What are the key differences between banking credit risk management and banking cyber risk management in the context of the development of online and mobile banking?
Improving bank credit risk management is particularly important to reduce the scale of the share of bad loans that are not repaid on time, deteriorating loan portfolios, including paracredit products in commercial banks, including investment banks investing in securities and other speculative investment assets. Thanks to the efficient process of improving bank credit risk management, the scale of financial and economic crises is also reduced. How important it is to improve bank credit risk management and reliably carry out credit risk management, reasonably carry out bank lending, carry out banking in accordance with the principles of business ethics, respect bank customers, apply the principles of corporate social responsibility, shape a high level of good reputation of financial institutions, maintain a high level of public confidence in banks and other financial institutions, etc. this has been shown by the global financial crisis of 2007-2009. Breaking the above-mentioned principles and failing to follow good practices, ignoring the issue of sound application of credit risk management principles leads to serious crises in the financial system, bankruptcy of banks and, consequently, economic crises. On the other hand, in recent years, the greatest number of threats to banking have emerged from the Internet, i.e., the environment in which online and mobile banking is developing. Also during the pandemic of the SARS-CoV-2 coronavirus (Covid-19), due to the strong increase in the scale of e-commerce, online payments and settlements, the scale of development of online banking and also the scale of cybercrime increased. As a result, the importance of banking cybercrime risk management is growing in banks, and the scale of allocating a portion of banks' surplus funds to secure financial transactions, transfers, payments and settlements made remotely through online and mobile banking is increasing. I researched the issue of credit risk management, bank lending procedures, the importance of an effectively conducted credit risk management process, the mistakes made in this regard, i.e. unreliable implementation of the credit risk management process in banks, violations of business ethics and good banking practices, leading to the global financial crisis of 2007-2009. The results of my research are included in publications on the issues of credit risk management, bank lending procedures, the methodology of assessing the creditworthiness of potential borrowers and credit risk of the bank, the scoring method of assessing the creditworthiness of customers and credit risk, the origins of the global financial crisis 2007-2009, etc. can be found in the publications I have posted on my profile of this Research Gate portal. I am currently conducting research in the field of benchmarking on the comparison of procedures, instruments, systems, etc. for credit risk management and cyber risk management. I invite you to cooperate with me on this issue. I request the results of the analogous analyses and studies conducted.
In view of the above, I address the following questions to the esteemed community of researchers and scholars:
What are the key differences between banking credit risk management and banking cyber risk management in the context of the development of online and mobile banking?
What is your opinion on this issue?
Please answer,
I invite everyone to join the discussion,
Thank you very much,
Warm regards,
Dariusz Prokopowicz
The credit risk assessment and the cyber risk assessment are two different entities. The credit risk security has been going on without syber risk assessment for past centuries.
Where credit risk assessment is essential for Loan guarantee, for its repayments assurance, as has been, now the cyber risk assessment has become essential for safeguarding data.
Regards,
Fatema Miah
Bank credit risk management is mainly a way of mitigating loan defaults while cyber risk management are efforts to ensure the Bank automated systems are not hacked particularly those accessed online
Credit risk management occurs when bank funds are extended, committed, invested, or otherwise exposed through explicit or implicit contractual arrangements, reflected on or off the balance sheet. Therefore, factors unrelated to the bank, such as overall unemployment rates, shifting socio-economic situations, debtors’ views, and political difficulties, determine risk.
According to the Basel Committee on Banking Supervision (2001), credit risk is the potential loss of the outstanding loan, either partially or whole, due to credit events and default risk. That is to say, failure to make a required payment, repudiation or moratorium, or modification and restructuring of the loan.
Cyber risk, on the other hand, is categorised as an operational risk. Therefore, firms require expensive risk management and mitigation techniques. Implementing cyber risk management can lessen exposure. Due to the nature of cyber risk as a highly dynamic risk with catastrophic loss potential, considerable information asymmetry, and a lack of appropriate data, standalone cyber insurance products are risky even for insurers. Therefore firms invest more in cyber risk management when the consequences of a cyberattack are more costly for businesses.
Credit risk is the possibility or probability of an obligor (s) or borrower (s) failing to meet their obligations. this could arise due at origination during the facility life or after the expiry of the facility duration. Credit risk management is the identification, measurement, prioritization , implementation of corrective risk mitigations in order to control the impact of the default events in the course of extension and collection or recovery of the loan facilities. Thus, credit risk management is the process of ensuring that the lending institution put in place mechanisms, process and procedures in order to enable funds extended borrowers is recovered without or with minimum challenges.
On the other hand, cyber risk is the risk that arises as a result of weaknesses in the processes and procedure that end up creating losses for the business. cyber risk is generally part of system risk which is also under operational risk. Cyber risks can arise from system failures, weaknesses in the system proceeses and procedures, leading to system failures that may result in financial losses due to data exposures levels.
Credit risk management is the practice of mitigating losses by understanding the adequacy of bank's capital and loan loss reserves at any given time. Cyber risk management on the other hand refers to mitigation measures against unexpected technical failure of the
IT infrastructure of a business or any cyberattack targeting such infrastructure which may lead to a financial loss.
During this year, it came as a surprise to learn cyber is now regarded as a military gray zone threat. Even military suppliers like British Aerospace are building new defences to cyber. We have had to learn to take it seriously indeed in our consulting work.
Technical Report Cyber risk management: Avoiding cyber hell
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