Accreditation of rating agencies starts soon

The Bangko Sentral ng Pilipinas (BSP) will soon begin the accreditation of local rating agencies as it prepares to issue the guidelines allowing local agencies to apply for central bank certification.

BSP Deputy Governor Alberto Reyes told reporters yesterday that the guidelines were being finalized for approval by the Monetary Board, setting the parameters for the accreditation of local rating agencies.

According to Reyes, the BSP would institute requirements on the staffing of these agencies as well as strict limitations on allied interests and investor qualifications.

"We’re working towards the international standards and accepted practices set under the Basle Convention," Reyes explained.

However, there is only one local ratings agency, namely Philrating. Reyes said another rating agency was about to be formed by a group of retired officials from various banks.

Meanwhile, Reyes said the MB has approved the guidelines for the accounting treatment of losses arising out of the sale of non-performing loans and assets under the Special Purpose Vehicle Act (SPVA).

Reyes said the SPVA guidelines allow the staggered booking of losses arising from the discounted sale of non-performing assets to special purpose vehicles, despite its deviation from international accounting standards.

The Monetary Board (MB) approved the accounting guidelines for the sale of non-performing assets (NPAs) that would enable banks to window-dress the entry of losses in their books of accounts, subject to full disclosure requirements.

According to Reyes, the accounting guidelines approved by the MB required banks to fully disclose the deviations from generally accepted accounting practices.

This way, banks would not have to take a single big hit when they sell their NPAs to an SPV. They would be able to "ration" the losses up to seven years for accounting and tax purposes.

Reyes said the guidelines provide that the bank’s external auditor should be in full agreement with the deviations as well as the Securities and Exchange Commission (SEC) and the Bankers Association of the Philippines (BAP) .

Reyes explained that the booking of losses arising from the discounted sale of NPAs would be spread out over a maximum period of seven years, the same length of time that special purpose vehicles are allowed to dispose of the NPAs they have acquired.

During the period, Reyes said no dividend should be paid, whether common or preferred shareholders.

"There will be some criticisms from certain quarters but, hopefully, they can be mitigated by requirement of full disclosure and the requirement of the full approval of external auditors, the SEC and even the Bankers Association of the Philippines (BAP)," Reyes said.