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Bangladesh Bank (BB) asked the country’s commercial banks to take necessary measured as the central bank plans to implement risk-based supervision (RBS) from January next.

As part of the shift from decades-old compliance-based inspections, the central bankers concerned sat on a meeting with the bank executives where clarification of the last month’s preparation-related circular regarding the RBS was shared by the supervisory policy and coordination department (SPCD).

Deputy Governor of the banking regulator Md. Zakir Hossain Chowdhury chaired the meeting.

Mr. Chowdhury said they called the bank executives to know if they have any confusion or need clarification regarding the RBS preparations because the central bank plans to implement RBS mechanism from January next.

“All the banks, excluding the five Islamic banks facing merger, will come under the RBS to restore discipline in the banking industry,” he said.

He said the RBS, in contrast to the traditional compliance-based supervision, adopts a forward-looking and process-based approach for enabling early identification and mitigation of key risks. It assumes a dynamic and flexible supervisory process focusing on the assessment of inherent risks and the effectiveness of internal controls and overall risk governance within the banks to determine their composite risk profile, and level of supervisory intensity tailored to their unique risk profile.

Seeking anonymity, another BB official who attended the meeting said they have earlier completed a piloting RBS around two dozens of banks and it will completed in other banks within the coming month.

“I think, we will be to apply RBS in banks from January next month,” the central banker said.

On condition of not disclosing identity, a bank’s senior executive hailed the central bank move, saying that it will be difficult for the BB to implement RBS in a number of banks, which lacks readiness, from the stipulated time.

“There are three things — formation of RBS coordination committee, do the gap analysis and prepare an action plan that need to be done. It’s so simply and it can be done in a month,” the experienced banker said.

According to the preparedness-related circular, the BB will conduct targeted supervisory reviews to assess progress made by the banks against the submitted Action Plan to address the gap against supervisory expectations, and consider these efforts in future risk profiling and supervisory planning. Banks are encouraged to treat the supervisory expectations as both a regulatory expectation and an institutional development opportunity.