CREDIT AND LIQUIDITY RISK
Com) The role of the us bank is to collect and save money from its members as well as lend them loans depending on their savings and capability to pay back the loan with the required interest and within the specified duration of time thus increasing the rate of credit risk In the case of this bank some of the reasons that could lead to the increase of credit risk are: • There is no direct supervision from the direct central bank • There is some laxity in the the credit assessment • There is also low capital and liquidity levels • Some of the lending policies are in appropriate • The banks are experiencing some government interfearance The best way of controlling credit risk in this bank is through some various ways that include: • Ensuring the bank gets some credit insurance in order to cover for the defaulted loans from clients • Introducing a system where the bank will not lend loans without a corresponding collateral that is equal to the amount borrowed incase the client defaults to pay the collateral can stand in for the loan • The bank could also join credit guarantee scheme.
This guarantee scheme will help reduce the credit risk since all the loans offered to clients have guarantors who are responsible in case of default of the loans • Diversification of loans could also help reduce credit risk since instead of offering a loan to one investor you offer the loan to a team of more than one person which reduces the credit risk since there will be more sources of people to follow up for the loan repayment unlike a single person • The bank could also try adjustable loan rate depending on the person borrowing the loan and in order to see whether the person is capable of repaying the loan or in one case or the other he may be a defaulter this helps reduce credit risk since the bank does its evaluation before offering the loan to its client depending on the reaction of the interest rate.
LIQUIDITY RISK IN THE U. S BANK Liquidity risk is the risk that is faced by a bank when it is unable to meet it short term financial goals or demands There are different liquidity risks. Which include:(“What Types of Liquidity Risk?”) • Market liquidity risk • Funding liquidity risk • Episodic liquidity risk Some of the causes of liquidity risk according to this bank are: • The first cause that could to the liquidity risk in this bank is because the bank is borrowing a large amount of money with a very short turn around payment duration time • Bank change of interest loans also could lead to a liquidity risk in the bank since some depositors are tending to do do their withdrawals elsewhere to see whether they will get more high returns than the ones in the bank.
“What Types of Liquidity Risk? - Bayt. Com Specialties. ” Bayt. Com, https://www. bayt.
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