POWERS OF

THE BANGKO
SENTRAL
Lesson 2
 Learning Outcomes
At the end of the discussion, students will be able
to:
• Determine the Powers of the Bangko Sentral.
• Appreciate the roles of the BSP over banks.

This Photo by Unknown Author is licensed under CC BY-NC-ND

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 Power of the Bangko Sentral to Examine Banks

Examination by the BSP

• The term “examination” shall refer to an investigation of an institution under the
supervisory authority of the Bangko Sentral to determine whether the institution is
operating on a safe and sound basis, inquire into its solvency and liquidity, and assess
the effectiveness of its compliance function to ascertain that it is conducting business in
accordance with laws and regulations.

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 Power of the Bangko Sentral to Examine Banks

• Regular or periodic
examination shall be done
once a year, with an interval
of twelve (12) months from
the last date thereof.
• Special examination may
be conducted earlier, or at
a shorter interval, when
authorized by the
Monetary Board (MB) by
an affirmative vote of five
(5) members.
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In the full exercise of the supervisory powers of the Bangko
Sentral, examination by the Bangko Sentral of institutions
shall be complemented by overseeing thereof.

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Power of the Bangko Sentral
to “Oversee” banks
• the term “overseeing” shall refer to a limited investigation
of an institution, or any investigation that is limited in
scope, conducted to inquire into a particular area/aspect of
an institution’s operations, for the purpose of overseeing
that laws and regulations are complied with, inquiring into This Photo by Unknown Author is licensed under CC
BY-NC-ND

the solvency and liquidity of the institution, enforcing

prompt corrective action, or such other matters requiring
immediate investigation: Provided, That (i) specific
authorizations be issued by the Deputy Governor, Supervision
and Examination Sector (SES), and (ii) periodic summary
reports on overseeings conducted be submitted to the
Monetary Board.
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a. Scope of Examination
1. Appraisal of the overall quality of
corporate governance;

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a. Scope of Examination
2. Assessment of risk management system, which shall
include the evaluation of the effectiveness of
management oversight and self-assessment functions
(e.g. internal audit, risk management and compliance),
adequacy of policies, procedures, and limits,
effectiveness of risk measurement, monitoring and
management information system, and robustness of
internal control;

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a. Scope of Examination
3. Review of the institution’s operations and overall
risk profile;

4. Evaluation of financial performance, capital

adequacy, asset quality and liquidity; and

5. Any other activity relevant to the above.

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b. Conduct of Examination
The conduct of examination shall include, but need not
be limited to,
• the interview of any bank’s directors, officers and
personnel;
• the verification, review and evaluation of documents
and records, including making copies of the records,
taking possession thereof and keeping them under the
custody of the Bangko Sentral after giving proper
receipts thereof.

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Definition of Term “Records”
For this purpose, “records” shall refer to information,
whether in its original form or otherwise, including
documents, signatures, seals, texts, images, sounds,
speeches, or data compiled, recorded or stored, as the case
may be:
(1)in written form on any material;
(2)on film, negative, tape or other medium so as to be
capable of being reproduced; or
(3)by means of any recording device or process, computer or
other electronic device or process; and regardless of
whether these information are stored and kept by the
Bangko Sentral supervised Financial Institution (BSFI) or
another entity duly authorized by the BSFI (e.g.,
technology service provider).
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Definition of Term “Records”
Records shall also include audio, photographic,
and video evidence of events, acts, or transactions
of the BSFI, including all records of
communication, oral (e.g., voice recordings) or
written (e.g., letters) of officers and employees of
the BSFI: Provided, That the recording was made
in connection with the performance of the official
functions of the concerned officers or employees
and coursed through BSFI-issued computers,
telephones, mobile phones, and similar devices.

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Refusal to Permit Examination
• Any act or omission that impedes, delays or
obstructs the duly authorized Bangko Sentral
examiner from conducting an examination of a
BSFI, including the act of refusing to accept or
honor the letter of authority to examine
presented by the examiner of the Bangko
Sentral, shall be considered as a refusal to
permit examination.

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Refusal to Permit Examination
• The refusal of the BSFI to permit examination shall be
reported by the Bangko Sentral examiner to the Head
of the appropriate department of the SES, who shall
forthwith make a written demand upon the BSFI
concerned for such examination.
• If the BSFI continues to refuse the said examination
without any satisfactory explanation thereof, a report
on such refusal shall be submitted by the Bangko
Sentral examiner concerned to the said Department
Head.

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Sanctions.
• A bank that willfully refuses to permit examination shall
pay a fine of P30,000 per day from the day of the refusal
and for as long as such refusal lasts, without prejudice
to the sanctions under Section 34 of R.A. No. 7653
• The fine shall be imposed starting on the day following
the receipt by the concerned Head of Department in
the SES of the report from the Bangko Sentral examiner
that the bank continues to refuse to permit examination
notwithstanding the written demand made by the
Department Head.

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Supervisory Enforcement Policy
• The Policy sets forth guidance on the Bangko Sentral’s
supervision-by-risk framework. It also puts together in a
holistic manner all the enforcement tools available to
the Bangko Sentral as contained in various laws and
rules and regulations and communicates the
deployment thereof in a consistent manner by the
Bangko Sentral in the course of performing its
supervisory function.

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 a. Statement of policy and rationale
• The Bangko Sentral is issuing this Supervisory
Enforcement Policy to provide guidance on its
supervision-by risk framework.
• The Bangko Sentral recognizes that risk-taking is integral
to a financial institution’s business. The existence of risk
is not necessarily a reason for concern so long as
Management exhibits the ability to effectively manage
that level of risk and operates the financial institution
(FI) in a safe and sound manner.

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 a. Statement of policy and rationale
• Thus, when risk is not properly managed,the
Bangko Sentral may deploy a wide range of
enforcement actions provided under existing
laws, Bangko Sentral rules and regulations,
taking into consideration the nature and extent
of the supervisory issues and concerns and the
level of cooperation provided by Management.

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 a. Statement of policy and rationale
• The Bangko Sentral adopts a holistic approach
to supervision with the objective of guiding FIs
under its supervision to mitigate risk and
achieve the desired changes.

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 a. Statement of policy and rationale
• Bangko Sentral’s risk-based supervision, of
which enforcement action is a key part,
focuses on the safety and soundness of
operations of the FIs.
• This policy sets forth the expectations of the
Bangko Sentral when it deploys enforcement
action and the consequences when expected
actions are not performed within prescribed
timelines.

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The Implementation of the
Policy is required:
(1) as a collation of various enforcement actions
already present in various laws, rules and
regulations;
(2) for better guidance of the FIs and the bank
supervisors; and
(3) as a means to broadcast to the
banking/financial industry the consequences of
failure to address the Bangko Sentral requirements
and supervisory expectations.

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 b. Objectives of the Enforcement
Policy
The Bangko Sentral’s Supervisory Enforcement Policy aims
to achieve the following two (2) key objectives:
(1) Achieving the desired change. Effect a change in the
overall condition and governance of Bangko
Sentralsupervised FIs consistent with the expectations
set under relevant laws and regulations; and
(2) Mitigating risk. Mitigate risks to the FIs and other
stakeholders in order to maintain the stability of the
financial system.

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c. General Principles
The Bangko Sentral, in the deployment of enforcement
actions, is guided by the following general principles:
(1) Root cause diagnosis. The enforcement action
addresses the underlying cause of the supervisory
issues and concerns.
(2) Consistently matching the severity of enforcement
action to the supervisory issue. The deployment of
appropriate enforcement action is commensurate
with the severity of the supervisory issues and
concerns. The severity of the supervisory issues and
concerns is assessed in terms of prevalence and
persistence.
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c. General Principles
(3) Successive or simultaneous
deployment of enforcement actions.
Enforcement actions may be deployed
successively or simultaneously taking
into account the nature and seriousness
of the difficulties encountered by the FIs
and the ability and willingness of the FI’s
Management to address the supervisory
issues and concerns.
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c. General Principles
(4) Monitorability and follow-through. The Bangko
Sentral monitors the FI’s progress/compliance with
the expected actions to address the supervisory
issues, concerns and problems.
(5) Escalation of enforcement actions. Enforcement
actions may be escalated if the desired change is not
achieved and the root causes of the FI’s issues,
concerns and problems are not addressed by the FI
within prescribed timelines.

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d. Categories of Enforcement Actions

The three (3) main categories of

enforcement action are: (1) corrective
actions, (2) sanctions and (3) other
supervisory actions. These enforcement
actions may be imposed singly or in
combination with others.

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1) Corrective actions
Corrective actions are enforcement actions
intended to require the FI to address the underlying
cause of supervisory issues, concerns and problems.
These include the following:
a) Bangko Sentral directives
Directives are basically orders and instructions
communicated by the appropriate supervising
department in Bangko Sentral requiring the FI to
undertake a specific positive action or refrain from
performing a particular activity within a prescribed
timeline.

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(b) Letter of Commitment (LOC)

The LOC is an enforcement action where the FI’s Board

of Directors (Board) is required, upon approval and/or
confirmation by the MB, to make a written
commitment to undertake a specific positive action or
refrain from performing a particular activity with a
given time period.

The LOC is generally used to arrest emerging

supervisory concerns before these develop into
serious weaknesses or problems, or to address
remaining supervisory issues and concerns.
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(2) Sanctions
Sanctions that may be imposed on an FI and/or its directors and
officers, as provided under existing laws, Bangko Sentral rules
and regulations, are subject to the prior approval and/or
confirmation by the MB. Such sanctions include the following:
(a) FI’s
(i) Restrictions on activities and privileges
(ii) Suspension of authorities, privileges and other activities
(iii) Divestment and/or unwinding
(iv) Monetary sanction - penalties/fines against the FI

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(b) Directors and officers
(i) Reprimand
(ii)Restriction on compensation
and benefits
(iii)Divestment
(iv)Suspension
(v)Disqualification
(vi)Removal
(vii)Monetary penalties/fines

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(3) Other supervisory actions subject to prior
MB approval, the Bangko Sentral, when
warranted, may deploy other supervisory
actions such as:
(a) Initiation into the PCA
Framework;
(b) Issuance of a cease and desist
order (CDO) against the FI as well as
against its directors and officers;
(c) Conservatorship;
(d) Placement under receivership

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e. Due Process
• An integral part of the deployment of enforcement
actions is the observance of due process in all cases
• The FI and/or its directors and officers are afforded
fair and reasonable opportunity to explain their side
and to submit evidences in support thereof, which
are given due consideration in determining the
appropriate enforcement action(s) to be imposed.

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