BSP reviews fines on erring banks

The Bangko Sentral ng Pilipinas (BSP) is rationalizing its penalty structure for banks found in violation of its rules and regulation in preparation for the passage of the amendments in the General Banking Law (GBL).

The BSP said it has started to categorize major and minor violations as well as classify single, multiple and repeat offenses that would determine the severity of the sanctions and penalties on banks and bank officials.

BSP Deputy Governor Alberto V. Reyes said the rationalization of sanctions and penalties would facilitate the implementation of the proposed amendments in the GBL once passed by Congress.

According to Reyes, the amendments to the GBL would make rationalization necessary since the new provisions would cover offenses that were not contemplated in the original law.

Reyes said the BSP had initially categorized major offenses and violations as those directly affecting the overall profitability and solvency of the institution.

These major violations, he said, could include unsafe and unsound banking practices while minor violations could be non-submission of reports and such.

"It’s not an easy task because the BSP would have to draw the fine line between individual violations to determine what would constitute minor and major ones," Reyes said.

According to Reyes, there were minor violations that, although minor, could collapse a small institution and there were major violations whose impact is easily absorbed by a larger institution.

On the other hand, Reyes said the BSP would also have to make a distinction between minor violations that, when committed often and widely enough, could also pose serious danger on the profitability and solvency of a bank.

"Repetitive offenses, for example, have to be treated differently and when you look at them from the point of systemic risks, their magnitude changes," Reyes explained.

Reyes said the rationalization would become necessary once the GBL had been amended to update the sanctions and penalties that the BSP was allowed to impose on banks and bank officers.

Reyes said the BSP wanted to ensure that both the bank and its officials would ensure that violations were not committed. "If only the bank is punished, then the individuals will not have to accountability," he said. "On the other hand, if only the individual is punished then there will be no institutional push to toe the line."

On the other hand, Reyes said the BSP has adopted the international rating standard for foreign bank branches in the country known as the ROCA.

Local banks are rated according to their CAMEL rating based on a bank’s capital adequacy, asset quality, management, earnings and liquidity. The ROCA, on the other hand, is based on the foreign bank’s risk management, operations, control and asset quality.

Reyes said the BSP was assuming that since the foreign bank branches were directly under the supervision of their parent institutions, the management and asset quality would be sufficiently monitored and need not be examined by the BSP.

"Philippine bank branches overseas are rated the same way in other countries, we are just standardizing," he said.