BSP eyes tougher rules on credit risk mgm’t

MANILA, Philippines - The Bangko Sentral ng Pilipinas (BSP) is crafting tougher rules for banks’ credit risk management efforts to mitigate the effects of possible loan losses, an official said.

“It’s a comprehensive review of the regulation of how you manage credit risk,” BSP Deputy Governor Nestor A. Espenilla Jr. said.

“It’s a major reform but still under consultation,” he continued.

Banks are required to ensure their credit risk management processes are sound and effective through an internal rating system for credit exposures.

The BSP monitors credit conditions in line with its financial stability objective.

At the same time, Espenilla said that the central bank will soon be introducing stricter measures for “too big to fail” local banks or those considered systemically important banks (SIBs).

Espenilla explained that the new policy has yet to be put into effect as the BSP is waiting for the right time to do so.

He added universal and commercial banks have just recently implemented higher capital requirements this January under the Basel III, a set of reform measures aimed at strengthening regulation, supervision and risk management of banks.

A tighter watch on SIBs has been included as a component of the Basel III accord as failure of these banks create adverse effects on the financial system.

Earlier this year, monetary and fiscal policymakers in the region stressed the need to address the orderly exit of “too big to fail” institutions to reduce the negative impact of such on their host countries.

The Financial Stability Board Regional Consultative Group for Asia has pointed out that failure of SIBs creates dangers not only in their home countries but also in their host countries, as seen in the recent global financial crisis.