Risk Management in Banking Sector of Maldives Under Scrutiny, Experts Warn

A Wake-Up Call for Robust Risk Management Practices

January 19, 2024 - The Maldives Financial Sector Assessment Program (FSAP) has conducted a comprehensive vulnerability analysis and stress tests to identify potential risks in the country’s banking sector. The analysis was based on aggregate balance sheet data from the eight commercial banks operating in Maldives as of December 2022.

Identified Vulnerabilities

According to experts, the identified vulnerabilities were subjected to hypothetical extreme but plausible scenarios informed by a Risk Assessment Matrix. The findings revealed significant risks across three major categories:

• Credit Risk: Non-performing loans and pressure on pre-provision income
• Liquidity Risk: Deposit outflows
• Market Risk: Changes in interest and exchange rates

Implications for Risk Management Strategies

The findings of the analysis have far-reaching implications for risk management strategies in Maldives’ banking sector. Experts are urging commercial banks to:

• Strengthen internal controls
• Enhance risk management frameworks
• Mitigate potential losses

The International Monetary Fund (IMF) has been actively involved in the FSAP, providing technical assistance and guidance to the Maldivian authorities.

A Timely Reminder

The report is a timely reminder of the need for robust risk management practices in Maldives’ banking sector. As the economy continues to expand, so too does the potential for financial risks to materialize. The findings serve as a wake-up call for commercial banks and regulators alike to prioritize risk management and ensure the stability of the financial system.

Accessing the Full Report

The full report is available for free download in PDF format from the IMF website.