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Central bank tightens rules on banks' big loans |
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(January 13, 2004 - Tuesday, Philippine Daily Inquirer)
by Doris C. Dumlao THE POLICY-MAKING Monetary Board of the Bangko Sentral ng Pilipinas (BSP) has approved tighter guidelines on banks' large credit exposures as part of a continuing bid to boost the banking system. |
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In a statement Monday, the BSP said the new circular, which supports the policy on single borrower's limit (SBL), set minimum standards to comprehensively manage large exposures in both stand-alone and group borrowers.
The SBL provision caps a bank's allowable loan exposure to a single borrower at 25 percent of its portfolio. This developed as the BSP acknowledged that credit risk concentrations may arise from excessive exposures to individuals, related groups and groups with similar characteristics such as geographical location, economic or industry sectors. In monitoring large exposures, the BSP now requires the banks to maintain the following: • a central liability record to be able to track credit exposures preferably based on an automated system; • an adequate management information and reporting system; • an annual review of the quality of large exposures and controls to safeguard against credit risk concentrations to be conducted by external or internal auditors; • a prompt corrective action mechanism to address concerns and exceptions raised, and • an independent compliance function to ensure that all relevant internal and prescribed requirements and limits are complied with. The BSP said the policy on large exposures and credit risk concentrations covered limits that were "reasonable" in relation to capital and resources for various types of borrowers, group of related borrowers, individual industry sectors, individual countries and various types of investments. The policy also covers circumstances in which those credit limits can be exceeded, such as upon approval by the bank's board of directors or credit committee with delegated authority from the board. It also lists out the procedures for identifying, reviewing, managing and reporting large exposures as well as the definition of exposure as well as the criteria to be used for identifying a group of related persons. "Banks can be exposed to various forms of credit risk concentrations which, if not properly managed, may cause significant losses that could threaten their financial strength and undermine public confidence," the BSP said. The circular also requires banks to conduct stress testing and scenario analysis of their large exposures to assess the impact of changes in market conditions or key risk factors. home | latest news |
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