Bangladesh Bank issues risk-based supervision framework for banks

Bangladesh Bank (BB) has issued a detailed framework outlining how banks will shift to risk-based supervision (RBS), with the new supervisory system set to be implemented across the banking sector from January 2026.

Directing all commercial banks to comply with the framework, the central bank issued a circular on Sunday outlining the operational, supervisory and reporting arrangements applicable from the commencement of RBS.

In view of increasing globalisation of financial services, rapid technological advancement, product innovation and heightened interconnectedness of financial institutions, the complexity of banking operations and the overall risk profile of banks have significantly increased, the circular said.

Traditional compliance-based supervision, which primarily emphasises rule-checking and reliance on historical data, is no longer sufficient to proactively address these evolving challenges and risks, it added.

"In this context, BB has decided to implement RBS, which is expected to strengthen forward-looking assessment of risks and the effectiveness of risk governance, promote enhanced risk awareness, accountability and a prudent risk culture across banks, and support sustainable innovation while safeguarding overall financial stability," the circular stated.

Under the framework, all banks are required to operate, maintain and strengthen their systems, internal controls and governance structures in conformity with the supervisory expectations outlined in the Supervisory Policy and Coordination Department (SPCD) circular issued on October 23, 2025.

The circular will apply to all scheduled banks operating in Bangladesh and will cover all business lines, functions and activities that have a material impact on a bank's overall risk profile.

Supervisory assessment under RBS will be based on a structured evaluation of a bank's inherent risks, including credit, market, operational, legal and regulatory, strategic, money laundering and terrorist financing (ML/TF), technological and other emerging risks. It will also assess the effectiveness of risk governance arrangements, internal control and risk management systems, and implementation of risk mitigation measures.

Supervision under RBS will be forward-looking, emphasising early identification and evaluation of emerging risks; continuous in nature through a combination of off-site monitoring and targeted on-site reviews; and proportionate to a bank's size, complexity and systemic importance, according to the framework.

To support effective implementation of RBS, Bangladesh Bank has undertaken a comprehensive restructuring of its supervisory organogram. The restructuring aims to establish a single-point supervisory interface for each bank, eliminate duplication and fragmentation in supervisory data submission, and promote a more coordinated, risk-focused and forward-looking supervisory approach.

Under the restructured framework, supervisory responsibilities have been realigned to ensure holistic, bank-specific supervision through dedicated bank supervision departments, while enabling specialised and cross-cutting oversight in areas such as supervisory policy coordination, data management and analytics, technology risk and digital banking supervision, money laundering and terrorist financing risks, and payment system oversight.

Accordingly, BB has established 17 supervisory departments, comprising 12 bank supervision departments (BSD-1 to BSD-12) and five specialised supervisory departments.

As part of the transition, existing inspection- and function-based supervisory departments have been streamlined and integrated into the new RBS-aligned structure, which will take effect from next month.

Under the RBS framework, each BSD will conduct full supervision of its designated banks through a single dedicated supervisory team. The team will carry out continuous supervision-both off-site and on-site-covering all key supervisory areas, including foreign exchange operations and complaint management, while maintaining the bank's risk profile and ensuring timely supervisory intervention and follow-up.

Among the five specialised departments, the Supervisory Data Management and Analytics Department (SDAD) will act as the central hub for supervisory data collection, validation, data quality assurance and sectoral risk analysis to support evidence-based supervision.

The Technology Risk and Digital Banking Supervision Department (TRDS) will oversee technology- and digital banking-related risks, while the Anti-Money Laundering and Terrorist Financing Prevention Department (AMLD) will supervise ML/TF risks. The Payment Systems Supervision Department (PSSD) will oversee risks associated with banks' payment and settlement systems.

Under the framework, each bank will be assigned a lead bank supervisor, who will serve as the primary supervisory point of contact. The supervisor will coordinate supervisory activities, facilitate continuous supervisory dialogue, communicate supervisory letters, and monitor and follow up on supervisory interventions.

For an effective transition to RBS, BB has adopted a phased approach to supervisory data consolidation, under which all supervisory data will gradually be brought under a single platform to avoid redundancy and duplication of data submission.

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