Monirul Alam :
In the wake of a series of loan scams at both public and private banking companies, the central bank has directed board of directors of all the banks to restructure operational management in order to make stringent the screening mechanism.
The ultimate objective of the latest initiative is to keep banks’ financial health in good condition by protecting investable capital, which is depositors’ money.
The Department of Offsite Supervision of Bangladesh Bank (BB) issued a circular to this effect to all the banks on Thursday.
Officials of the concerned department said banks should follow the latest directives from the current quarter and generate report related to risk assessment from end of December.
The BB directive said, all the banks must create several new desks under the respective Risk Management Division (RMD) accountable to Board Risk Management Committee (BRMC). A Chief Risk Officer (CRO) needs to be recruited by every bank to lead the RMD under the supervision of Executive Risk Management Committee (ERMC), which also accountable to BRMC.
The RMD, ERMC and BRMC are monitoring mechanism in parallel to
Chief Executive Officer (CEO) or Managing Director (MD), operational head of a banking company.
The BB initiative came after reviewing the oldest eight risk management guidelines served on banks earlier. Banks must comply with the latest directives from the current quarter. Banks will count penalty and severe punishment in case of failure, non-compliance or producing wrong information.
Currently, every bank has merely Risk Management Department under a deputy-managing director or additional managing director.
“We have reviewed all the previous risk management guidelines before preparing this. You might know the current state of the banks, which driven us to think anew; and thus, we have gone for the latest initiative,” said Sirajul Islam, Executive Director of the central bank, last night.
“Our objective is to make rules stringent to keep banks’ financial health in good condition.”
In the latest guideline, the BB also prescribed a new organogram that should be followed by all scheduled banks operating in the country. It said, each bank is given the flexibility to enhance the organogram according to their size and complexity. And, when the banks will formulate their own risk management policy guidelines, they should name various desks specifically in accordance to the prescribed organogram.
The BB said the board of directors of a bank should give utmost importance on sound risk management practices. The guideline defines the role of the board, BRMC and ERMC. The BB said the overall responsibility for risk management rests with the board of directors.
For this purpose, the board will play following role in establishing organizational structure for enterprise risk management within the bank and ensuring that top management as well as staffs responsible for risk management possess sound expertise and knowledge to accomplish the risk management function properly, assigning sufficient authority and responsibility to risk management related desks, ensuring uninterrupted information flow to RMD for sound risk management and continuously monitoring the bank’s performance and overall risk profile through reviewing various reports.
The BB said internal control plays a critical role in managing risks of a financial institution. So, a bank’s internal control system should be adequately tested and reviewed by its internal audit.
The BB said bank should appoint CRO who will act as the head of Risk Management Department. Appointment, dismissal and other changes to the CRO position should be approved by the board or its risk management committee. If the CRO is removed from his/her position, this should be disclosed publicly. The bank should also discuss the reasons for such removal with its supervisor. CRO’s performance and compensation should be reviewed and approved by the board or its risk management committee.
The RMD must oversee market risk related desk, liquidity risk related desk and operational risk related desk. The risk management framework is expected to be developed and applied within an overarching statement of risk appetite. Risk appetite along with risk tolerance and risk threshold are to be set and approved by the Board. The risk appetite must reflect strategic planning of the bank which includes shareholder aspirations within the constraints of regulatory requirements, creditor and legal obligations.
In the wake of a series of loan scams at both public and private banking companies, the central bank has directed board of directors of all the banks to restructure operational management in order to make stringent the screening mechanism.
The ultimate objective of the latest initiative is to keep banks’ financial health in good condition by protecting investable capital, which is depositors’ money.
The Department of Offsite Supervision of Bangladesh Bank (BB) issued a circular to this effect to all the banks on Thursday.
Officials of the concerned department said banks should follow the latest directives from the current quarter and generate report related to risk assessment from end of December.
The BB directive said, all the banks must create several new desks under the respective Risk Management Division (RMD) accountable to Board Risk Management Committee (BRMC). A Chief Risk Officer (CRO) needs to be recruited by every bank to lead the RMD under the supervision of Executive Risk Management Committee (ERMC), which also accountable to BRMC.
The RMD, ERMC and BRMC are monitoring mechanism in parallel to
Chief Executive Officer (CEO) or Managing Director (MD), operational head of a banking company.
The BB initiative came after reviewing the oldest eight risk management guidelines served on banks earlier. Banks must comply with the latest directives from the current quarter. Banks will count penalty and severe punishment in case of failure, non-compliance or producing wrong information.
Currently, every bank has merely Risk Management Department under a deputy-managing director or additional managing director.
“We have reviewed all the previous risk management guidelines before preparing this. You might know the current state of the banks, which driven us to think anew; and thus, we have gone for the latest initiative,” said Sirajul Islam, Executive Director of the central bank, last night.
“Our objective is to make rules stringent to keep banks’ financial health in good condition.”
In the latest guideline, the BB also prescribed a new organogram that should be followed by all scheduled banks operating in the country. It said, each bank is given the flexibility to enhance the organogram according to their size and complexity. And, when the banks will formulate their own risk management policy guidelines, they should name various desks specifically in accordance to the prescribed organogram.
The BB said the board of directors of a bank should give utmost importance on sound risk management practices. The guideline defines the role of the board, BRMC and ERMC. The BB said the overall responsibility for risk management rests with the board of directors.
For this purpose, the board will play following role in establishing organizational structure for enterprise risk management within the bank and ensuring that top management as well as staffs responsible for risk management possess sound expertise and knowledge to accomplish the risk management function properly, assigning sufficient authority and responsibility to risk management related desks, ensuring uninterrupted information flow to RMD for sound risk management and continuously monitoring the bank’s performance and overall risk profile through reviewing various reports.
The BB said internal control plays a critical role in managing risks of a financial institution. So, a bank’s internal control system should be adequately tested and reviewed by its internal audit.
The BB said bank should appoint CRO who will act as the head of Risk Management Department. Appointment, dismissal and other changes to the CRO position should be approved by the board or its risk management committee. If the CRO is removed from his/her position, this should be disclosed publicly. The bank should also discuss the reasons for such removal with its supervisor. CRO’s performance and compensation should be reviewed and approved by the board or its risk management committee.
The RMD must oversee market risk related desk, liquidity risk related desk and operational risk related desk. The risk management framework is expected to be developed and applied within an overarching statement of risk appetite. Risk appetite along with risk tolerance and risk threshold are to be set and approved by the Board. The risk appetite must reflect strategic planning of the bank which includes shareholder aspirations within the constraints of regulatory requirements, creditor and legal obligations.
