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Risk management refers to the systematic process through which organizations identify, assess, monitor, and control uncertainties that may adversely affect their objectives, operations, financial stability, and reputation. In the context of banks, risk management occupies a central position because banks deal primarily with money, credit, and trust, and even small misjudgments can have large-scale consequences for depositors, investors, and the economy as a whole. The concept of risk management in banks is therefore not merely defensive in nature but is a strategic function aimed at balancing risk and return while ensuring long-term sustainability, regulatory compliance, and financial soundness. At its core, risk management involves recognizing potential risks, measuring their likelihood and impact, deciding on appropriate responses, and continuously monitoring outcomes. Banks operate in a highly dynamic environment influenced by market fluctuations, borrower behavior, technological changes, regulatory norms, and macroeconomic conditions. Effective risk management enables banks to anticipate potential threats, minimize losses, allocate capital efficiently, and maintain public confidence. It also supports informed decision-making by integrating risk considerations into lending, investment, and operational strategies. One of the most significant risks faced by banks is credit risk. Credit risk arises from the possibility that borrowers or counterparties may fail to _______ _____ _____ _____ ______ _______ ___ _____.
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