Big banks given up to June to submit recovery plans
BANKS considered “too big to fail” have been mandated to put in place recovery plans and submit them by the middle of this year to the Bangko Sentral ng Pilipinas (BSP).
In BSP Circular No. 904 dated March 10, Governor Amando M. Tetangco Jr. noted that domestic systemically important banks’ (D-SIBs) distress or disorderly failure would have a severe impact on the domestic financial system and economy as a whole.
In this regard, the BSP came out with guidelines for the preparation and adoption of the recovery plan, which will be an integral part of D-SIBs’ Internal Capital Adequacy Assessment Process (ICAAP) document, a report they need to submit on March 31 every year.
The BSP ordered D-SIB to submit their first recovery plan on June 30 this year, as a supplement to their respective 2016 ICAAP documents.
According to the BSP, D-SIBs should “come up with a concrete and reasonable recovery plan that sets out the actions that it will take to restore its viability in cases of significant deterioration of its financial condition in different scenarios.”
In general, the recovery plan was aimed at preparing D-SIBs for “future destabilizing events and/or crises.”
Article continues after this advertisement“The recovery plan shall be applied on a group-wide basis, covering all institutions in the banking group, as well as affiliates assessed by the D-SIB as essential to restore, or will have an impact on, the banking group’s viability and financial position,” the BSP said.
Article continues after this advertisement“lf covered institutions have their respective recovery plan, the D-SIB shall ensure that each of the covered institutions’ recovery plans is consistent with the group recovery plan,” it added.
Last year, the BSP issued rules that required major banks to put up more cash buffers for losses, aims to ensure that the industry is strong enough to withstand massive write offs.
Reports last year showed that 14 lenders fell into the category of D-SIBs.
Banks were named D-SIBs based on their size, the extent of their dealings with other lenders and institutions, substitutability and market reliance, and the complexity of operations.
Depending on their classifications of D-SIBs, banks will be required to put up the capital equivalent to 1.5-2.5 percent of their risk-weighted assets. This capital requirement will be on top of the 10 percent capital adequacy ratio or CAR that all universal and commercial banks already have to maintain to operate in the Philippines.
