BSP zeroes in on ‘integrity’ factor

The Bangko Sentral ng Pilipinas has issued guidelines on how members of a banks’ board of directors should behave and what their qualifications should be.

The regulator explained that good corporate governance in the banking sector must remain stable to better protect the depositing public.

Under Circular 749 issued by the central bank last week, banks should maintain their reputation by taking on board individuals of unquestionable integrity.

“The position of a corporate director is a position of trust… Stakeholders have the right to expect that the institution is being run in a prudent and sound manner,” the central bank said in the circular.

Although “integrity” may be subjective, the guidelines are meant to discourage banks from hiring unfit individuals, especially those who had figured in scandals or crimes, BSP officials said

The BSP also said in the circular that a bank’s board should release clear management policies to ensure that the institution would not be placed at risk, particularly when significant investments or other forms of exposure to DOSRI (directors, officers, stockholders, and related interests) are involved.

Also, bank boards are urged to create audit, risk-oversight, good governance committees to ensure it maintains sound management and investment practices.

The audit committee will be responsible for imposing policies on financial reporting, and for ensuring the bank observes transparency in all its dealings, avoiding activities that may lead to conflicts of interest.

The risk-oversight committee will implement policies to ensure that the bank observes regulations on capitalization. This committee will prevent the bank from taking excessive risks that may endanger the security of deposits from the public.

The good governance committee will see to the creation of a system of evaluating performances of bank employees to further promote good governance.

“Since reputation is a valuable asset, it is in the institution’s best interest that, in dealing with the public, it observes a high standard of integrity,” the BSP said in the circular.

“The board of directors shall lead in establishing the tone of good corporate governance from the top and in setting corporate values, codes of conduct, and other standards of appropriate behaviors for itself, the management, senior management and other employees.”

The issuance of the guidelines came amid a push in the international community for banking sectors worldwide to observe high standards of good corporate governance to prevent the occurrence of problems, such as those that led to the recent financial crisis.

Lack of good governance policies was partly blamed for the failure of banks in the West, which resulted in a recession for many advanced economies.