Stronger BSP means less risky Philippine banks, says S&P

MANILA, Philippines – The Philippine banking system is now more stable, thanks to the enactment of the new central bank charter that gives the regulator greater powers to quell nascent systemic financial problems, according an international risk rating firm.

According to S&P Global, local financial institutions’ Banking Industry Country Risk Assessment (BICRA) score now stands at “5”, from its previous level of “6” on a scale of 1 to 10, with 10 reflecting the highest level of risk.

In a report released last week, the debt watcher said it reduced the risk rating of Philippine banks owing to the favorable provisions of the New Central Bank Act, which will help the Bangko Sentral ng Pilipinas (BSP) better fulfill its mandate of promoting a sound financial system.

“We view these amendments as a positive step toward greater independence [of] and more effective implementation of prudent policies and measures [by the BSP],” S&P said.

On top of the favorable regulatory development, S&P said the Philippine banking system is expected to withstand various risks like currency volatility and higher interest rates, given sufficient capitalization and strong domestic franchise that supports a growing deposit base.

Last month, President Rodrigo Duterte signed Republic Act No. 11211 after years of lobbying by the central bank for enhanced supervision powers from Congress.

The new law affirms and strengthens BSP’s existing frameworks and practices in carrying out its supervision mandate. It supports the application of risk-based principles in allocating examination resources and in setting out capital requirements in banks.

The other highlights of the law include the legal protection given to BSP officials in the exercise of the central bank’s regulatory role, as well as the prohibition against lower courts issuing injunctions against the central bank.

These provisions address the long-standing problem of vulnerability of the BSP and its officials to law suits filed by erring or weak banks that are penalized or ordered closed by the regulator.

Another highlight of the new law is the expansion of BSP’s regulatory coverage to include monetary service businesses, credit granting businesses, and payment system.

“We believe the expansion of coverage of institutions under BSP supervision… bolsters [its] position to address potential risks arising from the interconnectedness of entities in the financial system,” S&P said.

BSP Deputy Governor Chuchi Fonacier who is in charge of the central bank’s financial supervision sector said the law “unleashes a new and more progressive era of financial sector supervision in the country, and “enhances the ability of the central bank to serve as a pillar of strength for the Philippine economy.” /kga