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Guideline on Risk Management for Banks in Myanmar
The Central Bank of Myanmar (CBM) has issued this Guideline to ensure that banks operating in the country have effective risk management practices in place. The guideline outlines the minimum requirements for risk management, credit risk assessment, and reporting.
Risk Management Framework
Banks must establish a comprehensive risk management framework that covers all types of risks, including:
- Credit risk
- Market risk
- Operational risk
- Liquidity risk
The framework should be reviewed and updated regularly to ensure it remains effective in managing the bank’s risks.
Credit Risk Assessment
Credit risk is defined as the risk of loss resulting from the failure of a borrower to meet its obligations or a reduction in the value of assets due to a change in credit quality. Banks must identify all sources of material credit risk, measure and monitor them regularly.
Some key requirements for credit risk assessment include:
- Developing tools and techniques to assess and assign credit quality ratings to individual credits
- Using current market prices and credit ratings to measure credit risk
- Maintaining tools to measure credit risk across the portfolio, including measures of concentration risk and stress tests
Reporting Requirements
Banks must submit regular reports on their risks to the CBM. The reports should include information on:
- Credit risk
- Market risk
- Operational risk
- Liquidity risk
Non-Compliance with the Guideline
Failure to comply with this guideline constitutes a violation and is subject to corrective actions or sanctions as may be imposed under the Banking Law of Myanmar.
Effectiveness
This guideline takes effect six months from the date of issue. The CBM’s Directive on Credit Risk Management (No. 4/2017) is withdrawn and replaced by this Guideline on the same date.
Annex 1: Credit Risk
Credit risk is defined as the risk of loss resulting from the failure of a borrower to meet its obligations under a credit facility or from a reduction in the value of assets due to a change in credit quality. The annex provides detailed requirements for credit risk assessment, including identification, measurement, and monitoring of credit risks.
This guideline aims to ensure that banks operating in Myanmar have effective risk management practices in place to mitigate potential losses and maintain financial stability.