Case 2 : Managing Material Risks at Star Bank PLC.

Star Bank PLC, a midsized commercial bank, faced significant challenges from credit risk, liquidity risk and interest rate risks threatening its financial stability. Rapid loan portfolio growth raised the risk of borrower defaults, particularly in a volatile economy. Simultaneously a mismatch between long term loan and short term deposit posed liquidity concerns while interest rate fluctuations pressured the bank's earnings and capital.

To address these risks, Star Bank adopted targeted mitigation strategies as follows :

The bank strengthened its credit assessment process with detailed borrower analys is and regular loan performance monitoring. It also increased loan loss reserves using predictive models of difficult probabilities.

To maintain cash flow, the bank introduced cash flow forecasting and liquidity buffers while diversifying, funding sources to reduce reliance on volatile deposits. To bank employed hedging strategies using interest rate swaps and options to protect its asset and liabilities values from adverse rate movements.

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