Dhaka, Bangladesh (BBN) - Central bank of Bangladesh has asked the commercial banks for taking preparation to conduct stress tests to know about their financial strength through calculating risks in different portfolios.
The instruction came at a workshop of risk managers, who are responsible to conduct the stress tests of the banks, held at the central bank Monday, the central bank officials said.
Bangladesh Bank (BB), the country’s central bank, Senior Deputy Governor Nazrul Huda formally inaugurated the workshop while Executive Director of the central bank S K Sur Chowdhury conducted technical secession.
The BB puts stress on simple sensitivity analysis, which provides ways to assess risks in credit, interest rate, exchange rate, share market and liquidity.
The banks and non-banking financial institutions (NBFIs) will have to submit their first stress test reports to the BB by August 15 this year, according to the central bank circular, issued on April 22 last. The central bank has asked the banks to submit their respective stress test reports twice a year.
The BB must get the reports within 45 days after June 30 and December 31.
"We've received only one or two stress test reports, so far, from the banks," a BB senior official said, adding that the central bank may extend the deadline to submit the reports to the BB by a couple of weeks.
The central bank has taken the latest move as many countries adopted it in the wake of the recession that rattled the global economy, particularly the financial sector.
The idea behind the stress test is to check out financial strength of banks and NBFIs and see how or whether it will stay afloat in difficult times. The stress test is to measure what will happen with a bank if the economy worsens and bank difficulties increase.
"Financial institutions across the world are increasingly employing sophisticated techniques for managing their risks in different portfolios," another BB official said.
He said measuring, monitoring and controlling various types of risk are vital for ensuring the health of the financial institutions as well as the whole financial system.
The stress-test technique at an institutional level provides a way to qualify the impact of a shocking event on the asset portfolio, the BB official added.
BBN/SSR/SI/AD-10Aug10-10:40 am (BST)
