Microsoft Word Thesis Gent (1). doc

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CHAPTER IV. Risk management process in financial institutions 
The essential objective of risk management is lowering profit volatility and avoiding 
large losses. The objective that concerns the most risk management is to identify the 
high exposures with high default risk. Defining risk is one of the most crucial steps to 
understand the accomplishments of financial institutions into managing them. There is 
always a certain degree of doubt on objectives that may be positive or negative which 
deals with taking risks, (Heather Rolfe, NIESR, 2010). 
Managing risks, therefore, includes the identification, evaluation, and arrangement of 
risks in order for the reduction of undesirable occurrences and the maximization of 
opportunities. There are many areas that involve risks such as financial markets, project 

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failures, natural phenomena, credit risks, and so on. The manners of managing the risk 
differ on what area the risk falls and which one is more suitable for the occasion. 
Figure 11. Phases of risk management process 
Source: Gestel and Baesens. Credit Risk Management, 2009 
It is significant to grasp the varieties of managing the risk that may be faced in financial 
markets such as shifting it to another group, lowering its negative effects, and 
acknowledging some of its consequences. However, there have been some 
proclamations that there are no set standards to measure the risk although the belief in 
estimates is higher, (Sean, 2010). 
Different baking institutions should have different risk management system, because 
each financial institution has different risks that they undertake. Hence, there is no 
universal risk management system that would apply to all, (Lumpkin, 2002). Therefore, 
each financial institution should create a risk management program that would best 
apply to their needs and situation. However, despite the differences on risk management 
design, every platform should contain: risk identification, risk measurement, risk 
monitoring and risk control, (HSE, 2011). 

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