Risk-based supervision of banks from Jan'26

Governor of the Bangladesh Bank Dr Ahsan H Mansur on Monday said the risk-based supervision (RBS) system's official implementation would start in the country's banking sector in January 2026, aiming to usher in qualitative changes in how banks are monitored and regulated.

Speaking at a press briefing held at the central bank headquarters in the capital, he said the RBS system - already practiced in many economies, including neighbouring India - would replace the traditional compliance-or directive-based model.

"Risk-based supervision is forward-looking and anticipatory, rather than reactive," the governor said in his introductory speech.

The central bank has been working on RBS implementation for the past two years, he said.

A pilot project involving 20 commercial banks has already been carried out, and the remaining 41 would be brought under it by December 31, 2025, he said.

"We expect to fully implement RBS from January 1, 2026, which will ensure qualitative transformation in the banking industry," Dr Mansur said.

He noted that 12 dedicated working groups, comprising officials of different strata at the central bank, have been formed to oversee and coordinate the implementation.

A standard response format is being developed and would be shared with all banks. Responses submitted by banks would be handled through an automated system, said the governor.

"For the banks that are still not ready to respond to this new framework, they will prepare themselves within the next six months," he said, adding, "We aim to ensure 360-degree supervision in the banking sector."

He also revealed that the Bangladesh Bank plans to adopt International Financial Reporting Standard 9 (IFRS-9) across the banking sector by January 2028, replacing the older IFRS-39.

However, he acknowledged that the 2028 time frame is "ambitious," noting that many countries have taken four years or more to fully implement IFRS-9 due to its complexity and scope.

Responding to questions from journalists on political interference in bank loans and financial scams, Dr Mansur emphasised the need for a mindset shift at the political level.

"There must be changes in the political culture to address the root causes of banking irregularities," he said.

He stressed the importance of enhanced autonomy for the Bangladesh Bank, saying, "We will approach the government to strengthen the central bank's independence to shield it from political pressures."

"The political parties have lessons to learn from the current state of the banking sector," he added. "If these lessons are not learnt by political leaders, there is even a risk that they will face the same fate as those who are now in exile."

Addressing concerns over the appointment of independent directors to banks, the governor revealed that the central bank favours a model where more than 50 per cent of bank directors are independent.

"A pool of qualified independent directors will be created, and banks will be asked to choose from this list," he said. "This is to move away from the existing culture where banks appoint relatives or acquaintances as so-called independent directors."

Regarding the asset quality review of six struggling banks, Dr Mansur said the findings are disappointing.

"Their current assets are very weak. If they can convince us with solid plans to turn around, we may review our stances," he said.

He noted that chief executive officers of banks had met him before the press meeting and welcomed the decision to implement RBS.

In a separate disclosure, he said the central bank is planning to diversify its foreign currency reserve investments from a heavy reliance on US dollar-based assets.

This move is aimed at minimising potential risks amid fears of dollar depreciation under possible future Trump administration policies, he said.

"We need to protect our reserves from currency shocks. Diversification is a strategic necessity, and we will discuss it with international parties," he added.

jasimharoon@yahoo.com