How many risks in the Basel?

Table of Contents

How many risks in the Basel?

1. Credit Risk
2.  Market Risk
3. Operational Risk
4. Supervisory Risk
5. Fiduciary Risk

It is the risk of loss from default by the counter party, typically as a consequence of its insolvency

  • Possibilities of violation of agreement by the counter party in
    • Bai-Murabaha Contract
    • Bai- Muazzal Contract
    • Bai- Salam Contract
    • Bai-Istisna Contract
    • Hire Purchase under sirkatul melk
    • Musharaka
    • Mudaraba
    • Held to Maturity
    • To mitigate the risk
    • Assessment of borrower
    • Documentation
    • Guarantee
    • Collateral
    • Fund to meet unforeseen loss
    • General Provision
    • Specific Provision
    • Capitals

Market Risk:

  • Market risk is defined as the risk of losses in on and off-balance sheet positions arising from adverse movements in the level or volatility of the market price of assets.

 The risks subject to this requirement are:

–     The risk pertain to interest rate related instruments and equalities in the trading book

  • Foreign Exchange and commodities risk throughout the bank.
  • Market risk relates to trading/investment activity of a bank
  • Risk of losses arisen out of the adverse movement of
  • Rate of Return
  • Exchange Rate
  • To mitigate the risk
  • know market through VaR analysis &
  • mark to market
  • imposing deal limit
  • imposing loss limit
  • hedging
  • To meet unforeseen losses
  • require maintaining of the fund.

Operational Risk:

  • Operational risk is defined as the risk of loss resulting from inadequate processes, people and systems or from external events including legal risk. But it excludes business, strategic and reputation risk
  • To meet the risk
  • knowledge and capable BoD & skilled management
  • require constructive plan, policies and effective oversee
  • functional checklist to establish accountability of operations
  • audit (internal & external)
  • regular & flow of correct information
  • To meet unforeseen losses
  • require maintaining of fund

Supervisory Risk:

Possibility of losses due to lacking of –

  1. effective supervisory activity
  2. skilled oversee
  3. control operation, and
  4. losing integration

To meet the risk

–     require compliance of regulation & instruction of regularity & supervisory authority

  • effective own supervision
  • To meet unforeseen losses
  • require maintaining of fund
Fiduciary Risk
  • The Bank shall have in place appropriate mechanism to safeguard the interest of all fund providers
  • where the investment account holder funds are commingled with banks own funds the bank shall ensure that the basis of the asset, revenue, expense and profit allocations are established, applied & reported in a manner consistent with the bank’s fiduciary responsibility.
How many risks in the Basel

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