Question(s): (Marks: 7)
Source: Research article:
Ishtiaq Ahmad Bajwa, 2019 vol:23 issue:5, Assessment of credit risk management of Saudi banks.
Go through the attached research paper and answer the following questions. (Answer should be approximately 1200 words.)
Discuss Exposure of Saudi banks to credit risk (1.5 marks)
As per the article do you think that Saudi bank’s capital adequacy is sufficient to meet the Basel III requirement? Discuss your points (1.5 marks)
The researchers of the paper have applied financial ratio analysis to analyze 12 Saudi banks. Suggest the researchers any other approach/method to measure credit risk and discuss why this method should be used? (2 marks)
In the light of the present COVID pandemic, which has a liquidity impact on the Saudi economy, discuss based on your understanding of the Saudi financial system, the strength, and weakness of Saudi banks to fight the upcoming challenges. (2 marks)
Answer:
1.
Banks and financial organizations are revealed to different kinds of threats and dangers, which can impact their monetary presentation and can even lead to some dereliction of institutions. The sag of any institution is possible to happen because of the rise in invasion loans which is a part of credit risk. According to my research, credit threat is one of the most notable threats that Saudi institutions experience because conceding credit is the chief fount of revenue for trading banks. The given research study follows to evaluate the solvency risks and threats of KSA Banks mainly by conducting ratio perusal and evaluation from 2013 to 2017. Financial balance evaluation was completed based on marginal data of 12 Saudi financial institutions approved by SAMA in order to determine the NPL/total loans balance, NPL/net resources ratio, & Basel III capital standards balances (Bajwa, I. A., Syed, A. M., Alaraifi, A., & Rafi, W. 2019). The banking industry has a substantial effect on the financial system of the country. It plays a serious part in conceding credit services and its part is an incentive for the financial development of any nation. The solidity of the Saudi economical system largely depends on the presentation of the banking sector. A financial institution will experience a credible threat when the debt does not ensure its obligation according to the deal anytime. The banks are monetary assistance offering firms and most of the financial institutions’ assistance and offers are linked with credit for example cash management, loans, and payment services. Credit development is the chief profit developing activity of the Saudi banks, yet simultaneously it exposes banks and institutions to the credit threat and risk. If we look at KSA banks, they are experiencing the issues of non-performing loans and are exposed to credit threats. Research by Abdelrahim and Sciences (2014) examined the credit risk administration of Saudi banks largely through calculating capital or cash adequacy balance, asset standard, and liquidity balance. Moreover, according to the researcher’s knowledge, no research used NPLs to evaluate the credit risk of Saudi banks and evaluated the standing of banks in the execution of Basel III laws.
2.
As per the research study, the capital position of KSA banks is enough for the fulfillment of the needs and demands of Basel III. This exercise is evaluated with the financial strength of the nation, which is largely strong and solid because of the manufacturing of petroleum assets. These elements are extremely impacted in the business administration strategies, and these can assist the banking sector in order to remain in the competition as well. This exercise is addressing the threats, which may affect the economical strategy and planning in the debits and credit targets. The economic and financial position of KSA banks is sufficient for the realization of the essentials of financial growth initiatives. This coaching is calculated with the financial strength of the nation, which is strong and firm due to the generation of oil resources. The factors are deeply influenced in the firm the administrative strategies and these can also sustain the economical business in order to get by in the competition too. Moreover, this coaching is ensuring the threats, which may affect the financial design in the credit and fare targets. According to the research paper, KSA banks experience substantial capital capaciousness amount implying that institutions are limiting their fairness to threat, and increasing proficiency as well as dependability of the financial design and setting (Bessis, J. 2011). In the light of the 2018 declaration of SAMA, have ensured the cash adequacy proportion essentials by Basel III accord, and also have even enlarged the essential level at several levels closed to be paired and this has occurred before the conclusion is compulsory on all international banking firms by the ending year of 2020.
3.
The credit threat for the institutions is calculated with the consideration of credit explanations in several programs. In the given research paper, financial ratio evaluation is incorporated in order to evaluate the 12 KSA banks and institutions. Another method that could be employed is the evaluation of loan payment as well as credit history schedules. So, in this way the firm and bank can evaluate the credit data of the client, & it can final the outcomes productively in order to reduce the threat elements and variables (Crouhy, M., Galai, D., & Mark, R. 2006). For this aim, credit antiquity, as well as loan payment plans, are suitably evaluated or calculated for the generation of productive results regarding the presentation of firms in the market. Furthermore, the credit threat evaluation is completed with the reflection of opportunities in the observation of the bank’s deal. It is also identified with the refund plans, which are eminent to evaluate the threat category in the work odds. Thus, the firms and financial institutions should deal with clients care mainly for the growth of protective as well as secure deals by economical odds. This exercise is reducing the credit threat and maximizes the chances for growth for the bankers because of the stability of the financial system in the KSA market.
4.
COVID-19 pandemic influenced almost all kinds of markets across the globe because of the lockdown activities for ensuring the fitness of people and communities. The effects of this pandemic are serious on the financial system of the KSA market since it has minimal chances for funding in the oil and petroleum sector. It is the infirm side of the KSA financial system, & it is introducing a credit threat case for the KSA banks as well. Whereas, the strong side of the KSA market is the accessibility of oil brands with natural assets (Tarantino, A. 2010). This condition is encouraging for the financial position of KSA since it can remain in a condition or restriction of business chances during the COVID-19 pandemic. This case is indicating that the KSA market can work securely during an economic challenge, and this exercise is supportive for the KSA institutions in order to address the threats productively. Moreover, this exercise is maximizing the living quality of the people as they can live with the fulfillment of their necessary requirements and needs.
References:
Bajwa, I. A., Syed, A. M., Alaraifi, A., & Rafi, W. (2019). Assessment of Credit risk Management of Saudi Banks. Academy of Accounting and Financial Studies Journal, 23(5), 1-13.
Bessis, J. (2011). Risk management in banking. John Wiley & Sons.
Crouhy, M., Galai, D., & Mark, R. (2006). The essentials of risk management (Vol. 1). New York: McGraw-Hill.
Tarantino, A. (2010). Essentials of risk management in finance (Vol. 53). John Wiley & Sons.
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