Dhaka, Bangladesh (BBN)- The central bank of Bangladesh has revised guidelines on stress testing for the commercial banks to make the testing more effective, officials said on Saturday.
Under the revised guidelines, the banks will have to submit their stress testing report to the concerned department of the Bangladesh Bank (BB) on a quarterly basis, instead of earlier half-yearly one.
“We’ve revised the guidelines aiming to ensure the soundness and sustainability of the country’s banking industry and make the banks more shock resilient,” a BB senor official said, adding that the central bank has reduced the reporting period for the banks to know their financial strength through calculating risks in different portfolios more frequently.
“It has been decided that henceforth banks will carry out stress testing in line with the revised guidelines on a quarterly basis i.e. on March 31, June 30, September 30 and December 31,” the BB said in its revised guidelines, issued on Thursday last.
The banks will have to submit the report along with a soft copy within 30 days at the close of each quarter, the BB official said adding the reporting format has been designed in line with Basel-II framework.
The revised guidelines are articulated with a number of fresh issues including sensitivity analysis for interest rate-based stress test, along with duration gap. Such provisions were not incorporated in the previous guidelines.
“It will help the banks to understand the potential behaviour of various positions on their balance-sheets in circumstances of stress,” the BB executive said, adding that it would also enable the banks to develop sound risk management practices.
This would ensure more safety and sustainability of the country’s banking industry, he added.
The central bank puts stress on simple sensitivity analysis which provides ways to assess risks relating to credit, interest and exchange rates, share market exposure and liquidity position.
The BB has taken the 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 financial institutions and see how or whether they will be on a proper footing to stay afloat in difficult times.
The stress test has to measure what will happen with a bank if the economic situation worsens and the bank’s difficulties increase.
BBN/SI/AD-27Feb11-12:14 am (BST)