Risk Management in the banking and insurance sector

• Author: Ibrahim Mala - Shkëlqesa Çitaku
• Position: University of Prizren
• Pages: 164-166

Vol. 4 No. 1

March, 2018

Academic Journal of Business, Administration, Law and Social Sciences

IIPCCL Publishing, Graz-Austria

ISSN 2410-3918

Acces online at www.iipccl.org

164

Risk Management in the banking and insurance sector

PhD (C.) Ibrahim Mala

University of Prizren

PhD (C.) Shkëlqesa Çitaku

University of Pristina

Abstract

Risk management is becoming an integral part of every organization, especially for the banking

and Insurance sector because of their high-risk business. Both sectors try to manage the risks

of their clients and their own risks. But, challenges in the banking and insurance industry

are frequently infl uenced by the liquidity rations and the amount and quality of capital as

ground requirements for risk management. The risk exposure in recent times is becoming

more complex, more dynamic and diverse. Hence, we need to understand the risks which

can be taken and the risks which should be avoided. In the other side insurance policies are

long term, enabling insurers to stabilize the fi nancial system and o en insurance is the fi nal

transfer of risk. In this paper we will analyze an overview of risk management in the banking

and insurance sector.

Keywords: Risk management, banking sector, insurance sector, Basel II, III, BRRD, SRM.

Introduction

The risk management requires an integration of management into the companies

system, process and culture. The risk management process consists of a series of steps,

such as identifi cation, analyzing, assessing, treating, monitoring. By implementing

risk management organization can reduce unexpected and costly problems.

The main focus of risk management has mainly been on controlling and compliance

with regulatory framework.

During 2007-2009 a lot of banks had a problem with liquidity. It was evident that

profi tability of capital did not save the bank against bankruptcy. In respond was

established the Requirements for strong liquidity risk management and new rations

for liquidity coverage and Net stable fund, mainly by the Basel III regulation. Based

on the regulations the banks have to develop plans for risk situations, set of tools

of all supervisors when bank is in breach of prudential requirements. The risks in

Banking other than liquidity are credit risk, interest rate risk, market risk, operational

risk. Liquidity risk of banks arises from funding of long term assets by short term

liability, thereby making the liability subject to refi nance risk or possibility that an

institution may be unable to meet its maturing commitments or may do so only by

borrowing funds at prohibitive costs. Credit risk is potential of a bank borrower or

counterparty to fail to meet its obligations in accordance with the agreed terms. In

other words, credit risk can be defi ned as the risk that the interest or principal or both

will not be paid as promised. Interest rate risk arises when the net interest margin or