(01) Explain the off balance sheet activities in domestic and international banking the way to impact to the profit & loss.
An asset or debt that does not appear on a company’s balance sheet. Items that are considered off balance sheet. All of domestic and international banks have off-balance sheet accounts, and the distinction between these accounts may not seem obvious. There are many off balance sheet activities in the bank. They are Loan commitments, certain letters of credit, Revolving underwriting facilities and Derivative instruments – swaps, futures, forwards and option contracts.
When considering Loan commitments, it is a formal loan commitment is a written agreement, signed by the borrower and lender, detailing terms and conditions under which a loan of up to a specified amount will be made. The commitment will have an expiration date and for agreeing to make the accommodation, the bank may require a fee to be paid and require the maintenance of a stipulated compensating balance by the customer.
So, futures contract is a standardized contract between two parties to exchange a standard quantity of a specified underlying asset on a predetermined future date at a price agreed today and Option contract is an option give a holder the right, but not the obligation to buy or sell a specified quantity or quality of a certain asset within a specified period or on a specified date at a price agreed when the contract was entered into. In the financial market to hedge the risk or to minimize the risk, derivative instruments are used.
Income generated from off-balance sheet activities are included in earning. So, many of the risks involved in these off-balance sheet activities. These features of off-balance sheet impact to the profit and loss of the bank. These activities mention under the financial notes.
(02) Discuss the operational risk using international bank crisis and method used to overcome the crises
Operational risk is defined as the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events.
A banking crisis usually refers to a situation in a general market adjustment when faith in banking institutions falls, and people start trying to move their money to other places for safe keeping. This is called a run on the banks. It can also occur due to overextending low quality loans, which in a down market can become essentially worthless.
There are many methods used to overcome the bank crisis they are as follows
1.Faster decision-processes -: Decisions taken at the lowest level possible and transparency by a new corporate governance model.
2.Culture change realized by the employees
3.Management innovation around core people and leadership practices -: In conjunction with all other PEARL initiatives within HR we are now focused on reinventing some of the core management practices that are real barriers when it comes to an engaged, accountable, responsive culture.
5.Innovation -:A lot of focus is being put on innovation, preferably in co-creation with the customer. Crowdsourcing is also often used as a way to collect and improve ideas. To stimulate this, various initiatives were taken.
(03) Discuss briefly innovation in domestic and international banking.
There are many banks product and service innovation can be seen in the recant few years. They can affect improvement of banking sector and reduction of the crisis of the banking industry. Same of them as follow.
– Smart Current Account -:A free bank account built around an Application Programming Interface (API), the Smart Current Account supplements classic account services with internet payments and innovative banking products.
– Digital Branch -: To appeal to young, tech-savvy consumers and to perfect its Omni-channel offerings, The Bank of East Asia, Limited (BEA) launched a highly flexible and mobile digital branch that operates as a paperless, straight-through model.
– Powerful Teller-Dashboard -:This is for Enhancing Customer Experience at Every Contact Point
– Co-op Capital -: This is for Widening Access Points to Financial Products.
– The Mobile ATM Service for Small Medium Enterprises -: Idea Bank SA launched a secure multi-functional mobile ATM and depository service housed in an electric BMW i3 car driven by trained bank employees that is offered free of charge for the banks small medium enterprises (SME) customers.