Chinese Banks to See Rising Off-Balance Sheet Risks
Wednesday, July 21, 2010
Chinese banks may suffer a rapid exposure to off-balance sheet credit risks in the short term, as the China Banking Regulatory Commission (CBRC) recently ordered a suspension of banking-trust cooperation on the development of credit-backed wealth management products. China's bank-trust wealth management products grew 300 billion yuan (US$44.3 billion) to 1.3 trillion yuan by the end of the first quarter of this year. By the end of April, the issue of such products reached 1.88 trillion yuan.
According to a Shanghai Securities News report, up to now, the value of the bank-trust wealth management products has accounted for 30 to 40 per cent of the new loans this year, and the proportion is expected to go up. Market insiders estimate that the issue of such products in Q2 may reach 1.4 trillion yuan, close to the lending in the same period.
The sharp increase of the bank-trust products has weakened the regulator's supervision over banks' credit risks and its intention to control the scale of lending, said analysts. The suspension prevented banks from removing their credit assets off their balance sheets, and this reduced banks' capability to further expand their lending.
Qiu Chengzhi, an analyst with Guosen Securities, said that the suspension of the bank-trust products could sharply reduce the scale of lending of local governments financing platforms and the real-estate sector in the short term. Some small and medium-sized banks with high loan-to-deposit ratios would suffer difficulties in attracting deposits due to the suspension, which would tighten their liquidity further. Due to the suspension, the scale of lending will be further reduced. In this case, the loan yield will continue to go up. However, the suspension would also reduce banks' revenue from intermediary business, said analysts. In the long run, the suspension of bank-trust wealth management products could help banks improve their asset quality, said Qiu.
According to the Shanghai Securities News report, the CBRC will bring the regulation of credit-backed bank-trust wealth management products into the balance sheet supervision, after it completes its check of banks' products of this type.
The report said that the banking regulator will give green light to the issue of non-credit-backed bank-trust wealth management products, after the CBRC's check-up of credit-backed bank-trust products.
Labels: China, Off Balance Sheet Risks, Risk
posted @ 3:51 PM,
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Types of Financial Risk
Thursday, August 6, 2009
Market Risk:
Risk of declining prices or volatility of prices in the finacial markets will result a loss. There are two types of market risk inculding Absolute Risk and Relative Risk. Withing the market risk following risks are of importance.
Risk of declining prices or volatility of prices in the finacial markets will result a loss. There are two types of market risk inculding Absolute Risk and Relative Risk. Withing the market risk following risks are of importance.
- Absolute Risk
- Relative Risk
- Directional Risk (Linear risk exposure)
- Non directional Risk (Non linear risk exposure)
- Basis Risk
- Volatility Risk
Liquidity Risk:
Risk of loss due to inadequate liqudity of position / asset at a fair price. Risks withing the liquidity risk are
Liquidity Risk:
Risk of loss due to inadequate liqudity of position / asset at a fair price. Risks withing the liquidity risk are
- Asset Liquidity Risk
- Funding Liquidity Risk
Credit Risk:
Risk of loss due to dafaul of counterpart in a financial transaction. Important terms and further classess of risks under credit risk are
- Exposure
- Recovery Rate
- Credit Event
- Sovereign Risk
- Settlement Risk
Operational Risk:
Risk of loss due to inadequate monitoring system, management failure, defective controls, frauds and human errors. This risk is particulary relevant to DERIVATIVE TRADING, because derivatives are inherently higly leveraged instrument, which enable tradters to expose a firm to loss using relativly small amount of capital. Following are the classes of operational risk
Operational Risk:
Risk of loss due to inadequate monitoring system, management failure, defective controls, frauds and human errors. This risk is particulary relevant to DERIVATIVE TRADING, because derivatives are inherently higly leveraged instrument, which enable tradters to expose a firm to loss using relativly small amount of capital. Following are the classes of operational risk
- Model Risk
- People Risk
- Legal Risk
Labels: Foundation of Risk Management, FRM, Risk
posted @ 12:52 PM,
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Risk and Major Sources of Risk
Risk:
Risk is an unexpected variablity of asset prices and earning. There are two major sources of risk;
1. Business Risk:
is the risk that a firm is subjected to during daily operations and includes the risks that result from business decisions and the business environment. Business risk includes Strategic Risk and Macro Economic Risk.
Stretegic risk reflects risks inherent in the decision of senior management setting a business strategy. Macro Economic Risk is inherent with the overall economic condition of the region and it has an impact over firm's operation and sales. One of the examples of business risk is that the economy will slow and demand for a product will fall.
2. Financial Risk:
is the result of a firm's financial market activities. Like interest rate movement after the issuance of floating rate bonds. In this case the issuing firm will be negatively impacted if market reates increase.
Risk is an unexpected variablity of asset prices and earning. There are two major sources of risk;
1. Business Risk:
is the risk that a firm is subjected to during daily operations and includes the risks that result from business decisions and the business environment. Business risk includes Strategic Risk and Macro Economic Risk.
Stretegic risk reflects risks inherent in the decision of senior management setting a business strategy. Macro Economic Risk is inherent with the overall economic condition of the region and it has an impact over firm's operation and sales. One of the examples of business risk is that the economy will slow and demand for a product will fall.
2. Financial Risk:
is the result of a firm's financial market activities. Like interest rate movement after the issuance of floating rate bonds. In this case the issuing firm will be negatively impacted if market reates increase.
Labels: Foundation of Risk Management, FRM, Risk
posted @ 9:24 AM,
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