What is Financial Risk Assessment?
Financial risk assessment is the systematic process of identifying, measuring, and prioritizing financial risks (credit, market, liquidity, operational, regulatory) that could impair a business’s ability to meet its obligations or strategic goals.
How It Works
- Risk identification: list potential threats (FX, interest rate, credit, fraud, regulatory).
- Risk measurement: quantify impact and probability (qualitative or VaR-style models).
- Risk prioritization: rank by exposure to focus management attention.
- Mitigation: hedging, diversification, insurance, controls, capital buffers.
Saudi Context
Saudi banks regulated by SAMA must run formal financial risk assessments under Basel III standards, covering credit, market, liquidity, and operational risk. Saudi corporates increasingly adopt enterprise risk management frameworks (COSO ERM, ISO 31000) and the CMA expects listed companies to disclose key financial risks and mitigation plans in their annual reports.
Example
A Saudi importer identifies FX risk on SAR 50,000,000 of annual USD imports, sized at SAR 1,500,000 of potential annual loss for a 3% adverse SAR/USD move. Mitigation: forward contracts via a SAMA-licensed bank covering 70% of the exposure.