Credit risk is the inability of customers to fulfill the obligation to pay back. Market risk is the fluctuation in asset values caused by changes in market prices and yields. Liquidity risk is an inability to accommodate the maturing obligations and withdrawals as well as asset growth and financing to meet obligations at a reasonable market price. Operational risk is the potential losses and incidents involving people, processes, technology, legal issues, external events, compliance, or reputation.

To assess risks, in a risks of bank is discussed and assessed at the Board of Commissioners and the Board of Director level using a comprehensive committee structure, which described the Business Risk Management and Governance at the Bank.

Here is an example of how a bank arrange committee involved in risk management. The committee consists of:

1. Risk Management Committee
2. Risk Committee and Credit Policy
3. Asset and Liability Committee
4. Market Risk Committee
5. Operational Risk Committee and Information

Risk Management Committee
This Committee meets at least three months to determine and analyze the level of risk associated with bank business, existing business opportunities and bank capital adequacy. Decisions of this committee was poured into operational policies and guidelines for all levels of the organization.

The task of this Risk Management Committee is to undertake a review of:
1. Framework and risk management governance
2. Direction, strategy and risk management programs
3. Risk profile and capital adequacy analysis
4. Policies and implementation of risk management
5. Risk management measurement methodologies
6. Emergency plans (Contingency Plan)
7. Adequacy of backup deletion

To assist the committee’s role, then the control and inspection carried out independently of the operational aspects of the bank by the internal audit by the Comptroller chaired.

Risk Committee and Credit Policy
Credit risk here is intended as the inability of debtors to repay their obligations to the Bank. Credit risk is managed by the study on:
1. Credit and portfolio diversification (business segment / sector
industrial / debtor);
2. Credit policies and procedures;
3. The adequacy of backup removal;
4. Determination of indicators credit risk profiles and credit risk measurement methods

Asset and Liability Committee (ALCO)
Liquidity management involved in Bank activities in maintaining the various of financing capacity, current assets and other cash resources to accommodate fluctuations in the level of assets and liabilities resulting from business disruption or unanticipated events. Banks manage liquidity risk at several levels of the Division of Finance, Accounting and Planning to formulate strategies that liquidity and interest rates, Treasury Division manage liquidity and interest rates are operational and ALCO committees oversee the position and condition of bank balance sheets compared to market conditions and in meeting monthly to determine the optimal strategy for managing these risks.

ALCO focused on the amount of current assets, the Bank’s ability to raise funds from the interbank money market, bank financing structure, maturity of assets and liabilities, interest rates and market trends, adequacy of future funding and macro economic conditions.

Market Risk Committee
Market risk is the potential losses caused by changes in market prices and yields. Market risk is closely linked to customer bank loans, deposits, trading activity, securities and derivative products. Market risk is managed within the overall limits and risks using hedging techniques. All the trading activity in relation to foreign exchange, derivatives, money markets and securities monitored every day and studied with mark-to-market basis within the limits set by the Market Risk Committee.

Operational Risk Committee and Information
Operational risk is the potential losses caused by an event that involves people, the failure of process, technology, legal issues, external events, compliance regulations and so forth. Under the Bank’s governance structure, each business unit is responsible for the risks that occur in the operational activities of daily with reference to the policies and procedures, control and routine monitoring. In addition, the bank’s risk profile and the overall internal control system has been developed and monitored by the Operational Risk Committee and the Information, which focuses attention on the operational risks associated with product development, systems, human resources and the principle of ‘know your customer’ as an aspect of prevention against the possibility of fraud and malpractice.

Audit Control
In addition to the system and risk management committee, the Bank has formed a special function in it intern control system. Bank Audit Committee to review the role of each Bank’s operational activities. Internal audit independently carry out assessments in all areas and business units systematically, to discuss control issues, adequacy of policies and procedures, adherence to central bank regulations and internal rules and the effectiveness of supervision and management structure.

As we understand, the interest rate is one of the most effective monetary policy instruments. Decline of interest rates will decline  bank loan rates and to trigger increased credit. Loans in a healthy and well is one way to boost the economy of a country with the creation of investment and consumption.

Global interest rates now seems began to increase. After Fed decided to cut its benchmark rate to as low as 0 – 0.25% in December 2008 and keep up to date till now, a gang part of the world’s central banks to lower interest rates. Since August 2007 until December 2008 the Fed has cut interest rate by 500 bps.

Step of Fed to cuts it’s interest rate also attended by central banks in around the world. ECB cut 325 bps in the period June 2008 – May 2009, and current interest rates in Europe at level 1%. Australia’s central bank has cut interest rates by 425 bps during the period August 2008 – April 2009. British central bank slso cut interest rates by 400 points in the period September 2008 – March 2009, to the level of 1% which is the lowest rate in history.

Australia pioneered the Policy of Interest Rate Increase
among the central banks in the world, Australia’s central bank has decided to raise interest rates again reference. After maintaining interest rates at the lowest position in the history at the 3% level in the period April to September 2009, since October 2009 Reserve Bank of Australia (RBA) has raised again the interest rates gradually.

Step of RBA to raise interest rates beginning in October 2009. Until December 2009, RBA has raised interest rates by 75 bps and currently in the position of 3.75%. Until now, among the developed countries, only RBA dare raise rates again reference.

However, measures of monetary tightening likely begin to occur in various countries. China is the second country that has taken monetary tightening measures. Through a policy to raise the Minimum Necessary Giro which was released this January, China’s central bank has started tightening monetary policy.

Central banks in the world began to feel need to conduct monetary tightening by the various instruments for global economic recovery that seemed to blow it raises concerns about the emergence of inflation.

China’s Gross Domestic Product in the fourth quarter of 2009 recorded growth 10.7% compared to the same period in 2008. This economic growth exceeded the previous estimate of 10.5% only. China’s massive economic growth makes steps of China’s central bank to make the contraction enhanced by the reason.

Economic growth for one year in the year 2009 exceeded estimates made by the government. Economy in the year 2009 in China experienced growth of 8.7% after earlier predicted would only grew 8%.

Meanwhile potential inflationary impact of massive economic growth also appears from the data release now. Consumer inflation in December 2009 was recorded at 1.9% compared to the previous year. This inflation is the first time after nine months of deflation. Price inflation at the producer level was also increased to 1.7%. Inflation is the first time after 12 months of deflation.

It is estimated that inflation began to emerge will provide pressure for the central banks in around the world to raise rates again. However, until the second half of 2010 is expected not happen to interest rates jump significantly. Early the next day, Fed still expected to be kept its base rate, as well as Reserve Bank of New Zealand (RBNZ), which is scheduled to release their interest rate setting decisions several hours afterward. Economists believe that the central banks in around the world will likely look forward step in the Fed interest rate policy before making decisions.