The Bangladesh Bank (BB) has asked the non-banking financial institutions (NBFIs) to implement guidelines on managing their risks.
Three focus groups of the central bank earlier identified four core risk areas in the country's non-banking financial sector. The risk factors are: credit risk, asset and liability risks, internal control and compliance risks and information technology (IT) security risk.
The focus groups were formed with representatives of the NBFIs, and officials from the central bank worked as team coordinators. The functional responsibility of the groups was to look into practices in the companies and produce a document that would be a basic risk management model for the core risk areas, sources in the BB said.
"The guidelines will help the NBFIs minimise their risk factors," a BB senior official told the FE Thursday, adding that the guidelines have been formulated in line with international practices.
The BB has already issued a circular in this connection and directed the managing directors of all NBFIs for taking initiatives to implement the guidelines by June 2006.
"Risk is the element of uncertainty or possibility of loss that prevail in any business transaction in any place, on any mode and at any time," the central bank observed in its circular.
The circular also said deregulated regimes along with globalisation of business have opened a new frontier that warrants risk management on an even greater priority.
The failure to adequately manage these risks exposes financial institutions not only to business losses but may also result in circumstances under which they will not be able to remain in business, the circular noted.
"Although rapid developments are taking place internationally in this area, the NBFIs have not yet put in place a robust and structured framework for risk management," the BB pointed out.
According to the circular, these guidelines are flexible in the sense that financial institutions can adopt and adapt them in line with the size and complexity of their business.
"The central bank, based on its regular examination of individual financial institution, will enforce the specific adoption of the guidelines," it added.
Currently, 28 NBFIs are operating its business across the country.
Earlier, the central bank issued guidelines identifying five core risk areas of the country's banking sector. The risk factors are: credit, asset and liability, foreign exchange, internal control and compliance and money laundering.