Off-site analysis is carried out at regular intervals to gauge the health of the institutions in between on-site examinations. While the on-site rating is given on the basis of examination findings comprising broad-based criteria, off-site ratings are given on the basis of a set of financial soundness indicators, computed on a quarterly basis.
On-site Examination
Under the Banking Law 2000, all licensed banks and FLCs must undergo statutory on-site examinations at least once annually.
The Banking Examination Department conducts on-site examinations to ensure institutions operate safely, meet the Central Bank's prudential requirements, and act in the public interest.
In addition to statutory annual examinations, Spot or Special Examinations are conducted when necessary. Money Exchange Companies engaging in money exchange and draft issuing are also examined annually.
On-site examinations adhere to internationally accepted Basel Committee standards. The CAMELS model is used to evaluate Banks and FLCs based on Capital Adequacy, Asset Quality, Management, Earnings, Liquidity, and Sensitivity to Market Risk.
On-site examinations verify compliance with prudential requirements such as capital adequacy, liquidity, large exposures, asset quality, provisioning for non-performing loans, related-party transactions, income recognition, share ownership, investments, and account disclosures. Internal controls and corporate governance standards are also assessed.
The Central Bank informs the Board of Directors of any non-compliance with prudential requirements or deficiencies in financial conditions, controls, and systems, requiring corrective actions. Penalties are imposed as needed, based on an approved penalty matrix.
Off-site Examination
Off-site examinations, conducted by the Banking Surveillance Department, are authorized under the Banking Law 2000, enabling the Central Bank to collect prudential returns. These examinations monitor institutional health between on-site examinations, ensuring continuous supervision of regulated entities.
The off-site examination process identifies early warning signals from various reports and presents findings to appropriate management levels for corrective actions. Results are also shared with on-site examiners.
Key off-site activities include:
· Reviewing Draft Audited Financials of licensed banks and approving dividend requests.
· Operationalizing the prompt corrective action framework.
· Analyzing off-site returns (e.g., asset quality, risk management, capital adequacy).
· Monitoring Omanisation levels in the banking sector.
· Monitoring compliance with regulatory limits on personal loans, mortgage loans, and lending ratios.
A quarterly systemic review is presented to the Board of Governors and shared with commercial banks. Supervisory letters are issued to commercial banks based on off-site data, along with financial soundness indicators comparing the individual bank's performance to the previous quarter, peer group, and industry trends.