Analysis of Risk Management in Banking Activity

Analysis of Risk Management in Banking Activity The Case of Mauritian Banks Financial deregulation, globalization and liberalization have heightened considerable banking risks. Moreover, banks necessitate effective risk management strategies to promote banking welfare, protect outside agencies transacting with banks and to ensure stable banking operations. Risk managers need to focus on the diversity of risks and secure the interests of the overall banking sector. Risk Management is nowadays segregated where there is inconsistency in reporting, insufficient evaluation and low quality of management and becomes ineffective due to lack of pertinent information and improper analysis of the risk factors (Prabir Sen, 2009). Nonetheless, banks are unable to keep equilibrium in the situations of risks with huge losses and slight possibility of occurrence and risks of minimal losses with propensity of occurrence.   According to Talmimi and Hussein, Mazroezi and Mohammed (2007), risk management enables profits maximization and entails restrictions in risky activities. Risks can be averted by ordinary banking procedures, can be shifted to other institutions and can be managed actively in banks (Oldfield and Santemero, 1997). 1.1 Objectives of the Study The core objectives of the study are: To probe into the methodologies and aspects of the risk identification, assessment, monitoring, management and mitigation in Mauritian banks. To ascertain the effects of risk management on Mauritian banks. To determine to which extent risk management strategies like Basel II, derivatives, stress testing and Asset and Liability Management are applicable in Mauritian banks. To analyze the factors which improve Risk Management Practices in Mauritian banks and the perspectives about Banking Risk Management. To explore the reasons for managing risks in Mauritian banks. 1.2 Statement of the Problem There is an increasing awareness that the gradual intensification of banking risks impacts adversely on banking transactions which raises the concerns for risk management. The basis concern of this study is whether the Mauritian banks are using diverse risk management tactics and whether they are able to cope with the present and prospective challenges of risks and risk management requirements. 1.3 Significance and Contribution of the Study Bank managers can be conversant with divergent risk management techniques, their implications, effects and their relevance in banks through the practical aspects of risk management application. Bank managers can analyze the mechanisms resulting in the increasing level of risk exposures. Business administrators and management practitioners can use this study as guide to design efficient measures to mitigate risks in the process of developing marketing tactics. 1.4 Structure of the Project Chapter 2 elaborates on the literature review related to the risk management. Chapter 3 uncovers the general overview of Mauritian Banking Sector. Chapter 4 focuses on the detailed research methodology that has been used. Chapter 5 discusses the analysis and interpretation of the Mauritian banking risk management information. Chapter 6 probes on the recommendations to improve Risk Management practices in Mauritian banks. Chapter 7 concludes the whole findings of the project. PART 1- THEORETICAL ASPECTS 2.1 Introduction The advent of technology, globalization and the competition has encouraged banks in risk taking activities exposing banks to risks. Regulatory and supervisory institutions have emphasized the need for banks to enhance their risk management practices. Risks arise from the probabilities of the occurrence of losses and usually emerge from the internal and external banking transactions. 2.2 Banking Failures determinants The past decades have encountered numerous bank turbulences where high costs have been incurred on both local and overseas level (Gaytà ¡n and Johnson 2002, p.1), hindering the credit facilities, minimizing investment and consumption and generating bankruptcy cases (Demirguc-Kunt and Detragiache, 1998a, p.81). According to them, the expensive monetary policy was used to force the sound banks to sustain the failures of insolvent banks which dissuade risk management. Fluctuations in interest rates post abolition of Brettons Woods System, higher banking competition, the non existence of intermediation margins, unskillful lending and investment tactics (Hellwig 1995, p.724-726 ) , the diminishing role of the oligopoly rents as stated by Gehrig (1995 cited Hellwig 1995, p.726 ), the lower level of capital reserves in banks, companies high reliance on banks for external finance mentioned by Rajan and Zingales (1998 cited Randall S. Kroszner 2007),systemic shocks caused by credit risks, the inability to diversify loans, trade deterioration and decrease in asset prices caused bank failures argued by Gorton (1988 cited Demirguc-Kunt and Detragiache1998b, p.85). Moreover, regime changes like financial repression, liberalization and severe macroeconomic conditions encourage the entry of inexperienced players and preference for the acquisition of useless loans stated by Honohan (1997 cited Gaytan and Johnson 2002, p.4) have generated banking turbulences.   Non-performing loans increase where the asset returns are less than the returns to be paid on liabilities. Banks borrow in international currency and lend in local currency where the latter depreciates if the foreign exchange currency risk is shifted to local borrowers if they loaned in foreign currency. Banks buy insurance protection which encourages risk taking activities in the absence of prudential supervision and regulation. Bank managers engage in fraudulent actions by taking a portion of money for their personal use (Demirguc-Kunt and Detragiache 1998c, p.85-87). Diamond and Dybrig (1983 cited Demirguc and Detragiache 1988d, p.86) argued that banks portfolio assets can worsen and depositors believe that other depositors are removing their money. Obstfeld and Rogoff (1995 cited Demirguc and Detragiache 1988e, p.87) mentioned that an anticipated devaluation could occasion bank runs in local banks and these deposits are shifted overseas and render the domestic banks without l iquidity. 2.3 Banking risks alsamakis et al (1996 cited Young 2001, p.57) argued that risks can be classified as pure risks and speculative risks. Pure risks which embody market risks, credit risks, interest rate risks, liquidity risks, country risk and settlement risk are associated with the probability of occurrence of loss or no loss and can be curtailed by risk management strategies. However, speculative risks comprising of operational risks, technology risk, reputational risk, compliance risk, legal risk and insurance risks involve an opportunity for gain or loss which can be hedged. 2.3.1 Credit Risks These major risks occur in banks when the borrower defaults on his obligation to reimburse the principal amount and the interest charged of the loan. Credit risks consist of three types of risks like (Arunkumar and Kotreshwar 2005, p.9): Transaction risk emerges from the fluctuations in the credit type and capital depending on how the bank underwrites individual loan transactions. Intrinsic Risk is risk prevailing in some institutions and on granting credit to some firms. Concentration risk is the average of transaction and intrinsic risk within the portfolio and encourages granting of loans to one borrower or one firm. 2.3.2 Interest rate risks Koch (1995 cited Beets and Styger 2001, p.9) defined interest rate risk as the future changes in a banks net interest income and market value of equity due to changes in the market interest rates. Kropas (1998 cited Martirosianien) enumerated three types of interest rate risks like: Reappraisal risk stems from the diverse periods of assets and liabilities Profitableness curve risk entailselements affecting the reappraisal risk. Basic point risk concernsflawed association between the receivable and payable interest rate. Option risk is where the benefits of options can adversely affect the banks equity. 2.3.3 Liquidity risks Liquidity risks occur when the banks are unable to meet the demands of the depositors because of lack of funds and the illiquid assets resulting eventually in bank insolvency. Credit, strategic, interest rate and reputation risks build up liquidity risks (Gaulia and Maserinskieno 2006, p.49). 2 types of liquidity risks are (ADB Report 2008, p.9): Funding liquidity risk is the potentiality to obtain money via the sale of bank property and by borrowing. Trading Liquidity risk arises from making a constant entry in market activities and dealings. 2.3.4 Market risks These risks arise when the value of the financial products changes negatively and consist of currency risk, interest rate risk, equity or debt security price risk (Gaulia and Maserinskieno 2006, p.49). 2.3.5 Operational Risks Basel Committee (2004) which imposes a capital charge defined operational risks as the risk of direct or indirect losses resulting from inadequate or failed internal processes, people, and systems, or from external events. This definition includes legal risk, but excludes strategic and reputational risk. 2.3.6 Reputational Risks These risks emerge when the number of clients decreases as they hold negative perspectives about the quality of services offered by the banks. 2.3.7 Strategic risks Strategic risks arise when bad decisions and projects are undertaken to develop a special system in banks due to the lack of resources, technological tools and the expert staff. 2.3.8 Foreign Exchange Risks These risks come when the prices of the currency fluctuate when engaging in foreign activities. There are 3 types of foreign exchange currency risks. (Deloitte Treasury and Capital Markets 2006) Transaction risk entails the future of original cash flows like imports and exports. Translation risk is concerned with the disparities between foreign exchange encountered when again transforming a foreign exchange value into the functional currency of the company concerned. Translation risks are usually converted into transaction risks on a late basis as earnings are repatriated or assets and liabilities are realized. Economic risk arises when indirectly exposed to buying and selling of goods from someone who buys goods overseas. 2.3.9 Systemic risks The bank cannot collect money from an organization it is dealing owing to the political, economic and social conditions prevailing in the country where the organization is situated. Country risk includes political, economic risk and transfer risk (National Bank of Serbia). 2.3.10 Legal Risks Legal Risks are losses incurred when the bank is sanctioned by a court for the non-compliance with the lawful rules and regulations and on not fulfilling its obligations towards the other parties (National Bank of Serbia). 2.3.11 Financial Fraud There is mismanagement of money and fraudulent actions from the members of the banks who embezzle some deposited money and when there is lack of security controls. 2.4 Bank risk management methods Greenspan (2004 cited in Lam 2007, p.3) said that It would be a mistake to conclude..that the only way to succeed in banking is through ever-greater size and diversity. Indeed, better risk management may be the only truly necessary element of success in banking. 2.4.1 Risk Management in Banking Sector Flaker (2006, p.4-8) proposes three methods: 2.4.1.1 Risk Identification The board must set the risk profile of the bank and identify the risk-return tradeoff. The bank should understand and identify types of risks exposures, their sources and their effects on the overall banking stability. 2.4.1.2 Risk management and reduction Risk management and minimization embody the following: (1) Allow loans after considering their financial status of the borrowers. (2) Comparison of the expected risks with the actual ones to diminish the loan losses in a bigger portfolio. (3) Loan losses will decrease due to diverse borrowers in the lending transactions. (4) Actual risks can be compensated through the opposite movement of other risks in particular financial activities. (5) Insurance negotiations can be used to protect against diverse risks. 2.4.1.3 Risk Management System This flexible system encompasses the combined structure of identification, evaluation and risk mitigation techniques. The Board must set up a strong risk culture and an effective governance structure where the risk management system aligns with the existing structure of the bank. Risk management procedures are possible when retaining higher level of capital to cushion the risks. Furthermore, the risk management functions comprises of: (1) Delegation of responsibilities to each banking segment (2) Auditing system to deal with the internal control processes and proper execution of risk controls (Nikolis, 2009). (3) Ongoing reviews, reporting, updating and the control of risk management system must be executed to ensure that they tailor with the banking aims (4) Training courses gaining know-how about the design of the risk management system and risk models must be offered to avert banking failures. (5) Establish rules and regulations and take necessary actions to those who contravene with them regarding risk management practices. (6) Participation of the banks, regulatory and supervisory bodies where information is disseminated externally and internally in the banks (Kroszner, 2007). 2.4.2 Asset and Liability Management Asset and Liability Management entails the design of organizational and governance models which define the risk approaches subject to the banking operations (ADB 2008, p.10). 2.4.2.1 ALM operations are as follows (ADB 2008, p.10-12): ALM ensures a risk and return management process where the combination of expertise and risk appetite is needed. ALM unit manages bank risks either through a passive or aggressive approach thus increasing its value. ALM unit investigates upon the static and dynamic mismatch; sensitivity of net interest income; and, market value under multiple scenarios -including under high stress. The net interest income evaluates the sophisticated banks operating results. It does not project the effects of risk compared to the economic value which can identify banking risks but is inaccessible to most banks. 5. Funds Transfer Pricing eradicates the interest rate risks by securing a spread in loan and deposits by allocating a transfer rate that mirror the repricing and cash flows of the balance sheet. Liquidity risks can be managed like diversification of financing sources, correlate the liquidity risks with other risks and use stress testing analysis. 2.4.3 Stress testing Practices Stress testing is another risk management strategy where Stress testing is a generic term used to describe various techniques and procedures employed by financial institutions to estimate their potential vulnerability to exceptional but plausible event (Kalfaoglou 2007, p.1). It uses statistical data analysis to risk management techniques, interpret and control the unfavorable outcomes. JP Morgan Chase has integrated stress testing equipment to manage and analyze the sources of possible banking risks, implement tests on the value of its portfolio, analyze its risk profile and contemplate the effects while applying diverse scenarios. An effective risk management scheme, stress testing project and bank staff expertise are requisite to tackle the statistical and economical fundamentals of stress testing with a data measurement tool. Board of directors should monitor the inputs of stress testing system (Seminar on Stress Testing Best Practices Risk Management Implications for Egyptian Banks 2007, p.2-3). Furthermore, the 2 types of stress testing strategies in banks like: (1) Simple Sensitivity Test deals with the rapid fluctuations of the portfolio value due to a risk factor on a short term basis. (2) Scenario analysis is used by large complex banks and is associated with a realistic and econometrics approach towards shifts in portfolio value due to changes in many risk factors. 2.4.4 Basel II Basel II published in June 2004, promotes banking supervision and emphasizes the specified capital requirements to cushion against potential losses. Basel II uses qualitative and quantitative requirements to monitor risk management strategies, to ensure compliance with regulations and reinforce corporate governance structure. The risk based supervision has enabled the supervisors to concentrate on the origins of banking risks. 2.4.4.1 Pillars of Basel II Pillar 1 entails capital needed for credit risk, market risk and operational risk. Moreover, banks under this regime must have a capital adequacy of 8 %. The methods for the computation of the capital charge to measure operational and credit risks (Ma, 2003)are: Basic Indicator Approach The size and capital requirements of the operational risk are estimated as a fixed proportion of the banks net interest income and non-interest income, measured as the average over the last three years. The Standardized Approach –The activities of the banks are allocated risk ratios weights related proportionally to the quantity distributed to every category. The aggregate capital requirements are the addition of all the requirements for the categories. Advanced Measurement Approach Computation of credit and market risks and the capital requirements are founded on the banks internal system for the measurement and management of operational risk for large banks An Internal Rating Based System The BIS stated that capital requirements must be founded on a qualitative and quantitative analysis of credit risk and must be used for diverse bank units. Founded IRB approach indicates that large banks should calculate probability default related to a borrowers grade to demonstrate the capital requirement level. However, under advanced IRB approach, these banks with an internal capital allocation can furnish the loss given default and exposure at defaults which are processed. Pillar 2 A supervisor must ensure that the bank has the adequate capital requirements to deal with risks. Banks estimate the internal capital adequacy by adopting quantitative and qualitative techniques. On-site investigation and ongoing reviews probe in capital adequacy. Pillar 3- Market discipline framework provides with detailed information about the banks risk profile to evaluate and report capital adequacy where risk exposures can be analyzed through quantitative and qualitative approach regularly. The risk based capital ratios and qualitative information about the internal procedures are needed for capital adequacy purposes. 2.4.5 Derivatives olatility of financial market, the liberalization and deregulation in the 1980s and 1970s has founded derivative markets (Hehn no date a, p.100). Derivatives are financial tools (like futures, commodities futures, options, swaps, forwards) whose returns, values and performance are derived from the returns, values and performance of the underlying assets. Hedging is covering against potential risk through an opposite position in the derivative markets. Bank International Settlements (2004 cited Bernadette A. Minton et al 2008, p.2) noticed that the quantity for derivatives has leveled from $698 billion in 2001 to $ 57,894 billion in 2007. Proper derivatives trading can insure against market risks and interest rate risks without retaining additional capital requirements in the balance sheet (Kaudman no date a, p.85). The determinants of derivatives use are banking size, balance sheet constituents, aggregate risk exposures, profitability, performance and risk taking incentives. Jason and Taylor (1994 cited in Hundman b, p.86) argued that speculation used with derivatives to make profitable returns can engenders more interest rate risks. Moreover, Tsetsekos and Varangis (1997 cited Roopnarine and Watson 2005a, p.9) argued that financial derivatives promote increase in resource allocation and increase the productivity of investments projects. Jorion (1995 cited Roopnarine and Watson 2005b, p.9) argued that in price discovery, market participants are offered information on balance prices that mirror the present demand on the supplies which enable effective decision making and reveal the position of the cash prices. Besides, liquid funds are increased and transaction costs are reduced and the futures market reflects the large transactions at prevailing prices (Roopnarine and Watson 2005c, p.10).   However, derivatives have generated enormous failures in Barings Collapse, Merill Lynch and Procter Gambler (Hehn b, p.101). Bank staff must be trained and educated about derivatives use. Derivatives trading can be constrained with the liquidity problems and legal uncertainties that emerged from the market price movement which is argued by Bhaumik (1998 cited Roopnarine and Watson 2005d, p.11). Pricing of assets becomes difficult if there is insufficient information about the derivatives use. Principal agent problem is aggravated (Roopnarine and Watson 2005e, p.12). The derivatives market must be regulated properly to avert fraudulent actions and insolvency. Partnoy and Skeel (2006 cited Minton et al. 2008a, p.2) claimed that derivatives intensify systemic risks as banks do not control the lending activities. Hunter and Marshall (1999 cited Roopnarine and Watson 2005f, p.28) argued that derivative markets attract investors whose private information are assimilated in the observable p rices and diminish the bid ask spread. The underlying cash prices reduce the transaction costs and the demand for money thereby affecting the operations of the monetary policy. Bedendo and Bruno (2009a, p.2-4) argued that credit transfer tools like securitization, credit derivatives and loan sales reduce regulatory capital requirements, motivate lending and enhance the banking liquidity positions. Moreover, they remedy the issues of information asymmetries as stated by Greenbaum and Thakor (1987 cited in Bedendo and Bruno 2009b, p.2). Duffee and Zhou (2001 cited Minton et al. 2008b, p.11) mentioned that credit derivatives are used if the loan sales or securitization techniques become expensive due to moral hazard problem and can shift default risk where information advantage is insignificant and retain some portion of risks where information advantage is huge. Banks use credit transfer tools as they have little access to inter-bank funding, huge funding expenses, low capital and want loan transfer (Bedendo and Bruno 2009c, p.8-9). CRT tools encourage banks to use originate-to-distribute models via aggressive lending occasions (Bedendo and Bruno 2009d, p.10) . Pricing of CRT tools is preferred by large banks having higher skills. Some loans sales have loan characteristics like small size, asymmetric issues and standardization convenient for securitization (Bedendo and Bruno 2009e, p.11). PART 2- EMPIRICAL REVIEW There is a growing literature that examines the relationship of banking risks with other many economic and financial variables. Moreover, this section describes the diversity of banking literature where different types of risk management strategies were tested and criticized. Even the links between different types of risks were experimented using banking information and models derived from other authors empirical work. Peek and Rosengren (1996) found that the large users of derivatives for speculation purposes are the troubled organizations using derivative information of 25 active banks in the United States from 1990 to 1994 in the US dummy regression model.   Banks are unable to track the risky aspects of these derivatives and guide their risk profile because of insufficient derivative information which could jeopardize the overall banking system. The onsite targeted examinations can enable banks to window dress their derivatives. Regulatory rules and formal transactions must be imposed on the banks taking unfavorable speculation and to constrain the moral hazard problem related to the derivative transactions. The use of speculative derivatives constitutes a stringent criminal penalty for breaching the established rules and regulations. Cebenoyan and Strahan (2001) used data of the sale and purchase of bank loans and those loans sold or purchased without recourse from all domestic commercial banks in the US from 1987 to 1993 in a regression model. They found that banks that engage in loan sales market to manage credit risks retained minimum level of capital which can be modified. Moreover, these banks retained more risky loans since they managed credit risks and were exposed to an unsafe position despite they endured lower level of risks compared to the other banks who manage risks without the loan sales market. Banks that employed the risk management techniques are more inclined to engage in risk taking activities. In fact, banks that manage credit risks lend to more risky loans depicting that complex risk management practices enhanced the bank credit position rather than minimizing the risks. Gatev et al (2006) investigated upon the presence of liquidity risk from both sides of bank balance sheets using some aspects of the Kashyap, Rajan and Stein (2002) model (that liquidity risks originating from the two fundamental businesses of banking promotes a diversification benefit) to analyze the link between deposit taking and commitment lending for large, publicly traded banks using regression analysis. Pooling deposits and commitment lending insure against banking liquidity risks and deposits activities insure against liquidity risk from idle loan activities. Bank stock-return volatility increases with idle loan transactions which is insignificant for banks with huge amount of depository dealings. The deposit-lending risk management becomes more reinforced when there is low level of liquidity and when troubled market participants deposit money in banks. Shao and Yeager (2007) used information of large publicly traded U.S BHCs from 1997 to 2005 using regression models to find the link between credit derivatives and their risk, return and lending issues. Banks buy credit derivatives to hedge against risks, to increase their equity and to compensate for the risky loan losses. However, they sell credit derivatives exposing themselves to risks to gain a premium charge. Moreover, the credit derivatives users enjoyed minimal returns and increase risks which are compensated. Their findings implied that on a general basis, the impact of credit derivatives on risk relies on the risk management strategies. Holod and Kitsul (2008) used panel data of stock returns from 53 U.S BHCs from 1986 to 2007. They found that after 1996, poor capitalized banks engaged in active trading transactions are more exposed to systemic risks compared to well capitalized banks. Banks cannot always have enough capital to cushion the market risks and must sell their illiquid assets or invest in the financial markets to compensate for the lack of capital to adhere to the market-based capital requirements. Capital requirements in Basel II do not help to reduce banking risks totally but contribute towards increasing systematic risks. Topi (2008) used a model of Allen and Gale (2004) where banks offer deposit contracts to ex ante identical, risk averse depositors who face heterogenous liquidity shocks for Bank of Finland which shows that the liquidity can impact on the banks motivations to minimize the default losses. The bank runs encourage the banks to avert the credit losses after the sub-prime mortgage crisis. However, the bank runs without a signal of the credit risks will reduce the banks willingness to curb the incidence of credit losses. The central bank can mitigate the propensity of liquidity stress for solvent banks rather than insolvent banks. In addition, this research provides an area for further research where the policy interventions and financial market innovations can be integrated in the model to identify the impact on banks motivations. Achou and Tenguh (2008) used regression model for Qatar Central Bank by executing a time-series analysis of financial data from 2001-2005 to examine the correlation between profitability and loan losses. They showed that effective credit risk management improves the financial result of the bank with the aim to secure the banking property and to work in the welfare of the market participants. Besides, their study revealed that credit risk management infrastructures are used to minimize the credit losses. Banks with efficient credit risk management system have insignificant loan default ratios, good revenues, minimal non-performing loans and are able to tackle credit losses. Minton et al. (2008) investigated the use of credit derivatives using U.S BHCs (assets overtakes $ 1 billion) and non-missing data on credit derivatives use from 1999 to 2005. Few companies use credit derivatives for dealer activities rather than for hedging against default losses. Credit derivatives use is constrained because the liquidity of credit derivatives market is favorable for investment grade companies since they can use derivatives to insure against the default losses. Therefore, the illiquidity of credit derivatives market affects the non-investment grade companies as they need confidential information for loans where higher cost of hedging will dissuade banks to hedge. Nevertheless, the bank borrowers get loans at a cheap price and banks are more on a competitive stance with the capital markets to provide loan facilities if the credit derivatives can help bank to retain capital. Credit derivatives can only promote the financial health of banks if they generate lesser ban king risks. The sub-prime crisis prior to 2007 has shown that the dealer activities via the credit derivatives contain many risks and in 2008 generated systemic risks. This study provides an avenue to assess the risks posed by credit derivatives when engaging in dealers transactions dealers. Bedendo and Bruno (2009) differentiated between the application of loan sales, securitization and credit derivatives for a sample of US large domestic commercial banks (total assets greater than one billion USD) for June 2002-2008   They found that the most CRT users employ conservative tools and large international banking corporations utilize credit derivatives. They detected that highly capitalized banks with less risky portfolios purchase credit derivative protection to hedge against capital inadequacy.   Moreover, banks with riskier loan portfoli Analysis of Risk Management in Banking Activity Analysis of Risk Management in Banking Activity The Case of Mauritian Banks Financial deregulation, globalization and liberalization have heightened considerable banking risks. Moreover, banks necessitate effective risk management strategies to promote banking welfare, protect outside agencies transacting with banks and to ensure stable banking operations. Risk managers need to focus on the diversity of risks and secure the interests of the overall banking sector. Risk Management is nowadays segregated where there is inconsistency in reporting, insufficient evaluation and low quality of management and becomes ineffective due to lack of pertinent information and improper analysis of the risk factors (Prabir Sen, 2009). Nonetheless, banks are unable to keep equilibrium in the situations of risks with huge losses and slight possibility of occurrence and risks of minimal losses with propensity of occurrence.   According to Talmimi and Hussein, Mazroezi and Mohammed (2007), risk management enables profits maximization and entails restrictions in risky activities. Risks can be averted by ordinary banking procedures, can be shifted to other institutions and can be managed actively in banks (Oldfield and Santemero, 1997). 1.1 Objectives of the Study The core objectives of the study are: To probe into the methodologies and aspects of the risk identification, assessment, monitoring, management and mitigation in Mauritian banks. To ascertain the effects of risk management on Mauritian banks. To determine to which extent risk management strategies like Basel II, derivatives, stress testing and Asset and Liability Management are applicable in Mauritian banks. To analyze the factors which improve Risk Management Practices in Mauritian banks and the perspectives about Banking Risk Management. To explore the reasons for managing risks in Mauritian banks. 1.2 Statement of the Problem There is an increasing awareness that the gradual intensification of banking risks impacts adversely on banking transactions which raises the concerns for risk management. The basis concern of this study is whether the Mauritian banks are using diverse risk management tactics and whether they are able to cope with the present and prospective challenges of risks and risk management requirements. 1.3 Significance and Contribution of the Study Bank managers can be conversant with divergent risk management techniques, their implications, effects and their relevance in banks through the practical aspects of risk management application. Bank managers can analyze the mechanisms resulting in the increasing level of risk exposures. Business administrators and management practitioners can use this study as guide to design efficient measures to mitigate risks in the process of developing marketing tactics. 1.4 Structure of the Project Chapter 2 elaborates on the literature review related to the risk management. Chapter 3 uncovers the general overview of Mauritian Banking Sector. Chapter 4 focuses on the detailed research methodology that has been used. Chapter 5 discusses the analysis and interpretation of the Mauritian banking risk management information. Chapter 6 probes on the recommendations to improve Risk Management practices in Mauritian banks. Chapter 7 concludes the whole findings of the project. PART 1- THEORETICAL ASPECTS 2.1 Introduction The advent of technology, globalization and the competition has encouraged banks in risk taking activities exposing banks to risks. Regulatory and supervisory institutions have emphasized the need for banks to enhance their risk management practices. Risks arise from the probabilities of the occurrence of losses and usually emerge from the internal and external banking transactions. 2.2 Banking Failures determinants The past decades have encountered numerous bank turbulences where high costs have been incurred on both local and overseas level (Gaytà ¡n and Johnson 2002, p.1), hindering the credit facilities, minimizing investment and consumption and generating bankruptcy cases (Demirguc-Kunt and Detragiache, 1998a, p.81). According to them, the expensive monetary policy was used to force the sound banks to sustain the failures of insolvent banks which dissuade risk management. Fluctuations in interest rates post abolition of Brettons Woods System, higher banking competition, the non existence of intermediation margins, unskillful lending and investment tactics (Hellwig 1995, p.724-726 ) , the diminishing role of the oligopoly rents as stated by Gehrig (1995 cited Hellwig 1995, p.726 ), the lower level of capital reserves in banks, companies high reliance on banks for external finance mentioned by Rajan and Zingales (1998 cited Randall S. Kroszner 2007),systemic shocks caused by credit risks, the inability to diversify loans, trade deterioration and decrease in asset prices caused bank failures argued by Gorton (1988 cited Demirguc-Kunt and Detragiache1998b, p.85). Moreover, regime changes like financial repression, liberalization and severe macroeconomic conditions encourage the entry of inexperienced players and preference for the acquisition of useless loans stated by Honohan (1997 cited Gaytan and Johnson 2002, p.4) have generated banking turbulences.   Non-performing loans increase where the asset returns are less than the returns to be paid on liabilities. Banks borrow in international currency and lend in local currency where the latter depreciates if the foreign exchange currency risk is shifted to local borrowers if they loaned in foreign currency. Banks buy insurance protection which encourages risk taking activities in the absence of prudential supervision and regulation. Bank managers engage in fraudulent actions by taking a portion of money for their personal use (Demirguc-Kunt and Detragiache 1998c, p.85-87). Diamond and Dybrig (1983 cited Demirguc and Detragiache 1988d, p.86) argued that banks portfolio assets can worsen and depositors believe that other depositors are removing their money. Obstfeld and Rogoff (1995 cited Demirguc and Detragiache 1988e, p.87) mentioned that an anticipated devaluation could occasion bank runs in local banks and these deposits are shifted overseas and render the domestic banks without l iquidity. 2.3 Banking risks alsamakis et al (1996 cited Young 2001, p.57) argued that risks can be classified as pure risks and speculative risks. Pure risks which embody market risks, credit risks, interest rate risks, liquidity risks, country risk and settlement risk are associated with the probability of occurrence of loss or no loss and can be curtailed by risk management strategies. However, speculative risks comprising of operational risks, technology risk, reputational risk, compliance risk, legal risk and insurance risks involve an opportunity for gain or loss which can be hedged. 2.3.1 Credit Risks These major risks occur in banks when the borrower defaults on his obligation to reimburse the principal amount and the interest charged of the loan. Credit risks consist of three types of risks like (Arunkumar and Kotreshwar 2005, p.9): Transaction risk emerges from the fluctuations in the credit type and capital depending on how the bank underwrites individual loan transactions. Intrinsic Risk is risk prevailing in some institutions and on granting credit to some firms. Concentration risk is the average of transaction and intrinsic risk within the portfolio and encourages granting of loans to one borrower or one firm. 2.3.2 Interest rate risks Koch (1995 cited Beets and Styger 2001, p.9) defined interest rate risk as the future changes in a banks net interest income and market value of equity due to changes in the market interest rates. Kropas (1998 cited Martirosianien) enumerated three types of interest rate risks like: Reappraisal risk stems from the diverse periods of assets and liabilities Profitableness curve risk entailselements affecting the reappraisal risk. Basic point risk concernsflawed association between the receivable and payable interest rate. Option risk is where the benefits of options can adversely affect the banks equity. 2.3.3 Liquidity risks Liquidity risks occur when the banks are unable to meet the demands of the depositors because of lack of funds and the illiquid assets resulting eventually in bank insolvency. Credit, strategic, interest rate and reputation risks build up liquidity risks (Gaulia and Maserinskieno 2006, p.49). 2 types of liquidity risks are (ADB Report 2008, p.9): Funding liquidity risk is the potentiality to obtain money via the sale of bank property and by borrowing. Trading Liquidity risk arises from making a constant entry in market activities and dealings. 2.3.4 Market risks These risks arise when the value of the financial products changes negatively and consist of currency risk, interest rate risk, equity or debt security price risk (Gaulia and Maserinskieno 2006, p.49). 2.3.5 Operational Risks Basel Committee (2004) which imposes a capital charge defined operational risks as the risk of direct or indirect losses resulting from inadequate or failed internal processes, people, and systems, or from external events. This definition includes legal risk, but excludes strategic and reputational risk. 2.3.6 Reputational Risks These risks emerge when the number of clients decreases as they hold negative perspectives about the quality of services offered by the banks. 2.3.7 Strategic risks Strategic risks arise when bad decisions and projects are undertaken to develop a special system in banks due to the lack of resources, technological tools and the expert staff. 2.3.8 Foreign Exchange Risks These risks come when the prices of the currency fluctuate when engaging in foreign activities. There are 3 types of foreign exchange currency risks. (Deloitte Treasury and Capital Markets 2006) Transaction risk entails the future of original cash flows like imports and exports. Translation risk is concerned with the disparities between foreign exchange encountered when again transforming a foreign exchange value into the functional currency of the company concerned. Translation risks are usually converted into transaction risks on a late basis as earnings are repatriated or assets and liabilities are realized. Economic risk arises when indirectly exposed to buying and selling of goods from someone who buys goods overseas. 2.3.9 Systemic risks The bank cannot collect money from an organization it is dealing owing to the political, economic and social conditions prevailing in the country where the organization is situated. Country risk includes political, economic risk and transfer risk (National Bank of Serbia). 2.3.10 Legal Risks Legal Risks are losses incurred when the bank is sanctioned by a court for the non-compliance with the lawful rules and regulations and on not fulfilling its obligations towards the other parties (National Bank of Serbia). 2.3.11 Financial Fraud There is mismanagement of money and fraudulent actions from the members of the banks who embezzle some deposited money and when there is lack of security controls. 2.4 Bank risk management methods Greenspan (2004 cited in Lam 2007, p.3) said that It would be a mistake to conclude..that the only way to succeed in banking is through ever-greater size and diversity. Indeed, better risk management may be the only truly necessary element of success in banking. 2.4.1 Risk Management in Banking Sector Flaker (2006, p.4-8) proposes three methods: 2.4.1.1 Risk Identification The board must set the risk profile of the bank and identify the risk-return tradeoff. The bank should understand and identify types of risks exposures, their sources and their effects on the overall banking stability. 2.4.1.2 Risk management and reduction Risk management and minimization embody the following: (1) Allow loans after considering their financial status of the borrowers. (2) Comparison of the expected risks with the actual ones to diminish the loan losses in a bigger portfolio. (3) Loan losses will decrease due to diverse borrowers in the lending transactions. (4) Actual risks can be compensated through the opposite movement of other risks in particular financial activities. (5) Insurance negotiations can be used to protect against diverse risks. 2.4.1.3 Risk Management System This flexible system encompasses the combined structure of identification, evaluation and risk mitigation techniques. The Board must set up a strong risk culture and an effective governance structure where the risk management system aligns with the existing structure of the bank. Risk management procedures are possible when retaining higher level of capital to cushion the risks. Furthermore, the risk management functions comprises of: (1) Delegation of responsibilities to each banking segment (2) Auditing system to deal with the internal control processes and proper execution of risk controls (Nikolis, 2009). (3) Ongoing reviews, reporting, updating and the control of risk management system must be executed to ensure that they tailor with the banking aims (4) Training courses gaining know-how about the design of the risk management system and risk models must be offered to avert banking failures. (5) Establish rules and regulations and take necessary actions to those who contravene with them regarding risk management practices. (6) Participation of the banks, regulatory and supervisory bodies where information is disseminated externally and internally in the banks (Kroszner, 2007). 2.4.2 Asset and Liability Management Asset and Liability Management entails the design of organizational and governance models which define the risk approaches subject to the banking operations (ADB 2008, p.10). 2.4.2.1 ALM operations are as follows (ADB 2008, p.10-12): ALM ensures a risk and return management process where the combination of expertise and risk appetite is needed. ALM unit manages bank risks either through a passive or aggressive approach thus increasing its value. ALM unit investigates upon the static and dynamic mismatch; sensitivity of net interest income; and, market value under multiple scenarios -including under high stress. The net interest income evaluates the sophisticated banks operating results. It does not project the effects of risk compared to the economic value which can identify banking risks but is inaccessible to most banks. 5. Funds Transfer Pricing eradicates the interest rate risks by securing a spread in loan and deposits by allocating a transfer rate that mirror the repricing and cash flows of the balance sheet. Liquidity risks can be managed like diversification of financing sources, correlate the liquidity risks with other risks and use stress testing analysis. 2.4.3 Stress testing Practices Stress testing is another risk management strategy where Stress testing is a generic term used to describe various techniques and procedures employed by financial institutions to estimate their potential vulnerability to exceptional but plausible event (Kalfaoglou 2007, p.1). It uses statistical data analysis to risk management techniques, interpret and control the unfavorable outcomes. JP Morgan Chase has integrated stress testing equipment to manage and analyze the sources of possible banking risks, implement tests on the value of its portfolio, analyze its risk profile and contemplate the effects while applying diverse scenarios. An effective risk management scheme, stress testing project and bank staff expertise are requisite to tackle the statistical and economical fundamentals of stress testing with a data measurement tool. Board of directors should monitor the inputs of stress testing system (Seminar on Stress Testing Best Practices Risk Management Implications for Egyptian Banks 2007, p.2-3). Furthermore, the 2 types of stress testing strategies in banks like: (1) Simple Sensitivity Test deals with the rapid fluctuations of the portfolio value due to a risk factor on a short term basis. (2) Scenario analysis is used by large complex banks and is associated with a realistic and econometrics approach towards shifts in portfolio value due to changes in many risk factors. 2.4.4 Basel II Basel II published in June 2004, promotes banking supervision and emphasizes the specified capital requirements to cushion against potential losses. Basel II uses qualitative and quantitative requirements to monitor risk management strategies, to ensure compliance with regulations and reinforce corporate governance structure. The risk based supervision has enabled the supervisors to concentrate on the origins of banking risks. 2.4.4.1 Pillars of Basel II Pillar 1 entails capital needed for credit risk, market risk and operational risk. Moreover, banks under this regime must have a capital adequacy of 8 %. The methods for the computation of the capital charge to measure operational and credit risks (Ma, 2003)are: Basic Indicator Approach The size and capital requirements of the operational risk are estimated as a fixed proportion of the banks net interest income and non-interest income, measured as the average over the last three years. The Standardized Approach –The activities of the banks are allocated risk ratios weights related proportionally to the quantity distributed to every category. The aggregate capital requirements are the addition of all the requirements for the categories. Advanced Measurement Approach Computation of credit and market risks and the capital requirements are founded on the banks internal system for the measurement and management of operational risk for large banks An Internal Rating Based System The BIS stated that capital requirements must be founded on a qualitative and quantitative analysis of credit risk and must be used for diverse bank units. Founded IRB approach indicates that large banks should calculate probability default related to a borrowers grade to demonstrate the capital requirement level. However, under advanced IRB approach, these banks with an internal capital allocation can furnish the loss given default and exposure at defaults which are processed. Pillar 2 A supervisor must ensure that the bank has the adequate capital requirements to deal with risks. Banks estimate the internal capital adequacy by adopting quantitative and qualitative techniques. On-site investigation and ongoing reviews probe in capital adequacy. Pillar 3- Market discipline framework provides with detailed information about the banks risk profile to evaluate and report capital adequacy where risk exposures can be analyzed through quantitative and qualitative approach regularly. The risk based capital ratios and qualitative information about the internal procedures are needed for capital adequacy purposes. 2.4.5 Derivatives olatility of financial market, the liberalization and deregulation in the 1980s and 1970s has founded derivative markets (Hehn no date a, p.100). Derivatives are financial tools (like futures, commodities futures, options, swaps, forwards) whose returns, values and performance are derived from the returns, values and performance of the underlying assets. Hedging is covering against potential risk through an opposite position in the derivative markets. Bank International Settlements (2004 cited Bernadette A. Minton et al 2008, p.2) noticed that the quantity for derivatives has leveled from $698 billion in 2001 to $ 57,894 billion in 2007. Proper derivatives trading can insure against market risks and interest rate risks without retaining additional capital requirements in the balance sheet (Kaudman no date a, p.85). The determinants of derivatives use are banking size, balance sheet constituents, aggregate risk exposures, profitability, performance and risk taking incentives. Jason and Taylor (1994 cited in Hundman b, p.86) argued that speculation used with derivatives to make profitable returns can engenders more interest rate risks. Moreover, Tsetsekos and Varangis (1997 cited Roopnarine and Watson 2005a, p.9) argued that financial derivatives promote increase in resource allocation and increase the productivity of investments projects. Jorion (1995 cited Roopnarine and Watson 2005b, p.9) argued that in price discovery, market participants are offered information on balance prices that mirror the present demand on the supplies which enable effective decision making and reveal the position of the cash prices. Besides, liquid funds are increased and transaction costs are reduced and the futures market reflects the large transactions at prevailing prices (Roopnarine and Watson 2005c, p.10).   However, derivatives have generated enormous failures in Barings Collapse, Merill Lynch and Procter Gambler (Hehn b, p.101). Bank staff must be trained and educated about derivatives use. Derivatives trading can be constrained with the liquidity problems and legal uncertainties that emerged from the market price movement which is argued by Bhaumik (1998 cited Roopnarine and Watson 2005d, p.11). Pricing of assets becomes difficult if there is insufficient information about the derivatives use. Principal agent problem is aggravated (Roopnarine and Watson 2005e, p.12). The derivatives market must be regulated properly to avert fraudulent actions and insolvency. Partnoy and Skeel (2006 cited Minton et al. 2008a, p.2) claimed that derivatives intensify systemic risks as banks do not control the lending activities. Hunter and Marshall (1999 cited Roopnarine and Watson 2005f, p.28) argued that derivative markets attract investors whose private information are assimilated in the observable p rices and diminish the bid ask spread. The underlying cash prices reduce the transaction costs and the demand for money thereby affecting the operations of the monetary policy. Bedendo and Bruno (2009a, p.2-4) argued that credit transfer tools like securitization, credit derivatives and loan sales reduce regulatory capital requirements, motivate lending and enhance the banking liquidity positions. Moreover, they remedy the issues of information asymmetries as stated by Greenbaum and Thakor (1987 cited in Bedendo and Bruno 2009b, p.2). Duffee and Zhou (2001 cited Minton et al. 2008b, p.11) mentioned that credit derivatives are used if the loan sales or securitization techniques become expensive due to moral hazard problem and can shift default risk where information advantage is insignificant and retain some portion of risks where information advantage is huge. Banks use credit transfer tools as they have little access to inter-bank funding, huge funding expenses, low capital and want loan transfer (Bedendo and Bruno 2009c, p.8-9). CRT tools encourage banks to use originate-to-distribute models via aggressive lending occasions (Bedendo and Bruno 2009d, p.10) . Pricing of CRT tools is preferred by large banks having higher skills. Some loans sales have loan characteristics like small size, asymmetric issues and standardization convenient for securitization (Bedendo and Bruno 2009e, p.11). PART 2- EMPIRICAL REVIEW There is a growing literature that examines the relationship of banking risks with other many economic and financial variables. Moreover, this section describes the diversity of banking literature where different types of risk management strategies were tested and criticized. Even the links between different types of risks were experimented using banking information and models derived from other authors empirical work. Peek and Rosengren (1996) found that the large users of derivatives for speculation purposes are the troubled organizations using derivative information of 25 active banks in the United States from 1990 to 1994 in the US dummy regression model.   Banks are unable to track the risky aspects of these derivatives and guide their risk profile because of insufficient derivative information which could jeopardize the overall banking system. The onsite targeted examinations can enable banks to window dress their derivatives. Regulatory rules and formal transactions must be imposed on the banks taking unfavorable speculation and to constrain the moral hazard problem related to the derivative transactions. The use of speculative derivatives constitutes a stringent criminal penalty for breaching the established rules and regulations. Cebenoyan and Strahan (2001) used data of the sale and purchase of bank loans and those loans sold or purchased without recourse from all domestic commercial banks in the US from 1987 to 1993 in a regression model. They found that banks that engage in loan sales market to manage credit risks retained minimum level of capital which can be modified. Moreover, these banks retained more risky loans since they managed credit risks and were exposed to an unsafe position despite they endured lower level of risks compared to the other banks who manage risks without the loan sales market. Banks that employed the risk management techniques are more inclined to engage in risk taking activities. In fact, banks that manage credit risks lend to more risky loans depicting that complex risk management practices enhanced the bank credit position rather than minimizing the risks. Gatev et al (2006) investigated upon the presence of liquidity risk from both sides of bank balance sheets using some aspects of the Kashyap, Rajan and Stein (2002) model (that liquidity risks originating from the two fundamental businesses of banking promotes a diversification benefit) to analyze the link between deposit taking and commitment lending for large, publicly traded banks using regression analysis. Pooling deposits and commitment lending insure against banking liquidity risks and deposits activities insure against liquidity risk from idle loan activities. Bank stock-return volatility increases with idle loan transactions which is insignificant for banks with huge amount of depository dealings. The deposit-lending risk management becomes more reinforced when there is low level of liquidity and when troubled market participants deposit money in banks. Shao and Yeager (2007) used information of large publicly traded U.S BHCs from 1997 to 2005 using regression models to find the link between credit derivatives and their risk, return and lending issues. Banks buy credit derivatives to hedge against risks, to increase their equity and to compensate for the risky loan losses. However, they sell credit derivatives exposing themselves to risks to gain a premium charge. Moreover, the credit derivatives users enjoyed minimal returns and increase risks which are compensated. Their findings implied that on a general basis, the impact of credit derivatives on risk relies on the risk management strategies. Holod and Kitsul (2008) used panel data of stock returns from 53 U.S BHCs from 1986 to 2007. They found that after 1996, poor capitalized banks engaged in active trading transactions are more exposed to systemic risks compared to well capitalized banks. Banks cannot always have enough capital to cushion the market risks and must sell their illiquid assets or invest in the financial markets to compensate for the lack of capital to adhere to the market-based capital requirements. Capital requirements in Basel II do not help to reduce banking risks totally but contribute towards increasing systematic risks. Topi (2008) used a model of Allen and Gale (2004) where banks offer deposit contracts to ex ante identical, risk averse depositors who face heterogenous liquidity shocks for Bank of Finland which shows that the liquidity can impact on the banks motivations to minimize the default losses. The bank runs encourage the banks to avert the credit losses after the sub-prime mortgage crisis. However, the bank runs without a signal of the credit risks will reduce the banks willingness to curb the incidence of credit losses. The central bank can mitigate the propensity of liquidity stress for solvent banks rather than insolvent banks. In addition, this research provides an area for further research where the policy interventions and financial market innovations can be integrated in the model to identify the impact on banks motivations. Achou and Tenguh (2008) used regression model for Qatar Central Bank by executing a time-series analysis of financial data from 2001-2005 to examine the correlation between profitability and loan losses. They showed that effective credit risk management improves the financial result of the bank with the aim to secure the banking property and to work in the welfare of the market participants. Besides, their study revealed that credit risk management infrastructures are used to minimize the credit losses. Banks with efficient credit risk management system have insignificant loan default ratios, good revenues, minimal non-performing loans and are able to tackle credit losses. Minton et al. (2008) investigated the use of credit derivatives using U.S BHCs (assets overtakes $ 1 billion) and non-missing data on credit derivatives use from 1999 to 2005. Few companies use credit derivatives for dealer activities rather than for hedging against default losses. Credit derivatives use is constrained because the liquidity of credit derivatives market is favorable for investment grade companies since they can use derivatives to insure against the default losses. Therefore, the illiquidity of credit derivatives market affects the non-investment grade companies as they need confidential information for loans where higher cost of hedging will dissuade banks to hedge. Nevertheless, the bank borrowers get loans at a cheap price and banks are more on a competitive stance with the capital markets to provide loan facilities if the credit derivatives can help bank to retain capital. Credit derivatives can only promote the financial health of banks if they generate lesser ban king risks. The sub-prime crisis prior to 2007 has shown that the dealer activities via the credit derivatives contain many risks and in 2008 generated systemic risks. This study provides an avenue to assess the risks posed by credit derivatives when engaging in dealers transactions dealers. Bedendo and Bruno (2009) differentiated between the application of loan sales, securitization and credit derivatives for a sample of US large domestic commercial banks (total assets greater than one billion USD) for June 2002-2008   They found that the most CRT users employ conservative tools and large international banking corporations utilize credit derivatives. They detected that highly capitalized banks with less risky portfolios purchase credit derivative protection to hedge against capital inadequacy.   Moreover, banks with riskier loan portfoli

Avoiding the Alignment Trap in Intormation Technology Essay

An alarming pattern has surfaced in that many companies are concentrating on alignment and are finding that their performance is either declining or moving sideways. Companies are focusing on the wrong solutions with respect to their Information Technology problems, resulting in severe bottlenecks to growth. Companies need to learn how to break out of the trap and build IT organizations that allow for growth rather than obstruct it. Companies will need to be committed as doing so will require a continuous effort. The essential goal for these companies in order to succeed is to move IT into the upper-right quadrant, where they will be highly effective and highly aligned, and where IT appears to be enabling growth rather than inhibiting it. In order to move in this direction, it is my recommendation that the companies begin by installing local area networks locally, as well as a central database stored on a server to connect to head office. This option is economically feasible, will improve local efficiencies and will allow the sharing of resources and records. I would also recommend that the companies begin feasibility testing to explore the implementation of an internal ERP system to support global operations in the near future. Doing this will help companies to keep up with the competition. Current Situation Companies are getting caught in an â€Å"alignment trap† whereas they are spending large amounts of resources towards being highly aligned and not realizing the importance of being highly effective as well. There are four quadrants within which companies are being categorized with respect to their ability to be effective. They are being measured based on the ineffectiveness as far as completing projects on time and on budget, and the ineffectiveness of alignment to an important business objective. The first of these quadrants is â€Å"alignment trap†. Despite being highly aligned, the companies within this group are less effective in completing budgets on time and within the budget. Charles Schwab & Co. is currently in this position and as a result, continues to spend money on projects and seeing no growth. The second quadrant is â€Å"maintenance zone†. Companies in this quadrant are less aligned to major business objectives but are maintaining below average levels of growth even though they are less effective and spending more in IT as a result. In this zone, IT is not performing well, is not valued and is segregated from the company’s main functions. Management is budgeting enough to keep the system running, but IT is not providing any added value to the business. Third is the â€Å"well-oiled IT† quadrant which can be categorized as second best. In this group, companies are highly effective at bringing projects in on time and on budget. They are more focused on execution. Still, companies are less aligned meaning that their IT group does not fully understand the priorities of the business and where to spend the resources. Lastly, the â€Å"IT-enabled growth† quadrant is where all companies would like to be. This quadrant encompasses those companies who are not only highly effective at making IT projects successful, but are also highly aligned in relation to their business objectives. Examples of companies who have succeeded in this respect are Nestle, Wal-Mart, FedEx and Dell. The following are IT-related issues that organizations are currently facing as they attempt to align their business goals with IT technology: – Believing that alignment is the solution to their IT problems, companies are spending enormous amounts of money without solving any problems. – Various divisions are driving independent initiatives, each one designed to address its own competitive needs, resulting in complexity of IT systems (no standardization). As a result, costs increase and the fragmented divisions make it harder for managers to coordinate across business units. – Complexity in systems is making enhancements to systems and improvements to infrastructures more and more difficult to implement and potential benefits are left unused. – Redundant applications that perform the same or similar functions. – Outsourcing the wrong activities. – Data in multiple information systems are viewed as â€Å"garbage† and producing inconsistencies (i.e. salespeople are promoting products that are discontinued) – In companies similar to Charles Schwab & Co. for example: IT staff response have become slow and expensive; IT engineers are spending more time fixing bugs in the systems than ever before; and several big and ambitious projects are overdue and preventing the company from being competitive. Criteria The following criteria will be used to evaluate each of the alternatives: – IT spending must be aligned with the company’s growth strategies (need to reduce IT costs i.e. savings on software licensing costs where bleeding money, and head count). – Must be shared ownership and shared governance of IT projects. – Need to reduce complexity (or emphasize simplicity). – Increase efficiency (doing things in a cost effective way with no duplication of time and effort). – Economically feasible. – IT infrastructure to support networked operations in multiple locations. – Need to centralize and simplify the IT functions. – Need high effectiveness to achieve an objective through the use of: 1. simplicity (or reducing complexity) – by implementing companywide standards, replacing legacy systems, building new solutions on simplified and standardized infrastructure; 2. right sourcing – choosing the right source for a capability and maximizing effectiveness while minimizing cost; and 3. accountability – executives should get the information they need to measure the progress of IT and IT people should be held accountable for outcomes. – IT needs to be reliable, without excess complexity, and needs to deliver projects consistently with desired functionality, timing and cost. – IT systems need to run smoothly and reliably. – IT functions such as architecture and infrastructure need to be balanced with respect to the needs of the entire organization and those of individual businesses. – Need a good governance structure so as to set parameters to keep an organization on track (i.e. no more than four new technology releases per year).

Key Pieces of Icse Essay Samples

Key Pieces of Icse Essay Samples What Everybody Dislikes About Icse Essay Samples and Why Quite simply, the structure of the paper depends a whole lot on the topic and the form of question you are needed to answer to. Examples might also be included in every one of the body paragraphs to more support and clarify your primary points. Topic sentences clearly state the intention of the paragraph. Any sentence that isn't furthering my thesis is distracting from it and should be taken off. A persuasive speech is provided with the aim of persuading the audience to feel a particular way, to take a particular action, or to support a particular view or cause. The aim of a persuasive essay is to convince your readers your viewpoint is the perfect viewpoint. It would be considerably more difficult to align your arguments to coordinate with the thesis, and it may diminish the worth of your assessment and the validity of your arguments. Your persuasive argument is going to be made stronger if you're able to demonstrate that you're passionate about this issue and have a strong opinion one way or the other. Essay writing is normally practiced is schools. Before writing down the facts and examples which you're likely to tackle, you ought to be well informed, first of all, about your topic. Begin with general subjects that you are conversant with then narrow down to a certain topic. Selecting an excellent topic for your essay is among the most essential and frequently trick y parts for many students. If you're fearful of speaking in public, writing a persuasive essay for a specific audience is the best way to remove this fear. You may trust us to present expert aid for many of your academic writing needs. Trying to persuade your teacher may be quite exhausting. To begin with, it's important to pick a topic that you are able to take a stand for. Evidently, you shouldn't purposely choose a topic that will bore your audience. Remind your audience of the reason why this topic is crucial. Whichever topic you select, always don't forget the significance of literature sources. Then you're interested in figuring out how to compose persuasive paper. You need to understand how to compose an effective essay as it is a typical foundation for a student's grade. High school, college, and sometimes even university students from all around the world are writing persuasive essays. There are many persuasive essay examples college students are able to make use of online. There aren't any steadfast rules that you want to adhere to as you write. To assist you do that, here are some tips. You still have to make an outstanding bit of writing. Whispered Icse Essay Samples Secrets The introductory paragraph is perhaps the most essential paragraph in the essay as it is the very first and possibly last opportunity to produce an effect on the reader. If you wish to learn how to compose a great persuasive essay, you're looking in the correct location! A shy person won't ever create a decent persuasive essay. There are several good persuasive essay topics to pick from. A persuasive essay has to be able to grab the interest of the folks reading it easily. Your persuasive essay will have many paragraphs. The very best persuasive short essays often concentrate on controversial problems. See that the objective of a persuasive speech is just like the purpose for writing an argumentative or persuasive essay. Sample persuasive essays can also offer inspiration on topics to write on in addition to serve as examples about how to compose your essay. The simplest approach to compose a fantastic persuasive essay is to chose a topic you're confident in. Just stick to the guidelines stated above, and you will be well on your way to writing a decent persuasive essay. The Icse Essay Samples Game Students shouldn't have to wear uniforms. They should not have to wear school uniforms because they limit students' ability to express their individuality. In general, they are asked to write assignments that take between half an hour and a whole hour. Students and teachers can buy balanced lunch and drinks besides alcohol, that lets them feel nice and study much better.

Reasons Why Cheerleading Is a Sport - Free Essay Example

Sample details Pages: 5 Words: 1535 Downloads: 10 Date added: 2019/08/05 Category Sports Essay Level High school Tags: Cheerleading Essay Did you like this example? People often say that cheerleading is not a sport. Many people dont know that cheerleading is split into two different types; such as competitive cheerleading and school cheerleading. These two things may sound similar but they are completely different. Don’t waste time! Our writers will create an original "Reasons Why Cheerleading Is a Sport" essay for you Create order For that being said, the article Cheerleadingstates,origins of the sport are defined by its name. I In the late 1980s competitions against other teams started to take place (Ruder). The competitive aspect of cheerleading that has evolved throughout the years should be enough to make cheerleading a sport. School cheerleading is when a team is cheering on the football or basketball team using cheers and chants (Cheerleading). Competitive cheerleading is when different cheerleading teams compete against each other. Each team competes for a two minute and thirty-second routine (Cheerleading). Which Includes very hard skills that require training; such as stunts, tumbling, jumps, and a dance. There are guidelines and skills that are split into different divisions. All these skills are placed in a routine that is choreographed to music. The music is very upbeat and helps the cheerleaders when it comes to timing so the skills can be synchronized. Each skill that is placed into the routine i s meant to be performed in the best way as possible (Cheerleading). If any skills are executed outside of the guidelines, it may result in a penalty of points (Foley 464). Each team is scored based on the cleanness and how well the routine was executed (Gianoulis). No matter how hard the routine might be, the athletes are supposed to look good and have a good form while performing because they are being watched by the judges(Ruder). Like most sports, the athletes are required to train and prepare their bodies for the sport in order to be strong enough. In all sports, there is a winner and a loser. In school cheerleading you technically dont compete against anyone, therefore, you cant win or lose (Ruder). In competitive cheerleading, the purpose is to compete against the other cheer team and there is always a winner or a loser. A sport is defined as, an activity that involves physical exertion and skill in which each individual or team competes against another or others for entertainment (Ruder). Cheerleading fits that definition because of the amount of training and skill that is required. Cheerleaders spend large amounts of time training, they spend hours and hours to be able to do elaborate stunts and learn specific routines(Ruder). It is imp ortant for cheerleaders to have muscular endurance in order to obtain and perform skills. Stretching and flexibility is a large part of cheerleading in order for cheerleaders to obtain success. The article, Cheerleading states that, the athletic skill required to become a cheerleader has increased, however, so has the number of cheerleading-related injuries(Gianoulis). There have been many injuries in relation to cheerleading. However, the risk and the serious possible injuries should make cheerleading more visible as a sport. In 1987 the important cheerleading safety standards were created by the American Association of Cheerleading Coaches and Administrators (Machuca 9). There have been lots of injuries because of cheerleading and the risks are increasing still today. Machuca states that cheerleading has been deemed one of the most dangerous female sports (9). The most common injuries that have taken place are to the ankles and to the wrist. These injuries are due to an overload of pressure from either tumbling or lifting someone up in the air (Foley 464). Stunting and tumbling pertain to large amounts of force and cheerleaders must be trained properly to learn how to absorb the pressure. If the pressure is not absorbed correctly, it can result in a broken bone or another serious injury. Foley states that cheerleading accounts for sixty-three percent of catastrophic injuries to female high school students and fifty-six percent of injuries at the college level in the USA(464). Foley states that there are only twenty-nine high schools in the USA that recognize cheerleading as a sport(464). Due to the large amounts of risk of injuries, the instructor should be certified in order to teach and coach the stunts that cheerleaders learn. Competitive cheerleading is just as competitive as any other sport. Ruder states Cheerleading requires some of the highest athletic ability of all. You can travel out of state and stay overnight for competitions. Ruder also states that, Cheerleading competitions didnt take place until the 1980s, with the competition itself that defines cheerleading as a sport (Ruder). Cheerleaders spend tons of money traveling and buying uniforms. For competitive cheerleading, you can practice up to four times a week. As a competitive cheerleader, you have many responsibilities that you have to uphold on the team (Ruder). If you fail to uphold your responsibilities you may let your team down. If you make one mistake it may result in points being deducted for the entire team. If you have good standings, your team could have the chance to make it to The Cheerleading Worlds. It is the largest competition in the world. The teams that compete there, compete against other teams that come from all over the world. School cheerleading is completely different from competitive cheerleading but many people dont know the difference. Ruders article explains, In my eyes, the main reason why people try to argue that cheerleading is not a sport is that in their mind, they are picturing girls in skirts yelling, Go team! on the sidelines (Ruder). This proves that school cheerleading changes what people think cheerleading really is. However, some school teams may compete competitively once or twice. With that being said, the routines that are competed by school cheerleaders are not the same as competitive cheerleading routines; for example, they are not as complex. Some could say that school cheerleading gives cheerleading a bad name. However, because people think that people participate in school cheerleadingfor the social status. The social status of cheerleading can be a good or a bad thing. As a school cheerleader, cheerleaders are supposed to uphold a standard of representing the school. Gianoulis says, there are many people who reject the school status hierarchies and who view the cheerleaders as shallow snobs rather than social successes(Gianoulis). People think that cheerleaders are strong athletes who try to seek a recognition in one acceptable way for females(Gianoulis). This explains, that in schools, cheerleading can start issues because people think cheerleaders think they are above everyone else. Gianouliss article states that cheerleading plays an important role. In many schools, cheerleading has become a battleground for social issues(Gianoulis). A student from the University of Connecticut charged the school with discrimination because they kicked her off the cheerleading team for being overweight (Gianoulis). There are also other issues that take place that gives cheerleading a bad name. In movies and tv shows, they make cheerleaders seem like they are being sex objects; making them seem bad and giving the name of cheerleading a bad name(Giannoulias). Gianouliss article states that cheerleaders are easy targets and are often stereotyped as being stupid and superficial(Gianoulis). The article, Cheerleading, states that, Some women devote their lives to cheerleading, for themselves or their daughters; others condemn it because it turns women into boosters at best and sex objects at worst(Gianoulis). People give cheerleading a bad name because they assume things about the sport that isnt true. Also because of what they might see on tv or other things. Gianiuliss article talks about a situation that happened in a high school in Texas that staged a walkout for twenty-eight days in protest of their schools racist policies concerning the cheerleading selection(Gianoulis). As any other sport does, cheerleading provides a lot of businesses in the economy. In the 1940s, Lawrence Herkimer created the National Cheerleaders Association. NCA holds large competitions and camps that originate in Dallas, Texas. The camps teach lots of skills that help the cheerleaders at a very good price (Gianoulis). Over the years, the business profits have increased tremendously as cheerleading has grown and become more popular. This also attracted competition. Jeff Webb started his own company as well. His company originates in Memphis, Tennessee. This company is named the Universal Cheerleaders Association, also known as UCA. This company also pairs with the Varsity Spirit Corporation. The Cheerlea ding article states the Varsity Spirit even expanded abroad, signing a deal in Japan, where cheerleading is popular(Gianoulis). The debate is very popular , on social media and in relation with other people who participate in other sports. Someone who participates in cheerleading understands the amount of time, money, and energy that goes into the sport. For someone talk badly about a person that dedicates their life to cheerleading, it would be insulting. Overall, I strongly believe that competitive cheerleading is a sport because of a large amount of training, the amount of skill that has to be implied, and the risk of injuries due to the amount of difficulty within the sport. I would like to see a change in the way that people view cheerleading. Being a part of a team teaches kids how to work within a team. As a cheerleader myself, I would most definitely recommend it to anyone for their child.

Animal Research And Medical Advances - 1187 Words

Animal research has played a prominent role in scientific and medical advances for many years. Due to the development of new medicines and treatments, people throughout the world enjoy a better quality of life. However, scientific and medical use of animals have been a subject of heated debate for many years. Those who support animal research and experimentation justify their stance based on the medical advances that improve human lives. Research is one of many purposes that humans use animals for. The main reason animals are used in research is to learn more about illnesses that burden humans and other animals. Society views the use of a newly developed drug or surgical technique unethical to first be used on human beings, so the drug or technique is tested on animals to ensure its safety and effectiveness. Animals, especially those with a short life span (like rodents), offer experimental models that otherwise would not be possible to produce using human subjects. A short lifespan allows scientists to determine if there are side effects to certain drugs. Some animal species are genetically identical, such as inbred mice, so researchers are able to compare different procedures on identical subjects. Scientists can also develop preferred animal models due to advances in genetic engineering. For example, the use of mice with added or disabled genes has transformed our understanding of cancer, heart disease, memory los s, Parkinson’s disease, cystic fibrosis, and muscularShow MoreRelatedAnimal Experimentation Essay812 Words   |  4 Pagesbeen using animal experimentation to create new ways to help save the human race. There are people who believe that it does help, and that it is necessary to continue, while others oppose and want to fight for the elimination of animal experimentation. Scientists fight for the cures needed to help man kind, but struggle to do so as people fight against their work in progress. But as Jennifer A. 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To believe thatRead MoreShould We Use Animals For Experiments?1335 Words   |  6 PagesLeland Tran Ms. Lambert Lit Modern Media Period : 5 May 7 2015 Advance in Medical Science Is a Must For years, people think of using animals for an experiment is an awful thing to do. It may seem to be disturbed to some people, but it helped medical researchers to figure out and create new medicines to cure the illnesses that have not a cure yet. How could animals help us with the experiment? If we cannot use animals, then what or who could replace them? Should we use humans for experimentsRead MoreAnimal Experimentation And The Early Greek Era1716 Words   |  7 Pages1101 9 November 2015 Animal Experimentation: We Owe It to Them Animal Experimentation has been dated as far back as to the Early Greek Era. This practice has been viewed as ethical by research scientists trying to find new medical breakthroughs. 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Prescott, from the National Center for the Replacement, Refinement and Reduction of Animal Research, makes a very good point whe n he says that: Read MoreCase for Animal Testing1113 Words   |  5 PagesIn the early nineteenth century, animal experiments emerged as an important method of science and marked the birth of experimental physiology and neuroscience as we know it today. It has since become an issue of intense public controversy. Many individuals against animal experimentation claim that animals undoubtedly merit the same amount of consideration and respect as humans and should be treated on the basis of the principles of equality. However, there is significant evidence to suggest thatRead MoreArguments Against Animal Testing1157 Words   |  5 PagesWhat comes to mind when thinking about animal experimentation? Thoughts of innocent, lovable animals being stabbed with sharp needles? Well, that is not exactly the case, as animal experimentation plays a very important role in human health today. However, the idea of animals testing has become quite a controversial topic. Over the past few decades, there has been an extensive debate over the use of animals in medical and product testing. The majority of people seem to think that it is an unnecessaryRead MoreAnimal Testing Is Inhumane And Inhumane946 Words   |  4 Pagesbeen using animals since the famous Greek doctor Galen (AD 129-200) studied animals. William Harvey used animals 400 years ago to discover how blood circulated through the body. Many medical advances have been made using animals. The â€Å"modern† era of animal research started about 150 years ago. People think that animal testing is inhumane and cruel, and it used to be. In the beginning it was very different then it is today, there were no anesthetics or effective pain killers. The animals involved with

Albert Bandura’s Social Cognitive Theory Free Essays

Albert Bandura’s Social Cognitive theory is highly important in understanding the processes and elements that influence human learning. One perspective of Bandura’s theory is the innate capacity of human beings to be agents of change and human processes. With this in mind, Bandura presented some human internal and external factors that influence the process of being an agent of change. We will write a custom essay sample on Albert Bandura’s Social Cognitive Theory or any similar topic only for you Order Now Social Cognitive theory, under the agentic perspective, relies on human intentions as a means to establish one’s connection to social structures based on three modes of agency: direct personal agency, proxy agency, and collective agency. These three modes of agency acknowledge the role of interdependence on how human beings will be able to manage human learning and processes that constitute life. Human agency necessitates the willingness and intentions of human beings to accomplish things through highly motivated thinking and actions. The results of an individuals’ thinking and actions under the perspective of human agency will assist individuals to undergo self-development and reconstruction in order for them to adapt to various life concerns. According to Bandura, human agency constitutes various core features: intentionality, forethought, self-reactiveness, and self-reflectiveness. Intentionality requires the willingness of human beings to do something in order to achieve desired results. Social functions give birth to desirable, mutual, and advantageous relationships if individuals are willing enough to become part of it. Collaborative activities, for instance, work out well if individuals take into account the desirable outcomes that might come out of it. Forethought complements intentionality, as it is concerned with looking and planning ahead. Bandura suggested that if forethoughts are motivating and desirable enough for individuals, then it will wield the intention of doing things that will eventually lead to its realization. For instance, an individual works with another for a cause but perceives that the relationship will be hostile and unproductive. His non-motivating view will not contribute to intentionality to invest time and effort to nurture the relationship. To continue, self-reactiveness talks about being able to motivate, but at the same time regulate oneself in terms of thinking and taking action. On the other hand, self-reflectiveness is established on the concept of introspection where one is able to evaluate actions and behaviors and determine how to fortify or change them. Aside from the core features of human agency, the three modes of agency influence the process of social cognition. Direct personal agency looks into the unswerving involvement of the individual to arrive at desired results. Intentionality, forethought, and self-reactiveness come into play to motivate individuals to influence the social structure. However, when individuals are unable to control it, they rely on proxy agency. The proxy agency constitutes other individuals or means to achieve the desired result, as the individual’s inability to influence the birth of the outcome is unperceived. Moreover, when direct personal agency and proxy agency do not seem to accomplish desired results within social structures, the collective agency gives off its value. The collective agency looks into the combined efforts to achieve goals and objectives. The collective agency relies on group functioning to harbor desired results. The nature of social structures is highly dependent on how individuals are able to perceive and establish it. At some points, social structures are reliant on the intentions, perceptions, and motivations of individuals to commit to actions and behaviors that will influence how these social structures will be shaped. Aside from the internal influences that might bear weight on the nature of social structures, modes of agencies will also affect how the process will be accomplished. Establishing social structures, under the three modes of agency, will depend on the direct influence of an individual, the dominance of other individuals and means to accomplish results, and the efficiency of group functioning to realize social structural goals and objectives. How to cite Albert Bandura’s Social Cognitive Theory, Papers

Arts And Crafts Essay Example For Students

Arts And Crafts Essay When I am feeling all of the tension and stress from my week start to get to me, I feel like I have to unwind. I feel that I have to do something to let go of all of the thoughts I carry with me throughout the day. That is when I look through my art supplies, so I can use my energy in a productive way. I love art; it is my passion. I do everything from crocheting to painting and sculpting. It is such a release of tension and stress. Doing art is my way of expressing myself. When I create things I am able to have time alone. In fact, The four heading lines of title page information should appear only on the first page. Each new paragraph should be indented one tab or five spaces. Do not put extra line spaces between paragraphs. Doe 2 it is clear that Fitzgerald is attempting to shed some light on the direction America was heading after the First World War, When the war ended, Americans wanted to forget the hardships and turmoil of the previous years and concentrate upon the youthful glory and excitement, which became characteristic of the Jazz Age. (adapted from McGee) Jazz had been You MUST acknowledge the author(s) for any and all information you use in any kind of report, essay, or presentation that you do. The purpose of documentation is twofold: to give credit where credit is due, and to allow your reader to track down your sources, Every acknowledgement has TWO locations/parts. 1. In-text Citation acknowledgement tot a source used, placed immediately at the point where it is used ? after a quotation or after a paraphrased section. The bare detail (most commonly authors last name and page tot the quote or information) of the source is given in parentheses and it directs the reader to the complete source entry which appears in the Works Cited. 2. Works Cited, Works Consulted, or References the list of sources used with complete publication detail for each source. It begins on a separate page(s) at the end of your work. The first word(s) of each citation is/are the words used in-text, placed in earnestness. Works Cited includes all works which you cited within your work (ML style) Works Consulted includes favors which you cited in your work and those you read, but didnt make direct use of in your work (ML style) References includes all favors which you cited in your work (PAP style) Your teacher will dictate which style is to be used for documentation. The two styles that are used most commonly are those of the Modern Language Association (ML) and the American Psychological Association (PAP). The in-text citation reveals the source that was used right at the point where it was used. This citation is alternately called a parenthetical citation or parenthetical reference. In parentheses you should provide the last name of the author. Fifth author is not named, the title of the article (in quotation marks) or the title of the work (in italics) should be listed. The word(s) that appear first in the Works Cited, should appear in parentheses in your work with the page number of the quotation (ML 214-215) Writing Style and usage of Quotations set off from the text or run into it, quoted material is usually preceded by a colon it the quotation is formally introduced and by a comma or no incaution if the quotation is an integral part of the sentence structure (ML 102). Shelley held a bold view: Poets are the unacknowledged legislators of the World (794). Shelley thought poets were the unacknowledged legislators of the World (794). Poets, according to Shelley, are the unacknowledged legislators of the World (734). ML 102) Construct a clear, grammatically correct sentence that allows you to introduce or incorporate a quotation.. (ML 92) Lead up to your quotation by giving the speaker and the situation. Do not assume that the reader knows the exact part Of the book that you are quoting. Avoid the use of artificial phrasing such as This quotation pro ves Follow up your quotation by commenting on, explaining, applying, interpreting, or drawing a conclusion from your quotation. Do not leave the reader to do the work! Never move on to a new point or paragraph immediately after the quotation. Introduce and follow up on each quotation separately, Do not string them together. Avoid overly long quotations. Stage Decoration and the Unity of Place in France in the Seventeenth Century- Part 2 EssayAs folk terms, â€Å"art† and â€Å"craft† refer to ambiguous conglomerations of organizational and stylistic traits and thus cannot be used as unequivocally as wc would want to use them if they were scientific or critical concepts. Since I will nevertheless have occasion to speak of art and craft worlds, organizations, and styles of work, it should be understood that in doing so I am referring to one or another aspect of some folk definition. I often refer to particular organizations that come close to realizing the ideal combinations implied by the folk terms, but even these do not live up to the expectations embodied in the ideal, nor docs it matter analytically that they do not.   In fact the ambiguities of the terms and the contradictions between what they predict and what the world exhibits will be most useful in the analysis, as those ambiguities and contradictions occur in particular fields of activity undergoing change. When change occurs, the people involved argue over the meaning of the activity; therefore examining cases of change from one defini tion to another will help us understand better the social meaning of our basic terms. I have made indiscriminate use of materials from a variety of sources my own experience in a numlier of worlds of art and craft as well as socio logical and historical studies of such worlds but 1 have not examined any systematic body of data in a systematic way. For my major examples I have used the worlds of the conventional handicrafts (especially ceramics), which   produce objects capable of visual appreciation and thus tend to be linked to such high art worlds as painting and sculpture. But the analysis is intended to be more general than that, and, though I speak largely of such crafts, I will occasionally indicate applications to other kinds of media and to per forming as well as object-producing arts and crafts.