Basel 3 implementation on track
THE BANGKO SENTRAL ng Pilipinas (BSP) is broadly on track with adopting banking reforms under the Basel 3 framework, a senior central bank official said, but noted that the full implementation could be pushed back beyond 2019 as market players prepare for such major changes.
BSP Deputy Governor Nestor A. Espenilla, Jr. said the central bank is on course in implementing tighter rules for risk management as prescribed by international regulators, but said such reforms could be spaced out to give local banks ample time to adjust.
“On the question of whether we are on track, the answer is yes. But instead of laying out everything, we have deliberately broken down the reform agenda into a sequence of initiatives while stating clearly the overall policy direction,” Mr. Espenilla said in an e-mail interview.
The Basel 3 regime was crafted by international policy makers to prevent a repeat of the 2008 global financial crisis. Adoption is voluntary and may be done gradually, provided that all standards are met by big banks by Jan. 1, 2019.
However, Mr. Espenilla said the full rollout of some Basel standards here could be pushed back beyond the 2019 target, in order to allow local players to position themselves before the stricter rules apply.
“We are likewise conscious of the need to calibrate the reforms to local conditions. We certainly support the reform initiatives being espoused but there may instances where some reform components are better scheduled for a later date. This will be a continuing review of the sequence of reforms and it is not unconceivable that some of these may be targeted beyond 2019,” Mr. Espenilla added.
“This is particularly true for infrastructure related reforms since this will require a certain level of scale to make the reforms practical.”
The BSP has introduced a string of reforms imposed on its supervised entities starting in 2014, with the 10% capital adequacy ratio for big banks, which is higher than the Basel committee’s 8% standard. Other standards introduced were the 5% leverage ratio and the identification of domestic systemically important banks.
In March last year, the BSP announced the “phased- in” implementation of the liquidity coverage ratio, which mandates big banks to hold high-quality and easily convertible assets to cover its total net cash outflows for a 30-day period. Full compliance is expected by Jan. 1, 2018.
On the other hand, the BSP also pushed back its targeted rollout for the net stable funding ratio to next year, which will require lenders to hold enough liquidity to pay for obligations over a oneyear period. Other reforms being drafted include the counter-party risk framework, guidelines on derivatives, and a minimum liquidity ratio for smaller and quasibanks, to name a few.