CB to assign supervisory ratings for all licensed banks from Oct. 1

• Will be key step in moving towards a risk-based supervision approach

The Central Bank (CB) plans to assign supervisory ratings for all licensed banks from October 1 onwards, under the recently finalised rating model based on the Bank Sustainability Rating Indicator (BSRI), to facilitate a risk-based supervision framework for banks.

“The progress on implementing the model was submitted to the Monetary Board and full implementation of the model will commence from October 1, 2021 onwards, in line with the revised BSRI framework as approved by the Monetary Board,” the CB announced.

In moving towards a more risk-based supervision approach, the CB adopted risk-based examinations based on the BSRI from January 1, 2019.

Last year, the comprehensive supervisory guidance framework on assigning scores/ratings to licensed banks was further improved, in order to adopt a more robust risk-based examination mechanism.

Three banks were assigned with supervisory ratings based on the BSRI model, considering a combination of quantitative and qualitative indicators attributable to the banks’ efficiency and sustainability, during this process. 
The risk-based supervision process is considered to be highly data-intensive, as it’s heavily depended on off-site surveillance. Therefore, banks will be required to provide the necessary data in a seamless and automated manner to the Bank Supervision Department of the CB.

The department has been preparing itself and the industry with capacity building programmes for the implementation of the new framework since 2019.

The risk-based framework, by acting as an early warning system, is expected to enable the CB to take early intervention and prompt corrective actions through identification of potential risks arising from emerging developments and strategic changes of banks.

All licensed commercial banks and licensed specialised banks are subject to statutory examinations as per the provisions of the Banking Act and Monetary Law Act.

In 2020, the Bank Supervision Department conducted 19 Statutory Examinations, including examinations on full scope basis and follow-ups.

“Major concerns raised at certain examinations included deteriorating asset quality in terms of increased impaired loans, lapses identified in the computation of impairment charges, resulting in inaccurate computation of impaired loans, low capitalisation and efficiency, lapses in corporate governance and management, deficiencies in technology risk and liquidity risk management and concerns over treasury operations in certain banks,” it noted.

In the year, the CB also commenced conducting Statutory Examinations of banks on a consolidated with the support of other financial sector regulators of the group entities of the selected banks.

Accordingly, the CB was able to complete two Statutory Examinations, extending the scope to consolidated supervision in the year and subsequently the reports, including the findings of the consolidated supervision, were submitted to the Monetary Board. (NF)