BSP Approves the Risk Management Guidelines for Bank Investments
The Monetary Board of the Bangko Sentral ng Pilipinas (BSP), the central bank of the Philippines, issued its newly approved risk management guidelines on financial investments.
The guidelines, authorized during the board’s assembly on July 11, require banks and quasi-banks (QBs) to conduct appropriate due diligence on all their investments before and consistently during all of their activities on an ongoing basis.
“The conduct of due diligence reviews for new plain vanilla instruments acquired for trading or short-term profit-taking [i.e., to be held in the trading book] may be made at the option of the bank/QB, as long as the resulting positions from the investments are still within the set limits,” it said.
The issuance’s aim is to establish regulatory expectations in managing risks arising from investment activities. Taking into consideration the banks/QBs’ exposure to a wide range of instruments, including all tradable assets like bonds issued by emerging economies and complex structured products.
Determined to closely monitor the investment activities of banks, BSP is set to ensure financial institutions have enough buffers to cover risks.
The 2007-2008 global financial crisis faced by the world economy also influenced the new guidelines. Serving as a relevant guide for investments and financial stability, it will further take into account the Basel Core Principles for Effective Banking Supervision.
“Specifically, the guidelines will require a bank/QB with significant holdings of securities issued outside the country to assess whether its capital is sufficient to cover the risks arising from the possibility that the relevant foreign government may impose currency conversion restrictions,” it added.
However, according to the agency, the resulting positions from the investments should still be within set limits. The guidelines are meant to be applied proportional to the profile of the bank/QB and its investments — this is in consideration of the fact that the BSP Supervised Financial Institutions (BSFIs) also have diverse structures, complexities, and ranges of investment activities (for additional information on this, you can click here).