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Recognition Of International Rating Agencies for Bank Supervisory Purposes

01.21.2005

As a further step supporting the accelerated development of the domestic capital market, the Monetary Board, the policy-making body of the Bangko Sentral ng Pilipinas (BSP), decided to recognize, for bank supervisory purposes, the national ratings to be issued by international credit rating agencies (CRAs). National ratings are ratings that are only applicable within the Philippines that give an assessment of the relative strength of domestic issuers against the National Government which is treated as the highest credit quality (AAA) for this purpose. Unlike international ratings, national ratings are not subject to the sovereign ceiling imposed by the current international rating of the Republic of the Philippines.

Currently, only international rating issued by the international rating agencies Standard and Poor’s, Moody’s, and Fitch are recognized by BSP. For their national ratings to be also recognized under the new policy, these international rating agencies may apply with the BSP. As a minimum, the BSP will require international rating agencies to set-up a local representative office.

It may be recalled that on 19 September 2003, the BSP issued Circular No. 404 in answer to the introduction in the financial market of new and innovative products that create increasing demand for and reliance on CRAs by the industry players and regulators as well. In a move to ensure that reliance on these CRAs is not misplaced, the BSP laid down the guidelines for its recognition and de-recognition of domestic CRAs for bank supervisory purposes. Under the said guidelines, only ratings issued by CRAs recognized by the BSP shall be considered for bank supervisory purposes, such as in determining appropriate risk weights to ascertain compliance with existing rules and regulations on risk-based capital requirements, among others. So far, only PhilRatings has been recognized by the BSP as a domestic CRA for bank supervisory purposes.

“The potential entry of international rating agencies in the rating of domestic issues will help fulfill a major need of our domestic capital market especially with the imminent implementation of the Asset Securitization Law and the launching of the Fixed Income Exchange. Our investors need guidance on the quality of debt securities that are being issued to enable them to make sound judgments. Healthy competition in the ratings business is also good so that quality and pricing of ratings will also improve,” BSP Governor Rafael B. Buenaventura said.

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