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Risk Management Guidelines for Banks in Myanmar

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The Central Bank of Myanmar (CBM) has issued guidelines to ensure that banks in the country operate effectively and efficiently. The guidelines aim to promote sound risk management practices, improve transparency, and enhance financial stability.

Credit Risk Management

Credit risk is a critical aspect of banking operations, and banks must identify all sources of material credit risk in their business. Banks should measure all their material credit risk using appropriate techniques and tools, including estimates of probability of default, loss given default, and information from credit bureaux and expert judgment.

Requirements for Credit Risk Management

  • Identify all sources of material credit risk in lending, trade finance, treasury, foreign exchange operations, investments, other assets, and off-balance sheet business.
  • Measure all their material credit risk using appropriate techniques and tools.
  • Monitor their material credit risks regularly, including:
    • Regular review of individual credits, evaluating financial information, and holding discussions with management as appropriate.
    • Revaluation of collateral on a regular basis and additional amounts required where possible in response to shortfalls.
    • Monitoring changes in credit ratings and credit spreads on investment portfolios.

Non-Compliance

Failure to comply with these guidelines constitutes a violation and is subject to corrective actions or sanctions as may be imposed under Section 94 and 96 of the Financial Institutions Law and administrative penalties under Section 154.

Effectiveness

These guidelines shall come into effect six months from the issued date. The CBM’s Directive for Credit Risk Management (No. 4/2017) is withdrawn and replaced by these guidelines on the date on which they take effect.

Annex 1: Credit Risk

Credit risk refers to 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.

Requirements for Credit Risk Management

  • Identify all sources of material credit risk in their business.
  • Measure all their material credit risk using appropriate techniques and tools, including:
    • Development of tools and techniques (which may include estimates of probability of default, loss given default, etc.) to assess and assign credit quality ratings to individual credits.
    • Use current market prices and credit ratings, where available, to measure credit risk in investments, identifying credit spreads, and counterparty and settlement risks in foreign exchange, treasury business, etc.
    • Account for loans and other credit facilities in accordance with accounting standards.
    • Maintain tools to measure credit risk across the portfolio, including measures of concentration risk (individual borrowers, sectors, countries) and stress tests to make a forward-looking assessment of potential future credit risk.

Conclusion

These guidelines aim to promote sound risk management practices among banks in Myanmar. Failure to comply with these guidelines may result in corrective actions or sanctions. Banks are required to identify all sources of material credit risk, measure their credit risk using appropriate techniques and tools, and monitor their credit risks regularly.