The Bangko Sentral ng Pilipinas (BSP) has approved the reporting rules or guidelines on big banks’ large exposures, including its subsidiary banks and quasi banks, on efforts to further ensure stability of the domestic financial sector.
In a memo (Memorandum No. M-2024-013), BSP Deputy Governor Chuchi G. Fonacier said the guidelines are related to the 2022 BSP Circular No. 1150 or the circular on the “Prudential Framework for Large Exposures Monitoring Threshold”. The purpose of the circular is to detect any problems that “could pose concerns to the stability of each bank/quasi bank and the financial system.”
To be able to identify, measure, monitor and control large exposures to protect covered banks’ solvency from maximum possible losses in the event of sudden counterparty failure, the circular was issued in 2022 and the latest reporting guidelines will implement how banks will report this to the BSP.
Reporting large exposures or LEX will use the following: XML Schema Definition (XSD); corresponding Control Prooflist (CP); and Data Structure. These can all be downloaded from the Report Details module of the Integral Financial Supervision System (IFSS) Submission Portal under the BSP Relationship Management System (BRMS).
The memo said the LEX report will be submitted every semester for both solo and consolidated bases on or before 15 banking days after reference period. For example, the end-December 2023 report will be submitted to the BSP on or before May 31 this year.
For covered banks, the BSP said they will issue detailed guidelines on the implementation of API-based submission via machine-to-machine modality and the use of IFSS Submission Portal as previously announced.
Meanwhile, there will be different procedures for subsidiary banks.
Last Aug. 3, 2022, the BSP approved Circular No. 1150 or the prudential framework for the monitoring of banks’ large exposures to detect any solvency problems.
The BSP has redefined large exposures as exposures to a single counterparty or a group of connected counterparties equal to or greater than 10 percent of a covered bank or quasi bank’s Tier I capital, which refers to a bank’s core capital or reserves to fund its business activities.
The previous definition of large exposures was equal or greater than five percent of a financial institution’s qualifying capital. Basically, Tier 1 capital or core capital which are equity and retained earnings, is applied to monitor a bank’s capital adequacy. Qualifying capital is both Tier 2 -- which are reserves such as loan loss reserves and other capital instruments -- and Tier 1.
The BSP has said that it was aware of the risks arising from large exposures of banks and quasi banks to a single counterparty or group of connected counterparties.
Large exposures are computed and compared with Tier I capital on both solo and consolidated bases.
The BSP has also redefined big banks’ large exposures with a limit set at 25 percent of Tier 1 capital.