BSP to shift to forward-looking compliance monitoring for banks

MANILA,Philippines — The Bangko Sentral ng Pilipinas (BSP) is set to adopt a more forward-looking compliance rating system in assessing the compliance of banks and other financial institutions in mitigating business risk.

In a speech during the general membership meeting of the Chamber of Thrift Banks, BSP Deputy Governor Chuchi Fonacier said the proposed Supervisory Assessment Framework (SAFr) would be more forward-looking and business model-centric system of assessing banks’ compliance and risk management.

Fonacier said the proposed framework would replace the CAMELS (capital adequacy, asset quality, management earnings, liquidity, and sensitivity to market risk) implemented in 2013.

“We are currently implementing a parallel run of the new supervisory assessment framework or we call it for short SAFr which will eventually replace the CAMELS rating system,” she said.

According to Fonacier, a pilot run is now being conducted with a big bank using the SAFr and the CAMELS.

She also said, the SAFr would use a four point rating scale instead of five and is more forward looking compared to the CAMELS.

“(There will be) no midpoint. It features an assessment that is business model-centric that will shape the BSP’s supervisory intervention and influence, the frequency of examination,” she said.

The proposed framework would be used as an assessment tool to comprehensively evaluate during on-site examination the effectiveness of bank’s and the supervised financial institutions’ compliance system in mitigating business risks.

“Given the banks’ business model so you will sort of anticipate what are the expectations that the bank will be doing given the current business model,” the BSP official said.

Fonacier said the proposal would be discussed in future meetings with major stakeholders in the banking industry.

“The SAFr is really holistic. We will assess different kinds or risks and how will that feed into the condition of the bank for the next one or two years,” she said.

Under Republic Act 11211 signed by President Duterte last February, the regulator has the flexibility to determine frequency of examinations unlike the previous central bank charter that requires bank examination once every 12 months.

Fonacier said the BSP could conduct examination every two to three years under the proposed framework depending on “good behavior” by banks and other financial institutions.

The regulator, she added, would look closer at what is driving the income and expenses of banks based on their business models.