The Risk Management in Banks Sectors Finance Essay

Risk is a factor that affects the financial characteristics of a banking system. Risk management has been seen and being emerged as an issues in the banking sectors as well as the financial and non financial institutions which focuses on the risk related losses in various entities and the important of risk within all firms. Risk management is increasing in the main area of business competence in the banking sectors and financial intuitions. In other for risk management to be adopted and implemented, it is necessary to consider and develop some set of principle in risk management. The theory and practice of risk management should ensure the senior and board management participation in the development of risk management strategy, risk management organization and infrastructure should be establish, policies and procedure should be implemented in other to manage these risk, though the process is difficult and complex to develop any tools of risk management because of some cases in the institution such as the absence of required skilled staff, investment required and absence of risk culture in many organizations. The aim of the study was to investigate the theory and practice of risk management in the banking industries and other sector across the world and propose recommendations to enhance the mission of risk management in the banking sectors in other to assist financial institution and the banking sectors on the theory and practice of risk management.

CHAPTER ONE

INTODUCTION

Risk management is defined by the ISO 31000 (2011), "as the result of uncertainty on objective if negative or positive", it is also a method used to analyze, identify and resolve any risk in an organization to be monitored. Risk management involves acting and making on conclusion which requires condition of uncertainty. In 2004, (the new standard of Zealand) stated that "risk management can be seen as processes and structures that are linked towards a cultural possibility of an opportunity. According to Oxford Dictionary "a risk can be defined as a situation involving exposure to danger or possibility of harm or damage against which something is insured" the central banks of Kenya 2005 stated that risk can be grouped into four steps which include the operational risk, compliant risk, reputational risk, operational risk. Operational risk is refers to a transaction risk that is arising from fraud, error or inability to deliver good services and products, to maintain balanced position and to manage information. Strategic risk is the rising from making appropriate business decision and implementation. Compliance risk is the risk from violations with laws and rules and regulation while reputational risk is the risk to earnings or capital arising from negative public opinion. All financial institution especially banking sector should be aware of risk management because of the fast demands in good efficiency and effectiveness, accountability and corporate governance. (Busby and Alcock, 2008) In the financial institutions (banking sectors) the importance of risk management has become inevitable due to the factors that make up the activities in the banking system, in other to secure customer's money. (Ioannis 2008) According to the banking activities they have different financial issues they deal with regarding the risk impacted on banking services. The banking industries all over the world render different forms of activities or business other than deposit and withdrawals, cash and cheques. They also provide loans, overdraft, deposits and withdrawals, processing payments, assets financing, mortgages, clearing advisory services, safekeeping services, foreign exchange and custodial services. (Mayo 2009) As suggested by (Gorrod 2004), most banks are liable to certain risk such as poor services delivery and failure, fraud. These are as a result of low information and bad management systems practices. From the look of things, many customers are not happy with the risk issues in financial institution especially the banking industries including the direct quality of services rendered. According to (Njuguna, 2007) "he suggested that all banking industries should set up a risk management units which will be capable for the task of risk reduction"

1.1 AIMS AND OBJECTIVES OF THE REPORT

At a broad level, this dissertation aims to investigate the theories and practice of risk management in the banking sector in geographic regions throughout the world looking into different banks that have failed and comparing three banks to access the different types of risk they are exposed to and how are they managing it.

1.2 THE SPECIFIC OBJECTIVES OF THE REPROT

The objectives of this report are stated below: To assess the types of risk the banking sectors and other financial institutions are exposed to To predict the collapse of the inter-banking leading in the institution To analyse the theory and practice of risk management in the institution To identify the practical issues in choosing and applying risk management in the financial intuitions and banking sectors To identify the process of risk management in the banking sectors

1.3 SCOPE OF THE REPORT

The study of risk management theory and practice in banking sectors has been an important issue in the whole world, different authors and publication has written more lots on the financial crisis of the mismanagement of risk in business environment especially the banking industries. The financial crisis affects everyone in the world and every business around. This report will focus on the practice of risk management in the banking industries and how it affect the businesses, the study also looks at the process of implementing risk management and the success in the organization.

1.4 LIMITATION OF THE REPORT

This report has faced some limitations which will be explained below: The study and the research work were based on the previous authors in relative to the topic on theory and practice of risk management in banking sectors. The materials available are insufficient because there was no new information on the topic. The materials used and accessed were majorly on journals, publication and articles, internet publication and textbooks. There was no limited time to read all materials gathered together for the research study, lots of information from different authors, journals and textbooks. In the process of this report writing, there were no tutors or supervisor who could review the progress on the study or give any guardians and advises on the research topic. The methodological aspect of this report was based on secondary data to analyse the report.

1.5 RESEARCH DESIGN

The study will be using a secondary data collection of a research to design the study in a qualitative way to ensure persuasive arguments in following the research topic.

1.6 CONTENT AND STRUCTURE

There are 4 chapters to cover the main issues on the topic research and can be summarised as followed: Chapter 1: It will provide an introduction to the research by summarizing the key points of the report, also addressing the main aims and specific objectives and research design of the topic. Chapter 2: will start by discussing the history of risk management in the banking industries by tackling what different authors has done on the topic before if it works or not. Also analysis of this research report will be carried out with different forms; this is also the main body of the report by analyzing the secondary data collated from journals, internet, textbooks, newspaper etc. There will be a discussion of what has been analysed with the summarization of information gathered together to discuss on what problems of risk they are exposed too in banks and financial institutions. Chapter 3: this is the conclusion part where all the information on previous section will be summarised in few pages in a clearly way to provide good response on the topic project. Chapter 4: Recommendation will be provided in this section to the management and workers on how to avoid risk in financial institution especially banking sectors.

CHAPTER 2

LITERATURE REVIEW, ANALYSIS AND DISCUSSION

A brief history of risk management

"This chapter will show the historical development of risk management by given us an overview on how risk management has been shaped to financial industries and banking sectors". In the 21st century, risk management has been seen and viewed by different authors as an important issue in the financial sectors. (Steinherr 2008) The concept of risk management has been around for a longer period of time and it's related to the financial aspects such as foreign exchange movements, liquidity, credit risk, interest rate and financial derivatives. Apart from the types of risks mentioned above, risk is now in collaboration with the operational risk management which is a computer meltdown and a terrorist attack in the working environment among the financial institution. The operational risk is very important in the operation of risk management in the banking sector, but due to the low information across, many financial intuitions are not aware of the operational risk attack. The bankers have often related risk management to the financial performance of customers and banks sectors themselves. But recently over some years now, the financial intuition now have knowledge on what the operational risk is all about in the banking industries. (Diana Thompson report 2011) The term "risk management" has been heard over the part decays (twenty years ago) referring to "insurance management" which covers some responsibilities that the management as ever done. According to (Nick N. 2011), "the most important part of risk management is the transferring of risk". A bank or financial institutions can protect itself from the potential risks of its assets portfolio by buying some credit default swaps (CDS). The CDS are popularly known as one of the derivative, by transferring an exposure to fixed income assets such as (mortgages, loans and bonds) from the buyer to the seller. Credit default swaps also helps creditors and to pay out if the borrowers is default and with less insurance policy on it. In some years back, risk management product such as (credit derivatives) have involved into different instrument used by financial intuitions to make some market movement and bets irresponsible. All these comes to the fact that lack of good equipment, rules and regulations, lack of good knowledge on techniques has led to the reduction in credit derivatives and market product degenerate. From the setting of the world go, financial derivatives is one of the real types of risk management that has increased in the banking regulations. In the ancient world to the twentieth century, financial derivatives are instrument developed from an asset such as the future, swap and option. Looking at different histories on risk management theory and practices, the most common aspect that affects risk in the financial institutions and banking sectors is the credit risk. "Credit risk is one of the oldest forms of risk in the financial market (john b 2011). From the web definition of credit and credit risk, credit can be defined as "what a person use in buying services or products and try to pay at a later date. (CIBC.com), while credit risk is defined as a way where the borrower failed to repay the loans under the terms of an original loan agreement. Credit risk is an old lending phase, which has being seen around in the 1800B.C. credit risk is an important aspect of risk to manage till date. In most cases, credit risk is reflected in a composition of an economic capital which requires all the banking sectors to have a good protection on different types of risk. Illustrating to an estimate, credit risk caused about 70% in the financial institution while market risk, operational risk and market price have the remaining 30% risk in the banking sectors. From the world over, the most critical aspect the banking sectors have ever faced is credit risk. Looking through a journal on failures of banking system in England, there was a study of over 62 banks that has failed due to the fact that the loans were not being repay in time from the year 1984 to 1992 and recently 5 banks were affected too in the year 2002-2006. Different researchers and practitioners in risk management have tried to improve on new techniques and technologies, but nothing could be done due to the rules and regulation of the banks in the society that could not permit them to work further on the research. There are types of credit risk management which include the curative measures and preventive measures. Curative measure includes the task sharing, legal enforcement, and derivatives trading, while preventive measures include risk measurement, risk pricing and risk assessment. Lastly on the history of risk management, about four years ago, (2007) during summer, there was a large financial crises which shows that the risk management has failed in all financial institution and banking sectors including individual in all aspects. The daily financial time news reported that all institutions either financial intuitions, banking sectors, retail sectors etc has experienced loss of money and wealth because of the mismanagement of risks all over the world.

2.1 understanding the nature of risk and the involvement within the banks and financial intuitions

All organization in the world deals with risk, but each organizations experience different types of risk. Looking into the banking and financial sectors, they both deal with cash (money). They help in different kind of ways such as the "corporate savings, household mobilization and availability of deficit units, they also deals with the creation of credit by means of giving loans in advances, facing lots of risks because of the businesses and services rendered by the financial banking institutions . There are roles performed by banks, and financial institutions which involve the following activities in resulting to the different types of risks: Mobilization of funds: involves the acceptance of deposit from customer, also by making sure that customers have balances in their individual accounts. Funds transfer: the financial institution and the banks are the main sectors that carry customer's funds into their safes. The main aspect of banking is to help as an agent in supporting various locations liquidity geographically; banks also help different organization in allowing them to pay their staffs through the corporate to individual staffs accounts, they also involve and assist in the payment systems in other to ensure to ensure the money is turn around rapidly. Funds deployment: there are different funds that have been mobilized which must be subjected to the regulatory requirement in the bank; the funds deposited by the government must undergo an investment in different directions while the remaining funds will be given out for loans or retail borrowers in the corporate sectors. Risk transfer: the banks are exposed to certain numbers of risk, which are central equal to the businesses performed such as the business model, channels distributions and activities performed etc. The financial institution and banks must handled this risk processes themselves for more customer's satisfaction because this is the part of their existence. Service transaction: banks help their client in taking full responsibilities on different trade transaction carried out in both the international and domestic aspect. The international transaction deals with the multiple currencies. Credit service enhancement: this deals with the evaluation and enhancement of customer's credit, through the goods and product supplied by the supplier. From the above roles performed by the banking sectors and financial institutions, these shows that many of this organization face risk in each department and not only in the financial intuitions and banks alone, its everywhere. Mismanaging risk affect the potential of banks and financial institutions earnings, most of the firms generally in the financial performance are affected by the price changes. These include the exchange rates commodities, equities and interest rates.

2.1.1 Sources of risk

There are different varieties on source of risk which affect the assets value of any corporation, from the above definition of risk; it can be seen as the "possibility that the actual outcome could be different from the expected outcome" (Dun et al 2006). The outcome possibility is controlled by some specific information, and this information can be derived from up to date information that is available around an organization or sectors. In other to understand the sources of risks, there will be explanations on the expose of an economy entity in the banks and the financial institutions along with various risks involved. Policies on the economic government budgets: there are lots of changes in the policy money supplied by the corporation or government, also the level of interest rates and inflation in the capital formation that takes place in the economy of the banking and financial institution, these really affect the money in the baking business of the day in and out of the country which have impact on the value of money and value of debt devices. Preferences on customer's consumption and savings: this is the process of the international trade with some certain patterns, this also include the process of more surplus in the economics and less process in others. The impact of social, racial and political availability on demands result for specific product on the disturbance of different goods in the market The technological factor: this is a process of bringing in new product and allowing old product to remain excess in the process, also making every opportunity with the corporations manufacturing to market it as possible to people at lower prices. The financial performance on the corporation: this shows the different advantage in the environment with the competitor in the markets places as well as the organizations. In addition to the explanation above, the research study also view that the sources of risk comes from each organisation which means that each individual has lot to perform in other to be able to manage risk in different department in an organization which include the nature of human, and the situation around the environments. The diagram below showing the sources of risk explained above. Price Technology Sources Market share Productivity Competition Source: sources of risk by Dun and Bradstreet, 2006

2.2 The increase of risk management practices in the banking sectors and other financial sectors

Bank can be defined as "an establishment in which money can be kept for savings or commercial purposes is invested for the supplied of loans and exchange". Bank can also be defined, "as an office or building where in which an establishment is located". (freedictionary.com, 2011), but banking in general terms can defined as the "business activity of accepting and safeguarding money owned by other individuals and entities, then lending out this money in other to earn a profit". (Investor words.com) In other to understand how banking sectors operate, it is necessary to pull out some knowledge on the role of financial intermediaries in our environment and the situation of the country (Economy). The main part of the financial intermediaries and financial market is to allow some instrument in which funds can be directly transferred into the productive opportunities. The banking sector is a form of financial intermediaries which main activity is to give loans to borrowers and to accept deposit from customers. The intermediaries' functions include savers/depositA­, financial intermediaries and borrowers. The main functions of the bank is to receive money from depositors and borrow customer as a loan in other to profit on it, in the process of given out this loans, its result as a major source of high risk and illiquid. There are gaps performed by the bankers between the needs of lenders and borrowers by some transformation functions which are the size transformation, maturity transformation and risk transformation. The size transformation is when savers and borrowers are willing to give an average of money to lenders than the actual amount required. For example: the different between the money in a savings account and the money to buy a house shows that the bank can increase the money in the saving account in a larger size of forms. The maturity transformation is where the banker will increase the period of short time to a longer term loans, for examples: converting the money that can be withdrawn on demand into years of residential mortgages, or borrowing out money for a short period and lending it out for long term process which can cause liquidity risk problem meaning not having enough money to meet customers liabilities. While risk transformation is when an individual borrow money from the bank at a particular time and not being able to repay the loan at the agreed date or time, which cause the problem credit risk. Recently the financial sectors including banking sectors do not have the potential in operating in a safe environment or country, and this have to remind them that they need to upgrade or improve their capability to know their current economic situation around and other circumstances on the business activities. Risk management is a process adopted by an organization to minimize the potential threats that the institutions may be exposed to, such areas include the political and environmental risk, economic risk and other factors that are unexpected. The banking system has lots of businesses across each section in the banking department, risk practice and the equipment has a pole in the lines of the banking businesses such as the investment banking and trading, retail banking, etc. There are different sectors operating in the banking industries which will allow the mismanagement of risk by generating the financial risks which differs from the businesses performed in the banks. The management practice are quite different from the line of business that are also performed in the bank, this line of business shows that retail banking is a mass oriented and individuals tends to operate because of the large transaction of lending to customers, but from the management report there are more risk to it in the banking system.

Below is the diagram showing how businesses is run in the banking sectors

Business pole Business lines Commercial banking Retail financial services, large corporate, corporate middle market Lending and collecting deposits, individuals and small business Investment banking Advisory service, acquisition mergers, LBO, banks and financial firms Identification of borrowers, relationship banking Trading Derivatives, equity, fixed income Structured finance Private income Assets management Traded instrument Others Custody Source: (world investor.com 2011) Investment banking is a large transaction to the needs of the big financial institution and corporation which focuses on the standard practice such as the export and commodities financing activities.

2.3 The theory of risk management in the banking sectors

In some recent years back, the banking risk has become more important in the sectors. Most of the bank risk has received many of the methodological and theoretical aspect in the field of banking businesses. Risk management is needed in all firms such as the financial and non financial firms, governmental agencies who need various forms of managing risk. From an author, (Dan G 2009), mentioned that in years to come all banking institutions must need to obey the new rules and regulatory requirement for risk capital and measurement. Risk management is a process where banking managers meet up the needs of consistent, operational risk measure, identifying key risks, choosing the risk that can be reduced and increased, and obtaining consistent and producing source of monitoring the result risk position. As mentioned above, that risk can be defined "as the reductions in firms value due to changes in the business environment" (Dan G 2009). The major aspects of the key risk theory are indentified below which include: Credit risk: "This is the change in the net asset value due to the changes of the actual ability of counter parties in other to meet their obligation". Operational risk: this risk result from a cost incurred mistakenly by carrying out transactions such as failures to meet regulatory requirements, untimely collections and settlement failures. Market risk: is the change in net asset value due to the changes in underlying economic factors such as interest rates, exchange rates, and equity and commodity prices. Performance risk: failure from the employee to monitor the appropriate methods properly such as the modelling risk.

Measuring market risk

This shows the difference of the internal and external views of how to measure market risk. Internally, the bank managers need a follow up on how to measure the effective and active of the bank's risk position. The regulator for the banking sector should make sure that the bank's potential for net worth loss is accurately increases and it's sufficient for the loss in other to survive.

Timeliness and scope

From the point of view, both the regulator and managers want an up to date measures on risk in the banking trade, this will include measuring the risk and a daily performance on the measurement of total risk in the bank. Measuring this risk involves the standard deviation which follows the theory of portfolio selection (Markowitz, 2005). Risk measurement is a part of risk management that is efficient in the banking sectors. It is costly and also consumes time, due to these factors the regulators and bank managers also have problem with the cost of accurate risk measurement which is the reason they choose to monitor and stress test bank risk measurement rather than taking their own risk measurement.

2.4 The process of risk management in the banking and financial institutions

Risk management is a process whereby the financial risk strategies help an organization to manage risks; this process includes some parts of the organization such as sales, legal, marketing, commodity, corporate finance, treasury and tax. The risk management also involves the external and internal processes. The external and internal factor of risk management is a process where any institutions address the types of risks affecting their performance on target within every businesses or product across the portfolio of all activities. (The Institute of Risk Management, 2011) The main focus on risk management is the identification and treatment of these risks, some of the objectives of risk management in the financial institution before it's failed was to "increase the profitability of success and reduce both the profitability of failure and achieving the institution overall aims and objectives". Risk management should be a growing and a well developed process across the institutional sectors for the implementation of all organization future past and present. Risk management should help in the culture of the organization with an effective policy and programmes led by the management. There are factors contributing to the fall down of risk management which can be categorized into 4; the strategy risk, financial risk, hazard risk and operational risk

The external factors include the following table below:

Financial risk Strategic risk Interest rates Competition, customer changes Foreign exchange Industry changes Credit Customer demands and integration Liquidity and cash flow Research and development, intellectual capital Source: The Institute of Risk Management, 2011 From the above table, the internal factors of risk management process really have some aspect on what the banking and financial intuitions are facing on the issues of how risk management can be managed. External factor can be defined from the web dictionary "as the factors that is essential existing on something that is connected with the outside part", this is true because looking at the process of banking and financial sectors, there are lots of external factors that affect the organization such as the financial risk that comprises of the competitors, customer changes, staff changes, rules and regulation changes etc. From the look of things this has to be recognized among all workers in the banking sectors so as to avoid risk in the environmental working condition. The management of risk should be operated by good skilled staffs that know more about risk management.

The internal factors of risk management also include the table below:

Accounting controls and information system Public access Recruitments Employees Supply chains Properties Regulation Product and services Culture Contract Board composition Natural events Operational risk Supplier, environment and hazard risks Source: The Institute of Risk Management, 2011 From the above table, the internal factors of risk management have been summarized above on how risk management can be assessed internally. The main focuses on the internal factors of risk management are the main aspect of recruitment of new skilled staff on how to manage risk management tools in the banking area of businesses, the culture aspect of the community must be assessed on how the people and customer communicate, and how do they run the community, the product and services render in the bank must fit the customer's taste, and information's should be circulated among the board of directors to the employees with proper training methods on how to improve in the management of risk in their different department.

2.4.1 Risk management process also include the organization's strategic objectives in the banking sector

The objectives of risk management process include the following processes: Risk assessment Risk analysis risk identification risk description and risk evaluation (risk reporting, threat and opportunities) (decision) (risk treatment, residual risk reporting and monitoring) formal audit and modification The process of risk management lies on the heart of how organization can manage risk and how it has been successful through the process of these objectives above in the banking sectors. The growth of risk management has been increasing in every affairs of an organization especially over the last 10 years and many banking sectors has developed the new tools and mechanisms on managing risk. (Michael et.all 2006), the author also explains further that risk management process is now a creative tool in the banking sectors especially among the financial market. The author agues on the increase of new tools and mechanisms in the banking sectors but from prolong research on this study; it reveals that the banking system still fails in different area of banking businesses which means that the author did not really research well on the principle of how risk management has being successful in the banking and financial institutions. There are many banks that have failed since 2007-2011 which will be discussed better along the line. For over 10 years since the existence of new tools of risk management, there are still some extraordinary failures of risk management in its broadest definition. From recent research, risk management has not really helped many organizations to prevent market disruption especially among the banking sectors and financial institutions or has not helped in the prevention of any businesses also that will result in the breakdown of the business. The problem is seen as the biggest one in the bank and financial institutions talk less of the small business organization around. The above process on the objectives of risk management needs to be explained in details on how it might be used to manage risk in the banking and financial intuitions and many more organizations around the world. Risk assessments: is the overall process of risk analysis and evaluation, the (business dictionary.com 2011) defined risk assessments "as the component of risk analysis which involve the identification, evaluation and estimation of the levels of risks involved in a situation, comparison against benchmarks or standards and determination of an acceptance level of risk". Risk identification: this is to identify the exposure an organization as been exposed to, this require a basic understanding of the business the organization is operating which leads to the political and cultural environment, social and legal aspect of the existence. The identification of risk in the banking and financial institutions include the development and understanding of the operational objectives and strategic for the success of the opportunities and threats achievement. Risk identification should be done in a good methodological way to approach all necessary activities around the banking sectors in other to identify all the types of risks they are exposed to. Risk reporting and communicator: the different department in the banking sectors need good information on any new development on risk management process. From the point of view, this information should go across from the board of directors to the lowest employee in the banking operation. The board of directors should know most of the things within the organization such as the significant risk facing the organization, the possible effects on shareholder on the performance ranges, level of awareness throughout the organization in respect to training and employment of new skilled staffs in the process of risk management, ensuring the risk management process is working effectively, able to report any risks or failure that need control immediately. Also the employee as an individual in the banking sectors should understand the improvement of risk management response, to understand the culture of risk management and awareness in the organization and to report any new form of risk involved in the process. Risk treatment: this is a process in selecting and implementing the measure of risk modified. Risk treatment includes the major aspect; risk mitigation and control, risk transfer, risk avoidance and risk financing. Monitoring and review of the risk management process: this is an important aspect by ensuring that all risk in an organization is clearly identified and proper assessment. The monitoring process includes if the procedure are put in place and whether the information gathered for the process were appropriate, and to identified if the decision is okay and if lessoned will be learnt for future assessment and risks. From the above explanation on how risk management can be effective in the banking industry, if all organization can follow all this processes above and proper implementation is done with the help of risk management policy, (the risk management policy will be discussed in chapter 4) there would be no crisis in every organization again.

2.5 Evidence of risk management practices and theory (analysis)

Previous years back, there was a survey of about 2000 companies in Wharton on risk management practice and derivatives use, but not many respondent responded due to the fact that they were all shock that the study can be conducted at that particular time. From the study conducted, most respondent assumed that derivatives are tools for risk management process, while few of them assumed that the use of derivatives is to increase the risk rather than reducing it. The article explain further that there are several other tools that can be used for managing risk, thou it's an old fashion but very good and wisely to use, this include the physical storage of goods (inventory holding), business diversification and cash buffers. In every organization, it is not every one that chooses to manage risk and managing a risk and implanting process is different from one company to another. There are some companies that uses another forms of tools for managing risk which are the cash flow volatility, variation in the value of the firm as risk management is an object of interest. Researchers also found out that more of the large companies manage risk well than the smaller firms due to the fact that they lack proper skilled staffs on risk management process, lack of proper investigation on the types of risk they are exposed to. (Peter F. 2003). Discussion: can risk management improve firm performance? The answer is yes, from the above analysis, risk management practice is a process where industry found helpful because "share prices were less sensitive after the practice of risk management. The study also review that after the initiation of risk management practice there was a reduction from an exposure of risk to interest rate and exchanging rate movements. Different authors also found out that many firms using any form of risk management will perform well in the area of business and will increase the corporate performance than any organization that is not practising the use of risk management processes. The evidence on risk management practice so far is that all commercial banks will have minimum risk factors if they pay more attention on how to manage risk in the company and have skilled staff with experience on risk management and risk management policy and procedure should be implanted in the organization also so as to avoid the risk in the future.

2.5.1 An organization affected by risk; (case study)

In every business around the world, "all kinds of organization face risk even when their future is normal or assumed such as government bodies they can still face by allegation of funds. In most cases, small companies are most often affected with risk while the multinational businesses have more complex of risk to deal with. There was a study from the FERMA of European risk management association (2010); more than 200 companies were studied on the danger of uncontrolled risk which could lead to less production, commercials and operational risk. The dangers of uncontrolled risk studied in each company are written below:

TYPES OF RISK

INITIAL EFFECT

FINANCIAL LOSSES

Quality problems Recalling of goods and customer disoriented about the product Financial looses Health and safety injury Claims and bad publicity, staff compensation and not meeting customers and workers demands People suffering and financial looses Environmental pollution Giving fines, court action (allegation), and bad publicity Financial looses Marketing risk Drop in revenue target for the each months Looses from each department and financial economy Fire and political risks Loss of human being and production, harm to people around, profit not prevented from international government Damage, financial losses and fighting different companies Computer failure and security Inability to process orders, and to give invoices , stealing of money and assets Financial damage and financial losses Source: complete guide to business risk (kit S. 2006) From the above case study on some danger involves in uncontrolled risk, the researcher discusses further why these issues cannot be controlled in an organization especially the financial institution and banking sectors. Reading carefully and analyzing the whole report, this risk involve in this report need good planning and a tool to reduce the risk, controlling a risk lies on everyone in the organization from the management to the executive and employees to know how risk can be manage in an organization. The use of risk management as a tool in an organization should be the main aspect where the banking sectors should operate on with the hope of reducing the risk and implementing risk management around the working environment. The danger of these uncontrolled risks will lead to different loss of money, assets, plans and customers. There lots of benefits on the implementation of risk management in an organizations, risk management has helped different institutions and businesses to avoid risk such as the cost risk, disruption and complaining about risk damages each day and also helped in recollecting records of what has been lost. The benefit of risk management in an organization is not easy to estimate, but it's useful in different factors as the regulation and scandals which include reporting require requirements and stock exchanges. The introduction of risk management to managers and employee in an organization is to help in bringing out a better result on how risk can be controlled and avoided in the area of businesses in each departmental level. Introducing this method of risk management to the worker and everyone in a private or public organization and businesses around, will make each person to be aware of dangerous risk available in the working places and by finding means of avoiding it to happen or to destroy their plans as a company. (Kit S.2006) suggested some advantages of managing risk in the banking sectors and any other organization which are: 1. Avoid people dying in the process of risk, and loss of production in the business environment should be avoided. 2. Maintain and balance records on market share. 3. Avoid payment to criminals, and safeguard both the managers and staff working with company money. 4. Loss of building, files records and important document should be avoided while dealing with elimination of risk in the organization. 5. Rules and regulation should be set aside for everyone in the organization to read, know and implement it in each desk. 6. Training programme should be held at appropriate time for worker and new workers joining the company on risk management process and how it works in each department.

2.6 Analysis of different banks that has failed due to risk mismanagement

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