Managing Risk

Oct 11, 2011 (LBO) – Sri Lanka’s Central Bank has issued directions to banks on an integrated risk management framework that will be effective in six months’ time. The guidelines are in addition to the risk management principles and rules required in regulatory and supervisory procedures and other market best practices of banks’ risk management, the central bank said. The guidelines cover management of credit, market, operational, liquidity and interest rate risks, stress testing and disclosure requirements in an integrated risk management framework based on standard market practices, a statement said.

The direction was issued to the banks after a consultative process with all stakeholders, it said.

“Banks are exposed to various risks inherent to their business operations and they are often heavily interdependent,” the banking regulator said.

“Therefore, the management of such risks in an integrated manner is essential to promote the soundness of the banking system.”

It said that international best practices mandates that banks should have a comprehensive integrated risk management framework to identify, control and mitigate such risks.