BSP tightens standards for savings, loan associations
THE CENTRAL BANK is tightening rules covering non-stock savings and loan associations (NSSLAs) by capping service fees and requiring risk management protocols to enhance oversight.
The Bangko Sentral ng Pilipinas (BSP) issued Circulars 1013 and 1016 to raise the standards on NSSLAs, with the regulator seeing the need to elevate standards to “promote the safety and soundness” of these groups’ operations.
NSSLAs collect the savings of its members and provide longterm financing for home development and personal loans. This is usually formed by employees and officers in one country, government employees in one agency including member-retirees, and immediate family members.
These firms will soon be subject to stricter standards similar to those imposed on banks.
“The compliance risk management system shall be designed to specifically identify and mitigate risks that may erode the franchise value of the NSSLA, such as risk of legal or regulatory sanctions, material financial loss, or loss to reputation, an NSSLA may suffer as a result of its failure to comply with laws, rules and regulations, and codes of conduct applicable to its activities,” the issuance read.
In particular, an NSSLA must designate a chief compliance officer to ensure that their operations meet provisions of relevant laws and BSP issuances. The officer shall regularly report to the board of directors and police potential risks that may result in possible regulatory sanctions as well as reputational or financial losses.
Circular 1013 issued by BSP Governor Nestor A. Espenilla, Jr. last month also prescribes additional rules that which set minimum standards on the “judicious utilization of credit,” in order to “maximize the protection of members of NSSLAs.”
The measure specifically prohibits charging steep service fees as well as the non-disclosure of borrowing costs for financial services.
“For this purpose, service fee is considered unreasonably high if the service fee rate exceeds fifty percent of the annual nominal interest rate charged on a loan,” the BSP said.
Other unfair practices include recognizing unused insurance premiums as income, limiting capital contributions or concentrating control to family and relatives, granting unauthorized salaries, and handing out new or additional loans with poor credit history, among others.
The central bank has been tightening rules on non-bank firms as they seek to tighten its watch on the financial sector, as they seek a stronger hold on parallel markets.