Question

Question 2.

Modern Banks are faced with numerous risks which have to be managed in order for them to stay relevant and contribute effectively to the economic development of various countries. Discuss Two (2) out of the Four (4) biggest risks faced by banks in Ghana. .

Answer 1

Two biggest risks faced by banks in Ghana are :-

1) Operational risk :-

Operational risk generally involves risk arising from internal fraudulent practices by the employee , misconduct in workplace safety, fraudulent product and business practices, system disruptions and business failures in process management and damage to Physical Assets of the banks. These are some operational variables that affects the net worth of the bank and can distrupt its performance leading to high operation risk for the banks. To increase their profits banks have chosen to diversify their portfolios specially in non liquid investments which also have led to significant increase in operational risk of the banks .

2) Credit risk :-

To boost their profitability, the banks of Ghana have increased their lending rates in the previous years which has increased their credit risk in the market. The risk of losing a loan given to a party or a default in interest payment which is the major source of bank revenues can lead the bank to experience huge financial crisis. The figures of cost to Income ratio, liquidity of the banks, Bank leverage and asset quality have increased the credit risk for the banks of Ghana .