BSP to expand review of related bank dealings

The Bangko Sentral ng Pilipinas (BSP) wants to require banks and other financial institutions to provide more details about their business dealings, particularly information that can help the regulator spot potential conflicts of interest and financing risks from loan exposure to big-ticket infrastructure projects.

The BSP is collecting feedback from stakeholders on a draft circular amending the rules that its supervised financial institutions follow when submitting prudential reports on related party transactions and project finance exposures.

Stakeholders can comment on the draft document until Oct. 16.

The proposed circular suggested tweaks to Section 136 of the Manual of Regulations for Banks, which guides regulated entities in managing their business dealings with affiliated people or companies to avoid conflict of interest and abuses that can put depositors and other stakeholders at a disadvantage.

Specifically, the draft circular wants universal and commercial banks that are part of financial conglomerates to disclose to the BSP all the entities in the group, including beneficial owners of shareholdings.

Big banks belonging to conglomerates must submit such a report “electronically” within 120 days after the end of every calendar year.

Long-term project financing

If approved, the draft circular would also require banks to submit more information about their contingent financing for big-ticket infrastructure projects.

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This includes exposures of banks arising from guarantees, standby letters of credit, credit derivatives and other forms of security that they can provide to long-term infrastructure projects.

BSP Deputy Governor Chuchi Fonacier said the proposed “enhancements” would help the regulator assess risks stemming from contingent funding that lenders may grant for capital-intensive infrastructure projects, which are often financed by syndicated loans from groups of banks.

“The additional information will feed into the BSP’s surveillance and assessment of risks in the banking system, particularly those that may arise on the banks’ contingent financing for the purpose of project finance,” Fonacier said.