Bank Risk Management Rules Readied
Byline: LEE C. CHIPONGIAN
The Bangko Sentral ng Pilipinas is preparing a new circular dictating how banks should manage liquidity and market risks, especially banks' vulnerability on interest rates risk.
"These are supervision guidelines on risk management and what are the BSP expectations (before considering) that a bank is properly controlling its liquidity and market risks including interest rates risk," BSP Deputy Governor Nestor A. Espenilla Jr. told reporters over the weekend. He said the guidelines are not strictly Basle2, but more in line with international best practices.
Espenilla said the draft circular would ensure that financial institutions or FIs are clear about their market risks. "The important principle here is to lay down the oversight responsibility internally, within the organization -- from the board to management."
The 20-page draft circular is now circulated for comment. It contains guidelines on market risk management to ensure that financial institutions including trust departments have the knowledge and skills necessary to understand and effectively manage market risk.
"(It is what the) BSP expect (from banks) with respect to the management of market risk (to provide) more consistency in how the risk-focused supervision function is applied to this risk. FIs are expected to have an integrated approach to risk management and to identify, measure, monitor and control risks," the proposed circular said.
Market risks include interest rate risk, foreign exchange risk, equity risk and commodity risk.
"The BSP is aware of the increasing diversity of financial products and that industry techniques for measuring and managing market risk are continuously evolving. As such, the guidelines are intended to be for general application; specific application will depend to some extend on the size, complexity and range of activities undertake by individual financial institutions," the central bank said. …