New BSP rule promotes financial stability

Published May 27, 2021, 5:28 PM

by Lee C. Chipongian

Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno said the recently approved rules for banks’ reputational risk management will ensure stronger financial growth and stability.

Diokno said the guidelines for managing reputational risk “emphasize the importance of having a clear understanding of various sources of reputational risk and their impact on supervised entities.”

Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno (MB file)

“We underscore this because building and maintaining stakeholder confidence in financial institutions is key to fostering the stability and growth in the financial sector,” he said during his online “GBED Talks” on Thursday.

The BSP issued Circular No. 1114 last month for the guidance of BSP supervised financial institutions (BSFIs) on the identification, assessment, and management of reputational risks commensurate to their size, nature, complexity of operations, overall risk profile and systemic importance. 

Reputational risk are risk to a BSFIs’ earnings, capital, and liquidity coming from the negative perception of its customers, shareholders, investors, and employees, market analysts, the media, and other stakeholders such as regulators and other government agencies. These negative views can adversely affect a BSFI’s ability to maintain existing business relationships, establish new businesses or partnerships, or continuously access varied sources of funding.

Diokno said the new guidelines highlight how reputational risk is closely linked to other risk exposures such as credit, market, liquidity, and operational risks, such that it can result from or may trigger other risks.

“A well-established reputation enables banks and other financial institutions to strengthen their market position, increase their market value, and to attract and retain talents,” he added.

 
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