On-site assessment is the most critical supervisory tool employed by SBP to have a good understanding of the institution’s business, identify potential risks that may impact institution’s reputation, safety, soundness and to assess the suitability of various supervisory actions. SBP’s On-site assessment may be a full scope inspection, limited/ focused review or thematic. Besides that SBP also periodically assesses Information Systems and Overseas Operations of the financial institutions. Apart from these regular on-site assessments, SBP is also required, under Banking Companies Ordinance, to review cases of loans written off by the financial institutions. The responsibility to carry out On-site assessment of financial institutions has been entrusted to Banking Inspection Department I & II.

SBP assesses Commercial Banks/MFB/DFIs/IBIs on the basis of CAMELS methodology. This methodology involves analysis of Capital, Asset Quality, Management, Earnings, Liquidity and System & Controls broadly on the following parameters:

• Capital: It is evaluated in relation to SBP’s capital adequacy requirements and overall financial condition of the bank.

• Asset Quality: This is evaluated in relation to the level, distribution, trend, severity of adverse classifications and non-performing assets; the adequacy of provisions (general and/or specific); and management’s demonstrated ability to identity, monitor, administer, and collect problem advances and other such assets.

• Management: It is evaluated against all factors necessary to operate an institution in a safe and sound manner and thus protect depositors’ funds in accordance with acceptable practices.

• Earnings: It is examined on basis of quantity and quality of earnings and the ability to support present and future operations; coverage of losses and build-up of adequate capital; level and trend of profits; and quality with regards to composition of core earnings and recurring nature of profits.

• Liquidity: This factor is examined in relation to the overall effectiveness of asset and liability management. These areas are reviewed especially with regard to compliance with cash reserve requirement and liquid asset requirement ratios as well as performance with regard to borrowings, structure and stability of deposits.

• Systems and Controls: The evaluation methodology of SBP includes an assessment of the adequacy of the systems and methodologies followed, the inherent degree of an institutionalized approach and an analysis of the contribution made to the control processes at various organizational levels.

Based on the assessment of above components, an overall assessment of the financial institution is made and shared with the concerned financial institution and necessary enforcement measures are taken. Financial institutions are required to place SBP’s Onsite assessment before their Board of Directors for review and necessary actions.

State Bank’s On-site assessment of the financial institutions is an “un-published record” and thus cannot be disclosed publically according to SBP Act 1956.