Analyzing banking risk: a framework for assessing corporate governance and financial risk management PDF
Preview Analyzing banking risk: a framework for assessing corporate governance and financial risk management
Analyzing Banking Risk : A Framework for title: Assessing Corporate Governance and Financial Risk Management Greuning, Hennie van.; Brajovic author: Bratanovic, Sonja publisher: World Bank isbn10 | asin: 082134417X print isbn13: 9780821344170 ebook isbn13: 9780585256108 language: English Bank management, Risk management, subject Corporate governance. publication date: 2000 lcc: HG1615.G746 2000eb ddc: 332.1/068 Bank management, Risk management, subject: Corporate governance. Page iii Analyzing Banking Risk A Framework for Assessing Corporate Governance and Financial Risk Management Hennie van Greuning Sonja Brajovic Bratanovic Page iv Disclaimer: This netLibrary eBook does not include the ancillary media that was packaged with the original printed version of the book. (c) 2000 The International Bank for Reconstruction and Development/ THE WORLD BANK 1818 H Street, N. W. Washington, D.C. 20433 All rights reserved Manufactured in the United States of America First printing November 1999 The findings, interpretations, and conclusions expressed in this book are entirely those of the authors and should not be attributed in any manner to the World Bank, to its affiliated organizations, or to members of its Board of Executive Directors or the countries they represent. The World Bank does not guarantee the accuracy of the data included in this publication and accepts no responsibility for any consequence of their use. The material in this publication is copyrighted. The World Bank encourages dissemination of its work and will normally grant permission to reproduce portions of the work promptly. Permission to photocopy items for internal or personal use, for the internal or personal use of specific clients, or for educational classroom use is granted by the World Bank, provided that the appropriate fee is paid directly to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, USA.; telephone 978-750-8400, fax 978-750-4470. Please contact the Copyright Clearance Center before photocopying items. For permission to reprint individual articles or chapters, please fax a request with complete information to the Republication Department, Copyright Clearance Center, fax 978-750-4470. All other queries on rights and licenses should be addressed to the Office of the Publisher, World Bank, at the address above or faxed to 202-522-2422. Cover design by Naylor Design. ISBN 0-8213-4417-X Library of Congress Cataloging-in- Publication Data has been applied for. Page v Contents Foreword xiii Acknowledgments xv 1 1 Analyzing Banking Risk 1.1 1 Introduction: The Changing Bank Environment 1.2 3 Bank Exposure to Risk 1.3 4 Corporate Governance 1.4 7 Risk-Based Analysis of Banks 1.5 11 Analytical Tools Provided 2 15 A Context for the Risk-Based Review of Banks 2.1 15 Introduction: Why Banks Are Analyzed 2.2 17 Banks as Providers of Financial Information 2.3 18 A Framework for Financial Sector Development 2.4 24 A Holistic View of the Entire Financial System 2.5 27 Disclosure and Transparency of Bank Financial Statements: A Prerequisite for Risk-Based Analysis 3 31 Key Players in the Corporate Governance and Risk Management Process 3.1 31 Introduction: Financial Risk Management and the Responsibilities of Key Players Page vi 3.2 32 Regulatory Authorities: Establishing a Corporate Governance and Risk Management Framework 3.3 34 Supervisory Authorities: Monitoring Risk Management 3.4 37 The Shareholders 3.5 40 The Board of Directors: Ultimate Responsibility for a Bank's Affairs 3.6 45 Management: Responsibility for Bank Operations and the Implementation of Risk Management Policies 3.7 50 The Audit Committee and Internal Auditors: An Extension of the Board's Risk Management Function 3.8 52 External Auditors: A Reassessment of the Traditional Approach to Auditing Banks 3.9 54 The Role of the General Public 4 59 Balance Sheet Structure and Management 4.1 59 Introduction: Composition of the Balance Sheet 4.2 62 Asset Structure: Growth and Changes 4.3 67 Liabilities Structure: Growth and Changes 4.4 71 Overall On-and-Off-Balance-Sheet Growth 4.5 76 Asset/Liability Management: Planned Changes in the Balance Sheet Structure 4.6 78 Managing Risk Effectively 5 83 Profitability 5.1 83 Introduction: The Importance of Profitable Banks 5.2 85 Income Statement Composition 5.3 92 Income Structure and Profit Quality 5.4 98 Profitability Indicators 5.5 101 Profitability Ratio Analysis 6 105 Capital Adequacy 6.1 105 Introduction: The Characteristics and Functions of Capital 6.2 108 Constituents of Capital 6.3 110 Bank Risk Profiles and Risk Weights
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