BSP revises 30-yr old manual of operations

The Bangko Sentral ng Pilipinas (BSP) has revised its manual of examination for the first time in 30 years, shifting its supervision policy to risk-based evaluation of banks in line with international norm.

The Monetary Board (MB) approved last week the revised manual which will be used as a guidelines for BSP’s regular examination of banks, detailing the standards of measurement and the actual examination process.

According to Alberto V. Reyes, BSP deputy governor for bank supervision, the new manual of examination has aligned the country’s examination and evaluation standards with international best practice.

Reyes explained that from hereon, banks would be examined and evaluated with the objective of assessing its risks and identifying weaknesses to be able to anticipate problems before they actually develop.

"The manual details the risk-based evaluation of banks and the use of the CAMELS rating," Reyes explained.

The CAMELS rating is an internationally recognized system of rating banks using six criteria: capital adequacy, asset quality, management quality, earnings, liquidity, and sensitivity to market risk.

The new manual, according to Reyes, also required the BSP to assign a contact person from its bank supervision and examination department. This person, he said, would be assigned to specific banks and they were expected to develop the expertise on the banks assigned to them.

Another highlight of the new manual, Reyes said, was the requirement to set pre-planning review for banks before BSP examiners actually come in and conduct their examination.

"The focus of this pre-planning review is to identify weaknesses or potential weaknesses in the bank," Reyes said.

Once the weaknesses have been identified, Reyes said the subsequent examination would then focus on the weak areas already identified during the pre-planning review.

Under the new manual, Reyes said the BSP also approved the new requirement to conduct an exit conference with bank managers to discuss the findings of the BSP examiners.

Reyes stressed, however, that the manual of examination would be treated by the MB as a "live manual". This meant that the rules and procedures would be under continuing reviews by the board.

"This is not going to be engraved on cement," Reyes said. "As problems and changes are encountered, we must also adjust the manual to cope and handle emerging situations."

Finally, Reyes said the MB also approved the proposal to conduct a so-called offsite CAMEL rating, except this rating exercise will not include a management review.

"Unlike the CAMELS rating, however, this off-site CAMEL will be done every six months," Reyes said.

Reyes said the BSP wanted to be able to capture the fluid changes in bank dynamics which would otherwise not be possible because the on-site CAMEL rating will be done only once a year.