Bangko Sentral ng PilipinasBanking Supervision and Examination in           the Philippines             17 December 2007  ...
Outline  Overview of the Philippine Financial System  The Philippine Banking System  Banking Supervision in the Philippine...
Overview of the Philippine financial system  Bank-dominated  Philippine financial supervisory agencies     Bangko Sentral ...
Overview of the Philippine financial system  Financial Sector Forum     Formed in July 2004     BSP, SEC, IC, and PDIC as ...
The Philippine banking system  Banks differ according to capitalization and activities  undertaken      Universal Banks (U...
The Philippine banking system                The Philippine Banking System                                  Total Assets  ...
The Philippine banking system: Market Share                   BANKING SYSTEM: ASSET SHARE BY CLASSIFICATION               ...
The Philippine banking system: Asset Growth                                  BANKING SYSTEM: TOTAL ASSETS                 ...
The Philippine banking system: Profitability                 BANKING SYSTEM: RETURN ON ASSETS (ROA)/ RETURN ON EQUITY (ROE...
The Philippine banking system: NPA Clean-up                                                       BANKING SYSTEM: NPL & NP...
The Philippine banking system: Solvency                  BANKING SYSTEM: CAPITAL ADEQUACY RATIO (CAR)                     ...
Banking supervision in the Philippines    Legal Framework        R.A. No. 7653 (The New Central Bank Act, 1993) –        C...
Banking supervision in the Philippines    Consolidated supervision        Driven by complex banking groups and mixed      ...
Banking supervision in the Philippines    Internal requirements for the risk-based    approach to supervision        Data ...
Banking supervision in the Philippines    Internal requirements for the risk-based    approach to supervision        Skill...
Banking supervision in the PhilippinesPast Organizational Structure                                        OFFICE OF THE D...
Banking supervision in the Philippines                          New Organizational Structure of the BSP                   ...
Banking supervision in the Philippines Other supervisory tools     Bank Performance Reports (BPR) system     Bank Early Wa...
Banking supervision in the Philippines Identified gaps in Compliance with the Basel Core Principles for Effective Banking ...
Banking supervision in the Philippines Developments in Compliance with the Basel Core Principles for Effective Banking Sup...
Banking supervision in the Philippines Developments in Compliance with the Basel Core Principles for Effective Banking Sup...
Banking supervision in the Philippines Developments in Compliance with the Basel Core Principles for Effective Banking Sup...
Banking supervision in the Philippines Developments in Compliance with the Basel Core Principles for Effective Banking Sup...
Banking supervision in the Philippines Adoption of international standards     Basel II adopted in July this year        P...
Banking supervision in the Philippines Enhancing corporate governance     Re-defined duties and responsibilities of bank’s...
Banking supervision in the Philippines Developmental Initiatives     Capital market development through:        contributi...
Concluding remarks Supervision of banks in the Philippines has gone a long way in the last 10 years Despite the limits set...
Bangko Sentral ng PilipinasBanking Supervision and Examination in           the Philippines             17 December 2007  ...
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08e

  1. 1. Bangko Sentral ng PilipinasBanking Supervision and Examination in the Philippines 17 December 2007 Nestor A. Espenilla, Jr. Deputy Governor 1
  2. 2. Outline Overview of the Philippine Financial System The Philippine Banking System Banking Supervision in the Philippines Concluding remarksBangko Sentral ng Pilipinas 2
  3. 3. Overview of the Philippine financial system Bank-dominated Philippine financial supervisory agencies Bangko Sentral ng Pilipinas (BSP) Securities and Exchange Commission (SEC) Insurance Commission (IC) Philippine Deposit Insurance Corporation (PDIC)Bangko Sentral ng Pilipinas 3
  4. 4. Overview of the Philippine financial system Financial Sector Forum Formed in July 2004 BSP, SEC, IC, and PDIC as members Cooperative effort without any legal mandate Not an integrated supervisory body Key objectives Improvement of the supervision of financial conglomerates Addressing regulatory grey areas Working groups: (1) supervision and regulatory policy, (2) reporting and information exchange, and (3) consumer protectionBangko Sentral ng Pilipinas 4
  5. 5. The Philippine banking system Banks differ according to capitalization and activities undertaken Universal Banks (UBs) – KBs + investment house activities, 100% ownership of financial allied undertakings Commercial Banks (KBs) – accept drafts, issue letters of credit, discount and negotiate evidences of indebtedness, accept deposits, buy/sell forex Thrift Banks (TBs) – accumulate savings, grant retail loans, finance homebuilding Rural Banks (RBs) – accept deposits, expected to meet credit needs of farmers/fishermen/cooperatives/merchants Sustainable non-subsidized microfinance also undertaken by RBs and TBs and by KBs through wholesale funding Bangko Sentral ng Pilipinas 5
  6. 6. The Philippine banking system The Philippine Banking System Total Assets Physical Count PhP Millions As of End-November 2007 As of End-Sept. 2007All Banks 4,930.1 848 Universal Banks (UBs) 3,539.1 16 Commercial Banks (KBs) 764.4 22 Thrift Banks (TBs) 477.9 82 Rural/Cooperative Banks 148.7 728 Bangko Sentral ng Pilipinas 6
  7. 7. The Philippine banking system: Market Share BANKING SYSTEM: ASSET SHARE BY CLASSIFICATION As of End-Year 2006 Rural and cooperative banks Thrift banks 10% 3% Universal/ Commercial banks 87% Bangko Sentral ng Pilipinas 7
  8. 8. The Philippine banking system: Asset Growth BANKING SYSTEM: TOTAL ASSETS As of End-Years 2000- 2006 and End-September 2007 P hp B n 6,000.0 14.0 % Level Growt h 5,000.0 12.0 10.0 4,000.0 8.0 3,000.0 6.0 2,000.0 4.0 1,000.0 2.0 - 0.0 2000 2001 2002 2003 2004 2005 2006 Sep-07 In PhP Bns 2005 2006 Sept.2007p/ Total Assets 4,319.4 4,865.6 4,930.1 Loans, net 2,008.7 2,294.9 2,274.0 Deposits 2,970.7 3,497.6 3,515.5 p/ preliminary Bangko Sentral ng Pilipinas 8
  9. 9. The Philippine banking system: Profitability BANKING SYSTEM: RETURN ON ASSETS (ROA)/ RETURN ON EQUITY (ROE) FY 1999- 2006 and for Nine Month Period Ended-30 September 2007 12 10 8 % 6 4 2 0 1999 2000 2001 2002 2003 2004 2005 2006 Sep-07 ROA ROE Bangko Sentral ng Pilipinas 9
  10. 10. The Philippine banking system: NPA Clean-up BANKING SYSTEM: NPL & NPA RATIOSSPV Transactions As of End-Years 1999-2006 and end- Phase I – P97 billion % September 2007 NPAs disposed 18 Phase II of amended SPV 16 Law1/ 14 12 Done deals – P32.0 billion 10 Pending applications – P10.9 billion worth of 8 NPAs for sale to SPVs and 6 dacion en pago 4Joint venture arrangements 2 0 1999 2000 2001 2002 2003 2004 2005 2006 Sep-1/Transactions as of 30 September 2007 07 NPL Ratio NPA Ratio Bangko Sentral ng Pilipinas 10
  11. 11. The Philippine banking system: Solvency BANKING SYSTEM: CAPITAL ADEQUACY RATIO (CAR) As of End-Years 2001- 2006 and end-June 2007 Bangko Sentral ng Pilipinas 11
  12. 12. Banking supervision in the Philippines Legal Framework R.A. No. 7653 (The New Central Bank Act, 1993) – Consolidated supervision General Banking Law of 2000 – Risk-based approach to supervisionBangko Sentral ng Pilipinas 12
  13. 13. Banking supervision in the Philippines Consolidated supervision Driven by complex banking groups and mixed conglomerates Since 1998; accelerated implementation since 2005 Risk-based approach to supervision Driven by complexity of banking business Gradual shift since 1997; accelerated implementation since 2005 Allows banks to take risks as long as these are ably managed, absorbed, and pricedBangko Sentral ng Pilipinas 13
  14. 14. Banking supervision in the Philippines Internal requirements for the risk-based approach to supervision Data collection and storage Financial reporting package Data Warehouse System Informal arrangements with financial regulatory agencies Overhaul of the examination/off-site monitoring processes Report of Examination, CAMELS, Institutional OverviewBangko Sentral ng Pilipinas 14
  15. 15. Banking supervision in the Philippines Internal requirements for the risk-based approach to supervision Skill sets and training In-house structured training program External training programs International certifications Re-organization of the BSP Supervision and Examination SectorBangko Sentral ng Pilipinas 15
  16. 16. Banking supervision in the PhilippinesPast Organizational Structure OFFICE OF THE DEPUTY GOVERNOR OFFICE OF THE DEPUTY GOVERNOR of the BSP Supervision and Examination Sector (SES) OFFICE OF THE ASSISTANT OFFICE OF THE ASSISTANT GOVERNOR - Supervisory Policy GOVERNOR - Supervisory Policy Development and Data Center Development and Data Center (SPDDC) (SPDDC) Office of Supervisory Policy Office of Supervisory Policy Development (OSPD) Development (OSPD) Core IT Core IT Supervision Supervisory Data Center Supervision Supervisory Data Center Group (SDC) Group (SDC) (CITSG) (CITSG) OFFICE OF THE MANAGING DIRECTOR - OFFICE OF THE MANAGING DIRECTOR - OFFICE OF THE MANAGING DIRECTOR - OFFICE OF THE MANAGING DIRECTOR - Supervision and Examination (SE) I I Supervision and Examination (SE) IIII Supervision and Examination (SE) Supervision and Examination (SE) Supervision and Examination Supervision and Examination Supervision and Examination Supervision and Examination Department (SED) III Department (SED) I I Department (SED) Department (SED) III Supervision and Examination Supervision and Examination Supervision and Examination Supervision and Examination Department (SED) IIII Department (SED) Department (SED) IV Department (SED) IV 16
  17. 17. Banking supervision in the Philippines New Organizational Structure of the BSP Supervision and Examination Sector (SES) OFFICE OF THE DEPUTY GOVERNOR OFFICE OF THE DEPUTY GOVERNOR Centralized Inclusive Finance Centralized Inclusive Finance Administrative Advocacy Staff Administrative Advocacy Staff Support Group (IFAS) Support Group (IFAS) (CASG) (CASG)OFFICE OF THE ASSISTANT OFFICE OF THE OFFICE OF THE OFFICE OF THE OFFICE OF THE ASSISTANT OFFICE OF THE OFFICE OF THE OFFICE OF THEGOVERNOR - Supervisory MANAGING DIRECTOR - MANAGING DIRECTOR - MANAGING DIRECTOR - GOVERNOR - Supervisory MANAGING DIRECTOR - MANAGING DIRECTOR - MANAGING DIRECTOR -Policy Development and Supervision and Supervision and Supervision and Policy Development and Supervision and Supervision and Supervision and Data Center (SPDDC) Examination (SE) I I Examination (SE) IIII Examination (SE) III Data Center (SPDDC) Examination (SE) Examination (SE) Examination (SE) III SES Operations Trust Specialist Examination Central SES Operations Trust Specialist Group (TG) Examination Central Management Group (TG) Department (ED) I Point of Management Department (ED) I Integrated Integrated Point of Group (SOMG) Integrated Integrated Contact Group (SOMG) Supervision Supervision Contact Capital Market Supervision Supervision Department Capital Market Supervision Department Department Department Supervision Examination Department Department (CPCD) I Office of Supervisory Policy Group (CMSG) Examination (ISD) I (ISD) II (CPCD) I Office of Supervisory Policy Group (CMSG) Department (ED) II (ISD) I (ISD) II Development (OSPD) Department (ED) II Development (OSPD) AML Specialist AML Specialist Central Group (AMLSG) Examination Central Group (AMLSG) Examination Point of Department (ED) III Examination Staff II Point of Supervisory Data Department (ED) III Examination Staff II Contact Supervisory Data MSME Finance Contact Center (SDC) MSME Finance Department Center (SDC) Specialist Group Department Specialist Group (CPCD) II (CPCD) II Core IT Core IT Regional Regional Supervision Supervision Group Group Examination Staff I Examination Staff I Regional Supervisory Supervisory Support Division I 17 Regional Supervisory Supervisory Support Division II (CITSG) Support Division I Support Division II (CITSG)
  18. 18. Banking supervision in the Philippines Other supervisory tools Bank Performance Reports (BPR) system Bank Early Warning System (EWS) Examiner Resource Scheduling System (ERSS)Bangko Sentral ng Pilipinas 18
  19. 19. Banking supervision in the Philippines Identified gaps in Compliance with the Basel Core Principles for Effective Banking Supervision (based on 2002 IMF assessment) Legal protection for supervisors Formalization of information sharing and cooperation with local and foreign financial supervisory agencies Conduct of consolidated supervision and bank examination Framework for prompt corrective action and problem bank resolution Appropriate standards for banks’ risk management systemsBangko Sentral ng Pilipinas 19
  20. 20. Banking supervision in the Philippines Developments in Compliance with the Basel Core Principles for Effective Banking Supervision Legal protection for supervisors – included in proposed revisions to BSP Charter Formalization of information sharing and cooperation with local and foreign financial supervisory agencies Information exchange and cooperation among local financial supervisors through the Financial Sector Forum (FSF) 5 formal agreements with foreign financial supervisory agencies, negotiating with 7 othersBangko Sentral ng Pilipinas 20
  21. 21. Banking supervision in the Philippines Developments in Compliance with the Basel Core Principles for Effective Banking Supervision Conduct of consolidated supervision and bank examination BSP-SES reorganization also intended to support consolidated supervision One of proposed revisions to BSP Charter is the grant of authority to BSP to look into banks’ non-allied subsidiaries and affiliates Manual on Supervision and Examination of Banks revised through a TA with USAID Development of a sustainable and relevant formal foundation training program for BSP examiners through a TA with First InitiativeBangko Sentral ng Pilipinas 21
  22. 22. Banking supervision in the Philippines Developments in Compliance with the Basel Core Principles for Effective Banking Supervision Framework for prompt corrective action and problem bank resolution PCA framework reviewed and enhanced in 2006 Explicit criteria for placing banks under PCA and measures to be undertaken Procedures already in place for financially distressed banks, but application is hampered by absence of coercive legal instruments Proposed revisions to BSP Charter intended to give BSP more powers to effectively carry out problem bank resolutionBangko Sentral ng Pilipinas 22
  23. 23. Banking supervision in the Philippines Developments in Compliance with the Basel Core Principles for Effective Banking Supervision Appropriate standards for banks’ risk management systems The following supervisory guidelines on risk management have already been issued and implemented Risk management of financial derivatives Internal credit risk rating systems Market risk management Liquidity risk management IT risk management Supervision by riskBangko Sentral ng Pilipinas 23
  24. 24. Banking supervision in the Philippines Adoption of international standards Basel II adopted in July this year Preparatory work: Active monitoring of developments, revisions/adjustments in local framework, capacity-building Simple approaches adopted + Pillar 3 guidelines Advanced approaches may be allowed by 2010; ICAAP guidelines under exposure to industry Approach to home-host issues on approval work to be dictated by legal status of foreign bank entities International accounting standards adopted since 2005 Supported by an external auditor accreditation systemBangko Sentral ng Pilipinas 24
  25. 25. Banking supervision in the Philippines Enhancing corporate governance Re-defined duties and responsibilities of bank’s board of directors Adoption of “fit and proper” standards for bank officers Strengthening anti-money laundering regulations Customer identification requirements KYC programs compliant with BCBS standardsBangko Sentral ng Pilipinas 25
  26. 26. Banking supervision in the Philippines Developmental Initiatives Capital market development through: contributions to foreign exchange liberalization domestic bond and derivatives market development payments systems upgrade Enhanced access to banking services by the poor through: sustainable microfinance practices of banks innovative deployment of mobile banking services Financial literacy Legislative advocaciesBangko Sentral ng Pilipinas 26
  27. 27. Concluding remarks Supervision of banks in the Philippines has gone a long way in the last 10 years Despite the limits set by the existing legal framework, the BSP continues to upgrade its supervision and examination approaches in line with internationally accepted standards The BSP also strives to improve banking practices through the issuance of relevant regulations However, critical changes to the BSP Charter are necessary to achieve further improvements in the practice of banking supervision in the PhilippinesBangko Sentral ng Pilipinas 27
  28. 28. Bangko Sentral ng PilipinasBanking Supervision and Examination in the Philippines 17 December 2007 Nestor A. Espenilla, Jr. Deputy Governor 28

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