MANILA, Philippines—The Bangko Sentral ng Pilipinas (BSP) has established a rating system that will evaluate banks’ compliance with various regulations that were designed to ensure the sustainability of their favorable financial standing.
The BSP said the “Compliance Rating System,” embodied in Circular 747, would be implemented starting September this year.
Banks will be rated using a scale of 1 to 4, with 1 indicating the weakest and 4 the strongest level of compliance with various regulations implemented by the BSP.
Those that will get weaker scores are expected to receive tighter supervision by the BSP.
The ratings to be given to banks will depend on their performance in three areas:
— The effectiveness and efficiency of the board of directors (BOD) and senior management (SM) in fulfilling their duties and responsibilities.
— The soundness and effectiveness of banks in implementing their own compliance programs
— The adequacy and soundness of internal controls, which help the BOD and SM in identifying, measuring and controlling business risks
Business risks, according to the BSP, should be identified, measured and controlled, as these could erode the franchise value of the institutions.
“BSP Circular 747 requires institutions to have a robust, dynamically responsive and appropriate compliance system as an integral component of an institution’s internal controls,” the central bank said.
It added that the system was meant to prevent operational weakness of banks brought about by violations of rules and regulations.
The BSP said the higher the level of compliance of banks with rules and regulations, the more likely the banking sector would remain strong and stable.
The regulator said that currently, the Philippine banking system was sound, given healthy profits of industry members, their growing liquidity and capitalization, and low exposure to defaults.
The BSP earlier reported that the combined profits of rural, thrift, universal and commercial banks in the country amounted to P122.12 billion last year, up by 17 percent from P104.73 billion in 2011.