A motorcycle pases a building of the Bangko Sentral ng Pilipinas in Manila, April 28, 2016. — REUTERS/Romeo Ranoco/File Photo

Philippine lenders should be on guard against any “reputational risks” that could potentially impact their financial standing and affect stakeholder confidence, the Bangko Sentral ng Pilipinas (BSP) said on Friday.

In a statement, the central bank said all BSP-supervised financial institutions (BSFIs) will be required to report within five calendar days from determining any incident affecting its reputation. This includes any issues raised on social media platforms that may affect its stakeholders and “lead to a full-blown crisis if not responded to in a timely and effective manner,” the BSP added.

The Monetary Board approved guidelines on reputational risk management, outlining the supervisory requirements for BSFIs on “identification, assessment, and management of reputational risks that are commensurate to their size, nature, and complexity of operations, overall risk profile, and systemic importance.”

“As the financial sector continues to evolve and face challenges arising from digital disruption and stiffer competition, financial institutions must be increasingly sensitive to, and vigilant in addressing potentially more damaging reputation events,” BSP Governor Benjamin E. Diokno said in a statement.

Mr. Diokno noted that if these reputational threats are not managed properly, these may lead to “financial losses, negative publicity, and loss of stakeholder confidence, any of which could have a lasting debilitating impact on the institution.”

Separately, BSP Deputy Governor Chuchi G. Fonacier said banks can decide on the tools they will use for monitoring reputational risks.

“We leave it to the banks to develop their own way of assessing or gauging their reputational risk exposure,” Ms. Fonacier said in a text message.

Financial institutions are free to retain existing measures or to apply new tools to identify and assess reputational risks relevant to their business and industry.

“For us in the BSP, we assess this along with the other risks such as credit, market, liquidity and operational risk. All of these assessments will feed into the SAFr (Supervisory Assessment Framework),” she added.

The SAFr is a bank rating system adopted by the BSP since January which links the systemic importance and risk profile of a financial institution to the formulation of respective supervisory plans for each of them.

The central bank will give BSP-supervised institutions a year to fully comply with the guidelines on reputational risk management.

“In cases of operational risk events, major cyber-related incidents and/or disruption of financial services and operations, or liquidity shortfall, BSP-supervised financial institutions shall comply with the notification/reporting requirements prescribed under existing regulations,” the central bank said.

Circular No. 112 was also released by the BSP on Thursday, which tightened know-your employee processes for banks through stricter hiring process and performance management. This requires banks to use BSP records to screen applicants and also laid down red flags on bankers’ behaviors and records.

Last year, the central bank disqualified two bank employees from working in the industry – one from BDO Unibank, Inc. and another from the Bank of the Philippine Islands – after the two were found to be involved in issuing fake documents in relation to the $2.1-billion Wirecard scandal. — Luz Wendy T. Noble