BSP to act early vs risky banks to protect financial system

MANILA, Philippines—The central bank will move proactively and preemptively to ensure that financial institutions do not take on more risk than they should and, in the process, help safeguard the Philippine economy, according to the the country’s top banking regulator.

At his first online press briefing for 2021, Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno said the adoption of the Supervisory Assessment Framework (SAFr) on Jan. 1, 2021 will help boost the stability of the banking system under the new economy.

“SAFr (pronounced “safer”) further promotes effective supervision of BSP-supervised financial institutions and surveillance of the financial system,” he said.

“The reform proved timely given the challenges brought about by the COVID-19 pandemic which has altered the way the BSP undertakes financial supervision,” Diokno said.

The new scheme is a risk-based supervisory framework that aims to facilitate a more robust, dynamic and forward-looking assessment of financial institutions, the chief regulator explained.

It aims to improve the assessment framework by further putting emphasis on business model analysis to identify drivers of risks, align supervisory strategies with the unique impact and risks of a financial institution and apply prompt and calibrated action. It also adheres to the principle of proportionality in supervision.

SAFr replaces rating systems earlier used by the BSP, including CAMELS (capital adequacy, asset quality, management, earnings, liquidity and sensitivity to market risks), the primary rating system for banks and quasi-banks and ROCA (risk management, operational controls, compliance and asset quality), the rating system for foreign bank branches.

In contrast to the old system where banks are physically visited by central bank examiners for annual reviews, SAFr will be done more often through digital means.

Diokno said large banks can expect to have semestral examinations from the previous practice of having one annual checkup.

The adoption of the new regulatory policy is among reforms introduced by the BSP in response to changes in the operating landscape brought about by financial innovation, deregulation, competition and advances in information technology.

The industry was initially informed of the adoption of SAFr through a memorandum issued in March 2020.

Diokno said briefings and consultations were conducted later for internal and external stakeholders, including various industry associations, to help them prepare for the adoption of the new supervisory framework.

He added that moving the implementation date of SAFr from July 2020 to the start of 2021 allowed more time for preparations in view of the COVID-19 pandemic.

TSB