Phillipine central bank sets up early warning system to prevent bank runs : LUSENET : Grassroots Information Coordination Center (GICC) : One Thread

BSP to set up early warning system to prevent bank runs By Rocel C. Felix 08/26/2001

The Bangko Sentral ng Pilipinas (BSP) will put in place shortly an early warning system for possible bank failures to avoid bank runs and closures.

BSP Governor Rafael Buenaventura said the move is part of a number of risk management measures the central bank wants implemented to strengthen local banks and better prepare them for competition.

"In improving risk management, the central bank will institute an early warning system for bank failures," Buenaventura said.

The central bank, he added, will also assist banks to better match their foreign currency assets and liabilities, while carrying out reviews to identify regulatory loopholes in the transactions of bank-affiliated foreign exchange corporations.

At the same time the BSP, which introduced risk-based capital requirements, tighter loan classification and provisioning rules and consolidating reporting, will also be meting out stiffer penalties for violations of banking regulations.

Monetary experts said the central bank has to be more diligent in monitoring banks’ operations and quicker to spot potential candidates for bank failures to be able to impose remedies and prevent banks from collapse and closure.

Data show that in 2000, the number of closed banks increased by at least eight percent to 417 from only 385 in the same period in 1999.

Last year from January to May alone, 11 banks closed shop.

The 11 banks include one commercial bank, two thrift banks, and eight rural banks.

The commercial bank was Urban Bank Inc., which closed last April 26 but has been reopened with new owners and management.

The two thrift banks, on the other hand, were Prime Savings Bank, Inc., which closed on Jan. 1, 2000 and Urbancorp Development Bank on April 26, 2000.

The eight rural banks were: Manaoag Rural Bank (RB) of Pangasinan; RB of Abra de Ilog in Occidental Mindoro; RB of Barbaza in Antinque; RB of Morong, Rizal; RB of Palayan City in Nueva Ecija; RB of San Miguel, Bulacan; RB of San Jacinto in Pangasinan and RB of Tuy.

Of the banks that closed, officials of Urban Bank and RB San Miguel have been allegedly found guilty of violations of directors, officers, stockholders, and related interest (DOSRI).

Urban Bank is the second commercial bank that folded up after the financial crisis in Asian in 1997.

The other commercial bank that was ordered closed by the Monetary Board, the policy making body of the BSP and was placed under the receivership of PDIC in 1998, was Orient Commercial Banking Corp.

Prior to Urban Bank and Orient Bank, the last recorded commercial bank that closed in 1985 was Pacific Banking Corp.

A Philippine Deposit Insurance Corp. (PDIC) official said a number of banks were forced to shut down because many could not meet the capital requirements imposed by the BSP, especially those that suffered liquidity problems as an offshoot of the delayed impact of the Asian financial crisis.

-- Martin Thompson (, August 25, 2001

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