These were capital adequacy ratio, connected lending to total capital ratio, nonperforming loan (NPL) ratio, and interest margin to gross income ratio. They performed better in terms of NPL net of provisioning to capital ratio and earnings—returns on assets and equity.
Pre-need companies are managers and guarantors of pre-funded contracts that provide a defined service. Pre-need plans have taken on many of the characteristics of traditional endowment life insurance. The most common pre-need plans include caskets and memorial services, education, and pensions.
Bank accounts in these cases have been frozen pending further investigation.
Lending Investors are consumer lenders which are large in number but mostly single proprietorships.
Non-performing assets are defined as non-performing loans (NPLs) plus real and other properties owned and acquired (ROPOA). These latter are in effect NPLs, but are subject to more lenient provisioning requirements.
Detailed sectoral recommendations were left with the authorities in the context of the FSAP mission reports.
Bank owners have been able to block or delay supervisory enforcement actions by securing temporary restraining orders or bringing court cases against supervisory staff for failing to exercise “extraordinary diligence.” This ill-defined and exceptional standard effectively invites litigation that undermines the BSP’s supervisory credibility.
Director, Officer, Stockholder and their Related Interests.
Quasi-banks are defined as entities that are engaged in the borrowing of funds through the issuance, endorsement, or assignment with recourse or acceptance of deposit substitutes for purposes of re-lending or purchasing of receivables and other obligations.
The four largest financial conglomerates on average account for 40 percent of total assets; intermediate 50 percent of payment and settlement transactions and account for 40 percent of loan and deposit markets.
The two largest conglomerates together own approximately 107 financial and non-financial subsidiaries.
In the case of Urban Bank, funding problems initially surfaced in the investment subsidiary. The bank had to provide liquidity to the affiliate and in return it acquired nonperforming assets. The liquidity problem eventually overwhelmed the bank and it was forced to declare a banking holiday, prompting BSP intervention.
Based on data from Worldscope Database for listed companies for 1995-2000.
On the basis of the data available at the time of the mission, six commercial banks accounting for 10.9 percent of total assets of all forty-four commercial banks reported capital adequacy ratios below 8 percent. Of these six, three small banks report negative capital adequacy ratios.
The NPL ratio for commercial banks increased to 18.4 percent by February 2002. However, at the time of the mission detailed data was available only up to June 30, 2001 for stress and sensitivity analysis.
The nonperforming assets (NPAs) ratio is defined as nonperforming loans plus ROPOA to total loans plus ROPOA. The NPA ratio for commercial banks increased to 26.6 percent by February 2002.
ROPOA are appraised at the time of foreclosure—wherein a one-off gain/loss is recognized on the income statement depending on how the appraisal compares with the book value. Banks have five years to dispose of those assets. They are not required to set up loss reserves against ROPOA, unless deterioration in the market value of the assets is assessed. At the time of this assessment, appraisals of the foreclosed assets were not conducted periodically; however, the BSP has since issued a regulation requiring reappraisal every other year.
Especially with the presence of financial conglomerates, the income statement of one member of the group could be inflated through operations/transactions made with other members of the same group.
The existence of financial conglomerates and the weaknesses in the regulatory and supervisory framework discussed in Section IV call for caution in the analyses of the data, as the real condition of the banking system could be worse than these indicators suggest.
The indicators selected were: capital adequacy ratio; past due loans to total loans; NPLs net of provisions to capital base; loan exposure to three largest borrowers as percent of capital base; pre-tax ROA (Return on Assets) excluding extraordinary gains; net interest income as share in average asset and ROE (Return on Equity).
If a new rule of a minimum 60 percent provision of NPLs were to be immediately passed, this bank would have a negative CAR, and three other banks, including one of the top five, would have CARs below 10 percent.
Assuming a loan to collateral value ratio of 60 percent at the time the loans were granted, and further assuming 60 percent depreciation in collateral value, a 33 percent provisioning for the existing ROPOA stock carried on the banks books would be needed. Furthermore, if the ROPOA value was to be marked-to-market—such as through an outright sale to an AMC, the required provisioning would be 75 percent if it is assumed that the recovery price could drop further, from 40 cents to 15 cents to a dollar (of collateral value).
Deducting from the capital base of a bank its equity investments in other affiliates or subsidiaries is justified because those funds are backing the risks incurred by the subsidiaries/affiliates.
Social Security System (SSS), Government Service Insurance System (GSIS), Armed Forces of the Philippines-Retirement and Separation Benefit System (AFP-SBI), and the Home Development Mutual Fund (Pag- IBIG).
According to the calculations of the Philippines Retirement Income Commission based on 1999 data.
The ROI for 2000 was 8.4 percent which is below the 91 day T-bill yield of 10.5 percent.
Operating Expenses for the year ended December 2001 were 9.9 percent of total revenue.
The 2000 budget allocated to Personnel Services constitutes 70 percent of the entire appropriation. An amount equivalent to P32.3 billion out of a total of P36.3 billion of the annual appropriation is being taken up by the personnel account.
The difference between he interest rate paid on contributions and the return on investments is kept in the fund with the future purpose of paying pension directly from the fund.
The rationalization of the documentary stamp tax regime (DST), in particular, elimination of DST on secondary market trading and securities lending and borrowing transactions is expected to have a significant positive impact on the liquidity of the securities market.
The discussion on AML practice was undertaken within the framework of the existing financial sector standard and not the enhanced methodology document.
Among the incentives banks and other financial intermediaries may avail, subject to BSP approval, are: (a) booking on staggered basis over a maximum period of five years of un-booked valuation reserves based upon BSP examination and other capital adjustments resulting from the merger or consolidation; (b) amortization of goodwill up to a maximum period of 40 years; (c) revaluation of bank premises; (d) temporary relief from full compliance with the net worth to risk assets ratio; (e) exemption from the 20 percent ceiling on commercial banks’ loan portfolio allocated to real estate loans for a period of one year; (f) exemption from the individual limits on voting rights in the new or surviving institutions; (g) restructuring/plan of payment of past due obligations with the BSP over a period not exceeding 10 years; (h) payment in installments over a period of one year of outstanding penalties in legal reserve deficiencies and interest on overdrafts with the BSP; and (i) rediscount ceiling of 150 percent of adjusted capital accounts for a period of one year.
As the Urban Bank case clearly indicates, substandard or doubtful receivables can be parked in the books of other affiliates of the bank, or bank borrowers may appear as performing because of their additional borrowings from other affiliates of the bank.
The authorities have released implementing rules and regulations relating to AMLA since the mission conducted its assessment.
Under S.s 357 and 358 the Commissioner has effective control of premium rates, and may allow rates in excess of the tariff to be charged on individual risks.
Source: PIDS discussion paper Nov. 2001 on Philippines Payment System.
The assessment of transparency with regard to banking supervision focused primarily on the functional aspects of banking supervision of the BSP. The transparency environment in the BPS for the institution as a whole, however, also impacts on the conduct of banking supervision policies. For a more complete picture of the state of transparency at the BSP as it affects banking supervision, therefore, the reader may want to take account of the separate assessment of transparency of BSP monetary policies and the recommendations to strengthen transparency further.