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Banking Regulation: Effective Risk Management Crucial for Myanmar Banks’ Independence and Stability

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Yangon, Myanmar

The Central Bank of Myanmar (CBM) has issued a new guideline emphasizing the importance of effective risk management in ensuring the independence and stability of Myanmar’s banking sector.

According to the guideline, banks must:

• Identify all sources of material credit risk in their business, including lending, trade finance, treasury, and foreign exchange operations.
• Measure these risks using appropriate techniques and maintain tools to monitor changes in credit ratings and spreads on investment portfolios.

The CBM stressed that failure to comply with this guideline constitutes a violation and is subject to corrective actions or sanctions under the Financial Institutions Law (FIL) and administrative penalties under Section 154.

Replacing the Previous Directive

The new guideline replaces the CBM’s Directive for Credit Risk Management, which was withdrawn effective immediately. The guideline aims to promote good risk management practices among banks, ensuring their stability and independence in a rapidly changing financial landscape.

Key Points

• Banks must identify all sources of material credit risk in their business.
• They must measure these risks using appropriate techniques and maintain tools to monitor changes in credit ratings and spreads on investment portfolios.
• Effective risk management is crucial for banks’ independence and stability.
• Failure to comply with the guideline constitutes a violation and may lead to corrective actions or sanctions under the FIL.

Credit Risk

Credit risk is the risk of loss resulting from the failure of a borrower to meet its obligations under a credit facility granted by the bank or from a reduction in the value of the bank’s assets due to a change in the credit quality of the borrower/counterparty.

Banks must develop tools and techniques to assess and assign credit quality ratings to individual credits, including estimates of probability of default, loss given default, etc. They must also use current market prices and credit ratings to measure credit risk in investments and counterparty risks in foreign exchange, treasury business, etc.

Contact

For more information on the CBM’s guideline on effective risk management, please contact the Central Bank of Myanmar at [insert contact details].