NBU Continues to Implement Risk-Based and Forward-Looking Approaches to Inspections
The NBU continues to implement the risk-based approach
to the conduct of bank inspections. The approach includes an update of the CAMELSО rating system, which involves extending the rating scores to
Operational Risk component and bringing the rating criteria up to date.
Since the approval of the updated rating system, the NBU
has inspected 50 banks.
CAMELSО
provides banks and the regulator with a comprehensive understanding of the
rating process, which includes the analysis of all of a bank’s lines of
business and significant risks, with a special focus on corporate governance
and risk management and internal control systems. Further, the NBU integrates
the results of the CAMELSO rating system-based inspections into the SREP
assessment.
“We’ve
seen changes in how we communicate with banks. Transparency is increasing on
our part and theirs, and either side is doing a better job substantiating their
arguments. In particular, we’re introducing the practice of discussing
inspection results with a bank prior to passing them on to the NBU Committee on
Banking Supervision; banks may express their concerns to the Committee if
necessary”, Denys Novykov, Director of the NBU Onsite
Bank Inspection Department, said.
During an
inspection, the regulator keeps up an ongoing dialogue with the inspected
bank’s management and staff, according to Mr Novykov.
“The goal
of the inspection is not to impose corrective measures, but rather to assist in
resolving detected issues and provide recommendations on possible ways to
resolve these issues and prevent them repeating themselves in the future,” he
said.
“Moreover,
the shift to risk-based planning means the focus will move from comprehensive
inspections to thematic ones, dedicated to specific CAMELSО components/business
lines such as corporate governance, risk management system, internal control
system, and IT risks, as the role of IT is increasing every year,” he added.
In total,
the NBU Onsite Bank Inspection Department conducted 18 scheduled and 12 ad-hoc
inspections of banks in the nine months of 2018.
For
reference
At its
core, the CAMELSO rating system is intended to assess risks and allows for
rating financial institutions based on the following key components:
Capital – Capital Adequacy (C) – assessment of a bank"s capital adequacy in terms of
its sufficiency to protect depositors’ interests and support its liquidity.
Asset Quality (A) – assessment of a bank’s ability to
repay assets and its NPLs’ impact on its overall financial position.
Management and Corporate
Governance – Management (M) – assessment of a bank’s
corporate governance from the perspective of its corporate governance
principles, operating performance, management methods, and controls.
Earnings (E) –
assessment of whether a bank"s income is sufficient to finance the bank’s
development and growth.
Liquidity (L) –
assessment of a bank’s ability to meet its obligations in full and on time.
Sensitivity to market risks – Sensitivity to Risk (S) – assessment of a
bank’s response to changes in the market.
Operational Risk (О) – assessment of a bank’s ability to efficiently
manage its operational and information risks to prevent/minimize
financial losses due to the materialization of such risks.
