The country's financial regulators, led by the Bangko Sentral ng Pilipinas (BSP), are expected to conclude their fourth cross-sectoral Supervisory College risk review of financial conglomerates in February as part of ongoing efforts to conduct more frequent systemic critiques of the Philippines' "too big to fail" corporations.
The BSP heads the Financial Sector Forum (FSF), which handles the risk review of financial conglomerates. The FSF Supervisory College's review is crucial because it is part of a broader macro-surveillance exercise conducted regularly by financial sector regulators, namely the BSP, the Securities and Exchange Commission, the Philippine Deposit Insurance Corp., and the Insurance Commission.
The FSF has never publicly released the findings of these risk reviews. The fourth and latest Supervisory College review, which began in August 2024, is expected to be completed by the end of February.
A Supervisory College review is a comprehensive analysis of scenarios that may affect financial conglomerates, taking into account their interconnectedness with the local economy.
BSP Governor Eli M. Remolona Jr., who chairs the FSF, previously stated that the Supervisory College is a platform for FSF members to identify and mitigate risks and vulnerabilities inherent in financial conglomerates.
If any supervisory concerns arise from any of the FSF members, they can be addressed within the FSF since each regulator has information and data on entities even if these financial institutions are not under their direct supervision.
The BSP has been monitoring the interrelationships between firms in a conglomerate structure, as this setup is typically vulnerable to contagion. This occurs when a company or entity with financial problems negatively affects other firms within the conglomerate.
While the FSF does not release the review results, they have noted that the third Supervisory College significantly advanced the "harmonized assessment framework," which has evolved since the first Supervisory College assessment. The Supervisory College had a pilot run from April to June 2022, and its second review was conducted in October 2023.
The 2023 review, concluded on May 24, 2024, adopted standardized policies and parameters and structured data analysis for a consistent risk assessment process.
After each assessment of financial conglomerates, the FSF approves a supervisory plan that identifies and focuses on entities with a greater impact and those that pose higher risks to the financial system.
The financial conglomerates' risk review is a holistic risk assessment of a conglomerate and includes identified supervisory concerns. To conduct this review, the FSF developed a coordinated supervisory plan.
According to 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 banking, securities, and insurance." This definition does not include mixed conglomerates, which include commercial and industrial services in addition to financial services.
The FSF has previously identified 12 financial conglomerates engaged in banking activities in the country that will be scrutinized and monitored over five years.
In the Philippines, financial groups with banks as parent companies, known as financial conglomerates, include BDO Unibank Inc. of the SM Group and Bank of the Philippine Islands of the Ayala Group.
The Ty family-controlled Metropolitan Bank & Trust Co. is also considered part of a financial conglomerate, as well as 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.
Other banking groups include China Banking Corp., Asia United Bank Corp., and the government-owned Land Bank of the Philippines.