NRB to remodel supervision as per degree, type of risk

- POST REPORT, Kathmandu
NRB to remodel supervision as per degree, type of risk

Jun 3, 2014-

Nepal Rastra Bank (NRB) is planning to restructure its supervision system according to the degree and type of risk being faced by banks and financial institutions (BFIs). The central bank said that watching the country’s BFIs in a more specific manner could prevent potential problems.

According to NRB, it has been implementing a compliance-based supervision system under which it makes sure that BFIs have been following its directives. “This type of quantitative supervision has failed to control the growing anomalies among BFIs,” said Laxmi Prapanna Niraula, director at NRB’s Department of Bank Supervision. Risk-based supervision could help control the problems, he added.

Under risk-based supervision, NRB will check BFIs with a focus on the risks they are exposed to. The central bank will closely monitor the entire system like portfolio management, financial transactions, operation, vault management, quality of credit and the quality of service being provided to customers.

In recent times, a number of BFIs including Gorkha Development Bank, Samjhana Finance, People’s Finance and Capital Merchant Banking and Finance, among others, have got into trouble primarily due to the bad governance of their directors and promoters which the central bank failed to detect and stop in time.

“Had there been proper assessment of their financial status, quality of credit and management procedures in time, they would not have sunk into a bad situation,” said Niraula, speaking at a programme organised jointly by the Nepal Bankers’ Association and the Society of Economic Journalists of Nepal.

According to him, the operational risks of BFIs has been growing in recent days also due to their weak internal monitoring system. Niraula said that the establishment of a large number of branch offices had also strained the internal control mechanism of some of these institutions.

Besides conducting a more effective monitoring system, the central bank has planned to implement a system audit at BFIs. Niraula said they were preparing a working guideline for such an audit. “Although BFIs have been complaining that a system audit would increase their costs, we have been studying how we can make it feasible in the system,” he added.

 

Published: 04-06-2014 07:46

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