A bank believes that risk management is crucial in ensuring the stability of a bank in the 21st century and the bank’s management team ensures that proper risk management mechanisms are in place. A bank has implemented risk management mechanisms as per the Central Bank of Myanmar (CBM) guidelines as sound risk management mechanisms are the lifeblood of a bank for sustainability and success. A bank’s risk management mechanisms cover financial risks as well as non-financial risks.
(1) Credit Risk
After the Credit Committee evaluates the loan customers according to the 5 Cs framework, A bank closely monitors the customers’ exposure and review the collateral and creditworthiness. A bank minimizes the credit risk by establishing the loan collection and supervision team. The team receives regular supervision from the Credit Committee and is tasked with reporting the requirements to the Credit Committee during the committee meetings.
(2) Market Risk
The changes in the market factors have significant impacts on the collateral that the bank has, currency exchange, trade financing. A bank ensures that proper mechanisms are in place to be able to overcome the challenges if the market risk arises. These mechanisms include close monitoring of business dealing with market price and evaluating Value-at-Risk (VAR) by holding ALCO Committee meetings.
(3) Liquidity Risk
Liquidity is a very important factor that relevant departments must watch very closely on a daily basis as it could directly impact the bank’s image. A bank has implemented the guidelines and frameworks issued by the CBM. Additionally, the balances of each branch are monitored in real-time to ensure that customers could withdraw without any difficulties. Loans are also disbursed to ensure that there are profit margins. A bank ensures that the liquidity ratio does not reach below 20%. The Assets & Liability Management Committee (ALCO) and the Operation Team collaborate to ensure that there is no mismatch in the uses of funding and sources of funding.
(4) Operational Risk
Operational risk is a non-financial risk and includes cyber security risks, internal fraud, external fraud, business disruption, and system failures. Risk Management Committee and Legal & Compliance Department closely coordinate with relevant departments to reduce the risks. Training is conducted to educate bank employees on the code of conduct, rules, and regulations issued by the bank and the regulator. If operational risks are detected, precautionary measures and coordination are taken and individual employees are informed to minimize the risks.
Compliance Functions
Compliance functions are put in place as part of the ML/FT risk management framework. The compliance functions shall be in proportionate with the size, nature, and depth of the bank’s business workflow and operations. Compliance functions are part of everyday tasks and the tasks related to the compliance functions should be properly recorded and kept separately.
Compliance functions shall continuously monitor the bank’s ability to comply with the guidelines, responsibilities, restrictions, procedures, and policies arising from rules, regulations, and manuals. The effectiveness of the compliance functions is fully dependent on the effectiveness of timely reporting from the MIS related to the ML/FT risk management functionalities.