BSP sets revision of guidelines on independent bank directors

MANILA, Philippines -  The Bangko Sentral ng Pilipinas (BSP) is set to revise the rules and regulations on the term limit as well as number of independent directors in Philippine banks.

BSP Deputy Governor Nestor Espenilla Jr. said the guidelines are being revised to align it with the revised Corporate Governance Code for Publicly Listed Companies issued last November.

Espenilla said the central bank is now reviewing the 5-2-5 rule wherein an independent director would have an initial term of five years, a cooling off period of two years, and could be reelected again for another five years.

“It is still 5-2-5 for banks in general as of now, but policy is under review to align it with the new 9-0 rule for listed companies approved by SEC,” he said.

To promote the development of a strong corporate governance culture and keep abreast with recent developments, the SEC approved major revisions in the code including the maximum cumulative term of nine years for independent directors.

Likewise, Espenilla said the BSP is also reviewing the number of independent directors in Philippine banks.

 “As to the number, it is two or 20 percent of total board, whichever is higher, as of now but it is also under review,” he added.

The presence of independent directors in the board is to ensure the exercise of independent judgment on corporate affairs and proper oversight of managerial performance, including prevention of conflict of interests and balancing of competing demands of the corporation.

There is increasing global recognition that more independent directors lead to more objective decision-making, particularly in conflict of interest situations.

Under the revised rules, the SEC now requires three independent directors or such number as to constitute at least one-third of the members of the board, whichever is higher.

Espenilla said the BSP is also set to adopt enhanced corporate governance standards for Philippine banks soon after the SEC issued the new governance standards for publicly listed companies. “We’re doing the same thing for banks,” he said.

Philippine banks have been bracing for a possible shortage of independent directors by reducing the number of board seats to comply with the requirements.

Last year, Metropolitan Bank & Trust Co. (Metrobank) reduced the number of its board of directors to 12 from 14 as it is having difficulty in “recruiting willing and qualified directors for the bank and its subsidiaries or affiliates due to regulations becoming more complex requiring a higher degree of expertise from the candidates.”

The bank owned by taipan George Ty said there are also instances when qualified potential candidates for independent directors have to beg off due to existing directorships with the bank’s borrowing clients.

It pointed out interlocking directorships have the unwelcome effect of such companies becoming directors, officers, stockholders, and their related interests (DOSRI) or related parties of the bank, or worse, compromising the independent directorship position in those companies.