best kind of financial risk management (Crockford 1986).

4.3 Empirical Declarations

4.3.1. Strategies Adopted by Bankers

The interviews that were conducted for this research came up with some empirical declarations. The interviews with the bankers declared that, they employ their specific models of credit scorecards to all kinds of rank potential. These are also applicable to existing customers. The determinations of strategies are done according to the credit risk, and after that they apply appropriate strategies for the management of the risk. The credit risks by these bankers are managed for unsecured personal loans or the means of mortgages. In such instances, the bankers charge absolute higher price for specified higher risk customers and the process of vice versa. In terms of revolving products, like those of credit cards and relevant overdrafts, the determined risks get controlled through the process of setting credit limits. In case of some products there is the need for security, and it is commonly opted in the form of property.

The bankers prefer to trade off necessary cost or the related benefits of a particular loan as per its risks and the calculated interest charged. However the interest rates cannot be considered as the sole method to compensate the increasing rate of credit risk. There are some protective covenants that are noted in the loan agreements and allow the banks with some controls. These covenants can be marked as:

• Allowing the scope to monitor the debt requiring audits, along with access to the monthly reports
• Allowing the respective lender to make a decisive declaration when he decides to recall the loan that is based on specific events. This is also applicable for the consequences resulted from financial ratios, such as debt or equity, or the results from interest coverage deterioration.

With the increasing credit risks the banks are following innovative processes to protect themselves and the bond holders from getting into the danger of default. These are specifically target for credit derivatives and are known in the form of ‘credit default swap’. The preferences of these financial contracts are used to allow the companies to buy credit protections against possible defaults, especially from third party that is the identified protection seller.

The interviews also highlighted the credit scoring models that are also considered as an integral part to the framework that is preferred by banks in granting credit to clients. In case of corporate and some commercial borrowers, the application of these models follow qualitative as well as quantitative sections by means of outlining inclusive patches of varied kinds of risks. These models are though are not limited to any sort of operating experience, yet are also not limiting management expertise, leverage and liquidity ratios and asset quality. As these information are scrutinized by the appointed credit officers and respective credit committees, the banks get secured to a great extent in providing funds to the applicant as per the terms and conditions of contact.

4.3.2. Declarations made by Customers

The questionnaires that are collected from the customers dealing with the status of banking facilities and the options for credits and bankruptcy; came up varied declarations. Customers who were having companies tried to carry credit risk in a state when, the bank do not ask for up-front cash payment for the productions and the services provided. Most of the customers relied a lot over the terms and conditions declared by the banks. They also said that they believe the bank with blindfolds. However there were some customers who were not having much confidence over the banks. In terms of a bankruptcy, they prefer not to be with the bank and wanted some safety precautions to be added to the terms and conditions of credit forms.

According to some of the customers, there some sectors of credit limit identifications marked by government. Governments play an important role in assisting the banks to recognize an individual's capacity for the purpose of evaluating credit risk. These procedures include more restrictions and more proceedings related to the process of verifications. There always a sense of reliability over the banks by the customers, but too much of verification process adds more apprehensiveness to this reliability. These can lead to risk by reducing economic efficiencies among the customers. The declared legal measures added y scrutinizing mechanisms are enough for protecting consumers against any kind of risks. Bank deposits, are very much undergoes insured proceedings and that makes the customers feel safe about it. In a situation of credit risk to banks, the customers showed their willingness to use effective and strategically structured banking system. There are consumers who also declared that they can face credit risk, when they plan to enter into standard commercial transactions, the procedure for providing deposit to their counterparty. These are basically marked in cases related to large purchases, like those of real estate rental. It has been also accepted that employees of any firm too believes and depends on their firm's ability in paying appropriate wages, and this exposes them to credit risk in relevance to their employer.

4.4 Firm Value and Default by Merton

In order to get a standard derivative process of managing with the increasing credit risks, this research is opting for the assessment of ‘firm value and default’. It has been discovered that there are many research done over credit risk modeling, has been foregrounded over the option of ‘theoretic default model’ forwarded by Merton (1974). Merton was very particular in recognizing the fact that a lender writes to put an option, on the basis of the assets related to the borrowing firm. In this reference the owners along with the owner-managers or the established shareholders tries to get hold over the specific call option. In case of a situation when the value of the firm gets rated below a particular threshold; the owners are in a position to put the firm to the respective debt-holders. This is the reason that the expectations for a firm is in a default status, when the value estimated of its assets declines below specifically determined threshold value, through its liabilities.

As per PSTW, i.e., Pesaran, Schuermann, Treutler, and Weiner (2005), a particular firm marked by ‘i’ with an asset value of Vit for a timespan of t, and has got an outstanding debt stock, Dit. These specifications are estimated by Merton model as the default that occurs in the determined maturity date of the particular debt, as t + h. It is a state when a firm’s assets, marked by Vi,t+h, are found to be less than the declared face value of the debt during the time of estimation, marked as Di,t+h. There can be a better approach in this respect. It is a proceeding under the influence of Black and Cox (1976, pp.351-367). In this process the default tends to occur for the first time as Vit falls down to a default boundary (or recognized threshold) for a span of t to t+h² .

5. DISCUSSION

According to the declarations made by Reserve Bank of Australia Bulletin in 1997, the early part of 1990s was more recognized for the various levels of upgradation of risk management capabilities in the banking sector. As per this instance, the period between 1980s to the early part of 1990s, ‘the Australian banks were discovered to have aggregate loan losses of about $25 billion’. During 1992, the banks in a constant group experienced negative return on equity on estimated living memory, for the first time . These kinds of episodes were also common during the same period in varied a ranges of some other industrial countries. These countries were consecutively having bank losses and regular failures; that were further reaching diversified and unprecedented levels in them (Douglas 2009, p.46).

The proceedings were made as effective efforts for the development of financial methodologies within the banking peripheries. There were more rigorous practices, to get the measurement and the managements of the credits that are traded within the market risk. It was during this session that the rapid growths along with the increasing complexity of credit risks in the banking sectors are realized. The actions were taken y the bank supervisors for a status of better risk management practices. These were the provisions that added impetus to the considered market initiatives.

The analysis as has been discussed above can be well structured for some of the determining principles of managing increasing credit risks in banking sectors. These principles can be marked in various analytical ways.

5.1 Principles for Managing Increasing Credit Risk

5.1.1 Long term dealings

In an instance when a financial institution faces consecutive difficulties for a long term; it is basically due to various multitudes of reasons. The identified major cause that marks the serious banking problems gets continued to a phase that is directly related to a state of lax credit standards. These standards are very much directly associated to the borrowers and specified counterparties with poor portfolio in the domains of risk management. Added to this they are also related to the instances that lack of attention to any kind of changes in economic or related circumstances, leading to deteriorated instances of increasing credit standing of particularized bank's counterparties. This is a common kind of experience faced mostly G-10 and all the other non-G-10 countries.

5.1.2 Identification through potential borrower

The increase in the Credit risk is basically identified as a situation where the potential bank borrower or the related counterparty fails to meet all the necessary obligations placed in accordance to the agreed terms. The specialized goal of credit risk management is to gain over the maximized portion of the bank's risk-adjusted rate, in reference to the return. This is attempted by means of maintaining credit risk exposure made within the decided and acceptable parameters. It is necessary for the banks to manage increasing credit risk that is very much inherent in the entire portfolio. Along with this management they need to manage the risk of the individual credits and the related transactions. Banks need to consider the specific relationships termed between the credit risk and all other related risks. The risk management done in reference to increasing credit risk is a very critical component and thus needs to gain enough comprehensive approaches. These risk management skills must have essential long-term success of every possible cadre of banking organization.

5.1.3 Loans as Credit sources

It has been discovered that for most of the banks; loans are considered to be the obvious source of collecting credit risk. However, other sources of credit risk get counted by the addition of activities, included in the banking and trading books. Banks are definitely facing the increasing credit risk, or as popularly known as counterparty risks. These are forming through various financial instruments, apart from the calculations managed through loans. Some of these sections are interbank transactions, acceptances, foreign exchange transactions, trade financing, financial futures, options, bonds, swaps, equities, extension of commitments along with guarantees, and settlement of transactions.

5.1.4 Varied banks and supervisors

The exposure to the increasing rate of credit risk is in a continuous process and is leading the determined source of problems with al kind of banks world-wide. It is very important that the banks along with their supervisors needs to draw useful lessons from all kinds of past experiences. Banks should be very much aware of the sources that determine the identification of risks, prevalent measure, process to monitor and above all adoption of the means for controlling credit risk. There is the need for appropriate sources for determined factors for holding adequate capital against all these kinds of risks. The banks need to be capable enough to compensate adequate measures for all these risks that are incurred. The declarations that are forwarded by Basel Committee in reference to the process of issuing adequate documents for the encouraging banking supervisors on global basis and thereby to promote effective and sound practices in the field of managing increasing credit risks.

5.1.5 Sound Practices

There are some estimated sound practices for the management of increasing credit risks. These are the resources that are detected from the following domains:

1. establishment of appropriate environment for credit risk;
2. operating systems under sound process of credit-granting;
3. maintaining absolute credit administration, along with appropriate measurement as well as monitoring process; and
4. ensuring systems under adequate controls identified over credit risk.

It is noteworthy t declare that specific credit risk management practices varies from one bank to another. This is very much related to the nature as well as structured complexity of every bank’s credit activities. Participation of comprehensive credit risk management program addresses the above mentioned four areas. These practices are applicable in conjunction with determined practices based on the assessment of all the estimated asset quality. There is the need for adequacy of provisions along with respective reservations and appropriate scope for disclosures of increasing credit risk.>

5.1.6 Varied Individuals with Varied Manners

The exact approach for managing credit risks are chosen by different individuals in varied manners. These are basically determined by the supervisors as per the host of factors, added by their prevalent on-site as well as off-site supervisory techniques. The estimated degrees to these external auditors are also considered applicable in the supervisory function. The estimated supervisory expectations for the increasing credit risk management approached adopted by individual banks needs to commensurate with the adopted scope and the accepted sophistication of banking activities. In case of smaller banks or the less sophisticated banks, it is the responsibility of the supervisors to determine to determine the credit risk management approach. The estimation and the identification of the appropriate credit risk management system should be appropriate to the processed activities (Redhead and Hughes 1988). They are also responsible for the instilling of sufficient risk-return discipline in their domain of credit risk management processes.

5.1.7 Role of the Basel Committee

The Basel Committee makes a declaration about the principles that needs to be followed by the banking supervisory authorities. These principles are applicable for assessing bank's credit risk management systems. The supervisors need to have sharp eye over the increasing credit problems in various sectors of the bank.

5.1.8 Settling of Financial transactions

The management system must have particularised instance of managing with credit risk and thus needs to relate every inch of the management system to the process of dealing and settling day to day financial transactions. It is very important to understand that if one of the sides of a particular transaction gets settled, but the other side fails; there is every possibility that a loss will get incurred. This loss is very much equal to the actual principal amount delivered through the transaction. In terms of instances, where one party gets late in the process of settling, the other party has got the scope to incur a loss. This amount further gets related to the missed investment opportunities. The increasing credit risks are also dealt by Settlement risk; which is recognised as the risk with the completion or the adoption of the process of settlement of a specified financial transaction that consequently fails to take place as per the estimated assessments. This is the reason that the assessments need to include market, elements supporting liquidity, operational as well as reputational risk in the domain of increasing credit risk. Identification of the level of credit risk gets determined by the preconceived arrangements for the purpose of settlement. Factors that are marked in such arrangements have got the bearing structure of the credit risk. These factors are inclusive of payment or the assessed settlement finality; timing of the exchange of value; and proceedings related to intermediaries along with activities of clearing houses.

5.2 Credit Risk Management Systems

There are varied ways of dealing with different kind of credits. The determined proceedings are integral to the roles played by the banks and the supervisors employed for the same. The following tale illustrates the means of dealing with various increasing credit risks in banking sectors.

6. CONCLUSION

It can be thus well stated that the chief key for the reduction of loan losses and the process of ensuring one’s capital reserves can reflect his risk profile. The means is implemented in an integrated way and under quantitative credit risk solution; instead of cobbling up a whole series of mismatched and unplanned technological proceedings. There are many varied proceedings to deal with the process of identifying measuring, monitoring and managing with the increasing credit risks in the Banking sector. The basic process is to develop the automate data consolidation along with the reconciliation to gain the access to all kinds of timely data. It needs to be clean and instant for any kind of analysis. The management of credit risk must involve simple and flexible kind of risk modelling environment. It has to be fully customizable, for reliable forecasting declarations over loan losses, related nonperforming assets and consecutive capital reservations made over production. The implementation of powerful and easy-to-use portfolio analysis the upcoming risk engine is necessary for the identification of the credit risk and that further supports the evaluative process of revenue opportunities at diversified circumstances. The bank supervisors need to have timely interactive reports and regulators in order to drill down the collected learn for a secure dealing. All the features of managing credit risks should have enough transparency. The following points are collected from the research initiations. These points are very necessary to get hold over the appropriate means of dealing with the increasing credit risks in bank.

• To identify the portfolio risk exposures accurately and beforehand with pre-emptive actions to stop all kinds of possible losses before they come up.
• Gaining complete view over the sequences that can lead to overall risk. This will ensure the analysis over adequate capital reserves along with the scope to free up all the unnecessary funds. This will further generate profit-making activities within the Bank.
• To create visual workflows. This can be done through automated documentation that can deliver complete and total transparent sequence. This also enables the bank to track all the data from the ultimate reports to the original source and id efficient in keeping a track of interactive drill for all kinds of answers in much faster way.

It is important to cease the gaps in one’s prevalent current risk environment, as he decides to evolve incrementally in the way of a single and unified kind of platform. Complex technological aspects can turn hazardous for those who are not acquainted with it. On the other hand an easy ride for those who are trained in the domain. Implementation of solution in a modular form is the best means to deal with every upcoming and increasing credit risk. It is very important to apply different kinds of solutions to varied types of risks and an identification of the same is very important.

There is the need for absolute motivation within the corporate domain of the Banks. This assists in stimulating homogenized perspective in the future. These perspectives have been identified as four specific ingredients to gain sophisticated treatment of appropriate dealings related to corporate credit evaluation added by adequate features for increasing credit risk management. These perspectives are:

• Absolute stand-alone kind of valuation techniques,
• Transparent and comprehensive collection of relevant databases,
• Professional attempts in resolving the available portfolios to avoid credit-risk problem,
• Adoption of advent as well as very impressive growth within structured process of trading with credit-risk derivatives
• Collection of authentic and varied types of appropriate processes for credit insurances and with adequate guarantees.

Eventually it can be established that the proceedings based on stand-alone means, is a kind of individual asset ingredient in managing credit-risk management systems. This is a process that involves credit-scoring procedures, along with assessments made over negative-event probabilities. This also assists in deriving the consequent losses that are given though selected negative migration or the selected default events. There are many years of expeditions that are opted for comprehending and emphasizing the accurate links between the credit-scoring procedures in reference to the capital market experiences. This is a recognised kind of institution that can establish its scoring system to the selected portfolio as per the historical experiences. These experiences are strong enough in justifying the use of credit risk files for the assessment of upcoming risk and losses. The bank needs to follow the historically collected experiences and thus they can pool their data. This is a well established process that can act in terms of statistical quantity added by the application of tools for data reliability. This will provide meaningful aspects for determining future estimations.

Utilization of self-services within the bank is the best solution to deal with any kind of credit risk. These can be further supported by various web-based reporting systems under balanced environment. Banks can also facilitate itself with group-wide process of data aggregation. In order to get appropriate modules, it is also very necessary that the banks enable the development of all sorts of in-house predictive and analyzed risk models. The banks can also deliver its ability to re-grade the entire bunch of portfolios that are submitted to it. These added proceedings can result with fewer staff resources for the purpose of managing all the credit risk projects. Most of the scrutinizations will result with authentic declarations. Adoption of expert dealings and professional assistance can also save enough time in calculating reserves. This further will produce appropriate management reports with stronger and safer futuristic approaches. It is also very necessary that the banks concentrates over the means of reducing loan loss reserves along with capital reserves.

7. RECOMMENDATIONS

The proceedings of managing risk management thus need to have the derivative methods, related definitions and predetermined goals. These vary widely as per the identified risk management methods and the as per the context they are identified by the participation of project management, matters of security, structured engineering, appropriate industrial processes, balanced financial portfolios, various levels of actuarial assessments and diversified sectors of public health and safety. These methodologies of identifying a relevant risk are support and followed through by the following elements:

1. Act of identification, then characterize and lastly to make an assessment of the threats
2. Making a well defined assessment of the vulnerability as per the critical assets to the determined specific threats
3. Determine the assessed risk that has been expected as per the consequences identified under specific types of prevalent attacks on the assets
4. Identify various ways, in order to reduce the cumulative risks
5. e) Make a list of prioritize risks reduction measures, on the basis of based determined strategies

Adoption of relevant strategies, for the management of risks is the core matter of concern. This in particular includes the process of transferring the risk to appropriate parties. There must be adequate measures for avoiding the risks, process of reducing negative effect of the risk and thereby accepting few consecutive or all kinds of consequences of the identified and particularized risk. It is very necessary to reconsider certain aspects in terms of increasing risk management standards.

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Journal Sources:

Credit Risk in Banking, Reserve Bank of Australia Bulletin. November, 1997, pp. 47-49
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Electronic sources:

Basel Committee on Banking Supervision at the Bank for International Settlements website,
http://www.bis.org/bcbs/index.htm [retrieved on 8th of August, 2009]
Committee Draft of ISO 31000 Risk management (PDF). International Organization for Standardization.
http://www.nsai.ie/uploads/file/N047_Committee_Draft_of_ISO_31000.pdf [retrieved on 8th of August, 2009]
Disaster Recovery Journal,
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Nout Wellink to succeed Jaime Caruana as Chairman of the Basel Committee on Banking Supervision at the Bank for International Settlements website,
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FURTHER READINGS

Bluhm, Christian, Ludger Overbeck, and Christoph Wagner (2002). An Introduction to Credit Risk Modeling. Chapman & Hall/CRC. ISBN 978-1584883265.
Damiano Brigo and Massimo Masetti (2006). Risk Neutral Pricing of Counterparty Risk, in: Pykhtin, M. (Editor), Counterparty Credit Risk Modeling: Risk Management, Pricing and Regulation. Risk Books. ISBN 1-904339-76-X.
de Servigny, Arnaud and Olivier Renault (2004). The Standard & Poor's Guide to Measuring and Managing Credit Risk. McGraw-Hill. ISBN 978-0071417556.
Darrell Duffie and Kenneth J. Singleton (2003). Credit Risk: Pricing, Measurement, and Management. Princeton University Press. ISBN 978-0691090467.

APPENDICES

Appendix 1

Questions for interviews:

1. What type of principles do you use to manage financial risk?
2. Which strategies do you use to diversify risk?
3. What type of identifications do you use to recognise risk?
4. What is the critical situation you normally face relating to risk?
5. Can you work with risk? If so how will you manage it?

Appendix 2

Questionnaire for Bank Customers:

1. Do you feel secure while banks always involve many risks?
2. If yes, why you risk your money? If no, haven’t you got any bank account?
3. How do you manage when bank is bankrupt?
4. How do you think and what you will do when bank delay to repay after bankrupt?
5. In what measures do you think bank do the best to diversify risk from their money?