His call comes at a time when increasing number of lenders are known to be tweaking loan classification figures to keep the level of substandard, doubtful and bad loans low.[break]
“This (unhealthy practice) may one day culminate into credibility and reputational risk, which may lead to the fall of institutions,” Khatiwada told National Risk Management Seminar organized by the National Banking Training Institute in Kathmandu on Monday.
He also reminded that though “the central bank has measures to mitigate other forms of risks, it does not have mechanisms to manage such (credibility and reputational) threats.”
The outspoken governor, who is known to make bold remarks, however, indicated he was not discouraging banks and financial institutions to take risks.
“There is a relationship between risks and returns and without taking certain risk, no institution can maximize returns,” he said. “But every institution must know its appetite for risk. And if they go (overboard), they´ll fall.”
Evidence of what the governor was hinting at can still be found in financial markets all across Europe and the US, where mistakes made by banking institutions not only created financial crises but pushed economies into recession.
“So, risk management should be at the forefront of decision making process at banks and financial institutions. The institutions should also follow risk management guideline of the regulator and other macro-prudential measures,” Khatiwada said.
One way banks and financial institutions can detect risks posed by different parts of operations, according to the governor, is by conducting stress tests periodically. “This provides a scenario of their ability to absorb shocks. They should then fine tune their portfolio based on the results,” Governor Khatiwada said.
Related story
US transgender woman wins Democratic nod for governor in Vermon...
-1779842101.webp)
