MANILA, Philippines - The Bangko Sentral ng Pilipinas (BSP) is convinced that banks operating in the Philippines are well equipped to comply with the tighter capitalization requirement under Basel III.
BSP Governor Amando M.Tetangco Jr. said the bank regulator is optimistic that universal and commercial banks are prepared with the tighter capitalization requirement even if it is implemented four years ahead of the 2018 schedule under the Basel III.
“As a general view using industry-wide numbers, we do not anticipate any significant adjustment cost from universal and commercial banks,” Tetangco stressed.
Latest BSP data showed that the capital adequacy ratio (CAR) of the banking system remained healthy at 16.48 percent on a solo basis and 17.39 percent on a consolidated basis as of end-March last year from the revised end-December 2010 level of 15.99 percent and 16.93 percent, respectively despite the tensions in the Middle East and North African (MENA) states as well as the sovereign debt crisis in Europe.
Data released by the BSP showed the CAR of universal and commercial banks improved to 16.42 percent as of end-March last year from 16.23 percent as of end-December 2010 on a solo basis and to 17.42 percent from 17.27 percent on a consolidated basis.
The BSP has previously set its Basel implementation standard higher than the international norm with a CAR of 10 percent versus the international norm of eight percent.
By adopting the capital adequacy standards by January 2014, the BSP effectively accelerates the implementation of the Basel III Accord for universal and commercial banks including their subsidiary banks and quasi-banks.
Basel III introduces a complex package of reforms designed to improve the ability of bank capital to absorb losses, extend the coverage of financial risks and have stronger firewalls against periods of stress.
The Basel Committee on Banking Supervision outlined a staggered implementation of Basel III stretching through the end of 2018 to allow internationally-active banks time to raise capital organically.
The BSP is convinced that the higher CAR of 12.5 percent starting Jan 2014 from the current level of 10 percent would not be difficult to achieve for universal and commercial banks.
“Consolidated CAR values are between 15 percent and 16 percent at present and so moving regulatory (minimum) CAR from 10 percent to 12.5 percent should not require any massive adjustment,” the BSP chief explained.
The BSP has issued Memorandum 2012-02 containing the implementation plans for Basel III standards on minimum capital requirement approved by the Monetary Board last Jan 5.
The proposed roadmap contains the captal adequacy standards under the Basel III that would be imposed on universal and commercial banks starting January 2014.
“At a strategic level, we believe that setting the implementation date earlier than the one set by the Bank for International Settlements will eliminate the uncertainties that come with a very long transition period,” he added.
According to him, the timeline under the Basel III was adopted to give internationally active banks affected by the global financial crisis from 2007 to 2009 close to eight years to build up their capital.
In contrast, Tetangco said Philippine banks expanded their balance sheets throughout the 2007 to 2008 crisis and continued to expand today.
“Waiting seven more years to effect the capital adequacy standards of Basel 3 only creates uncertainties since so much more uncontrolled market conditions may occur,” he clarified. - By Lawrence Agcaoili
