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040114
STATE BANK OF PAKISTAN - BANKING SUPERVISION DEPARTMENT
BSD Circular No.02
January 14, 2004
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.
Yours faithfully,
(Jameel Ahmad)
Director
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