BSP reviewing comments on capital hike plan

MANILA, Philippines - The Bangko Sentral ng Pilipinas said it now reviewing comments from the industry on its proposal to increase banks’ capital requirements.

 “Banks’ minimum capitalization requirement is currently under study for possible increase. It has been long while since the last change especially for UKBs (universal and commercial banks),” BSP Deputy Governor Nestor A. Espenilla, Jr. said in a text message.

 “We are now evaluating industry comments to our initial proposal. However, it’s premature to discuss the specifics at this point pending MB (Monetary Board) consideration,” Espenilla said.

The central bank in October last year has announced its plan to revise the minimum capital requirements of banks. The BSP said then that the figure may be adjusted to ensure that the risk exposures taken by banks are equal to the structure of their balance sheets.

Maybank ATR Kim Eng, in a research note yesterday, said the proposed minimum capital requirement for banks may be four times more than the current level.

For universal banks, the minimum capital may be raised to P20 billion from P4.95 billion, while commercial banks may be required to keep a capital of P10 billion from the current level of P2.4 billion, Maybank ATR Kim Eng said.

Thrift banks, whose capital requirements depend on the location of their head offices, may need to keep a P2-billion capital. Thrift banks in Metro Manila currently have a minimum capital requirement of P325 million, while those in other areas have P52 million.

“Along with greater competition coming from the recently approved law allowing up to 100 percent ownership by foreign banks and the upcoming ASEAN integration, the need for more capital will intensify industry consolidation,” Katherine Tan and Arabelle Maghirang, analysts at Maybank ATR Kim Eng, said.

The analysts said that of the 21 universal and 15 commercial banks, three non-listed lenders might need to raise capital to comply with the new measure. Meanwhile, for the 69 thrift banks, Tan and Maghirang said about 51 will not be able to meet the new conditions based on their reported capital as of the first quarter.

BSP Governor Amando M. Tetangco Jr., in a speech delivered Tuesday night, said the position of strength enjoyed by the banking industry is a byproduct of calibrated reforms through the years.

However, he stressed that this “strength” is not absolute, thus should be sustained through continuous reforms.

 “Bank capital – the very core of banking supervision principles – must always have the capacity to absorb losses from risk taking behavior. These are no longer from your plain-vanilla credit, market and operational risks,” Tetangco said.

“Instead, we need to be more cognizant of such issues as liquidity pressures, excessive leverage, interconnectedness, and the bar of governance applicable to each entity with a public franchise to operate as a bank, including and especially for those which are deemed systemic by virtue of their operations, market reach and the unique products and services that they provide,” he said.