Scenario One

Traditionally, ABC Private Bank has only provided banking services and credit to high-earning individuals. However, their management wishes to grow the value proposition of the bank and has decided to offer services and loans to young professional individuals who are still building their careers. Even though these individuals do not satisfy the minimum annual income criteria, management believes that careful screening will reduce the likelihood of bad debt.

Scenario Two

From prior experience and research, ABC Private Bank knows that there is an increase in bad debts when there is a prolonged economic recession. The risk management team stress-tested their credit provision models and are confident that the bank has sufficient capital buffers to withstand an increase in bad debts, should the economy go into a recession.

Scenario Three

In recent years, almost all of ABC Private Banks customers moved to doing their banking online. At the same time, there has been an increase in the incidence of outsiders gaining unauthorised access to clients accounts. To curb the incidence of unauthorised access, ABC Private Bank introduced stronger password requirements and two-factor authentication.

From the three scenarios outlined above, provide an example of each of the following risks and discuss how ABC Private Bank mitigates these risks:

2.1 Preventable risk.

2.2 Strategy Risk.

2.3 External Risk.