MORNBFI Vol. 1 - Planters Development Bank

APP. Q-5309.12.31management of banks together with anyaction that is required of them and anysignificant action planned by the BSP. Thismay be done as part of the dialoguebetween the BSP and each bank on theICAAP.6. In evaluating the ICAAP of branchesof foreign banks in the Philippines, the BSPwill refer to the home supervisor’sconsolidated assessment of the ICAAP of thehead office/parent bank. The BSP will alsotake into account the strength andavailability of parental support.C. Guiding principles on BSP-bankdialogue1. A key element of the SRP is thedialogue between the BSP and each bank.The dialogue will inform the BSP about theway each bank’s ICAAP is structured, andthe assumptions and methodologies whichare used to assess its risk exposures.2. The ICAAP document, which banksare required to submit to the BSP everyJanuary of each year (suggested format isin Annex A of Appendix 91), will be thebasis for the BSP-bank (specifically,BSP-CPCD) dialogue. This dialogue mayfeed into the regular examination, and thefindings of the regular examination mayin turn feed into the dialogue. The BSP willdetermine the nature and depth of thedialogue, based on the type andcomplexity of the bank.3. Banks should be able to justify theirprocesses for identifying and measuring theirrisks as well as how much capital, if any,they allocate against them, taking intoaccount other qualitative mitigants of risk.Banks should be able to explain anydifferences between their own assessmentof capital needs and targets under the ICAAPand the minimum regulatory capitalrequirements prescribed under theFramework.4. The dialogue should embrace thefollowing four main elements:a. Element 1: Risks covered underthe Framework (i.e., credit risk, marketrisk, and operational risk);b. Element 2: Risks not fully coveredunder the Framework (for example, creditconcentration risk, risk posed by nonperformingassets, risk posed by contingentexposures, etc.);c. Element 3: Risks not covered underthe Framework (other risks identified underCircular No. 510 dated 3 February 2006);andd. Element 4: External factors, whichinclude risks which may arise from theregulatory, economic or businessenvironment.5. Aside from these four mainelements, the dialogue should also coverthe quality of internal governance of banks,including risk controls, compliance andinternal audit, as well as operational andorganizational structure.6. For the SRP to be effective, the BSPwill need to develop a sufficiently thoroughunderstanding of how the ICAAP isdetermined and the differences between itand the minimum regulatory capitalrequirement under the Framework. Thiswould help in evaluating the ICAAPoutcome. The SRP emphasizes theimportance of analyzing the main elements,and understanding the differences betweenICAAP assumptions and minimumregulatory capital requirement assumptions.7. Once the process has begun, thedialogue will provide the opportunity foriteration between the ICAAP and SRP, witheach informing the other, i.e., banks maymake changes to the ICAAP in the courseof the dialogue, in response to challengeand feedback from the BSP, and vice versa.Following the dialogue, the BSP will reachan assessment.D. Guidelines on prudential measures1. If the BSP considers that a bank’sICAAP does not adequately reflect its overallQ Regulations Manual of Regulations for Non-Bank Financial InstitutionsAppendix Q-53 - Page 2