IMF cites constraints in bank supervision

MANILA, Philippines — Weaknesses in the legislative framework as well as bank secrecy continue to hinder the effective supervision of banks by the Bangko Sentral ng Pilipinas (BSP), according to the International Monetary Fund (IMF).

Based on the latest Financial Sector Assessment Program on the Philippines, the IMF said the BSP has made significant progress in enhancing the regulatory framework in a number of areas since 2002, but legislative gaps continue to hinder its effective supervision of banks.

“The BSP’s regulatory framework is broadly effective for the size and complexity of the Philippine banking system, but legislative gaps continue to hinder effective supervision of banks,” the IMF said.

It said significant weaknesses in the legislative framework, arising notably from the BSP’s lack of power to supervise the parent companies and their affiliates of banking groups and the bank secrecy laws, present a material hindrance to effective supervision.

The IMF noted that the BSP does not have the power to regulate and examine the parent or other affiliate companies of BSP-supervised firms.

Its amended charter under Republic Act 11211 provides the BSP with the authority to obtain data from a bank’s parent and their related parties outside the banking group for statistical and policy development purposes in relation to the proper discharge of its functions and responsibilities.

“However, the BSP has not had cause to use this authority to date, and the scope of the new authority to collect data is limited. It does not provide the BSP with full powers to review the activities of parent companies and of companies affiliated with parent companies,” the IMF said.

The majority of domestic systemically important banks (DSIBs) or too big to fail banks are incorporated within conglomerate structures that include non-regulated parent companies and affiliates engaged in non-banking activities.

The IMF pointed out that this “wider group” is not captured within the BSP’s regulatory perimeter.