Risks and Uncertainties
The Bank’s Response to Salient Risks and Uncertainties
Risk is omnipresent in a banking environment and managing risk is an integral part of every individual. The risk universe is in a constant flux and the challenges are to adapt and evolve in such an environment whilst managing strategic and business goals.
The types of risks and uncertainties so identified by the Bank (some of which are further elaborated in the section on ‘Managing Risk at Commercial Bank’) are tabulated below along with the responses to mitigate the negative consequences arising therefrom.
Risks and Uncertainties | Bank’s Response | |
1. | Stiff Competition | |
Competition to increase volume and market share will be intense in future. Amid this intense competition within the industry, the Bank is required to maintain its strong competitive position through adopting sustainable growth strategies. |
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2. | Thinning Margins | |
Intense competition coupled with the pressure from regulators will cast uncertainties on the margins of the banking business. This will demand the Bank to continuously align its strategies to optimise the margins through maintaining the quality of the loan portfolio and mitigating the possible implications to interest margins due to maturity mismatches. |
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3. | Maintaining the Cost Structure of the Bank | |
Maintenance of cost structure and the cost to income ratio are used as measures of efficiency among banks across the globe. The Bank will face tremendous pressure in maintaining the desired cost structure in the midst the competition and the constantly increasing operating costs. |
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4. | Quality of Assets | |
The quality of Bank’s assets, principally loans and advances depends on the borrowers’ credit worthiness and the level of non-performing advances. |
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5. | Pressure on Capital | |
Banks are required to ensure that they possess adequate financial strength at all times. Capital adequacy is thus a regulatory benchmark. |
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6. | Financial Disintermediation | |
Financial disintermediation is one of the main threats to contemporary financial institutions. This will exist when depositors withdraw their savings from financial institutions and invest the money directly in the marketplace to earn a higher yield even though at a higher risk. |
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7. | Limits on Off-Shore Expansion | |
Constraints on capital requirements and other qualitative factors may act as obstacles to the Bank’s strategy to expand into international markets. |
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8. | Adverse Macro-Economic Conditions | |
Macro-economic developments impact disposable income and savings patterns of customers which in turn has a bearing on the Bank’s business. |
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9. | Change in Socio Demographic Aspects and Different Perceptions of Generation Y |
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10. | Intensified Requirements of Compliance with Various Local and International Rules, Regulations and Requirements Including new/revised Sri Lanka Accounting Standards. |
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