Amidst growing credit uncertainty among local banks, the Central Bank is increasing supervisory oversight over local banks. 

This is aimed at ensuring prudent assessment of borrowers that are unlikely to pay, assessment of Business Continuity Management as well as accurate provisioning to avoid effects that could destabilize the financial sector.

The Central Bank’s Financial Stability Committee meeting on Thursday last week recommended an assessment of the Business Continuity Management in all supervised financial institutions, to understand their ability to deliver critical operations through disruption.

This comes at a time when the local finance institutions are experiencing increased credit risk as the pandemic has weakened the capacity of borrowers to service their loans, thus raising risks of default.

The New Times understands that the business continuity assessment will entail multiple aspects including banks’ governance, risk management framework, planning, incident management and dependency management among others.

Peace Uwase, the Director-General of the Financial Stability at the Central Bank, told The New Times that the assessment will, among other aspects, assess whether existing Business Continuity Plans have been updated given the Covid-19 experience.

Banks that are found with gaps will be required to submit remedial plans to close any gaps identified.

Under governance, the assessment will consider the boards’ role in oversight of operational resilience and business continuity under metrics such as defined bank’s risk appetite, capacity and profile.

The governance structures will also be evaluated on scenarios that they considered in formulating the last bank’s risk tolerance for disruption to its critical operations.

According to Uwase, they will also assess incident management reviewing where banks have developed and implement response and recovery plans to manage incidents that could disrupt delivery of critical operations in line with their defined risk appetite, capacity and profile.

"Does the bank maintain an inventory of incidents? Do they periodically review the response and recovery procedures? Are lessons learned documented and how do they get reflected in the review of the incident management program?” the checklist will review.

Under operational risk management framework, the Central Bank will look at how banks regularly identify external and internal threats and potential failures in people, processes and systems.

Banks will also be assessed with regard to planning and testing evaluating their business continuity plans and how they conduct business continuity exercises under a range of scenarios in order to test their ability to deliver critical operations through disruption.

Also on aspects to be assessed include third-party dependency management on how well the banks manage service providers, due diligence before entering into arrangements, exit strategies, verification that the third service provider has sufficient controls to safeguard bank’s critical functions among others.

The Central Bank is also in the process of revising the Business Continuity Regulation which will among other things include sanctions and penalties for players found to have insufficient business continuity management.

"We are also in the process of revising the Business Continuity Regulation which we hope to gazette very soon. One of the objectives was to strengthen the sanctions regime with regard to insufficient business continuity management. So in the near future banks will be penalized for failure to provide critical operations in the event of a disruption,” Uwase said.

The measures in place with regard to credit risk are still operational until May 2021.

"Banks were exceptionally allowed to restructure loans up to 4 times until May 2021. We are in the process of reviewing the necessary interventions that will be required at the expiration of the current relief measures,” she added.

The pandemic and consequent containment measures have reduced the incomes of households and businesses thereby weakening debt service capacity.

The Central Bank last week noted that Gross Domestic Product (GDP) contracted by 4.1 per cent year-on-year in the first three quarters of 2020.

Among responses by the local financial sector to the challenges has been loan repayment deferrals to their customers to allow them time to ‘recover’ financially.