Risk Management Guidelines for Banks in Myanmar

The Central Bank of Myanmar (CBM) has issued new guidelines on risk management for banks operating in the country. The guidelines aim to ensure that banks operate effectively and in accordance with approved standards, thereby maintaining financial stability and protecting depositors’ interests.

Key Provisions

Risk Appetite

• Banks are required to define their risk appetite and strategy, taking into account their business objectives, risk tolerance, and regulatory requirements.

Risk Management Framework

• Banks must establish a comprehensive risk management framework that covers all material risks, including:
  • Credit risk
  • Market risk
  • Liquidity risk
  • Operational risk
  • Reputational risk

Credit Risk

• 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 changes in credit quality.

Measuring Credit Risk

• Banks must develop tools and techniques to assess and measure credit risk, including:
  • Probability of default
  • Loss given default
  • Information from credit bureaux and expert judgment

Monitoring Material Risks

• Banks are required to monitor their material risks regularly, reviewing individual credits, evaluating financial information, and holding discussions with management as appropriate.

Non-Compliance

• Failure to comply with these guidelines constitutes a violation and may result in corrective actions or sanctions.

Implementation

The guidelines will come into effect six months from the issued date and will replace the CBM’s previous directive on credit risk management. Banks are required to submit new or significantly revised documentation to the CBM, explaining the nature and reasons for changes.

Annex: Credit Risk

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 changes in credit quality. Banks must identify all sources of material credit risk in their business, measure them using appropriate techniques, and monitor them regularly.

The guidelines are aimed at ensuring that banks in Myanmar operate effectively and in accordance with approved standards, thereby maintaining financial stability and protecting depositors’ interests.