MORNBFI Vol. 1 - Planters Development Bank

APP. Q-5309.12.31GUIDELINES ON THE BANGKO SENTRAL’SSUPERVISORY REVIEW PROCESS(Appendix to Sec. 4119Q)A. Introduction1. The BSP’s supervisory reviewprocess (SRP) in the context of thisdocument involves (1) an evaluation ofbanks’ internal capital adequacy assessmentprocesses (ICAAP) and their output, (2) adialogue with banks with regard to theirICAAP, and (3) the prudential measures thatmay be taken to address issues identified.These guidelines should be observed mainlyby the appropriate Central Point of ContactDepartment (CPCD) within the BSP and,where appropriate for on-site validationduring regulation examination, by theexamination personnel. This thereforesupplements the existing guidelines set outin the Manual of Examinations, the CAMELSRating, and the Risk Assessment System(RAS). The CPCD may draft, for its own use,detailed guidelines on the conduct of theassessment of banks’ ICAAP and of the BSPbankdialogue.2. Although these guidelines aredirected mainly at BSP supervision andexamination personnel, banks will have aclear interest in knowing the approach theBSP intends to take in assessing their capitaladequacy.B. Guiding principles in assessingbanks’ ICAAP1. As a first step, the BSP shouldevaluate banks’ compliance with theminimum regulatory capital requirements asprescribed under the Framework. Thiswould involve the verification of banks’calculation of their risk weighted assets(RWA) and capital adequacy ratio (CAR).The minimum regulatory capitalrequirements should always be the startingpoint in the assessment of banks’ capitaladequacy. The validated CAR should thenbe compared with the required capitalresulting from the ICAAP.2. Next, the assessment of banks’ICAAP should include an evaluation of theirassumptions, components, methodologies,coverage and outcome. This review shouldcover both banks’ risk managementprocesses and their assessment of adequatecapital. The BSP should review how banksassess the other risks they are exposed to,especially Elements 2 to 4 listed in Item"C.4" hereof, the controls they have in placeto mitigate these risks, as well as theadequacy and composition of capital heldagainst those risks.3. The BSP should then identify existingor potential problems and key risks facedby banks, the deficiencies in their controland risk management frameworks, and thedegree of reliance that can be placed on theoutputs of their ICAAP. This process willenable the BSP to tailor its approach for eachindividual bank and will provide thefoundation for the BSP’s general approachfor each bank and its actions.4. The BSP’s evaluation of theadequacy of banks’ capital in relation to theirrisk profile would serve as the basis forassigning a rating for the Capital componentof the bank’s CAMELS rating. It would alsoserve as the basis for identifying anyprudential measures or other supervisoryactions required. For example, where thereis an imbalance between business and riskcontrols, the BSP should consider the rangeof remedial supervisory actions that may beneeded to rectify a deficiency in controlsand/or perceived shortfalls in capital, eitheras a long-term requirement(s) or as a shorttermaction(s).5. The results of the SRP will becommunicated to the board and seniorManual of Regulations for Non-Bank Financial Institutions Q RegulationsAppendix Q-53 - Page 1