The Bangko Sentral ng Pilipinas (BSP) on Monday announced its new rule allowing thrift and cooperative banks to invest in debt securities without prior approval from the Monetary Board (MB).
In a circular published just recently, the central bank amended provisions in the manual of regulations for banks (MORB) in pursuant to the recent resolution of the Monetary Board to give way to small banks’ investments in readily marketable bonds and other debt securities without going through the process of securing an Monetary Board approval.
The amendments allow thrift and cooperative banks to invest in readily marketable bonds and other debt securities, provided these investment instruments have complied with the new rules on registration of commercial papers.
Rural and cooperative banks investing in these readily marketable bonds and other debt securities shall comply with the prudential criteria set by the central bank, which includes that the investment shall not be held for trading purposes.
Although these smaller banks may now invest without seeking prior Monetary Board approval, they are to submit a onetime notarized certification that the prequalification requirements have been complied with within 10 calendar days from the date of the initial investment.
The BSP also said banks shall conduct a “continuous self-assessment” of their compliance with the prequalification requirements.
Although the BSP relaxed its rules on rural and cooperative banks’ investment, it has set forth corresponding fines to be imposed for each violation, reckoned from the date the violation was committed up to the date it was corrected.
In particular, rural and cooperative banks are to pay P1,000 per day of lapse in investment decisions, which do not adhere to the central bank’s guidelines. This penalty increases depending on what type of bank commits the violation.
Concerned officers will also be sanctioned, with a reprimand for the first offense and a 90-day suspension without pay for subsequent offenses.
In 2015 the rural and cooperative banking industry ended the year with a total of 2,593 branches nationwide.
The central bank has long urged smaller banks to consolidate and strengthen their balance sheets in an effort to make the entire banking system stronger and less fragmented, as well as to prepare them for the entry of foreign players in the market due to the impending Asean Banking Integration Framework.