Question & AnswerQ&A (BSP CIRCULAR NO. 439)
The primary policy objective is to ensure that banks' credit risk management processes are sound and effective through proper development and implementation of internal credit risk rating systems.
The Circular applies to all universal and commercial banks operating in the Philippines.
Initially, the system must cover corporate credit exposures, defined as exposures to companies with assets of more than P15 million.
The bank's internal credit risk rating system must be duly approved by the board of directors or an equivalent management committee for Philippine branches of foreign banks.
The board must exercise appropriate and consistent oversight over the internal credit risk rating system.
It must be operationally integrated into the bank’s internal credit risk management process, becoming an integral part of evaluating and reviewing prospective and existing exposures.
Credit underwriting criteria should become progressively more conservative as credit ratings decline.
Yes, banks must have an independent credit risk control function responsible for designing, implementing, and monitoring the performance of the rating systems, independent from the originating business functions.
Banks must fully document coverage, rating criteria, responsibilities in the rating process, exceptions, approval authorities, frequency of reviews, and oversight mechanisms, including rationale and analyses demonstrating meaningful risk differentiation.
A minimum of 6 rating grades for unclassified accounts and 4 rating grades for classified accounts.
The rating criteria must include leverage and cash flow standards, alongside qualitative factors.
A monetary penalty of ten thousand pesos (P10,000) per banking day delay is imposed until submission.
It must be submitted not later than December 31, 2004.
Only financial statements audited by SEC-accredited external auditors should be used.
They must include both a borrower dimension focusing on credit quality and a facility dimension focusing on security/collateral and risk factors of each transaction.
Audits must review the system and credit risk control function operations at least annually.
Banks must report at least annually or more frequently on portfolio quality, including portfolio breakdown by credit grade, segment analysis, and realized default rates against expectations.
All prospective and existing corporate accounts must immediately be evaluated and monitored according to the new rating system.
Fifteen (15) days after its publication in the Official Gazette or a newspaper of general circulation.