Main Article Content

Abstract

This research delves into the intricate dynamics of financial risks—specifically credit, market, and operational risks—within the banking, investment, and corporate sectors, with a focus on both global and Indonesian contexts. By examining the key factors contributing to credit risk, the impact of global market volatility on financial stability, and the operational risks associated with the digital transformation of the financial sector, the study seeks to offer a comprehensive analysis that is both theoretically robust and practically relevant. This research employs a qualitative systematic literature review (SLR) to explore credit, market, and operational risks within the banking, investment, and corporate sectors, focusing on global and Indonesian contexts. The SLR process includes formulating research questions, identifying and screening relevant literature from databases like Scopus and Google Scholar, and synthesizing findings into key themes: credit risk dynamics, market volatility, operational risks in the digital age, and integrated risk management. This research provides a comprehensive analysis of financial risk management in the banking, investment, and corporate sectors, with a focus on Indonesia and global perspectives. The study reveals that digitalization has a significant impact on operational risk, enhancing efficiency but also increasing vulnerability to cybersecurity threats and disruptions. This underscores the need for robust risk management frameworks to address technology-driven challenges. The research also highlights the importance of improving risk disclosure transparency, which can positively influence credit risk management. Liquidity risk is identified as having a greater short-term impact on financial stability than credit risk, necessitating proactive liquidity management strategies. Technological innovations in finance are found to correlate with increased risks, including failures and cybersecurity threats, which must be carefully managed. The study examines the risks associated with platform-based financing models and the influence of global market volatility on investment strategies. In Indonesia, the banking sector faces distinct credit risk challenges due to high market concentration and systemic shocks, as well as operational risks from rapid digital transformation. The research emphasizes the necessity for Indonesian financial institutions to implement comprehensive cybersecurity measures, maintain resilient IT infrastructure, and utilize advanced monitoring tools to address these emerging risks. The study also stresses the importance of adopting integrated risk management frameworks that account for the interdependencies between credit, market, and operational risks in a globalized market.

Keywords

Financial Risk Management Credit Risk Market Volatility Operational Risk Digital Transformation

Article Details

How to Cite
Rizal S, M., Siraj, M. L. ., Syarifuddin, S., Tadampali, A. C. T. ., Zainal, H. ., & Mahmud, R. . (2024). Understanding Financial Risk Dynamics: Systematic Literature Review inquiry into Credit, Market, and Operational Risks: (A Long-life Lesson From Global Perspective to Indonesia Market Financial Strategy). Atestasi : Jurnal Ilmiah Akuntansi, 7(2), 1186–1213. https://doi.org/10.57178/atestasi.v7i2.927

References

  1. Aikman, D., Galešić, M., Gigerenzer, G., Kapadia, S., Katsikopoulos, K V., Kothiyal, A., Murphy, E., & Neumann, T. (2014, January 1). Taking Uncertainty Seriously: Simplicity versus Complexity in Financial Regulation. RELX Group (Netherlands). https://doi.org/10.2139/ssrn.2432137
  2. Albertus, R H. (2021, December 31). Influence Of The Southeast Asian Regional Stock Exchange On The Indonesia Stock Exchange For The Period 2017-2018. , 1(02), 17-24. https://doi.org/10.55751/smbj.v1i02.17
  3. Apostolik, R., Donohue, C., & Went, P. (2023, November 10). Market Risk. https://onlinelibrary.wiley.com/doi/10.1002/9780470555996.ch6
  4. Arunkumar, R., & Kotreshwar, G. (2006, January 1). Risk Management in Commercial Banks (A Case Study of Public and Private Sector Banks). RELX Group (Netherlands). https://doi.org/10.2139/ssrn.877812
  5. Baesens, B., & Smedts, K. (2023). Boosting credit risk models. British Accounting Review, April, 101241. https://doi.org/10.1016/j.bar.2023.101241
  6. Ballester, L., González-Urteaga, A., & Shen, L. (2024). Green bond issuance and credit Risk: International evidence. Journal of International Financial Markets, Institutions and Money, 94(November 2023), 102013. https://doi.org/10.1016/j.intfin.2024.102013
  7. Bisias, D., Flood, M D., Lo, A W., & Valavanis, S. (2012, October 1). A Survey of Systemic Risk Analytics. Annual Reviews, 4(1), 255-296. https://doi.org/10.1146/annurev-financial-110311-101754
  8. Chen, H., & Zhao, X. (2022). Green financial risk management based on intelligence service. Journal of Cleaner Production, 364(March), 132617. https://doi.org/10.1016/j.jclepro.2022.132617
  9. Choi, S. Y. (2022). Credit risk interdependence in global financial markets: Evidence from three regions using multiple and partial wavelet approaches. Journal of International Financial Markets, Institutions and Money, 80(October 2021), 101636. https://doi.org/10.1016/j.intfin.2022.101636
  10. Dai, H., Dong, X., & Xue, F. (2024). Highlights. Finance Research Letters, 105933. https://doi.org/10.1016/j.frl.2024.105933
  11. Davis, K., Davis, K., & Foo, M. (2017, January 2). Catching up with Indonesia’s fintech industry. Taylor & Francis, 11(1), 33-40. https://doi.org/10.1080/17521440.2017.1336398
  12. Deng, G., Ma, S., Yan, J., Shuai, C., & Liu, H. (2024). Dissecting the impact of the three E, S, G pillars on credit risk. Economic Analysis and Policy, 83(December 2023), 301–313. https://doi.org/10.1016/j.eap.2024.06.006
  13. Dermine, J., & Carvalho, C N D. (2023, November 10). Bank Loan Losses-Given-Default. https://www.sciencedirect.com/science/article/pii/S0378426605000993
  14. Di Virgilio, S., Faiella, I., Mistretta, A., & Narizzano, S. (2024). Assessing credit risk sensitivity to climate and energy shocks: Towards a common minimum standards in line with the ECB climate agenda. Journal of Policy Modeling, 46(3), 552–568. https://doi.org/10.1016/j.jpolmod.2024.05.001
  15. Diniyya, A A., Aulia, M., & Wahyudi, R. (2021, December 31). Financial Technology Regulation in Malaysia and Indonesia: A Comparative Study. Ahmad Dahlan University, 3(2), 67-67. https://doi.org/10.12928/ijiefb.v3i2.2703
  16. Doddy Ariefianto, M., Trinugroho, I., & Yustika, A. E. (2024). Diversification, capital buffer, ownership and credit risk management in microfinance: An investigation on Indonesian rural banks. Research in International Business and Finance, 69(February), 102268. https://doi.org/10.1016/j.ribaf.2024.102268
  17. Fauziah, F., Latief, A., & Jamal, S W. (2020, June 25). The Determinants of Islamic Banking Capital Structure in Indonesia. Institut Agama Islam Negeri (IAIN) Samarinda, 125-138. https://doi.org/10.21093/at.v5i2.1765
  18. Firdaus, I., & Qumaira, S H. (2020, January 1). The Analysis of Comparison of Bank Health Level Through Capital Approaches, Risk Profile, and Earnings in Conventional State-Owned Banks and National Private Banks Listed in IDX Period of 2012–2016. https://doi.org/10.2991/aebmr.k.200205.018
  19. Flood, M D., Lemieux, V L., Varga, M., & Wong, B L W. (2016, December 1). The application of visual analytics to financial stability monitoring. Elsevier BV, 27, 180-197. https://doi.org/10.1016/j.jfs.2016.01.006
  20. Guo, J., & Wu, D. (2024). Capital market openness and bank credit risk: Evidence from listed commercial banks. Finance Research Letters, 63(December 2023), 105282. https://doi.org/10.1016/j.frl.2024.105282
  21. Harmantzis, F C. (2003, January 1). Operational Risk Management in Financial Services and the New Basel Accord. RELX Group (Netherlands). https://doi.org/10.2139/ssrn.579321
  22. Hartawan, A M., Basri, Y Z., & Arafah, W. (2020, September 14). The strategic role of Board of Commissioners in Resource-Based View approach and Agency Theory perspectives to attain sustainable competitive advantage in the Indonesian Banking Industry. , 6(1), 1-14. https://doi.org/10.21694/2379-1047.20010
  23. Hou, L., Bi, G., & Guo, Q. (2024). Jou rna lP. Journal of Computational and Applied Mathematics, 116197. https://doi.org/10.1016/j.cam.2024.116197
  24. Hu, M., Zhang, Y., Feng, X., & Xiong, X. (2024). How technological innovation influence operational risk: Evidence from banks in China. International Review of Financial Analysis, 95(PB), 103480. https://doi.org/10.1016/j.irfa.2024.103480
  25. Hunjra, A. I., Jebabli, I., Thrikawala, S. S., Alawi, S. M., & Mehmood, R. (2024). How do corporate governance and corporate social responsibility affect credit risk? Research in International Business and Finance, 67(PA), 102139. https://doi.org/10.1016/j.ribaf.2023.102139
  26. James, G A., & Karoglou, M. (2010, March 1). Financial liberalization and stock market volatility: the case of Indonesia. Chapman and Hall London, 20(6), 477-486. https://doi.org/10.1080/09603100903459816
  27. Jing, A. (2023). The technology and digital financial risk management model using intelligent data processing. Optik, 273(November 2022), 170410. https://doi.org/10.1016/j.ijleo.2022.170410
  28. Kedarya, T., Elalouf, A., & Cohen, R S. (2023, May 26). Calculating Strategic Risk in Financial Institutions. Springer Science+Business Media, 24(3), 361-372. https://doi.org/10.1007/s40171-023-00342-3
  29. Khan, A B., Fareed, M., Salameh, A A., & Hussain, H. (2021, October 8). Financial Innovation, Sustainable Economic Growth, and Credit Risk: A Case of the ASEAN Banking Sector. Frontiers Media, 9. https://doi.org/10.3389/fenvs.2021.729922
  30. Lim, S. Y., & Choi, S. Y. (2024). Dynamic credit risk transmissions among global major industries: Evidence from the TVP-VAR spillover approach. North American Journal of Economics and Finance, 74(February), 102251. https://doi.org/10.1016/j.najef.2024.102251
  31. Lin, M., Hong, Z., & Su, G. (2024). Transmission of liquidity and credit risks in the Chinese bond market: Analysis based on joint modeling of multiple yield curves. International Review of Economics and Finance, 91(July 2023), 597–615. https://doi.org/10.1016/j.iref.2024.01.017
  32. Lupu, I., Bobirca, A B., Miclăuş, P G., & Ciumara, T. (2020, August 1). Risk Management of Companies Included in the EURO STOXX Sustainability Index. An Investors' Perception. Bucharest Academy of Economic Studies, 22(55), 707-707. https://doi.org/10.24818/ea/2020/55/707
  33. Meng, B., Sun, J., & Shi, B. (2024). A novel URP-CNN model for bond credit risk evaluation of Chinese listed companies. Expert Systems with Applications, 255(PD), 124861. https://doi.org/10.1016/j.eswa.2024.124861
  34. Mirza, N., Umar, M., Horobet, A., & Boubaker, S. (2024). Effects of climate change and technological capex on credit risk cycles in the European Union. Technological Forecasting and Social Change, 204(December 2023), 123448. https://doi.org/10.1016/j.techfore.2024.123448
  35. Mitra, S. (2009, January 1). Risk Measures in Quantitative Finance. Cornell University. https://doi.org/10.48550/arxiv.0904.0870
  36. Montevechi, A. A., Miranda, R. de C., Medeiros, A. L., & Montevechi, J. A. B. (2024). Advancing credit risk modelling with Machine Learning: A comprehensive review of the state-of-the-art. Engineering Applications of Artificial Intelligence, 137(December 2023). https://doi.org/10.1016/j.engappai.2024.109082
  37. Murugan, M. S., & T, S. K. (2023). Large-scale data-driven financial risk management & analysis using machine learning strategies. Measurement: Sensors, 27(April), 100756. https://doi.org/10.1016/j.measen.2023.100756
  38. Naifar, N. (2024). Examining the nexus between oil shocks and sovereign credit risk: Multidimensional insights from major oil exporters. North American Journal of Economics and Finance, 74(May), 102205. https://doi.org/10.1016/j.najef.2024.102205
  39. Neveu, A R. (2016, November 3). A survey of network-based analysis and systemic risk measurement. Springer Science+Business Media, 13(2), 241-281. https://doi.org/10.1007/s11403-016-0182-z
  40. Niu, H., Xing, Y., & Zhao, Y. (2020). Pricing vulnerable European options with dynamic correlation between market risk and credit risk. Journal of Management Science and Engineering, 5(2), 125–145. https://doi.org/10.1016/j.jmse.2020.03.001
  41. Pakhchanyan, S. (2016, October 19). Operational Risk Management in Financial Institutions: A Literature Review. Multidisciplinary Digital Publishing Institute, 4(4), 20-20. https://doi.org/10.3390/ijfs4040020
  42. Paranita, E S., & Agustinus, M. (2020, January 1). The Influence of Investment Motivation and Financial Literacy on Interest in Investing During the COVID-19 Pandemic. Atlantis Press. https://doi.org/10.2991/aebmr.k.210311.059
  43. Peng, H., Lin, Y., & Wu, M. (2022, February 26). Bank Financial Risk Prediction Model Based on Big Data. Hindawi Publishing Corporation, 2022, 1-9. https://doi.org/10.1155/2022/3398545
  44. Putri, E S., & Setiawan, R. (2021, April 26). Market Concentration, Capital and Risk Taking in Banking Industry. Airlangga University, 14(1), 69-69. https://doi.org/10.20473/jmtt.v14i1.25922
  45. Rachmawati, N. (2022, January 4). Factor Affecting Capital Adequacy: Major Factor for Bank to Develop Business Growth in Indonesia in 2013-2017. Lembaga Penelitian dan Pengabdian kepada Masyarakat (LP2M), 0(1), 473-473. https://doi.org/10.12962/j23546026.y2020i1.11952
  46. Rath, S. B., Basu, P., Govindan, K., & Mandal, P. (2024). Platform vs. 3PL financing: Strategic choice of lending model for an e-tailer under operational risk. Transportation Research Part E: Logistics and Transportation Review, 184(April 2023), 103459. https://doi.org/10.1016/j.tre.2024.103459
  47. Razak, A R., Soedarmono, W., & Yudhi, W S A. (2020, April 27). Banking, labor force, and regional economic growth: Evidence from Indonesia. Universitas Merdeka Malang, 24(2). https://doi.org/10.26905/jkdp.v24i2.3533
  48. Risk Review. (2023, February 7). https://www.fdic.gov/analysis/risk-review/2021-risk-review.html
  49. Ruan, J., & Jiang, R. (2024). Does digital inclusive finance affect the credit risk of commercial banks? Finance Research Letters, 62(PA), 105153. https://doi.org/10.1016/j.frl.2024.105153
  50. Santomero, A M. (1997, February 1). Commercial Bank Risk Management: An Analysis of the Process. Federal Reserve Bank of St. Louis. https://econpapers.repec.org/paper/woppennin/95-11.htm
  51. Sarwar, G. (2022). Market risks that change domestic diversification benefits. North American Journal of Economics and Finance, 63(April 2022), 101828. https://doi.org/10.1016/j.najef.2022.101828
  52. Sarwar, G. (2023). Market risks that change US-European equity correlations. Journal of International Financial Markets, Institutions and Money, 83(January), 101731. https://doi.org/10.1016/j.intfin.2022.101731
  53. Savitri, E., Gumanti, T A., & Yulinda, N. (2020, December 21). Enterprise risk-based management disclosures and firm value of Indonesian finance companies. Business Perspectives, 18(4), 414-422. https://doi.org/10.21511/ppm.18(4).2020.33
  54. Sharf, I., Чухарева, Н В., & Kuznetsova, L P. (2014, August 28). Financial and tax risks at implementation of "Chayanda- Lensk" section of "Sila Sibiri" gas transportation system construction project. IOP Publishing, 21, 012019-012019. https://doi.org/10.1088/1755-1315/21/1/012019
  55. Sia, P., Leong, C., & Puah, C. (2023, January 1). Asymmetric effects of inflation rate changes on the stock market index: The case of Indonesia. Centre of Sociological Research, Ternopil, Ukraine, 16(1), 128-141. https://doi.org/10.14254/2071-8330.2023/16-1/9
  56. Sukmadewi, R. (2020, February 24). The Effect of Capital Adequacy Ratio, Loan to Deposit Ratio, Operating-Income Ratio, Non Performing Loans, Net Interest Margin on Banking Financial Performance. , 2(2), 1-10. https://doi.org/10.32877/eb.v2i2.130
  57. Syed, A M., & Bawazir, H. (2021, January 1). Recent trends in business financial risk – A bibliometric analysis. Cogent OA, 9(1). https://doi.org/10.1080/23322039.2021.1913877
  58. Thalib, E F., & Meinarni, N P S. (2021, March 22). Liability of Marketplace as Electronic System Provider in Regard to System Failure Occured on Online Transactions. Universitas PGRI Madiun, 1(1). https://doi.org/10.25273/ay.v1i1.8677
  59. Tritto, A., He, Y., & Junaedi, V A. (2020, November 26). Governing the gold rush into emerging markets: a case study of Indonesia’s regulatory responses to the expansion of Chinese-backed online P2P lending. Springer Nature, 6(1). https://doi.org/10.1186/s40854-020-00202-4
  60. Uddin, M. H., Mollah, S., Islam, N., & Ali, M. H. (2023). Does digital transformation matter for operational risk exposure? Technological Forecasting and Social Change, 197(October), 122919. https://doi.org/10.1016/j.techfore.2023.122919
  61. Valussi, M., Antonelli, M., Donelli, D., & Firenzuoli, F. (2021). Jo l P of. Perspectives in Medicine, 100451. https://doi.org/10.1016/j.ijpe.2024.109369
  62. Widharto, P., Pandesenda, A I., Yahya, A N., Sukma, E A., Shihab, M R., & Warnars, H L H S. (2020, October 19). Digital Transformation of Indonesia Banking Institution: Case Study of PT. BRI Syariah. https://doi.org/10.1109/icitsi50517.2020.9264935
  63. Wiguna, I G N H., Dewi, N A W T., & Yasa, I N P. (2021, January 1). Financial Market Performance Affected by the Covid-19 Case: Study on Indonesian Composite Stock Index. Atlantis Press. https://doi.org/10.2991/aebmr.k.211124.025
  64. Xu, Y., Pinedo, M., & Mei, X. (2017, March 1). Operational Risk in Financial Services: A Review and New Research Opportunities. Wiley, 26(3), 426-445. https://doi.org/10.1111/poms.12652
  65. Yao, Y., Wei, L., Jing, H., Chen, M., & Li, Z. (2024). The impact of readability of risk disclosures in bond prospectuses on credit risk premium. Research in International Business and Finance, 70(PA), 102310. https://doi.org/10.1016/j.ribaf.2024.102310
  66. Yin, X., Li, J., Si, H., & Wu, P. (2024, January 1). Attention marketing in fragmented entertainment: How advertising embedding influences purchase decision in short-form video apps. Elsevier BV, 76, 103572-103572. https://doi.org/10.1016/j.jretconser.2023.103572
  67. Zahiroh, M Y. (2020, December 29). Cybersecurity Awareness and Digital Skills on Readiness For Change in Digital Banking. Institut Agama Islam Negeri Kendari, 5(2), 53-53. https://doi.org/10.31332/lifalah.v5i2.2271
  68. Zhang, W., & Wang, J. (2024). Credit risk contagion in complex companies network–Empirical research based on listed agricultural companies. Economic Analysis and Policy, 82(April), 938–953. https://doi.org/10.1016/j.eap.2024.04.025