Central Bank of The Gambia Unveils Handbook for Banking Supervision
Introduction
The Central Bank of The Gambia has released a comprehensive handbook on banking supervision, outlining its approach to ensuring the stability and soundness of the country’s financial institutions. This handbook is a major step forward in ensuring the integrity of The Gambia’s banking system.
Supervisory Approach
The Central Bank uses a combination of off-site and on-site supervisory techniques to monitor the performance and condition of each institution. Off-site activities involve reviewing regulatory reports, while on-site examinations verify the accuracy of these reports and assess management’s ability to develop and maintain effective policies, procedures, and risk controls.
Risk Profile and Rating System
To determine the scope and nature of supervisory activities for each bank, a risk profile is developed, providing information on:
- Size
- Scope of activities
- Ownership
- Management
- Current condition
- Financial performance
- Level of risk
Each bank is then assigned a numerical rating based on its risk profile, using five components:
CAMEL Rating System
- Capital Adequacy: provides a cushion to absorb losses
- Asset Quality: affects the level of risk in the bank’s portfolio and potential future losses
- Management: determines the effectiveness of policies, procedures, and controls to manage risk
- Earnings: crucial for maintaining an adequate capital base
- Liquidity: vital for meeting funding needs
The Central Bank assigns numerical ratings to each component, ranging from “1” (excellent/strong) to “5” (unsatisfactory). The composite CAMEL rating reflects the overall performance of the bank, with a rating of “1” indicating a fundamentally sound institution, while a rating of “5” indicates a serious problem that requires close supervision and remedial action.
Conclusion
The handbook is a major step forward in ensuring the stability and integrity of The Gambia’s banking system. It will serve as a guide for both banks and regulatory authorities in discharging their responsibilities effectively.