Lecture Legal and regulatory aspects of banking supervision – Chapter 19
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ions operate in a safe and sound
manner.
The focus of the supervisory efforts by the
State Bank of Pakistan is on the health
and stability of the banking system in
Pakistan.
29
Off-Site Monitoring at BSD
•
The objectives of off-site surveillance over
the banking system are:–
to monitor the condition of individual banks,
–
as well as condition within the banking
system;
–
to provide early identification of problems so
that corrective action can be effected; and
–
to target scarce on-site supervisory resources
to areas or activities of greater risk.
30
Off-Site Monitoring at BSD
(Contd.)
•
Off-site surveillance system revolves
around;
–
•
receipt, review and analysis of periodic
financial statements and returns submitted to
the State Bank.
The off-site analysis facilitate monitoring of
each bank’s performance and its
observance of supervisory requirements
over time, so that problems may be
identified as soon as these emerge.
31
Off-Site Monitoring at BSD
(Contd.)
•
•
The process thus assists in making the
most effective use of scarce on-site
inspection resources.
The system also works as an early
warning to identify those areas which
reflect high probability of financial
difficulties so that policies and corrective
actions can be designed and implemented
accordingly.
32
On-site Monitoring at BID
•
In consonance with the responsibilities
envisaged under the Core Principles
recommended by the Basle Committee,
the On-Site examination capabilities at the
State Bank of Pakistan have been
substantially augmented to bring them at
par with the expected international
standards.
33
On-site Monitoring at BID
(Contd.)
•
While regulations have existed for some
time aimed at convergence of the
essential industry indicators to the globally
accepted criteria, a risk-based approach
to evaluations has been adopted by the
bank in all its assessments.
34
On-site Monitoring at BID
(Contd.)
•
Periodic On-Site examinations of the
financial condition of institutions, falling
within SBP’s jurisdictions, remains the
most effective supervisory tool, which
support Banking Supervision Departments
in maintaining a proactive approach in
discharge of the statutory responsibilities.
35
Monitoring Policy of SBP
•
The State Bank of Pakistan’s policy for
frequency of inspection of banks and DFIs
is designed to provide flexibility in
scheduling inspections consistent with the
need to maintain safety and soundness.
36
Monitoring Policy of SBP
(Contd.)
•
The policy provides a framework within
which supervisory ratings, surveillance
and financial monitoring results, and other
appropriate indicators of banks
soundness, are to be considered in
carrying out the State Bank of Pakistan’s
fundamental policy of subjecting each
bank and non-bank financial institution
under its supervision to a periodic on-site
inspection.
37
Monitoring Policy of SBP
(Contd.)
•
With a view to streamline the approach
and the underlying procedures for
effective and efficient banking supervision
State Bank of Pakistan has embarked
upon a major overhauling of its own
capabilities so as to bring them at par with
international practices.
38
Monitoring Policy of SBP
(Contd.)
•
•
This entailed hiring of services of
consultants of world repute (M/s. Arthur
Andersen) under the FSID Project of the
World Bank.
These Consultants have compiled
extensive on-site and off-site manuals.
Besides qualified and professional trained
human resource have been recruited and
rigorous theoretical and hands-on training
has been provided to them.
39
Monitoring Policy of SBP
(Contd.)
•
•
With the shift in supervisory focus from
‘compliance oriented’ to ‘Risk Assessment
Approach’ State Bank of Pakistan has
developed a uniform bank rating system in
conformity with international
standards/benchmarks.
Now each bank is appraised under the
CAMELS Rating System.
40
Monitoring Policy of SBP
(Contd.)
•
•
In order to portray a legitimate and true
financial condition of a bank the off-site
surveillance system and the on-site
inspection functions of banking
supervision work extremely close together.
As a result of these close coordination
bank ratings reflects as accurately as
possible, the true financial condition of a
bank and the banking system as a whole.
41
Summary of this session
•
Banking sector Supervision in Pakistan
•
Financial sector of Pakistan
•
Banking Companies Ordinance
•
Powers of State Bank of Pakistan
•
Prudential Regulation for Banks
•
Off site --- On site Monitoring at SBP
•
Monitoring policy of SBP
42
THANK YOU
43
