Impact of risk management strategies

Impact of risk management strategies on the credit risk faced by commercial banks of Balochistan


This study aims to identify risk management strategies undertaken by the commercial banks of Balochistan, Pakistan, to mitigate or eliminate credit risk. The findings of the study are significant as commercial banks will understand the effectiveness of various risk management strategies and may apply them for minimizing credit risk. This explanatory study analyses the opinions of the employees of selected commercial banks about which strategies are useful for mitigating credit risk. Quantitative data was collected from 250 employees of commercial banks to perform multiple regression analyses, which were used for the analysis. The results identified four areas of impact on credit risk management (CRM): corporate governance exerts the greatest impact, followed by diversification, which plays a significant role, hedging and, finally, the bank’s Capital Adequacy Ratio. This study highlights these four risk management strategies, which are critical for commercial banks to resolve their credit risk.
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Expected Default Frequency – hosted by Ofer Abarbanel online library

KMV Model

Expected default frequency
• Expected default frequency (EDF) is a forward-looking measure of actual probability of default. EDF is firm specific.

KMV model is based on the structural approach to calculate EDF (credit risk is driven by the firm value process).

– It is best when applied to publicly traded companies, where the value of equity is determined by the stock market.

– The market information contained in the firm’s stock price
and balance sheet are translated into an implied risk of default.

Ofer Abarbanel – Online Library

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