Commercial banks urged to establish computerized central liability record

The Bangko Sentral ng Pilipinas (BSP) wants banks to establish a computerized central liability record under the newly-tightened rules for single borrower’s limit (SBL).

BSP Governor Rafael B. Buenaventura said the new monitoring mechanism for SBL is designed to protect banks from the risk of overexposure to related loan accounts.

The central system will keep a record of a bank’s large loan exposures.

According to the BSP, the SBL is a prudential rule that prevents credit concentration.

The new policy is based on the assumption that banks may be exposed to various forms of credit risk, which may cause significant losses that could threaten their financial viability.

The BSP said credit risk concentration may arise from excessive exposures to individual parties, groups of related parties or parties from specific geographic, economic or industry sectors.

The new regulations on SBL require banks to have an adequate management information and reporting system, including the necessary mechanism that would address concerns made by its auditors during the conduct of financial review.

"The circular lays down minimum standards for banks and non-bank financial institutions to comprehensively manage large exposures on both stand alone and group basis," Buenaventura said.

The monetary authorities prescribed policy-rules that require a bank to keep a tight lid on its SBL within the acceptable and mandated 25 percent of the institution’s unimpaired capital, among them, regular conduct of review of compliance policy on large exposures and credit risk concentration.

"Banks should conduct stress testing and scenario analysis of their large exposures to assess the impact of changes in market conditions or key risk factors," the BSP Governor said.

Banks must also undergo a yearly review of their loans and controls to safeguard them from credit risk concentrations. The external or internal auditors had been instructed to review the loans.

Under a separate directive, a bank found guilty of unsafe and unsound practice may be fined up to P30,000 a day on a per transaction basis, over and above the suspension of interbank clearing privileges.

Violators may also be stripped of their license for lending and foreign exchange operations, as well as their authority to accept new deposits or make new investments.