BSP to tighten rules on selection of bank officers

The Bangko Sentral ng Pilipinas (BSP) is going to further tighten its fit-and-proper rule for bank executives and officers to ensure that bank management would be the effective first line of defense against unfit and unsound bank practices.

The BSP said over the weekend that its fit-and-proper rules are now under review with the objective of aligning them with international best practice.

BSP Deputy Governor Alberto V. Reyes told reporters over the weekend that the fit-and-proper rules for bank officers and executives are intended to protect banking as a business based on public trust.

"The bank management is the first line of defense of banks against bad practices," Reyes pointed out. "It is very easy to violate banking rules and regulations if management is not well-screened. It is very easy to give away bad loans if bank management wants to deliberately violate our rules and regulations."

According to Reyes, the BSP’s first stop-gap measure was to ensure that bank officers are qualified in the first place.

"We are supposed to review our fit-and-proper standards to tighten them," Reyes said. "We have to figure out what the standards should be, how to implement them effectively."

Under existing rules, prospective bank officers have to meet minimum fit-and-proper standards but these were not as stringent as they are in other countries.

"For example, in our countries, mere suspicion of involvement impropriety or illegal activity is already ground for disqualification," Reyes said.

In the Philippines, a person would have to be actually convicted of specific crimes before being disqualified from holding key positions in local banks.

According to Reyes, it was often the permissiveness of bank management that allow banks to engage in unfit and unsound banking practices that ultimately erode the strength of the institution.

Reyes said the BSP has document cases of management neglect that led to the collapse of banks ranging from extremely high levels of loans to officers and related interests, high levels of unsecured loans and bad investment decisions.

To comply with international best practice, the BSP already started tightening up its regulations on bank management last year, ordering banks to untangle their interlocking executives and disallowing top officials from holding concurrent positions in different bank entities.

The policy was approved by the Monetary Board giving banks one year to replace the top positions affected by the new prohibition against holding concurrent positions.

The BSP has been tying up loose-ends in the directorship and officership of banks to prevent conflicts of interest that could open loopholes for unsafe and unsound bank practices.

The BSP has already eased its rules on independent directorship of banks, allowing independent directors to hold position in two or more banks provided they meet the qualifications.

The Monetary Board of the BSP approved the easing of its rules and regulations on independent directors, saying that there was a dearth of individuals that could qualify as independent directors of various banks.

Section 16 of the law, or the "fit and proper rule," authorizes the Monetary Board to prescribe the qualifications or disqualification of bank board members, and to disqualify those who fail to pass the BSP’s standards.