SAARCFINANCE Seminar on
"Macro-prudential Policies in SAARC Countries"
8-9 June 2017, Kathmandu, Nepal
Inaugural Address by
Dr. Chiranjibi Nepal, Governor of
Nepal Rastra Bank
Deputy Governor of Nepal Rastra Bank Mr. Chinta Mani Siwakoti,
Board Members of Nepal Rastra Bank Dr. Sri Ram Poudyal and Mr. Ramjee
Regmi
Special Guest and Economic Adviser at Bangladesh Bank Dr.Mohammad
Akhtaruzzaman,
Eminent Resource Person and Principal Economist at the BIS Dr. Ilhyock Shim,
Executive Directors of Nepal Rastra Bank
Seminar Participants,
Media Friends,
Distinguished Guests,
Ladies and Gentlemen,
It gives me great pleasure to address this august gathering at this
SAARCFINANCE Seminar on "Macro-Prudential Policies in SAARC Countries."
This theme seems to be very appropriate as significant macro-prudential policy
reforms worldwide are being designed to respond to the increasingly
interconnected nature of financial institutions, markets and systems.
Ladies and Gentlemen,
Macro-prudential policy has become an indispensable public policy in
safeguarding financial stability across the world. This new perspective has
spawned profound changes and impacts on our understanding of how the whole
economy operates when the impacts of financial policies and actions are
considered.
Macro-prudential policies have become part of the policy paradigm in emerging
and advanced economies alike, but less so in most countries of the SAARC region.
These policies primarily use prudential tools to limit systemic risk and thus
minimize disruptions in the provision of key financial services that can have
serious repercussions on the economy.
Ideally, a sound macro-prudential policy needs to be based on the determination of
the economic cycles, assessment and measurement of the build-up of systemic risk
and also the impact of the stance of other public policies like monetary and fiscal
policy on the risk taking behavior of the financial sector.
Ladies and Gentlemen,
In this digital era that seeks to encourage electronic transaction settlement system
with the aim of minimizing the use of cash, the adoption of macro-prudential
supervision would persuade banks to adequately manage their investment
portfolios and foster risk management. Macro-prudential approach also elicits
broad implementation of contingency plans by banks to bolster internal controls
and provide early warning signals for the speedy resolution of problem areas.
However, unlike the case of monetary policy where there has been a clear
consensus about the crucial role of the policy rate and supported by clear and
coordinated communication, a comparable consensus is still absent in the literature
on macro-prudential policy.
Likewise, there are some complex issues with regard to the implementation of
macro-prudential policies in countries in this region. These include a) constructing
an appropriate tool kit to tackle with systemic risk; b) evolving an optimal mix of
rules and discretion while using macro-prudential policies; and c) extending the
perimeter for macro-prudential instruments to encompass the shadow banking
system.
Ladies and Gentlemen,
Prior to the global financial crisis of 2007-09, Nepal Rastra Bank had accorded
more focus on micro-prudential policies. As the financial crisis exposed the gaps
in existing supervisory and regulatory framework, regulators worldwide hastened
to embrace macro-prudential policies due to their significance in overcoming the
inherent flaws associated with the traditional micro-prudential approach. NRB
also followed suit and issued a host of macro prudential measures to make BFIs
more resilient.
The principal macro-prudential policies implemented by NRB are related to
strengthening the capital of banks and financial institutions, implementing risk
based supervision, making necessary arrangement for system audit, and enhancing
corporate governance in BFIs. Likewise, some of the core elements of macro-
prudential regulation include risk management guidelines to banks, stress testing
guidelines, liquidity monitoring, fixation of credit to core capital and deposit
(CCD) ratio, loan to value ratio, and single borrower limit, among others. I will not
go into the details of these as they will be examined in the country presentation
session. What I want to stress here, however, is that NRB has been implementing
macro-prudential measures together with the monetary policy for facilitating in
maintaining financial stability as well as in attaining higher economic growth.
Ladies and Gentlemen,
Let me conclude.
The significance of the macro-prudential approach has been acknowledged for
quite some time and rightly so. Developing, enhancing and implementing effective
macro-prudential policy measures are the core for promoting and maintaining
ongoing financial system stability.
Systemic risks and the associated policies warrant close and active attention of
supervisors and regulators. Prudential policies need to go beyond traditional
supervision. What is important is not the validity of the approach, but rather how to
apply it in practice.
This Seminar presents a unique opportunity for us to understand the
macroprudential approach for maintaining financial stability. It is my sincere hope that
all the participants would maximize the opportunity offered by this Seminar to
enhance their capacities in this area through active participation and sharing of
experiences.
In closing, I wish you an insightful and productive deliberation and trust that the
Seminar will leave you with additional insights to tackle the challenges that lie
ahead in this field.
Thank you for your attention.