The Bangko Sentral ng Pilipinas (BSP) is set to classify some rural and thrift banks as simple or complex banks.
“We issued a circular that formalizes our requirements for classifying certain rural and thrift banks as complex and simple,” according to BSP Deputy Governor Nestor Espenilla Jr. on the sidelines of the Rural Bankers Association of the Philippines Inaugural and Induction of Officers and Directors over the weekend.
Rural banks are banks which are privately managed and largely privately owned that provide credit facilities to farmers and merchants, or to cooperatives of such farmers or merchants at reasonable terms and in general, to the people of the rural community.
Meanwhile, a thrift bank is a financial institution focusing on taking deposits and originating home mortgages.
Espenilla said that basically, thrift and rural banks only required to put up an audit committee, and are not required to come up with other committees like a governance committee.
“But under the regulation, if rural and thrift banks exceeded certain features like complexity of business, geographic reach and different kinds of customers, the BSP can classify them as complex . . . meaning we will put a higher requirement,” he explained.
The BSP official also said that rural and thrift banks, no matter how big they are, are engaged only in basic deposit-taking and lending.
“But if they are doing other kinds of things like large-scale remittance network, doing a lot of cross-selling of products that are relatively complicated, then we may take that as possible reason to consider the bank complex or more than the normal community-based banks,” he said.
Espenilla added that the central bank would identify simple or complex banks in terms of products and other factors.
“This is kinds of things that we considering in classifying banks as complex. The general rule is that rural and thrift banks have simpler requirements, but then we may escalate those requirements if their businesses are complex,” he said.
The BSP official added that if a bank has been classified as complex, the central bank would require them to have a corporate governance committee, and to have a dedicated compliance officer and other requirements.
“It’s a way of adjusting the regulations to the nature of the business. We are expecting a higher governance and compliance standard on the banks that are operating in a more complex way than the usual,” he said.