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Central Bank of The Gambia Issues Handbook for Banking Supervision
The Central Bank of The Gambia has released a comprehensive handbook outlining its approach to banking supervision. This handbook provides valuable insights into the bank’s methods for monitoring and regulating banks operating in the country.
Supervisory Approach
According to the handbook, the Central Bank of The Gambia uses both off-site and on-site supervisory techniques to provide ongoing supervision of banks.
- Off-site Supervision: Monitoring performance and condition through regulatory reports.
- On-site Examinations: Verifying the accuracy of reported information and assessing management’s ability to develop and maintain policies, procedures, and risk controls.
Developing the Bank’s Risk Profile
To determine the scope and nature of supervisory activities for each bank, a risk profile is developed. This profile provides information on:
- Institution size and scope of activities
- Ownership
- Management
- Current condition and financial performance
- Level of risk
Assigning Bank Ratings
Each bank is assigned a numerical rating reflecting its risk profile. The five components used are:
CAMEL Rating Components
The handbook highlights the importance of each component in determining a bank’s overall financial condition.
- Capital Adequacy: Provides the cushion to absorb losses.
- Asset Quality: Reflects the level of risk in the asset portfolio.
- Management: Determines the effectiveness of policies and controls.
- Earnings: Foretells the ability to pay dividends and maintain an adequate capital base.
- Liquidity: Indicates the bank’s ability to meet funding needs.
Assigning Numerical Ratings
The handbook defines numerical ratings for each component, ranging from “Excellent/Strong” to “Unsatisfactory”.
- A composite rating of “1” indicates a fundamentally sound bank that is expected to withstand business fluctuations.
- Ratings of 2-5 indicate varying levels of performance and risk, with a rating of 4 or 5 indicating serious problems that require close supervision and remedial action.
Composite Rating Definitions
The handbook provides definitions for each composite rating:
- “1”: Fundamentally sound bank, expected to withstand business fluctuations.
- “2”: Generally the same as a “1” but with more pronounced weaknesses.
- “3”: Nominally resistant to adverse business conditions, but could deteriorate if action is not taken.
- “4”: Serious problem bank requiring close supervision and remedial action.
- “5”: Performance threatens overall solvency of the bank.
The handbook serves as a valuable resource for banks operating in The Gambia, providing clarity on the Central Bank’s expectations and requirements for banking supervision.