KARACHI, May 28: The State Bank has asked banks and development finance institutions or DFIs to introduce an effective system of internal controls.

The Banking Supervision Department of SBP has issued a circular to all banks and DFIs which informs them that the central bank has prepared guidelines on internal controls.

"These guidelines require all banks/DFIs to ensure existence of an effective system of internal controls which is commensurate with the nature, size and complexity of their business; minimizes the risk inherent in their activities and responds to changes in the business and general economic environment," says the circular.

These guidelines "are aimed at providing guidance to banks/ DFIs in instituting an effective control system in their institutions. The banks/DFIs are required to take necessary steps including training of staff to implement these guidelines."

The circular also requires all banks and DFIs to submit to SBP a half-yearly progress report within 30 days of the end of each calendar half-year, regarding the status of the developments and implementation of the said guidelines.

"First such progress report shall be for the half year ending on December 31, 2004 which shall be submitted on or before January 31, 2005." "In addition, the internal control systems will be tested/ checked by our inspectors," warns the circular.