Bangko Sentral ng Pilipinas

1. MABS 2nd National Roundtable Conference “Circular 409 and Future Direction of BSP Supervision” March 29, 2004 WILFREDO B. DOMO-ONG Director Bangko Sentral ng Pilipinas

2. Coverage • Updates on the Latest Circulars • Future Directions of RBs

3. Circular 409 (October 14, 2003) Amends the MORB and Manual of Accounts for Rural Banks to implement the rules, regulations and standards governing microfinancing operations of banks.

4. Circular 409 (October 14, 2003) Section 1 Portfolio-at-Risk (PAR) Outstanding principal amount of allloans that have at least ONE installment past due for one or more days.

5. Circular 409 (October 14, 2003) Section 2 Accrual of interest earned Interest accrued and/or booked shall be reversed and no accrual of interest shall be allowed after the microfinance loan has become past due as defined in Subsec. X306.1.g of the MORB

6. Circular 409 (October 14, 2003) Section 3 Restructured loans - are loans that have been renegotiated or modified to either lengthen or postpone the original scheduled installment payments or substantially alter the original terms of the loans

7. Circular 409 (October 14, 2003) Section 3 Refinanced loans - Refinanced loans are loans that have been disbursed to enable repayment of prior loans that would not have been paid in accordance with the original installment schedule.

8. Circular 409 (October 14, 2003) Section 4 Subsection X306.1 – Accounts considered past due Past due-microfinance loans as defined under Section 1 of this Circular

9. Circular 409 (October 14, 2003) Section 5 Writing off microfinance loans as bad debts. Microfinance loans that have been past due for 91 days or more and are fully provisioned may be written off in accordance with Subsection X306.5(b) and (c) of the MORB.

10. Circular 409 (October 14, 2003) Section 6 – Allowance for probable losses – Microfinance Loans

11. Circular 409 (October 14, 2003) Section 7 General Ledger accounts to be added to the Manual of Accounts for RBs: 1. Microfinance Loans 2. Restructured Loans–Microfinance Loans 3. Past Due Rest. Loans – MF Loans 4. Items in Lit.-Restructured MF Loans 5. Past Due Microfinance Loans 6. Items in Litigation – MF Loans 7. Allowance for Probable Losses – MF Loans

12. Circular 409 (October 14, 2003) Section 8 Sanctions – Violations of the provision shall be subject to any or all of the ff: 1. Disqualification of the bank concerned from the credit facilities of the BSP as may be allowed under Section 84 of R.A. 7653

13. Circular 409 (October 14, 2003) Section 8 Sanctions – Violations of the provision shall be subject to any or all of the ff: 2. Prohibition of the bank concerned from the extension of additional microfinance loans; and 3. Penalties and sanctions provided under Sections 36 and 37 of R.A. No. 7653.

14. Circular 414 (January 13, 2004) • Guidelines for managing large exposures and credit risk concentrations • Objective: strengthening risk management in the banking system

15. Circular 414 (January 13, 2004) Section I – General Principles A. Principles for Managing Large Exposures and Credit Risk Concentrations B. Monitoring of Large Exposures

16. Circular 414 (January 13, 2004) C. Unsafe and Unsound Practice Non-observance of the principles and requirements may be a ground for: C1. Administrative sanction under Sec. 56 of the GBL of 2000 C2. Others sanctions as may be determined by the Monetary Board

17. Circular 414 (January 13, 2004) D. Notification Requirements Bank to inform BSP immediately if large exposures or credit concentrations will materially impact on its capital adequacy, with proposed measures to address these concerns

18. Circular 414 (January 13, 2004) E. Reporting Records on monitoring of large exposures shall be made available to BSP examiners at all times. F. Sanction Any failure or delay in complying with the requirements: Penalty (major reports)

19. Circular 416 (January 21, 2004) • Amends the guidelines on the adoption of the risk-based capital adequacy framework under Circular 280 dated March 29, 2001, asamended • Provisions of the Manual of Regulations for Banks amended

20. II. Future Directions of BSP Supervision • Risk-Based Approach to Management • Continuous Good Corporate Governance • International Accounting Standards

21. Latest circular on risk-based approach • Circular 394, dated Aug. 6, 2003 Guidelines on the adoption of the risk-based capital adequacy framework which adds the on-balance sheet assets which are assigned 50% risk weight

22. Latest circular on risk-based approach • Circular 403, dated Sept. 19, 2003 Amends Circular 280; guidelines on the adoption of the risk-based capital adequacy framework Amends Circular 360; guidelines which incorporated market risk in the risk-based capital adequacy framework

23. Related circulars on good corporate governance • Cir. 283 – states and delineates the powers, duties, and responsibilities of the BOD • Cir. 296 – powers, qualifications, disqualifications of the BOD • Cir. 325 – deadline within which directors must attend a good corporate governance seminar • Cir. 341 – provides guidelines on unsafe/unsound banking practices to ensure clear understanding of good governance measures

24. International Accounting Standards (IAS) To attain the objective of globalization, the Accounting Standards Council (ASC) and the Securities and Exchange Commission (SEC) recommended the adoption of IAS issued by the International Accounting Standards Board (IASB)

25. Thank you! Bangko Sentral ng Pilipinas