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Bank Risk Assessment Methodology


  • Post Date 2018-11-07T11:06:41+00:00
  • Post Category Essays

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Bank Risk Assessment Methodology

Bank Risk Assessment Methodology

A Bank Risk Assessment Methodology is internally needed to be developed in our organization. The methodology should be rated based on external ratios that can be easily obtained from sources available at any bank`s website such as balance sheet, income statement, cash flows statement, etc. Please let me know if you need further information. Regards, Wael
Bank Risk Assessment Methodology[Name][University] Bank Risk Assessment MethodologyIntroduction: The development of a bank assessment methodology is crucial for any investing financial institution. It sets the standards and basis for the evaluation of the targeted bank. For the development of a bank assessment methodology for our investment company we will focus on a complete range of factors that can affect the creditworthiness of a bank. It is important to point out that though the bank risk assessment is dependent on its own factors, it is also highly influenced by the local factors prevailing in the macro environment such as economic, regulatory and political environment. This enforces that the country with weak financial position is likely to own financially unstable banks which have high credit risk. Sources of Information: In order to evaluate the key considerations above, wide variety of information is required. This information can be obtained from direct or indirect and primary or secondary resources which are all easily publicly available. Such information can be obtained from four broad categories which would include the first information published by the banks which are likely to include sources like audited annual and interim financial reports, economic publications, prospectus of a bank etc. The second information published externally which is likely to include newspaper, magazine and journal articles, and reports from brokers, directories, chamber of commerce etc. The third information published by the rating agencies which include rating reports from Standard and Poor`s, Moody, Fitch and Capital Intelligence. The fourth information sources are other miscellaneous sources like meetings, share price etc. These all sources of information can provide a detailed qualitative and quantitative analysis of the risk assessment; however we will mainly focus on the ratios and information that can be easily obtained from the published financial statements. Basic Methodology In order to conduct a successful analysis few basic steps need to be followed. Firstly the bank should be first viewed with its fit in its operating regulatory and country`s environment which means that the factors that can influence a bank from external sources should be taken into account first. Then the bank`s performance over the past years and with that of its competitors should be analyzed, that is what level of performance the bank has delivered over time. The changes in the performance should be analyzed that whether they were caused by factors in control of bank or outside its control. Then a careful consideration of ratios is required; ratios evolve over time and are subject to changes in the market conditions and regulatory environment therefore should be analyzed properly. A good analysis will take into account of all the qualitative and quantitative factors. The sole financial statement analysis for risk assessment might not give a very fair idea and can be ...

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