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BoT’s risk management guidelines necessary and welcome
2005-10-04 22:57:02
By Editor
The Bank of Tanzania (BoT) recently issued a circular to all banks directing CEOs to practice integrated risk management in their daily operations.
The risk management guidelines to bankers are out in the wake of the ongoing sophistication of modern banking industry, engendered by both global and domestic competition for a widening range of financial products and services.
The BoT seems to be correctly instilling a culture of self-regulation and risk management as integral management aspects to all banks without exception.
It is understood that risk is an unavoidable element in virtually every human situation.
BoT is therefore keen to see to it that registered banking and financial institutions enhance their risk management practices, and, in so doing, assist BoT’s regulatory and supervisory tasks.
At no time has any registered bank dared to conduct business without risk management measures in place, but both poor internal supervision and organization prompted BoT to intervene by way of releasing guidelines to all banks.
Previously, bank mangers tended to over-rely on their boards of directors, and often messed-up on decisions related to credit, liquidity, interest rates, foreign exchange and operating capital thresholds.
For instance, sources privy to the banking industry, point their fingers at cases of over-exposure and inside lending owing to management’s almost religious adherence to boards’ directives.
Although the directives are not always necessarily flawed, lack of integrated risk management programmes (RMPs) could be a source of inefficiency in arriving at optimal decisions.
Effective risk management frameworks are not supposed to replace the role of accountability and oversight for boards and senior managers, but should rather act as catalysts to oil and fuel the professional conduct of banks.
The blows that the financial sector suffered with the collapse of Meridian Biao in 1995, and subsequently a few other nasty banking crises, are partly to be blamed on the lack of proper risk management tools.
The BoT has been praised by the World Bank and IMF for its exemplary implementation of banking rules and regulations, in particular the supervision of banks’ conduct.
The expectations of the whole banking fraternity is that the new BoT’s risk management guidelines will consolidate past gains and enhance performance efficiency of all banks.
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