The
Presidents/Chief Executives
All Banks/DFIs
Dear
Sirs/Madam,
Strengthening
of Interaction Between the SBP and Banks / DFIs
The banking sector is witnessing a change from a fully controlled
and compliance-based supervisory regime to a market based
one. As a result, the concept of risk-based banking supervision
is gaining importance and needs to be strengthened.
2)
The State Bank of Pakistan (SBP) has already issued guidelines
on Risk Management and Corporate Governance and has taken
steps to strengthen risk-based supervision. The main objective
of all these efforts is to avoid any sudden crisis situation,
which may cause a systemic risk to the whole banking sector.
In order to achieve this objective, combined efforts of the
supervisor/regulator and the regulatees are required.
3)
In order to keep the State Bank abreast of the developments
taking place in the banking sector, it will now be mandatory
for all banks / DFIs to inform this Department promptly about
any substantive changes in their activities or any material
adverse development, including breach of legal and prudential
requirements. Such information should be submitted to this
department in a concise manner, as and when any such developments
take place. During the course of regular inspections, our
Banking Inspection Department shall check, on test basis,
that the banks / DFIs have followed these instructions.
4)
In addition to the above, State Bank of Pakistan will also
enhance direct interaction with the Board of Directors and
Senior Management, as well as the External Auditors, of the
banks / DFIs. Accordingly, it will hold regular high-level
meetings with them; at least once during each calendar year,
with banks / DFIs having satisfactory rating but more frequently
with banks / DFIs having unsatisfactory ratings. Such meetings
will help the regulatees to share with the regulators the
different challenges facing their respective organizations
and discuss matters like group structure, strategy, market
positioning, corporate governance, risk management, performance,
capital adequacy, liquidity, asset quality, etc. The schedule,
agenda and level of participation of such meetings will be
communicated in advance to each bank / DFI. The meeting would
be held in a structured manner focusing on the agenda items.
Banks / DFIs are expected to ensure participation of all those
invited by the State Bank for these meetings.
Please acknowledge receipt.
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