Bangladesh Bank on Sunday asked non-bank financial institutions to form separate Risk Management Forum and Risk Analyst Unit by 15 April, 2013 in a bid to manage their external and internal risks in a prudent and organised way.
The BB issued a circular to managing directors and chief executive officers of all NBFIs asking them to inform the central bank in this regard by 21 April 2013.
The BB circular said that the central bank had earlier issued several prudent guidelines on risk management for NBFIs with a view to facing the ongoing challenges of increased competition and expansion of diversified financial business in Bangladesh.
As part of the move, the central bank asked the NBFIs to form the RMF and the RMU to improve the risk management policies and procedures in line with the international best practices, it said.
According to the BB circular, each NBFIs must have an effective Risk Management Forum headed by the chief risk officer and comprised of the heads of the credit, treasury and other related divisions.
A RMF will have to design overall risk management strategy and prepare risk management policies and procedures of its NBFI.
The forum will conduct testing and observe the use of models to measure and monitor the risks.
It will oversee the capital management functions in accordance with the risk-based capital adequacy measurement in line with BASEL-II and III.
The RMF will highlight the risky portfolios and deficiencies of the NBFI in a timely manner and report these analyses to the managing director as well as the board of directors with specific recommendations and suggestions.
The BB circular said that the Risk Analysis Unit would be responsible solely to identify and analyse all sorts of risks appropriately and timely.
The unit will act as the secretariat of Risk Management Forum, the circular said.
It, however, said that the unit would be independent from all other units and divisions of the NBFI.
No member of the RAU will be involved in any sort of ratings of transactions, or setting and working to achieve any target imposed by the NBFI.
The RAU will collect all relevant data related to the risk indicators from different models and information system at the earliest and it will assess the quality, completeness and correctness of those data.
The unit will identify and quantify the risks and their exposures to material loss and it will prepare Risk Management Paper on a monthly basis.
The RMP will be placed in the monthly meeting of the Risk Management Forum, the BB circular said.
The RMF will recommend some specific action plans after discussing on the RMP to mitigate the identified risks.
The forum will entrust the responsibility to the concerned division or unit to implement the plan along with a given timeline that will have to be mentioned.
The updated data of any month will be collected by RAU by the 15th of the next month and the meeting of RMF may be conducted within 20th of the same month, the BB circular said.
The Risk Management Paper along with the Minutes of the RMF meeting (both hard copy and soft copy) will have to be submitted to the BB’s Department of Financial Institutions Markets by the end of that month.
The RAU will have to prepare their first Risk Management Paper on 30th April, 2013, the circular said.
-With New Age input
