Identification of risks of the bank business model

Abstract

This study highlights the identification of risks and sources of their occurrence depending on the business areas of the bank’s activity. The analysis of financial risks is focused on the description of risks indicators of the business model of a bank, which is the object of the study, and is done by using economic and statistical methods. The study suggests to divide financial risks into significant, specific, corrective. It was noted that the proportions of risks are taken by the bank form a risk landscape. Based on a review of annual reports of the analyzed bank, the sources of potential losses for significant risks were identified. It is discovered that common sources of losses are methodological, organizational and managerial. Based on the analysis of the risk profile, it was determined that the market risk has a significant impact (31.27%), that is untypical and new for domestic banks. The classification of types of market risk according to the European experience is proposed. The structure and analysis of the “heat” risk map of the bank's business model show that credit risk has the most significant impact in the segment of corporate and private business. It is concluded that under the conditions of acceptance by the bank of significant risks, that is reflected on the amount of the required economic capital, the transition is needed from traditional profit-oriented risk management to risk-oriented one. Such approach will contribute to the reduction of potential financial expenses and increase the bank's soundness.

Untitled

“…Gulija et al (2022) found that when a crisis occurs, it can create considerable uncertainty, including the risk of bankruptcy. So that building banking effectively and not only focusing on the benefits to be gained by including consideration of the risks regarding the bank is also needed (Krasnova et al, 2022).…”