mary c nkosi : risk based supervision in malawi speech by mrs mary c nkosi, deputy governor of the reserve bank of malawi, at the official launch of risk based supervision, blantyre, 9 january 2009. * * * the general manager, reserve bank of malawi ; the chairman of bankers association of malawi ; board members of various banks ; chief executives of banks and members of management ; external auditors ; representative of the institute of internal auditors ; representative of society of accountants ; the executive directors - supervision of financial institutions ; corporate services and support services, rbm heads of department from reserve bank of malawi ; officers of bank supervision and supervision of non bank financial institutions ; members of the press ; ladies and gentlemen. accept my warm welcome to this epic occasion and moment in the history of both the reserve bank of malawi and the act of supervision and regulation of the banking industry in malawi. the reserve bank of malawi changes its mode of supervision from the traditional camel based approach to risk based supervision ( rbs ). such changes the world over, have always been clearly marked and remembered as major occasions. authorities such as the federal reserve system of the usa and financial services authority of the united kingdom where much literature and practice on the subject may be drawn had to change at one point in order to improve the way supervision is conducted. the reserve bank of malawi views this course in the same vein : change to make improvements in risk management in banks and supervision of the same by the regulators. risk based supervision entails change of culture in one way or the other because certain things, like risk management can only be done that way now. i will emphasise a few changes that are expected of banks in order to yield and realize full benefits of the risk based supervision initiative. firstly, the role of the board has been clarified and expectations heightened to an extent that the board can not be a peripheral figure of banks any more. through the risk management guidelines, the rbm calls for active board oversight in policy and strategy formulation, review and ensuring that management executes its responsibility or is held accountable. secondly, the governance structure should not impede proper risk management and reporting. where this is the case, it should be addressed as a matter of urgency and priority. thirdly, all risks affecting the bank should be addressed by policy, ( not just major and traditional financial risks ) so that no single risk is over looked. some of you will recall that one of the major findings of the rbs survey which

their financial system is stable, as measured by international standards. from a regional perspective, problems in a domestic financial system often spill over to neighbouring countries, especially if the countries in the region are involved in close economic co - operation, which is one of the primary objectives of the southern african development community. it is therefore important that the region as a whole should ensure that their financial systems comply with international best standards, as this would play a large role in facilitating regional integration. regional integration, as we know, holds a number of advantages for participating countries. firstly, the region benefits from the resultant expansion of trade between member states which will be supported by a simultaneous integration of the financial sector. closer trading links between countries in a region also strengthens their capacity to participate in world trade, allowing countries to become more competitive outside the trading block. cross - border payments and settlements will be facilitated by the removal of unnecessary financial obstructions and constraints. secondly, the elimination of geographic constraints will facilitate the extension of services and the movement of people across borders and finally, optimum use will be made of scarce resources. the co - ordination and sharing of limited resources such as skills, technological infrastructure and financial systems will contribute to a higher rate of economic development for the region as a whole. it is also important from an international perspective, where increasing emphasis is being placed on the financial sector in the global economy, that sadc economies meet international expectations as far as possible in such areas as payment, clearing and settlement systems, banking supervision and monetary policy. the role of the central bank the central bank ’ s core responsibilities in an economy are the maintenance of monetary stability, ensuring financial system stability and the promotion of the efficiency and effectiveness of the financial system. the maintenance of monetary stability ; this role of the central bank involves the formulation and implementation of monetary policy objectives with the overall objective of achieving low inflation and protecting the value of a country ’ s currency. a strong relationship exists between monetary and broader financial stability in that financial stability is a prerequisite for the effectiveness of monetary policy, and therefore the monetary stability in a country. the maintenance of financial system stability. the central bank performs a pivotal role in ensuring the smooth and efficient functioning of markets and infrastructure such as the payment system in a country. this role of the bank is multidimensional and includes the following : · the provision of physical infrastructure, for example real - time gross settlement ( rtgs ) systems ; · the operation of such infrastructure ; · mitiga