BSP tightens watch on banks

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 banking regulator.

In his first online press briefing for the year, Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno said the adoption of the Supervisory Assessment Framework (SAFr) on Jan. 1 would help enhance 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.”

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

It aims to improve the assessment framework by further emphasizing business model analysis to identify drivers of risks; aligning supervisory strategies with the unique impact and risks of a financial institution; and applying prompt and calibrated enforcement actions. 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 with the inclusion of digital methods. Diokno said large banks could expect to have semestral examinations from the previous practice of having one annual checkup.

The adoption of the new regulatory philosophy is among reforms introduced by the BSP in response to changes in the operating landscape brought about by financial innovation, deregulation, competition, and advancements 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 thereafter for internal and external stakeholders, including various industry associations, to help them prepare for the adoption of the new supervisory framework.

He added that the revision of the implementation date of SAFr from July of last year to the start of this year allowed more time to roll out preparatory activities in view of the impact of the COVID-19 pandemic.