BY NEIL JEROME C. MORALES, Reporter
New governance rules OK'd
THE POLICY-making Monetary Board of the Bangko Sentral ng Pilipinas (BSP) has approved more stringent corporate governance rules for banks in a bid to create well-run financial institutions.
The move will ensure not only the adoption of sound banking practices but also increase the public's confidence in banks, BSP and banking officials said late last week.
"[On Friday] afternoon, the Monetary Board approved a new set of enhanced standards on corporate governance in banks as well as rules to strengthen the banks' compliance systems," BSP Governor Amando M. Tetangco, Jr. said in his speech during the annual Bankers' Night last Friday in Manila.
"Basically, it raises the governance standards and places them closer to the [Organisation for Economic Cooperation and Development] principles of good governance," Mr. Tetangco later explained in an interview.
The OECD Principles of Corporate Governance were first published in 1999 and were revised in 2004.
The OECD principles serve as benchmarks for governments and regulators in drawing up rules and regulations on corporate governance. The principles also provide guidance for stock exchanges, investors, and companies.
Good corporate governance, the OECD has pointed out, results in companies that are well run, and if they are well run, then they are most likely to attract investors who can come up with financing that can fuel more growth.
Moreover, well-run firms not only create confidence in themselves but also in the industry they are in.
The OECD principles are constantly evolving and the experience of the 2008-2009 financial crisis showed shortcomings in corporate governance, particularly in checks and balances. In 2010, the OECD recommended changes in remuneration, risk management, board practices and the exercise of shareholder rights.
The principles the Monetary Board approved are contained in a circular the BSP will release this week.
"Many of the reforms embodied in the new corporate governance circular is based on the proposals coming from OECD in 2010 as a response to the global financial crisis," BSP Deputy Governor Nestor A. Espenilla said in a separate interview.
He said the new rules, which were six months in the making, went through the banking industry, the Securities and Exchange Commission (SEC) and Institute of Corporate Directors for comment before they were finalized.
Under the new corporate governance guidelines, banks should allot 20% of board seats to independent directors instead of the fixed number of two. "Those with big boards need to have more independent directors," Mr. Espenilla said.
The BSP adopted the SEC's terms for independent directors, Mr. Espenilla said. Independent directors can serve for up to five consecutive years. There will be a two-year "cooling-off period" before they can be reappointed.
"We also tightened the board's oversight on conglomerates," Mr. Espenilla said.
He explained the board must monitor related-party transactions beyond loans to other transactions such as equity investments and sale of assets.
Banks will be ordered to set up "mandatory committees" aside from hire a chief risk officer. "There will be audit, risk oversight, governance committees [for the big banks]," Mr. Espenilla said.
But for smaller banks, only the audit committee is required.
Mr. Espenilla said the rules should be adopted by banks during their next stockholders' meetings.
Such efforts are part of strengthening the governance of banks and ensuring stable banking practices.
"This is positive to have good corporate governance in the banking sector. It is important for people to trust the bank so the good thing with governance is it makes things transparent," Aurelio R. Montinola III, president of the Bankers Association of the Philippines, said in an interview.
Mr. Montinola, also the preident and chief executive of the Bank of the Philippine Islands, said the rules will formalize the corporate governance efforts of some banks.
"Banks will be more focused on sound practices and that should translate to more sustainable profit opportunities," Mr. Espenilla said.
"They will also avoid unexpected losses from bad reputation or mismanagement," Mr. Espenilla added.
For Mr. Tetangco, the BSP will continue to stamp out unsafe and unsound banking practices and create a more vibrant and inclusive financial system."
"[On Friday] afternoon, the Monetary Board approved a new set of enhanced standards on corporate governance in banks as well as rules to strengthen the banks' compliance systems," BSP Governor Amando M. Tetangco, Jr. said in his speech during the annual Bankers' Night last Friday in Manila.
"Basically, it raises the governance standards and places them closer to the [Organisation for Economic Cooperation and Development] principles of good governance," Mr. Tetangco later explained in an interview.
The OECD Principles of Corporate Governance were first published in 1999 and were revised in 2004.
The OECD principles serve as benchmarks for governments and regulators in drawing up rules and regulations on corporate governance. The principles also provide guidance for stock exchanges, investors, and companies.
Good corporate governance, the OECD has pointed out, results in companies that are well run, and if they are well run, then they are most likely to attract investors who can come up with financing that can fuel more growth.
Moreover, well-run firms not only create confidence in themselves but also in the industry they are in.
The OECD principles are constantly evolving and the experience of the 2008-2009 financial crisis showed shortcomings in corporate governance, particularly in checks and balances. In 2010, the OECD recommended changes in remuneration, risk management, board practices and the exercise of shareholder rights.
The principles the Monetary Board approved are contained in a circular the BSP will release this week.
"Many of the reforms embodied in the new corporate governance circular is based on the proposals coming from OECD in 2010 as a response to the global financial crisis," BSP Deputy Governor Nestor A. Espenilla said in a separate interview.
He said the new rules, which were six months in the making, went through the banking industry, the Securities and Exchange Commission (SEC) and Institute of Corporate Directors for comment before they were finalized.
Under the new corporate governance guidelines, banks should allot 20% of board seats to independent directors instead of the fixed number of two. "Those with big boards need to have more independent directors," Mr. Espenilla said.
The BSP adopted the SEC's terms for independent directors, Mr. Espenilla said. Independent directors can serve for up to five consecutive years. There will be a two-year "cooling-off period" before they can be reappointed.
"We also tightened the board's oversight on conglomerates," Mr. Espenilla said.
He explained the board must monitor related-party transactions beyond loans to other transactions such as equity investments and sale of assets.
Banks will be ordered to set up "mandatory committees" aside from hire a chief risk officer. "There will be audit, risk oversight, governance committees [for the big banks]," Mr. Espenilla said.
But for smaller banks, only the audit committee is required.
Mr. Espenilla said the rules should be adopted by banks during their next stockholders' meetings.
Such efforts are part of strengthening the governance of banks and ensuring stable banking practices.
"This is positive to have good corporate governance in the banking sector. It is important for people to trust the bank so the good thing with governance is it makes things transparent," Aurelio R. Montinola III, president of the Bankers Association of the Philippines, said in an interview.
Mr. Montinola, also the preident and chief executive of the Bank of the Philippine Islands, said the rules will formalize the corporate governance efforts of some banks.
"Banks will be more focused on sound practices and that should translate to more sustainable profit opportunities," Mr. Espenilla said.
"They will also avoid unexpected losses from bad reputation or mismanagement," Mr. Espenilla added.
For Mr. Tetangco, the BSP will continue to stamp out unsafe and unsound banking practices and create a more vibrant and inclusive financial system."
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