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Myanmar’s Central Bank Introduces New Guidelines on Capital Adequacy Regulation

YANGON, MYANMAR - The Central Bank of Myanmar (CBM) has issued a new guideline on capital adequacy regulation, aimed at strengthening the country’s banking sector. Notification No. 16/2017, known as the Adequacy Regulation (CAR), outlines the requirements for banks to assess their capital needs and manage risks effectively.

Key Requirements

  • Banks must take into account all their risks, including those not subject to the CBM’s capital requirements.
  • They must also assess likely future capital demands and their ability to raise new capital if required.
  • Capital management plans should be approved by the Board of Directors and take into account the bank’s policy on payment of dividends to shareholders.

Risk-Based Supervision

  • The CBM will adopt a risk-based approach to supervision, taking into account banks’ risk management practices.
  • Banks are expected to maintain detailed documentation of their risk management systems, including policies, procedures, and internal audit reports.
  • They must also be able to explain in detail how they ensure compliance with relevant regulations and standards.

Submission of Information

  • Banks are required to submit statistical and other information on their risks to the CBM.
  • Significant changes in their risk management systems should be notified to the CBM.
  • Failure to comply with these guidelines may result in corrective actions or sanctions.

Effective Date

The CAR is effective six months from its issued date, replacing the CBM’s Directive for Credit Risk Management (No. 4/2017).

CBM Expectations

As part of the CAR, banks are expected to:

  • Identify and measure material credit risk in their business activities.
  • Assess credit quality ratings to individual credits.
  • Develop tools for new loans.
  • Use current market prices and credit ratings to measure counterparty and settlement risks.

Credit Risk Management

Banks must also:

  • Monitor material credit risks by regularly reviewing individual credits.
  • Ensure collateral is revalued on a regular basis.
  • Maintain procedures for addressing delinquent credits.
  • Establish provisions against potential losses and regularly review them.

Regulatory Enforcement

Failure to comply with the CAR may result in corrective actions or sanctions, including administrative penalties under Section 154 of the Financial Institutions Law. The CBM will work closely with banks to ensure effective implementation of the guidelines and promote a stable and sound banking system in Myanmar.

Conclusion

The Adequacy Regulation (CAR) is a crucial step towards enhancing the resilience and stability of Myanmar’s banking sector. By implementing these guidelines, banks can better manage their risks and ensure the safety and soundness of their operations.