Here is a compilation of essays on ‘Risk Management in Banks’ for class 11 and 12. Find paragraphs, long and short essays on ‘Risk Management in Banks’ especially written for school and college students.
Essay on Risk Management in Banks
- Essay on Introduction to Risk Management in Banks
- Essay on Risk Management Structure in Banks
- Essay on Credit Risk in Banks
- Essay on Risk Rating in Banks
- Essay on Risk Pricing and Capital Allocation in Banks
- Essay on Credit Risk Management in Banks
- Essay on Loan Review in Banks
- Essay on Credit Risk in Investment Banking
- Essay on Market Risk in Banks
- Essay on Capital for Market Risk in Banks
- Essay on Operation Risk in Banks
- Essay on Basel Committee Norms in Banks
Essay # 1. Introduction to Risk Management in Banks:
Banks are confronted with several financial and non-financial risks viz.,
Credit, risk, Interest rate risk, Foreign exchange rate risk, Liquidity risk, Securities price risk, Commodity price risk, Legal and regulatory risk, Reputational risk, Operational risk, etc.
These risks are interrelated and events that affect a particular risk can have ramifications on other risks.
The risk management functions encompass:
1. Organisational structure;
2. Risk identification analysis and measurement.
3. Risk management policies.
4. Guidelines on risk taking including prudential limits;
5. Strong MIS facilitating reporting, monitoring and controlling risks;
6. Risk reporting framework;
7. Independent risk management department.
8. Periodical review and evaluation of risk management.
Essay # 2. Risk Management Structure in Banks:
An appropriate risk management structure can be a centralised or decentralised structure. The global trend is towards centralised integrated risk management. The Board of the bank should set risk limits by assessing the bank’s business risk and risk bearing capacity. At organisational level, overall risk management should be assigned to an independent Risk Management Committee with full responsibility of evaluating risk faced by the bank and determining the level of risk that will be in the best interest of the bank.
The line management is accountable for the risks under their control. Risk Management Committee should identify, monitor and measure the risk profile of the bank and also develop policies and procedures, and in addition identify new risks that may arise and affect the bank.
A prerequisite for establishment of an effective risk management system is the existence of a robust MIS, consistent in quality.
The design of risk management functions should be bank specific, dictated by its size, complexity of functions, the level of technical expertise and the quality of management information system. Asset Liability Management Committee (ALCO) deal with different types of market risk and the Credit Policy Committee (CPC) oversees the credit risk /counterparty risk and country risk.
Banks could also set-up a single Committee for integrated management of credit and market risks. Generally, the policies and procedures for market risk are articulated in the asset Liability management policies and credit risk is addressed in Loan Policies and Procedures.
ALCO and the CPC and their consultation process should be established to evaluate market and credit risks. Banks may also consider integrating market risk elements into their credit risk assessment process.
Essay # 3. Credit Risk in Banks:
Lending involves a number of risks. In addition to the risks related to creditworthiness of the borrower and guarantor, the banks are also exposed to interest rate, forex and country risks. Credit risk or default risk involves inability or unwillingness of a borrower with regard to repayment of loan.
Counter party risk arise in trading of securities, derivatives and foreign currency transactions. The Credit Risk or default risk depends on both external and internal factors. The external factors are the state of the economy, wide swings in commodity/equity/bond, prices, foreign exchange rates and interest rates, trade restrictions, economic sanctions, Government policies, etc.
The internal factors are deficiencies in loan policies/administration, absence of prudential credit concentration limits, inadequately defined lending limits for Loan Officers/Credit Committees, deficiencies in appraisal of borrowers’ financial position, excessive dependence on collaterals and inadequate or absence of loan review mechanism and post sanction surveillance.
The guarantor failure to fulfill contractual obligations is a credit risk. The counterparty risk is generally viewed as a transient financial risk associated with trading rather than standard credit risk.
The management of credit risk lies in:
(1) Measurement of risk through credit rating/scoring;
(2) Quantifying the risk through estimating expected loan losses;
(3) Risk pricing on a scientific basis; and
(4) Controlling the risk through effective Loan Review Mechanism.
These matters should receive the top management’s attention and they should formulate clear policies for credit proposals, financial covenants, rating standards, delegation of powers, prudential limits on large credit exposures, concentrations, standards for loan collateral, loan review mechanism, regulatory/legal compliance, etc.
Each bank should also set up Credit Risk Management Department (CRMD) independent of the Credit Administration Department. The CRMD should enforce and monitor compliance of the risk parameters and prudential limits and CRMD should also lay down risk assessment systems, monitor quality of loan portfolio.
Banks can also consider credit approving committees at various operating levels i.e. large branches (where considered necessary), Regional Offices, Zonal Offices, Head Offices, etc. Banks could consider delegating powers for sanction of higher limits to the ‘Committee’ for credit approval. The banks should also evolve suitable framework for reporting and evaluating the quality of credit decisions. The quality of credit decisions should be evaluated within a reasonable time, say 3 to 6 months, through a well-defined Loan Review Mechanism.
In order to limit the magnitude of credit risk, prudential limits should be laid down on various aspects of credit:
(1) Stipulate benchmark for debt equity and profitability ratios,
(2) Debt service coverage ratio and other ratios,
(3) Single/group borrower limit,
(4) Substantial exposure limit,
(5) Exposure to industry/sector etc.
Essay # 4. Risk Rating in Banks:
Banks should have a comprehensive risk scoring/rating system that serves as a single point indicator of risk factors for taking credit decisions and also present meaningful information for review and management of loan portfolio.
The risk rating, should reflect credit risk and also facilitate the credit sanctioning authorities some comfort in its knowledge of loan quality.
The risk rating system should include, inter alia, financial analysis, projections and sensitivity analysis of industry, management risk, financial ratios and operational parameters, creditworthiness of borrowers and collaterals giving importance to recent developments.
The overall score for risk is to be placed on a numerical scale ranging between 1 to 6, 1 to 8, etc. on the basis of credit quality. Each bank should prescribe the minimum rating below which no exposures would be made. The credit risk assessment exercise should be repeated biannually (or even at shorter intervals for low quality loans) and delinked from the regular renewal exercise.
Updating of the ratings should at quarterly intervals or at least a half-yearly interval if the rating system is to be meaningful. The credit quality reports should signal changes in expected loan losses. There should be consistency and accuracy of internal ratings. The banks should undertake comprehensive study on upgrade migration (lower to higher rating) and downgrade migration – (higher to lower rating) of borrowers.
Essay # 5. Risk Pricing and Capital Allocation in Banks:
Pricing based on risk and return is a fundamental tenet of risk management. Interest rate should be based on probability of default and should be linked to risk rating or credit quality. The probability of default could be derived from the past behaviour of the loan portfolio.
But value of collateral, market forces, perceived value of accounts, future business potential, portfolio/industry exposure and other strategic reasons may also play important role in pricing. The banks should allocate enough capital so that the expected loan loss reserve or provision plus allocated capital covers 99% of the loan loss outcomes.
Essay # 6. Credit Risk Management in Banks:
Tracking the Non-Performing Loans around the balance sheet date does not signal quality of control. Banks should evolve proper systems for identification of credit weaknesses well in advance.
The banks in order to maintain credit quality could be:
(1) Stipulate quantitative ceiling on exposure in low rating categories, say 1 to 2 or 1 to 3, 2 to 4 or 4 to 5, etc.
(2) Evaluate the rating-wise distribution of borrowers in various industries and segments,
(3) Exposure to single industry/sector should be evaluated on the basis of overall rating distribution and also pros and cons of concentration.
Essay # 7. Loan Review in Banks:
Banks should, put in place proper Loan Review Mechanism (LRM) for large value accounts.
The main objectives of LRM could be:
(i) To identify promptly loans which develop credit weaknesses and initiate timely corrective action;
(ii) To evaluate loan quality and isolate potential problem areas;
(iii) To provide information for determining adequacy of loan loss provision;
(iv) To monitor compliance with relevant laws and regulations; and provide information on risk evaluation and post-sanction follow-up.
The Loan Review Officers should have sound knowledge of credit appraisal, lending practices and loan policies of the bank. They should also be well versed in the relevant laws/regulations that affect lending activities. Rating- wise volume of loans, probable defaults and provisioning requirements should be done as a prudent banker.
They should undertake rapid portfolio reviews, stress tests and scenario analysis when external environment undergoes rapid changes (e.g. volatility in the forex market, economic sanctions, changes in the fiscal/monetary policies, slowdown of the economy).
The stress tests would reveal undetected areas of potential credit risk exposure and linkages between different categories of risk. Banks should evolve suitable framework for monitoring capturing and controlling the market risks and the loan concentrations and also overall exposure to a single and group borrower shall be monitored, captured and controlled.
The Bank should further evolve systems for identification of accounts showing pronounced credit weakness, well in advance and draw internal guidelines for deciding courses of action. The Altman’s Z Score forecasts the probability of a company entering bankruptcy within a 12-month period. The model can be used for assessing credit risk.
The loan reviews should focus on:
(1) Approval process;
(2) Accuracy and timeliness of credit ratings assigned by loan officers;
(3) Adherence to internal policies and procedures, applicable laws / regulations;
(4) Compliance with loan covenants;
(5) Post-sanction follow-up;
(6) Sufficiency of loan documentation and Loan Limit;
(7) Portfolio quality and identification of incipient sickness;
(8) Recommendations for improving quality.
Essay # 8. Credit Risk in Investment Banking:
Significant magnitude of credit risk, in addition to market risk, is inherent in investment banking. The proposals for investments should also be subjected to the same degree of credit risk analysis, as any loan proposals, through detailed appraisal, rating framework, financial and non-financial parameters, and sensitivity analysis to external developments, etc.
The maximum exposure to a customer on non-sovereign papers should commensurate with the risk profile. The banks comprehensive risk evaluation should exercise due caution, particularly in investment proposals, which are not rated. There should be greater interaction between Credit and Treasury departments to ensure right exposure.
Exposure in off-balance sheet products like forex forward contracts, swaps, options, etc. as a part of overall credit to individual customer are subject to the same credit appraisal, limits and monitoring procedures.
The trading credit exposure to counterparties shall be measured on both static and dynamic basis. The current replacement cost on account of expected loss and the potential increase in replacement cost on account of volatilities in price should be considered. The current and potential credit exposures may be measured on a daily basis taking into account the market movements.
Essay # 9. Market Risk in Banks:
Traditionally, credit risk management was the primary challenge for banks. But with progressive deregulation, market risk arising from adverse changes in market variables, such as interest rate, foreign exchange rate, equity price and commodity price have become relatively more important.
Market risk takes the form of:
A. Liquidity Risk
B. Interest Rate Risk
C. Foreign Exchange Rate (Forex Risk)
Market Risk Management:
Management of market risk should be the major concern of top management of banks and they should ensure that the operating staffs are well trained and equipped to handle market risk. The Board should clearly articulate market risk management policies, procedures, prudential risk limits, review mechanisms and reporting and auditing systems. The risk measurement systems and the accountability of the line management should also be clearly defined.
There should also be an independent Middle level arrangement to track the magnitude of market risk on a real time basis. Both in investment and foreign exchange operations, the role and functions of front office and back office should be well defined and separated.
A. Liquidity Risk:
Liquidity Management is an important facet of risk management framework in banks.
A bank has adequate liquidity when sufficient funds can be raised, either by increasing deposits or by converting assets into cash promptly and at a reasonable cost. It also include the potential sale of liquid assets and borrowings from money, capital and forex markets.
The liquidity risk of banks arises from funding of long-term assets by short- term liabilities and liquidity risk in banks manifest in different dimensions.
1. Funding Risk – need to replace net outflows due to unanticipated withdrawal/nonrenewal of deposits.
2. Time Risk relates to non-receipt of expected inflows of funds, due to loan default etc.
3. Call Risk can be on account of crystallization of contingent liabilities.
The first step towards liquidity management is to put in place an effective liquidity management policy, which, inter alia, should spell out the funding strategies, liquidity planning under alternative scenarios. Liquidity measurement is quite a difficult task.
The key ratios, to determine liquidity adopted across the banking system are:
i. Loans to Total Assets
ii. Loans to Core Deposits
iii. Large Liabilities (minus Temporary Investments) to Earning Assets (Minus Temporary Investments)
iv. Short Term borrowed funds to Total Assets, where short term funds include the entire inter-bank and other money market borrowings, including Certificate of Deposits and institutional deposits;
v. Loan Losses/Net Loans:
Asset Liability Management (ALM) System should be adopted for measuring cash flow mismatches at different time bands. The cash flows should be worked out in different time bands based on future behaviour of assets, liabilities and off-balance sheet items.
The difference between cash inflows and outflows in each time period, the excess or deficit of funds, becomes a starting point to measure bank’s future liquidity surplus or deficit. Banks should also evolve a system for monitoring high value deposits. It is quite possible that market crisis can trigger substantial increase in the amount of draw-downs from cash credit/overdraft accounts, contingent liabilities like letters of credit, etc.
The liquidity profile of the banks could be analysed on a static basis, wherein the assets and liabilities and off-balance sheet items on a particular day and the behavioural pattern and the sensitivity of these items to changes in market interest rates and environment are duly accounted for.
The banks can also estimate the liquidity profile on a dynamic way by giving due importance to:
1. Seasonal pattern of deposits/loans;
2. Potential liquidity needs for meeting new loan demands, unavailed credit limits, loan policy, potential deposit losses, investment obligations, statutory obligations, etc.
Banks should evaluate liquidity profile under different conditions, viz. normal situation, bank specific crisis and market crisis scenario. Estimating liquidity under bank specific crisis should be on the basis of worst-case benchmark.
The market crisis scenario analyses cover cases of extreme tightening of liquidity conditions arising out of monetary policy stance of Reserve Bank, disruptions, failure of major players, financial crisis, contagion, etc. Under this scenario, funds could be extremely difficult to get besides flight of volatile deposits. The banks may be forced sell their investment at huge discounts, entailing severe capital loss.
Banks should prepare contingency plan to withstand crisis scenario. Liquidity support from the Reserve Bank on various counts should not be taken into account for contingency plan.
B. Interest Rate of Risk:
The management of Interest Rate Risk should be one of the critical components of market risk management in banks. Deregulation of interest rates has, exposed to adverse impacts of interest rate risk. The Net Interest Income (Nil) or Net Interest Margin (NIM) of banks is dependent on the movements of interest rates. Interest Rate Risk (IRR) refers to potential impact on Net interest income or NIM by unexpected changes in market interest rates.
Gap or Mismatch Risk:
A gap or mismatch risk arises from holding assets and liabilities and off-balance sheet items with different principal amounts, maturity dates or re-pricing dates, thereby creating exposure to unexpected changes in the level of market interest rates.
Embedded Option Risk:
Significant changes in market interest rates create another source of risk to banks’ profitability by encouraging prepayment of cash credit/demand loans/ term loans and exercise of call/put options on bonds/debentures and/or premature withdrawal of term deposits before their stated maturities.
Price risk occurs when assets are sold before their stated maturities. In the financial market, bond prices and yields are inversely related. The price risk is closely associated with the trading of securities. Banks which have an active trading book should, formulate policies to limit the portfolio size, holding period, duration, disposal period, stop loss limits, mark to market, etc.
Uncertainty with regard to interest rate at which the future cash flows could be reinvested is called reinvestment risk. Any mismatches in cash flows would expose the banks to variations in Nll as the market interest rates move in different directions.
Net Interest Position Risk:
When banks have more earning assets, loans and investments than paying liabilities, deposits and borrowings, interest rate risk arises when the market interest rates move downwards. Banks with positive net interest positions will experience a reduction in NII when interest declines and increase in Nil when interest rate rises.
Large float fund is a natural hedge against the variations in interest rates. Float funds arise out of remittance and collection business of banks where there is time lag between receipt and payment by the bank. The time lag is shrinking in electronic banking system.
Interest rate risk could be managed, only when the quantum of Interest Rate Risk (IRR) is identified. The IRR measurement system should address all material sources of interest rate risk including gap or mismatch, basis, embedded option, price, reinvestment and net interest position risks exposures.
There are different techniques for measurement of interest rate risk, ranging from the traditional Maturity Gap Analysis (to measure the interest rate sensitivity of earnings), Duration (to measure interest rate sensitivity of capital), by Simulation and Value at Risk methods.
The banks should lay down policies with regard to volume, maximum maturity, holding period, duration, stop loss, disposal period, rating standards, etc. for classifying securities in the trading book. While the securities held in the trading book should ideally be marked to market on daily basis, the potential price risk to changes in market risk factors should be estimated through internally developed Value at Risk (VaR) models.
The changes in market interest rates have impact on the banks earnings and economic value. While constructing a gap report, the focus should be on near-term periods, viz. monthly, quarterly, half-yearly or one year. It is very difficult to take a view on interest rate movements beyond a year. In order to evaluate the earnings exposure, interest Rate Sensitive Assets in each time band are netted with the interest rate sensitive liabilities.
C. Forex Risk:
The risk inherent in running open foreign exchange positions have been heightened in recent years by pronounced volatility in forex rates, thereby adding a new dimension to the risk profile of banks’ balance sheets. Forex risk is the risk on which a bank may suffer losses as a result of adverse exchange rate movements during a period in which it has an open position, either spot or forward, or a combination of the two, in an individual foreign currency.
In the forex business, banks also face the risk of default of the counterparties or settlement risk. While such type of risk does not cause principal loss, however banks may have to undertake fresh transactions in the cash/spot market for replacing the failed transactions. Thus, banks may incur replacement cost, which depends upon the currency rate movements.
Banks also face another risk called time-zone risk which arises out of time-lag in settlement of one currency in one time zone centre and the settlement of another currency in another time zone. The forex transactions with counterparties from another country may also trigger sovereign or country risk.
Essay # 10. Capital for Market Risk in Banks:
Many countries including India have accepted the general framework suggested by The Basle Committee and R.B.I, has initiated various steps in moving towards prescribing capital for market risk. A risk weight of 2.5% has been prescribed for investments in Government and other approved securities, besides a risk weight each of 100% on the open position limits in forex and gold.
The Reserve Bank has prescribed detailed operating guidelines for Asset- Liability Management System in banks and also capital charge for market risk and interest rate risk.
Essay # 11. Operation Risk in Banks:
More importantly operational risk involves breakdowns of internal controls and corporate governance. Such breakdowns can lead to financial loss through error, fraud, or failure to perform in a timely manner or cause the interest of the bank to be compromised. Operational risk is defined as any risk, which is not categorised as market or credit risk.
It is the risk of loss arising from various types of human or technical errors. There is no uniformity of approach in measurement of operational risk in the banking system. Measuring operational risk requires both estimating the probability of an operational loss event and the potential size of the loss.
Banks have so far not evolved any scientific methods for quantifying operational risk. In the absence any sophisticated models, banks could evolve simple benchmark based on an aggregate measure of business activity such as gross revenue, fee income, operating costs, managed assets or total assets adjusted for off-balance sheet exposures or a combination of these variables.
Internal controls and the internal audit are used as the primary means to mitigate operational risk. Insurance is also an important mitigator of some forms of operational risk. Risk education for familiarizing the complex operations at all levels of staff can also reduce operational risk. Banks should have well defined policies on operational risk management.
One of the major tools for managing operational risk is the well-established internal control system, which includes segregation of duties when there is conflict of interest with clear management reporting lines and adequate operating procedures. Most of the operational risk events are associated with weak links in internal control systems or laxity in complying with the internal control procedures.
Self-assessment could be used to evaluate operational risk along with internal/external audit reports/ratings or RBI inspection findings. Capital adequacy in relation to economic risk is necessary condition for long-term soundness of banks.
Essay # 12. Basel Committee Norms in Banks:
Introduction to Basel Committee:
The Basel committee on banking supervision (BLBS) and the International Association of Insurance Supervisors (IAIS) are two important organizations at international level who issue guidelines on risk management periodically. The former is meant for banks and the later for insurance.
They do not have statutory powers over banks and insurance companies world over; but most of the countries have voluntarily accepted them. All most all the countries regulators have faithfully accepted the norms prescribed by them. They emphasize the importance of capital in risk management, while in bank it is called capital adequacy and in insurance it is known as solvency norms.
In addition to fixing minimum capital they have also issued detailed guidelines on different aspects of risk management. As far the banks are concerned it all started with Basel I, followed by Basel II and Basel III and in case of insurance it is solvency I and II norms. Both of them talk about capital adequacy, supervisory process (risk management) and disclosure norms.
Basel Norms I and II:
Basel I dealt with capital requirement based on risk weighted assets. On the risk side it focused on credit risk and market risk. Basel II is based on three pillars.
1. Enlarged scope of market risks on:
(c) Foreign currencies and
2. Risk measurement involves:
(a) Qualitative and Quantitative methods
(b) Stress testing
(c) Calculation of value at risk.
Value at risk can be calculated using Microsoft Excel based on normal probability distribution of VaR. It can also be calculated on simulation method (Monte Carlo) with Microsoft Excel spreadsheet by creating comprehensive probability simulation to spreadsheet models and excel applications.
3. Market Risk and Credit Risk are interrelated. Hence risk measurement should take into account risk based pricing, including banks trading activities, off balance sheet items, counterparty risk, country risk and foreign exchange risk.
Steps involved in the calculation are:
(a) Probability of default
(b) Exposure default (Outstanding Based).
(c) Default Loss (Expected Loss and Unexpected Loss).
4. In arriving final figure borrower’s risk, industry risk, management risk, business risk and financial risk should be taken into account.
5. The debt or loan to Sovereign, Corporates and Banks, should be viewed differently from each other and so also commercial mortgages, residential mortgages, other retail loans and Securitized loans are to be viewed appropriately.
6. Bank can use internal rating to measure risk rating, wherever possible or necessary it can apply quantitative or qualitative methods or both.
Pillar II relates to regulatory supervision and Pillar III relate to Disclosure.
With an idea to “strengthen global capital and liquidity rules and with the goal of promoting a more resilient banking sector” Basel Committee on Banking Supervision and the Financial Stability Board reviewed the regulatory framework and came out with a set of recommendations titled BASEL III.
The objectives of BASEL III under the head Capital reform are to increase the quantity and also improve the quality of capital providing consistency and transparency to the capital base. The next objective on this front is to enhance the risk coverage. Right now, the counterparty credit risk covers only the risk of default by the counterparty.
In order to capture the mark-to-market losses which arise due to deterioration in the credit worthiness of counterparty, an additional capital has been recommended. Recommendations also include strengthening of counterparty credit risk management with specific guidelines on collateral management. Leverage control and building up capital conservation buffers during the period of normalcy so as to withstand periods of stress are also part of the BASEL recommendations.
The Reform envisages improvement in quality of capital by insisting on Common Equity and retained earnings forming the predominant part of the capital structure. The reform measures include phasing out of hybrid tier I components.
The additional risk weights proposed would also mean increase in quantity of capital. The minimum total capital would be increased to 10.5% including the capital conservation buffer of 2.5%. Minimum Common Equity is expected to be atleast 4.5%.
In order to minimize excessive leverage, the reform intends bank’s total assets- including off-Balance Sheet assets – to be not more than 33 times the bank’s capital. Thus the leverage limit is set at 3.3%. But in India it is 4.5%. This leverage ratio is to be calculated on ‘un-weighted’ (that is without risk weights being assigned) gross basis without taking into account the related risks on these assets.
As a part of sound liquidity management and supervision. Basel III framework recommends two minimum standards for funding liquidity. The recommended 30 day Liquidity Coverage ratio is expected to make the banks build high quality liquid assets to meet possible liquidity disruptions.
That is, cash outflow during a thirty day stress scenario is compared with high quality liquid assets. For this purpose, the assets are assigned a liquidity based risk weight.
Introduction of Net Stable Funding Ratio is to capture the stability of the funding sources. The weighing factor for this purpose could be that Tier 1 capital would carry a weighing factor of 100%, core retail deposits carry a factor of 90%, and unsecured wholesale funding a factor of 50%, external Commercial Borrowings would end up 0% as the carrying factor.
As a measure to capture risk better especially Counter party risk, Basel III proposals seek to modify the treatment of exposures to financial institutions and also on the counterparty risk on derivative exposures. Improved counterparty risk management standards in the areas of collateral management and stress testing are intended to be introduced.
Though a time frame- with 2019 as the deadline – has been agreed to by BCBS the need for the banks implementing the proposals right earnest so as to demonstrate their strength and stability even earlier is very important.
While the measures might bring down cases of individual bank failures, the increased capital base would mean reduced return on equity. Banks may be required to hold more liquid assets (which would necessarily be low yielding) to meet the Liquid Coverage Ratio norms which again would impact the profitability.
The proposed leverage ratio would also have a bearing on the quantum of lending and in turn on the profitability. Introduction of Net Stable Funding Ratio would force the banks to look for wholesale deposits with maturities of more than one year which are likely to bear higher costs.
Focus of banks would be on designing adequate liquidity management strategies. Banks would have to restructure non-crore businesses. They would strive for capital optimization and product pricing becomes paramount to maintain profitability and return on equity.