BSP tightens monitoring of 'too big to fail’ banks

Published June 24, 2022, 1:53 PM

by Lee C. Chipongian

The Bangko Sentral ng Pilipinas (BSP) said the periodic review and refinement of the list of domestic systemically important banks (D-SIBs) will be based on the latest data instead of end-year information they are currently using.

Banks considered as D-SIBs are those whose distress or disorderly failure would cause significant disruptions to the wider financial system and economy.

BSP building and logo/Reuters

BSP Deputy Governor Francisco G. Dakila Jr. in a circular (Circular No. 1148) amending the existing rules on D-SIBs framework, said the list of these “too big to fail” banks will be “assessed” and “determined” annually based on the “latest available data submitted by each bank” subject to the approval of the Monetary Board, BSP’s policy-making arm.

Dakila, who is currently the BSP Governor-in-Charge, signed the circular on June 17. BSP will inform D-SIBs individually of their current status.

As D-SIBs, each big bank will be assessed using methodologies such as indicator-based measurement approach, bucketing approach and supervisory judgement.

Presently, under the current arrangement, the BSP is not publicly disclosing the identified D-SIBs.

BSP said previously that disclosure “may have legal implications” based on provisions in the BSP Charter or the New Central Bank Act, as amended.

The current arrangement also intends to minimize potential misinterpretation of the list as an endorsement of selected banks, said the BSP.

The decision not to name D-SIBs or disclose even the number of D-SIBs is final after BSP Governor Benjamin E. Diokno and two previous other central bank chiefs — the late Nestor A. Espenilla Jr. and former Governor Amando M. Tetangco Jr. – all reviewed and assessed the legal and reputational implications of public disclosure.

In Asia, central banks that have disclosed their own D-SIBs include Malaysia, Indonesia, Singapore, Hongkong and Mainland China, South Korea, Japan and India.

In a previous interview, BSP Deputy Governor Chuchi G. Fonacier said the BSP regularly updates and inform individual banks if they are considered as D-SIBs.

D-SIBs are required to maintain additional Common Equity Tier 1 (CET1) capital on top of the existing minimum CET1 requirements. These banks must also meet higher supervisory expectations.

While BSP has never released the list of the D-SIBs, in 2016 they classified 14 unnamed banks as D-SIBs on their website but deleted the information later on.

In the Philippines, financial groups with banks as parent companies or known as financial conglomerates include BDO Unibank Inc. of the SM Group, Bank of the Philippine Islands of the Ayala Group and the Ty family-controlled Metropolitan Bank & Trust Co. This list also include Lucio Tan Group’s Philippine National Bank, the Yuchengco Group’s Rizal Commercial Banking Corp., the Dy-owned Security Bank Corp. and the Aboitiz Group’s Union Bank of the Philippines.

Banking groups include China Banking Corp. which is a sister bank of BDO, Asia United Bank Corp., and the government-owned Land Bank of the Philippines. The San Miguel Group also has a banking unit, Bank of Commerce.