Regulators set financial conglomerates’ risk review in Oct.

Published September 2, 2022, 1:45 PM

by Lee C. Chipongian

Financial regulators led by the Bangko Sentral ng Pilipinas (BSP) will conduct its second cross-sectoral review of the country’s financial conglomerates next month, part of the Financial Sector Forum’s (FSF) systemic risk assessment.

The FSF has recently concluded the first risk review by its Supervisory College which is a more tighter scrutiny of the systemic-sensitive financial conglomerates. The pilot run was April to June this year. The results were presented to the FSF last Aug. 22 however the outcome of the review was not disclosed to the media.

Basically, the Supervisory College was established for a more effective and efficient supervision of financial conglomerates. The pilot run covered the conduct of risk assessments on the financial conglomerate, identification of key supervisory concerns, and development of supervisory plans.

FSF meeting with officials from BSP, SEC, IC, PDIC, DOF

The FSF member-agencies such as the BSP, the Department of Finance, the Securities and Exchange Commission, the Philippine Deposit Insurance Corp. and the Insurance Commission signed a memorandum of understanding (MOU) last January on the establishment of Supervisory Colleges.

BSP Governor Felipe M. Medalla, who is also the FSF chairperson, said the Supervisory College “is an important undertaking that enables us to holistically see the risks in the financial sector and promotes implementation of coordinated supervisory response across agencies.”

BSP Governor Felipe M. Medalla (BSP photo)

FSF member-agencies make use of the Supervisory College the forum to facilitate cooperation and coordination between and among the supervisory agencies. It aims to enhance information sharing and provides a platform for communicating key supervisory issues and concerns involving financial conglomerates.

The difference between the FSF’s Supervisory College and the existing inter-agency Financial Stability Coordination Council or FSCC is that the former will have a microprudential approach while the latter already conducts macroprudential surveillance to monitor for systemic risks.

The BSP has been monitoring the interrelationship between firms in a conglomerate structure as this set up is usually vulnerable to a possible contagion which happens if a company or entity with financial problems will affect other firms within the conglomerate group.

Based on a BSP paper, a commonly accepted definition of a financial conglomerate is “any group of companies under common control whose exclusive or predominant activities consist of providing significant services in at least two different financial sectors such as in banking, securities, and insurance”. This definition does not include mixed conglomerates which includes commercial and industrial services, in addition to financial services.

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

Banking groups, meantime, include China Banking Corp., Asia United Bank Corp., and the government-owned Land Bank of the Philippines.