Dr Atiur Rahman

As 2012 progresses, I expect to see many changes and improvements in the manner in which we conduct banking supervision in Bangladesh. We will constantly be more and more focused on risk, and less on routine tasks. As most of the supervisors are involved in the on-site inspection process, they will be particularly interested in the changes we have planned in on-site supervision.

As most of us probably know, the on-site inspections take too long, from the time the inspectors arrive in the bank until the time that the report of inspection is written, approved, and sent to the bank's board of directors. As a result, the findings and conclusions given to the bank, and used by us in requiring corrective action, may be based on out-of-date information.

We are seeking to reduce that time significantly through changes in the manner in which staffs are allocated and deployed, and the elimination of routine tasks that do not directly address current and emerging risks. In that way, we can demand that problems be addressed through corrective action at an earlier stage, before they threaten the solvency or liquidity of the bank.

We will also make more thorough the evaluation of corporate governance, internal audit, and risk management. Bank management will be held to higher standards of performance. It is not the responsibility of Bangladesh Bank to manage each and every bank. It is the responsibility of the board of directors and executive management. They must adopt and implement appropriate policies and procedures to govern the bank and identify, measure, monitor and control all risks.

The most important of these risks are credit risk, market risk (including interest-rate risk and foreign exchange risk), operational risk (including the risks of internal and external fraud), and liquidity risk. And it is the responsibility of the bank's own internal audit function to evaluate how the internal controls are working. In turn, we must evaluate how well internal audit handles that task.

We also expect to improve our legal and regulatory framework this year. We will adjust our policies on loan classification and provisioning to more closely reflect international practices. Provisions should reflect all expected losses in the loan portfolio, arising from an inability or unwillingness of the borrower to repay. This initiative directly affects your work, because in reviewing the loan portfolios at the branches you are reviewing the banks' classification of their own loans.

If these classifications are not accurate, provisioning will not be accurate. With more accurate provisioning, the capital of each bank will be more accurately measured. And capital is the single most important indicator of a bank's condition, so we have to know more precisely how much capital the bank has, and how much capital the bank needs.

We will also upgrade our measuring and monitoring of banks' liquidity. Liquidity risk management is the responsibility of every bank, and we will be evaluating more closely on-site whether they are doing all that is necessary. We are in the process of introducing new measures of liquidity -- the liquidity coverage ratio and net stable funds ratio -- and are gathering data from the banks now and analysing those data. As soon as we know that banks are comfortable in submitting accurate data for these indicators, we will make them regulatory requirements.

During the period of post-financial crisis, it becomes necessary for us to perform extended responsibilities in the areas of both systemic oversight and on-site supervision of the central bank to protect the financial sector from any threat or crisis. To conduct intensive supervision is also essential to mitigate the risks involved in those new activities and areas which we have identified for achieving inclusive growth.

To this end, we want to upgrade the standard and quality of our supervision to a level where people's confidence and trust on us will be established. In order to redress grievances and complaints relating to banks and finance received from the customers, we have already opened “customers' interest protection centre” at our head office and branch offices.

We all have to play our role to promote banking excellence and to protect the interests of the depositors i.e. our family, friends and our neighbours. We have to inspect more closely the sanctioning process of the credit disbursement, utilisation and recovery of the credit by the bank branches.

And we have to check whether the bank branches are classifying their loans and advances and making provision against them properly, whether loan against trust receipt (LTR) are being disbursed/created wisely and cautiously, whether liquidity risk of the bank is increased due to turning of this loan into term loan which takes longer time to be repaid than originally scheduled.

It is our responsibility to ensure the implementation of the policies, directions and guidelines of the central bank at branch level. I hope that the supervisors will pay much attention to all these issues.

Finally, I would like to say a few words on the current macro-economic situation in our country. Many of us are aware that at present our foreign exchange market is stable mainly as a result of reduced outflows of import payments. On the other hand, export growth is also encouraging. With the growth of remittances above 12 percent, we are projecting record level of remittance inflows by the end of the current fiscal year.

In contrast, we hope that inflation will also return at a declining rate very soon in consequence of tactful implementation of monetary policy. If we can maintain present coordination between the fiscal policy and the monetary policy, we are hopeful of bringing down inflation at a comfortable 'single digit' by the end of the current fiscal year.

In fact, we have already witnessed a falling trend in overall inflation in the month of February 2012. In order to sustain this macro-economic stability, the role of banking supervisors will have to be indeed very crucial and I hope all our oversight 'examiners' will live up to this expectation.

The Daily Star/Bangladesh/ 22th March 2012