engleski

RISK MANAGEMENT IN THE BANKING SECTOR – OBSERVATIONS ON BASEL II IMPLEMENTATION IN CROATIA

The approach to risk management in organizations consists of the following stages: risk identification, measurement and treatment. When credit institutions are concerned, risk management entails the implementation of particular procedures and methods for all stages of management, including the reporting obligation. Efficient risk management enables crisis prevention, enhanced performance, reputation protection and increased stock value. The Credit Institutions Act, which largely relies on Basel II regulations, was introduced in Croatia in 2009. The pillars of Basel II recommendations are minimal capital requirements, supervisory reviews and market discipline. In this paper we focus on the IRB framework for regulating bank capital and consider some scenarios of capital reservations practice in the changing economic conditions, prevailing in Croatia for last several years. Indications that risk management practice in the Croatian banking sector was not fully satisfactory in recession period, are revealed here. Nowadays, considering the availability of credits as perhaps the most important function provided by the banks, effects of the crisis are still very evident. Banks have developed an aversion to taking risks and consequently now in Croatia is lower financial offer and the availability of credits.

banking sector ; Basel II ; credit risk ; LGD ; PD ; risk management

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