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The Bangladesh Bank has formally launched a risk-based supervision (RBS) dashboard, marking a major shift towards a more technology-driven and preventive oversight framework for the country's banking sector.

The modern supervisory system was inaugurated today (4 January) by the central bank governor, Ahsan H Mansur, signalling what officials described as a fundamental transformation in banking supervision.

Bangladesh Bank spokesperson Arief Hossain Khan said the formal journey of RBS had begun after years of preparation, with the immediate task now being full implementation in line with the prescribed risk-assessment framework. He explained that supervision would no longer rely primarily on traditional on-site inspections and off-site monitoring from the central bank's offices.

Highlights: TBS

"From now on, supervision will be risk-based," Arief said. "Banks will submit all operational data in prescribed formats in advance. The central bank will analyse these data and issue instructions accordingly." 

He stressed that accuracy and timeliness of information would be critical, warning that failure to disclose correct data could make it extremely difficult to identify and address emerging problems.

India's experience

The Reserve Bank of India (RBI), India's central bank, initially introduced the RBS system on a pilot project basis primarily in 2003. Subsequently, based on the recommendations of the IMF and the World Bank, it was expanded in a more planned manner to cover 30 large banks starting from the 2012-13 financial year.

Although RBS was not completely discontinued, its full implementation faced several challenges. However, as risks in the banking sector increased following the Covid-19 pandemic in 2020, the RBI took the initiative to revamp it. In February 2021, the RBI announced the launch of a web-based platform called the "Advanced Supervisory Monitoring System" or "DAKSH," which essentially strengthened and modernised the RBS system.

How RBS rollout will be in Bangladesh

A senior Bangladesh Bank official said that through this system, the monitoring of banks' information will henceforth be more accurate and technology-dependent. Significant changes have already been made to the central bank's internal departmental structure to implement this method. The biggest feature of this new system is that it is not merely post-incident monitoring or "compliance-based."

The official mentioned that previously, inspections were carried out after an irregularity had already occurred. However, the RBS system will make it possible to identify any risk before it materialises. For example, the central bank will scrutinise the potential risks of a large loan before it is disbursed.

Integrated dashboard

An executive director of the central bank said, "RBS is essentially a data-based system. A specific 'Supervision Matrix' has been created to conduct the monitoring work. Inspectors will verify various factors based on the information provided by the banks. The bank's risk criteria will be determined based on the accuracy and analysis of the data."

He further added, "Previously, information was collected from banks using templates or Google Drive, which was insecure and slow. Now, the Bangladesh Bank has created a full-fledged dashboard. Each bank will be provided with a specific login ID and password. Banks will directly upload information to their own dashboards. This method will function much like the IMS (Information Management System) or OEIMS (Off-site Enforcement and Inspection Management System) systems."

Twelve departments and specialised teams

To successfully manage the RBS, 12 Banking Supervision Departments (BSD) have been formed at the Bangladesh Bank. Separate bank-based teams will work for the banks falling under the purview of Circular No 3 (STCT). Each team will be led by a lead supervisor who will directly oversee the inspection and supervision activities of the respective bank.

Strict deadlines and accountability have been set for banks regarding the submission of information. The information must be updated on a weekly and monthly basis. An official of the rank of MD or DMD will act as the "Focal Point" at the head office of each bank. The Bangladesh Bank will only accept information that is approved and verified by the head office.

The Bangladesh Bank has said that information will be regularly followed up through the dashboard. If any inconsistency is found in the data, arrangements for an immediate Special Inspection will be made at the concerned bank. Experts believe this digital transformation will play a revolutionary role in reducing the risk of classified loans and ensuring transparency in the banking sector.

Role of international organisations

Bangladesh is currently under a $4.7 billion loan programme with the IMF, where modernising the banking sector's supervision system is one of the key conditions. As per the IMF's requirements, introducing the RBS system, in place of the conventional method, was mandatory to ensure transparency in the banking sector and to reveal the true picture of Non-Performing Loans (NPLs).

In addition, the World Bank has long been working to enhance Bangladesh Bank's supervisory capacity through the "Financial Sector Support Project." The World Bank has provided technical assistance and financing for the creation of necessary policies, training of officials, and the development of the IT infrastructure (dashboard) required for RBS implementation.

Challenges and impediments

According to officials, the primary impediment to implementing the RBS system in the country is seen as the culture of information suppression among banks. Banks frequently conceal or manipulate correct information, which is the biggest hurdle for this data-dependent system. 

Secondly, there is a lack of necessary technical expertise among the officials of the central bank and commercial banks in data analysis and risk assessment. 

Furthermore, due to the weaknesses in the country's IT sector and the political interference from influential quarters, taking action even when the correct risk is identified becomes a challenge.