All banks now required to submit recovery plans

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) has required all banks to develop a concrete and reasonable recovery plan that could help restore the viability and ensure continuity of operations during periods of extreme stress scenarios.

BSP Deputy Governor Chuchi Fonacier said the Monetary Board issued Resolution 1506 on Oct. 13 approving the amendments to the guidelines governing the submission of recovery plans of banks as well as the prudential measures under the Internal Capital Adequacy Assessment Process (ICAAP) and Supervisory Review Process.

Fonacier said banks are expected to adopt a recovery plan that is commensurate to their size, nature and complexity of operations, overall risk profile  and systemic importance.

“All banks, including government-owned banks, shall maintain a recovery plan on a solo and group-wide basis, as applicable. The group-wide recovery plan shall cover the parent bank and all its material entities, including subsidiary banks,” she said.

Likewise, foreign bank branches may refer to the recovery plan developed by their respective head offices commensurate to the scale of operations in the Philippines.

“The BSP expects all banks to undertake recovery planning and to develop a concrete and reasonable recovery plan that is linked to their risk management framework, internal capital adequacy assessment process or capital planning, liquidity plans, and business contingency plans,” Fonacier said.

Domestic systemically important banks (D-SIBs) or too-big to fail banks are required to submit a recovery plan consistent with the new guidelines starting end-June next year, while non-D-SIBs as well as subsidiaries of D-SIBs are given a two-year transition period and should submit their first plan in end-June 2024.

According to Fonancier, recovery plans should be informed by a bank’s risk appetite statement and results of its stress testing.

She added that the recovery plan shall set out the governance arrangements, recovery options, and communication strategies in periods of extreme stress scenarios to maintain or restore the viability of banks and ensure continuity of operations.

She pointed out that recovery planning is an important process to reduce the potentially significant risks posed by a bank’s distress or disorderly failure to the stability of the financial system and the economy.

“Recovery planning is a fundamental element of a risk management framework as it enables banks to respond quickly, effectively, and credibly to situations of financial stress to protect depositors and other customers as well as to promote viability and maintain shareholder value,” Fonacier said.

The regulator said the recovery plan should include an executive summary, governance arrangements, critical functions and services, triggers and early warning indicators, restoration points, recovery options, stress scenarios, preparatory measures, testing and simulation exercises as well as review of the recovery plan.

In cases of breach of an internally set trigger level, Fonacier said a bank should notify, within 24 hours from the discovery, the appropriate supervising department of the central bank.

The notification, she added, should include, at the minimum, the events and circumstances leading to the breach of the recovery threshold or triggers, and management actions that have been taken and intended to be taken, including the implementation of recovery options or reasons for the decision not to activate and implement measures under the recovery plan.

Latest data from the central bank showed the total assets of Philippine banks went up by 8.3 percent to P22.27 trillion in end-August from P20.56 trillion in the same period last year.