BSP sets 3rd financial conglomerates risk review

In the wake of US bank failures, the central bank-led inter-agency Financial Sector Forum (FSF) has agreed to conduct its third crosssectoral Supervisory College review of financial conglomerates in the second half of this year.

Bangko Sentral ng Pilipinas (BSP) Governor Felipe M. Medalla, who is also the FSF chairman, said they have agreed last March 9 to continue with the risk review of financial conglomerates for a closer monitoring of the “sustained stability and soundness of the financial system.”

A BSP statement on Tuesday, March 21, quoted Medalla as saying that the FSF Supervisory College’s review is crucial since the exercise is part of a broader macro surveillance conducted regularly by the financial sector regulators, namely BSP, the Department of Finance, the Securities and Exchange Commission, the Philippine Deposit Insurance Corp. and the Insurance Commission.

It is particularly important now amid US bank failures and to monitor its secondary impact to the global banking sectors.

The Supervisory College review is a “comprehensive analysis of scenarios that may affect the financial conglomerates taking into account their interconnectedness to the Philippine economy,” said Medalla.

The Supervisory College had a pilot run last April to June 2022, while its second review was conducted in October last year. The BSP said the results of the second review was presented to the FSF on March 9.

The Supervisory College was conducted in accordance with the Memorandum of Understanding signed by FSF member agencies on Jan. 25, 2022.

With BSP and SEC as lead and co-lead supervisors, member agencies effectively collaborated to further strengthen financial conglomerate supervision, said Medalla.

Basically, the risk review is a holistic risk assessment of a conglomerate, and includes the identified supervisory concerns. The FSF, to conduct this review, developed what it called a coordinated supervisory plan.

Similar to the pilot run, the second Supervisory College review is not released to the public and remains confidential among FSF member agencies.

Since the Supervisory College was established for a more effective and efficient supervision of financial conglomerates, the FSF makes use of it to facilitate cooperation and coordination between and among the supervisory agencies. It aims to enhance information sharing and provides a platform for communicating key supervisory issues and concerns involving financial conglomerates.

The difference between the FSF’s Supervisory College and the existing inter-agency Financial Stability Coordination Council or FSCC is that the former will have a microprudential approach while the latter already conducts macroprudential surveillance to monitor for systemic risks.

The BSP has been monitoring the interrelationship between firms in a conglomerate structure as this set up is usually vulnerable to a possible contagion which happens if a company or entity with financial problems will affect other firms within the conglomerate group.

Based on 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 in banking, securities, and insurance”. This definition does not include mixed conglomerates which includes commercial and industrial services, in addition to financial services.

In the Philippines, financial groups with banks as parent companies or known as financial conglomerates include BDO Unibank Inc. of the SM Group and Bank of the Philippine Islands of the Ayala Group. These group also includes the Ty familycontrolled Metropolitan Bank & Trust Co., 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.