Bank outsourcing rules revised

By Prinz P. Matulis, The Philippine Star

Posted at Aug 14 2012 07:29 AM | Updated as of Aug 14 2012 03:29 PM

MANILA, Philippines - Monetary authorities have revised rules on outsourcing for banks, stressing that local lenders need to be responsible on risks that accompany such undertaking.

Bangko Sentral ng Pilipinas (BSP) Gov.Amando Tetangco Jr. said the new circular moves away from specifying what activities are allowed to be outsourced to listing those that are not allowed to.

“The new circular is designed to simplify and at the same time strengthen their implementation by avoiding the use of a positive list of activities that can be outsourced… to improve the regulatory environment,” Tetangco said.

Just like other firms, banks may outsource some of its functions, just like marketing and promotion, in order to save costs from establishing full operations abroad.

The new circular, however, prohibits companies abroad contracted by local banks from accepting deposits and withdrawals on the banks’ behalf as well as grant loans and other forms of credit and make management decisions such as position-taking, market risk-taking and “strategic decision-making.”

A statement issued yesterday said the new circular “adopts a more thematic approach” that recognizes that an enumeration of activities to be contracted out is “unlikely to keep abreast of evolving market needs.”

“However, it also requires banks to manifest their capacity to handle all the risks that arise from outsourcing while continuing to mandate that all pertinent laws must be followed,” it added.

The circular said banks which have at least a Camels composite rating of “3” may enter into outsourcing arrangements without prior BSP approval, otherwise regulators would first need to approve such contracts.

Camels pertains to capital, asset, management, earnings, liquidity and sensitivity to market risk, which is a measure of banks’ financial strength.

The revised outsourcing framework is in line with world’s best practices, the statement said.