BSP will change the rules of large exposure

Central Bank of the Philippines The guidelines are proposing amendmentsLarge exposure lines for large banks and their affiliates, in An effOrt to improve credit concentration risk management.

Bangko Sentral ng Pilipinas’ (BSP) proposed circular outlines the need for regulatory reporting for banks under the larger exposure framework so that risks can be properly monitored.

“BSP-supervised financial institutions (BSFIs) are expected to accurately and accurately identify, measure, monitor and control large exposures across books and activities in order to protect BSFIs from the greatest loss in the event of a sudden counterparty failure.” Draft circular has been posted. It has been said on the website of BSP.

Under the proposed rules, an exposure is considered to be a large exposure if it is equal to or more than 10% of the eligible capital of a bank.

“Large exposures refers to the exposure of a counterparty or a group of affiliated counterparties which is 10% or more of the Tier 1 capital of the covered banks / semi-banks”.

This is a change from the previous DfiNition of large exposure which was 5% of the qualifying capital of a lender.

Tier 1 capital is defined as the principal capital of a lender, which includes its published reserves and equity capital. Meanwhile, the qualifying capital is part of Tier 2 which is a supplementary capital for banks.

The framework will apply to public and commercial banks as well as their subsidiaries and semi-banks.

The large exposure framework for public banks and their subsidiaries will be implemented by January 1, 2024, based on the provisional provisions of the circular.

Stakeholders have until April 29 to submit their response to the draft regulations to the BSP.

The circular also sets out criteria for assessing the economic interdependence of borrowers with banks to ensure greater exposure.

The BSP said banks should monitor whether 50% or more of an opponent’s annual total receipts or total expenditure came from transactions with another party.

It is also important to consider whether a counterparty’s financial difficulties, bankruptcy or default could spread to other competitors in the case of debtors’ repayment.

The central bank said lenders should evaluate the source of the opponent’s funds and if there is no alternative provider of funds that can support the opponent in case of default from the main source of funds.

“In cases where the criteria do not automatically imply economic dependence which involves two or more adversaries, the covered banks will prove to the BSP that one adversary who is economically dependent on the other can still pay its dues within a reasonable period of time. Goes, ”said the BSP.

Banks are expected to ensure that monitoring and reporting are required at any time in relation to their large exposures.fiEd by BSP. These major exposures will be reported on a semi-annual basis or on June 30 or December 31 of each year.

Despite the deteriorating quality of the bank’s assets during the epidemic, the BSP emphasized that the banking system was stable and well-capitalized. It is responsible for the regulatory reforms implemented after the Asian financial crisis and the global financial crisis. – Loose Wendy T. Nobel