BSP tightens regulations on bank lending

The Bangko Sentral ng Pilipinas (BSP) recently approved the adoption of a minimum leverage ratio requirement for universal banks (UBs), commercial banks (KBs) and their subsidiary banks, and quasi-banks (QBs) beginning July 1.

In a statement, the BSP said the involved institutions must maintain a leverage ratio of not lower than five percent starting the second half.

“With the Monetary Board’s recent decision, the leverage ratio will form part of the Basel III minimum capital requirements, along with the six percent Common Equity Tier 1 (CET1) ratio, 7.5 percent Tier 1 Ratio and the 10 percent CAR (capital adequacy ratio),” the BSP said.

The leverage ratio is a non-risk based measure, which serves as a backstop to the CAR, according to the BSP.

“It is designed to constrain the potential build-up of leverage in the banking industry and to promote the stability of the financial system,” it said.

It added the leverage ratio follows a simpler and nonrisk weighted calculation compared with the CET 1, Tier 1, and CAR computation.

“It generally uses the reported amounts of accounts on the balance sheet, as well as off-balance sheet items, including derivatives and securities financing transactions. This complements the other Basel III capital requirements, which compare the level of capital to risk-weighted exposures” the BSP said.

The central bank advised UBs, KBs and QBs to assess their compliance with the new framework and implement measures to meet the requirement until the end of June 2018.

Upon effectivity of the new policy, the BSP said covered financial institutions must submit the Basel III leverage ratio report, together with the Basel III CAR report quarterly on both solo and consolidated bases.

They are also required to disclose their leverage ratio in their published balance sheets and annual reports.

The leverage ratio framework is part of the Basel III reform agenda of the Basel Committee on Banking Supervision, which aims to address the weaknesses in the regulatory framework revealed by the global financial crisis.

The central bank introduced a leverage ratio framework in 2015 under Circular 881 with the implementation limited to monitoring purposes.