Identification of risks of the bank business model
Date
2022
Journal Title
Journal ISSN
Volume Title
Publisher
University of Finance Business and Entrepreneurship
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.
Description
Keywords
financial risks, risk landscape, economic capital, business areas, risk profile, risk appetite, market risk
Citation
Krasnova І. Identification of risks of the bank business model / Іryna Krasnova, Vladislav Lavreniuk, Andrii Nikitin // VUZF Review : scientific journal / Universitet po finansi biznes i predpriemačestvo ; [ed. board: Tkach I. (chief ed.) et al.]. – Sofia, 2022. –Vol. 7, Iss.1. – P. 43–54.