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Risk Management Case Study Essay, Research Paper

THE PROBLEM AND THE PLANIncidentals of Authorization and

SubmittalThis study of

risk management recommendations of Turk Eximbank is submitted to Mr. H. Ahmet KILIÇOGLU, General

Manager of Turk Eximbank, on Aprıl 30, 2001.As authorized on February 20, 2001,

the investigation was conducted under the direction of Barış Samana and GÜrkan Kocgar. Objective of Risk Management

RecommendationsThe objective of the study was to define

why risk management was needed in Turk Eximbank and how to adjust the risk

management system at the bank. The plan for achieving this objective involved

first determining the techniques used for risk measurements. This information

will then be used for Turk Eximbank?s risk evaluation process.Use of?

Techniques for Risk MeasurementThe methodology used in this investigation was an obsevational study of

defining the risk measurement techniques and then applying them to Turk

Eximbak?s risk evaluation process, if necessary.Investigations have been made at the Bilkent University Library and

Internet, also we have interwieved with the risk analysts of Turk Eximbank. INTRODUCTIONIn recent years, a number of programs

aimed at enhancing the effectiveness of supervisory process for banks. Although

effective risk management has always been central to safe and sound banking

activities, it has become even more important as new technologies, product

innovation, and the size and speed of financial transactions have changed the

nature of banking markets. In response to these changing market realities,

certain supervisory risk management processes have been refined, while others -

in particular, those that have proven most successful in supervising banks

under a variety of economic circumstances and industry conditions – have been retained.

The objective of a risk-focused examination is to effectively evaluate the

safety and soundness of the bank, including the assessment of its risk

management systems, financial condition, and compliance with applicable laws

and regulations, while focusing resources on the bank?s highest risks. The

exercise of examiner judgment to determine the scope of the examination during

the planning process is crucial to the implementation of the risk-focused

supervision framework, which provides obvious benefits such as higher quality

examinations, increased efficiency, and reduced on-site examiner time.UNDERSTANDING THE BANKThe risk-focused supervision process for

banks involves a continuous assessment of the bank. The understanding of the

bank developed through this assessment enables examiners to tailor the

examination of the bank to its risk profile. Understanding the bank begins with

a review of available information on the bank. In addition to examination

reports and correspondence files, each bank maintains various surveillance

reports that identify outliers when a bank is compared to its peer group. The

review of this information assists examiners in identifying both the strengths

and vulnerabilities of the bank and provides a foundation from which to

determine the examination activities to be conducted. Contact with the organization is

encouraged to improve the understanding of the institution and the market in

which it operates. A pre-examination interview or visit should be conducted as

a part of each examination. Such a meeting gives examiners the opportunity to

learn about any changes to bank management, bank policies, strategic direction,

management information systems, and other activities. Particular emphasis

should be placed on learning about new products or markets into which the bank

has entered. The interview or visit also provides examiner’s with management?s

view of local economic conditions, an understanding of the bank?s regulatory

compliance practices, its management information systems, and its

internal/external audit function. In addition, banks should contact the

state-banking regulator to determine whether they have any special areas of

concern that should be focused on during the examination. RELIANCE ON INTERNAL RISK

ASSESSMENTSInternal audit, loan review, and

compliance functions are integral to a bank’s own assessment of its risk

profile. If applicable, it may be beneficial to discuss with the bank’s

external auditor the results of the most recent audit it has completed for the

bank. Such a discussion gives the examiner the opportunity to review the

external auditor?s frequency, scope and reliance on internal audit findings.

Examiners should consider the adequacy of these functions in determining the

risk profile of the bank and the opportunities to reduce regulatory burden by

testing rather than duplicating the work of these audit functions. Transaction

testing remains a reliable and essential examination technique for use in the

assessment of an institution?s condition. The amount of transaction testing

necessary to evaluate particular activities generally depends on the quality of

the bank’s process to identify, measure, monitor, and control the activity’s

risk. Once the integrity of the management system is verified through testing,

conclusions on the extent of risks within the activity can be based on internal

management assessments of the risks rather than on the results of more

extensive transaction testing by examiners. If, however, initial inquiries

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