What businesses do banks consider high risk?

What businesses do banks consider high risk?

5

Among the types of financial risks, one of the most important is market risk. This type of risk has a very broad scope, as it arises due to the dynamics of supply and demand.

Market risk is largely caused by economic uncertainties, which can impact the performance of all companies and not just one in particular. Changes in the prices of assets, liabilities and derivatives are among these sources of risk.

The same applies to innovations and changes in the market. One example is the commercial sector. Companies that have been able to adapt to the digital marketplace to sell their products online have experienced increased revenues. Meanwhile, those that have resisted these transformations have lost competitiveness.

In financial risk management, credit risk is of paramount importance. This risk refers to the possibility that a creditor will not receive payment on a loan or will receive it late.

Financial and non-financial risks

There is a broad consensus that high-value payment systems should be settled on the same day, and the general practice is that payments should be settled as soon as possible. Originally, these systems were developed to settle financial markets, to settle obligations arising in other payment systems and for financial intermediaries to settle their obligations, so the average payment amount was very high. However, technological and financial advances have made it possible for financial intermediaries to offer the services of these systems to their clients for smaller payments.

Read more  How long does fast transfer take?

The Law for the Transparency and Regulation of Financial Services assists the Central Institute in the aforementioned purpose by empowering it to regulate the services and means of payment provided by banks to their customers and the fees charged by banks to each other.

Banking liquidity risk example

Financial risk refers to the uncertainty produced in the return on an investment, due to changes in the sector in which it operates, to the impossibility for one of the parties to repay the capital and to the instability of the financial markets.

Credit risk: occurs when one of the parties to a financial contract fails to meet its payment obligations. For example, if a buyer obtains a loan to purchase a car, he is committing himself to repay the money with interest. Credit risk is linked to the possibility of non-payment of the debt.

Liquidity risk: occurs when one of the contractual parties has assets but does not have sufficient liquidity to meet its obligations. When a company cannot meet its short-term debts even by selling its current assets, it is in a situation of illiquidity. In addition, it can also happen that a company can find itself in a phase of continuous portfolio losses, until it reaches the point where it cannot pay its workers.

Types of financial risks pdf

High-risk activities: Those that, due to their particular characteristics, represent a greater risk for the individuals and legal entities that make up the private insurance system of being used in the commission of the crime of money laundering.

Insurance producer advisors – Those who have the obligation to advise clients, prior to contracting an insurance policy, during the term of the contract or for the processing of the claim.

Read more  How often do you pay council tax?

Insurance agents – Natural persons authorized by the Superintendence of Banks and Insurance, who on behalf of an insurance company are engaged in managing and obtaining insurance contracts, shall be governed by the employment contract signed between the parties and may not provide such services in more than one insurance company per type of insurance; and, insurance agents, natural persons who on behalf of one or several insurance companies are engaged in obtaining insurance contracts, shall be governed by the commercial agency contract signed between the parties.