Risk management refers to the systematic process through which organizations identify, assess, monitor, and control uncertainties that may adversely affect their objectives, operations, financial stability, and reputation. In the context of banks, risk management occupies a central position because banks deal primarily with money, credit, and trust, and even small misjudgments can have large-scale consequences for depositors, investors, and the economy as a whole. The concept of risk management in banks is therefore not merely defensive in nature but is a strategic function aimed at balancing risk and return while ensuring long-term sustainability, regulatory compliance, and financial soundness. At its core, risk management involves recognizing potential risks, measuring their likelihood and impact, deciding on appropriate responses, and continuously monitoring outcomes. Banks operate in a highly dynamic environment influenced by market fluctuations, borrower behavior, technological changes, regulatory norms, and macroeconomic conditions. Effective risk management enables banks to anticipate potential threats, minimize losses, allocate capital efficiently, and maintain public confidence. It also supports informed decision-making by integrating risk considerations into lending, investment, and operational strategies. One of the most significant risks faced by banks is credit risk. Credit risk arises from the possibility that borrowers or counterparties may fail to meet their contractual obligations in terms of repayment of principal or interest. Since lending is a core banking activity, credit risk directly affects profitability and solvency. Poor credit appraisal, economic downturns, concentration of loans in specific sectors, and weak monitoring mechanisms can exacerbate this risk. Banks manage credit risk through credit assessment procedures, diversification of loan portfolios, collateral requirements, credit limits, and continuous monitoring of borrower performance. Market risk is another major category of risk that banks encounter. Market risk refers to the potential for losses due to adverse movements in market variables such as interest rates, foreign exchange rates, equity prices, and commodity prices. For banks, fluctuations in interest rates can affect the value of assets and liabilities, leading to mismatches and reduced net interest income. Similarly, exposure to foreign exchange and securities markets can result in losses if market conditions change unfavorably. Market risk is typically managed through asset-liability management, hedging strategies, value-at-risk models, stress testing, and prudent investment policies. Operational risk arises from failures in internal processes, systems, human resources, or from external events. This includes risks associated with fraud, errors, system breakdowns, cyberattacks, and natural disasters.