2.1 Different forms of credit risk
However our study is based on the housing mortgage loans the detailed study in overall banking field have to be done because they comprised of the total credit risk factors being faced by any bank. The banks of New Zealand as overall global banking sector face these at some point of time thus proper understanding of these factors are necessary for the formulation of better credit risk management practices. These forms of credit risk are highly interrelated to each other as they are part of greater credit risk to the banks. The different forms of credit risk are as follows:
2.1.1. Loan defaults:
Loan defaults are default by the borrowers by breaching of the pre accepted terms and conditions of their commitments
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According to Vidyanathan (2013) the bank should take extra care in evaluating and sanctioning of the non-fund based facilities like Guarantees and LCs because if the counterparty default takes place the non-fund facility will be converted into fund based after the payment. The bank then needs to make a provision for those credits out of their earnings which will be very harmful for the well-being of the bank. 2.1.3 Banking fraud by credit parties:
The bank possesses the risk from the people with the criminal mentality to earn money via illegitimate ways by targeting the weak points of the banks and financial institutions. According to Standard Chartered (2013) the parties motivated to acclaim financial gain via fraud, most of the times with their sophisticated ways with good knowledge of the system and internet has been a global challenge for the banking and other organisations. The well planned and vigilant ways to monitor and mitigate them in the bank is the good solution to fight against this kind of attitude.
2.1.4 Risk from unfavourable economic
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The banks should always be aware of the risk and work toward the safe and consistent future as the banking problems can arise in any countries from highly developed to underdeveloped countries. According to Gup (1998) the banking problem is highly evident in every region of the world. The history shows that as IMF study of time between 1980 to 1996 states 133 countries out of IMF’s member countries at that time, numbering 181, had experienced substantial problems in the banking sector. Even the mighty G-10 was not spared by this problem. Draghi, Giavazzi and Merton (2003) states that inadequate credit risk management is seen as the one of the major cause of banking crisis. The banks can do better risk management if they are motivated to do so by governing bodies. The RBNZ encourage the New Zealand banks to manage the credit risk management process by themselves. RBNZ prefers this approach than intense supervisions of those
In addition, the Federal Reserve did badly on supervision of the financial market. Many banks did not have enough ability to value their risk. The Federal Reserve and other supervision institution should require these banks to enhance their ability of risk valuing.
Leading up to the crisis of the housing market, borrowers got mortgages without understanding the terms. Banks were giving out loans to people the banks weren't sure could pay the money back. The closer to the crisis, the higher the frequency of illegitimate loans and mortgages. Because there were so many mortgages on houses that could not be paid back, millions of mortgages were foreclosed on, and the houses we...
A majority of mortgage defaults that Americans used were on subprime mortgage loans, which were high-interest-rate loans lent to people with high risk credit rates (Brue). Despite knowing the risks, the Federal government encouraged major banks to lend out these loans to buyers, in hopes, of broadening ho...
From time to time, lenders and their attorneys announce that lender liability is no longer an issue with which the lending community needs to be concerned. What usually prompts this proclamation of the death of lender liability is a recent case in which a court has summarily rejected a borrower’s claim that the lender violated the duty of good faith and fair dealing. Many courts have rejected borrowers’ lawsuits which are based on allegations of the violation of the lender’s duty of good faith. Nevertheless, lender liability should continue to be an area of concern to lenders.
Globally, banks have been facing big challenges in the last few years and continue to do so. As a result of the financial crisis, the regulators have tightened the minimum capital requirements with the aims to create a more solid and shock-resistant banking system especially for the so called Global Systemically Important Banks (G-SIBs). The Financial Stability Board is expecting to raise the total loss-absorbing capacity
Obviously, financial establishments can endure breathtaking misfortunes notwithstanding when their risk management is top notch. They are, all things considered, in the matter of going out on a limb. At the point when risk management fails, be that as it may, it is in one of the many fundamental ways, almost every one of them exemplified in the present emergency. In some cases, the issue lies with the information or measures that risk directors depend on. At times it identifies with how they recognize and impart the risks an organization is presented to. Financial risk management is difficult to get right in the best of times.
The industry is composed by a continuum of banks which produce a homogenous product — banking service. Domestic as well as foreign competition is violent. Not to forget the fact that ICBC has not been the first bank to embrace internet banking. So, it is all the more reason which places the bank in the most precarious position to continuously shield it self from the volleying competition.
The bank failure in Jamaica illustrates how negative mindsets and behaviors can devastate the financial system and disrupt economic growth. The primary role of any bank is to safeguard its customer’s money, offer interest rate on deposits, lend money to creditworthy individuals, and make sound investment decisions to maximize shareholder value. Because of rapid economic growth between the late 1980s and early 1990s in Jamaica, the Central National Bank (CNB) and Worker’s Savings and Loans Bank (WSLB) loosened their monetary policies, provided preferential interest rates and extended credit beyond what was reasonable to members of its own board of directors, managing directors, and officers of the bank. These actions posed significant risks to the bank and its future.
The principle territory we are planning to address is accounting fraud and how it could impact an organization by answering, the who, what, when and how. Its goal is to increase the awareness of accounting fraud and fraud counteraction. The intriguing thing about accounting fraud is that little disclosure as a rule usually leads to an enormous increase in fraud. A number of categories and sub-categories can be divided up for fraud.
This system helps all of these banks provide financial secrecy which is that only you and your banker would legally be allowed to know the financial activity within your account. The financial secrecy, completely different from financial privacy, includes many regulations to maintain this asset of secrecy. For example, many banks would n...
In conclusion, we feel that the recommendation we have suggested in this report is a suitable foundation to build a sustainable and prudent financial system in this country. This will facilitate the financial industry both, withdraw out of this crisis and in the future avoid as much as possible inducing the scale of matters at present. As the report suggest, everyone contributed in their own miniscule way to this crisis, we feel that it’s up to every one of us to contribute to the overall recovery of this financial crises and recovery of the nation in general.
The study defines “default” is a risk to the repayment history of borrowers where the borrowers are missed at least three installments in 24 months. This showed a symbol and indication of borrower behavior will actually default to cease all repayments. This definition does not mean that the borrower had entirely stopped paying the loan and therefore been referred to collection or legal processes; or from an accounting perspective that the loan had been classified as bad or doubtful, or actually written-off (Pearson & Greeff, 2006).
Many groups of people use money laundering today, and many ways exist to launder money. Money laundering has become more sophisticated over the years. It is much different then when Al Capone laundered his bootleg profits. The United States is doing what they can to combat this illegal activity but without the help of others it is an impossible task. Many countries have teamed up with the Unites States to help. The only way to truly combat it is to persuade the other countries to develop anti-laundering standards. Along with developing these standards, banks need to train their staff on how to catch different transactions and policies to catch money laundering. Because laundering is so easy in these less developed countries laundering will continue, and while this illegal activity continues the activity itself will continue to destroy the economy in which it exists.
Based on the loan features(interest rates & other charges),eligiblity criteria and services provide the following case study of main players for home loans is given below:
Communication modern technological tools that have been enhanced by Information Technology are having an impact on changing the very structure and communication of banking. That is, clients are enabled to make their banking transactions whenever and wherever they want. Bank clients, by just logging on their online account, can transfer any amount of money from their account to any other account, check their last processed banking transactions and apply for loans and other banking services. According to Keyes ( 2000, p.591) 'electronic checks provide consumers with the benefits of convenience and safety while allowing billers to maintain their existing depository relationships with their banks'. Further, e-mails has enabled bank employees to notify their customers of any new enhanced bankin...