BSP: Philip­pine banks ready for stricter global stan­dards

Business World - - Front Page - By Melissa Luz T. Lopez Se­nior Re­porter

BANKS in the coun­try are more than ready to com­ply with global stan­dards on cap­i­tal and liq­uid­ity buf­fers due in Jan­uary, a cen­tral bank of­fi­cial said, with lat­est data show­ing they are well above the re­quired lev­els.

Uni­ver­sal and com­mer­cial banks have more than enough funds to meet the re­quire­ments un­der the Basel III frame­work, Bangko Sen­tral ng Pilip­inas (BSP) Deputy Gov­er­nor Chuchi G. Fonacier said, months be­fore these are im­posed on Jan. 1, 2019.

“… [L]ocal lenders can com­ply with the in­ter­na­tional stan­dards, not only of the Basel ac­cord, but other stan­dards set forth by in­ter­na­tional stan­dard set­ting bod­ies. The Philip­pine bank­ing sys­tem’s rel­a­tive po­si­tion of strength also en­ables it to fully com­ply with in­ter­na­tional stan­dards,” Ms. Fonacier said in a re­cent e-mailed re­sponse to queries.

“Based on our mon­i­tor­ing of the BSP’s roll out of the Basel III re­forms, we have noted ex­cess com­pli­ance with the min­i­mum stan­dard re­quire­ments in gen­eral.”

All four stan­dards — the risk-based cap­i­tal ad­e­quacy ra­tio (CAR), com­mon eq­uity tier (CET) 1 ra­tio, lever­age ra­tio frame­work, and liq­uid­ity cov­er­age ra­tio (LCR) — are well above the min­i­mum lev­els set by Basel III.

“Most of the big banks have un­der­gone a series of cap­i­tal rais­ing as early as last year and this year,” Ed­win R. Bautista, pres­i­dent and chief ex­ec­u­tive of­fi­cer of the Union Bank of the Philip­pines, replied when sought for com­ment.

Banks in the coun­try have em­barked on fund-rais­ing this year to raise fresh cap­i­tal in an­tic­i­pa­tion of the im­ple­men­ta­tion of the Basel III re­quire­ments as well as to sup­port busi­ness growth.

“As of June 2018, most of the top 10 pub­licly listed banks’ CAR… and CET1 ra­tio re­main well above reg­u­la­tory min­i­mum. CAR… of listed banks range from 13% to 18%, while

CET1 range from 11% to 16%,” Mr. Bautista noted.

“Hence, there is suf­fi­cient buf­fer over the reg­u­la­tory min­i­mum even if the full HLA (higher loss ab­sorbency) is im­ple­mented for those clas­si­fied as ‘too-big-to-fail’ banks.”

The in­ter­na­tional Basel III frame­work is a set of pru­den­tial mea­sures de­signed to im­prove risk man­age­ment among banks.

Such mea­sures are meant to help guar­an­tee that banks will not fold in the face of ex­ces­sive fi­nan­cial stress, draw­ing lessons from the 2008 Global Fi­nan­cial Cri­sis.

Lat­est avail­able data show that big banks main­tained a risk-based CAR of 15.87% as of end-June, which is sub­stan­tially higher than the 10% re­quire­ment set by the cen­tral bank since 2014.

The CET 1 ra­tio, which fo­cuses on high-qual­ity cap­i­tal buf­fers, stood at 14.2% ver­sus the six per­cent min­i­mum.

The lever­age ra­tio — which checks “ex­ces­sive” ac­cu­mu­la­tion of as­sets by lim­it­ing banks’ loan ex­po­sure — amounted to 9.59% of banks’ to­tal funds as of June ver­sus the five per­cent stan­dard that took ef­fect in July.

Banks in the coun­try are also pre­pared to adopt the LCR, which re­quires big banks to hold high-qual­ity, read­ily con­vert­ible as­sets to cover net cash out­flows for a 30-day pe­riod. Lenders had al­ready set aside buf­fers equiv­a­lent to 164.44% of their pro­jected needs as of June, which is well above the 90% cov­er­age pre­scribed this year and the 100% set for 2019.

Philip­pine banks are “gen­er­ally com­pa­ra­ble” with re­gional and global peers in terms of Basel III com­pli­ance, Ms. Fonacier said, not­ing that com­pli­ance in the coun­try has been gen­er­ally within the mid­dle of the pack ver­sus other bank­ing sys­tems.

“In view of Philip­pine banks’ fo­cus on do­mes­tic mar­ket, their com­pet­i­tive ad­van­tage lies not only in their abil­ity to com­ply with the Basel re­forms but also in their fa­mil­iar­ity with the mar­ket and es­tab­lished re­la­tion­ships with their clients,” the cen­tral bank of­fi­cial added.

“Ex­po­sure to ex­ter­nal shocks are man­age­able.”

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