Denny H Kalyalya: Effective banking supervision - a risk based approach
Opening remarks by Dr Kenny H Kalyalya, Deputy Governor-Operations of the Bank of
Zambia; at the workshop on "Effective banking supervision: a risk based approach",
Livingstone, 1 December 2008.
* * *
• The Chairperson
• Resource Persons
• Distinguished Workshop Participants
• Ladies and Gentlemen
On behalf of Crown Agents and the Bank of Zambia, I wish to welcome you all to this
important workshop on Effective Banking Supervision: A Risk Based Approach and to
Zambia's Tourist Capital, Livingstone. In particular, I welcome our resource persons from
Crown Agents and participants from the region.
Looking at the programme, it is obvious that you will have a tight schedule. However, I urge
all of you to find time in your busy schedule to visit some interesting places that our Tourist
City of Livingstone has to offer, especially the mighty Victoria Falls, which although not at its
best at this time of the year, still presents a spectacle to behold.
The ongoing global financial crisis has brought tremendous and unexpected challenges to
regulatory and supervisory authorities. As you are all well aware, in any economy, more so in
market-driven economy, financial institutions play a critical role in the allocation of resources
through intermediating between those with surplus resources (depositors) and those in need
of resources (investors). Effective and efficient supervision is therefore, crucial to manage
risk and avert possible loss to depositors/investors and hence maintain public confidence in
the financial system.
Ladies and Gentlemen
This workshop is being held at a time when the global economy has come under serious
strain caused by the sub-prime mortgage crisis in the US. Appetite for profit and poor credit
risk underwriting standards led to a surge in sub-prime mortgages. This brought about a real
estate price bubble as demand for residential properties grew. The situation culminated into
a liquidity and credit crunch in financial markets.
The financial crisis has spread to other countries directly through financial market linkages
and indirectly through trade. Recent projections indicate that the global financial crisis will
lead to global contraction in economic output with a corresponding reduction in incomes, a
rise in unemployment and decline in volumes of trade.
Ladies and Gentlemen
The current state our financial sector calls for a new approach to the supervision of banks
and other financial institutions. Risk Based Supervision (RBS) represents a paradigm shift
from the traditional rules based, historical, standardised and point-in-time assessments to a
process-oriented, forward looking, continuous and risk profile driven approach to supervision
and regulation of the financial sector.
RBS is a structured and forward looking process designed to identify risk factors to which
individual banks and other financial institutions and the entire financial industry are exposed.
This approach enables supervisors to critically assess various risks and the risk
management systems of banks and other financial institutions in order to assess the risk
profile of these institutions. It also enables the regulator to focus supervisory attention on the
areas and institutions that pose the greatest risk to financial system stability.
Thus, the supervisory authorities are in a position to identify systemic risk factors and devise
intervention measures aimed at forestalling systemic failures. The added advantage of this
approach is that it brings about optimal utilisation of supervisory resources.
Ladies and Gentlemen,
I am happy to inform you that following our initial efforts dating back to 1999 to introduce risk
based supervision, the Bank of Zambia has this year fully adopted RBS. As a result it is
expected that there will be enhanced supervision of banks and other financial institutions.
Let me also state that the BoZ is committed to implementing the Basel II Capital Accord but
stands ready to review this stance in the face of the ongoing global financial crisis. As you
know Basel II is intended to make banks operate at capital levels which are commensurate
with their risk profiles. To this end, the BoZ just issued risk management guidelines.
Distinguished Workshop Participants
As I conclude, I wish to urge the workshop participants to participate actively in the
deliberations and use this opportunity to tap knowledge and skills from the vast experience of
the resource persons. This workshop provides us with a unique opportunity to share our
respective country experiences and challenges.
It is my hope that we will develop the supervisory systems in the region to a level where they
will be able to interact effectively. This uniformity in the supervisory systems will prepare us
to respond better to regional and global financial challenges.
With these few remarks, Ladies and Gentlemen, it is now my honour and privilege to declare
this important regional workshop on Effective Banking Supervision: A Risk Based Approach
officially open.
I thank you!!!