The Bangko Sentral ng Pilipinas (BSP)-led inter-agency Financial Sector Forum (FSF) is set to conduct its fourth cross-sectoral Supervisory College risk review of financial conglomerates to ensure continued macroprudential surveillance for systemic risks.
BSP Governor Eli M. Remolona Jr. said Thursday, July 18, that the FSF-member regulators have agreed to conduct the next Supervisory College review after the conclusion recently of the third assessment.
”The Supervisory College continues to serve as a platform for FSF members to identify and mitigate risks and vulnerabilities inherent in financial conglomerates," said Remolona who is the chairperson of the FSF.
He added that "the establishment of a harmonized supervisory plan facilitates the proactive resolution of supervisory concerns in the financial sector."
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.
The FSF Supervisory College’s review is crucial since the exercise is part of a broader macro surveillance conducted regularly by the financial sector regulators, namely BSP, the Securities and Exchange Commission, the Philippine Deposit Insurance Corp. and the Insurance Commission.
In a statement which was also released Thursday, the BSP noted that the recently concluded third Supervisory College significantly advanced the “harmonized assessment framework” which has evolved since the first Supervisory College assessment in 2022.
“It espouses the adoption of standardized policies and parameters and structured data analysis for a consistent risk assessment process,” said the BSP. The results of the third Supervisory College review were deliberated and presented to the FSF principals last May 24, 2024.
After each assessment of financial conglomerates, the FSF will then approve a supervisory plan which will identify and focus on “entities with greater impact and those that pose higher risk to the financial system.”
“In unanimous agreement, the FSF resolved to convene the fourth Supervisory College in the latter half of 2024,” according to the BSP.
Basically, a Supervisory College review is a comprehensive analysis of scenarios that may affect the financial conglomerates taking into account their interconnectedness to the Philippine economy.
The Supervisory College had a pilot run in April to June 2022, while its second review was conducted in October last year. The third assessment was done in May.
The financial conglomerates’ risk review is a holistic risk assessment of a conglomerate, and includes the identified supervisory concerns. The FSF, to conduct this review, developed a coordinated supervisory plan.
Since the Supervisory College was established for a more effective and efficient supervision of financial conglomerates, the FSF makes use of it 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.
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.
The FSF has previously identified 12 financial conglomerates engaged in banking activities in the country that will be scrutinized and monitored within a course of five years.