BSP to closely monitor bank investments

Lawrence Agcaoili - The Philippine Star

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) is set to closely monitor the investment activities of banks to make sure financial institutions have enough buffers to cover risks.

The BSP said the Monetary Board approved the risk management guidelines on investment activities of banks and quasi-banks last July 11, considering their exposures to a wide range of instruments including bonds issued by emerging economies, complex structured products and other tradable assets.

The central bank said there is a need to conduct an appropriate due diligence prior to making an investment and on an ongoing basis.

It said the conduct of due diligence reviews for new plain vanilla instruments acquired for trading or short-term profit taking such as securities to be held in the trading book may be made at the option of the bank.

However, the regulator said the resulting positions from the investments should still be within the set limits.

Furthermore, the BSP said the new guidelines likewise take into account the lessons learned during the 2008 financial crisis and the relevant guidance set out in the Basel core principles for effective banking supervision.

“Specifically, these require a bank/quasi banks with significant holdings of securities issued outside the country to assess whether its capital is sufficient to cover the risks arising from the possibility that the relevant foreign government may impose currency conversion restrictions,” the BSP said.

The guidelines, the BSP said, would be applied proportionately depending on the profile of the banks and their investments as BSP-supervised financial institutions have different structures, complexities and ranges of investment activities.

Earnings of Philippine banks jumped by 28.4 percent to P57.06 billion in the first quarter from P44.42 billion in the same quarter last year. Big banks booked a 24.5 percent increase in net income to P49.54 billion from P39.77 billion, enough to offset the 11.8 percent decline in the earnings of mid-sized banks to P3.57 billion from P4.05 billion.

The results of the latest Banking Sector Outlook Survey (BSOS) of the BSP showed top bank executives are maintaining a double-digit growth in the industry’s profits, assets, deposits and loans this year.

About 70.2 percent of the respondents primarily presidents and chief executive officers expect the Philippine banking system to remain stable, with the rest mostly expecting a stronger banking sector.

The survey conducted by the BSP’s supervisory policy and research department showed the banks’ bullish projections likewise elicited buoyant expectations on returns as 92.4 percent of the respondents forecast double-digit income growth for the next two years compared to 83.3 percent of the respondents during the first semester.

Among the universal and commercial banks, the BSP survey showed 36.4 percent expect net income growth between 10 and 15 percent, while 30.3 percent project net profit to grow more than 30 percent.

The regulator said thrift or mid-sized banks are the most optimistic with 97 percent expecting double-digit net income growth.

It added the projected net income growth is expected to bring return on equity (ROE) between five and 10 percent by most respondents among banking groups, while 35 percent of the foreign banks project ROE at less than five percent.

Likewise, the BSP said upbeat projections led more than 72 percent of respondents to expect double-digit growth in assets and deposits.

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