A critical study of credit risk management in the first bank of Dissertation

A critical study of credit risk management in the first bank of Nigeria Plc - Dissertation Example Circumstances led to the situation in which the giant loss incurring banks due to subprime crisis have to solely depend on capital flow from Middle East, Chinese and investors from Singapore. Thus major nucleus of these losses has been related to credit risk. Thus the notion of the credit risk management is a grave concern in this world of complex financial milieu and it has become highly essential for the financial institutions to suppress loses arising from credit for sustained long run performance. The obnoxious cases of bank failures, acquisitions, consolidation have steered the focus of management of the financial institutions in restructuring operations, improving asset quality and building loan portfolios with credit risk management as the base structure (Yo & Yusoff, 2009, p.46). Influence of credit risk management on the banks Credit risk management has an overwhelming concern on the financial institutions especially that of a bank. The credit risks in simple language can be defined as the potential which the bank borrower or the counterparty will fail to meet its obligations with various agreed terms. The basic objectives of the credit risk management are directed towards the maximization of the risk adjustment of the bank with the maintenance of the credit risk exposure within the domain of various accepted parameters (which may vary from time to time). The banks basically require managing the credit risk intrinsic in the entire portfolio as well as the risks in the individual credits or the transactions. The banks should be also taking into account the relationships between the credit risk as well as that of the other risks. The effective management of the credit risk can be argued as a crucial component of a comprehensive approach towards risk management and are highly essential to the long-term success of any of the banking organization (Principles for the Management of Credit Risk, 2012, p.1). In the recent decades leading to financial crisis, th e banks have operating in an enhanced competitive market and as an involuntary mechanism being forced in taking more risks for seeking out higher margin actions. Securitization, commercial papers have created the platform where the banks can generate higher margin business by the process of converting the illiquid loans into marketable securities and thus lead to the release of capital for other investment opportunities. Empirical testing reveals that the process of securitization leads to the expansion of credit leading the banks to hold riskier assets (Casu et al, 2010, p.3). From the perspective of the Basel Accord II , securitization exposures the banks have to abide by some norms like that of proper documentation of the objectives, summary of the bank’s policies for securitization and whether there is limitations in the application of sophisticated credit risk management with the securitization method. The credit risk management can be successfully implemented if the ban ks adapt refined techniques for minimizing the risk of the expected losses (Securitization of Credit Exposures: Important Tool of Credit Risk Management under Basel Accord II, 2006, p.598). Technology enhancing the process of credit risk management One of the most important parts in the credit risk management is that of quantifying the risks and it is a very crucial part in the risk management process. From

Inefficiency Within a Stock Market Create Barrier to Fulfilment of its Assignment

Inefficiency Within a Stock Market Create Barrier to Fulfilment of its Main Function - Assignment Example As the paper stresses the main functions of the stock market includes evaluation of the securities those are listed in the stock market which in turn help the companies to get more capital for production, thus the chances of industrial growth increase. The functions of the stock market also includes the marketing of the government securities, also provide safety in the dealings as the companies have to abide by the rules. The stock market is also the index of the economy; the banks also provide loans against the stock market securities. From the above discussion the importance of the stock market can be understood. But when the stock market which is the economical indicator is not performing as it should be then it would be a problem for the community associated with that stock market. This discussion declares that the common people who are the investors of the securities they would face problem as the stock market is not reflecting the right information, they may invest in the wrong place. The foreign investors and the government would not get the right information as the stock market is not efficient, not the actual information is available in the market. The managers of the firms also get it tough to take the right decision in the current situation. May be they are thinking that their firm is performing well but their firm is valued less in the stock market. So it will be tough for them to take the decision as they find it confusing as two different valuations of the firm are in front of them. The paper is an attempt to analyze the effect of the inefficient stock market, how it creates barrier to fulfil the main functions of the stock market and cause difficulties for the managers of the firms for taking a suitable decision. The researcher has taken the help of some theories like efficient market hypothesis and uses some articles for conducting the research. Stock Market Efficiency As per Professor Eugene F. Fama an efficient market fully reflect the information available to the investors. The research of Fama was divided in 3 parts on the basis of the information available. In the weak form of efficiency in the EHM claims that the past prices of the security are reflected in the price of the security today. No one can beat the market by doing the fundamental analysis. The semi strong form of tests implies that all the public information available reflects in the current market price of the stock, no one can beat the market by doing the fundamental analysis or the technical analysis. The other degree of efficiency is the strong form of efficiency which implies that even using the insider information the investor can’t have the advantage (Fama, 1970, p.399-412). The accepted view about the efficient market hypothesis is that when the information is available about a specific company then the information spread fast among the investors of the company