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BSP reforms to sustain resiliency of banking sector

The country’s financial system remains strong in the first half of 2021 amid the pandemic and the Bangko Sentral ng Pilipinas (BSP) has lined up several reforms to ensure the sector’s continued resilience.

In a report released on Tuesday, the central bank identified these reforms as the transfer of significant ownership in banks and non-bank financial institutions with quasi-banking license (QBs); climate change, environmental and social risks; digital banking operations; open finance framework; fraud management; and customer due diligence. 

“Moving forward, the BSP remains committed to building its existing regulatory and supervisory frameworks to ensure that the banking system, as the core of the financial system, continues to operate in a safe and sound manner while at the same time responsive to the demands of the new economy,” it said. 

Regarding the transfer of significant ownership, the report said the central bank will issue prudential requirements on the transfer in line with the regulations under Section 25-A of the amended New Central Bank Act.

“The underlying principle of the policy reform is to ensure that persons capable of exerting significant influence or control over the bank’s/QB’s affairs shall possess integrity, financial capacity, and sufficient knowledge of the business environment, operating model and attendant risks that may affect the entity,” it said. 

On the policy related to climate change, the BSP is set to finalize Phase 2 of its regulations on sustainable finance framework. 

“This will provide detailed guidance with respect to the integration of climate change and other environmental and social risk in the enterprise-wide risk management of banks/NBQBs (non-bank financial institutions with quasi-banking functions), particularly in the areas of credit and operational risk,” the report said. 

BSP’s policy-making Monetary Board (MB) approved the sustainable finance policy framework in March 2020 and this sets out expectations on the integration of sustainability principles in the corporate, governance and risk management frameworks of banks.

On fraud management, the report cited the rise in cyberthreat attracts thus, “supervised financial institutions are expected to adopt more robust systems to protect their data and systems and ensure delivery of uninterrupted services.” 

“The BSP is working on an issuance which will explicitly set out expectations on the fraud management systems of supervised financial institutions. The issuance will further strengthen industry partnerships and collaboration in managing cyberthreats,” it said.

The report said that as a supplement to the central bank’s credit-related relief measures, “the BSP will also issue guidance that will clarify the prudential treatment of restructured loans as well as provide covered banks/NBQBs with regulatory relief on the capital treatment of provisioning requirements under Philippine Financial Reporting Standards.” 

Overall, the report said the domestic financial system remains sound and stable despite the challenges posed by the pandemic and other factors.

It said total assets of the banking system rose by 6.4 percent to P19.811 trillion as of end-June 2021 and accounts for around 107.2 percent of the country’s annualized nominal gross domestic product (GDP). 

Deposits continue to account for the bulk of the financial institutions’ assets followed by capital and bonds.

As in the past, universal and commercial banks (U/KBs) hold the largest share of the system’s assets at 92.5 percent, amounting to P18.328 trillion. 

It was followed by assets of thrift banks (TBs), 6 percent or P1.186 trillion, and rural and cooperative banks (RCBs), 1.5 percent or P296.5 billion. 

In a statement, BSP Governor Benjamin Diokno said “the banking system displayed continued growth in assets and deposits and posted sufficient capital and liquidity buffers” in the first six months of the year. 

This, he said, “enabled the banking system to support the country’s financing needs.” 

“The acceleration of digital transformation reinforced banks’ continued delivery of financial products and services during the pandemic,” he added.*PNA

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November 2022

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