BSP eyes 25% cap on large exposures
Lawrence Agcaoili (The Philippine Star) - November 14, 2018 - 12:00am

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) is setting prudent limits to large exposures to prevent significant losses that could threaten the industry’s financial strength due to various forms of credit risk concentration.

BSP Deputy Governor Chuchi Fonacier said in a speech during the general membership meeting of the Chamber of Thrift Banks Monday the regulator is looking at adopting Basel’s 25 percent large exposure limit set on Philippine banks.

“As a means to improve credit concentration risk management in banks, the BSP intends to adopt the 25 percent Basel large exposures limit as part of our existing credit risk management guidelines,” Fonacier said.

The large exposures framework adopted by the Basel Committee on Banking Supervision (BCBS) in April 2013 sets prudent limits to large exposures, whereby a large exposure is defined as the sum of all exposures of a bank to a single counterparty.

She said the central bank is strengthening its risk-based capital framework by considering the adoption of the Basel III revisions to the standardized approach for credit risk and operational risk.

“Even though these initiatives are set to be implemented in 2022, we intend to initiate discussions with the industry on these substantive amendments to ensure that the BSP’s capital rules gives due regard to domestic conditions and bank operations,” Fonacier said.

The thrift banking industry registered slight uptick in the non-performing loans (NPL) ratio to 5.2 percent in end-September this year from 4.9 percent in September last year, while its NPL coverage ratio declined to 57.6 percent from 69.9 percent.

“The industry should, however, remain vigilant in monitoring the quality of its loan portfolio. Even though this is far from being worrisome, we encourage the industry to continue efforts to strengthen the quality of credit risk management systems in line with expansion in lending activity,” Fonacier said.

The BSP official said the regulator is also open to extending the observation period of the liquidity coverage ratio (LCR) until end-December next year to provide thrift and rural banks more time to adjust to the new metrics.

Apart from promoting risk management at the institutional level, the BSP is expanding its existing financial risk surveillance toolkit to include the conduct of rigorous research on macro- and microprudential supervision as it impacts on bank behavior.

Fonacier said the BSP is focusing on six SPRINT essentials to build the endurance of the country’s banking system including Strategic, Proportionate, Risk-focused, Interactive, Next generation, and Techonology driven.

“In racing terms, a SPRINT is a powerful form of physical activity that involves running at a really fast speed over a short interval. Since it is a high-intensity exercise, it is often used to boost stamina and muscle fitness in athletes,” she said.

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