THE Bangko Sentral ng Pilipinas (BSP) started implementing this month a new compliance rating system for banks called the Supervisory Assessment Framework (SAFr), which it hopes will ensure stability in a post-pandemic environment.

BSP Governor Benjamin E. Diokno said SAFr replaced the CAMELS (Capital Adequacy, Asset Quality, Management, Earnings, Liquidity, and Sensitivity) framework, effective Jan. 1.

The SAFr is a single integrated risk-based assessment framework, which covers all BSP-supervised financial institutions (BSFI). It links the systemic importance and risk profile of a BSFI to the formulation of supervisory plans for each institution.

The implementation of SAFr was originally scheduled for July 2020, but was delayed to give banks more time to prepare amid the pandemic.

“Prior to the adoption of the SAFr, only universal and commercial banks undergo assessments for Domestic Systemically Important Banks. Under SAFr, impact assessment considers all BSP-supervised institutions,” Mr. Diokno said in a briefing on Thursday.

SAFr assessments will be conducted at least every semester for universal and commercial banks, and annually for thrift and rural banks. The supervisory rating was assigned annually in CAMELS, regardless of the lender’s classification.

The BSFI will be assessed in terms of its impact on the financial system in case of a failure; its risk profile as identified by significant activities; and its supervisory intensity or the attention required and appropriate for the lender considering its impact and risk profile.

Under the new system, assessments may also be done anytime, in case of significant developments that change a lender’s risk profile.

Mr. Diokno said the SAFr will be instrumental in ensuring and enhancing stability in the banking industry under the “New Economy.”

“We say this because the use of off-site tools and thematic reviews, as well as the emphasis on continuous surveillance, would support more robust and dynamic assessments,” the BSP chief said.

“More frequent engagements with the supervisor can be expected for larger, riskier, and more complex BSP-supervised institutions,” he added.

In terms of rating scale, SAFr will only have a four-point system that clearly delineates between satisfactory and unsatisfactory ratings. This is unlike CAMELS which employed a five-point scale that had a tendency to lean on a “middle-of-the-road assessment,” he added.

“The adoption of the SAFr is among the reforms introduced by the BSP in response to the changes in the operating landscape brought about by financial innovation, deregulation, competition, and advancements in information technology,” Mr. Diokno said.

The BSP maintains that the local banking industry remains on solid footing and well-capitalized, despite the impact of the pandemic.

In a separate briefing on Thursday, Mr. Diokno said that the capital adequacy ratio of universal and commercial banks stood at 16.3% on a solo basis and at 16.7% on a consolidated basis as of end-June 2020. Both are well above the 10% requirement by the BSP as well as the 8% set by Basel III regulations. — Luz Wendy T. Noble

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