Risk management underscores the fact that the survival of an organization depends heavily on its capabilities to anticipate and prepare for the change rather than just waiting for the change and react to it. The objective of risk management is not to prohibit or prevent risk taking activity, but to ensure that the risks are consciously taken with full knowledge, purpose and clear understanding so that it can be measured and mitigated. It also prevents an institution from suffering unacceptable loss causing an institution to suffer or materially damage its competitive position. Functions of risk management should actually be bank specific dictated by the size and quality of balance sheet, complexity of functions, technical/ professional manpower and the status of MIS in the place in that bank. Risk Management: Risk Management is a planned method of dealing with the potential loss or damage. It is an ongoing process of risk appraisal through various methods and tools which continuously.
The organization we have selected Bank of Bhutan BOB. The country’s oldest financial institution BOB, has performed much better in the first six month on this year compared to what it did during the same time last year. BOBs half yearly revenue in 2012 (Jan –June) was Nu.9625.5 million, however this has augmented to Nu.1069.68million in 2013 in increase by almost 11.3 percent (nu.107.7m)
Bank of Bhutan Ltd. Was incorporated by royal charter, 1968and is now incorporated under the companies Act of kingdom of Bhutan 2000 and the financial institution Act of Kingdom of Bhutan. Bank of Bhutan was established as the public sector commercial bank and until the establishment of the Royal Monetary Authority of Bhutan; it rendered the function of the central bank in Bhutan. The Royal Monetary Authority of Bhutan is the Central Bank of Bhutan, which was established in 1982 and is responsible for the regulating the financial sector and formulating the monetary policies in Bhutan. Bank of Bhutan started with only 20 account holders and currently has about 150,000 accounts. The bank was established with a paid-up capital of Nu 2.5 million.
Though the bank was established in May 1968, due to non-convertibility of the local currency the desired pace of growth could not be achieved. Consequently, in 1971, a team of banking experts from India and the representatives from Royal Government of Bhutan recommended for collaboration with the State Bank of India (SBI). SBI was identified as partner in management and share holding.
Mr. Pema Nadik is current CEO of the Bank of Bhutan. He was appointed in April 2013.
Types of risk in Bank of Bhutan
1. Market risk
2. Operative risk
3. Credit risk
4. Technical risk
1. Market Risk
In olden days Bank of Bhutan was enjoying monopoly as there was no other alternative of banking services. This lead people to avail the banking services from Bank of Bhutan only as there was no choice for the people.
Later nineties Bhutan National Bank came in the market followed by Druk Punjab National Bank and Tashi Bank. As a result the market became competitive than monopoly. In such case people have choice to avail the banking services therefore Bank of Bank faced customers of clients migration.
The biggest challenges or risk for the bank in the present banking scenario is losing its market share to its competitors like Bhutan National Bank, Druk Punjab National Bank and Tashi Bank.
For Bank of Bhutan the main or biggest challenges and risk is to prevent customer or client’s migration.
2. Operational Risk
There is risk of misusing customer's money by forgiving the signature by internal as well as external customers.
There is risk of misuse of bank's own fund by its internal customers. For example accountant and assistant accountant together agree to misuse the bank's own fund secretly from rest of employees within the bank.
3. Credit Risk
The main function…