Project lending in banking risk management

Abstract

The article presents a number of concepts of contemporary risk management theory and methodology. The general concept of risk is structured into two successive aspects: factorial and productive. Except of the broadest approach to the definition of risk as having in its manifestation only negative consequences (losses), i.e. "pure risk", the authors define also "odds", "chance risks (speculative risks)", and "shocks". It is shown that in project lending (funding), credit, reputational, and deposit pure banking risks can be significantly reduced, while corresponding odds can increase. This is due to the fact that cash flow management of the project is carried out by bank employees or working groups under their leadership, whose competence and professional behavior will support the bank's reputation and will allow immediately and timely providing a return of funds invested in the project. The authors describe techniques and tools to minimize and compensate banking risks, as well as peculiarities of their application in project lending (funding).