Message of Atty. Wilfredo B. Domo-ong during the Joint Confederation of Northern Luzon Rural Banks

November 3-5, 2004
Baguio Country Club, Baguio City

INTRODUCTION

The BSP is committed to continue fostering an efficient, stable and competitive banking system that supports the sustainable growth of the economy. As intermediaries of funds in the countryside, the rural banking system plays a significant role as a transmission channel of monetary policy directions.

For these reasons, the BSP continues to institute regulatory reforms that affect the rural banking systme more particularly on good corporate governance.

RECENT ISSUANCES OF POLICIES TO STRENGTHEN CORPORATE GOVERNANCE

Amendments to regulations governing disqualification and watchlisting procedures. The MB approved the amendments to regulations governing disqualification of an institution's director/officer or employee from being elected/appointed as director/officer in any financial institution under the supervision of the BSP and their inclusion in the BSP Watchlist Files. Under the new guidelines, it is the responsibility of the board of directors and management for determining the existence and groudn for disqualification of director/officer and for reporting the same to BSP. The director or officer concerned shall be notified of the existence of the ground for his/her disqualification before the case is elevated to the Monetary Board, thus giving the concrened person the opportunity to defend himself and submit evidence in support of his position. (Circular No. 421 dated 8 March 2004)

Grounds for disqualification of officers/directors

  • Persons who have been convicted judicially or administratively of an offense involving moral turpitude or judicially declared insolvent, spendthrift, or incapacitated to contract;
  • Persons who have been disqualified by the MB;
  • Persons who shall refuse to disclose the extent of their business interest to the appropriate supervising and examining department of the BSP when required for the proper implementation of a provision of law or of a circular, memorandum or rule or regulation of the BSP. This disqualification shall be in effect as long as the refusal persist;
  • Directors who have been absent for whatever reasons for more than 50% of the regular meetings of the board of directors during their incumbency. This disqualification shall apply for purposes of the immediately succeeding election; and,
  • Those who are delinquent in the payment of their obligation.


Amendments to rules on interlocking officerships. The BSP revised the rules on interlocking officerships between banks or between a bank and non-bank financial intermediary to reflect that (1) as a general rule, there shall be no concurrent officerships and (2) the positions of President, Chief Executive Officer, Chief Operating Officer and Chief Financial Officer or their equivalent may not be held concurrently. Circular Nos. 434 and 456 dated 18 May 2004 and 4 October 2004,effective 1 January 2005)

Audit Committee. The committee provides oversight of the institution's internal and external auditors. It shall be responsible for the setting-up of the internal audit department and for the appointment of the internal auditor as well as the independent external auditor. It shall monitor and evaluate the adequacy and effectiveness of the internal control system.

Corporate Governance Committee. The committee shall assist the board of directors in fulfilling its corporate governance responsibilities. It shall review and evaluate the qualifications of all persons nominated to the board as well as those nominated to other positions requiring appointment by the board of directors. It shall oversee the periodic performance evaluation of the board and its committees and executive management; and shall aslo conduct and annual self-evaluation of its performance.

Risk Management Committee. The committee shall be responsible for the development and oversight of the bank's risk management program. It shall ovrsee the system of limits to discretionary authority that the board delegates to management, ensure that the system remains effective, that the limits are observed and that immediate corrective actions are taken whenever limits are breached. The core responsibility of the risk management committee are: (1) identify and evaluate exposures; (2) develop risk management strategies; (3) implement the risk management plan; and (4) review and revise the plan as needed.

The composition, qualifications and other requisites of each of the foregoing committees are presented as Exhibit I.

FUTURE THRUSTS

As part of financial reforms, the BSP will continue to promote corporate governance and market discipline. Toward this end, the development and implementation of a system of corporate governance standards for financial institutions as well as the promotion of compliance with international initiatives. Also int he pipeline are the passage of amendments to the corporation code; creation of a corporate governance standards committee; establishment of monitoring mechanisms on compliance with such prescribed corporate governance standards.

EXHIBIT I





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