The Bangko Sentral ng Pilipinas (BSP) has approved a regulation requiring banks to closely monitor and report transactions that benefit
their directors, officers, stockholders and related interests (Dosri).
The measure is meant to prevent executives from engaging in abusive practices that may adversely affect the financial health of their respective banks.
The old set of rules focused only on loans that involved a bank’s directors, officers, stockholders and related interests.
But under the new regulation approved last Thursday by the BSP’s Monetary Board, banks must closely monitor and regularly report to the regulator other transactions such as portfolio investments, sale of properties and purchase of assets, among others.
The objective is to make sure that these transactions are not entered into solely to benefit a bank’s Dosri, which may upset the institution’s
finances.
According to Nestor Espenilla Jr., deputy governor at the central bank, the new rules are consistent with those being pushed by the international community, particularly the Organization for Economic Cooperation and Development (OECD). With such measures in place, regulators hope to prevent another crisis stemming from improper governance of banks.
“A lot of the problems encountered during the recent global financial crisis are due to poor corporate governance of banks. This is the reason OECD put up enhanced governance standards that we [BSP] are now following,” Espenilla said Friday night during a reception for bankers hosted by the BSP and held at the regulator’s headquarters in Manila.
Although the Philippine banking sector has largely been spared from the crisis now affecting more advanced economies in the West, Espenilla said it would still pay to observe international standards for bank supervision.
Adherence to rules on good corporate governance will help ensure that the
domestic banking sector does not suffer the same problems encountered by institutions in Europe and the United States, he explained.
Apart from requiring stringent monitoring and regular reporting of other transactions involving Dosri, the BSP likewise approved new rules involving independent directors.
The BSP now requires independent directors to fill 20 percent of a bank’s board seats (but not less than two seats). This rule applies especially to large banks, which must have more than two independent directors if the number of board seats exceed 10.
Also, he BSP has put a cap on the length of stay of independent directors. Now, an individual may only serve as independent director of a bank for five years. He may again serve as independent director only after having vacated the post for at least two years.
“The rationale behind this rule is that, if someone has been an independent director for so long, the tendency is for him to make decisions that are not independent anymore,” Espenilla said.
The central bank official said the new rules involving Dosri and independent directors would serve to further stabilize the Philippine banking sector.