MANILA, Philippines - Local banks are ready to take a new set of risk-management rules that the Central Bank will implement starting January next year.
The new rules are in keeping with international best practices, the Bangko Sentral ng Pilipinas said.
The new rules are part of the Internal Capital Adequacy Assessment Process (ICAAP), which the Bangko Sentral ng Pilipinas wants all commercial banks to fully adopt next year.
“All covered banks have already submitted their preliminary compliance documents on ICAAP… Banks are quite cooperative as we think they appreciate the benefits of ICAAP,” BSP Deputy Governor Nestor Espenilla Jr. said.
Under the ICAAP, banks will be required to provide sufficient capital—or other resources—to cover nontraditional types of risks involved in operating a bank. These include reputation risks, strategic risks, interest rate risks, compliance risks, liquidity risks and credit concentration risks.
Currently, the BSP requires banks to maintain a capital adequacy ratio (CAR) of 10 percent. The capital is meant to cover regular types of risks—credit exposure risk, market volatility risk and operational risk.
CAR is the proportion of capital to a bank’s risk exposure.
Espenilla said the adoption of the ICAAP, an international best practice, would enhance stability of the banking sector.
He said the Philippines could be one of the first countries in Southeast Asia to adopt the ICAAP next year. Only Hong Kong has adopted the process in this part of the world.
Already, the central banks of New Zealand and Australia have required their banking sectors to adopt the ICAAP.
Reputation risks are generally bad news about a bank that could create financial trouble. Bad news has a tendency to encourage depositors to pull out their money from a bank. Given this, the BSP said, banks would be required to put up sufficient capital cover for reputation risks.
Strategic risks, meanwhile, are those that arise from changes in the market environment, while interest rate risks are those that threatens a bank’s level of liquidity due to sharp movements of interest rates.
