Philippine banks’ overall health will be measured using new supervisory assessment framework (SAFr) starting July 2020 in a bid to aid financial institutions assess risks and prepare for it.
In a memorandum to all BSP-supervised financial institutions (BSFIs) dated March 5, BSP Deputy Governor Chuchi Fonacier said SAFr will replace existing ratings system like CAMELS and the ROCA.
CAMELS refers to the international rating system that checks on banks’ capital adequacy, management capability, earnings, liquidity, and sensitivity; while ROCA focuses on risk management, operational controls, compliance, and asset quality.
Under SAFr, BSFIs will be checked based on their impact to the financial system, their risk profile, and supervisory intensity.
Their impact will be assessed as low, moderate, above average or high.
Their risk profile will be evaluated based on significant business activities such as line of business, institution-wide process, and their subsidiaries.
BSFIs will also be appraised for compliance and internal audit with the ratings as strong, acceptable, inadequate, and weak.
Their overall net risk will be based on their net risk assessment and assessment of the compliance and internal audit.
The memorandum said SAFr initially shall only apply to banks.
Fonacier earlier said implementation of this new risk assessment gauge is part of the central bank’s reform measure to protect the sector from operational risks.
“It features an assessment that is business model-centric that will shape the BSP’s supervisory intervention and influence, the frequency of examination,” she said.
BSP tapped a major bank for SAFr’s parallel run to compare it with CAMELs.
“This is reputation risk management meaning, they should be very conscious of what are the potential threats to the reputation of the bank,” Fonacier said.
Source: Philippines News Agency